Session 3

EPGP KOCHI CAMPUS EPGP 10 - ( Quarter-VII )

PROJECT MANAGEMENT

DR. JINIL PERSIS

QUANTITATIVE METHODS AND OPERATIONS MANAGEMENT
RECAP …

 Projects are for solving current or future problems (Development) and making a change (Deployment)
 Projects are characterized by performance, duration, cost as in scope, schedule, and budget respectively
 Performance, duration and cost competes and hence need prioritization
 Strategic project management process for making the right portfolio with projects aligning to strategies, and strategies initiated by
mission
 Project selection: Financial (Pay back, NPV), non-financial methods (MCDM)
 Success or failure of a project depends on
 How much is accomplished in the project plan?
 How much is the business, societal, and environmental impact?
 Visualize the project management effort and choose the right approach using
 Knowns and unknowns matrix
 Project Dimond
 Project lifecycle (Define – Plan – Execute – Close)
 Project Definition (Scope {objectives, deliverables, milestones}, first estimates of Duration, Budget, risks, assumptions)
 Project planning (WBS-OBS & WBS-RBS, WP & dependencies, time/cost estimates using top down or bottom up approaches)
WBS

Project

Deliverable 1 Deliverable 2

Sub Sub Sub Sub

deliverable 1 deliverable 2 deliverable 3 deliverable 4

Work Work Work Work Work Work

package 1 package 2 package 3 package 4 package 5 package 6
RESPONSIBILITY MATRIX (WBS – RBS)

Work Task Risk Responsible Accountable Consulted Informed

package owner
Forging Forgeman Machine Maintenance AMC Help desk Project
1 Breakdown team Lead manager
Scale pit defect Operator Supervisor - Manager
Packaging Operator1 Machine Maintenance AMC Help desk Project
breakdown team Lead manager
Material Inventory Inventory Analyst Project
unavailability Executive manager manager
 PROJECT ESTIMATION
Berlin Brandenburg Airport Udhampur-Srinagar-Baramulla Railway Link

Estimated €2.83 billion went upto €6 billion 2500 crore to 37000 crore; 20 years delay
Started 2006 and completed 2020 (estimated
2011)
COST OVERRUNS & TIME OVERRUNS

 Scope creep
 Delayed approvals, clearance, contracts, procurement, acquisition, shipment
 Delayed design, plan
 Change in strategic priorities
 Poor project estimation and risk assessment (commodity price fluctuation, market fluctuation, exchange rates, etc.)
 Poor coordination among team/parties
 Contract failure or termination
 Quality issues
FACTORS AFFECTING TIME, COST, AND RESOURCE ESTIMATES

Planning horizon Project complexity

• Project diamond
• Time period, season, constraints, load
• Knowns and unknowns

People Project structure and organization

• Competencies, skills, training, knowledge, learning • Interdependencies, multiple development projects
curve, availability, work load, work culture or development and deployment projects

Padding estimates Organizational culture

• Normal and padding estimates (Time and • Work culture
resource Buffer) • Organizational priorities
• Risky events, contingencies • Organizational mission, and strategies/policies
• Uncertainties
• Scope flexibility
COST COMPONENTS

 Direct cost : Cost of labour, material to complete work packages

 Indirect/Direct Overhead cost: Rent, project manager’s salary
 General & administration overhead: Not related to projects such as advertising, accounting, senior management
 Example,
Direct cost = $80000
Indirect cost= $20000
G&A overhead=20%
Profit = 20%
Total bid = ?

$144000
COST COMPONENTS (CONTD.)

Direct Cost of Labor: 120 × $50 = $6,000

 Hourly rate: $50/hr
 Hours needed: 120 Total cost:
 Overhead rate: 40%
$6,000 + ($6,000 × .40) = $8,400
 Total Cost = ?
 PROJECT ESTIMATION METHODS

Top-down approach Bottom-up approach

 Top management decides  Task owner decides

Project Rs. 15 L Project

Deliverable Deliverable
Deliverable Deliverable
1 2
1 2

Sub Sub Sub Sub

Sub Sub Sub Sub
deliverable 1 deliverable 2 deliverable 3 deliverable 4
deliverable 1 deliverable 2 deliverable 3 deliverable 4

Work Work Work Work Work Work

Work Work Work Work Work Work
package 1 package 2 package 3 package 4 package 5 package 6
package 1 package 2 package 3 package 4 package 5 package 6

Rs. 30K 62K 55K 25K 92K 89K

Hybrid approach
 Ration & Apportionment

TOP DOWN
Cost of construction = 2900*$150=$435,000 BOTTOM UP
25% Excavation and framing complete 108750 25% Excavation and framing complete 108750
8% Roof and fireplace complete 34800 8% Roof and fireplace complete 34800
3% Wiring roughed in 13050 3% Wiring roughed in 13050
6% Plumbing roughed in 26100 6% Plumbing roughed in 26100
5% Siding on 21750 5% Siding on 21750
17% Windows, insulation, walks, plaster, and garage 17% Windows, insulation, walks, plaster, and garage
complete 73950 complete 73950
9% Furnace installed 9% Furnace installed
39150 39150
4% Plumbing fixtures installed 17400 4% Plumbing fixtures installed 17400
5% Exterior painting completed 5% Exterior painting completed
21750 21750
4% Light fixtures installed; finish hardware 4% Light fixtures installed; finish hardware
installed 17400 installed 17400
6% Carpet and trim installed 26100 6% Carpet and trim installed 26100
4% Interior decorating 17400 4% Interior decorating 17400
4% Floors laid and finished 17400 4% Floors laid and finished 17400
100% 100% Project cost 435000
 Top-down approach

FUNCTION POINT APPROACH FOR COST ESTIMATION

 Estimating the cost, resources, and time of each deliverable in a project based on its size
 Applicable for both development and deployment projects
 This is performed during the feasibility study
 Function point refers to the functional size of the deliverable; a unit of work that quantifies a deliverable from a
user’s point of view; a relative measure of functional value delivered to the customer
 Functionality and the value of a feature in a product
FUNCTION POINT APPROACH FOR COST ESTIMATION (CONTD.)

• Internal Logical File (ILF): a user identifiable

group of logically related data or control
information maintained within the boundary
of the application
• External Interface File (EIF): a user
identifiable group of logically related data or
control information referenced by the
application, but maintained within the
boundary of another application.
• This means that EIF counted for an
application, must be an ILF in another
application
COMPLEXITY WEIGHTING SCHEME
FUNCTION POINT APPROACH FOR COST ESTIMATION (CONTD.)

Information domain Count Weighted factor Function point

value
No. of user inputs 5 4 20
No. of user outputs 6 9 54
No. of user enquiries 3 4 12
No. of files 2 5 10
No. of external interfaces 2 15 30
Total 37 126
 Determine the man hours to be invested in meeting these function points
 Convert the man hours into cost with wage rate
EXAMPLE

 Assume you are the project manager for the Tidal 2 software project. You have been asked to calculate the
expected cost for the project. Your company’s database indicates that developers can handle 8 function point
each person-month, and that the cost per developer at your firm is $5,000 per month.You and your team of
developers have come up with the following requirements:

Elements Count Complexity

Inputs 10 Low
Output 4 Low
Inquiries 4 High
Files 28 Medium
Interfaces 18 High
EXAMPLE (CONTD.)
Element Count Low Medium High Total
Inputs 10 10 × 2 = 20
Output 4 4×3 = 12
Inquiries 4 4×6 = 24
Files 28 28 × 8 = 224
Interfaces 18 18 × 15 = 270
TOTAL = 550

Manpower = 68.75 man-months

Project cost = $ 343750
Project duration = 13.75 months (5 developers)
 Top-down approach

PROBLEM OF UNREALISTIC ESTIMATES

 Low estimates lead to high-stakes – Problem of L1 Anchoring problem:
• Optimism bias and
overestimations of own abilities
have a direct effect on the
development of early-phase cost
estimates
• overestimate benefits and
underestimate costs
• To maximize the likelihood of
approval
Strategic division:
• dividing the project into smaller
projects with separate cost
estimates, thus making it more
difficult for decision-makers to
grasp the full extent of the costs
Problem of Sacred Crows
 Top-down approach

PROBLEM OF UNREALISTIC ESTIMATES (CONTD.)

 Failure to consider
uncertainties and
risks leads to
unrealistic estimates
 Bottom-up approach

PROBLEM OF PADDED ESTIMATES

Work content If it If I have If PM Task owner
comes multiple cuts
late? projects? down
duration
?
Work
 Too content
much being risk-averse leads to If it
unrealistic If I have
high If PM
estimates If team
comes multiple cuts member
late? projects? down delay? Team lead
duration
?
Work content If it If I have If PM If team If
comes multiple cuts member somethin
late? projects? down delay? g goes Project Manager
duration? wrong?
Project is delayed despite all these padding! Why?
BOTTOM-UP APPROACH
RANGE ESTIMATING VS. 3 - POINT ESTIMATING
3-POINT ESTIMATING - PERT (PROGRAM EVALUATION AND REVIEW
TECHNIQUE)

2
(𝑏 − 𝑎)
𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒, 𝜎 2 =
62
𝑏−𝑎
Standard deviation, 𝜎 = 6

Statistical basis for PERT formula:

https://www.deepfriedbrainproject.com/2010/07/pert-formula.html
EXAMPLE

Activity Predecesso a m b 𝒕𝒆 Variance,

r 𝜎2
A - 17 29 47
B A 6 12 24
C A 16 19 28
D B 13 16 19
E C 2 5 14
F D,E 2 5 8
𝑎 + 4𝑚 + 𝑏
𝑀𝑒𝑎𝑛, 𝑡𝑒 =
6
2
(𝑏 − 𝑎)
𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒, 𝜎 2 =
62
EXAMPLE (CONTD.)
Activity Predecesso a m b Variance,
𝒕𝒆
r 𝜎2
A - 17 29 47 30 25
B A 6 12 24 13 9
C A 16 19 28 20 4
D B 13 16 19 16 1
E C 2 5 14 6 4
F D,E 2 5 8 5 1

𝑎 + 4𝑚 + 𝑏
𝑀𝑒𝑎𝑛, 𝑡𝑒 =
6
2
(𝑏 − 𝑎)2
𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒, 𝜎 =
62
DEVELOPING PROJECT SCHEDULE – CRITICAL PATH
METHOD

 Activity – A task with a specific duration

 Parallel activity – Simultaneously executed
 Burst activity – more than one activity follows it
 Merge activity – more than one activity preceded it
 Path – Sequence of connected dependent activity
 Critical path – Longest duration path
 If any activity in the critical path is delayed, then the project will be delayed for the same amount of time
TERMINOLOGY

Early start (ES) • How soon an activity can start?

Early finish (EF) • How soon an activity can finish?

Late start (LS) • How late an activity can start?

Late finish (LF) • How late an activity can finish?

Total slack (or float) (TS) • How long an activity can be delayed without delaying the project?

• How long an activity can be delayed without delaying any immediate

Free slack (FS) successor?
ILLUSTRATIVE EXAMPLE: AUTOMATED WAREHOUSE
SYSTEM
Making a new automated warehouse system in which frozen food package orders are picked and moved to
staging areas for delivery to stores
Activity Description Predecessors Duration (work days)
A Define requirements - 10
B Assign team A 5
C Design hardware A 25
D Code software B 20
E Build & test hardware C 50
F Develop patent request C 15
G Test software D 35
H Integrate systems E,F,G 15
 ES ID EF
EXAMPLE SL Description
LS Duration LF
TS FS

Activity Predecessors Duration (work days)

A - 10 B D G

B A 5 A
C A 25
C E H
D B 20
E C 50
F C 15
F
G D 35
H E,F,G 15
 Activit Predecessors Duration (work days)
y

A - 10

B A 5

C A 25

D B 20

FORWARD AND BACKWARD PASS E

F
C

C
50

15

G D 35

H E,F,G 15
FIND CRITICAL PATH

TS= 15 FS=0 TS=15 FS=0 TS= 15 FS=15

10 B 15 15 D 35 35 G 70
15 Description 15 Description 15 Description
25 5 30 30 20 50 50 35 85
25 TS=0 FS=0
0 A 10 70
0 Description TS=0 FS=0 35 E 85
10 C 35 0 Description 85 H 100
0 10 10 35
85 0 Description
TS= 0 FS=0 10 0 Description 35 50 85
10 25 35 85 15 100
TS=35 FS=35 TS=0 FS=0
70
35 F 50
35 Description 50
70 15 85
 B D G
A
C E H
GANTT CHART
F

Early start:

A (10) C (25) E (50) H (15) Resource 1 100%

B (5) D (20) G (35) Resource 2 60%
F (15) Resource 3 15%
1 1 2 2 2 2 2 3 3 3 2 2 2 2 1 1 1 1 1 1

Resource Levelling & Smoothing

A (10) C (25) E (50) H (15) Resource 1 100%
B (5) D (20) G (35) F (15) Resource 2 75%
1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1 1 1