quantative methods in project management

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Quantitative Methods in Project Management by John Goodpasture ISBN:1932159150 J. Ross Publishing 2004 This book combines theoretical and practical applications and takes project managers through the most important quantitative methods, integrates them, and illustrates interrelationships. Table of Contents Quantitative Methods in Project Management Preface Chapter 1 - Project Value: The Source of all Quantitative Measures Chapter 2 - Introduction to Probability and Statistics for Projects Chapter 3 - Organizing and Estimating the Work Chapter 4 - Making Quantitative Decisions Chapter 5 - Risk-Adjusted Financial Management Chapter 6 - Expense Accounting and Earned Value Chapter 7 - Quantitative Time Management Chapter 8 - Special Topics in Quantitative Management Chapter 9 - Quantitative Methods in Project Contracts Index List of Figures List of Tables

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backcover

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Back Cover This is a practitioners book, combining theoretical and practical applications for project professionals. It is a loosely coupled work flow that takes PMs through the most important quantitative methods, integrates them, and shows interrelationships that cannot be obtained by separate readings. These practical methods can be applied easily by project practitioners who are not steeped in theory and need to know how to make everyday use of numerical analysis in projects. This book also covers financial and life cycle risk as well as risk for the project itself and contains unique extensions to earned value and project initiation. This book will be of particular interest to project managers, program managers, project administrators, system engineers, cost and risk estimators, as well as continuing education and seminar providers. About the Author John Goodpasture is President, Square Peg Consulting, Inc., a consulting firm in the field of project management. He has an MS in Electrical Engineering and over 35 years of work experience in complex multi-million-dollar programs and projects in the defense, intelligence, aerospace and commercial industries. John is the author of Managing Projects for Value, has authored dozens of articles in PM Network magazine, and has authored and presented numerous papers and several unique quantitative techniques to PMI National Symposium. He is an experienced and sought-after speaker, instructor, and lecturer.

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Quantitative Methods in Project Management

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Quantitative Methods in Project ManagementJOHN C. GOODPASTURE, PMP

Copyright 2004 by J. Ross Publishing, Inc. ISBN 1-932159-15-0 Printed and bound in the U.S.A. Printed on acid-free paper 10 9 8 7 6 5 4 3 2 1 Library of Congress Cataloging-in-Publication DataGoodpasture, John C., 1943Quantitative methods in project management / John C. Goodpasture. p. cm. Includes bibliographical references.

ISBN 1-932159-15-0 (alk. paper) 1. Project managementPlanningMathematical models. I. Title. HD69.P75G667 2003 658.4'04dc22 2003015723 This publication contains information obtained from authentic and highly regarded sources. Reprinted material is used with permission, and sources are indicated. Reasonable effort has been made to publish reliable data and information, but the author and the publisher cannot assume responsibility for the validity of all materials or for the consequences of their use. All rights reserved. Neither this publication nor any part thereof may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher. The copyright owner's consent does not extend to copying for general distribution for promotion, for creating new works, or for resale. Specific permission must be obtained from J. Ross Publishing for such purposes. Direct all inquiries to J. Ross Publishing, Inc., 6501 Park of Commerce Blvd., Suite 200, Boca Raton, file://C:\Documents and Settings\Rocio\Configuracin local\Temp\~hh3761.htm 15/09/2008

Quantitative Methods in Project Management Florida 33487. Phone: (561) 869-3900 Fax: (561) 892-0700 Web: www.jrosspub.com DEDICATION

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This book is dedicated to my wife, Ann, for her unlimited patience and encouragement, without which this project could never have been completed. ABOUT THE AUTHOR

John C. Goodpasture, PMP, is a certified Project Management Professional with broad practical experience in executive management, project management, system engineering, and operations analysis. With engineering degrees from Georgia Tech and the University of Maryland, and as founder of his own firm, Square Peg Consulting, he is a sought after authority for management and engineering in the customized application and delivery of project management, business process analysis, and training of project practitioners. Past assignments include program manager for certain information processing systems at the National Security Agency of the Department of Defense, strategic Project Office Director, director of a system engineering program office with responsibility for multimillion-dollar software systems at aerospace and communications firm Harris Corporation, vice president of a document archive and imaging operations group at a Fortune 500 company, and president and founder of Square Peg Consulting, Inc. As a project manager and system engineer, John has conceptualized and reduced to practice unique techniques in his field, many of which are described in numerous symposium papers and magazine articles published on the subject of project management. In his 2001 book, Managing Projects for Value, John proposed the unique idea of the project balance sheet to explain the risks borne by projects to meet business need and deliver value to project sponsors.

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Quantitative Methods in Project Management

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Adept at personal communication and simplification of complex ideas, he has developed and delivered project training to numerous project teams in the fields of information management, manufacturing, production operations, and software development. Working around the world in locations in the Americas, Europe, and Asia, John has provided workshops and project consultation to functional teams in Malaysia, Belgium, Puerto Rico, and Canada. As consultant and instructor, John's experience touches many aspects of project management, having developed and taught workshops on "Project Management," "Project Start-Up," "Capturing Requirements," "Risk Management," "Voice of the Customer," "Kano Analysis," project "Peer Reviews," and the "PMP Exam Preparation." With James R. Sumara, he co-developed a unique technique for earned value measurement in time-constrained projects, a breakthrough methodology for projects needing earned value at a low cost of implementation. ACKNOWLEDGMENTS I would like to acknowledge the many people who assisted me with this book, including Ginger Levin, who got me started; Drew Gierman, who answered all my questions and guided me through the process at J. Ross Publishing; and Dr. David T. Hulett, founder of Hulett Associates in Los Angeles, who has been of inestimable value over many years by assisting me in the art and science of risk management. I am indebted to my many associates at Harris Corporation and Lanier Worldwide, Inc. who have provided opportunities and performance critiques as I have worked my way through myriad projects and programs. John C. Goodpasture Alpharetta, Georgia

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Preface

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PrefaceThis book is about quantitative methods in project management. Quantitative methods provide the basis for calculating value, setting up the project metrics that will be the measures of success, and helping the project manager understand the numerical values of risks to be addressed. Quantitative Methods in Project Management is for the project professional and day-to-day practitioner. Although grounded in theory, the objective of this book is to convey usable concepts and techniques that are workable every day in project life. Throughout the chapters, you will find sufficient introductory material set in a project manager's context to understand and apply the ideas without recourse to formal instruction. In Chapter 1, the concept that business value is the motivator for projects is addressed. A framework, called the "project balance sheet," is introduced and a loose workflow of quantitative skills is described. Chapter 2 provides an introduction to probability and statistics. Really successful project managers apply these concepts routinely to set achievable expectations and manage risk. Probability and statistics are essential to "underpromising and overdelivering." Chapter 3 covers estimating methods, of which there are several, and the work breakdown structure. Good estimates cover all the scope, and all the scope is defined in the work breakdown structure. Quantitative decision making is addressed in Chapter 4. Therein, we tee-up the idea that good decisions are the outcome of decision policy implemented with rational decision making supported by risk-adjusted numerical analysis. Decision trees and tables are the tools of decision analysis. Risk adjustments in budgeting are exactly the topic of Chapter 5, wherein capital budgeting is discussed. Capital budgeting is, in effect, cash budgeting, and cash is the real source of value in business, despite the popular focus on earnings. So Chapter 5 is key material for the informed project manager. Most project managers face a profit and loss (P&L) statement in day-to-day life. P&Ls are expense statements, largely a product of the company's cost accounting system, and are provided routinely to managers. However, the P&L does not convey value, only expense. Consequently, the P&L must be coupled with the project management "earned value" system to provide the numerical basis for understanding accumulating value. Expense accounting is the topic of Chapter 6. In Chapter 7, quantitative time management is addressed. Of course, time and cost are correlated: an increase in time is often the driver for an increase in cost. However, there are many quantitative aspects to time management that are discussed apart from cost management. Special topics in quantitative project management are covered in Chapter 8, including hypothesis testing, regression analysis, probabilityimpact analysis, Six Sigma, and QFD analysis. Six Sigma is a coined term that refers to a determined effort to reduce errors, which is variance, in the products and services delivered to customers. As some practitioners of Six Sigma like to say: "Our customers experience the variance, not the mean." In Chapter 9, a short treatment of project contracting is provided. Project contracting is a risk-management tool, and Chapter 9 examines the numbers and provides insight about incentive contracts as a riskcontrol tool.

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Preface

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Free value-added materials available from the Download Resource Center at www.jrosspub.com At J. Ross Publishing we are committed to providing today's professional with practical, hands-on tools that enhance the learning experience and give readers an opportunity to apply what they have learned. That is why we offer free ancillary materials available for download on this book and all participating Web Added Value publications. These online resources may include interactive versions of material that appears in the book or supplemental templates, worksheets, models, plans, case studies, proposals, spreadsheets and assessment tools, among other things. Whenever you see the WAV symbol in any of our publications, it means bonus materials accompany the book and are available from the Web Added Value Download Resource Center at www.jrosspub.com. Downloads available for Quantitative Methods in Project Management consist of a glossary of terms and statistical and quantitative risk analysis charts, models, and examples for budgeting, cost analysis, and the project balance sheet.

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Chapter 1: Project Value: The Source of all Quantitative Measures

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Chapter 1: Project Value: The Source of all Quantitative MeasuresProject value is a consequence of successful application of resources to an agreed scope, taking measured risks to balance expectations with capability. John C. Goodpasture

Successful ProjectsSuccessful projects return value to the business. Successful projects are relatively easy to identify; we usually know them when we see them. They are the projects that improve processes or product, reduce costs and operational inefficiencies, make contributions to the technical and functional competence of the organization, or add capacity and capability to serve customers and markets with greater satisfaction. They are projects that make good on the promises of the project charter, deliver the intended scope, and deliver that scope within a time frame commensurate with business objectives. The value cycle of successful projects is presented in Figure 1-1.

Figure 1-1: The Project Cycle of Value.

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Chapter 1: Project Value: The Source of all Quantitative Measures

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Mindful of the fact that projects, all projects, are one-time temporary endeavors [1] burdened with uncertainties, and not blessed with the error-reducing opportunities of repetitive ongoing operations, the project manager faces many risks arising from internal stresses and external uncontrollables. The project manager's mission is then to accomplish the assigned scope with the available resources, taking measured risks to do so. More often than not, successful projects "make the numbers." In the project's value equation, the resource commitment is to be more than paid back by the project benefits. That said, it might be the case that the numbers to make are spread over the life cycle of the project from concept through implementation, deployment, operations, and retirement. Figure 1-2 illustrates the life phases of a project.

Figure 1-2: The Project Life Cycle. The numbers may not be all financial; indeed, quantitative measures of resource consumption, customer satisfaction scores, market share, supplier value, and other business measures may be every bit as influential in judging project success. What would be your judgment of New...