Engineering Economy

and Management

Project Management
References:
1. Clifford F. Gray and Erik W. Larson, Project Management: The Managerial Process,
5th Edition, Mc Graw Hill, 2010
2. Jeffrey K. Pinto., Project Management: Achieving Competitive Advantage, 2nd
Edition, Pearson, 2010
Outline
1. Introduction to Project Management
2. Defining the Project
3. Estimating Time and Cost
4. Developing Project Plan

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1–2 All Rights Reserved
Introduction to Project Management

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1–3 All Rights Reserved
Learning Objectives
1.To explain why project management is crucial in today’s
world
2.To define a project and differentiate projects from routine
operations
3.To explain the importance of projects in implementing
organization strategy

1–4
What is a Project?
 Project Defined
 A complex, nonroutine, one-time effort limited by time, budget,
resources, and performance specifications designed to meet
customer needs.
 Major Characteristics of a Project
 Has an established objective.
 Has a defined life span with a beginning and an end.
 Requires across-the-organizational participation.
 Involves doing something never been done before.
 Has specific time, cost, and performance requirements.

1–5
Programs versus Projects
 Program Defined
 A series of coordinated, related, multiple
projects that continue over an extended time
and are intended to achieve a goal.
 A higher level group of projects targeted
at a common goal.
 Example:
 Project: completion of a required course
in project management.
 Program: completion of all courses required
for a business major.

1–6
Comparison of Routine Work with Projects
Routine, Repetitive Work Projects
Taking class notes Writing a term paper
Daily entering sales receipts into Setting up a sales kiosk for a
the accounting ledger professional accounting meeting
Responding to a supply-chain Developing a supply-chain
request information system
Practicing scales on the piano Writing a new piano piece
Routine manufacture of an Apple Designing an iPod that is
iPod approximately 2 X 4 inches,
interfaces with PC, and
stores 10,000 songs
Attaching tags on a manufactured Wire-tag projects for GE and
product Wal-Mart

TABLE 1.1
1–7
Project Life Cycle

FIGURE 1.1
1–8
The Challenge of Project Management
 The Project Manager
 Manages temporary, non-repetitive activities and frequently
acts independently of the formal organization.
 Marshals resources for the project.
 Is linked directly to the customer interface.
 Provides direction, coordination, and integration
to the project team.
 Is responsible for performance and success of the project.
 Must induce the right people at the right time to address the
right issues and make the right decisions.

1–9
The Importance of Project Management
 Factors leading to the increased use of
project management:
 Compression of the product life cycle
 Knowledge explosion
 Triple bottom line (planet, people, profit)
 Corporate downsizing
 Increased customer focus
 Small projects represent big problems

1–10
Benefits of an Integrative Approach
to Project Management
 Integration (or centralization) of project management
provides senior management with:
 An overview of all project management activities
 A big picture of how organizational resources are used
 A risk assessment of their portfolio of projects
 A rough metric of the firm’s improvement in managing
projects relative to others in the industry
 Linkages of senior management with actual project execution
management

1–11
Integrated Project Management Systems
 Problems resulting from the use of piecemeal project
management systems:
 Do not tie together the overall strategies of the firm.
 Fail to prioritize selection of projects by their importance of
their contribution to the firm.
 Are not integrated throughout the project life cycle.
 Do not match project planning and controls with
organizational culture to make appropriate adjustments in
support of project endeavors.

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Integrated Management of Projects

FIGURE 1.2
1–13
Major Functions of Portfolio Management
 Oversee project selection.
 Monitor aggregate resource levels and skills.
 Encourage use of best practices.
 Balance projects in the portfolio in order to represent a
risk level appropriate to the organization.
 Improve communication among all stakeholders.
 Create a total organization perspective that goes beyond
silo thinking.
 Improve overall management of projects over time.

1–14
 The Technical
and Sociocultural
Dimensions
of the Project
Management
Process

FIGURE 1.3
1–15
 Defining the Project

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1–16 All Rights Reserved
Learning Objectives
1.To recognize the importance of a complete scope
statement acceptable to your customer as a condition for
project success
2.To layout guidelines for creating a Work Breakdown
Structure (WBS) for a project
3.To demonstrate the importance of WBS to the
management of projects and how it serves as a database
for planning and control

1–17
Defining the Project
Step 1: Defining the Project Scope
Step 2: Establishing Project Priorities
Step 3: Creating the Work Breakdown Structure
Step 4: Integrating the WBS with the Organization
Step 5: Coding the WBS for the Information System

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Step 1: Defining the Project Scope
 Project Scope
 A definition of the end result or mission of the project—a
product or service for the client/customer—in specific,
tangible, and measurable terms.
 Purpose of the Scope Statement
 To clearly define the deliverable(s) for the end user.
 To focus the project on successful completion
of its goals.
 To be used by the project owner and participants
as a planning tool and for measuring project success.

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Project Scope Checklist

1. Project objective
2. Deliverables
3. Milestones
4. Technical requirements
5. Limits and exclusions
6. Reviews with customer

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Project Scope: Terms and Definitions
 Scope Statements
 Also called statements of work (SOW)
 Project Charter
 Can contain an expanded version of scope statement
 A document authorizing the project manager to initiate and
lead the project.
 Scope Creep
 The tendency for the project scope to expand over time due
to changing requirements, specifications, and priorities.

4–21
Step 2: Establishing Project Priorities
 Causes of Project Trade-offs
 Shifts in the relative importance of criterions related
to cost, time, and performance parameters
 Budget–Cost
 Schedule–Time
 Performance–Scope
 Managing the Priorities of Project Trade-offs
 Constrain: a parameter is a fixed requirement.
 Enhance: optimizing a criterion over others.
 Accept: reducing (or not meeting) a criterion requirement.

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Project Management Trade-offs

FIGURE 4.1
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Project Priority Matrix

FIGURE 4.2
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 Step 3: Creating the Work
Breakdown Structure
 Work Breakdown Structure (WBS)
 An hierarchical outline (map) that identifies the products and
work elements involved in a project.
 Defines the relationship of the final deliverable
(the project) to its subdeliverables, and in turn,
their relationships to work packages.
 Best suited for design and build projects that have tangible
outcomes rather than process-oriented projects.

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 Hierarchical
Breakdown of
the WBS

* This breakdown groups work

packages by type of work within a
deliverable and allows assignment
of responsibility to an organizational
unit. This extra step facilitates a
system for monitoring project
progress (discussed in Chapter 13).

FIGURE 4.3
4–26
How WBS Helps the Project Manager
 WBS
 Facilitates evaluation of cost, time, and technical performance
of the organization on a project.
 Provides management with information appropriate
to each organizational level.
 Helps in the development of the organization breakdown
structure (OBS). which assigns project responsibilities to
organizational units and individuals
 Helps manage plan, schedule, and budget.
 Defines communication channels and assists
in coordinating the various project elements.

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Work Breakdown Structure

FIGURE 4.4
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Work Packages
 A work package is the lowest level of the WBS.
 It is output-oriented in that it:
1. Defines work (what).
2. Identifies time to complete a work package (how long).
3. Identifies a time-phased budget to complete
a work package (cost).
4. Identifies resources needed to complete
a work package (how much).
5. Identifies a person responsible for units of work (who).
6. Identifies monitoring points (milestones)
for measuring success.

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 Step 4: Integrating the WBS
with the Organization
 Organizational Breakdown Structure (OBS)
 Depicts how the firm is organized to discharge its work
responsibility for a project.
 Provides a framework to summarize
organization work unit performance.
 Identifies organization units responsible
for work packages.
 Ties the organizational units
to cost control accounts.

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 Integration of
WBS and OBS

4–31
FIGURE 4.5
 Step 5: Coding the WBS for
the Information System

 WBS Coding System

 Defines:
 Levels and elements of the WBS
 Organization elements
 Work packages
 Budget and cost information
 Allows reports to be consolidated at any
level in the organization structure

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 WBS Coding

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Responsibility Matrices
 Responsibility Matrix (RM)
 Also called a linear responsibility chart.
 Summarizes the tasks to be accomplished and who is
responsible for what on the project.
 Lists project activities and participants.
 Clarifies critical interfaces between units
and individuals that need coordination.
 Provide an means for all participants to view their
responsibilities and agree on their assignments.
 Clarifies the extent or type of authority that
can be exercised by each participant.

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Responsibility Matrix for a Market Research Project

FIGURE 4.6
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Responsibility Matrix for the Conveyor Belt Project

FIGURE 4.7
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Project Communication Plan
 What information needs to be collected
and when?
 Who will receive the information?
 What methods will be used to gather
and store information?
 What are the limits, if any, on who has access to
certain kinds of information?
 When will the information be communicated?
 How will it be communicated?

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Information Needs
 Project status reports
 Deliverable issues
 Changes in scope
 Team status meetings
 Gating decisions
 Accepted request changes
 Action items
 Milestone reports

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Developing a Communication Plan

1. Stakeholder analysis
2. Information needs
3. Sources of information
4. Dissemination modes
5. Responsibility and timing

4–39
Shale Oil Research Project Communication Plan

FIGURE 4.8
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Estimating Times and Costs

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1–41 All Rights Reserved
Learning Objectives
1.To explain the importance of estimating project times and
costs are the foundation for project planning and control
2.To explain the awareness of the methods, uses, and
advantages and disadvantages of top-down and bottom-up
estimating methods
3.To suggest estimating guidelines for time, cost, and
resources

1–42
Estimating Projects
 Estimating
 The process of forecasting or approximating the time and cost
of completing project deliverables.
 The task of balancing expectations of stakeholders and need
for control while the project is implemented.
 Types of Estimates
 Top-down (macro) estimates: analogy, group consensus, or
mathematical relationships
 Bottom-up (micro) estimates: estimates of elements
of the work breakdown structure

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Why Estimating Time and Cost Are Important

• To support good decisions.

• To schedule work.
• To determine how long the project should take
and its cost.
• To determine whether the project is worth doing.
• To develop cash flow needs.
• To determine how well the project is progressing.
• To develop time-phased budgets and establish the
project baseline.

EXHIBIT 5.1
5–44
Factors Influencing the Quality of Estimates

Planning Horizon

Other
Project
(Nonproject)
Duration
Factors

Quality of
Organization Estimates People
Culture

Padding Project Structure

Estimates and Organization

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Estimating Guidelines for Times,
Costs, and Resources

1. Have people familiar with the tasks make the estimate.

2. Use several people to make estimates.
3. Base estimates on normal conditions, efficient methods, and a
normal level of resources.
4. Use consistent time units in estimating task times.
5. Treat each task as independent, don’t aggregate.
6. Don’t make allowances for contingencies.
7. Adding a risk assessment helps avoid surprises
to stakeholders.
5–46
Top-Down versus Bottom-Up Estimating
 Top-Down Estimates
 Are usually are derived from someone who uses experience
and/or information to determine the project duration and total
cost.
 Are made by top managers who have little knowledge of the
processes used to complete the project.
 Bottom-Up Approach
 Can serve as a check on cost elements in the WBS
by rolling up the work packages and associated cost accounts
to major deliverables at the work package level.

5–47
Estimating Projects: Preferred Approach

 Make rough top-down estimates.

 Develop the WBS/OBS.
 Make bottom-up estimates.
 Develop schedules and budgets.
 Reconcile differences between top-down
and bottom-up estimates

5–48
Top-Down and Bottom-Up Estimates

FIGURE 5.4
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Level of Detail
 Level of detail is different for
different levels of management.
 Level of detail in the WBS varies
with the complexity of the project.
 Excessive detail is costly.
 Fosters a focus on departmental outcomes
 Creates unproductive paperwork
 Insufficient detail is costly.
 Lack of focus on goals
 Wasted effort on nonessential activities

5–50
Types of Costs
 Direct Costs
 Costs that are clearly chargeable
to a specific work package.
 Labor, materials, equipment, and other
 Direct (Project) Overhead Costs
 Costs incurred that are directly tied to an identifiable project
deliverable or work package.
 Salary, rents, supplies, specialized machinery
 General and Administrative Overhead Costs
 Organization costs indirectly linked to a specific package that
are apportioned to the project

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Contract Bid Summary Costs

Direct costs $80,000

Direct overhead $20,000
Total direct costs $100,000
G&A overhead (20%) $20,000
Total costs $120,000
Profit (20%) $24,000
Total bid $144,000

FIGURE 5.5
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Three Views of Cost

FIGURE 5.6
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Refining Estimates
 Reasons for Adjusting Estimates
 Interaction costs are hidden in estimates.
 Normal conditions do not apply.
 Things go wrong on projects.
 Changes in project scope and plans.
 Adjusting Estimates
 Time and cost estimates of specific activities are adjusted as
the risks, resources, and situation particulars become more
clearly defined.

5–54
Creating a Database for Estimating

FIGURE 5.7
5–55
Developing a Project Plan

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Learning Objectives
1. To diagram a project network using AON methods
2. To determine early, late, and slack activity times and
identify the critical path
3. To explain the importance of slack in scheduling projects.
Developing the Project Plan
 The Project Network
 A flow chart that graphically depicts the sequence,
interdependencies, and start and finish times of the project job
plan of activities that is the critical path through the network.
 Provides the basis for scheduling labor and equipment.
 Enhances communication among project participants.
 Provides an estimate of the project’s duration.
 Provides a basis for budgeting cash flow.
 Identifies activities that are critical.
 Highlights activities that are “critical” and can not be delayed.
 Help managers get and stay on plan.

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WBS/Work Packages to Network

FIGURE 6.1
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WBS/Work Package to Network (cont’d)

FIGURE 6.1 (cont’d)

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Constructing a Project Network
 Terminology
 Activity: an element of the project
A
that requires time.
 Merge Activity: an activity that has
two or more preceding activities on B D
which it depends.
 Parallel (Concurrent) Activities:
Activities that can occur
C
independently and, if desired,
not at the same time.

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Constructing a Project Network (cont’d)
 Terminology
 Path: a sequence of connected, dependent activities.
 Critical path: the longest path through the activity network
that allows for the completion of all project-related activities;
the shortest expected time in which the entire project can be
completed. Delays on the critical path will delay completion
of the entire project.

A B D

(Assumes that minimum of A + B > minimum of C in length of times to complete activities.)

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Constructing a Project Network (cont’d)
 Terminology
 Event: a point in time when an activity is started
or completed. It does not consume time.
 Burst Activity: an activity that has more than one activity
immediately following it (more than one dependency arrow
flowing from it).
B
 Two Approaches
 Activity-on-Node (AON)
 Uses a node to depict an activity.
A C
 Activity-on-Arrow (AOA)
 Uses an arrow to depict an activity.

D
6–63
Basic Rules to Follow in Developing
Project Networks
1. Networks typically flow from left to right.
2. An activity cannot begin until all preceding connected
activities are complete.
3. Arrows indicate precedence and flow
and can cross over each other.
4. Each activity must have a unique identify number that is
greater than any of its predecessor activities.
5. Looping is not allowed.
6. Conditional statements are not allowed.
7. Use common start and stop nodes.
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Activity-on-Node Fundamentals

FIGURE 6.2
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Activity-on-Node Fundamentals (cont’d)

FIGURE 6.2 (cont’d)

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Network Information

TABLE 6.1
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Koll Business Center—Partial Network

FIGURE 6.3
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Koll Business Center—Complete Network

FIGURE 6.4
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Network Computation Process
 Forward Pass—Earliest Times
 How soon can the activity start? (early start—ES)
 How soon can the activity finish? (early finish—EF)
 How soon can the project finish? (expected time—ET)
 Backward Pass—Latest Times
 How late can the activity start? (late start—LS)
 How late can the activity finish? (late finish—LF)
 Which activities represent the critical path?
 How long can activity be delayed? (slack or float—SL)

6–70
Network Information

TABLE 6.2
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Activity-on-Node Network

FIGURE 6.5
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Activity-on-Node Network Forward Pass

FIGURE 6.6
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Forward Pass Computation
 Add activity times along each path in the network (ES +
Duration = EF).
 Carry the early finish (EF) to the next activity where it
becomes its early start (ES) unless…
 The next succeeding activity is a merge activity, in which
case the largest EF of all preceding activities is selected.

6–74
Activity-on-Node Network Backward Pass

FIGURE 6.7
6–75
Backward Pass Computation
 Subtract activity times along each path in the network (LF
- Duration = LS).
 Carry the late start (LS) to the next activity where it
becomes its late finish (LF) unless
 The next succeeding activity is a burst activity, in which
case the smallest LF of all preceding activities is selected.

6–76
Determining Free Slack (or Float)
 Free Slack (or Float)
 Is the amount of time an activity can be delayed after the start
of a longer parallel activity or activities.
 Is how long an activity can exceed its early finish date without
affecting early start dates of any successor(s).
 Allows flexibility in scheduling scarce resources.
 Sensitivity
 The likelihood the original critical path(s) will change once the
project is initiated.
 The critical path is the network path(s) that has (have) the
least slack in common.

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Activity-on-Node Network with Slack

FIGURE 6.8
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Illogical Loop

FIGURE 6.10
6–79
Air Control Project—Network Diagram

FIGURE 6.11
6–80