Project Management Lecture 12 P r o j e c t M a n a g e m e n t Revision 2017 Sem. 1 Do not commence reading or writing this examination unti so. P r o j e c t M a n a g e m e n t Revision EVM Calculations Time and Resource Management P r o j e c t M a n a g e m e n t Project Networks and Gantt charts Critical Path and Critical Chain Crashing/Accelerating Projects Project Learning Calculator memory jogger P r o j e c t M a n a g e m e n t EVM Calculations Fundamentals of Earned Value Heldman (2005) Planned value The planned value (PV) is the cost of work that's been budgeted for a schedule activity or WBS component to be completed during a given time period. These budgets are established during the Planning processes. PV is also called budgeted cost of work scheduled (BCWS). P r o j e c t M a n a g e m e n t Actual cost Actual cost (AC) is the cost of completing the work (a schedule activity or WBS component) in a given time period. Actual costs may include direct and indirect costs but must correspond to what was budgeted for the activity. If the budgeted amount did not include indirect costs, do not include them here. Earned value Earned value (EV) is the value of the work (schedule activity or WBS component) completed to date as it compares to the budgeted amount assigned to the work component. EV is also called budgeted cost of work performed (BCWP) EV P r o j e c t M a n a g e m e n t EV is the sum of the cumulative budgeted costs for completed work for all activities that have been accomplished as of the measurement date. For example, if your total budget is $1,000 and 50 percent of the work has been completed as of the measurement date, your EV would equal $500. The PV, AC, and EV measurements can be plotted graphically to show the variances between them. If there are no variances in the measurements, all the lines on the graph remain the same, which means the project is progressing as planned. Principles of EVM Planned value (PV) is the budgeted cost for the work scheduled to be completed on an activity or WBS component up to a given point in time. Earned value (EV) is the budgeted amount for the work actually completed on the schedule activity or WBS component during a given time period. Actual cost (AC) is the total cost incurred in accomplishing work on the schedule PM activity or WBS component during a given time period. This AC must correspond in r a definition and coverage to whatever was budgeted for the PV and the EV (e.g., direct o n hours only, direct costs only, or all costs including indirect costs). j e c t a g e m e n t Budget at Completion (BAC) the total PV at completion Formula: BAC = total cumulative PV at completion EXERCISE 9.1 Variance Formulas The PV, EV, and AC values are used in combination to provide performance measures of whether or not work is being accomplished as planned at any given point in time. The most commonly used measures are cost variance (CV) and schedule variance (SV). Cost variance (CV) is earned value (EV) minus actual cost (AC). P r o j e c t M a n a g e m e n t - Formula: CV= EV - AC Schedule variance (SV) is earned value (EV) minus planned value (PV). - Formula: SV = EV - PV Schedule variance will ultimately equal zero when the project is completed because all of the planned values will have been earned. EXERCISE 9.2 Cost Performance CV and SV, can be converted to efficiency indicators to reflect the cost and schedule performance. Cost performance index (CPI) is the ratio of EV to AC. - Formula: CPI = EV/AC P r o j e c t M a n a g e m e n t A CPI value less than 1.0 indicates a cost overrun of the estimates. A CPI value greater than 1.0 indicates a cost underrun of the estimates. CPI is the most commonly used cost-efficiency indicator. Cumulative CPI (CPIc) is widely used to forecast project costs at completion. CPIc equals the sum of the periodic earned values (EVc) divided by the sum of the individual actual costs (ACc). - Formula: CPIc =EVc/Acc EXERCISE 9.3 and 9.4 Schedule Performance P r o j e c t M a n a g e m e n t Schedule performance index (SPI) is used to predict the completion date and is sometimes used in conjunction with the CPI to forecast the project completion estimates. SPI equals the ratio of the EV to the PV. Formula: SPI = EV/PV EXERCISE 9.5 Forecasting Forecasting includes making estimates or predictions of conditions in the project based on information and knowledge available at the time of the forecast P r o j e c t M a n a g e m e n t Estimate to complete (ETC) is the amount of work to complete scheduled activities - estimate for all remaining work Estimate at completion (EAC) is the estimate for completing the remaining work for a schedule activity or work package These are not as accurate as manual forecasts! Estimate to complete Based on atypical variances - current variances are not seen to continue. BAC minus the cumulative earned value to date (EVc) P r o j e c t M a n a g e m e n t Formula: ETC = (BAC - EVc) (budget at completion - cumulative earned value) ETC based on typical variance - variance is likely to continue BAC minus the cumulative EVc (the remaining PV) divided by the cumulative cost performance index (CPIc) Formula: ETC = (BAC - EVc) / CPIc (budget at completion - cumulative earned value/ cumulative cost performance index) Estimate at Completion EAC using a new estimate - the original estimating assumptions were fundamentally flawed Formula: EAC = ACc + ETC (Cumulated actual costs + Estimate To Complete) EAC using remaining budget - current variances are seen as atypical P r o j e c t M a n a g e m e n t Formula: EAC = ACc + BAC - EV (Ccumlated actual costs + Budget at completion - Earned value) EAC using CPIc - current variances are seen as typical of future variances Formula: EAC = ACc + ((BAC- EV) /CPlc) (Cumulated actual costs + ((budget at completion - Earned value)/Cumulative Cost Performance Index) EXERCISE 9.6 GO THROUGH LECTURE EVM Exercise There will also be a solution posted from 2016 exam for revision purposes. P r o j e c t M a n a g e m e n t Time and Resource Management Working with the critical path P r o j e c t M a n a g e m e n t The longest path(s) throughout the schedule (activities on this path represent the longest duration scheduled for the project's completion) The path(s) or activities(s) with zero float (meaning nothing can be delayed) The activities(s) or milestone driving the end date of the project The shortest completion time of the project (where the project cannot be completed in any less time within the current schedule). 15 Project Networks P r o j e c t M a n a g e m e n t Activity-on-node (AON) or precedence diagram method. An activity is represented by a node (box). The dependencies are represented by arrows to indicate relationship and sequence. Predecessor activities are ones to be completed before. Successor activities are ones to be completed after. Parallel (or concurrent) activities can occur while another activity is taking place. Example Part 3: Updated network information P r o j e c t M a n a g e m e n t The activity times are added to the network information from the work packages. Example Part 4: Activity-on-node network P r o j e c t M a n a g e m e n t This stage shows the network with the activity time estimate found in the node. The next steps are to complete the forward and backward pass. EXERCISE 1 Forward pass computation Add activity times along each path in the network (ES + Duration = EF). Carry the early finish (EF) to the next activity where it becomes its early start (ES) unless P r o j e c t M a n a g e m e n t the succeeding activity is a merge activity, in which case select the largest EF of all preceding activities. Example Part 5: Activity-on-node network forward pass P r o j e c t M a n a g e m e n t Exercise 2 Forward Pass Backward pass computation Subtract activity times along each path in the network (LF - Duration = LS). P r o j e c t M a n a g e m e n t Carry the late start (LS) to the next activity where it becomes its late finish (LF) unless the succeeding activity is a burst activity, in which case select the smallest LF of all preceding activities. Example Part 6: Activity-on-node network backward pass P r o j e c t M a n a g e m e n t Determining slack (or float) P r o j e c t M a n a g e m e n t Total slack (or float) is: - the amount of time an activity can be delayed and not delay the project - the amount of time an activity can exceed its early finish date without affecting the project end date or an imposed completion date - LS - ES, or LF - EF After slack is computed the critical path can be identified. Sensitivity is: - the likelihood the original critical path(s) will change once the project is initiated. - The critical path is the network path(s) that has (have) the least slack in common. Example Part 7: Activity-on-node network with slack P r o j e c t M a n a g e m e n t Once the forward and backward passes are complete, you can determine which activities can be delayed by computing slack or float. After slack is computed the critical path/s can be identified. Here it is marked with dashed arrows and nodes. Determining free slack (or float) P r o j e c t M a n a g e m e n t Free slack is unique. Free slack: - is the amount of time an activity can be delayed after the start of a longer parallel activity or activities - is how long an activity can exceed its early finish date without affecting early start dates of any successor(s) - allows flexibility in scheduling scarce resources. Example: Free slack for an IT project P r o j e c t M a n a g e m e n t Corrective Action - Crashing The Project Accelerating or \"crashing\" means to shorten activities by adding resources and increasing costs M a n a g e m e n t Crash Point Cc Normal Point Cost P r o j e c t Cn Dc Activity Duration Dn Crashing method P r o j e c t M a n a g e m e n t Identify activates that can be crashed Identify the cost that will be incurred by crashing the activities Identify the time gained by crashing the activity The crashed activities must impact the critical path Iteratively rework cost budget schedule to identify time saving vis--vis cost increase - with regard to the critical path, resource availability for later stages and other projects Project Activities, Cost, Cost Increase and Time Saving Normal P r o j e c t M a n a g e m e n t Crashed Activity Cost Duration Extra Cost Duration A $2,000 10 Days $2,000 7 Days B $1,500 5 Days $3,000 3 Days C $3,000 12 Days $1,500 9 Days D $5,000 20 Days $3,000 15 Days E $2,500 8 Days $2,500 6 Days F $3,000 14 Days $2,500 10 Days G $6,000 12 Days $5,000 10 Days H $9,000 15 Days $3,000 12 Days * * * * Crashing Activities P r o j e c t M a n a g e m e n t Crash Early Crash the activities that have the lowest cost of crashing with regard to time saved (time saved on critical path) Can crash many times creating new critical paths each time Take into account indirect costs and overhead costs EXERCISE 10.2 Closing down the project P r o j e c t M a n a g e m e n t Perhaps known more often as an administrative close, there are a number of given activities that could be performed here in support of project management integration, including: confirmation that all outstanding work has been completed confirmation that all acceptance criteria nominated by the client have been met confirmation that all migration or transition procedures are in place confirmation that all records have been collected, collated and archived 31 Debrief the stakeholders Why do we debrief the stakeholders? Evaluate their contribution, feeling, output and behaviour. What are the principle categories of stakeholders? P r o j e c t M a n a g e m e n t . Sponsor, Other stakeholders, Project Manager and Team members 32 Debrief the stakeholders P r o j e c t M a n a g e m e n t Was the project delivered as specified? Was the reporting documentation accurate? Was the project delivered on time? Were they engaged sufficiently in the decision making process? Were the communication channels kept open at all times? Was the project delivered on budget? Were they happy with the escalation process? Were all variations and scope changes addressed competently? Was the project managed professionally? Did they have confidence in the project manager and team members? Were the issues resolved in a win-win solution for all? What improvements exist for how future stakeholders are managed? 33 Lessons Learnt What are the Lessons Learnt? P r o j e c t M a n a g e m e n t What went well in the project? What went not so well in the project? It is important for the lessons learnt to be positive and be used as a way to improve future projects not blame individuals for mistakes on the project 34 Learning the (many) lessons P r o j e c t M a n a g e m e n t missed deadlines inaccurate estimates and calculations schedule revisions inspection and testing failures poor contractor performance management the lack of team cohesion cost over-runs unauthorised scope changes poor quality work which required reworking 35 End of Project Report What are the areas of the project which are reviewed in the End of Project Report? P r o j e c t M a n a g e m e n t Project objectives; Performance against time and cost; Changes; Review the Business Case; Review risks; Review the issues; Review Project Team; Review Project Board; 36 Project performance review P r o j e c t M a n a g e m e n t Final 'kick-out' meeting Concise history of the project Explanation of variances Document successes and failures Evaluate project's lessons Recommendations for future projects Identify processes requiring amendment Assess administrative support Review project performance Evaluate suitability of tools and processes Critically assess organisational structure Review accuracy of estimates Evaluate team performance 37 Project Learning P r o j e c t M a n a g e m e n t Have a formal project review and learn from the project - how accurate was the budget? what changes occurred? what should we do differently? Sometimes seen as a tick-box exercise but may be the difference between a successful organisation and an unsuccessful organisation Benchmark project margin and budget accuracy, aim for improvement, create incentive schemes based on improvement Review project outcomes not only immediately after project but intervals afterwards, particularly if cost can continue - warranty Feed Forward Learn P r o j e c t M a n a g e m e n t Learn Budget accuracy by WBS component, margin, cost overruns, changes, everything! Share findings with all project personnel READINGS Hartley Chapter 5 and Chapter 6 - Time and Cost Management P r o j e c t M a n a g e m e n t Lecture 11 EVM Your company supplies swimming pools. You are in the process of managing the following project. The review date is early Monday Week 2 before Install Pool is due to have started. Project First thing to do is draw line in time i.e. the dark line under Smooth hole and before Install pool. Your review and analysis will mainly be above that line. What is the earned value for the project? Earned value (EV) is the budgeted amount for the work completed on the schedule activity or WBS component during a given time period. Therefore, Work completed is first three activities therefore EV = $1,440 + $1,440 + $960 = $3,840 What is the planned value for the project? PV is the budgeted cost for the work scheduled to be completed on an activity or WBS component up to a given point in time. Therefore, given we are looking at the point in time prior to install pool PV = $1,440 + $1,440 + $960 = $3,840 What is the budget at completion? Budget at completion (BAC) is the total PV at completion Formula: BAC = total cumulative PV at completion, therefore $11,040 What is Cost Variance (CV) for the project? Cost variance (CV) is earned value (EV) minus actual cost (AC). Formula: CV= EV - AC therefore, CV = EV ($3,840) - AC ( $1,620 + $1,620 +$880) = minus ($280) therefore we have spent $280 more for the three activities we completed prior to installing pool. - Bad, + Good, 0 is on track What is the Schedule variance (SV) for the project? Schedule variance (SV) is earned value (EV) minus planned value (PV). Formula: SV = EV - PV Therefore, SV = EV $3,840 - PV ($3,840) = 0 which means in terms of schedule you are running right on track. What is the cost performance index (CPIc) for the project? Cumulative CPI (CPIc) equals the sum of the periodic earned values (EVc) divided by the sum of the individual actual costs (ACc). Formula: CPIc =EVc/Acc Therefore CPIc = EVc ($3,840) / ACc ($1,620+$1,620+$880=$4,120) = 0.93 Bad below 1.0, Good above 1.0. Its an efficiency measure which reflects your CV from above. What is the Schedule performance index (SPI) for the project? SPI equals the ratio of the EV to the PV. Formula: SPI = EV/PV Therefore, SPI = EV $3,840 / PV $3,840 = 0 which reflects it is on track What is the estimate to complete for the project predicting that the variance will continue? The ETC is a cost forecast and you are being asked what will happen if the bad variance indicated by the CPIc above continues Estimate to complete based on typical variance. Formula: ETC = (BAC - EVc) / CPIc therefore ETC = ($11,040-$3,840=$7,200)/0.93 = $7,741 - You are saying that at the review date our costs are worse than they should have been and that we have no reason to believe we will improve for the remainder of the project. Therefore, what is left to spend at the review date = $7,200 which we then uplift by the CPI to reflect our bad performance thus forecasting that it will cost $7,741 which takes account of that poor performance. What is the estimated cost at completion predicting that the variance will continue? The formula for this is Estimate at Completion (EAC) = ACc + ((BAC - EVc) / CPIc) which is essentially adding the ETC from above to the cumulative actual costs at the review date therefore, ACc ($4,120) + ETC ($7,741) = $ 11,861 which is your new EAC taking account for the continuing bad performance on cost. PMBOK formulas for earned value. Budget at completion (BAC) is the total PV at completion Formula: BAC = total cumulative PV at completion Planned value (PV) is the budgeted cost for the work scheduled to be completed on an activity or WBS component up to a given point in time. Earned value (EV) is the budgeted amount for the work actually completed on the schedule activity or WBS component during a given time period. Actual cost (AC) is the total cost incurred in accomplishing work on the schedule activity or WBS component during a given time period. Cost variance (CV) is earned value (EV) minus actual cost (AC). Formula: CV= EV - AC Schedule variance (SV) is earned value (EV) minus planned value (PV). Formula: SV = EV - PV Cumulative CPI (CPIc) equals the sum of the periodic earned values (EVc) divided by the sum of the individual actual costs (ACc). Formula: CPIc =EVc/Acc SPI equals the ratio of the EV to the PV. Formula: SPI = EV/PV Estimate to complete Based on atypical variances Formula: ETC = (BAC - EVc) Estimate to complete based on typical variance Formula: ETC = (BAC - EVc) / CPIc Sem 1 2017 - Time Management Revision Question You are required to draw out an activity-on-node for the following construction project. Complete a forward pass and backward pass computation to determine the critical path and non-critical path activities, total float and free float. Use the legend below as the template for each activity node. Activity ID 1 2 3 4 5 6 7 8 9 Activity Building Permit Approval Site Survey Fabricate Equipment Civil Works Foundations Ship Equipment Install Equipment Connect to Utilities Test & Commission plant Duration (Days) 10 3 24 35 12 10 12 3 3 AON Legend ES ID Floa t LS Description Dur EF LF ES - Early Start EF - Early Finish LS - Late Start LF - Late Finish Predecessor Activity(s) None 1 1 2 4 3 5,6 7 8 MAN3612 - Lecture 10 - Modified Exercise 10.1 Cash flow Reliance Corporation XYZ Project A. Budgeted Costs WBS Level Labour AU$ Materials AU$ Equipment AU$ Subcontractors AU$ A B C 7,080 6,940 3,130 7,000 8,500 D 6,410 15,000 1,000 E 4,320 F 4,940 8,000 2,500 G 5,445 Others AU$ Totals AU$ 5,000 4,000 1,000 19,080 19,440 4,130 22,410 9,820 5,500 6,500 H 3,780 3,000 1,500 Totals 42,045 41,500 14,000 12,000 500 15,940 500 12,445 2,000 10,280 4,000 113,545 B. Cost Baseline WBS Level 20th Aug 27th Aug 3rd Sep AU$ AU$ AU$ WEEK 10th Sep AU$ 17th Sept 24th Sep 1st Oct 8th Oct AU$ AU$ AU$ AU$ Totals AU$ LEVEL A Labour 3,540 3,540 7,080 Materials 3,500 3,500 7,000 Equipment 2,500 2,500 5,000 LEVEL B Labour 3,470 3,470 6,940 Materials 4,250 4,250 8,500 Equipment 2,000 2,000 4,000 3,130 3,130 1,000 1,000 LEVEL C Labour Others LEVEL D Labour 3,205 3,205 6,410 Materials 7,500 7,500 15,000 500 500 Equipment 1,000 LEVEL E Labour 4,320 Subcontractors 4,320 5,500 5,500 LEVEL F Labour 4,940 4,940 Materials 8,000 8,000 Equipment 2,500 2,500 Others 500 500 LEVEL G Labour Subcontractors 5,445 5,445 6,500 6,500 Others 500 500 LEVEL H Labour 3,780 3,780 Materials 3,000 3,000 Equipment 1,500 1,500 Others 2,000 2,000 SUBTOTAL Labour 3,540 7,010 9,805 3,205 3,780 42,045 Materials 3,500 7,750 11,750 7,500 - 8,000 - 3,000 41,500 Equipment 2,500 4,500 2,500 500 - 2,500 - 1,500 14,000 Subcontractors - - Others - - - 4,320 - 1,000 4,940 5,500 - - - 5,445 6,500 500 500 2,000 Contingency Reserves 12,000 4,000 Total Period Costs 9,540 19,260 25,055 11,205 9,820 15,940 12,445 10,280 Cumulative Costs 9,540 28,800 53,855 65,060 74,880 90,820 103,265 113,545 ### 113,545 BAC C. CashFlow CASHFLOW ITEM 1.0 INCOME 1.1 Sales Revenue Total Income 2.0 Expenditure 2.1 Labour 2.2 Materials 2.3 Equipment 2.4 Subcontractors 2.5 Others Total Expenditures Period Cashflow (Income - Expenditure) Cumulative Cashflow 20th Aug 27th Aug 3rd Sep AU$ AU$ AU$ WEEK 10th Sep AU$ 17th Sept 24th Sep 1st Oct 8th Oct AU$ AU$ AU$ AU$ Totals AU$ Qustion 10.2 and Solution Activity WBS # WBS1 WBS1.1 WBS1.2 WBS1.3 WBS2.1 WBS2.2 WBS2.3 WBS3.1 WBS3.2 WBS3.3 WBS4.1 WBS4.2 WBS4.3 WBS2 WBS3 WBS4 Totals Budget Actual Complete 10 8 9 12 8 11 10 12 15 10 18 12 14 12 15 20 6 8 8 9 10 8 18 12 135 140 Cost of a days reduction Y Y Y Y 22 days behind schedule LD's kick in after 140 days therefore we need to crash the schedule by 22-5 = 17 days We have $20,000 available funds ( margin ) All activities are on the critical path therefore we crash As all are on critical path crash earliest activities first with an eye on not exceeding the budget 3 KEY AREAS when Crashing Crash earlier activities ( if project slips again you can crash later activities Activities on the Critical Path As Cheaply as possible With regard to the crashing exercise. The three main elements are to crash early tasks, ones on the critical path - bearing in mind the CP might change -, and crash as cheaply as possible. The project is 22 days behind schedule. There are 5 days of time prior to damages. Therefore a minimum of 17 days needs to be saved. Available funds is $20,000. 1100 1000 700 1100 900 800 I would crash the following WBS2.2 WBS2.3 WBS3.1 WBS3.2 WBS3.3 WBS4.1 At a cost of 1100 1000 700 1100 900 800 I could then crash 4.2 and 4.3 if the project slipped again. Obviously if you decide to crash 4.2 and 4.3 and the project becomes behind schedule again you may not be able to respond. 2 3 2 3 5 2 2200 3000 1400 3300 4500 1600 16000 Maximum days that can be reduced 2 3 2 3 5 2 2200 3000 1400 3300 4500 1600 16000 2 3 2 3 5 2