Project Management Controls Assignment.
The purpose of this course…
The course is designed to serve as a toolkit for learners to
advance their careers in project management and build on
previously gained project management knowledge. Project Management Controls Assignment.
The primary focus is on developing the skills of course
participants to readily apply the tools and techniques learned in
the class in enhancing project governance and controls and
therefore in managing the real life projects
Life Impact | The University of Adelaide
Course objectives (1)
• Knowledge and understanding of the applied techniques of project
management controls
• Knowledge and ability to capture, interpret and document the
scenarios, requirements and activities associated with project
management, governance and controls. Project Management Controls Assignment.
• Knowledge and ability to apply project management techniques to a
wide range of industries, including Information technology, defence,
construction, roll-out of government services, social, finance, medical,
research and commercialisation
• Knowledge and ability to promote team work and effective
communications in the development and support of projects.
ORDER A CUSTOM-WRITTEN, PLAGIARISM-FREE PAPER HERE
Course objectives (2)
• Knowledge and understanding of the application of appropriate
technologies to strengthen and support the project management
governance process. Project Management Controls Assignment.
• Appreciation of the benefits of continuing personal and professional
development in the field of project management.
• Appreciation of the leadership roles and knowledge of the skills
required to encourage wider community involvement in the successful
and sustainable development of projects.
• Appreciation of ethical, social and cultural issues and an understanding
of the implication of these issues in the sustainable development and
management of projects. Project Management Controls Assignment.
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Course resources
Suggested textbook:
Harold R Kerzner, Project Management: A systems approach to
planning, scheduling and controlling, Eleventh Edition, Wiley.
2013
PMBOK® Guide
Supplementary readings list and suggested books
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Course assessment
As per the course outline
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Expectations
Much of the work in this course will be carried out using
exercises and discussions during our seminars:
• participate constructively
• read the material critically
• complete all the assignments to the best of your ability, on
time
• interact respectfully with your peers.
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Additional information (1)
Please check the course web site for additional information
http://myuni.adelaide.edu.au
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Additional information (2)
• Detailed guide to Harvard style referencing
http://www.lc.unsw.edu.au/onlib/ref1.html
• Video presentation
http://www.adelaide.edu.au/myuni/onlinelearning/l
earningmodules/avoidingPlagiarism/player.html
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Copyright (for all the slides for this course)
Some of this material is reprinted from the PMBOK® Guide with permission of the
Project Management Institute, 14 Campus Boulevard, Newtown Square, PA 19073-
3299 USA. Phone: +1 (610) 356-4600, Fax: +1 (610) 482-9971.
Project Management Institute (PMI) is the world’s largest not-for-profit
membership association for the project management profession with over 700,000
members and credential holders worldwide. For further information, please visit
the PMI web site at http://www.pmi.org/. A Guide to the Project Management Body
of Knowledge, Fifth Edition (PMBOK® Guide) ©2013 Project Management
Institute, Inc. Copyright and all rights reserved.
PMI, PMP and PMBOK are registered marks of the Project Management Institute,
Inc.
PMI, PMP, PM Network, Project Management Journal, PMI today, Building
professionalism in project management® , PMBOK® Guide logo® and PMBOK®
Guide are registered marks of the Project Management Institute, Inc.
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Acknowledgements
(For all the slides for this course)
• Some slides come from Kerzner, Project Management:11th Ed, Wiley,
2013.
• Some slides come from J.Meredith and S.Mantel, Project Management:
A Managerial Approach, Wiley, 2012
• Project Management Institute, A Guide to the Project Management Body
of Knowledge, (PMBOK® Guide) – Fourth/Fifth Editions, Project
Management Institute, Inc., 2008 /2013.
• PRINCE® 2 – A Practical Handbook, Colin Bentley, Butterworth, 2009.
• Illustrations and examples from Applied Project Management Projects.
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Any questions?
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Let’s get started
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This section covers:
• Recap the key project management principles
– Project characteristics
– Project lifecycle stages
– Importance of F.E.L
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Why project planning & control?
• So what, who cares, why us?
• What are the ‘drivers’?
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So what does this mean?
• Purpose & objective(s)?
• Purpose for initiating a project is to accomplish
specific ‘outcomes’
• To focus the responsibility and authority for the
achievement of the ‘outcomes’ on an individual
or small group
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What are the project lifecycle
stages?
• Group activity
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A project definition
“A project is a temporary endeavor undertaken to
create a unique product, service, or result”.
(PMBOK® Guide , 2013, p. 2)
It is specific, timely, usually multi-disciplinary, and
always conflict ridden. Projects are parts of overall
programs and may be broken down into tasks,
subtasks, and further if desired.
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What is management?
Management is to plan, lead, organise and control
(Fayol, 1916):
• leadership of a team
• determination of team objectives
• communication control of a team with its client or
sponsor
• comparison of achievement against set objectives
• authority to change what a team is doing, and
• resolution of conflict.
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What is project management?
“Project management is the application of
knowledge, skills, tools and technique to project
activities to meet project requirements”.
(PMBOK® Guide , 2013, p. 5)
This includes establishing clear and achievable
objectives and balancing the competing
demands of scope, time and cost for quality.
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Interaction of processes
20 Time
20
Executing
Monitor & Control
Initiating Closing
Close out
Start Time Finish
Level of process
interaction
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Initiating Process
Consists of those processes performed to define a new project or a new phase
of an existing project
The initial scope is defined and initial financial resources are committed.
Stakeholders who will influence the overall outcome are identified.
The project manager is selected.
Information is captured in the project charter and stakeholder register. When
the project charter is approved, the project becomes officially authorised.
Business case assessment, approval, and funding are handled externally
The key purpose is to align the stakeholders’ expectations with the project’s
purpose
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Planning Process
Consists of those processes performed to establish the total scope of the effort,
define and refine the objectives, and develop the course of action required to
attain those objectives.
Develop the project management plan and the project documents that will be
used to carry out the project.
The complex nature of project management may require the use of repeated
feedback loops
The project management plan develops outputs that explore all aspects of the
scope, time, cost, quality, communications, human resources, risks,
procurements, and stakeholder engagement.
Tools include WBS, Critical path analysis, Gantt chart
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Executing Process
Consists of those processes performed to complete the work defined in the
project management plan to satisfy the project specifications.
Involves coordinating people and resources, managing stakeholder
expectations, as well as integrating and performing the activities of the project
in accordance with the project management plan.
During project execution, results may require planning updates and
rebaselining. This may include changes to expected activity durations, changes
in resource productivity and availability, and unanticipated risks.
A large portion of the project’s budget will be expended in performing the
Executing
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Monitoring and Controlling
Consists of those processes required to track, review, and orchestrate the
progress and performance of the project
Key benefit of this Process Group is that project performance is measured and
analysed at regular intervals, appropriate events, or exception conditions to
identify variances from the project management plan.
Involves controlling changes, monitoring the ongoing project activities against
the project management plan and influencing the factors that could circumvent
change.
Continuous monitoring provides the project team insight into the health of the
project and identifies any areas requiring additional attention.
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Closing Process
Consists of those processes performed to formally complete the project, phase,
or contractual obligations.
This Process Group also formally establishes the premature closure of the
project which may include aborted projects, cancelled projects, and projects
having a critical situation.
At project or phase closure; obtain acceptance by the customer, conduct post-
project review, document lessons learned, apply appropriate updates to assets,
archive all relevant project documents in the project management information
system, close out all procurement activities.
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Why do projects fail?
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Time
Cost
Quality
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‘Hot spots’ activity
What, in your opinion, are some of the ‘hot spots’
that may result in
– cost over runs
– schedule delays
– quality below par
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A few reasons why value is eroded?
• Unrealistic expectations
• Poor planning
• Lack of leadership
• Inefficient use of capital
• Inefficient use of labour
• Inefficient use of technology
• Inappropriate technology
• Inappropriate skills
• Poor engineering
• Failure to recognise change
• Failure to recognise opportunity
• Damaged reputation
• Loss of key personnel
• Regulatory change
• Regulatory sanction
• Loss of proprietary information
• Lack of market awareness
• Loss of asset value
• Cash flow disruption
• Strong competition
• Expensive capital costs
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Organizational
Structures
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Restructuring Necessity
• The technology revolution (complexity and variety of products,
new materials and processes, and the effects of massive
research)
• Competition and the profit squeeze (saturated markets,
inflation of wage and material costs, and production efficiency)
• The high cost of marketing
• The unpredictability of consumer demands (due to high
income, wide range of choices available, and shifting tastes)
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Traditional Weaknesses
• Management is satisfied with its technical skills, but projects
are not meeting time, cost, and other project requirements.
• There is a high commitment to getting project work done, but
great fluctuations in how well performance specifications are
met.
• Highly talented specialists involved in the project feel exploited
and misused.
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Traditional Weaknesses
(Continued)
• Particular technical groups or individuals constantly blame
each other for failure to meet specifications or delivery dates.
• Projects are on time and to specifications, but groups and
individuals aren’t satisfied with the achievement.
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Questions
• To what extent does the task of organization call for close
control if it is to be performed efficiently?
• What are the needs and attitudes of the people performing the
tasks? What are the likely effects of control mechanisms on
their motivation and performance?
• What are the natural social groupings with which people
identify themselves? To what extent are satisfying social
relationships important in relation to motivation and
performance?
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Questions (continued)
• What aspect of the organization’s activities needs to be closely
integrated if the overall task is to be achieved?
• What organizational measures can be developed that will
provide an appropriate measure of control and integration of
work activities, while at the same time meeting the needs of
people and providing adequate motivation?
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Questions (continued)
• What environmental changes are likely to affect the future trend
of company operations? What organizational measures can be
taken to insure that the enterprise responds to these
effectively?
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Classical Structure Advantages
• Easier budgeting and cost control are possible.
• Better technical control is possible.
– Specialists can be grouped to share knowledge and
responsibility.
– Personnel can be used on many different projects.
– All projects will benefit from the most advanced technology
(better utilization of scarce personnel).
• It provides flexibility in the use of manpower.
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Advantages (Continued)
• It provides a broad manpower base to work with.
• It provides continuity in the functional disciplines; policies,
procedures, and lines of responsibility are easily defined and
understandable.
• It readily admits mass production activities within established
specifications.
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Advantages (Continued)
• It provides good control over personnel, since each employee
has one and only one person to report to.
• Communication channels are vertical and well established.
• Quick reaction capability exists, but may be dependent upon
the priorities of the functional managers.
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Classical Structure Disadvantages
• No one individual is directly responsible for the total project
(i.e., no formal authority; committee solutions).
• It does not provide the project-oriented emphasis necessary to
accomplish the project tasks.
• Coordination becomes complex, and additional lead time is
required for approval of decisions.
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Disadvantages (Continued)
• Decisions normally favor the strongest functional groups.
• There is no customer focal point.
• Response to customer needs is slow.
• There is difficulty in pinpointing responsibility; this is the result
of little or no direct project reporting, very little project-oriented
planning, and no project authority.
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Disadvantages (Continued)
• Motivation and innovation are decreased.
• Ideas tend to be functionally oriented with little regard for
ongoing projects.
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Which Structure Is Best For
Project Management?
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Division Manager
Departmental Project Management
Department X Department Y Department Z
Project Leaders Project Leaders Project Leaders
Section Level Section Level Section Level
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Project Expeditor
PIPING HVAC CHEMICAL DRAFTING
ENGINEERING DIVISION
LIAISON
DEPT.
Formal authority / reporting flow
Informal authority / reporting flow
legend
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Project Coordinator
DEPT. MANAGER DEPT. MANAGER
PROJECT MGR.
DIVISION MGR. LEGEND
FORMAL FLOW
INFORMAL FLOW
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Balancing Technical and Human Skills
Technical Skills
High
Low
Human Skills
Junior Senior Supervisor Middle Senior President
Team Member Team Member Manager Officer
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Factors For Selecting An
Organizational Form
• Project size
• Project length
• Project management experience
• Philosophy and visibility of executives
• Project location
• Available resources
• Unique aspects of the project
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Organizing And Staffing
The Project
Office And Team
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Project Personnel
• A project manager
• An assistant project manager (if necessary)
• A project (home) office
• A project team
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Staffing Questions
• What are the requirements for an individual to become a
successful project manager?
• Who should be a member of the project team?
• Who should be a member of the project office?
• What problems can occur during recruiting activities?
• What can happen downstream to cause the loss of key
team members?
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Project Management Skills
• Honesty and integrity
• Understanding of personnel problems
• Understanding of project technology
• Business management competence
– Management principles
– Communications
• Alertness and quickness
• Versatility
• Energy and toughness
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Leadership Skills
• Clear project leadership and direction
• Assistance in problem solving
• Facilitating the integration of new members into the team
• Ability to handle interpersonal conflict
• Facilitating group decisions
• Capability to plan and elicit commitments
• Ability to communicate clearly
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Leadership Skills (Continued)
• Presentation of the team to higher management
• Ability to balance technical solutions against economic and
human factors
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Conflict Resolution Skills
• Understand interaction of the organizational and behavioral
elements in order to build an environment conducive to their
team’s motivational needs. This will enhance active
participation and minimize unproductive conflict.
• Communicate effectively with all organizational levels
regarding both project objectives and decisions. Regularly
scheduled status review meetings can be an important
communication vehicle.
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Conflict Resolution Skills (Continued)
• Recognize the determinants of conflict and their timing in the
project life cycle. Effective project planning, contingency
planning, securing of commitments, and involving top
management can help to avoid or minimize many conflicts
before they impede project performance.
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Technical Skills
• Technology involved
• Engineering tools and techniques employed
• Specific markets, their customers, and requirements
• Product applications
• Technological trends and evolutions
• Relationship among supporting technologies
• People who are part of the technical community
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Planning Skills
• Information processing
• Communication
• Resource negotiations
• Securing commitments
• Incremental and modular planning
• Assuring measurable milestones
• Facilitating top management involvement
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Special Requirements
• Part-time versus full-time assignments
• Several projects assigned to one project manager
• Projects assigned to functional managers
• The project manager’s role retained by the general manager
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People Roles That Can Undermine Project
Management Implementation
The
Aggressor
Destructive
Roles
Dominator
Devil’s
Advocate
Topic
Jumper
Recognition
Seeker
The
Withdrawer
The
Blocker
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Destructive Roles
The Aggressor
Criticizes Everybody and Everything on
Project Management
Deflates Status and Ego of Others
Always Aggressive
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Destructive Roles
Dominator
Always Tries to Take Over
Professes to Know Everything About
Project Management
Tries to Manipulate People
Will Challenge Your Leadership
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Destructive Roles
Devil’s Advocate
Finds Fault in All Areas of Project
Management
Refuses to Become a Believer Unless
Threatened
More Devil Than Advocate
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Destructive Roles
Topic Jumper
Must Be the First with a New
Idea/Approach for Project Management
Continuously Changes Topics
Cannot Focus on Issues for a Long Time
Unless It Is His/Hers
Project Management Implementation
Remains an “Action Item” Forever
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Destructive Roles
Recognition Seeker
Always Argues in Favor of His/Her Own Ideas
Is Very Status Conscious
Volunteers to Become the Project Manager If
Status Is Recognized
Continuous Talks (Likes to Hear
Himself/Herself Speak)
Often Boasts Rather Than Providing
Meaningful Information
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Destructive Roles
The Withdrawer
Is Afraid of Criticism
Will Not Participate Openly
Withholds Information
May Become a Back-Stabber
May Be Shy
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Destructive Roles
The Blocker
Likes to Criticize
Rejects the Views of Others
Cites Unrelated Examples and Personal
Experiences
Has Multiple Reasons Why Project
Management Will Not Work
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People Roles That Can Support
Project Management Implementation
Initiators
Supportive
Roles
Information
Seekers
Information
Givers
Encouragers
Harmonizers Clarifiers
Consensus
Takers
Gate
Keepers
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Supportive Roles
Initiators
“Is There a Chance That This Might
Work?”
“Let’s Try This!”
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Supportive Roles
Information Seekers
“Have We Tried Anything Like This
Before?”
“Do We Know Other Companies Where
This Has Worked?”
“Can We Get This Information?”
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Supportive Roles
Information Givers
“Other Companies Found That …..”
“The Literature Says That …..”
“Benchmarking Studies Indicate
That ……”
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Supportive Roles
Encouragers
“Your Idea Has a Lot of Merit.”
“The Idea Is Great But We May Have to
Make a Small Change.”
“What You Said Will Really Help Us.”
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Supportive Roles
Clarifiers
“Are We Saying That …..”
“Let Me State in My Own Words What I
Think You Said.”
“Let’s See if We Can Put This Into
Perspective.”
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Supportive Roles
Harmonizers
“We Sort of Agree, Don’t We?”
“Your Ideas and Mine Are Close
Together.”
“Aren’t We Saying the Same Thing?”
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Supportive Roles
Consensus Takers
“Let’s See if We Are in Agreement.”
“Let’s Take a Vote on This.”
“Let’s See How the Rest of the Group
Feels About This.”
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Supportive Roles
Gate Keepers
“Who Hasn’t Given Us Their Opinions
on This yet?”
“Should We Keep Our Options Open?”
“Are We Prepared to Make a Decision or
Recommendation, or Is There Additional
Information to Be Reviewed?”
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Authority Responsibility
Accountability
The Trinity of Management
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Definitions
• Authority is the right of an individual to make the
necessary decisions required to achieve his objectives or
responsibilities.
• Responsibility is the assignment for completion of a
specific event or activity.
• Accountability is the acceptance of success or failure.
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Management Pitfalls
• Lack of self-control (knowing oneself)
• Activity traps
• Managing versus doing
• People versus task skills
• Ineffective communications
• Time management
• Management bottlenecks
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Communications Defined
• Effective project communication is needed to ensure that we
get the right information to the right person at the right time
using the right media and the right format and in a cost-
effective manner.
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Communications Responsibility
• The project manager must know:
– What kind of message to send
– To whom to send the message
– How to translate the message into a language that all can
understand
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Communications
• An exchange of information
• An act or instance of transmitting information
• A verbal or written message
• A technique for expressing ideas effectively
• A process by which meanings are exchanged between
individuals through a common system of symbols
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Types of Communication
• Written formal
• Written informal
• Oral formal
• Oral informal (preferred by project managers)
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Communication Channels
UPWARD
COMMUNICATION
TO
MANAGEMENT
TO FRIENDS, SOCIAL GROUP
LATERAL COMMUNICATION
AND BOTH FORMAL AND
INFORMAL ORGANIZATIONS
LATERAL COMMUNI-
CATION TO PEERS,
FUNCTIONAL GROUPS
AND CUSTOMERS
LATERAL COMMUNICATION
TO ASSOCIATES AND
THE PROJECT OFFICE
PROJECT
MANAGER
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Customer-Contractor Communication
Informal
Informal
Formal
Customer Contractor
Sponsor Sponsor
Employees Employees
Project Project
Manager Manager
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Total Communication Process
SOURCE ENCODER MESSAGE DECODER RECEIVER
PERSONALITY
SCREEN SCREEN
PERCEPTION
FEEDBACK
PERCEPTION SCREEN PERSONALITY SCREEN
REGION OF EXPERIENCE FOR SOURCE
REGION OF EXPERIENCE FOR RECEIVER
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Understanding Barriers
• Listening skills
• Culture
• Intelligence
• Knowledge base
• Semantics
• Situational consideration
• Emotional status
• Authority or position
• Common sense
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Internal Factors
• Power games
• Withholding information
• Management by memo
• Reactive emotional behavior
• Mixed messages
• Indirect communications
• Stereotyping
• Transmitting partial information
• Blocking or selective perception
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External Factors
• The business environment
• The political environment
• The economic climate
• Regulatory agencies
• The technical state-of-the-art
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Environmental Factors
• Logistics/geographic separation
• Personal contact requirements
• Group meetings
• Telephone
• Correspondence (frequency and quantity)
• Electronic mail
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Meetings
• Meetings can be classified according to their frequency of
occurrence:
– The daily meeting where people work together on the same
project with a common objective and reach decisions
informally by general agreement.
– The weekly or monthly project meeting where members work
on different but parallel projects and where there is a certain
competitive element and greater likelihood that the chairmen
will make the final decision by himself/herself.
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Meetings (Continued)
– The irregular, occasional, or “special project” meeting,
composed of people whose normal work does not bring
them into contact and whose work has little or no
relationship to the others.
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Six Steps
• Think through what you wish to accomplish.
• Determine the way you will communicate.
• Appeal to the interest of those affected.
• Give playback on ways others communicate to you.
• Get playback on what you communicate.
• Test effectiveness through reliance on others to carry out your
interactions.
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Communication Styles
• Authoritarian: Gives expectations and specific guidance
• Promotional: Cultivates team spirit
• Facilitating: Gives guidance as required, but not interfering
• Conciliatory: Friendly and agreeable while building a
compatible team
• Judicial: Uses sound judgment
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Communication Styles
• Ethical: Honest, fair and by the book
• Secretive: Not open or outgoing
• Disruptive: Breaks apart unity of group
• Intimidating: “Tough guy,” and can lower morale
• Combative: Eager to fight or be disagreeable
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Conflicts
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Type Of Conflicts
• Manpower resources
• Equipment and facilities
• Capital expenditures
• Costs
• Technical opinions and trade-offs
• Priorities
• Administrative procedures
• Scheduling
• Responsibilities
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Resolution Modes
• Withdrawal. Retreating or withdrawing from an actual or potential
disagreement.
• Smoothing. De-emphasizing or avoiding areas of difference and
emphasizing areas of agreement.
• Compromising. Bargaining and searching for solutions that
bring some degree of satisfaction to the parties in a dispute.
Characterized by a “give-and-take” attitude.
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Resolution Modes (Continued)
• Forcing. Exerting one’s viewpoint at the potential expense
of another. Often characterized by competitiveness and a
win-lose situation.
• Confrontation. Facing the conflict directly, which involves
a problem-solving approach whereby affected parties work
through their disagreements.
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The Group Think concept
• Examine the concept of ‘group think’
– What is it?
– Does it exist?
– Does it limit our thinking in challenging times?
• Share & discuss some specific examples
• So what, who cares, why you?
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So what is ‘Group Think?
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Consider
• You have just presented your project plan and are surprised to hear
that one of your colleagues disagrees with your findings.
• He not only refutes your report, but he then communicates to Senior
Management that your plan is too long and ‘over-engineered’ and
therefore should not be taken seriously.
• He strongly recommends that the best option is the one that simply
is the cheapest and enables the job to be done quickly.
What would you do?
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• Now consider your monthly/qtrly project reports
• How ‘effective’ do you believe these reports to be?
Let’s look at some specific examples
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• “What gets measured, gets done”
• “Judicious use of a tool requires awareness of
possible side effects and reactions”
• Consider:
– Single criteria for performance evaluation
– Multiple criteria
Behavioural Issues
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Behavioural Issues
• Tunnel vision
• Sub-optimisation
• Measure fixation
• Myopia
• Complacency
• Misrepresentation
• Gaming
• Misinterpretation
• Ossification
“Excellence” in Project
Management can be defined as
a continuous stream of
successfully managed projects.
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IMMATURITY MATURITY
Company Variables
• Internal Metrics
• Culture
• Work flow
Project Variables
• Time
• Cost
• Performance
• Cust. Relations
Project Variables
• Time
• Cost
• Performance
• Cust. Relations
The Road To Maturity: Defining Success
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Life Impact | The University of Adelaide
Successful Actions
• Insist on the right to select key project team members.
• Select key team members with proven track records in their
fields.
• Develop commitment and a sense of mission from the outset.
• Seek sufficient authority and a project organizational form.
• Coordinate and maintain a good relationship with the client,
parent, and team.
• Seek to enhance the public’s image of the project.
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Life Impact | The University of Adelaide
Successful Actions (Continued)
• Have key team members assist in decision making and problem
solving.
• Develop realistic cost, schedule, and performance estimates and
goals.
• Have backup strategies in anticipation of potential problems.
• Provide a team structure that is appropriate, yet flexible and flat.
• Go beyond formal authority to maximize influence over people and key
decisions.
• Employ a workable set of project planning and control tools.
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Life Impact | The University of Adelaide
Successful Actions (Continued)
• Avoid over-reliance on one type of control tool.
• Stress the importance of meeting cost, schedule, and performance
goals.
• Give priority to achieving the mission or function of the end-item.
• Keep changes under control.
• Seek to find ways of assuring job security for effective project team
members.
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Life Impact | The University of Adelaide
Planning
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Life Impact | The University of Adelaide
MOST MANAGERS DO NOT LIKE
PLANNING DUE TO THE FOLLOWING:
* It takes time.
* You have to think.
* It involves paper work.
* You are bound to systematic procedures.
* You are committed to achieve a specific result within a specified time
period.
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Life Impact | The University of Adelaide
Effective Planning
An effective plan will be:-
* Explicit – stated in detail, leaving nothing merely implied.
* Intelligible – it must be understood and be comprehensible.
* Flexible – capable of accepting change.
* Controllable – capable of being monitored for control purposes.
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Planning Fundamentals
• If the task is well understood prior to being performed,
much of the work can be preplanned.
• If the task is not understood, then during the actual task
execution more knowledge is gained that, in turn, leads to
changes in resource allocations, schedules, and priorities.
• The more uncertain the task, the greater the amount of
information that must be processed in order to ensure
effective performance.
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Life Impact | The University of Adelaide
Reasons for Planning
• To eliminate or reduce uncertainty
• To improve efficiency of the operation
• To obtain a better understanding of the objectives
• To provide a basis for monitoring and controlling work
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Life Impact | The University of Adelaide
RECALL THE PROJECT LIFE CYCLE
Resources
Utilized
RESOURCES
TIME
CONCEPTUAL
PHASE DETAILED
PLANNING PHASE
FEASIBILITY AND
PRELIMINARY
PLANNING PHASE
IMPLEMENTATION
PHASE
CONVERSION
OR TERMINATION
PHASE
PMO
PMO
*
Life Impact | The University of Adelaide
The Line Manager(s) ?
The Project Manager ?
Both Parties ?
* Who plans the project?
* Who executes the project?
* Who is responsible for monitoring work and controlling work?
* Who is responsible for providing feedback regarding the planning
and execution phases of a project?
PLANNING QUESTIONS OFTEN ASKED
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Project Manager’s Responsibility
• Project Manager will define:
– Goals and objectives
– Major milestones
– Requirements
– Ground rules and assumptions
– Time, cost, and performance constraints
– Operating procedures
– Administrative policy
– Reporting requirements
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Life Impact | The University of Adelaide
Line Manager’s Responsibility
• Line manager will define:
– Detailed task descriptions to implement objectives,
requirements, and milestones
– Detailed schedules and manpower allocations to support
budget and schedule
– Identification of areas of risk, uncertainty, and conflict
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Senior Management’s Responsibility
• Senior management (project sponsor) will:
– Act as the negotiator for disagreements between project
and line management
– Provide clarification of critical issues
– Provide communication link with customer’s senior
management
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Life Impact | The University of Adelaide
THE SEVEN PHASES OF A PROJECT
1. Wild enthusiasm
2. Disillusionment
3. Chaos
4. Search for the guilty
5. Punishment of the innocent
6. Promotion of the non-participants
7. Define the requirements
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Life Impact | The University of Adelaide
Planning/Scheduling Tools
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Life Impact | The University of Adelaide
Defining Requirements
• The statement of work (SOW)
• The project specifications
• The milestone schedule
• The work breakdown structure (WBS)
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Life Impact | The University of Adelaide
STATEMENT-OF-WORK (SOW)
COMPLEXITY IS DETERMINED BY TOP
MANAGEMENT, CUSTOMER AND/OR USER
GROUP(S)
FOR INTERNAL PROJECTS:
SOW IS PREPARED BY THE PROJECT OFFICE
AND/OR USER GROUP(S)
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Life Impact | The University of Adelaide
POINTS TO ADDRESS WHEN DEVELOPING A
STATEMENT-OF-WORK
• Purpose – objectives
• Exclusions – what should not be done
• Quantities – how many
• Schedule – when the work will be started/completed
• Deliverables (i.e… work done)
• Acceptance criteria – what method will be used to accept deliverables
• Responsibility – department, office or person responsible
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Life Impact | The University of Adelaide
• Dependent on situation, & complexity
• Project manager/ line managers and project sponsor
• Client who may have the capabilities
• Client may decide to contract out to an independent body
• Client may contract your services
PREPARATION OF A STATEMENT OF WORK REQUIRES
TRAINING RATHER THAN LUCK.
WHO PREPARES THE STATEMENT-OF-WORK (SOW)?
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Life Impact | The University of Adelaide
IF A STATEMENT OF WORK IS MISINTERPRETED, IS IT
NORMALLY IN FAVOR OF THE CLIENT OR CONTRACTOR
?
STATEMENT-OF-WORK RISKS
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Statement of Work Elements
• General scope of the work
• Objectives and related background
• Contractor’s tasks
• Contractor end-item performance requirements
• Reference to related studies, documentation, and
specifications
• Data items (documentation)
• Support equipment for contract end-item
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Statement of Work Elements
• Customer-furnished property, facilities, equipment, and
services
• Customer-furnished documentation
• Schedule of performance
• Exhibits, attachments, and appendices
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Life Impact | The University of Adelaide
The Cost Of Paperwork
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Life Impact | The University of Adelaide
Problem Areas
• Project objectives/goals are not agreeable to all parties.
• Project objectives are too rigid to accommodate changing
priorities
• Insufficient time exists to define objectives well.
• Objectives are not adequately quantified.
• Objectives are not documented well enough.
• Efforts of client and project personnel are not coordinated.
• Personnel turnover is high.
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Misinterpretation Areas
• Mixing tasks, specifications, approvals, and special instructions
• Using imprecise language (“nearly,” “optimum,” “approximately,”
etc.)
• No pattern, structure, or chronological order
• Wide variation in size of tasks
• Wide variation in how to describe details of the work
• Failing to get third-party review
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Life Impact | The University of Adelaide
WORK BREAKDOWN STRUCTURE
• Can be developed using a top-down or bottom-up approach
• Can be hardware-related, function-related, or a combination
• Depth of WBS must balance out management effort against planning
accuracy (influences technical and cost control)
• For accuracy purposes the WBS should be taken down several levels
• The WBS must be structured for objective control & evaluation
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Life Impact | The University of Adelaide
Work Breakdown Structure (WBS)
• The total program can be described as a summation of
subdivided elements.
• Planning can be performed.
• Costs and budgets can be established.
• Time, cost, and performance can be tracked.
• Objectives can be linked to company resources in a logical
manner.
• Schedules and status-reporting procedures can be established.
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Work Breakdown Structure (WBS)
(Continued)
• Network construction and control planning can be initiated.
• The responsibility assignments for each element can be
established.
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• Have clearly defined start dates
• Have clearly defined end dates
• Must be able to be used as a communicative tool in which you can
communicate the expected results
• Be estimated on a “total time duration” not when the individual
activities start or end
• Be structured so that a minimum of project office control and
documentation (i.e. forms) are necessary
IN SETTING UP A WORK BREAKDOWN
STRUCTURE THE ACTIVITIES MUST:
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Life Impact | The University of Adelaide
LEVEL DESCRIPTION
1 Total Program
2 Project(s)
3 Task(s)
4 Subtask(s)
5 Work Package(s)
6 Level of Effort
WORK BREAKDOWN STRUCTURE (WBS)
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Life Impact | The University of Adelaide
THE WBS BREAKS WORK DOWN INTO SMALLER
ACTIVITIES THUS REDUCING THE RISK THAT ANY MAJOR
OR MINOR ITEM WILL BE OMITTED
WBS: SIX-LEVEL STRUCTURE
Usually specified by the client and
managed the project manager.
Generated by contractor for in-house
control and managed by the
functional manager(s).
Planning accuracy is dependent on the WBS level selected. The lower the level the
greater is the planning accuracy but the higher the management cost.
LEVELS RESPONSIBILITY
1
2
3
4
5
6
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Life Impact | The University of Adelaide
WBS Tasks
• Have clearly defined start and end dates
• Be usable as a communications tool in which results can be
compared with expectations
• Be estimate on a “total” time duration, not when the task must
start or end
• Be structured so that a minimum of project office control and
documentation (i.e., forms) is necessary
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Life Impact | The University of Adelaide
DEVELOPING A WORK
BREAKDOWN STRUCTURE (WBS)
PROTOTYPE
DEVELOPMENT
(1.1.0)
ADVANCED
DEVELOPMENT
(1.2.0)
PRE-
PRODUCTION
QUALIFICATION
(1.3.0)
FINAL
PRODUCTION
(1.4.0)
UTILITY CAR (1.00.00)
139
1.00.00
1.1.0 1.2.0 1.3.0 1.4.0
1.2.1 1.2.2 1.2.3
1.2.2.1 1.2.2.2 1.2.2.3
1.2.2.1.1 1.2.2.1.2 1.2.2.1.3 1.2.2.1.4
WBS Example
WBS LEVELS
5
4
3
2
1 PROGRAM
PROJECT
TASK
SUBTASK
WORK
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Life Impact | The University of Adelaide
WBS Controls
WORK
BREAKDOWN
STRUCTURE
MGT.
COORDIN.
ORGANIZ.
CHARTS
COSTS ACCOUNT-
ABILITY
DECISION
TREES SCHEDULES
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Life Impact | The University of Adelaide
WBS Interfacing Benefits
• The responsibility assignment matrix
• Network scheduling
• Costing
• Risk analysis
• Organizational structure
• Coordination of objectives
• Control (including contract administration)
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Life Impact | The University of Adelaide
REASONS WHY PLANS FAIL
• Corporate goals not understood lower
down in the organization/company
• Plans encompass too much in too little time
• Poor financial estimates
• Plans based upon insufficient data
• Poor staff requirements
• Insufficient time allocated for project estimating
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Life Impact | The University of Adelaide
OTHER REASONS WHY PLANS FAIL
• No attempt made to systemize the planning process
• Planning was performed by a planning group
• No one knows the ultimate objectives
• No one knows the major milestone dates
• Project estimates are best guesses and are not based on any standards, or history
• No one bothered to see if there would be personnel available with the necessary skills
• People not working towards the same specs
• Constant shuffle of personnel in and out of the project with little regard for the
schedule
• Change of management and their objectives.
• Change(s) in the macro environment
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Life Impact | The University of Adelaide
Stopping Projects
• Final achievement of the objectives
• Poor initial planning and market prognosis
• A better alternative is found
• A change in the company interest and strategy
• Allocated time is exceeded
• Key people leave the organization
• Personal whims of management
• Problem too complex for the resources available
Behavioral Stoppages
• Poor morale
• Poor human relations
• Poor labor productivity
• No commitment by those involved in the project
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Life Impact | The University of Adelaide
Ways to Terminate
• Orderly planned termination
• The “hatchet” (withdrawal of funds and removal of personnel)
• Reassignment of people to higher priority efforts
• Redirection of efforts toward different objectives
• Burying it or letting it die on the vine (i.e., not taking any official
action) Project Management Controls Assignment.
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Life Impact | The University of Adelaide
Managing Scope Changes
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Life Impact | The University of Adelaide
Change Management
• YOU CANNOT MANAGE YOUR CUSTOMER WITHOUT
MANAGEMENT OF YOUR PROJECT MANAGEMENT PROCESS.
• WHEN YOUR CUSTOMER INITIATES A CHANGE REQUEST,
YOU MUST BE ABLE TO PREDICT IMMEDIATELY THE IMPACT
ON SCHEDULE , COST AND TECHNICAL PERFORMANCE.
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Life Impact | The University of Adelaide
Unmanaged vs. Managed Changes
Unmanaged
Change
Where TIME
is invested
How
ENERGY
is invested
Which
RESOURCES
are used
Managed
Change
Back-end
Front-end
Rework
Enforcement
Compliance
Supervision
Education
Communication
Planning
Improvements
Value-Added
Senior
Management
and key
players only
Stakeholders
(internal)
Suppliers
Customers
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Life Impact | The University of Adelaide
Definition
Cost of Corrections
$1
Preliminary
Planning
$5 $25 $100 $1000
Detailed
Planning Execution Implementation
/Conversion
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Network scheduling
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Life Impact | The University of Adelaide
Project schedule
• Schedule is the conversion of a project WBS
into an operating timetable
• It serves as the basis for monitoring and
controlling project activity
• Together with the plan and budget, it is therefore
a major PM tool
1
5
3
Life Impact | The University of Adelaide
Schedule – philosophy
• Concerned primarily with resources, activities,
scheduling and schedule management
• Project manager should be in control of the
schedule (and not vice versa)
1
5
4
Life Impact | The University of Adelaide
Six steps
1) Define (and list) activities
2) Sequence activities
3) Estimate resources
4) Estimate duration
5) Develop schedule
6) Control schedule
1
5
5
Life Impact | The University of Adelaide
Tool examples
• Critical path analysis
– a project’s critical path is the combination of activities that, if any are
delayed, will delay the project’s completion
• Objectives
a) to determine the completion date
b) to identify how much the schedule can slip (float) without delaying the
project
c) to identify activities with the highest risk that cannot slip without
changing the project completion date
1
5
6
Life Impact | The University of Adelaide
Critical path illustration
Task Id Task Time Dependencies
1 Prepare lot 3
2 Lay foundation 4 1
3 Wall frames 10 2
4 Roof frames 3 3
5 Install plumbing 9 3
6 Install wiring 7 3
7 Exterior walls 7 3
8 Cover roof 2 4
9 Interior walls 5 8
10 Finish interior 8 9
11 Finish exterior 5 7
Total 63
1
5
7
Life Impact | The University of Adelaide
Critical path illustration
158
0
Finish
exterior
5
2
Lay
foundation
4
3
Erect
external
frame
10
4
Erect
roof
frame
3
7
External
walls
7
5
Install
plumbing
9
6
Install
electrical
wiring
7
8
Cover
roof
2
dummy
9
Interior
walls, floor
ceilings
5
1
Prepare
lot
3
11
10
Finish interior
8
Life Impact | The University of Adelaide
Risk Management
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Life Impact | The University of Adelaide
RISK MANAGEMENT
• RISK MANAGEMENT FOCUSES ON THE FUTURE
• RISK AND INFORMATION ARE INVERSELY RELATED
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Life Impact | The University of Adelaide
Risk management analysis
• Detailed risk analysis. Project Management Controls Assignment.
• expectations and observations
• why Risk Management is important
• confirming the approach to Risk Management
• illustrate how Risk Management is applied in
projects
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Life Impact | The University of Adelaide
• 1) What is – ‘Risk Management’?
• 2) Why is it important?
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• RM always appears easy when viewed in
‘hindsight’.
– Case examples
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Learning from our mistakes
• Often we fail to ask the right ?
• For example:
• When asking what could happen
• Need to consider
• What are the chances of this occurring?
• What will be the consequences if it does occur?
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Learning from our mistakes
• As PM’s try to think about what undesirable or damaging things
that may occur.
• Referred to as ‘RISK’
• Then try to think of ways of reducing that risk
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Life Impact | The University of Adelaide
Risk Management. Project Management Controls Assignment.
• An important part of good management
• Lets look at how this could be done
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Life Impact | The University of Adelaide
Q1. Is this event likely to occur?
• Almost certain to occur
• Likely to occur
• Moderate chance
• Unlikely chance
• Extremely unlikely to occur
• A
• B
• C
• D
• E
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Life Impact | The University of Adelaide
Q2. What happens if it does occur?
• No impact (eg. No injuries or loss)
• Minor impact
• Moderate impact
• Major impact
• Catastrophic impact (eg. Death or
huge loss)
• 1
• 2
• 3
• 4
• 5
168
No impact
1
Minor impact
2
Modimpact
3
Major impact
4
Catastr.
Impact
5
A
Almost certain S S H H H
B
Likely M S S H H
C
Moderate
L M S H H
D
Unlikely
L L M S H
E
Very unlikely
L L M S S
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Life Impact | The University of Adelaide
Stakeholder ‘hot spot’ issues
• What do we mean by the term ‘stakeholder’?
– i.e How would you define this term?
•
“An individual or group who might have an interest in or influence
over the activities of the project”
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3 concepts
• 1) Information dissemination
– Disclosure of information
• 2) Consultation
– Soliciting people’s views on proposed actions and engaging in
discussions
• 3) Participation
– Coming together to share, negotiate and control the decision making
process
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Life Impact | The University of Adelaide
Principles of effective consultation
• What consultation is
• Two way dialogue
• Dynamic
• Listening
• Flexible
• Open and transparent
• Proactive
• What consultation is not
• One way monlogue
• One off at start/end
• Telling
• Fixed
• Secretive, need to know
• Reactive
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What is your approach?
Decide, Announce, Defend (DAD)
OR
Engage, Consult, Decide (ECD)
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Life Impact | The University of Adelaide
Identifying stakeholders
• Who will benefit from the project?
• Who will be directly impacted?
• Who will be indirectly impacted?
• Whose co-operation or influence is necessary for project to be carried
out? Project Management Controls Assignment.
• Who has special knowledge, experience or information to bring to the
project?
• Who supports or opposes the changes the project will bring?
• Who will report on the project?
• Who will you work in partnership with?
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Life Impact | The University of Adelaide
Pricing & Estimating
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Life Impact | The University of Adelaide
Pricing & estimating
• Many managers regard this as an art !
Information available to one bidder is generally available to
others.
• This is an essential part of the planning process.
• Forms the basis for establishing standards for budgets, man-
hours, material costs, contingencies, etc.
• Specific pricing strategies must be developed for each situation.
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Life Impact | The University of Adelaide
TYPES OF ESTIMATES
• Order of magnitude estimates
– Made without any detailed engineering data
– May use past experience
– Accuracy +- 35% within the scope of the project
• Approximate (rule of thumb) estimates
– Made without any detailed engineering data
– May use previous similar projects —
– Accuracy +- 15% Project Management Controls Assignment.
• Definitive (or detailed) estimates
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Life Impact | The University of Adelaide
Cost & estimation – activity
You have been asked to review a final project cost
estimate
Expectation that you bring to the table
• Independence
• Confidence and ability to ask the right questions
• Provide effective challenge(s)
• Display ‘healthy level of scepticism’ &
• Have courage 1
7
8
Life Impact | The University of Adelaide
Tasks
1.What is a cost estimate (ie, your definition) and who is
responsible for preparing it?
2.What are some of the major factors that influence the
determination of a cost estimate?
3.What are the main components of a cost estimate?
4.What questions would you ask (and why) when
presented with a cost estimate?
1
7
9
Life Impact | The University of Adelaide
Definition of a cost estimate
From Oxford Dictionary
1.An approximate calculation
2.A written statement indicating the likely price that will be
charged for specified work
3.A judgment or appraisal
By definition – not a single figure but a range of figures
with probabilities
1
8
0
Life Impact | The University of Adelaide
Contingency estimation
• Deterministic Method for assessing contingency
– the assessment of contingency should take into account the generic risk
profile of the project, based on Site, Design construction and
commissioning, Sponsor and Financial, Operating, Market, Network
and interface, Industrial relations, Legislative and government policy,
Force majeure, and Asset ownership
• Probabilistic Cost Risk Analyses
– indicates where major uncertainties are, their cumulative impact, and
where mitigation should be concentrated. Important to recognise
interdependencies (or correlations), as well as the cost impact
– unforeseen, ‘unknown-unknowns’ additional component
– results in cost risk distribution from which the P50 & P90 estimates can
be obtained
1
8
1
Life Impact | The University of Adelaide
Cost estimation activity
• Refer to monte carlo demonstration
• Required, calculate the p50 and p90 based on the
assumptions for contingencies
• What is the overall percentage for contingencies
required to attain a p50
• Which variable has the greatest influence on the
contingency
• If risk mitigation is required, which variable would you
target to reduce the contingency
1
8
2
Life Impact | The University of Adelaide
Project Financing
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Life Impact | The University of Adelaide
Capital Budgeting
• Payback Period
• Discounted Cash Flow (DCF)
• Net Present Value (NPV)
• Internal Rate of Return (IRR)
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Life Impact | The University of Adelaide
Financial analysis
• Purpose
– cost-benefit looks at the overall impact. This has two parts being:
• financial analysis – from a financial perspective; and
• economic analysis – economic welfare (i.e to the community)
• Financial Analysis stages
– key assumptions
– cash flows
– net present financial value
– sensitivity analysis?
– contingencies
Project Management Controls Assignment.
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Life Impact | The University of Adelaide
Methods of project evaluation
• Non-Discounting Methods
– Rate of Return
– Payback Period
Project
Evaluation
Discounting Methods (DCF)
– Net Present Value
– Internal Rate of Return
– Annual Equivalents
Cash Flows
Timing
Risk
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Life Impact | The University of Adelaide
Payback method: Example
Project Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 PB (Yrs)
A -9,000 3,000 3,000 3,000 3
B -9,000 7,000 1,000 1,000 3
C -9,000 3,000 3,000 3,000 9,000 3
D -9,000 3,000 3,000 3,000 3
Which one of the four projects would you select?
Consider the payback schedule for the
projects A, B, C and D.
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Life Impact | The University of Adelaide
Payback is the time it takes the
project’s cash flows to pay back its
initial investment.
To calculate payback, normally ,net
cash flows are used.
Is the
Payback
period <
Target?
Yes No
Accept
Project Reject Project
Decision rule
Simple: commonly used amongst
engineers
Problems: many issues.
o These could be modified using
discounted payback which takes into
account timing but, still has problems
Definition
Properties
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Life Impact | The University of Adelaide
A contractor proposes to install equipment costing USD 15,000 which will save
some cash operating expenses each year. The equipment has:
o a life of five years.
o no salvage value.
The savings are as follows:
Year Savings Cashflow Cumulative Payback
0 Outlay -15,000
1 Labour savings 3,800 3,800
2 Labour savings 4,200 8,000
3 Labour savings 5,000 13,000
4 Labour savings 8,000 21,000 3.25 years
5 Labour savings 9,000 30,000
ORDER A CUSTOM-WRITTEN, PLAGIARISM-FREE PAPER HERE
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Life Impact | The University of Adelaide
Accounting Rate of Return (ARR)
Consider the investment of USD 15,000 and
life of 5 years from the last example.
Assuming an Annual Net Profit of USD
3,000 and a straight line accounting
depreciation over five years.
Applicable ARR = 3,000/15,000 = 20%.
ARR uses accounting profits as a ratio of
investment to measure the return on
investment. Project Management Controls Assignment.
This measure comes in numerous forms
like:
o ROA
o ROCE
o ROE
o ROACE
Average Savings 6,000
Average
Depreciation
3,000
Average Profit 3,000
Rate of Return 20%
Is ARR
>
Target
ARR?
Yes No
Accept
Project Reject Project
Decision rule
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Life Impact | The University of Adelaide
The Net Present Value (NPV) Rule
NPV represents the increase in
value of the firm which accrues
from a project.
Is
NPV >
0?
Yes No
Accept
Project Reject Project
NPV Rule
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Life Impact | The University of Adelaide
The Internal Rate of Return (IRR) Rule
IRR is that rate of return
which produces a zero NPV.
It is found by trial and error.
Is
IRR >
i?
Yes No
Accept
Project Reject Project
IRR Rule
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Life Impact | The University of Adelaide
Discounted Cash Flow
Year 0 1 2 3 4
Cash Flows -$6,000 $2,300 $3,150 $2,700 $334
PV Cost -$6,000
$2,091
$2,603
$2,029
$228
PV Benefits $6,951
NPV $951
IRR 18.3%
∑
Discount
A Discount Rate of 10%
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Life Impact | The University of Adelaide
Discounted Cash Flow (DCF) Approach
DCF Approach involves discounting to present using a rate that reflects risk.
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Life Impact | The University of Adelaide
Year 0 1 2 3 4
Cash
Flows
-$6,000 $2,300 $3,150 $2,700 $334
Discoun
t
$2,091
$2,603
$2,029
$228
∑ $6,951 PV Benefit
s
$951 NPV
18.3% IRR
DCF – a discount rate of 10%
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Life Impact | The University of Adelaide
DCF approach – example
ABC Co is considering:
• The purchase of a machine for $30,000.
• The salvage value at the end of its three year life is $500.
• Net annual cash benefits are $20,000; $14,000; $12,000 in years 1, 2 and 3.
• Assume a prime cost depreciation method and a tax rate of 30%. Tax is paid in the year
that income is earned. The company requires a return of 15% on this type of investment.
Should the company go ahead with this investment?
Need to calculate
Taxation
Total Cash Flows
Discounted Cash Flow
gain or loss on sale
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Life Impact | The University of Adelaide
Calculation of tax. Project Management Controls Assignment.
Year 0 1 2 3
Cash benefits 20,000 14,000 12,000
Depreciation -10,000 -10,000 -10,000
Gain/(loss) on
sale
500
Taxable income 10,000 4,000 2,500
Tax saved/(paid) -3,000 -1,200 -750
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Life Impact | The University of Adelaide
Calculation of cash flows
Year 0 1 2 3
Tax saved/(paid) -3,000 -1,200 -750
Cash benefits 20,000 14,000 12,000
Outlay –
30,000
Salvage 500
After tax cash
flow
–
30,000
17,000 12,800 11,750
NPV $2,187
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Life Impact | The University of Adelaide
NPV exercise
XYZ Co is considering the purchase of equipment for $35,000. It is
expected that additional cash revenue each year will be $29,000 before
any taxation. Annual cash costs are expected to be $12,000, however
$1,800 of these will be non deductible for taxation purposes.
Maintenance will be required during year 3 at a total cost of $8,000. It is
expected that $15,000 will need to be borrowed, interest only. The
interest cost for borrowing before tax is 8%.The useful life of the press is
expected to be five years with a salvage value of $3,000. The
Commissioner of Taxation has specified the rate for depreciation on such
a press to be 15% straight line. The corporate tax rate is 30%. The
appropriate discount rate is 20%. A feasibility study was recently
conducted at a cost of $5,000
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Life Impact | The University of Adelaide
Financial analysis key assumptions
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Life Impact | The University of Adelaide
Key assumptions – cash flows
• Which discount rate? – match discount rate with cash flows
• Whole of life cash flows – need to consider those cash flows that are incremental to
a project
• Sunk costs – a cost already paid or already incurred. These costs cannot be changed
and are therefore excluded. Project Management Controls Assignment.
• Maintenance costs – ongoing opex required to maintain the asset
• Opportunity costs – a cost that requires giving up a benefit
• Side effects – it would not be unusual for a project to have side or spill-over effects,
both good and bad
• Financing costs – do not include interest paid or any other financing costs as these
are reflected in the discount rate– a project will require the business to invest in more
working capital in addition to long-term assets
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Life Impact | The University of Adelaide
Key assumptions – discount rate
• Discount rates
– consult Financial Analysts
– nominal cash flows with a nominal discount rate
– rate is estimated with reference to
• 10 year borrowing rate – social or net cost project
• comparable project – WACC – commercial project
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Life Impact | The University of Adelaide
Cost control
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Life Impact | The University of Adelaide
Earned value management
• What is earned value management?
• The benefits?
• Why do we need it?
• What is an EVMS?
2
0
4
Life Impact | The University of Adelaide
What is earned value
management?
• Earned value management (EVM) is a project
management control tool which integrates scope of work
with both cost and schedule. The EVM method is an
industry standard measure of project performance and
includes earned value analysis (EVA) and earned
schedule (ES) Project Management Controls Assignment.
• The EVA process combines both cost and schedule and
is based on analysing the variances between actual,
earned and planned cost of work performed
2
0
5
Life Impact | The University of Adelaide
Earned value management benefits
• Early warning – early indications of expected project results based
on project performance, highlighting the possible need for
preventative and corrective action
• Costs earned – value management provides both a view of project
status and an indication of value for money
• Forecasts – based on current information and trends
• Communication – EVM supports the communication between
stakeholders. Project Management Controls Assignment.
• Objective assessment – an overall non-subjective assessment of
activities or the entire project
2
0
6
Life Impact | The University of Adelaide
EVM Activity
207
Life Impact | The University of Adelaide Budget $1,000,000
Actuals
$1,041,000
0
500000
1000000
1500000
2000000
2500000
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Budget
Actuals
Traditional Management Measurement
Earned value management
208
Life Impact | The University of Adelaide
EVM
EVM integrates cost, schedule, and scope
• Establishes an integrated project baseline
– what is to be done? (scope)
– when will activities be completed? (schedule)
– what will it cost (and when) when to complete those
activities? Project Management Controls Assignment.
2
0
9
Life Impact | The University of Adelaide
EVM
Based on something called earned value
• A concept that task activities earn value as work
progresses
• A data point that expresses the value of work
accomplished
2
1
0
Life Impact | The University of Adelaide
EVM: how is it done?
Planned
Value
(PV)
Planned Value (PV) or Budgeted Cost of Work Scheduled
(BCWS) is the cumulative value expected to have been
expended, at a point in time, for work expected to have
been completed.
Earned
Value
(EV)
Earned Value (EV) or Budgeted Cost of Work Performed
(BCWP) is the percentage of work complete at a point in
time expressed as that percentage of the approved
budget assigned to the work.
Actual
Cost (AC)
Actual Cost (AC) or Actual Cost of Work Performed
(ACWP) is the cumulative cost incurred for the work
accomplished in a given period.
EVM procedure defines three data
points
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Life Impact | The University of Adelaide
Summary performance indices
EVA Formulae
The Cost Variance (CV) CV = EV – AC
The Cost Performance Index (CPI) CPI = EV / AC
The Schedule Variance (SV) SV = EV – PV
The Schedule Performance Index (SPI) SPI = EV / PV
The Critical Ratio (CR) CR = CPI x SPI *
The project must set CPI and SPI control limits for
reporting and action
212
Life Impact | The University of Adelaide
What could possibly go wrong
Inadequate requirements definition
No (or Incomplete) work breakdown structure
(WBS)
Accounting systems that cannot address the
WBS
Lack of management attention to project
progress
Failure to respond to warning signs
Failure to reconcile baseline to funding
shortfalls (Rebaseline)
213
Life Impact | The University of Adelaide
Quality Management
214
Life Impact | The University of Adelaide
Quality Drivers
Higher performance requirements
Faster product development
Higher technology levels
Materials and processes pushed to the limit
Lower contractor profit margins
Fewer defects/rejects
215
Life Impact | The University of Adelaide
Market Expectations
Salability: the balance between quality and costs
Produceability: the ability to produce the product with available
technology and workers, and at an acceptable cost
Social acceptability: the degree of conflict between the product or
process and the values of society (i.e., safety, environment)
Operability: the degree to which a product can be operated safely. Project Management Controls Assignment.
216
Life Impact | The University of Adelaide
Market Expectations (Continued)
• Availability: the probability that the product, when used under
given conditions, will perform satisfactorily when called upon
• Reliability: the probability of the product performing without
failure under given conditions and for a set period of time
• Maintainability: the ability of the product to be retained in or
restored to a performance level when prescribed maintenance
is performed
217
Life Impact | The University of Adelaide
Strategic Quality Management
• Quality is defined by the customer.
• Quality is linked with profitability on both the market and cost sides.
• Quality has become a competitive weapon.
• Quality is now an integral part of the strategic planning process.
• Quality requires an organization-wide commitment.
218
Life Impact | The University of Adelaide
Degrees of Quality
• Structural (length, frequency)
• Sensory (taste, beauty, appeal)
• Time-oriented (reliability, maintainability)
• Commercial (warrantee)
• Ethical (courtesy, honesty)
219
Life Impact | The University of Adelaide
Quality Expectations
• Quality policy
• Quality objectives
• Quality assurance
• Quality control
• Quality audit
• Quality program plan
220
Life Impact | The University of Adelaide
Quality Policy
Be a statement of principles, stating what, not how
Promote consistency throughout the organization and across projects
Provide and explanation to outsiders of how the organization views
quality
Provide specific guidelines for important quality matters
Provide provisions for changing/updating the policy
221
Life Impact | The University of Adelaide
Quality Objectives
• Be obtainable
• Define specific goals
• Be understandable
• State specific deadlines. Project Management Controls Assignment.
222
Life Impact | The University of Adelaide
Quality Assurance
• Identify objectives and standards
• Be multifunctional and prevention oriented
• Plan for collection and use data in a cycle of continuous improvement
• Plan for the establishment and maintenance of performance measures
• Include quality audits
223
Life Impact | The University of Adelaide
Quality Control
• Select what to control
• Set standards that provide the basis for decisions regarding possible
corrective action
• Establish the measurement methods used
• Compare the actual results to the quality standards
• Act to bring nonconforming processes and material back to the
standard based on the information collected
224
Life Impact | The University of Adelaide
Quality Control (Continued)
• Monitor and calibrate measuring devices
• Include detailed documentation for all processes
225
Life Impact | The University of Adelaide
Quality Audit
The planned quality for the project will be met.
The products are safe and fit for use.
All pertinent laws and regulations are followed.
Data collection and distribution systems are accurate and adequate.
Proper corrective action is taken when required.
Improvement opportunities are identified.
226
Life Impact | The University of Adelaide
Quality Plan
• Identify all of the organization’s external and internal customers
• Cause the design of a process that produces the features desired by
the customer
• Bring in suppliers early in the process
• Cause the organization to be responsive to changing customer needs
• Prove that the process is working and that quality goals are being met
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227
Life Impact | The University of Adelaide
Prevention: cost associated
with design and planning
of a quality control (QC)
program
Appraisal: costs involved
in the direct appraisal of
quality both in the plant
and in the field
Internal failure: costs
directly related to the
occurrence of defective
production within the plant
External failure: costs
associated with the failure
of a product or service in
the field
QC administration and
systems planning
Quality training. Project Management Controls Assignment.
Quality planning (QC
engineering work)
Incoming, in-process,
final inspection, and
test planning
Special processes
planning
Quality data analysis
and feedback
Procurement planning
Vendor surveys, audit
and surveillance
planning
Reliability studies
Design and development
of quality measurement
and control equipment
Qualification of material
Testing
Inspection
Quality audits
Incoming test and
inspection and laboratory
acceptance
Checking labor
Laboratory or other
measurement service
Setup for test and
inspection
Test and inspection
material
Outside endorsements
Maintenance and
calibration
Product engineering
review and shipping
release
Field Testing
Scrap, at full shop cost
Rework, at full shop cost
Scrap and rework, fault of
vendor
Material procurement
Factory contact
engineering
QC investigations (of
failures)
Material review activity
Repair and troubleshooting
Complaints and loss of
customer good will
Warranty cost
Field maintenance and
product service
Returned material
processing and repair
Replacement inventories
Strained distributor
relations
Cost of Quality (COQ) Definitions & Examples
228
Life Impact | The University of Adelaide
Cause-And-Effect Analysis
METHOD
PEOPLE LOCATION
MATERIAL
TESTING
CAUSE EFFECT
MACHINE
PROBLEM
Life Impact | The University of Adelaide
Cause-And-Effect Analysis (With “Bones”
Inserted)
MACHINE
PROBLEM
SPEED TOO SLOW
SPEED TOO FAST
LOOSE
FITTINGS
WORN
CUTTER
EXCESSIVE
GEAR WEAR
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Life Impact | The University of Adelaide
Histogram
0
20
40
60
80
100
120
BONE A BONE B BONE C BONE D
FREQUENCY
Life Impact | The University of Adelaide
From Histogram To Pareto
0
20
40
60
80
100
120
BONE A BONE B BONE C BONE D FREQUENCY
0
20
40
60
80
100
120
BONE D BONE B BONE C BONE A
FREQUENCY
Histogram Pareto (Chosen Few)
Life Impact | The University of Adelaide
Pareto Analysis
BEFORE AFTER
0
20
40
60
80
100
120
BONE D BONE B BONE C BONE A FREQUENCY
0
10
20
30
40
50
60
70
BONE C BONE B BONE D BONE A
FREQUENCY
Life Impact | The University of Adelaide
Contracting & Procurement
Life Impact | The University of Adelaide
Procurement
What do you understand by the term procurement?
Procurement is the acquisition of goods, services or works
from an outside external source. The goods, services or works should be appropriate and that they are
procured at the best possible cost to meet the needs of the purchaser in terms of quality and quantity,
time, and location. Project Management Controls Assignment.
Weel, Arjan J. van (2010). Purchasing and Supply Chain
Management: Analysis, Strategy, Planning and Practice
(5th ed.) Andover: Cengage Learning
Business
need
Market
analysis
Risks Contracting
strategy
Contracting
tactics
Sourcing
& award
Contract
management
Process summary
Life Impact | The University of Adelaide
Desired Outcomes
Aware of where we stand now and contractor’s contribution.
Aware of current market and implications for project delivery.
Understand the contribution of Category Management.
Understanding the elements of strategy, tactics and post award
management.
Indication on Relative TCO
Index Skills needed for implementation
Source: McKinsey
Reference: Core PSM practice framework;
PSM practice leaders
40
30
30
100 Total
(total savings in percent TCO, typical range of
impact shown)
Leverage purchasing power
• Change supplier structure
• Renegotiate contracts Bundle
Leverage demand changes
• Review needs
• Reduce inventory
• Demand management
Leverage specification changes
• Standardise
• Find substitutes
• Change product specification
• Design to cost
• Negotiation skills
• Market/supplier know-how
• Competitive bidding. Project Management Controls Assignment.
Activity
• Close cooperation between
production, technical and R&D
departments
• Collaborative platforms
• Close cooperation among sites, site
management buy-in necessary
• Close cooperation between
production, technical and R&D
departments
• Collaborative platforms
• Joint efforts with suppliers
Business
need
Market
analysis Risks Contracting
strategy
Contracting
tactics
Sourcing
& award
Contract
management
Process summary
239
Value
Historical Value
Add
Historical Value
Loss
Set Strategy Prepare
Contract
Award
Contract
Manage
Contract Closeout
Life Impact | The University of Adelaide
Supply strategy development
• Purpose
– the purpose of the Supply Strategy Development stage is to develop a
procurement approach
• Process
– establish processes to ensure probity
– gather demand and supply information
– develop procurement specifications
– undertake supply market analysis
– undertake market sounding
– develop a procurement strategy
Life Impact | The University of Adelaide
Supply strategy development
• Undertake demand and supply market analysis
– to identify market characteristics for specific goods or services. It provides
information to assist with procurement planning
– a strategic understanding of how a market works; the direction in which the
market is heading; its competitiveness; the existence of adequate capacity;
who the key suppliers are; and the value that suppliers place on customers
• Market sounding
– should lead to an understanding of the attitude, thoughts and likely
response by the market as a whole to the proposed procurement activity
– encompasses – supplier level of interest, technical or business feasibility,
evidence of value for money
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Out-sourced
Work
breakdown
structure
Contract 1
Contract 2
Contract 3
Contract 4
Contract 5 In House
Contract
Strategy
Proposal
Assets/Equipment
Contracting Strategy Development
Business
need
Market
analysis Risks Contracting
strategy
Contracting
tactics
Sourcing
& award
Contract
management
Process summary
Life Impact | The University of Adelaide
Schedule of Prices
Primary pricing types are:
• Lump Sum (fixed price for a deliverable)
• Unit rates for outputs (such as concrete in a structure)
• Unit rates for inputs (such as man hours worked)
• Reimbursable (actual documented cost of contractors, sub-contractor and
suppliers)
There are many other terms but they are subsets and combinations of the above
four
245
Selecting the right pricing mechanism is key to cost competitiveness.
Specific financial incentives can be applied to any of these.
Client Contract
Management intensity
Flexibility for scope
change
Lump Sum
Output
Unit rates
Input Unit Rates
Ability of Client to
Reimbursable
predict price
Contractors incentive for productivity High
Scope
Definition
and Low
Risk
Low Scope
Definition
and High
Risk
Pricing
Business
need
Market
analysis Risks Contracting
strategy
Contracting
tactics
Sourcing
& award
Contract
management
Process summary
247
Supplier short listing
Market analysis Advertising
External databases Internal databases
Strategy
Selection
Confirm suppliers
Segment suppliers
Obtain additional data
Perform risk assessment
Validate supplier capabilities
Compare and rank
Sourcing
and
Awarding
Short listing
Send sourcing package
Negotiate
Select suppliers
Life Impact | The University of Adelaide
Sourcing & Award – develop sourcing
package
• Document the goods and services required and contractual conditions for
delivery. Project Management Controls Assignment.
• Seek technical and commercial offers from the confirmed suppliers/contractors
• Manage the evaluation of offers in a transparent and fair manner
• Finalise a contract document with the successful supplier/contractor
• Be transparent – clarity pays
• Added Value – To convey the company requirements receive offers and
finalise a contract award
Business
need
Market
analysis Risks Contracting
strategy
Contracting
tactics
Sourcing
& award
Contract
management
Process summary
Life Impact | The University of Adelaide
Initiate Start-Up
• Formally appoint company
personnel
• Conduct internal kick-off
workshop
• Update risk assessment matrix
Sub Process Steps
• Conduct routine mobilisation
meetings (Quality, HSSE)
• Issue commencement
certificate
• Conduct joint risk management
workshop
• Finalise contract management
plan
Life Impact | The University of Adelaide
Joint Kick Off meeting
Objectives
• The objectives of the meeting are to:
– build a shared Company/ Contractor understanding of success
– understand the key threats to and opportunities for success
– develop a comprehensive Post-Award Contract Management Plan to ensure
that all essential activities, threats and opportunities are managed effectively
– develop an effective working relationship with combined commitment to
action, Project Management Controls Assignment.
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Life Impact | The University of Adelaide
Joint Meeting process
• Align value drivers (what will success look like)
– Contractor presentation on objectives and definition of contract success
– Company presentation on objectives and definition of contract success
– Group session to align definition of success
• Understand threats to and opportunities for success
– Group session to collate threats and opportunities identified by Company and
Contractor
– Group session to categorise threats and opportunities using Essential
Activities structure
– Group session to prioritise Essential Activities and significant
threats/opportunities
• Develop Post-Award Contract Management Plan
– Syndicate sessions to agree actions to manage Essential Activities and
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Life Impact | The University of Adelaide
• A variation is a change to the original scope or timing of the work to be
performed under a contract which will have time, cost and/or quality
implications.
• A formally agreed variation to the contract price is called “Variation
Order”.
• They usually arise from one or more of the following situations:
– changes required by the Company to the design and/or scope of
work;
– increases or decreases in the amount of work required as a result
of technical problems not envisaged or anticipated when the
contract was tendered or negotiated, and for which the contractor is
not liable;
– fluctuations in the prices paid for labour or materials and/or in
exchange rates, if provided for under the terms of the contract.
Contract variations
Life Impact | The University of Adelaide
Contract Variations
• When a variation is required:
– it should be determined whether its need should
have been foreseen by the contractor in arriving at his
quoted price,or
– should be considered as a risk inherent in the
accepted contract.
Life Impact | The University of Adelaide
Variation Control
The objectives of variation control are:
• to minimise the magnitude and frequency of variations by
allocating efficient time and resources to the preparation, planning
and supervision of the key aspects of the work;
• to ensure that only unavoidable, unforeseen or clearly beneficial
changes are implemented;
• to assess the impact of variations on budgets, costs and
profitability of the project.
Life Impact | The University of Adelaide
References
Kerzner, Harold (2013) Project Management: A systems approach to
Planning, Scheduling and Controlling. 11th Edition, Wiley
Meredith, Mantel (2012) Project Management: A Managerial Approach,
8th Edition, Wiley. Project Management Controls Assignment.