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e-Learning Concepts
e-Learning concepts covering 7 knowledge areas. In order to qualify for appearing in the
final examination comprising of 33 questions (25 Objective and 8 Subjective), you need
to cover at least 50% of the total e-Learning concepts before qualifying for the Exam.
The credit for completing a concept is given only after you have completed
"Test your Understanding" section.
e-Learning helps you to understand concepts in project management. These concepts
are the basic building blocks for understanding the fundamentals of project management.
After every concept you can immediately validate your grasp by answering a set of
questions from e-learning questions. Your response of being right or wrong is given after
every question and your performance is benchmarked against our global database.
e-Learning is the first step towards your completing the concept as given in the Body of
Knowledge, UK.
e-Learning concepts are divided into the following 7 broad knowledge areas. These are
based on APM BoK, UK
1.General Project Management
2. Strategic Framework
3. Control Issues
4. Technical Characteristics
5. Commercial Features
6. Organisational Structure
7. People
APM BoK is the basis for the QPMP certification exam.
Though you can go through the e-Learning concepts in any order, we recommend to you
to follow the sequence as per the numbering system i.e. 1 to 7.
Wish you all the best in acquiring clarities on various project management related
concepts to make your foundation strong.

Project Management Fundamentals

A Project
- Is a unique endeavour
- Is designed to attain a specific result
- Requires a variety of resources
- Is limited in time
A problem with a unique requirement is that which no one has been through previously. It
is a one time effort and is different from previous similar such performances in one or
more ways. The work at hand also has specific defined deliverables or results which are
desired to be achieved from the effort being put in to complete the unique requirement.
The project would require various resources to accomplish the objectives and deliver the
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results. These could be man, money, machinery, materials (raw, semi-finished, finished),
or any other resource, which may be specific to a project. Time is of essence in any
project. There are associated time lines for delivering the desired result or objective and
generally has a given or specified budget for accomplishing the same.
A project is an endeavor in which human, financial and material resources are organized
in a novel way to undertake a unique scope of work, of a given specification, within
constraints of cost and time, so as to achieve beneficial change defined by quantitative
and qualitative objectives.
Project Management is the art and science of converting vision into reality; abstract into
concrete. (Jain, 1995)
Project management is widely regarded as the most efficient way of managing change. It
focuses on:
1. What the changes are that are required to be brought about - definition of a change
( Initiation Phase)
2. Develop a comprehensive plan covering time, cost, technical parameters and
performance parameters etc. (Planning Phase)
3. Executing change based on step number 2 as mentioned above (Execution Phase)
4. Managing change by using appropriate project management techniques of
monitoring and maintaining the progress
People factor constitutes the key ingredient in the success of bringing about a change. A
skilled and knowledgeable project manager who understands his/her team members
strengths and weaknesses and knows how to motivate them through leadership is more
likely to succeed rather than the one who is ill equipped with these qualities. Project
managers need to extend their domain of influence from the team to all those who come
in their circle of activities including contractors, customers and stakeholders.
The overall processes of project management

We can view project management from a different perspective of logical relationships

between the various processes.

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Project Management constitutes of:

- Planning
- Organizing
- Controlling
Functions of Project Management

The above five functions form the basis of any project management activity. The scope
and the organization are the essential functions of project management. The remaining
three - time, quality and cost are the constraints under which the project is to be
executed and managed.
Project Management is the discipline of managing projects successfully throughout the
entire project life cycle. It comprises the management of all that is involved in achieving
the project objectives as per the key performance indicators. Project management
provides the 'single point of integrative responsibility' needed to ensure that everything
on the project is managed effectively to ensure successful project completion and
delivery.

Why Project Management is Needed?

Project management has experienced an extraordinary growth in the last decade. The
growth of the profession can be attributed to globalization and the unprecedented rate of
change making transition complex and non-linear.
Modern project management is emerging as a separate discipline and is crucial today for
enterprises to maintain a competitive edge.
Project Management is an art and science of converting vision into reality. It is an art and
science of converting abstract into concrete.
Project could mean 'projection'. Projection of an idea or of thought. A dream is the
prerequisite to bringing a change. Dreams transform into thoughts; thoughts into vision;
vision into strategies and strategies into operations through actions. And actions bring
change. Project management can also be termed as Dream or Change management.
Project management profession is as old as the human civilization. The basic processes
of project management have not changed. These processes are: Initiating, Planning,
Execution, Control and Completion / Close out.
We are all living in a momentous time slot. For the first time in civilization global human
networks are being formed, step-by-step. Mind to mind communication is possible from
anywhere to anywhere at all times with the technology of internet. If the 20th century can
be termed as an advanced 'Industrial age', then the 21st century will, of course, be an
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age of 'Communication'. In the past workers were all brought together to produce goods
at a central place. Today, people are all getting together to produce ideas and its delivery
at distributed places.
Time is becoming the most crucial strategic weapon to gain a better market share or
supremacy. Everything should have been done yesterday is the kind of syndrome we all
live by. The explosion of change is mind-boggling. It is estimated that in the last 4 to 6
years, the changes which have occurred based on the information explosion, exceeds
that of the last 100 years. This explosion of changes and shrinkage in time makes the
rate of change as unprecedented.
This unprecedented rate of change is giving rise to the need to manage complex and
non-linear transition processes. Project management is the most desirable discipline in
managing such a situation as project management is also uncertainty management and
complex, non-linear transition processes are uncertain. A new business game is
emerging for which we do not have much experience. Project management helps us to
address such issues throughout the project's life cycle. It provides a basic understanding
about how we should address uncertainties in a planned and organized way of planning,
executing, controlling and then closing.
Modern project management has moved away from a limited addressibility of the issues
connected to time, scope, cost and quality to additional knowledge areas of risk,
communication, procurement, human resource and integration. The conventional project
management triangle with scope, time and cost as the three sides of the triangle with
quality at the center of this triangle is no more adequate to address present day
complexities leading to the addition of important concepts such as risk management.
Project management discipline is growing and gaining more momentum. Fortune
magazine had rated project management as the career choice #1. More and more
companies are putting their employees through formal training programs on project
management. There has been an 8 to 10 fold increase in the total number of certified
project managers globally.
All these directions in the growth of project management is because globalization is
forcing people and companies to become both faster, better and cheaper and also
remain ahead in maintaining customer focus.

Uncertainty and Risk

In a simple way, as shown in the figure below, the project life cycle is divided into 4
simple phases of Initiation or Conceptualization, Planning or Development, Execution,
and Close Out. The process of Control is invoked right from the beginning of initiating a
project to its closure. We have not considered Control as a separate phase though many
do so.

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When you start a project, there are many if's and but's and assumptions and constraints.
There are many information gaps that must be bridged and this can be done only as the
project progresses. All these factors make the project comparatively more uncertain and
risky in the beginning. As the project progresses, we start getting clarifications on many
ambiguous issues and can now improve the reliability of our assumptions and
constraints. Thus risk and uncertainties keep on reducing as the project progresses.
The level of uncertainty and risk remains relatively high during the first two phases of the
project i.e. initiation and planning and does not fall significantly until execution
progressively translates unknowns to knowns. With proper analysis and due diligence,
the initial starting level of total uncertainties can come down thereby giving a better
control on the project during the execution stage.
It is a challenge to ensure that the slope of reducing uncertainties be as negative as
possible to keep better control on the events rather than be driven by them. A large slope
of reducing uncertainties implies that due diligence was carried out and all open issues
requiring resolution were attended to and closed.
On the other hand, if the slope is not too much negative, the project will generally face
time and cost related problems besides a higher risk in deciding the scope of the work.
This could be partly due to the fact that enough emphasis was not placed on effective
planning and perhaps the project was rushed into without first doing a thorough risk
analysis.

Amount at Stake
In a simple way, as shown in the figure below, the project life cycle is divided into 4
simple phases of Initiation or Conceptualization, Planning or Development, Execution,
and Close Out. The process of Control is invoked right from the beginning of initiating a
project to its closure. We have not considered Control as a separate phase though many
do so.

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When you start a project, there are many if's and but's as well as assumptions and
constraints. There are many information gaps that need to be bridged and this can be
done only as the project progresses. The amount of stake, if measured in terms of
resources deployed and the financial commitment is relatively low during the first two
phases but this rises rapidly during the execution phase. As the capital and other
resources deployed keeps on increasing with time during the project life cycle, the
amount of stake keeps on increasing proportionately.
It is easier to back out from a project during the initial stage of the project when stake is
low rather than the later part of the project life cycle when stake is much higher.
The relationship between amount of stake and uncertainties is inversely proportional
during the project life cycle.

Value Addition and Cost of Change

In a simple way, as shown in the figure below, the project life cycle is divided into 4
simple phases of Initiation or Conceptualization, Planning or Development, Execution,
and Close Out. The process of Control is invoked right from the beginning of initiating a
project to its closure. We have not considered Control as a separate phase though many
do so.
Let us review the chart as to the potential of value addition throughout the project life
cycle.

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asumptions and constraints are made. There are many information gaps that need to be
bridged which can be done only as the project progresses. The maximum value addition
in the quantitative and qualitative aspects of a project can be achieved in the early stage
of the project. Phase 1 of the project depicting the initiation phase is where maximum
value addition can be made at the least cost to bring about changes. During the final
phase 4, the room for value addition is minimum.
Let us now review the chart to see the cost of making changes throughout the project's
life cycle.

Often the cost of redo is considerable in relationship to the cost of doing it right the first
time. The same concept can be extrapolated to making changes in the project at a later
stage of the project's life cycle. As the curve shows, the cost incurred to make changes
which could be a result of either new work or rework is considerably more during the
closing stages of the project.
It is advisable that we should endeavor to add as much value as possible at the
beginning of the project life cycle instead of doing so at a later stage. Value additions
made in the beginning of the project life cycle are cheaper and more constructive. This
process will also minimize the chances of incurring extra costs in carrying out the
changes at a later stage of the project.

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Project Life Cycle

Enterprises perform all kinds of work which includes both operational and project related
work. Project related activities have a future angle in view while operational level of
activities are concerned with the present set of activities that are necessary to be
performed efficiently to keep the market share. Operational level of activities would
ensure the market share based on the existing product or services offered by an
enterprise.
Operations and projects share many common characteristics as both have management
inputs that are required for moving forward. Basically all activities require management in
terms of organizing resources, planning, execution, control and finally achieving the aim
for which we began the work.
Projects are part of the strategic vision of an enterprise. They are futuristic oriented.
Operational activities are repetitive and ongoing.
Projects are one time, unique, temporary endeavours that have a definite start time and
finish time.
Projects of any size, large or small, can be optimally managed by using scientific project
management skills, methodology and knowledge.
The Project Life Cycle defines the beginning and the end of a project and the various
milestones and significant events of relevance to stakeholders. Enterprises performing
projects will usually break the project into various phases to improve management
control of the project at all the levels. Management control does not imply only upper
management. Management control can be exercised by everyone in the project to the
extent he or she is responsible for performing and coordinating various project activities.
Some of these phases also show the links to the ongoing operations of the performing
organization more clearly.
One of the major advantages of dividing the project into various phases is that as the
requirement of resources varies from one phase to another, it provides a good way of
managing dynamic resources of varied skill levels and experience throughout the project
life cycle. For instance, in the planning or detailed planning phase we would need a set of
skills, which may or may not be totally required in the execution phase. Collectively, all
the broken up project phases is called a project life cycle.
Let us review the characteristics of a project phase. A phase is deemed completed with a
deliverable or asset of deliverables. A deliverable is tangible, can be verified and has
some value associated with it. Deliverables may be products or services that are
delivered external to the project or they may be deliverables that are needed for other
project work to continue and are called in-house or internal deliverables. The termination
of a phase is decided by the completeness of all the deliverables linked with the project
performance to date. At the end of each project phase a decision is taken regarding
whether to continue into the next phase or not and to detect/correct any errors which
need rectification. We can also include lessons learned as one of the component, which
need to be brought in at the time of a phase completion. These phase end reviews are
often called phase exits, stage gates, or kill points.

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Generic Project Life Cycle

The points between the beginning and the end of the project will vary considerably
depending upon the type of business and the specific project being done.
In a generic definition, there is a start or initial phase of a project as well as the final or
closure phase. There will be many intermediate phases and this will depend on the type
and the complexity of the project. In the initial or start up phase, the requirements of staff
and of key people and other resources are low. Stake of the sponsors is also low. Risk
and uncertainty is maximum. Cost of making change in the initial stage is relatively very
low but the chances of the project getting cancelled are fairly high.

But as the project progresses to the intermediate phases, the characteristics of a project
go through change and commitment is relatively high not to abandon the project.
However, one should be business like and rational and check at completion of each
project phase whether to proceed or not with the project. Just because one has begun
the project does not imply that one must complete it irrespective of latest financial or
other considerations which show that it is better to abandon the project. It should be
evaluated clearly regarding what it will cost to continue and the profit and loss with
respect to closing the project before it is completed. Sunk cost calculations should be
made. At the same time, one should be careful not to create a feeling of uncertainty of
whether the project will be completed or not. This could be a disaster for the company
and all those associated with the project. An objective assessment should be made at
every stage.
Project life cycle phase concept is one of the major differentiations between projects and
non-projects. Each project phase is associated with major processes such as initiation,
planning, execution, control and close out. Often, there is confusion in distinguishing
phases from processes. Processes can repeat within each phase. It is interesting to note
that what is most optimal for a phase may not be most optimal from the viewpoint of the
entire project life cycle which is typical of system optimization theory. We must optimize
across the project life cycle instead of merely narrowing down to a single phase.

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Program - a larger entity

A program is a combination of many projects having some commonality amongst them
to create a larger picture which one project cannot create alone. For example, a program
involving the creation of the European Union could be divided into tens of projects each
contributing towards this grandiose overall objective.
Program management is the management of a coherent group or a collection of projects
that are related to a common objective to deliver additional benefits. The additional
benefit can result from:
-

The elimination of risk arising from interfaces between the projects

The successful completion of individual projects through the coherent prioritization
of resources
A reduction in management effort

There is a wide spread variation in the use of the term Program Management. It can
cover any or all of the following:
-

A portfolio of projects related to some common objectives

An organizations business strategy which is required to be implemented through
projects
An interdependency between a number of projects
Resource allocation amongst a portfolio of projects

To summarize program management is the management of a collection of projects that

relate with each other to some extent through a common objective.

Portfolio Management
Portfolio Management is the management of various projects that do not share a
common objective.
Portfolio Management can be referred to many projects/programs in logically different
sectors. For instance, a company can undertake projects for different clients that deal
with Construction, Information Technology, Pharmaceutical, Research & Development ,
Manufacturing etc
Portfolio Management shares similar problems of resource allocation and management
as Program Management.

Contextual relationship
The origin of a project lies in the context of tangible and intangible parameters. Social
projects are undertaken not necessarily from the point of view of profits but for the benefit
of the members of society. On the contrary, expansion of a manufacturing division or
diversification of the product portfolio may be directly linked with improved market share
and profitability. It is this contextual reference point which must be kept in mind all the
time while executing projects.
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The undertaking of a project is not in a vacuum but in a realistic environment which may
be a combination of rational and irrational conjectures. The environment covers factors
that are both within the organization and external to it.
The various factors in the environment that can influence projects are shown below:
Internal: The management, the project manager, the team, the users, the supporters,
the stakeholders, the sponsors etc.
External: Political, ecological, economic, technological, regulatory, organizational etc.
These environments or contexts shape the issues project management has to deal with
and they can either assist or restrict in the attainment of the project objectives.

PESTLE Analysis
Projects are undertaken in tune with the strategic objectives and vision of a company.
Misalignment of undertaking a project that does not form an overall place in the
company's road map can be quite fatal. Projects are initiated in a real environment and
the challenge is to work out the strategies in such a way that the environment becomes
conducive to project success.
We often carry out a PESTLE analysis, which enables us to look at 6 major
considerations in a logical and systematic manner. These 6 parameters are:
P - Political: As resources within any company are always limited, it is not possible to
undertake an unlimited number of projects. The initiation of a project may be on a logical
framework, but selection and priorities assigned to various projects are not always totally
scientific and free from politics. Any enterprise will always have some influence of politics
but the level will vary. Good and professional companies try to minimize the politics within
the company but are not able to eliminate it totally.
Projects are executed in real environments. Besides any politics within the company,
there is politics at state/federal level as well. We should not have a reality disconnect of
living in a utopian world order where politics is not associated at all with projects. The
challenge is to recognize the political framework and transform politics in support of
projects.
E - Economic: Economics is the backbone of undertaking projects. If there is no project,
there is no future as it is projects, which provide value addition to companies and
countries. In economic plane, the return on your investment in a project should be
maximized by not only choosing a right project but also to speed up its completion both in
time and within cost. Feasibility studies conducted for undertaking a project is covered in
more details under Business Case in the Commercial Knowledge Area.
S - Sociological: Sociological factors may affect the undertaking of projects. If the land
is to be vacated by the local inhabitants to build a hydroelectric power station, it is a
social issue. Therefore it is equally important to appreciate sociological considerations
while evaluating projects.
T- Technical: The technical considerations in the project context is fairly well
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understood. One must examine the impact of technological advancement on a project

during the project life cycle. Technical issues must be fully resolved as it could be a major
problem if a change is required on a technical plane at a later date.
L - Legal: We all need a legal framework to resolve any conflicts. In a project a large
number of people are involved both within the organization and outside. Project manager
should be familiar with the basics of the legal framework, as it would help him/her to be
clear about the rights of the performing organization as well as of sponsors and
customers.
E - Environment: Projects which comprise of many consituents are planned and
executed in a real environment with various stakeholders. It is important to understand
that undertaking a new project should not cause ecological degradation. Environment
plays an important role as it has a direct bearing on all projects.
In today's context of globalization which implies a process of growing interdependence
between people of all nations, the cultural dimensions play a key role in team integration.
We must be able to take the best from each culture and cement it together to create a
strong foundation for projects. We must pay full attention to geographical and climatic
considerations when evaluating and planning projects.

Stakeholders
The British Standard 6079 states that a stakeholder is: 'a person or group of people who
have a vested interest in the success of an organization and the environment in which
the organization operates'. A Guide to the Project Management Body of Knowledge of
PMI, USA defines stakeholders as 'individuals and organizations that are involved in or
may be affected by project activities.'
Basically there are 2 major roles for a project manager, one being to keep the
stakeholders satisfied. At times there are too many contradictory expectations in the
diverse group of stakeholders. It is really a challenge to keep everybody smiling and
happy. It is better that major contradictions in the expectations of stakeholders be ironed
out at the beginning of the project even if this means abondoning the project rather than
allowing these contradictions to cripple the project later on during the execution and close
out phases in the project life cycle.

Criteria For Success

Any project undertaken by any organization is generally for the purpose of revenue
generation by successfully completing it in the given constraints. The project success
criteria if discussed and defined in the initial phase of the project would result in a better
probability of the project being successful.
Criteria for judging the success of a project can be based on the requirements, the
business objectives for undertaking the project, key deliverables, key parameters or key
performance indicators meeting the specifications of the stakeholders.

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The criteria for success of a project are based on the internal and external parameters of
that project. The brief list of various criteria is listed as under:
Success criteria Internal or specific to the project:
These would include those criteria through which the project would be rated as possible
for being successful or not. Internal success criteria may be related to:
- Technology being used for the project
- Complexity of the project
- Duration of the project
- Level of skilled personnel required for successful delivery of the project
- Clearly defined objectives, goals etc of the project
- Explicitly stated expectations and deliverables of the project
- Organizational culture, policies, commitment etc.
Success criteria External or in context to the project:
Project success is also dependent on the external environment that directly or indirectly
influences the project. These are listed as under:
- Economical
- Demographical
- Political
- Others

Success Factors
Whereas project success criteria makes one aware of the various precautions and
considerations that are necessary for any project's success, the success factors are
those, which are involving the various members or groups involved in the success of a
project. Every individual/ organization involved in a project has its own specific reasons,
goals and objectives for venturing into a project. This leads to success factors with the
perspective of the concerned group on the project. Some of the success factors at
various group levels are mentioned below:
Project Manager and the project team:
- Right composition and selection of the team
- Cohesiveness and commitment in the team
- Preparation of detailed strategy for the project
- Project planning and control at the project, organization and stakeholder level
- Prioritization and change management
- Realistic schedules and estimates
- Risk analysis and quality management
The Parent Organization:
- Clear organizational objectives and goals
- Choosing right kind of project manager at the right time
- Laid out rules, regulations, processes and guidelines for the project execution

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- Delegation of sufficient authority and corresponding responsibility for the successful

execution of the project to the project manager
- Commitment from the organization for the project execution
The Client and stakeholders:
- Profitability and benefit from the successful execution of the project within the given
constraints
- Coordination of efforts with the project manager and the organization
- Commitment and concern for the project
- Have specific and clear goals and objectives which are required to be met by the
project
- Established procedures and parameters for project success
- Commitment of resources to the project team and the organization on spelt out
parameters
- Effective communication and authotizations
The project success criteria also make us go into the field of the pitfalls due to which the
project success is hampered. The pitfalls can be grouped under 5 categories:
Project specific
- Insufficient support for the project
- Project definition not defined clearly in the form of imprecise goals, objectives, scope
limits not declared/known, etc.
Project planning
- Non uniform planning
- Planning tools used are not as required
- Planning methodology inconsistency
- Overestimation, incorrect planning etc.
Project organization
- Responsibilities not delegated properly
- Principles of cooperation not mentioned adequately
- Non-availability of key resources when required
- Poor communication
Project control
- Inadequate understanding of the controlling process and purpose
- Non integrated plan and progress reports
- No well defined and formalized communication methods and procedures
- Responsibility without authority
Project execution
- The time, quality and cost targets are unbalanced
- Uncontrolled changes in specifications
- Incomplete or improper documentation
By avoiding such pitfalls we can better ensure project success. The success criteria
should be properly documented and the manner in which it is proposed to be achieved
should be described in the documentation.

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Key Performance Indicators

Key performance indicators are high level snapshots of project based on specific
predefined measures. In developing KPIs one should define target performance levels
and then decide ways and means to represent the deviation form these indications as
they form one of the critical factors for the successful execution of any project.
Key Performance Indicators (KPI) or Critical Success Factors (CSF) are required to be
evolved in the initial phase of a project life cycle. It sets out clearly what will constitute the
successful completion of a project. Some of the characteristics of KPI's are that they:
- Are available at the beginning of the project
- Form one of the metrics to judge project performance
- Provide guidelines for project management trade-off decisions during the project life
cycle
- Are evolved with the general consent and approval of all the stakeholders involved in
the project
- They form the basis of analyzing project variances, milestones etc during the project
cycle
These KPIs at the end of the project will be the most relevant measure to confirm the
acceptability of the project as being successful or not by the project stakeholders. The
most important attribute of KPIs is that they are measurable in one way or the other.

Development of Project Strategies

Project strategies development is the phase prior to getting into the details of planning of
the project. Here we devise and develop objectives, approaches, methodologies for the
project development and execution process keeping in mind the various groups involved
in the project. A project strategy would ideally cover the following:
-

Business opportunities: Analysis should be done of not only the opportunities

but also of any threats for business opportunities. A complete SWOT analysis
should be done in relation to every project which is initiated before a decision is
made by the management regarding whether it should be persued or not.

Risk Management: Risk is an integral part of any project. Risk is present in all
projects irrespective of their size or sector. No project is totally free from risks. If
risks are not properly analyzed and strategies are not developed to deal with risks
that may occur in the project life cycle it is likely to lead to project failures.
Therefore, special strategies and processes should to be established during the
initial phases of the project and also monitored throughout the project life cycle to
ensure project success.
Alternative approach: Invariably during the project life cycle, there may be
stages when the expected process or approach may not be suitable at that point
in time. Therefore, it is of great importance that an alternative process, procedure
or means to accomplish the project objectives should be devised in advance
under the risk management strategies to ensure successful completion of the
projects in the given constraints and conditions.
Financial Considerations: Financial implications such as cash flow, income,
cost and budgeting, should be properly considered for projects. This is even more
important in long duration high cost projects. It is good to undertake a detailed

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financial analysis and develop strategies during the initial phases of the project to
ensure that sufficient reserves and sources of finance is available so that the
project can be executed without any delays or interruptions.
External environment considerations: These can also form one of the primary
reasons for project overruns. The analysis done during the strategy formation for
the external environment factors should generally cover a PESTLE analysis. The
factors considered in this analysis are: Political, Economical, Social, Technical,
Legal and Environmental and are described in detail in Project Context under
General Project Management.

Project Manager's Role

Dream, plan how to convert this dream to reality, execute the plan, take necessary
control actions to remain on the track and finally achieve the conversion of the dream into
reality. This is a broad process of bringing about a change and projects, which are a
means to attain the objective and not an end, must supplement all the above-mentioned
processes.
The plan is an outcome of proper planning, which is a dynamic process. Some of the
reasons for planning can be summarized as follows:
-

The plan is a forecast of project work needed to be undertaken so that control can
be exercised to avoid both straying from project objectives or doing unorganised,
repetitive work.
Agreement of purpose - a written form of agreement
It increases commitment to group goals
It is a vehicle in defining roles and responsibilities for different persons at different
time throughout the project life cycle. The division of roles and responsibilities
alone can make huge work associated with the project into lean and manageable
units.
The plan helps in bringing uniform communication amongst the suppliers,
customers, stakeholders etc.
It is the basic reference point, which may change in course of time, and therefore
the plan is required to be updated all the time. It provides project managers with
authority to reject any changes not falling in the purview of the established and
updated plan.
The plan helps everyone know where are they and where they should be and
what needs to be done to bring about change if project progress is not in line with
the required progress.
Helps to cut off and establish close out of the project

Some of the sub-plans forming a part of project management plan are:

1. Performance and accomplishment plans
2. Human resource and Staffing plans
3. Quality plans
4. Equipment and material plans
5. Work authorization plans
6. Cost control plans
7. Schedule control plans
8. Reporting plans
9. Risk plans
10. Communication plans
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11. Risk management plans and

12. Administrative control plans
Work Breakdown Structure is the basis of evolving plans and sub-plans.

Need Analysis
This is the process of defining and evaluating the needs and requirements of the client or
the user for a given project. This identification of needs is the process of describing
problems along with possible solutions to these problems. Need analysis focuses on the
future or what should be done to fulfill a need rather that what is or what was. Need
analysis covers:
-

Statement of requirements: Statement of requirements are the stated needs

and requirements of the client on the basis of which the project plan is to be
made. The requirements help the project manager to estimate the effort, time, skill
and other resources involved in execution of the project.
Statement of work (SOW): This is a concise description of the work required to
be accomplished under a project. The SOW is the responsibility of the client or
the project manager depending on the kind of project undertaken. In case the
project manager prepares the SoW, it is required to be approved by the
concerned user groups as they are the ones who would actually understand the
total project scope and requirements in detail.
Project brief: The project brief is the formal document stating the details of the
project goals, requirements, features, considerations (technical, financial, etc)
gathered from the project requirements and statement of work.
Project objectives: Objectives to be accomplished by the execution of the
project are one of the important components derived during need analysis. The
objectives help focusing on the project strategy for execution and delivery. They
form the basis of going ahead with the project development and provide means of
measuring the project progress.

Execution strategy
The execution of a project is a major task and a very important aspect of the project. It
requires many proactive measures and experience to successfully execute a project.
Therefore it is important that the project manager works out an execution strategy for the
project in order to ensure successful project completion. This project execution strategy
would involve various ways and means to execute the project related to:
How to execute the project: Here we define the process to execute the project and the
different resource requirements for the project like equipments, resources, material and
manpower requirements etc. This would also involve the process and description on
specifications and methodologies etc which would be used for the execution of the
project.
Location of the project execution at various phases (onsite/offsite): The execution
plan also specifies and clearly maintains the details of the working area of the project
during the project lifecycle. Onsite and offsite project execution involves various factors to
be considered and are therefore of prime relevance for the successful execution of the
project. These may include factors such as equipment, resources, transportation, tools,
etc among others.
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Assigning responsibilities to the team: The project manager is required to clearly

state and describe the actual responsibilities of various project team members including
the project manager for a clear and undisputed execution of the project during it's life
cycle.
Scheduling of the project: All projects must be properly and systematically scheduled.
Scheduling plans should be prepared for the project's team members, manager, the
principal company, user groups and the stakeholders to ensure that they fully aware of
and can perform their duties in accordance with the schedule. This also ensures that the
required resources can be properly planned for and are available on time.
Monitoring of the project: For the project to be completed as per the desired schedule
in the given constraints, a project monitoring plan is required to be made and the tools
and techniques used should be fully communicated to all concerned. Monitoring would
involve deciding the ways and means to perform monitoring, parameters for monitoring
and the tools and techniques used for monitoring.
Milestones and key dates for the project: The project schedule should also provide
the key dates and milestones of the project. These are mentioned separately as key
dates and milestones form an important component when interacting with the client.
Generally these dates and milestones are also used to provide the project's cash and
fund flow details to the project manager and the organization.
Prioritization of time, cost, quality etc. for the project: As and when there is a
deviation in the project schedule, the project manager is required to make some
compromises, negotiations, etc in order to get the project back on track. It is therefore of
relevance that the prioritization of the key factors and constraints are done in advance for
the smooth transition and execution of the project.
Overall administration and organization of the project: The Project manager is the
key person in the project. He is the mediator between the team and the management.
During the execution strategy a decision regarding the overall administration and
organization of the project needs to be done in order to streamline the decision making
process during the project execution phase.

Types of plans
The project Management plan also referred as the Project Plan at some places is the
main document for the project. It is the most exhaustive document of the project. The
project management plan would consist of various other plans as reference to the main
plan.
Various kinds of sub-plans, which form a part of the Project management plan, are listed
below:
-

Performance and accomplishment plans

Staffing plans
Quality control plans
Equipment and material plans
Work authorization plans
Cost control plans
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Schedule control plans

Reporting plans
Risk plans

PMP Contents
As mentioned before, this document distills a vast amount of information into a concise,
informative and well organized form that can be distributed to all members of the project
team and the stakeholders of the project.
The PMP is one of the key documents required by the project manager and his/her team.
It lists the phases and encapsulates all the main parameters, standards and
requirements of the project in terms of time, cost and quality standards by setting out the
why, what, when, who, where and how of the project. In some organizations PMP also
includes the how much (cost) of the project. This information however, is generally
restricted to the key members of the project team.
The contents of PMP vary depending on the type of the project that is vastness,
complexity, durations, etc.
The outline content of the Project management plan would comprise of the following:
General
- Foreword
- Contents, distribution and amendment records
- Introduction
- Project diary
- Project History
Purpose (Why)
- Projects aims and objectives
- Appraisals and the business case
About the project (What)
- General Description of the project
- Scope of the project
- Project requirements
- Project security and privacy
- Project management
- Project reporting system
Process (When)
- Program Management

- Program method
- Program software
- Project life cycle
- Key dates
- Milestones and milestone slip chart
- Bar chart and networking
Responsibilities (Who)
- Organization Structure
- Project resource management
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- Project team organization

- Project staff details
- Organization chart with respect to the project
- References for the managers, team and working group
Location (Where)
- Development and Delivery requirements
- Site requirements and conditions
- Shipping requirements
- Major restrictions
Procedures (How)
- Project approvals and authorization limits
- Project implementation strategy
- Implementation plans
- System integration
- Completed project work
- Acceptance procedure
- Procurement strategy
- Cultural and environmental restrains
- Political restraints
- Contract management
- Communication management
- Configuration management
- Configuration control requirements
- Configuration management system
- Financial management
- Risk management
- Major perceived risks
- Technical management
- Tests and evaluations
- Warranties and guarantees
- Reliability management
- Availability, reliability and maintainability
- Quality management
- Health and safety management
- Environmental issues
- Integrated logistics support management system
- Close out procedures
Not every project may require the exact detailing as mentioned above. The list may be
required to be augmented or expended as per the requirement of the project.

APM's PRAM Risk Management Process

The occurrence of any uncertain event which can have a positive or a negative effect on
the goals and objectives of the project is a project risk.
The Project Risk Analysis and Management (PRAM) Guide of APM, UK, has identified
five stages in a risk management process:
- Define and Focus
- Risk Identification
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- Risk Assessment - this includes both a qualitative assessment which must be done and
a quantitative assessment which is optional
- Risk Planning
- Risk Management
Define and Focus
- Define and Focus is the first stage of the risk management process.
- In this stage the key objectives and goals of the project being undertaken are first
defined and clearly understood.
- Once the projects goals and objectives are clear to all stakeholders then attention
should be given to how the organization can deal with any project risks.
- An organizational plan should be made of who will deal with different risks, the tools and
techniques they will use and what the deliverables of the risk process will be.
- The whole process of risk management is formalized into a risk management plan
which is included in the Project Management Plan.
Risk Identification
- Risk identification is the second stage in the risk management process.
- During this stage all potential risks that can impact the project objectives and goals
should be listed and looked into.
- Various tools and techniques that are available should be used to identify the potential
risks that can impact the project objectives. It is better to use different risk identification
tools as different tool and techniques have diffeent advantages and disadvantages.
- In order to list out maximum possible risks all the stakeholders such as sponsor, team
members, project manager must be involved in identifying all possible risks that can
impact the project.
- Risk identification techniques include tools and techniques such as brainstorming,
Delphi technique, expert opinion, lessons learned from previous similar projects,
checklists etc. For details of techniques refer to topic Risk Techniques
Risk Assessment
- Risk Assessment, the third stage in the risk management process comprises of the 4
substeps - structure, ownership, estimate and evaluate that are used together to assess
the risks so as to determine the most suitable responses to risks.
- During risk assessment the importance of the different risks that were identified earlier
in risk identification are assessed to determine their importance on the project.
- A Qualitative assessment is essential and must be done for all risks that were identified
to determine their probability (likelihood) of occurrence and it's impact if the risk should
occur.
- The probability of the risk occurring is categorized in terms such as high, medium
and low.
- A P-I (Probability-Impact) table is made which shows the severity of the risks in order to
prioritize the different risks identified and the impact of these risks are evaluated in
monetary terms. In this way it is possible to prioritize risks in order of importance and
concentrate on those risks identified that fall in a 'high probability/high impact' zone.
- A risk register is made and kept which provides complete details of the risk, the persons
responsible for responding to each risk i.e. risk owner, the planned response for the risk,
who will be affected by the risk etc.
- After a qualitative assessment has been done an optional quantitative analysis can be
done for risks.
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- In quantitative risk analysis, statistical techniques and risk models such as Monte Carlo
simulation are used to study the impact of the identified risks on the project.
Risk Planning
- Risk planning process is the fourth stage in the risk management process.
- Before planning for the risk a qualitative assessment for all risks should be done and a
P-I table formed to prioritize the risks in order of importance.
- Risk planning covers both preventive actions to prevent the risk from occurring as well
as a suitable response in case the risk actually occurs.
- At times responding to a risk can give rise to a new or secondary risk so care should
be taken when choosing a risk response.
- Risk Avoidance, Risk Acceptance, Risk Transfer and Risk Mitigation are the four most
common responses used to deal with a risk.
- If a risk occurs then the owner of the risk is responsible for implementing the planned
risk response to deal with the risk.
Risk Management
- Risk management is the fifth and final stage in the risk management process.
- Risk management involves the implementation of the planned response to the risk and
is done once a potential risk has actually occured.
- All responses that are made to risks must be monitored and reviewed to ensure they
are effective.
- Responses taken to risks should also be fully documented for future reference and
project plans need to be updated accordingly. Any changes required in schedule, budget
etc due to the risk should be documented and updated in the project plans.
- Risk management should be an on-going process in which the impact of the risk is
again evaluated and assessed.
Benefits of PRAM Process
Hard benefits and Soft benefits of risk management relates to the use of the risk
management process outined in APM, UK's Project Risk Analysis and Management
(PRAM) Guide.
According to the Project Risk Analysis and Management (PRAM) Guide of APM, UK, the
main benefits of the risk management process can be divided into two categories - hard
and soft.
The hard benefits of managing risks includes various features which can be measured
such as plans and schedules, contingency allowances, type of contract, statistics,
decisions, control and monitoring. Soft benefits of risk management relates more to
features such as peoples issues that are more difficult to quantify but can have a great
impact on the performance of the project.
Hard benefits
Using risk analysis to identify all risk factors that can affect the project can directly benefit
projects in many ways. Plans, schedules and budgets that are made will be more
realistic and more realistic plans and schedules will increase the chances of the project
being able to achieve what it planned to achieve.

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It increases the possibility of avoiding unsound projects as many obstacles can be

identified when analyzing risks.
Possible areas of conflict that can arise between a contractor and a client can be
identified through risk analysis. The contract type chosen for the project can thus be the
most suitable one.
Any contingencies kept will be more realistic as they will be based on a proper
assessment.
The opportunities and threats of taking alternative courses of action in the project can be
evaluated and compared before decision making.
Responsibility for a risk can be fixed after examining who will be the most suitable and
apt person to deal with the risk. This way there is no ambiguity regarding ownership of
the risk and the best person to manage and be responsible for the risk ican be identified.
Soft benefits:
The single greatest benefit of risk management process is better communication
amongst the project team members as well as in the whole organization. A positive
framework is provided in the project environment to identify and discuss project issues in
a non-acrimonious atmosphere.
The process of identifying risks helps to bring about a better, wider and more common
understanding regarding the aims and objectives of the project among all project
members and an improved team spirit. Ideas can be exchanged more freely between
team members who also come to appreciate the contribution made by their team
members.
All persons associated with this process become more aware that risks exist in the work
they are doing. This prepares them to be better planners and more vigilant of any future
risks that can occur in the project.
Risk analysis leads to greater sharing of information between the client and the
contractor. There can be a clearer and better understanding by the contractor regarding
what the client wants. Decisions that are taken by the contractor will be increasingly
aimed at fulfilling the clients demands. This leads to improved understanding and better
relations between the client and the contractor.
With risk management the focus can be kept on the main issues that can jeopardize the
project success rather than on secondary issues.
More information is available to senior management about project risks. This helps them
to take more informed decisions in choosing the right project manager for the project. A
fresh view becomes available of the personnel issues in a project.

Risk Strategies

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It is important to be able to control the risks that could impact the objectives of the
project. According to the Project Risk Analysis and Management (PRAM) Guide of APM,
UK, risk control techniques fall into four main categories which are - avoiding uncertainty,
transferring ownership of the risk, reducing the exposure to the risk and absorbing the
risk. A listing of these four methods that can be used to control/mitigate risks and the
response/action that is required in each method is given below (the term 'mitigate' is used
both in a broader sense to denote how impact of risks is reduced in the project and also
as a specific type of risk response).
Risk Avoidance
This involves choosing an alternative course of action to avoid the risk that has been
identified so that the threat can be eliminated by removing the cause of the threat. This
action is generally taken if the exposure to the risk is not acceptable or it is not
possible/effective to mitigate the risk.
Responses for Risk Avoidance involves actions such as trying to get more and better
expertise to avoid the risk; better communication; reducing the scope of the project; trying
to use only risk free, proven techniques; bringing a change in the strategy for
implementing the project etc. Quite often this is the first strategy used to control risks.
Risk Transfer
In this method the impact of the risk is transferred or deflected to a third party i.e. transfer
the ownership and liability of the risk to the third party which is more capable of dealing
with the problem.
This can be done by taking actions such as taking insurance, warranties and guaranties;
sub-contracting the work to specialists; passing the risk of a contract to the customer or
to a supplier; choosing only low risk contracts etc. The threat and liability of the risk is
thus passed on to another party.

Risk Reduction/Mitigation
This response aims at developing a strategy to reduce exposure to risk by trying to
reduce the probability that the risk will occur, the impact of the risk or both the probability
and impact of the risk and mitigating the severity of the risk's adverse impact on project if
it does.
In order to reduce/mitigate a risk a contingency budget is generally kept for managing the
risk when it occurs. This is a key response in risk assessment.
Risk Absorption
As it is not possible or feasible to reduce all the risks in a project some strategies need to
be used to control those risks which could not be transferred, avoided or
reduced/mitigated.
Measures to do this can include actions such as regular monitoring, reporting, reviewing
and updating of all risks; maintaining a proactive attitude to risk management which
should also include a regular feedback mechanism.

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Some other responses to risks that are threats to the project can include modifying the
objectives of the project, deferring the risk to a later date when the impact on project
could be less and a do nothing option to deal with risks i.e. remaining unaware of the
possibility of risks.
Risk response for those risks that are opportunities and not threats to the project includes
enhancing the opportunity that is presented, actively pursuing the opportunity or doing
nothing about it.

Risk Techniques
Risk management is of utmost importance in project management.
What do we mean by Risk?
Risk can be defined as: A discrete occurrence that may affect the project for good or bad.
Alternatively, risk is an uncertain event or condition that, if it occurs has a positive or a
negative effect on a project objective.
Conceptually risk for each event can be defined as a function of its likelihood of
occurrence and its impact if it does occur. That is:
Risk = f (likelihood, impact)
Risk identification process involves determining which risks are likely to affect the project
and documenting the characteristics of each risk. It must be kept in mind that though the
broad categories of risk may be the same, its likelihood of occurence, impact and its
cause could be different across work packages/activities. During the course of the
project, as more and more information is gathered about each risk all of the information
must be consolidated.

Risks can occur during all project phases. Therefore risks should continue to be identified
throughout the project. The chart below provides a very clear idea on the impact of risk
identification during the lifecycle of the project.

Types of Risks: Risks can be classified under two main heads:

Business Risks

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Risks are inherent in all our estimates. These risks can lead to a business gain or a
business loss.
Pure (Insurable) Risks
These are those risks which can only go wrong leading to losses. There is always a
random chance, no matter how small, that some item of the project will fail. This type of
risk is therefore only a risk of loss (e.g., fire, theft, personal injury etc.).
Techniques used for Risk Identification
1. Documentation reviews:These comprise reviewing of all the project materials that
have been gathered of this risk review. This includes reviewing lessons learned and risk
management plans from previous projects.
2. Brainstorming: It is probably the most popular technique of its kind. It is useful in
generating any kind of list by mining the ideas of the participants. To use this technique,
a meeting is called to make a comprehensive list of risks.
3. Delphi technique: This is similar to brainstorming but the participants do not know
one another. This technique is useful if the participants are some distance away.
4. Nominal group technique: In this technique the idea is to eliminate some of the
problems that occur with other techniques, particularly the problems associated with the
persons inhibition and reluctance to participate. Each participant privately or silently lists
his/her ideas on a piece of paper handing it over to the instructor, which are then listed
on the flip chart/ board and discussed thereafter.
5. Crawford Slip: This process has become very popular very recently. It produces a lot
of ideas very quickly. The group of participants is asked to identify the risks in the project
individually as per the questions asked by the facilitator and submit their respective slips
with a precondition that no two answers should be similar by a participant.
6. Expert Interviews: Experts or people with sufficient experience in a specific type of
project or problem can be of great help in avoiding/solving the same problems over and
over again. However, caution must be exercised whenever using expert opinion.
7. Check lists: These are simply predetermined list of risks that are possible for a given
project. These are the list of the risks of the similar projects that the company has worked
on in the past.
8. Analogy: From the lessons learned and the risk management plans of the projects
that are similar, an analogy can be formed. By comparing two or more projects
characteristics that are similar for each project can be seen that will give insight into the
risks of the new projects.
9. Diagramming technique: Various types of diagramming techniques have been
developed that will help in the identification of risks. Cause and effect diagrams are used
to organize information and show how various items relate to one another. There are
several possible risks that contribute to the main risk in question. Each of the contributing
risks can be further diagrammed until there is a complete hierarchy of risks. Once
diagrammed, the relationships between the risks can easily be seen.
Techniques used for risk assessment
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Describing and quantifying a specific risk and the magnitude of that risk usually requires
some analysis or modeling. Risks can be analyzed qualitatively or/and quantitatively.
Quantitative risk analysis generally follows qualitative risk analysis. While Qualitative risk
analysis
is
must
Quantitative
risk
analysis
is
optional.
The qualitative and quantitative risk analysis processes can be used separately or
together.
Qualitative Risk Analysis
This is the process to prioritize risks according to their potential effect on the project
objectives. Qualitative risk analysis is one of the ways of addressing specific risks and
guiding risk responses. Qualitative risk rating generally varies from three to five
categories. A common form of risk rating uses three broad categories and is as follows:
High Risk: There is substantial impact on the projects cost, schedule, or technical
grounds. Substantial action is required to alleviate the issue. High priority management
attention is required to deal with such risks.
Moderate risk: Such risks have some impact on cost, schedule or technical grounds.
Special action is required to alleviate the issue and additional management attention may
be required.
Low Risk: Such risks have minimal impact on cost, schedule or technical areas. Normal
management oversight is sufficient to deal with such risks.
Tools and Techniques for Qualitative risk analysis
1. Risk probability and impact: In this process in order to identify those risks that
should be managed aggressively we apply the previously mentioned rating process of
High, Medium and Low on the risk probability and the risk impact on individual/specific
risk events and not the complete project. A matrix known as a Probability Impact risk
rating matrix can be constructed that assigns risk ratings to risks based on combining the
probability and impact scales. Risks with high probability and impact are likely to require
further analysis, including quantification and aggressive risk management. The risk rating
is accomplished using a matrix and risk scales for each risk.

There are various ways of sensitizing the combination of probability factor and impact of
cost. We have demonstrated this by assigning a value of 1, 2 and 3 to Probability of Risk
occurring and 1, 2 and 3 to the Impact of Risk. This is based on a 3 by 3 matrix.
The higher the number the more aggressive we need to become as a maximum of 9
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represents the maximum probability and the maximum impact. We call this the PI Factor.
P stands for Probability and I for Impact.
There are 4 categories defined in the above diagram.
Category 1 - PI factor 9, which requires maximum attention
Category 2 - PI Factor 6, which requires a good amount of attention
Category 3 - PI Factor 3, which requires comparatively less attention to be paid
Category 4 - PI Factors of 1 and 2, requires less attention to be paid
Evaluating impact of risk on major project objectives

Quantitative Risk Analysis This process aims to analyze numerically the probability of
each risk and its consequences on project objectives, as well as the extent of overall
project risk. The process uses various techniques to:
-

Determine the probability of achieving a specific project objective

-Quantify the risk exposure for the project, and determine the size of cost and
schedule contingency reserves that may be needed.
- Identify the risks requiring the most attention by quantifying their relative
contribution to project risk.
- Identify realistic and achievable cost, schedule or scope targets.

Tools and Techniques for Quantitative Risk Analysis

1. Sensitivity analysis: These help to identify which risks have the most potential
impact on the project. It examines the extent to which the uncertainty of each project
element affects the objective being examined when all other uncertain objects are held at
their baseline value.
2. Impact analysis diagrams: Also known as decision tree diagram, is used when a
decision cannot be viewed as a single isolated occurrence, but as a sequence of several
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interrelated decisions. In this case, the decision maker makes an entire series of
decisions simultaneously. Decision trees contain decision points and chance points.
Decision points are represented by box/square where the decision maker must select
one of several available alternatives. Circles indicating that a chance is expected at this
point designate chance points.
The following three steps are required to construct a tree diagram:
a. Create a logic tree from left to right including all decision points and chance
points.
b. Assign the probabilities of the states of nature on the branches, thus forming a
probability tree
c. Add the conditional payoffs, thus completing the decision tree.
Let us take an example of a simple decision tree to see the possibility of having a picnic.
There is a 40% probability of having good weather and 60% probability of having bad
weather. If there is good weather, 80% chances are that the picnic will be held. 20%
chances are that the picnic will not be held inspite of good weather. If there is bad
weather, only 30% chances are that the picnic will be held and 70% chances are that the
picnic will not be held. The decision tree for probability of having a picnic with these
parameters is shown below:

The probability of having a picnic is the sum of its chances of happening irrespective of
the weather. That is 40% * 80% plus 60% * 30% comes to 50% or probability is .5 out of
1. If you decide that a minimum probability of .65 is necessary to go ahead with the
decision of holding a picnic, then you may drop the idea as the probability is only .5.
Let us take another example of a decision tree.
You have the choice of either manufacturing sub-assemblies in your company or getting
it outsourced. The market conditions may be good or bad with associated probabilities for
computing profits. Let us assume that for manufacturing sub-assemblies, we need to
purchase machines for $40,000. In case of a good market, the probability of which is
70%, a profit of $100,000 can be made and this will be reduced to $ 50,000 for a poor
market condition which has a 30% probability. We have assumed that either a good or
bad market will exist.

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In case we outsourced the supply of sub-assemblies, it will cost $ 5,000 for the contract
administration. With a good market condition, we will make a profit of $40,000 and for
bad market conditions, a profit of only $ 20,000. Assuming that the cost of buying a
machine is totally deducted from the profits for our calculations, what would you decide to
do?
The profit in case of our own manufacturing is $100,000 multiplied by .7 plus $50,000
multiplied by .3 which comes to $ 85,000. The expenditure of buying the machine needs
to be subtracted which is $40,000. The net profit comes to $45,000.
The profit in case of outsourced mode is $40,000 multiplied by .7 plus $20,000 multiplied
by .3 which comes to $ 34,000. The expenditure on contract administration which is
$5,000 needs to be subtracted. The net profit comes to $29,000.
As per the decision tree method, you will make an additional profit of $ 16,000 while
going for manufacturing the sub-assemblies. Hence that would be your decision.
3. Simulation: A project simulation uses a model that translates the uncertainties
specified at a detailed level into their potential impact on objectives that are expressed at
the level of the total project. The project simulations are typically performed using the
Monte Carlo technique.
For a cost risk analysis a simulation may use a traditional WBS as its model. For a
schedule risk analysis the Precedence Diagramming Method (PDM) is used.

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A three-point estimate of the WBS element provides us with the most likely total costs
by summing up the costs of the three elements.
The mean equals to (Low+Most Likely+High) divided by 3 in Triangular Distribution.
For the above table, it comes to $47.
The cumulative likelihood distribution reflects the risk of overrunning the cost estimate
assuming a triangular distribution with the range data as shown in the above table.

Monte Carlo Process: This process as applied to risk management is an attempt to

create a series of probability distributions for potential risk items, randomly sample these
distributions and then to transfer these numbers into useful information that reflects the
quantification of the potential risks of a real world situation.
A summary of the steps used in performing the Monte Carlo simulation for cost and
schedule are as follows:
-

Identify the lowest WBS or activity level for which probability distribution functions
will be constructed.
Develop the reference point estimate (e.g. Cost or schedule duration) for each
WBS element or activity contained in the model
Identify which WBS elements or activities contain estimating uncertainty or/and
risk.
Develop suitable probability distribution for each WBS element or activity with
estimating uncertainty or/and risk
Aggregate the WBS element or activity probability distribution using the Monte
Carlo simulation program. These outputs are then used to determine the level of
cost/schedule risk and to identify the specific cost/schedule drivers.

Risk Control and Monitoring

The types of risks faced in the project will vary in different project phases. A outline of the
types of risks for different phases is given below:
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Concept/Feasibility Phase
Choice of location, social, environmental constraints, choice of product, proper market
survey, choice of technology.
Development & Design Phase
Choice of technology, suitability of design chosen, safety, faulty design, testing criteria,
procurement.
Implementation Phase
Safety, health hazards, resource availability, cultural differences, cost overruns, schedule
delays, quality maintenance, faulty testing.
Hand-over & Review Phase
Delivery schedules, communication, effectiveness of risk strategies.
Risk Registers
A risk register is a structured list that keeps a summary of all the identified risks that can
affect the project along with relevant information that is required to manage the risk. It
should contain detailed information about factors such as what is the risk, it's number and
code, what will be the response to it, who owns it etc. Some details of contents of a risk
register are listed below.
- The name of the risk
- A unique code for the risk
- A description of the risk and the reasons why it may occur
- The probability and impact of the risk along with its effect on cost, schedule etc. and the
P-I ranking of the risk
- The person who owns the risk and will be responsible for monitoring and controlling the
risk and the department affected by the risk
- Strategies that will be used to reduce the risk impact
- An action window which gives the time when the strategies to reduce the risk will be
used
- Dates showing when the register was last updated
- ThepProject manager's name
- A fall back plan in case the risk still occurs as well as a list of any secondary risks that
may occur
- A description of the rating used in the P-I analysis
- A list of the top 10-12 risks that could impact the project
Role of Project Manager in managing risk effectively
The project manager is overall responsible for risk management of the project. To be
able to do this effectively he/she should monitor the project closely, execute risk
responses in time and regularly evaluate the effectiveness of the responses made to
manage the risk.
Earned value, variances in schedule and cost, status of floats etc. should all be regularly
monitored so that he/she will come to know about any deviations in project from the
original plans at the earliest for taking required actions.
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The project manager should be a good communicator and regularly inform all
stakeholders and team members about the different risks and the status of the
responses already made or which need to be made.
When reviewing meetings of the project status the project manager should also review
the status of risks.
A formal documentation of all risks should be kept and the changes incorporated must be
reflected in the project plans.
Risk control and monitoring is the process of keeping track of the identified risks,
monitoring residual risks and identifying new risks, ensuring the execution of risk plans,
and evaluating the effectiveness in reducing risk. It records risk metrics that are
associated with implementing contingency plans. It is an ongoing process for the life of
the project.
Good risk control and monitoring provide information that assists with making effective
decisions in advance of the risk's occurring. The purpose of risk monitoring is to
determine:
1. Risk responses have been implemented as planned
2. Risk response actions are as effective as expected, or if new responses should
be developed.
3. Project assumptions are still valid.
4. Risk exposure has changed from its prior state with analysis of trends.
5. A risk trigger has occurred
6. Proper policies and procedures are followed
7. Risks have occurred or arisen that were not previously identified.
Risk control may involve choosing alternative strategies, implementing a
contingency plan, taking corrective action, or re-planning the project. Risk control
involves following basic steps:
- Draw up plan
- Monitor progress against the plan
- Calculate variance
- Take action to overcome variances.

Tools and techniques for risk monitoring and control:

1. Project risk response audits: Risk auditors examine and document the
effectiveness of the risk response in avoiding, transferring, or mitigation risk
occurrence as well as the effectiveness of the risk owner. Risk audits are
performed during the project life cycle to control it.
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2. Periodic project risk reviews: Project risk is required to be regularly scheduled

and should be an agenda of all team meetings. Risk ratings and prioritization may
change during the life of the project and may require further
qualitative/quantitative analysis.
3. Earned value analysis: This is used for monitoring the overall project
performance against the baseline plan. Results of an EVA may indicate potential
deviation of the project at completion from cost and/or schedule targets. When
such deviation occurs, updated risk identification and analysis should be
performed.
4. Technical performance measurement: This compares the technical
accomplishments during project execution to the project plan's schedule of
technical achievement. Deviation to the planned milestone can imply a risk to
achieving the project's scope.
5. Additional risk response planning: If a risk emerges that was not anticipated in
the risk response plan, or its impact on objectives is greater than expected, the
planned response may not be adequate. It will be necessary to perform additional
response planning to control the risk.
The top down approach to project risk management has now been codified into the
Project Risk Analysis and Management (PRAM) methodology. The PRAM methodology
is summarized as under:

What is Quality?
Different people and different organizations have interpreted quality to mean different
things. The meaning, definition and interpretation of quality varies from person to person
and country to country. Our perception of good quality is affected by our background,
culture, nationality, religion and family values as well as many other subjective factors.
Today, almost everyone refers to quality products and services.
According to ISO 8402 quality can be described as, the totality of features and
characteristics of a product or service that bear on its ability to satisfy stated or implied
needs.
'Quality' does not in any way refer to the degree of excellence of the product or service in
a comparative way. Good quality does not also refer to having superior technical features
in the product. Quality is distinct from grade, which shows the level of the product or
service.
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Quality has been described in many ways by different persons. Quality has also been
described as fitness for use, fitness for purpose, Customer satisfaction and
conformance to requirements. Others consider these aspects to be quality goals and
not quality in itself. A brief description is given below about each.
Fitness for use: This implies that a product or service should be capable and fit for use by
a customer. This is necessary for a customer to get economic satisfaction from the
product or service he has obtained.
Fitness for purpose: This means that the required product or service should be able to
meet the purpose for which the customer obtained it.
Customer satisfaction: This concept deals with how the customer feels about the product
or service that has been provided. It must meet the customer's expectations for it to have
any economic value for the customer. To be able to meet customer satisfaction is
generally the aim or goal of an organization.
Conformance to requirements: This is used to describe the condition of the product or
service in relation to the requirements of the customer. If a product or service conforms to
the customer's requirements then it meets customer satisfaction.
The modern trend in quality is to have a greater focus on customer satisfaction and
conformance to requirements, which in essence, means conformance to customer
requirements.
According to the APM Bok Quality refers to much more than mere performance on a
technical plane. It covers Quality Planning, Quality Control and Quality Assurance and
refers to every aspect of project management - commercial, technical, people,
organizational, control etc.
PMI, USA's PMBOK Guide stresses on quality as being a combination of
conformance to requirements, specifications and fitness for use for meeting the
expectations of the customer which in turn will provide customer satisfaction.
Today customer satisfaction is assuming a front role in measuring quality.
We can say that conformance to requirements is the process of understanding,
managing and influencing the needs of the customer to meet customer expectations.
Fitness for use implies that the product or service must satisfy the real needs of the
customer.
Quality also includes concepts such as Zero defects, Continuous Improvement
Processes, Doing the Right Thing Right the First Time, Total Quality Management are all
different quality concepts or a quality philosophy that help to act as a goal for improving
quality.
To achieve this purpose the project team must actually make a very careful and accurate
need analysis of the customer's requirements. This should be done at the beginning of
the project. Stated and implied needs must be met.

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Cost of Quality
What is the cost of quality?
The cost of quality is the total cost of all the effort that is required to achieve the product
or service with required quality standards. This cost includes work that is necessary to
ensure both conformance to specifications as well as nonconformance to specifications.
There is cost of quality irrespective of whether it is for conformance to work specifications
or for nonconformance to specifications. Most projects do not measure costs attached to
nonconformance. Often 12-20% of project costs are due to wastage. This is a very high
figure and can be attributed to the lack of proper quality procedures being in place.
Cost of quality in a project can be broken into three main categories - cost of prevention,
cost of appraisal and cost of failure:
Prevention costs this is a cost that is associated with good planning and execution of
the project to make it error free. The idea is that prevention is better and cheaper than
detection. Prevention costs can include factors such as:
- Good contractors
- Good suppliers
- Training of staff
- Process capability studies
- Detailed planning
- Experienced staff
- Quality audits
- Use of proper designs
Appraisal costs this cost involves the expenses to evaluate the processes as well as
the results of the processes to make sure that the product of the project is error free.
Maintaining the processes that are involved helps to reduce errors or produce an error
free product. Appraisal costs include factors such as:
- Inspection and testing of the product
- Maintenance of the equipment used for inspection and testing
- Design reviews
- Internal design reviews
- Costs involved to process inspection data
- Internal design reviews
Failure costs This includes all the costs that have been incurred in order to identify all
defects before they reach the customer. This includes both internal failure costs and
external failure costs as well as the costs that are incurred to identify these defects. Such
Failure costs include:
Costs for Internal failure of quality
- Scrap and rework
- Late payment of bills
- Inventory costs, which are a direct result of defects
- Engineering costs incurred to rectify the defects
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- Infant mortality or premature failure of products

- Correcting the documentation to include changes as a result of defect corrections
Costs for External failure of quality these are the costs related to all the errors that
were not detected before product reached the customer. These include:
- Warranty costs
- Costs to train field personnel
- Cost of recalling defective products
- Product liability suits
- Costs incurred to handle complaints
- Future business losses due to defective products
Costs associated with measurement and test equipment this includes the costs of
all the test equipment that is actually used to measure and appraise activities to prevent
defects.
In quality the costs that are incurred for conforming to specifications and for
nonconformance to specifications are shown below:
Cost of Conformance
Planning
Training and indoctrination
Process tools
Field testing
Product design validation
Test and evaluation
Quality audits
Maintenance of testing equipment
Cost of Nonconformance
Scrap
Rework
Expediting
Additional material and inventory
Warranty and repairs
Legal liabilities
Product recalls
Corrective actions for the product
While earlier it was accepted that there would have to be a cost involved in dealing with
defects in the product, today this concept has changed. Any process that allows for
defects in material or service actually increases the cost of the product. Not producing
right quality is an expense in itself.
Crosby found that by doing things 'right the first time' considerable costs could be saved.
Another concept that helps in saving quality costs considerably is Just-In-Time (JIT) or
zero inventory. In a project environment not only is it desirable for materials to reach just
before they are to be used to save costs but this also eliminates the problem of storage
of the material.
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We can see that investing resources to maintain quality actually helps to reduce quality
costs in the longer run. Cost of quality includes all the factors that contribute to the
preparation and delivery of the product or service to the customer. Cost of not having
quality will also include costs of wastage of time and resources.

Quality Philosophy
The way we look at quality has changed considerably over the years. Earlier the main
focus of management was that errors and defects were an inherent part of any process.
The key stress was on control of defects more and more inspection was considered to
be better for quality control. Over the years this quality philosophy has changed radically.
Modern management no longer adheres to this view.
Most managers realize that we can have defect free environments where the customer is
the driver for the products or services.
Given below are the main concepts of modern thinking on quality.
Zero Defects
This is a quality goal and the goal of this process is to see how to improve processes in
order to avoid all defects in the product or service. More and more companies worldwide
are trying to achieve this aim. Today we have companies like Motorola that are Six
Sigma companies. This means that Motorola has improved their processes to such an
extent that they have only 3.4 defects or errors per million units.
Zero defects states that there is no room or tolerance for any defects. Earlier it was
assumed by industry that it was essential to have a certain percentage of errors in any
process. Generally 2-3% of errors were taken to be a normal part of allowable defects.
Having a defect free environment was not thought of and an error free environment was
not created by industry. Today this concept has changed and management has
established a defect free environment.
Continuous Improvement Process (CIP)
This is a quality philosophy or concept, which believes that any process that is
satisfactory today may become unsatisfactory tomorrow due to the constantly changing
environment around us. Change is twofold it is required to continuously improve both
the processes used to manage the project as well as the product or service that is being
provided. CIP means the introduction of a slow and gradual change to improve a
situation. It does not advocate any great leap forward.
CIP is important from management point of view. It stresses that management should
keep looking for ways to improve and change processes if they want to remain
competitive in the world market.
Plan-Do-Check-Act (PDCA) cycle:
Deming introduced this concept in Japan. The PDCA cycle is also referred to as the
Shewhart cycle, because Walter Shewhart discussed this concept in his book Statistical
Method From the Viewpoint of Quality Control.
This is a 4-step process for introducing quality improvements. In the first step (plan), a
plan to effect improvement is developed. In the second step (do), the plan is carried out,
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preferably on a small scale. In the third step (check), the effects of the plan are observed.
In the last step (act), the results are studied to determine what was learned and what can
be predicted.
Deming's is well known as a proponent of continuous improvement. In his PDCA cycle
Deming proposes the following:
Plan see how to improve present practices
Do implement the plan made to improve present practices on a small scale
Check test to check if the plan implemented gave the desired results or not
Act implement corrective actions needed in the plan.
This 4-cycle process is an iterative process to attain continuous improvement
PMI's Lew Ireland describes CIP as a holistic approach that focuses on eleven
principles which are:
1. Constancy of purpose
2. Commitment to quality
3. Customer focus and involvement
4. Process orientation
5. Continuous improvement
6. System centered management
7. Investment in knowledge
8. Teamwork
9. Conservation of human resources
10. Total involvement
11. Perpetual commitment
All these eleven steps are supportive of all continuous improvement processes. Basically
it is management that has the authority and capability to introduce a defect free
environment. For this reason it is management that must improve on its perception and
understanding of its real role in maintaining quality in the organization.
Total Quality Management (TQM)
TQM is a quality philosophy that encourages companies to continuously improve on the
quality of their business practices and products. It is a management approach to quality
improvements through customer satisfaction.
In order for TQM to be successful it must flow from top to bottom to be successful.
TQM was initially coined by the Naval Air Systems Command to describe its Japanese
style management approach to quality improvement. The whole organization should be
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involved in improving the processes, products and services in which they work. Well
known quality leaders such as Philip B. Crosby, W. Edwards Deming, Armand V.
Feigenbaum, Kaoru Ishikawa and Joseph M. Juran have propounded ways and methods
to implement TQM.
Listed below are some important steps laid down by Deming to improve quality:
- Create constancy of purpose for improvement of product and service.
- Adopt the new philosophy.
- Cease dependence on inspection to achieve quality.
- End the practice of awarding business on the basis of price tag alone. Instead, minimize
total cost by working with a single supplier.
- Improve constantly and forever every process for planning, production and service.
- Institute training on the job.
- Adopt and institute leadership.
- Drive out fear.
- Break down barriers between staff areas.
- Eliminate slogans, exhortations, and targets for the work force.
- Eliminate numerical quotas for the work force and numerical goals for management.
- Remove barriers that rob people of workmanship. Eliminate the annual rating or merit
system.
- Institute a vigorous program of education and self-improvement for everyone.
Deming states that 85% of the quality problems can be attributable to management and
the manufacturing process. Only 15% of the quality problems can be attributable to
workers.
Taguchi who built his concepts around Deming's model stated three basic concepts to
improve and maintain quality, which are very important:
- To achieve quality it should be designed into the product and not built into it
- Quality can be best achieved if there is minimum deviation from a target
- The cost of quality should be measured as a function of the deviation from the standard.

Philip Crosby, a great quality leader, listed 14 Steps to Quality Improvement,

which are:
1. Make it clear that management is committed to quality.
2. Form quality improvement teams with representatives from each department.
3. Determine where current and potential quality problems lie.
4. Evaluate the cost of quality and explain its use as a management tool.
5. Raise the quality awareness and personal concern of all employees.
6. Take actions to correct problems identified through previous steps.
7. Establish a committee for the zero-defects program.
8. Train supervisors to actively carry out their part of the quality improvement program.
9. Hold a zero-defects day to let all employees realize that there has been a change.
10. Encourage individuals to establish improvement goals for themselves and their
groups.
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11. Encourage employees to communicate to management the obstacles they face in

attaining their improvement goals.
12. Recognize and appreciate those who participate.
13. Establish quality councils to communicate on a regular basis.
14. Do it all over again to emphasize that the quality improvement program never ends.
Juran, another well-known quality leader has listed 10 steps to Quality
Improvement, which are:
1. Build awareness of the need and opportunity for improvement.
2. Set goals for improvement.
3. Organize to reach the goals (establish a quality council, identify problems, select
projects, appoint teams, designate facilitators).
4. Provide training.
5. Carry out projects to solve problems.
6. Report progress.
7. Give recognition.
8. Communicate results.
9. Keep score.
10. Maintain momentum by making annual improvement part of the regular systems and
processes of the company.
Quality is a way of life. Quality improvement comes from within. We all have to look at
ourselves to see how we can continuously improve quality in our own sphere of work.
This will give rise to quality in our work place, infact in everything we do! Our continuous
focus to do things right the first time should help us all to excel on the quality front.

What is Quality Management?

Quality management is doing all the work that is required to be done to ensure that the
project is able to meet the total needs for which it was taken up.
The processes of quality management address both the product or service that is to be
delivered by the project as well the processes that are used to manage the actual project.
Quality Planning, Quality Control and Quality Assurance all form a part of quality
management.
Quality management includes all the processes that are necessary to meet the reasons
or the need for which the particular project has been taken up.
Functions such as a quality policy for the project, quality improvement, planning,
assurance and control all form a part of the quality management processes.
When managing the project the project manager and the project teams should always
bear in mind that the customer's requirements must be fully met for the project to be
successful.
Often it is erroneously percieved that giving a customer much more than what was
stipulated means providing better quality. This process of giving more than the
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requirement is known as 'gold plating'. Providing more than the required standard does
not enhance the value of the project for the customer i.e. the customer should not be
given more than what he wants.
Another point to note is that while the project manager is responsible for maintaining
quality in the various project activities, overall quality is the responsibility of management.
All team members should be responsible for their work and maintain good quality in their
work.

Quality Planning
To a large extent the quality in any project will depend mainly on the overall quality policy
of the organization that is carrying out the project. Each organization has a quality policy
that governs company guidelines. All projects carried out by the organization will
necessarily depend on this general guideline. However, it is possible that a particular
project has some specific quality requirements that cannot be covered by company
policy. In that case a change needs to be made from the general guideline to incorporate
the requirement. All the project characteristics that are critical should be properly listed to
enable the project manager to plan the quality requirements for it.
The main concern of Quality Planning is to determine what the quality standard will be on
the project and how this quality standard will be measured. The quality standard that will
be relevant for the project must first be identified. The quality of the project should meet
the requirements of the customer or stakeholders.
A specific quality management plan is drawn up for the project being undertaken for this
purpose. Before the quality plan can be drawn up, several questions need to be
answered such as: what quality practices are going to be used in the project? What is the
sequence of activities that will be followed for delivering the projects product or service?
Which resources will be used and what are the potential risks involved? The quality plan
is a document that sets out the specific quality practices. It should clearly show how
quality is planned to be achieved on the project, the company's procedures regarding the
project, responsibilities, how quality assurance, quality control and quality improvement
will be carried out for the project.
In order to do quality planning effectively, different tools and techniques such as a
Benefit/cost analysis, Benchmarking, Process and Cause-and-effect flowcharts are used.
A Benefit-cost analysis is used to examine the relationship between the cost in
implementing an improvement and the monetary value of the benefits achieved by the
improvement. It considers the costs of quality requirements against the benefits gained
from it.
Benchmarking is a method, which measures current performance against that of the
best performers to determine how we can improve our performance levels by using the
information and inputs gained from the best. The project's actual and planned practices
are compared with those of other projects to get new and better ideas to improve project
performance.
A Cause and effect diagram is a tool that is used to show the potential reasons or
causes that result in the problem or effect. Each problem is taken separately and using a
brainstorming session the team members list out all the possible reasons that could have
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caused this problem. The effect or problem is listed on the right side of the diagram. All
the potential causes of the problem are listed on the left side of the diagram. The cause
and effect diagram is one of the "seven tools of quality.
This cause and effect diagram was developed by Kaoru Ishikawa and is also referred to
as an Ishikawa diagram, or a fishbone diagram, because the complete diagram
resembles the skeleton of a fish.
Design of experiments is another statistical method that is used in statistical planning.
This is used for both project management issues and also for the product of the project to
get the best trade-offs. It uses a what if analysis to see which variables will improve the
quality.
It should be kept in mind that this quality plan must be integrated with the overall project
plan for the project. Any changes approved in the plan must be reflected in the quality
plan if affected. This plan can be formal or informal and very detailed or broad depending
on the project requirements.

Quality Assurance
Quality Assurance is the process of regularly evaluating the performance of the project to
ensure that specified quality requirements are being fully met. A planned and systematic
pattern of measures is used to provide confidence that the product or service is meeting
the required quality specifications. It also evaluates the overall performance of the project
both to ensure and also provide confidence that the project will be able to meet the
relevant quality standards.
Quality assurance is mainly done during the execution phase of the project while quality
planning is done at beginning during the planning stage of the project.
Quality audits are used on a regular basis for important project areas to determine
whether all the quality activities comply with or do not comply with the requirements that
were laid down in the quality plan. An audit is a formal, independent examination to
check that specified quality standards are met and complied with.

Modern outlook of quality is that the individual performing the work is responsible to
maintain the quality of the product. All team members and stakeholders have a role to
play in quality assurance.
Quality assurance is instrumental in helping to improve the performance of other projects
as it provides a number of lessons learned.

Quality Control
As work progresses it is important to have some measure to verify if the work being done
is meeting the required specifications or not. Quality control is the process of monitoring
the results of the project to ensure that the results comply with relevant quality standards.
Quality control also identifies various ways to eliminate the causes for unsatisfactory
results. This process needs to be done throughout the project.
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Quality control is done both from the angle of actual project management results in
performing the project, such as schedule performance and variances as well as the
results of the product or service being delivered by the project.
In order to perform quality control checking is done by the use of different technical
procedures that are used to monitor and evaluate project results. This procedure is
known as quality control. Generally there is a separate department to perform quality
control. The project manager and the project team members should be familiar with
different quality control tools such as sampling, that are used to help in the evaluation of
the control outputs.
Quality control includes features such as prevention and inspection, attribute sampling,
tolerances with control limits for checking errors and special causes and random causes
for defects.
Prevention is doing everything to keep errors out of the process in making the product
while inspection is done to segregate errors after the product has been made. Inspection
rejects the defective parts/goods.
Attribute sampling is the process of checking whether the result does or does not
conform to the given specifications. Variable sampling on the other hand is used to
measure the degree to which the result conforms to the specifications.
Tolerances show the range within which a result can fall for it to be acceptable. A control
limit is used to check if the process is in control or not.
Special causes are unusual events that must be checked while random causes are those
that form a normal part of variations in a process.
The key tools used for quality control are Control charts, Pareto diagrams, inspection and
statistical sampling.
Depending on the results found corrective actions may or may not have to be taken.

Statistical Quality Control

What are Statistical Quality Control (SQC) tools?
The use of modern quality tools and techniques is important to maintain quality in a
project. There are various statistical methods and quality tools that are available to the
project team to do this. These tools are used both to identify the problems that can affect
the project and also to help in resolving these problems.
Statistical Quality Control (SQC) tools are used in the project to measure the variability in
a product in order to evaluate the product for taking any corrective actions that may be
needed. SQC is the application of statistical techniques to control quality.
Statistical quality control includes acceptance sampling as well as statistical process
control.
Two major methods are used in statistical quality control process control charts and
acceptance sampling.
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Control charts are statistical techniques that are used to monitor and evaluate variations
in a process in order to measure the degree to which the product or service is conforming
to the required standards and to see if there are any unfavorable trends that are present
in the data.
Acceptance sampling is used to either accept or reject a lot which has already been
produced.
The standards for a product or service are defined in quantitative measures and the
range of variation that is acceptable is given. This variation range can be defined by the
customer or it can alternatively depend on the process. It is possible that the
requirements defined by the customer are outside the range of the existing process or
technology and a new process may be required.
There are many advantages in using quantitative statistical methods. This helps to
provide relevant information, which is necessary to make fact based, objective decisions
rather than subjective decisions in the project.
These tools help to improve process information, lead to better communication in the
team and provide concrete information about the process changes. One very big
advantage is that a product can be accepted with the assurance that it has met the
required standards.
Normal Distribution Curve
One of the most common statistical approaches used for measuring variability is through
the use of the normal distribution curve.
The most common probability distribution is the normal distribution curve. This curve
shows the standard deviation or how far you are from the mean which is the dotted line in
the center of the curve. The formula for calculating the standard deviation in PERT charts
is pessimistic duration optimistic duration / 6.

+/- 1 standard deviation (SD) = 0.683 or 68.3%

+/- 2 SD = 0.954 or 95.4%
+/- 3 SD = 0.997 or 99.7%
+/- 6 SD = 99.99%

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Control Chart
Process control charts are used to identify the range of variations that can be allowed in
a particular product's characteristics. The upper and lower limits that are allowed in the
process are specified. Using this upper and lower limit information a control chart is
created which is then used to evaluate the conformance of the product.
The upper limit is known as the Upper Control Limit (UCL) and the lower limit is known as
the Lower Control Limit (LCL). The allowable process range lies between these two
boundaries. The two limits, UCL and LCL can represent different factors like weight,
temperature, length or any other characteristic of the product in question. The mean or
average (x Bar) of the samples measured is considered to be the process average and
this is the middle line of the control chart (half way between the UCL and LCL). The UCL
and the LCL are represented by '+/-' 3 standard deviations.
Plotting of data on the control chart shows the variations from the mean of the product
characteristic specification. If all the data points lie within the UCL and the LCL then the
process is considered to be in control. The control chart will also show the trend of the
data.
Using the control chart one can get a very easy and systematic way to identify whether
the product or service is within the specified boundaries or not. Being versatile control
charts can be used for a variety of products or services.
Rule of Seven this is a heuristic or thumb rule which says that if there are a total of
seven non-random plotted data points grouped together on one side of the central mean
bar, even if they are all inside the UCL and LCL, then something is wrong. This calls for
an investigation as this cannot be a random feature and process is out of control.
If the samples plotted - two out of three, three out of seven or four out of ten points fall in
the outer range close to the control limits then also it should be investigated as process
may be going out of control.

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Control charts only provide the results of the sample. No reasons for the deviations or
method for solution to correct any deviations are provided by control charts.
Some control chart definitions are:
Specification limits: This represents the process requirements for performance or
customers requirements. It is generally shown as solid lines outside the UCL and LCL
lines
UCL and LCL: This represents the upper control limit and the lower control limit for the
acceptable variation range in the process. Is generally depicted as dashed lines.
Mean: This is the middle or average in the acceptable range of variation in the process.
Is depicted as a straight line in the middle of the control chart.
Out of control process: This is shown by a data point that falls outside the UCL and the
LCL or a group of non-random data points that fall together on one side, close to the
control point limits.

Pareto Diagram
A Pareto chart or diagram is a graphical tool that is used with a histogram to rank causes
from the most significant to least significant. In quality control it is used to rank the quality
defects in the order of frequency of occurrence or importance. It has been found that
80% of the problems comes from 20% of the work.
The Pareto diagram is based on the Pareto principle, which was first defined by J. M.
Juran in 1950. This principle, which is named after the 19th century economist Vilfredo
Pareto who found that 80% of the effects come from 20% of the possible causes.
By using the Pareto diagram the critical causes which create maximum problems or
defects can be focused on. Factors which create maximum problem can be addressed in
their order of importance.
However, it should be kept in mind that the frequency of occurrence may not necessarily
always be the optimum criteria for ranking of defects as the most frequent cause may be
a trivial one. It should be used on a measure of relative importance such as costs or
customer impact.
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The Pareto chart is one of the "seven tools of quality."

Cause and Effect Tool

A Cause and effect diagram is also referred to as the Ishikawa diagram, because Kaoru
Ishikawa developed it, and the fishbone diagram, because the complete diagram
resembles a fish skeleton.
This provides a structured method to analyze all inputs to find the potential causes for
problems. The diagram illustrates the main causes and sub-causes that lead to a
problem or effect. The potential factors or reasons that are likely to cause the problem or
effect are discussed and explored by the team members. This process is done using a
brainstorming session to arrive at the likely causes.
Undertaking this process helps all team members to become more organized and
focused in trying to find the potential reasons for the problem.
The effect or problem is listed on the right side of the diagram. All the potential causes of
the problem are listed on the left side of the diagram. There are up to eight major
categories of inputs in which the causes are categorized.
A sample cause and effect diagram is shown below:
Key steps in constructing the Cause and effect diagram are:
Select a group of members from the team for doing the analysis.
Identify the problem, which is the effect and write this down on the right side of the
diagram.
Identify the major likely causes for the problem and write them in the relevant boxes on
the left side of the diagram. Identify the sub-causes for the problem that can cause the
major problems and join them with arrows. Sub causes can be further detailed.
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Keep doing this till a long list of likely causes are noted after group discussions
Draw the complete diagram.
Analyze the causes listed as well as the actions required to rectify the problem.
Finalize the action to be taken to correct the problem.
This cause and effect diagram helps the team members to organize their thoughts, use
brainstorming to think of all possible causes, improve understanding of the problem on
hand, ensure that everything is documented and build better teamwork in the group.
The cause and effect diagram is one of the "seven tools of quality."

Sampling Methods
What is sampling?
When it is not possible to examine an entire population to determine some attribute then
a part of the population is taken as a sample to determine the presence or absence of
that attribute which is to be determined. For example, a population could be all men
above 40 years. The sample would be a part of the whole population of men above 40
years. The variable is the characteristic that is being tested. e.g. all men above 40 years
who have high blood pressure.
In quality control sampling is the method used to determine the value of a product or
service when it is not practical to examine the entire population. To ensure that each
product meets or exceeds the required specification, every product produced must be
inspected for completeness. Conducting an inspection for each and every item would be
both very time consuming and expensive. Further, there would still be human errors in
the sampling done. Because of this different sampling techniques have been devised to
assist in meeting the specifications of the product.

Scatter Diagrams and Trend Analysis

Scatter Diagrams and Trend Analysis
Scatter Diagram: is graphical technique that is used to analyze the relationship between
two variables. This is done by plotting two sets of data on a graph. In the graph, the yaxis is used for the variable to be predicted and the x-axis is used for the variable to
make the prediction.
The graph is used to show all possible relationships between these two variables.
Generally the scatter diagram assists in forecasting and can also be used to provide
trend analysis predictions.
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Two sample scatter diagrams showing positive and negative trends are as follows.
Positive Trend

Negative Trend

The scatter diagram is one of the "seven tools of quality."

Trend Analysis: is a statistical method that is used to determine the results of a scatter
plot. A best fit is found for the scatter plot data using this trend analysis. Data of the
scatter plot is quantified and an equation is provided to measure the fit of the data to the
equation.
Trend analysis is generally used for monitoring technical performance. Technical
performance can be for the product or for the project management performance.
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Responsibilities
Maintaining project health and safety is an important factor in the execution of a
successful project. These are conducted through health checks and audits. The audits
and checks are conducted in a project for various reasons as mentioned hereunder:
1. Check the design of the project
One of the important and primary contributing factors to the success of the project is
to ensure it is correctly established and designed in the first place. This would mean
that:
- The purpose of the project has been correctly identified
- The objectives set will deliver that purpose
- The facility chosen will achieve those objectives
- The facility is designed in accordance with the inherent assumptions
- The design information used, including any research data is valid
2. Ensure the quality of the management processes
A second major contributor to success is the use of qualified management
processes. A project well designed but badly managed will have lower chances of
success compared to a well designed and a well managed one.
2. Learn from past success
if any project had gone successfully well, better than the recent ones, then a review of
the previous one can help identify what was done properly. That can be recorded as
the basis for future projects.
Types of project audits
1. Project evaluation audit.
It is an independent check on the feasibility or design studies. It is an enforced review
of the investment appraisal as it currently stands, and on the assumptions on which it
is based.
2. Internal audit.
It is a quality control check of the management process conducted either by
independent auditors or by the project team to ensure best practices are being
followed and hence the project would be delivered to quality, cost and time.

3. Post completion audit.

The success and failures are reviewed in the post completion audit. The scope of this
audit may be similar to the internal audit. but now the past performance is checked in
hindsight and analysis of how the project actually turned out is done. It may be
conducted as:

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- An informal review by the project manager and the team

- A formal debriefing meeting
- A detailed review by an external independent agency.

Scope Definition High Level

Scope defines the total work content of the project. It helps to make sure that the
work undertaken is desired and necessary to complete the project and that all
undesired, uncesessary work is eliminated. Scope management ensures that only
the optimum amount of work is undertaken in order to deliver the project successfully.
For making the scope definition efficient and effective it is essential that it be derived
from the project objectives and the Product Breakdown Structure. A Work breakdown
structure is used to understand the details of the effort required for a good scope
document. During Scope management it is important to authorize the work done and
monitoring the project process is also worked out. The process and considerations for
the commissioning/delivery of the project are also required to be maintained and
documented.
It is in this process of scope management that the requirements of the client are fully
understood in terms of the facility to be delivered yielding the expected benefit and
then converted this into the statement of work.

Work Breakdown Structures (WBS)

In order to effectively plan and manage the work of the project it is helpful to break
down the total quantum of work that is required to be done into smaller groups of
activities. Accordingly the entire scope of the project is reviewed and broken down
into discrete tasks giving rise to what is known as the work breakdown structure.
This work breakdown structure (WBS) is a task-oriented family tree, which forms the
foundation tool or backbone for planning and controlling the entire project. WBS
provides a graphical representation of all the project activities.
In order to form the WBS tasks are divided into sub-tasks which are further
decomposed and sub divided into more sub-tasks in increasing levels of detail until a
task oriented family tree is made. The actual number of levels used in the WBS will
depend on both the complexity and the size of the project in question. Tasks should
be broken up into manageable packages. The lowest level of the WBS is the work
package, which is a group of activities. At the work package level it should be
possible to assign the work, estimate its duration and cost and also keep a track of
the project's progress.
The WBS should be produced very early in the project. It is drawn by the project team
based on their collective experience and through brainstorming to list out all possible
tasks. It is unlikely that the first draft of the WBS will include the total tasks required to
meet the project's scope. After making the initial WBS it should be reviewed a
number of times. All activities that are found to be missing are added to it and a final
WBS for the project is prepared.
An important point is that the total scope of the project must be reflected in the WBS.
Work that is not included in the WBS will not form a part of the project.
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Deciding the number of levels that are needed in the WBS is important. Too many will
make control and execution too cumbersome while too few will not allow for proper
assignments and control. See if it is possible to develop cost and duration estimates
at that level. If not, then go one more step and check again if it is possible to develop
cost and duration estimates at that level. This process should be repeated till the
desired result is reached. The level of detail reached in the WBS should enable the
activity/task to be assigned and delegated to a specific organizational unit such as
department, team or individual.
A Work Package
The work package is a group of related tasks defined at the lowest level in the WBS.
- Each package should have a scheduled start and finish dates
- It has an assigned time phased budget
- The work package is distinguishable from other work packages
- The work package either has a limited duration (about 80 hrs) or can be divided into
measurable milestones
WBS templates
In order to achieve project objectives total work of project is divided into manageable
set of activities or work packages. Often projects that are similar in nature have been
done and their WBS is available. This basic WBS template can be taken and used as
a starting point for the current project.
The WBS is a very useful tool used in many ways:
-

It is used right through the project to plan and control it

Using the lowest level of the WBS an accurate bottom-up cost allocation can be
done reflecting every activity which is then used to make cost breakdown
structure

Is used to assign work and track the progress of the project

It allows for easier estimation of duration of tasks. WBS forms the basis for
making the network schedule and the bar charts

It forms the basis for the budget, schedule and resources data that is required to
be used for determining the earned value

It WBS provides a better control of the work i.e. scope to be done

Risk identification and management can be done more effectively as it is easier to

identify risks related to different activities

Please note that even though the WBS may look like an organizational chart it is not an
organizational chart.
If there is a WBS template available from a past similar project then that may be used as
the basis for the current project.

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Drawing the WBS

When drawing the WBS the top level i.e. Level 1 should be the name of the total project
e.g. House
If nothing is specified then three more levels can be shown. Each level should have
greater detail. In the last level of the WBS the activities shown should preferably show
some task e.g. 'design network' instead of 'network' or 'install lights' instead of 'lights'.

Other Structures
Organizational Breakdown Structure (OBS) - This is a hierarchical way in which the
organization may be divided into management levels and groups for planning and control
purposes. In it the work components of the WBS are shown related to the groups of
individuals and resources that will accomplish the work
Cost Breakdown Structure (CBS) - is a hierarchical breakdown of a project into cost
elements. To make the CBS all the different tasks in the WBS are costed.
Contractual BWS (CBWS) - This breakdown is used to define the reporting information
and the timeliness of information that the supplier will give to the buyer. This is generally
not a very detailed breakdown
Bill of Material (BOM) - This is a hierarchical break up of the various components of the
product. The products produced, subassemblies, and lower level of assembly are shown
as a goes into hierarchy.
Resource Breakdown Structure (RBS) - This is a hierarchical structure of resources that
enables scheduling at the detailed requirements level, and the roll-up of both
requirements and availabilities to a higher level.
Understanding of fundamental relationships between the break down structures

The three break down structures, work break down structure (WBS), Organization
breakdown structure (OBS) and the Cost break down structure (CBS) combine to form
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the cost control cube. The concept of the cost control cube was developed for monitoring
and controlling project costs. All costs can be assigned to a cell of the cube, and through
the cube all costs have a position in each of the three break down structures. A project
aggregate can then be prepared by summing along any of the three directions.
A large number of cells in the cube will contain no costs. For instance:
-

A work element may be wholly assigned to one subcontractor, a single entity on

both OBS and CBS

A work element may consume labor only and of only one type

A work element may be created to assign management costs.

The cost control cube provides a structure for the estimate, used to create the estimate,
and in subsequent control of costs. The WBS and the OBS are evolved to the current
lowest levels according the estimate being produced and costs assigned to each
element in WBS/ OBS matrix against each cost element.
This provides a detail of estimates through the WBS/OBS. The estimate is then
aggregated to the project level.

Responsibility Assignment Matrix (RAM)

The Responsibility Assignment Matrix (RAM) is a tool used by the project manager to
allocate responsibilities for different project work that needs to be done. It is developed
during the planning phase. The responsibility matrix properly and clearly identifies the
names/designation of the project participants and their degree of involvement in different
project activities. The three key levels at which responsibility can be defined is at the
project level, at the strategic level and at the activity level.

The responsibility matrix is generally used in conjunction with the WBS and is developed
by combining the project's Work Breakdown Structure and the Organizational
Breakdown Structure. Ideally, the responsibility matrix should be initiated when the
project manager is appointed at the beginning of the project.
In the matrix the rows are used to indicate the activities, responsibilities or functions that
are required while the columns are used to identify the positions, the titles or the names
of the persons performing them. The symbols that have been chosen to show the level of
involvement of the concerned person are marked in the body of the matrix. A description
i.e. a legend of the symbols used to denote the level of involvement should be included in
the matrix.
To denote the degree or type/level of involvement different authors have advocated
varying use of letters such as A, D, X, C etc., numbers such as 1, 2, 3, 4 etc. or even
shapes. The terminology used in the responsibility assignment matrix should be decided
by the project manager. To show the responsibility it will contain elements such as:
General management responsibility
Actual responsibility for decisions
Who does the work
Who may be consulted
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Who must be Informed

Who must approve
No responsibility/action
Dr. Rodney Turner refers to eight types of roles and responsibilities which are mentioned
below:
X - eXecutes the work
D - takes Decisions solely
d - takes decisions jointly
P - controls Progress
T - provides Tuition on job
C - must be Consulted
I - must be Informed
A - Available to Advise
A weakness of the responsibility matrix is that it does not indicate how people are to
interact within the program

Progress Monitoring
Planning for monitoring the progress during the project life cycle ensures a control over
the development of the project so that the project manager is able to keep the project
from going over the deadlines. Progress monitoring strategy and process should be put
into place during the initial phases of the project itself. The monitoring process would
include
- Tracking the project on the network
- Taking regular feedback from the team
- Having regular reviews with the team on the project success
- Documentation process for project progress reporting
- Using some project reporting tools for every team member to log on the progress

Activity
One of the many differences one can attribute to distinguish a living being from a nonliving being can perhaps lie in the word 'activity'. From being in state 'A' to go to state 'B',
we would need some kind of force or energy to move. An activity requires physical or
mental energy.
Energy is what a living being consumes and distributes.Transformation of energy from
one form to another form is done through all living beings, which could in a larger sense,
include ROBOTICS or machinery. Robots or sophisticated machinery could perform
physical activities to simulate human beings but they lack in capability on a mental plane.
In order to accomplish a mission or a dream, we may need to perform tens, hundreds,
thousands or hundreds of thousands of activities.
Is there a difference between a task and an activity? Maybe not. It is more a matter of
how you define the two. At present there is no consensus within the project management
profession about the exact relationship between the two. Often, the two i.e. activity and a
task are interchanged.
There are three distinct situations one may encounter:
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- Activity and a Task - taken on a same level and interchangeable.

- In many application areas, activities are seen as being composed of tasks.
- In many application areas, tasks are seen as being composed of activities.
In the ultimate analysis, it is not the term one uses but the context. From our perspective,
we will opt for the first option of having activity and a task as being interchangeable. An
activity can be considered as the lowest level of effort consuming some form of energy to
perform a part of the total work package. In other words, to achieve work, it would require
performance of one or many activities.

Dependencies
Dependencies will generally mean when one relies on somebody else to make him/her
to do an act. For example a newly born child is dependent on its parents.
1. Logical Relationship
In a project sense, dependency means the next activity or group of activities cannot
become active until the preceding activity has become active. Here Active would mean
the preceding activity has either started or finished. We can rephrase this as follows:
A dependency relationship between two or more activities means that one activity cannot
start or finish before the other activity has started or finished.
Let
us
examine
two
activities
A is the independent activity and B is the dependent activity.

and

If activity B is dependent on activity A, how many different combinations can there be?
Activity A can have started or have finished. Based on these 2 possible combinations of
activity A, activity B can either start or finish as well. Therefore, there can be 4
combinations of activity B which is dependent on activity A.
A can start and B can start thereafter (S-S).
A can start and B can finish thereafter (S-F).
A can finish and B can start thereafter (F-S).
A can finish and B can finish thereafter (F-F).
In short, these 4 kinds of dependencies are mentioned as S-S, S-F, F-S or F-F. S stands
for Start and F stands for Finish. Activity A's position is shown by the first letter (S or F)
and the dependency of activity B is shown by the second letter after the hyphen (-).
Start to Start Dependency (S-S)
the 'from' activity must start before the 'to' activity can
A must start before B can start. The arrow shows the ' from to ' relationship.
A

B
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start.

Start to Finish Dependency (S-F)

A must start before B can finish. The arrow shows the ' from to ' relationship.
Some examples of this kind of relationship can be such as initiate project management:
complete
proposal
or

start
car
engine;
begin
driving.
the 'from' activity must start before the 'to' activity can finish.
A

Finish to Start Dependency (F-S)

A must finish before B can start. The arrow shows the ' from to ' relationship.
This is by far the most common dependency, which exists between 2 activities. Generally
in a project about 70 to 80% of dependency relationship is finish-start type.
Some of the examples of this kind of relationship can be such as pour the concrete;
raise the frame or define user requirements; write the code or software or finalize
mission; accomplish mission or cook food; eat food.
the 'from' activity must finish before the 'to' activity can start.

Finish-to-Finish Dependency (F-F)

A must finish before B can finish.The arrow shows the ' from to ' relationship.
the 'from' activity must finish before the 'to' activity can finish.
A

Let us look at a classical example of Start to Start and Finish to Finish kind of
relationships.
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You are required to dig a ditch (activity A). After digging the ditch, you need to lay a pipe
(activity B). After laying the pipe, one is required to refill the ditch (activity C). Assuming
the duration of these three activities to be 6 days each, then the total time of completing
these three activities in finish to start logical and sequential relationship will be 18 days
and can be shown as follows:
A
Dig a Ditch

Lay Pipes

B
Refill the Ditch

The total duration of these three activities can be reduced by altering the Finish-start
logical relationship between A, B and C to Start-start and Finish-finish with some time
delays.
We now assume that after completing one day of digging, enough work space will be
created to start with the laying of the pipes and similarly after one day's work of pipe
laying, we can then start filling up the ditch. We have used +1 time unit both for S-S and
F-F types of relationship to indicate time delay of 1 day to provide working space
between digging the ditch to laying of the pipe and then filling up the ditch. This can be
shown by the following network diagram:

Let us look at the other type of dependencies concerning the qualitative aspects. We
may define here 3 major types of dependencies:
1. Mandatory dependencies
2. Discretionary or 'soft' dependencies and
3. External dependencies
Mandatory Dependencies
Are those dependencies which are inherent in the nature of the work being done. They
often involve physical limitations. They would be similar to the logical relationship based
on 'finish to start'. For instance, in a construction project, it is impossible to erect the
superstructure until after the foundation has been built. Mandatory dependencies are
also called 'hard' logic.
Discretionary Dependencies
Are those dependencies which are defined by the project management team. They
should be used with care and properly documented for future reference as they can limit
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later scheduling options. Discretionary dependencies may also be called preferred logic,
preferential logic or soft logic.
External Dependencies
External dependencies are those dependencies that involve a relationship between
project activities and non-project activities. For example, the coding activity in a software
project may be dependent on the delivery of hardware from an external source, or project
construction cannot begin till the environment board clears it.

Lead and Lag

LEAD:
A modification of a logical relationship which allows an acceleration of the successor
activity. For example, in a Finish to Start dependency, with a 14 day lead, the successor
activity can start 14 days before the predecessor activity has finished.
LAG:
A modification of a logical relationship which delays the successor activity. For example,
in a Finish to Start dependency, with a 14 day lag, the successor activity cannot start until
14 days after the predecessor has finished.
Consider two Activities A and B. B depends on A. It means B cannot start until A is
completely finished. This is Finish to Start relationship between A and B. Let us also
assume the duration of A is 1 day and B is 1/2 day.
This project of 2 activities A and B will be completed in 1 and half days

Let us assume that activity A represents pouring of the concrete into a mould to make a
slab and activity B is putting the slab on a column. After pouring the concrete into a
mould, you are required to leave the mould for one day to dry before you can use the
slab. Your logic of activity B starting immediately after the completion of activity A has to
be adjusted accordingly. You have 2 ways of solving this problem.
Way 1 :
Create one more activity between activities A & B which we can call Activity C. This
activity C represents drying up of the concrete slab. Activity A must be followed by
activity C and then by activity B. Now the project completion time is 2 and half days as
the setting time of the concrete slab has been included.

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Way 2
One could also use a logical wait time of one day between activities A and B. There is a
lag of 1 day between activity A and B. It simply means that after the completion of activity
A, one day has to elapse before activity B can start. Lag delays the succeeding activity
by the amount of the lag. In this case, lag is 1 day. Lag is shown with a positive sign as
below.

Opposite to lag is Lead.

Activity A represents the leveling of a site for planting grass. Activity B represents
planting of the grass. Duration of both activities A and B is 5 days each with a F-S
dependency. It might be possible to start planting the grass on the second day after one
fifth of the site has been graded. Can we logically show a lead of 4 days to the finish of
activity A for B to begin? What is this lead? 4 days Lead means that even though activity
A is completed only on the 5th day, activity B can start 4 days ahead of A's completion. In
other words, after activity A has been completed for one day out of 5 days, I can begin
activity B.In a classical sense, if I had to wait for the site to be completely leveled first
before starting to plant the grass, activity B has to wait till the 5th day. Total duration of
activities A and B will thus be 10 days. What a colossal loss of time this would be.
However, if I give a lead of 4 days to activity B in the same F-S relationship the total work
of leveling the site and planting of the grass will be completed in 6 days only. Both
activities A and B can now get executed in parallel after giving an initial time of 1 day for
activity A to complete leveling one fifth of the site before activity B also can begin on day
2. Relationship between the independent activity A and the dependent activity B in a F-S
dependency with and without a 4 day lead.
Finish-start dependency without any lead

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Finish-start dependency with a lead of 4 days

Activity B has a lead of 4 days Activity B starts on Tuesday after 1 day of A is completed
( 5 days minus a lead of 4 days )

Though we may logically use Lead for this type of situation, we can also show the same
by breaking both activity A and activity B into five parts as shown below and then
connecting each part of A with the respective five parts of activity B. Let us call five parts
of activity A as a1, a2, a3, a4 and a5 and that for activity B as b1, b2, b3,b4 and b5. The
above situation can be shown as below using only finish to start relationship without any
Lead.

Work Package
In a postal system, when we post an envelope, the delivery system between one place to
another is at the level of the envelope. The envelope is the package for delivery. The
envelope may contain just one page or tens of pages. The size of the envelope may
vary. The postal stamps required may also vary or the courier charges may increase but
basically we are still looking at the delivery level of an envelope or a packet.
Let us define a 'Work Package'.
A work package is a deliverable at the lowest level of the work breakdown structure. A
work package is equivalent to an envelope or a package in our earlier example. Like an
envelope can contain one page or tens of pages, similarly a work package can be
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divided into one activity or tens of activities. According to PMI a work package should
have a duration of about 80 hours.
From delivery viewpoint, the exchange takes place at an envelope level in the postal
system and in a project environment, it will take place at the work package level. We can
exercise better control at a work package level from both the cost and time dimensions.
You can cost a work package and we can also schedule the delivery of that work
package in terms of time schedule.
A work package normally is that level of work in the breakdown structure where an
activity or a group of activities can be costed and easily managed. This can vary from
project to project.The work package can be further decomposed into smaller more easily
manageable components.
Deliverable
Normally a deliverable is that basic entity which can be measured, is a tangible, verifiable
outcome, result, or item that must be produced to complete a project or a part of a
project. Normally to accomplish a project objective, many tens, hundreds or thousands of
deliverables can be required to be performed. A deliverable can also be a work package.

ADM
This is a project network diagramming technique which uses an arrow to represent the
activities. ADM is also known as Activity On Arrow (AOA).The beginning and end of each
node is connected to an arrow as shown below:

The start of the arrow comes out of a node while the tip of the arrow goes into a node.
Between the two nodes, lies the an arrow representing the activity.
Dotted arrows used in the AOA network consume no resources and only show the
logical relationship. It is also called a 'DUMMY ACTIVITY'.
ACTIVITY

2
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Let us build up a project comprising of 7 activities. We also define 2 nodes one

representing 'start' and the other representing 'finish'. The project has the following finish
to start dependencies:
Name of the Activity

DependencyOn

Start

B*

B&D

Start

E&F

*Start of Activity B depends on Finish of Activity A

Both activities A & D are dependent on 'start'. So one arrow going from node 1 to 2 can
be created representing activity A

START
ACTIVITY A

Another arrow can be created between 1 & 3 representing activity D

Our dependency criteria is fulfilled as A & D are dependent only on start of the project.
There is no direct relationship between the activities A & D

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Next step would be to see the activities which are connected to A & D. B is dependent on
A. Therefore one can create a node 4 and an arrow between nodes 2 & 4 to represent
activity B. B depends only on A.

Similarly, one could create a node 6 and an arrow between the nodes 3 and 6 would
represent the activity E.

From our dependency table, we know that activity C is dependent on B & D. We now
create a node 5 and an arrow connecting 4 & 5 to represent C.
Start

1
D
3

In this case C is also dependent on completion of activity D. It is a logical relationship

between C & D. We need to create an arrow to reflect this logical relationship. If we draw
a normal straight line with an arrow here, it will get confused with the normal convention
of an arrow representing an activity consuming resources. In order to circumvent this
confusion, we draw a dotted line to differentiate between 3 & 4 and represent a logical
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relationship between C & D would imply that C cannot start until D is finished. This dotted
line between 3 & 4 is called a Dummy Activity.
DUMMY ACTIVITY
An activity on an arrow consumes time and other resources. However, an arrow with a
doted line represents a logical relationship which consumes no time and resources. It is a
Dummy activity used only to show a relationship between two activities.

A
Start

5
Finish

7
D

Now we can create a node 7 and an arrow connecting nodes 5 & 7 representing activity
F. G which is the final activity depends on activities E & F. We can create a node 8 and
an arrow connecting nodes7 to 8 to represent activity G. But remember, G also depends
on E so we have to provide a dotted arrow to connect nodes 6 to 7 as a dummy activity
to take care of this E and G relationship.
As another option, as there is no other activity which follows E we could also have
combined the two nodes 6 and 7 into one and after combining them renamed it node 6.
The arrow between 5 to 6 would then represent activity F. Once we remove node 6 from
our network we can now renumber node 7 to 6 and 8 to 7. G would then be the activity
on the arrow which is connected between nodes 6 & 7.
Note: In ADM only the Finish to Start relationship is posible.The other three type of
dependencies namely Start to Finish, Start to Start and Finish to Finish are not possible
to be included in ADM.
The finish of this project is dependent on the completion of G. The node 7 itself can be
named as finish. We have an option of creating labels on the nodes only to the extent of
calling them either start or finish node, or milestone.

PDM
Precedence diagramming method is a network diagramming technique in which a node
represents an activity while an arrow is used to show the relationship between various
activities (nodes).

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Let us look at the table of 7 activities shown below:

Name of the Activity

Dependency On

Start

B*

B&D

Start

E&F

*Start of Activity B depends on Finish of Activity A

We can create a start Node 1. This merely represents the start of a project/sub-project.
This is the only exception where a node consumes no resources but is simply a flag
showing the starting point. An actual activity can also be used as the starting point of the
network.
Let us create another node 2. This node represents activity A which depends on start.
Using an arrow, we now connect node 2 to 1 with the tip of the arrow ending at node 2. It
can be noted here that the left vertical side of a node is the beginning or the start of each
activity whereas the right vertical side of a node represents the completion or finish state
of the activity.

Similarly we can draw nodes 3, 4, 5, 6, 7 and 8.

Node 3 represents activity D and depends only on the start of the project.
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Node 4 represents activity B and it depends on the completion of activity A.

Node 5 represents activity C and it depends on activities B & D. Please note that there
are 2 arrows at the left hand side of node 5 which represents Activity C. This implies that
both B & D must be completed before C can begin.
Node 6 represents activity E which depends only on activity D.
Node 7 represents activity F and depends on activity C.
Node 8 represents activity G which depends on the completion of both the activities E& F
If we wish, we can consider node 8 representing activity G as the finish of the project or
we can create a separate node 9 to represent the Finish status of the project.
Today PDM is much more commonly used than ADM.
One can see a lot of similarities between ADM and PDM The main advantage in PDM is
that all the 4 relationships which can exist between a pair of activities are possible to be
represented whereas in ADM only Finish to start relationship is possible to be shown.

CDM
While constructing a project network diagram based on Arrow Diagramming Method and
Precedence Diagramming Method, the movement in execution of activities is always
from left to right. There is no provision of conditional branches or loops to model an
activity to go from right to left representing some form of a loop. In ADM it is not possible
to have 2 activities connected between two nodes. Similarly in PDM there cannot be 2
arrows representing the logical relationship between two nodes or boxes.
ADM example.... PM3/10 MAIN
1

Activity

Diagramming techniques such as Graphical Evaluation and Review Technique (GERT)

and System Dynamics models allow for non-sequential activities such as loops (e.g., a
test that must be repeated more than once) or conditional branches (e.g., a design
update that is only needed if during inspection, error is detected).
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The Graphical Evaluation and Review Technique (GERT) is a network model developed
to deal with more complex modeling situations specially when the situation demands to
go back depending upon some tests and conditions encountered during execution of an
activity. For instance if a component fails and it is represented by an activity then the
same component needs to be rectified before manufacturing can continue.
These looping conditions can be handled by GERT. GERT combines signal flow graph
theory, probabilistic networks and decision trees all in a single framework. In short we
can understand the fundamental difference between ADM and PDM on one side and
GERT or CDM on the other hand. In GERT, branching from a node is probabilistic
whereas ADM/PDM allows only deterministic i.e.100% probability. In GERT, looping
back to earlier events is acceptable whereas in ADM/PDM no looping back is possible.
CDM or GERT methodologies are a very special type of diagramming technique and not
very
commonly
used.
They
are
not
covered
in
detail
here.
We will just cover one simple illustration explaining the fundamentals of GERT.
Let us assume that a part is manufactured on a production line in 2 hours. Following its
manufacture the parts are inspected. There is a 10% probability that a part would fail
inspection. Failed parts must be made OK by rework. Rework takes hour and 5%
chances are that the reworked part also fails during the second inspection. After the
reworked part fails, it is then sent to Scrap. Parts that pass their original inspection or
pass inspection after rework are sent to Finishing, a process that requires 4 hours 67% of
the time and 6 hours 33% of the time. There is a final inspection and 5% of the finished
parts are rejected. These rejected parts are also sent to Scrap.
Let us model the same through GERT. Please note that the illustration given below uses
different types of symbols unlike in PDM/ADM where we use round nodes and arrows
[ADM] and rectangular nodes and arrows [PDM].

PERT
Program Evaluation and Review Technique (PERT) system was developed for the
Polaris Missile Program in the 1950's. There was heavy pressure on the US Navy to
complete the Polaris Missile Program in the race of gaining supremacy with other
countries. The cold war was the reality then. Polaris Missile was aimed to discourage the
threat of nuclear war from Soviet Union. A mobile missile that could be carried aboard in
a submarine would certainly be a formidable weapon in the hands of US Government.
Hence pressure was immense.
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At that point of time, US Navy had 2 major programs. One was to deal with the
development of a submarine and the other was to develop the missiles that could be
launched from submarine. There was no past experience to help in understanding the
time, which would be required to complete these 2 major programs. There were lot of
uncertainties associated with these programs. US Navy wanted a more reliable time
estimate than available by giving one time estimate for an activity and through network
determining the total project duration.
Booz-Allen & Hamilton developed the concept of PERT while supporting Polaris
program. They came out with a concept of using 3 time estimates for determining the
duration of an activity. This is truer for those activities where uncertainties are of high
degree. The 3 time estimates used in PERT are based on Optimistic duration estimate
for completing an activity, Most Likely duration estimate for completing an activity and in
the worst scenario, the Pessimistic duration estimate to complete an activity.
According to PMBOK Guide 2000 of PMI, USA, "PERT is the network analysis
technique used to estimate program duration when there is uncertainty in the individual
activity duration estimates. PERT applies the critical path method using duration that is
computed by a weighted average of optimistic, pessimistic, and, most likely duration
estimates. PERT computes the standard deviation of the completion date from those of
the path's activity durations."
The expected value of the duration of an activity derived from the above three time
estimates is based on the following formula:
Estimated Duration Time Estimate or Expected Duration Estimate or Mean Duration
Estimate to complete an activity = [1 x Optimistic duration estimate + 4 x Most Likely
duration estimate + 1 x Pessimistic duration estimate] Divided by 6
In short,
Estimated Duration of an activity = [Optimistic + 4 x Most Likely + Pessimistic] / 6
For instance, let us take a simple example of time required to commute from home to
office. Optimistic time for commuting is 30 minutes, Most Likely, I would take 40 minutes.
Pessimistically speaking, it may take 70 minutes in a worst scenario of traffic jams etc.
Using the 3 time estimates of PERT method, the Estimated time is
[30minutes + 4 x 40 minutes + 70 minutes] / 6 which come to 43.3 minutes.
The division by 6 is based on the fact that the sum of the coefficients of the 3 times
estimates of optimistic, pessimistic and most likely is 6. Coefficient of Optimistic is 1 i.e. 1
x Optimistic time, coefficient of Pessimistic is also 1 and the coefficient of Most Likely is 4.
Based on the 3 time estimates as mentioned above with the weightages of 1, 4 and 1
given to the 3 different types of estimates of optimistic, most likely and pessimistic, the
probability distribution curve relating to the occurrence of an event is Beta distribution.
Beta distribution is a modification to the popular Normal or Gauss distribution. When
Mean is closer to optimistic time than pessimistic time, Beta distribution is positively
skewed. On the contrary, when Mean is closer to pessimistic time than optimistic time,
Beta distribution is negatively skewed. When Mean is equally distant from both
pessimistic and optimistic time estimates, Beta distribution looks and behaves like much
like a Normal distribution.
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Let us in brief look at the concept of Standard Deviation. When we use a single time
estimate for an activity A as let us 4 days, it implies that the chances are 100% that it will
happen in 4 days. Single time estimate has 0 standard deviation. In 3 time estimates as
mentioned above, the time to commute from home to office is any where in between
from 30 to 70 minutes, it gives rise to the concept of probability and the range.
The Standard Deviation in the case of the 3 time estimates used in PERT is
[Pessimistic duration estimate - Optimistic duration estimate] / 6
In the above example of commuting from home to office, the standard deviation is
[70 minutes - 30 minutes] / 6 and it is equal to 6.67 minutes
In a single time estimate, normally one would assume 40 minutes to commute to office
being most likely in 3-time estimate. The standard deviation in a single time estimate is 0
because Most likely time, Optimistic time and Pessimistic time are all the same which in
our case, it is equal to 40. As per formula, [Pessimistic time - Optimistic time] / 6 happens
to be 0.
The larger the standard deviation more is the spread of uncertainties. Standard deviation
gives a sense of how good or bad things could potentially become.
With the above 2 simple formulae, we can calculate the probability and a range of values
that the dates for the completion of the project will have when we actually do the real
project.
Let us apply the concept to a network of activities. For illustration as given below, we
have 3 activities 1, 2 and 3 whose time durations in days are based on 3 time estimates.
These 3 activities are consecutive and are on critical path.
Activity
Optimistic
Most Likely
Pessimistic
Mean SD
Variance
1

20

30

40

30

3.3

10.9

70

120

146

116

12.6

158.8

40

50

72

52

5.3

28.1

In order to calculate the standard deviation of the path consisting of the above 3
activities, we cannot add the standard deviation of each activity. We need to calculate the
variance of each activity and then add the variances of the 3 activities, which can be
done to calculate the variance of a path. Variance of an activity is the square of Standard
Deviation (SD). After calculating the variance of a path, if we then take the square root,
we would have then computed the standard deviation of the path. In the above example,
the standard deviation of the path is Square root of (10.9 + 158.8 + 28.1). It comes to
about 14.1.
When activities that are Beta distributed are added, the resulting sum approaches the
normal distribution, which can be used to estimate completion times.
Standard deviation is also called Sigma (s)

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The Mean of the path is 198 days, which is base on computing the individual Mean of 3
activities 1, 2 and 3. The Sigma of the path is 14.1.
Statistically it has been found the +- 1 sigma from the Mean i.e. from 183.9 to 212.1 days,
the chance of meeting the time schedule of the path is 68.26%.
Statistically it has been found the +- 2 sigma from the Mean i.e. from 169.8 to 226.2 days,
the chance of meeting the time schedule of the path is 95.46%.
Statistically it has been found the +- 3 sigma from the Mean i.e. from 165.7 to 240.3 days,
the chance of meeting the time schedule of the path is 99.73%.
The same concept of probability as applied to a path can also be applicable to each
individual activities.

Early Start & Early Finish of Activity

A network is a display of all interconnected activities. Activities need to be performed to
achieve project objectives. Performance of activities requires resources i.e. energy. Time
only moves forward. Consumption of energy is a function of time and therefore, activities
consuming energy will be executed as a function of time. Symbolically, we show the
movement of time in a forward direction by moving from left to right.
For a project network diagram (pnd), we need to carry a 2-pass system. What is this 2pass system?
In a 2 pass system, the 1st pass calculates the Early Start and Early Finish of each
activity. For this we carry out the analysis from left to right. This process of calculating the
Early Start and the Early Finish is called the FORWARD PASS.
Early Start Date: In the Critical Path Method, it is the earliest possible point in time at
which the uncompleted portions of an activity (or the project) can start, based on the
network logic and schedule constraints. Early start dates can change as the project
progresses and changes are incorporated in the project plan. During the planning phase
of a project, when the execution has not yet begun, the early start dates are the dates
where an activity starting from the first one can begin at its earliest time period keeping in
view the constraints.

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Early Finish Date: In the Critical Path Method, it is the earliest possible point in time at
which the uncompleted portions of an activity (or the project) can finish, based on the
network logic and schedule constraints. Early finish dates can change as the project
progresses and changes are made to the project plan. During the planning phase of a
project, when the execution has not yet begun, the early finish dates are the dates where
an activity starting from the first one can finish at its earliest time period keeping in view
the constraints.
Let us create 2 small rectangle boxes at the top left and right sides of each Node
representing Early Start (ES) and Early Finish (EF) as shown in the following figure.

The left box is termed as Early Start (ES) and the right box is termed as Early Finish
(EF). The left vertical side of a rectangle of activity A represents the starting of executing
activity A and the right vertical side of the rectangle represents the completion of the
activity A.
Activity A is of 1-week duration. The earliest A can begin is 0 week. Its duration is 1
week.
The earliest it can be completed is:
Early Start + Duration of the activity 0+1 week equals to 1 week.
We have now established the Early Start of activity A as 0 and Early Finish as 1 week.
As we go from left to right in the forward pass, let us calculate the ES and EF of the
balance 7 activities.
Refer the figure shown below.

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Activity B can have its early start as soon as it predecessor A can finish. There is no
other activity in between. ES of B is 1 and Early Finish of B is 3 weeks (ES + 2 weeks
(duration)).

ES of C is the same as EF of B i.e. 3 weeks.

EF of C is 3 + its duration (4 weeks) that is 7 weeks.
ES of E is the same as EF of its preceding activity A i.e. 1
EF of E is 1+9= 10
ES of F is the same as EF of A i.e. 1
EF of F is 1+5=6

Early Start of D is not necessarily the early finish of activity C ?

Why not ?
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Let us pause for a while and see why not? Can you identify the dependencies of Activity
D? Starting of activity D depends on completion of both activities C and E. Note the
arrows going from activities C and E to D. In other words, if activity D is symbolic of
having to start an animal picnic in which both a Hare and a Tortoise are required to
begin, you cannot begin the picnic (activity D) if only the Hare arrives. Presume now that
Activity C is a journey of 4 weeks, which the Hare is supposed to complete.
Though the Hare completes its journey by the 7th week, still Activity D which represents
the animal picnic will need to wait for the Tortoise to finish before it can start. Let us
assume that Activity E represents the Tortoise and it's early finish is not before the 9th
week. Thus the animal picnic has to wait till the 9th week before starting. In short, in a
forward pass analysis, whenever an activity is dependent on more than one activity to
finish, we always take the largest number of all the preceding Early Finishes. Activity D
depends on the completion of both activities C and E. The early finish of C is 7th week
and that of E is 9th week so D can only begin on 9th week & finish at 12 th week. Let us
calculate the ES and EF for all the other activities.
ES of G will be 9th week. EF of activity E(9th week) is later than that of F & therefore
taken as the ES of G.
EF of G is 15.
ES of H is 15th week. EF of activity G (15th week) is later than that of activity D (12th
week).
EF of H is 20th week.
If the finish of activity H is tantamount to the finish of this small project than the earliest
completion of the project is 20 weeks. 20 weeks is the earliest this project can be
completed. The forward pass gives you the earliest finish of a project irrespective of the
number of activities.
The earliest finish of a project so calculated may have the following outcome:
Not acceptable by the management as the time of early finish is much later than
the release of similar type of products by competitors
The time period given in the project plan is less than the early finish date arrived
at through the forward pass and hence can adversely affect the return on
Investment (ROI) or Internal rate of Return (IRR)
Management believes that the time estimates as given in the network by the
project management team members includes lot of padding and security built in.
After all, nobody would like to finish an activity later than the time mentioned by
them. All would like to be winners. One way could be to provide safety margins in
the expected time duration of various activities.
Approving authorities of your network diagram believe that you have not provided
enough parallel activities and have used only Finish to Start dependency
relationship thus substantially increasing the completion time of the project.
The network plan is much more optimistic less realistic. Approving authorities
believe in your honesty of showing less time required to complete the project than
what they feel is actually feasible.
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In this entire possible outcomes, you may need to redraw your network again.

Late Start & Late Finish of Activity

A network is a display of all interconnected activities. Activities need to be performed to
achieve project objectives. Performance of activities require resources i.e. energy.
Conventionally, time moves forward. Consumption of energy is a function of time and
therefore, activities consuming energy will be executed as a function of time.
Symbolically, we can show the movement of time in the forward direction from left to
right.
For a Project Network Interpretation (pni), we need to use a 2-pass system.What is this
2-pass system?
In a 2 pass system, the 1st pass calculates the early start and early finish of a activity. In
this we carry out the analysis from left to right. This process of calculating the early start
and the early finish or completion is termed as FORWARD PASS. In other words, we go
from the planned beginning of the project to the project completion.
In the 2 pass system, the 2nd pass calculates the late finish and the late start of an
activity. In this we carry out the analysis from right to left. This process of calculating the
late finish and late start is termed as a BACKWARD PASS. In other words, we go from
the planned end of the project to the beginning of a project. Please remember, we are
still in the planning phase of the project and have not yet begun the execution or
implementation of the project.
Late Start Date:
In the Critical Path Method, the latest possible point in time that an activity may begin
without delaying a specified milestone (usually the project finish date). During the
planning phase of a project, when the execution has not yet begun, the late start dates
are the latest dates by which each activity starting from the first activity can start at its
latest time period in which all the constraints as forecasted are fully incorporated.
Late Finish Date:
In the Critical Path Method, the latest possible point in time that an activity may finish
without delaying a specified milestone (usually the project finish date) During the
planning phase of a project, when the execution has not yet begun, the late finish dates
are the dates where an activity starting from the first can finish at its latest time period in
which all the constraints as forecasted are fully incorporated.
Let us do the BACKWARD PASS. In this pass, we now reverse what ever we have done
in the FORWARD PASS. Let us create 2 small rectangle boxes at the bottom left and
right sides of the Nodes as shown in the figure to show the Late Start and Late finish of
each activity.

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The left box is termed as Late Start (LS) and the right box is termed as Late Finish (LF).
To recall, the right vertical side of the node for each activity represents the completion of
executing an activity and the left vertical side of a rectangle represents the start of an
activity.
Let us reverse the logic from Forward Pass when doing the Backward Pass. In the
forward pass, we first knew the early start of an activity and based on the activity
duration, we calculated the early finish by adding the duration of the activity to its early
start to get the early finish. As the Backward pass is totally opposite to the forward pass
instead of knowing the early start, we now know the late finish. The early finish calculated
in the forward pass becomes the late finish in the backward pass.
In the Forward pass, we calculated the early finish based on the early start. If we reverse
this logic, opposite to early finish is Late Start. Instead of adding the activity duration to
early start for getting early finish we now subtract the activity duration from Late Finish to
get the Late Start.
Late Start = Late Finish - Duration of activity
It is opposite to forward pass where
Early Finish = Early Start + Duration of activity
Late Start (LS) of H = Late Finish (LF) of H - 5 weeks
= 20 - 5
= 15 weeks.
Refer to the following figure:

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Similarly, LF of activity G is the same as Late start of activity H. If activity H has to begin
latest by 15th week, all its preceding activities must be completed by the 15th week.
The preceding activities of H are Activities G and D. The latest finish of these 2 activities
must be 15th week. Let us calculate the LS of these 2 activities G and D.
LS of G = LFof G - 6= 15-6 = 9
LS of D = LF of D- 3 = 15-3 =12
Let us continue with the backward pass.
Please note: there are 3 activities H, G and D through which we have to come
backwards to approach activity E. Activity D is satisfied if Late finish of E is the 12th
week. H will be satisfied if Late finish of E is 15th week. However, G will be satisfied only
if E is latest finished by 9 weeks. Out of these three figures of 12, 15 and 9, when should
E have latest finish? If G requires E by 9th week, it should be available latest by 9th
week.
In the backward pass, when you have more than one path going backward to reach an
activity, REMEMBER take the smallest number of imposed latest finish. Do you recall
that when you do forward pass, for more than one path to reach an activity, you always
take the largest number of the early finish? Well done.
Activity Name

Latest Finish

Duration

Latest Start

Remarks

smaller of 12, 15 & 9

12

Page 78 of 167

smaller of 6, 1 & 4

You can now have the Network diagram as shown below with markings of ES, EF, LS and LF.

Critical Path
In a project network diagram, the series of activities constituting a path which determines
the earliest completion time of the project. This critical path is usually defined as
comprising of all those activities which would have the least amount of float in them and
normally, it would be the same least amount of float in all of them.
Let me give you 3 scenarios. Let us look at the example we have covered earlier of a
project network comprising of 8 activities from A to H under ADM and PDM. The critical
Path in this example had 4 activities A E G and H and all have '0' float. Total project
duration was 20 weeks.
Suppose, due to some reasons, my boss tells me, the Project Manager, that I can
complete activity H, the final activity of this small project of 8 activities by the 24th week
instead of in 20 weeks.
I now do not have to work hard to complete the project by 20th week. My latest finish
now changes to 24th week for activity H. After doing the backward calculation, I now find
that the critical path is still A, E, G and H but instead of '0' Float, we have 4 weeks of
positive Float. It is not that bad. I can relax.

Float
Scheduling Constraints
In a network of activities, we may now define various kind of options in scheduling a
network or an activity. If the same logic applies to all the activities of a network, then it
may be called Network scheduling option or a constraint.We may choose the various
options or constraints to schedule an activity from the following matrix :

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Type
Fixed Start

Network-Driven

Date-Driven
Start No Earlier Than (SNET)
Start No Later Than (SNLT)
Start by a fixed date or
Must Start On (MSO)

Group Concept
A network is a display of all interconnected activities. Activities need to be performed to
achieve project objectives. Performance of activities requires resources i.e. energy.
Let
us
look
at
the
scenario
in
Some of the characteristics of this scenario are:

which

we

execute

projects.

Associated degree of uncertainties which can give rise to

surprises both pleasant and unpleasant - often unpleasant
a difficult mechanism of capturing relevant information
forcing a change in the strategy
constantly being proactive in integrating the disjointed pieces of information and
symptoms
resource constraints - both financial and non financial
lack of integration of vision/goal amongst the team members
conflict of interest amongst the various project stakeholders
external constraints
It is therefore a challenge to complete the network of activities in the most optimal way by
consuming minimum energy in executing the activities. While this is a demand on one
side, in contrast to this, there is another challenge to complete the network of activities in
the shortest possible time with no compromise on quality or scope of the project. This
should all be achieved in minimum cost. In a way, the cost dimension is indirectly taken
care of by consuming minimum energy as a whole.
Often there is conflicting demand on time, cost, quality and scope. Shortening of time
would often require more deployment of resources consuming more energy and thus
money.
The above dichotomy in spending minimum possible energy in a project vs. other
demand on spending more by reducing time or due to uncertainties has always, and will
always pose one of the biggest challenge to the profession of project management.
Project management is the art and science of converting vision into reality and abstract
into concrete results. Project Network Interpretation is one of many scientific techniques
to address the possibilities of accomplishing the project objectives in the best possible
time frame keeping in view the resource constraints.
In interpreting a network, we would have drawn a set of connected activities with due
diligence built in for their interdependencies. This can be achieved by using Arrow,
Precedence or Conditional Diagramming Methods.

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Let us use the following Precedence Diagramming Method to illustrate the Project
Network Interpretation.
Let us look at the interdependencies with the help of the following figure.

There are 8 activities in the project - activities A, B, C, D, E, F, G and H.

There are 11 Finish to Start dependencies i.e. A-B; A-E;
A-F; B-C; C-D; E-D; E-H; E-G; F-G; D-H and G-H.
The time duration is given in weeks and is indicated above the activity name.
In Project Network Interpretation, we use the concepts of:
Early Start, Early Finish, Late Start and Late Finish for each activity
Critical Path
Floats/Slack for different activities
Crashing of time
Possibly introducing extra lead dependencies
Improving parallelism amongst the activities
There are 2 distinct methodologies of drawing networks and consequently there
are also 2 ways of network interpretation.
The 2 methodologies are:
1. Critical Path Method and
2. Critical Chain Method
There are 2 major phases in which we carry out Project Network Interpretation:
Phase of Initial Planning and Phase of constant monitoring and updating of network
during Implementation

Duration Compression
Duration is, generally speaking, a measure of time dimension it is a length in time vector.
As the direction of time is one-way and deterministic with reference to its movement in
future, duration is a reflection of the magnitude of time. It is equivalent to the number of
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work periods required to complete an activity or project elements. Usually duration can
be in work hours, workdays, workweeks, work months or for that matter any time unit. It
depends on the objective of a project and the length of the total project. Duration could
be in work minutes, work seconds or even in smaller units of time. Basically, it is a unit of
time, which reflects the completion of an activity for its logical conclusion.
Compression
Compression is generally a measure of how much one can compress an organic entity
like gas etc. In our context, it implies as how much project time can be compressed. Can
you really compress time? Yes, it depends on the relativity of time and the perspective.
Without any philosophy built in the discussion, one can relate compression of time with
reference to the duration of an activity.
If I am required to complete an activity in 8 hours of my work time, can I do the same
activity in a smaller time unit? This is the question we need to answer for understanding
the basic concept of Duration Compression. Duration compression is not always possible
and if possible, we may require:
1. Additional resources to perform a given level of effort for an activity or
2. Improvement in the productivity level of an individual or
3. Reducing the quantum of total efforts associated with an activity or
4. Redefining the activity itself so that it requires less effort.
What is the work content of lifting a paper from one tray to place it in the next one?
Hardly any. The quantum of the work content will decide the complexities of the
management challenge
For a given objective or a mission to be accomplished effectively the WBS must be well
organized. In order to compress the duration we would normally refer to the WBS.
The Work Breakdown Structure is a deliverable-oriented grouping of project elements
that organizes and defines the total scope of the project. Work which is not included in
the WBS, is outside the scope of the project. WBS is an excellent way of defining the
scope of a project and has common understanding amongst all who are involved in the
accomplishment of an objective.
It is quite evident that when the quantum of work content could vary substantially, we
should be able to divide the work content in some form of logical division.
Duration Compression is a special case of mathematical analysis that looks for ways to
shorten the project schedule in time dimension without changing the overall project
scope (e.g. to meet imposed dates or other schedule objectives). Duration compression
includes techniques such as:
1. Crashing and
2. Fast Tracking
Duration compression is relatively easier in those set of activities which have been
performed earlier though may not be in exactly the same manner than in those activities
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which relate to Research and Development (R&D). Activities with a high degree of
uncertainties with reference to the future may not be easily amenable to duration
compression.

Fast Tracking
If an activity C follows activity B and B follows A and each activity has 4 weeks duration,
the time taken to complete these three activities will be 12 weeks.
In the best possible case, if activities A, B and C are all independent and can be started
simultaneously, the time taken to complete these three activities will be a total of 4
weeks.
It can be implied therefore that the time duration of completing the three activities will
entirely depend on the logical relationship of these three activities besides the time
duration of each activity. While Crashing is used to reduce the time duration of an activity
by increasing resources etc, fast tracking implies the restructure of the logical relationship
and sequence of the activities. In short, fast tracking would require doing activities in
parallel that would normally have be done in sequence (e.g.starting to write code on a
software project before the design is totally complete). Fast tracking involves a certain
amount of risk and consequently could result in rework.
One knows for sure that nothing is free in this world. No free lunches. If one wishes to
reduce the time duration of a project by fast tracking mechanism they must be prepared
to face increase risks that arise out of this fast tracking. Sequential activities are least
risky but take the longest time whereas all parallel activities will take minimum time but
have associated high degree of risk as a parallel activity may have to be redone.
Fast tracking is generally a riskier but cost effective way of time compression because it
does not require additional, unbudgeted resources to be used in the project.

Crashing
It is a concept in which cost and schedule trade-offs are analyzed to determine how to
obtain the greatest amount of compression for the least incremental cost. Crashing does
not always produce a viable alternative and often results in increased cost.
The set of activities, which constitute the longest path in the network from the beginning
to the end, is called Critical Path. Any delay in this path will result in the delay of the
completion of the set of activities or a project, which comprise of all these activities. It is
logical therefore that one should first try to carry out the exercise of duration compression
only on those activities which fall on the critical path. Conversely, saving time on a critical
path will also shorten the total duration of the project.
Let us look at the following network diagram of 8 activities A to H.
Refer to the following diagram:

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The critical path constitutes activities A, E, G and H.The following table is given to us for
crashing activities.Which one would you prefer to crash?

Activity name Normal time duration Time duration after Crashing cost
A

$0

$ 4000

$ 3500

$ 2500

$ 12000

$ 1500

$ 7000

$ 9000

After defining the critical path constituting activities A, E, G and H, we should first
examine these 4 activities from crashing point of view. You may recall that any increase
in the time duration of critical activities will increase the total duration of the project and
savings in time can result in compressing the total time of the project.
While we are looking to crash time n the critical activities, we should simultaneously
examine other paths as well. By reducing one unit of time from the critical path, some
other paths can either continue to be non-critical or near critical.
Out of 4 critical activities A,E, G and H, Activity A can not be crashed as the normal time
duration is the same as the time duration after crashing i.e. 1 week.
Out of the balance 3 activities,in order to prioritize the preference, we now look at the
definition of crashing.
Crashing:
Taking action to decrease the total project duration after analyzing a number of
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alternatives to determine how to get the maximum duration compression for the least
cost.The cost of reducing 1 week of time duration by crashing activity E is the total cost of
crashing divided by the number of weeks crashed. In this case, the total cost is $12000
and we achieve a reduction of 3 weeks. The cost of reducing 1 week of time comes to
$4000.
The cost of reducing 1 week of time duration by crashing activity G is the total cost of
crashing divided by the number of weeks crashed. In this case, the total cost is $7000
and we achieve a reduction of 2 weeks. The cost of reducing 1 week of time comes to
$3500.
The cost of reducing 1 week of time duration by crashing activity H is the total cost of
crashing divided by the number of weeks crashed. In this case, the total cost is $9000
and we achieve a reduction of 1 week. The cost of reducing 1 week of time comes to
$9000.As it is apparent now that the least cost of reducing 1 week of time duration on a
critical path will be through activity G. The duration of activity G is now reduced to 5
weeks from 6 weeks.
By incurring additional cost of $3500, the total duration of the project is reduced to 19
weeks. With this revised time duration assuming that the management would have
agreed with this crashing strategy, we need to do the forward and backward passes
again. The final diagram is as follows:

We still find that by crashing 1 week of time in activity G, the critical path still goes
through the original 4 activities i.e. A, E, G and H. If we need to reduce the project
duration by one more week, we can do so by following the same procedure.
Still activity G will be the main candidate to reduce the duration by 1 week as it costs the
least for this activity for the time reduction i.e. $ 3500.
It may be noted that the real world is dynamic and after carrying out the crashing of
Activity G in the first phase, the cost of crashing subsequently could change and it is the
revised cost which needs to be considered for the second phase of crashing time again
by 1 week.
We have assumed no such change in the second phase of crashing.
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After crashing 1 the time taken for activity G by 1 more week, the revised time duration is
now 4 weeks from the earlier duration of 5 weeks. With this revised time duration, we
need to do the forward and backward passes again. The new project network diagram is
as shown below:

Let us do one more attempt of crashing the project time duration. Management is
compelled to finish the whole project comprising of 8 activities in 17 weeks. Cost is not
important.
We decide to crash activities on the critical path by one more week. Let us look at the
critical path and it still comprises of activities A, E, G and H.
Activity G cannot be crashed i.e. no more reduction in its time duration is possible. It
does not matter how much money we have. OK. Let us look at other alternatives. We
can crash activity E or H. the cost of crashing by 1 week for activity E is $4000 and for
activity H is $9000.
We would prefer to spend least amount of money to reduce the project duration by 1
more week. Logically, activity H should be cashed by reducing its time duration by 1
week. The duration of activity H is now reduced to 7 weeks from 8 weeks.
After crashing 1 week the time taken for activity E, we need to do the forward and
backward passes again.The final project network diagram is as shown below:

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Special Note : It can be seen that in this network diagram, there now exists 2 critical
paths i.e. one critical path comprising of activities A, E, G and H which is the original
critical path. The second critical path, which has now emerged, comprises of activities A,
E, D and H.
Project managers - get ready for more fun in this game of managing projects. Multiple
critical paths are not something undesirable.
In order to achieve the time of completion of the project in 17 weeks, the cost of crashing
comes to $11000 i.e. $7000 for crashing activity G by 2 weeks and $ 4000 for crashing
activity E by 1 week.

Split
It is always advisable to break activities into small time units to the extent that they can
be easily managed.
Let us assume Activity A represents the leveling of a site for planting grass. Activity B
represents planting of Grass. Duration of activities A and B are both 5 days each. In a
classical sense, if I had to wait for the site to be completely leveled first before starting to
plant the grass, activity B has to wait till the 5th day. Total duration of activities A and B
will thus be 10 days. Suppose if it is possible to plant the grass after one fifth of the site is
leveled on the first day of activity A, can I not then split activity A into 5 parts and try to
schedule activity B to run in parallel to the execution of activity A.
Let us split Activity A into five parts namely a1, a2, a3, a4 and a5. We can also split
Activity B into five parts namely b1, b2, b3, b4 and b5.
After the completion of a1, b1 can begin and similarly the same relationship is for the
other sub activities a2 to a5 and b2 to b5. The graphical representation is shown below:

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We can see the advantage of splitting activities A and B. By doing so, the total duration of
the project is reduced to 6 days as opposed to 10 days without splitting.
The main advantage of splitting is in reducing the time duration. It is possible only if there
is no resource constraint attached to the activities A and B. If the resource used is the
same for both activities A and B, Splitting the 2 activities would not compress their
duration as we do not have resources to plant the grass since the same person who is
leveling the site would also be planting the grass.
Resource constraints play an important part in scheduling a network.

Scheduling with resource constraint

Every organization has fixed resources- physical and non -physical. Human resource is a
primary resource to carry out project activities. We need capital, material, machinery and
other miscellaneous resources to carry out and complete project activities.
Generally an organization will be carrying out many projects at any given point of time.
For each project manager, his/her project is the most important. S/he would like to get all
the possible resources from the management to effectively carry out the activities.
However, the world is not so utopian as a project manager may wish.
Imagine a situation where for project X, an expert system designer is required to initiate
the project in Philadelphia. However, this expert is the only expert designer available in
this organization A and is tied up in California (Silicon valley) for supporting a marketing
group to clinch a million dollar deal.
This export system designer would be tied up for the next 10 days and project X is crucial
to the organization A. Total project duration is 30 days and you can ill afford to delay by
10 days. A real situation in a real world.
The conventional critical path method may give you a critical path based on the interrelationship of various associated activities. It presumes that the resources are available
as and when needed. We know this may not be true.
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Now let us look at the resource based scheduling option.

1. Determine the resources required for different activities in a network. This will
generally be known as before deciding the duration of each activity we need to
assess the resources required for it.
2. Find out the availability of resources which would be available to your project with
reference to the time frame.
3. Look at the floats available for different activities.
4. Draw a resource histogram which really implies the level of different types of
resources needed with a time baseline i.e. with reference to different time periods.
5. Draw up the difference between requirements of resources with reference to time
periods and its availability.
6. Distribute the lack of resources to non-critical activities. Non-critical activities as
we know are those activities that have some float. Float is the difference between
Late Start and Early Start.
7. Look at the deficiency of resources on the critical path.
8. Examine the alternatives of shifting critical resources required to activities on the
critical path from non-critical activities.
9. Draw up a final resource deficiency list for critical path activities.
10. Draw up a final resource deficiency for non-critical activities.
11. Manage to obtain resources or else out-source some of the work or have
resources working over time or employ other innovative strategies.
12. Change time schedule of both critical and non-critical activities based on the
resource constraints.
13. Draw up a new network of activities with revised time duration based on the
resource constrained scheduling.
14. Complete the exercise of resource constrained scheduling once again to verify all
the previous assumptions.
In today's context of Information Technology age, there is numerous software available in
the market place, which can do scheduling based on resource constraints. Resource
leveling is one of the common words used when applying resource constraint scheduling.
The real world is much more complicated than we like to see. Resource constraints form
one of the bottlenecks in scheduling.The above mentioned resource constraint has
merely been talked about on a quantitative plane.
In real life, specially in case of human resource, it is not merely a matter of the number of
people available but the time duration of activities will also be heavily dependent on the
capabilities of the human resource. Assuming that human resource capabilities are not at
par even at a higher level could often result in considerable time delays.
In resource constraint scheduling techniques, one should take into account both the
quantitative and qualitative aspects of the human resource to arrive at a meaningful time
duration and completion of project estimates.

Gantt Chart
Gantt
chart
are
also
commonly
referred
to
as
Bar
Charts.
Henry Gantt had first used this procedure of laying activities and representing them as a
bar in the early 1900's. A bar is a two dimensional rectangle representing an activity. The
bar chart depicts a schedule of activities and milestones. A milestone is a major event
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when accomplished in the life of a project. Generally, activities are listed along the left
side of the chart and the time along the top.
Sometimes, time can also be shown at the bottom of the chart though this is not very
common. The activities are shown as a horizontal bar of a length equivalent to the
duration of the activity as per the time scale shown at the top.
Today bar charts are used frquently in virtually all projects. Some of the reasons for their
popularity is because they are:
1. Extremely easy to draw
2. Extremely easy to understand
3. Senior executives would like to be briefed in a minimum possible time
4. Summary of ten's of activities can be depicted by one bar
5. One can easily go through the original time schedule versus current status at a glance.
6. Easy to change
7. Least complex means of showing progress
In the original Gantt charts or Bar charts, the logical relationship of one bar (an activity)
was not possible to be shown with the other bars (other activities). Please remember, the
bars represent only activities. If you delay one activity i.e. one bar representing it, what
would be its impact to the project completion time was not possible to be determined as
bars were independent.
This was one of the major limitations of the Bar chart in the early years. The relationship
between activities is crucial for controlling project costs and schedule. Without this
relationship, Bar charts had little predictive value.
Today's project management tools do provide the interdependencies between the bars
making them more intelligent in the sense that one can safely see the impact of delays in
an activity on its dependent activities. Please note that if one has a network of, let us say
a 100 activities with their interconnections, a bar chart may show 5 to 10 activities. Let
me give a simple illustration. Let us assume a family tree.
My Grandfather had 4 brothers and one sister. For the sake of simplicity, we assume
each of his brother and sister had 2 sons and 2 daughters (in the olden days, family used
to be BIG). My grandfather however, had only 1 son and 1 daughter. My father has one
son and me (daughter). In the simplest possible bar chart representing my grandfather, I
would need to show 6 bars representing 5 brothers and a sister. In this bar, there will not
be any provision to shown a further breakdown.
Remember, bar chart is meant to show a set of activities or projects, which are at
summary level only. For knowing the details of a project, one must go to the network
representing interconnectivity between hundreds of activities.
Let us look at a typical project of 14 major activities. Each one of these activities will have
associated with them ten's and hundreds of activities. We are showing you one of the
ways of making a Bar chart. There are many ways and as a rule, what suits a person
reviewing the progress is the best.

Lessons Learned

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In today's context of globalization when global human networks are being formed for the
first time in the history of civilization complacency is the single most fatal mistake one can
commit. Failing but learning lessons out of this failures boils down to converting liabilities
into assets. If we do not learn lessons, then failures remain within the systemic culture.
Often, we try to either justify the mistakes committed or cover up for the sole reason of
coming out as 'Mr. Clean'. Either way, it is a big loss to corporations if we do not
institutionalize the Lesson Learned process. Nobody does mistakes intentionally. Some
of the common reasons for mistakes could be attributed to one or more of the following.
This is only a subset of a whole lot of possibilities
1. Improper planning
2. No contingency planning
3. No risk assessment
4. Decision based on inadequate information
5. No clear communication
6. No clear directives
7. Not competent to handle a situation
8. Not an effective team builder
9. Relying too much on self
10. No proper control
In any case, whatever may be the reason for any mistakes made or for taking the
corrective actions throughout the life cycle of a project, the formal process of Lessons
Learned is when we capture the causes of variances, the reasoning behind the
corrective actions, and other types of lessons learned from schedule control should be
fully documented so that they become part of the historical database for both this project
and other projects of the performing organization.
It must be once again emphasized that lessons Learned through proper information
sharing and documentation is the only way to compete in this tough global scenario.
Lessons learned is a constant exercise, which we all should do during the networkmonitoring phase in the project execution life cycle.

Resource Planning and Allocation

Planning, allocating and scheduling resources to tasks, generally including people,
machine (plant and equipment), money and materials is another fundamental
requirement of effective project planning and management. Resource management
typically covers resource allocation and its impact on schedules and budgets, and
resource leveling and smoothing.

Resource Scheduling
Resource scheduling is the activity, which constitutes of making the resources available
at the time of their requirement during the project life cycle. It could be manpower,
machinery, support functions availability, financial etc. It requires a very good
understanding and experience of resource management and the exact project
requirements and needs for affecting the timely delivery. The project manager would be
required to assess in advance and allocate the resources to various tasks occurring at
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various time phases of the project in order to maintain the smooth execution of the
project.

Leveling and Smoothing

Resource smoothing can be very effectively done manually since unprogrammable
factors such as personality traits of work force, working space, complication in a task etc.
can only be considered by human when smoothing exercise is being carried out.
Smoothing operation nevertheless must still follow the logical pattern as mentioned
under:
1. Advantage should be taken of existing float. Activities with free float should be the
first to be extended so that the limited resources can be spread over a longer time
period. The floats can be indicated by dotted line on the horizontal bars of an
activity.
2. When the floats have been absorbed, and resources distributed, a new histogram
diagram can be drawn s shown below.
3. If the peaks still exceed the available resources, logical changes would be required
during that period. These may be done on the network or by sliding the bars on the
bar chart.
4. If the weekly or daily aggregates are totaled cumulatively it is sometimes desirable
to draw the cumulative S curve, which provides a clear idea of the build-up of the
resources over the period of the project.

Resource Histogram
This is an effective means to understand and gauge the resource allocation status and
impact of the resource on the project development. It also helps in doing a resources
leveling and smoothing exercise as explained in the previous section. As you would see
in the diagram, a resource histogram is generated from the resource allocation to various
activities during the project and appropriate actions can be taken to manage the
resources so that the project meets its desired schedule and the resources are allocated
in such a manner that the utilization of the resources is to the optimum during the
complete project cycle.

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'S' Curves
'S' curve implies a sort of curve, which resembles a shape of an English alphabet S.
S curve reflects the cumulative total of a parameter. As it is a cumulative total, it keeps on
increasing till become constant. For instance, let us take an example as shown below:

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The curve of software engineers required for this project of 10 weeks duration is
shown below.

One can always compare the planned 'S' curves versus the actual. The concept of S
curve can be applied in a generic manner.

Estimation
Estimation forms one of the basis for making a project successful. Estimation of a project
helps the Company to decide whether to venture into a project or not. There are several
ways of preparing cost estimates for various cost components. The most direct is to
break the work down to a lower level of detail, estimating the cost at that level and sum it
all up to the top. However it is advisable to use two or more techniques to estimate the
project for better accuracy. Some of the methods used for estimation are mentioned as
under:
1. Parametric method
This model uses historical data as the basis of the models predictive features.
However, the characteristics that are fed into the process are primarily based on
performance indicators such as speed, accuracy, tolerance, reliability, friendliness,
error rate and complexity of the environment of the deliverables. The output of
parametric models includes the cost of major phases, total project cost and resource
requirement.
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2. Analogous estimation
These are the simplest form of estimating. This refers to the estimating process
where in the project manager's opinion there is a significant similarity in the proposed
project and the projects in the historical database. These models tend to be less
complex, easier to use and more inexact than the parametric models. These are
generally used in the early estimates, which are called as the conceptual or ballpark
estimates. These early estimates are used to formulate rough estimates, for various
options and to determine the relative viability of the project in the process of
screening alternative projects.
3. Top down estimation
The estimate is made against stages of a standard lifecycle, and activities with in the
lifecycle, often applying fixed percentage allocation to each stage. This approach has
several advantages:
a. A detailed design of the final system is not required, therefore the approach can
be used in early stages
b. The technique is comparatively inexpensive
c. It does not constrain the user from other techniques
4. Bottom up estimating
Contrary to the top down estimate, this is a detailed estimate built up from the
knowledge of the design of the system. It is most effectively used to provide an
estimate for the next stage of the project prepared on completion of the present
stage. This technique is expensive, and also has several disadvantages, which imply
that it almost be required to be used in conjunction with other techniques.
a. Errors tend to compound, resulting in underestimating of the costs
b. It takes no account of the shortened project time scales.
5. Expert Judgment
Many semi-experienced project managers depend on the more experienced ones
and the experts of the field to validate the conceptual estimates of the projects
regardless of how the estimate was prepared. Project managers even consult their
peers to fine tune what they consider as a reasonable estimate. This technique
involves consulting one or more experts to validate the estimate of the proposal
project against the experience and understanding of the experts, who will consider
the details of the project complexities and characteristics in tempering the estimate or
concurring with it.
6. Function point analysis:
This is a mathematical model used mainly in the software projects applies only to the
development stage of the project, which typically accounts for only 50% of the total
cost. This method counts the function points, which represent the total functionally of
the system. The basis for calculating the function points include:
a) Inputs (forms and screens)
b) Outputs (reports and screens)
c) End user enquiries
d) Logical data files
e) Interfaces to other systems
Function points are converted to an estimate by:
Comparison with previous systems
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Converting to lines of code.

Cost Reporting and Monitoring

The application of Earned Value Management System (EVMS) is increasingly becoming
de-facto a standard in monitoring and reporting Costs. The details of EVMS are covered
extensively elsewhere and the readers are recommended to go through the same in
order to understand the principles.
Basically, in short:
1. Capital is required to undertake a project
2. Capital is raised in the market place at a certain borrowing rate
3. The profit, which would be generated by implementing the project, will be higher
that the cost of borrowing to make more money than invested.
4. In order to put a ceiling to as what is the cost of implementing a project, one goes
into the details of all the modules and components of the project for costing. The
higher the accuracy of cost estimates the better the chances are of meeting the
cost budget.
5. Cost budget is derived based on the cost estimates, contingency and other
factors, which might not have been included in the cost estimates.
6. The budget is spread over the length of the duration of the project from start to the
end.
7. In order to spread out the cost budget across the project duration, it is also
decided as what work is to be undertaken at different periods of time duration.
8. The reality is not exactly the same as planned and therefore there may be a
variation between what is planned and what is spent in terms of the costs.
9. If there is going to be variation in planned vs. actual, we should be able to know
how much will it cost to complete the projects based on new scenario. We should
also examine whether it is worth pursuing the project, if costs are more than the
expected to the extent that viability is affected.

Keeping above points in view, we look at the parameters of the EVMS.

For cost control, we are mainly concerned with
Budget Cost of all the Work to be Scheduled (BCWP), which is nothing but the Budget At
Completion at the beginning of a project (BAC). It is also called Planned Value (PV).
Actual Cost of Work Performed (ACWP) or Actual Cost reflects the cost incurred in
performing a part of the planned work. The value of the actual work performed is called
earned value of BCWP.
In utopian sense, BCWP and ACWP should be the same. In that case, the efficiency is
100% and the original BAC will be maintained.
If ACWP is more than BCWP, we will need more money to complete the project and if
ACWP is less than BCWP, we will save money from the overall allocation of the funds
thus increasing the viability of the project.
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Please refer to EVMS Concept in Control Issues Section.

Change Management Concepts

Change Request - A formally submitted artifact that is used to track all stakeholder
requests (including new features, enhancement requests, defects, changed
requirements, etc.) along with related status information throughout the project lifecycle.
All change history will be maintained with the Change Request, including all state
changes along with dates and reasons for the change. This information will be available
for any repeat reviews and for final closing.
Change (or Configuration) Control Board (CCB) - The board that oversees the change
process consisting of representatives from all interested parties, including customers,
developers, and users. In a small project, a single team member, such as the project
manager or software architect may play this role. In the Rational Unified Process, this is
shown by the Change Control Manager role.
CCB Review Meeting - The function of this meeting is to review Submitted Change
Requests. An initial review of the contents of the Change Request is done in the meeting
to determine if it is a valid request. If so, then a determination is made if the change is in
or out of scope for the current release(s), based on priority, schedule, resources, level-ofeffort, risk, severity and any other relevant criteria as determined by the group. This
meeting is typically held once per week. If the Change Request volume increases
substantially, or as the end of a release cycle approaches, the meeting may be held as
frequently as daily. Typical members of the CCB Review Meeting are the Test Manager,
Development Manager and a member of the Marketing Department. Additional
attendees may be deemed necessary by the members on an "as needed" basis.

EVM-Time
Activities are performed in time dimension. Activities consume resources. Some of the
resource categories are: human potential, material, equipment and machinery. There are
2 types of material - one which is physical like steel, aluminum, oil,etc. and the other type
of material relates to invisible i.e. thoughts, concepts and ideas. They become visible
only when expressed.
Similarly there are 2 types of raw material - one which is physical like iron ore or crude oil
etc. and the other type of raw material which is invisible i.e. raw material which makes
thoughts and ideas to get formed and developed. At this stage, this resource becomes
visible. We can call it as 'brain ore' responsible for generating concepts and ideas similar
to 'iron ore' for making steel. Often I also like to term 'brain ore' as 'brianotrons' keeping in
view the word electrons.
Let us look at executing activities from the economic dimension point of view. Who wants
to execute what kind of activities and for what aim?
This topic is quite interesting and could need a lot of explanation. However, for our limited
purpose of project management, let us define the reason for performing activities as the
one necessitated for business to grow. A set of activities is undertaken by a company to
increase its market share to have a competitive edge over its competitors.
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What is a common denominator for acquiring resources? CAPITAL. MONEY. We now

define 2 major dimensions to the performance of activities i.e. TIME and MONEY
(COST).
In a typical and conventional project management methodology, project progress
comprising of thousands of activities is measured against time and cost as two different
scales.We review as how much work (completion of a set of activities) has been
performed with reference to TIME. Are we ahead in time dimension or lagging behind?
Similarly, we also monitor the work performed with reference to COST. Are we spending
more money i.e. incurring more cost or are we saving in project cost?
Let us now take a concrete example.
There is a project to build a home undertaken by a lady. She has organized money for
building up the home. The cost of this home project is fixed at $100,000. The home
should be ready for occupation within 6 months from the date of starting. First let us be
clear as to what does start imply? Is it from the time the idea was generated to build a
home or from the time the money was organized or when the architect and engineering
firm were finalized for the construction?
Let us assume that the start date is counted from the date the owner had organized the
money.
She has now laid out the total plan of executing the project. After planning in terms of her
requirements, she would have hired the services of a consultant to schedule the activities
in such a way as to complete the project within 5 months as 1 month would have already
gone in planning, selecting a consultant and other associated activities.
The lady is now ready to define all her requirements in terms of Cost. She is bothered
about maintaining the $100,000 magic number and has evolved a term called the
Planned Value - this was previously called the Budgeted Cost of Work Scheduled or
BCWS. As per the definition, this is the sum of the approved cost estimates (including
any overhead allocation) for activities, or portion of activities scheduled to be performed
during a given period.
Period
Planned Value
Cumulative Planned Value
(PV - formerly BCWS)

(PV - formerly BCWS)

Jan, 2000

$5,000

$5,000

Feb, 2000

$10,000

$15,000

Mar, 2000

$25,000

$40,000

Apr, 2000

$30,000

$70,000

May, 2000

$23,000

$93,000

Jun, 2000

$7,000

$100,000

This is normally done prior to begining execution. You plan all your work and assign
costs to them and then schedule them against a time period. There may be 10,000
activities, small and big, involved in the project from making the foundation to the roof,
walls, electrical fittings, plumbing, interiors

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These activities in the above-mentioned methodology have been transformed into an

equivalent cost worth. At the end of June 2000, the owner should be ready to move into
her new home.
Planning is the first step to achieve this. However, in this real world, everything does not
go fully as per plans. We need to monitor actual performance and measure it against the
plan.
Then we need to take any necessary corrective actions to ensure that the performance
goes according to the plan or is even better.
Let us see the performance of the actual work performed on a given time period
including the value of the work done on a monthly basis. We will introduce a word called
Earned Value which was previously called Budgeted Cost of Work Performed or BCWP.
This is the sum of the approved cost estimates (including any overhead allocation) for
activities or portions of activities completed during a given period (usually project-todate).
Period

Earned Value

Total EV as on now

(EV - formerly BCWP)

Jan, 2000

$4,000

$4,000

Feb, 2000

$9,000

$13,000

Mar, 2000

$20,000

$33,000

Apr, 2000

$30,000

$63,000

May, 2000

$23,000

$86,000

Jun, 2000
$14,000
$100,000
Let us compare the cumulative Earned Value (BCWP) and Planned Value (BCWS) on a
monthly basis.

Period

Total as on now

Total as on now

Earned Value - EV (BCWP)

Planned Value - PV (BCWS)

Jan, 2000

$4,000

$5,000

Feb, 2000

$13,000

$15,000

Mar, 2000

$33,000

$40,000

Apr, 2000

$63,000

$70,000

May, 2000

$86,000

$93,000

Jun, 2000

$100,000

$100,000

Against this target, we could accomplish Earned Value (BCWP) to the tune of $33,000.
We were behind by $7,000. Assume that we are at the end of March 2000. I am the
owner of the home being built. I asked my contractor about the progress.
I now define as per the Earned Value Management system a term called Schedule
Variance (SV).
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SV = EV - PV (BCWP - BCWS)
At the end of March 2000, BCWP= $33,000 and BCWS = $40,000.
SV = $ 33,000 - $ 40,000 = - $ 7,000
Remember, negative means we are behind schedule as planned. So negative is bad.
We now define the Schedule Performance Index:
(SPI) = EV/PV (BCWP/BCWS)
SPI = $33,000/$40,000= .825
What should have been the SPI at any given period? SPI should be equal to 1. It is
theoretical however, to expect SPI = 1 at all the time periods. Ultimately, if we do not
exceed the time of the completion of this project at the end of 6 months, SPI would be
equal to 1.
The owner ensured that at the end of April and May 2000, there was no additional
slippage in the performance and the slippage of $7,000 was maintained. In all probability,
in the month of April 2000, the backlog of $7,000 would have been cleared and $18,000
of the scheduled work of April 2000 and so on. In the last month, may be more resources
had been put or overtime used to do extra $7,000 worth of work to complete the project
in the planned time of 6 months. A S-curve is used to display a graphic representation of
cumulative costs, labor hours, or other quantities, plotted against time. The name derives
from the S-like shape of the curve (flatter at the beginning and end, steeper in the middle)
produced on projects that start slowly, accelerates and then tails off.

EVM-General
Note:
This version of EVMS write up is done by one of the authors different than the one who
did the EVMS write up in the Time management section of the pmguru site. You may like
to go through the other write up for increasing the understanding of the subject.
EVMS is a significant way of measuring project performance. There is a separate EV
Body of Knowledge getting momentum.
Conventionally while managing projects we look at the cost dimension and the time
dimension separately. Our normal concern is - how much more time do we need for
completing the particular task and how much more money will it cost! Imagine if we could
translate the expenditure of money itself as a function of time and combine these two
dimensions of time and cost to a single dimension of cost alone. Shouldn't our project life
become a little simpler? Certainly, yes.
Earned Value Management System (EVMS) is a very effective and a commonly used
project performance measurement tool that does exactly this. The technique of Earned
Value integrates cost and schedule performance in one report unlike traditional reports in
which cost and schedule are reported separately. By examining the cost and schedule
variances concurrently it is possible to get a holistic and a much more realistic view of the
project's
progress.

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Earned Value Management System uses three key independent values, which are used
together to get the performance status and progress of the project.
These three values are:
The first value is the Planned Value (PV) or the Budgeted Cost of Work Scheduled
(BCWS).
BCWS or PV is the physical work that was scheduled or planned to be performed plus
the authorized budget to accomplish this scheduled work.
Today the term Planned Value (PV) is more commonly being used than the
nomenclature Budgeted Cost of Work Scheduled (BCWS).
The second key value used for EVMS is the Actual Cost (AC) or the Actual Cost of Work
Performed (ACWP). This is the total cost that was Actually Incurred in accomplishing the
work that was completed. Today the term Actual Cost (AC) is more commonly being
used than the term Actual Cost of Work Performed (ACWP)
The third value is the Earned Value (EV) or the Budgeted Cost of Work Performed
(BCWP). This is the sum of the approved cost estimates for the physical work that was
actually accomplished on the project plus the authorized budget for activities or portions
of activities that have been completed. This includes the sum of all the approved cost
estimates. EV may include overhead allocation for activities or portions of activities
completed during a given period, which is generally project-to-date. It should be noted
that this value is based on the costs that were planned or budgeted to be incurred for
completing the work. Today the term Earned Value (EV) is more commonly being used
than Budgeted Cost of Work Performed (BCWP)
Let us see how we can develop this concept.
To perform an activity, we need two major dimensions. An activity (activities and tasks
has been used interchangeably) is performed on a time plane. Every activity must have a
start time and a finish time. In order to perform an activity, we also need resources.
Ultimately the resources required to perform activities or tasks can all be transformed into
a common denominator, which is Money (cost).
Let us take an example to see how to calculate the Earned Value.
There are 7 activities that are to be performed within a certain time frame. For simplicity,
cost of performing the activities and money is assumed to mean the same thing.
First of all, we need to plan how much work we are likely to do in different time periods.
Let us assume that the 7 activities are A, B, C, D, E, F and G. The Planned Value or the
Budgeted Cost, which is the estimated budget that has been approved for performing
each of these 7 activities, is US$100 per activity. Let us further assume that all these
activities are to be performed in 5 days starting from Monday. At the planning stage, the
schedule and planned budget for these five activities will be as follows:
Activity Name Approved Budget Scheduled day of the week
PV/BCWS for completing the
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Activities
A $100 Monday
B $100 Wednesday
C $100 Tuesday
D $100 Tuesday
E $100 Thursday
F $100 Friday
G $100 Wednesday
Let us see what the total cost of performing these 7 activities will be on a day-wise basis:
Day Total for the Day Activities Performed
Monday $100 Activity A only
Tuesday $200 Activities C and D
Wednesday $200 Activities B and G
Thursday $100 Activity E only
Friday $100 Activity F only
The accumulative Planned Value or Budget Cost of Work Scheduled for these 7 activities
is given as below: Accumulative figures are previous accumulative figures plus current
figures for the said time unit.
Day For the day Accumulative
Monday $100 $100 =$100
Tuesday $200 $100+ $200 = $300
($100 previous accumulative for Monday + $ 200 current Tuesday)
Wednesday $200 $300 + $200 =$500
Thursday $100 $500 + $100 = $600
Friday $100 $600 + $100 = $700
Total $700
This is the day wise planned budget or the Planned Schedule (PV) of the 7 activities.
Now comes the execution phase where we need to complete these 7 activities according
to our plan. However, we find that the actual execution of these 7 activities could not be
done as was planned.
Let us review the project on Wednesday evening to see how the work has progressed.
We find that on Monday, we could do only complete 50 percent of activity A instead of
completing the whole activity. On Tuesday, the remaining 50 percent of activity A plus
100 percent of C was completed. On Wednesday, activity B and activity G are both
completed as planned.
Let us now calculate the Earned Value (EV) or the Budget Cost of Work Performed
(BCWP) for these activities different days.
Day EV/BCWP Day Wise Accumulative B
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Monday 50 percent of A ($100/2) $50 $50

Tuesday 50 percent of A ($100/2) $50 + $100 $200
+ 100 percent of C ($100) ($50 + $150)
Wednesday 100 percent of B ($100) $100 + $100 $400
100 percent of G ($100) ($200+$200)
From this we see that as we have not done any work for activity D that was planned to
be completed on Tuesday and had a budget of $100. At our review on Wednesday
evening we are behind by one activity that was to consume $100 worth of resources.
Let us now create one additional dimension of the performance. According to our plan,
for Activity A, we had a budget cost of $100 to complete the work. Due to some reasons,
which could be technical or non-technical, the actual cost that was incurred in performing
activity A was $150 and not the estimated $100. May be, we needed to hire extra
equipment to perform Activity A which was not planned for. Similarly the Actual Costs
incurred in completing Activities C, B and G was: $ 200, $100 and $ 75 respectively.
This actual expense that was incurred for performing the activities can be called the
Actual Cost (AC) or the Actual Cost of Work Performed (ACWP).
The Actual Cost for the activities performed is shown as below:
Day AC/ACWP Accumulative AC/ACWP
Monday $75 $75
Tuesday $275 $350
Wednesday $175 $525
The following table shows the three accumulative EVMS values for our set of 7 activities
Day PV/BCWS EV/BCWP AC/ACWP
Acc Acc Acc
Monday $100 $50 $ 75
Tuesday $300 $200 $350
Wednesday $500 $400 $525
Thursday $600 - Friday $700 - Your role now is to monitor this small project, to see how to control the performance and
provide the necessary directional change to keep the project on track. How would we go
about this?
To monitor the performance of the project we need to know what was the scheduled
work we were supposed to complete in a specific time frame and the estimated cost for
completing it, plus the work we have actually completed and the cost that was actually
incurred in completing the work.
We would need to see the variances in both schedule and cost planes against the actual
performance.
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Let us see how we can calculate the Schedule Variance, which will show us how far
ahead or behind our project, is with reference to the planned baseline i.e. PV/BCWS.
Schedule Variance (SV) = PV EV (or BCWP BCWS)
At the end of Wednesday, SV is $400- $500 = -$100
A negative SV means we are behind the planned schedule. We had planned to do work
worth $500 by Wednesday evening but actually only did work that is worth $400.
SV gives us the absolute value of the schedule variance. This, however, does not give
an indication of the relative magnitude of the project status, which we can get by
calculating the SV in %.
SV in % = SV*100/ PV (BCWS)
= -$100*100/$ 500
= -20%
SV in % tells us how far ahead or behind we are in %. A SV in % of 20% means that
our actual schedule is behind in comparison to the work we had planned to complete by
Wednesday evening. Had the SV in % been + 20% it would have meant that we are
ahead of the planned schedule by 20%.
Schedule Performance Index
Let us define another term called Schedule Performance Index (SPI). This gives us the
schedule efficiency of performing the work.
This is the ratio of the work we have actually completed against the work that is required
to be done in the activity. SPI can be calculated both at the activity level and the total
project level.
SPI = EV/PV (same as SPI=BCWP/BCWS)
In our example, SPI is $400/$500 = .8
SPI of .8 means that we are behind in our schedule and have accomplished only 80% of
the work we had planned to do.
In the ratio we can have 3 possibilities.
SPI can be = 1 which shows that the project is right on target i.e. the work actually
performed (EV) is the same as the planned work (PV).
SPI can be < 1, which shows that the project is behind schedule i.e. the work actually
performed (EV) is the less than the planned work (PV).
SPI can be > 1 which shows that the project is ahead of schedule i.e. the work actually
performed (EV) is the more than the planned work (PV).

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Let us see how this would look if drawn as a S curve.

OVER BUDGET and AHEAD OF SCHEDULE

UNDER BUDGET and AHEAD OF SCHEDULE

UNDER BUDGET and BEHIND SCHEDULE

Let us now look at the cost dimension.

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What is the cost position in our project? Have we spent more money or resources than
what was approved, the same amount of money or less money than the approved
budget?
In order to monitor this we need to look at what is called the cost variance. Let us check
the status of our project of 7 activities and see where we stand.
In the schedule plane to check the progress of work we arrived at the schedule variance.
In the cost plane we now calculate the cost variance to check the actual cost that was
incurred in the project to perform the project activities in comparison to what we had
planned to spend for executing the same work.
Cost Variance
The Cost Variance (CV) is equal to the Earned Value (EV or BCWP) for the project less
the Actual Costs (AC or ACWP) incurred for doing the earned work.
Cost Variance (CV) = EV AC (same as BCWP ACWP)
In our project of 7
CV is $400 - $525 = - $125

activities

at

the

end

of

Wednesday,

the

A negative figure implies that we have spent more money (resources cost money) in
doing the work than was planned. Negative is BAD.
If CV would have been zero it would have meant that the cost incurred was exactly as
planned while a positive CV would mean that our project is under budget.
At this point of time in our project the cumulative Earned Value (EV or BCWP) on
Wednesday evening of $400 and an Actual Cost (AC or ACWP) of $525 means that we
have spent $525 to do work that has a value of only $ 400. This same work was
budgeted to be completed in $400 in place of the $525 we spent on it. We are over
budget by $125.
Cost Variance - CV is an absolute value and may not give a clear picture of the relative
magnitude of the cost incurred. To do that we now calculate CV in %
CV in % = CV*100/ AC (same as CV*100/ACWP)
= -$125*100/$ 400
= -31.25%
CV in % tells us how effectively we are utilizing our funds in terms of what we should
have spent and what we actually spent in performing the same work. In our project a
figure of 31.25% means that for every $ we were supposed to spend for doing the work;
we are spending 31.25 cents more. +% would mean that we are spending less than we
had planned. Negative is BAD.
Cost Performance Index

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Let us define another term called Cost Performance Index (CPI). This gives us the cost
efficiency of doing the work.
This is the ratio of the Earned Value (EV or the BCWP) to the Actual Cost (AC or BCWP)
of performing the work.
CPI = EV/AC (same as BCWP/ACWP)
In our project of 7 activities the CPI = $400/$525 = approximately .75
CPI of .75 means that for every $ spent, effectively we are getting 75 cents worth the
value in terms of our original plan. Ideally, CPI should be equal to or close to 1.
CPI of more than 1 mean that the project is under budget. We have completed the work
in less money than the budgetary approval for it. We are wise in spending money as we
get more work performed for the same money.
Just as in the case of SPI, in CPI also we can have 3 possibilities.
CPI can be = 1 which means that the project cost is right on target i.e. for the work that
has been accomplished (EV) the actual cost (AC) incurred is the same as the approved
budgeted cost for performing it. The project cost is same as planned.
CPI can be < 1 which means that the project cost is over budget i.e. for the work that has
been accomplished (EV) the actual cost (AC) incurred is more than the approved
budgeted cost for performing it. The project is over budget.
CPI can be > 1 which shows that the project is ahead of schedule i.e. for the work that
has been accomplished (EV) the actual cost (AC) incurred is less than the approved
budgeted cost for performing it. The project is under budget.

In essence, in reviewing our sample project of 7 activities we find that on the schedule
front we are behind schedule while in the cost front we are over budget.
Let us now look at the same picture through S - Curve. It is based on the accumulative
figures and generally speaking as we find the plot of accumulative figures often similar to
an alphabet S, we call it as S- Curve.

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Some of the difficulties in EVMS

1. The plotting of a graph is the least problematic. The reasonableness and the accuracy
of the data are to be ascertained. Thumb rule is to reflect the data accuracy by depicting
the reality into it as much as possible.
Care must be taken that the timing and amounts that are plotted as BCWS (PV) are the
same and that the timing is the same as when they are reported as actual expenditures.
There should be consistency in what have been taken as assumptions while fixing
BCWS. The same assumptions must be considered while computing ACWP (AC). For
instance, an expenditure on material may be recognized when the commitment is made
to purchase the material, or when it is delivered or when it is accepted or when it is
invoiced or when it is paid for. All of these dates are different. Care must be taken to see
that a proper match between BCWS and ACWP
2. In reporting the work complete, many people tend to report that the % complete is the
same as % of the time elapsed. Thus if time elapsed is 40% and only 20% of the work in
reality is completed then based on time-based % complete, we would get wrong inputs.
There are several approaches to solving this kind of discrepancy.
50:50 rule is one such approach. In this approach to earned value data collection, 50% of
the earned value is credited as earned value when the activity has begun. The remaining
50% credit is given only after its completion.
There are other variations to this 50: 50 rule. They are 20: 80 or 0: 100. The first figure
indicates the credit given to work when started and the last one when the work is
completed. 20: 80 would mean 20% at the time of start and 80% at the time of finish.
0:100 would mean 0% at the time of start and 100% at the time of finish.
3. It is difficult to have fixed values for the BCWS, BCWP and ACWP as a single figure.
The range of BCWS across the project life cycle could be a better measure. Range will
give rise to probability considerations. Similar to 3 time estimates, we can have BCWS
based on probability like 3 estimate formula.

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Project Communication Management

Communication is what makes things to happen with out ambiguities. Communication,
right in magnitude and at the right time for the right person is the key to success.
Project managers are basically involved in communication processes very extensively.
They communicate with the team members, with the functional heads for negotiating the
resources, seniors to keep them informed, subcontractors to monitor their progress and
to stakeholders to meet their diversified expectations at times. Basically, a project
manger spends upto 70 to 80% of his/her time in communication process.
Communication should be so effective that the right message or the status is passed on
without voluminous reports and ' requiring rocket science' degree to understand. The
simpler the communication process the more effective it comes. Often, if the information
reports and monitoring status reports are not simple, they may not be worth looking.
There is an information explosion. It is doubling every year. It is necessary to get the
relevant information with the sole purpose of taking decisions. There are 2 types of
information, one for keeping oneself up-to-date about the status of the events and the
other where one has to take a decision. Information should be clear and precise. Notes
containing information and facts should be self-content.
he fundamental principle of information management is that if one has all the information
one needs, it has a very good possibility of receiving the best treatment in terms of
decision-making. With no information, the uncertainty level goes up and it becomes very
risky. Risk is clearly very high in taking decisions on little or no information. One may not
have the luxury of having all the information, as it is very unlikely when you execute a
project unlike the information reach in operation management.

Types of Estimates
The cost of a project may consist of many cost components. Some of the major
components are as under
Labor: This cost includes the cost of people employed for the project directly or
indirectly. This is the cost also termed as the man-hour cost for delivering a
project.
Materials: This is the cost of any material used for the execution and delivery of
the project. The cost also includes any material bought, constructed or consumed
during the complete life cycle of the project. In a software project material includes
hardware, software, peripheral hardware and coding sheets.
Plant and equipment: These are the materials used in delivering but are not
consumed and therefore are viable for re-use on subsequent projects. They may
be hired or purchased, but only a part of the component of the cost is included in
the estimate.
Subcontract: This includes the cost of labor and materials as mentioned above as
provided by contractors. Cost will be included in this heading where the control is
not within the scope of the parent organization.
Management: This should include the cost of people and materials involved in
managing the project. These costs are directly attributable to the project, but not
specific tasks. This includes the cost of the managers, team leaders, support
office, project management information system, temporary services etc.
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Overheads and administration: This should include the cost of administering items
included in labor, materials and subcontract. These include costs attributed to
transport, procurement and storage, support staff and other such costs.
Fees and taxation: These may include insurance, finance, license agreements,
and any taxation involved in the project.
Inflation: This may be added in projects, which is of long duration that inflation
may have an impact on the project costs.
Contingency: These are costs added as blanket figures or calculated as per risks
in the project. This expense is not visible and is distributed in various heads of the
project when presented to the owner of the project.

Accuracy of Estimates
One estimate is not capable of satisfying all the requirements during the project life cycle.
Various estimates of varying accuracy are required during the project life cycle. Figures
shown below are indicative of an engineering project:

The way to improve the accuracy of an estimate is to improve on the estimation data as
shown in the following figure.

Configuration Management Concepts

Configuration Identification
It is the process of breaking a system into its components parts or configuration items,
each of which can be individually documented and placed under the change control.
Ideally the items are subdivided into the maximum cohesion where by any further
subdividing any item would not be useful. The configuration items would also have
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minimum coupling, which means that it would not be useful to merge one or more items
for the purpose of documentation and change control.
In its simplest form, configuration identification involves locating all the configuration
items required to deliver the facility so that nothing is overlooked, and then establishing
the information to keep track of those items through out the life of the project. Most
systems can be broken with the help of the PBS. When the system has been broken
down to its lowest level, the resultant configuration items form the project inventory, or bill
of material. All deliveries and revisions are tracked and controlled against two forms of
configuration item recording: the planned set of items and the produced/approved set.
The identification of the set of items should cover the whole development cycle for both
the facility and the supporting documentation. A complete list of configuration items will
be derived form the design specification. The configuration is complete when all items
are delivered. In case some items are not delivered or have been delivered as additional,
the configuration item list first need to be amended accordingly and then only can these
items considered as configurable items for delivery.
Configuration Control
Controlling the baseline configuration items through each stage of the lifecycle is the
basis of configuration management. The project depends upon the baseline items and
the record of any changes. Periodically during the life of any item, the base line may
need to be revised. It is advisable to revise it whenever it becomes difficult to work with
the baseline document/item and authorize changes to it. All authorized changes to the
item must be documented and consolidated including any repairs or emergency
modifications. Once the item is baseline again all subsequent changes are to be made
with the revised baseline.
Configuration control is the process of managing control over changes by the process of
proposing, reviewing, approving and wherever applicable implementing these changes to
the item. Through this process documentation and revision is done to the items on which
changes are made on analyzing the impact of changes, by assessing it before finally
authorizing it.
Configuration status accounting
Status accounting supplies information about baselines, configuration items, their
versions and specifications, change proposal, problem reports, repairs and modification
on request. Status accounting also keeps track of the complexities caused by
superseding configurations.
Status accounting enables people on large projects to avoid using outdated versions of
documents and components. It is important for those involved in testing, contracting
companies etc. Since they need the most recent versions of the specifications and other
related information so as to understand whether the requirements have been met.

Configuration auditing/ reviews

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Configuration control procedures manage the movement of configuration items from one
stage of the life cycle to the next, through formal review process conducted at the end of
each stage. At the end of the initiation stage the configuration review audits that the
specifications are:
Up to date: they accurately reflect the concept of the product
Complete: all the configuration management documentation that should exist at
this point in the life cycle actually does exist
Agreed: they have the support of all the project participants
At the conclusion of this stage, a requirements definition is produced, reviewed,
approved, baseline and handed over to configuration management before it moves on to
the design and appraisal stage. Similarly at the end of the design, design specifications
are produced as part of the project requirements definition, which are again reviewed,
approved, baseline and handed over for configuration management. During actual
execution, the configuration identification evolves from documentation to actual
deliverables, physical or abstract. These are again reviewed at the closure of this stage.
This process goes on till the close out and the complete delivery of the project.
Therefore, configuration management is the central distribution point for each stage of
the life cycle of the project. It is therefore imperative that the audits and reviews are taken
at each and every stage till the project closure.

Requirements of Configuration Management

Configuration management is a technique used to manage the refinement of the
specification and work methods on development projects. It is specifically useful where
several prototypes are being developed to track the design updates, modifications of
each prototype. It has now become a desirable if not an essential tool to control the
functionality and quality of components in the product breakdown structure, and work
methods in the work breakdown structures. It use used in software, technology,
engineering or organizational change projects.
Configuration management controls the specifications on the product breakdown
structure; it expresses the facility delivered by a project as a configuration of component
parts. This process develops the bill of materials or product breakdown of the project.
Other than being a revolutionary way a facility is developed or maintained, Configuration
management is also a set of good working practices for coping with uncertainty and
change and gaining commitment of the project participants as the design evolves. Many
projects use configuration management especially in the application of change control.
However, to be effective, it must be a systematic, consistent approach to managing
change on complex projects. It involves the senior management and the all the project
participants. Depending upon the size and complexity of the project, there may be a
group of people dedicated to the function of configuration management.
The basic approach of configuration management

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( Source: Page 161 The Handbook of Project-Based Management by J Rodney Turner,

McGraw Hill)
The above figure illustrates the basic approach of configuration management. In line with
the goals and the methods matrix, we accept that there may be some uncertainty about
the methods of delivering them. The above figure shows various levels where we need to
refine and/or modify our approach and reach the final stage of delivery by gaining clarity
during the various phases of the project.

Business Case Concepts

What is the role of the Business Case in a project?
The business case is an important document in a project as it discusses the why of the
project. It details both, the reasons for undertaking the project as well as the project's
requirements.
The impact and potential conflicts, if any, of the current project being undertaken on the
company's business and it's other projects is outlined.
The business case looks into the importance of the project in the company's business
strategy and how the project is aligned to this business strategy.
The business case forms the basis of the project management plan.
It outlines the scope of the project and any assumptions and constraints.
Who owns the Business Case?
The sponsor owns the business case.

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Contents of Business Case

The business case includes:
The key performance indicators and the critical success factors of the project.
The investment appraisal data and the business need for undertaking the project.
The different project stakeholders.
The financial and non-financial advantages and the 'do-nothing' option.
The main risks foreseen, costs, time and quality/performance requirements of the project.

Need Analysis Cycle

The three phases of NEED Life Cycle as shown below:
1. Need Emergence
2. Need Recognition and
3. Need Articulation

Need Emergence
The dynamics of the market forces provide both opportunities and threats. In both these
situations, a NEED arises to seize the opportunities and to mitigate the threats. We may
call this as a Need Emergence phase.
The second scenario of NEED emergence could be more internal driven within an
enterprise. This can be both based on an emotional plane of employees or for business
gain. We may have constant requirement of NEEDS due to our own targets of improving
productivity or achieving excellence. Market conditions may not force you to respond as
you may be a leader but these internal driven compulsions do generate NEEDS on a
constant basis.
The NEED can arise from any level of the organizational hierarchy and from anywhere
across the various functional units of an organization.

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This phase of Need emergence is the first part of the three-phased Need Life Cycle
Need Recognition
Need Recognition is the second phase of the Need Life Cycle. This phase involve a
cross examination of the reasons that gave rise to the need emergence and the
relevance of the need that emerged to the organization. There has to be a vigorous initial
screening of all needs that emerge as no organization, irrespective of it's size or mission,
can afford to undertake projects to fulfill all it's needs which emerge. Some needs may
not form a part of the organization's overall visioning process whereas others may have a
low priority for which action could be taken at a later stage. Such a Need Recognition
phase takes into account the
following major factors:
- Validity of a Need in the realm of the organizational working philosophy or vision
- Urgency of its being articulated
- It's viability from financial and resource angles
- Its impact on company's bottom line
- Its impact on the emotional framework of employees or the society as a whole

After considering the above factors the actual NEED which emerge should be ranked in
one of the following categories by importance:
- In the top 25% scale (ranked 1st) Maximum Need
- In the second 25% scale (ranked 2nd)
- In the third 25% scale (ranked 3rd)
- In the bottom 25% scale (ranked 4th) and
- Rejecting the Need as unviable on the face of it Least Need
Generally, it is the Needs that have been ranked in the top 25% slot that are taken to the
next phase of the Life Cycle which is Need Articulation. After considering the above
factors the actual NEED which emerge should be ranked in one of the following
categories by importance:
- In the top 25% scale (ranked 1st) Maximum Need
- In the second 25% scale (ranked 2nd)
- In the third 25% scale (ranked 3rd)
- In the bottom 25% scale (ranked 4th) and
- Rejecting the Need as unviable on the face of it Least Need
Generally, it is the Needs that have been ranked in the top 25% slot that are taken to the
next phase of the Life Cycle which is Need Articulation.
Need Articulation
The third stage of the need life cycle is when a NEED has already emerged within the
organization, been recognized and ranked at the top in the required category. The
recognized NEED now enters the phase of Need Articulation. This means that the
selected NEED deserves to be thoroughly evaluated for its viability within the given set of
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parameters operating in the company. At times it may also be required to introduce new
parameters
for
which
the
company
should
be
prepared.
A Need Articulation phase looks at the:
- Financial viability of the need and takes into account the resources required
- Its impact on the overall competitiveness of a company, or its impact on the social plane
of the society, or emotional plane of employees
- Historical database of the previous NEEDS that were generated, recognized and
articulated
- Its urgency on a time plane.
Based on the above factors and criteria, if approved the need is formally articulated by
way of a document of approval. It is at this stage that the Need, which had emerged, can
become eligible to be transformed into a project.
A project is a projection of dreams, articulated through a series of Needs, which an
organization would like to transform into 'reality' through a structured methodology or
even an unstructured one if it is the first time an organization has undertaken such a new
challenge.
The Need Life Cycle ends with Need Articulation. This is the first part of the relay race in
a project and it hands over the baton to the Project Life Cycle.

Investment Appraisal
There have been numerous books written on the vital subject of project appraisal in the
financial terms. Financial investment and project appraisal techniques are a very
specialized field. A project manager is in practice, like a CEO of an enterprise.
Irrespective of his/her specialization in the basic field of engineering or any other allied
field of art and science, a project manager is a good team builder and an effective
integrator of the efforts from his team, sub-contractors and all the other parties involved in
fulfilling the objectives of a project. As a CEO, he needs to have a basic understanding of
the investment appraisal techniques. This particular e-Learning concept is designed to
address key issues in a comprehensive and easy to understand mode to make project
managers and his team members understand the financial jargon. It is said, if it is not
simple, it is not worth understanding.
In many organizations, project appraisal is done by a separate group of professionals.
They are more associated with the feasibility studies of a project and also the planning
for optimizing the deployment of financial resources in the best possible way. Generally,
best possible option of deploying capital is in those areas where return on the capital
employed is maximized. In other words, how to make your financial resource multiply
faster. Choose the option, which gives you the best multiplication.
It may be noted that all investments may not be undertaken for the multiplication of the
capital deployed. There can be other objectives which are not weighted in terms of the
return on capital but are undertaken more for the benefit of society at large and thus may
not be fully quantifiable.
Globalization is a process of growing interdependence between people and nations. As
the interdependence grows so does the chance of choosing a better option of
investment.
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A project is a business which could in turn create a further new business. The CEO,
being a project manager will often come across various terms related to investment and
he/she should not feel awkward about not understanding the simple meaning implied
behind financial related technical words.
In a simplest possible sense, let us first understand the basic principle behind financial
investment.
If I have $X with me, what should I do with it? My next question to myself will be, 'Am I
ready to loose all the money or of it or none of it'. This will give me a good indicator
regarding how much risk I can take on my investment of $X.
Assume you do not want to loose your money at all. OK. Then look for a very safe
investment like Government securities or bonds subject to your assessment of the
credibility of your own government. If you have a problem of convertibility of your local
currency into hard currency such as dollar or Yen, then you may look to invest in the
government bonds of other countries on whom you have trust subject to the rules and
processes of investment in vogue by different countries in the world. What does this
imply? Well, this option will protect your investment but you may get very low interest on
your investment, may be 2 to 8 % per annum.
If you do not mind loosing all your money, well, then you may opt for risky stocks listed or
unlisted on the various stock exchanges. Risky stocks could be those which may
promise very good prospects for growth on paper but you may not have enough
information to judge their track record or full information about their investment in various
projects etc. You may also take a chance and bet on Horses or get associated with
lotteries etc.
These are 2 cases of extremes. We now come to a 3rd scenario, where one will like to
invest in a project as a CEO of a company for increasing its market share, or getting
better returns on the surplus funds accumulated and deposits in the bank will not be as
lucrative as investing in projects etc.
Now comes the question how will you decide whether to invest in project A or B or C
provided you have some information available on the possible revenue and the
expenditure of the projects over the coming years. In order to look at scientific methods
available to understand the return on investment, this section of investment appraisal will
cover the following concepts:
1. Payback Period
2. Discounted Cash Flow (DCF) Analysis
3. Internal Rate of Return (IRR)
4. Benefit - Cost Ratio (BCR)
5. Profitability Index (PI)
6. Accounting Rate of Return (ARR)
7. Return on Investment (RoI)

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Payback Period
Let us create a case study for understanding the concept of Payback Period.
An organization has 3 potential projects for possible investment. These projects are
called A, B and C. The initial investments required for these projects are $100,000,
$150,000 and $200,000 respectively for projects A, B and C. The life cycle of these
projects is the same and let us assume it is 5 years. During these 5 years, projects A, B
and C will have Income and Expenditure. The figures for the Income and Expenditures
for these 3 projects are given in Table 1, 2 and 3 respectively. 50% of the total
investment figures given above for various projects are required for the capital equipment
like heavy machinery etc. The depreciation on the machinery is uniform for all the above
3 projects at a flat rate of 20% per year. Profit is calculated after deducting from Income,
the Expenditure and Depreciation. It is assumed that the taxes will be paid on the profit
so made. The table below gives the above picture in the tabular form. Income may be
also called Inflows and Expenditure as Outflows. It is also given to us that the three
projects under consideration will have an inflation of 10% each year for the next 5 years.
Remember, this is an assumption and this assumption would impact some of the
investment appraisal techniques
At this juncture, let us understand the concept of inflation or the rate at which the
purchasing power of money is going down. If you could run your household having a
family of yourself and spouse with 2 children in the age group of 8 and 10 years, and you
are a typical American in terms of Expenditure habit and likes and dislikes in terms of
sports or going to theatre etc. (It may be a different topic on which a whole book can be
written as how you define a typical American in the context we are referring to).
Assuming in 1975, you could pay off your mortgage on a home and take care of food,
clothes, sports, other entertainment expenses, transportation etc. in about $15000. Will
you be able to plan for the same amount of funds next year or next to next year? May be
not. As we have seen over the last 100 years, the purchasing power of money keeps on
coming down which means that $1 today will not able to buy goods or services next year
at the same price. Price of goods and services may go up by X cents. It is this X cents
through which the purchasing power of your money has come down. In fundamental
terms, it is defined as Inflation. The rate at which the purchasing power of money keeps
on going down. Remember, we are learning the simple investment appraisal techniques
and it is not a Finance 501 course at Wharton School in USA.

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Payback Period analysis is a useful tool for project managers to get a good hand on the
investment pattern. Payback period has time as its unit and it is achieved when
cumulative cash inflows equals to cumulative outflows. Payback period does not
consider depreciation and considers the investment in the year 0 as full for the purpose
of cumulative outflows. It adds the investment in year 0 to all the subsequent cumulative
outflows.
From the Table 1, 2 and 3, it can be seen that the Payback Periods for Projects A, B and
C are 4.5, 4 and 5 years respectively.
For Project A, at the end of 4 years, the net Inflow is $270,000 and the net Outflow is
$285,000 (Please note that in the tables, figures are given in '000). At the end of Year 5,
the net Inflow is $430,000 and $375,000. The Payback Period has to be within year 4
and 5. We have assumed linear inflow and outflow during the year comprising of 12
months. Average per month of Inflow in the 5th year is $160,000 divided by 12 months
and it comes to $13,333. Similarly average per month of Outflow in the 5th year is
$90,000 divided by 12 months and it comes to $7,500. Now in order to calculate the
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number of months in the 5th year when Cumulative Inflows will equal to Cumulative
Outflows, the following formula is applied.
Assuming it is X number of months in the 5th year when the Cumulative Inflows match
Cumulative Outflows, then
$270,000 + X times $13, 333 should be equal to $285,000 + X times $7,500
X times $5,833 equals to $15,000
The value of X comes to 2.57 months.
Hence the payback period is 4 years and 2.57 months.
For Project B, it is straight as in the 4th year Cumulative Inflows equals cumulative
Outflows.
Similarly for Project C, in the 5th year, Cumulative Inflows equals cumulative Outflows.
Advantages of Payback Period Method
1. It is simple
2. It is a standard technique used worldwide
3. Can be effectively used in high risk situations
4. Provides a good feeling of a company's liquidity position
Disadvantages of Payback Period Method
1. It normally ignores the time value of money i.e. Inflation or the discounted cash flow
which will be learned later in this chapter
2. Little consideration is taken of the cash flow situation after the Payback Period
3. Payback Period method if used by itself can give rise to wrong decision making for
investment due to the disadvantages listed above at number 1 and 2.
Recommendation: Payback Period is a good indicator for Investment Analysis but it must
be used in conjunction with other investment appraisal techniques.
Discounted Cash Flow Analysis
At this juncture, let us understand the concept of inflation or the rate at which the
purchasing power of money is going down. If you could run your household having a
family of yourself and spouse with 2 children in the age group of 8 and 10 years, and you
are a typical American in terms of Expenditure habit and likes and dislikes in terms of
sports or going to theatre etc. (It may be a different topic on which whole book can be
written as how you define a typical American in the context we are referring to).
Assuming in 1975, you could pay off your mortgage on a home and take care of food,
cloths, sports, other entertainment expenses, transportation etc. in about $15000. Will
you be able to plan for the same amount of funds next year or next to next? May be not.
As we have seen over the last 100 years, the purchasing power of the money keeps on
coming down which means that $1 today will not able to buy goods or services next year
at the same price. Price of goods and services may go up by X cents. It is this X cents
through which the purchasing power of your money has come down. In fundamental
terms, it is defined as Inflation. The rate at which the purchasing power of money keeps
Page 120 of 167

on going down. Remember, we are learning the simple investment appraisal techniques
and it is not a Finance 501 course at Wharton School in USA.
Inflation provides one example of what is called the time-phased value of money or
simply time value of money. It is a concept, as mentioned above, which suggests that the
value of a dollar today is not going to remain constant as the time passes by. It may be
kindly noted that even if inflation is zero still time value of money concept is valid. For
instance you can lend $1 to your friend today as he needs it now, but he would return a
total of $1 and 7 cents to you after 1 year. Your investment of 1 dollar has grown by 7%
over the period of time. Hence your $1 has appreciated to $1.07, which can buy more
goods, and services as the inflation is zero in this particular example.
Let us also look at the concept of Future Value of Money when dealing with Discounted
Cash Flow technique.
When you look at the capital or money that you have today and you want to forecast its
value in future, you need to compute the same. Assume that you have $1000 and you
have invested the whole amount into your savings account for a period of 5 years. The
interest on your savings account is 10% per annum. The interest is added into your
investment of $1000 after every year. The simple calculation for the future value of your
$1000 can be made as follows:
At the end of year 1: $1000 plus 10% interest on $1000 = $1100
At the end of year 2: $1100 plus 10% interest on $1100 = $1210
At the end of year 3: $1210 plus 10% interest on $1210 = $1331
At the end of year 4: $1331 plus 10% interest on $1331 = $1464.10
At the end of year 5: $1464.10 plus 10% interest on $1464.10 = $1610.51
The formula for computing Future Value (FV) is:
FV = Present Value (PV) at the time of deposit * (1 + interest rate in decimal) raised to
the power of number of years for which FV needs to be calculated.
In our example, PV = $1000, interest rate (i) is .1 or 10% and number of years is 5.
Let us now do the reverse of computing Present Value based on the Future Value of the
money.
The formula given above for computing the Future Value can be reversed to compute the
Present Value (PV) based on the future value.
PV = Future Value (FV) divided by (1 + interest rate in decimal) raised to the power of
number of years for which FV was considered
If some one asks you as what is the total deposit you would need to make in the bank
which gives 10% interest on deposits on an annual basis for you to get a total Future
Value of your money to $3223 after 5 years. Plug in these parameters in to the above
formula and you will get the value of PV as $1000.
Now comes the Discounted Cash Flow analysis.
The discounted cash flow technique for comparing projects is based on computing all
future cash flows both inflow and outflow in today's context of Net Present value which is
nothing but a sum of all cash flows in future converted to the present value. As it is
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evident we need to know the rate of interest or discounted cash flow rate to compute the
future values of the cash flows to today's' worth.
An organization has 3 potential projects for possible investment. These projects are
called A, B and C. The initial investments required for these projects are $100,000,
$150,000 and $200,000 respectively for projects A, B and C. The life cycle of these
projects is the same and let us assume it is 5 years. During these 5 years, projects A, B
and C will have Income and Expenditure. The figures for the Income and Expenditures
for these 3 projects are given in Table 1, 2 and 3 respectively. 50% of the total
investment figures given above for various projects are required for the capital equipment
like heavy machinery etc. The depreciation on the machinery is uniform for all the above
3 projects and at a flat rate of 20% per year. Profit is calculated after deducting from
Income, the Expenditure and Depreciation. It is assumed that the taxes will be paid on
the profit so made. The table below gives the above picture in the tabular form. Income
may be also called Inflows and Expenditure as Outflows. It is also given to us that the
three projects under consideration will have an inflation of 10% each year for the next 5
years. Remember, this is an assumption and based on which it would impact some of
the investment appraisal techniques
Table 4, 5 and 6 have given figures of the various cash flows from year 1 to 5 for all the
three projects namely A, B and C to the Net Present Value (NPV) computed at Year 0,
the time of the investment.

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If you now look at the net present value of the three projects A, B and C, under
consideration you will notice that Project B comes out again as a favorite project as it
gives maximum net present value of $ 64,690 as opposed to the net loss in Project C of
$71, 810. Project A gives positive NPV of $12,110.
The simple rule is that in computing the DCF for various projects for a given period of
time, if the project NPV for the period under consideration is not positive, you can reject
the project. One should select the project with the maximum positive NPV. Besides
looking at the absolute positive numbers for the NPV, one can use other investment
appraisal techniques such as RoI and IRR. You can learn the same in other e-Learning
concepts in the same section.
Internal Rate of Return (IRR)
The simplest definition of IRR is that it is a discount rate or interest rate which an
investment of money will return giving zero net present value for a defined period of time.
Let us say in 5 years after knowing the various values of Inflows and Outflows, what
would be the discount factor at which the net present value of the total flow i.e. Inflows Outflows would become Zero.
IRR is a significant factor, which would decide the feasibility of putting the investment into
a project from the financial angle. If the IRR is less than the rate of interest accrued in the
bank or in securities, why would you invest money in the project with less return. If IRR is
5% and you can get 8% from the bank on your savings account, would you not make
more money by depositing with the bank then to undertake a project with 5% IRR.
Higher the IRR better is return on your money and the project falls in the 'Go' mode.
An organization has 3 potential projects for possible investment. These projects are
called A, B and C. The initial investments required for these projects are $100,000,
$150,000 and $200,000 respectively for projects A, B and C. The life cycle of these
projects is the same and let us assume it is 5 years. During these 5 years, projects A, B
and C will have Income and Expenditure. The figures for the Income and Expenditures
for these 3 projects are given in Table 1, 2 and 3 respectively. 50% of the total
investment figures given above for various projects are required for the capital equipment
like heavy machinery etc. The depreciation on the machinery is uniform for all the above
3 projects and at a flat rate of 20% per year. Profit is calculated after deducting from
Income, the Expenditure and depreciation. It is assumed that the taxes will be paid on
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the profit so made. The table below gives the above picture in the tabular form. Income
may be also called Inflows and Expenditure as Outflows. It is also given to us that the
three projects under consideration will have an inflation of 10% each year for the next 5
years. Remember, this is an assumption based on which it would impact some of the
investment appraisal techniques.
Let us examine the tables 7,8 and 9 for calculating IRR.

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For Project A, if we apply a discount factor of 14%, we can see that the NPV of the Cash
Inflows and the Outflows become the same and therefore the difference between them is
zero. At 10% discount rate as could be seen from Table 4, there was a positive NPV of $
12, 111. As a general rule, if the NPV is positive, the discount rate has to go up to make
NPV less. In the case of Project A, the discount rate did go up from 10% to 14% to make
NPV zero of the net cash flow as against the positive $12,111.
In case of Project B, if we apply a discount rate of 19%, we can then achieve NPV as
zero.
However, for Project C, the discount rate comes to 0% to make NPV zero. It can also be
verified that the Project C had a large negative NPV to the tune of $ 71,810 at the
discount rate of 10%. In order to make the negative NPV to zero, the discount rate has to
be reduced from the present factor.
From a management perspective, I would go for Project B as it gives me maximum IRR
of 19%. Unless I have other better options, which would give me better return than 19%, I
will go ahead with the Project B. I would reject Project C out rightly. Project B does give
me 14% IRR.
Suppose a situation now arises that I only have $100,000 to invest. What should we do?
Ok, let us examine more closely. I can go ahead with Project A as IRR is 14% and
requires only $100,000, which I have. However, Project B is more lucrative. Assuming
the bank interest rate is 10% should I not try to get a loan of $50,000 from the bank at
10% interest rate to invest in Project B which requires $150,000 as I have only $100,000.
The additional loan taken from the bank will give me a better option for investment. I
would be making 9% return which is the difference between the bank interest rate and
the IRR of Project B on the borrowed capital from the bank and making a 5% extra return
which is the difference between the IRR of Project B and Project A by investing my own
money of $100,000 in Project B instead of Project A.
Benefit - Cost Ratio (BCR)
As the title reflects Benefit - Cost Ratio is truly the ratio of quantifiable benefits to the cost
incurred in achieving the benefits. In theory, benefit can be in financial terms covering the
revenue generation and cost savings, fulfillment of social objectives, intangible and nonquantifiable, improving quality, boosting the morale of the team etc.
In our context of project investment appraisal, we would like to cover the measures
pertaining to quantifiable and related to financial measures.
Let us represent benefits as B and Cost as C. The ratio is B/C. Mathematically speaking,
a ratio can be either greater than 1 or less than 1 or 1 itself. From a commonsense
perspective, it appears that if the ratio is greater than 1, it is much better as benefits are
more than the cost incurred to achieve them. Ratio of less than 1 will imply that we get
fewer benefits in comparison to the cost incurred. The ratio 1 implies a neutral position.
No gain or loss.
Clearly, for gain, B/C should be greater than 1 and as high as possible.
Let us examine the following tables of comparison related to Projects A, B and C.
An organization has 3 potential projects for possible investment. These projects are
called A, B and C. The initial investments required for these projects are $100,000,
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$150,000 and $200,000 respectively for projects A, B and C. The life cycle of these
projects is the same and let us assume it is 5 years. During these 5 years, projects A, B
and C will have Income and Expenditure. The figures for the Income and Expenditures
for these 3 projects are given in Table 1, 2 and 3 respectively. 50% of the total
investment figures given above for various projects are required for the capital equipment
like heavy machinery etc. The depreciation on the machinery is uniform for all the above
3 projects and at a flat rate of 20% per year. Profit is calculated after deducting from
Income, the Expenditure and depreciation. It is assumed that the taxes will be paid on
the profit so made. The table below gives the above picture in the tabular form. Income
may be also called Inflows and Expenditure as Outflows. It is also given to us that the
three projects under consideration will have an inflation of 10% each year for the next 5
years.
Table 10 (Refer to Table 1 in Payback Period Concept)
Project Net Discounted Inflow Net Discounted Outflow Ratio of Inflow to Outflow
A $306,940 $294,830 1.041
B $550,970 $486,280 1.133
C $702,870 $774,680 .907
The above Table based on the discounted cash inflows and outflows can give us a good
idea as which project is the best from the point of view of Benefit to Cost Ratio. If Inflow
can be linked with Benefits and Outflows as to the Cost to achieve it, the ratio is what we
are after. Obviously Project B outscores Project A and C being greater than 1 and higher
that Project A. Project C should be kept aside as it is surely a loser to start with having
B/C ratio as less than 1. In other words, we drive fewer benefits than we pay for.
Some people may also like to take the ratio of Benefit to Cost based on accumulated
Inflows and Outflows without discount factor.
Table
11
(Refer
to
Table
1
in
Payback
Project Net Inflow Net Outflow Ratio of Inflow to Outflow

Period

Concept)

A $ 430,000 $ 375,000 1.146

B $ 790,000 $ 610,000 1.295
C $1010,000 $1010,000 1.000
Though it is not preferred over discounted Inflow to Outflow ratio, but still it does not
change the preference for Project B in comparison to Project A.
In case of non-revenue generating projects, Benefit to Cost ratio can be computed by
taking the ratio of the total cost savings to cost incurred for affecting the savings.
For instance, by providing an opportunity to the managers to opt for leaving the company
by having a good compensation package, we can compute the cost of a manager for the
next 5 years of his employment as $ 1 Million. Assuming that we have surplus of staff
based on the present situation and the forecast, we could use this manager for roughly
worth $200,000 of assignments. The senior management is ready to give a
compensation package of $ 100, 000 for him to quit the company.
Based on the above factors, the Benefit to Cost Ration will work out to be 8. How has it
been arrived?
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If we need to pay $ 1 million, we have deducted $200, 000 as the benefit we get from the
manger working for the company. That means company is spending $800,000
unnecessary on this manager. The cost to have a golden shake hand with this manager
is $200,00-. If we consider savings as the benefits and divide by the cost incurred to drive
the savings in this case laying off manager, the ratio comes to $800,000 divided by
$100,000. This comes to 8. Please note that we have not taken discounted figures in the
cost savings and cost incurred. If we do take the discounted figures, which would be
more realistic, then the ratio will come down from 8 to a lower number. Assuming that for
the next 5 years, this manager gets $200, 000 as a regular salary and produce worth
$40,000 of meaningful work for the company every year for 5 years. The discount rate is
10%. Calculate the B/C Ratio based on Discounted Inflows and Outflows.
The ratio should come to 6.06. Every year company is saving $160,000 for the next 5
years. $160, 000 is the difference of $200,000 salary given to the manger minus $40,000
being the meaningful work done by the manager. Every year. The compensation
package is given at the beginning of the year 1. Assuming 10% discount factor, the net
savings based on 10% discount comes to $606,000. The cost incurred is $100,000. Both
these figures are based on NPV. The ratio therefore is 6.06.
Some of the Pitfalls of the Benefit to Cost Ratio
1. The ratio does not provide the size or the absolute value of the projects. For
instance 2 projects X and Y have B/C Ratios as 2.1 and 3.2 respectively. You
will opt for Project B as it gives better ratio. However, the Inflows for Project A
and B are $10 million and $ 1 Million respectively. Corresponding Outflow
figures are $4,761,905 and $312,500 for Project A and B. They are based on
discounted figure of 10%. The net savings in absolute terms for Project A is
$5,238,095 whereas for Project B, it is only $ 687,500. I may decide to go for
Project A as the absolute gain is over $ 5 million against Project B for about
half a million.
2. Some time Benefit to Cost Ratio does not include the time period for which
they have been considered. A lesser B/C ratio but realized in short time frame
may be preferred over another Project having higher B/C ratio but arrived over
a longer period of time frame. For instance Project A with 4 B/C ratio may be
preferred f it is possible in a time frame of 2 years then Project B with a B/C
ratio of 6 being realized after 5 years. To overcome this handicap, comparison
should be made between 2 B/C ratios on a similar time frame.
Benefit to Cost ratio can be used along with other investment appraisal tools and
techniques.
Profitability Index
It is another way of determining the preference for selecting a project. It is one of the
tools but not so widely used as IRR. Probability Index is the ratio of the net discounted
cash flow divided by the Investment in year 0. Let us look at the Projects A, B and C with
the Net Discounted Cash flows are given along with the Investment in the Table 10.
An organization has 3 potential projects for possible investment. These projects are
called A, B and C. The initial investments required for these projects are $100,000,
$150,000 and $200,000 respectively for projects A, B and C. The life cycle of these
projects is the same and let us assume as 5 years. During these 5 years, projects A, B
Page 127 of 167

and C will have Income and Expenditure. The figures for the Income and Expenditures
for these 3 projects are given in Table 1, 2 and 3 respectively. 50% of the total
investment figures given above for various projects are required for the capital equipment
like heavy machinery etc. The depreciation on the machinery is uniform for all the above
3 projects and at a flat rate of 20% per year. Profit is calculated after deducting from
Income, the Expenditure and depreciation. It is assumed that the taxes will be paid on
the profit so made. The table below gives the above picture in the tabular form. Income
may be also called Inflows and Expenditure as Outflows. It is also given to us that the
three projects under consideration will have an inflation of 10% each year for the next 5
years. Remember, this is an assumption and based on which it would impact some of
the investment appraisal techniques.
Table 12
Sl.No

Project Investment

Net Discounted Cash flow

Profitability
Index

$100,000

$112,110

1.121

$150,000

$214,690

1.431

$200,000

$128,190

0.641

In this ratio, Project B gain comes out as clear-cut winner.

These figures are taken from table 4 from the discounted cash flow (DCF) concept.
Readers are advised to refer to the concept of DCF also.
Accounting Rate of Return (ARR)
The Accounting Rate of Return (ARR) expresses the profit forecast as a % of the capital
expenditure or investment involved. There are various ways of calculating ARR. There
are variations such as definition of profit whether it is before tax or after; Capital
employed could be initial investment or the average capital or investment through out the
project life cycle etc. It may be noted that the profit is calculated based on the average
per year. This figure is arrived at by calculating the total profit and then dividing by the
number of years under consideration.

We will calculate the ARR based on the fact that Investment or Capital will be taken as
spent at the beginning of the project and profit will be calculated based on the net cash
flow minus depreciation.
An organization has 3 potential projects for possible investment. These projects are
called A, B and C. The initial investments required for these projects are $100,000,
$150,000 and $200,000 respectively for projects A, B and C. The life cycle of these
projects is the same and let us assume as 5 years. During these 5 years, projects A, B
and C will have Income and Expenditure. The figures for the Income and Expenditures
for these 3 projects are given in Table 1, 2 and 3 respectively. 50% of the total
investment figures given above for various projects are required for the capital equipment
like heavy machinery etc. The depreciation on the machinery is uniform for all the above
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3 projects and at a flat rate of 20% per year. Profit is calculated after deducting from
Income, the Expenditure and depreciation. It is assumed that the taxes will be paid on
the profit so made. The table below gives the above picture in the tabular form. Income
may be also called Inflows and Expenditure as Outflows. It is also given to us that the
three projects under consideration will have an inflation of 10% each year for the next 5
years. Remember, this is an assumption and based on which it would impact some of
the investment appraisal techniques.
Tables 13, 14 and 15 show the computations for Project A, B and C.

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As can be seen, Project B has the best ARR of 34%.

ARR is popular with many organizations as it gives quickly the profits based on the
capital employed. The percentage return can be compared with the company's target
return. However, this method of calculating IRR does not account for the time factor of
profits.
Return on Investment (RoI)
Accounting Rate of Return considers net profit after depreciation and one of the way is to
calculate the average profit per year and then divided by the investment made in the
project and compute this figure in %.
However, Return on Investment consider only the total cash profit without considering the
depreciation. The average cash profit per year is calculated. It is then divided by the
investment made in the year 0.
An organization has 3 potential projects for possible investment. These projects are
called A, B and C. The initial investments required for these projects are $100,000,
$150,000 and $200,000 respectively for projects A, B and C. The life cycle of these
projects is the same and let us assume as 5 years. During these 5 years, projects A, B
and C will have Income and Expenditure. The figures for the Income and Expenditures
for these 3 projects are given in Table 1, 2 and 3 respectively. 50% of the total
investment figures given above for various projects are required for the capital equipment
like heavy machinery etc. The depreciation on the machinery is uniform for all the above
3 projects and at a flat rate of 20% per year. Profit is calculated after deducting from
Income, the Expenditure and depreciation. It is assumed that the taxes will be paid on
the profit so made. The table below gives the above picture in the tabular form. Income
may be also called Inflows and Expenditure as Outflows. It is also given to us that the
three projects under consideration will have an inflation of 10% each year for the next 5
years. Remember, this is an assumption and based on which it would impact some of
the investment appraisal techniques.
As shown in Tables 16, 17 and 18, the RoI for Projects A, B and C are 31%, 44% and
20% respectively. As a principle, these figures will be higher than the corresponding
Accounting Rate of Return figures as Cash Profit will always be higher than Profi after
depreciation.

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Some people to prefer to calculate the RoI based on the discounted cash profit. This is
an exception than a rule. If we calculate the RoI based on discounted cash profit, the
figures for Project A, B and C comes to 22.4%, 28.6% and 12.8% respectively.
Discounted based calculations for the average net cash flow would always give to lower
RoI as the net average cash profit will come down in numbers due to discounting factor.

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PM Triangle and Quality

Conventionally, a project was focused on three major aspects explicitly and one
additional aspect which was implied. The explicit considerations for project management
have been Scope, Time and Cost while Quality is implied. This pattern of thinking was
prevalent almost till early nineties.
The three major considerations of scope, time and cost could be well represented by the
three sides of a triangle. The implicit Quality considerations can be shown in the center
as per the diagram shown below:

The scope forms the basis of a project. It defines the boundaries of the work, which need
to be done in terms of deliverables to the customers. Being the basis of the project,
normally Scope is shown as the base of a triangle. The 2 other sides are shown as Time
and Cost. Time and Costs are computed for a project based on the Scope as detailed
out in Work Breakdown Structure (WBS).
The representation of Scope, Time and Cost as three equal sides of a triangle as an
equilateral is more symbolic laying balanced emphasis on all the aspects of a project.
The units of the three sides of the triangle represent different units. For instance, the
base representing Scope will be in terms of deliverables while the unit's of time and cost
are in weeks/months etc. and the monetary currency respectively.
Quality in center of a triangle interacting with all the three sides of a triangle represent the
fact that there could not be any compromise on Quality during any phase of the project
life cycle.
With globalization and heavy customer orientation, the project is to ultimately satisfy the
various stakeholders. The representation of Customer in the above diagram represents
the ultimate receiver of the project work who needs to be fully satisfied.
It is not difficult at all to manage any 2 sides of a triangle. If scope and time is to be
managed without any constraint on budget, no big deal. Similarly, if scope and cost is to
be managed without any time pressures, no big deal too. Without any constraints in
reducing scope, time and costs can easily be managed. The challenge lies in managing
all the three sides of a triangle without changing any one of them. This is where we need
the competent project managers to build internal and external teams including suppliers.
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The following diagrams represent the impact of changes on scope, time and cost.
Original Balance Triangle

Scope- No change, Time - No Change

Scope - No change, Cost -No change

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Scope - No change, Cost - No change

Time Reduced

Time - No Change, Cost- No Change

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Scope Reduced

Change in all three Parameter, Scope, Time and Cost

Companies have their own policies as what they would prefer in terms of maintaining the
integrity of a triangle. Normally, a balanced approach is followed in managing proper
inter-relationship amongst scope, time, cost and quality.
The additional knowledge areas covering Risk, Procurement, Human Resource,
Communication and Integration are becoming an integral part of project management
and thus dynamically tuning the shape of the conventional triangle representing scope,
time and cost with quality at the center stage within the overall satisfaction of
stakeholders.

The Need for Procurement

Procurement & Contracts
When a project is undertaken by an organization, generally there is a requirement for
procuring of some equipment and materials for implementing the project. There could
also be a requirement for project deliverables that needs to be outsourced. Whatever the
exact reason, the performing organization often needs to enter into contracts to procure
goods and services to complete the project. Procurement is the acquisition of goods and
services that are needed for the project from outside the organization.
A large number of projects are carried out under contracts. Projects in construction, most
government projects and many projects in private sector are carried out under
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contractual agreements. The contract and procurement are both an important part in
managing projects.
Contracts
A contract is basically an agreement between two or more parties that is binding on all
the parties concerned. In projects a contract would be used to get different goods and
services needed for the project. Contracts have a legal standing and can lead to litigation
if there is a breach of contract. There are many types of contracts simple to very
complex and it is important to choose the type of contract one enters into with care.
A contract can be subdivided into an Offer, an Agreement and a Consideration.
The Offer - This is an agreement between the parties for the performance of a service,
procurement of supplies or a combination of both service and supplies.
When making an agreement both the parties that are involved must be legally competent
for the agreement to be a valid one. Both parties must be fully aware of the agreement.
Persons who are underage or not in a position to make a responsible decision due to any
impairment cannot enter into a contract. In case the parties are not legally competent
then the agreement made can be proven as null and void in a court of law. The contract
or agreement that is made must be for a lawful purpose and not go against society
norms.
The Agreement - This deals with the actual agreement or contract that has been
entered into. Both parties involved in the agreement should be clear about the
agreement that they are entering into so neither party feels pressurized about being
forced into the contract.
The Consideration - A consideration which is normally in terms of money is paid in
return for providing the product or service.
In projects, contracts are concerned with the relationship between the buyer and seller of
products and services.

Make or Buy
Make or Buy decision
When a project is undertaken there are many products that have to be procured.
A decision has to be made by the performing organization regarding whether to buy
something needed in the project or to make it themselves.
In order to come to a decision, about this many factors must be considered. The costs
involved will form a major factor in the decision. Both direct and indirect costs should be
considered. Other considerations also include determining the logistics of making the
product in-house. Is there excess capacity that is underutilized that can now be utilized?
If there is no spare capacity then how much will it cost to install the extra facility. Is a
workforce and supervisory personnel already available or do they have to be hired? The
design for the product may or may not be easily available to make the product. If we go
ahead will reliable suppliers be available.
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For a buy decision factors that can affect the decision could be that it may be cheaper to
buy then to make the product. Idle capacity may not be available or the need for the item
may be much sooner than it would be feasible to make the item. It is possible that the
item requires highly skilled workers that are not available within the organization. If new
personnel are added how will they be relocated after this present requirement is over? All
these are some of the questions that should be seriously considered before coming to a
final decision about buying or making an item. If the item is required routinely then
making it should be a better option than buying it.
Whatever decision is taken it should reflect the organizational perspective and should
also consider the immediate requirement of the project.
The decision to make or buy must be made as a part of the initial scope definition of the
project and will have an impact on the procurement plans of the project.
In order to make this decision it is best to make use of expert judgment from persons
who have the required technical knowledge and experience.

Fixed Price Contract

Firm Fixed Price or Lump sum FFP contracts
This type of contract is used most often. A fixed sum of money is paid to the seller for
providing a fixed service irrespective of the seller's actual costs. Quite often in fixed price
contracts the seller provides the total material that is required, which is later reimbursed
by the buyer.
In this type of contract, the seller or the contractor has maximum risk. Unless the work is
completed at a cost below the contracted price, the seller will make no profit. The profit is
the difference in the contractor's costs and the price of the contract.
In a project environment a great disadvantage is that the performing project manager has
tremendous pressure to keep trying to reduce project costs because a penny saved is a
penny earned. Many organizations also offer special performance linked bonuses, which
can further stress the project manager's performance.
A fixed price contract is an agreement, not a guarantee that the deliverable will be
completed on time. It may happen that not only is the project not very profitable it could
very easily become loss making.
This type of contract is more suitable for supplies and services that can be described in
enough detail to ensure complete understanding of the requirements by both seller and
buyer. The seller should also be able to assess the inherent risks.

Fixed Price plus Incentive Contract

Fixed Price Plus Incentive Fee - FPPI contract
This is an extremely difficult contract to administer as it generally contains a number of
cost/profit combinations such as share ratio, target costs, target price, target profit and
ceiling price. The buyer will pay the seller a set amount fixed in the contract plus an
additional amount as incentive depending on different performance criteria.
This type of a contract is more often used where there is both, a considerable amount of
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money involved in the contract as well as a long production time is needed for completing
the project. The various combinations of target work and actual work is used to increase
efficiency in the contract.

Cost Reimburseable Contracts

Cost Plus Fixed Fee CPFF contracts
In a Cost-Plus Fixed Fee contract the buyer agrees to reimburse the seller for actual
costs incurred by him in undertaking the project plus pay him a fixed fee that will be the
profit for doing the project. The fee paid is usually based on a percentage of the
estimated costs and does not vary with the actual cost that is incurred. Such type of
contracts are more common in highly uncertain projects, where it is difficult to assess and
correctly predict what the project cost will be.
Costs are classified into direct costs and indirect or overhead costs. Direct costs are
those costs that have been incurred exclusively for the project such as the salaries of the
project staff involved in the project. Indirect costs include expenses for doing business
and are usually calculated as a percentage of direct costs.
Project people in the performing organization face much less pressure in a cost-plus
contract compared to a fixed price contract. All cost overruns are borne by the buyer and
not the seller or contractor. The buyer assumes most of the risk. Seller has minimum risk.
This means that the seller is not very concerned about keeping the costs down, as
normally there is no penalty for extra expenditure.
The project manager should maintain a strict watch on labor and material expenses of
the contractor to avoid misuse of funds. Such contracts are more likely to be used in
long, unknown projects such as R&D projects.

Cost plus Percentage Contracts

Cost Plus Percentage of Cost - CPPC contracts
This type of contract is similar to a cost plus fixed fee contract in that the buyer will
reimburse the seller or contractor for costs incurred by him in undertaking the project.
The contractor will also receive a certain percent of the cost from the buyer as the profit
for doing the project.
In such a contract the contractor has no incentive to reduce project costs as his fee is
based on the actual costs that are incurred. The seller may even try to increase project
costs to create work for any idle staff that may have. This means that the buyer has to
monitor such contracts. One way is for the seller to routinely provide progress reports to
the buyer. The project manager should closely monitor the contractor's material and
labor costs to ensure that costs are maintained. At times, for very large projects the buyer
may also post a representative at the site to watch over the work.
Such contracts are more used by private sector in industries like construction. The US
government does not encourage use of this type of contract for government work as the
buyer assumes all the risk.

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Cost-reimburseable contracts usually include some sort of incentive for meeting or

exceeding project objectives like total project costs.

Cost plus Incentive Fee

Cost Plus Incentive Fee CPIF contract
In this sort of contract the buyer reimburses the seller or contractor his actual cost
incurred in completing the project. Together with this the buyer also gives the contractor
a fixed fee for doing the job as given in the contract plus an incentive for good
performance.
Both the buyer and seller share the cost savings that are achieved from the good
performance by the contractor. If there is a saving in project cost then this saving is
shared by the buyer and the seller. A sharing formula for this is decided in advance in the
contract. Usually this sharing formula will reflect the amount of risk each party is willing to
take.
An advantage of this type of contract is that it gives incentive to the contractor to save
costs.

Time and Material Contracts

Time and Material - T&M contracts
This contract is based on completing a fixed amount of work that has been earlier agreed
to by both the seller and the buyer. The seller will be paid depending on the time it takes
to complete this fixed work. A fixed rate is paid for the services rendered. Cost of the
materials that is used by the seller to complete the work is reimbursed by the buyer
based on his actual cost price.
A unit price contract is similar to this contract in which the fixed price agreed to depends
on the rate of any units supplied.

Contract Administration and Closeout

Contract Administration and Closeout
Once a contract has been signed the next step is to ensure that the performance of the
contractor is meeting all contractual requirements.
The project team must be aware of legal implications when contracts are used. There are
many legal implications and requirements of various actions, which one should be aware
of when administrating the contract.
Any change requests made should be properly documented to avoid any future disputes
at contract closeout. Payments are to be made as per contract. All work done should be
routinely reported to management for reviewing of progress and status.
A good contract change control should be kept in place to oversee all contractual
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changes, as it is the changes in the contract that leads to maximum disputes and
litigation since each party has their own version.
Once the work is completed the contract should be formally closed in writing

Procurement Planning
Procurement

Planning

Procurement is the acquisition of goods and services that are needed for the project from
outside the organization. The process of acquiring goods and services can be broken up
into six separate processes. Planning for the procurement to determine what and when
to procure; soliciting for the required product or service by identifying what is required and
who are the potential sources that can supply the item; selecting the actual supplier for
the supply of the product or service by obtaining various bids, proposals offers etc;
choosing and administering a suitable contract for the procurement, and lastly a contract
closeout by settlement of any issues pending in the contract.
We start by reviewing what the project requirements are. Which items required are
available within the organization and what has to be procured from outside. A decision
has to be taken regarding whether we need to procure or not. If we decide to procure
then let us see what all do we need to do before beginning the procuring process.
The product description will show the complexity of the items required and help in
deciding where the required product is likely to be available. How easily is the item
available incase it is to be procured from the market place. How will we go about
procuring the item, which supplier shall we use? How much of the item is to be procured
and when do we wish to procure it? Is the product or service freely available? Only after
we decide about these critical issues can we decide about the type of contract that will be
suitable to procure the item. Depending on the project it is possible that we can also be
the supplier instead of the buyer.
Before making a make or buy decision the scope statement must be referred to as it
contains all the information about project needs and strategies which are necessary for
planning the procurement needs of the project.
The make or buy analysis will help in deciding whether to buy something from outside or
not. In essence this means to procure or not to procure. In case the item is being
procured from another unit/department of the same organization then no formal contract
will be required. All constraints and assumptions related to procurements must be fully
discussed with the stakeholder.
Further each organization will have some procurement guidelines that also have to be

Source Identification and Selection

Procurement Management Plan
This is the plan that is made while planning for the procurement and is used to describe
all the steps that will be taken to procure the required items.

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Such a plan should consider aspects such as detailing the type of contract to use, any
special actions that may be needed by the project team for the procurement, how to
manage multiple providers and how to manage and coordinate all procurements with the
work being executed.
Statement of Work
The statement of work is an important document in the project procurement procedure.
This provides potential sellers with a detailed narrative description of the goods and
services that are required to be procured for the project. The detail that used here should
depend on the item to be procured so the SOW can be brief and informal or a very
formal detailed document.
The SOW is referred to by different names in different industries and may also be called
a Statement of Objectives.
Procurement documents like the SOW are used to solicit proposals from prospective
suppliers. The terms bid and quotation are generally used when the source selection for
procuring the item is based on price as the driving factor. The term proposal is normally
used when technical skills or other considerations are more important. Procurement
documents can be known as Invitation for Bid (IFB), a Request for Proposal (RFP) or a
Request for Quotation (RFQ).
When evaluating the proposal from potential vendors different criteria can be applied by
the evaluation team. Such criteria can include considerations such as allotting a
weightage system to different criteria for rating, a screening system or independent
estimates.
Using these various inputs a suitable contract is chosen for obtaining the goods and
services.

Contracting
Type of contracts
If the contract performance is going to be successful then an appropriate contract type
must be chosen. The type of contract will determine the cost and performance risks
which will be placed on the contractor and this will impact his performance. The type of
contract used will depend on the degree of uncertainty that is facing the project manager.
The life cycle of contracts resembles the project management process of initializing,
planning, implementation and closeout as it goes through many processes, such as a
requisition process, a solicitation process, award process and finally the contract
process.
There are three broad categories of contracts - Fixed price contracts, Cost reimbursable
contracts and Time and material contracts. Within each of these categories, there are
various types of contracts, which can be used individually or in combination.
Cost plus contracts vary distinctly from fixed price contracts in that contract costs incurred
by the seller are reimbursable. Such contracts place the least cost and performance risk
on the contractor and just require the contractor to use his best effort to complete the
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contract. Cost reimbursable contracts are required when the project involved is uncertain
and it is difficult to estimate a fixed price with sufficient accuracy to ensure a fair price can
be obtained for the contract.
A large number of companies have separate procurement departments. Their job is to
handle decisions regarding contracts. Which type of contract will be most appropriate is a
key decision in a project.
Procurement can be done through a centralized contracting department, where the
degree of specialization regarding contracts will be much higher and the seller needs to
deal with only one person. Where such a department does not exist the contracting work
is done in a decentralized way. Generally in such a set up the involvement of the project
team will be much higher in contracting work.
In contracts the buyer is looking to place maximum performance risk on the seller while
the seller is looking to get the best bargain by increasing his profit potential and place
maximum risk on the buyer.
There is wide variety of contracts that can be used. We will be covering the main types of
contracts in detail.

Project Life Cycle Concepts

The project life cycle is a sequence of phases through which all projects, irrespective of
their size and complexity, will evolve between its conception and termination. This
concept of a project life cycle is fundamental to the management of projects and is the
only thing that distinguishes projects from non-projects.
The project life cycle defines the beginning and end of a project and various key
milestones or significant events relevant to stakeholders. The entire project is generally
broken down into various phases for better management control at all levels. This control
can be better exercised by everyone in the project to the extent he/she is responsible for
performing and coordinating a group of activities. Some phases also show the links to
ongoing operations of the performing organization.
Another major advantage of phasing is that as the requirement of resources varies over
time, with phasing it is possible to have better management of dynamic resources of
varied skill levels throughout the project life cycle.
A project phase is deemed to be completed with a deliverable i.e. something tangible,
which can be verified, and has some value associated with it. Deliverables a be products
or services to be given externally or internal deliverables needed for project work to
continue. At end of each phase a decision can be made regarding whether to continue to
next phase or not.
Though the life cycle is basically the same for all projects the actual phases will vary with
the type of business/industry and the specific project being done. In large projects the
elements of the life cycle may be clearly separated while in small projects they could be
linked or blurred.
The project life cycle follows a generic sequence which is basically similar for all projects
- Conception or initial phase which outlines the Opportunity for the project; Design &
Development; Implementation; Hand-over; Post project evaluation etc. The intermediate
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phases in each project between conception and it's Hand-over or Termination varies with
the industry, organization and the size and complexity of the project. There should be a
minimum of four phases and this can go up to 19-20 phases. Some phases can also be
divided into stages. Some projects have an 'extended life cycle' in which case operation
and disposal phases are included in the project's life cycle.
The ability to pace and overlap the project phases, their staffing and reviewing them as
the project progresses is an key skill that the project manager should have.
During the initial or conceptual phase the requirements of staff, key people and
resources is low. Cost of making any changes is lowest in this phase. Risk and
uncertainty is maximum as chances of the project getting cancelled are high.
As the project progresses the characteristics of the project undergoes change and
commitment to project is high. Making changes also increases.
The wording used for the different phases of the life cycle can vary with the industry. For
example, enterprises bidding for project work will generally have Marketing and bidding
as first two phases while organizations investing in projects will generally have Concept
and Feasibility as the first two phases.
The project life cycle can include phases such as: initiation, conception, feasibility, design
and development, manufacture, implementation, hand-over, commissioning and
disposal.
In the IT sector the life cycle is referred to as a sequence of stages. A sample break-up of
the project life cycle (reference BS 6079 guidelines) is shown below.
Conception - A stakeholder analysis is done and the needs and requirements of the
customer are identified. Three things are then decided - whether the project is technically
feasible or not, whether it is commercially acceptable or not and lastly if benefit and costs
show that it is worth proceeding. A go/no go decision is made.
Feasibility - Tests for technical, commercial and financial viability, technical studies,
investment appraisal, Discounted Cash Flow etc. finalization of the business case are
done
Implementation - Design & Development, procurement, fabrication, execution and
delivery, monitoring, change control, reporting, coordination and control, commissioning
Operation - Revenue earning period, production, maintenance
Termination - Closedown, decommissioning, disposal
Some projects have an extended life cycle, which means that the project can extend to
the disposal or replacement of the product or service.
Main risks associated with each project phase are:-

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Concept/Feasibility
Choice of location, social, environmental constraints, choice of product, proper market
survey, choice of technology.
Development & Design
Choice of technology, suitability of design chosen, safety, faulty design, testing criteria,
procurement.
Implementation
Safety, health hazards, resource availability, cultural differences, cost overruns, schedule
delays, quality maintenance, faulty testing.
Hand-over & Review
Delivery schedules, communication, effectiveness of risk strategies.
Stages in a project life cycle:
At times the project life cycle phases can be split into stages e.g. Concept phase can be
divided into two stages in which 1st stage involves wider range of options while 2nd
stage will investigate the proposed products or services in greater detail.
Generally there are evaluation or approval points between phases known as gates.
These are also referred to as milestones. At each such milestone or gate a decision is
made to proceed with project or not.
Some advantages of project life cycle phasing are:
All the project resources are used most efficiently and effectively. As the
requirement of resources varies over time, with phasing it is possible to have
better management of resources throughout the project life cycle.
Phasing allows better management control at all levels. This control can be
exercised by everyone in the project to the extent they are responsible
Important project issues are not overlooked as the total project is broken down
and important milestones can be identified
It becomes more feasible for stakeholders to evaluate the progress of the project
and give their approval after each stage before they spend their money to
progress to the next phase of the project
As the project risks varies with each phase it is also easier to manage the risks
that have been identified with phasing
Generally each phase is marked by a deliverable and this deliverable can be used
as a payment milestone
With project phasing it is possible to have different project managers for different
project phases
Role of the Project Manager over the project life cycle.
The project manager's role would vary over the project life cycle.

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In the earlier concept and feasibility phases of project he will be more involved in
assessing the project feasibility, relating the business need to the project requirement,
investment appraisal, form and develop the project team, risk identification, document
distributions requirements, finalizing the WBS, the project network and bar charts and
develop the overall project plan.
Later in implementation phase the project manager would be more involved in executing
and monitoring the project, meetings, reporting, ensuring the right information is passed
on to right person timely, evaluate the progress of the project, procurement, conflict
management, motivating and leading team members, manage any risks, implementing
changes, documentation etc. During hand-over the project manager will be more
involved in reviews, hand over of the required to the user, acceptance and testing of the
deliverables, audits and documenting all the lessons learned for future use.

Post Project Review Concepts

Once the project is completed and handed over to the client the project manager
requires to revisit the project to review it so that the team, management and the
organization can gather the learning and assess their faults/ mistakes so that this
becomes a reference for other such projects to come and the same mistakes are not
repeated in the forthcoming projects.
The data gathered at this level includes:
as-built design details
a comparison of the final costs and benefits for feeding back to the estimating
process, and to the selection of the future projects
a record of the technical achievement on the project for feeding back to the
design and selection of future projects
a review of the successes and failures of the project and the lessons learned, for
feeding back to the management of future projects.
Two methods for reviewing the success and failure of the project are as under:
Debriefing Methods:
It is important on most projects to hold a meeting of all people who attended the
project launch workshop to review the assumptions made. On particularly large
projects they may amalgamate up from a low level, reversing the cascade of
project launch workshop.
Post-Completion Audits:
This is a formal review of the project against a checklist. An audit is often
conducted by external consultants. Generally those projects are audited which
have gone radically wrong. Better lessons are learnt from successes, so it is
useful to audit projects which have gone well.

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Types of Organization Structures

Organizational Structures
There are three key types of organizational structures Functional, Matrix and
Projectised. The Matrix structure can be further classified into a weak Matrix structure
and a Strong Matrix structure. The role, responsibility and authority in these structures
will vary ranging from project expeditor to project coordinator to project manager.
The organizational structure in which the project is performed will have a direct bearing
on the project as this impacts the roles and responsibilities as well as the availability of
project resources.
The organization performing the project will also affect the project in many ways as the
project is not done in isolation - it is undertaken in the environment of the organization.
We can have the private sector, government, social sector etc all of which will have a
different influence.
Functional Organization
The functional organization is the traditional hierarchical organization in which the staff
members are grouped together by speciality such as marketing, engineering, sales, HR
etc. Each division is again subdivided. The reporting structure is straight and simple in
which each employee has a clear superior. This form of an organizational structure is still
the most widely used in the world today.
In such an organizational structure the project manager has very little or nil formal project
based authority. He has to rely on personal influence and his own interpersonal skills to
get the resources that he needs for the project. This structure is not suitable for multiple
projects as there are a lot of conflicts over resource requirements and priorities between
the projects.
In this structure some drawbacks the project faces is that the project manager has no
formal authority, little control, team members are not committed, being more involved in
their own routine work rather than the project and communication between project
members is ineffective. Functional organizations are better equipped to handle low risk
and relatively low cost projects.

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On the plus side there are some advantages for the project in a functional organization.
Career paths for all members are clearly defined which keeps them motivated, resources
are centralized which means they can be used more effectively, personnel have close
proximity with each other so better understanding among them. Functional organizations
have a strong base of specialists who are grouped together by their speciality, which can
be an advantage for project using new or complicated technology.
Projectized Organizations
At the other end of the spectrum from a Functional organization is the Projectized
organization. In such an organization the project manager has maximum authority and
independence for the project. The project manager has a lot of power and authority to
use the resources that he wants for the project. Generally the whole organization and the
organization's resources are involved in project work. Projectized organizations are
project oriented structures.
One disadvantage of such a projectized structure is that there is a lot of duplication of
resources in terms of both human and equipment resources leading to wastages. An
example of such an organizational is given below.

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Matrix Organizations
In order to get the best from both the Functional organization and the Projectized
organization the Matrix organization was developed as a combination of both.
Matrix organizations maintain the vertical lines of authority of a Functional organization
and at the same time there is a horizontal structure that is used to support project work.
Matrix organizations were formed keeping in view the need to undertake multiple projects
without having to duplicate resources as in a Project organization. Personnel form a part
of the project team and also a part of their functional department.
Such an organization is relatively more difficult to introduce. There is more room for
conflicts within the structure with this combination of persons involved in the projects and
in functional work. It thus becomes very important to have clear guidelines about the
roles and responsibilities.
The matrix structure is further subdivided into a Balanced Matrix, a Weak Matrix and a
Strong Matrix depending on the balance of power between the functional manager and
the project manager. In a strong matrix the project manager is more powerful while in a
weak matrix the functional manager is more powerful.

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A Strong Matrix and Weak Matrix organizational structures are shown below.
Strong Matrix

Weak Matrix

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Both the functional manager and the project manager are given equal authority in a
balanced matrix.

Some key advantages of using a Matrix organizational structure is that the usage of
resources is most efficient with minimum duplication and idle time of resources. There is
a better balance between time, cost, quality and performance, the project manager has
much better control over the resources for the project, the project manager can have a
say in choosing personnel for the project and there is more rapid response to any
contingencies. Further the support for project work is more from functional departments
who are now more involved in projects.
Some disadvantages of a Matrix organization are that the project personnel have no
clear line of authority they have two bosses, the project manager and the functional
manager. Once the project work is over often persons do not have a clear promotion
path as they were borrowed for the project and now need to be reassigned. Often there
is personal conflict between the project manager and the functional manager, which also
creates problems for all.

Link between Organization Type and Project Phases

The various organization structures discussed are being used in some organization or
the other. However, ideally any organization may require using various organizational
styles during various phases of the project to complete and manage the project efficiently
and effectively. This is an important consideration since during various phases of the
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projects, the requirement from the team and the results desired are varying. The criticality
of a phase in the project life cycle and the time spent on that phase actually help decide
on the organization style to be used. In general all projects can be made to fall under a
specific style of organization structure during various phases of the project.
Appropriate management styles and team structures at different project stages are
mentioned in the table below:
Stage Style Team
Feasibility Laissez-faire Egoless
Design Democratic Matrix
Implementation Autocratic Task Hierarchy
Close-out Bureaucratic Task force

Roles, Duties and Responsibilities

Sponsor
The sponsor of the project represents the interests of the persons funding the project and
is involved at an overall level in the project. The sponsor is the body or the individual for
whom the project has been undertaken and the sponsor is the primary risk taker in the
project.
The sponsors important activities includes:
Appointing the project manager for the project
Is responsible for project from senior management and monitors the progress of the
project
He/she is responsible to keep the Management Board informed about the projects
progress and status
In case there are any disputes about contract changes or any other changes to be made
the sponsor will act as the mediator to resolve the issues.
The sponsor's key role is:
Finalizes the business case
The sponsor is responsible for defining the investment aims of the project
Arrange funding for the project
Provides management commitment to the project
He/she will be the person who will determine the priority regarding the time, cost
and quality in the project
Project Manager
The project manager is responsible for delivering the project. He has to get the job done
in the agreed schedule, within the approved cost and to the correct technical
specifications provided by the user as well as other key performance indicators specified
in the business case.
Skills of a Project Manager:
The project manager's key skills should include being a:
Leader
Integrator and coordinator
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Technological understanding e.g. evaluate technical recommendations, risk

assessment
Communicator
Understand project economics e.g. life cycle costing
Good team builder with excellent man management skills
Problem solver
The project manager's key role lies in:
Delivering the project on time, within budget and with specifications
Integrating and coordinating the entire project
Managing the expectations that the customer has from the project
Developing and managing the project team so that it can become a high
performing team
Maintaining a channel between the project team and the senior management
Developing the project management plan which is the key document of the
project
Ensuring that all the project risks are fully identified, assessed, managed and
regularly re assessed for any new risks
Communicating through the project with various stakeholders, team members,
senior management
Developing the network schedules for the project
Determining the resource requirements
Monitoring and controlling the project
Reviewing / reporting and taking actions to correcting the performance of the
project
Ensuring that all changes made in project are fully documented in the
corresponding plans
Review of project and documenting lessons learned for use in future similar
programs
Some Problems that can negatively affect project managers can be:
The project manager should refrain from judging others and making comparisons
between different members
The project manager thinks that his style of doing the work is best, and fails to
take into account the impact of local cultures on work ethics
Does not consider that the method and style of doing work can be different in
different organizations
His time sense does not let him understand that the urgency for doing something
is not constant and varies with country and organization
Team Members
The project team is at the core of managing the project. A good team is essential for
project success. The team members are responsible for actually performing key part of
the project.
The role and responsibility of team members includes:
Maintain the harmony and unity of the team
Try to resolve any differences that came up between team members
Performing the work they are assigned responsibly
Being innovative in getting the work done
Both be cooperative with and obtain cooperation from people outside the team
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Be open and forthright

Discus any problems before they get out of control
Assess their work realistically
Programme Manager
The programme manager is the person responsible for developing the overall product or
service. The new project being undertaken is a part of this overall product/service.
Programme Manager's key role lies in:
Implement the organization's business strategy through projects
Managing different resources among a portfolio of projects (all projects must be
interrelated to a common aim/objective)
Manage the different interdependencies between a number of projects

Communication Concepts
Probably the single most important thing in project management is communication. It is
said that if good communication exist in the project, the team will be motivated, and
project will succeed inspite of the problems that might kill another project. It is essential
that project managers have good communication skills and also a good understanding of
communications.
It is said that project management is nothing but communication, communication and
communication. Most of the time of the project manager is spent in communication.

Barriers to Communication
If any of the ingredients or elements of the communication process are defective in any
way, clarity of meaning and understanding will be reduced. Several macro and micro
barriers to communication can arise that will lead to bottlenecks and unsuccessful
communication.
Communication Macro Barriers: These are the elements of communication
environment that hinder communication in general sense. Some such barriers are:
1. Amount of information: The barrier occurs when the information transmitted is
more than required or more than the capability of the receiver. Follow the
principle of Keep It Simple and Short
2. Lack of subject knowledge: Since mutual understanding is based on a shared
field of experience, a lack of such shared experience can inhibit
communication
3. Cultural differences: Especially of importance in international projects,
meanings and interpretations may vary with different cultures, which can
influence the communication process
4. Organizational climate: Minimize the difficulties related with status and ego of
the organization
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5. Number of links: More the number of transmission links, more are the
opportunities for distortion to creep into the message.

1. Perceptions: Both sender and the receiver may have their own perceptions about
each other's knowledge and skills. Such perceptions influence the interpretation of
a message and differing interpretations result in unsuccessful communication
2. Message competition: Communicate only when you have the total attention of the
receiver, otherwise the message would be competing with whatever the other
party is preoccupied at that time, either mentally or physically. Try to minimize the
noise or other factors contributing to message interference
3. Project Jargon and terminology: Define the terminology used in messages.
Project team members should have a common vocabulary for the purpose of
communication of messages
4. Personality and interest: Likes and dislikes of people affect communication.
People tend to listen to topics of their interests only
5. Personal barriers: These can be attitudes, emotions, prejudices etc., which wrap
our sense of communication and interpretation.
Effective Communication
Realizing that the communication being a very important component in the project
management exercise, on must take measures and effort to make each and every
communication effective. There are some basic guidelines for a more effective

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communication mentioned as under:

1. Make the message relevant for the receiver: Good communications come when
the receiver is interested and has some thing at stake in the message. If the
message is relevant, then the receiver is more likely to get a more complete
meaning.
2. Reduce the message to its simplest terms: When you communicate with
someone, keep the message as simple as possible. Many times the message is
complicated with unnecessary details about the rationale and justification of the
project when the listenr is already convinced and just wants to know what to do.
3. Organize the message into a series of stages: One of the reasons that verbal
communication succeeds over written is the opportunity to keep things simple.
The sender can send a simple part of the message and receive feedback
immediately. Based on the feedback, the other part of the message can then be
sent and feedback received. Thus the message is kept simple, communicated in
parts and understood completely.
4. Repeat key points: Specially during listening as it takes place in very small
amount of time, it is important to repeat the main/major points of the
communication. During this process its is a good idea to summarize what has
gone before in the communication, thus ensuring that the receiver is getting all the
important points in the message.
5. Improve listening: Many times when we listen we don't hear what is being said to
us. It is only possible to concentrate to what is being said for a small portion of
time. There are several things one should remember:
a. Don't Interrupt: One of the most disruptive things that can be done while
someone is trying to communicate a message is to interrupt him/her. This
stops the speaker's chain of thoughts and makes the person feel that you
are not interested in what the speaker has to say. Eventually this will
reduce the effectiveness of the communication. However, there are many
times this is used as a tactic.
b. Put the speaker at ease: If a speaker is nervous or uncomfortable in a
speaking role, you can encourage the speaker by making some comments
before the speaker or during the message making the person feel
important and required for the given role. Other aids like nodding, smile
etc. also make the speaker feel comfortable while communicating.
c. Appear interested: Creating the impression that you are very interested in
what is being said will do a lot of good to the speaker and make you retain
more information of what is being communicated.
d. Cut out distractions: Listening can improve greatly by improving the
environment where the communication is taking place. Noisy and
uncomfortable locations severely inhibit effective communication.
e. Periodically sum up what is being said: It is a good means of
communicating to the listener and self-conformation by summing up the
message, which was communicated by the speaker.

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Communication Process
Communication Model
Probably the single most important thing in project management is communication. It is
said that if good communication exist in the project, the team will be motivated, and
project will succeed inspite of the problems that might kill another project. It is essential
that project managers have good communication skills and also a good understanding of
communications.
It is said that project management is nothing but communication, communication and
communication. Most of the time of the project manager is spent in communication.
Communication would be basically to report progress, ensuring project on track by
communicating to all relevant for this purpose, motivating team members both internal
and external and negotiating for resources of different types at different phase of a
project.
Communication management is the process required to ensure timely and appropriate
generation, collection, dissemination, storage and ultimately disposition of project
information.
Communication is the process of delivering a message to another with understanding.
Thinking: The sender frames the ideas and creates the message that he or she wants
to send
Encoding: The encoding process consists of formatting the message into some
transmittable form. This makes the communication possible. The language, written and
spoken words, facial expressions body language and other means of transmitting ideas
can be used.
Symbols: All sorts of symbols can be used to communicate. Symbols stand in place of
something that we have experienced initially. A picture of a person is a symbol of that
person.
Transmitting: This is the process of moving the message from the sender to the
receiver. The medium used might be airwaves, electronically, visual signals etc. or a
combination of these.

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Perceiving: The receiver must have recognition that a message is coming. If there is no
perception of the message then the message is never received. Ultimately the message
must enter the receiver by way of at least one of person's five senses. Decoding: The
receiver must now take the message and convert it into some form that can be
understood.
Understanding: If there is no understanding, there is no message. The message must
have some understandable meaning to the receiver.
Feedback: It is the most important component for complete communication. Unless it is
known to the sender what the recipient has gathered from his/her communication, the
communication process remains incomplete. The feedback can be positive or negative.
Methods of communication: Project managers must have the ability to think logically
and communicate effectively. Interpersonal communication takes three forms
- Verbal
- Nonverbal
- Written

Meetings
Performance Reporting
Information management and distribution leads to the production of project records,
project reports and presentations. The project reporting includes project performance
reporting exercise as one of its important component to understand the project progress.

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Performance reporting involves collecting and disseminating performance related

information to provide stakeholders with information about how the resources are being
used to achieve the project objectives. The process includes:
Status reporting: describing the current status of the project as it presently stands
Progress reporting: describing what the project team has accomplished during a specific
period of time with reference to some pre-dertmined parameters such as schedules,
costs, time, etc.
Forecasting: this exercise consists of predicting the future status and progress of the
project in the present circumstances considering the expected circumstances under
which the project would be developed
Performance reporting should generally provide information on scope, schedule, cost,
quality etc. Many projects also require information on risk and procurement. Reports for
such activities may be prepared comprehensively or on an exception basis as planned
and required in the project.
Project performance reporting is done using various methods and techniques. Some of
the techniques are discussed below:
Performance reviews: These are meetings held to assess the project status and
progress. These are typically used in conjunction with one or more of the performance
reporting techniques described below.
Trend Analysis: Trend analysis involves examining project results over time to determine
if performance is improving or deteriorating.
Variance analysis: It involves comparing actual project results to planned or expected
results. Cost and schedule variance are the most commonly analyzed aspects of the
project performance. However, variances from plan in the areas of scope, resource,
quality and risk are often of equal or greater importance.
Earned Value Analysis (EVA): EVA in its various forms is the most commonly used
method of performance measurement. It integrates scope, cost and schedule measures
to help the project management team assess project performance. It has been dealt in
details under sections Cost and Time management.
Project reporting results in the production of project reports and further action in the form
of change requests to be taken to deliver the project as per the schedules and other
constraints.
Performance reports: Performance reports organize and summarize the information
gathered and present the results of any analysis from such reports. Reports should
provide the kinds of information and the level of detail required by stakeholders as
documented in the communication management plan.
Common formats of reports include bar charts, S curves, histograms, tables etc.
Change requests: Analysis of project performance often generates a request for a
change to some aspect of the project. These change requests are documented and
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handled as per the procedures documented in the change control processes. Change
requests can generate due to various reasons like change in the scope, requirements,
schedules, resources etc.

Types of Team
The way there are various kinds of organization structures, similarly there are various
types of team structures. Team structures however, depend on the type of management
style or the organizational style being used in a project. There are four major kinds of
classifications in the types of teams as described below:
Egoless
This is the kind of team organization where no specific and fixed roles are given to the
team members. Also it is a very flat structure of organizing the team. Since all the
members are at par with each other during the project, the project manager can assign
any member of the team any role at a given time of the project. The advantage of such a
team organization is that all the members work cohesively with each other and there is
no differentiation amongst the members. However, this may also lead to chaos and
some jealousy if a team member does not get the desired role in a project or if the
planning of assigning roles at the various stages of the project is not effectively done.
Matrix
Similar to the matrix organization structure, this team structure works on the functional
and the projectized / specialized roles. The project team members falling in the specific
functional area are given the responsibility of the related tasks and are required to
perform those only. In highly technical projects with separate specialized components,
this structure can work very effectively. In this structure, the concerns can arise due to
conflict in the functional and project priorities, insufficient communication amongst the
various functional team members etc.
Task Hierarchy
Task hierarchy team type as the name suggests works on the basis that a given task is
assigned to the various team members in the order of their hierarchy. Thus the senior
member gets more responsibility that the ones lower down the order. This type of team
structure by far is the most organized and the most efficient one. Here avery member is
responsible and accountable to the allocated task since the tasks allocated are also as
per their capabilities. Here it is assumed that the member at a given level is competent
enough to handle the task appropriately allocated to him/her.
Task Force
This style is a little different than that mentioned before as task hierarchy. In this style of
team organization, the group of team members form a task force to complete the given
task. The team members divide amongst themselves the task on their own, as they may
desire. This kind of organization is well suited where the team members are of similar
level of expertise in the given task and are required to work collaborative internally with in
the team in order to accomplish the task. This process requires very good team
understanding and very clear objective definition to be an effective team type.

Characteristics of Team
Effective teamwork can be considered to be at the core of effective project management
as it is the people who ultimately make the project a success or failure. In projects the
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level of uniqueness of project and uncertainty creates a large dependency on the team
for project success. It is essential to have high performing, effective teams for project
success.
A team is made up of a group of individuals who have a common identity, values, norms
and standard of behavior. A team is one that works together as a group with the aim of
achieving a common objective. Everyone in the team works for the good of the project
initially the team has no shared identity and norms. Each team is unique comprising of
different individuals each having different personalities, backgrounds, skills, knowledge
and culture. This means that team members share no common identity, goals and aims
when the team is formed initially.
Differences in teams can also arise through differences of industry, company culture, and
management level. Different industry sectors have different historic approach to
structuring teams - e.g. construction industry has more autocratic, directive style while IT
industry has a more participative, facilitating style.
Motivating and resolving conflicts between team members are important elements
needed to keep the team together. Team development is an on going process and
should begin when the team is formed. The project manager can begin this in an informal
way through start-up meetings, seminars, workshops etc. about the project every ones
role.

Stages of Team Development

Project team members generally go through four stages of formation and a final stage of
disbanding.
Forming - the team forms initially with anticipation and commitment. Team motivation is
high at being selected but team members are only moderately effective as they are
unsure of each other and remain guarded and uncertain. The project manager can help
by breaking the ice between team at a kick-off get together, help members to understand
each other etc.
Storming - As the project work begins and progresses various differences begin to
surface. This will often be about the project's overall aim and the best way to achieve
project objectives. This can lead to arguments and conflicts between team members
reducing the motivation and effectiveness of the team
Norming - Things begin to normalize a little as team members start reaching agreements
over issues and begin to find areas of commonality. The project manager helps by
resolving issues that came up. The team begins to develop an identity and a set of
norms and values.
Performing - At this stage the team members understand and appreciate each other. The
team can work together effectively as a resourceful, cohesive force that has a united aim.
The project manager's role is to maintain this plateau of performance so that team
performance does not fall.
Mourning - As the team reaches close to the end of the project it's performance can
either rise further as everyone strives harder to complete the job or it falls as team
members regret the break-up of the team.
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During these 5 stages teams motivation first decreases then increases to reach a plateau
and then either increases or decreases towards the end of project.

The Belbin Team Roles Classification

Depending on an individuals mind set, personality, skill and knowledge, different persons
tend to adopt different roles/behaviors when working in a group. A person's inherent
characteristic affects both his attitude (Psychological aspect) and capability (technical
aspect) to do any job.
In a project environment effective teams are a must for project success. To achieve this
team roles should be balanced so that the team can work together effectively. As much
as possible team members should be chosen so that it has a good mix of
complementary traits among team members. A good team should have a mix of
persons. Some persons get the work assigned done, some are creative and think of new
ways, some are good at handling details while others may be specialists. All have a role
to play.
Belbin has offered a classification of different personality traits to help choose team
members for balancing and forming an effective team. As these characteristics are
based on a questionnaire that is filled out by each person concerned it could be
somewhat biased. The questionnaire, which is used as a recruiting tool, does; however,
provide a guideline to the type of work characteristic and any drawbacks each type can
be expected to bring to the team as a team member.
Team role Characteristics with their contribution and drawbacks
Plant - is a creative, imaginative and unorthodox person who can solve difficult problems
but does not like to be criticized and often ignores established procedures
Resource investigator - is an extrovert, enthusiastic, communicative person who likes to
explore different opportunities and is adept at developing contacts but can loose interest
easily in what he/she is doing
Coordinator - is mature, confident, and a good decision-maker or chairperson who can
clarify goals, promote decision making, delegate authority to others and wants to build
the potential of the team. However a coordinator prefers to organize others to do the
work rather than do it himself/herself
Shaper - enjoys challenges, is very dynamic and can work well under pressure and is
also good at overcoming obstacles through personal drive. Likes to shape and channel
team effort and should make a good task leader but can loose temper easily
Monitor-evaluator - is discerning, sober, strategic and objective. He/she has good
analytical skills and is good at evaluating all options objectively so can give best choice
and prevent bad ones. However, a monitor-evaluator can be over critical of others
Team worker - is a cooperative, mild, perceptive and tactful person. He/she tries to
reduce conflict in the team and maintain team harmony but is indecisive during a crisis

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Implementer - is a disciplined, reliable, conservative and well organized person who is

good in turning ideas into practical actions and actual tasks. He/she and can complete
agreed upon decisions well
Completer/Finisher - is an anxious, conscientious and painstaking person who meets full
details and deadlines, delivers on time and searches out omissions. However he/she can
be a perfectionist, which often annoys and depresses others
Specialist - is a dedicated, single-minded and serious person who is an expert in his/her
own field and has specialized, key knowledge and skills. A specialist remains focused on
his/her key area and is not very interested about the whole picture of the project

Leadership and Managerial Role

Leadership is crucial in project management.
Leadership is the ability to:
Establish direction - the vision of the future and the strategies needed to change
the future to achieve the vision
Align people - effectively communicate the vision by accompanying words
Motivate and inspire - help people to overcome all obstacles to achieve their aim
It is the ability to set goals and objectives and identify the right people to
implement them.
A leader influences others by his own example and provides a role model that others can
follow. In a project the project manager has to act as the leader. Other person's
associated with the project can also be leaders.
Being a leader means the project manager should be able to achieve the following:
In spite of having no formal authority a leader must deal effectively with managers
and supporting personnel
Integrate each persons individual demands, requirements, and limitations to
better project performance
Ensure that all team members are clear and follow the project goals and aims
Have the ability to collect and filter data in dynamic project environment for
effective communications
Have SMART objectives
- Specific Measurable Achievable Realistic Timeframe
Different leadership styles that a project manager can follow are:
Autocratic - dictates what should be done and how to team. Style more
appropriate for execution and close-out
Democratic - Participative style, consults team members but decides best course
of action
Laissez faire - allows team to manage itself. Behaves more like an advisor. Better
for R&D and for project developmental and feasibility stages
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Bureaucratic - lots of rules, regulations, procedures. Better for low risk projects,
little change projects. Such a PM unable to respond to change

Conflict Types and General Concepts

In a project environment many different persons are associated who have varying
perceptions, aims, cultures, outlook and interests who have to work together. Conflicts in
the project can result from a number of such differences and pressures. Contracts are
another big cause that gives rise to conflicts in the project. Conflict management is the art
of managing and resolving conflicts creatively so that any conflict has a positive rather
than a negative influence on the project.
The project manager is responsible to ensure that these conflicts do not have a negative
affect and hamper the project progress. The project manager should attempt to always
be aware of any conflicts that have arisen - subjective or technical, understand what and
why these conflicts have come up and try his best to resolve them at the earliest.
Resolving of all the conflicts - even very seemingly minor ones, is as important and
essential as resolving of major conflicts. Sometimes even a minor conflict can halt project
work or destroy the harmony of the project team. Team members who work together for
the first time are more likely to have conflicts then seasoned teams.
Traditionally, conflicts were considered to be bad by management and attempt was
always made to avoid all conflicts as much as possible. However, the contemporary view
of management is that conflicts do not have to be bad but in fact, can be beneficial.
The project manager is responsible for and should have the soft skill of creating a
balance between encouragement of healthy competition among team members and
monitoring its likely negative repercussions.
Conflicts and the Project Life cycle
Some reasons that can create conflicts through the project Life cycle are:
Project concept and feasibility phase:
Project priorities
Administrative procedures
Schedules
Manpower
Cost
Technical
Personality
Project buildup
Project priorities
Schedules
Administrative procedures
Technical
Manpower
Personality
Cost
Implementation
Schedules
Technical
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Manpower
Priorities
Procedures
Cost
Personality
Handover/Phaseout
Schedules
Personality
Manpower
Priorities
Cost
Technical
Procedures
Organisational conflicts:
The key reason for organizational conflicts is due to conflicting project and functional
objectives.
Conflicts could arise over factors such routine features such as which project gets to use
which resource persons, or when some capital equipment would be available.
Personality clashes or ego problems between different managers or departments could
give rise to conflicts. Type of contract that the organization should go for even source for
procurement could all give rise to organizational conflicts.
The maximum chances of conflict should arise in Matrix organizations as there is mixed
responsibility for the project between the project manager and the line manager. This
needs much better communication, and a clearer understanding of roles and
responsibilities.

Conflict Resolution
The type and degree of conflicts can, and do vary, through the project life cycle.
There are five main methods that are used to resolve conflicts which are:
Withdrawal - This method is retreating or withdrawing from an actual or potential
disagreement/conflict. No action is taken by the disagreeing parties. As a result:
- It does not solve the problem
- Results in a loose-loose outcome for both parties
Smoothing - This method attempts to give less importance to or avoid the areas of
conflict. Instead it tries to emphasize the areas of agreement. This gives rise to a
-

Condescending or grudging agreement between conflicting parties

Keeps the atmosphere friendly and less stressful in the team
However, it does not provide long lasting solution
Results in a lose-lose outcome for both parties
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Compromising - In this method attempt is made to bring some degree of satisfaction to

all the concerned parties in the dispute by the use of bargaining and searching for
acceptable solutions. This method uses a give and take attitude and results in
- An agreement that is acceptable to all parties
- Gives some satisfaction to each concerned party
- However it does not provide an ideal solution
- Both parties need to make some trade offs so neither party can win
- Provides a form of definitive resolution
- It still results in a lose-lose outcome as neither party is fully satisfied
Forcing - This method uses authority to exert one's viewpoint at the potential expense of
another. Generally the project manager will use his authority and power to force a
solution. Forcing is often characterized by
- Competitiveness between conflicting persons
- The use of power to achieve results
- Should be used as a last resort as ill feelings are likely to return as a problem
- This results in a win-lose outcome
Confrontation - This method involves a problem solving or confrontational approach. The
affected parties try to resolve their disagreements by directly facing the conflict
- This is the most direct and objective approach that pinpoints the problem
- It allows for alternatives to be developed
- The method is more time consuming and requires free and open dialogues
- It provides a final solution to the conflict
- This results in a win-win outcome for all parties
Withdrawing and Smoothing provide only temporary measures without any lasting
solution. Withdrawal does provide a cooling off period for all concerned. Smoothing lets
the work progress and lessens disturbance in the team but smoothing also merely
prolongs the problem.
Compromising and smoothing help in reducing the conflict while both Forcing and
Withdrawal can at times create more problems. Confrontation/problem solving is by far
the best approach for resolving conflicts. Confrontation is most frequently utilized,
followed by Compromise and then Smoothing. Forcing and Withdrawal are generally
ranked fourth and fifth for resolving conflicts.

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Generic Concepts of Negotiation

During the project, the Project Manager often has to negotiate with various persons and
groups such as suppliers, contractors, clients, functional managers etc. to resolve a
range of issues that can cover factors such as staff assignments, schedule, budget,
scope of the work etc. As the project manager has to negotiate at so many levels with so
many persons he/she must also be familiar with the art of negotiating successfully.
What does Negotiating involve?
Elements of negotiating
Cooperation, common interests, reliable behavioural process and satisfaction of needs
are some common factors in any negotiation.
During negotiations, the two concerned parties/persons look for some agreement so that
both parties become better off than before they started as they get some return. To
achieve this, each party has to make some concessions but the concession made by
them should be less than what they gained. Negotiating should be a cooperative process
so that both parties ideally end up with a win-win situation instead of a win-loose
situation.
In a successful negotiation each party should let the other win something that it values. It

must satisfy the real or the genuine needs of each party. Unless this is done the
negotiations cannot proceed smoothly and one party is likely to withdraw. An important
skill of a negotiator is to be able to accurately and quickly determine the needs of the
other party e.g. offering financial gain in place of recognition will bring no satisfaction.
Both the negotiating parties must identify and look for common interests regarding what
they must keep and what they can give up. A formal approach should be taken between
the two parties in giving information and making concessions so that both can estimate
how much information or concessions to offer at any time. The other party's needs and
constraints can be understood from sources such as budgets, credit history, various
reports, press releases/public statements etc.
Negotiation preparation
The chances of a successful negotiation are enhanced by good preparations. The
project manager should decide in advance what objectives he hopes to achieve with the
negotiation - what aspects are essential and what are nice to have. This will help in
providing a clear picture at the negotiation table. Together with this the negotiator should
also e very clear regarding what they cannot concede, to avoid giving up anything that is
actually essential. A good method to do this is to prepare an agenda in advance and also
develop some alternative solutions that could be acceptable for any difficult issues.
If a negotiator is unskilled then some practice before undertaking any serious negotiation
is advisable. This will help him/her to identify difficulties that they can face and develop
and evaluate alternative approaches.

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Negotiation techniques
Negotiation technique involves helping a negotiator to change information and
concessions to avoid making any unwanted concessions.
The negotiators should define the issues to be negotiated and propose an agenda for
considering the issues. Both parties must agree to this agenda.
Negotiation essentially consists of exchanging concessions. Each party would like to get
back at least as much as they give. One party must first make some concessions for the
other to make one. Goodwill facilitates the negotiation process and is developed by both
parties behaving in a caring way towards each other. In case any person of authority is
absent then required approval must be sought for any concessions made. It is also
possible that one party may be dissatisfied with the negotiation and like to approach a
higher authority in the other party.
Once an agreement has been made it should be confirmed in writing to avoid any
misunderstandings or disputes later on.

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BEST OF LUCK

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