PROJECT

MANAGEMENT

BM 404

STUDY NOTES

1

A. MAFUKA

MIDLANDS STATE UNIVERSITY

DEPARTMENT OF BUSINESS MANAGEMENT

2005

PROJECT MANAGEMENT

CHAPTER 1

Introduction: Overview of project Management

1. WHAT IS AN INVESTMENT?

It is the current commitment of dollars for a period of time in order to

derive future payments that will compensate the investor for

1. The time the funds are committed

2. The expected rate of inflation

3. The uncertainty of the future payments.

2. WHO IS AN INVESTOR?

Investor can be an individual, a government, a pension fund or

corporation. The investor is trading a known dollar amount today for some

expected future stream of payments that will be greater than the current

outlay.

- Investors invest to earn a rate of return, which compensates

for the time, the expected rate of inflation and the uncertainty

of return.

3. Investment choices are a function of a investor’s risk appetite.

Factors like

• Inflation rate, interest rate

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• Financial stability

• Political – country risk

• Legal and regulatory consensus

• Liquidity needs and time horizon

• Tax concerns

• Time horizon – short term cash (liquid)

• Tax concerns – taxable income (VAT)

• Unique needs + personal preferences

• Critical skills

• Infrastructure

4. Organisations/institutions that promote development:

• Zimbabwe Investment Centre (ZIC)

• Zimbabwe Development Bank (ZBD)

• Small Enterprises Development Corporation (SEDCO)

• Industrial Development Corporation of Zimbabwe (IDC)

• Department of small and medium Enterprise (SMES)

• Ministry of Youth and Gender (MYG)

• Welfare Organizations (NGO)

-What are the functions?

-What are the objectives?

-What is the structure?

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-What are the rules and regulations for the project

requirements?

-Is the role of project development being met?

PROJECT ENVIRONMENT

a) Project environment needs to be analysed, understood and addressed if

project is to be implemented successfully.

b) Project environment provides managers with a structured approach to

analyzing and handling possible external constraints

c). There must be continued interaction between the project and its environment,

and the project itself affects the environment just as it in turn is affected by it, so

that there is a two –way relationship between them.

Physical environment:

Refers to the natural setting of the project, its geology, soils, landscape,

climate, water resources and ecological systems

Many projects are sited in a particular location and surrounded by a

specific physical setting. Sometimes this setting is the very reason why the

projects exist e.g. mining project is established precisely to exploit

deposits in physical environment, agricultural projects exist to maximize

potential of the natural physical environment for agricultural production.

Technologies:

Technologies utilized for the exploitation or conservation of the natural resources.

Availability –provision of these technologies is a key dimension of the project

environment.

Economic and Financial management:

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Projects utilize resources to create assets. Resources utilized have a cost and

these assets created have a value. Relative costs and values (worth of the

projects) are directly affected by the economic and financial environment within

which they are implemented . Such issues as budgetary constraints, foreign

currency shortages, price controls, inflation, interest rates are constantly

reviewed in order to complete project at stated cost, using resources to be

acquired. Cost-over-runs often associated with time delays are very frequently

encountered- and these are caused by constraints of the economic and financial

environment.

Institutional and political environment:

Institutional framework concerns such matters as the legal systems within

which project managers are operating and aspects of social organization

such as the land tenure and water rights system

Formal/less formalized organizations are crucial determinants of project

outcome:

Formal: government departments,marketing and credit institutions, local

authorities have clear terms of references

Less fomalised but official organizations- village level committees, political

groups, religious institutions may be as important

Political framework in the project environment needs to considered.

Projects necessarily reflect the political priorities of the country within which

they are implemented. Politics determine the progress of any project.

Project managers need to be political –need to lobby, negotiate, use influence

to gain political support for their project. The political environment surrounding

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a project involves a complex web of political relationships which extends

beyond individuals to organizations and geographical areas.

Socio-cultural environment:

People –orientated projects e.g most agricultural projects,

health,education and welfare projects,urban housing, water supply,

rural industrialistion projects are implemented through people who are

not directly part of the formal project organization

Project organization provides resources, training services and

infrastructure to the population

For the project to be successful, its objectives will need to be

consistent with values and practices of those people it is designed to

assist

It is vital for project personnel to be sympathetic to the local culture and

to have an understanding of “why things are done the way they are.”

DISCUSSION:

1. Critically analyse the business operating environment of a

project you are familiar with. What are the prospects of its

success? Why? What are the areas of improvement, if any,

would you recommend to the project sponsors for it to be a

success?

2. Examine any one of the organizations/institutions that

promotes project development. To what extend is it fulfilling its

role in the current economic environment?

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CHAPTER 2

NATURE OF PROJECTS

What is a project?

Definition:

a) It is a collection of linked activities, carried out in an organized

manner with a clearly defined start(ing) point and finish(ing) point

to achieve some specific results that satisfy the needs of an

organization as derived from the current business plans.

b) It is organization of people and resources to meet objectives

c) It is the investment of capital in a time – bound intervention to

create productive assets.

2.2 Characteristic features of a project:

• Involves new and unknown tasks

• It is an instrument of change (has elements of risk)

• It has clearly defined start and finish dates

• It has specific aims

• It should result in something being delivered

• It is the responsibility of a project manager/ management team

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• It involves costs, resources and time (subject to strict deadline)

• It leads to a change in people’s daily work or living conditions

• Requires the right people at the right time but people of different

backgrounds who are not used to working together.

Examples of a project

• Writing and publication of a book

• Relining of a blast furnace in steel works

• Setting up a new department at a University

• Supporting of a self help efforts of a rural community

• Technical projects: construction of bridges, dams, water pipe line

• Introducing a new product

• Organizing a trade fair.

Projects in Midlands

• Unki platinum mine project

• Relocation of Mtapa long distance bus terminus

• Construction of MSU administration Block

2.3 PROJECT MANAGEMENT

Definition

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a) The dynamic process utilizing the appropriate resources of the

organization in a controlled and structured manner, employed to

achieve a change clearly defined with specific objectives identified

as strategic needs.

Characteristic features:

- Objective oriented – without these you have no outcomes

- Change oriented – creating something you need but do not

have.

- Multi disciplined – needs a wide range of skills to achieve

success

- Opportunistic – you must seek to take shortcuts and bypass

old norms

- Performance oriented – setting appropriate standards and

quality of outputs

- Control oriented – carefully designed controls to maintain the

schedule

- Avoid getting trapped by the old ways of doing things.

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b) Project management is a tool for management to manage

organization:

Interfaces between organization and its environment to achieve

stated goals Interfaces within an organisation

2.4 Sources of projects:

1. Corporate and strategic plans/business plans

2. Normal operations/ step changes

3. Continuous improvements/ programmes cross functional

4. Growth by projects addressing needs/ opportunities

5. Growth by incremental change of quality/performance

2.5 LIFE CYCLE OF A PROJECT

All projects go through similar life cycle, comprising the following

phases namely:

Phase1: Idea generation and screening the idea

It is done through feasibility study ie whether to go for the

project or not(prefeasibility Go/and No Go)

-Needs are clearly identified and project is defined with

agreement of those people with an interest in the outcomes

-Also called conception and definition stage

-Organization realizes that a project may be needed or

receives a request from a customer to propose a plan to

perform a project.

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Phase 2: feasibility study: Project formulation

-Looks at techno-economic design stage aspects of the

project

-Looks into such issues like location, finance, commercial,

institutional preliminary organizational/set up, economic

financial aspects.

-Also termed project formulation/design stage.

-Here the planning phase becomes critical to derive a

realistic schedule and budget taking into account the

constraints imposed on the project

Phase 3 Implementation/execution

-Entails launching the project work

-Manufacture, construction and installation of equipment and

facilities

-Entails procurement; production

-Requires monitoring cost schedules and specifications, plan

to be up to date

Phase 4 Handover and start up stage

- Preparing customer for acceptance and handover to ensure

the project can deliver. Any follow- up activities are

identified and assigned and project evaluation is completed

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Phase 5 Post project evaluation

done after project is handed over to the customer. It

provides data for future projects.

Contents of a project report(proposal)

1. INTRODUCTION:

• -purpose

• -scope(limits)

2. EXECUTIVE SUMMARY

• -executive highlights

• -summarises completed project report

• -findings

• -decisions

3. CONCLUSIONS/RECOMMENDATIONS

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4. PROJECT DESCRIPTION

• General objectives

• Specific objectives

-market analysis

• Product/service description

• Market position

• Competition and marketing strategy

Project structure

• Work breakdown structure

• Work packages

Project costs

• Capital and expense requirements

• Financial plan (project budget)

• Contingencies

• Economic and financial analysis(viability)

• Risk and sensitivity analysis

Schedule

• Time estimates

• Calendar schedule

• Bar chart schedule

Network

• List of activities

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• Arrow diagram

Resource allocation

• Resource type

• Resource availability and constraints

Control systems

• Project evaluation methods

• Cost control

• Cost minimizing (time/cost trade offs)

• Status report

• Milestones

ORGANISATION AND ACCOUNTABILITY

• Management capacity

• Labour /employee plan

• Responsibility/accountability matrix

• Procedures

• Special conditions/contractual aspects

APPENDIX

• Reference material

• Calculations

• Curriculum vitae (cv)

NB a project plan (report) varies from organization to organization but any

project must contain most of the above elements.

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CHAPTER 3

3.0 PROJECT ORGANISATIONAL STRUCTURE -

Hierarchical structure: organizational chart

• Appropriate for very large, long-term projects which work on isolated tasks

and are staffed mainly by full time employees.

• Is not appropriate when project is to be integrated with the base

organization.

Advantages

• Functional specialists easily share their knowledge and normally work

together.

• Easier to implement work rules and regulations for a group of similar

functional experts.

• Share a commonality of perspectives that will help the main thrust of a

project.

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Disadvantages

Disadvantages of organizational projects according to hierarchical structure

• Does not develop technology useful for the future.

• Minimal career continuity for project personnel.

• It often leads to:-

- bureaucracy

- inefficiency

- poor use of resources

- collapse of authority or the project usurping responsibility it

should not have.

- Little commitment from people outside the project

- Little informal contact between the project and its

surroundings

MATRIX STRUCTURE

Can be on full or part time basis. It is a high breed organization. It is

characterized by having a pull of project managers who will be assigned to

projects. It comprises of :-

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- Core team members with previous experience who are not

necessarily drawn from across the functional structures.

- Extended team members who are drawn from across

functional structures and do a specific part of a job for a

relatively short time.

Advantages

• Response to changing needs is very rapid.

• Functional experts are more part of a team and are more focused

on project deliverables.

• Team members have a functional department to return to after the

project.

• Their respective departments look after careers and specific

development needs.

Disadvantages

• There can be conflict between functional line managers and project

managers over the deployment of resources.

• If the team is not physic ally located in the same area in a building,

communications and control becomes a difficulty.

• Matrix structures are frequently hindered by accusations of poor

accountability and lack of clarity in responsibilities.

Project organization

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It is based on assigning projects to each organizational unit (department).

The project make contribution to corporate strategy. Senior management is

involved in project process and has defined roles and responsibilities. Senior

management sponsor projects and have authority i.e. ownership over

projects. Project sponsors can form project steering team.

Advantages

- It ensures everyone in the organization focuses on important

active projects.

- The reporting structure is clear

- It priotises project for limited resources

- Reaction to market changes if rapid as authority exists in

project team

- Functional specialists work with project managers

Disadvantages

- Duplication of functional experts will exist across the

organization as they are each dedicated to a single project.

- There is a lack of information exchange between functional

experts as they are located in different parts of the

organization.

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Project sponsor (owns, commissions the project, chairs PST)

The project sponsor for any project is accountable (to the PST) for the

performance of their projects and must demonstrate their concern for success

to everyone involved. Responsibilities include:

• Ensuring project objectives are always aligned to corporate

needs;

• Selecting the project manager;

• Approving the project definition;

• Sustaining the project direction;

• Ensuring priorities are maintained for all their projects;

• Overseeing the project process and procedures, budget and

control; finds and wins resource(s) for the project

• Reacting promptly to issues escalating to them for decisions;

• Maintaining support and commitment;

• Approving project plans, changes and status reports.

Project steering team (created by project sponsors has representatives from

business + technical functions + user community)

This group of project sponsors – the project steering team (PST) – meets at

regular intervals to review the status of all active projects, initiate new projects

and decide the prioritization of project activity in the organization.

Responsibilities include:-

• Ensuring projects are aligned to corporate objectives;

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• Giving strategic direction;

• Maintaining focus on customer and business needs;

• Ensuring environmental influences are taken into account (internal

and external);

• Prioritizing all active projects and their resourcing;

• Resolving escalating issues;

• Providing the ultimate decision forum for all major problems and

issues;

• Approving start-up and abortion of projects.

• Reviews overall project direction, schedule, costs, quality of

deliverables)

Project manager ( manager project, people + paper work, attends, steering

committee meetings)

The project manager is responsible for the project work from the initial kick-off

through to closure. Responsibilities include:

• Selecting the core team with the project sponsor;

• Identifying and managing the project stakeholders;

• Defining the project and securing stakeholder approval;

• Planning then project and securing stakeholder approval

identifying + managing the risks

• Allocating + securing resource commitments

• Monitoring and tracking project progress

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• Solving the problems that interfere with progress

• Controlling costs

• Leading project team

• Informing stakeholders of progress status

• Delivering the project deliverables + benefits

• Managing performance of everyone involved with project

Project Manager’s deliverables

i.e The physical items to be delivered from a project. This typically includes

reports and plan as well as physical products and services project deliveries a

product or service.

• Terms of reference or project definition

• Milestone plan

• Budget

• Work breakdown structure

• Project organization chart

• Responsibility

• Task definitions

• Deliverable definitions

• Deliverablee definitions

• Quality plan

• Dependency chart

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• Progress reporting standards

• Change control standards

• Lost of planning + estimating assumptions

• Gantt chart

• Progress reports

• End of phase reports

• Project review report

Project Team

Successful teams have to be built through effective leadership + commitment

Criteria for selecting team members

• Relevant technical experience/specialized knowledge are essential

to project.

• Have worked in project team before i.e have experience

• Assets current non project work load

• Do they get on easily with other people

• Are they good team players

• Is line manager in agreement with possible assignments.

Project member

• Technical expert qualified to complete project tasks

• Gives regular feedback on progress to project manager

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• Focuses on delivering quality contributes to teamwork and

morale

CHAPTER 4

4.0 PROJECT PLANNING

“íf you fail to plan: you prepare to fail”

4.1 Purpose of planning

• To achieve a common understanding of the task to be resolved

• To obtain an overview of the work to be carried out

• To lay the foundation for allocating and committing resources

• To be able to form a suitable organization of work

• To define a programme of monitoring and control.

4.2 Definition of Project Planning

• Is “a continuous process which involved decisions and choices, about

alternative ways using available resources with the aim of achieving

particular goals at sometime in the future”( Conyers and Hill,1984).

L.Young – planning is a process of creating order out of apparent

chaos

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Key aspects of the definition:

• Making choices

• Concerning use of limited resources

• To achieve given goals and objectives

• Pertaining to some future time

NB: Goal – aim or objective towards which an endeavor is directed.(simply

objective)

4.3 Project planning involves stating

• Why a project should be undertaken

• What should be done and

• By whom, in order to achieve well-defined objectives by some future

dates.

4.4 Products of planning

• Plans consisting basically of graphics and text e.g. graphics – include

charts, logic diagrams, sketches and in some cases photographs

• Texts include narratives and tables.

• Logic of planning = plan.

• List of what jobs (activities) have to be done and the order of carrying

them out.

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4.5 Planning cycle and project cycle

Like project cycle, planning cycle is made up of three main elements:

1. Clarity problems to be solved

2. Set out objectives and

3. Draw up the project plans

4.6 Planning procedures:

(i) Establish objectives

• State objectives – derived from requirements (problems that

motivated the project

• List interim objectives or milestones – these are significant events

in meeting the main objectives

• Designate responsible personnel or departments

- These are important groups whose participation in planning

and scheduling are required for successful project

implementations. These participating activities used to be

identified early in project developments.

(ii) Develop a plan

• List what jobs (or activities have to be done to complete the project

• Delineate the jobs by determining their relationships:

- determine which jobs proceed and succeed every other job

- determine which jobs can be accomplished concurrently

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(iii) Draw the arrow diagram

• Show the sequence in a planning (arrow) diagram. The planning

process becomes complete when the graphic display in the form of

a planning diagram displays the project work items and their

relationship.

4.7 Obstacles to project planning

4.7.1 Network planning Techniques

Network analysis(planning)

• This is a graphic analysis of the project showing the plan of action

through the use of a graphic diagram (used in project planning)

• Network planning techniques

Common ones include:

4.7.2 Critical Path Analysis/Critical Path Method CPA/CPM

• Developed by Rand corporation and Du Pont to

improve the planning, scheduling and controlling of

projects(as a means of scheduling shutdowns regular

shutdowns at chemical processing plants)

4.7.3 Programme Evaluation Review Technique(PERT)

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• Developed from work involving the US Navy for planning,

coordinating the projects associated with the development of the

missile programme

Differences

PERT CPM-event oriented -activity oriented-provides starting and finishing - provides starting and finishing

times provided for the event times for the activity

-provides the probability of -has no provision for determining

meeting a scheduled date probabilities

-uses three time estimates for -uses on estimate

each activity

4.8 Network Terminology

Activity – This is a task or job of work, which takes time and resources. it is

represented by an arrow not arrow to scale.

Tail of Head of the arrow arrow -Indicates where Where task ends Task beginse.g Build a wall

- Verify debtors in a sales ledger.

a) What activities are involved in the project.

b) Establish their logical relationship i.e which activity comes after or before.

c) Establish the estimate of time that the activity is expected to take.

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EVENT- It is a just in time, it indicates the start or finish of an activity or

activities. It is represented in a network by a circle or node.

Establishing of activities automatically determines events which are the start of

finish if activities e.g wall bulk, debtors verified, arrived city.

Dummy Activity – It is an activity that does not consume time or resources. It is

a fictitious activity with zero activity time used to create a PERT or CPM network.

It is used merely to show clear logical dependents between activities so as not to

violet the rules for drawing network.

It is represented is a network by a dummy activities are not usually listed with led

activities may become necessary as the network is drawn.

CONCURRENT ACTIVITY – They are activities as tasks that are designed to be

carried out in parallel i.e at the same time.

SERIES ACTIVITIES – are activities or tasks that are designed to be carried out

are after another each strictly dependent on compilation of the earlier activity.

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NETWORK – A combination of activities, dummy activities and events in a logical

sequence according to the rules for drawing networks.

RULES FOR DRAWING NETWORKS

A – A Complete network should have one part of entry i.e a start event and only

Part of exist i.e a finish event.

B – Every activity must have one preceding as task event and one succeeding or

head event.

NOTE :- that activities may use the same head event.

Tail Head eventEvents Head Events Tail event

- However an activity must not share the same tail event and the same head

event with any other activities (use dummies)

- An event is not complete until all activities leading into if are complete.

- ‘Loops’ i.e a series of activities which lead back to the same event are not

allowed because the essence of networks is a progression of activities away

making onwards in time.

- All activities must be tied into the network i.e they must contribute to the

progression or be discussed as irrelevant.

- Activities which do not link to the overall network are called ‘danglers’ they are

not to be used.

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Dangling activity not to be used.

CONVENTIONS FOR DRAWING NETWORKS

a) Networks proceed from left to right.

b) Networks are not draws to scale i.e the length of the arrow does not

represent the time elapsed.

c) Arrows need not be draws in the horizontal plane.

- If they are not already numbers events or nodes should be progressively

numbered from left to right.

Simple networks have events numbers in simple numeric progression i.e

0,1,2,3,e.t.c

Activity identification

Typical methods of presentation include:-

a) Shortened description of the job of plaster wall e.g order raw material.

b) Alphabetical or numeric code i.e A.B.C. D e.t.c or 100.101,102 e.t.c

c) Identification by the fail and head event numbers e.g 0-1, 1-2, 2-3

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Dummy activities

Part of a network involves a car arriving at a service station during which 2

independent activities take place, filling petrol (A) and topping up with oil (B)

Fill petrol

A

Dummy activity

B

Top up with oil

EXAMPLE

Assume that part of the network involves a man lighting a cigarette. Activities and

there relationship are assumed to be as follows.

ACTIVITY DESCRIPTION PRECEDING ACTIVITYA Remove cigarette from case -C Put cigarette case away AB Strike match -D Light cigarette A , B

REQUIRED - A network diagram

Remove cigarette from Put cigar away Case A C

B D

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Car arrives

Car filled with

Petrol

Oil Topped

up

Network Analysis: (Time Analysis)

Assessing the time

Once outline network has been drawn there is need to complete it by in settling

the activity duration time.

a) Time estimate – an estimate is a decision about how much time and

resources are required to carry out a piece of work to acceptable

standards of work performance – You determine the size of group of

tasks, the amount of effort required to complete the work. Effort is

measured in project time units, e.g hours days weeks.

Sources of accurate estimates.

- Use experience of others

- Seek expert views (advice)

- Historical data from other projects

NETWORK TERMINOLOGY

3.1.3 Three time estimate approach

This approach is used to offset bias. Before beginning scheduling of a

project it is necessary to estimate the time required to complete each

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activity. After completing the initial arrow diagram, a time estimate is

obtained for each job in the project. Persons familiar with work to be

performed make the time estimates based on their best judgment.

Sources for accurate estimates:

- Experience from others

- The expert view

- Historical data from other projects

Estimate is a decision about how much time and resources are required to carry

out a piece of work of performance.

Determine:

• The “size” of the task or group of tasks

• The amount of “effort” required to complete the work; effort is measured in

project time units (hours, days, weeks)

Effort Duration Schedule

3.1.4 PROJECT SCHEDULING

This is the second phase of a project after planning, detailing the time at

which each job is to be started and completed. This phase represents

when the work need to be done.

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Scheduling Procedure:

1. After the sequence of jobs has been planned and laid in a network

diagram, establish the timing

a. Estimate the time required to complete each project item

b. Calculate the scheduled time for each project

c. Compare the required time (time estimate) with the available

time to complete each job.

d. Identify the critical jobs

e. Determine the front times of non critical jobs

2. If the project duration time calculated initially is not acceptable make

adjustments to the plan so as to meet project deadline that is acceptable.

3. Establish a time schedule (using a bias chart)

EXPECTED TIME CALCULATION

Expected time = Optimistic time +4 (normal time) + pessimistic time

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Optimistic Time - is the shortest possible time required for completing an

activity i.e. everything goes as planned; deliveries are on time, machines and

equipment operate without breakdowns, personal work within the standards.

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Normal Time - is the time most frequently required if activity were repeated

many times under similar conditions. This is the estimate that should be used in

an arrow diagram, as there is no contingency added.

Pessimistic Time - is the maximum possible time required to complete an

activity i.e. about everything goes wrong: delivery difficulties work delays,

accidents.

e.g. Assume that three estimates for an activity are :

DAYS

(O) Optimistic 11

Most likely 15

(P) Pessimistic 18

EXPECTED TIME = 11+18+4(15)6

= 14.8 days = 15 days

a) Time Units

Time estimates may be given in many unit i.e. minutes, hours, days, weeks

depending on the project. All time estimates within a project must be in the same

units to avoid confusion.

b) Use of time estimates

Project with multiple time estimates can be further analysed to give an estimates

of the probability of completing the project by a scheduled date

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BASIC TIME ANALYSIS - CRITICAL PATH

CRITICAL PATH

- critical path of a network gives the shortest time in which the whole

project can be completed.

- It is the chain of activities with the longest duration times

- There may be more than one critical path in a network and it is

possible for the critical path to run through a dummy.

Step by step procedure for establishing critical path1. Earliest start times (EST)

- it is the earliest possible time at which a succeeding activity can start

Method of calculation : FORWARD PASS

a) EST of a head event is obtained by adding onto the EST of the tail event,

the linking activity duration starting from event o, time o and working

forward through the network.

b) Where two or more routes arrive at an event the longest route time must

be taken e.g. activity F depends on completion of D and E. E is completed

by day 5 and D is not complete until day 7 ; F cannot start before day 7.

c) The EST in the finish event no 5 is the project duration and is the shortest

time which the whole project can be completed.

2

B 2 days 4days D

A 1 C 3 E 4 F 5

1 day 3 days 1 day 2 days

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A – F = Activities

0– 5 = Events

Find the critical path (forward pass)

2

B 2 4 D

A 1 C 3 E 4 F 5

1 3 1 2

The EST of the head event =

Zero starting time + 1 day =

1 + 2 = 3

1 + 3 = 4

4 + 1 = 5

3 + 4 = 7

7 + 2 = 9

b) where two or more groups arrive at an event the longest route T must be

taken e.g. Activity F dependent on compilation of ‘D’ and ‘E’. ‘E’ is completed

by day 5 and D is not complete until day 7 therefore F cannot start before

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0 0 0 0998l0o0 00

23

11

34

47

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day 7.

c) The EST in the finishing event number 5 is the project duration and it is the

shortest time in which the where project can be completed.

2. Latest start time (LST) (Backward pass)

LST for each activity must be established to enable critical path to be

isolated. LST is the latest possible time at which preceding activity can

finish without project duration.

Calculating LST (backward pass)

a) starting at finish event no5 insert LST i.e. day a and work backwards through the network deducting each activity duration from previous calculated LST.

b) Where tails of activities B & C join event no1, LST for C is day 3 and LST

for B is day 1. The lowest number is taken as LST for event no 1 because

if event no 1 occurred at day 3 then activities B and D could not be

completed by day 7 as required and project would be delayed.

2

B 2 4 D

A 1 C 3 E 4 F 5

1 3 1 2

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0 0 0 0 0998l0o0 00

3 3

1 1

4 6

7 7

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CRITICAL PATH

One path through the network (A, B, D,F) has EST’s and LST’s which are

identical. This is the critical path (chain of activities which has the longest

duration), which can be indicated by a different colour or by two small transverse

lines across the arrows along the path.

Critical path implications:

- Activities along article path are vital activities which must be completed

by their EST’s/LST’s otherwise project will be delayed.

- Float is the spare time available on non critical activities(i.e. (C and E).

C and /or E could takeuptoanadditional2daysintotalwithoutdelaying the

project duration.

- If required to reduce overall project duration then the time of using

more labour, or more or better equipment or some other method of

reducing job times must reduce one or more of the activities on critical

path.

Float

Types of floata) Total Float - This is the amount of time a path of activities could be

delayed without affecting the overall project duration.

Total Float = Latest Heat time –Earliest

Tail time –Activity duration

Total float = 50-10-10

=30 days.

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0 0 0 0 0998l0o0 00

b) Free Float - This is the amount of time activity can be delayed

without affecting the commencement of a subsequent activity at its earliest

start time, but may affect float of a previous activity.

Free float = Earliest Head Time –Earliest

Tail Time – Activity Duration

Free float = 40 – 10 - 10

20 days

c) Independent Float - This is the amount of time an activity can be

delayed when all preceding activities are completed as late as possible and

all succeeding activities are completed as early as possible. Independent float

does not affect the float of either preceding or subsequent activities.

Independent Float = Earliest Head Time –

Latest Tail Time –

Activity duration.

Independent float = 40 –20 –10

10 days.For examination purposes the most important type of float is Total Float .

Calculate float (total)

1) Calculating separately

2) or calculating for total float over chains.

Non –critical chain Time read time available total float over chain

40

C, E 3+1 = 4days 7 – 1 = 6days 2 days

Slack

This is the difference between EST and LST for each event. Strictly speaking it

does not apply to activities but on occasions the terms are confused in exam

questions.

Exercise:

A project has five activities as follows:

Project data activity Preceding activity Duration (days) normal

A - 4

B - 8

C A 5

D A 9

E B, C 5

a) Find critical path using EST’s /LST’s

b) Calculate the floats of the network.

NETWORK ANALYSIS a) Cost scheduling

A further important feature of network analysis is concerned with costs of

activities and of the project as a whole.

Cost analysis objectives

The primary objective of network cost analysis is to be able to calculate the cost

of various project durations. Normal duration of a project numbers a given cost:

More labour

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Working overtime

More equipment

Network cost analysis seeks to find the cheapest way of reducing overall

duration.

b) Resource scheduling

Management need to know what activities and what resources are critical to the

project duration and if resources limitations e.g. (shortage of materials, limited

number of skilled labour might delay the project.

Resources scheduling requirements:

i) resource requirements for each activity showing classification of the

resource and quantity required

ii) resources in each classification that are available to project

iii) might need restrictions that need to be considered e.g. limitations on

labour mobility

iv) activity times, descriptions and sequences

1) Submissions of assignments – late submission not considered

2) Group presentation towards end of session

3) Lecture

4) Effort - schedule – duration

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CONSTRUCTING THE NETWORK – Worked Example Tasks Precedence Time Cost Who does

A - 5days - -

B - 4days - -

C a 6days - -

D b 2days - -

E b 5days - -

F c, d 8days - -

Finda) Critical path

b) How long it will take to complete the project

i) Node numbered I denotes event called “START”

ii) Activities a and b have no predecessors, assume source is at “start” –

Node 1

iii) Destination at nodes are numbered 2 and 3 respectively

iv) Arrow heads show direction of flow.

i) Activity c follows a activity d follows b activity e follows b

NoteNumber event nodes sequentially from left to right as you construct the network

ii) activity f follows both CTD but any given activity must have its source

in one and only one node ‘ ctd finish in the same node.

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ExerciseAssume a small project with ten activities as follows:

Project activity times and precedence’s

Activity optimistic time most likely pessimistic immediate Time time time predecessor activity

A 10 22 22 -

B 20 20 20 -

C 4 10 16 -

D 2 14 32 a

E 8 8 20 b, c

F 8 14 20 b, c

G 4 4 4 b, c

H 2 12 16 c

I 6 16 38 g, h

J 2 8 14 d, e

Question 1.

Hints

i) start network by finding those activities that have no predecessors -

activities a, b, c meet the test: they can all be drawn emerging from the

starting node

ii) look for activities that only require a, b, or c or some combination of a,

b, and c to precede them:

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- activity d requires that a be completed and e, f and g all require that b

and c completed

- note that a dummy will be necessary unless we begin the network from

separate nodes b and c

- h requires only that c be completed

iii) last activity I and j are drawn in the same manner. Activity I requires

both g and h be completed; so g and h are directed to a single node

(node 5) Similarly activity j requires completion of both d and e which

are directed to node 6

iv) since no activities that f, I or j precede them the activities are directed

to the project completion node 7.

Question 2.

Expected Time (TE) = (a+4m+b) 6

Where

a = optimistic time estimate

b = pessimistic time estimates

m = most likely time estimate

TE is estimate of the mean of the distribution

It is the weighted average of a, m and b with weights 1 – 4 – 1 respectively. The

same method can be used to find the expected level of resource usage given the

45

approximate estimates of the modal resource level as well as optimistic and

pessimistic estimates.

Activity Expected Time

A 20

B 20

C 10

D 15

E 10

F 14

G 4

H 11

I 18

J 8

Longest of these paths is a-d-jusing43 days which means that 43 days is the

shortest time in which the entire network can be completed. A – d – j is the

critical path.

Times and slacks for network

Event Latest occurrence time earliest occurrence time Slack

1 0 0 0

2 20 20 0

3 21 20 1

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4 14 10 4

5 25 24 1

6 35 35 0

7 43 43 0

Activity LST EST Slack

A 0 0 0

B 1 0 1

C 4 0 4

D 20 20 0

E 25 20 5

F 29 20 9

G 21 20 1

H 14 10 4

I 25 24 1

J 35 35 0

Notes

EST for an activity = for the event from which activity emanates

e.g. activity I cannot start until event 5 has occurred . Event 5 has an EOT of 24

days and so activity I has an EST of 24 days

Project has critical time of 43 days, activity I requires 18 days to be

accomplished. Therefore I must be started no later than 25 (43 – 18 = 25) if the

47

project is to be completed on day 43.LSTfor activity I is day 25 because I cannot

begin until event 5 has occurred, latest occurrence time (LOT) for event 5 is also

25.

Slack or Float = difference between the LST and the EST for an activity

- in the case of activity I it must be started no later than day 25 but could

be started as early as day 24, so it has one day of slack

- all activities on critical path have zero slack

NB To find the slack for any activity or the LOT for any event

- make a backward pass (right to left)

To find the critical path and time and the EOT’s for al events

make a forward pass (left to right) which are also EST’s for successor

activities.

Adopt the following convention:

When there are two or more non-critical activities on a path, it is conventional to

calculate the slack for each activity as if it were the only activity in the path.

Problems1. Given the following information, draw the PERT/CPM diagram.

Activity Immediate Predecessor

1 -

2 -

3 1, 4

4 2

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5 2

6 3, 5

2. Given the diagram below, find:

a) Critical path

b) How long it will take to complete the project

3. Given the following network

a) What is the critical path

b) How long will it take to complete this project

c) Can activity B be delayed without delaying the completion or the

project? If so, how many days?

4. Activity a m b

AB 3 6 9

AC 1 4 7

CB 0 3 6

CD 3 3 3

CE 2 2 8

BD 0 0 6

BE 2 5 8

DF 4 4 10

DE 1 1 1

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EF 1 4 7

Find:

a) the critical path

b) all event slacks

c) critical path to event D

d) the effect if CD slips to 6days, to 7days,to 8days.

NB a = optimistic time estimate

B = pessimistic time estimate

M = most likely time estimate

Calculating Earliest Start Time (EST)

- this is the earliest possible time an activity can begin without

interfering with the completion of any preceding activities

- guidelines in calculating EST

• calculation of EST commences with the beginning mode of

arrow diagram (time O) and continues

50

• if only one arrow leads into a mode, EST for jobs starting at

the mode is determined by adding EST for the preceding job

to the time estimate for the preceding job.

EST at mode 6 4 = 6

4 EST at mode 8

select 8

project ii

project 2 8

• if more than one arrow leads into a mode, EST calculations is made

through each end of the arrows as noted below. The largest total is the

EST for the mode.

EST at mode 3 EST at mode 7

13 23

pressure equipment

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3 7

EST at mode 6

17

Develop operating procedures

6

6

Calculating latest finish time (LFT)

- LFT an activity must be completed without delaying the end of the project.

- Guidelines when calculating (LFT)

• Project duration must first be determined by calculating EST

• Project duration is the LFT of the end mode of the project

• Calculation of LFT involves working from the end mode back

through each mode to the first mode in the project

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If more than one arrow originates at a mode, the calculation of LFT is made via

each arrow and the smallest result is from each mode to the end of the diagram.

LFT at mode 4 LFT at

6 select operating manager mode

4 6 17 6

9

hire operating train up

personnel 10

personnel

5

4 7

Job 4, 6 17 LFT at mode 6

- 9 Time estimate for job 4, 6

8

Job4, 5 10 LFT at mode 5

- 4 Time estimate for job 4, 5

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6

LFT at mode 4 is 6 days the smaller of the two results.

Milestone dates can be set V12 P32 – 36

Float: optional start and finish times. A float is the difference between time

available for performing a job and the time required for doing it.

Available time = Latest finish time - earliest start time

Required time = time estimate for completing a job

DIAGRAMS

Benefits from timing calculations:

• Establishment of project duration for plan

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• Identification of longest path (critical path) through the project

• Identification of jobs for which there is scheduling flexibility without

lengthening project duration.

Formula for calculating optional starting and finishing times:

Latest start = earliest start + total floats

Earliest finish = Latest finish - total float.

Tabulated schedule can be converted into a calendar schedule for reporting

and monitoring the project.

Bar Chart time schedule can be plotted after schedule is calculated.

Procedure for constructing bar chart:

1. use earliest start time for each project activity.

2. The length of each bar is the duration of each activity.

3. Plot one activity per line (in some cases, a number of activities per time)

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4.8 Benefits and limitations of network planning

Benefits

• A disciplined basis for planning a project

• A clear picture of the scope of the project that be read and

understood easily by someone who is not familiar( but

knowledge of the network diagramming technique) with the

project.

• A means of communicating what is to be done in the project

• A vehicle for use in evaluating alternative strategies and

objectives

• A means of defining relationships among the project items

• A means of pinpointing those responsible for accomplishing the

jobs that make up the project

• An excellent vehicle for training project personnel

4.9 Limitations

• Network is often difficult to interpret

• A great deal of time is usually needed to prepare changes, often

requiring a great deal of time for modifications to the network

diagram

• A network makes it difficult to note estimated costs versus actual

costs

• Individual skills are not recognized.

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4.10 Bar chart/Gant Chart Construction

• Is a graphic planning and control method

• a project is broken down into separate tasks and for each task,

estimates are made of the amount of time required and of the

termination date necessary to meet the specified completion date

for the project.

• Information is shown as a pair of brackets indicating the start and

end of dates for each task

• Grant Chart enables a manager to make commitments based on

the planned completion times, to acquire extra resources to shorten

some of the times etc.

• Grantt Chart enables manager to fill in the brackets

(accomplishment) enabling him to see immediately what tasks are

behind( or ahead of schedule and how far.

Advantages – provides excellent communication to management

Depicts more readily than network diagrams, a summary of status

of project and thus are used extensively in reporting on progress of

projects.

4.11 Deficiencies/weaknesses

-Relationships among the jobs cannot be shown and questions cannot be

answered regarding

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• Parts of these jobs that can be done concurrently

• Parts of each job that must be completed be for other parts begin

• Certain jobs or parts of jobs that must be given priority so as not to hold up

scheduled completion of project

• Optional starting and end dates of some jobs or parts of jobs if any.

To overcome above deficiencies during planning

• Network diagrams explicitly show interrelationships between jobs. A

network diagram shows which jobs can be done concurrently, which owes

precede, and which ones follow other jobs

• Jobs with critical schedules are specified with their required beginning and

end dates

Using computer calculations based on the network diagram also permits more

rapid and accurate updating of project schedule.

“While PERT/CPM and Gannt charts are both scheduling techniques, they

are not merely different ways of achieving the same ends: they are

complementary rather than competitive” Discuss

The date may relate to when a decision is to be made concerning outside

financing, when announcement of a project to the press is planned, when

a thorough project review is scheduled on whatever.

Milestone scheduling indicates seluted dates by which various phases of

the entire project to be completed.

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• Milestones add detail to Gantt chart

• Milestones serve as formal review points where costs, progress and

the need for replanning on schedule modification can be reviewed.

Gantt chart shows the relationship between milestones within the same task

but not within different tasks.

4.12 Milestone Planning

Is the date when a certain accomplishment, decision or event is to take

place as indicated on the horizontal bar of a chart . V12 p 14

4.13 PROJECT WORK BREAKDOWN STUCTURE (WBS)

This is a dynamic tool which divides(segments) the project into parts

before starting a project. It is updated as the work proceeds, particularly

as minor changes affect the task analysis.

Reasons for segmenting a project

• Project is large

• Project is long term

• It is advantageous to have information to plan the whole project as

one unit

• We do not have information to plan the whole project as one unit

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• The project has several natural phases with completing different

contents.

NB: a characteristic of a phase is that it is possible to plan it as a whole i.e.

giving us an insight into the types of activities that should be done in this phase.

A WBS does not show dependencies other than a grouping under the key

stages.

A WBS is not time based – there is no time scale on the drawing.

e.g. feasibility(phase) study V implementation phase

Preliminary project V (main project)

-Defines precisely objectives and goals -it implements what has been

on project decided

-Requires thoroughness

completeness

4.14 PROJECT RESPONSIBILITY CHART

- It is a contract between the project and the parties involved (management

other resource persons and members from the base organization who are

drawn into the project)

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- Each party must understand clearly the responsibilities for (work ending

up to a milestone) and their roles. Each key stage must be owned by one

of the team members.

- Some milestones may require authority to make decisions.

- Responsibility can consist of being responsible for progress, expecting

work, making decisions, being available for consultation, receiving

information or tutoring.

- When project responsibility chart has been developed it is useful to

evaluate the results.

- External assistance can be included in the project on project members

e.g. legal expertise, trade union representative, expert in economics and

finance (if not found from within)

- At this stage data to complete “duration” on plan “end date” is not yet in

place.

LINEAR RESPONSIBILITY CHART (LRC)

- It is a contract between the project and the parties involved i.e right and

member from the base organization who are drawn into the project as

resource persons and each party must understand clearly for work leading

up to a milestone (date of announcement)

- Responsibilities can consist of being responsible for progress or

implementing work, making decisions, being available for consultations,

receiving information or tutoring as well as evaluating the results.

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- External assistant can also be included in the project as project members

such as legal practioners, TUs, economic experts if not found from within.

- If summaries the relationships between project participants and their

responsibilities in each element of a project and an element can be a

specific activity an authorization to perform an activity, a decision or a

report. The LRC has government column to represent organizational

elements and roles which correspond to the project elements and roles

which correspond to the project elements performed by the organization.

- The LRC depicts authority, responsibility and communication channels.

Activity Engineering manager

Manufacturing manager

Contracts manager

Project manager

Marketing manager

Quality assurance manager

Negotiating

Contract

I, N I, N I, R P I A

Preliminary Design P A R O, B I AExecution R P - O, B I RDelivery N N P A N A

KEY

A - ApprovalP - Preliminary responsibility – who is responsible for accomplishingR - ReviewN - NotificationO - OutputI - InputB - Initiation

4.0 PROJECT DOCUMENTATION

Project work produces a large amount of data and it is important

that you record essential material. Insist that the team keep all

62

essential project records on a standard set of templates (format 5)

derived specifically for the purpose.

• To ensure project data is resolved in a consistent and

disciplined manner without reinventing every week.

• To get the right information recorded for the project file to

support your control system and aid project evaluation at

completion.

• Standard formats can be designed on the computer

a) Project File

- use a paper based system but more preferably on computer based file

which makes distribution of information easier with a network.

- Organize your project file into sections for different stages of the project e.

g.

Background information

Project definition

- project organization

- stakeholders

- project brief

Project plans and schedules

- project risk management

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- responsibility charts

- schedules

- work plans

Project execution and implementation

- project status reports

- changes to project plans

- action plans for correction action

- cost control data

- supplier and subcontractor data

- records of meetings

Project closure

- handover checklist

- acceptance pressure

- follow up and post project responsibilities

- project evaluation data

- completion report

b) Project logbook

- open a project log book at the start of your project

- book in an A4 bound …….book

- log book is particularly valuable to record events with third parties like

suppliers and contractors. When conflicts and differences occur the

64

logbook provides a record of events that can have a legal status in a

dispute

- log book is an addendum to the project file

- the logbook is an invaluable record of what actually happened throughout

the project. It is useful for post-project evaluation and a source of active

data for other projects in the future.

c) Project definition

- process of turning the data into something more solid and realistic,

something that is no longer a wish or a hope

- a clear definition of your project is critical to success – a large number of

projects (more than 75%) are perceived to fail as a consequence of poor

or nuclear definition

Documents required to effectively define project:

I. a statement of requirements

II. a stakeholder list –

- all with an interest in the project, how or in the future : customer, endures,

project sponsors, line managers of your core team members

- finance department, sales and marketing department, consultants ,

contractors, suppliers, other divisions or sites.

Project log book

65

Record events with essential relevant data:

• date

• time

• who is involved

• key points or content

Events to record• Telephone calls – incoming and outgoing

• Faxes – incoming and outgoing

• Letters – sent and received

• Memos – sent and received

• E –mail - sent and received

• Purchases instructions issued

• Contracts signed

• Action plans agreed

• Decisions taken – how implemented

• Solutions derived

• Reports issued

• Meetings – sponsor team, third party, one – to – one

When using log book

Use every page and number them sequentially

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Never remove any pages

Start each day with anew page

Always write with ink, never with pencil

Write on very line

Rule out all unused lines at the end of each day and sign the page at the

bottom

Do not allow anyone else to write in the logbook – even the project

sponsor.

- the public, other agencies/statutory bodies

stakeholders used to be consulted for their inputs to give you a wider

perspective of:

- the real project needs and requirements

- what is realistically available in the time scale demanded.

III. Project brief – one page document with the following sub headings:

Project title – relevant title for identification (project number)

Project overall objective – describes project’s desired results in 25

–30 words

Project leader and sponsor to be identified

Project proposed start date: date when the real work starts after

definition is approved and planning begins

Project required and date: and project is handled over to customer

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Project deliverables; tangibles outputs from the project which must

be impabale of being measured through its lifecycle, apply SMART

test to ensure that each deliverable is specific, measurable

achievable, realistic and time bound

Project benefit

Lists benefits and quantity them in financial terms-cost savings,

increased turnover, contribution or profitability in a specific time

scale.

Project strategy –explore alternative, carry out feasibility study, set

up site team, involve customers in the team

Project skills required: identify and highlight special experience and

technical skills you expect to need, external skills, expertise from

outside the organization.

Relationships with other active projects –any project interfaces with

other projects in terms of inputs, outputs critical interface dates to

be determined.

Project cost – if known or budget exists from earlier studies or

feasibility with them state cost, if not give estimate cost o rleave

blank.

Risk management – risk log and management forms attached

Project brief is a document that summarizes all relevant facts about the project

and is a source of definitive information:

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Contents:

Projects origins –a need or opportunity statement

Project …….. – why is it necessary now?

Benefits of project –to customer and your organisation

Project budget if known at this stage

Current timescale and dead lines –subject always to detailed planning

later

Iv Scope of work statement (SOW)

- it is a narrative description of the project objectives in more detail, giving

more information about each deliverable and benefit identified. SOW must

identify boundary limits of project clearly stating what is not going to be

done as part of the project. It records all constraints made earlier and any

assumptions made in each of the meetings, SOW is where the applicable

specification list is recorded:

- internal product specifications

- external product specifications

- mandatory standards imposed by legislation

- process specification

- customer specifications

- standard operating procedures

- purchasing procedures

69

- quality standards

- testing specifications and procedures

- sub contract terms and conditions imposed on third parties

Its purpose:

- to make sure that everyone knows from the offset which standards and

specifications apply to your project

- it identifies where actual document scan be found for reference

- it identifies what exceptions, if any, apply to any specification for your

project

- if necessary record for reference purposes any other relevant documents

that have been issued previously relating to project e.g. CBA fundability

reports, studies carried out by consultants, project evaluation reports from

previous projects

v Risk Management

- a risk is any event that could prevent the project from realizing

expectations of the stakeholders as stated in the agreed project briefs or a

agreed definition. A risk that becomes a reality is treated as an issue

- there are risks to all projects and risk management is the process o

identifying and containing them to ensure your project’s success. It is

necessary to anticipate what might go wrong.

Two types of risks

70

o project risks – associated with technical aspects of the work of the work to

achieve the required customers

o process risks – associated with project process, procedures, tools and

techniques employed, the controls put in place, communication,

stakeholders and team performances

o can be due to external / internal factors

Project manager is made an obligation with the team to,

identify and evaluate potential risks

obtain agreement for action plans to contain risks

take actions and monitor results

promptly resolve any issues arising from risks that happen

Risk management is a continuous process throughout the life cycle of the project.

Identify the triggers or signals that suggest a risk likely to happen, and you must

maintain awareness of risk in the minds of all your project team;

should be started at definition phase.

Is essential to establishing project brief

Compile a complete list of a project risk log

Review the list at regular intervals as the project moves forward.

Approval of project definitionRequires following documents to be presented

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Project organization chart p56 T&Young

Project stakeholder list

Scope of work statement

Project risk management forms

Project brief.

5. PROJECT LAUNCHING

After project definition, plan and schedule have been approved you are

ready to launch the project work.

i) ask key stage owners(people assigned with

project work and own the work) to record

their task lists

-using WBS

-use schedule start and end dates

-note name of person responsible for

carrying out the tasks.

-prepare Gannt chart.

ii) establish milestone scheduling –milestone

should be considered as a flag or some

signal at some clearly defined point in the

project. There are selected key events that

72

are of major importance towards achieving

objectives.

Milestone are excellent tools for reporting project status in summary form to

management. It summarizes the status of major events.

e.g.

completion of key task

completion of one of the project deliverables

stage generation of benefits

completion of third party activity

financial audit point

project audit point

quality audit

significant decision point.

Record list of milestone on a schedule and on Gantt chart.

5.1.3 IDENTIFYING CRITICAL SUCCESS FACTORS OF PROJECT

Use process type CSF which include:

- tools, techniques, processes and procedures you use to define, plan,

execute and complete project on time, to the budget

- these must be acceptable to the key stakeholders i.e. customer and

project sponsor

73

Examples:

- defining project objectives, deliverables, benefits

- ensuring sponsor is appointed and sustains support and commitment to

project

- appropriate team is formed and right skill are utilized

- scheduled plans exist, up to date

- WBS is maintained

- Control procedures are understood

- Project risks regularly reviewed

- Reporting and communication procedures are established –plan a

meeting schedule (1 to 1)meetings for your project.

5.1.4. Launch Meeting: as a milestone in the project

- get together all important people involved in a project

project sponsor

the customer

other stakeholders(key) –line managers

project team

Consider preparing a document package for distribution containing:

project organization chart

project stakeholderlist

key stage Gantt chart

key stage responsibility chart

74

project brief

any other relevant information

CHAPTER 6: PROJECT WORTH

INVESTMENT DECISIONS

Decision to invest is based on 3 major factors.

(a) Investor’s beliefs in the future – such beliefs would be based on

forecasts of internal factors including: costs, revenues, inflation,

interest rates, taxation etc.

(b) Alternatives available in which to invent – appraisal techniques are

used to assess competing investments.

(c) Investor’s attitude to risk – analysis of project uncertainity, risk are

critical given the size of investment.

Appraisal techniques

Payback is the period usually expressed in yeas which it takes for the project’s

net cash inflows to recoup the original investment.

e.g

Calculate payback for the following projects:

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Project 1 Project II

Year Cash flow Cash flow0 -1500 -15001 +600 +4002 +500 -5003 +400 +6004 -15005 +3006 +5007 +4008 +3009 +30010 +300

Advantages

a) Simple to calculate + understand

b) Uses project cash flows rather than accounting

profits + hence is more objectively based.

c) Favours quick return projects which may

produce faster growth for waand enhance

liquidity

d) Choosing projects which payback quickest with

tend to minimize those risks saving the way

which are related to time.

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Disadvantages

a) Payback does not measure overall project worth because it

does not consider cash flows after the payback period e.g

project III is ranked after project I + II even though it

produces cashflows over a 6 year period.

b) Payback provides only a crude measure of project

cashflows. eg project I + II are reached equally even

though there are clear differences in timing of cash flows.

In spite of above it is undoubtedly the most popular

appraisal criteria in practice.

Discounted cashflow (DCF)

Use of Def overcomes some of the disadvantages of the traditional technique of

payback.

Two common features to DCF methods:

a) Use of cash flows not accounting profit.

This is preferred because:-

- Cash flows are more objective and in the end are what

actually count. Profits cannot be spent cash is the life blood

of the company.

- Accounting conventions regarding revenue/capital

expenditure classifications, depreciation calculations, stock

valuations become largely redundant.

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- The whole life of the project is to be considered therefore it

becomes unnecessary and misleading to consider

accounting profits which are related to periods (period

oriented- monthly, quarterly, annually)

- Timing or expected timing of cash flows is more easily

ascertained.

Typical cash flow items include;

1. project revenues

2. cost grants

3. resale or scrap value of assets

4. tax receipts capital injection (contribution)

5. any other cash inflows caused by accepting the project.

Cash outflows

- initial investment in acquiring the assets

- project costs (labour, materials etc)

- working capital investment

- tax payments

- any other cash outflows caused by accepting project.

78

b) Time value of money (money received now is worth more than money

received in use of money)

It is preferable to receive a given sum of money earlier rather than later because

the sum received earlier can be put to use by earning interest or some productive

investment within the business.

Assumptions in basic DCF Appraisal

a) uncertainty does not exist

b) inflation does not exist

c) appropriate discount ate to use is known

d) a perfect capital market existsi.e. unlimited funds can

be raised at the market rate of interest.

NPV method

It calculates the present values of expected cash inflows and outflows (i.e the

process of discounting) and finds out whether in total the present value of

cashinflows is greater than the present value of cash out flows.

NPV = ∑ C (1 + r)

Where C = net cash flow

∑ = Summation of

r = discount rate

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e.g An investment is being considered for which the net flows have been

estainated as follows.

Period cashflow PVF Discounted PV

Yr 0 Yr 1 Yr2 Yr3 Yr4

-9500 +3000 +4700 +4500 +3200

What is the NPV if the discount rate is 20%. Is the project acceptable?

NPV = -9500 + (0,833 x 3000) + (0,094 x 4700)

+ (0,579 x 14800) + (0,482 x 3200)

= $582

Use tables

To verify use calculator I

1 + r

Investment acceptable because it has positive NPV at the firm’s cost of capital.

Interpretation: the NPV means potential increase in consumption made possible

by the project valued in present day terms.

Internal Rate of return (IRR)

Alternative names:

- DCF yield

- Marginal efficiency of capital

- Trial and error method

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- Discounted yield

- Actual rate of return

Definition

- It is the discount rate which gives zero NPV.

- It can be found by either

i) drawing a graph known as a present value profile or

ii) calculations involving lines interpolation.

Present value profile

- Is a graph of the project NPV’s at various discount rates

- Plot two points one at a rate which gives positive NPV and

one at a rate which gives a negative NPV

e.g 20% gives + $ 582 NPV; and a higher rate is tried to see if a negative NPV is

obtained e.g 25% discount rate gives –322 NP

Plot these points and draw a line between them to see where it crosses the

horizontal axis which gives then IRR

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PRESENT VALUE PROFILE

700 -

600 -

+ VE 500 - NPV @ 20% = $ 582

400 -

300 –

200 -

100 - IRR i.e the discount rate which gives

NPV 0 - zero NPV

$ 100 - 5 10 15 20 25 30 35 40

- VE 200 -

300 - NPV @ 25% = $ -322

400 -

500 -

Note

a) at least out discount rate must be chosen which gives

a negative NPV so that the present values line

crosses the horizontal axis.

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b) The present value line crosses the axis at

approximately 23% which is close enough estimate

for most practical purposes.

Finding the IRR by linear interpolation

IRR C

= 20% + 5% 582904

(a) (b) (d)

Where

a) is a discount rate which gives a positive NPV

i.e 20% = $582

b) Is the difference between (a) and the rate which gives a negative NPV

25% - 20% = 5%

c) Is the positive NPV at discount rate chosen in a) i.e $ 582

d) Is the total range of NPV at rates chosen i.e +582 to –322 = 904

Decision rule using IRR:

Where calculated IRR is greater than company’s cost of capital then project is

acceptable.

NPV and IRR compared:

a) Accept/reject decisions

-where projects can be considered independently of each other and where

the cashflows are conventional, then NPV and IRR give the same

accept/reject decision.

Accept project Reject project

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NPV positive NPV negative NPV

IRR IRR above cost of capital IRR below cost of capital

b) absolute and relative measures

NPV is an absolute measure of the return on a project whereas IRR is a

relative measure relating the size and timing of the cashflows to the initial

investment. Thus, the NPV reflects the scale of a project whereas the IRR

does not.

e.g. Assume a project has the following cashflows:

year 0 year 5

project x -$20 000 + $40 241

NPV @ 10% = $4990

IRR = 15%

Therefore, project is acceptable by both methods-assuming 10% is the cost of

capital.

Now assume that the project is scaled by a factor of 10:

Year 0 year 5

Project 10x = 200 000 +402 410

NPV = 49 900

IRR = 15%

NPV clearly distinguishes between project x and project 10x whereas IRR

remains unchanged at 15%.

c) Mutually Exclusive projects

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This where only one of several alternative projects can be chosen. Projects

are ranked in order of attractiveness and choice is made on the most

profitable. In such circumstances NPV and IRR may give conflicting rankings.

A property company wishes to develop a site it owns. Three sizes of property

are considered and costs and revenues are as follows:

Year 0 year 1 to perpetuity

Expenditure rentals per annum

$million $million

small development 2 0,6

medium development 4 1

large development 6 1,35

The cost of capital is 10 % and it is required to rank the projects by NPV and

IRR and to select the most profitable.

The projects are mutually exclusive because the building of one size of

development excludes the others.

Perpetuity = is a constant stream of cashflows without end e.g. bonds give

cashflow stream (yearly interest)

PV = C + C + C

1 +r ( 1 + r) ( 1 + r)

= C

r

NB ranking is preferred i.e. large development because it leads to the

greatest increase in wealth for the company.

Non-conventional cash-flows (the multiple rate problem)

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Non-conventional cashflows –where cashflows vary; opposite of conventional

cashflows i.e. an initial cashflow followed by a series of inflows.

e.g. year 0 year 2 year 3

project x -2 000 +4 700 -2 750

project y +2 000 - 4 000 +4 000

Project x has 2 outflows and is thus no-conventional.

Project y has an outflow in a year’s time instead of initially and is thus non-

conventional.

When a project has non-conventional cash-flows it may have:

i. One IRR

ii. Multiple IRRs

iii. No IRR

Multiple rates:

Project x =two IRRs at 10% and 25%

Project y =No IRR

NPV Method gives clear, unambiguous results whatever

the cash-flow pattern

Project x has positive NPVs at discount rates between

10% and 25% and negative NPVs at lower and higher

rates. Project y has a positive NPV at any discount rate.

NPV @ 0% = -50

NPV @ 10% = 0

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NPV @ 15% = +10

NPV @ 25% = 0

NPV @ 30% = -14

Annuity:

This is a level of stream of regular payments that lasts for a fixed number of

periods.

PV annuity = C + C + C……..+ C

1+r 1+ r 1+r 1+r

PV annuity = C

Exercises:

1. Mr X has won a lottery paying $50 000 a year for twenty (20) years. He is

to receive his first payment a year from now. If interest rate is 8%. What is

the true value of lottery?

2. A firm can generate net cash flows of $500 000 in the first year and +

$200 000 for each of the next five (5) years . Calculate the Present

Value.

3. A firm is considering a project with a cash outlay of one million Zim.dollars

now and a five (5) yearly cash inflows of $500 000. What is the NPV at

10%?

4. What is the Net Present Value and Internal Rate of Return of the following

series at 10%

Year 0 1 2 3 4

Cash-flows -2 000 +800 +600 +700 +500

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Draw a present value profile of the above. Is the project acceptable at

10% cost of capital?

5. An entrepreneur is considering buying a freezit making machine

Summary of NPV and IRR comparison:

• NPV is technically superior to IRR and is simpler to calculate

• Where cash-flow patterns are non-conventional there may be nil or

several IRRs making the IRR impossible to apply

• NPV is superior for ranking investments in order of attractiveness

• With conventional cash-flow patterns both methods give the same

accept or reject decision

• Where discount rates are expected to differ over the life of the project

such variations can be readily incorporated into NPV calculations but

not in those for the IRR.

• Notwithstanding the technical advantages of NPV over IRR is widely

used in practice so that it is essential that students are aware of its

inherent limitations.

7.1.0. EXECUTING THE PROJECT WORK

PROJECT CONTROL – 3RD phase of project management cycle

Consists of

1. – monitoring progress o f each project item

2. – assessing its effects on the total project

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3. – taking the necessary action on the critical items to keep the project on the

planned schedule.

7.1.1 Project control system and system design

Control of a project environment involves three operating modes:

• Measuring - determining progress through formal and informal reports

• Evaluating - determining the cause of deviations from the plan and how to

react

• Correcting - taking actions to correct the situation

System design

Its purpose is to ensure that you and the team always have information to make

an accurate assessment of:

o What has happened and compare this with

o What should have happened according to the plans.

Controlling the project means managing the many problems that arise to

maintain the project schedule.

You do this on a day –to day basis through:

Monitoring the work – observing and checking what is happening

Identifying and resolving the problems that arise

Tracking the project – comparing with the plan and updating the records.

Good control of any process is dependent on accurate data-keep project file up

to date. This involves a regular check and up date of:

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Project organization chart

Stakeholder list

Key stage responsibility chart

Project brief

Key stage Gantt charts

Key stage work plan charts

Project risk log

Control system must be capable of providing information on:

Resource required –availability and its effective use

Equipment and machinery required and used

Materials used, ordered and required

Costs incurred to date and forward commitments

The results achieved – tasks completed

A valuation of the results- as expected

Monitoring ProgressMonitor:

- The team (talkings to them, holding meetings)

- The stakeholders (hold 1 to 1 meetings)

- Performance (checking activity)

Do this by MBWA, observe and have conversations.

Do this by written reports which provide a historical record

Tools to use: working with WBS

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Use of Gantt chart/bar charts

Project status report

Good monitoring and tracking (measuring) builds team confidence, anticipates

problems and prepares future success.

Taking corrective action:

1. rearrange work loads

2. put more effort into the job

3. put additional resources

4. more milestone date

5. lower scope /quality of results demanded.

Go through problem solving process p158 - 161

Regular progress meetings

essential part of project control process

keep your meetings to the point

focus the team on what must be done next not history

come up with an action list

project control is dependant on good communication

7.1.4. Project status report

a project status report is prepared on a regularly scheduled basis(usually

monthly)and reflects programme content in a summary form.

• Status of key project items

• Assessment of key project items

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• Resolution of “troubled” areas

• Difficulties anticipated in the work waiting to be done

Status report documents p50-55 spinner

- many include 3 documents

- cover letter

- executive highlights (listing, in a sentence or two)

- project summary

- bar chart

- project status

- milestone report

7.1.3. Cost Control Measures

Developing cost estimates

- Cost estimates for project activities are provided by experienced

personnel

- Sum total of project costs relate to cost estimates as standards

- Usually cost associated with activities on the network are reliable costs.

A completed bar chart timing schedule is a prerequisite to developing a project

cost schedule. You can use the WBS and Gantt chart as the basis of collecting

data.

Steps to develop a cost schedule

1. complete bar chart time schedule and add the cost value of each activity

to its corresponding bar.

2. calculate the cost per unit

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3. tabulate cost schedule

7.15. Managing time

Time is the most valuable resource that, if lost or misplaced is gone

forever. There is need to convert this constraint to a manageable resource

Barriers to effective time management.

- encourages good time management for:

self

the team

stakeholders

8.0 People problems and role of project manager

8.1.1 Qualities of a project manager

Role of a project manager is a complex role because of involvement in a

changing environment. It is a temporary management role with specific

responsibilities that are linked only to the project.

Project manager has to balance the demands and needs of :

Customer

The project

The organization

The project team

Primary Responsibilities of a project manager include:

Selecting the core team with project sponsor

Identifying and managing project stakeholders

Defining the project and securing stakeholder approval

Identifying and managing the risks

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Allocating and securing resource commitments

Monitoring and tracking project progress

Solving the problems that interfere with progress

Controlling costs

Leading the project team

Informing stakeholders of progress status

Delivering the project deliverables and benefits

Managing the performance of everyone involved with the project

8.1.2. Managing project stakeholders

Stakeholders are the people who have a specific and clearly definable interest in

the project. They have influence in the management of the project as they

provide some resources e.g. line managers.

Other stakeholders include: (internal/external stakeholders)

- Your customers

- Your project sponsor

- Customer’s user group

- Finance department

- Production

- Marketing

- Personnel e.t.c

They need to be consulted and managed all stakeholders have a hidden agenda

about what they expect from your project and you need to expose these

expectations before you define the project.

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External stakeholders also have an interest in the project

Suppliers

Contractors

Consultants

Government or agencies etc

8.1.3 Projects and conflicts

Hopes, desire and needs of people across the organization as well as outside

players are often in compatible with each other resulting in conflict where

change takes place, conflict is inevitable.

Most common types of conflict:

- resources

- equipment and facilities

- budgets and costs

- technical opinions

- priorities

- procedures

- responsibilities

- personality clashes

Some common causes for conflict1 diverse expertise in project team

2 low level of authority given to project leader

3 lack of understanding of project objectives by project team

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4 unclear or shared responsibilities

5 unclear schedules and performance targets for team members

6 local interference from high level involvement

7 people do not like each other or do not get on together in their worst

Conflict is good if it:-

- brings problems and issues out into the open for discussion

- brings the team together, screening loyalty

- promotes creativity, generating new ideas and work practices

- focuses people to give their work more detailed analysis

Good conflict generates win-win relationship between individuals, promoting

sharing of information and improved motivation.

Bad conflict- creates stress, stiring up negative feelings

- makes the working environment less pleasant

- surely reduces effectiveness of communication processes

- interferes with coordination of effort between groups and individuals

- encourages an automatic approval to working

Bad comfort generates a win-lose relationship between individuals.

A team without conflict could be perceived as complaint and lethargic with little

creativity.

Projects and teamwork:

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Successful teams do not just happen, they have to be built through effective

leadership and commitment.

Select your core team carefully

You want creative, enthusiastic people with a strong sense of

responsibility and commitment

A successful team consists of a carefully designed mixture of right skills

and personalities who can work together without dissension and conflict.

Take positive actions to build the team

Regularly review the performance

Test team working

Encourage participation

9.0 USE OF COMPUTERS IN PROJECT

What can software do?Most software programmes are in project work designed around some

fundamental features that include:

Tabulating a list of tasks at different levels of the WBS

Inputting duration data

Calculating critical path and float date

Deriving the Gantt chart

Deriving the logic diagram or Pert chart

On putting a list of resources

Assignment of resources by responsibility or capacity

Inputting of cost data as resources cost rates and materials costs

Deriving a budget and cost curves

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Scheduling the project based on input data

“what if” analysis of issues using a Gantt chart

reassignment of resources

identifying and correcting resource overloads

outputting a wide range of reports

Software programmes can be used for:

Graphics part - produces Gantt char t,logie diagram or Pert chart

And graphics used for reporting

Spread sheet part – is used for the forms, table, reports

Database part - stores and manipulates the data provided for

Calculations using the spread sheet section to

Insert results into the tables, charts, diagrams

Viewed on the screen.

Selecting project software:

Selection should not be based on price alone but includes are view of :

past track record of performance

ease of use

compatibility with other software in use

stand alone or networked and availability

platforms available

features for planning and scheduling

features for control and updating

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quality and eases of reporting

networking features-passwords , access restrictions etc

training available

helpline and back up available

Using a software programme

Steps:

open a new project file

insert project title, start date and project manager’s name

set up the master calendar giving public and organizational holidays

if possible design the specific formats for the tables you require

input the project organization – the core team on a resource listing

set up resource calendars – one for yourself and each team members to

show their available capacity for the project, including holidays

input the list of key stages to a blank Gantt chart

assign responsibilities for the key stages –select by responsibility

input the durations for each key stage

input dependencies between the key stages

programme calculates the critical path, the key stage start and finish times

and floats

Gantt chart produced, highlighting critical stages

Pert diagram produced

Table generated showing early and late start and finish times with total

float

Total project time is now available

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Input cost data as resource lost rates and materials costs for key stages

Operating budget cumulative curve calculated

Use “update mode” during implementation.

10.0 CLOSING, EVALUATING AND APPRAISING PROJECTS

Closure of projects does not happen, it must be planned with care.

The date may relate to when a decision is to be made concerning outside

financing, when announcement of a project to the press is planned, when

a thorough project review is scheduled on whatever.

Milestone scheduling indicates seluted dates by which various phases of

the entire project to be completed.

• Milestones add detail to Gantt chart

• Milestones serve as formal review points where costs, progress and

the need for replanning on schedule modification can be reviewed.

Gantt chart shows the relationship between milestones within the same task

but not within different tasks. Establish with customer and user group the

criteria they want to use to confirm completion. These must be measured

by agreed methods to avoid conflict

a) Acceptance process (handover) must be based on a checklist agreed with

customer and user group. Acceptance process should identify customer

representative with authority to assign the project completion report.

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b) Hold a team meeting to review all tasks and present completion report for

approval and sign – off

c) Evaluate your project to learn what went well and what went wrong.

PITFALLS IN PROJECT MANAGEMENT

Possible flaws relate to the following:

• Foundations of the project [PITFALLS IN TOR]

a) Insufficient support for the project from the company or its

executives.

- project plans not aligned with business plans: project must fit

into the overall plans for the company to avoid conflict

between the direction in which the company’s management

wants business to develop and the way in which project work

contributes to that development.

- Half hearted support chokes project through lack of

necessary resources and decisions

b) Undefined principles and policies of project work in terms of

corporate and line management’s responsibility for the project;

whose responsibility it is for committing resources; what the policies

are for making resources available; what the tools and methods are

to be used for management of the project and how coordination

and cooperation are to be achieved?

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c) Poor project definition

- Goals for project are imprecise affecting adversely 4 phases

to problem solving ie

• Decision making

• Decision taking

• Implementation

• Monitoring

- Undefined limits of scope (use milestone plan and a clear

responsibility chart.

- Unbalanced levels of ambition.

- Project manager has to balance technical aspects, the right

people and system (physical products) using a milestone

plan (PSO project mind set)

(ii) Planning of Project

• planning level is uniform: plan contains too much detail for

some users and too little for others: use milestone plan at

management level and activity plan at task level.

• Planning tools are too unwieldy

• Planning range is psychologically unsound

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• Planning method discourages creativity and encourages

bureaucratic – democratic process, free of jargon, tools and

methods.

• Planning of time and cost are over optimistic

• Unrealistic, arbitrary plans.

• Insufficient previous experience against which to judge the

work content.

• Planning of resources overestimates their competence and

capacity.

• Project calendar ignores lost time.

• Plan omits activities: activity planning

(iii) PITFALLS IN ORGANISING

Alternative orgamisations for the project are not considered.

- Distribution of responsibility is not defined

- Principles of cooperation are unclear

- Key resources are not committed

- Communication is poor

- Project manager is a technocrat, rather than a manager

(iv) PITFALLS IN CONTROLLING

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- purposes of control is not understood (difference between

monitoring and controlling)

- plan and progress reports are not integrated

- no well defined formalized communication between project

managers and project members

- project manager has responsibility but no formal authority

(v) PITFALLS IN EXECUTION OF PROJECT WORK

(PROFESSIONAL COMPETENCE OF PROJECT

MANAGER)

- complexity of coordinating a variety of resources is under

estimated

- changes to the plan or specification are uncontrolled

- activities are not completed and documented before others

begin

- the targets of time , cost and quality are unbalanced

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DISCUSSION:

Review a project that has failed. Examine the reasons for its failure. At what

stage in the life cycle did this occur? What lessons can future project

managers learn?

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