Project Management:

ISCD: Level A Part II

Bijoy S Guha,
References

 Project Management: Harvey Maylor (Pear

son Education, 3rd Edition)
 Project Management for Business &
Technology: John M Nicholas (
 Projects: Prasanna Chandra (Tata McGraw
Hill, 6th Edition)
 Project Management: SMU Publication
(B0915 Edition: Fall 2008)
 Project?
Organizational Work

Operations Projects

 Routine, repetitive &  Unique, temporary &

ongoing throughout;
 Necessary to sustain the
business;
 Incremental
improvements set.
goal directed;
 Create strategic
initiatives/Products;
 New paradigms are put
in place.
 Project? (cont’d.)
 Any non-repetitive activity;
 A low-volume – high variety activity;
 “ a temporary endeavour undertaken to create a unique
product or service”;
 Any activity with a defined start and finish;
 “a unique set of coordinated activities, with definite
starting and finish points undertaken to meet specific
objectives within defined schedule, cost and
performance pararmeters.” (BS 6079: 2000)
 Project? (cont’d.)
 Projects come in many shapes and sizes:
 By number of tasks (complexity)
 By time required to complete (duration)
 By resources (thus money) needed
 Combination of these factors
 Other Characteristics:
 Project teams are ‘born to die’!
 New paradigms become the S.O.P
 Contributes to organization’s learning & growth
 Can (re)shape the Organization
 Project? (cont’d.)
 Projects come in many shapes and sizes:
 By number of tasks (complexity)
 Diversity of competencies
 Efforts of many people
 By time required to complete (duration)
 Changing nature of requirements
 Tracking
 By resources (thus money) needed
 Financial outlay
 Risk
 Combination of these factors
Project Typology
“New to
World”
R&D
Complexity
Mergers &
Acqzn.
Orgn.
Product Restruct.
Crisis Design Area of the bubbles
Solving indicate the ‘quantity’’
of projects.

Improvement Projects

Duration
 Project? (cont’d.)
Project for
Development Series of mini
Performance
& Growth “projects”

Breakthrough
Improvement

Improvement
Continuous
S/State 2

Stabilization
“Mega”
Project: Start
of Business
S/State 1

Time
 Project? (cont’d.)
For business continuity, this activity is on-going
and is referred to as the ‘S-Curve’ of a Firm’s
life e.g. Tata’s Automotive Business

Passenger cars

S
Trucks &

S
Construction.

S
Equipment.
TATA MOTORS
Engineering. &
Locomotive TELCO
 Project Management: What is it?
 Project management is the coordinating effort to fulfill the goals of the
project, headed by a Project Manager;
 The Project Manager (Leader) uses knowledge, skills, tools and
methodologies to:
 Identify the goals, objectives, requirements and limitations of the project -
Specification
 Coordinate the needs (and expectations) of the project stakeholders viz.
team, customer, society/ sponsor & supplier – Buy-in
 Plan and deliver the identified objectives & goals - Execution
 Close the project when completed - Closure
 Capture (for dissemination) the knowledge accrued - Continuity
 Project Manager: Characteristics

 Mindset:
 Timeliness: how to reduce and then deliver on time
 Responsiveness: to ever changing circumstances
 Information Sharing: for involvement and clarity
 Flexibility: adapting to the situational need
 Structured Planning: towards efficient resource use & priority

 Ability to work with ill-defined organization & support structures

 Coping with uncertainty: no two projects are exactly the same
 Analytical yet speedy: no “analysis paralysis”
 Good communication, team-building & networking skills
 Project Management: What is it? (cont’d)

 Project managers have to balance and integrate competing

demands to implement all aspects of the project:
 Project Scope: specific work to be done
 Project Time: Duration with milestones
 Project Cost: tracking the budget
 Human Resources: competent team
 Procurement: adequate material & equipment
 Communication: progress vis-a-vis changes
 Quality: establishing and delivering “acceptable”
 Risk: analyzing and planning adequate response
 Project Management: What is it? (cont’d)
The required “knowledge areas” & Processes are:

Integration
Management Cost
Communic’n
Management
Management

Scope Quality
Management PROJECT Management
MNANAGER

H.R. Risk
Management Management

Time Procurement
Management Management
Project Management: What is it? (cont’d)
Principally, Project Management, like in any
field of management, is bound by:

SC
M

O
TI

PE
RESOURCES (Money)

And Priorities always change!

 Project Management: Conception

 Projects start after an authoritative stakeholder decides to

implement a project, involving:
 Fair amount of Capital outlay
 A commitment of Human Resources for (extended) period of time
 Irreversibility and attendant risk
 And prioritization/choice from a wide ‘to do’ list
 Possible Projects have to be analyzed and feasibility
assessed before start.
 Funds have to found for Feasible Projects, which includes a
Risk Analysis
 Finally Projects have to be implemented and,
 Closed!
 Project Management: Conceptn (cont’d)
Phases of a Project Continuous
Improvemen
Define it t
Design it Do it Close/Develop it

Activity/ Cum. Cost

What
& why

Day to day
control
How, who
& When

Time
 Project Management: Conceptn (cont’d)
Phases of a Project

Feasibility Sequential or
Prepare Implement Close
‘stage-gate’ Model
F X X
P
I
C
Man-hrs

Concurrent
Model
F Save
P
I
C
Time Time
Project Management: Conceptn (cont’d)
Project Analysis

Market Potential/Size
Market Analysis
Market Share
Technical viability
Techn. Analysis
Sensible alternatives

Environmental impact
Ecology Analysis
Restoration/containment
Benefits and costs
Economic Analysis
Knock-on impacts

Risk
Financial Analysis
Return
 Project Management: Conceptn (cont’d)
Project Analysis - Feasibility

Reject/
Terminate
shelve
No Go
Initial
Ideation No
Screen
Go Market Study
Investigate Fin./Eco Study OK?
Tech/Ecol. Study
Yes

Project Funding
Plan
Project Management: Concepts (cont’d)
Feasibility – Financial evaluation

 Three Basic Questions:

 Can we produce the Goods and/or Services?
 Can we “sell” them?
 Can we earn a satisfactory Return on Investment made in the
Project? OR
Do we have a favorable Cost Benefit Ratio?
 Financial appraisal gives answers to the last question,
factoring:
 ‘Time value of Money’
 Pay back and Profitability
 Risk analysis & mitigation
Project Management: Concepts (cont’d)
Time value of money

 A rupee today is more valuable than the same

rupee a year hence!
 Inflation reduces the purchasing power
 However, money invested productively yields returns
and increases the value
 People prefer current consumption to future spend.
 In projects, ‘cash flows’ (i.e. income and
spending) are at different points of time. For a
fair analysis, they have to be brought to the
same (current) point of time
Project Management: Conceptn (cont’d)
Time value of money

 To ‘normalize’ cash flows we need to reduce them

to a common base, usually the Present Value.
 Algebraically:
 PV = Present Value;
 FV = Future value;
 Ct = Cash flow at the end of the year ‘t’
 r = Interest rate
 g = growth rate in cash flows
 n = number of periods over which cash flows
Project Management: Conceptn (cont’d)
Time value of money

 Formula (single sum):

FVn = PV(1+r)n

 (1+r)n is the ‘Future value interest factor’

 The process of investing money as well as
reinvesting the interest earned is called
“Compounding”.
Depositing Rs.1000 in the bank today @
10% interest will in 8 years grow to:
1000(1.10)8 = 1000(2.144)
= 2144
Project Management: Conceptn (cont’d)
Time value of money

 The ‘Rule of 72’:

 Investors commonly ask “when will my money
double?”
 A rule of thumb says divide ‘72 by the interest
rate’
 E.g.if the interest rate is 12%, the doubling period is
72/12 = 6 years
 Using the formula: 1000(1.12)6 = 1000(1.974) i.e.
1000 becomes 1974 in 6 years.
Project Management: Conceptn (cont’d)
Time value of money

 Returns come in the future. Thus Rs.1000/-

earned 3 years from now will posses less value
today. We need to know the present value of
future earnings.
 The process is simply the reverse/inverse of
compounding and is called ‘Discounting’.
 Formula (single sum):
FVn = PV(1+r)n
thus, PV = FVn[1/(1+r)n]
The factor 1/(1+r)n is called discounting factor.
Project Management: Conceptn (cont’d)
Time value of money

 In financial analysis, more often cash

flow streams are uneven i.e. not a ‘single
sum’; they vary year to year
 The formula for Present Value for
uneven (or even) cash flows is:
PVn = A1/(1+r) + A2/(1+r)2 + …. An/(1+r)n

n
=Σ At/(1+r)t , where
t=1
At = Cash flow at the end of ‘t’ year, n = duration of flow
 Project Management: Conceptn (cont’d)
Time value of money
 Suppose you were to start a fast-food joint for 3
years; your estimates are:
Figs: Rs. lakhs Now Year 1 Year 2 Year 3
@ 12% Start-up Costs 50
discountin
g Running Costs 30 45 45

Revenues 40 50 60

Sale of Joint 70

NPV = NPVyr1 + NPVyr2 + NPVyr3

= -50 + (-30 +40)/(1+0.12)1 + (-45 +50)/(1=0.12)2 + (-45 +60 +70)/(1+0.12)3
= 23.415

NPV positive so worth pursuing

Project Management: The process
Investment Criteria

 There are many (over 30 !) criteria which

can be broadly typed into:
 Discounting Criteria, mainly:
 Net Present Value
 Benefit – Cost Ratio

 Internal Rate of Return

 Non-discounting Criteria, mainly:

 Payback Period
 Accounting Rate of Return

 Urgency
 Project Management: The Process (cont’d)
Investment Criteria – Non-discounting

 Urgency: Simply put, projects which have higher

urgency get priority.
 Issue: what is the basis for ‘urgency’?
 Therefore, used only in crisis situations.
 Pay Back: Is the length of time to recover the initial
outlay. Shorter the pay back, more attractive the
project.
 Issue: does not reflect the true worth,
 but is a rough and ready reckoner to make quick
evaluation and benchmarking, for initial assessment
and for small-value projects.
 Project Management: The Process (cont’d)
Investment Criteria – Discounting
 Net Present Value:
Year Cash Flow
represents the sum of all 0 -1,000,000
the cash flows,
1&2 200,000
discounted to the present
3&4 300,000
value. If the sum is +ve,
5 350,000
then the project is
yielding a surplus on Applying NPV formula:
money invested. Thus
NPV = 200000/(1.10) + 200000/
viable. (1.10)2 + 300000/(1.10)3 + ..
 E.g. given the cash flow -1,000,000
alongside and a
discounting of 10%; = Rs.5273; i.e. a surplus
 Project Management: The Process (cont’d)
Investment Criteria – Discounting
 Internal Rate of Return (I.R.R): is the
discounting rate at which the net present
value of the project is “0”. It indicates the
minimum returns that the project has to
generate annually for its duration. E.g.:

Yr 0 1 2 3 4 The rate which returns 100 is :

C/F -100 30 30 40 45
100 = 30/(1+r) + 30/(1+r)2 + ..
i.e. r is between 15 & 16%.

Thus accept project if the rate of return is more than the discounting rate.
 Project Management: Conceptn (cont’d)
Investment Criteria – Observations
 NPV is expressed in absolute NPV Invest. Ratio
terms and does not indicate
the scale of a Project; X +5000 50000 10%
 NPV favors longer term
projects Y +2500 10000 25%
 The IRR rule does not
differentiate lending & C/Fl. C/Fl. IRR NPV
borrowing; e.g. Yr 1 Yr 2 @10%
 IRR is clearer than NPV & is -4000 +6000 50% 145
A
less sensitive to discounting
ratio. +4000 -7000 75% -236
B
 Project Management: The Process (cont’d)
Financial evaluation – Discounting Criteria
 Economic analysis: is the methodology to
evaluate projects from the Societal view point,
primarily Public investments.
 Social cost/benefits differ from monetary measures
due to Societal considerations and market
imperfections;
 UN has formulated an process to assess this under
the UNIDO Guide, in which societal and market
considerations have been integrated to assess
desirability of a Project. (Please read handout on
“Bridge Project” & “River Valley Project” as an
example for the approach)
 Project Management: The Process (cont’d)
Financial Evaluation- Risk
 Risk analysis is one of the most ‘slippery’ aspect of
project evaluation – there is no one unique method:
 Technique 1 – ‘stand-alone’ risk of a project
 Technique 2 – risk of a project in the context of the firm
and/or the market.

Risk Analysis
Easier to
measure Stand Alone Contextual
SSS Analyses Corporate Risk

Break Even Market Risk

Decision Tree
 Project Management: The Process (cont’d)
Risk – sources of risk
 The several sources of risk with respect to projected
earnings and cash-flows are:
 Project-specific risk – projections may be erroneous
 Competitive risk – affected by unanticipated actions of
competition or new competition
 Industry-specific risk – Unforeseen technologies/ products,
regulatory changes etc.
 Market risk – Unexpected changes in macroeconomic factors
 International risk – Extraordinary developments on the
exchange–rate and/or Political climate
Project Management: The Process (cont’d)
Risk – measures of risk
 Risk is measured from:
 Probability of occurrence:
 the variability associated with obtaining
different results (e.g. NPV)
NPV Prob. The “weighted” NPV works out
200 0.3 to:
3
600 0.5 E(NPV) = Σ pi NPVi
900 0.2 i=1
= 0.3x200 + 0.5x600 + 0.2x900
A measure of the ‘risk’ is=the
540range i.e.
difference between the highest/lowest value i.e.
900 – 200 = 700
Project Management: The Process (cont’d)
Risk – measures of risk

 The higher the ‘spread’ the more the variability and

risk
 Standard Deviation (σ ) of the NPV distribution
quantifies this:
 σ = {0.3(200-540)2 + {0.5(600-540)2 + {0.2(900-540)2}
= 250
 We can now define a “coefficient of variation” in which
we relate the σ to expected net present value:
 CV = σ /Expected value ; = 250/540 = 0.46
 The higher the CV, the higher the risk ranking
Project Management: The Process (cont’d)
Risk – measures of risk
 the expected probability of an untoward occurrence
(e.g. earthquake)
 In real life, this is a geophysical phenomenon and can be
linked to a region and a value assigned say 0.2
 The expected impact on the project:
 in case of NPV, the financial impact
 in case of untoward occurrence, the time & financial
impact (loss and recovery)
 The product ‘likelihood’ x ‘impact’ defines
‘consequence’, thus the ranking of risks.
 Project Management: The Process (cont’d)
Risk – the SSS Analyses
 #1 Sensitivity:
 Financial statements are worked out with each
‘line’ changed for “optimistic/realistic/
pessimistic” values one at a time, the other
lines being held at ‘realistic’ values.
 Investigating the situation “what–if” a change in
assumption/projection were to happen
 Indicates the strength of relationship between the
outcome/result and a given parameter e.g. change
in profit if material-costs go up to pessimistic
levels.
Project Management: The Process (cont’d)
Risk – the SSS Analyses
A 'Du-pont" style Report

Sales

BalanceSheet Capital 12.793

Total Assets
Turnover /
2.05 11.497
Net Assets
-
6.233 Interest free
Liabilities
RONA
x 5.264
12.9% 14.8%

Sales

12.793
Operating
Other Costs
Income -
Income 1.103 1.219 Operating 5.854
before Tax + expenses +
809 925 Financial 11.690 11.573 Purchased
Margin
% Income materials
P&L 6.30% 7.20% -294 5.854 5.728

Sales

12.793
 Project Management: The Process (cont’d)
Risk – the SSS Analyses
 #2 Scenario:
 Variables are interrelated, thus painting different,
plausible scenarios involving different (but consistent)
sets of variables is helpful. Usually, the factor(s)
chosen represent the largest source of uncertainty
(e.g. market growth rate), around which the scenarios
are built.
 The ‘Best/Worst Case’ Analysis: where scenarios
involving best/normal/ worst sets of variables are worked
out, e.g.
 BEST: high demand, high selling prices, low operating
costs etc.
 WORST: low demand, low selling prices, high operating
costs etc.
 Project Management: The Process (cont’d)
Risk – the SSS Analyses
 #3 Simulation:
 Sensitivity analysis indicates ‘what-if’ nature
correlations between dependant and various input
factors, denoting strength of relationships;
 A decision maker would want more “certainty” i.e. the
likelihood of such occurrences.
 Simulation techniques help in developing probability
profiles of events by combining (randomly) values of
variables which have a bearing on chosen criteria.
 It is a powerful technique which permits use of great deal of
information and a highly efficient medium of communication;
 It does not replace judgement, contrarily it requires more
application of judgement;
 A useful technique in the absence of good experience
 Project Management: The Process (cont’d)
Risk – the Break Even
 Lending institutions/financial managers want
to know “how much should be sold/produced
at a minimum to ensure the project does not
lose money?”
 Viewpoint 1: Accounting i.e. a value that ensures
return of ‘principal’ without availing of any
‘opportunity’ (via the time-value principle).
Projects ‘breaking even’ this way have –ve NPV
 Viewpoint 2: Financial - the focus is on value
creation i.e. the level at which the project will
yield a “0” NPV.
 Project Management: The Process (cont’d)
Risk – the Break Even Sls 9M
V.C. 6M
F.C. 1M
 P & L Forecast for a new Plant Depr 2M
 Accounting B’Even:
Head Yr0 Yr1-10 PbT 0M
Investment 20,000 Sales = (Fixed Costs + Deprn.)/
Contribution
Sales 18,000 Contribution Margin ratio
margin %
Sales is Var.Cost 12,000 = (1,000+2,000)/0.333 PbT=0.33Sls – 3M
Tax = 0.33 PbT
33% Fixed Cost 1,000 = Rs. 9 M PaT = .667 PbT
Deprn. 2,000
 Financial B’Even (12% rate):
Pre-tax Profit 3,000
Taxes(@ 33.3%) 1,000 Cash Flow = Deprn.+ P.a.T
P.a.T 2,000 =0.667(0.333x Sales – Rs.3M)+ Rs.2M
C’flow (Oprn) 4,000 = 0.222 x Sales
Net C’flow 20,000 4,000 PV = 0.222 x Sales ( Discounted)
( Figs. Rs ‘000) = 0.222 x Sales x 5.650
i.e.20,000 = 0.222 x Sales x 5.650
= Rs. 15.94 M
Interest
Factor
12%,10yrs
 Project Management: The Process (cont’d)
Risk – the Break Even
 In addition to Break Even, financial institutions
also assess:
 Break Even Point for Capacity Evaluation (BEPCU):
All ratios
 Projects reach capacity outputs over time. Only on
are further reaching this point can stable operations start.
subjected  The Fixed Cost/Contribution ratio is multiplied by
to ‘%age capacity utilization’ to derive BEPCU
Sensitivity  Debt Service Coverage Ratio (DSCR):
Analysis
 Borrower’s ability to service a debt is important!
 DSCR = (P.a.T + Depr’n & amor’zn + Interests +
Lease rentals)/{Repayment & Interest of term debt
i.e. Tot. accruals/ + Lease rentals} – all values cumulated over the
Tot. Debt burden period under consideration.
 Project Management: The Process (cont’d)
Risk – the Decision Tree Analysis

 A tool developed and used for aiding sequential

decision making in face of risk involved at every
stage e.g. oil-field development.
 Identifying the problem and alternatives;
 Delineating the decision tree: diagrammatic
representation of the nature of decisions situations;
 Specifying the probabilities, impacts and outcomes;

 Evaluating the decision alternatives.

Study handout on the example of a decision tree

analysis “ Spectrum” with their electric moped.
 Project Management: The Process (cont’d)
Risk Management
Identification

External Sources
Key risk symptoms
Time, Cost & Quality Analysis
Assumptions

Project Risk
Management
Opportunities & Likelihood
Threats
Hideability
Corrective Actions Effect/Impact
Contingency & Reserve
Response Control Quantification
 Organizing for Projects
 Projects are carried out by Institutions themselves
(e.g. Aircraft Coys) Or outsourced to Pure Project
Organizations (e.g. MMRDA).
 Pure Project Organizations have a core, lean
management team and engage man-power from a
‘Contractor Pool’ – allowing for flexibility in both
nature and quantum of Human Resources.
 Institutions ‘borrow’ personnel from internal expert
groups to form Project Teams (who in turn might
outsource specifics) to execute Projects.
 Organizing for Projects (cont’d)
Pure Project e.g. Project Team e.g. Auto-
Construction mobile
C.E.O Director
PM

Roads Housing Ports Manf. Design Markt.

PM 1 PM 1 PM 1 Mgr 1 Mgr 1 Mgr 1

PM 2 PM 2 Mgr 2 Mgr 2 Mgr 2

Contractor Pool
‘Rafting’ or Matrix Structure
 Planning Work in Projects
Elements
 Objectives
 Activities (What ?)
 Schedule (When ?)
 Budget ( How much ?)
 Organization (Who ?)
 Work methods (Procedure, Standards )
 Planning Work in Projects (cont’d)
Project Planning & Control System

Detailing: Scheduling:
Objective
(SoW, WBS) PERT, CPM
etc.

Budgets

Reports Tracking:
Management
(Time, cost, Time/Cost/
Decision making
Feedback Performance) Performanc
e
 Planning Work in Projects (cont’d)
Major Project Plan Documents
 1. Statement of Work/Scope of Work (SoW)
A general description of the work to be performed- called deliverables
 work excluded
 Overall schedule of project

Construction of House
“Construction, painting, internal electrical wiring, provision of electrical points,
plumbing as per the design of the Architect and the work specifications
Electrical fittings and Sanitary fittings to be supplied by the owner
(exemption)
Completion date- 6th June 2004”
 Planning Work in Projects (cont’d)
2. Work Breakdown Structure (WBS)
 The breaking of overall project into sub elements
 Could be further broken down
 Enables preparation of individual work schedules, their inter
relation ships and precedence
 Enables estimation of Resource requirements
 Enables realistic Costing
 It is the basis for costing and scheduling & is monitored in the
project control process to compute variance with actual costs
and schedules.
 Identifies the Functional divisions/ Managers, Contractors to be
involved for apportioning responsibilities
 Planning Work in Projects (cont’d)
Example of WBS - Construction of a building

1. Excavation
2. Foundation
3. Frame
4. Walls
5. Ceilings
6. Electrical wiring
7. Plumbing
8. Painting
Each of these will have a detailed Specification
 Planning Work in Projects (cont’d)

3. Specifications
 The requirements to be met
 Could be compatibility with established standards or
a new specified requirement

 Helps in realistic costing

 Avoids ambiguity and consequent cost and time

over runs & legal issues
 Planning Work in Projects (cont’d)
A typical User (Customer) Contractor Exchange (in
absence of clear specifications)

Contractor: “The lighting for the office is finished. As we

agreed, I wired 20 ceiling lights”
Customer : “But you said there would be enough lights to
make the room bright. This room seems kind of dark”
Contractor : “For a room this size, 15 lights are standard.
As we agreed, I put in 20 just to be sure”
Customer: “Yes, but you said 20 would make the room
bright and they don’t. You will have to put in more lights”
 Planning Work in Projects (cont’d)
• Constructing ‘process maps’ is a method
currently favoured by Project Managers,
e.g. “4-fields mapping” . It captures Project
phases, Tasks in the phases, Responsibility
matrix for Tasks & the Standards for tasks
#1 Team Members(Responsibility
#2 Phases (WBS) Matrix) # 4 Standards
With start/end Listed for each
Criteria. A *****
***** task
*****
Each B #3 Task flow
phase has
many C
tasks
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
 The Project Planning process stages are:
 Identify the constituent activities;
 Determine their logical sequence;
 Prepare estimates of time & resources;
 Present the plan in a readily readable format.

 The general approach to planning involves starting with a

rough overview and then conducting revisions of this
through an iterative process i.e. going through the cycle
several times to test the effect of the revisions made on the
outcomes;
 The objective is to make major revisions early in the
planning cycle and then make minor refinements in the plan.
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
 The development of detailed time plans have varying
complexity, in line with the nature of the project, however
the significant area of commonality is:
 A construction of comprehensive but comprehensible picture
of the project activities;
 Communication with others.
 The preference for graphical techniques hinges on the
ability of people to understand what is going on i.e.
“visibility” , illustrating inter-relations between activities
and time. The 3 most commonly used charts are:
 The Gantt Chart
 Program Evaluation & Review Technique: PERT charts
 Critical Path Method: CPM charts.
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
Gantt (Bar) Charts:
• Simple to construct and understand
• Can track progress of individual Activity easily
• Good for small projects; e.g Boil Water for Tea
Planned
activity
Actual
Activities:
activity
1. Fill kettle…. 02mins.
2. Put on the stove…..01min
3. Light the stove…. 01min.
4. Wait for boiling …. 05mins.
5. Take off kettle …. 01min.
6. Put off stove …. 01min.
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
Network Scheduling
• Developed to address the drawbacks of Gantt
chart esp. inter relationships/ inter dependencies
between Activities

• Suited for complex projects involving many

activities.

• PERT developed for US Navy to manage complex

Polaris Missile Program.

• CPM developed in 1957 in an industrial setting (for Plant

construction project for DuPont), and gives relatively
more importance to project cost.
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
Concepts in Network Diagrams
“Activity-on-Arrow” (AoA)
Event- Beginning or End of an Activity

A
1 2
01min.
Beginning of filling
End of filling

Activity Symbol of Activity Time required

Fill kettle A 01 min.

IMPORTANT RULE:
There can be ONLY ONE Arrow (Activity) between two events!
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
• Concurrent Activities
– Activities that can be carried out concurrently / simultaneously
– Not interdependent
A A = Fill kettle
2
1 B = Light stove
• Succeeding/Preceding Activities B 3
C
3 4 C Preceding Activity
D
2 D Succeeding Activity
1
5
Activity Symbol of Activity Time required

Observing for water to boil C 5 mins.

Take kettle off stove D 1 min

 Planning Work in Projects (cont’d)
Designing & Tracking Tools
B 3
A A: Fill Kettle
1 2 B: Set up tea cups
C C: Wait for water to boil

Example of two Activities with a Common immediate Predecessor

Dummy Activity- An imaginary Activity which does not consume resources

but included in the Network diagram to maintain network logic and
understand inter dependency of Activities

2 4
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
e.g. A-o-A chart for “Boiling of water for tea”:
Activities:
Description Predecessor
A. Fill kettle…. 02mins. Start
B. Place on the stove…..01min A
C. Light the stove…. 01min. Start
D. Observe boiling …. 05mins. C
E. Take off kettle …. 01min D
F. Put off stove …. 01min. E
A B D E F
0 1 3 4 5 6
C
2

Note: If we were to include “set up tea cups” as an activity and we would do it while
waiting for water to boil; activity D would then become a ‘dummy’ & activity set up
tea cups would be a real activity.
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
The “Critical Path”
 The major use of networks is for determining:
 how long the project will take &
 when each activity should be scheduled.

 The project duration is determined by finding the longest

path through the network:
 A path is any route comprised of one or more arrows
(activities) connected in sequence;
 The longest path from the origin node to the terminal node is
called the “Critical Path” ;
 This gives the expected duration of the project.
 The “Critical Path”: an Example

Project: Dinner party (H & W)

C
A Shopping (H&W) - 1 2 3
B Prepare to cook (W) A ½ B D
C Cooking (W) B 2 A
St 1 En
D Bathe & dress (W) C 1
E Tidy house (H) A 1½ E
F Bathe & dress (H) E ½ 4
F

There are TWO “paths”: #1 St – 1 -2 – 3 – En (A-B-C-D) &

#2 St – 1 – 4 – En (A-E-F)
Path # 1 takes: 1 + ½ + 2 + 1 = 4 ½ H
Path # 2 takes: 1 + 1 ½ + ½ = 3 H

The Project requires 4 ½ H and path #1 determines the duration: thus Critical
 The “Critical Path”

 Activities not on the “critical path’ can be delayed

without delaying the project – however, by how
much?
 The logic is to determine the latest allowable time that the activity
can be completed without delaying the completion of the project, i.e.
the start can be ‘late’ (or ‘early’);
 The time difference between ‘early start’ and ‘late start’ is called
“slack” or “float”;
 The “total slack time” is the maximum delay that can occur for non-
critical activities. Once this “slack” is used up, non-critical activities
become critical and any further delays will extend the project
completion.
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
Estimating Activity Duration( PERT)
• The target Project completion date is dependent on the
proper estimation of duration of all Activities involved
• Estimation of Activity duration is not always a straight
forward process because of an element of uncertainty
• PERT addresses the uncertainty in the duration by using
three time estimates
– Optimistic
– Most likely
– Pessimistic
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
Estimating Activity Duration …cont’d
• Optimistic Time estimate a- Every thing goes according
to plan with minimum difficulties

• Pessimistic time estimate b – Maximum possible time for

completion considering all unfavourable conditions

• Most likely Time estimate m - Lies between Optimistic

and Pessimistic time estimates. Time required to
complete in normal conditions

Estimates are obtained from, experience, people &

experts knowledgeable about the difficulties involved
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
Expected Time (te) for completion of activity
• PERT assumes that a, b are equally like to occur, where
as m is four times more likely to occur
• Thus, te = (a+4m+b)/6
• Variance, v = {(b-a)/6}2 is the measure of variability in
the activity completion time
• Standard Deviation, σ = v1/2
• The larger the difference between a & b, the larger the
variance and uncertainty with te; i.e the higher the
likelihood of completing earlier or later than te.
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
Probability of Project Completion
• The expected Project Completion Time is the SUM of the
Expected completion time te of ALL activities on the Critical
Path;
• The Standard Deviation, σ , for Project Completion Time is
the Square root of the sums of Variances of ALL activities
along the Critical Path:
σ = ( v1 + v2 + …vn)1/2
• The probability of completing the project in the given
completion duration, ts ,is determined by the number of
‘standard deviations’ separating them:
z = (ts – te)/σ , the corresponding probability can be
found from a standard “z-table”.
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
Probability of Project Completion (example)
A’vity to tp tm te/v Path Path σ path Z (ts = 11 Prob. in
(a) (b) (m) Variance days) 11 days

A 2 10 3 4/1.78 A-D 1.78+0.11 1.37 (11-10)/1.37 0.7673

B 3 5 4 4/0.11 B-E 0.11+0.44 0.74 (11-11)/0.74 0.5000

C-F 1.78+1.78 1.87 (11-12)/1.87 0.2981

C 4 12 5 6/1.78

D 5 7 6 6/0.11
The probability
A D of finish in less
E 5 9 7 7/0.44
B E than 11 days =
.7673 x.5 x.2981
F 4 12 5 6/1.78 = 0.1143 i.e.
C F
(ts = 11 days) < 12% chance

σ path = ( v1 + v2 + …vn)1/2
te = (a+4m+b)/6; v = {(b-a)/6} 2

z = (ts – te)/ σ path

 Planning Work in Projects (cont’d)
Designing & Tracking Tools
The “Critical Path”
A’vity to tp tm te Path A-D (S-1-E): 4 + 6 = 10 days
(a) (b) (m) Path B-E (S-2-E): 4 + 7 = 11 days
A 2 10 3 4 Path C-F (S-3-E): 5 + 7 = 12 days
i.e. the project is not expected to
B 3 5 4 4 be completed in less than 12 days.
The longest Path is C-F (S-3-E) and
C 4 12 5 6 is “critical”, defining the duration.
D 5 7 6 6
A 1 D
E 5 9 7 7
B E E
S 2
F 4 12 5 6
C F
3
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
The Critical Path Method(CPM)
 Developed in 1957 gives relatively more importance to
project cost, when Project activities are more accurately
forecast-able and a definite relationship between time and
cost can be established for each activity.
 The CPM assumes that the estimated completion times can
be influenced by applying resources to particular “key
activities” – that the time for any activity is variable,
depending on the amount of resources applied.
 The PERT method has been criticized because it is based
on assumptions that sometimes yield uncertain results!
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
CPM and PERT: a comparison
• Both employ Network diagrams & analysis of critical
paths
• CPM, however, use a “deterministic” approach in time
estimates for each Activity: only one time estimate is
used. Thus, in CPM there is no statistical treatment of
uncertainty.
• CPM is more “Activity “ oriented. Hence it is possible to
measure “percentage completion” of an Activity
• CPM more suited for well defined projects, with
relatively small uncertainties like construction or in the
Process industries
 Planning Work in Projects (cont’d)
Designing & Tracking Tools
CPM and PERT: a comparison

• CPM includes a mathematical procedure for estimating

the trade off between Project duration and Cost

• PERT, puts greater emphasis on uncertainties and on

‘Events’ (Mile stones)

• PERT is more suitable for R&D type of projects where

uncertainties are more and duration of an Activity cannot
be estimated accurately
 Planning Work in Projects (cont’d)
Analyzing Networks
 For analyzing networks, e.g. to determine Critical
Path, Slack, Probable Completion Times, etc. we
need information on:
 Activity & Interrelations (‘preceding/succeeding’)
 Earliest event time & latest event time (to be
determined)
 Conventionally, these are included in the ‘nodes’
as under (for a single activity):
Earliest Event Time
Event Label
0 5
10 20
0 5
Latest Event Time
 Planning Work in Projects (cont’d)
Analyzing Networks

8
B 30 E Latest !

3 6
0 A 5 C 9 F 16 H 24
10 20 40 60 70
0 5 4 7 8
D G
10 5
5 50 “Forward Pass”

Estimation of Earliest Event Times

 Planning Work in Projects (cont’d)
Analyzing Networks

8
B 30 E Latest !
10
3 6
0 A 5 C 9 F 16 H 24
10 20 40 60 70
0 5 5 4 9 7 16 8 24

D G
10 5
Earliest 5 50 ‘Reverse Pass’
11

Estimation of Latest Event Times

 Planning Work in Projects (cont’d)
Analyzing Networks

8
B 30 E Latest !
10
3 6
0 A 5 C 9 F 16 H 24
10 20 40 60 70
0 5 5 4 9 7 16 8 24

D G
10 5
Earliest 5 50
11

Path with no
Slack OR Float!
Determination of Critical Path
 Planning Work in Projects (cont’d)
Analyzing Networks

 What do we do with determination of Critical

Path?
 Provides us the key to prioritization
 Provides us the back –bone for further analysis:
 Of Resource needs and costs
 Impact of adjusting Project Schedules

 For reporting on an agreed base

 If we can establish a Time-Cost relationship.

 Analyzing Networks: Time-Cost
Relationship (CPM)
 In ‘repeat’ or ‘standard’ projects, duration & cost
of activities are reasonably well established:
 Resource requirements per unit of work is defined
 Technological or other minimum time to finish a job is
known
 A standard or normal time and cost can be
established
 The Critical Path in a network are derived using
the standard times.
 But client requirements and/or deadline
pressures may require a Project to be expedited.
 With additional resource inputs, time reduction is
possible
 Time-Cost Relationship: CPM (cont’d)
 Definitions:
 Standard Time: the time
usually/normally
Cost Slope:
required to carry out an Cc
Cost per time-unit
activity: Ts of activity.

Cost
 Crash Time: the
minimum time required
to carry out an activity.
Reduction impossible: Tc Cs
 Standard & Crash
Costs: Costs for Tc Ts
resources associated
with these Times: Cs, Cc Time
Time-Cost Relationship: CPM (cont’d)

 Assumptions:
 Time required for an activity can be
“crashed” (i.e. reduced) to its crash time to
reduce its duration;
 Additional costs are incurred, proportional to
the time reduction effected to cover the
added resource deployment;
 To reduce the project duration, only
activities on the critical path need to be
crashed.
 Time-Cost Relationship: CPM (cont’d)
 Example:
Activity Ts Tc Cs Cc Sequence
A 5 3 30 60 Start
B 9 5 50 90 After A
C 8 7 50 100 After A
D 6 4 20 50 After B
E 3 2 10 20 After C
F 4 2 50 80 After D, E
Project
Duration: 24W 3 14
Cost: B 14 D
Rs.210m 0 A 9/5 6/4 F
1 2 5 5 20 6 24
0 5 C E 20 4/1 24
5/3 8/7 13
4 17 3/2
 Time-Cost Relationship: CPM (cont’d)
If the Client wants a 1W reduction we will need to ‘crash’
some activities. Which one?
We want to reduce the
Activity Ts Tc Cs Cc Cost Slope
Project Duration. So we look
A 5 3 30 60 15
for activities on the Critical Path:
B 9 5 50 90 10
A, B, D or F?
C 8 6 50 100 50
Reduction must be at the
D 6 4 20 50 15
least cost/time unit. So we look
E 3 2 10 20 10
for activity with lowest cost slope.
F 4 2 50 80 15
B has the least slope: we
reduce B, adding Rs.10m to 13
3 14
Cost. B 14 D
A 8/5
9/5 6/4 19 F
1
0
2 5 5 20 6 23
24
0 5 C E 20
19 4/1 24
23
5/3 8/7 13
4 17 3/2
Project 16 Project
Duration: 24W Duration: 23W
Cost: Cost:
Rs.210m
 Time-Cost Relationship: CPM (cont’d)
If the Client now wants to execute at the least possible time.
What can the Project manager offer?
We can crash B by 3 more
Activity Ts Tc Cs Cc Cost Slope
weeks to 5 at an additional
A 5 3 30 60 15
cost of Rs.30m. B then is at
B 8 5 50 90 10
Crash. This reduces the Project
C 8 7 50 100 50
duration to 20W.
D 6 4 20 50 15
This makes the other Path i.e.
E 3 2 10 20 10
A, C, E & F Critical too!
F 4 2 50 80 15
 So any further reduction will
need to effect both Paths. 3
B D 20 W,
A 8/5 5/5 6/4 F
2 5 6 250m
1 C E 4/1
5/3 8/7
4 3/2

A-B-D-F: 23 W
A-C-E-F: 20 W
 Time-Cost Relationship: CPM (cont’d)
If the Client now wants to execute at the least possible time.
What can the Project manager offer?

Activity Ts Tc Cs Cc Cost Slope

We can reduce F by 3
A 5 3 30 60 15
W, costing 45 m & A by
B 8 5 50 90 10
2 W, costing 30m. A & F
C 8 7 50 100 50
are ‘crashed’.
D 6 4 20 50 15
 C, D & E are not yet at
E 3 2 10 20 10
crash. D can be reduced
F 4 2 50 80 15
by 2 W, costing 30m.
C & E can be crashed by 3 6
1 W each, costing 60m. B 6 D 20 W,
0 A 5/5 6/4 F
1 2 3 4/4 5 10 6 14 250m
3 C E 10 4/1 14
Project 0
5/3 8/7 7
Duration: 24W 3/2 1/1
3/3 7/7 4 7
Cost: 3/3 14 W,
Rs.210m Rs. 415m
Time-Cost Relationship: CPM (cont’d)

 To run a Project, an “establishment” need to be

set up.
 This is relatively independent of the Project content
e.g. Project Office, Communication, Security etc. –
the extent may vary with nature of Projects.
 This set-up exists for the entire duration of the
Project and is hardly affected by activity variance.
 Thus, the cost for this is ‘fixed’/structural in nature
and has to be incurred for the duration of the
project and is directly proportional to time. (‘Activity’
is inversely proportional to time).
 Activity Cost and Establishment costs display
contrary time-trends.
 Time-Cost Relationship: CPM (cont’d)

 The “Total Cost” passes is

is “U” shaped i.e. passes through
a minimum point.
 Thus crashing a Project is also
Activity determined by the establishment
Total cost – to determine the Optimum
Cost or least cost.
E.g. In our previous example if we
were asked for the Optimum Cost,
given the establishment cost is
@ Rs.15m/week. We would need
to factor in this cost along with the
Establishment ‘crashed’ activity costs.

Time
 Time-Cost Relationship: CPM (cont’d)

Duration Activity Cost Estabish- Total Cost

-ment Cost @
Rs.15 m /w

Normal 24 W Rs.210m Rs.360m Rs.570m

Duration
23 W Rs.220m Rs.345m Rs.555m
Optimum 20W Rs.250m Rs.300m Rs.550m
Duration
Crashed 14W Rs.415m Rs.210m Rs.625m
Duration
Project Control
 The basic questions that need to
answered are:
 Is the project as a whole (and its parts) on/
ahead /behind Schedule?
 Has the cost of the Project as a whole (and
its parts) as per/ more than/ less than
budget?
 What is the trend in performance?
 The Standard Variance analysis
approach is inadequate!
 Project Control (cont’d)

 E.g. (Costs in Rs. ‘000)

Activity A Activity B
Bud. Cost in Period 50 30
Cum. Bud. Till Date 200 75
Actual cost in Period 55 28
Cum. Actual till date 240 80
Standard Budgetory Control Variances:
Variance for Period: -5 2
Cum. Variance till Date - 40 -5
Is work on
schedule?
 Project Control (cont’d)

 Definitions:
 Budgeted cost of work Scheduled (BCWS): represents
the total cost budgets for all work packets to be
completed and work-in-progress scheduled to be
finished on date;
 Budgeted cost of work Performed (BCWP): represents
the total cost budgets for all work packets to be
completed and work-in-progress executed on date;
 Actual cost of work Performed (ACWP): represents the
total cost budgets for all work packets to be completed
and work-in-progress executed on date;
 Project Control (cont’d)

 With these 3 parameters, a Project may be

monitored:
 Cost Variance = BCWP – ACWP
 Cost Performance Index: BCWP/ACWP
 Schedule Variance = BCWP – BCWS (in cost terms)
 Schedule Performance Index: BCWP/BCWS
 Estimated Cost Performance Index: BCTW/(ACWP +
ACC)
Where, BCTW = Budgeted cost of total work & ACC = Additional
cost for completion)
 Project Control (cont’d)

 E.g. Project Start – 01/01; End – 30/10 and

review – 30/06 i.e. 24 w (figs. In Rs. L)
BCWS: 15
BCWP: 14
ACWP: 16 Spent
BCTW: 25(40 w) More
ACC: 12
Behind
Cost Variance: BCWP – ACWP (14 -16) = -2 Schedule
Schedule Var.: BCWP – BCWS (14 – 15)= -1
Time Variance: Status date – Date at which BCWS=BCWP
Est. Cost Index: {BCTW/(ACWP+ ACC)} {25/(16+12)} = 0.89

Will spend more;

funds required
 Project Control (cont’d)
Rs. L Overspend
X ACWP
25
+ ACC
BCTW

BCWS
Cost Var. ACWP

Schedule
Var. BCWP

Time.Var
24
Weeks
40

Review Date
Project Control (cont’d)
 What do these terms really indicate?
 A project manger can charge the client at “pre-agreed rates”
for work completed on date of review – This is BCWP and
represents the Earned value of the project.
 The manager has paid out at actual to his supplier for the
work performed – This is ACWP.
 If the Actual is less then Earned, then the cost is successfully
managed!
 However, if the progress is behind schedule then the client
pays only for completed task and the Project’s earnings are
less than budgeted. Schedule variance is this shortfall.
 Project Control (Practice Problem)
You have employed a Contractor to install 10000
computers @ 20 computers/day and @ Rs.200 /
installation. Every 10 days, there is a review and
payment. At the end of the 30th Review, you find:
#s installed 5800
Bill raised Rs.62000/-
A) Determine: Time, Cost & Schedule Variances
B) What is the ‘earned value’ for the Contractor?
C) What do you report to your management about the
Completion of the project, assuming the Contractor
has put his best efforts and unforeseen situations
have arisen in work execution.
 Project Control (Practice Problem)
 BCWS: 30x10x20 x Rs.200= Rs.1.2 M
 BCWP: 5800 x Rs.200/- = Rs.1.16 M
 ACWP: Rs.0.62 M
 Cost Variance: Rs.1.16 – Rs.0.62 = Rs. 0.54 M
 Schedule Var.: Rs.1.16 – Rs.1.20 = - Rs. 0.04 M
 Time Variance: 1 week late (5800 should have been installed by the 29th
review!)
 Earned Value: 5800 x Rs.200 = Rs.1.16 M, (contractor has probably
under billed.)
 Project will be at least 1 week late and will complete the project within
the budget, subject to bill verification.
 Project Control (Practice Problem)
If the billing is corrected to Rs.1.18 M
 BCWS = Rs.1.2 M; BCWP = Rs.1.16 M
 ACWP: Rs.1.18 M
 Cost Variance: Rs.1.16 – Rs.1.18 = - Rs. 0.02 M
 Schedule Var.: Rs.1.16 – Rs.1.20 = - Rs. 0.04 M
 Time Variance: 1 week late (5800 should have been installed by the
29th review!)
 Earned Value: 5800 x Rs.200 = Rs.1.16 M, contractor will be paid
this amount. The Rs.0.02 M excess has to be examined.
 Project will be at least 1 week late and the project will overshoot the
budget if the billing is found correct. Then the installation rate works
out to (Rs.1.18M/5800) Rs. 204/- per installation
 ACC: (10000-5800) x Rs.204 = Rs.0.87 M;
 Projected Cost: Rs.(1.18+ 0.87) = Rs.2.05 M against BCTW: Rs.
(10000 x Rs.200) = Rs.2.00 M
Project Scheduling with Resource
Constraints
In real life, there will be constraints on availability &
use of resource:
 Not every resource required will be freely available
– influencing design of project activities
 Particularly true when multiple activity/ projects
requires the same resource e.g. Specialist skills
 Further, “crashing” will need to take this constraint
into consideration
Project Scheduling with Resource
Constraints …ctd.
“Resource Loading” is the amount of resource necessary for
the Project:
 Changes through the duration of the execution since nature
and type of activities vary with time
 Results in variable requirement/loading of a resource over
time
 The usual resource loading pattern is:
 A slow but steady build-up

 Intense peaking at a certain point in time

 A gradual decline

 Most Projects require few resources at early and late

stages and many in the middle.
 This ‘problematic’ for mangers who would like to deal
with uniform pool of workers, equipment etc.
 Project Scheduling with Resource
Constraints …ctd.
The process of ‘smoothening’ the resource
requirements though the Project duration is
termed “Resource Leveling”:
 Aimed at sequencing the project activities to level the
requirement of the constrained resource, e.g. shift
working on bottle-neck machine.
 The results in resource requirements for the overall
project is maintained at a fairly constant level
 Fair amount of leveling can done by ‘juggling’ the
activities around:
 Taking advantage of “Slack”
 Delaying non-critical activities.
 Project Scheduling with Resource
Constraints …ctd.
Consider a Maintenance Project involving overhauling a
machine using a team of mechanics. The machine has
different sub-systems which can be independently
worked upon: Hydraulic, Electrical & Mechanical. The
Project details are given as under:
Activity days team strength
A) Disassembly (1-2) 2 3
B)O’haul Hydraulic (2-3) 2 2
C)O’haul Mechanical (2-4) 4 3
D)O’haul Electrical (2-5) 1 1
E)Assembly (4-6) 2 3
Note: No mechanic can work more than 5 days at a stretch
 Project Scheduling with Resource
Constraints …ctd.
A B C D E
B
Gang 1 1 1 1 1
3
2
Man / 2 2 3 1 3
day
A C E
1 2 4 6
2 4 2 Durn. 2 2 4 1 2

1 2 3 4 5 6 7 8
Day
D
5
1 2 2 6 4 3 3 3 3
Man Reqd.

1 1 3 2 1 1 1 1
Gang Reqd.
 Project Scheduling with Resource
Constraints …ctd.
A B C D E
B Gang 1 1 1 1 1
3
2
Man / 2 2 3 1 3
day
A C E
1 2 4 6
2 4 2 Durn. 2 2 4 1 2

1 2 3 4 5 6 7 8
D Day
5
1
Man Reqd. 2 2 3 4 5 5 3 3
1 mechanic can join from day 3, 1 more
from day 4, 1 more from day 5 and 2 1 1 1 2 2 2 1 1
mechanics can leave from day 7; so no Gang Reqd.
mechanic works more than 5 days
 Improvement Projects
 Many “Projects” which are done in companies are
aimed at improving the current status or solving
recurring problems, e.g.:
 In Operations: reduction of rejections
 In Design: reducing documentation & testing time
 In Finance: reducing accounts receivable & bad debts
 Though the ‘subjects’ are different, most of these
require the same approach – based on utilizing in-
company knowledge and experience
 Thus there is a standard process for these
Projects, developed from the TQM philosophy.
 Improvement Projects: Information & Decision
 When work is delegated or distributed two dimensions, “Responsibility”
and “Authority” are prime concerns. But there is more, especially during a
set-up/change process;
 People have to "do" something to make the processes happen. Therefore
it is useful to describe what should be done by whom
 The RASCI model is a relatively straightforward tool that can be used for
identifying roles and responsibilities
 R = Responsible - owns the problem / project
 A = to whom "R" is Accountable - who must sign off (Approve) on work
before it is effective
 S = can be Supportive - can provide resources or can play a supporting
role in implementation
 C = to be Consulted - has information and/or capability necessary to
complete the work
 I = to be Informed - must be notified of results, but need not be
consulted
 Information & Decision …contd
RASCI Chart for “Road Repair”

Municipality Contractor Police Public

Stop access A C R I
for period

Divert & use C I A R

alternate route

Repair road & A R I I, S

certify

Resume traffic A I R I
flow
 Information & Decision …contd

 Providing Information and granting Decision Rights requires to be

supported by decision-making abilities.
 Decision-making is a universally important competence in business.
 Some decisions clearly have a greater impact on the business
than others, but the underlying skill is the same;
 The difference is in the scope and depth of the process you go
through to reach your decision
 In day-to-day operations, these are mostly in the domain of:
 Choice making
 Problem-solving/Improvements
 In these areas, the people need to be supported with simple tools/aids,
viz.
 Decision support tools for making a choice quantitatively
 Problem Solving tools
 E.g. The 8-D methodology, Six Sigma
 Decision Making: “informed choice”

 One reason why decision-making can be so problematic is that the most

critical decisions tend to have to be made in the least amount of time.
 People feel pressured and anxious;
 The time pressure means taking shortcuts, jumping to conclusions, or
relying heavily on instinct to guide your way.
 The other extreme is the guy who simply can't make a decision because
he analyses the situation to death!
 Between instinct and over-analysis is a logical and practical approach to
decision-making that doesn't require endless investigation, but helps
weigh up the options and impacts is needed.
 Decision-making is a skill set that needs be learned and improved;
 One such approach is called the Kepner-Tregoe Matrix. It provides an
efficient, systematic framework for gathering, organizing and evaluating
decision making information.
 Making an informed choice
Kepner-Tregoe describes the following steps to approach
decision analysis:
1. Prepare a decision statement having both an action and a
result component;
2. Establish strategic requirements (Musts), operational objectives
(Wants);
3. Generate alternatives. Check if “Musts” are met by each
alternative;
4. Rank objectives (Wants) and assign relative weights;
5. Assign a relative score for each alternative on an objective-by-
objective basis;
6. Calculate weighted score for each alternative and identify top
two or three;
7. Make a final, single choice between top alternatives.
 ALTERNATIVES
MUSTS
WANTS

3 1 2
 Problem Solving

 “The problem with problems is not that they occur—in spite of our best
efforts, stuff happens. Unforeseen circumstances will always conspire
against us to disrupt the smooth operation of our production and
operations systems and upset our plans.
The problem with problems is that we fail to prevent them from
happening again.”
 Problems do not confine themselves to organizational niches or
structures: they encompass many parts, even the whole organization.
 Solutions, therefore, more often than not require a team effort to find a
lasting cure:
 Engaging different skills, knowledge & aptitude
 Requiring divergent resources
 These reside scattered in different parts of the organization
 Problem Solving: Team approach
 Ford Motors is credited with formalizing TOPS (Team Oriented Problem Solving)
methodology:
 Involvement: cross-functional and cross-hierarchical,
 Knowledge & Information sharing,
 Camaraderie and bonding,
 Multi-dimensional, thus a holistic solution,
 Using the “8D” (8 Disciplines) process, renamed Global 8D (G8D):
 Step-by-step (P-D-S-A) approach:
 subsequent steps based on soundly established previous steps, few come-backs,
 Problems tackled in ‘bite-size’ pieces
 Provisions for ‘emergency response’, escape and recurrence preventing measures
 The 8-D method of problem solving is appropriate in "cause unknown" situations and
is not the right tool if concerns center solely on decision-making or problem
prevention
 8 D Process

 D 0 - The Planning Stage:. 8-D is especially useful as it results in

not just a problem-solving process, but also a standard and a
reporting format.
 Does this problem warrant/require an 8D? If so comment why and
proceed.
 Is an Emergency Response Action needed?
 D 1 - Establishing the Team: Establish a small group of people
with the process/ product knowledge, allocated time, authority and
skill in the required technical disciplines to solve the problem and
implement corrective actions.
 Team to set ‘Objectives’ & ‘Goals’: brings belief, commitment &
realism
 8 D Process

 D 2 - Problem Definition: Provides the starting point for solving

the problem or nonconformance issue.
 Need to have “correct” problem description (photos, verbatim
statements, eye-witness accounts) to identify causes.
 5Ws + H approach in “is” and “is not” answers e.g. ‘Who’ is or is not
affected by the problem
 Need to use terms that are understood by all.
 D 3 - Developing Interim Containment Actions:
Temporary actions to contain the problem and “fix” until permanent
correction is in place - document actions in an Action Item Table.
 D 4 - Identifying & Verifying Root Cause: Analyze for “Root
Cause” of the problem.
 Brainstorming, 5 Why’s, Ishikawa Diagrams, DOE etc.
 document actions in an AIT.
 Identify and verify the Escape Point
 8 D Process

 D 5 - Identify Permanent Corrective Actions:

solutions that address and correct the root cause.
 Solutions determined to be the best of all the alternatives.
 Document and verify the Permanent Corrective Action (PCA) in the
AIT.
 D 6 - Implementing & Validating the PCA
Implement and validate to ensure that corrective action does “what it
is supposed to do.”
 Detect any undesirable side effects. Document this on the AIT.
 Return to root cause analysis, if necessary
 D 7 - Preventing Recurrence: determine what improvements in
systems and processes would prevent problem from recurring.
 Ensure that corrective action remains in place and successful
 Address similar systems
 Revise related documentation (Design/Process/Q-Systems)
 8 D Process

 D 8 - Congratulate Your Team: ( ensure: was this problem solving

exercise effective? Has it been verified with a follow-up? )
 Use all forms of employee recognition and document as necessary.
 Celebrate successful conclusion of the problem solving effort.
 Formally disengage the team and return to normal duties OR
 Go for the next round of problem solving for the remaining issues

A P
D7&8 D 0,1,2
&3

D6 D4&5
S D