Planning and Control - Lectures

Project Planning and ControlUniversity of AberdeenSchool of Engineering

Tutors: Mr. Mike Sevenoaks (Campus)Dr. Robin Henderson (Distance Learning)

Session 2007/2008

MSC PROJECT MANAGEMENT :: STUDENT COURSE NOTES (Certificate)

UNIVERSITY OF ABERDEEN MSC PROJECT MANAGEMENT

PAGE 1 | PROJECT MANAGEMENT ESSENTIALS 2

CONTENTS

1.0 COURSE INTRODUCTION.................................................................................................................. 4

1.1 COURSE AIMS .................................................................................................................. 4

1.2 THE LEARNING CYCLE..................................................................................................... 4

1.3 COURSE LOGISTICS .......................................................................................................... 5 1.4 ASSESSMENT.................................................................................................................... 6 1.5 COURSE BOOKS................................................................................................................ 6

2.0 SESSION 1:.............................................................................................................................................. 7

2.1 WHAT IS PROJECT MANAGEMENT? ................................................................................... 7

ACTIVITY 2.1................................................................................................................................... 8

2.2. WHY DO ORGANISATIONS CHOOSE TO DO PROJECTS?....................................................... 8 ACTIVITY 2.2 A................................................................................................................................ 9 ACTIVITY 2.2 B.............................................................................................................................. 11

2.3 PROJECT STAKEHOLDERS............................................................................................... 11

ACTIVITY 2.3................................................................................................................................. 13 2.4 PROJECT SUCCESS.......................................................................................................... 13

ACTIVITY 2.4................................................................................................................................. 14

2.5 SUMMARY...................................................................................................................... 15

3.0 SESSION 2 SCOPE DEFINITION AND PROJECT ESTIMATING .............................................. 16 3.1. INTRODUCTION .............................................................................................................. 16 3.2 PROJECT OBJECTIVES AND SCOPE .................................................................................. 16 3.4. ESTIMATING ACCURACY................................................................................................ 19 3.5. WORK BREAKDOWN STRUCTURES (WBS)..................................................................... 21 3.6. FROM THE WBS TO THE ESTIMATE ................................................................................ 25

3.6.1 Work Study and Standard Work Norms .......................................... 25 The Steps In Making A Time Study................................................................... 26

STANDARD TIMES ......................................................................................................................... 27

ACTIVITY 3.6.1A ........................................................................................................................... 29 ACTIVITY 3.6.1B WORK NORMS................................................................................................... 30

3.6.2 The Learning Curve Effect.............................................................. 30 ACTIVITY 3.6.2.............................................................................................................................. 33

3.6.3 CTRs ............................................................................................... 33 ACTIVITY 3.6.3.............................................................................................................................. 33

3.6.4 Parametric Estimating.................................................................... 36

3.6.5 Completing the estimate.................................................................. 36 3.6 CONTRACTUAL AGREEMENTS........................................................................................ 37

Fixed Price / Lump Sum................................................................................... 38


PAGE 2 | PROJECT PLANNING AND CONTROL

Schedule of Rates / Cost Reimbursable ............................................................ 39 Bills of Quantities............................................................................................. 39

PRICING PROJECTS ........................................................................................................................ 39 3.7 SUMMARY...................................................................................................................... 40

4.0 SESSION 3 DETAILED PLANNING .............................................................................................. 41

4.1. INTRODUCTION .............................................................................................................. 41

4.2. ORIGINS OF NETWORK PLANNING.................................................................................. 41 4.3. THE NETWORK PLANNING PROCEDURE ......................................................................... 42

ACTIVITY-ON-NODE (AON) NETWORKS ...................................................................................... 67 4.4. PERT............................................................................................................................. 68 4.5 SUMMARY...................................................................................................................... 69

5 SESSION 4 - PUTTING THE PLAN INTO ACTION...................................................................... 70

5.1. INTRODUCTION .............................................................................................................. 70 5.2 PROJECT EXECUTION PLANS (PEP) ......................................................................................... 70

5.2.1 Project Definition and Brief .................................................................... 70 5.2.2 Roles and Responsibilities....................................................................... 70 5.2.3 Quality Assurance planning .................................................................... 70 5.2.4 Safety Management ................................................................................. 70 5.2.5 Human Resource Management ............................................................... 71

5.2.6 Communication Management Plan ......................................................... 71 5.2.7 Information and Knowledge management plan....................................... 71 5.2.8 Programme and cost management plan .................................................. 71

5.3 BENEFITS OF PEPS .................................................................................................................. 72 5.4 DOCUMENT CONTROL ............................................................................................................. 73

5.4.1 Ensure Correct Version........................................................................... 73

5.4.2 Ensure Availability of Correct Version .................................................. 73 5.4.3 Authorisation of Changes........................................................................ 74 5.4.4 Audit Trail of Document Changes........................................................... 74 5.4.5 Knowledge Management ......................................................................... 74 5.4.6 Document Control & IT Systems............................................................. 74

5.5 CHOOSING A DOCUMENT CONTROL PROCEDURE ...................................................................... 74 5.6 KEY INFORMATION REQUIRED FOR DOCUMENT REGISTER ...................................................... 75 5.7 CONFIGURATION MANAGEMENT ............................................................................................. 75

6 SESSION 5 PROJECT CONTROL............................................................................................................... 78 6.1. INTRODUCTION .............................................................................................................. 78 6.2. MEASUREMENT OF PROGRESS ........................................................................................ 78

6.2.1The use of data capture proformas........................................................... 79 6.2.2 The use of written reporting. ................................................................... 79 6.2.3 Asking the right questions ....................................................................... 79



6.2.4 Accuracy of reporting.............................................................................. 79 6.2.5 Knowledge capture.................................................................................. 79 6.2.6 Timely capture of data............................................................................. 79 6.2.7 Highlight reports ..................................................................................... 80 6.2.8 Management of reporting........................................................................ 80 6.2.9 Evaluation of progress ............................................................................ 80

6.3 EARNED VALUE ANALYSIS (EVA)............................................................................................ 81 6.3.1Time variance (TV)................................................................................... 83 6.3.2 Accounting Variance (AV)....................................................................... 83 6.3.3 Cost Variance (CV) ................................................................................. 83 6.3.4 Schedule Variance (SV)........................................................................... 84 6.3.5 Earned Value Performance Indicators.................................................... 84

6.4. OTHER PERFORMANCE INDICATORS ....................................................................................... 87 6.5. PROJECT REPORTING .............................................................................................................. 89 6.6 SUMMARY ............................................................................................................................... 90

7 SESSION 6 PROJECT DECISION MAKING............................................................................................. 91 7.1. INTRODUCTION ....................................................................................................................... 91

ACTIVITY ...................................................................................................................................... 91

7.2. CRASHING THE NETWORK ...................................................................................................... 91 7.3 CAUSAL MAPPING ................................................................................................................... 94 7.4 SCENARIO ANALYSIS ............................................................................................................... 95 7.5 SPECIFIC SUGGESTIONS FOR BRINGING THE PROJECT BACK ON SCHEDULE AND BUDGET.......... 97

7.5.1 Act Early.................................................................................................. 97 7.5.2 Gain Commitment ................................................................................... 98

7.5.3 Assign extra resources. ........................................................................... 98 7.5.4 Make better use of resources................................................................... 99 7.5.5 Job and Knock......................................................................................... 99 7.5.6 No Blame Cultures .................................................................................. 99 7.5.7 Expectation Management ........................................................................ 99

7.5.8 Involving the stakeholders..................................................................... 100 7.5.9 Update The Plans .................................................................................. 100 7.5.10 Monitor the Control Methods.............................................................. 100 7.5.11 Enhance Productivity of Your Resources ............................................ 100

7.6 SUMMARY ............................................................................................................................. 101

APPENDIX FINAL ASSESSMENT............................................................................................................... 102



1.0 Course Introduction

1.1 Course Aims Welcome to the Project Planning and Control Module of the University of Aberdeens MSc programme. This module focuses primarily on the development of project plans and the use of these plans to control projects. Throughout the module many of the elements which are introduced will be familiar to those involved in projects but hopefully what the course materials will do is illuminate the processes involved and also provide a deeper understanding of what is involved in the development and use of plans.

1.2 The Learning Cycle In order to facilitate this learning process the intention is to make use of a learning model called Kolbs learning cycle [1] that is shown below.

Most of you starting this course will have experiences of project management both from the workplace and from your own personal life. What Kolbs cycle suggests is that you should reflect on this experience to draw out the good and bad aspects of the experience what went well and what went wrong. At this stage it is important to focus on not just the task (i.e. we didnt deliver the project on time) but also the process by which the task was performed (i.e. the team did not work well together because of problems with the decision making).



This thinking process may suggest a better way of achieving the goal and hence an opportunity to improve the way you or your organisation operates. In this situation it is then important to act, to try out the new method, to test whether or not it gives positive results. This will provide a further experience on which to reflect and hence continue learning. In order to facilitate the reflection process, throughout the course notes there are specific questions which will ask you to reflect on your practise and also on your company. The best resource you have available to you on this course are each other so posting the outcomes from these questions on the discussion board should benefit everybody in the class (this is however not compulsory). In a similar way the assessments will ask you to reflect on situations which you encounter at work. The aim of this is not only to make the assessments more specific to each individuals circumstances but also to test not just the knowledge you gain from the course notes but also the application of this knowledge.

1.3 Course Logistics The course consists of a number of separate work packages. Each of these work packages can be found in this booklet. Whilst all material is provided at the start of the programme it is recommended that you work through them in the following order:

Session 1: Setting the context

Session 2: Scope and Estimating

Session 3: Detailed Planning

Session 4: Plans to execution

Session 5: Project control

Session 6: Project decision making

Each work package will be taught according to the programme calendar which is available through WebCT. Should you wish to proceed with later work packages before their teaching dates you can, however tutor support will only be available from the starting date of that work package.

As you progress through the module you will see many activities highlighted. These are within the course to help you reflect and internalise the learning you have obtained from the course notes and it is recommended that you spend sometime doing the exercises.



1.4 Assessment This course is solely assessed by continual assessment there is no examination. Each of the assessments is designed to draw upon your experience and encourage reflection on the topic of interest.

Word limits are provided and these should be adhered to (over large submissions will be penalised).

The dates and the assessments are to be found within the course calendar.

Late submissions, unless previously agreed with the course tutor will be penalised.

Assessments which are submitted early will not be marked until after the due date. Assessments which are submitted on time will be returned to you with feedback within 3 weeks of submission (or at least one week prior to the next assignment).

1.5 Course Books Details of the course textbooks can be found on the module information page. A brief outline of each textbook, and its use on the course, is outlined below.

MBA Handbook (Shelia Cameron): Starting an MSc course whilst still in employment is a challenge, especially if you have not formally studied for a number of years. This book introduces you to a wide range of skills that will help you progress through your studies including report writing, time management and exam skills.

Project Planning and Control (Rory Burke): This is an easy to read book which explains many areas relating to project management (it covers most of the material covered in this course) and will also be useful in the next module on the course (Project Planning and Control)

Handbook of Project Management (Rodney Turner): This text covers a wide range of project management issues and will not only support your learning on this module but also in future modules. Whilst not essential to completing this module it will provide a useful reference book throughout your MSc studies.

You may already have some other project management books there are certainly enough available. As you progress through the MSc course you will want to expose yourself to the thinking of as many writers on the topics covered and therefore making use of any additional materials you have (as well as resources on the internet) is encouraged.



2.0 Session 1:

This introductory session aims to:

oEncourage you to think about what constitutes project management in your organisation

oThink about why organisations undertake projects

oThink about what makes project successful.

2.1 What is project management? Project management seems commonplace in todays society. You only have to pick up a copy of a recruitment page of any national newspaper and you will see many jobs requesting project management experience. However, what is implied by the phrase project management varies widely between industries and sectors. For example in some organisations the delivery of a project by writing a to-do list with dates attached may be regarded as project management whilst in another organisation Project Managers may be senior members of staff with a dedicated project team including planners, engineers, IT specialists, admin support and the project might look like a small company. The latter scenario represents what can be regarded as professional project management and it will be the elements relating to this professional approach that will be covered in this module.

Looking within the literature we start to find definitions of project management and projects:

(Project Management is) The application of knowledge, skills, tools and techniques to project activities in order to meet stakeholders needs and expectations from a project

..the process of integrating everything that needs to be done as the project evolves through its life cycle in order to meet the project objectives

The two quotations start to put some flesh onto the bones of what project management entails. The first quote highlights a number of specific elements:

oGantt charts, network diagrams, earned value analysis are some of the tools and techniques available to the project manager. These tools and techniques deal with the harder issues relating to project management and are commonly found in most project management text books.



oThere is however more to project management than the use of tools and techniques with the skills and knowledge of the project manager being key to the successful delivery of the project. These skills and knowledge will include knowing what to do when something is going wrong with the project, people skills, leadership and being able to look beyond the details of the project to view the bigger picture.

oStakeholders expectations are also highlighted within this definition. Whilst the stakeholders are often viewed as the organization delivering the project and the customer, there are many more stakeholders than these and often the influence of stakeholders can significantly impact the success of the project. This is especially important for public sector projects and those that might attract significant media attention.

So project management encompasses a wide range of elements and all of these must be dealt with in order to manage the projects effectively.

Activity 2.1 Based upon the discussions above how would you rate your organisation in terms of its approach to project management? If you had to give it a mark out of 10 what would it be and how would you go about justifying this assessment.

2.2. Why do organisations choose to do projects? Traditional project management focuses on the interface between the contractor and the customer and how, through successful management of a contract, the contractor can make a profit whilst ensuring customer satisfaction. This has traditionally been represented through the cost-time-quality triangle (sometimes referred to as the iron triangle) that defines within this framework a successful project.



COST

QUALITYTIME

Figure 1: The traditional cost-time-quality triangle of project success.

Therefore the delivery of the project within schedule, within the initial budget and at the appropriate quality level would define a successful project. However as organisations start to do more and more of their business through delivering projects (you will often hear organisations saying that their business is delivering projects), both internal and external to the organisation, the paradigm, which describes a successful project, is starting to change.

Activity 2.2 a What would constitute a successful project for your organisation?

Write down some of the objectives that your organisation would be looking for from a project.

You have probably written down delivery on time, cost and quality as the being the key objectives for projects. Depending upon which sector and industry you work within you may have included other success factors. Within the offshore and construction industries safety is now regarded as a key objective whilst in the public sector delivering service improvements is often the key objective. In no particular order some of the other objectives that many organisations are looking for from the delivery of projects include:



oDevelopment of new products or markets. For example an organisation might take on a project at a loss-making price if it allows the organisation to develop a new market where there is growth potential in the future.

oDevelopment of new working relationships with organisations. This could include relationships with clients or with suppliers and partners in the project.

oDelivery of increased profit margins for the organisation

oDevelopment of new knowledge within the organisation either through the development of staff or through the acquisition of knowledge from your client or partner organisations.

oIncreased efficiency in the delivery of future projects.

Whilst there are many objectives and strategies that the organisation may be pursuing the challenge is to ensure that the project delivers the appropriate elements of the organisations strategy. Ensuring that this linkage is in place is perhaps more important in large organisations where the power distance between the managers developing organisational strategy and the staff working on projects is greater. A common problem is that at the project initiation phase the project is well aligned with the organisation but as the project progresses a divergence occurs as illustrated in Figure 2. This could result from a number of factors including:

oThe organisational strategy changing during the duration of the project?

oThe client shaping the objectives of the project after initial definition resulting in a change in goals for the project.

Organisational Strategy

ProjectStrategy

Organisational Strategy

ProjectStrategyProjectStrategy

Figure 2: Deviation between project and organisation strategy.

Therefore when going through the definition and project planning stages it is important to think about how the project that you are undertaking will fit with the organisations strategy and its definitions of project success.



Activity 2.2 b Think about some projects that have recently occurred within your organisation. How well do these projects fit with the organisations strategy? If the project did not fit with the organisations strategy why did the organisation choose to take on the project? If you do not know what the strategy of your organisation is and what it expects projects to deliver ask around and try to determine what it is.

2.3 Project Stakeholders Having started to think about why organisations would choose to undertake projects it is then useful to spread the net further and examine the wider body of people interested in the project. This wider body of individuals are referred to as the project stakeholders and if you remember back to the definition of project management (meeting stakeholders expectations) they play a key role in influencing the success of projects. A stakeholder can be defined as:

Any individual or organisation that has interest in the performance or outcome of the project

Ignoring one stakeholder can be very detrimental to the success of the project. A good example of this was Shells failure to consult with or consider Greenpeace as a stakeholder within the project to dispose of the Brent Spar platform. The initial plan was to dispose of the platform by sinking it in the Atlantic Ocean. However following direct action by Greenpeace

and boycotting of petrol stations across Europe, Shell changed plans and ended up dismantling the platform. Whilst they had considered this option, it had not been deemed to be the most environmentally friendly solution.



As a framework for identifying the role of the stakeholders of a project it is first necessary to identify them. This should be performed in as open a manner as possible in order to identify as wide a group of stakeholders as possible. It is then useful to ask the following questions of each stakeholder:

What resources do they bring to the project (time, finance, people, influence)?

What do they expect in return (cash, support)?

How much influence do they have in setting

oThe outcomes of the project?

oHow these are achieved?

How can the stakeholders be managed (information, financial incentives)?

Are their conflicts between the interests of stakeholders?

The influence of the stakeholders on the project can then be assessed by use of mapping tools. The stakeholders can be mapped on a space defined by a number of choices of axis including:

oPower versus Interest (how much power do they have compared to the amount of interest they are likely to show in the project)

Power to define the criteria versus power to affect the operations. This mapping process (first proposed by Winstanley) results in four quadrants as illustrated below. Although this technique was originally developed for organisational stakeholders it provides a useful framework for understanding the stakeholders in projects.

Power to influence operations

Power to influence criteria

Criteria Power Comprehensive power

Disempowered Operational Power



Figure 3: The Winstanley stakeholder matrix.

Once you have mapped the stakeholders it is usually possible to find groupings of stakeholders. For example it is common to find a group of stakeholders who have significant criteria power but little operational power (common amongst these are governments and regulatory bodies) and groupings of disempowered stakeholders.

Each particular grouping of stakeholder requires management by different methods. For example those stakeholders who are disempowered may have little influence on the project but communicating to them what are the aims, objectives and progress of the project represents a positive method of managing this group. An excellent example of this is the management of lower grade staff during an organisational change process where they have little operational or criteria power but the change process will usually be less problematic if they are kept informed.

Activity 2.3 Take a project that is currently being executed at your organisation. Using the framework described assess the stakeholders and try to identify how they are being managed. Are there stakeholders who are not being considered by the project at this point in time?

2.4 Project Success Following on from the discussions above leads us to the point where we can start to re-examine the concept of project success in a structured framework. Within the literature there has been a significant amount of debate relating to project success and what constitutes a successful project. Recent work published in the academic literature suggests that there are two basic approaches to defining project success. The first of these is founded in the traditions of project management and is referred to as a Universalistic approach to defining project success. In this approach the traditional success factors are cost, time and quality and it is argued that this approach leads to:

A historical approach to defining project success always looking back at the project and not looking forward to the opportunities and benefits which might accrue from the project.



Short-term focussed organisations. Organisations which focus solely on profit rather than on more sustainable growth are said to be short term in their focus. Similarly if a project is solely focussed on short term aims it seems reasonable that opportunities for sustained growth will be missed by the organisation.

Internally focussed organisations which focus on how well the project is delivered from the organisations viewpoint and not from that of the client and other stakeholders.

The alternative approach to project success is referred to as being Multidimensional and addresses these issues by focussing on long term opportunities resulting from the project and through being externally focussed. Within this multidimensional approach the success factors are categorised as shown in the table below.

Category Measure of Success

Project Efficiency Schedule

Budget

Impact on the customer

Benefits accrued to the customer (financial and psychological)

Customer satisfaction

Business Success Return on Investment

Market Growth

Preparing for the future

Development of new products

Development of new Technology

Development of new markets

Development of new relationships

Whatever approach your organisation takes to defining project success, it is important to clearly outline what constitutes success prior to kicking off the project, as the whole process of project development will be dependent upon the definition of project success.

Activity 2.4



For the following projects what would be your key success criteria for the specific project and what would be the strategic objectives that you would want to obtain through undertaking the project?

An onshore wind-farm construction business developing its first ever offshore wind-farm.

An engineering company delivering a project for a regular client for whom they have delivered a similar project in the past.

2.5 Summary In the project environment today the traditional project success factors of cost, time and quality still apply but are supplemented by additional success factors including the development of relationships and knowledge. With the increase in competition in most markets leveraging these relationships and knowledge is likely to provide the most sustainable forms of competitive advantage and therefore when considering the definition of a project it is important to ensure that these objectives are included in the project definition.



3.0 Session 2 Scope Definition and Project Estimating

3.1. Introduction The definition of the project scope can have a significant impact on the success of the project whilst the initial estimate of the project, if incorrect, can have a huge impact on the real and perceived success of the project. You do not need to look any further than many projects carried out within the public eye to realise this. In recent times, the Scottish Parliament has highlighted these problems with significant scope changes occurring combined with a poorly developed estimate leading to the poor perception of the project. This session therefore aims to:

Introduce you to issues surrounding the definition (and subsequent control) of scope Provide you with frameworks for project estimating.

3.2 Project Objectives and Scope

In session 1 we discussed organisational strategy and how projects must interrelate with this strategy in order to deliver the organisational goals. The first stage in defining a project is therefore to develop the objectives of the project. These objectives are likely to be at a high level and will reflect the organisations view of a successful project and therefore may not be overly project specific but could relate to the issues such as profit, learning and growth.

Having defined the objective of the project it is now possible to think about how the organisation is going to meet these objectives in a much more detailed manner that will relate to actual specifics of the project. The starting point for this process is to define the scope of the project. The scope not only defines the boundaries of the project but will also define the basis on which the project will be assessed when complete and will form the basis of contractual arrangements on the project. When developing the project scope it is important that this is agreed with the key stakeholder groups prior to further work. By ensuring client approval at this stage it may be possible to avoid difficulties if conflicts occur later on in the project in relation to the exact agreement during the definition phases.

One of the most common problems for projects is scope definitions which are either not well defined or poorly understood. This can lead to poor project performance especially with regard to schedule and budget, leading to reduced profitability on the project for a contracting organisation or significantly increased cost to the client.



Activity 3.2 Project Objectives and Scope Consider the scenarios outlined below. What are the implications to the client and the contractor based upon changes to the scope?

The client puts out a tender, complete with initial scope, on a fixed price contractual basis. The contractor who wins the contract has bid for the work based upon this scope (and often with qualifications attached to the scope) and starts work on this basis. At some stage through the project it becomes clear that key elements required to meet the project objective have been omitted from the scope and the contractor informs the client. What options does the client have?

A contractor takes on a fixed price contract which has been won on the basis of a poorly defined scope which is vague as regards the details. The contractor discovers half way through the project that the effort required to complete the work will be significantly greater than initially estimated. What are the implications for the contractor?

Post your viewpoints on the WebCT forum.

As you will hopefully be able to see from the previous activity the effects of scope definition can have a significant impact on the project performance. Similarly once the project is up and running, changing scopes on projects can lead to significant wasted effort, increased costs associated with changes and poor schedule delivery. This phenomenon where the scope continuously increases is often referred to as scope creep and it is therefore important to have a process in place to manage any changes to the scope. Methods to manage changes in scope include:

At an early stage in the project putting into place a process that freezes the scope. It is this scope that the estimating and planning activities are based against and provides the framework for measuring future scope changes against. If the scope is not frozen then the end result is a series of plans with no baseline against which to compare them.

Ensuring that only specific people are allowed to formally agree scope changes and that these are built into the contractual process. Common methods to ensure that this is done in a structured manner include Variation Orders and Site Work Orders.

Ensuring that within the scope change process that a number of checks are made against the change. Key amongst these checks are that the:

o Scope change is actually beneficial to the project. Depending upon the culture of the organisation which you work within, changes of scope can often occur as a result of internal politics and may not benefit the outcome of the project.

o individuals are aware of the implications of the requested changes. Often elements are added towards the end of the project that, if they had been included early within the project would have not have caused significant impact. However, towards the end of the project, a small change may have a significant impact on the budget or schedule performance. The classic example of this is IT projects where at the design phase the inclusion of an element may be simple whilst at the end of the project it may involve



redesigning significant amounts of the structure of the deliverable. It is therefore important to make a check on the impact of the change on the overall project performance to ensure that the decision to introduce the scope change is made within an environment which is as fully informed as possible.

3.3 Project Estimation The estimating process is crucial to the project. It is the outputs from the estimating process that will feed into decision making process that will include go/no-go decisions and pricing of the project. It is therefore necessary, once you have a defined scope, to start to make initial estimates regarding the duration and the cost of the project. It is important to note that the two of these are linked, with the duration estimates being a key input into the cost estimating process.

Many organisations have their own clearly defined procedures relating to the estimating process, and indeed some large organisations have individuals whose primary role is to develop time and cost estimates for projects. This section outlines some of the considerations which need to be made when developing estimates and also specific methods of estimating.

The principal purpose of time (duration) estimating is to determine how long it will take to complete a project. It follows that we cannot determine how long an entire project will take to complete unless we know how long each of its constituent parts will take. A project is therefore broken down into manageable tasks. This breaking down process is known as the Work Breakdown Structure (WBS). The purpose of estimating is to assess how long it will take to complete each of these tasks, preferably by the application of specific tried and tested techniques. It is then possible to establish the overall duration of each phase of a project and thus identify the overall project duration. Any task inadvertently left out during the estimating period will result in an underestimate for the project as a whole. This in turn will obviously jeopardise accurate time scale and resource scheduling. In many cases the forgotten work will have to be paid for from the expected profits. Many organisations with substantial project management experience develop sophisticated estimating techniques. These may involve check lists although it is unlikely that the check list would be simple to construct.

Cost estimating involves developing an approximation of the cost of the resources needed to complete the projects activities. By assessing the length of time an individual task will take to complete and knowing how much a unit of time costs for any resource it will be possible to assess how much each individual task, and hence the overall project will cost. Hence, the principal data input to the cost estimating process are: Resource rates Duration estimates



The procedures, accounting policy and systems employed by the project team are important aspects of the success of the estimating process. The data outputs from the cost estimating process are: oCost estimates oSupporting detail oA cost management plan

This is most easily depicted by the following figure (after Hamilton)

Cost Estimating

Resource Rates

Activity Durationestimates

Cost Estimates

Supporting Detail

Cost management plan

3.4. Estimating Accuracy An accurate estimate of project costs provides a proper basis for management, i.e. project management control. Ideally such estimates should be based on a well-defined project specification. A well-defined project specification will also be helpful in developing the project task list upon which the estimate and the planning network are based. The degree of estimating accuracy achieved will determine the element of risk taken in pricing decisions and the effectiveness of the subsequent working cost budgets and resource schedules.

It is usual to allocate a class to an estimate that employs a level of accuracy commensurate with the purpose of the estimate. For instance, less effort in developing the estimate is appropriate to the conceptual study of a possible project than any of its later phases. Similarly, it would be foolhardy to proceed with the construction phase of a large project unless the estimate was based on values with small tolerances. This leads to the concepts of estimating classes where the accuracy of the estimate will often increase as the project progresses as shown in the figure below.



Estimating predicts the final outlay associated with a task and identifies the associated resources. However, not all the parameters and conditions may be known when the estimate is prepared. That is not to say that the estimate preparation should be delayed until all the facts are available. In instances where assumptions are made when performing the estimate, it is usual to record these assumptions and as the project progresses to check the validity of these assumptions. Obviously, if the assumptions do not hold later within the project, then the final total is likely to deviate from the estimate.

The required accuracy of a single item in the estimate can be calculated using a mathematical theorem called the binomial theorem. The binomial theorem states that an individual workpackage estimate (e%) can be calculated from

s

SEe %% =

where E% is the required overall estimate accuracy, S is the overall size (usually cost or duration) of the project and s is the estimated size of the individual workpackage. If we



apply this to a project with an overall value of 500,000 and a workpackage estimated at 50,000 for a range of required overall estimate accuracies we can calculate the following required workpackage required accuracy.

E% e%

50 158.1139

20 63.24555

10 31.62278

5 15.81139

When estimating it is important to realise that the cost of estimating increases significantly as the accuracy required increases. Turner has estimated that to prepare an estimate of between 2 to 5% accuracy will involve of the order of 5-10% of the overall project cost. This figure only includes the tangible costs to the organisation of developing estimates and tenders and recent research has indicated that there are significant intangible costs attached to the estimating and tendering process including work place stress.

3.5. Work Breakdown Structures (WBS)

At the heart of formal project management is the process of identifying in a structured manner the activities that are required in order to complete the project scope. The key tool in achieving this is the Work Breakdown Structure that provides a framework for organising how the activities will be organised and recorded.

The first challenge in developing the WBS is to determine the level of accuracy that you require at the task level. During the initial phases of the project (for example during the conceptual design phase) it is unlikely that there are sufficient details available to identify all the tasks required during the construction phase. However, there are likely to be common elements from other projects that would allow the construction phase to be loosely specified at this stage. As the amount of detail available increases then the WBS can be developed further to include this.

In an ideal world each task should be selected so that it is small enough to be visualised as a complete entity for estimating purposes. On the other hand, the size of a task must be large enough to represent a measurable part of the whole project. The design and manufacture of each sub-assembly from a main piece of equipment might rank for consideration as a task, whilst the final assembly of all those sub-assemblies into one whole main assembly could be regarded as another. If the project were to build a water dam serving a large part of Africa, a stand alone task would not be open next bag of cement as



this would result in many very small tasks which would not form a measurable part of the project.

Common factors that affect the level of appropriate detail include:

The perceived risk of the activity. For example if you are certain (perhaps through prior experience) that the design would take 10 days then a single level may be an appropriate amount of detail. If you were uncertain of the time to perform the design it would be appropriate to break it down into more identifiable tasks. The benefit of doing this is that, as the tasks get smaller, it usually becomes easier to estimate how long the task will take.

The acceptable number of man-hours. Some organisations will specify that a single identifiable task should have no more than (for example) 80hrs attached to it. If this were not the case the organisations procedures would then specify a greater level of detail.

The level of control required. As the number of tasks becomes greater and as detail is introduced it is easier to see what has to be done and what has already been done. For example in studying this module the task list could be simply complete module. A more appropriate level of detail would include Session 1/2/3 etc. and Assessment 1/2/3. Then as project manager you can see exactly where the project is at a given date and exercise control based on this information.

As the tasks get smaller and smaller there is a cost attached to the management and planning of this tasks. It is therefore often not cost efficient to manage at a micro level of detail and the benefits of breaking down the activities in terms of control must be weighed up against the increased costs attached to this.

If you wish to empower your staff and provide them with a feeling of ownership for a section of the project excessive breakdown of activities can hinder this process.

If you plan only at a high level, you risk extending the project timescale by not introducing flexibility about how activities are scheduled. For example if you plan based upon three large phases (say design, construction, and commission) then you limit yourself to completing each of these phases before moving onto the next phase. Planning at a greater level of detail will allow you to identify alternative linkages within the plan and provides more flexibility in terms of how you plan. For example you may be able to identify elements of the design phase which once complete can allow construction to start prior to completion of the whole design.

As a general rule your WBS should breakdown activities to the level at which you are going to schedule and control the project. There are two common ways of developing WBS structures. The first of these is to start with the project and break it down into smaller sections that encompass a logical grouping of activities. If these groupings of activities are linked within a timeline framework they are often referred to as phases. You would then split these large groupings into smaller groupings and so on until you reach the level of activity at which you wish to plan. This is referred to as a top-down approach.

An alternative approach to the top-down approach is the bottomup approach where you brainstorm the activities that would be required to complete the project and subsequently



make groupings of the activities. The approach you take will depend mainly upon personal preferences.

As an example we will develop a generic WBS for the design of an engineering component consisting of two parts. At the highest level the WBS could be split into:

1.Identify product requirements

2.Conceptual design

3.Detailed Design

Each of these high level activities could then be split into a number of smaller activities. So the WBS could become:

oIdentify product requirements

1. Technical Specification

2. Manufacturing limitations

3. Identify Cost limitations

oConceptual design

1. Idea generation

2. Idea selection

oDetailed Design

1. Design Calculations

2. Develop initial detailed drawings

3. Design Verification

These smaller elements could then be broken down into even smaller elements. If we take the detailed design element it could for example be broken down into:

Detailed Design

1. Design Calculations

1. Part A

2. Part B

2. Develop initial detailed drawings

1. Part A

2. Part B



3. Assembly drawing

3. Design Verification

The indented list approach to the WBS is commonly used within planning software although WBS are also sometimes shown as below.

Conceptual

Design

Identify Product

Requirements

Detailed

Design

Idea

Generation

Idea

Selection

Technical

Specifications

Manufacturing

Limitations

Design

Calculations

Initial Detailed

Drawings

Design

Verif ication

Project

Part A Part B

This process of systematically breaking down the activities into smaller and smaller activities provides a structure by which to order the plan. On large projects if an approach like this is not used then it is possible to generate a long list of activities with little or no structure which results in difficulties in managing the project when it is under way as well as raising issues when scheduling the project.

There is no reason why it should not be possible to devise a comprehensive numbering (or alpha - numeric) system which ties in with (or replaces/ becomes) the companys own code and drawing numbering system. Certainly the cost code aspect should be taken up if at all possible; the drawing numbers may be more difficult to establish. If one comprehensive scheme can be set up, much cross-referencing will be saved as the project continues and there should be a substantial reduction in the possibility of clerical errors.

Other Breakdown Structures When identifying each task, it is clear that many of the tasks will fall under a natural header or group and that there may be more than one set of logical structures which could be used to break the work down. These other groups commonly include:

cost breakdown structures where the breakdown is performed by cost centre

organisational breakdown structures where the breakdown is performed on a basis of which part of the organisation (or individual) is responsible for each work package. location breakdown structures when the project is operating on multiple sites

contract breakdown structures to identify what individual contractors are responsible for



product breakdown structures for complex products where the identifier would refer to specific parts of a product (e.g. chassis and engines). There are some advantages (including improved control and reporting) in maintaining multiple breakdown structures. The use of these should however be balanced against the increased cost/time involved in maintaining them.

Activity 3.5 Take a project which you are currently working on. Develop the WBS for this project (or an element of this project) and develop a further breakdown structure (cost / organisational / product) for this project.

3.6. From the WBS to the Estimate Once the WBS has been developed it is possible to start to move towards developing the estimate for the project. By including elements such as the time estimate and unit pricing rates a detailed cost estimate can be developed. The challenge though is to decide how long an activity might take to complete, and what resources that activity will require to an acceptable degree of accuracy. A number of methods are commonly used to do this including:

Norms

Parametric Estimating

CTRs

3.6.1 Work Study and Standard Work Norms Norms are used within many industries to provide standard estimates of how long a task will take. Based upon these norms the estimate is then developed. Some organisations have very rigidly developed sets of norms that are applied to project activities and through comparison of actual time to complete activities the norms are continually updated. However many organisations also use norms, but not explicitly, with individuals intuitively developing norms for activities. Some industry sectors also have standard norms (especially the construction industry) that are applied across the sector.

Work study is a generic term for the techniques, particularly method study and work measurement, which are used in the examination of human work in all its contexts, and which leads systematically to the investigation of all the factors which affect the efficiency and economy of the situation being reviewed, in order to effect improvement. This approach can also lead to the development of norms. This topic although not usually forming part of the portfolio of skills employed by estimating personnel provides an important and useful background to estimating and the establishment of work norms in particular.



Method study is the systematic recording and critical examination of existing and proposed ways of doing work, as a means of developing and applying easier and more effective methods and reducing costs. Method study can be applied to any category of resource. Work measurement (or a time study) is the application of techniques designed to establish the time for a qualified worker to carry out a specified job at a defined level of performance. It is usually applied to tasks of a repetitive nature

The Steps In Making A Time Study Once the work to be measured has been selected the making of a time study usually consists of the following eight steps: -

oObtaining and recording all the information available about the job, the operator and the surrounding conditions, which is likely to affect the carrying out of the work.

oRecording a complete description of the method, breaking down the operation into elements. This is likened to the Work Breakdown Structure that is established in a project environment where the elements would be known as tasks.

oExamining the detailed breakdown to ensure that the most effective method and motions are being used.

oMeasuring and recording the time taken by the operator to perform each element of the operation.

oAt the same time assessing the effective speed of the working of the operative in relation to the observers concept of the rate corresponding to standard rating (see the table below). oExtending the observed times to basic times

oDetermining the allowances to be made over and above the basic time for the operation.

oDetermining the standard time for the operation

Standard time = (time taken * (rate /100)) + allowances



British Standard

SCALE

0 - 100

DESCRIPTION Comparable

Walking speed*

(m/h) (km/h)

0 No activity

50 Very slow; clumsy, fumbling movements operator appears half asleep with no interest in job

2 3.2

75 Steady, deliberate, unhurried performance, as of a worker not on piecework but under proper supervision looks slow, but time is not being intentionally wasted while under observation.

3 4.8

100 Std rating Brisk, businesslike performance ,as of an average qualified worker on piecework; necessary standard of quality and accuracy achieved with confidence.

4 6.4

125 Very fast. operator exhibits a high degree of assurance, dexterity and co-ordination of movement, well above that of an average trained worker

5 8.0

150 Exceptionally fast requires intense effort and concentration, and is unlikely to be kept up for long periods; a virtuoso performance only achieved by a few outstanding workers.

6 9.7

Standard Times An example is used to illustrate how standard time might be established for an inspection activity. The task list for the activity is assumed to be: - A.Pick up PCB from in box, remove bubble wrap and visually inspect for obvious flaws. B.Put into clamp and measure transistor values. C.Record transistor value in log sheet D.Solder on ID tag E.Carefully place PCB in bubble wrap and place in out box



Additional activities might be for F.Fetch new box of cards from storage area G.Place card in Faulty box

The person conducting the work study would record the task and develop a time study sheet as shown below:

TIME STUDY RECORD

DEPT

NAME

DATE

OPERATION

TAKEN BY

Study started 08:50 Time Rate Stnd

F 1.17 80

A 0.83 90

B 0.21 85

C 0.14 85

D 0.15 90

E 0.73 85

A 0.74 85

B 0.21 90



C 0.14 85

D 0.15 75

E 0.64 80

A 0.73 90

B 0.74 85

Discussion with Supervisor 3.44

C 0.17 75

Opened new roll of solder wire 0.48 75

D 0.19 80

E 0.81 85

And so the sheet would continue to be filled and then carried on with continuation sheets for about an hour. When the study is complete, the times and ratings are extended by multiplying together to get a standardised times that in turn are statistically analysed. Several further studies are undertaken until the standard deviation converges to a pre-established acceptance level. Contingency and relaxation (usually 2% and 10% respectively) times are added as a percentage and a standard time per PCB established. This routine is repeated for each design of PCB and a table of values issued. It will be readily appreciated that standard work norms in an engineering design and construction oriented discipline could be established in a similar way. For example many organisations use industry standard norms or norms which the organisation has specifically developed to cover activities ranging from the development of engineering drawings through to the welding of pipes.

Activity 3.6.1a Develop a time study sheet and try and estimate the standard time for a task at your work that is repetitive. How well does this tie in with what you actually achieve (you may want to get someone to help you with this).



Activity 3.6.1b Work Norms As a simple example of the implementation of work norms consider a joiner laying floorboards in a room. The room has dimensions of 6m by 3.1m with two door ways. Each of the boards is 0.3m wide by 2m long. The standard times for each of the required activities is given below.

Offloading boards from truck to room 2 minutes per 5 boards.

Laying a single board 4 minutes

Cutting a board to fit 2 minutes

Fitting boards around a door way 15 minutes / doorway.

Using the above data calculate how long the floor will take to lay. Put your answer up in the bulletin board and see who can work out the quickest way to put the floor down!

3.6.2 The Learning Curve Effect Watching a skilled crafts person at work shows how a highly intricate task can be learned and carried out so that it is made to look easy. Gaining such a level of skill requires years of training and practice (and many mistakes). A project rarely has such an opportunity to gain advantage through repetition. There will however, be repetitive elements to any activity, particularly during the execution phase. Where this occurs, the time taken each time the task is carried out will decrease as the person becomes familiar with the methods. Subsequent improvements in speed are seen to become smaller over time as shown below.

In order to take account of this in activity duration estimation an empirical relationship can be developed to aid the planner. This relationship is usually of the form

n

x kxY =

where:

x is the number of times the task has been carried out

Yx is the time taken to carry out the task the xth time

k = time taken to carry out the task the first time



n = log b / log 2 where b = learning rate

Example

A team is set up to carry out a quality audit of ten departments. The first audit takes four days, as the auditors are unfamiliar with the procedures. The second audit takes three. After a period of time, the minimum audit time is reached, and very little further improvement is seen. We can plot this progression as shown in Fig. 4.7

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

0 2 4 6 8 10 12No of times activity completed

Tim

e

If we wish to find out how long the eighth audit will take, we need to calculate the learning rate, b. The following values can be assigned from the above information:

x = the number of times the task has been carried out = 2

Yx = time taken to carry out the task the xth time = 3

k = time taken to carry out the task the first time = 4



n can be therefore be calculated as demonstrated below

3 = 4 x (2)n

2n = 3

4

n log 2 = log (3/4)

n = -0.1249

0.30103

n =

=

log b

log 2

-0.414

log b = -0.1249

b = 0.75

From this we can say that the project has a 75 per cent learning curve. This can also be seen intuitively, as another way of expressing the learning curve is to say that every time the total number of audits completed doubles, the time taken for the last audit will be the learning percentage multiplied by the original time. In this case as the number of audits doubled from 1 to 2, the time decreased from 4 to 3. The percentage is therefore 3/4 = 75 per cent. As the number of times the audit is done increases, the times taken will decrease as shown below.

Audit no. Time taken (days)

1

2

3

4

3

2.54



4

5

6

7

8

2.25

2.05

1.90

1.78

1.69

Activity 3.6.2 The tensile testing of rubber specimens has a learning coefficient of 0.9. If it takes 10 minutes to test the first specimen, estimate how long it will take to test a batch of 15 specimens. To help you with the calculations you may wish to create a simple spreadsheet.

3.6.3 CTRs A Cost Time Resource (CTR) sheet hinges around deliverables, particularly of a documentary type. Examples include: Reports Design calculations Studies Drawings A CTR estimate is developed from the WBS. The required resources for each activity are noted against each deliverable. The stages of production of the deliverable have estimated work input allocated, usually in man-hours. Examples include: oIssued for Comment oIssued for InterDisciplinary Check (IDC) oIssued for Implementation A further feature of the CTR is that input requirements such as: oOther documents oReference drawings are recorded. It is likely that a CTR will exist for each of the input requirements also.

Activity 3.6.3 Activity: If you are involved in the Engineering design process and do not already use CTR you may want to try developing a CTR for an activity that you are working on at present. If you do not work in Engineering design how might this approach be modified for your business.



The activities and their stages of completion are reported against regularly as a control function with predetermined awards being allocated for each stage of completion. Activities such as acceptance by some other disciplines or the client will have time values allocated to them but not necessarily resources. The following example represents a CTR for assessing pre-design options for a chemical plant process and issuing a report. The format shown is typical of that used in engineering construction design.

Cost Time Resource Sheet

Client : Report :

Project : Page : Contract : Date :

CTR No : Revision : PO Ref. :

Title :

Start :

Finish :

Scope:

Inputs:



Deliverables:

Assumptions:

Resource Requirements, Hours & Rates

Total CTR value



3.6.4 Parametric Estimating The process of parametric estimating is similar to norms in that a specific activity is estimated based upon a predetermined formulae. This type of estimating is commonly used in the development of order of magnitude estimates (about 25%) within the construction industry. For example an organisation will know how much on average a square metre of internal space costs to construct. Based upon the required floor space and other factors (parameters), equations would be used to determine an estimated cost and completion time for the construction. Further details on this approach to estimation can be found at http://cost.jsc.nasa.gov/PCEHHTML/pceh.htm

3.6.5 Completing the estimate The final stage in the cost estimating is to bring the information which you have gathered from across the organisation and from subcontractors together to complete the estimate. It is important that a standard approach should be taken throughout an organisation from one project to another. By the accrual of project estimates according to a standard procedure, comparisons can readily be made between estimates for the same task. Thus a statistical analysis will be possible adding to the professionalism and efficiency of an organisation through the judicial use of historical information. Observance of company policy on cost rates and costing methods as well as the determination of project working budgets impose an obligation on the project manager to ensure that estimates are set down in a standard and logical manner.

This need for consistency means that many organisations use a standard estimating form. Such forms are designed around the special needs of any particular company and would take account of their own particular planning networks and accounting systems. Project estimating forms can be designed to suit the estimating levels previously described. It is normal to devote a row to each task. Clearly tasks that are categorised can be gathered together and presented on the same sheet. Many attempts to design estimating (and other) forms fail because they are over ambitious. There is of course no need to provide a column for every possible contingency and there may be a case for leaving one or more columns blank for allocation to special or seldom used activities. For instance, special tooling does not require individual treatment on an estimating form since it can be treated as an ordinary task when it is part of a project. An exemplar estimating form is not provided here. It is a simple task to make a model sheet on a spreadsheet although many organisation are moving towards a more dynamic link between the project planning software, estimating and progress reporting. Activity 3.6.5 For a project that you are currently (or have been recently involved in) was an estimating form used? Did the use of a form aid the estimation process? Develop an estimation form, using MS Excel, for a relatively simple project.



There are several options available as to how to present information such as wage (or salary) rates and overheads. The extension of time estimates to cost estimates can either be applied by performing the multiplication of each time estimate by the appropriate rate or leaving the extension until the estimating process has been reduced to summaries. Labour or machine time is the fundamental for all estimates; conversion to financial value is a derivative.

Similarly, overheads and profit can be added in any one or combination of several ways. For example the project secretarys time may be estimated and costed separately, as may the document controller and so on. Alternatively their burden can be cumulatively considered and applied within a single overhead charge or percentage. By the same token the expected profit can be applied as a single figure based upon what the Company considers to be fair reward. This may or may not take into account the profit from other projects. Alternatively the profit may be applied mathematically as a percentage of the project total.

In the materials section of the project estimating form, columns can be included to those needed for the direct cost of each task. Overheads and profit can be applied directly to the purchase price of materials in order to recover the cost of sourcing and the preparation of documentation and control. A popular alternative is to recover material administration expenses along with general labour overheads.

3.6 Contractual Agreements In a commercial environment when developing an estimate and pricing for the project the contracting strategy which is utilised will have an impact on the estimated cost of the project to the client. The major elements of the cost of executing work on behalf of a Client can be summarised as The cost of the time for direct labour to carry out the scope of work

The cost of materials, plant and consumables

The cost of capital equipment which might include the cost of the means of providing a conversion process, equipment maintenance, its running costs and such considerations as depreciation.

The cost of indirect expenses such as training or transportation

The cost of overheads such as management, financial and legal support and other non direct staff

When these costs have been identified, it is necessary to address the legal agreement under which the work is to be undertaken, in other words, the contract that will exist between the contractor and the client. Dependent upon which industry you are working within there are



likely to be different contracting strategies which are predominately used. The most common types of contract are:

Fixed Price / Lump Sum

Schedule of Rates / Cost Reimbursable (Fixed / % Fee) Bills of Quantities

Design and build (and operate) Each of these has advantages and disadvantages for both the contractor and the client. In particular it is possible to identify the risk/incentives to both parties for these operating strategies. This is illustrated below

Design, Build and Operate

Design and Build

Fixed Price

Partnership

Costs + Fixed Fee

Costs + % FeeClients Risk

Contractors incentive

Clientsflexibility

The contract interaction is based on long term and short term objectives on the part of both. In the short term, which can be considered the narrow view, the contractor has a desire to build its workload whilst the client has a desire to get the best quality at the lowest possible price. The long-term objective of the contractor is to maintain a sound and developing organisation which provides as good a return as is possible to the owners, investors and work force. The long-term objective of the client is to have the contract competed on time, within budget and to the required level of quality. It also has a need to be able to continue its own sphere of operations, which will usually depend on the completion of work by contractors.

The principal features of three types of contract are discussed very briefly below as they are dealt with in great depth in a later module.

Fixed Price / Lump Sum Fixed price / lump sum contracts mean that the client knows what the final cost will be before awarding the work but that is heavily dependent upon having issued an extremely accurate scope of work to the contractor to price. In the event that extra work transpires for whatever reason after the work has commenced, the contractor will be able to charge extra reimbursement for that work and the pitfalls will be fairly obvious. The trick for the contractor at bid stage is to be sure that the price provides adequate reward without being greater than any other competitors submitted price. It should also be noted that on a fixed price contract the rates (e.g. day rates) applied by the contractor are likely to be higher than those imposed



on a reimbursable contract. This increase in cost can be regarded as the contractor building an element of contingency into the project in case of anything not going to plan.

Schedule of Rates / Cost Reimbursable It is common for a contractor to submit or negotiate a complete set of rates that enable the work to be invoiced as it progresses. This type of contract is useful if the scope of work cannot be accurately defined before the work commences. It is, of course, necessary to establish rates to cover the provision of all the services, even if only to specify that items purchased will be invoiced at the same price as they were purchased by the contractor with a fair handling charge added on.

Bills of Quantities Bills of quantities are the domain of the quantity surveyor. Their science has been developed over many years. They are used extensively in the construction and building industry. They are established by issuing a complete breakdown of the project in terms of each physical part of the work, providing such detail as quantity, location and dimension. The contractor then adds the invoice price required to complete each item of the specified quantities and an additional price for each item in the event that the quantity changes.

Pricing Projects The basic relationship between price, cost and profit can be expressed in a number of ways:

cost + profit

price - profit

price - cost

=

=

=

Price

Cost

Profit

Which one applies depends on whether price, cost or profit is fixed first. These differences can be explained as follows:

In the first case, the price is fixed through legislation for example, or in the case of a target costing system, through market analysis;

In the second, the cost is fixed, generally through contract purchase which guarantees that goods will be supplied to you at a particular price. This fixes your costs, whilst your selling price and profits can be varied;

Some agreements state the profit that a company is allowed to make through the system known as cost-plus pricing.



3.7 Summary By the end of this session you should:

Be able to describe classes of estimate and specify when specific classes are appropriate

Understand the need for well defined work break down structures

Develop work breakdown structures for your own projects

Appreciate the role of alternative breakdown structures

Be able to develop and undertake a work study

Calculate task duration using work norms

Estimate the reduction of duration of repetitive tasks given the required data

Be able to describe CTR methods

Be able to discuss a range of contracting strategies and the benefits of these.



4.0 Session 3 Detailed Planning

4.1. Introduction This chapter introduces the process of the planning using the Critical Path Method of Project Planning. This is the most commonly used method of project planning and through a simple example the principles behind the critical path method are introduced.

4.2. Origins of Network Planning Both the Critical Path Method (CPM) and the Programme Evaluation and Review Technique (PERT) were developed in America in the 1950s. CPM was initially developed by the Du Pont Company, for the planning and controlling of the maintenance of chemical processing plants. This proved to be so successful (at one site, downtime for maintenance was reduced by 37%) that the method soon found applications in other types of project work. PERT was devised by the US Navy to co-ordinate the activities of the many contractors engaged in one of the most complex projects ever undertaken until that time, the development of the Polaris missile. It is claimed that by using PERT, the programme was completed some two years earlier than would otherwise have been the case. Both techniques employ the same basic methodology, the representation of project activities as a network of lines and nodes. The main difference between them is that PERT allows probabilistic estimates of activity durations.

The general emphasis of these methods is usually on how quickly a task can be performed. But, as well as time, we also want to monitor the control of other resources in order to bring the project in on schedule and budget. Hence we are concerned with managing:

Time Human Resources Equipment and machinery Cash

Clearly there must be a trade off between time and resources with generally high levels of resource leading to shorter project durations. The smoothing of resources (discussed later) will lead to better economy, especially when considered with cash flow constraints.



4.3. The Network Planning Procedure The project network is a key part of the planning stages and from this project network the basic elements of the project plan including the Gantt chart and resource profiles are derived. The British Standards Institute defines the project network as:

"A diagram representing the events, activities and their inter-dependence"

It should be remembered that the network represents a plan and it can therefore be updated and improved with time.

A project, or part of a project, can be divided and continuously (almost) sub-divided into Events that are single points in time identifying the beginning or end of an activity. These are hard to give names to. Activities that take time to complete but are easy to name and required resources can be shown.

There are two conventions used when developing graphical representation of networks. Activity on Arrow (AOA) networks represent the events as circles (nodes on the network) and the activities are shown as arrows (branches of the network). Alternatively we can use Activity on Node Analysis (AON) where the activities occur at the nodes. The selection of technique is simply a matter of choice although the AON method offers some advantages over the AOA method. AON is usually the method selected for analysis on a computer (for example Microsoft Project utilises this method), principally because the analysis data can be easily displayed within the node. The MSc course does not address Activity on Arrow in any great depth. You are however encouraged to investigate further by reading about it in almost any textbook on Project Management.

In general project networks are usually developed using the aid of a project management computer package (a tutorial for Microsoft project is provided within the course materials). Therefore the aim of this section of the course is to ensure that you understand what the package is doing behind the scenes.

In the table below the basic steps of the CPM technique (extended to include resourcing and S-Curves) are outlined, before each of them is considered in detail. It is important to note that this is an iterative process and that each stage will impact on later and earlier stages in the process and therefore it should be remembered that each of these stages overlap significantly.

1 Define Project Clearly identify the goal of the project, and the conditions which will signify both the start of the project and its satisfactory completion

2 List Activities Identify those activities, connecting the start and end of the project, which it is judged appropriate to schedule and control. This activity list is commonly derived from the lowest levels developed within the Work Breakdown Structure.



3 Establish precedence Relationships

For each activity, identify those other activities, if any, which must be completed before the activity in question can begin. This information will probably be presented on a project activity chart.

4 Construct Network Represent the project activities and their precedence relationships by a network of nodes.

5 Estimate Activity Durations

For CPM a single estimate is made for each activity in the network. For PERT, three estimates are made: optimistic, pessimistic and most likely tim

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