CHAPTER 06

1. Construction Project Charter

For this project charter example, let’s imagine a construction firm that’s going through the initiation phase
of a residential construction project, more specifically an apartment complex.

(a) Purpose

The construction project will be built as per the construction drawings, specifications and other documents
such as the construction plan and construction schedule, to complete the project within 18 months, within
budget of $15 million, to exploit housing needs in the area with a high-quality apartment complex
consisting of 50 units.

(b) Objectives

The primary objective of the project is to construct a high-quality apartment complex consisting of 50 units
within a budget of $15 million and to complete the project within 18 months. The project should also aim
to achieve a minimum profit margin of 15% for the construction firm, while remaining competitive with
other similar developments in the area. In addition, the project should meet all technical goals outlined in
the Statement of Work, including the use of sustainable materials, energy-efficient systems, and
compliance with all relevant building codes and regulations. The construction firm should establish a
project charter that clearly defines the roles and responsibilities of all stakeholders involved in the project,
including the project sponsor, project manager, and project team members, and should outline the
communication plan to ensure all parties are kept informed throughout the project lifecycle. Ultimately, the
project charter should provide a clear roadmap for the construction firm to deliver the project on time,
within budget, and to the required quality standards, while also meeting all business and technical
objectives outlined in the project charter.

(c) Overview

Managerial Approach:

¨ Comprehensive project management approach including cost control, scheduling, and risk
management
¨ Experienced project manager to oversee all aspects of the project
¨ Clear roles and responsibilities defined for all stakeholders involved

Technical Approach:

¨ Use of sustainable materials and energy-efficient systems to reduce environmental impact

and provide long-term cost savings
¨ Compliance with all relevant building codes and regulations
¨ Innovative solutions to ensure high-quality construction standards

(d) Schedules
Schedule milestones and phase-gates will be monitored and tracked closely using project management
software. Any potential delays or issues will be addressed proactively to ensure project completion within
the 18-month timeline.

Stage 1: Design Schedule

¨ Conduct initial site survey and assessment (Week 1)

¨ Develop conceptual design and obtain client approval (Weeks 2-4)
¨ Develop detailed design and obtain building permit (Weeks 5-10)

Stage 2: Procurement Schedule

¨ Develop procurement plan and obtain stakeholder approval (Week 11)

¨ Issue request for proposals/quotes (Weeks 12-13)
¨ Evaluate proposals/quotes and select vendors (Weeks 14-15)
¨ Negotiate contracts and finalize purchase orders (Weeks 16-18)

Stage 3: Construction Schedule

¨ Begin site preparation and excavation (Week 19)

¨ Complete foundation and structural work (Weeks 20-28)
¨ Install mechanical, electrical, and plumbing systems (Weeks 29-35)
¨ Complete interior finishes and exterior cladding (Weeks 36-42)
¨ Conduct final inspections and obtain occupancy permit (Weeks 43-44)

Stage 4: Commissioning Schedule

¨ Conduct commissioning tests for all systems (Weeks 45-46)

¨ Address any issues identified during testing (Weeks 47-48)
¨ Obtain final sign-off from client and stakeholders (Week 49)

(e) Resources

The construction firm is committed to delivering the apartment complex within the allocated budget of $15
million. The cost control and monitoring plans will be regularly reviewed and updated to ensure that the
project stays on track financially. The construction firm will leverage its expertise in cost management and
procurement to ensure that the project is completed within budget and to the highest quality standards.

Budgets by Task:

¨ Design: $500,000
¨ Permitting: $100,000
¨ Procurement: $4,000,000
¨ Construction: $9,000,000
¨ Commissioning: $500,000

Cost Control and Monitoring Plans:

¨ The construction firm will use a project management software to track all expenses and
ensure that they are within the allocated budget for each task.
 ¨ The project manager will review all purchase orders and invoices to ensure that they are
accurate and within budget.
¨ The construction firm will work closely with vendors and suppliers to negotiate the best
possible prices for materials and equipment.
¨ Any potential cost overruns or delays will be addressed proactively to minimize their impact
on the overall project budget.

(f) Stakeholders

The construction firm will maintain close communication with all stakeholders throughout the project
lifecycle to ensure that their needs and concerns are addressed. The firm will ensure that the
project team has the necessary skills and resources to deliver the project on time and to the required
quality standards. The firm will work closely with subcontractors and vendors to ensure that they are
meeting their contractual obligations and delivering their services on time.

Internal Stakeholders:

¨ Project Sponsor
¨ Project Manager
¨ Project Team Members (Architects, Engineers, Designers, etc.)
¨ Accounting and Finance Team
¨ Procurement Team
¨ Construction Workers

External Stakeholders:

¨ Client/Owner
¨ Local Authorities and Permitting Agencies
¨ Vendors and Suppliers
¨ Subcontractors
¨ Residents of nearby buildings

Time-Phased Plan for People:

¨ Design Phase: Architects, Designers, and Engineers

¨ Permitting Phase: Project Manager, Permitting Specialist
¨ Procurement Phase: Procurement Team, Project Manager
¨ Construction Phase: Construction Workers, Project Manager, Site Supervisor
¨ Commissioning Phase: Testing and Inspection Specialists, Project Manager

(g) Risk Management Plans

Potential Problems:

¨ Inclement weather causing delays in construction schedule

¨ Unforeseen site conditions, such as soil stability or contamination, that could impact
construction costs and schedule
¨ Shortages in materials or labor causing delays in procurement and construction
¨ Permitting or regulatory issues causing delays or additional expenses
 ¨ Economic downturn or changes in market conditions impacting the profitability of the
project

→ Mitigation Strategies:

¨ Develop a contingency plan to address potential weather-related delays, such as

scheduling additional work during periods of good weather
¨ Conduct a thorough site assessment prior to construction to identify any potential site
conditions that could impact construction costs and schedule, and include a contingency in
the budget to address any issues that may arise
¨ Maintain open communication with vendors and suppliers to ensure timely delivery of
materials and identify alternative suppliers if necessary
¨ Work closely with local authorities and permitting agencies to ensure all necessary permits
and approvals are obtained in a timely manner
¨ Monitor market conditions and adjust project plans as necessary to remain competitive and
profitable

Potential Lucky Breaks:

¨ Availability of high-quality materials at lower cost than anticipated

¨ Early completion of construction phases or tasks, allowing for accelerated project timeline
¨ Favorable market conditions resulting in higher than expected rental rates or property
values

→ Exploitation Strategies:

¨ Take advantage of lower costs for high-quality materials to improve overall project quality
or allocate savings to other project aspects
¨ Reallocate resources to other phases or tasks to accelerate project timeline and reduce
overall project costs
¨ Monitor market conditions and adjust project plans to maximize profitability based on
favorable market conditions

(h) Evaluation Methods

¨ Regular site visits by project managers and supervisors to monitor the progress of
construction activities, identify any issues or delays, and ensure compliance with project
plans and specifications.
¨ Implementation of a comprehensive project management software system to collect and
store project data, including construction schedules, budget information, material orders,
and communication logs.
¨ Conducting regular internal audits to assess the project's adherence to quality standards,
safety protocols, and regulatory requirements.
¨ Periodic evaluation of project milestones and deliverables to measure progress against the
planned schedule and identify potential areas for improvement or adjustment.
¨ Maintaining a detailed project history log that records significant events, decisions, and
changes throughout the initiation phase, serving as a reference for future evaluations and
lessons learned.
¨ Utilizing performance metrics such as cost performance index (CPI), schedule performance
index (SPI), and quality control metrics to assess the project's performance and identify any
variances from the baseline plan.
 ¨ Engaging in regular communication and feedback sessions with key stakeholders,
including clients, architects, engineers, and subcontractors, to ensure their expectations
are being met and address any concerns or issues promptly.
¨ Conducting post-construction evaluations to assess the effectiveness of the initiation phase
in terms of meeting project objectives, identifying areas of improvement, and capturing
lessons learned for future projects.
¨ Seeking input and feedback from construction team members regarding the effectiveness
of the initiation phase processes, workflows, and tools used, to continuously improve and
refine the evaluation methods for future projects.

2. Initial Project Coordination and the Project Charter

The project launch meeting is an excellent way to begin the planning process. At this meeting the team
is gathered for the first time to allow them to develop a general idea about the requirements of the project.
The intent is not to present fully developed plans and schedules but rather to present the project in
general, so that the team members can develop detailed plans and schedules for themselves, discuss
resourcing, estimate tolerances, define high-level risks and present them at subsequent meetings. After
the planning process is complete it is useful to have a postplanning review chaired by an experienced
project manager not previously involved with this project.

For example, in the New AirPod launch project meeting, the team gathered in a well-lit conference room,
brimming with excitement and anticipation. The product manager kicked off the meeting by outlining the
project objectives, emphasizing the need for a groundbreaking design and enhanced features to set the
AirPods apart from competitors. The engineering team then presented their progress, detailing the
improvements in sound quality and battery life. The marketing team followed, unveiling their carefully
crafted advertising campaign to create buzz and drive pre-orders. Throughout the meeting, the cross-
functional team collaborated to identify potential challenges and allocate responsibilities. As the meeting
concluded, everyone left with a renewed sense of purpose, committed to delivering an extraordinary
product that would captivate the market and redefine the AirPod experience.

3. Outside Clients

When the project involves an outside client, the planning process must include the complete definition of
the deliverables that will be provided. This can be accomplished efficiently by involving the design and
marketing teams early in the planning process. The intent is to prevent later surprises.

For example, in the case where a project involves an outside client, such as a new website development,
the planning process is strategically approached to avoid any unforeseen surprises. The project manager,
along with the design and marketing teams, collaborate closely with the client during the initial planning
phase to define the project's deliverables comprehensively. Regular communication and workshops are
organized to gather the client's requirements and expectations. By involving the design and marketing
teams early on, potential challenges are identified and addressed proactively, ensuring that the final
deliverables align with the client's vision and expectations. This efficient planning process fosters a strong
client-team relationship and paves the way for a successful project execution.

4. Project Charter Elements

The project charter is a high-level document that helps to define the scope of the project. They vary from
organization to organization, but they should all have the following elements:

(a) Purpose. The purpose contains a brief summary of the project’s scope and its objectives.
 (b) Objectives. The objectives should reflect how the project would satisfy requirements in the
dimensions of performance, time, cost, and customer satisfaction. Objectives should also be set
with respect to business impact and future growth potential.
(c) Overview. This section will describe the managerial and technical approaches used to complete
the project.
(d) Schedules. The master schedule will be derived from the individual schedules for resources.
Milestones will be used to indicate significant events in the project’s lifecycle.
(e) Resources. The project’s budget will document both capital expenses and operating expenses
by task. The procedures for cost monitoring and control will also be described.
(f) Stakeholders. These include anyone, inside or outside of the organization, that has an interest
in the project.
(g) Personnel. This section covers the types and quantities of human resources needed to
complete the project. It should document unique requirements related to issues such as security
clearances, skill sets, EOE, and local content issues related to hiring and ownership practices.
(h) Risk Management Plans. This section describes how uncertainty will be managed in the project.
Its intent is to identify opportunities and threats. Contingency plans are developed to respond to
important risk events should they arise during the project’s lifecycle
(i) Evaluation Methods. This section describes the monitoring and control procedures used to run
the project and to assess its success.

5. A Whole-Brain Approach to Project Planning

Typically, project managers focus on the logical and analytical, left-brain activities related to project
management. A more balanced, whole-brain approach should be used which utilizes the creative right
side of the brain. One whole-brain approach is mind mapping. It is essentially a visual approach that
closely mirrors how the human brain records and stores information. It helps to tap the creative potential
of the entire project team.

(a) Activities are sequentially broken down into greater detail

Sequentially breaking down activities into greater detail is an essential aspect of project planning and
management. It involves dividing the project into smaller, manageable tasks and sub-tasks, which makes
it easier to allocate resources, estimate timelines, and identify dependencies. For example, in the
construction of a new office building, the initial activity might be "Site Preparation," which can then be
broken down into sub-activities such as "Excavation," "Foundation Preparation," and "Demolition of
Existing Structures." Each of these sub-activities can be further detailed into specific tasks, ensuring a
clear and well-organized project plan.

(b) Team members are encouraged to use pictures and images to represent activities

Visual representation of activities using pictures and images is a powerful tool in project planning and
communication. It helps team members understand complex tasks better and promotes clearer
communication among stakeholders. For instance, in the development of a mobile app, the team can use
flowcharts or wireframes to visually depict the user journey, screen layouts, and navigation flow. This
visual approach enables the team to grasp the app's functionality and design more effectively, reducing
the chances of misunderstandings and ensuring a shared understanding of the project scope.

(c) It is a fast and effective tool to help minimize problems associated with inadequate front-end
planning
By breaking down activities into greater detail and utilizing visual representations, project teams can
efficiently address issues associated with inadequate front-end planning. Identifying potential roadblocks
and ambiguities early on helps in making necessary adjustments and improvements before the project
progresses too far. For instance, in software development, creating a storyboard or prototype during the
planning phase allows the team to gather feedback from stakeholders and end-users. This iterative
approach minimizes the risk of significant changes and rework later in the project, leading to cost and
time savings. Overall, a well-structured and visually supported planning process enables smoother project
execution and a higher likelihood of successful outcomes.

6. Project Planning in Action

Plans can be constructed by listing the sequence of activities necessary to complete the project. The nine
segments of the project are:

(a) Concept evaluation

In this stage, the project's initial concept is assessed for feasibility, viability, and alignment with the
organization's goals. For example, a company considering the development of a new electric car concept
will evaluate factors like market demand, technological feasibility, and potential profitability.

(b) Requirements identification

During this phase, project requirements are defined, capturing the specific features, functionalities, and
constraints of the desired end product or service. For instance, when developing a new website,
requirements may include responsive design, e-commerce functionality, and support for multiple
languages.

(c) Design

In the design phase, the project team creates detailed plans, blueprints, and specifications based on the
identified requirements. For example, in the construction of a building, architectural designs, engineering
plans, and interior layouts are produced during this stage.

(d) Implementation

The implementation phase involves the actual execution of the project plans. For instance, in a software
development project, this is when programmers write the code for the application based on the design
specifications.

(e) Test

During the testing phase, the project deliverables are thoroughly examined to ensure they meet the
specified requirements and are free of defects. In software development, this involves performing various
tests like unit testing, integration testing, and user acceptance testing.

(f) Integration

The integration phase focuses on combining individual components or subsystems into a cohesive whole.
In an enterprise software project, integration may involve linking different modules or systems to function
as a unified solution.
 (g) Validation

Validation ensures that the final deliverables meet the customer's expectations and requirements. In the
case of a new medical device, this stage would include verifying that the device complies with regulatory
standards and functions as intended.

(h) Customer test and evaluation

This phase involves letting the customer test and evaluate the product or service before its official
release. For example, a new mobile app might be tested by a group of beta users to provide feedback
and identify potential issues.

(i) Operations and maintenance

After the project is completed and delivered, the operations and maintenance phase focuses on ongoing
support, updates, and regular maintenance to keep the product or service functioning optimally. In the
case of a manufacturing plant, this stage involves continuous monitoring and preventive maintenance to
ensure smooth operations.

7. A Key Element of the Project Plan

(a) The WBS

The work breakdown structure (WBS) is a tool used to capture the decomposition of activities and the
assignment of personnel. The WBS is not one thing. It can take a wide variety of forms that, in turn, serve
a wide variety of purposes. The text suggests the following steps for WBS development:

¨ Break the tasks down into sufficient detail so that they can be individually planned,
budgeted, scheduled, monitored, and controlled. The tasks at the bottom of the structure
are typically called work packages. In this step, the project is decomposed into smaller
tasks or work packages to a level where they can be effectively planned, budgeted,
scheduled, monitored, and controlled. For example, in a software development project, one
of the high-level tasks might be "Software Development," which can be further broken
down into work packages like "Front-end development," "Back-end development,"
"Testing," and "Documentation."
¨ Identify the relevant supporting information needed for each work package and the people
who will work them. For each work package, the supporting information required to
complete the tasks is identified. This includes resources, materials, and dependencies.
Additionally, the individuals or teams responsible for executing each work package are
assigned. For instance, in a construction project, one work package could be "Foundation
Construction," requiring concrete, steel, and the involvement of the construction team.
¨ The work packages must be reviewed with the people involved to ensure their accuracy
and adequacy in describing the tasks to be accomplished. It is crucial to involve the
relevant personnel in reviewing the work packages to ensure accuracy and adequacy in
describing the tasks. This collaborative process helps in gaining a better understanding of
the work involved and ensures that nothing is overlooked. For example, in a marketing
campaign, the marketing team would review the work package "Social Media Advertising"
to provide input on specific platforms, content, and target audience.
¨ The WBS can be used to capture the direct costs estimated or budgeted for each task.
 ¨ The summary of the schedule information associated with each work package can be
summarized into a project master schedule.
¨ The process is iterative.

(b) Both the planned schedule and budget for each work package can be used as the baseline to
measure performance as the project is execute.

8. What are the general steps for managing each work package within a specific project?
The general steps for managing each work package in a specific project are:

(a) Decompose the work packages into the smallest work elements necessary to plan, budget,
schedule, and control the work. When sequencing project activities, logical relationships and
direct costs are often driven by the activities inside the work package.
(b) Create a work statement that includes inputs, specification references, contractual stipulations,
and expected performance results. It may prove useful to construct the Linear Responsibility
Chart (LRC) to document which resource is responsible for each activity in the work package.
(c) List contact information for vendors and subcontractors. For each work package that involves
external vendors or subcontractors, their contact information is listed to facilitate communication
and coordination. In a construction project, the contact information for the chosen architectural
firm responsible for "Structural Design" would be included.
(d) For work that is new, difficult, or important, establish detailed end-item specifications. When the
work involves new, difficult, or important tasks, detailed end-item specifications are established
to ensure the desired quality and outcomes are met. For instance, in a research and
development project, specific performance specifications are defined for a work package
"Prototype Development" to meet the project's technical goals.
(e) Establish cost centers to assign budget responsibilities and to track performance against plans.
Assign the appropriate types and quantities of resources to each work center.
(f) Establish the activity durations and logical relationships. Develop a preliminary project schedule.
(g) Review the WBS, activity lists, budget, and schedules with the resources that will perform the
work. The work breakdown structure, activity lists, budget, and schedules are reviewed with the
resources responsible for performing the work. This collaborative review ensures that the team
has a clear understanding of their tasks, timelines, and budget constraints. For instance, in a
marketing campaign project, the marketing team reviews the work packages related to "Social
Media Advertising" and "Content Creation" to provide feedback and confirm their roles.
 CHAPTER 10

1. The Planning–Monitoring–Controlling Cycle

The key elements to be monitored in projects are time (schedule), cost (budget), and scope
(performance). This process will fail, however, if the upfront planning process is inadequate. Also, the
monitoring and control process should be an integral part of the project’s and the organization’s normal
activities, not something imposed (and perceived) as an artificial add-on.

(a) Planning

In the planning stage, the project manager, along with the team, develops a comprehensive plan that
outlines the project's objectives, scope, activities, timelines, resources, and deliverables. This plan serves
as the roadmap for the project and provides a clear direction for everyone involved. During this phase,
risks are also identified, and mitigation strategies are formulated to address potential issues. The more
detailed and accurate the planning, the better the project's chances of success. The planning (budgeting
and scheduling) methods we propose “put the hassles up front.” They require a significantly greater
investment of time and energy early in the life of the project, but they significantly reduce the extent and
cost of poor performance and time/cost overruns. Note that this is no guarantee of a trouble-free project,
merely a decline in the risk of failure.

For example, consider a software development project to create a new mobile application. In the planning
stage, the project team defines the project scope, including the app's features and functionalities, target
platforms, and the expected timeline for development. They identify the required resources, such as
developers, designers, and testers, and estimate the project budget. Additionally, potential risks, such as
delays in feature development or changes in technology, are identified, and contingency plans are
formulated.

(b) Monitoring

Once the project is underway, the monitoring stage involves systematically tracking progress and
performance against the established plan. It includes collecting, recording, and reporting information
concerning any and all aspects of project performance such as measuring key performance indicators
(KPIs), and comparing actual progress with the planned milestones and timelines. Monitoring allows
project managers to identify early warning signs of potential issues or deviations from the plan, enabling
timely intervention and adjustments to keep the project on track.

(c) Controlling

The controlling stage involves taking corrective actions based on the findings from the monitoring phase.
This stage uses the data supplied by monitoring to bring actual performance into compliance with the
planWhen deviations from the plan are identified, the project manager and the team implement necessary
adjustments to bring the project back on track. This may include reallocating resources, revising timelines,
or reassessing project priorities. The goal is to maintain project alignment with the original plan and
achieve project objectives successfully.

For example, in the mobile application development project, if the team encounters delays in feature
development due to unforeseen technical challenges, the project manager may reassign developers or
extend the timeline for certain features. Contingency plans are put into action to minimize the impact on
the overall project schedule. The team ensures that the project's quality standards are maintained despite
the changes.

(d) Evaluation - Judgments regarding the quality and effectiveness of project performance

2. Designing the Monitoring System

For the monitoring system to be successful, the PM must define exactly which characteristics of time,
cost, and scope he/she believes are worth watching. In addition the range or boundaries, the data should
fall in for the project to be considered “in-control,” must be defined. The project action plan should provide
the basis for the majority of the key items to be measured. Thus, Information is collected must be
identified, do not to avoid collecting necessary data because it is hard to get and do not to collect too
much data. The next step is to design a reporting system that gets the data to the proper people in a
timely and understandable manner. However, the PM needs to guard against collecting massive amounts
of data that do not contribute to the goal of keeping the project on track. It is crucial to remember that
effective PMs are not primarily interested in how hard their project teams work. They are interested in
achieving results.

For example, in designing the monitoring system for the construction of a new office building, the project
manager defines critical aspects of time, cost, and scope to track project progress effectively. Key
milestones and deadlines are established, and a detailed budget is created to monitor expenditures. The
project manager sets acceptable ranges for time and cost variances to determine if the project is "in-
control." Information such as progress reports and financial records is collected to support decision-
making. A concise reporting system is designed to provide timely updates to stakeholders, emphasizing
key performance indicators and deviations from the plan. The project manager remains results-oriented,
focused on achieving project objectives within the defined scope, time, and budget constraints.

3. How to collect data?

For the monitoring process to be successful, the frequency, type, and amount of data to be collected must
be precisely defined. Data collected typically takes one of the following forms:

(a) Frequency counts – How often an event occurs. A simple tally of the occurrence of an event. This
type of measure is often used for “complaints,” “number of times a project report is late,” “days
without an accident,” “bugs in a computer program,” and similar items. The data are usually easy
to collect and are often reported as events per unit time or events as a percent of a standard
number. For specific example, in a customer support center, the team monitors the frequency
counts of incoming customer inquiries or complaints. They record the number of calls, emails, or
live chat messages received per day to understand the volume of customer interactions and
identify busy periods that may require additional support.
(b) Raw numbers – Amount of something, like hours spent on a task.
(c) Subjective numeric ratings – Subjective estimates often applied to quality measures. These
numbers are subjective estimates, usually of a quality, made by knowledgeable individuals or
groups. They can be reported in most of the same ways that objective raw numbers are, but care
should be taken to make sure that the numbers are not manipulated in ways only suitable for
quantitative measures. Ordinal rankings of performance are included in this category. One
particular example, in a product testing phase, quality assurance testers assign subjective
numeric ratings to different aspects of the product, such as usability, performance, and design.
 These ratings, typically on a scale from 1 to 5 or 1 to 10, provide valuable feedback on the
product's overall quality.
(d) Indicators – Indirect measures, such as transaction processing speed, being used to suggest
customer satisfaction.
(e) Verbal measures – Descriptions of characteristics like the morale of the team. Measures for such
performance characteristics as “quality of team mem- ber cooperation,” “morale of team
members,” or “quality of interaction with the client” frequently take the form of verbal
characterizations. As long as the set of characterizations is limited and the meanings of the
individual terms consistently understood by all, these data serve their purposes reasonably well.

Once the data has been collected, it may be beneficial to subject it to some statistical analysis. This will
help determine the size of data variance significant for the project. When the level of significant variation
is determined, then the PM can apply “management by exception.” In this technique, the PM only acts on
a variance when it exceeds the pre-determined significant variance level. Statistical analysis may reveal
data trends that allow the PM to act before the significant variance level has been reached. The issue of
creating an atmosphere that fosters honesty on a project is widely ignored, but it is of major importance.

4. Information needs and Reporting

The monitoring system will collect a lot of data, but the reporting system it is tied to should tailor the
reports to the level of management. Senior managers will not need as much detail as the team members,
but all must be working off the same base data. Today many electronic tools are available to aid in the
analysis and dissemination of project data.

(a) The Reporting Process

Reports are a common way of disseminating data. Reports should also express relevant information to
the manager viewing it and should be tailored according to the needs of the manager. Reports, when
timely and well-constructed have a number of benefits to the project team and other interested parties,
primarily through the consistent communication of data important to managing the project.

For example, in a marketing campaign project, for the marketing team, the report might focus on
campaign performance, individual marketing channel results, and audience engagement. For senior
management, the report might include an executive summary with high-level metrics, financial
performance, and return on investment. Tailored reports are generated regularly, providing insights on
campaign performance and key metrics. The use of visual representations enhances clarity, enabling
stakeholders to make informed decisions. Transparent communication fosters constructive feedback
sessions, ensuring the team stays aligned with project objectives for a successful marketing campaign.

(b) Report Types

Reports can be divided into three types: routine, exception, and special analysis. Routine reports are
those that come out periodically or to some other predetermined schedule. Exception reports support
instances of decision-making and are distributed to the participants in that decision. Exception reports
may be issued when a decision is made on an exception basis and it is desirable to inform other
managers as well as to document the decision. Special analysis reports are used to disseminate the
results of special studies or problem reports.

Example of 3 Types of Reports:

 ¨ Routine Report

In a manufacturing company, the production team generates routine reports on a daily basis to track
production output. The report includes details such as the number of units produced, machine downtime,
and raw material consumption. These routine reports help the team monitor production efficiency and
identify any potential issues that may affect daily operations.

¨ Exception Report

In a sales department, an exception report is generated when sales revenue falls below a certain
threshold for a specific period. The report highlights the underperforming sales regions or products,
allowing sales managers to focus on areas that require immediate attention. This exception report
facilitates quick decision-making to address sales challenges and take corrective actions.

¨ Special Analysis Report

A special analysis report is conducted in a market research project to evaluate customer satisfaction with
a newly launched product. The report includes in-depth survey results, customer feedback, and
comparative analysis with competitors. This special analysis report provides valuable insights to the
product development team, helping them refine the product and enhance customer satisfaction.

(c) Meetings

Meetings are an important tool for disseminating information and making decisions. The PM will be
responsible for many meetings and can take several steps towards improving their quality:

¨ Have a clear purpose for each meeting and make sure the participants understand the
purpose. Having a clear purpose for each meeting is essential to ensure that the gathering
is productive, focused, and achieves its intended objectives. Before conducting any
meeting, the meeting organizer should define the purpose and ensure that all participants
understand why they are attending and what is expected from them during the meeting.
Clear meeting purposes help maintain engagement, improve communication, and make
efficient use of everyone's time. For example, a project manager is conducting a team
meeting to discuss the progress of a software development project. The clear purpose of
this meeting is to review the current status of the project, address any challenges or
roadblocks faced by the team, and collectively determine the next steps to keep the project
on track. Before the meeting, the project manager communicates the meeting's objective to
all team members, specifying that they need to come prepared to share updates on their
respective tasks and provide any necessary input to resolve issues. By understanding the
purpose of the meeting, each team member can come prepared with relevant information
and contribute meaningfully to the discussion, ensuring that the meeting is productive and
serves its intended purpose.
¨ Have an agenda and start and stop the meeting on time.
¨ Ideally, both the PM and the meeting participants should be prepared for the meeting.
Publishing the agenda in advance helps.
¨ Have a designated person take minutes for the meeting. The author’s advice on who
should take minutes is contrary to many other works on the subject of good meetings. Most
PMs find it very difficult to take minutes, facilitate the meeting, and be a participant. These
 are in fact three distinct roles, and should be divided up if possible. If no one else is
available, then the PM must take minutes to ensure that there is some record about the
meeting. For example, in a marketing team meeting, the marketing manager acts as the
facilitator, and a marketing coordinator is assigned to take minutes. The marketing
manager opens the meeting by outlining the meeting's objectives and introduces the
marketing coordinator as the designated minute-taker. Throughout the meeting, the
marketing coordinator diligently records important marketing strategies discussed,
campaign ideas proposed, and decisions made regarding target audiences and
promotional channels. This division of roles allows the marketing manager to focus on
guiding the meeting's discussions and actively participating in the creative brainstorming
process without being preoccupied with minute-taking. Having a designated person take
minutes ensures that the marketing team has a detailed record of the meeting's outcomes,
making it easier to refer back to ideas, track progress, and implement the agreed-upon
marketing initiatives effectively.
¨ Minutes should be an honest and professional record of the reasoning and decisions, but
not necessarily of the discussion that took place at the meeting.
¨ Avoid overly formal procedures. People need to feel that they can freely participate in the
meeting without having to be experts in parliamentary procedures.
¨ Special and open-ended meetings may be necessary to solve serious problems.

(d) Common Reporting Problems

There are three common problems in the design of the project reporting system:

¨ The reports are too detailed for their intended purpose.

¨ Poor interface between the project’s and the parent organization’s information systems.
The project collects and reports data that the parent organization can’t use and vice versa.
¨ Poor correspondence between the planning and the monitoring systems.

5. 3 report types

(a) Routine - Reports that are issued on a regular basis or each time the project reaches a
milestone.
(b) Exception - Reports that are generated when a usual condition occurs or as an informational
vehicle when an unusual decision is made.
(c) Special Analysis - Reports that result from studies commissioned to look into unexpected
problems

6. Discuss the benefits of timely, appropriate, detailed information. How can a value be assigned
to these characteristics?

Perhaps the best way to highlight the benefits of timely, appropriate information is to contrast having it
with not having it. The PM is expected to deliver products within cost and schedule constraints. If the PM
has no information, he or she has no way of knowing whether the project is heading in the right direction.
Without information, the PM would have to wait, with fingers crossed, until the end hoping for a positive
outcome. Then he/she will no doubt be surprised and disappointed with the result. Senior management
would not be impressed with the excuse that the PM had no information and so took no action to guide
the project. Looking at the question this way suggests that timely and appropriate information is priceless
to the successful management of projects.
7. Earned Value Analysis

A valuable technique for monitoring overall project performance is earned value. The key
element of the earned value technique is the measurement of progress in addition to cost and
schedule. If progress is not measured, then data about cost and schedule is meaningless
because the PM does not know what resulted from the expenditures. A team member may have
spent considerable time on a task and achieved nothing. On the other hand the team member
may have spent very little time on the task, but completes it. By combining the results of these
analyses at the task level, a reasonably accurate estimate can be made of the overall project’s
progress against cost and schedule. There are several conventions for estimating progress at
the task level:

¨ The 50-50 Rule - Taking credit for 50% complete when the task begins and the other
50% when the task ends. This seems to be the most popular rule, probably because it
is relatively fair and doesn’t require the effort of attempting to estimate task progress.
Since it gives credit for half the task as soon as it has begun, it is excessively generous
at the beginning of tasks, but then doesn’t give credit for the other half until the task is
finally complete, so is excessively conservative toward the end of tasks, thereby
tending to balance out on an overall basis.
¨ The 0-100 percent Rule - Taking no credit for progress until the task completes. With
this highly conservative rule, the project always seems to be running late, until the very
end of the project when it appears to suddenly catch up. Consequently, the earned
value line will always lag the planned value line on the graph.
¨ Critical Impact Use Rule - Taking credit for progress based on the use of a critical input.
This works only if the process consuming the input is reliable and well defined. For
example, when building a house, the task of building the foundation could be measured
by the cubic yards (or meters) of concrete poured, the task of framing the house could
relate to the linear feet (meters) of lumber used, the roofing task could relate to the
sheets of 4 X 8 foot plywood used, and the task of installing cabinets might be
measured
¨ The proportionality Rule - Taking credit for progress based on either the percent of the
budget that has been expended or the percent of the elapsed time that has passed. It
thus divides actual task time-to-date by the scheduled time for the task [or actual task
cost-to-date by total budgeted task cost] to calculate percent complete. If desirable, this
rule can be subdivided according to the subactivities within the task. For example,
suppose progress on a task is dependent on purchasing (or building) a large,
expensive machine to do a long and difficult task, but the machine itself does not make
any substantial task progress. We could create a table or graph of the use of money (or
time, if the machine had to be built) relative to task progress which would show a large
amount of money (or time) being expended up front for the machine, but with little (or
no) progress per se being made. This would then be followed by a continuing
expenditure of a smaller stream of money (or time) to run the machine and finish the
job, perhaps in direct proportion to the progress.
All of these methods have some error, but when applied to a large project, the errors become
insignificant. For projects with a fairly large number of activities, the error caused by percent
completion rules is such a small part of the total project time/cost that the errors are
insignificant. There are a number of acronyms associated with the earned value process, the
most commonly used are:

¨ AC (actual cost) – The actual cost incurred in working on the task. Also known as
ACWP, the actual cost of work performed.
¨ PV (planned value) - This is the budgeted cost for the work scheduled on a task
up to a given point in time. Also known as BCWS, the budgeted cost of work
scheduled.
¨ EV (earned value) - This is the amount of money budgeted for the work that has
been performed to date. Also known as BCWP, the budgeted cost of work
performed.
¨ SV (schedule variance) - This is the difference between the EV and the cost of
the work we scheduled to be performed to date, or the PV. Calculated as SV =
EV – PV.
¨ TV (time variance) – The difference between the scheduled and actual times.
¨ ST (scheduled time) – The time scheduled for the work.
¨ CV – Cost variance. The difference between the earned value and the actual
cost. Calculated as CV = EV – AC.
¨ CPI (cost performance index) - The ratio of the earned value to the actual cost.
Calculated as CPI = EV/AC.
¨ SPI (Schedule Performance index) - The ratio of the earned value to the planned
value. Calculated as SPI = EV/PV.
¨ TPI (time performance index) – The ratio of scheduled time to actual time.
Calculated as ST/AT.
¨ CSI (cost-schedule index) – A combination of CPI and SPI.
¨ BAC – Budget at completion. This is the total planned budget for the project.
¨ ETC – Estimate to complete. This is the current estimate of the cost to complete
the project from a given point in time. The ETC changes based on the project
performance to date. There are several ways to calculate it, but the most
common is ETC = (BAC + EV)/CPI.
¨ EAC – Estimate at completion. This is the current estimate of what the total cost
of the project will be. Calculated as EAC = AC + ETC.
 CHAPTER 07

1. What are the advantages of top-down budgeting? Of bottom-up budgeting? What is the most
important task for top management to do in bottom-up budgeting?

Advantages of top-down budgeting include:

¨ Management can develop aggregated budgets that are reasonably accurate if they are based
on comparable projects. Top-down budgeting allows management to develop budgets quickly
and efficiently by using historical data or benchmarks from similar projects. By relying on past
project experiences, management can create reasonably accurate estimates for the overall
project without the need for detailed task-level analysis. For example, a construction company is
planning a new office building project. The management uses top-down budgeting by
referencing budgets from past office building projects of similar size and complexity. By
adjusting for inflation and any unique project characteristics, they can develop a reliable
aggregated budget for the new project.
¨ It is not necessary to know about each task in order to develop a top-down estimate. Unlike
bottom-up budgeting, which requires detailed task-level information, top-down budgeting allows
management to create estimates without knowing the specifics of each individual task. This
approach is useful in the early stages of project planning when specific details might not be
available. For example, a software development company is planning a new product launch. In
the initial stages, the exact tasks and features are not yet defined. However, the management
can use top-down budgeting to estimate the overall development and marketing costs based on
similar past product launches.
¨ A few elements may have significant error.
¨ Management has more control over budgets.

Advantages of bottom-up budgeting include:

¨ Individuals closer to the work are apt to have a more accurate idea of resource requirements
than their superiors or others not personally involved.
¨ The resource requirements needed to complete tasks within work packages will be more
accurate than when other budgeting techniques are used. Bottom-up budgeting breaks down
the project into detailed work packages, and each package is meticulously estimated. This
approach ensures that resource requirements for each task are thoroughly assessed, leading to
a more accurate overall budget. For example, in a construction project, bottom-up budgeting
involves estimating the costs of materials, labor, and equipment for each work package, such as
foundation construction or electrical installations, providing a comprehensive and precise budget
for the project.
¨ Active participation of the stakeholders will tend to increase the acceptance and support for the
budget. The act of participating in bottom-up budget preparation can help increase the
emotional investment of stakeholders for adhering to the cost baseline. For example, In a
marketing campaign, involving the marketing team in bottom-up budgeting helps them
understand the allocation of resources and budget constraints, leading to better collaboration
and alignment with the overall budget plan.
¨ Bottom-up budgeting can help train managers to understand important dimensions of project
success. For example, junior managers will learn more about how resource consumption will
affect profitability and future cash flows.
¨ Greater buy in by low level managers
 ¨ More likely to catch unusual expenses

Senior management should check to ensure that all major cost elements have been included in the
bottom-up budget.

2. In preparing a budget, what indirect costs should be considered?

An indirect cost is a cost that cannot be directly traced back to the production of an output. For accounting
purposes, two rules of thumb are often used when classifying a cost as direct or indirect. In order to fall
into the direct cost category, the cost must be physically observable (it can be seen and measured when
an output is made) and it must be economically feasible to track the cost during production of each
output. If this is not true, then the cost will usually be captured in bulk as an indirect cost and allocated
back to the units of output that were created during a fixed period of time (accounting period, for
example). Examples of indirect costs that a project manager should consider include:

¨ Sales, general, and administrative expenses (SG&A)

¨ Contract penalties
¨ Contingency allowances
¨ Waste and reduction to fair market value (defects, spoilage, and obsolescence)
¨ Turnover costs (replacement and training of personnel)

3. Describe the top-down budgeting process.

Initially, few details may exist regarding how the work should be accomplished. In such cases, senior
management sets a top-down budget by comparing the new project with similar ones done in the past.
This is the technique of developing a budget using the judgment and experience of top and middle
management. Typically an overall budget is assigned to the project to be distributed to the individual
tasks. Then the budgets can be cascaded to and validated by the lower levels of management. During
this process of cascading, the decomposition of required outputs into families of related work packages
should help to confirm the feasibility of the initial estimate. If the projects being used for comparison are
similar enough, this process can result in a fairly accurate total number. The process of distributing the
total can create a lot of conflict among the management team.

4. Describe the bottom-up budgeting process.

This is the process of developing budgets by asking the people who will perform the individual tasks for
their estimates. These individual numbers are then rolled up to a summary for presentation to
management. It’s important in this process to follow a good WBS to ensure that no tasks are overlooked.
Unfortunately, this process can lead to game playing when individuals pad their estimates in anticipation
of management cuts.

Here is an example of top-down and bottom-up budgeting in a case of contruction project. In a

construction project for building a new shopping mall, top-down budgeting is initially used by senior
management to estimate the overall cost based on past similar projects and industry benchmarks. The
top-down estimation suggests that the project's cost would be around $50 million. However, the project is
then broken down into detailed work packages, and bottom-up budgeting is employed by the construction
team to estimate costs for each task, such as foundation work, structural framework, interior finishing, and
landscaping. The bottom-up budgeting process reveals that the foundation work will cost $10 million, the
structural framework will require $20 million, interior finishing will be around $15 million, and landscaping
will be $5 million. By integrating both approaches, the project manager aligns the detailed cost estimates
with the high-level budget, making necessary adjustments to ensure the project's overall cost is accurate
and well-planned.

5. Describe the learning curves.

There is a cliché that “practice makes perfect.” In the basic learning curve, each time the number of
repetitions for a task is doubled, a predictable percentage of improvement in productivity will be observed.
If 100 hours were required to complete task “A” on the first cycle, a 90% learning curve would mean that
only 90 hours would be necessary on the second cycle. On the fourth cycle, only 81 hours would be
needed to complete that repetition of task “A.” Studies and common sense have shown that as people
repeat a task they get better at it. This idea is formalized in the concept of the learning curve, which states
that each time the output doubles the worker hours per unit decrease to a fixed percentage of their
previous value. This effect is important because the estimator must determine the impact learning had on
past projects (and their rates) and predict its impact on the one being estimated.

For example, in a manufacturing company, a new employee is hired to assemble a complex product.
During the initial stages, the employee takes a longer time to complete each assembly due to the
unfamiliarity with the process and components. As the employee gains experience and becomes more
proficient, they start to complete assemblies more quickly. Over time, the learning curve becomes evident,
and the employee's productivity increases significantly. For instance, during the first week, the employee
might take an hour to complete one assembly, but after a few weeks of practice, the time reduces to 30
minutes per assembly. The learning curve effect demonstrates how repetitive tasks, combined with
experience, lead to improved efficiency and decreased production time.

6. How might you determine if cost estimates are biased?

With respect to a cost estimate, it is not desirable to either over or underestimate costs. When a
distribution of estimates is unbiased, the over estimates and the underestimates will tend to cancel each
other out, resulting in little bias. The text provides a very good explanation of mean absolute ratio (MAR)
and mean absolute deviation (MAD). A tracking signal (TS) is used to detect if estimates are biased, and
how much relative are the estimates to the natural variation (or error), that is, the MAD.

7. What are some potential problems with the top-down and bottom-up budgeting processes?
What are some ways of dealing with these potential problems?

(a) Top-Down Budget Problems

Top-down budgets are often developed from analogies, parametric models, and/or business intuition.
Budgets based on analogies are only useful, if the new project is similar enough to the old ones. If
parametric models are used, the estimator may neglect to include important cost elements and/or the
parameters in the model may not reflect the current process. If the model is derived from business
intuition, the estimates will tend to be overly optimistic. In all cases, the use of bottom-up estimating
techniques to confirm the top-down estimate is recommended.

For example, In a technology company planning to develop a new software application, top-down
budgeting based on analogies, parametric models, and business intuition is used to estimate the project
cost. However, due to unique project requirements and outdated data in the models, the budget estimates
may not accurately reflect the actual needs. To address this, bottom-up estimating techniques are
employed, breaking down the project into detailed work packages to validate and adjust the top-down
estimate based on specific project elements. This ensures a more reliable and comprehensive budget,
enhancing the accuracy of cost projections for the software development project.

(b) Bottom-up Budget Problems

Bottom-up budgets should be developed using the WBS to organize estimates by cost center. However,
the WBS format may make it difficult to capture indirect costs in a manner that will be credible to
members of the various functions actually doing the work. Moreover, the bottom-up estimate is even more
likely than a top-down estimate to leave out some important cost elements. This could be because the
estimating process is poorly organized or because the project is different enough that the scope is
“unknown” to the estimators. Bottom-up budgets should be compared with top-down budgets as a sanity
check.

For example, in a construction project to build a new office complex, the project team uses bottom-up
budgeting based on the Work Breakdown Structure (WBS) to organize cost estimates by cost center,
such as materials, labor, and equipment. However, the WBS format may make it challenging to capture
indirect costs, such as administrative overhead and project management expenses, in a way that is
credible to different functional teams involved in the project. As a result, some indirect costs may be
overlooked or inaccurately estimated. Additionally, the bottom-up estimating process may leave out
important cost elements due to poor organization or lack of sufficient understanding of the project's scope,
especially if the project is significantly different from past projects. To ensure the budget's accuracy, the
bottom-up estimate should be compared with a top-down estimate as a sanity check, helping to identify
any significant discrepancies and ensuring a comprehensive and reliable budget for the construction
project.

8. Estimating Project Budgets

The budgeting process involves the forecasting of the level and type of resources needed to complete the
project. Many organizations will have well worn (and reasonably accurate) methods for creating the initial
project estimate based on past experience. It is important to remember, however, that because every
project is unique the estimating process always has some level of uncertainty associate with it. The PM
must understand the organization’s accounting practices to the extent that they are imposed on the
project budgeting and control process.

(d) Work Element Costing

Using the bottom-up estimates, costs can be applied to each WBS element. These are typically
calculated by taking the labor hour estimate and “dollarizing” it using appropriate labor and overhead
rates. To be accurate, the estimator needs to understand the relationship between the labor estimate and
the actual number of hours that will be charged to the project because of personal time and inefficiencies.
A similar process must be used if machine time or other resources are charged to the project.

For example, in a software development project, work element costing is applied to estimate costs for
each task in the project's Work Breakdown Structure (WBS). For example, for the task "Database
Integration," the estimated labor hours required are 100 hours. By applying appropriate labor and
overhead rates, such as $40 per hour for labor and 15% for overhead, the cost for "Database Integration"
is calculated as follows: Labor cost = 100 hours * $40 per hour = $4,000. Overhead cost = 15% of labor
cost = 0.15 * $4,000 = $600. Total cost for "Database Integration" = Labor cost + Overhead cost = $4,000
+ $600 = $4,600. Work element costing ensures accurate budgeting by considering labor and resource
costs for each specific task in the project.

(e) An Iterative Budgeting Process

Negotiation-in-Action. Typically the budgeting process requires some negotiation between the
subordinate, who develops the WBS plans for the tasks for which he is responsible, and the supervisor
who reviews these plans. This is a time-consuming process. At the same time the PM is negotiating with
the several subordinates responsible for the pieces of the PM’s WBS. It is worth emphasizing that ethics
is just as important in negotiations within an organization as in negotiations between an organization and
an outside party.

For example, in a software development project, the project manager negotiates with team members
responsible for specific tasks to develop detailed plans and align them with the overall project goals and
budget. Simultaneously, these team members negotiate with their supervisors to seek approval and
ensure that the plans are feasible and well-aligned. Throughout the negotiation process, ethical
considerations are essential to ensure transparency, fairness, and the best possible outcome for all
stakeholders involved in the project.

(f) Comments on the Budget Request Process

The bottom-up process differs from the departmental budgeting process many organizations use. The
primary difference is that the departmental process typically comes with guidelines (either formal or
informal) on how much budget change is considerably acceptable.

(g) Cost Category Budgeting vs. Project/Activity Budgeting

Organizations may budget and collect cost by functional activity. This makes it very difficult to monitor
project costs when they are distributed among a variety of different organizational units. Project budgeting
on the other hand collects project cost using the WBS. This allows the PM to monitor cost in a manner
that supports overall project objectives.

9. Improving the Process of Cost Estimation

Estimates by nature are always wrong. It’s important to build contingencies into the process or to account
for uncertainty in some other way. One way to do this is to use the PERT process of developing likely,
optimistic, and pessimistic estimates. In addition, the PM must understand whether overhead cost is part
of the estimate or not.

(a) Learning Curves – There is a cliché that “practice makes perfect.” In the basic learning curve,
each time the number of repetitions for a task is doubled, a predictable percentage of
improvement in productivity will be observed. If 100 hours were required to complete task “A” on
the first cycle, a 90% learning curve would mean that only 90 hours would be necessary on the
second cycle. On the fourth cycle, only 81 hours would be needed to complete that repetition of
task “A.” Studies and common sense have shown that as people repeat a task they get better at
it. This idea is formalized in the concept of the learning curve, which states that each time the
output doubles the worker hours per unit decrease to a fixed percentage of their previous value.
This effect is important because the estimator must determine the impact learning had on past
projects (and their rates) and predict its impact on the one being estimated.
(b) A Special Case of Learning – Technological Shock – Projects that involve new technologies or
processes are very difficult to estimate because past performance is not a useful guide. This is
true not only because the rates are not applicable, but because there is typically a lengthy
startup process before steady state performance is achieved. For example, in a technology
company, a special case of learning occurs when the company adopts a revolutionary artificial
intelligence algorithm to enhance their software products. As this technology is entirely new to
the company, past performance data is irrelevant, and there is a lengthy learning and adaptation
process before achieving steady-state performance. During the initial stages, the team invests
time in research, testing, and training to understand the technology fully. The learning curve
associated with this technological shock results in incremental improvements over time as the
team gains proficiency. As a consequence, the project's estimation becomes challenging due to
the unpredictable learning progress, potentially leading to variations in timelines and costs until
the technology stabilizes and performs at its optimal level.
(c) Other Factors – A number of other factors influence the project budget:

¨ Changes in resource costs due to factors like inflation

¨ Waste and spoilage
¨ The fact that people, as resources are not freely interchangeable with each other. The
project may require five people, but if they are not the right people, the number available is
irrelevant. For example, in a marketing project to launch a new product, the team requires
five skilled marketing specialists to execute various marketing activities such as market
research, content creation, social media management, and advertising. Initially, the project
manager assigns five available individuals from the marketing department, assuming their
interchangeability. However, it becomes apparent that two of the team members lack the
necessary experience and expertise to handle specific tasks effectively. As a result, the
project's progress slows down, and the quality of deliverables is compromised. Despite
having five team members, the project's success is hindered because not all of them
possess the right skills and expertise for their designated roles. The project manager must
adjust the team composition, recruit suitable experts, or provide additional training to
ensure that the right people with the required skills are involved in each task, ultimately
maximizing the project's chances of success.
¨ Projects cannot be put back on schedule by adding an infinite number of resources. For
intellectual projects like software development, the addition of more people may actually
slow the project down. Even for more mundane tasks like painting a building there is a limit
as to how many people can be added to the project with benefit. For example, in a software
development project to create a new mobile application, the project team faces tight
deadlines due to unexpected complexities in the development process. The project
manager decides to add more programmers to accelerate progress and meet the deadline.
However, with an excessive number of developers, communication and coordination
challenges arise, leading to inefficiencies and reduced productivity. Instead of speeding up
the project, the addition of more people slows it down, as developers struggle to
collaborate effectively and manage conflicting code changes. Similarly, in a building
painting project, the project manager attempts to hasten the completion by adding a large
number of painters. However, the limited physical space and available painting areas
hinder the team's productivity, making it challenging for everyone to work simultaneously. In
both cases, it becomes evident that projects cannot be rescued by adding an infinite
number of resources. There is a practical limit to the number of people that can contribute
productively, and managing resources optimally is crucial to maintain project efficiency and
keep it on schedule.
 (d) On Making Better Estimates – Data can be collected on the quality of project estimates by
using statistical techniques. The estimate is compared to the actual, and statistics like the Mean
Absolute Ratio (MAR) and the Tracking Signal can be calculated. These are all used to detect
bias or nonrandom error in the estimate.

10. Risk Estimation

Project aspects such as duration of activities, amount of resources to utilize, value estimation etc., are
very uncertain in a typical project. It is important to manage this ambiguity to allow the project manager to
make better decisions when the situation arises. This is done through risk estimation and analysis, a
technique that describes uncertainty in a way, that it becomes possible, although with a few reasonable
assumptions, to make project activity decisions in an insightful manner.

General Simulation Analysis – A very useful tool to evaluate projects in conceptual stage is simulation
combined with sensitivity analysis. A through estimation of the various tasks is made and the uncertainty
associated with each task is included. Simulation runs then show the likelihood of realizing various levels
of costs and benefits. Investigation of the model may also expose the major sources of uncertainty.

One specific example, in a construction project to build a new office complex, project aspects such as the
duration of activities, resource requirements, and cost estimation are highly uncertain due to various
factors like weather conditions, availability of skilled labor, and potential material supply disruptions. To
effectively manage this ambiguity and make informed decisions, the project manager conducts risk
estimation and analysis. By identifying potential risks and their probabilities, the project manager can
develop contingency plans and allocate resources strategically. For instance, the project team considers
the risk of delays due to adverse weather conditions and allocates additional buffer time in the schedule
to account for potential disruptions. Additionally, the team assesses the risk of labor shortages and
establishes backup plans to address any resource constraints. Through risk estimation and analysis, the
project manager gains valuable insights into potential challenges and uncertainties, enabling proactive
decision-making to keep the project on track and within budget.

11. What is the disadvantage of Top-down and Bottom-up?

Top-down

¨ More difficult to get buy in. In top-down budgeting, the budget is imposed from senior
management or stakeholders without much input or involvement from the teams responsible for
executing the project. This lack of participation can lead to resistance and lack of buy-in from the
project teams. When team members feel excluded from the budgeting process, they may be
less motivated and committed to achieving the project's objectives, resulting in decreased
productivity and potential challenges in project execution.
¨ Leads to low level competition for larger shares of budget. In top-down budgeting, teams may
be competing for limited resources as the budget is pre-allocated without considering the
specific needs and priorities of individual tasks or departments. This competition for a larger
share of the budget can create tensions and conflicts among teams, hindering collaboration and
cooperation. Rather than focusing on the project's overall success, teams may prioritize
securing more resources for their individual components, leading to suboptimal resource
allocation and potentially compromising the project's overall performance.
For example, in a software development project, the top management sets a fixed budget for
the project without consulting the development teams. The development teams later realize that
 the allocated budget is insufficient to cover the required resources and tools needed to deliver a
high-quality product. As a result, different teams start competing for a larger share of the budget
to meet their specific requirements, leading to internal conflicts and delays in decision-making.
The lack of buy-in and the resource competition negatively impact team morale and overall
project progress, potentially resulting in compromised product quality and missed deadlines.

Bottom-up

¨ People tend to overstate their budget requirements. In bottom-up budgeting, individual team
members or departments estimate their resource needs based on their understanding of the
project's tasks. However, there is a tendency for people to be conservative in their estimates,
resulting in budget overstatements. Team members may include buffers and contingencies in
their estimates to ensure they have enough resources to handle any uncertainties or risks.
While this cautious approach is intended to safeguard against potential challenges, it can lead
to inflated budget requirements, resulting in a budget that may not align with the actual project
needs.
¨ Management tends to cut the budget. After receiving budget estimates from various teams or
departments, senior management or project sponsors may review and revise the budget based
on their perception of cost efficiency or budget constraints. In an effort to control costs,
management may decide to cut the budget, often challenging teams to deliver the project with
limited resources. This budget reduction can hinder project execution by creating resource
constraints, affecting the project's overall quality and delivery timeline.
For example, in a construction project, the bottom-up budgeting process involves each
department submitting their resource requirements for their respective tasks. The architecture
department, concerned about potential design changes, includes a significant contingency in
their budget estimate to accommodate any modifications. Similarly, the construction team adds
buffers in their budget to handle potential delays due to weather conditions. However, when the
management reviews the budget estimates, they perceive the contingencies as excessive and
decide to cut the overall budget to align with the organization's financial targets. As a result, both
the architecture and construction teams face resource constraints, affecting the project's
timeline and potentially compromising the project's design and quality. The discrepancy between
budget estimates and management's budget cuts highlights the challenges of bottom-up
budgeting and the need for careful budget evaluation and alignment with project objectives.