DRIVE- FALL 2014

PROGRAM

MBA/ MBADS/ MBAFLEX/ MBAHCSN3/ PGDBAN2

SEMESTER

II

SUBJECT CODE & NAME

MB 0049 - PROJECT MANAGEMENT

Qus:1 Describe the CPM model.

 Explain the main focus of CPM and how is it different from PERT
 List the assumptions of CPM
 Explain the procedure of CPM analysis
Answer:
Explain the main focus of CPM and how is it different from PERT:

For projects considered uncertain, the PERT model was developed and for projects which are
comparatively risk-free the CPM model was developed. Both the approaches start with the
development of the network and a focal point on the critical path. Tthe PERT approach is
'probabilistic' while the CPM approach is 'deterministic'. This does not, however, mean that in
CPM analysis we work with single time estimates. Actually the main focus of CPM analysis is
on variations in activity times as a consequence of changes in resource assignments. These
variations are planned plus related to resource assignments as well as are not caused by random
factors outside the control of management as in the case of PERT analysis. The major focus of
CPM analysis is on time cost relationships and it seeks a project schedule that minimises total
cost.

List the assumptions of CPM:

The usual assumptions underlying CPM analysis are:
1. The costs associated with a project can be divided into two components: direct costs and
indirect costs. Direct costs are incurred on direct material and direct labour.Indirect costs consist
of overhead items like indirect supplies, rent, insurance, managerial services, etc.
2. Activities of the project can be expedited by crashing which involves employing more
resources.
3. Crashing reduces time but enhances direct costs because of factors like overtime payments,
extra payments, and wastage. The relationship between time and direct activity cost can be
reasonably approximated by a downward sloping straight line. Figure below depicts a typical
cost time line.
 A Typical Cost Time Line

4. Indirect costs associated with the project increase linearly with project duration. Figure below
depicts a typical line for indirect costs.

Indirect Costs

Explain the procedure of CPM analysis:

Given the above assumptions, CPM analysis seeks to examine the consequences of crashing on
total cost (direct cost plus indirect cost). Since the behaviour of indirect project cost is well
defined, the bulk of CPM analysis is concerned with the relationship between total direct cost
and project duration. The procedure used in this respect is generally as follows:

Step 1: Obtain the critical path in the normal network. Determine the project duration and direct
cost.

Step 2: Examine the cost time slope of activities on the critical path obtained and crash the
activity which has the least slope.

Step 3: Construct the new critical path after crashing as per step 2. Determine project duration
and cost.
 Step 4: Repeat steps 2 and 3 till activities on the critical path (which may change every time)
are crashed

Qus:2 Write short notes on:

 The Shewhart Cycle
 Project procurement process
 Role of Risk Management in Overall Project Management
 Design of PMIS(Project Management Information System)
Answer:
The Shewhart Cycle:
PDCA (plan–do–check–act) is an iterative four-step management method used by the
companies to control and continually improve their processes and products. PDCA is
also referred to as the Deming circle/cycle/wheel, Shewhart cycle, control circle/cycle,
or plan–do– study–act (PDSA). Figure below depicts the Shewhart cycle.

Shewhart Cycle

 Plan: Establish the objectives and processes essential to deliver results in agreement
with the expected output (the target or goals). With the establishment of output
expectations, the completeness and correctness of the specification also becomes a part
of the targeted improvement.
 Do: Execute the plan, implement the process, and make the product. Collect data to be
used in the charting and analysis in the following "CHECK" and "ACT" steps.
 Check: Study the results achieved (measured and collected in the above step) and
compare against the expected results (targets or goals from the "PLAN") to find out any
mismatch between the two.
 Act: Request corrective actions on considerable differences between actual and expected
results. Analyse the differences to find out their root causes. Determine the areas where
changes could be applied to improve the process or product.

Project procurement process:

An effective procurement process plays in important role in the successful
implementation of a project. A procurement process starts with the identification of the
 required materials and equipments. Delayed delivery, manufacturing defects, incorrect
specifications, belated replacement, pilferage, shortage, etc are common problems in
almost all projects. A project procurement process covers the following functions:
 Request to invite bids or tenders: This covers the listing requirements of equipment,
preparing specifications, and sending request to invite bids.
 Shortlist suppliers: This includes identifying the required number of suppliers out of
the possible ones.
 Invite bids: This element covers the invitation of bids to receiving them.
 Evaluate, negotiate, and choose bid(s): This involves making comparative statement of
various elements of price, negotiate technical and commercial aspects including price,
select the lowest bidder(s), and get the approval of a competent person.
 Prepare and place orders: This includes writing the purchase order which describe the
products and state all the commercial terms in simple and clear words, obtaining the
signature of a competent, authorised person, and send order to supplier and get his or her
acknowledgement.
 Order fulfillment: This includes monitoring the progress of manufacturing of
equipment, its quality, packaging, and associated documentation.
 Transport and shipping: This covers all the formalities needed to get the equipments
from the supplier to the project site.
 Receive, inspect and store equipment at site: This includes activities like general
inspection, marking the identification number, and inspecting and storing it at a secure
place.

Role of Risk Management in Overall Project Management:

Risk analysis and management is a process which enables the analysis and management of the
risks associated with a project. Properly undertaken, it will increase the likelihood of successful
completion of a project to cost, time, and performance objectives. There are a lot of benefits of
proper risk management in projects. Organisations can generate a lot of profit if they deal with
uncertain project events in a proactive manner. You can deliver a project on time, on budget,
and with proper quality if you are able to manage the risks properly. The proper risk
management can increase the productivity and efficiency of the project team. A project life
cycle includes the key phases like initiating, planning, executing, controlling, and closing. The
probability of project risk depends on the project life cycle. Figure below depicts the
relationship between the risks and their probability of happening.
 Probability of Risks versus Stages of Project Life Cycle

Figure above explains the probability of risk in different stages of project life cycle. It shows that
the probability of risks is higher in the initial phases in comparison to closing phases. The
highlighted point shows the maximum probability of risk happening.
Design of PMIS(Project Management Information System):
Following elements should be kept in view in the design, development and operation of a PMIS:
 The PMIS should support the full range of life cycle including project analysis and post
project review.
 Enterprise guidance and project background information must be a part of PMIS.
 PMIS include all information coming from a various sources, including formal reports,
informal sources, observations, project review meetings and questioning.
 The PMIS must interface with larger organisational information system to permit smooth,
well-organised interchange of information in support of organisational and project goals.
 Only relevant information should be a part of PMIS.
Design of PMIS consists of following four sub-systems:
 Capture data: This involves capturing data from primary as well as secondary sources
 Processing data into information
 Storing data/information/reports
 Distribute/communicate information
Each sub-system consists of the following components
 Hardware: A computer and its peripheral: Input, output, and storage device. It also
includes communication equipment that facilitates fast transmission and reception of text,
pictures, sound, and animation in the form of electronic data.
 Software: Sets of instructions that tell the computer how to take data in, how to process it,
how to display information, and how to store data and information.
 People: It includes IT professionals and users, who analyse information needs, design,
and construct information system, write computer program, and operate and maintain the
system.
 Procedure: Procedures include priorities in running different applications and the security
measures to achieve optimal and secure operations of the system.

Qus:3 As an investor, how will you choose the projects to invest in?
 List the cash flow techniques you will use
  Explain any four commonly used methods in brief- list the criteria for choosing a
project in each method
Answer:
List the cash flow techniques you will use:
If there are many alternative projects, all of which, at first sight, appear to be more or less equal
in profit earning capacity, the investor should make a comparative study of the return on the
different alternative proposals before choosing one. Such financial analysis broadly falls under
two categories. They are:
 No discounted cash flow techniques
 Discounted cash flow techniques
The subdivisions within these two techniques are:
No discounted cash flow techniques
 Pay Back Period (PBP) method
 Accounting Rate of Return (ARR) method
Discounted cash flow techniques
 Not Present Value (NPV) method
 Internal Rate of Return (IRR) method
 Profitability Index (PI) method
Benefit Cost Ratio (BCR) method
Explain any four commonly used methods in brief- list the criteria for choosing a project in
each method:
1.Pay Back Period method (PBP):

This is one of the simplest method of evaluating investment proposals and also widely used.
PBP is defined as the length of time required to recover the original investment on the project,
through cash flows earned. The cash inflow includes operating profit, less income tax payable,
plus depreciation.

2. Average Rate of Return (ARR) method (or Accounting Rate of Return method):

The ARR is also called the Accounting Rate of Return.

ARR = (Profit after tax)/(Book value of investment)
Profit after tax is the average annual post tax benefit over the life of the project. Unlike PBP
method, under ARR method, the entire life of the project is taken into account.

3.Net Present Value (NPV) method:

This method is one of the discounted cash flow techniques and it recognises the time value of
money.

Net present value (NPV) of cash flow = [Present value of all future cash inflows over the life of
the project.] – [Present value of cash out flow]

The present value of future cash inflows is arrived at by discounting the future cash inflows at an
interest rate equal to the cost of capital.

Symbolically, it can be expressed as:

Where,

CF1, CF2 …… are the Future cash inflows occurring at the end of first year,second year, etc.

n = life of the project in years.

r = discount rate (cost of capital)

CF0 = Present cash out flow.

If,

NPV = 0, it indicates that the present cash outflow and the present value of future cash inflows
are equal.

NPV < 1, it indicates that the present value of future cash inflows is less than the present cash out
flow.

NPV > 1, it indicates that the present value of future cash inflows is more than the present cash
out flow.

4.Internal Rate of Return (IRR) Method:

The internal rate of return of a project is the discount rate that makes the net present value equal
to zero. In other words, internal rate of return is that rate of discount which would equate the
present value of cash out flows (investments on the project) to the present value of cash inflows.
In the calculation of net present value of a project, the discount rate (cost of capital) is assumed
and the net present value is calculated by discounting future cash inflows at the assumed
discount rate. In the calculation of internal rate of return from a project, the net present value is
set equal to zero and the corresponding discount rate is determined; the discount rate at which the
net present value is zero is the internal rate of return.

Qus:4 Write a note on Earned Value Method (EVM).

 EVM explanation
 Parameters to calculate performance measures
 Plot of BCWS versus time
 Plots BCWS, ACWP, and BCWP for a typical project
Answer:
EVM explanation:
The Earned Value Method (EVM) is a useful tool that allows the calculations of cost and
schedule performance measures including cost variance, schedule variance, cost and time over-
runs for a project.

Parameters to calculate performance measures:

EVM uses the following parameters to calculate these measures:
Budgeted Cost of Work Schedule (BCWS): This is the budgeted cost of work scheduled up
to status date and calculated as:

BCWS = (Budgeted cost of work/day × Scheduled days of work up to status date for each
activity)

Budgeted Cost of Work Actually Performed (BCWP) or Earned Value (EV): This is
budgeted cost of work actually accomplished up to the status date and calculated as:

BCWP = (Budgeted cost of an activity x proportion of it actually accomplished up to status

date).

Where,
Proportion of an activity = (work completed in physical units)/(Total work planned in physical
units)

Actual Cost of Work Performed (ACWP): This is the cumulative actual cost of work
performed up to the status date and calculated as:

ACWP = (Actual cost of work performed for each activity up to status date)

Using above parameters, performance measures can be calculated as:

Cost Variance = BCWP – ACWP …(1)

A negative cost variance means that the project is spending more than it should.
Schedule variance (cost) = BCWP – BCWS …(2)

Negative schedule variance indicates that project is behind the schedule.

Cost performance index (CPI) = BCWP/ACWP …(3)

CPI less than one, indicates that the project is spending more than the schedule and is
unfavourable.

Schedule performance index (SPI) = BCWP/BCWS …(4)

SPI less than one suggests that the work performed is less than the schedule and is naturally
unfavourable.

Plot of BCWS versus time:

This curve shows the cumulative spending planned for a project and referred to as baseline plan
and also referred to as the S-curve..
 Budgeted Cost of Work Scheduled

Plots BCWS, ACWP, and BCWP for a typical project:

the plots of three spending BCWS, ACWP, and BCWP for a typical project. It helps to calculate
the cost as well as schedule variances, and hence, is quite useful in controlling the project.

Spending Curves for BCWP, BCWS, and ACWP

Qus:5 Discuss the various methods of conflict resolution.

• List and explain the methods of conflict resolution and with examples

• Argue if one method suits all situations or if project managers need to need to use
different methods to resolve conflicts.

Answer:

List and explain the methods of conflict resolution and with examples:

Conflict in the workplace is common. Conflicts occur when different people have different goals
and needs; when one party thinks that the other party has done something to block the
completion of their goals. There are many methods of conflict resolution. Generally, there are
five methods of conflict resolution. They are:

• Forcing

• Smoothing

• Compromise

• Problem solving

• Withdrawal

1.Forcing:

One way of resolving a conflict is when one party pressurises the other party to agree. It is used
when one person has authority over another and uses it. One example is the manager telling the
foreman, “All right, enough of this discussion, and now you listen to my decision.” By this
method, a permanent solution is achieved in resolution of the conflict. Though permanent, this
method is not the best solution as it brings frustration, but it saves the time.

2.Smoothing:

This method reduces the scale of conflict by making differences seem less important. It occurs
when either one of the parties disagreeing tries to make the differences smaller than they look. If
it is successful, one or both parties will accept the settlement or will accept one of the given
options. This method of resolution is good for building positive relations in the team. All team
members are made to feel that the differences were insignificant. However, this does not
contribute to permanent solutions. After some time, the conflicting parties may catch on that the
significance of their differences has been downplayed. So the conflict may reappear.

3.Compromise:

This method of compromise is similar to smoothing. In this method, each conflicting party gives
up something to reach a compromise. The parties themselves agree to drop some points of
disagreement. Both parties reach a common agreement that has relatively only few points of
disagreement. Compromise is kind of a ‘middle-of-the-road’ solution. It is a ‘no win, no loss’
situation. Neither of the conflicting parties is keen to move forward with the compromise plan.
This method of resolution is neither good nor bad for building positive relations in the team.

4.Problem solving:

In the method of problem solving, a committee is set up to find a solution. This method is
derived from the idea that all conflicts have one right solution. By working and discussing, the
facts will be revealed, and it will be clear which of the conflicting parties is right. This method of
problem solving is really the most effective way to settle any conflict. Once the indisputable
facts are found out, then there is no point for any of the parties to disagree, and the conflict is
resolved.

5.Withdrawal:
Withdrawal may be the most defective way to settle conflicts. In this method, one party
withdraws and pulls back. This method does not actually solve the conflict; just postpones it to
some other day. It has a very negative effect on the team. Even the other team feels bad about the
withdrawal of one team. This is like a small child saying, “I do not like the way you are playing,
so, I am taking my toys and going home.” A Project Manager should try to get team members
who are technically competent, goal oriented, politically sensitive, and having high self-esteem.

Argue if one method suits all situations or if project managers need to need to use different
methods to resolve conflicts.:
A Project Manager should try to get team members who are technically competent, goal oriented,
politically sensitive, and having high self-esteem.Different types of conflict occur at different
stages of the project’s life cycle.Prudent planning, participative management, reasonable
negotiations and open communication between all parties help to resolve conflict.

Qus:6 Answer the following questions:

a. What are the advantages of using PM software package?

b. What are the types of project performance evaluation techniques?

• List and briefly explain the key advantages of using project management software.

• List and explain types of project performance evaluation techniques

Answer:
List and briefly explain the key advantages of using project management software:
The following are the key advantages of using project management software:

 Speed, effort, and accuracy: For a large project, manually carrying out activities like
drawing a network, carrying out time analysis, reporting project progress, generation of
various types of reports, updating network, and maintaining records is quite time and
effort consuming. Accuracy level is also below par. Use of the software package greatly
reduces the time and effort needed for these activities and at the same time enhances
accuracy.

 Ability to carry out special functions: The software has the ability to carry out some
special functions like resource scheduling, what if experiment, and export and import of
data with ease and within reasonable time. Manually carrying out these functions is
extremely difficult or not feasible.

 Affordability: The price of PC-based software is under $500 which is affordable for an
organisation.

 Easy to use: Over the years, the project management software packages have become
easy to use. The package can be handled with minimum training.

 Maintenance of record: A project generates a lot of data, reports, documents, etc.

Manually archiving and retrieving these are time and effort consuming. The software
package can handle these functions with relatively less time, effort, and cost.

List and explain types of project performance evaluation techniques:

The following are the types of project performance evaluation techniques:
(i) Process (or implementation) evaluation: It is also called formative evaluations which
are designed to improve the implementation of a program, policy or strategy as it
unfolds. In this type of evaluation we measure the level to which a program is effective
as it was planned. It usually considers the program activities’ conformance to statutory
and regulatory requirements, program design, and professional standards or customer
expectations.

(ii) Outcome evaluation: It is also called summative evaluations which are designed to
judge a program, policy or strategy’s relevance, success and/or cost-effectiveness which
includes its relative contribution to the intended outcomes. This type of evaluation
measures the level to which a program attains its outcome-oriented objectives. It mainly
focuses on outputs and outcomes including unintended effects to evaluate program
effectiveness but may also consider program process to understand how outcomes are
produced.

(iii) Impact evaluation: This is a type of outcome evaluation that measures the net effect of
a program by evaluating program outcomes with an estimate of what would have
happened in the absence of the program. This type of evaluation is used when external
factors are known to influence the program’s outcomes, in order to isolate the program’s
contribution to achievement of its objectives.

(iv) Cost-benefit and cost-effectiveness analyses: Cost-benefit and cost effectiveness

analyses compare a program’s outputs or outcomes with the costs (resources expended)
in order to produce them. When applied to existing programs, they are also regarded as a
variety of program evaluation. It measures the cost of meeting a single goal or objective,
and can be used to identify the least cost alternative to meet that goal. This analysis aims
to recognize all relevant costs and benefits, generally expressed in dollar terms.