STUDY NOTES FOR

PREPARING PMP EXAM

BY

TASLEEM-UZ ZAMAN

A multitalented person, proficient in Project Management, Project Control, Planning and

Evaluation, Industrial and Biological Research, Customer Services and Mentoring.

zamant.ca
 Copyright © 2015 by zamant.ca

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PMP, PMBOK Guide, and PMI are registered trademarks of Project

Management Institute (PMI), USA.
 INTRODUCTION

Study Notes for Preparing PMP Exam have been designed to assist you in your studies
and pass the PMP exam.
There was a dire need to help the people who want to pass the PMP exam in first attempt.
These Study Notes really help those who do not want to read books and also spend
money to prepare PMP exam. This Study Notes book contains skimmed description of
every topics of Project Management field based on the fifth edition of the PMBOK Guide.
While preparing these Study Notes for PMP Exam reparation, I dug out for brief and
comprehensive information on each topics from the following resources: A guide to the
Project Management Body of Knowledge (PMBOK® GUIDE), PMP® Exam Prep Eighth
Edition by Rita Mulcahy’s™, PMP® Exam Prep Revised Fifth Edition by Christopher
Scordo, Project Management Basics courses by SAIT, Internet Resources such as PM
Study Circle, and discussion with numbers of friends and arranged them according to all
knowledge areas in form of these Study Notes. Furthermore, blind learning chapter at
the end will help you to memorize the formula and ITTO. I can assure you if you study
these notes, and do the Questions from Questions Bank for Preparing PMP Exam then
there is no need to purchase costly books to prepare the PMP Exam and you will pass
this exam in first attempt.
I hope you will find these Study Notes useful for your studies.
I welcome your comments and feedback on this book. You can send me an email if you
need any assistance or clarification; I’ll always be available for you.
Thank you.

Regards,
Tasleem-uz Zaman (Master of Honors)
[email protected]
 CHAPTER 1: PROJECT FRAMEWORK

Portfolio: A group of programs, individual projects and related operational work to

achieve a specific strategic business goal.

Program: A group of inter-related project, managed in a coordinated way

Projects: A project is a temporary initiative to create a unique result, product and
services.
Here are some project example:
 A company engages in a 10-month project to develop a new tablet computer.
 A county government implements a three-year project to construct four dog parks.
 A non-profit organization engages in a six-week project to increase membership
by 10 percent.

Projects and Strategic Planning:

 Projects start as a result of:
 Market demand
 Strategic opportunity and business need
 Social need
 Environmental consideration
 Customer request
 Technological Advance
 Legal requirements

Project vs. Operation:

 Operations are an organizational function performing an ongoing execution of
activities. Examples: Production, manufacturing, and accounting operations.
 Projects help achieve the organizational goals when they are aligned with the
organization’s strategy.
 Projects require project management while operations require business process
management (BPM) or operations management.
Organizational project management (OPM): it provides strategic framework to
use and guide the portfolio, program, and project management to deliver the
organizational strategies. It is driven by organizational strategies and aligns to
organizational strategies.

Portfolio Management: The centralized management of one or more portfolios for

achieving the strategic objectives.

Program Management:
The application of knowledge, skills, tools, and techniques to a program to meet the
program requirements and to obtain benefits and control not available by managing
projects individually.

Project Management:
Project management is the administration and supervision of projects using a well-
defined set of knowledge, skills, tools, and techniques.

Subproject:
 A manageable component of a project
 May be performed by a separate organization
 Could be a project phase
 Subprojects are typically referred to as projects and managed as such
Figure 1-1 Portfolio, Program and Projects
Project Management Office (PMO): it centralizes and standardises the
management of project.
 A management structure that standardizes the project-related governance
processes and facilitates the sharing of resources, methodologies, tools and
techniques.
 Provides dedicated training, enterprise-wide project management software,
coordinates overall project quality standards.
 PMO may have the authority to act as an integral stakeholder and a key decision
maker through the life of the project

Figure 1-2. PMO Structure

The Role of Project Manager:

1. The project manager is responsible to satisfy needs: task needs, team needs and
individual needs to achieve project goals.
2. Project managers need interpersonal skills such as:
 Leadership
 Team Building
 Motivation
 Communication
 Influencing
 Decision making
 Political and culture awareness
 Negotiation
 Trust Building
 Conflict Management
 Coaching
Project Stakeholders:
Individuals and organizations who are actively involved in the project and whose interests
may be positively or negatively affected by the project success or failure
Key Stakeholders:
Project manager (Manages the project)
Customer (Uses the product or service)
Performing organization (Enterprise that does the project work)
Sponsor (Provides financial resources)
Figure 1-3. Project Stakeholders
The PMBOK Guide recognizes the four kinds of organizational
structure:
1. Functional Organization
2. Projectized Organization
3. Matrix Organization
4. Composite Organization

Functional Organization:
In functional organization structure, the organization is grouped into various departments;
e.g. sales department, marketing department and finance department. A Functional
Organization structure is a hierarchical type of organizational structure wherein people
are grouped as per their area of specialization and supervised by the functional manager
with expertise in the same field, so that their skills can be effectively utilized and the
organization’s objective can be achieved.
Here, all authority, budget allocation, and decision making power stays with the functional
manager. A project manager has no role in this type of structure. Even if he exists, his
role will be very limited and he has to ask the functional manager for his requirements.
Here, a project manager may have the title of a coordinator or an expeditor.
The Functional Organizational structure is suitable for an organization which has ongoing
operations such as manufacturing and production operations.
In functional organizations, the organization is divided into various specific departments;
e.g. human resource, marketing, finance, operations, etc. Each department will have its
own department head and he will be responsible for the performance of his section. This
helps control the quality and uniformity of performance. (Figure 1-4)
Project
Chief Coordination
Executive

Functional Functional Functional

Manager Manager Manager

Staff Staff Staff

Staff Staff Staff

Staff Staff Staff

Projectized organizations:
Projectized organization takes every job as a project. Here, the project manager has all
authority to complete the project successfully. In projectized organizations, most of the
organization’s resources are utilized in the project work. These types of organizations are
only interested in the project work which is undertaken for external clients. Here, the
project manager has full time project team members working under him. Usually, all
personnel working for a particular project are grouped together and are often co-located
for the duration of the project.
As I said earlier, in the projectized organization structure, the project manager has all
power and authority. This does not mean that the project manager has an absolute
authority to do everything he wishes.
For example, let’s say that a project is performed under a program management or a
portfolio management. And in another project under the same program or the portfolio,
some equipment are needed which are lying idle in your project. In this case, the program
manager or the portfolio manager simply allocates the equipment to the project which
requires it. A project manager may or may not agree with it, but he has to comply with it.
Organizations give project managers as much authority and power he needed to
complete the project, and accept the responsibility for the outcome of it. (Figure1-5)

Chief
Executive

Project Project Project

Manager Manager Manager

Staff Staff Staff

Staff Staff Staff

Staff Staff Staff

Matrix Organization:
Matrix organization structure is a hybrid of the functional organization structure and the
projectized organization structure. This structure takes the benefits of both worlds. In
matrix organization structure, the knowledge and skills of the talented employees could
be shared between the functional departments and the project management teams, as
needed. Here, the employee generally works under two bosses. The authority of the
functional manager flows vertically downwards and the authority of the project manager
flows sideways. Since, the authorities flow downward and sideways, this structure is
called the Matrix Organization Structure.
In matrix organization structure, usually employees have two bosses to whom they may
have to report. Which boss is more powerful depends upon the type of matrix structure.
Matrix organizational structure exists in large multi-projects organizations so that they can
move or relocate employees to any team wherever their services are needed. Matrix
structure has the flexibility of applying the organization’s talent where it is needed. Here,
employees are considered to be shared resources between the project teams and the
functional units.
Matrix organization structure can be further divided into three categories; e.g.
1. Strong Matrix
2. Balanced Matrix, and
3. Weak Matrix.
Strong Matrix:
In strong matrix, most authority and power lies with the project manager. Here, the project
manager has a full time role; he controls the project budget, and he has full time project
management administrative staff under him. Strong matrix structure has a lot of common
characteristics of the projectized organization.
Balanced Matrix:
In balanced matrix, power is shared between the functional manager and the project
manager. Although, the project manager has full time role, he has only part time project
management administrative staff under him. In a balanced matrix both managers control
the project budget.
Weak Matrix:
In a weak matrix, the project manager has a part time role with very limited power and
authority. His role will be more like a coordinator or an expediter. Weak matrix structure
is very close to the functional organization structure. In a weak matrix structure, the
functional manager controls the project budget.
Composite Organization Structure:
In Composite Organization Structure, organizations may use any combination of the
above given type of structures. Suppose your organization is a functional organization
and it needs a small building for itself. Moreover, your organization has the capability to
build this building on its own. In this case, your organization will create a separate small
project team to complete this task.

Organization Division:
1. Operational
2. Middle Management
3. Strategic

Transition Requirements:
Describes the things necessary to ensure a smooth change, which may include:
1. Training
2. Organization change
3. Rollout plan
Project Life Cycle:
The series of phases that a project passes through from its initiation to its closure.
Figure 1-6. Project Life Cycle

Remember: Phases/stages of project life cycle

ARE NOT = Project Management Process Groups

Product life cycle:

The series of phases that represent the evolution of product, from concept through
delivery, growth, maturity, and to retirement.

Figure 1-7. Product Life Cycle versus Project Life Cycle

Product Life Cycle

Start Project Life Cycle Finish

Start Project Life Cycle Finish

Figure 1- 8. Project Management Process and Project Life cycle relationship
 Figure 1-9. Typical Cost & Staffing levels across the project life cycle

Cost and staffing levels are low at the start, peak as the work is carried out, and drop
rapidly as the project draws to a close.
 Figure 1-10. Impact of Variable Based on Project Progress

Risk and uncertainty are greatest at the start of the project. These factors decrease over
the life of the project as decisions are reached and as deliverables are accepted.
Project Phases:
Phase-to-Phase Relationship Types:
a. Sequential Relationship

Figure 1-11. Example of Sequential Relationship

b. Overlapping Relationship

Figure 1-12. Example of Over-lapping Relationship

 PROJECT LIFE CYCLES:
1. Predictive Life Cycles:

Figure 1-13. Example of Predictive Life Cycle

A form of project life cycle in which the project scope, and the time and cost required to
deliver that scope, are determined as early in the life cycle as possible. These project
proceed through a series of sequential or overlapping phases, with each phase generally
focusing on a subset of project activities and project management processes. The work
performed in each phase is usually different in nature to that in the preceding and
subsequent phases, therefore, the makeup and skills required of the project team may
vary from phase to phase.
 2. Iterative and Incremental Life Cycles:

Figure 1-14. Example of Iterative and Incremental life cycle

A project life cycle where the project scope is generally determined early in the project
life cycle, but time and cost estimates are routinely modified as the project team’s
understanding of the product increases, iterations develop the product through a series
of repeated cycle, while increments successively add to the functionality of the product.
 3. Adaptive Life Cycles or Agile Method:

Figure 1-15. Example of Adaptive Life Cycle

A project life cycle, also known as change-driven or agile methods, that is intended to
facilitate change and require a high degree of ongoing stakeholder involvement. Adaptive
life cycles are also iterative and incremental, but differ in that iterations are very rapid
(usually 2-4 weeks in length) and are fixed in group techniques and quality management
and control tools.
 CHAPTER 2: PROFESSIONAL RESPONSIBILITY

Project Management Institute PMI PMP Code of Professional Conduct

You will sigh this testimony
As a PMI Project Management Professional (PMP)
“I agree to support and adhere to the responsibilities described in the PMI Code of
Professional Conduct.”

1. Responsibilities to the Profession:

 Compliance with all organizational rules and policies
 Candidate/certified professional practice
 Advancement of the profession

2. Responsibilities to the Customers and the Public:

 Qualification, experience and performance of professional services
 Conflict of interest situations and other prohibited professional conduct

3. Administration of Code of Conduct:

Ethical Values that support PMP Code of Conduct
 Responsibility
 Respect
 Fairness
 Honesty
 CHAPTER 3: PROJECT MANAGEMENT PROCESS GROUPS
Project Management Process Groups:
A logical grouping of project management inputs, tools and techniques and outputs. There
are five Project Management processes during specific project management activities
occur.
1. Initiating: The project goal is defined and the project is authorized. The output of
this process is often a project charter.
2. Planning: The project’s scope, time, cost and other details are determined. The
output of this process is a project plan.
3. Executing: Tasks are performed and resources are utilized to accomplish the
project plan.
4. Monitoring and Controlling: The project’s is tracked and corrective actions taken
when necessary to keep the project on track.
5. Closing: The project’s product, services, or end result is accepted by those who
authorized it and the project is brought to an orderly conclusion.
Figure 3-1. The project management processes relate to one another as shown in
the following figure:

Monitoring and Controlling

Planning

Closing

Initiating

Executing

As you may have noticed, the Planning and Executing processes are a continuous cycle.
As the project plan is executed, more planning is often required. You also may have
noticed that the Monitoring and Controlling Processes interfaces with and affects the other
four processes.
Table 3-1 Project Management Knowledge Areas:
There are 10 Project management knowledge areas.
Area Function
Project Integration Management Unifying and coordinating the many
different facets of the project
Project Scope Management Determining what work is needed to
complete the project successfully and
ensuring that work(and only that work) is
performed
Project Time Management Estimating how long the work will take,
planning when the work will be
performed, and making sure the work is
done according to schedule
Project Cost Management Estimating how much it will cost to
perform the work and ensuring that the
work is done within budget
Project Quality Management Ensuring that the work is done in a way
that it meets agreed-upon specifications
Project Human Resources Management Assigning and managing the people who
will do the work
Project Communication Management Making sure that the right project
information is shared with the right people
at the right time
Project Risk Management Predicting and mitigating project
problems and opportunities
Project Procurement Management Finding and buying outside resources
needed to perform the work
Project Stakeholders Management Identify, plan, manage and control
stakeholder

 Initiating: 2 processes
 Planning: 24 processes
 Execution: 8 processes
 Monitoring & Controlling: 11 processes
 Closing: 2 processes
 Table 3-2. Summary of all 47 processes

Initiating Planning Executing Monitoring & Closing

Controlling
(2) (24) (8) (11) (2)

Integration(6) 1 1 1 2 1

Scope(6) 4 2

Time(7) 6 1

Cost(4) 3 1

Quality(3) 1 1 1

HR(4) 1 3

Communication(3) 1 1 1

Risk(6) 5 1

Procurement(4) 1 1 1 1

Stakeholder(4) 1 1 1 1
 Table 3-3. Project Management Process Group and Knowledge Area Mapping:

Knowledge Project Management Process Groups

Areas Initiating Planning Executing Monitoring Closing
and
Controlling
Project Integration 1 Develop 2 Develop Project 3 Direct and 4 Monitor and 6 Close Project
Project Charter Management Plan Manage Project Control Project or Phase
Management
Work 5 Perform
Integrated Change
Control
Project Scope 1 Plan Scope 5 Validate Scope
Management 6 Control Scope
Management
2 Collect
Requirements
3 Define Scope
4 Create WBS
Project Time 1 Plan Schedule 7 Control Schedule
Management
Management
2 Define Activities
3 Sequence
Activities
4 Estimate Activities
Resources
5 Estimate Activities
Durations
6 Develop Schedule

Project Cost 1 Plan Cost 4 Control Cost

Management
Management
2 Estimate Cost
3 Determine Budget

Project Quality 1 Plan Quality 2 Perform Quality 3 Control Quality

Management Assurance
Management
Project Human 1 Plan Human 2 Acquire Project
Resources Team
Resources
Management 3 Develop Project
Management Team
4 Manage Project
Team
Project 1 Plan 2 Manage 3 Control
Communications Communications Communications
Communication
Management
Management
Project Risk 1 Plan Risk 6 Control Risk
Management
Management
2 Identify Risk
3 Perform
Qualitative Risk
Analysis
4 Perform
Quantitative Risk
Analysis
5 Plan Risk
Responses
Project 1 Plan Procurement 2 Conduct 3 Control 4 Close
Management Procurement Procurement Procurement
Procurement
Management
Project 1 Identify 2 Plan Stakeholders 3 Manage 4 Control
Stakeholders Management Stakeholders Stakeholders
Stakeholders
Engagement Engagement
Management
The Triple Constraints:
Scope, Time, and Cost are the most important knowledge areas. In fact, they are referred
to as the “Triple Constraints.” The knowledge areas are dynamically linked; any change
in one will impact the others. (Figure 3-2)

SCOPE

COST TIME
 CHAPTER 4: PROJECT INTEGRATION MANAGEMETN
Project Integration Management:
 Includes the processes and activities needed to identify, define, combine, unify, &
coordinate the various processes & project management activities within the
project management process groups.
 Includes characteristics of unification, consolidation, articulation & integrative
actions that are crucial to project successful completion
 Primarily concerned with effectively integrating the processes among the project
management process groups that are required to accomplish project objectives
within an organization’s defined procedures.

Figure 4-1. Project Integration Management Overview:

4-1 Develop Project Charter
 The project charter is the document that formally authorizes a project, and provide
the project manager with the authority to apply organizational resources to the
project activities.
 A document issued by the project initiator or sponsor that formally authorizes the
existence of a project and provides the project manager with the authority to apply
organizational resources to the project activities
 The key benefit is a well-defined project start and project boundaries, creation of
a formal record of the project & a direct way for senior management to formally
accept and commit to the project.

Inputs:
1. Project Statement of Work (SOW): A narrative description of product, services or
results to be delivered by a project or a written description of the deliverables supplied by
the project.
For internal projects, the project initiator or sponsor provides the statement of work based
on business need, product, or services requirements. For external project, the statement
of work can be received from the customer as part of a bid document (e.g., a request for
proposal, request for information, or request for bid) or as a part of contract. The SOW
references the following:
 Business Need
 Product Scope Description
 Strategic Plan
2. Business Case:
Business Case, describes the necessary information from a business standpoint to
determine whether or not the project is worth investment. It’s usually a result of one of the
following:
 Market Demand
 Legal Requirement
 Organizational Need
 Ecological Impact
 Customer Request
 Social Need
 Technological Advance
3. Agreements: contracts, Service Level Agreements (SLA), letter of agreements, letter
intents, etc.
4. Enterprise Environmental Factors: Environment:
The definition of Environment is “Relating to the natural world and the impact of human
activity on its condition”. From the definition itself it is clear that the Environment is a
condition which influences us or our behavior in a certain way.
For example, in cold weather we need to wear woolen clothes to keep ourselves safe
from the cold. Hence, cold weather is the Environment which forces us to wear woolen
clothes. This is the impact of this cold environment on us.
In the same way, Enterprise Environmental Factors influence the project’s outcome, and
organisations have to live and work within it. Enterprise Environmental Factors can be
either internal or external.
Some examples of Enterprise Environmental Factors are:
 Organizational culture
 Type of organization structure
 Internal & external political conditions
 Infrastructure
 Government regulations
 Market conditions, etc.
Figure 4-2. Environmental Factors
5. Organizational Process Assets:
The definition of Assets is “A useful or valuable thing or property owned by a person or
company, regarded as having value and available to meet debts, commitments, or
legacies.” Assets are something that we can own, keep and use for our benefits; for
example, we can have a car by which we can move around, we can have house to live
in, computers to work on, etc. These things; i.e. car, house, computers, etc. are called
Assets.
In the same manner, organisations also have Assets, which they call Organisational
Process Assets, and are stored in some central repository so that they could be used
whenever required by anyone.
For example:
 Policies
 Procedures
 Standard templates
 Stakeholder register
 Risk register
 Lesson learned
 Historical information, etc.

Figure 4-3. Organizational Assets

Tools and Techniques:
1. Expert Judgment, knowledgeable and experiences persons (groups) from many
sources including:
 Other units within the organization
 Consultants
 Different Stakeholders (including the customer)
 Professional and technical associations
 Industry groups
 Subject Matter Experts
 Project Management Office
2. Facilitation Techniques:
Brain storming, conflict resolution, problem solving, and meeting management are
examples of key techniques used by facilitators to help team and individual accomplish
project activities.

Conflict resolution techniques:

There are six conflict resolution techniques, which I am going to discuss here one
by one, and finally defend the best technique for conflict resolution.
 Withdrawing or Avoiding:
Here, the project manager simply chooses to avoid the conflict, and allows the
persons involved in the conflict to find their own solution. No action is taken by the
project manager.
 Smoothing or Accommodating:
Here, the project manager is involved in the conflict, tries to avoid areas of
disagreements, and focuses on commonalities. Smoothing is a way to avoid tough
discussions.
 Compromising:
This is a mid-way approach. Here, everybody loses and gains something. All
parties get some sort of satisfaction. It is a Lose-lose approach.
 Forcing:
Here, a decision is taken in favor of one party’s viewpoint at the expense of others.
It can demoralize the team members and may cause to increase the conflicts. It is
a win-lose approach.
  Collaborating:
This is an example of a win-win approach. Here, the project manager will work with
all parties to find a resolution that involves multiple viewpoints and negotiate for
the best solution. This technique reinforces mutual trust and commitment.
 Problem Solving or Confronting:
Here, a conflict will be treated as a problem for which the project manager has to
find a solution. The project manager will conduct an in-depth root cause analysis
of the reason for the occurrence of the conflict, encourage open discussions to
allow parties to express their areas of disagreement, and then arrives at a solution.

Outputs:
Project Charter, usually includes
 Project Purpose/Justification
 Measurable Project Objectives
 High-level requirements
 Assumptions and Constraints
 High level project description and boundaries
 High level Risks
 Summary budget & milestones
 Initial Stakeholder List
 Project Approval Requirements
 Assigned Project Manager
 Name and Authority of the sponsor
Figure 4-4. SAMPLE PROJECT CHARTER
4-2 Develop Project Management Plan
 The process of defining, preparing, coordinating and integrating all subsidiary
plans.
 The key benefit is a central document that defines the basis of all project work.
 Project Plan defines how the project will be executed, monitored and controlled,
and closed.

Inputs:
1. Project Charter
2. Outputs from other planning processes
3. Enterprise Environmental Factors
4. Organization Process Assets

Tools and Techniques:

1. Expert Judgment, knowledgeable and experiences persons (groups).
2. Facilitation Techniques
Output:
Project Management Plan:
The project management plan is the document that describes how the project will be
executed, monitored, and controlled. It integrates and consolidates all the subsidiary
plans and baselines form the planning processes. Project baselines include, but are not
limited to:
1. Scope baseline
2. Schedule baseline
3. Cost baseline
Figure 4-5. Difference between Project management plan and project documents
Scope baseline:
The scope base line is the approved version of scope statement, work break down
structure, and is associated WBS Dictionary, that can be changed only through formal
change control procedures and is used as a basis for comparison. It is a component of
the project management plan. Components of the scope base line include:
 Project scope statement: It includes the description of the project scope, major
deliverable, assumptions, and constraints.
 WBS: Hierarchical decomposition of the total scope of work to be carried out by the
project team to accomplish the project objective and created the required deliverables.
 WBS Dictionary: it is a document that provides detailed deliverable, activity, and
scheduling information about each component in the WBS. It may include, but in not
limited to:
1. Code of account identifier
2. Description of work
3. Assumptions and constraints
4. Responsible organization
5. Schedule milestone
6. Associated schedule activities
7. Resources required
8. Cost estimates
9. Quality requirements
10. Acceptance criteria
11. Technical references
12. Agreement information

Schedule baseline:
It is the approved version of a schedule model that can be changed only through formal
change control procedures and is used as a basis for comparison to actual results. It is
accepted and approved by the appropriate stakeholders as the schedule baseline with
baseline start dates and finish dates. During monitoring and controlling, the approved
baseline dates are compared to the actual start and finish dates to determine whether
variance have occurred. The schedule base line is a component of the project
management plan.
Cost baseline: The cost baseline is the approved version of the time phased project
budget, excluding any management reserves, which can only be changed through formal
change control procedure and is used as a basis for comparison to actual results. It is
developed as a summation of the approved budget for the different schedule activities.
Figure 4-6. Various components of the project budget and cost base line
4-3 Direct and Manage Project Work:
The process of performing the work defined in the project plan to achieve the project's
objectives or integrate the efforts to produce the product deliverables.
 It includes but are not limited to:
 Activities to accomplish requirements
 Create project deliverables
 Staff, train & manage project team members
 Establish and manage project communication channels
 Generate project data (e.g. cost, schedule, technical and quality progress)
 Issue change requests
 Manage risks
 Manage sellers and suppliers
 Direct and Manage Project Work also required review of the impact of all project
changes and the implementation of approved changes:
1. Correct action: to realign the performance of the project work to the project
plan
2. Preventive action: to ensure future performance to align with project plan
3. Defect repair: to modify a non-conforming deliverable

Inputs:
1. Project Management Plan
2. Approved Change Requests
3. Enterprise Environmental Factors
4. Organization Process Assets
Tools and Techniques:
1. Expert Judgment
2. Project Management Information Systems
3. Meetings

Please note: Project Management information System is a part of environmental

factors. It is an automated system to submit and track the changes and monitor and
control project activities. It provides access to tools, such as scheduling tool, a work
authorizing system, a configuration management system, an information collection and
distribution system, or interfaces to other online automated systems. Automated
gathering and reporting on key performance indicator (KPI) can be part of this system.
Output:
1. Deliverables
2. Change Requests (corrective actions, preventive actions, defect repair, updates)
3. Work Performance Data
4. Project Management Plan updates
5. Project Documents Updates (Requirements document, project logs, risk register,
stakeholder register, etc.)
Deliverables:
 Any unique and verifiable product, result, or capability to perform a service that is
required to be produced to complete a process, phase, or project
 A deliverable often marks the end of a phase of the project or a major milestone.
 Phase end = Phase exit, stage gates, or kill points

Work performance data, work performance information and reports:

Work Performance Data gives you rough information about the project’s status, which
helps you create the Work Performance Information, and then with the help of Work
Performance Information, you can build the Performance Report.

Work Performance Data:

As per the PMBOK Guide, the Work Performance Data is “the raw observations and
measurements identified during activities performed to carry out the project work; e.g.
actual cost, actual duration, and percent of work physically completed.”
You can say that the Work Performance Data is the raw data of the project’s status. In
other words, it is the current (“as of now”) status of various project parameters such as:
how much work is completed, how much time has elapsed, the cost incurred so far, etc.
Once you get this information, you can go ahead and create the Work Performance
Information.
Now let’s find the Work Performance Data in the PMBOK Guide:
 Output of the Direct and Manage Project Work
 Input to Validate Scope
 Input to Control Scope
 Input to Control Schedule
 Input to Control Cost
 Input to Control Quality
 Input to Control Communication
 Input to Control Risks
 Input to Control Procurements
 Input to Control Stakeholder Engagement
You can clearly see that the Work Performance Data is an output of the Direct and
Manage Project Work. Work Performance Data is collected throughout the execution
phase of the project, and then it is sent to various controlling processes to analyze it
further; e.g. Validate Scope, Control Scope, Control Schedule, Control Cost, etc.
Work Performance Information:
As per the PMBOK Guide, the Work Performance Information is “the performance data
collected from various controlling processes, analyzed in context and integrated based
on relationships across areas; e.g. status of deliverables, and forecasted estimates to
complete, etc.”
Here, you will analyze the Work Performance Data. You will compare the planned
performance with actual performance.
Now let’s find the Work Performance Information in the PMBOK Guide:
 Input to Monitor and Control Project Work
 Output of the Validate Scope
 Output of the Control Scope
 Output of the Control Schedule
 Output of the Control Costs
 Output of the Control Quality
 Output of the Control Communications
 Output of the Control Risks
 Output of the Control Procurements
 Output of the Control Stakeholder Engagement

You can see that the Work Performance Information is an output of various controlling
processes, and input to monitor and Control Project Work where it is used to generate
the Performance Report.
This was all about the Work Performance Data and Work Performance Information.
Before I complete this blog post, let’s revisit some key points:
 Work Performance Data is the “as of now” status of the project status, it provides
the current status of the project, and Work Performance Information is a
comparison between the actual performance with the planned performance.
 Examples of Work Performance Data are the actual cost spent, actual time
elapsed, etc. Examples of Work Performance Information are Cost Variance,
Schedule Variance, Cost Performance Index, and Schedule Performance Index,
etc.
Performance Reports:
“Performance reports organize and summarize the information gathered, and present the
results of any analysis as compared to performance measured baselines.”
In other words, the Performance Report organizes, and summarizes the information
collected during the Work Performance Information, and Work Performance
Measurement. Then it represent to stakeholders in such a way that they can understand
the direction the project is going. From the Performance Report, stakeholders can see
the project performance, and current status. If the project is not going as it was planned
then stakeholders may decide for any corrective action such as if any extra fund,
resource, or time extension should be given to complete the project.
The format and type of Performance Reports are dependent on the stakeholders’ needs
and requirements and whether they want a detailed report, or just a summary.

Performance Reports may be any type of combination of these formats:

 Burn down Chart
 S-Curve
 Bar Charts
 Histograms
 Tables
 Run Charts.
The content of the Performance Report includes, but is not limited to:
 Percentage of the work completed during the reporting period
 Balance of work to be completed
 Cost incurred during the reporting period
 Balance of funds available
 Balance of time available
 Major risks that have occurred, or passed without occurring
 Major remaining identified risks
 Results of variance analysis; e.g. schedule variance (SV), and cost variance (CV)
 Performance indexes; e.g. schedule performance index (SPI), and cost
performance index (CPI)
 Forecasted fund required to complete the balance work (if project cost is over run,
or under run)
 Forecasted time required to complete the balance work (if project is delayed, or
ahead of schedule)
 Summary of major approved change requests during the reporting period etc.
Summary:
Keep in mind that WPI is a collection of raw information of the project’s status. WPM is a
comparison of various performances like cost and schedule etc. The Performance Report
is the Report that is to be given to project stakeholders to make them aware of the current
status of the project. The Performance Report shows stakeholders how the project is
going, the forecast analysis of what they should expect if the project is allowed to keep
going in the same way, or what additional funds or resources may be required to complete
the project if there is any deviation from any baselines (e.g. cost and schedule baselines).
4-4 Monitor and Control Project Work:
 Tracking, reviewing, and reporting the progress to meet the performance
objectives.
 Corrective and preventive actions are taken to control the project performance to
resolve/prevent deviation between project results and project plan.
 Compares actual project performance against the project management plan.
 Assesses performance to decide whether any corrective or preventive actions
are needed
 Analyzes, tracks, and monitors project risk.
 Maintains an accurate and timely information on the project’s deliverables(s).
 Provides cost and schedule forecasts.
 Monitors the implementation of approved changes when and as they occur.

Inputs:
1. Project Management Plan
2. Schedule Forecasts (ETC)
3. Cost Forecasts (ETC, BAC)
4. Validated Change Requests (including corrective and/or preventive actions and
defect repair)
5. Work Performance Information (SPI, CPI, CV, SV, etc.)
6. Enterprise Environmental Factors (Government or industry standards, work
authorization system, stakeholder risk tolerances, etc.)
7. Organizational Process Assets
Tools and Techniques:
1. Analytical Techniques:
These techniques are applied in project management to forecast potential outcomes
based on possible variations of project or environmental variables and their relationships
with other variables. Examples of analytical techniques used in the projects are:
1. Regression analysis
2. Grouping analysis
3. Causal analysis
4. Root cause analysis
5. Forecasting methods (e.g., time series, scenario building, simulation, etc.)
6. Failure mode and effect analysis (FMEA)
7. Fault tree analysis (FTA)
8. Reserve analysis
9. Trend analysis
10. Earned value management
11. Variance analysis
2. Expert Judgment
3. Project Management Information Systems
4. Meetings

Outputs:
1. Change Requests
2. Work Performance Reports
3. Project Management Plan Updates
4. Project Documents Updates
4-5 Perform Integrated Change Control:
 The process of reviewing all change requests, approving changes & managing
changes to: the deliverables, organizational process assets, project documents &
the project management plan.
 Change Control Board (CCB) is responsible for approving or rejecting change
requests
 Roles and responsibilities of CCB are defined within configuration control and
change control procedure
Inputs:
1. Project Management Plan
2. Work Performance Reports
3. Change Requests
4. Enterprise Environmental Factors
5. Organizational Process Assets
Tools and Techniques:
1. Expert Judgment
2. Meetings
3. Change Control Tools
Outputs:
1. Approved/Rejected Change Requests
2. Change Log
3. Project Management Plan Updates
4. Project Documents Updates
4-6 Close Project:
 The process of finalizing al activities across all of the project management
process groups to formally close the project or phase
 Provide lessons learned, formal ending of project work and release of
organization resources to pursue new endeavors.

Inputs:
1. Project Management Plan
2. Accepted Deliverables
3. Organizational Process Assets (lessons learned, project documents, Acceptance
records, etc.)
Tools and Techniques:
1. Expert Judgment
2. Analytical Techniques
3. Meetings
Outputs:
1. Final Product, Service, or Result Transition
2. Organizational Process Assets Updates (Project files, closure documents,
historical information, etc.)
PROJECT SELCTION METHODS:
1. Benefit measurement (Comparative approach)
 Murder board (a panel of people who shoot down a new project ideas)
 Peer review
 Scoring model
 Economic model
 Present value
 Net present value
 IRR (Internal rate of return)
 Payback period
 Cost benefit analysis

2. Constrained optimization (Mathematical approach)

 Linear programming
 Integer programming
 Dynamic programming
 Multi objective programming

FOUR TYPES OF CHANGES IN PROJECT:

1. Project changes
2. Deliverable changes
3. Process changes
4. Base line changes
Project and Base line changes come under Change Management System.
Deliverable or product and Process changes come under Configuration
Management System.
Configuration Management vs Change Management:
Configuration vs Change Management If you have any experience in project
management, I’m sure that you’re aware of many kinds of changes which may happen to
projects. Some changes may affect the project baselines; e.g. scope, time and cost. Other
changes might be related to the product itself, such as its specifications.
Configuration Management System and Change Management System are used to
manage these types of changes. Although ‘Change Management’ is a very common term,
Configuration Management is not, unless you are an IT Project Manager where the term
‘Configuration Management’ is used more often.
Since non-IT project managers are not well aware of the Configuration Management
System, they confuse it with the Change Management System.
Anyway, in this blog post I’m going to explain you the Configuration Management System
and the Change Management System, and differentiate between them with a real world
scenario.

Configuration Management System:

In the Configuration Management System, changes related to product specification are
managed.
Suppose you’re working on a project and the client comes to you and asks for some
changes in the product.
You will deal this change with the Configuration Management System, because the
change is related to the configuration of the product.

Change Management System:

You can have changes in your project at any time. For example, you may run out of money
and you need to approve a new budget. You may also not able to complete your project
within a given time, and you may require a time extension.
These types of changes involving the project processes or the project baselines are
managed through the Change Management System.
The purpose of the Change Management System is to implement the approved changes
into the project with a minimum of disruption.
The Change Management System ensures that every change request is received,
analyzed and either approved or rejected. If it is approved, all other project constraints
will also be analyzed for any possible impact due to this implementation of change.
A good Change Management System ensures that all affected parameters are identified
and analyzed for any impact before the change is implemented to the system, in order to
avoid or minimize the adverse effects.
Now let’s see the Change Management System and Configuration Management System
in a real world example:
Suppose you’re managing a project to build a school building with 10 classrooms.
You’re in the middle of your project, suddenly your contractor for steel works walks off the
job, and you are struggling to find his replacement. After a lot of searching you find a
contractor for steel works, but he won’t start working on your project for one week.

This will delay your project completion date by one week.

Therefore, you will raise a change request to extend your schedule baseline by one week,
and will try to get approval for it through the Change Management System.
This was the first scenario, where you have seen the Change Management System. Now
let’s see the second scenario, which shows the example of the Configuration
Management System.
You are constructing the school building, suddenly the client requests you increase the
number of rooms from 10 to 15.
What will you do now?
He asked you to change the configuration of the school building, before it was a 10 room
building, and now it is a 15 room building.
Of course you will make a new plan, schedule, and budget.
And then you will raise the configuration change request and get it approved as soon as
possible.
These types of changes will be handled under the Configuration Management System,
because here the specification of your product is changed. Before the school building had
10 rooms and now it will have 15 rooms.
Please note that in the first scenario, you raised the change request, but the request was
to increase the deadline of the project by one week. There was no change required to the
product (the change was required only in schedule baseline); i.e. the school building was
the same, but you will handover this building to the client one week later.
The change in the project process will be handled under the Change Management,
because here the configuration of your school building is unchanged. Earlier it was a
school building with 10 classrooms, and now it is still a school building with 10 classrooms.
The difference between the Change Management System and the
Configuration Management System:
 Change Management manages the changes in project baseline or process.
 An example of Change Management system can be a change in budget, schedule,
etc.
 Configuration Management deals with changes in product specifications.
 An example of Configuration Management can be an extra feature added to the
product.

Conditions for Change Management:

 Delay in schedule: if your schedule is delayed, you will develop a new schedule
reflecting the current situation and try to get it approved.
 Cost overrun: If you run out of money, you will need to re-estimate your cost to
complete the project and get it approved.

Conditions for Configuration Management:

 Market competition forces new features to be added to the product.
 The project took so long that product is nearing to obsoletion; therefore, a few
modifications will be applied to the product to keep it current.
 The client dreamed about a new feature to be added to the product.
PROCESS FOR MAKING CHANGES:
1. Evaluate the impact
2. Identify the option
3. Get the change request approved internally
4. Get the customer buy in

DETAILED PROCESS OF CHANGE REQUEST:

1. Prevent the root cause of changes.
2. Identify changes
3. Evaluate the impact
4. Create the change request
5. Perform integrated change control
 Access the change
 Look for option
 Change is approved or rejected
 Update the status of change request in change log
 Adjust the project management plan, project document and baselines
6. Manage stakeholder’s expectation by communicating the changes to
stakeholder, affected by this changes
7. Manage the project to revise project management plan and project documents

Some of configuration management activities included in perform integrated

change control:
1. Configuration identification
2. Configuration status accounting
3. Configuration verification and audit

Special Note:
Project File: Part of the Organizational Process Asset, includes Project management
plan, Scope, Schedule, cost, Project calendar, Risk register and other registers, Change
management plan, Plan risk responses action and impact.
Archive: All the project document goes into the archives. The archive is the last thing to
create before releasing the remaining team members in clos project phase.
* Project objectives deal with both project and product objectives in the charter
must be measureable.
 CHAPTER 5: PROJECT SCOPE MANAGEMENT

Scope:
Scope refers to all the work involved in creating the deliverables of the project and the
processes used to create them.

Project scope management: It includes the processes required to ensure that the
project includes all the work required, and only the work required, to complete the project
successfully.

Product Scope vs. Project Scope:

Product scope: The futures & functions that characterize the product, service, or
result.

Project Scope: The work that needs to be accomplished to deliver a product, service,
or result with the specified features and functions.

Explanation with example:

Project Scope:
The Project Scope includes all the work needed to be done to create a product, or deliver
a service, or result. The Project Scope is all about the project, it defines the requirements
of products, the work required to create the product, and defines what is in the scope and
what not.
The Project scope is also known as scope statement or statement of the work.

Product Scope:
The Product Scope is the characteristics, features, or function of the product, service, or
result. It is the outcome of the project. The Product Scope is all about the product: how
will it look like, how will it function, etc.
Got it? If not, don’t worry. Just keep on reading…
Let me explain this to you by our trademark school building example.
The client comes and asks you to construct a school building for him. He gave you his
requirements like what would be the size of the school building, how many rooms it will
have, size of the playground, number of toilets, color of painting, when he needs it, etc.
You take the project and start working on it. You make the plan, create the schedule, and
estimate the budget. Subsequently, you move on to the execution part. You bring workers
to the site and start constructing the school building. You complete the project and verify
with client that the school building is as per his requirements. Then you hand over the
school building to the client, get the payment, and the project is closed.
In the above example, there are two parts: in the first part client asks you to make a school
building for him and gives you his requirements (characteristics). This school building is
the Product and the requirements for this product are known as Scope. Therefore, in the
first part, what he gave you is the Product Scope.
In the second part, you work to construct the school building within the given time, and
budget, meeting all the client’s requirements by following the project management plans.
Lastly, you deliver it to the client. In this part, what you have done to construct the school
building, is the Project Scope.
This was all about the Project Scope and the product scope. Now I believe that you can
go for the PMP Certification exam with no worries about having any doubt regarding the
difference between Project Scope vs Product Scope

Figure 5-1. Project Scope Management Overview

5.1 Plan Scope Management:
 The process of creating a scope management plan that documents how the
project scope will be defined, validated, and controlled.
 It provides guidance and direction on scope will be managed.
 Defines what work is required and make sure all of that work and only that work
is included in the project.
Figure 5-2. Plan Scope management: Inputs, Tools and Techniques, Outputs

Inputs:
1. Project Management Plan: it defines how the project is executed, monitored,
controlled and closed. It integrates all plan components.
2. Project Charter
3. Enterprise Environmental Factors
4. Organizational Process Assets

Tools and Techniques:

1. Expert Judgment: knowledgeable and experiences parties.
2. Meetings.

Output:
1. Scope Management Plan. It includes:
 Process for preparing a detailed project scope statement.
 Process to enable the creation of WBS
 Process to establish how the WBS will be managed
 Define formal acceptance criteria of deliverables
 How change requests will be applied to scope
2. Requirements Management Plan: describes how requirements will be analyzed,
documented, and managed. It includes, but not limited to:
 How requirements activities will be planned, tracked and reported.
 Configuration management activities.
 Requirements prioritization process.
 Product metrics
 Traceability structure

5-2 Collect requirements:

Requirements can be grouped into classifications including:
 Business requirements, describe the high-level needs of the organization as a
whole.
 Stakeholder requirements, describe needs of a stakeholder or stakeholder group.
 Solution requirements, describe features, functions and characteristics of the
product, service, or results.
 Transition requirements, describe temporary capabilities such as data conversion
& training needs.
Inputs:
1. Project Scope Management Plan
2. Requirements Management Plan
3. Stakeholder Management Plan
4. Project Charter
5. Stakeholder Register
Tools and Techniques:
1. Interviews: meeting the stakeholders to ask prepared and spontaneous question
& recording the responses.
2. Focus groups: bring together stakeholders and subject matter experts to learn
about their expectations and attitudes about a proposed product, service or
result.
3. Facilitated Workshops: Focused session with key cross-functional stakeholders
to define product requirements.
4. Group Creativity Techniques:
 Brainstorming
 Nominal Group (It enhances brainstorming with a voting process used to
rank the most useful ideas for further brainstorming or for prioritization).
 Idea/Mind Mapping (In this ideas created through individual brainstorming
sessions are consolidated into a single map to reflect commonality and
differences in understanding, and generate new ideas).
 Affinity Diagram (It allows large numbers of ideas to be classified into
groups for review and analysis).
 Multi-criteria decision analysis (A technique that utilizes a decision matrix
to provide a systematic analytical approach for establishing criteria).
5. Group Decision Making Techniques:
 Unanimity
 Majority
 Plurality
 Dictatorship
6. Questionnaire and Surveys
7. Observations
8. Prototypes (Stakeholders examine and/or interact with model early in project used
for progressive elaboration of product).
9. Benchmarking (Internal or external comparison for learning. It involves comparing
actual or planned practices).
10. Context Diagrams (It is an example of a scope model).
11. Document Analysis
Outputs:
1. Requirements Document
 Business Requirements
 Stakeholder requirements
 Solution requirements
 Project requirements
 Transition requirement
 Requirements assumptions, dependencies, and constraints.
2. Requirements Traceability Matrix (Grid that links product requirements from
their origin to the deliverables that satisfy them).

Figure 5-3. Example: Requirements Traceability Matrix

Figure 5-4. Sample Requirements Traceability Matrix

5-3 Define Scope
The process of developing a detailed description of the project and product.
Figure 5-5. Define Scope: Inputs, Tools and Techniques, and Outputs

Inputs:
1. Scope Management Plan
2. Project charter
3. Requirements Document
4. Organizational Process Assets
 Procedures & Templates
 Historical Data
 Lessons learned from old Projects
Tools and Techniques:
1. Expert Judgment
2. Product Analysis
3. Alternatives Identification
4. Facilitated workshops
Outputs:
1. Project Scope Statement: describes project’s deliverables and the work
required to create those deliverables. It is a description of project scope, major
deliverable, assumptions, and constraints.
2. Project documents updates
Figure 5-6. Elements of the Project Charter and Project Scope Statement
5-4 Create WBS
 Subdividing the project deliverables and project work into smaller and more
manageable components.
 The work breakdown structure is a deliverable-oriented hierarchical decomposition
of project work.

Figure 5-7. Sample WBS

Inputs:
1. Scope Management Plan
2. Project Scope Statement
3. Requirements Document
4. Enterprise Environmental Factors
5. Organizational Process Assets
Tools and Techniques:
1. Decomposition: The subdivision of project deliverables into smaller, more
manageable components. The work package level is the lowest level in the WBS,
and is the point at which the cost an activity durations can be reliably estimated
and managed. The level of detail for work packages will vary with the size and
complexity of the project.
2. Expert Judgment
Outputs:
1. Scope Baseline
 Project Scope Statement
 WBS
 WBS Dictionary (A description of work to be done for each work package.)
2. Project Documents updates

WBS Dictionary may include (but not limited to)

 Code of Account Identifier
 Description of work
 Assumptions and Constraints
 Schedule Milestone
 Resource required
 Cost Estimate
 Acceptance criteria
 Quality Requirements
5-5 Validate Scope
 Formalizing acceptance of the completed project deliverables.
 Includes reviewing deliverables with the client and obtaining formal acceptance of
deliverables.
 Scope verification is concerned with acceptance of deliverables while quality
control is concerned with correctness of the deliverables and meeting quality
requirements.
Inputs:
1. Project Management Plan
2. Requirements Documentation
3. Requirements Traceability Matrix
4. Validated Deliverables
5. Work Performance Data
Tools and Techniques:
1. Inspection: measuring, examining, and validating to determine whether work and
deliverables meet requirements and product acceptance criteria. Inspections may
be called reviews, audits, and walkthroughs.
2. Group Decision Making Techniques
Outputs:
1. Accepted Deliverables
2. Change Requests
3. Work Performance Information
4. Project Document Updates
5-6. Control Scope
• Monitoring the status of the project & products scope
• Managing changes to scope baseline
• Ensure all requested changes and recommended corrective or
preventive actions are processed through the “Perform Integrated
Change Control” process.
• Uncontrolled changes are often referred to as project scope creep

Inputs:
1. Project Management Plan
 Scope baseline
 Scope management plan
 Change management plan
 Configuration management plan
 Requirements management plan
2. Requirements Documentation
3. Requirements Traceability Matrix
4. Work Performance Data
5. Organizational Process Assets
Tools and Techniques:
1. Variance Analysis (Analyze performance measurements to assess the variation
from the baseline scope. Analysis should determine the cause and degree of
variance).
Outputs:
1. Work Performance Information
2. Change Requests
3. Project Management Plan Updates
4. Project Document Updates
5. Organizational Process Asset Updates
SPECIAL NOTE:
 Project scope management involves the entire work of the project, including the
product scope.
 The lowest level of WBS is a work package, which can be completed more than
one person.
 The heuristic (general rule) we use in project decomposition is 80 hours for a
medium sized project. It does not matter how experience the team members.
 Context Diagram: it shows boundaries of the product scope and its interfaces with
people, process or system.
 WBS is used in many different processes but is not integral to the perform quality
assurance.
 WBS Dictionary contains agreement information, code of account identifier and list
of schedule milestones. It does not contain resource assigned.
 A hidden requirement is the one that the user or the customer fails to communicate
or take for granted. Hidden requirements can be identified by a "participant
observer" who actually performs a process or procedure to experience how it is
done.
 Facilitated workshops bring key cross-functional stakeholders together to define
product requirements. Because of their interactive nature, well-facilitated sessions
lead to increased stakeholder consensus. This ensures that issues can be
discovered and resolved more quickly than in other forums.
 Benchmarking is a method of identifying requirements by comparing the
performance of the organization to that of its competition. Interview are most
effective with one, or a small group of stakeholders. Focus groups are most
effective with a group of 6 to 12 stakeholders. For large number of stakeholders’
survey or questionnaire are used.
 In multi-criteria decision analysis requirements are ranked based on factors such
as expected risk level, time, cost, and benefit estimates.
 Requirement are defined in measureable terms.
 Affinity Diagram: Requirement can be sorted into different categories.
 The Delphi Technique is one way to achieve unanimity.
 WBS Dictionary provides the most help in controlling gold plating.
 4/40 and 80/20 rule: 4/40 rule is used for creating WBS for a smaller project,
breaking down of work package of 4 hours and maximum of 40 hour. 80/20 rule is
used for understanding the quality issues. (80 percent of problems are due to 20
percent of root causes).
 User story: may be developed in facilitated work shop as a part of the requirement
gathering method-to document the function and features required by the
stakeholder.
 Product Validation and Scope Validation: Product Validation: occurs during closing
and is focused on make sure all the work is completed satisfactory. Scope
validation: occurs in Validate Scope Process focus on customer acceptance of
deliverable.
 CHAPTER 6: PROJECT TIME MANAGEMENT
Project Time Management:
 Includes the processes required to accomplish timely completion of the project;
involved 7 processes used to in developing time schedule
 The schedule can have any format
Once project schedule has been reviewed and approved, it is “base lined” and
this original schedule is called the schedule baseline.

Figure 6-1. Project Time Management Overview

6-1 Plan Schedule Management:
Inputs:
1. Project Management Plan
2. Project Charter
3. Enterprise Environmental Factors
4. Organization Process Assets
Tools and Techniques:
1. Expert Judgment
2. Analytical Techniques
3. Meetings
Output:
1. Schedule Management Plan, includes but not limited to:
 Project Schedule Model Development
 Level of accuracy
 Rules of Performance Management
 Reporting Formats
 Process Description

6-2 Define Activities:

 Identify the specific actions to be performed to produce the project deliverables
 Activities provide a basis for estimating, scheduling, executing and monitoring
and controlling the project work.
Inputs
1. Schedule Management Plan
2. Scope baselines
3. Enterprise Environmental Factors
4. Organizational Process Assets
Tools and Techniques:
1. Decomposition
2. Rolling Wave Planning
Rolling wave planning is an iterative planning technique in which the work to be
accomplished in the near term is planned in detail, while the work in the future is planned
at a higher level. It is a form of progressive elaboration. Therefore, work can exist at
various levels of detail depending on where it is the project life cycle.
3. Expert Judgment
Outputs:
1. Activity List: A list of all the activities that will be performed on the project and a
description of each activity
2. Activity Attributes: Multiple attributes associated with each schedule activity that
can be included within the activity list. Activity attributes include activity codes,
predecessor activities, successor activities, logical relationship, leads and lags,
resource requirement, imposed dated, constraints, and assumptions.
Figure 6-2. Example of Activity Attributes

1.1 Design workshop 3 days May 1 May 3 Roger 0%

1.2 Review and revise 2 days May 4 May 5 Client 0%

workshop design
1.3 Submit workshop 2 days May 8 May 9 Betty 0%
design for municipality
approval

3. Milestone List: A milestone is a significant point or event in project.

Figure 6-3. Example of Milestone list

1.0 Project Charter Approval (M) Jan. 30

2.0 Preliminary Design & Estimate Review (O) Mar. 15

3.0 Final Design & Estimate Approval (M) Apr. 30

6.3 Sequence Activities:
 The process of identifying and documenting relationships among the project
activities.
 Lead/Lag time between activities should be considered to support a realistic
schedule.
 Can be performed by a software or manually.
Inputs:
1. Schedule Management Plan
2. Activity List
3. Activity Attributes
4. Milestone List
5. Project Scope Statement
6. Enterprise Environmental Factors
7. Organizational Process Assets
Tools and Techniques:
1. Precedence Diagramming:
The most common method of arranging the project activities visually. Activities are put
in boxes, called nodes, and connected with arrows (Activity on Node).
Figure 6-4. Example of Precedence Diagramming
PDM includes four types of dependencies or logical relationships.
1. Finish-to-Start: (most commonly used)
Predecessor activity (A) must finish before successor activity (B) can start
Figure 6-5. Example of Finish to Start relationship

2. Finish-to-Finish:
Predecessor activity (C) must finish before successor activity (D) can finish
Figure 6-6. Example of Finish to Finish relationship

3. Start-to-Start:
Predecessor activity (E) must start before the successor activity (F) can start
Figure 6-7. Example of Finish to Finish relationship

4. Start-to-Finish: (rarely used)

Predecessor activity (G) must start before successor activity (H) can finish
Figure 6-8. Example of Finish to Finish relationship
Figure 6-9. Task Dependencies in a glance
2. Dependency Determination:
1. Mandatory Dependencies
Activity must be performed in predefined sequence. “Contractually required or
inherent in the nature of the work”
Example: Framing before installing electrical
2. Discretionary Dependencies
Desired sequencing of activities, which can be altered if required. Typically, best
practice or organizational approach to work
Example: Install flooring after painting complete
3. External Dependencies
“Relationship between project activities and non-project activities”. Project activity
depends on action by resource outside the project team. Greatest risk to project
schedule due to “lack of direct control”
Example: Government must complete environmental hearings before site
preparation can begin
4. Internal Dependencies
Precedence relationship among activities. Project activity depends on action by
project team.
Example: Team must install tile before grouting
3. Applying Leads and Lags:
 Can add lead or lag to modify logical relationship between activities (accelerate
or delay)
 Remember leads and lags are less “visible” influences on network logic
Lag:
“Amount of time whereby a successor activity is required to be delayed with respect to a
predecessor activity” Example: Three day curing period for special epoxy glue
Figure 6-10. Example of Lag

Activity A 3 days

Activity B
Lead:
“Amount of time whereby a successor activity can be advanced with respect to a
predecessor activity”
Example: Begin developing prototype one day before design complete
Figure 6-11. Example of Lead

Activity A

Activity B

Outputs:
1. Project Schedule Network Diagrams
Graphical representation of the logical relationships among the Project
Schedule Activities.
Figure 6-12. Project Schedule Network Diagrams

2. Project Document Updates

6-4 Estimate Activity Resources:
Estimate the type and quantities of material, human resources, equipment, or supplied
required to perform each activity.
A resource is an individual or equipment or material used to complete an activity.
They are three types:
1. Labor
A) Direct (Productive) Direct Labors (e.g. Labor)
B) IN Direct (Non Productive) IN Direct Labor (e.g. support staff)
2. Equipment
3. Material
Inputs:
1. Schedule Management Plan
2. Activity List
3. Activity Attributes
4. Resource Calendars
5. Risk Register
6. Activity Cost Estimates
7. Enterprise Environmental Factors
8. Organizational Process Assets
Tools and Techniques:
1. Expert Judgment
2. Alternatives Analysis
3. Published Estimating Data
4. Bottom-up Estimation
5. Project Management Software
Outputs:
1. Activity Resource Requirements
2. Resource Breakdown Structure
3. Project Document Updates
6-5 Estimate Activity Duration:
The process of approximating the number of work periods needed to complete
individual activities with estimated resources.

Inputs:
1. Schedule Management Plan
2. Activity List.
3. Activity Attributes
4. Activity Resource Requirements
5. Resource Calendar
6. Scope Statement
7. Risk Register
8. Resource Breakdown Structure
9. Enterprise Environmental Factors
10. Organization Process Assets
Tools and Techniques:
1. Expert Judgment
2. Analogous Estimating (Top-down) - Use actual values of a similar project
3. Parametric Estimating
4. Three-point Estimating
5. Group Decision making techniques
6. Reserve Analysis:
Analytical technique to establish reserve for:
 Schedule
 Budget
 Risks
Can be derived based on percentage, stipulated number of work periods, or
other formula. Contingency should be visible in schedule and budget
Outputs:
1. Activity Duration Estimates: Quantitative estimates of the likely duration of each
activity as well as the range of possible results (10 ± 2 day)
2. Project Document Updates
Techniques to estimates activity duration:
There are three basic techniques most widely used by the project professionals worldwide
to estimate activity duration and build the schedule. Those techniques are as follows:
1. Analogous Estimating
2. Parametric Estimating
3. Three Point Estimates
Analogous Estimating:
The Analogous Estimates process uses analogies from the earlier similar projects. For
example, let’s say you have to estimate the duration of a school building project with the
help of the analogous estimating. In this case, you will look into your organizational
process assets (OPA) for any earlier school building project completed by your
organization and pick the best project, which looks similar to your project.
Once you find the old similar project, you will compare it with your project and use your
expert judgment to find the approximate time duration for your current project.
With the analogous method of estimating, you can estimate the duration of a project very
quickly. This process is not very accurate; however, it is very useful when there is very
little information available for the project and you have to estimate the duration as quickly
as possible.
The accuracy of analogous estimation depends on the degree of similarities between your
project and the project you are comparing it with.

Parametric Estimating:
The Parametric Estimation is somewhat similar to the analogous estimation because it
also uses the past records to compute the duration estimate. However, this approach is
different from the analogous estimation.
The parametric estimation uses historical data and other parameters to calculate the
estimate. For example, if constructing a ten foot wall took one day, then how long will it
take to build a hundred foot of wall? —You will multiply the time taken to build ten foot of
wall in the old project by ten.
Or, if one room is painted in three days in an earlier project, how much time it will take to
paint twenty rooms in this project? —You will multiply the time taken to paint one room in
the old project by twenty to get the required number of days for your project.
The accuracy of the duration estimate obtained from this technique is better than that
from the analogous estimation.
Three Points Estimates:
Under the three-point estimates techniques, the PERT (Program Evolution and Review
Technique) is the most widely used statistical tool to determine the time duration of an
activity.
The PERT is a weighted average technique to determine the approximate duration of an
activity. It uses three time estimates to determine an approximate average duration of an
activity.
Three time estimates are as follows:
 Most Likely (Tm): This is the time taken by an activity to finish it in most cases
 Optimistic (To): This is the time taken by an activity to finish it in the most favorable
case
 Pessimistic (Tp): This is the time taken by an activity to finish it in the worst case
scenario
Once you get these three estimates, you can calculate the PEART Time Estimate by
using the below given formula:
Te = (To + 4Tm + Tp)/6
The duration estimate obtained by this method is more accurate than the rest. Using three
points estimate reduces the chances of risks, bias judgment, and uncertainty.

Key Points:
Analogous Technique:
 It is the fastest technique to calculate the estimate; however, less accurate
 It can be used when limited information about the project is available
 It is also known as Top-Down Estimating
Parametric Technique:
 It uses statistical relationships between historical data and variables
 It is more accurate than the analogous technique
Three Points Estimates Technique:
 It uses three estimates (most likely, optimistic, and pessimistic) to calculate the
average value of activity duration
 It reduces the bias, risks and uncertainties from the duration calculation
 It is more accurate than the rest
Concepts of activity time to consider:
Effort = Person-hours or person-days
3 people x 16 man-hours = 48 man-hours
Duration = Work periods or work units
Work period = 1 man-day (8 hours per day)
48 man-hours ÷ 8 hours (1 man-day) = 6 man-days
6 man-days ÷ 3 people per day = 2 workdays
Elapsed time = Actual calendar time
Start Friday – 1st Day
Saturday – Weekend – Not workday
Sunday – Weekend – Not workday
Finish Monday – 2nd Day
= 4 elapsed days
6-6 Develop Schedule:
 The process of analyzing activity sequence, durations, resource requirements, &
schedule constraints to create a project schedule.
 Developing an acceptable schedule is often an iterative process.

Inputs
1. Schedule Management Plan
2. Activity List
3. Activity Attributes
4. Project Schedule Network Diagrams
5. Activity Resource Requirements
6. Resource Calendars
7. Activity Duration Estimates
8. Project Scope Statement
9. Risk Register
10. Project Staff Assignment
11. Resource Breakdown Structure
12. Enterprise Environmental Factors
13. Organizational Process Assets
Tools and Techniques:
1. Schedule Network Analysis
 Generates project schedules (Calculates early start, early finish, late start,
and late finish)
 Allows path convergence or divergence to be identified and analyzed for
schedule compression

Figure 6-13. Project Schedule Network Diagrams

Diverging Activities Converging Activities

Single predecessor with Multiple predecessors with
multiple successors single successor

Paint Ceiling

Prep Paint Walls

Paint Walls Clean-up
(2nd coat)

Paint Trim

2. Critical Path Method: Critical Path Method is a technique and it is utilized to

calculate project schedules.
Using schedule network, it calculates:
Forward Pass: Early start and early finish dates
Backward Pass: Late start and late finish dates
Schedule Flexibility: Total “float”
Activity Flexibility: Free “float”
Critical Path: The longest path in the project with zero float is called Critical
Path. It is series of activities that determines a project completion date. Or
Network path with longest total duration
Critical Activities: The largest activity with less float or no float between two
activities is called Critical Activity. Or On a critical path (typically zero total
float along this path)
OEA: (Open End Activity)

Activity A Activity B Activity C Activity D

No Predecessor No successor

CIRCULAR RELATIONSHIP: (Loops)

 Loops indicate circular logic in an activity path.

 The schedule will not be calculated until the loop is eliminated. To eliminate a loop:

Activity A Activity B Activity C

DUMMY ACTIVITY:
We use dummy Activity to know duration from first to last activity
5 Days 6 Days 7 Days
Activity A Activity B Activity C

DUMMY ACTIVITY
SCHEDULING CONCEPTS:
 FORWARD PASS
 BACKWARD PASS
 FLOAT

FORWARD PASS:
 The forward pass calculates Early Start (ES) and Early Finish (EF) dates for
activities

 Early Start = The earliest an activity can start given the logic and constraints of
the path

 Early Finish = The earliest an activity can finish given the logic and constraints of
the path

 The calculation begins with the activities without predecessors.

Early Start (ES) + Duration = Early Finish (EF)

Activity Node Layout

ES Duration EF

Activity A

0 5 5

Activity A

ES= 0 Duration= 5 EF= ES + Duration = 5

BACKWARD PASS:
 The backward pass calculates Late Start (LS) and Late Finish dates for activities

 Late Start = The latest an activity can start given the logic and constraints without
delaying the project

 Late Finish = The latest an activity can finish given the logic and constraints
without delaying the project

 The calculation begins with the activities without successors.

Late Finish (LF) – Duration = Late Start (LS)

Activity Node Layout

ES Duration EF

Activity A

LS LF

ES Duration EF

Activity B

LS LF

ES Duration EF
Activity C

LS LF
0 5 5

Activity A

0 5

5 10 15

Activity B

5 15

15 20 35

Activity C

15 35
FLOAT:
Float or slack is the amount of time that a task in a project network can be delayed without
causing a delay to:
Subsequent task (Free Float)
Project completion date (Total Float)

TOTAL FLOAT:
 The amount of time an activity can slip from its early Start without delaying the project.

 Activities with zero Total Float are critical.

 Total Float = Late Finish (LF) – Early Finish (EF) or (LS - ES)
An activity’s Total Float is automatically calculated each time you schedule the project. You
cannot edit an activity’s float values directly.

0 5 5
Activity A

0 0 5

5 10 15
Critical Activity B
Path 5 0 15
From A to C
Due to zero float
15 20 35

Activity C

15 0 35
FREE FLOAT:
 The time by which an activity can be delayed without delaying the early start of its
successor activity.

 Free float can only occur when two or more activities share a common successor.

 Free Float = ES of Next activity – EF

Figure 6-14. Total Float vs. Free Float

Figure 6-15. Example of Calculating Forward pass and Backward pass
POSITIVE FLOAT:
Predecessor Successor

Finish of Schedule is before the Must Finish Date of Project

ZERO FLOATS (Critical):

Predecessor

Successor

Zero Total Float

NEGATIVE FLOAT (Extremely Critical)

Predecessor Successor

Finish of Schedule is after the Must Finish Date of Project

  Critical Chain Method
What are the Critical Chain, and the Critical Chain Method (CCM)?
Figure 6-16. Example of Critical Chain Method

The critical chain can be defined as “the longest path in the network diagram considering
activity interdependence and resource constraints.”
The critical path can be assumed as a particular case of the critical chain when the project
has access to unlimited resources that will never run out.
In other words, you can say that the critical chain method is a modified form of the critical
path method. Here, availability of resources is considered while creating the project
schedule.
In critical chain project management, instead of float, buffers are used. These buffers are
designed in such a way that they completely eliminate the concept of float or slack.
Three types of buffers are used in critical chain management. These buffers are as
follows:

Project Buffer:

This buffer is placed between the last task and the project completion date as a non-
activity buffer, and this buffer acts as a contingency for the critical chain activities. Any
delay on the critical chain will eat this buffer, but the project completion date will remain
unchanged. Also, if there is any gain from the early finish of any activity, this gain will be
added to this buffer as well.
Usually the duration of this buffer is 50% of the contingency that you have removed from
each task estimate. This helps you move uncertainty from each task to the project buffer.
Please note that, although the critical chain starts from the beginning, it ends before the
start of the project buffer. It does not end at the end of the project.
This duration will include any time duration borrowed from the project buffer or exclude
the duration added to the buffer.

Feeding Buffers:
These buffers are added to the non-critical chain so that any delay on the non-critical
chain does not affect the critical chain. They are inserted between the last task on a non-
critical chain and the critical chain.
Feeding buffers are also calculated the same way as the project buffer. The duration of
these buffers is based on some fraction of the safety removed from the tasks on non-
critical chains.
Resource Buffer:
These buffers are kept alongside the critical chain to make sure that they are available
when they are required. This buffer can be a human resource or any equipment.
Please note that, since the critical chain considers the resource constraints as well, it may
be longer than the critical path schedule. However, this might be compensated by
removing the contingencies from the activities.
 Figure 6-16. Example of Buffers

Resources used in critical chain are known as critical resources.

Difference between Buffer and Float (or Slack)

The following are a few differences between the float and buffer:

◾Float or slack is a critical path phenomenon, and buffer belongs to critical chain.

◾Float is the difference between the duration of the critical path and non-critical path. On
a critical path, float is zero.

◾Buffer is based on contingencies. For example, the project buffer is about 50% of the
safety time that you have removed from the activity estimate duration. As per the definition
of buffer, it is not zero on a critical chain or any other chain.

◾Float is the same for all activities on a non-critical path, any activity can consume it
partially or fully, and balance can be utilized by other activities. There is no further
analysis.

◾Buffer can also be borrowed by any activity if the activity is delayed. The project
manager analyzes the remaining buffer to find the status of the project.

◾Buffer can be divided into three categories: project buffer, feeding buffer and resource
buffer. Float can be either total float or free float.
How to Create the Critical Chain Network Diagram

Three steps are required to create a critical chain from the critical path. These steps
are as follows:
1. Remove all contingencies from activities, regardless of whether you have added the
calculated contingencies or any percentage of it. If you’ve used the PERT (Program
Evaluation and Review Technique) estimate to build the schedule, replace your estimate
with optimistic estimate.
2. Align the activities with late finish dates and remove resource constraints. Give priority
to critical chain activities while assigning resources.
3. Add feeding buffers to non-critical chains so that their durations become equal to the
critical chain. Add project buffer to end of the critical chain, but before the project end
date. The project buffer should be approximately half the contingency you removed from
the activities. This helps improve the efficiency, and reduces the schedule duration.
Now, let’s see a real world example.
Suppose you get a project to construct a building. You build the schedule based on the
critical path method, and start working on it.
However, during the execution of this project, you happen to know that:

◾There is a shortage of cement, or

◾Some of the equipment needed by you is assigned to some other projects, or

◾One of your key team members is pulled out for some other important tasks by
management.
What will happen now?
Of course this will cause a delay in your project.
So, where was the problem?
Did the critical path not identify the resources required by your project?
No, the critical path had identified the resources for your activities.
So, where was the problem?
What did it go wrong?
The problem was with the resource allocation. Although the critical path had identified the
resources, it did not account for the limited availability of resources into the schedule. The
project schedule was developed optimistically, assuming that all resources would be
available whenever they were needed. Unfortunately this could not happen in this case,
putting the project in trouble.
Therefore, to solve these issues, you made some modifications to the critical path,
considering limited resource availability. Now this critical path has been converted to the
critical chain, and it is more realistic.
And now you can complete your project with more confidence.
Before this blog post ends, let’s revisit some key features of critical chain management:

◾It is a deterministic model

◾It avoids mismanagement of slack or float

◾It optimizes the utilization of resources

◾The project based on the critical chain method completes 10% to 30% faster than that
based on the critical path method

◾It is a more practical approach

◾It encourages team members to perform efficiently, and

◾It improves the productivity

There is no doubt that the critical chain method is one of the most important developments
in project management made recently. This method answers many shortcomings of the
critical path method, provides a realistic schedule, encourages team members to perform
efficiently, and improves productivity.
4. Resource Optimization Techniques (Finding the ways to adjust the use of
resources).
 Resource Leveling: Schedule network analysis where scheduling decisions
driven by resource constraints, resulting in a more stable level of resources
and a longer project duration.
Addresses:
 Staff availability limitations
 Leveling of resource usage over time
 Over-allocated and under-allocated resources
 Watch for changes in critical path!
 Figure 6-17. Example of Resource Levelling

 Resource Smoothing: Modified form of resource levelling, where resource are

levelled only with in the limit of float of their activities, so the completion dates
of activities are not delayed.
5. Modeling Techniques
 What-if scenario analysis:
 “What if this happens?”
 Evaluate scenarios to predict the effect each scenario has on project
objectives
 Simulation:
 “Project simulations use computer models and estimates of risks
 Usually expressed as a probability distribution of possible costs or
durations at a detailed work level”
6. Lag and Lead
LAG (A mandatory wait in days between two activities is called LAG)

ACTIVITY A 2 DAY WAIT ACTIVITY B (It is positive)

5 DAYS 3 DAYS

LEAD (Negative lag is called Lead)

Activity A

1 2 3 4 5
Day Day Day Day Day

Two Days early start (It is -2 Lag)

1 2 3 4 5
Day Day Day Day Day

Activity B
 7. Schedule Compression: Techniques used to shorten the schedule duration
without reducing the project scope
 Crashing: Seek to shorten schedule duration for least incremental cost by
adding resources. (Risk and/or costs may rise)

Figure 6-18. Example of Crashing

Crashing

Jan 5 Jan 25

Activity A

Jan 14
Activity A

Figure 6-19. Example of Crashing

Normal Crash Crash
Formula: Crash Cost/Period Activity
Time Time Normal
(days) (days) Cost ($)
Crash Cost / Day
Cost ($) ($)
(Crash Cost – Normal Cost) A
B
12
8
9
7
30,000
9,600
33,750
10,150
1,250
550

(Normal Time – Crash Time) C

D
5
17
3
14
4,000
55,250
4,275
57,050
138
600
E 15 13 9,000 12,350 1,675
F 6 5 12,000 14,500 2,500
G 20 14 29,000 48,300 3,217
H 18 15 48,780 51,000 740
Total: 101 80 197,630 231,375
Crash All: 33,745
 Figure 6-20. Example of Crashing Solution
Normal Crash Number
Time Time Normal Crash Crash of Days Order for
(total (total Cost Cost Cost / to Crash Crashing
Activity days) days) (total $) (total $) Day ($) Activity Activities
A 12 9 30,000 33,750 1,250 3 3
B 8 7 9,600 10,150 550 1 1
C 5 3 4,000 4,275 138 0 -- * Will not shorten total project duration
D 17 14 55,250 57,050 600 0 -- * Will not shorten total project duration
E 15 13 9,000 12,350 1,675 2 4
F 6 5 12,000 14,500 2,500 1 5
G 20 14 29,000 48,300 3,217 6 6
H 18 15 48,780 51,000 740 3 2
Total: 101 80 197,630 231,375
Extra Cost to Crash All Activities: 33,745

 Critical path before crashing: 86 days

 Critical path after crashing as indicated above: 70 days (including 7-day lag)
 Fast tracking: Project stages or activities carried out in parallel, for part of
their duration, rather than “finish to start”
 Can cause rework
 Can the stage or activities be completed in parallel?
Figure 6-21. Example of Fast tracking
Fast tracking

Jan 5 Feb 8
Activity A
Feb 9 Feb 26
Activity B

Jan 5 Feb 8
Activity A

Feb 7 Feb 14
Activity B

8. Scheduling Tools
Outputs:
1. Schedule Baseline: The approved version of the schedule model, along with
any approved changes, used to measure project schedule performance.
2. Project Schedule
(Main presentation formats for a schedule):
 Milestone Charts
 Bar Charts
 Schedule Network Diagrams
3. Schedule Data
4. Project Calendar
5. Project Management Plan Updates
6. Project Document Updates
6-7 Control Schedule:
The process of monitoring the status of the project to update project progress
and manage changes to schedule baseline.
Concerned with:
 Determine current status
 Influence the factors that cause changes
 Manage actual changes as they occur
Inputs:
1. Project Management Plan
2. Project Schedule
3. Work Performance Data
4. Project Calendars
5. Schedule Data
6. Organizational Process Assets
Tools and Techniques:
1. Performance Reviews
 Trend Analysis
 Critical Path Method
 Critical Chain Method
 Earned Value Management
2. Project Management Software
3. Resource Optimization Techniques
4. Modeling Techniques
5. Leads and Lags
6. Schedule compression
7. Scheduling Tool
 Critical Path
 Critical Chain
 Resource Levelling and Smoothing
 Duration compression
Outputs:
1. Work Performance Information
2. Schedule Forecasts
3. Change Requests
4. Project Management Plan Update
 Schedule baseline
 Schedule Management Plan
 Cost baseline
5. Project Document Updates
6. Organizational Process Assets Updates
ATTENTION:
 Analogous estimating is gross value estimating technique.
 Activity duration estimates should not include any lag or lead information.
 While sequencing activities for a project, the project management team applied
certain discretionary dependencies. This was based on their knowledge of best
practices within the project application area. What is the potential risk involved in
using such dependencies? Discretionary dependencies are established based on
the knowledge of best practices within a specific application area. This is done to
achieve a specific sequence even though there are other options. The risk is that
they may create arbitrary float values and later limit scheduling options because of
the specific sequencing chosen.
 More interdependencies on project increase the need for communication.
 Schedule model: (All the project data will be used to calculate project schedule)
 Project Schedule: (Uses project model to develop a project schedule)
 Monte Carlo analysis: (Schedule network analysis techniques used to stimulate
the project to determine the project like hood that the project will be completed by
a specific date for a specific cost). It is also used in perform quantitative risk
analysis to determine the overall level of risk on the project). It is form of what if
analysis and it provides the ability to compute the probability to completing the
project on a specific day. We can perform multiple simulation based of three point
estimates by using Monte Carlo analysis.
 GERT: Network diagraming technique that allows loops.
 Scope change must impact the schedule change.
 Discretionary dependency is one that of experience.
 A schedule control system can include the paper work, processes and approval
requirements for authorizing changes.
 Schedule base line created at the beginning of the project and used during
project to measure performance.
 Time estimated for the activities should be created by the team and should not be
added together to create project estimate because some activities may takes place
concurrently; these would be identified in a network diagram.
 Resource requirements are determined before project schedule and after
network diagram.
 Crashing is a cost/schedule trade off and is less risky than fast tracking.
 Benefits of Analogous Project Estimate gives the project team an
understanding of management expectations.
 Three point estimating gives an indication of the risk of not meeting your date
 CHAPTER 7: PROJECT COST MANAGEMENT

Project Cost Management:

 Cost Management includes the processes involved in estimating, budgeting, and
controlling costs so that the project can be completed within the approved
budget.
 Project managers must make sure their projects are well defined, have accurate
time and cost estimates and have a realistic budget that they were involved in
approving
 Costs are usually measured in monetary units like dollars

Figure 7-1. Project Cost Management Overview

7-1 Plan Cost Management:
Inputs:
1. Project management plan
2. Project charter
3. Enterprise Environmental factors
4. Organizational Process Assets
Tools and Techniques:
1. Expert judgment
2. Analytical techniques
3. Meetings
Outputs:
1. Cost management plan: A component of a project or program management plan
that describes how costs will be planned, structured and controlled.

7-2 Estimate Cost:

Inputs:
1. Project management plan
2. Human resource management plan
3. Scope baseline
4. Project schedule
5. Risk register: A document in which the results of risk analysis and risk
response planning are recorded.
6. Enterprise Environmental factors
7. Organizational Process Assets
Tools and Techniques:
1. Expert judgment
2. Analogous estimating
3. Parametric estimating
4. Bottom-up estimating
5. Three-point estimating
6. Reserve analysis: An analytical technique to determine the essential
features and relationships of components in the project management plan
to establish a reserve for the schedule duration, budget, estimated cost, or
funds for a project.
 7. Cost of quality: A method of determining the costs incurred to ensure
quality. Prevention and appraisal costs (cost of conformance) include costs
for quality planning, quality control, and quality assurance to ensure
compliance to requirements (i.e., training, QC systems, etc.). Failure costs
(cost of non-conformance) include costs to rework products, components,
or processes that are non- compliant, costs of warranty work and waste, and
loss of reputation.
8. Project management software
9. Vendor bid analysis
10. Group decision making techniques
Outputs:
1. Activity cost estimate
2. Basis of estimates
3. Project documents updates

7-3 Determine Budget

Inputs:
1. Cost management plan
2. Scope baseline: (The cost baseline is the approved version of the time phased
project budget, excluding any management reserves, which can only be changed
through formal change control procedure and is used as a basis for comparison
to actual results. It is developed as a summation of the approved budget for the
different schedule activities).
3. Activity cost estimates
4. Basis of estimates
5. Project schedule
6. Resources calendars
7. Risk register
8. Agreements
9. Organizational Process Assets
Tools and Techniques:
1. Cost aggregation
2. Reserve analysis
3. Expert judgment
4. Historical relationship
5. Funding limit reconciliation
Outputs:
1. Cost baseline
2. Project funding requirements
3. Project documents updates

7-4 Control Cost:

Inputs:
1. Project management plan
2. Project funding requirements
3. Work performance data
4. Organizational Process Assets
Tools and Techniques:
1. Earned value management
2. Forecasting
3. To complete performance index (TCPI)
4. Performance reviews
5. Project management software
6. Reserve analysis
Outputs:
1. Work performance information
2. Cost forecasts
3. Change requests
4. Project management plan updates
5. Project documents updates
6. Organizational Process Assets updates
4 tools to estimate cost:
1. Analogous estimating
2. Parametric Estimating
3. Bottom up Estimating
4. Three point Estimating

1. Analogous Estimating:
This technique is used to estimate the project cost when very little detail about the project
is available. Therefore, this technique does not provide a very reliable estimation. The
primary benefits of this technique are: it is very fast, less costly, and provides a quick
result.
In Analogous Estimation, the cost of the project is guessed by comparing it with any
similar project previously completed by your organization. Here you will look into your
organization’s historical records (i.e. in Organizational Process Assets) for previously
completed projects. You will select the project which is closest to your project. Once you
get it, by using your expert judgment you will determine the cost estimate of your current
project.
The Analogous Estimating is also known as The Top-Down Estimating.

2. Parametric Estimating:
This technique also uses historical information to calculate the cost estimates. However,
there is a difference between this technique and the analogous estimation technique.

Parametric Estimation technique uses historical information along with statistical data. It
takes variables from the similar project and applies them to the current project. For
example, in the previous project, you will see that what the cost of concreting per cubic
meter was. Then you will calculate the concrete requirement for your project and multiply
it with the cost obtained from the previous project to get the total cost of concreting for
your current project. In the same way you can calculate the cost of other parameters
(men, materials, and equipment) as well.
The accuracy of this process is better than the analogous estimation.
3. Three-Point Estimating:
This technique is used to reduce the biases and uncertainties in estimating assumptions.
Instead of finding one estimate, three estimates are determined and then their average is
taken to reduce the uncertainties, risks, and biases.
PERT (Program Evaluation and Review Technique) is the most commonly used method
in three point estimation technique.
Three PEART estimates are as follows:
 Most Likely Cost (Cm): This cost estimate considers everything goes as normal.
 Pessimistic Cost (Cp): This considers the worst case and it assumes that almost
everything goes wrong.
 Optimistic Cost (Co): This estimate considers the best case and assumes that
everything goes better than planned.
PERT Estimate formula is:
Ce = (Co + 4Cm + Cp)/6
Where, Ce = Expected Cost
Estimates derived from this technique are better than the two techniques discussed above
and provide a more accurate estimate.

4. Bottom-up Estimating:
The Bottom-Up Estimating technique is also known as the “definitive technique”. This
estimation technique is the most accurate, time-consuming, and costly technique to
estimate the cost. In this technique, the cost of each single activity is determined with the
greatest level of detail at the bottom level and then rolls up to calculate the total project
cost.
In other words:
Here, the total project work is broken down into the smallest work components. Its cost
is estimated and then finally, it is aggregated to get the cost estimate of the project.
Summary:
Analogous Estimation
 It is the fastest technique to estimate cost but less accurate.
 This technique can be used with limited information available about the project.

Parametric Estimation
 This technique uses the statistical relationship between historical data and
variables; e.g. cost of painting of wall per square foot.
 It is more accurate than the analogous estimation.

Three-point Estimation
 This technique uses three estimates to calculate the average estimate. The three
estimates are the most likely cost, the pessimistic cost and the optimistic cost.
 It reduces the biases, risks, and uncertainties from the estimation.
 It is more accurate than the Analogous and Parametric estimating techniques.
Bottom-up Estimation
 This technique is the most accurate technique of all the techniques discussed
above.
 This technique can only be used when every detail about the project is available.
 This is very time-consuming and costly technique, but gives reliable and most
accurate result.
Contingency Reserves:
Contingency Reserve is the cost or time reserve that is used to manage the identified
risks or “known-unknowns” (known=identified, unknowns=risks). Contingency Reserve is
not a random reserve, it is a properly estimated reserve based on the Expected Monitory
Value (EMV), or the Decision Tree Method.
Contingency Reserve is controlled by the project manager. He has authority to use it
when any identified risk occurs, or he can delegate this authority to the risk owner, who
will use it at an appropriate time and informs the project manager at a later stage.

Management Reserve:
Management Reserve is the cost or time reserve that is used to manage unidentified risks
or “unknown-unknowns” (unknown=unknown, unknowns=risks). Management Reserve is
not an estimated reserve; it is defined as per the organization’s policy. For some
organizations, it is 5% of the total cost or time of the project, and for others it is 10%.
Management Reserve is controlled by someone outside the project team, usually from
the management. Every time an unidentified risk occurs, the project manager has to get
approval from the management to use this reserve.
Here the discussion about the contingency reserve and management reserve finishes,
but before we leave let’s summarize all the key points once again:

Contingency Reserve:
 It used to manage identified risks
 It is estimated based on Expected Monitory Value (EMV), or decision tree
method
 The project manager has authority to use this reserve

Management Reserve:
 It is used to manage unidentified risks
 It is calculated as a percentage of the cost, or time of project
 Management approval is required to use management reserve
Types of Cost: A cost can be either variable or fixed:
Variable Costs: These costs change with the amount of production or the amount of
work. Examples include the cost of material, supplies and wages
Fixed Costs: These costs do not change as production changes, Examples include the
cost of set-up, rent and utilities, etc.
A cost can either direct or indirect:
Direct Costs: These costs are directly attributable to the work on the project. Examples
are team travel, team wages, recognition, and costs of material used on the project.
Indirect Costs: These costs are overhead items or costs incurred for the benefit of
more than one project. Examples include taxes, fringe (marginal, extreme,
unconventional or peripheral) benefits, and janitorial service.
Definitions:
 Profit = Revenue – Costs
 Profit Margin = Profit / Revenue
 Cash flow refers to the movement of cash into or out of the project.
 Direct costs are costs that can be directly related to producing the deliverable of
the project: Salaries, cost of hardware & software purchased specifically for the
project
 Indirect costs are costs that are not directly related to the deliverable of the
project, but are indirectly related to performing the project, e.g. cost of electricity,
Internet, rent and office supplies.
 Reserves are dollars included in a cost estimate to mitigate cost risk by allowing
for future situations that are difficult to predict
1. Sunk cost is money that has been spent in the past; when deciding what projects
to invest in or continue, you should not include sunk costs
a. To continue funding a failed project because a great deal of money has already
been spent on it is not a valid way to decide on which projects to fund
b. Sunk costs should be forgotten
 Variable Costs: change with the amount of production (cost of material).
 Fixed Costs: do not change with production (rent, setup costs, etc.)
 Net present value: the total present value (PV) of a time series of cash flows. It is
a standard method for using the time value of money to appraise long-term projects
 Internal Rate of Return: interest rate received for an investment consisting of
payments and income that occur at regular periods
 Opportunity Cost: The cost given up by selecting one project over another.
 Payback Period: The time it takes to recover your investment in the project before
you start accumulating profit.
Figure 7-2. Various components of the project budget and cost base line
Earned Value Management (EVM):
The concept of Earned Value Management came into the limelight in the sixties when the
US Air Force made it mandatory to use EVM in their programs. And since 2005, it has
become a part of general federal project risk management.
Earned Value Management is an enhancement over traditional project management. The
traditional method focuses on planned vs. actual expenditure, while the EVM method also
makes you aware of actual accomplishment, which gives project managers a clearer
picture of the project’s insight.
In Earned Value Management you can analyze the project schedule performance, cost
performance and other milestones. Afterwards you can find variances by comparing work
performed and work planned.
Nowadays, Earned Value Management is a mandatory requirement for US government
contracts.
The concept of Earned Value Management has also been adopted by the PMI, and in the
PMBOK Guide, PMI discusses this topic great detail.
As per the PMBOK Guide,
“Earned Value Management (EVM) in its various forms is a commonly used method of
performance measurements. It integrates project scope, cost, and schedule measures to
help the project management team assess and measure the project performance and
progress.”
Earned Value Management (EVM) has three primary elements:
1. Planned Value (PV): Scheduled cost of work planned in a given time. This term
is also known as Budgeted Cost of Work Scheduled (BCWS).
2. Earned Value (EV): The Amount of money earned from completed work in a
given time. This term is also known as Budgeted Cost of Work Performed
(BCWP).
3. Actual Cost (AC): Actual amount of money spent to date. This term is also
known as Actual Cost of Work Performed (ACWP).
With these EVM primary data sources you can develop many other derived data
elements, such as:
1. Budget at Completion (BAC): Total budget for the project.
2. Schedule Variance (SV): The difference between Earned Value (EV) and
Planned Value (PV).
3. Cost Variance (CV): The difference between Earned Value (EV) and Actual Cost
(AC).
4. Schedule Performance Index (SPI): The ratio between Earned Value (EV) and
Planned Value (PV).
5. Cost Performance Index (CPI): The ratio between Earned Value (EV) and Actual
Cost (AC).
6. Estimate at Completion (EAC): Expected total budget for the project.
7. Estimate to Complete (ETC): From a given point, how much it will cost to
complete the project.
8. Variance at Completion (VAC): How much expected under or over budget.
9. To Complete Performance Index (TCPI): The estimate of the cost performance
required by the project to meet the project’s budget goal.

Now the project managers were in a very comfortable position in analyzing the project
performance and forecasting the future performance.

(If you’re not aware of these terms, don’t worry, I am going to explain them my next posts.)

Benefits of Earned Value Management (EVM)

There are immense benefits of EVM for the project manager and the sponsors.

EVM gives project managers better control over the project constraints such as scope,
cost and schedule. They can identify the problems in the early stages of the project and
manage them proactively.

And for the client, they will have a better view on the project and they will be confident
about the success of the project.
The following are a few benefits of Earned Value Management (EVM):
 Improves the planning process.
 Relates time-phased budget to the project tasks.
 Shows you the project’s status and progress objectively.
 Helps you in measuring the project’s cost and schedule performance objectively.
 Improves communication and project visibility.
 Prevents scope creep.
 Helps you in forecasting.
 Informs you if you’re deviating from any performance measurement baseline
(scope, cost and schedule baseline).
 Helps you identify the potential risk areas.
 Helps in forecasting (most likely future performance).

Earned Value Management is one of the few techniques in the PMBOK Guide that
involves mathematical calculations. Therefore, many people find it difficult and ignore it.
However, if you understand the concept of EVM, these calculations are not really as
difficult as they appear to be.
Before I conclude this blog post, let’s revise some key points.
Earned Value Management (EVM) analysis is a technique in Project Cost Management
that determines the current status of the project, and tracks the progress.
It shows you the current status of the project, such as:
 How much work has been completed and how much is remaining?
 How much budget has been spent and how much is left?
Tracks actual progress vs planned progress, such as:
 Work completed vs planned work for a given time.
 Work completed vs planned work for a given cost.
It answers various performance related queries such as:
 Is the project over budget or under budget?
 Is the project behind schedule or ahead of schedule?
 How much work (scope) is completed.
Planned Value (PV)
As per the PMBOK Guide “Planned Value (PV) is the authorized budget assigned to work
to be accomplished for an activity or WBS component.
Total planned value for the project is also known as Budget at Completion (BAC).
The Planned Value is the approved value of the work to be completed in a given time
period; in other words, it is the money that you should have spent as per the schedule.
Planned Value is also referred to as the Budgeted Cost of Work Scheduled (BCWS).
Formula to calculate the Planned Value (PV)0
Planned Value = (Planned % Complete) X (BAC)

A mathematical example of Planned Value (PV)

You have a project to be completed in 12 months and the total cost of the project is
$100,000 USD. Six months have passed and the schedule says that 50% of the work
should be completed.
What is the Planned Value (PV)?
Let us see what we have been given in this question.
Project duration: 12 months
Project Cost (BAC): $100,000 USD
Time elapsed: 6 months
Percent complete: 50% (as per the schedule)
The definition of Planned Value says that the Planned Value is the value of the work
that should have been completed so far (as per the schedule).
Therefore, in this case we should have completed 50% of the total work.
Hence,
Planned Value = 50% of value of the total work
= 50% of BAC
= 50% of $100,000
= (50/100) X $100,000
= $50,000
Therefore, the Planned Value (PV) is $50,000 USD.
Application of Planned Value
Planned Value is used to calculate Schedule Variance (SV), and Schedule Performance
Index (SPI).
Earned Value (EV)
Although, all three elements have their own significance, Earned Value has more respect
among them, as it is the most important element of all.
As per the PMBOK Guide “Earned Value (EV) is the value of work performed expressed
in terms of the approved budget assigned to that work for an activity or WBS Component.”
In other words, the Earned Value is the value of the work actually completed to date, or
you can say that if the project is terminated today, the Earned Value will show you the
value that it has produced.
Earned Value is also known as the Budgeted Cost of Work Performed (BCWP).
Formula to calculate the Earned Value (EV)
Earned Value = % of completed work X BAC
A mathematical example of Earned Value (EV)
You have a project to be completed in 12 months and the total cost of the project is
$100,000 USD. Six months have passed and $60,000 USD has been spent, but on closer
review you find that only 40% of the work is completed so far.
What is the Earned Value (EV)?
In the above question, you can clearly see that only 40% of the work is actually completed,
and the definition of Earned Value says that it is the value of the project that has been
earned.
Hence,
Earned Value = 40% of value of total work
= 40% of BAC
= 40% of $100,000
= 0.4 X $100,000
= $40,000

Therefore, the Earned Value (EV) is $40,000 USD.

Schedule Variance (SV)
Keeping your project on schedule is very important. Not only does it help you complete
your project on time, but it also helps you avoid the unnecessary cost overrun due to
slippage of schedule. Because as you cross the stipulated time, your costs start rising
exponentially.
For example, you have rented some equipment for a certain period. However, if you need
this equipment for some extra days, you may have end up paying more because the
equipment may not be available at the previously negotiated price.
That is why Schedule Variance is a very important analytical tool for you. This tool gives
you information about how far behind or ahead of schedule you are.
The Schedule Variance is a measure of the schedule performance of a project.
Formula to calculate the Schedule Variance
Schedule Variance = Earned Value – Planned Value
Or,
SV = EV – PV
Please note:

◾If the Schedule Variance is positive, you are ahead of schedule.

◾If the Schedule Variance is negative, you are behind schedule.

◾When the project is completed, Schedule Variance becomes zero because at the end
of the project, all the Planned Value has been earned.
A mathematical example of Schedule Variance
You have a project to be completed in 12 months and the total cost of the project is
$100,000 USD. Six months have passed and $60,000 USD has been spent, but on closer
review you find that only 40% of the work is completed so far.
Find the Schedule Variance (SV) for this project, and deduce whether you are ahead of
schedule or behind schedule.
Given in the question:
Actual Cost (AC) = $60,000
Planned Value (PV) = 50% of $100,000
= $50,000
Earned Value (EV) = 40% of $100,000
= $40,000
Now,
Schedule Variance (SV) = Schedule Variance (EV) – Planned Value (PV)
= $40,000 – $50,000
= – $10,000
Hence,
The Schedule Variance is -$10,000 USD, and since the Schedule Variance is negative,
you are behind schedule.

Cost Variance (CV)

Of course, Cost Variance is equally as important as Schedule Variance. You must
complete your project within the approved budget. It is bad for you and your client if the
project cost crosses its boundary.
Cost Variance deals with the cost baseline of the project. It gives you information about
whether you’re over spending or under budget.
The Cost Variance is a measure of cost performance of a project.
Formula to calculate the Cost Variance
Cost Variance = Earned Value – Actual Cost
Or,
CV = EV – AC
Please note:

◾If the Cost Variance is positive, you are under budget.

◾If the Cost Variance is negative, you are over budget.

A mathematical example of Cost Variance
You have a project to be completed in 12 months and the total cost of the project is
$100,000 USD. Six months have passed and $60,000 USD has been spent, but on
closer review you find that only 40% of the work is completed so far.
Find the Cost Variance (CV) for this project, and deduce whether you are under budget
or over budget.
Given in the question:
Actual Cost (AC) = $60,000
Earned Value (EV) = 40% of $100,000
= $40,000
Now,
Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC)
CV = EV – AC
= $40,000 – $60,000
= –$20,000
Hence,
The Cost Variance is -$20,000 USD, and since the Cost Variance is negative, you are
over budget.

Schedule Performance Index (SPI)

Schedule Performance Index gives you information about the schedule performance of
the project.
In simple words, the Schedule Performance Index tells you how efficiently you are actually
progressing compared to the planned progress.
Formula to calculate Schedule Performance Index (SPI)
Below is the formula to calculate SPI:
Schedule Performance Index = (Earned Value)/ (Planned Value)
SPI = EV/PV
With the above formula you can conclude that:

◾If the SPI is greater than one, this means more work has been completed than the
planned work. In other words, you are ahead of schedule.

◾If the SPI is less than one, this means less work is completed than the planned work.
In other words, you are behind schedule.

◾If the SPI is equal to one, this means all work is completed.
While calculating the Schedule Performance Index, make sure that you consider all tasks.
Sometimes you may only consider the tasks on the critical path and ignore the rest, which
causes the wrong result.
Therefore, ensure that non-critical activities are not ignored.
A mathematical example of Schedule Performance Index
You have a project to be completed in 12 months and the total cost of the project is
$100,000 USD. Six months have passed and $60,000 USD has been spent, but on closer
review you find that only 40% of the work is completed so far.
Find the Schedule Performance Index (SPI) and deduce whether the project is ahead or
behind schedule.
Given in question:
Actual Cost (AC) = $60,000
Planned Value (PV) = 50% of $100,000
= $50,000
Earned Value (EV) = 40% of $100,000
= $40,000
Now,
Schedule Performance Index (SPI) = EV / PV
= $40,000 / $50,000
= 0.8
Hence,
Schedule Performance Index is 0.8
Since the Schedule Performance Index is less than one, you are behind the planned
schedule.
Cost Performance Index (CPI)
The Cost Performance Index in an indication of the cost performance of the project.
The Cost Performance Index helps you analyze the efficiency of the cost utilized by the
project. It measures the value of the work completed compared to the actual cost spent
on the project.
In simple words, the Cost Performance Index informs you of how much you are earning
for each dollar spent on the project.
Formula to calculate the Cost Performance Index
Below is the formula to calculate the CPI:
Cost Performance Index = (Earned Value)/ (Actual Cost)
CPI = EV/AC
With the above formula you can conclude that:

◾If the CPI is less than one, you are earning less than the spending. In other words,
you’re over budget.

◾If the CPI is greater than one, you are earning more than the spending. In other words,
you are under budget.

◾If the CPI is equal to one, this means earning and spending are equal. Or you can say
that you are proceeding exactly as per the planned budget spending, although this rarely
happens.
A mathematical example of Cost Performance Index
You have a project to be completed in 12 months and the total cost of the project is
$100,000 USD. Six months have passed and $60,000 USD has been spent, but on closer
review you find that only 40% of the work is completed so far.
Find the Cost Performance Index (CPI) for this project and deduce whether you are under
budget or over budget.
Given in question:
Actual Cost (AC) = $60,000
Planned Value (PV) = 50% of $100,000
= $50,000
Earned Value (EV) = 40% of $100,000
= $40,000
Now,
Cost Performance Index (CPI) = EV / AC
= $40,000 / $60,000
= 0.67
Hence,
Cost Performance Index is 0.67
Since the Cost Performance Index is less than one, this means you are earning $0.67
USD for every $1 USD spending. In other words, you are over budget.
A consistently high or low value of SPI or CPI is an indication that something is wrong
with either you’re planning and/or cost estimates.
Forecasting provides us with the visibility of future progress of the project and
gives project sponsors an early idea of what may go wrong.

In project management, three techniques are most commonly used for forecasting. These
techniques are as follows:
1. Estimate at Completion (EAC)
2. Estimate to Complete (ETC)
3. To Complete Performance Index (TCPI)

In this blog post, I am going to discuss the Estimate at Completion.

For the other two techniques, you can refer my blog posts on ETC and TCPI.

Okay let’s get started.

1. Estimate at Completion (EAC)

Projects are executed in the real world, and in the real world activities do not always go
as planned. There are many circumstances beyond your control that may deviate your
project from its planned path, which might lead to a change in your project.
As a project manager you must keep track of these changes and evaluate their impact on
the project parameters.
Now, the question is: how will you evaluate the impact of these changes?
You will do this with the help of project forecasting tools, such as the Estimate at
Completion.
The Estimate at Completion gives you the forecasted value of the project when it is
complete. It tells you how much you may have to spend to complete the project.
In other words, you can say that it is the amount of the money that the project will cost
you at the end.
The Estimate at Completion can be determined by four methods depending on the way
the project is performing.
However, from a PMP Certification exam point of view, the first method is more
important than the rest.
Case-I: EAC = BAC/CPI
In this scenario you assume that the project will continue to perform to the end as it was
performing up until now.
Simply put, your future performance will be same as the past performance; i.e. the CPI
will remain the same for the rest of the project.
Formula to Calculate the Estimate at Completion
Estimate at Completion = (Budget at Completion) / (Cost Performance Index)
Or,
EAC = BAC/CPI
Please note that:

◾If the CPI = 1, then EAC = BAC. This means you can complete your project with your
approved budget (BAC), and there is no need to use forecasting analysis.

◾At the start of the project, the Estimate at Completion will be equal to the Budget at
Completion, i.e. EAC = BAC.
In this blog post I am going to explain to you the four most commonly used formulas to
calculate the EAC.
However, for the PMP exam, Case-I is the most important of all, and there is less chance
that you will see questions based on the other cases.
Anyway, I’m going to explain all formulas mentioned in the PMBOK Guide, so no worries
for you.
A mathematical example of Estimate at Completion (Case-I)
You have a project to be completed in 12 months, and the total cost of the project is
$100,000 USD. Six months have passed and $60,000 USD has been spent, but on closer
review you find that only 40% of the work is completed so far.
Find the Estimate at Completion (EAC) for this project.
Given in the question:
Budget at Completion (BAC) = $100,000
Actual Cost (AC) = $60,000
Planned Value (PV) = 50% of $100,000
= $50,000
Earned Value (EV) = 40% of $100,000
= $40,000

To calculate the EAC, first you have to calculate the Cost Performance Index
Cost Performance Index (CPI) = EV / AC
= $40,000 / $60,000
= 0.67
=>Cost Performance Index (CPI) = 0.67
Now,
Estimate at Completion (EAC) = BAC/CPI
= $100,000/0.67
= $149,253.73
Hence, the Estimate at Completion (EAC) is $149,253.73 USD.
It means if the project continues to progress with CPI = 0.67 until the end, you will have
to spend $149,253.73 USD to complete the project.

Case-II: EAC = AC + (BAC – EV)

Here, you say that until now you have deviated from your budget estimate; however, from
now onwards you can complete the remaining work as planned.
Usually this happens when due to some unforeseen conditions, any incident happens
and your cost elevates; however you are sure that this will not happen again and you can
continue with the planned cost estimate.
That is why in this formula, to calculate the EAC you will simply add money spent to date
(i.e. AC) to the budgeted cost for remaining work.
A mathematical example of Estimate at Completion (Case-II)
You have a project with a budget of $500,000 USD. During execution phase, an incident
happens which costs you a lot of money. However, you are sure that this will not happen
again, and you can continue with your calculated performance for the rest of the project.
To date you have spent $200,000 USD, and the value of the completed work is $175,000
USD.
Calculate the Estimate at Completion (EAC).
Since the cost elevation is temporary in nature and the rest of the project can be
completed as planned, in this case you will use the formula:
EAC = AC + (BAC – EV)
Given in the question,
Actual Cost (AC) = $200,000
Budget at Completion (BAC) = $500,000
Earned Value (EV) = $175,000
Hence,
EAC = 200,000 + (500,000 – 175,000)
= 200,000 + 325,000
= 525,000
Hence, the Estimate at Completion is $525,000 USD.
Case-III: EAC = AC + (BAC – EV)/ (CPI*SPI)
You are over budget, behind schedule, and client is insisting you to complete the
project on time.
In this case, not only the cost but the schedule also has to be taken into consideration.
In other words, you can say that if your cost performance is poor, you are also behind
schedule and you must complete your project on time, so you will use the formula for
Case-III.
A mathematical example of Estimate at Completion (Case-III)

You have a fixed deadline project with a budgeted cost of $500,000 USD. So far you have
spent $200,000 USD and the value of the completed work is $175,000 USD. However,
as per the schedule you should have earned $225,000 USD to date.
Calculate the Estimate at Completion (EAC).
Given in the question:
Budget at Completion (BAC) = $500,000
Actual Cost (AC) = $200,000
Earned Value (EV) = $175,000
Planned Value (PV) = $225,000
To calculate the EAC, first you have to calculate the CPI and SPI.
SPI = EV/PV
= 175,000/225,000
= 0.78
CPI = EV/AC
= 175,000/200,000
= 0.88
Now, you can use the formula
EAC = AC + (BAC – EV)/ (CPI*SPI)
= 200,000 + (500,000 – 175,000)/ (0.88*0.78)
= 200,000 + 325,000/0.69
= 200,000 + 471,000
= 671,000
Hence, the Estimate at Completion is $671,000 USD.
Case-IV: EAC = AC + Bottom up Estimate to Complete
This is the case when you find out that your cost estimate was flawed, and you need to
calculate the new cost estimate for the remaining work for the project.
Here you will go to the activity level, find the cost of each activity and sum them up to get
the total cost of the remaining work.
A mathematical example of Estimate at Completion (Case-IV)
You have a project to build a government’s department building with a worth of $500,000
USD. To date you have spent $200,000 USD and the value of the completed work is
$175,000 USD. However, during your project execution you noticed that your cost
estimation was flawed and you need to calculate your budget again for the remaining part
of the project.
You sit down with your team members and re-estimate the cost of the remaining work.
Your new estimate says that it will take $400,000 USD to complete the remaining part of
the project.
Calculate the Estimate at Completion (EAC).
Given in the question:
Budget at Completion (BAC) = $500,000
Actual Cost (AC) = $200,000
Earned Value (EV) = $175,000
Bottom Up Estimate to Complete = $400,000
In this case you will use the formula:
EAC = AC + Bottom up Estimate to Complete
= 200,000 + 400,000
= 600,000
Hence, the Estimate at Completion is $600,000 USD.
2. Estimate to Complete (ETC)

Estimate to Complete is the amount of money to complete the remaining work (the work
that is left after a certain period).
Visit: Estimate to Complete
To Complete Performance Index (TCPI)
In simple words, the To Complete Performance Index tells you how fast you have to move
to achieve the target.
It is the estimate of the future cost performance that you may need to complete the project
within the approved budget.
This budget may be your initial approved budget (BAC), or a new approved budget, i.e.
the Estimate at Completion (EAC).
There are many professionals who often confuse ETC with EAC. Estimate at Completion
(EAC) is different from the Estimate to Complete (ETC).
EAC is the expected amount of money to complete the project. It tells you that how much
the project will cost in the end.
In other words, you can say that the EAC is the expected amount of money to be spent
to complete the project.
Note that, when the project starts, EAC is equal to the ETC. As the project progresses,
the ETC starts decreasing and at the end of the project, it becomes zero.
Estimate at Completion is equal to the Actual Cost spent on the project plus the expected
cost to be spent to complete the balance of the work.
i.e.
Estimate at Completion = Actual Cost already spent + cost spent to complete the
balance work
Estimate at Completion (EAC) = Actual Cost already spent (AC) + Estimate to
Complete (ETC)
EAC = AC + ETC
ETC = EAC – AC
This means that you can find the value of ETC by subtracting the value of Actual Cost
(AC) from the value of the Estimate at Completion (EAC).
Example:
You have a project to be completed in 12 months and the total cost of project is $100,000.
Six months have passed and $60,000 is spent but on closer review you find that only 40%
of the work is completed so far.
Find the Estimate to Complete (ETC) for this project.
Given in question:
Budget at Completion = $100,000
Actual Cost (AC) = $60,000
Planned Value (PV) = 50% of $100,000
= $50,000
Earned Value (EV) = 40% of $100,000
= $40,000
Cost Performance Index (CPI) = EV / AC
= $40,000 / $60,000
= 0.67
Hence,
Cost Performance Index (CPI) = 0.67
Now,
Estimate at Completion (EAC) = BAC/CPI
= $100,000/0.67
= $149,253.73
Estimate at Completion (EAC) = $149,253.73
Therefore,
Estimate To Complete (ETC) = EAC – AC
$149,253.73 – $60,000
= $89,253.73
Estimate To Complete = $89,253.73
3. TCPI is the calculated cost performance index that is achieved on the
remaining work to meet the specified management goal, such as the BAC or
the EAC.”

In other words, the To Complete Performance Index (TCPI) is the estimate of the future
cost performance that you may need to complete the project within the approved budget.
This budget may be your initial approved budget (BAC), or a new approved budget; i.e.
Estimate at Completion (EAC).
You can calculate the TCPI by dividing Remaining Work by the Remaining Funds; i.e.
TCPI = (Remaining Work)/ (Remaining Funds)
Remaining work can be calculated by subtracting Earned Value (EV) from the total budget
(BAC); i.e. (BAC–EV).
However, there are two cases to determine the Remaining Funds on hand.
Initially, your emphasis will be on completing the work with the initial budget (BAC).
However, if you see that you cannot complete your remaining work with this budget, you
will calculate how much more money you will require to complete the project. Once you
get this figure, you will ask management to approve the new budget (EAC).
So there are two cases, and the To Complete Performance Index (TCPI) formula will be
different for each case.
Let’s see the TCPI formula in both cases.
Case-I: If you’re under budget:
In this case, remaining funds will be calculated by subtracting “Actual Cost (AC) incurred
to date” from the “initial budget”; i.e. (BAC–AC).
Here, the TCPI formula will be:
TCPI = (BAC–EV)/ (BAC–AC)
Case-II: If you’re over budget:
You will update the cost baseline, and raise the change request and get it approved. In
this case, remaining funds will be calculated by subtracting Actual Cost (AC) incurred to
date from this new approved budget (EAC); i.e. (EAC–AC).
Here, the TCPI will you show the required cost performance to complete the project with
the new approved budget.
TCPI = (BAC–EV)/ (EAC–AC)
Keep in mind that if you have calculated the EAC using Earned Value Management
formula (EAC=BAC/CPI), the TCPI will be equal to the CPI at the moment when you
calculate the TCPI the first time.
This is because while calculating EAC you have already assumed that the future cost
performance of the project will be the same as the past cost performance of the project.
Here is where the technical details of the To Complete Performance Index (TCPI)
completes, now let’s see it in a real world example.
Suppose you have taken a contract to paint 10,000 square feet of area in 10 days. This
means you have to paint 1,000 square feet of area per day to complete the project on
time.
However, when you review your progress after 5 days, you find that only 3,000 square
feet of area is painted.
Now you have 5 days left and 7,000 square feet of area is yet to be painted. You calculate
and deduce that if you want to complete your task within 10 days, you will have to paint
1,400 square feet of area per day.
This will be your future performance to complete the task on time, and this future
performance is known as the To Complete Performance Index (TCPI).
Please note that Cost Performance Index (CPI) is your past performance and TCPI is
your future performance which you must meet to complete the project within the approved
budget.
You may also consider what will happen if you perform better; i.e. you painted 7,000
square feet of area in 5 days.
In this case, you can paint 600 square feet of area per day to complete the task. In other
words, you are comfortable to complete the task.
(The above example may not be a technically perfect example for the TCPI; however, I
believe that it will help you understand the concept easily.)
A mathematical example of TCPI
You have a project to be completed in 12 months and the total cost of the project is
$100,000 USD. Six months have passed and $60,000 USD has been spent, but on closer
examination you find that only 40% of the work is completed so far.
Find the To Complete Performance Index (TCPI) for this project.
Solution:
Given in question:
Budget at Completion (BAC) = $100,000 USD
Actual Cost (AC) = $60,000 USD
Planned Value (PV) = 50% of $100,000
= $50,000 USD
Earned Value (EV) = 40% of $100,000
= $40,000 USD
Cost Performance Index (CPI) = EV / AC
= $40,000 / $60,000
= 0.67
Hence,
Cost Performance Index (CPI) = 0.67
Now,
Estimate at Completion (EAC) = BAC/CPI
= $100,000/0.67
= $149,253.73 USD
Hence,
Estimate at Completion (EAC) = $149,253.73 USD
From the calculation, we can see that since the CPI is less than one, you’re over budget.
Therefore, to calculate the To Complete Performance Index (TCPI), you will use the
formula based on EAC.
TCPI = (BAC–EV)/ (EAC–AC)
= (100,000–40,000)/ (149,253.73–60,000)
=60,000/89,253.73
=0.67
TCPI = 0.67
This means that you can continue with a Cost Performance Index of 0.67 to complete the
project.

Before I conclude this blog post, let’s revise some key points regarding the To Complete
Performance Index (TCPI):

◾Cost Performance Index (CPI) is the past performance of the project; on the other hand
TCPI is the future performance of the project.

◾If you are under budget, you will calculate the TCPI based on the BAC.

◾If you are over budget, you will calculate the TCPI based on the EAC.

◾If the To Complete Performance Index in less than one, you are in a comfortable
position.

◾If the To Complete Performance Index is greater than one, you have to perform with
better cost performance than the past cost performance.

◾And finally, if the To Complete Performance Index is equal to one, you can continue
with the same cost performance.
Here I’m completing this series of seven articles on Earned Value Analysis, Forecasting
and To-Complete Performance Index.
I tried my best to make these concepts and calculations easy for you; however, if you still
have some doubt, you can contact me through the comment section.
Okay, let’s we get started…
Earned Value Management (EVM)
The Earned Value Management (EVM) is a technique which helps the project
management team to assess and measure the project performance and progress.
The Earned Value Management has three basic elements: Earned Value (EV), Planned
Value (PV), and Actual Cost (AC).
Earned Value (EV), Planned Value (PV) and Actual Cost (AC)
These are the three basic elements of Earned Value Management.
Earned Value (EV)
It is the value of work completed till date.
Planned Value (PV)
It is the authorized value of work that has to be completed in a given time period, as per
the schedule.
Actual Cost (AC)
It is the amount of money that you have spent till date.
Schedule Variance (SV) and Cost Variance (SV)
Schedule Variance (SV)
It is the difference between the Earned Value and the Planned Value.
SV = EV – PV

◾If SV is negative, you’re behind schedule.

◾If SV is positive, you’re ahead of schedule.

Cost Variance (CV)
It is the difference between the Earned Value, and the Actual Cost.
CV = EV – AC

◾If CV is negative, you’re over budget.

◾If CV is positive, you’re under budget.

Schedule Performance Index (SPI) and Cost Performance Index (CPI)
Schedule Performance Index (SPI)
It is the ratio between the Earned Value and the Planned Value.
SPI = EV/PV

◾If SPI is greater than one; you’ve completed more work than the planned work.

◾If SPI is less than one; you’ve completed less work than the planned work.
Cost Performance Index (CPI)
It is the ratio between the Earned Value and the Actual Cost.
CPI = EV/AC

◾If CPI is less than one; you’re earning less than you’re spending.

◾If CPI is greater than one; you’re earning more than you’re spending.
Estimate at Completion (EAC)
Estimate at Completion is the total amount of money that the project will cost you in the
end.
EAC = BAC/CPI

Estimate To Complete (ETC)

Estimate to Complete is the expected amount of money that you will have to spend to
complete the remaining work.
ETC = EAC – AC
To-Complete Performance Index (TCPI)
To-Complete Performance Index is the estimate of cost performance for the project to
meet the project’s budget goal.
Once the project is chosen, they start the process of developing the project charter.

Cost benefit or benefit cost analysis is a benefit measurement method, and it is a

systematic approach to calculate the cost to produce the product, service, or result
and then compare it with the cost of the benefits to be received. It also provides us
current worth of future earnings and helps to compare the different projects.
Cost benefit analysis provides valuable information about:

◾profit to be earned

◾time value of the profit

◾basis to compare the projects.

Profit to Be Earned
Cost benefit analysis adds all costs to be invested, and then it identifies all benefits, and
converts them into monetary form. Afterwards, all invested costs are subtracted from the
monetary value of all benefits to get the result.
If the result is positive, then you may proceed further; otherwise, you will simply abandon
the idea.
For example, let’s say you work in a very big publishing house where book binding work
is performed by manual operations. Therefore, you decide to propose your management
to purchase a book binding machine to increase the output and improve the efficiency of
the bookbinding department.
However, before submitting your proposal to the management, you will go for a fact
finding mission. You will list the cost of the investment and the benefits received by this
investment and monetize them, such as:

◾Cost of the machines.

◾Cost of Maintenance.

◾Cost of electricity used by these machines.

◾How many bindings you can perform with the machine vs how many you were
performing with manual binding per day?

◾How much will manpower be reduced?

◾Cost of better quality product.

Now, you will add the cost of machines, maintenance and electricity etc. Once you are
done, you add the cost of benefits; e.g. how much extra bookbinding can be done with
these machines, and cost of reduced manpower, etc.
Then you will perform the cost benefit analysis. You will subtract the cost of investment
from the cost of benefits and show this figure to the management to convince them about
your proposal.
Time Value of the Profit
In cost benefit analysis, you calculate how much money you are going to spend on it, and
how much profit you will earn from this investment. Not only this, but also you have to find
the current value of the profit that you will earn after a certain period of time because
inflation erodes the value of money. Profit earned after several years will not have the
same value as today. Therefore, an inflation factor must be taken into the consideration
while doing the calculation.
For example, let us say if the inflation rate is 5% yearly then the thing you buy today for
$100, you will be able to get the same thing after one year for $105.
Calculating the Current Worth
Let’s say that you are going to invest $100,000 on a project, and after one year you earn
a $10,000 profit.
Then considering a yearly inflation of 5%, what will be the current value of this money?
Formula to find the Current Value is
FV = CV (1+r/100) ^n
Where,
FV= Future Value
CV=Current Value
r= Inflation
n=time period.
Here,
FV=$10,000
r= 5
n=1
Putting all these values in the formula,
10,000 = CV (1+0.05) ^1
CV =10000/1.05
CV = 9,523.80
Therefore, the Current Value of your profit is $9,523.80
Basis to Compare the Projects
If you have multiple projects and you have to select any one project then you can perform
cost benefit analysis on all projects and compare the profit in its current value. You will
choose the project, which will give you the highest profit.
Cost Benefit analysis helps especially when the projects are very costly and the duration
are very long. In this case, on first look, the profit may appear to be high; however,
applying the cost benefit analysis can bring a shocking result.
Cost benefit analysis help you to decide which project should be selected from all the
available options.
Summary

◾Cost benefit analysis compares the cost invested to the benefits.

◾It also compares the future earnings with today’s dollar value.

◾It helps in selecting the most profitable project.

◾Usually top management is involved in cost benefit analysis.

◾Cost benefit analysis is performed before the project charter is developed.

 Table 7-1. Earned value calculation summary table
Abbreviation Name Equation Interpretation of results
PV Planned value (Planned % Complete) X
(BAC)

EV Earned Value % of completed work X

BAC
AC Actual cost
BAC Budget at
completion
CV Cost Variance CV= EV-AC Positive= under planned cost
Neutral= on planned cost
Negative= over planned cost
SV Schedule Variance SV= EV-PV Positive= ahead of schedule
Neutral= on schedule
Negative= Behind schedule
VAC Variance at VAC= BAC-EAC Positive= under planned cost
Completion Neutral= on planned cost
Negative= over planned cost
CPI Cost Performance CPI= EV/AC >1.0= under planned cost
Index Exactly 1.0= on planned cost
<1.0= over planned cost
SPI Schedule SPI= EV/PV >1.0= ahead of schedule
Performance Index Exactly 1.0= on schedule
<1.0= behind schedule
EAC Estimate at 1. EAC= BAC/CPI
Completion 2. EAC= AC+BAC-EV
3. EAC= AC+ Bottom
up ETC
4. EAC= AC+[(BAC-
EV)/(CPI*SPI)]
ETC Estimate to 1. ETC= EAC-AC
Complete(Original ETC= Re-estimate
estimates are
flawed)

ETC (When 2. ETC= (BAC-EV)/CPI

variance are
typical)

ETC (When 3. ETC=BAC-EV

variances are
atypical
TCPI To Complete 1. TCPI= (BAC- >1.0= harder to complete
Performance Index EV/(BAC-AC) Exactly 1.0= same to complete
(Based on BAC) <1.0= easier to complete

>1.0= harder to complete

Based on EAC 2. TCPI= (BAC- Exactly 1.0= same to complete
EV)/(EAC-AC) <1.0= easier to complete
N Channels Numbers of N(N-1)/2
communication
Channels
ROI Return on ROI= Net
Investment profit/investment x100
PV Present Value PV= FV/(1+r)n
FV= Future Value
r= interest rate
n= number of time
period

NPV Net Present Value NPV= The higher the better

PV0+PV1+PV2+PV-------
IRR Internal Rate of CF0 + CF1 /(1+r)1 + CF2 The higher the better
Return /(1+r)2 +CF3 /(1+r)3 +
CFn /(1+r)n = 0
CF is Cash flow generated in
the specific period, n is the
last period and r is IRR.
BCR The Benefit Cost The higher the better
Ratio
PP The pay-back The lower the better
period
LCC The life cycle cost The lower the better
ROM Rough Order of -25 to +75 percent
Magnitude -10 to +25 percent
Estimate -/+10 or -5 to +10 percent
EV or PERT (Expected Value or 1. (P+M+O)/3
Performance O= Optimistic Estimate
Evaluation Review M= Most Likely Estimate
Technique P= Pessimistic Estimate
1. (Triangular
Distribution)

2. (Beta
Distribution) 2. (P+4M+O)/6

BSDT Beta Standard (P-O)/6

Deviation of a Task P= Pessimistic
O= Optimistic
PTA Point of total (Ceiling price-target
assumption price/buyer’s share ratio)+
target cost
SOME IMPORTANT TERMS:
Life cycle costing: (Looking at the cost of whole life of product, not just the cost of
project.
Value analysis: (It is just like value engineering. Its focus is to find a way less costly
way to do the same work).
Cost of Risk: Concept of cost risk involves risk, procurement and cost management.
(Cost related risks)
Who has the cost risk in a fixed price contract?
A. Seller
B. buyer
Answer is seller.

ROM Estimate (Rough Order Magnitude): Made usually during initiating

(-25 to +75 percent from actual)
Budget Estimate (Usually made during planning)
(-10 to +25 percent from the actual)
Definite Estimate:
(Some uses +/-10 percent from actual)
(Others uses -5 to +10 percent from the actual)
Difference between cost budget and cost baseline:
The cost budget adds management reserves to cost baseline.
Attention:
 Manual forecasting of costs for remaining work is generally the best means of
generating an accurate furcate.
 Known unknown (anticipated not certain events)
 In the earned value management technique, the cost performance baseline is
referred to as: PMB (Performance Measurement Baseline)
 Indirect cost should be included at the activity level or higher level.
 Analogous estimate is a form of expert judgement.
 Direct and variable cost (it is better to look at decreasing these costs in the
project to decrease the cost on project).
 EMV is the probability of times impact of an opportunity, and net present value is
the benefit of over many times periods.
 The final funding reconciliation would have been done after the fast tracking.
 Funding limit reconciliation likely will affect the project schedule.
 Cost management processes and their associated tools and techniques are
documented in the cost management plan. These include parameters such as the
level of accuracy (how much rounding), units of measure (staff hours, weeks etc.),
and control thresholds (percentage deviation from baseline plan)
 The EAC forecast based on the Bottom-up estimate to complete (ETC) requires a
new estimate. There is no best method for EAC calculation as it varies from
situation to situation.
 You are working for the Falcon highway construction agency as a project cost
estimator. The agency began is highway construction project which is currently in
its planning phase. The rough order of magnitude (ROM) cost estimate for the
project is expected to be between 3 and 5 million dollars in the planning phase with
a range of -25% to +25%. What will be the ROM estimate in the execution phase
if the range changes to -10% to +10%?
A. Between 3.1 and 4.1 million dollars
B. Between 3.6 and 4.4 million dollars
C. Between 3.9 and 4.1 million dollars
D. Between 3.4 and 4.4 million dollars
Since the Rough Order of Magnitude (ROM) in the planning phase is -25% to +25%, the
estimated mean value is 4 million dollars. If the estimates narrows down to -10% to +10%
it becomes 3.6 to 4.4 million dollars. [PMBOK 5th edition, Page 201] [Project Cost
Management]
 Computers needed to com the project are known as fixed cost.
 CHAPTER 8: PROJECT QUALITY MANAGEMENT

QUALITY:
Quality is the degree to which the project fulfills requirements.

QUALITY MANAGEMENT:
Quality Management includes creating and following policies and procedures in order to
ensure that a project meets the defined needs it was intended to meet.

QUALITY THEORISTS:
1. Joseph Juran: 80/20 principle, top management involvement. Quality is fitness
for use.
2. W. Edwards Deming: 14 steps of total Quality Management, Plan-Do-Check-Act
cycle.
3. Philip Crosby: Cost of poor quality, prevention over inspection and zero defects.
Quality is “conformance to requirements”

TOTAL QUALITY MANAGEMENT:

Customer, employees, process, society and stakeholder orientated. (A philosophy that
encourages companies and their employees to focus of finding ways to continuously
improve the quality of their business practices and products).
SIX SIGMA:
It is overall methodology that drives business improvement.
DMAIC PROCESS:
Define, measure, analyze, improve and control.
ISO (International Organization for Standardization for quality standards)
COMPATIBILITY:
 Customer Satisfaction
 Prevention over inspection
 Continuous improvement
 Management Responsibility
  Cost of Quality (COQ)
GOLD PLATTING: Adding extra items and services to customer deliverables that do
not necessarily contribute added value or quality.
MARGINAL ANALYSIS: An analysis to determine when optimal quality is reached—to
determine the point where incremental benefits or revenue from improving quality
equals the incremental cost to secure it.
QUALITY METRIC: specific measure of quality to be used on the project in the perform
quality assurance and control quality processes.
NORMAL DISTRIBUTION CURVE: bell shape frequency distribution curve.
Sigma or standard deviation: Quality standards (3sigme and 6 sigma)
+/-3
+/-6 (6 sigma is a higher standard)
COST BENEFIT ANALYSIS:
Comparing the benefit of an activity to the benefit of that activity.
QUALITY:
Quality is conformance to the requirements. It includes the product and the customer’s
requirements.
PMI defines the Quality as “the degree to which a set of inherent characteristics fulfills the
requirements.”
GRADE:
Grade can be defined as “the category assigned to products or services having the same
functional use but different technical characteristics.”
Many people get confused with these two terms and assume that they are similar;
however, they are not the same.
There is a big difference between the Quality and the Grade. A product can be a high
grade (high-end) or a low grade (low-end). It is perfectly acceptable for a product to be a
low grade as long as it fulfills its stated requirements.
On the other hand, a low quality product is always a problem. Every product must be of
high quality regardless of its grade. A low quality product is never desired.
For example: Let us say you buy a cheap, simple (basic model) low grade cell phone for
your normal usage. It doesn’t have any advanced features, but it works. It never gives
you any trouble, always works flawlessly and it is defect free — No problem at all.
In other words, you can say that the quality of this cell phone is very high. Although, it is
a low grade product, it keeps you happy and satisfied.

Now let’s say again that you buy another costly (premium model) high grade cell phone.
This cell phone has all advanced features; e.g. touch display, WI-FI, blue-tooth, photo
camera, video camera, voice recognition and face recognition etc.
But what will happen when it doesn’t perform well? I mean,

◾Touch screen sticks while navigating

◾Photo and video quality is very poor

◾Voice and face recognition software doesn’t recognize you!

Obviously, you will be frustrated because; although, you bought a high grade (high-end)
product, it does not perform as it should be. It means the quality of this cell phone is very
poor and that is not acceptable.
A low grade is never a problem because when you buy a service or product, because you
know that you are paying for a low-grade product or service and expect the performance
as per its category. You never buy a low grade product and expect it to perform like a
high grade.
However, a low quality is always a problem because it does not fulfill your expectation.

PLEASE NOTE THAT:

 Low quality does not equal to low grade
 Low quality is not acceptable
 Low grade is never a problem and it is acceptable
 A product or service, regardless of its grade must be of high quality.
 Figure 8-1. Project Quality Management Overview

8-1 Plan Quality Management:

Identifying quality requirement and/or standards for the project and its deliverables, and
documenting how the project will demonstrate compliance with the relevant quality
requirements.
Inputs:
1. Project management plan
2. Stakeholder register
3. Risk register
4. Requirements documentation
5. Enterprise Environmental factors
6. Organizational Process Assets
Tools and Techniques:
1. Cost benefit analysis
2. Cost of quality

Figure 8-2. Cost of Quality

3. Seven basic quality tools
1. Cause-and-Effect Diagram (Decomposition technique that helps trace an
undesirable effect back to its root cause) Figure 8-3.

2. Flowcharts (Depiction in a diagram format of the inputs, process actions,

and outputs of one or more processes within a system) Figure 8-4.
3. Check-sheet (A tally sheet that can be used as check lists when gathering
data) Figure 8-5.
4. Pareto Diagram (A histogram, ordered by frequency of occurrence, that shows how
many results were generated by each identified cause) Figure 8-6.

5. Histograms (A special form of chart used to describe the central tendency,

dispersion, and shape of a statistical distribution) Figure 8-7.
6. Control Charts (A graphic display of process data over time and against
established control limits, which has a centerline that assists in detecting a
trend of plotted values toward either control limit) Figure 8-8.
7. Scatter Diagram (A correlation chart that uses a regression line to explain or
to predict how the change in an independent variable will change a
dependent variable) Figure 8-9.
4. Bench marking
 Benchmarking involves comparing actual or planned project practices to those
of other projects in order to generate ideas for improvement and to provide a
standard by which to measure performance.
  These other projects may be within the performing organization or outside of it,
and may be within the same or in another application area.
5. Design of experiments
 Design of experiments is a statistical method that helps identify which factors
might influence specific variables. It also plays a role in the optimization of
products or processes.
6. Statistical sampling
 Statistical sampling involves choosing part of a population of interest for
inspection (e.g., selecting 10 samples of 75 electronic components).
 Appropriate sampling can often reduce the cost of quality control.
 There is a substantial body of knowledge on statistical sampling; in some
application areas, it is necessary for the project management team to be
familiar with a variety of sampling techniques.
7. Additional quality planning tools
 Brainstorming
 Force field analysis (These are diagrams of the forces for and against change)
 Nominal group technique
 Quality management and control tools
8. Meetings
Outputs:
1. Quality management plan
2. Process improvement plan
 Process Boundaries
 Process Configuration
 Process Metrics
 Targets for Improved Performance
3. Quality metrics (description of a project or product attribute and how to measure
it. Examples, on time performance, cost control, defect frequency, failure rate,
availability, reliability and test coverage)
4. Quality cheek lists (A structured tools used to verify that a set of required steps
has been performed)
5. Project documents updates
8-2 Perform Quality Assurance:
Inputs:
1. Quality management plan
2. Process improvement plan
3. Quality metrics
4. Quality control measurements (They are the documented results of control
quality activities. They should be captured in the format that was specified
through the plan quality management process).
5. Project documents
Tools and Techniques:
1. Quality management and control tools
 Affinity Diagrams Figure 8-10.

The affinity diagram is similar to mind mapping techniques in that they are used to
generate idea that can be linked to form organized patterns of thought about a problem.
In project management, the creation of the WBS may be enhanced by using the affinity
diagram to give structure to the decomposition.
  Process Decision Program Charts Figure 8-11.

PDPC are used to understand a goal in relation to the steps for getting to the goal. The
PDPC is useful as a method for contingency planning because it aids teams in
anticipating intermediate steps that could derail achievement of the goal.

 Interrelationship Digraphs Figure 8-12.

It is an adaptation of relationship diagram. It provides a process for creative problem

solving in moderately complex scenarios that possess intertwined logical relationships
for up to 50 relevant items. It may be developed from data generated in other tools such
as the affinity diagram, the tree diagram, or the fishbone diagram.
  Tree Diagrams Figure 8-13.

It also known as systematic diagrams and may be used to represent decomposition

hierarchies such as the WBS, RBS and OBS. Tree diagrams are useful as decision trees
for establishing an expected value for a limited number of dependent relationships that
have been diagramed systematically.

 Prioritization Matrices (Identify the key issues and the suitable

alternatives to be prioritizes as a set of alternatives to obtain a mathematical
score that ranks the option)
 Activity Network Diagram (Previously known as arrow diagram. Used with
project scheduling methodologies such as program evaluation and review
technique (PERT), critical path method (CPM), and precedence diagraming
method (PDM).
 Matrix Diagrams (A quality management and control tool used to perform
data analysis within the organizational structure created in the matrix. The
matrix diagram seeks to show the strength of relationships between factors,
causes, and objectives that exist between the rows and columns that form
matrix.)
 Figure 8-14.

2. Quality audits
3. Process analysis

Outputs:
1. Change request
2. Project management plan updates
3. Project documents updates
4. Organizational process assets updates
8-3 Quality Control:

Inputs:
1. Project management plan
2. Quality metrics
3. Quality checklists
4. Work performance data
5. Approved change requests
6. Deliverables
7. Project documents
8. Organizational process assets
Tools and Techniques:
1. Seven basic quality tools
2. Statistical sampling
3. Inspection
4. Approved change requests review

Outputs:
1. Quality control measurements
2. Validated changes
3. Verified deliverables
4. Work performance information
5. Change requests
6. Project management plan updates
7. Project documents updates
8. Organizational process assets updates
QUALITY ASSURANCE AND QUALITY CONTROL:
 In Quality Assurance, processes are planned to avoid the defects and assure
quality.
 Quality Control deals with finding the defects and correcting them while making the
product.
 Quality Assurance is a Proactive approach.
 Quality Control is a reactive approach.
 Quality Assurance is a process based approach.
 Quality Control is a product based approach.

For example, if the project team finds any defects while executing the project, it will correct
the error by work around, and this feedback is sent to Quality Assurance for further
investigation to take corrective actions in the process so that this error should never
happen again in future. In the same way the Quality Control people will follow the process
defined by Quality Assurance so that these defects do not recur.

QUALITY CONTROL VS VERIFY SCOPE:

Quality Control processes are performed internally while working on the project to make
sure that the deliverables are defect-free.
In contrast, Verify Scope is performed with the client or customer at the end of the project
to verify that the product is complete, all requirements are met and that the product is
ready to be delivered.
The sole purpose of the Verify Scope Process is to get formal acceptance from the client
that the deliverables are acceptable to them.
Usually, Verify Scope is performed by the project manager with the client at the end of
the project, whereas Quality Control is performed by the Quality Control person at the
time of making the product.
Let me explain it to you with an example.
Let’s say that the Government has given a contract to a company to build a 1,000.00 km
road. When the construction work starts, the company will appoint a Quality Control
personnel to continuously monitor the site work. This person will be available all the time
at the site to continuously check the quality at each level; e.g. he will make sure that coal-
tar received from the supplier is as per the correct quality requirement, stones are properly
crushed, bulldozers are properly leveling the ground, the footpaths are properly made
and aligned, etc. These are examples of Quality Control activities.

Now let’s say 100 km of road has been built and is ready to be handed over. The Company
will invite the government authorities to come and inspect the completed part to formally
accept it. The government representatives will come and verify whether all the
requirements have been met or not; e.g. whether the width of road is correct, is the level
okay, is the footpath aligned properly, and whether the length of the road is 100 km or
not. Once these representatives are satisfied, they sign the acceptance paper, the road
is handed over to the government, and the company gets the money for the work it has
completed. This process is called the Verify Scope.
One more point to be noted here is that it is not necessary that Verify Scope process
should always be performed at the end of the project; it can happen far before the project
ends and can happen concurrently with the Quality Control Process.
As we can see from the example here, the government is verifying the scope for first 100
km of road while the company is working to build the rest of the road

ACCURACY AND PRECISION:

ACCURACY: Accuracy is how close a measured value is to the actual (true) value.

PRECISION: Precision is how close the measured values are to each other.

Examples of Accuracy and Precision:

Low Accuracy High Accuracy High Accuracy

High Precision Low precision High precision

So, if you are playing soccer and you always hit the left goal post instead of
scoring, then you are not accurate, but you are precise!
Main Points about Quality:
 One purpose of a quality audit is to identify inefficient and ineffective policies.
 The quality management plan may be formal or informal, highly detailed or broadly
framed. The style and detail is determined by the requirements of the project as
defined by the project management team.
 Prevention is about keeping errors out of the process whereas inspection is about
keeping errors out of the hands of the customer
 Sample frequency and sizes are determined during the Plan Quality Management
process so that the cost of quality includes the number of tests, expected scrap
etc.
 The activities such as measuring examining and verifying to determine whether
work and deliverables met requirements and product acceptance criteria are
variously referred to as inspections, audits, reviews, product reviews, and
walkthroughs.
 Making sure that the project team comply with organizational quality policies and
procedures is done in the Perform Quality Assurance process. Quality audits are
one of such techniques in which a structured review is performed by independent
consultants or contractors to identify all shortcomings in carrying out quality
policies and procedures. These efforts should be used later to improve the product
quality and reduce the cost of quality.
 Accuracy and Precision are not the same. Precision means the values of repeated
measurements are clustered and Accuracy means the measured value is close to
the actual value.
 The words, “satisfies the needs” are your clue that the answers relates to quality.
 Determining what processes should be used describes Plan Quality Management.
Evaluating quality describes Control Quality. In the Perform Quality Assurance
process, quality audits are performed to make sure the correct processes are being
used and that are effective.
 Design of experiment attempts to combine variables to determine which
combination of variables produces the best quality and it identifies which variables
will have the most influence on a quality outcome. The design of experiments is a
quality planning tool to identify the factors that may influence specific variables of
a product under development. This tool is used to determine the number of quality
tests in a project.
 In a just in time environment, supplies are delivered when you need them and not
before. Therefore, you have little or no inventory.
 Trend analysis examines project results over time to evaluate performance.
 Ishikawa is another name for the cause and effect diagram. The effect being
studied is normally states at the head of the diagram. The cause and effect diagram
is one tool that can be used for problem solving.
 Prioritization matrices provide a way of ranking a set of problems and/or issues
that are usually generated through brainstorming. The rest of the choices are not
valid techniques for the development of a priority matrix.
 Two events that are mutually exclusive cannot happen on the same trail.
 Two events occurring in the same trial are true events.
 DIFFERENCE BETWEEN CHECK LIST AND CHECK SHEET: The quality
checklist is intended to help verify a required action has taken place or item has
been included. Although a check sheet is a type of check list, its primary purpose
is to gather data.
 A Pareto diagram is a style of histogram used as a tool within the Control Quality
process. They display how many defects were produced by type or category of
cause and ordered by their frequency. A Pareto chart identifies the vital few
sources that are responsible for causing most of a problem's effects.
 Histograms are bar charts and are also used to show the frequency distributions
of different variables
 Control charts graphically display the interaction of process variables on a process.
Control charts have three lines: a center line which gives the average of the
process, an upper line designating the upper control limit (UCL) and showing the
upper range of acceptable values, and a lower line designating the lower control
limit (LCL) and showing the lower range of acceptable values. Points that fall
outside of the UCL or LCL are evidence that the process is out of control. The
process is out of control if seven consecutive points are either above or below the
mean, or any single point is outside of the control limits. Seven non-random data
points that are still within upper or lower control limit of a control chart are out of
control. The control limits of a control chart are set at plus/minus 3 sigma. Hence
the range is 6 sigma.
 Scatter diagrams are used to determine if a correlation exists between two
variables. A scatter diagram shows the pattern of relationship between two
variables. The closer the points are to a diagonal line, the more closely they are
related.
 Process decision program charts (PDPC) are used to understand a project goal in
relation to the steps for getting to that goal. It is a useful method for contingency
planning that aids a team in anticipating intermediate steps that could derail
achievement of a project goal.
 Prioritization matrices provide a way of ranking a set of problems and/or issues
that are usually generated through brainstorming
 The process analysis includes root cause analysis.
 Failure mode and effect analysis (FMEA): Each potential failure mode in every
component of a product is analyzed to determine its effect on the reliability of that
component and, by itself or in combination with other possible failure modes, on
 the reliability of the product or system. For each potential failure, an estimate is
made of its effect on the total system and of its impact. In addition, a review is
undertaken of the action planned to minimize the probability of failure and to
minimize its effects.
 Design for Six Sigma (DFSS) is a business-process management "methodology"
related to traditional Six Sigma
 There are different options for the implementation of DFSS. Unlike Six Sigma,
which is commonly driven via DMAIC (Define - Measure - Analyze - Improve -
Control) projects, DFSS has spawned a number of stepwise processes, all in the
style of the DMAIC procedure.
 {TQM and PDCA are process improvement methodologies but do not six sigma.
DMAIC is used for projects aimed at improving and existing business process,
while DMADV (Define, Measure, analyze, design and verify) is used for project
aimed at creating new product or process designs}.
 PDCA (plan–do–check–act or plan–do–check–adjust) is an iterative four-step
management method used in business for the control and continuous improvement
of processes and products. It is also known as the Deming circle/cycle/wheel,
Shewhart cycle, control circle/cycle, or plan–do–study–act (PDSA). Another
version of this PDCA cycle is OPDCA. The added "O" stands for observation or as
some versions say "Grasp the current condition. The "act" component of the plan-
do-check-act cycle relates to the Monitoring and Controlling process group. The
plan-do-check-act cycle was created by Shewhart and modified by Deming to
illustrate how different results from one cycle become an input to another cycle.
 Six sigma process is one in which 99.99966%
 3 sigma (68–95–99.7) rule
 Earned value analysis is used as a trend analysis technique for monitoring overall
project performance
CHAPTER 9: PROJECT HUMAN RESOURCE MANAGEMENT
 Figure 9-1. Project Human Resource Management Overview

PROJECT HUMAN RESOURCE MANAGEMENT: It describes how the role

and responsibilities, reporting relationship and staff management will be addressed and
structured.
STAFFING MANAGEMENT PLAN: A component of the Human resources plan
that describes when and how project team members will be acquired and how long they
will be needed.

Organizational theory: Organizational theory provides information regarding the

way in which people, teams and organizational units behave.

Multi criteria decision analysis: Selection criteria for acquiring the project team.
Some examples of selection criteria that can be used to score team members are
shown as follows:
 Availability
 Cost
 Experience
 Ability
 Knowledge
 Skills
 Attitude
 International factors

Ground Rule: Ground rules establish clear expectations regarding acceptable

behavior by project team members. Early commitment to clear guidelines decreases
misunderstandings and increases productivity. Discussing ground rules in areas such as
code of conduct, communication, working together, or meeting etiquette allows team
members to discover values that are important to one another. All project team members
share responsibility for enforcing the rules once they are established.

Colocation: Colocation, also referred to as “tight matrix”, involves placing many or all
of the most active project team members in the same physical location to enhance their
ability to perform as a team.

Halo effect: The halo effect is a type of cognitive bias in which our overall impression
of a person influences how we feel and think about his or her character. Essentially, your
overall impression of a person ("He is nice!") impacts your evaluations of that person's
specific traits ("He is also smart!").
One great example of the halo effect in action is our overall impression of celebrities.
Since we perceive them as attractive, successful, and often likeable, we also tend to see
them as intelligent, kind, and funny.

Team Development Stages:

1. Forming
2. Storming
 3. Norming
4. Performing
5. Adjourning
Five Team Development Stages: Figure 9-1.

Explaining

Team Building Activities: Team building activities can play a major role in team
development. Team building activities can include:
 Taking classes together
  Milestone parties
 Holiday and birthday celebrations
 Outside-of-work trips
 Creating the WBS
 Getting everyone involved in some way in planning the project

Types of team:
 Dedicated or Full time
 Part time
 Partnership
 Virtual
 Sources of Conflict: Figure 9-2.

Conflict resolution techniques:

 There are six conflict resolution techniques, which I am going to discuss here one
by one, and finally defend the best technique for conflict resolution.
 Withdrawing or Avoiding:
Here, the project manager simply chooses to avoid the conflict, and allows the
persons involved in the conflict to find their own solution. No action is taken by the
project manager.
 Smoothing or Accommodating:
Here, the project manager is involved in the conflict, tries to avoid areas of
disagreements, and focuses on commonalities. Smoothing is a way to avoid tough
discussions.
 Compromising:
This is a mid-way approach. Here, everybody loses and gains something. All
parties get some sort of satisfaction. It is a Lose-lose approach.
 Forcing:
Here, a decision is taken in favor of one party’s viewpoint at the expense of others.
It can demoralize the team members and may cause to increase the conflicts. It is
a win-lose approach.
 Collaborating:
This is an example of a win-win approach. Here, the project manager will work with
all parties to find a resolution that involves multiple viewpoints and negotiate for
the best solution. This technique reinforces mutual trust and commitment.
 Problem Solving or Confronting:
Here, a conflict will be treated as a problem for which the project manager has to
find a solution. The project manager will conduct an in-depth root cause analysis
of the reason for the occurrence of the conflict, encourage open discussions to
allow parties to express their areas of disagreement, and then arrives at a solution.

Motivational Theory:
1. McGregor’s Theory: X and Y
Theory X: Workers need to be watched, hate work and responsibility. Managers must
use coercion, threats & various control schemes to get workers to meet objectives.
Theory Y: Workers can work without supervision, they want to achieve, and can make
their own decisions. Workers enjoy the satisfaction of esteem and self- actualization
needs.

Ouchi’s Theory Z: Based on the participative management style of the Japanese.

Workers are motivated by a sense of commitment, opportunity & advancement.

Figure 9-3: Explanation of X and Y Theory

2. Maslow’s Hierarchy of Needs

 He created a pyramid to show how people are motivated and said one cannot
ascend to the nest level until the levels below are fulfilled.
Figure 9-4.

3. Hygiene Theory or Herzberg’s Theory:

 There are two factors that contribute to motivation:
 Hygiene factors: Factors deal with work environment issues. Those
factors prevent dissatisfaction but do not necessarily bring satisfaction.
 Motivational factors: Factors produce job satisfaction
Figure 9-5.

Motivating Agents:
1. Responsibility
2. Self-actualization
3. Professional growth
4. Recognition

4. David McClelland’s Theory of Needs (or Acquired Needs Theory):

 This theory states that people are most motivated by one of the three needs
listed in the following table. A person falling into one category would be managed
differently than a person falling into another category. (Table 9-1.)
Primary Need Behavioral Style
Achievement  These people should be given
projects that are challenging but
are reachable.
 They like recognition
Affiliation  These people work best when
cooperating with others.
 They seek approval rather than
recognition.
Power  People whose need for power is
socially oriented, rather than
personally oriented, are
effective leaders and should be
allowed to manage others.
 These people like to organize
and influence others.

5. Expectancy Theory:
The expectation of a positive outcome drives motivation. People will behave in
certain ways if they think there will be good rewards for doing so. This theory also
says that people become what you expect of them.

6. Achievement Theory:
Achievement Theory says that people are motivated by the need for three things:
achievement, power, and affiliation.
 The achievement motivation is obviously the need to achieve or succeed.
 The power motivation involves a desire for influencing the behavior of
others.
 The need for affiliation is relationship oriented. Workers want to have
friendships with their coworkers and a sense of camaraderie with their fellow
team members. The strength of your team members’ desire for each of
these will drive their performance on various activities.

Powers of the Project Manager:

Power is the potential ability to influence behavior to get people to do things they would
not otherwise do.

Types of power include:

1. Coercive power (Penalty)
2. Legitimate power (Formal)
3. Expert power
4. Reward power
5. Referent power

RAM: (Responsibility Assignment Matrix)

Primary and secondary (P, S)
RACI: (Responsible, Accountable, Consult, and Inform)
(R, A, C, I)
Attention:
 A chart representing hours and the time the position, department, company will be
working on the project is an example of a resource histogram. The Resource
Histogram is a tool for charting human resources and illustrates the number of
hours that a person, department or entire project team will be needed each week
or month over the course of the project. The chart can include a horizontal line that
represents the maximum number of hours from a particular resource. This can be
used for a resource leveling strategy.
 Interpersonal skills, sometimes known as "soft skills" are particularly important to
team development. By understanding the sentiments of project team members,
anticipating their actions, acknowledging their concerns, and following up on their
issues, the project management team can greatly reduce problems and increase
cooperation.
 Project Performance Appraisal is a technique of the Manage Project Team
process. In a Project Performance Appraisal, team members get feedback from
project work supervisors. The supervisors can gather information from those who
interact with the team member using 360-degree feedback principles. The term
360 feedback principles, simply means that information is gathered from multiple
sources such as the workers supervisors, peers, and subordinates.
 RACI stands for responsible, accountable, consult, and inform. This is a type of
responsibility assignment matrix that is used to illustrate the relationship between
work that needs to be completed and team members. In a RACI chart, a matrix is
created with work packages making up the rows, and team member roles in the
columns. Typically, a RACI chart assumes that one person will be accountable for
a work package and more than one person may be responsible for completing the
work package.
 Smoothing is the method that was most likely used to resolve the conflict that arose
at the status meeting. Smoothing is a temporary way to resolve conflict.
 Negotiation is a strategy used to bring compromise between two parties with
opposing interests. Analyzing the situation, differentiating between wants and
needs, focusing on interests and issues rather than on positions, asking high and
offering low, and listening are very important skills in negotiation.
 In a six-phase decision making model, the project manager must define the
problem first. After defining, he/she must generate problem solution, generate
ideas to action, plan solution action and plan solution evaluation. Once the solution
is implemented, he must evaluate the outcome and process.
 Intelligence quotient (IQ) is an assessment of an individual's intelligence. This is
not a soft skill. Soft skills are an individual's interpersonal skills and they include
emotional intelligence, negotiation and group facilitation etc
 Resource calendars are used to know the availability of team members for team
development activities. The responsibility assignment matrix gives the
responsibilities assigned to various team members. Project staff assignments give
details of individual assignments and project organization charts display team
members and their reporting relationships. The project charter does not give any
of that information. Hence, Lesley must use resource calendars to know that
information.
 A project organizational chart shows resources and their responsibilities.
 A responsibility assignment matrix is a correlation between activities and
resources. The matrix shows all the activities and resources for a project.
 Team performance assessments evaluate the project team’s effectiveness as a
whole. Project performance appraisals deal with how each team member is
performing of the project.
 McClelland identified three behavior styles, and the primary need, or motivator, or
motivator for the individuals corresponding to each behavior style.
 CHAPTER 10: PROJECT COMMUNICATION MANAGEMENT
PROJECT COMMUNICATION MANAGEMENT: Describes how, whom, and by whom
information about the project will be administered and disseminated.

Figure 10-1. Project Communication Management Overview

 Figure 10-2. Basic Communication Model

The basic communication model comprises three main parts: the sender, the message,
and the receiver. Each message is encoded by the sender and decoded by the receiver.
Factors like the receiver’s environment, experience, language and culture affect the way
the receiver decodes a message. Communication models often call these types of factors
“noise”, because they may interfere with the receiver’s ability to understand the message.
Communication Methods:
1. Interactive (meetings, phone calls, video conferences, etc.)
2. Push Communications (letters, memos, reports, emails, faxes, etc.)
3. Pull communications (Intranet, knowledge repositories, etc.)
 Figure 10-3. Communication Channels calculation formula

Types of Communication:
1. Non- verbal Communication: 55% of conveying the message, composed of
behavior & Physical Mannerisms.
2. Verbal Communication
a) Formal (Presentations- Speeches)
b) Informal (Meetings Conversations)
c) Para-lingual: Pitch & Tone of Voice
d) Active Listening
e) Effective Listening: Watching physical gestures of the speaker

3. Written
a) Formal (In project plan, charter, long distances & complex problems)
b) Informal (Memos, emails, notes)
Communication skills allow information to flow:
1. Internally
2. Externally
3. Vertically (up and down hierarchies)
4. Horizontally (along peers)

Communication Barriers:
Communication Barriers (1)
1. Noise
2. Distance
3. Hostility
4. Language
5. Culture
6. Evaluative tendency
7. Improper Decoding

Communication Barriers (2)

1. Personality and interest
2. Position and status
3. Lack of responsive feedback
4. Withholding information
5. Mixed messages
6. Stereotyping
Attention:
 As a project manager where would you document the escalation process to resolve
issues that cannot be resolved at a lower staff level? The correct response is the
Communications Management plan. The Communications Management Plan
documents the escalation process. The issue escalation process must be
documented during the planning phase of a project. The issues that cannot be
resolved at a lower level can be escalated using a chain of command within a
stipulated time frame. This information is part of the communication management
plan.
 An issue log should at a minimum contain the owner name and a target resolution
date. An issues should be clarified in a way that it can be resolved. Unresolved
issues can be a major source of conflict and project delays. Having just the owner
name or target resolution date leaves the issue log incomplete. Providing
additional details such as financial impact on the project, impact on schedule,
number of days the issue is unresolved etc. are 'nice-to-have's beyond the
minimum requirement of just the owner name and target resolution date.
 Anytime contracts are involved in a project, the project manager/team should use
formal written communication methods.
 A forecasting report looks only to future. A status report is generally static (relating
to a moment in time.). A variance report looks at specific project items or activities
compared to the plan. Performance over time is a trend report.
 Reciprocal communication may be formal or informal, or written, external or
internal to the organization. By definition, reciprocal conversation is interactive.
CHAPTER 11: PROJECT RISK MANAGEMENT
Figure 11-1. Project Risk Management Overview
Risk:
“Risk is an uncertain event or condition that, if occurs, has an effect on at least one project
objective.” Risks are the recognition that uncertain events may occur and by recognizing
it, the Project Manager can equip himself to handle it. It is not necessary that the risks are
always problematic, as sometimes they can also bring benefits to the organisation as well.
A Risk can be either a Threat, or an Opportunity.

Opportunity (Positive Risk):

“A condition or situation favorable to the project, a positive set of circumstances, a positive
set of events, a risk that will have a positive impact on project objectives, or possibility of
positive changes.”
A Positive Risk or an Opportunity may bring some benefits to the organisation.
For example, you are running a project and there is a chance that if you finish your project
few days earlier, you might get another project.

Threat (Negative Risk):

“A condition or situation unfavorable to the project, a negative set of circumstances, a
negative set of events, a risk that will have a negative impact on project objectives, or
possibility of negative changes.”
A Negative Risk always brings loss to the organization; therefore, it is necessary to tackle
them appropriately. For example, your project is under a heavy work load, and due to this
some of your equipment may break-down or start malfunctioning; therefore, in this case
you have to be prepared to handle these kinds of risks.

Risk Category: A group of potential causes of risks

Risk Categorization:
 Risk Breakdown Structure
 The Categories are:
a) Technical
b) External
c) Organizational
d) Project Management
Risk Breakdown Structure (RBS): A hierarchical representation of risks according
to their risk categories.

Figure 11-2. Risk Breakdown Structure and Category

Risk Register: A document in which the results of risk analysis and risk response
planning are recorded
Figure 11-3. Risk Register

RISK REGISTER

Risk Triggers:
Risk Triggers are indications that a risk has occurred or is about to occur. Triggers are
sometimes called warning signs or risks symptoms.

Risk Owner:
The responsibility of a Risk Owner is to ensure that risk response is effective, and to plan
additional risk responses if required.

Risk Action Owner:

The responsibility of a Risk Action Owner is to ensure that the agreed-upon risk responses
are carried out as planned and in timely manner.
Issue:
A project risk that has occurred can be considered an issue.

Known Risks:
Known Risks are risks those have been identified and analyzed, making it possible to
plan responses for them. For example, you know that one of your employee will go for
leave during your project execution; therefore, you already plan to replace him with
someone.

Unknown Risks:
Unknown Risks are those risks that cannot be managed proactively, which suggests that
the project team should create a contingency plan. For example, you don’t know if any of
your employees may go for leave, but you made a contingency plan in case if anyone
leaves.

Risk Appetite:
If you look in the dictionary, you will find that the meaning of “appetite” is “hunger”.
So risk appetite means “risk hungry”.
As per the 5th edition of the PMBOK Guide, risk appetite is the degree of uncertainty an
entity is willing to take on in anticipation of a reward.
The risk appetite of an organization shows how much an organization is willing to take a
risk in order to grow itself. It is the amount of risk that an organization is willing to accept
to attain its business objective.
Some organizations might be willing to take a high risk if the reward is high; others may
want to play safe or go conservatively.
If the organization is willing to take a risk, you will say that its risk appetite is high, and the
organization that plays conservatively has a low risk appetite.

Risks Tolerance:
Risk Tolerance tells you that how sensitive the organization or people are to the risk. High
tolerance mean people are willing to take a high risk, and less tolerance mean people are
not willing to take a high risk.

Risk Threshold:
Risk Threshold is an amount of risk that an organisation or individual is willing to accept.
For example, for an organisation a 5% cost overrun is acceptable, but anything more than
that is not acceptable.
Residual Risks:
Residual Risks are those risks that are expected to remain after planned responses of
risks have been taken, as well as those that have been deliberately accepted.
For example, let’s say you are constructing a building in an earthquake prone zone. You
constructed the building by assuming that the highest degree of earth quake that can
happen is 6 on Richter Magnitude Scale. But what if an earth quake happens at 7 on the
Richter Magnitude Scale? The Building might collapse.

Secondary Risks:
Secondary Risks are those risks that arise as a direct outcome of implementing a risk
response.
For example, let’s say that you are constructing a building, and as a security measure
you installed electrical wire at the top of the boundary wall. But what will happen if
someone accidentally touches the electrical wire, or during rain the electricity passes
through the wet wall?

Four keys factors to determine each risk:

1. Probability
2. Impact
3. Timing
4. Frequency

Risk averse: It is unwilling to take risks.

Tools and Techniques for Risk Identification:
1. Documentation reviews
2. Information gathering techniques
a) Brainstorming
b) Delphi technique: It is used as a way to reach a consensus of experts on
a subject. Experts on the subject participate in this technique anonymously. A
facilitator uses a questionnaire to solicit ideas about the important project points
related to the subject. The responses are summarized and are then recirculated
to the experts for further comment. Consensus may be reached in a few rounds
of this process. The Delphi technique helps reduce bias in the data and keeps
any one person form having undue influence on the outcome
c) Interviewing
d) Root cause analysis
3. Checklists analysis
4. Assumption analysis
5. Diagraming techniques
a) Cause and effect diagrams: The fishbone diagram is also known as the
Ishikawa diagram, cause and effect diagram, fishikawa diagram, and
herringbone diagram. It got the name fishikawa because it was developed
by Japanese professor Kaoru Ishikawa in 1960. They are useful for
identifying causes or risks.
b) System or process flow charts: These show how various element s of a
system interrelate and the mechanism of causation.
c) Influence diagrams: These are graphical representations of situations
showing causal influences, time ordering of events, and other relationships
among variables and outcomes.
6. SWOT analysis
 7. Expert judgement

Tools and Techniques for Perform Qualitative Risk Analysis:

1. Risk probability and impact assessment
2. Probability impact matrix
Figure 11-4. Probability impact matrix

3. Risk data quality assessment

4. Risk categorization
5. Risk urgency assessment
6. Expert judgement
Tools and Techniques for Perform Quantitative Risk Analysis:
1. Data gathering and representation techniques
a) Interviewing
b) Probability distributions
Figure 11-5. Beta and Triangular Distribution
2. Quantitative risk analysis and modeling techniques
a) Sensitivity analysis
Figure 11-6. Sensitivity analysis
b) Expected monetary value analysis
Figure 11-7. EMV analysis
 c) Modeling and simulation
Figure 11-8. Modeling and Simulation

3. Expert judgement
Tools and Techniques for Risk Responses:
1. Strategies for negative risks or threats
a) Avoid
b) Transfer
c) Mitigate
d) Accept
2. Strategies for positive risk or opportunities
a) Exploit
b) Enhance
c) Share
d) Accept
3. Contingent response strategies
4. Expert judgement

Tools and Techniques for Control Risk:

1. Risk assessment
2. Risk audits
3. Variance and trend analysis
4. Technical performance measurement
5. Reserve analysis
6. Meetings
Enhance Risk Response vs Exploit Risk Response Strategies:

Today, I’m going to dive into two positive types of risk response strategies; i.e. exploit and
Enhance Risk Response Strategies.
These risk response strategies look similar to many people, but there is a difference in
the way they are implemented. The Enhance risk response technique tackles the situation
leniently, while on the other hand, Exploit tackles it very aggressively.
Enhancing is about increasing the probability of the occurrence of the event. Here, though
measures will be taken to increase the chance of the event happening, but there is no
surety to realize it.
In the Enhance Response Strategy, the opportunity may or may not be realized.
Exploiting is about doing everything to make the event happen; i.e. to make sure that the
opportunity is realized. The Exploit Risk Response strategy takes the opportunity very
seriously and develops an approach to increase the chance of happening to 100% in
order to realize it.

For example, you’re constructing a school building, and suddenly the client comes to you
and tells you that if you complete the school building before two months from the actual
date, he will give you an extra amount of money.
You have an opportunity and now I’m going to describe that how you should approach it
under both risk response strategies:

Enhance Risk Response Strategy:

Here, you will try to finish the project by increasing overtime, fast-tracking (fast-tracking—
multiple activities are performed parallel or simultaneously to reduce the time to finish the
project), or you try to get some resources from other projects, etc.
As you can see that in the Enhancing Risk Response Strategy, you’re only trying to finish
the project early to gain the opportunity; i.e. you are only increasing the probability
(chance) of finishing the project early; there is no guarantee that you will realize the
opportunity.
Exploit Risk Response Strategy:

In Exploiting, you will finish the project by increasing manpower, overtime, fast-tracking,
crashing (crashing — additional resources are assigned to activities to finish it earlier than
planned. Crashing increases the cost), motivate team members by announcing rewards
if they finish the project early, etc.
Obviously, you can see that in the Exploiting Risk Response Strategy, you will do
whatever it takes to make sure that the opportunity is realized. You do not try to get this
opportunity; you work and ensure you get it.
Key Points
Enhance Exploit
Try to realize the opportunity Ensure to realize the opportunity
Try to increase the probability Try to increase the probability to 100%
It can be assumed as the opposite of It can be assumed as the opposite of Avoid
mitigation
Attention:
 The risk identification checklist is a useful tool, it should be used in combination
with the other tools, since it is impossible to cover all scenarios on one checklist.
They are not exhaustive (comprehensive).
 You would use a Decision Tree when uncertainty and unknowns exist regarding
future scenarios and their outcomes; not when future scenarios are known. The
decision points are known as Decision nodes. The decision tree incorporates the
cost of each available choice, the possibilities of each of the available choices and
possible scenarios. It shows how to make a decision between alternative capital
strategies (decision node) when the environment is not known with certainty.
 A Cost reimbursable contract does not transfer risk to the seller, rather, the risk is
with the buyer. Risk Transference involves shifting the negative impact of a risk,
along with the ownership of the response, to a third party. Risk transference nearly
always involves payment of a premium to the party taking on the risk. Examples
are use of performance bonds, warranties, and fixed price contracts.
 The Risk Register contains the results of the Perform Qualitative Risk Analysis,
Perform Quantitative Risk Analysis, and Plan Risk Responses. It details all
identified risks, including description, category, and cause, probability of occurring,
and impact on objectives, proposed responses, owners, and current status.
 A tornado diagram is useful for comparing the relative importance of variables that
have a high degree of uncertainty to those that are more stable.
 You are analyzing the risk in a project. A probability and impact matrix contains
risk prioritized according to their potential implications for meeting the project’s
objectives. The typical approach is: To use look up table or probability and impact
matrix with specific combinations of probability and impact that lead to a risk being
rated as “high”, moderate or low importance. The importance for planning
responses to the risks are usually set by the organization.
 A tornado diagram is a sensitivity analysis tool. This technique is used during the
Perform Quantitative Risk Analysis process.
 Recognizing the risk and not changing the plan, but making some contingencies
in the event the risk is triggered is an example of active acceptance. Passive
acceptance would be if no contingencies were put in place and avoidance would
be correct if the project plan were modified. Avoidance involves changing the
project management plan to eliminate the threat posed by an adverse risk, isolating
the project objectives from the risk's impacts or to relax the objective that is in
jeopardy, such as extending the schedule or reducing scope. Transference
involves shifting the negative impact of a threat along with the ownership of the
response. Mitigation implies a reduction in the probability and/or impact of an
adverse risk. Postponement is not a valid strategy since it does not address the
risk.
 The response 'Sigma distribution' is not a valid distribution. Continuous probability
distributions represent the uncertainty in values, such as durations of schedule
activities and costs of project components. Triangular, Beta, Logarithmic, Normal
and Uniform distributions are other examples of commonly used distributions.
 Qualitative analysis examines risks from the risk register and analyzes its
probability of occurrence and the impact it would have on the project deliverables
if it did occur. It ranks risks for future action or analysis by evaluating their
probability of occurrence and impact.
 Expected monetary value (EMV) analysis is a statistical concept that calculates
the average outcome when the future includes scenarios that may or may not
happen. The EMV of opportunities will generally be positive values, while risks will
result in negative values.
 A Diagramming technique that is a graphical representation of situations showing
causal influences, time-ordering of events and other relationships among variables
and outcomes is known as an Influence Diagram. The Cause-and-effect diagram
also identifies the causes of risk, but does not have the time-ordering of events.
 Failure Mode and Effect Analysis is an analytical procedure in which each potential
failure mode in every component of a product is analyzed to determine its effect
on the reliability of that component and the reliability of the product or system as a
whole.
 A risk re-assessment is a technique that involves re-evaluating project risks and
identifying new risks that arise as the project moves forward. These risks are
evaluated and placed in the risk register.
 Series of interviews with various stakeholders to gather some experiential and
historical information on risks. This is an example of obtaining Expert Judgment
during the Perform Qualitative Risk Analysis process. The Perform Quantitative
Risk analysis process numerically analyzes the prioritized project risks obtained
through the Perform Qualitative Risks Analysis process.
 A Risk Breakdown Structure (RBS) lists identified project risks hierarchically by
risk category and subcategory that identifies the various areas and causes of
potential risks. The lowest level in the RBS can be used as a basic risk checklist
to cover all identified risks. The other statements are all true. The lowest level of
the risk breakdown structure. The lowest level of the RBS can be used as a risk
checklist. These statements are true about risk checklist:
 It is impossible to build an exhaustive checklist
 Quick and simple risk checklist are the least effective ones
 Risk checklists should be reviewed during project closure
 The impact scale will contain the probabilities of certain risks occurring, and will
contain values from 0 to 1. A value of 0 indicates non-occurrence of the risk while
1 is a certainty.
 The Risk Breakdown Structure (RBS) is a hierarchically organized depiction of
identified project risks arranged by risk category and subcategory. This may be
based on a previously prepared categorization framework The RBS serves to
remind participants in the risk identification exercise of the different sources from
which risk may project arise.
 A project manager has decided to use data decision tree to do a build or upgrade
analysis. The build requires an investment of $200M (where M represents million).
On the build decision branch, there is a 60% probability of strong demand (yielding
a revenue of $400M) and a 40% probability of weak demand (yielding a revenue
of $150M). What is the expected monetary value (EMV) of the build? The payoff
for the strong demand scenario is: $ 400 M - $ 200 M = $ 200 M (since the initial
investment is $ 200 M). The payoff for the weak demand scenario is: $ 150 M - $
200 M = - $ 50 M. Hence the EMV is computed as: (0.6 × 200) + (0.4 × -50) where
0.6 represents the 60% probability of the strong demand and 0.4 represents the
40% probability of the weak demand scenario. = 120 - 20 = $ 100 M. Hence the
expected monetary value is $ 100 M.
 If a project has a 60% chance of a US$100,000 profit and a 40% chance of a
US$100,000 loss, the expected monetary value of the project is:
 EMV=Probability × Impact .6 × $100,000=$60,000 … .4 × ($100,000) =
($40,000) … $60,000-$40,000=$20,000 profit.
 Decision tree analysis is used to calculate the average outcome when the future
includes scenarios that may or may not happen. In a decision node, the input is
the cost of each decision while the output is a decision made.
 Out puts of the Plan Risk Responses processes include: Residual Risks, fallback
plans, and contingency reserves.
 A watch list is an output of which risk management process: Perform qualitative
risk analysis
 Plan Risk Responses process most affects the project management plan.
 Residual risks, fallback plans, and contingency reserves are the outputs of the Plan
Risk Responses process.
 A risk may have one or more causes and, if it occurs, may have one or more
impacts
 What are a decision node’s inputs and outputs? Input: cost of decision Output:
decision made
 Workaround are determined during which risk management process? Control
risks.
CHAPTER 12: PROJECT PROCUREMENT MANAGEMENT
Figure 12-1. Project Procurement Management Overview
PROJECT PROCUREMENT MANAGEMENT:
 Includes the processes required to acquire goods or services from outside
the project team.
 It also includes Contract Management and Change Control Processes
 Includes controlling an contract issues by an outside organization

PROCUREMENT STATEMENT OF WORK:

Describes the procurement item in sufficient detail to allow prospective sellers to
determine if they are capable of providing the product, services, or results.

TYPES OF PROCUREMETN STATEMENT OF WORK:

1. Performance
2. Functional
3. Design

CONTRACT: A contract is nothing but a legally binding agreement between two or

more parties. Usually one party is known as a buyer and another as a seller. The contract
is the key between the buyer and seller relationship. It determines the way they will deal
with each other.

Procurement contracts can be broadly divided into three categories:

1. Fixed Price Contract
2. Cost Reimbursable Contract, and
3. Time and Materials

1. Fixed Price Contract:

A Fixed Price Contract is also known as a lump-sum contract. This type of contract is
used when there is no uncertainty in the scope of work. Once the contract is signed, the
seller is legally bound to complete the task within the agreed amount of money or time.
Since the seller has to complete the task within a fixed amount, he bears the risks.

A Fixed Price Contract can be further divided into three categories:

 A. Firm Fixed Price Contract (FFP)
B. Fixed Price Incentive Fee Contract (FPIF)
C. Fixed Price with Economic Price Adjustment Contracts (FP-EPA)
D. Purchase order

The main advantage of Fixed Price Contract is that both parties know the scope of the
work, and the total cost of the task before the work is started.
Generally, outsourcing and turnkey procurement contracts are signed under a fixed price
contract on a deliverables basis.
This type of contract is very useful if the scope of work is defined accurately. Fixed price
contracts are good for controlling the cost. However, changes in scope must be carefully
observed, otherwise the cost of the project may be elevated significantly because it is
seen that the contractors get the contract by bidding the lower price and then try to cover
the cost with any opportunity, such as added scope.

A. Firm Fixed Price Contract (FFP)

This is the simplest type of procurement contract. In this type of contract, the fee is fixed.
The seller has to complete the job within an agreed amount of money and time. Any cost
increase due to bad performance of the seller will be the responsibility of the seller, who
is legally bound to complete the job within the agreed amount.
A Firm Fixed Price Contract is mostly used in government or semi-government contracts
where the scope of work is specified with every possible detail.
This type of contract is easy to float on the market, receive bids, and evaluate the bids
primarily on a cost basis.
Since the risk is borne by the seller, the cost tends to be higher. Another drawback of a
Firm Fixed Price Contract is that, if the scope is not clear, there can be disputes between
the buyer and the seller. Moreover, any deviation from the original scope can cost you a
lot.
Example: The seller has to complete the job for $100,000 USD within 18 months.

B. Fixed Price Incentive Fee Contract (FPIF)

In this type of contract, although the price is fixed, the seller is given an additional
incentive based on his performance. This incentive lowers the risk borne by the seller.
The incentive can be tied to any project metrics such as cost, time, or technical
performance.
Example: 10,000 USD will be paid to contractor as an incentive if he completes the work
before two months.

C. Fixed Price with Economic Price Adjustment Contracts (FP-EPA)

If the contract is multi-year long, a Fixed Price with Economic Price Adjustment Contract
is used. Here you include a special provision in a clause which protects the seller from
inflation.
Example: About 3% of the cost of the project will be increased after a certain time duration
based on the Consumer Price Index.
This type of contract is used to buy commodities.
Example: Buy 10,000 bolts at the cost of $1.00 USD.
D. Purchase Order
Purchase order is the simplest type of fixed price contract. It is normally unilateral (signed
by one party).

2. Cost Reimbursable Contract:

This contract is also known as a Cost Disbursable Contract. In this type of contract, the
seller is reimbursed for completed work plus a fee representing his profit. Sometimes this
fee will be paid if the seller meets or exceeds the selected project objectives; for example,
completing the task before time or completing the task with less cost, etc.
A Cost Reimbursable Contract is used when there is uncertainty in the scope, or the risk
is higher. In this contract, since the buyer pays for all cost, he bears the risk.
Scope Creep is an inherent drawback of a Cost Reimbursement Contract, especially
when there is no clarity in the requirements. The seller will always try to elevate the cost
because it will be tied to some sort of fee.
However, this difficulty can be minimized with proper management of the contract and
capping the seller’s profit; e.g. 10% of the total cost.
Cost Reimbursable Contracts can be further divided into four
categories:
A. Cost Contract
B. Cost Plus Fixed Fee Contract (CPFF)
C. Cost Plus Incentive Fee Contract (CPIF)
D. Cost Plus Award Fee (CPAF)
E. Cost Plus Percentage of Cost (CPPC)

A Cost Reimbursable Contract provides you with better cost control when you don’t have
a well-defined scope.
A. Cost Contract
A cost contract is one in which the seller receives no fee (profit). It is appropriate for work
performed by non-profit organization. For example, cost for work and material, there is no
profit.
B. Cost Plus Fixed Fee Contract (CPFF)
In this type of contract, the seller is paid for all his cost incurred plus a fixed fee (which
will not change), regardless of his performance. Here, the buyer bears the risk.
This type of contract is used in projects where risk is high, and no one is interested in
bidding. Therefore, this type of contract is selected to keep the seller safe from risks.
Example: Total cost plus $25,000 USD as a fee.
C. Cost Plus Incentive Fee Contract (CPIF)
In a Cost plus Incentive Fee Contract, the seller will be reimbursed for all costs plus an
incentive fee based upon achieving certain performance objectives mentioned in the
contract. This incentive will be calculated by using an agreed predetermined formula.
Here the risk also lies with the buyer; however, this risk is lower than the Cost plus Fixed
Fee where the buyer has to pay a fixed fee along with the cost incurred.
In a Cost plus Incentive Fee Contract, the incentive is a motivating factor for the seller. If
the seller is able to complete the work with less cost or able to complete it before time, he
may get some incentive.
Most of the time incentive is a percentage of the savings, which is shared by the buyer
and the seller.
Example: If the project is completed with lesser cost, 25% of remaining fund will be given
to the seller.
D. Cost Plus Award Fee (CPAF)
Here, the seller is paid for all his legitimate costs plus some award fee. This award fee
will be based on achieving satisfaction on the certain performance objectives described
in the contract.
The evaluation of performance is a subjective matter, and you cannot appeal it.
There is a difference between the incentive fee and the award fee. An incentive fee is
calculated based on a formula defined in the contract, and is an objective evaluation. An
award fee is dependent on the satisfaction of the client and is evaluated subjectively.
Award fee is not subjected to an appeal.
Example: If the seller completes the task meeting or exceeding all quality standards,
based on his performance he may be given an award of up to $10,000 USD.

E. Cost Plus Percentage of Cost (CPPC)

Here the seller is paid for all costs incurred plus a percentage of these costs. This type of
contract is not preferred, because the seller might artificially increase the cost to earn a
higher profit.
Example: Total cost plus 15% of cost as a fee to contractor.
 Figure 12-2. Fixed Price vs. Cost Reimbursable

Figure 12-3. Contract Type Selection

HIGH LOW
BUYER’S RISK

CPFF CPIF FPI FFP

Cost Plus Cost Plus Fixed Firm
Fixed Incentive Price Fixed
Fee Fee Incentive Price

SELLER’S RISK
HIGH
LOW
3. Time and Materials Contract:

This is a hybrid contract of Fixed Price and Cost Reimbursable Contracts. Here the risk
is distributed to both parties.
A Time and Materials type of contract is generally used when the deliverable is “labor
hours.” In this type of contract, the project manager or the organization will provide the
qualification or experience to the contractor to provide the staff.
This type of contract is used to hire some experts or any outside support.
Here the buyer can specify the hourly rate for the labor with a “not-to-exceed” limit.
Example: Technician will be paid $20 USD per hour.

Summary:
Selecting the contract type is a very important decision for a project manager. It
determines your relationship with the seller and mitigates the risks.
You should always select a contract which provides the optimum value for your time and
money, and protects your project from any risks.
If the scope of work is definite and fixed, you should go for the Fixed Price Contract.
However, if the project scope is not fixed and is exploratory, you should choose the Cost
Reimbursable Contract.
Close Procurement:
“Close Procurement is the process of completing each project procurement. It supports
the Close Project or Phase Process.” If you notice this definition, you will see that the
definition itself is trying to clarify that the Close procurement is different than the Close
Project, and in fact Close Procurements supports the Close Project.
Close Procurement is also known as Contract Closure. A procurement is said to be closed
when the contract reaches its deadline and it ends. A project can have multiple
procurement contracts, or a single contract. If the project has multiple contracts, then the
Close Procurement Process will be performed multiple times with each procurement
contract, and if the project has no contract then there will be no Close Procurement
Process.

Close Project:
“Close Project or Phase is the process of finalizing all activities across all of the project
management process groups to formally complete the project or phase.” Close Project or
Phase Process is performed when the project or phase is finally completed and
deliverables are accepted. To complete the close project or phase, the close procurement
process must have been finished, otherwise the project closure cannot happen; however,
this is not the case for Close Procurement where Project Closure is not required in order
to complete the Close Procurement.
Time to see how this applies to our trademark school building example
You have identified that to construct the school building, some works are going to be
performed by procurement, and you prepare the list as follows:
 Earth excavation work
 Electrical work
 Carpentry work, and
 Painting
Before starting the construction work you need a little excavation work completed, and
you contract it to any contractor. He comes and finishes the work, and you give him the
agreed amount of money and closed this procurement contract. Afterwards, you start your
work and build the structure.
Now you need to do electrical work that is also to be performed by procurement. The
contractor comes, does his part, and you released him by paying the agreed amount of
money, and the contract is closed.
After, you need carpentry and painting works, and these works were already procured;
therefore, contractors come and after finishing their job, they take their payment and left
the site. This contract are also closed.
The building is ready, so you call the client to come inspect it. The client comes and
verifies the scope with you, and once he is satisfied, he accepts the building, signs the
acceptance letter and all pending payments are released. Once you get the payment, you
update the lessons learned, release the team and resources, and finally you close the
Project.
Key Points:
 Close Procurement must happen before Close Project or Phase.
 Close Procurement can occur many times in life-cycle of the project, but the Project
Closure will be performed once; i.e. at the end.
 Deliverables are accepted in Close Project.
 Every project must be gone through the Close Project process, even it is
terminated.
Attention:
 Agreement: A document or communication that outlines internal and external
relationship, and their intentions.
 Contract: A type of written or verbal agreement, typically created with an external
entity, when there is some exchange of goods or services for some type of
compensation. The contract forms legal relationship between the entities.
 Centralized contracting: One procurement department and the procurement
manager handles procurement for many projects.
 Decentralized contracting: A procurement manager is assigned to one project
full time and report directly to the project manager.
 Contract administrator and project manager:
 The contract administrator is the only one with the power to change the contract.
 Requirements for legal contract:
a) Offer
b) Acceptance
c) Consideration
d) Legal capacity
e) Legal purpose
 What is included in the contract?
a) Legal term
b) Business term regarding payments
c) Reporting requirements
d) Marketing literature
e) Proposal
f) Procurement statement of work
 Procurement document:
a) RFP (Request for proposal)
b) IFB (Invitation for bid)
c) RFQ (Request for quotation)
d) RFI (Request for information), some considered a procurement document,
though it does not really belonging to procurement document.
 Ceiling price: The higher price the buyer will pay.
 Point of total assumption: For fixed price incentive fee contract, the amount
above which the seller bears all the loss of a cost overrun.
 Letter of intent: A letter from the buyer, without legal binding, say the buyer intend
to hire the seller.
 Privity: A contracted relationship between two or more companies.
 Source selection criteria: Factor, the buyer will use to evaluate (weight or score)
response from the seller.
 A contract change control system should include Paperwork, tracking system,
dispute resolution procedures, and approval levels necessary for authorizing
changes.
 As part of the close procurements process, the project manager prepared a
complete set of indexed contract documentation including the closed contract, to
include with the final project files. This is called a: Procurement file.
 Performance requirements describes the performance required by the customer,
not the functionally. They do not precisely describe everything that needs to be
done.
 A project is contracted as a cost plus incentive fee (CPIF) type of contract. The
project was negotiated such that if the final costs are less than the expected costs,
the sharing formula for cost savings is 75:25. The targeted cost is US$100,000
with an 8% incentive fee on the targeted cost. If the project comes in at US$80,000,
what would be the cost of the total contract? The correct answer is US$ 93,000.
The calculation is as follows: Incentive fee based on budgeted costs = 8% of
100,000 = 8,000 Actual costs = 80,000 Share of cost savings = 25% of 20,000 =
5,000 (since the cost savings is 100,000 - 80,000) Hence the payout = 80,000 +
8,000 + 5,000 = US$ 93,000. [PMBOK 5th edition, Page 364] [Project Procurement
Management]
a) US$ 108,000
b) US$ 93,000
c) US$ 112,000
d) US$ 91,000
 A project is contracted on a cost plus incentive fee (CPIF) basis. The contract
states that if the final costs are less than expected costs, the sharing formula for
cost savings is 80:20. The targeted cost is US$ 5000,000 with a 10% fee. If the
project comes in at US$450,000, what would be the total cost of the contract? In a
Cost-Plus-Incentive-Fee (CPIF) type of contract, the seller is reimbursed for
allowable costs for performing the contract work and receives a predetermined fee.
In some cases, if the final costs are less than the expected costs, then both the
buyer and the seller benefit from the cost savings based on a pre-negotiated
sharing formula. In the current situation, the predetermined fee is 10% of US$
500,000 = US$ 50,000. Since the project came in at US$ 450,000, the savings is
500,000 - 450,000 = 50,000. The sharing formula is 80:20, hence the additional
payout to the seller = (20/100) * 50,000 = 10,000. Hence the value of the total
contract = 450,000 + 50,000 + 10,000 = US$ 510,000. [PMBOK 5th edition, Page
364] [Project Procurement Management]
a) US$ 495,000
b) US$ 510,000
c) US$ 505,000
d) US$ 550,000
 A project is contracted as time and materials type of contract. The service provider
initially estimates that the total effort involved would be about 1000 hours of effort.
The project is contracted at a rate of US$75 per hour of effort. If the project ends
up with 1200 hours of effort, what will the contract payout be? The correct answer
is US$ 90,000. Since this is a T&M contract, the contract is open-ended in value.
Hence the contract value is the actual effort multiplied by the agreed rate = US$
75 × 1200 = US$ 90,000. [PMBOK 5th edition, Page 364] [Project Procurement
Management]

a) US$75,000
b) US$90,000
c) US$82,000
d) US$120,000

 A project is contracted as a cost plus fixed fee (CPFF) basis. The targeted cost is
US $ 200,000 with a fee of US $30.000. If the project comes in at US$30,000. If
the project comes in at US $170,000, what would be the total cost of the contract?
In a Cost-Plus-Fixed-Fee (CPFF) type of contract, the seller is reimbursed for
allowable costs and receives a fixed fee payment calculated as a percentage of
the estimated project costs. The fixed fee does not vary with actual costs unless
the project scope changes. In the current scenario, the fixed fee is fixed up as US$
30,000. Although the actual project comes in at 170,000, the fixed fee remains the
same. Hence the total cost to the project will be 170,000 + 30,000 = 200,000.
[PMBOK 5th edition, Page 364] [Project Procurement Management]

a) US$ 195,500
b) US$ 230,000
c) US$ 200,000
d) US$ 170,000
 A project is contracted on a cost plus fixed fee (CPFF) basis with a fee of 10% of
estimated costs. The estimated cost is US$ 50,000. If the project comes in at US$
75,000 with no changes in project scope, what would be the total cost of the
contract? In the Cost-Plus-Fixed-Fee (CPFF) type of contract, the seller is
reimbursed for allowable costs for performing the contract work and receives a fee
calculated as an agreed-upon percentage of the costs. The costs vary depending
on the actual cost. The fee is based on estimated costs unless the scope of the
project changes. For the current project, the agree-upon percentage of costs is
10%. The actual cost is US$ 75,000 even though the initial estimate was US$
50,000. However, the fee is calculated as 10% of 50,000 = (10/100) × 50,000 =
5,000. The total cost of the contract is 75,000 + 5,000 = US$ 80,000. [PMBOK 5th
edition, Page 364] [Project Procurement Management]

a) US$ 55,000
b) US$ 125,000
c) US$ 75,000
d) US$ 80,000

 You have received a proposal for an RFP that was sent to vendors. One of the
vendors has proposed doing the project for $12,500. The cost for the project is
$10.000 and their profit will be $2,500. Which type of contract is most suitable for
this situation? Apparently it looks like the vendor is asking for a cost plus fixed fee
contract. However, the vendor is actually looking for a fixed price contract when
they asked for a fixed $12,500. The cost and fee are just the components the
vendor has estimated to come up with a final price. [PMBOK 5th edition, Page 362,
363] [Project Procurement Management]

a) Cost plus fixed fee

b) Cost plus percentage of cost
c) Fixed price
d) Cost plus inventive fee
 You are trying to decide whether to lease or buy an item for your project. The daily
lease cost is $120. To purchase the item, the investment cost is $1000 and the
daily maintenance cost is $20. How long will it take for the lease cost to be the
same as the purchase cost? This calculation helps a project manager decide
whether it to buy or lease. The calculation says that the costs are the same after
10 days. Therefore, if you are planning to use the item for fewer than 10 days, you
should lease. If you are planning to use it more than 10 days, it would be cheaper
to buy the item. These costs are then included in the project cost estimate.
$120 D= $1,000 + $20D
$120D - $20D = $1,000
$100D = $1,000
D = 10
 Contracts are risk mitigation tools.
 The time and material contract is the easiest to negotiate and allows for rapid
turnaround. If you didn’t have the time constraint, you would select a fixed price
contract.
 Both systems (Change Control System and Contract Change control System)
includes procedures. A trend analysis is not usually part of either system. A
contract change control system requires more, not less, documentation than a
project change control system. Contracts are legal documents and, therefore,
generally require more sign-offs.
 A procurement audit is a structured review that flushes out issues and identifies
lessons learned.
 What type of contract do you not want to use if you do not have enough labor to
audit invoices? CPFF (Cost plus fixed fee)
CHAPTER 13: PROJECT STAKEHOLDER MANAGEMENT
Figure 13-1. Project Stakeholder Management Overview
STAKEHOLDER MANAGEMETN PLAN:
Includes the processes required to:
 Identify the people, groups, or organizations that could impact or be impacted by
the project.
 Analyze stakeholder expectations and their impact on the project
 Develop appropriate management strategies for effectively engaging stakeholders
in project decision and execution

A stakeholder can be:

 A sponsor
 Project team
 Higher management
 End user of the project’s outcome
 Someone affected by the project, or the project’s outcome
 Someone who has any kind of interest in the project, or the project’s outcome

Stakeholders can be grouped into two categories:

1. Internal, and
2. External

Internal Stakeholders:
These stakeholders are internal to the organization; e.g.
 A sponsor
 Internal customer or client (if project arose due to internal need of an organization)
 Project team
 A program manager
 A portfolio manager
 Management
 Other group’s manager internal to the organization; e.g. functional manager,
operational manager, admin manger, etc.
External Stakeholders:
These stakeholders are external to the organization; e.g.
External customer or client (if project arose due to a contract)
 End users of project’s outcome
 Supplier
 Sub-contractors
 Government
 Local communities
 Media

Stakeholder Classification:
 Stakeholders can be classified based on their power and interest, power and
influence, influence and impact, and power, urgency and legitimacy
 Among all, power and interest classification is the most widely used to classify the
stakeholders
Stakeholder Management Strategy:
 It is a plan which is developed to keep satisfied all stakeholders by fulfilling their
expectations and requirements
 It ensures receiving full cooperation from the stakeholders with minimum
obstruction
 It should be kept in a secure place because it may contain sensitive information
that cannot be shown to everybody
TOOL AND TECHNIQUES OF IDENTIFY THE STAKEHOLDERS:
 Stakeholder Analysis: gathering & analyzing information to
determine stakeholder in 3 steps:
1. Identify all potential stakeholders & relevant information (roles, departments,
interests, knowledge levels, expectations & influence levels).
2. Identify potential impact or support each stakeholder could generate (power-
interest)
3. Assess how key stakeholders are likely to react or respond to various situations.

STAKEHOLDER REGISTER:
A project document including the identification, assessment, and classification of the
stakeholders.
Figure 13-2. Power-Interest Grid
ANALYTICAL TECHNIQUES, ENGAGEMENT LEVELS:
1. Unaware
2. Resistant
3. Neutral
4. Supportive
5. Leading

Figure 13-3. Stakeholders Engagement Assessment Matrix

Where C indicates the current engagement, and D indicates the desired engagement

Attention:
 Culture-centric is not rally a defined term. Egotistical refers to being self centered.
Enlightened self-interest refers to persons who act to further the interests of others
(or the interest of the group or groups to which they belong), ultimately serving
their own self-interest. Since neither egotistical nor enlightened self-relate to
culture, neither can be the best choice. Ethnocentric means tending to look at the
world primarily from the perspective of one’s own culture, and is therefore the best
choice.
 Giving stakeholders extras is known as gold plating. This is not effective
stakeholder or quality management.
 The requirement traceability matrix and stakeholder register are project
documents, not parts of the project management plan. Most project documents are
created by the project manager for his or her use during the project, and do not
require outside approval for changes.
 A salience model is used in stakeholder analysis to classify stakeholders based on
their: power, urgency, and legitimacy.
 By assessing potential problems with stakeholder engagement, the team is able
to identify and address related risks to project success.
 When do stakeholders have the most influence on a project? At the beginning of
the project because in order to determine their requirements and expectations.
Although stakeholders have an impact throughout the project.
 CHAPTER 14: BLIND LEARNING

In this chapter you have to memorize the following tables.

 Project Management Process Group and Knowledge Area Mapping:

Knowledge Project Management Process Groups

Areas Initiating Planning Executing Monitoring Closing
and
Controlling
Project Integration 1 Develop 2 Develop Project 3 Direct and 4 Monitor and 6 Close Project
Project Charter Management Plan Manage Project Control Project or Phase
Management
Work 5 Perform
Integrated Change
Control
Project Scope 1 Plan Scope 5 Validate Scope
Management 6 Control Scope
Management
2 Collect
Requirements
3 Define Scope
4 Create WBS
Project Time 1 Plan Schedule 7 Control Schedule
Management
Management
2 Define Activities
3 Sequence
Activities
4 Estimate Activities
Resources
5 Estimate Activities
Durations
6 Develop Schedule

Project Cost 1 Plan Cost 4 Control Cost

Management
Management
2 Estimate Cost
3 Determine Budget

Project Quality 1 Plan Quality 2 Perform Quality 3 Control Quality

Management Assurance
Management
Project Human 1 Plan Human 2 Acquire Project
Resources Team
Resources
Management 3 Develop Project
Management Team
4 Manage Project
Team
Project 1 Plan 2 Manage 3 Control
Communications Communications Communications
Communication
Management
Management
Project Risk 1 Plan Risk 6 Control Risk
Management
Management
2 Identify Risk
3 Perform
Qualitative Risk
Analysis
4 Perform
Quantitative Risk
Analysis
5 Plan Risk
Responses
Project 1 Plan Procurement 2 Conduct 3 Control 4 Close
Management Procurement Procurement Procurement
Procurement
Management
Project 1 Identify 2 Plan Stakeholders 3 Manage 4 Control
Stakeholders Management Stakeholders Stakeholders
Stakeholders
Engagement Engagement
Management
 Project Integration Management Overview:
1. Develop Project Charter 2. Develop Project Management Plan 3. Direct and Manage Project Work

 Inputs  Inputs  Inputs

1. Project Statement of Work 1. Project Charter 1. Project management plan
2. Business Case 2. Outputs from other 2. Approved change requests
3. Agreements processes 3. Enterprise Environmental
4. Enterprise Environmental factors 3. Enterprise Environmental factors
5. Organizational Process Assets factors 4. Organizational Process
4. Organizational Process Assets
 Tools and Techniques Assets
1. Expert judgment  Tools and Techniques
2. Facilitation techniques  Tools and Techniques 1. Expert judgment
1. Expert judgment 2. Project management
 Outputs 2. Facilitation techniques information system
1. Project Charter 3. Meetings
 Outputs
1. Project management plan  Outputs
1. Deliverables
2. Work performance data
3. Change request
4. Project management plan
updates
5. Project documents
updates
4. Monitor and Control Project 5. Integrated Change Control 6. Close Project or Phase
 Inputs
1. Project management plan  Inputs  Inputs
2. Schedule forecasts 1. Project management plan 1. Project management plan
3. Cost forecasts 2. Work performance reports 2. Accepted deliverable
4. Validated changes 3. Change request 3. Organizational Process
5. Work performance information 4. Enterprise Environmental Assets
6. Enterprise Environmental factors factors
7. Organizational Process Assets 5. Organizational Process  Tools and Techniques
Assets 1. Expert judgment
 Tools and Techniques 2. Analytical techniques
1. Expert judgment  Tools and Techniques 3. Meetings
2. Analytical techniques 1. Expert judgment
3. Project management information 2. Meetings  Outputs
system 3. Change control tools 1. Final product, service, or
4. Meetings result transition
 Outputs 2. Organization process
 Outputs 1. Approved change requests assets updates
1. Change requests 2. Change log
2. Work performance reports 3. Project management plan
3. Project management plan updates
updates 4. Project documents updates
4. Project documents updates
 Project Scope Management Overview
1. Plan Scope Management 2. Collect Requirements: 3. Define Scope:
 Inputs  Inputs  Inputs
1. Project management 1. Scope management plan 1. Scope management plan
plan 2. Requirements 2. Project charter
2. Project charter management plan 3. Requirement
3. Enterprise 3. Stakeholders documentation
Environmental factors management plan 4. Organizational process
4. Organizational Process 4. Project charter assets
Assets 5. Stakeholders register
 Tools and Techniques
 Tools and Techniques  Tools and Techniques 1. Expert judgement
1. Expert judgment 1. Interviews 2. Product analysis
2. Meetings 2. Focus groups 3. Alternative generation
3. Facilitated workshops 4. Facilitated workshops
 Outputs 4. Group creative
1. Scope management plan techniques  Outputs
2. Requirements 5. Group decision making 1. Project scope statement
management plan techniques 2. Project documents
6. Questionnaires and updates
surveys
7. Observations
8. Prototypes
9. Benchmarking
10. Context diagrams
11. Documents analysis

 Outputs
1. Requirement
documentation
2. Requirements
traceability matrix

4. Create WBS: 5. Validate Scope: 6. Control Scope:

 Inputs  Inputs  Inputs
1. Scope management plan 1. Project management 1. Project management
2. Project scope statement plan plan
3. Requirement 2. Requirement 2. Requirement
documentation documentation documentation
4. Enterprise 3. Requirements 3. Requirements
Environmental factors traceability matrix traceability matrix
5. Organizational Process 4. Verified deliverables 4. Work performance data
Assets 5. Work performance data 5. Organizational Process
Assets
 Tools and Techniques  Tools and Techniques
1. Decomposition 1. Inspection  Tools and Techniques
2. Expert judgement 2. Group decision making 1. Variance analysis
techniques
 Outputs  Outputs  Outputs
1. Scope base line 1. Accepted deliverables 1. Work performance
2. Project documents 2. Change requests information
updates 3. Work performance 2. Change requests
information 3. Project management
4. Project documents plan updates
updates 4. Project document
updates
5. Organizational Process
Assets
 Project Schedule Management Review
1. Plan Schedule 2. Define Activities 3. Sequence activities
Management  Inputs  Inputs
 Inputs 1. Schedule management 1. Schedule management plan
1. Project management plan plan 2. Activity list
2. Project charter 2. Scope baseline 3. Activity attributes
3. Enterprise Environmental 3. Enterprise Environmental 4. Milestone list
factors factors 5. Project Scope Statement
4. Organizational Process 4. Organizational Process 6. Enterprise Environmental
Assets Assets factors
 Tools and Techniques  Tools and Techniques 7. Organizational Process
1. Expert judgment 1. Decomposition Assets
2. Analytical techniques 2. Rolling Wave Planning  Tools and Techniques
3. Meetings 3. Expert judgment 1. Precedence diagraming(PDM)
 Outputs  Outputs 2. Dependency determination
1. Schedule management 1. Activity list 3. Leads and Lags
plan 2. Activity attributes  Outputs
3. Milestone list 1. Project schedule diagram
2. Project document updates
4. Estimate Activity 5. Estimate Activity Durations 6. Develop Schedule
Resources Inputs  Inputs
 Inputs 1. Schedule management 1. Schedule management plan
1. Schedule management plan 2. Activity list
plan 2. Activity list 3. Activity attributes
2. Activity list 3. Activity attributes 4. Project schedule diagrams
3. Activity attributes 4. Activity resource 5. Activity resource requirement
4. Resources calendars requirement 6. Resources calendars
5. Risk register 5. Resources calendars 7. Activity duration estimate
6. Activity cost estimate 6. Project scope statement 8. Project scope statement
7. Enterprise Environmental 7. Risk register 9. Risk register
factors 8. Resource breakdown 10. Project staff assignments
8. Organizational Process structure 11. Resource breakdown
Assets 9. Enterprise Environmental structure
 Tools and Techniques factors 12. Enterprise Environmental
1. Expert judgement 10. Organizational Process factors
2. Alternative analysis Assets 13. Organizational Process
3. Publishing estimating  Tools and Techniques Assets
data 1. Expert judgement  Tools and Techniques
4. Bottom up estimate 2. Analogous estimating 1. Schedule network analysis
5. Project management 3. Parametric estimating 2. Critical path method
software 4. Three point estimating 3. Critical chain method
 Outputs 5. Group decision making 4. Resources optimization
1. Activity resource techniques techniques
requirements 6. Reserve analysis 5. Modeling techniques
2. Resource breakdown  Outputs 6. Leads and Lags
structure 1. Activity duration estimate 7. Schedule compression
3. Project document 2. Project document updates 8. Scheduling tools
updates  Outputs
1. Schedule baseline
2. Project schedule
3. Schedule data
4. Project calendars
5. Project management plan
updates
6. Project document updates
7. Control Schedule
 Inputs
1. Project management plan
2. Project schedule
3. Work performance data
4. Project calendars
5. Schedule data
6. Organizational Process
Assets
 Tools and Techniques
1. Performance reviews
2. Project management
software
3. Resources optimization
techniques
4. Modeling techniques
5. Lead and lag
6. Schedule compression
7. Scheduling tools
 Outputs
1. Work performance
information
2. Schedule forecasts
3. Change request
4. Project management plan
updates
5. Project document
updates
6. Organizational Process
Assets
 Project Cost Management Overview
1. Plan Cost Management 2. Estimate Cost 3. Determine Budget
 Inputs  Inputs  Inputs
1. Project management plan 1. Project management 1. Cost management
2. Project charter plan plan
3. Enterprise Environmental 2. Human resource 2. Scope baseline
factors management plan 3. Activity cost
4. Organizational Process Assets 3. Scope baseline estimates
 Tools and Techniques 4. Project schedule 4. Basis of estimates
1. Expert judgment 5. Risk register 5. Project schedule
2. Analytical techniques 6. Enterprise 6. Resources
3. Meetings Environmental factors calendars
 Outputs 7. Organizational Process 7. Risk register
1. cost management plan Assets 8. Agreements
 Tools and Techniques 9. Organizational
1. Expert judgment Process Assets
2. Analogous estimating  Tools and
3. Parametric estimating Techniques
4. Bottom-up estimating 1. Cost aggregation
5. Three-point estimating 2. Reserve analysis
6. Reserve analysis 3. Expert judgment
7. Cost of quality 4. Historical
8. Project management relationship
software 5. Funding limit
9. Vendor bid analysis reconciliation
10. Group decision making  Outputs
techniques 1. Cost baseline
 Outputs 2. Project funding
1. Activity cost estimate requirements
2. Basis of estimates 3. Project documents
3. Project documents updates
updates

4. Control Cost

 Inputs
1. project management plan
2. Project funding requirements
3. Work performance data
4. Organizational Process Assets
 Tools and Techniques
1. Earned value management
2. Forecasting
3. To complete performance index
(TCPI)
4. Performance reviews
5. Project management software
6. Reserve analysis
 Outputs
1. Work performance information
2. Cost forecasts
3. Change requests
4. Project management plan
updates
5. Project documents updates
6. Organizational Process Assets
updates
 Project Quality Management Overview
1. Plan Quality Management 2. Perform Quality Assurance 3. Quality Control:
 Inputs
 Inputs 1. Quality management  Inputs
1. Project management plan 1. Project management
plan 2. Process improvement plan
2. Stakeholder register plan 2. Quality metrics
3. Risk register 3. Quality metrics 3. Quality checklists
4. Requirements 4. Quality control 4. Work performance data
documentation measurements 5. Approved change
5. Enterprise 5. Project documents requests
Environmental factors 6. Deliverables
6. Organizational Process  Tools and Techniques 7. Project documents
Assets 1. Quality management and 8. Organizational process
control tools assets
 Tools and Techniques 2. Quality audits
1. Cost benefit analysis 3. Process analysis  Tools and Techniques
2. Cost of quality 1. Seven basic quality tools
3. Seven basic quality tools  Outputs 2. Statistical sampling
4. Bench marking 1. Change request 3. Inspection
5. Design of experiments 2. Project management 4. Approved change
6. Statistical sampling plan updates requests review
7. Additional quality 3. Project documents
planning tools updates  Outputs
8. Meetings 4. Organizational process 1. Quality control
assets updates measurements
 Outputs 2. Validated changes
1. Quality management 3. Verified deliverables
plan 4. Work performance
2. Process improvement information
plan 5. Change requests
3. Quality metrics 6. Project management
4. Quality cheek lists plan updates
5. Project documents 7. Project documents
updates updates
8. Organizational process
assets updates
 Project Human Resource Management Overview
1. Plan Human Resources Management 2. Acquire Project Team 4. Develop Project Team
 Inputs  Inputs
1. Project management plan 1. Human Resource  Inputs
2. Activity resource requirements management plan 1. Human Resource
3. Enterprise Environmental 2. Enterprise management plan
factors Environmental 2. Project staff
4. Organizational Process Assets factors assignments
 Tools and Techniques 3. Organizational 3. Resource calendars
1. Organization charts and Process Assets  Tools and Techniques
position descriptions  Tools and 1. Interpersonal skills
2. Networking Techniques 2. Training
3. Organizational theory 1. Pre-assignment 3. Team building
4. Expert judgement 2. Negotiation activities
5. Meetings 3. Acquisition 4. Ground rules
 Outputs 4. Virtual teams 5. Colocation
1. Human resource management 5. Multi-criteria 6. Recognition and
plan decision analysis rewards
 Outputs 7. Personnel
1. Project staff assessment tools
assignments  Outputs
2. Resource calendars 1. Team performance
3. Project management assessments
plan updates 2. Enterprise
environmental factors
updates

4. Manage Project Team

 Inputs
1. Human Resource management
plan
2. Project staff assignments
3. Team performance
assessments
4. Issue log
5. Work performance reports
6. Organizational process assets
 Tools and Techniques
1. Observation and conversation
2. Project performance appraisals
3. Conflict management
4. Interpersonal skills
 Outputs
1. Change request
2. Project management plan
updates
3. Project documents updates
4. Enterprise environmental
factors updates
5. Organizational process assets
updates
 Project Communication Management Overview
1. Plan Communication 2. Manage Communication 3. Control Communication
Management Management Management

 Inputs  Inputs  Inputs

1. Project management plan 1. Communication management 1. Project management plan
2. Stakeholder register plan 2. Project communications
3. Enterprise Environmental 2. Work performance reports 3. Issue log
factors 3. Enterprise Environmental 4. Work performance data
4. Organizational Process factors 5. Organizational process
Assets 4. Organizational Process assets
Assets  Tools and Techniques
 Tools and Techniques  Tools and Techniques 1. Information management
1. Communication requirements 1. Communication technology system
analysis 2. Communication models 2. Expert judgement
2. Communication technology 3. Communication methods 3. meetings
3. Communication models 4. Information management  Outputs
4. Communication methods system 1. Work performance
5. Meetings 5. Performance reporting information
 Outputs 2. Change requests
 Outputs 1. Project communications 3. Project management plan
1. Communication management 2. Project management plan updates
plan updates 4. Project document updates
2. Project documents updates 3. Project documents updates 5. Organizational Process
4. Organizational Process Assets updates
Assets updates
 Project Risk Management Overview
1. Plan Risk Management 2. Identify Risks 3. Perform Qualitative Risk
 Inputs  Inputs Analysis
1. Project management  Inputs
plan 1. Risk management plan
2. Project charter 2. Cost management plan 1. Risk management plan
3. stakeholder register 3. Schedule management 2. Scope baseline
4. Enterprise plan 3. Risk register
Environmental factors 4. Quality management plan 4. Enterprise
5. Organizational Process 5. Human resource environmental factors
Assets management plan 5. Organizational process
6. Scope baseline assets
 Tools and Techniques 7. Activity cost estimates
1. Analytical techniques 8. Activity duration estimates  Tools and Techniques
2. Expert judgement 9. Stake holder register
3. Meetings 10. Project document 1. Risk probability and
11. Procurement document impact assessment
 Outputs 12. Enterprise Environmental 2. Probability and impact
1. Risk management plan factors matrix
13. Organizational Process 3. Risk data quality
Assets assessment
4. Risk urgency
 Tools and Techniques assessment
1. Documentation review 5. Risk categorization
2. Information gathering 6. Expert judgement
techniques
3. Checklist analysis  Outputs
4. Assumptions analysis
5. Diagraming techniques 1. Project document
6. SWOT analysis updates
7. Expert judgement

 Outputs
1. Risk register
4. Perform Quantitative risk 5. Plan Risk Responses 6. Control Risks
analysis  Inputs
 Inputs  Inputs 1. Project management
1. Risk management plan 1. Risk management plan plan
2. Cost management plan 2. Risk register 2. Risk register
3. Schedule management 3. Work performance data
plan  Tools and Techniques 4. Work performance
4. Risk register reports
5. Enterprise environmental 1. Strategies for negative  Tools and Techniques
factors risks or threats 1. Risk assessment
6. Organizational process 2. Strategies for positive 2. Risk audits
assets risks or opportunities 3. Variance and trend
 Tools and Techniques 3. Contingent response analysis
strategies 4. Technical performance
1. Data gathering and 4. Expert judgement measurements
representation 5. Reserve analysis
techniques  Outputs 6. Meetings
2. Quantitative risk  Outputs
analysis and modeling 1. Project management plan 1. Work performance
techniques updates information
3. Expert judgement 2. Project document updates 2. Change requests
3. Project management
 Outputs plan updates
4. Project document
1. Project document updates
updates 5. Organizational Process
Assets updates
 Project Procurement Management Overview
1. Plan Procurement 2. Conduct Procurement 3. Control Procurements
Management  Inputs  Inputs
 Inputs 1. Procurement management 1. Project management
1. Project management plan plan
plan 2. Procurement documents 2. Procurement documents
2. Requirement 3. Source selection criteria 3. Approved change
documentation 4. Seller proposal requests
3. Risk register 5. Project documents 4. Agreement
4. Activity resource 6. Make or buy decision 5. Work performance
requirements 7. Procurement statement of reports
5. Project schedule work 6. Work performance data
6. Activity cost estimates 8. Organizational Process  Tools and Techniques
7. Stakeholder register Assets 1. Contract change control
8. Enterprise  Tools and Techniques system
Environmental factors 1. Bidder conference 2. Procurement
9. Organizational Process 2. Proposal evaluation performance reviews
Assets techniques 3. Inspection and audits
 Tools and Techniques 3. Independent estimates 4. Performance reporting
1. Make or buy analysis 4. Expert judgement 5. Payment systems
2. Expert judgement 5. Advertising 6. Claim administration
3. Market research 6. Analytical techniques 7. Record management
4. Meetings 7. Procurement negotiations system
 Outputs  Outputs  Outputs
1. Procurement 1. Selected seller 1. Work performance
management plan 2. Agreements information
2. Procurement statement 3. Resource calendar 2. Change requests
of work 4. Change requests 3. Project management
3. Procurements 5. Project management plan plan updates
documents updates 4. Project documents
4. Source selection 6. Project documents updates updates
criteria 5. Organizational process
5. Make or buy decision assets updates
6. Change requests
7. Project documents
updates
4. Close Procurements
 Inputs
1. Project management
plan
2. Procurement
documents
 Tools and Techniques
1. Procurement audits
2. Procurement
negotiation
3. Record management
system
 Outputs
1. Closed procurement
2. Organizational
process assets
updates
 Project Stakeholder Management Overview
1. Identify Stakeholders 2. Plan Stakeholders 3. Manage stakeholders
 Inputs Management Engagement
1. Project charter  Inputs  Inputs
2. Procurement 1. Project management plan 1.Stakeholder
documents 2. Stake holder register management plan
3. Enterprise 3. Enterprise Environmental 2.Communication
Environmental factors factors management plan
4. Organizational Process 4. Organizational Process 3.Change log
Assets Assets 4.Organizational process
 Tools and Techniques assets
1. Stake holders analysis  Tools and Techniques  Tools and Techniques
2. Expert judgement 1. Expert judgement 1.Communication methods
3. Meetings 2. Meetings 2.Interpersonal skills
 Outputs 3. Analytical techniques 3.Management skills
1. Stake holder register  Outputs  Outputs
1. Stakeholder management 1.Issue log
plan 2.Change requests
2. Project documents 3.Project management
updates plan updates
4.Project documents
updates
5.Organizational process
assets updates
4. Control Stake holders
Engagement
 Inputs
1. Project management plan
2. Issue log
3. Work performance data
4. Project documents
 Tools and Techniques
1. Information management
system
2. Expert judgement
3. Meetings
 Outputs
1. Work performance
information
2. Change requests
3. Project management plan
updates
4. Project document
updates
5. Organizational process
assets updates
 Formulas Table for PMP
Abbreviation Name Equation Interpretation of results
PV Planned value (Planned % Complete) X
(BAC)

EV Earned Value % of completed work X

BAC
AC Actual cost
BAC Budget at
completion
CV Cost Variance CV= EV-AC Positive= under planned cost
Neutral= on planned cost
Negative= over planned cost
SV Schedule Variance SV= EV-PV Positive= ahead of schedule
Neutral= on schedule
Negative= Behind schedule
VAC Variance at VAC= BAC-EAC Positive= under planned cost
Completion Neutral= on planned cost
Negative= over planned cost
CPI Cost Performance CPI= EV/AC >1.0= under planned cost
Index Exactly 1.0= on planned cost
<1.0= over planned cost
SPI Schedule SPI= EV/PV >1.0= ahead of schedule
Performance Index Exactly 1.0= on schedule
<1.0= behind schedule
EAC Estimate at 5. EAC= BAC/CPI
Completion 6. EAC= AC+BAC-EV
7. EAC= AC+ Bottom
up ETC
8. EAC= AC+[(BAC-
EV)/(CPI*SPI)]
ETC Estimate to 4. ETC= EAC-AC
Complete(Original ETC= Re-estimate
estimates are
flawed)

ETC (When 5. ETC= (BAC-EV)/CPI

variance are
typical)

ETC (When 6. ETC=BAC-EV

variances are
atypical
TCPI To Complete 3. TCPI= (BAC- >1.0= harder to complete
Performance Index EV/(BAC-AC) Exactly 1.0= same to complete
(Based on BAC) <1.0= easier to complete

>1.0= harder to complete

Based on EAC 4. TCPI= (BAC- Exactly 1.0= same to complete
EV)/(EAC-AC) <1.0= easier to complete
N Channels Numbers of N(N-1)/2
communication
Channels
ROI Return on ROI= Net
Investment profit/investment x100
PV Present Value PV= FV/(1+r)n
FV= Future Value
r= interest rate
n= number of time
period

NPV Net Present Value NPV= The higher the better

PV0+PV1+PV2+PV-------
IRR Internal Rate of CF0 + CF1 /(1+r)1 + CF2 The higher the better
Return /(1+r)2 +CF3 /(1+r)3 +
CFn /(1+r)n = 0
CF is Cash flow generated in
the specific period, n is the
last period and r is IRR.
BCR The Benefit Cost The higher the better
Ratio
PP The pay-back The lower the better
period
LCC The life cycle cost The lower the better
ROM Rough Order of -25 to +75 percent
Magnitude -10 to +25 percent
Estimate -/+10 or -5 to +10 percent
EV or PERT (Expected Value or 3. (P+M+O)/3
Performance O= Optimistic Estimate
Evaluation Review M= Most Likely Estimate
Technique P= Pessimistic Estimate
3. (Triangular
Distribution)

4. (Beta
Distribution) 4. (P+4M+O)/6

BSDT Beta Standard (P-O)/6

Deviation of a Task P= Pessimistic
O= Optimistic
PTA Point of total (Ceiling price-target
assumption price/buyer’s share ratio)+
target cost
Profit = Revenue – Costs
Profit Margin = Profit / Revenue
ROI: ROI= Net profit/investment x100
Cash flow refers to the movement of cash into or out of the project
Reserves are dollars included in a cost estimate to mitigate cost risk by allowing for future
situations that are difficult to predict
Sunk cost is money that has been spent in the past; when deciding what projects to
invest in or continue, you should not include sunk costs
PV= Present Value: The value in today’s dollars of a future cash flow.
Net present value: The total present value (PV) of a time series of cash flows. It is a
standard method for using the time value of money to appraise long-term projects
Internal Rate of Return: Interest rate received for an investment consisting of payments
and income that occur at regular periods
Opportunity Cost: The cost given up by selecting one project over another.
Payback Period: The time it takes to recover your investment in the project before you
start accumulating profit.
Planned Value (PV): Scheduled cost of work planned in a given time. This term is also
known as Budgeted Cost of Work Scheduled (BCWS) = (Planned % Complete) X (BAC)
Earned Value (EV): The Amount of money earned from completed work in a given
time. This term is also known as Budgeted Cost of Work Performed (BCWP).
Earned Value = % of completed work X BAC
Actual Cost (AC): Actual amount of money spent to date. This term is also known as
Actual Cost of Work Performed (ACWP).