Lec 8.....week 12-14.ppt
- 1. 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 4–1
- 2. 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. 4–2
- 3. Project Scope Checklist 1. Project objective 2. Deliverables 3. Milestones 4. Technical requirements 5. Limits and exclusions 6. Reviews with customer 4–3
- 4. 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. 4–4
- 5. 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. 4–5
- 8. 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. 4–8
- 9. Hierarchical Breakdown of the WBS 4–9 FIGURE 4.3 * 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).
- 10. 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. 4–10
- 12. 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. 4–12
- 13. Step 4:Integrating theWBS 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. 4–13
- 14. Integration of WBS and OBS 4–14 FIGURE 4.5
- 15. 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 4–15
- 16. WBS Coding 4–16
- 17. 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. 4–17
- 18. 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? 4–18
- 19. Information Needs • Project status reports • Deliverable issues • Changes in scope • Team status meetings • Gating decisions • Accepted request changes • Action items • Milestone reports 4–19
- 20. Key Terms 4–20 Cost account Milestone Organization breakdown structure (OBS) Scope creep Priority matrix Responsibility matrix Scope statement Process breakdown structure (PBS) Work breakdown structure (WBS) Work package
- 21. Evaluating Economic Profitablity Engineering Economy focuses on return that a given project or capital investment will or should produce. Five methods for evaluating the economic profitability of a single proposed problem solutions (i.e alternatives): 1. PW - Present Worth 2. FW – Future Worth 3. AW – Annual Worth 4. IRR – Internal Rate of Return 5. ERR – External Rate of Return 1, 2, 3 Converts Cash Flows into their equivalent worth by using interest rate known as MARR 4, 5 computes annual rate of profit or return resulting from an investment and are then compared to MARR
- 22. Types of Projects Private Public Purpose Provide goods or services at a profit, maximize profit or minimize costs Protect health, protect lives and property. Provide services (at no profit) provide jobs Sources of Capital Private Investors & Lenders Taxation; private lenders Method of Financing Individual Ownership; partnership, corporations Direct Payment of Taxes, Loans without interest; loans at low interest; self liquidating bonds; indirect subsidies; guarantee of private loans Multiple Purposes Moderate Common (e.g. reservoir project for flood control, irrigation, drinking water, electrical power, recreation
- 23. Private Public Project Life Usually Short (5-10 years) Usually Long (20 – 60 years) Relationship of suppliers of capital to capital in projects Direct Indirect or None Nature of Benefits Monetary or relatively easy to equate to monetary terms Often non monetary, difficult to quantify , difficult to equate to monetary terms Beneficiaries of Project Primarily early undertaking project General Public Conflict of Purpose Moderate Quite Common (dam for flood control or environment protection
- 24. Private Public Conflict of Interests Moderate Very common (between agencies) Effect of Politics Little to Moderate Frequent Factors, short term tenure for decision makers, pressure groups, financial and residential restrictions, etc Measurement of Efficiency Rate of Return on Capital Very Difficult, no direct comparison with prvate projects
- 25. Benefit Cost Ratios with Present Worth • Conventional Benefit Cost Ratio with PW • B-C= PW (Benefits of Proposed Project) PW (Total Cost of the Proposed Project) • B-C= PW (B) I – PW (MV) + P (O&M) • Modified Benefit Cost Ratio with PW • B-C= PW (B) – PW (O & M) I – PW (MV)
- 26. Benefit Cost Ratio with Annual Worth • Conventional Benefit Cost Ratio with AW • B-C= AW (Benefits of Proposed Project) AW (Total Cost of the Proposed Project) • B-C= AW (B) CR+ AW (O&M) CR = Capital Recovery Per Annum • Modified Benefit Cost Ratio with PW • B-C= AW (B) – AW (O & M) CR
- 27. Example • The city of Columbia is considering extending the runways of its municipal airport so that commercial jets can use the facility. The land necessary for runway extension is currently a farmland that can be purchased for $350,000. Construction costs for the runway extension are projected to be $600,000 and the additional annual maintenance costs for extension are estimated to be $22500. If runways are extended, a small terminal will be constructed at a cost of $250,000. The annual operating and maintenance cost are estimated at $75,000. The projected increase in flights will require the addition of two traffic controllers at an annual cost of $100,000. Annual benefits of the runway extension have been estimated as follows: • $ 325,000 - Rental from airline leasing space • $65000 – Airport tax charged to passengers • $50,000 - Convinience benefits for residents of Columbia • $50,000 – Additional tourism benefits for Columbia Study Period is 20 years and MARR is 10% per year to determine if runway should be extended or not?
- 28. • Conventional B-C (Here MV is considered negligible as expenditure incurred in non refundable) • B-C= PW (Benefits of Proposed Project) PW (Total Cost of the Proposed Project) = $490,000 (P/A 10%, 20) $1,200,000 + $ 197000 (by using Interest and Annuity Tables for discrete compounding) = 1.448 > 1 (therefore extend runways)
- 29. Project Cost Estimates • Labor • Materials • Subcontractors & Consultants • Equipment & Facilities Rental • Travel • Contingencies
- 30. Cost Control • Project cost control includes • monitoring cost performance • ensuring that only appropriate project changes are included in a revised cost baseline • informing project stakeholders of authorized changes to the project that will affect costs • Earned value analysis is an important tool for cost control
- 31. The Gantt Chart and Progress Reporting Complete Behind Complete Ahead Behind Time Now Activity A Activity B Activity C Activity D Activity E Activity F Activity G Activity H
- 32. The Need for Earned Value Analysis cost time time now progress time time now budget actual Over-budget Ahead of schedule We need to be able to resolve this as we may be • under-budget and ahead of schedule • over-budget and ahead on schedule • on budget and ahead of schedule Cannot make management decisions until we know the status of the project
- 33. Earned Value Analysis (EVA) • EVA is a project performance measurement technique that integrates scope, time, and cost data. • (original plan plus approved changes), you can determine how well the project is meeting its goals
- 34. Earned Value Analysis Terms • Budgeted cost of work performed (BCWP), also called earned value, is the percentage of work actually completed multiplied by the planned cost • Budgeted cost of work scheduled (BCWS), also called planned value, is that portion of the approved total cost estimate planned to be spent on an activity during a given period • Actual cost of work performed (ACWP), also called actual cost, are the total direct and indirect costs incurred in accomplishing work on an activity during a given period
- 35. Earned Value Analysis--EVA • Earned value = Budgeted Cost of Work Performed (BCWP) • Planned value = Budgeted Cost of Work Scheduled (BCWS), and • Actual Cost = Actual Cost of Work Performed (ACWP) • When you complete an activity, you earn the budgeted value of that activity
- 36. Schedule Performance Index (SPI) • Defined as the ratio BCWP/BCWS • A value close to 1 indicates an activity that is on schedule • Values greater than 1 suggest the activity is ahead of schedule • Values less than 1 indicate a schedule overrun
- 37. Cost Performance Index (CPI) • Defined as the ratio BCWP/ACWP • A value close to 1 indicates an activity that is on budget • Values greater than 1 suggest the activity is below budget • Values less than 1 indicate a budget overrun
- 38. Cost Variance (CV) • Defined as the difference between the budgeted cost of work performed and the actual cost of work performed • = BCWP - ACWP • A positive CV indicates a lower actual cost than budgeted for the control period, while a negative CV indicates a cost overrun
- 39. Schedule Variance (SV) • Defined as the difference between the budgeted cost of work performed and the budgeted cost of work scheduled • = BCWP - BCWS • Indicates the deviation between the work content performed and the work content scheduled for the control period
- 40. Table Earned Value Formulas Term Formula Earned Value Budgeted Cost of Work Performed (BCWP) = budgeted cost to date X % complete Cost Variance CV=BCWP-ACWP (actual cost of work performed) Schedule Variance SV=BCWP-BCWS (budgeted cost of work scheduled) Cost Performance Index CPI=BCWP/ACWP Schedule Performance Index SPI = BCWP/BCWS
- 41. Earned Value Calculations for One Activity After Week One Activity Week 1 Week 2 Total % Complete after Week 1 EarnedValue after Week 1 (BCWP) Purchase web server 10,000 0 10,000 75% 7,500 Weekly Plan (BCWS) 10,000 0 10,000 Weekly Actual (ACWP) 15,000 5,000 20,000 Cost Variance (CV) -7,500 Schedule Variance (SV) -2,500 Cost Performance Index (CPI) 50% Schedule Performance Index (SPI) 75%
- 42. Earned Value Calculations for One Activity After Week One Activity Week 1 Week 2 Total % Complete after Week 1 EarnedValue after Week 1 (BCWP) Purchase web server 10,000 0 10,000 75% 7,500 Weekly Plan (BCWS) 10,000 0 10,000 Weekly Actual (ACWP) 15,000 5,000 20,000 Cost Variance (CV) -7,500 Schedule Variance (SV) -2,500 Cost Performance Index (CPI) 50% Schedule Performance Index (SPI) 75%
- 43. Rules of Thumb for EVA Numbers • Negative numbers for cost and schedule variance indicate problems in those areas. The project is costing more than planned or taking longer than planned • CPI and SPI less than 100% indicate problems
- 44. Why Earned Value Analysis?? • You can’t tell what your true cost variance is because you don’t know where you are relative to schedule • Suppose you are behind schedule but also you have spent less than what the schedule has called for. Are you really under budget?
- 45. Budgeted Cost of Work Performed (BCWP) = Earned Value • Defined as the monetary value of the work actually accomplished within the control period. ACTIVITY BCWP 1 $12,000 2 $20,000 3 $25,000 $57,.000 CUMULATIVE
- 46. Budgeted Cost of Work Scheduled (BCWS) • Defined as the value of the work scheduled to be accomplished in a given period of time ACTIVITY BCWS 1 $12,000 2 $30,000 3 $32,000 $74,000 CUMULATIVE
- 47. Actual Cost of Work Performed (ACWP) • Defined as the cost actually incurred and recorded in accomplishing the work performed within the control period ACTIVITY ACWP 1 $10,000 2 $25,000 3 $16,000 $51,000 CUMULATIVE
- 48. Table Earned Value Formulas Term Formula Earned Value Budgeted Cost of Work Performed (BCWP) = budgeted cost to date X % complete Cost Variance CV=BCWP-ACWP (actual cost of work performed) Schedule Variance SV=BCWP-BCWS (budgeted cost of work scheduled) Cost Performance Index CPI=BCWP/ACWP Schedule Performance Index SPI = BCWP/BCWS
- 49. Let’s try it • For each of the activities in the examples above, calculate • SCHEDULE VARIANCE • COST VARIANCE • Calculate cumulative schedule and cost variance
- 50. Let’s try it • For each of the activities in the examples above, calculate • SCHEDULE PERFORMANCE INDEX • COST PERFORMANCE INDEX • Calculate cumulative cost and schedule performance indices
- 51. Answers to Schedule and Cost Variance • Cumulative schedule variance = -17,000 • Cumulative cost variance = 6,000
- 52. Budgeted Cost • Total Budgeted Cost • Cumulative Budgeted Cost • Cumulative Actual Cost • Cumulative Earned Value
- 53. Cost Performance Index CPI = Cumulative Earned Value Cumulative Actual Cost If CPI is below one – corrective action required If CPI is above one – project is going with economy/profit generating Cost Variance CV = CEV – CAC
- 54. Cost Forecast Forecasted Cost at completion =Total Budgeted Cost Cost Performance Index FCAC = TBC CPI Forecasted Cost at completion = Cumulative Actual Cost + Total Budgeted Cost – Cumulative Earned Value