Project Management

Definition:

Project management is the Planning, Organizing, Directing and controlling of company resources for a relatively short term objective that has been established to compete specific goal and objectives. Project management basically involves planning, monitoring and achieving the project objectives within the time, cost at desired performance and technology by utilizing the assigned resources effectively and efficiently. 

Initiating the Project:

The project management techniques related to the project initiation phase includes:

1. Establishing the project initiation team. 

This involves organizing team members to assist in carrying out the project initiation activities.

2. Establishing a relationship with the customer. 

The understanding of your customer's organization will foster a stronger relationship between the two of you.

3. Establishing the project initiation plan. 

Defines the activities required to organize the team while working to define the goals and scope of the project.

4. Establishing management procedures. 

Concerned with developing team communication and reporting procedures, job assignments and roles, project change procedure, and how project funding and billing will be handled.

5. Establishing the project management environment and workbook. 

Focuses on the collection and organization of the tools that you will use while managing the project.

 The project management techniques related to the project planning phase include:

1. Describing project scope, alternatives, and feasibility.

This step of project gives the understanding of the content and complexity of the project. Some relevant questions that should be answered include:

1. What problem/opportunity does the project address?
2. What results are to be achieved?
3. What needs to be done?
4. How will success be measured?
5. How will we know when we are finished?

2. Divide the project into tasks. 

This technique is also known as the work breakdown structure. This step is done to ensure an easy progression between tasks.

3. Estimating resources and creating a resource plan. 

This helps to gather and arrange resources in the most effective manner.

4. Developing a preliminary schedule. 

In this step, you are to assign time estimates to each activity in the work breakdown structure. From here, you will be able to create the target start and end dates for the project.

5. Developing a communication plan. 

The idea here is to outline the communication procedures between management, team members, and the customer.

6. Determining project standards and procedures.

 The specification of how various deliverables are produced and tested by the project team.

7. Identifying and assessing risk. 

The goal here is to identify potential sources of risk and the consequences of those risks.

8. Creating a preliminary budget. 

The budget should summarize the planned expenses and revenues related to the project.

9. Developing a statement of work. 

This document will list the work to be done and the expected outcome of the project.

10. Setting a baseline project plan. 

This should provide an estimate of the project's tasks and resource requirements.

Executing the Project

The project management techniques related to the project execution phase include:

1.       Executing the baseline project plan. 

The job of the project manager is to initiate the execution of project activities, acquire and assign resources; orient and train new team members, keep the project on schedule, and assure the quality of project deliverables.

2.       Monitoring project progress against the baseline project plan.

 Using Gantt and PERT charts, which will be discussed in detail further on in this paper, can assist the project manager in doing this.

Monitoring and Controlling the Project

CPM/ PERT and Gantt chart methods are employed for monitoring the project, following steps are followed:

1. Managing changes to the baseline project plan.

2. Maintaining the project workbook. 

Maintaining complete records of all project events is necessary. The project workbook is the primary source of information for producing all project reports.

3. Communicating the project status.

 This means that the entire project plan should be shared with the entire project team and any revisions to the plan should be communicated to all interested parties so that everyone understands how the plan is evolving.

Closing down the Project

The project management techniques related to the project closedown phase includes:

1. Closing down the project.

 In this stage, it is important to notify all interested parties of the completion of the project. Also, all project documentation and records should be finalized so that the final review of the project can be conducted.

2. Conducting post project reviews. 

This is done to determine the strengths and weaknesses of project deliverables, the processes used to create them, and the project management process.

3. Closing the customer contract. 

The final activity is to ensure that all contractual terms of the project have been met. The techniques listed above in the four key phases of project management enable a project team to:

»                     Link project goals and objectives to stakeholder needs.

»                     Focus on customer needs.

»                     Build high-performance project teams.

»                     Work across functional boundaries.

»                     Develop work breakdown structures.

»                     Estimate project costs and schedules.

»                     Meet time constraints.

»                     Calculate risks.

»                     Establish a dependable project control and monitoring system.

Work Breakdown Structure (WBS):

A work breakdown structure (WBS) is a hierarchic decomposition or breakdown of a project or major activity into successive levels, in which each level is a finer breakdown of the preceding one. In final form a WBS is very similar in structure and layout to a document outline. Each item at a specific level of a WBS is numbered consecutively.

Project Networks:

A network used to represent a project is called a project network. A project network consists of a number of nodes (typically shown as small circles or rectangles) and a number of arrows that connect two different nodes. There are two ways for the representation of a project network:

1.        activity-on-arrow (AOA):

In this method of representation, each activity of a Project network is represented by an arrow. A node is used to separate an activity from each of its immediate predecessors. The sequencing of the arcs thereby shows the precedence relationships between the activities.

2.        activity-on-node (AON):

In this method of representation, each activity of a Project network is represented by a node. Arrows are used just to show the precedence relationships that exist between the activities. In particular, the node for each activity with immediate predecessors has an arc coming in from each of these predecessors.

PERT uses AOA and CPM used AON project networks

Project Management Tools and Techniques:

Program Evaluation Review Technique (PERT), Critical Path Method (CPM) and Gantt Charts are the most commonly used project management tools and theses project management tools can be produced manually or with commercially available project management software.

PERT is a planning and control tool used for defining and controlling the tasks necessary to complete a project. PERT charts and CPM charts are often used interchangeably; the only difference is how task times are computed. Both charts display the total project with all scheduled tasks shown in sequence. The displayed tasks show which ones are in parallel, those tasks that can be performed at the same time. A graphic representation called a "Project Network" or "CPM Diagram" is used to portray graphically the interrelationships of the elements of a project and to show the order in which the activities must be performed.

PERT planning involves the following steps:

1. Identify the specific activities and milestones. 

The activities are the tasks of the project. The milestones are the events that mark the beginning and the end of one or more activities.

2. Determine the proper sequence of activities.

 This step may be combined with #1 above since the activity sequence is evident for some tasks. Other tasks may require some analysis to determine the exact order in which they should be performed.

3. Construct a network diagram. 

Using the activity sequence information, a network diagram can be drawn showing the sequence of the successive and parallel activities. Arrowed lines represent the activities and circles or "bubbles" represent milestones.

4. Estimate the time required for each activity.

 Weeks are a commonly used unit of time for activity completion, but any consistent unit of time can be used. A distinguishing feature of PERT is ability to deal with uncertainty in activity completion times. For each activity, the model usually includes three time estimates:

• Optimistic time (t_o) - the shortest time in which the activity can be completed.
• Most likely time (t_m ) - the completion time having the highest probability.
• Pessimistic time (t_p) - the longest time that an activity may take.

From this, the expected time for each activity can be calculated using the following weighted average:

Expected Time = (t_o + 4 t_m + t_p) / 6

This helps to bias time estimates away from the unrealistically short timescales normally assumed.

5. Determine the critical path. 

The critical path is determined by adding the times for the activities in each sequence and determining the longest path in the project. The critical path determines the total calendar time required for the project. The amount of time that a non-critical path activity can be delayed without delaying the project is referred to as slack time.

If the critical path is not immediately obvious, it may be helpful to determine the following four times for each activity:

• ES - Earliest Start time
• EF - Earliest Finish time
• LS - Latest Start time
• LF - Latest Finish time

These times are calculated using the expected time for the relevant activities. The earliest start and finish times of each activity are determined by working forward through the network and determining the earliest time at which an activity can start and finish considering its predecessor activities. The latest start and finish times are the latest times that an activity can start and finish without delaying the project. LS and LF are found by working backward through the network. The difference in the latest and earliest finish of each activity is that activity's slack. The critical path then is the path through the network in which none of the activities have slack.

The variance in the project completion time can be calculated by summing the variances in the completion times of the activities in the critical path. Given this variance, one can calculate the probability that the project will be completed by a certain date assuming a normal probability distribution for the critical path. The normal distribution assumption holds if the number of activities in the path is large enough for the central limit theorem to be applied.

6. Update the PERT chart as the project progresses. 

As the project unfolds, the estimated times can be replaced with actual times. In cases where there are delays, additional resources may be needed to stay on schedule and the PERT chart may be modified to reflect the new situation. An example of a PERT chart is provided below:

Benefits to using a PERT chart or the Critical Path Method include:

• Improved planning and scheduling of activities
• Improved forecasting of resource requirements
• Identification of repetitive planning patterns which can be followed in other projects, thus simplifying the planning process
• Ability to see and thus reschedule activities to reflect inter-project dependencies and resource limitations following know priority rules
• It also provides the following: expected project completion time, probability of completion before a specified date, the critical path activities that impact completion time, the activities that have slack time and that can lend resources to critical path activities, and activity start and end dates

Gantt chart is a matrix, which lists on the vertical axis all the tasks to be performed. Each row contains a single task identification, which usually consists of a number and name. The horizontal axis is headed by columns indicating estimated task duration, skill level needed to perform the task, and the name of the person assigned to the task, followed by one column for each period in the project’s duration. Each period may be expressed in hours, days, weeks, months, and other time units.

To draw up a Gantt chart, steps need to follow are:

1. List all activities in the plan. For each task, show the earliest start date, estimated length of time it will take, and whether it is parallel or sequential. If tasks are sequential, show which stages they depend on.
2. Head up graph paper with the days or weeks through completion.
3. Plot tasks onto graph paper. Show each task starting on the earliest possible date. Draw it as a bar, with the length of the bar being the length of the task. Above the task bars, mark the time taken to complete them.
4. Schedule activities. Schedule them in such a way that sequential actions are carried out in the required sequence. Ensure that dependent activities do not start until the activities they depend on have been completed. Where possible, schedule parallel tasks so that they do not interfere with sequential actions on the critical path. While scheduling, ensure that you make best use of the resources you have available, and do not over-commit resources. Also, allow some slack time in the schedule for holdups, overruns, failures, etc.
5. Presenting the analysis. In the final version of your Gantt chart, combine your draft analysis (#3 above) with your scheduling and analysis of resources (#4 above). This chart will show when you anticipate that jobs should start and finish. 

Benefits of using a Gantt chart:

• Gives an easy to understand visual display of the scheduled time of a task or activity.
• Makes it easy to develop "what if" scenarios.
• Enables better project control by promoting clearer communication.
• Becomes a tool for negotiations.
• Shows the actual progress against the planned schedule.
• Can report results at appropriate levels.
• Allows comparison of multiple projects to determine risk or resource allocation.
• Rewards the project manager with more visibility and control over the project.

 

Tools of Project Appraisal and Evaluation:

The project analysis determines the ability of the project to achieve the objectives. Numerous tools and technics are used for project appraisal. The commonly used tools and technics are:

1.       Cost Benefit Analysis

2.       Capital Budgeting Techniques

3.       Financial analysis

Cost Benefit Analysis:

The most popular methods of project appraisal and evaluation are to consider the cost, benefit analysis of different project and then select involving lesser cost and yielding greater benefit. The investment appraisal techniques of pay back, average rate of return and discounted cash flow techniques (internal rate of return and net present value) are widely used in private sector while in public sector, cost benefit analysis is used to evaluate large investment project.

Under cost benefit analysis, selection of optimal project is based on following:

1.       Comparison of benefits and costs:

If the benefit of project is larger than the cost of the project, the project is accepted and vice-versa.

2.       Benefit cost ratio:

If the benefit cost ratio is larger than one, the project is accepted and vice-versa.

3.       Discounted cash flow techniques:

Under internal rate of return, the net present value of proposed investment is reduced to zero. At this point, the sum of net present value is equal to capital cost of project. Trial and error method is used in calculating internal rate of return (IRR). If the IRR is greater than the market rate of interest, the project is considered worthwhile.

Capital Budgeting techniques

1.       Non Discounting Criteria

Pay-back Period

Return on Investment (ROI)

2.       Discounting Criteria

Net Present Value (NPV)

Internal Rate of Return (IRR)

Non Discounting Criteria:

Pay-back period:

This method gives how long period it will take before the original capital investment is paid back; this is simple and widely used method.

Return on Investment (ROI)

This method is used for making investment decisions; also known as average rate of return (ARR). It is calculated by expressing the average expected profits over the life span of an asset after depreciation on a percentage of the capital invested.

ROI =

If the ROI computed is satisfactory, project is accepted and vice-versa.

Disadvantages:

Ø  It do no account time value of money

Ø  It uses profit as a measure of return which is not same as cash flow into and out of the project

Ø  There’s no universally accepted method of calculating ROI.

Discounting Criteria:

It is widely used method of investment appraisal as it takes into account the time value of money.

1.       Net Present Value (NPV)

2.       Internal Rate of Return (IRR)

·         The Net Present Value (NPV) is the difference of the present value of benefit and present value of cost. If the present value of the benefit exceeds the present value of cost, the NPV is positive. In the analysis, all costs and benefit have been expressed in constant terms and discounted at 12 % per annum in the reference case. A positive NPV indicated that the project generates benefits in excess of those required by the discount rate. A project with a positive NPV is, therefore, considered viable. The NPV is sometimes called the net present worth.

NPV = Present Value of Benefit – Present Value of Cost

There’re six basic steps in evaluating NPV:

·         Determining the economic life of the investment

·         Identifying the relevant cash  flow

·         Deciding the discount rate to be used

·         Specifying the compounding frequency

·         Calculating NPV

·         Evaluating the NPV against competing alternatives

Internal Rate of Return (IRR):

Y

This method of discounted cash flow compares alternatives which produces highest rate of return over its useful life, is expressed in percentage rather than value. The sum of NPV is equated to the capital cost of the project. Trial and error method is used to compute rate of return and if IRR >market interest rate, project is accepted and vice-versa.      

                  

Disadvantages of Discounted Cash Flow Technique:

»         Not always easy to choose an appropriate discount rate

»         Calculation of discounted cash flow is not easy to understand

»         The discount rate may not be realistic and fixed

Project Control system:

Controlling a project is the process of monitoring, evaluation and comparing planned results with actual results to determine the status of the project cost, schedule and technical performance objectives; control is directed to performance, cost and time.

There’re several distinct steps in the project control system.

1.       Establishing Performance standards:

Based on project plans key standard of project control includes:

Ø  Scope of work

Ø  Project specification

Ø  Work Breakdown Structure (WBS)

Ø  Work Packages

Ø  Core estimate and budget

Ø  Master an supporting schedule

Ø  Financial forecast and funding plans

Ø  Quality

Ø  Reliability

Ø  Physical qty. of work

Ø  Vendor/ contractor performance

Ø  Innovation

Ø  Productivity

2.       Control Cycle:

Effective control of time, cost and quality is a circular process and is an essential for project success

There’re several steps in control cycle as mentioned in the flowchart below: