Department of Business Administration.

Assignment 01

PROJECT MANGEMENT (569)

Submitted To

Most Respectable,

Prof.

Submitted By

Waseem Saeed

Roll AD-512530

Final Semester

ALLAMA IQBAL OPEN UNIVERSITY ISLAMABAD, PAKISTAN.

AUTUMN 2010

Q. 1 (a)

As a project manager in a manufacturing organization,

what will be your role in project management?

PROJECT MANAGEMENT

Project management is the discipline of planning, organizing,

securing and managing resources to bring about the successful completion

of specific engineering project goals and objectives. It is sometimes

conflated with program management, however technically that is actually a

higher level construction: a group of related and somehow interdependent

engineering projects.

PROJECT

A project is a temporary endeavor, having a defined beginning and

end (usually constrained by date, but can be by funding or deliverables),

undertaken to meet unique goals and objectives, usually to bring about

beneficial change or added value. The temporary nature of projects stands in

contrast to business as usual (or operations), which are repetitive,

permanent or semi-permanent functional work to produce products or

services. In practice, the management of these two systems is often found to

be quite different, and as such requires the development of distinct technical

skills and the adoption of separate management.

The primary challenge of project management is to achieve all of the

engineering project goals and objectives while honoring the preconceived

project constraints. Typical constraints are scope, time, and budget. The

secondary—and more ambitious—challenge is to optimize the allocation and

integration of inputs necessary to meet pre-defined objectives.

PROJECT MANAGER

A project manager is a professional in the field of project

management. Project managers can have the responsibility of the planning,

execution, and closing of any project, typically relating to construction

industry, manufacturing organization, architecture, computer networking,

telecommunications or software development. Many other fields in the

production, design and service industries also have project managers.

A project manager is the person who has the overall responsibility

for the successful initiation, planning, execution and closure of a project. This

title is used in the construction industry, architecture, information technology

and many different occupations that are based on production of a product or

service.

A project manager is the person responsible for accomplishing the

stated project objectives. Key project management responsibilities include

creating clear and attainable project objectives, building the project

requirements, and managing the triple constraint for projects, which are

cost, time, and quality (also known as scope).

A project manager is often a client representative and has to

determine and implement the exact needs of the client, based on knowledge

of the firm they are representing. The ability to adapt to the various internal

procedures of the contracting party, and to form close links with the

nominated representatives, is essential in ensuring that the key issues of

cost, time, quality and above all, client satisfaction, can be realized.

The term and title project manager has come to be used generically

to describe anyone given responsibility to complete a project. However, it is

more properly used to describe a person with full responsibility and the same

level of authority required completing a project.

If a person does not have high levels of both responsibility and

authority then they are better described as a project administrator,

coordinator, facilitator or expeditor.

The project manager must possess a combination of skills including

an ability to ask penetrating questions, detect unstated assumptions and

resolve interpersonal conflicts as well as more systematic management

skills.

A project manager is usually responsible for the success or the

failure of the project. They first need to define the project and then build its

work plan. If the scope of the project is not very clear, or the project is

executing poorly, the manager is held accountable. However, this does not

mean that the manager does all the work by himself (which is practically

impossible). There is an entire team under the project manager, which helps

to achieve all the objectives of the project. However, if something goes

wrong, the project manager is ultimately accountable.

Apart from this, depending on the size and the complexity of the

project, they may need to take on multiple roles. The project manager may

need to assist with gathering business requirements, help to design a

database management system or may prepare project documentation. They

may work full time on a large project, or may work part-time on various

projects of a smaller nature; or may alternatively handle various projects as

well as handle other responsibilities like business analysis and business

development.

At times, they may have accountability but not authority. For

example, he or she may be using certain resources but might not have direct

control over those resources. At such times, the manager might find certain

limitations over task execution, which might not take place as they might

have liked. Not having direct control over the state of finances and finance

allocation might cause ambiguity.

In order to be successful, the project manager must be given support and

authority by senior management.

Project managers use project management software, such as

Microsoft Project, to organize their tasks and workforce. These software

packages allow project managers to produce reports and charts in a few

minutes, compared to the several hours it can take if they do not use a

software package.

ROLES AND RESPONSIBILITIES OF PROJECT MANAGERS

Process Responsibilities

Once the project starts, the project manager must successfully manage and

control the work, including:

Identifying, tracking managing and resolving project issues

Proactively disseminating project information to all stakeholders

Identifying, managing and mitigating project risk

Ensuring that the solution is of acceptable quality

Proactively managing scope to ensure that only what was agreed to is

delivered, unless changes are approved through scope management

Defining and collecting metrics to give a sense for how the project is

progressing and whether the deliverables produced are acceptable

Managing the overall schedule to ensure work is assigned and

completed on time and within budget

Again, this does not mean that the project manager physically does all of

this, but they must make sure it happens. If the project has problems, or

scope creep, or faces risks, or is not setting expectations correctly, then the

project manager is the person held accountable.

To manage the project management processes, a person should be

well organized, have great follow-up skills, be process oriented, be able to

multi-task, have a logical thought process, be able to determine root causes,

have good analytical ability, be a good estimator and budget manager, and

have good self-discipline.

People Responsibilities

In addition to process skills, a project manager must have good people

management skills. This includes:

Having the discipline and general management skills to make sure that

people follow the standard processes and procedures

Establishing leadership skills to get the team to willingly follow your

direction. Leadership is about communicating a vision and getting the

team to accept it and strive to get there with you.

Setting reasonable, challenging and clear expectations for people, and

holding them accountable for meeting the expectations. This includes

providing good performance feedback to team members

Team building skills so that the people work together well, and feel

motivated to work hard for the sake of the project and their other team

members. The larger your team and the longer the project, the more

important it is to have good team-building skills.

Proactive verbal and written communicator skills, including good,

active listening skills. 

Again, you are responsible for the success of the project. If the team has

poor morale and is missing deadlines, you need to try to resolve it. If team

members don't understand exactly what they need to do and when it is due,

then you are responsible.

Multiple Roles

Depending on the size and complexity of the project, the project

manager may take on other responsibilities in addition to managing the

work. For instance, the project manager may assist with gathering business

requirements. Or they may help design a database management system or

they may write some of the project documentation. Project management is a

particular role that a person fills, even if the person who is the project

manager is working in other roles as well.

For instance, a project manager might manage the project for 45% of

their time, perform business analysis for 25%, work on design for 15% and

write documentation for 15%. This does not mean that one of the

responsibilities of a project manager role is to spend 15% of their time on

design. Instead, it just means that the project is not large enough to need a

full-time project manager. The project manager spends the rest of their time

in other project roles such as Business Analyst, Designer and Technical

Writer. Depending on the size of your projects and the way your company is

organized, a project manager’ time may be allocated one of three ways.

They may have a full time role on a large project.

They may have project management responsibilities for multiple

projects, each of which is less than full time, but the combination of

which adds up to a full-time role.

They may fill multiple roles, each of which requires a certain level of

skill and responsibility. On one project, for instance, they may be both

a project manager and an analyst.

Having Project Management Accountability but not Responsibility

In some organizations, the project manager is accountable for the

success of the project, but does not have the right level of responsibility.

Managing the team in a matrix organization is an example of that. You are

asked to manage a project utilizing people that you do not have direct

management responsibility for. In other cases, you may find that your ability

to resolve issues is hampered because you are not high enough in the

organization to get an issue resolved quickly. In other instances, you may

find that your ability to be innovative and flexible is constrained by

organizational policies and inertia. 

All of these cases can be cause for frustration. One way to deal with

this is to define roles and responsibilities as a part of the Project Charter.

This can help set and manage expectations. For instance, if you have no

budget or expense approval authority, then note that up front, along with a

process for expense approval. That way, if problems do arise later, everyone

knows who has the right level of authority to resolve them. For most project

managers, the frustration level is not caused so much by a lack of power as

much as it is caused by ambiguity. If the project manager does not have the

authority, it is important to know who does, and what process is needed to

gain action.

Q. 1 (b)

Discuss the phases of project life cycle.

WHAT IS A PROJECT?

A project is a unique endeavor to produce a set of deliverables within

clearly specified time, cost and quality constraints. Projects are different

from standard business operational activities as they:

Are unique in nature. They do not involve repetitive processes. Every

project undertaken is different from the last, whereas operational

activities often involve undertaking repetitive (identical) processes.

Have a defined timescale. Projects have a clearly specified start and

end date within which the deliverables must be produced to meet a

specified customer requirement.

Have an approved budget. Projects are allocated a level of financial

expenditure within which the deliverables are produced, to meet a

specified customer requirement.

Have limited resources. At the start of a project an agreed amount of

labor, equipment and materials is allocated to the project.

Involve an element of risk. Projects entail a level of uncertainty and

therefore carry business risk.

Achieve beneficial change. The purpose of a project is typically to

improve an organization through the implementation of business

change.

WHAT IS PROJECT MANAGEMENT?

Project Management is the skills, tools and management processes

required to undertake a project successfully. It incorporates:

Figure 1.1 Project management components

A set of skills. Specialist knowledge, skills and experience are

required to reduce the level of risk within a project and thereby

enhance its likelihood of success.

A suite of tools. Various types of tools are used by project managers

to improve their chances of success. Examples include document

templates, registers, planning software, modeling software, audit

checklists and review forms.

A series of processes. Various processes and techniques are

required to monitor and control time, cost, quality and scope on

projects. Examples include time management, cost management,

quality management, change management, risk management and

issue management.

THE PROJECT LIFE CYCLE

The project manager and project team have one shared goal: to carry

out the work of the project for the purpose of meeting the project’s

objectives. Every project has beginnings, a middle period during which

activities move the project toward completion, and an ending (either

successful or unsuccessful).

Tools

Processes

Skills

A standard project typically has the following four major phases (each

with its own agenda of tasks and issues): initiation, planning, execution,

and closure. Taken together, these phases represent the path a project

takes from the beginning to its end and are generally referred to as the

project life cycle (Figure 1.2).

Figure 1.2 The four phases of the project life cycle

1. PROJECT INITIATION

The first phase of a project is the initiation phase. During this phase a

business problem or opportunity is identified and a business case providing

various solution options is defined. Next, a feasibility study is conducted to

investigate whether each option addresses the business problem and a final

recommended solution is then put forward. Once the recommended solution

is approved, a project is initiated to deliver the approved solution. Terms of

reference are completed outlining the objectives, scope and structure of the

new project and a project manager is appointed. The project manager begins

recruiting a project team and establishes a project office environment.

Approval is then sought to move into the detailed planning phase.

2. PROJECT PLANNING

Once the scope of the project has been defined in the terms of

reference, the project enters the detailed planning phase. This involves

creating a:

Project plan outlining the activities, tasks, dependencies and

timeframes;

Resource plan listing the labor, equipment and materials required;

Financial plan identifying the labor, equipment and materials costs;

Quality plan providing quality targets, assurance and control

measures;

Risk plan highlighting potential risks and actions to be taken to

mitigate those risks;

Acceptance plan listing the criteria to be met to gain customer

acceptance;

Communications plan describing the information needed to inform

stakeholders;

Procurement plan identifying products to be sourced from external

suppliers.

At this point the project will have been planned in detail and is ready to be

executed.

3. PROJECT EXECUTION

This phase involves implementing the plans created during the project

planning phase.

While each plan is being executed, a series of management processes are

undertaken to monitor and control the deliverables being output by the

project. This includes identifying change, risks and issues, reviewing

deliverable quality and measuring each deliverable produced against the

acceptance criteria. Once all of the deliverables have been produced and the

customer has accepted the final solution, the project is ready for closure.

4. PROJECT CLOSURE

Project closure involves releasing the final deliverables to the

customer, handing over project documentation to the business, terminating

supplier contracts, releasing project resources and communicating the

closure of the project to all stakeholders. The last remaining step is to

undertake a post-implementation review to quantify the level of project

success and identify any lessons learnt for future projects.

Now that you have an overall appreciation of the project life cycle, I will

explain each life cycle phase in the following sections.

1. PROJECT INITIATION

Within the initiation phase, the business problem or opportunity is

identified, a solution is defined, a project is formed and a project team is

appointed to build and deliver the solution to the customer. Figure 1.3 shows

the activities undertaken during the initiation phase:

Figure 1.3 Project initiation activities

a)Develop a business case

The trigger to initiating a project is identifying a business problem or

opportunity to be addressed. A business case is created to define the

problem or opportunity in detail and identify a preferred solution for

implementation. The business case includes:

Develop

a business case

Undertake a feasibility

study

Establish the

terms of

reference

Appoint the project

team

Set up a project offic

e

Perform a phas

e revie

w

A detailed description of the problem or opportunity;

A list of the alternative solutions available;

An analysis of the business benefits, costs, risks and issues;

A description of the preferred solution;

A summarized plan for implementation.

The business case is then approved by an identified project sponsor, and the

required funding is allocated to proceed with a feasibility study.

b)Undertake a feasibility study

At any stage during or after the creation of a business case, a formal

feasibility study may be commissioned. The purpose of a feasibility study is

to assess the likelihood of each alternative solution option achieving the

benefits outlined in the business case.

The feasibility study will also investigate whether the forecast costs are

reasonable, the solution is achievable, the risks are acceptable and the

identified issues are avoidable.

c) Establish the terms of reference

After the business case and feasibility study have been approved, a

new project is formed. At this point, terms of reference are created. The

terms of reference define the vision, objectives, scope and deliverables for

the new project. They also describe the organization structure, activities,

resources and funding required to undertake the project. Any risks, issues,

planning assumptions and constraints are also identified.

d)Appoint the project team

The project team is now ready to be appointed. Although a project

manager may be appointed at any stage during the life of the project, the

manager will ideally be appointed prior to recruiting the project team. The

project manager creates a detailed job description for each role in the

project team, and recruits people into each role based on their relevant skills

and experience.

e)Set up a project office

The project office is the physical environment within which the team

is based.

Although it is usual to have one central project office, it is possible to have a

virtual project office with project team members located around the world. A

project office environment should include:

Equipment, such as office furniture, computer equipment, stationery

and materials;

Communications infrastructure, such as telephones, computer

network, e-mail,

Internet access, file storage, database storage and backup facilities;

Documentation, such as a project methodology, standards, processes,

forms and registers; tools, such as accounting, project planning and

risk modeling software.

f) Perform a phase review

At the end of the initiation phase, a phase review is performed. This is

basically a checkpoint to ensure that the project has achieved its objectives

as planned.

2. PROJECT PLANNING

By now, the project costs and benefits have been documented, the

objectives and scope have been defined, the project team has been

appointed and a formal project office environment established. It is now time

to undertake detailed planning to ensure that the activities performed during

the execution phase of the project are properly sequenced, resourced,

executed and controlled. The activities shown in Figure 1.4 are undertaken.

Figure 1.4 Project Planning Activities

a)Create a project plan

The first step in the project planning phase is to document the project

plan. A ‘work breakdown structure’ (WBS) is identified which includes a

hierarchical set of phases, activities and tasks to be undertaken to complete

the project. After the WBS has been agreed, an assessment of the level of

effort required to undertake each activity and task is made.

The activities and tasks are then sequenced, resources are allocated

and a detailed project schedule is formed. This project plan is the key tool

used by the project manager to assess the progress of the project

throughout the project life cycle.

b)Create a resource plan

Immediately after the project plan is formed, the level of resource

required undertaking each of the activities and tasks listed within the project

plan will need to be allocated.

Although generic resource may have already been allocated in the project

plan, a detailed resource plan is required to identify the:

Create a

project

plan

Create a

resource plan

Create a financial plan

Create a

quality plan

Create a risk plan

Perform

a phase

review

Contract the suppli

ers

Create a

procurement plan

Create a

communications plan

Create an

acceptance plan

Type of resource required, such as labor, equipment and materials;

Quantity of each type of resource required;

Roles, responsibilities and skill-sets of all human resource required;

Specifications of all equipment resource required;

Items and quantities of material resource required.

A schedule is assembled for each type of resource so that the project

manager can review the resource allocation at each stage in the project.

c) Create a financial plan

A financial plan is created to identify the total quantity of money

required to undertake each phase in the project (in other words, the budget).

The total cost of labor, equipment and materials is calculated and an

expense schedule is defined which enables the project manager to measure

the forecast spend versus the actual spend throughout the project. Detailed

financial planning is an extremely important activity within the project, as

the customer will expect the final solution to have been delivered within the

allocated budget.

d)Create a quality plan

Meeting the quality expectations of the customer can be a challenging

task. To ensure that the quality expectations are clearly defined and can

reasonably be achieved, a quality plan is documented. The quality plan:

Defines the term ‘quality’ for the project.

Lists clear and unambiguous quality targets for each deliverable. Each

quality target provides a set of criteria and standards to be achieved to

meet the expectations of the customer.

Provides a plan of activities to assure the customer that the quality

targets will be met (in other words, a quality assurance plan).

Identifies the techniques used to control the actual quality level of

each deliverable as it is built (in other words, a quality control plan).

Not only is it important to review the quality of the deliverables produced by

the project, it is also important to review the quality of the management

processes which produced them. A quality plan will summarize each of the

management processes undertaken during the project, including time, cost,

quality, change, risk, issue, procurement, and acceptance and

communications management.

e)Create a risk plan

The next step is to document all foreseeable project risks within a risk

plan. This plan also identifies the actions required to prevent each risk from

occurring, as well as reduce the impact of the risk should it eventuate.

Developing a clear risk plan is an important activity within the planning

phase, as it is necessary to mitigate all critical project risks prior to entering

the execution phase of the project.

f) Create an acceptance plan

To deliver the project successfully, you will need to gain full

acceptance from the customer that the deliverables produced by the project

meet or exceed requirements.

An acceptance plan is created to help achieve this, by clarifying the

completion criteria for each deliverable and providing a schedule of

acceptance reviews. These reviews provide the customer with the

opportunity to assess each deliverable and provide formal acceptance that it

meets the requirements as originally stated.

g)Create a communications plan

Prior to the execution phase, it is also necessary to identify how each

of the stakeholders will be kept informed of the progress of the project. The

communications plan identifies the types of information to be distributed to

stakeholders, the methods of distributing the information, the frequency of

distribution, and responsibilities of each person in the project team for

distributing the information.

h)Create a procurement plan

The last planning activity within the planning phase is to identify the

elements of the project to be acquired from external suppliers. The

procurement plan provides a detailed description of the products (that is,

goods and services) to be acquired from suppliers, the justification for

acquiring each product externally as opposed to from within the business,

and the schedule for product delivery. It also describes the process for the

selection of a preferred supplier (the tender process), and the ordering and

delivery of the products (the procurement process).

i) Contract the suppliers

Although external suppliers may be appointed at any stage of the

project, it is usual to appoint suppliers after the project plans have been

documented but prior to the execution phase of the project. Only at this

point will the project manager have a clear idea of the role of suppliers and

the expectations for their delivery. A formal tender process is undertaken to

identify a short-list of capable suppliers and select a preferred supplier to

initiate contractual discussions with. The tender process involves creating a

statement of work, a request for information and request for proposal

document to obtain sufficient information from each potential supplier and

select the preferred supplier. Once a preferred supplier has been chosen, a

contract is agreed between the project team and the supplier for the delivery

of the requisite products.

j) Perform a phase review

At the end of the planning phase, a phase review is performed. This is

a checkpoint to ensure that the project has achieved its objectives as

planned.

3. PROJECT EXECUTION

The execution phase is typically the longest phase of the project in

terms of duration. It is the phase within which the deliverables are physically

constructed and presented to the customer for acceptance. To ensure that

the customer’s requirements are met, the project manager monitors and

controls the activities, resources and expenditure required to build each

deliverable. A number of management processes are undertaken to ensure

that the project proceeds as planned. The activities shown in Figure 1.5 are

undertaken.

Figure 1.5 Project execution activities

a)Build the deliverables

This phase involves physically constructing each deliverable for

acceptance by the customer. The activities undertaken to construct each

deliverable will vary depending on the type of project being undertaken.

Activities may be undertaken in a ‘waterfall’ fashion, where each activity is

completed in sequence until the final deliverable is produced, or an

‘iterative’ fashion, where iterations of each deliverable are constructed until

the deliverable meets the requirements of the customer. Regardless of the

method used to construct each deliverable, careful monitoring and control

processes should be employed to ensure that the quality of the final

deliverable meets the acceptance criteria set by the customer.

b)Monitor and control

While the project teams are physically producing each deliverable, the

project manager implements a series of management processes to monitor

and control the activities being undertaken by the project team. An overview

of each management process follows.

c) Time Management

Time management is the process of recording and controlling time

spent by staff on the project. As time is a scarce resource within projects,

each team member should record time spent undertaking project activities

on a timesheet form. This will enable the project manager to control the

amount of time spent undertaking each activity within the project. A

timesheet register is also completed, providing a summary of the time spent

on the project in total so that the project plan can always be kept fully up to

date.

d)Cost management

Cost management is the process by which costs/expenses incurred on

the project are formally identified, approved and paid. Expense forms are

completed for each set of related project expenses such as labor, equipment

and materials costs. Expense forms are approved by the project manager

and recorded within an expense register for auditing purposes.

e)Quality management

Quality is defined as the extent to which the final deliverable

conforms to the customer requirements. Quality management is the process

by which quality is assured and controlled for the project, using quality

assurance and quality control techniques.

Quality reviews are undertaken frequently and the results recorded on a

quality review form.

f) Change management

Change management is the process by which changes to the project

scope, deliverables, timescales or resources are formally requested,

evaluated and approved prior to implementation. A core aspect of the

project manager’s role is to manage change within the project. This is

achieved by understanding the business and system drivers requiring the

change, identifying the costs and benefits of adopting the change, and

formulating a structured plan for implementing the change. To formally

request a change to the project, a change form is completed. The status of

all active change forms should be recorded within a change register.

g)Risk management

Risk management is the process by which risks to the project are

formally identified, quantified and managed. A project risk may be identified

at any stage of the project by completing a risk form and recording the

relevant risk details within the risk register.

h) Issue management

Issue management is the method by which issues currently affecting

the ability of the project to produce the required deliverable are formally

managed. After an issue form has been completed and the details logged in

the issue register, each issue is evaluated by the project manager and a set

of actions undertaken to resolve the issue identified.

i) Procurement management

Procurement management is the process of sourcing products from

an external supplier. Purchase orders are used to purchase products from

suppliers, and a procurement register is maintained to track each purchase

request through to its completion.

j) Acceptance management

Acceptance management is the process of gaining customer

acceptance for deliverables produced by the project. Acceptance forms are

used to enable project staff to request acceptance for a deliverable, once

complete. Each acceptance form identifies the acceptance criteria, review

methods and results of the acceptance reviews undertaken.

k) Communications management

Communications management is the process by which formal

communications messages are identified, created, reviewed and

communicated within a project. The most common method of

communicating the status of the project is via a project status report. Each

communications message released is captured in a communications register.

l) Perform a phase review

At the end of the execution phase, a phase review is performed. This

is a checkpoint to ensure that the project has achieved its objectives as

planned.

4. PROJECT CLOSURE

Following the acceptance of all project deliverables by the customer,

the project will have met its objectives and be ready for closure. Project

closure is the last phase in the project life cycle, and must be conducted

formally so that the business benefits delivered by the project are fully

realized by the customer.

Figure 1.6 Project closure activities

a)Perform project closure

Project closure, or ‘close-out’, essentially involves winding up the

project. This includes:

Determining whether all of the project completion criteria have been

met;

Identifying any outstanding project activities, risks or issues;

Handing over all project deliverables and documentation to the

customer;

Cancelling supplier contracts and releasing project resources to the

business;

Communicating the closure of the project to all stakeholders and

interested parties.

A project closure report is documented and submitted to the customer

and/or project sponsor for approval. The project manager is responsible for

undertaking each of the activities identified in the project closure report, and

the project is closed only when all the activities listed in the project closure

report have been completed.

b)Review project completion

The final activity within a project is the review of its success by an

independent party. Success is determined by how well it performed against

the defined objectives and conformed to the management processes

outlined in the planning phase. To determine how well it performed, the

following types of questions are answered:

Did it result in the benefits defined in the business case?

Did it achieve the objectives outlined in the terms of reference?

Did it operate within the scope of the terms of reference?

Did the deliverables meet the criteria defined in the quality plan?

Was it delivered within the schedule outlined in the project plan?

Was it delivered within the budget outlined in the financial plan?

To determine how well it conformed, an assessment is made of the

level of conformity to the management processes outlined in the quality

plan. These results, as well as a list of the key achievements and lessons

learnt, are documented within a post implementation review and presented

to the customer and/or project sponsor for approval.

Q. 2 (a)

In a services organization, what would be the possible

objectives and possible causes of conflict in project

management?

CONFLICT

Conflict is a clash of interests, values, actions, views or directions.

Conflict refers to the existence of that clash. Conflict is initiated the instant

clash occurs. Generally, there are diverse interests and contrary views

behind a conflict, which are revealed when people look at a problem from

their viewpoint alone. Conflict is an outcome of organizational intricacies,

interactions and disagreements. It can be settled by identifying and

neutralizing the etiological factors. Once conflict is concluded it can provoke

a positive change in the organization.

CONFLICT IN PROJECT MANAGEMENT

Conflict in project management is inevitable. The potential for conflict

in information systems development projects is usually high because it

involves individuals from different backgrounds and orientations working

together to complete a complex task. The cause of conflict in team projects

can be related to differences in values, attitudes, needs, expectations,

perceptions, resources, and personalities. Proper skills in dealing with conflict

can assist project managers and other organization members to handle and

effectively resolve conflicts which can lead to a more productive organization

as a whole.

When we recognize the potential for conflict, we implicitly

indicate that there is already a conflict of direction, even though it may not

have yet manifested itself as a clash. Confliction is the process of setting up,

promoting, encouraging or designing conflict. It is a willful process and refers

to the real effort put into generating and instituting conflict. De-confliction is

the annihilation of conflict.

WHY CONFLICTS ARISE

In most organizations, conflicts increase as employees assert their

demands for an increased share in organizational rewards, such as position,

acknowledgment, appreciation, monetary benefits and independence. Even

management faces conflicts with many forces from outside the organization,

such as government, unions and other coercive groups which may impose

restrictions on managerial activities.

Conflicts emanate from more than one source, and so their true origin may

be hard to identify. Important initiators of conflict situations include:

1. People disagree. People disagree for a number of reasons.

a)They see things differently because of differences in understanding

and viewpoint. Most of these differences are usually not important.

Personality differences or clashes in emotional needs may cause

conflicts. Conflicts arise when two groups or individuals interacting in

the same situation see the situation differently because of different

sets of settings, information pertaining to the universe, awareness,

background, disposition, reason or outlook. In a particular mood,

individuals think and perceive in a certain manner. For example, the

half-full glass of one individual can be half-empty to another. Obviously

both individuals convey the same thing, but they do so differently

owing to contrasting perceptions and dispositions.

b)People have different styles, principles, values, beliefs and slogans

which determine their choices and objectives. When choices

contradict, people want different things and that can create conflict

situations. For example, a risk-taking manager would be in conflict with

a risk-minimizing supervisor who believes in firm control and a well-

kept routine.

c) People have different ideological and philosophical outlooks, as in the

case of different political parties. Their concepts, objectives and ways

of reacting to various situations are different. This often creates

conflicts among them.

d)Conflict situations can arise because people have different status.

When people at higher levels in the organization feel indignant about

suggestions for change put forward from their subordinates or

associates, it provokes conflict. By tolerating and allowing such

suggestions, potential conflict can be prevented.

e)People have different thinking styles, which encourage them to

disagree, leading to conflict situations. Certain thinking styles may be

useful for certain purposes, but ineffectual or even perilous in other

situations

f) People are supposed to disagree under particular circumstances, such

as in sports. Here conflict is necessary, and even pleasurable.

2. People are concerned with fear, force, fairness or funds

a) Fear relates to imaginary concern about something which might

happen in the future. One may fear setbacks, disgrace, reprisal or

hindrances, which can lead to conflict situations.

b)Force is a necessary ingredient of any conflict situation. Force may be

ethical or emotional. It could be withdrawal of cooperation or approval.

These forces are instrumental in generating, strengthening and

terminating conflicts.

c) Fairness refers to an individual's sense of what is right and what is not

right, a fundamental factor learnt in early childhood. This sense of

fairness determines the moral values of an individual. People have

different moral values and accordingly appreciate a situation in

different ways, creating conflict situations.

d)Funds or costs can cause conflict, but can also force a conclusion

through acceptable to the conflicting parties. The cost of being in

conflict may be measurable (in money terms) or immeasurable, being

expressed in terms of human lives, suffering, diversion of skilled labor,

neglect or loss of morale and self esteem.

CONDITIONS CREATING CONFLICT SITUATIONS

According to Kirchhoff and Adams (1982), there are four distinct

conflict conditions, i.e., high stress environments, ambiguous roles and

responsibilities, multiple boss situations, and prevalence of advanced

technology.

Filley (1975) identified main conditions which could initiate conflict situations

in an organization. These are:

1. Ambiguous jurisdiction, which occurs when two individuals have

responsibilities which are interdependent but whose work boundaries

and role definitions are not clearly specified.

2. Goal incompatibility and conflict of interest refer to

accomplishment of different but mutually conflicting goals by two

individuals working together in an organization. Obstructions in

accomplishing goals and lack of clarity on how to do a job may initiate

conflicts. Barriers to goal accomplishment arise when goal attainment

by an individual or group is seen as preventing another party achieving

their goal.

3. Communication barriers, as difficulties in communicating can cause

misunderstanding, which can then create conflict situations.

4. Dependence on one party by another group or individual.

5. Differentiation in organization, where, within an organization, sub-

units are made responsible for different, specialized tasks. This creates

separation and introduces differentiation. Conflict situations could arise

when actions of sub-units are not properly coordinated and integrated.

6. Association of the parties and specialization. When individuals

specialized in different areas work in a group, they may disagree

amongst themselves because they have different goals, views and

methodologies owing to their various backgrounds, training and

experiences.

7. Behavior regulation. Organizations have to have firm regulations for

individual behavior to ensure protection and safety. Individuals may

perceive these regulations differently, which can cause conflict and

negatively affect output.

8. Unresolved prior conflicts which remain unsettled over time create

anxiety and stress, which can further intensify existing conflicts. A

manager's most important function is to avoid potential harmful results

of conflict by regulating and directing it into areas beneficial for the

organization.

Effects of conflicts

Conflict situations should be either resolved or used beneficially.

Conflicts can have positive or negative effects for the organization,

depending upon the environment created by the manager as she or he

manages and regulates the conflict situation. Conflict is not the same as

discomfort. The conflict isn't the problem - it is when conflict is poorly

managed that is the problem.

Positive effects of conflicts

1. Conflict can be constructive and healthy for an organization.

2. It can aid in developing individuals and improving the organization by

building on the individual assets of its members.

3. Conflict can bring about underlying issues.

4. It can force people to confront possible defects in a solution and

choose a better one.

5. The understanding of real interests, goals and needs is enhanced and

ongoing communication around those issues is induced. In addition, it

can prevent premature and inappropriate resolution of conflict.

6. Helps to raise and address problems.

7. Energizes work to be on the most appropriate issues.

8. Helps people "be real", for example, it motivates them to participate.

9. Helps people learn how to recognize and benefit from their

differences.

Some of the positive effects of conflict situations are (Filley, 1975):

Diffusion of more serious conflicts. Games can be used to moderate the

attitudes of people by providing a competitive situation which can liberate

tension in the conflicting parties, as well as having some entertainment

value. In organizations where members participate in decision making,

disputes are usually minor and not acute as the closeness of member’s

moderate’s belligerent and assertive behavior into minor disagreements,

which minimizes the likelihood of major fights.

Stimulation of a search for new facts or resolutions. When two parties

who respect each other face a conflict situation, the conflict resolution

process may help in clarifying the facts and stimulating a search for mutually

acceptable solutions.

Increase in group cohesion and performance. When two or more parties

are in conflict, the performance and cohesion of each party is likely to

improve. In a conflict situation, an opponent's position is evaluated

negatively, and group allegiance is strongly reinforced, leading to increased

group effort and cohesion.

Assessment of power or ability. In a conflict situation, the relative ability

or power of the parties involved can be identified and measured.

Negative effects or Causes of conflicts

Causes or sources of organizational conflict can be many and varied. The

most common causes are the following:

1. scarcity of resources (finance, equipment, facilities, etc)

2. different attitudes, values or perceptions

3. disagreements about needs, goals, priorities and interests

4. poor communication

5. poor or inadequate organizational structure

6. lack of teamwork

7. lack of clarity in roles and responsibilities

Destructive effects of conflicts include:

1. Impediments to smooth working,

2. Diminishing output,

3. Obstructions in the decision making process,

4. Formation of competing affiliations within the organization.

The overall result of such negative effects is to reduce employees'

commitment to organizational goals and organizational efficiency (Kirchhoff

and Adams, 1982).

Types of Managerial Actions that Cause Workplace Conflicts

1. Poor communications

a) Employees experience continuing surprises, they aren't informed of

new

decisions, programs, etc.

b) Employees don't understand reasons for decisions, they aren't

involved in

decision-making.

c) As a result, employees trust the "rumor mill" more than

management.

2. The alignment or the amount of resources is insufficient. There is:

a) Disagreement about "who does what".

b) Stress from working with inadequate resources.

3. "Personal chemistry", including conflicting values or actions among

managers and employees, for example:

a) Strong personal natures don't match.

b) We often don't like in others what we don't like in ourselves.

4. Leadership problems, including inconsistent, missing, too-strong or

uninformed leadership (at any level in the organization), evidenced by:

a) Avoiding conflict, "passing the buck" with little follow-through on

decisions.

b) Employees see the same continued issues in the workplace.

c) Supervisors don't understand the jobs of their subordinates.

Key Managerial Actions / Structures to Minimize Conflicts

1. Regularly review job descriptions. Get your employee's input to them.

Write down and date job descriptions. Ensure:

a) Job roles don't conflict.

b) No tasks "fall in a crack".

2. Intentionally build relationships with all subordinates.

a) Meet at least once a month alone with them in office.

b) Ask about accomplishments, challenges and issues.

3. Get regular, written status reports and include:

a) Accomplishments.

b) Currents issues and needs from management.

c) Plans for the upcoming period.

4. Conduct basic training about:

a) Interpersonal communications.

b) Conflict management.

c) Delegation.

5. Develop procedures for routine tasks and include the employees' input.

a) Have employees write procedures when possible and appropriate.

b) Get employees' review of the procedures.

c) Distribute the procedures.

d) Train employees about the procedures.

6. Regularly hold management meetings, for example, every month, to

communicate new initiatives and status of current programs.

7. Consider an anonymous suggestion box in which employees can

provide suggestions.

Q. 2 (b)

Critically discuss the conflict resolution modes.

CONFLICT RESOLUTION

Conflict resolution is a range of methods of eliminating sources

of conflict. The term "conflict resolution" is sometimes used interchangeably

with the term dispute resolution or alternative dispute resolution. Processes

of conflict resolution generally include negotiation, mediation, and

diplomacy. The processes of arbitration, litigation, and formal complaint

processes such as ombudsman processes, are usually described with the

term dispute resolution, although some refer to them as "conflict resolution."

Processes of mediation and arbitration are often referred to as alternative

dispute resolution.

CONFLICT RESOLUTION MODES

In Project Management: A Systems Approach to Planning, Scheduling, and

Controlling, five modes for conflict resolution is explained and the situations

when they are best utilized are identified. These modes are

1. Confronting

2. Compromising

3. Smoothing

4. Forcing

5. Avoiding

1. CONFRONTING (COLLABORATING)

Confronting is also described as problem solving, integrating,

collaborating or win-win style. It involves the conflicting parties meeting

face-to-face and collaborating to reach an agreement that satisfies the

concerns of both parties. This style involves open and direct communication

which should lead the way to solving the problem. Confronting should be

used when:

Both parties need to win.

You want to decrease cost.

You want create a common power base.

Skills are complementary.

Time is sufficient.

Trust is present.

Learning is the ultimate goal.

2. COMPROMISING

Compromising is also described as a "give and take" style. Conflicting

parties bargain to reach a mutually acceptable solution. Both parties give up

something in order to reach a decision and leave with some degree of

satisfaction. Compromising should be used when:

Both parties need to win.

You are in a deadlock.

Time is not sufficient.

You want to maintain the relationship among the involved parties.

You will get nothing if you do not compromise.

Stakes are moderate.

3. SMOOTHING (ACCOMMODATING)

Smoothing is also referred to as accommodating or obliging style. In

this approach, the areas of agreement are emphasized and the areas of

disagreement are downplayed. Conflicts are not always resolved in the

smoothing mode. A party may sacrifice its own concerns or goals in order to

satisfy the concerns or goals of the other party. Smoothing should be used

when:

Goal to be reached is overarching.

You want to create obligation for a trade-off at a later time.

Stakes are low.

Liability is limited.

Any solution is adequate.

You want to be harmonious and create good will.

You would lose anyway.

You want to gain time.

4. FORCING

Forcing is also known as competing, controlling, or dominating style.

Forcing occurs when one party goes all out to win its position while ignoring

the needs and concerns of the other party. As the intensity of a conflict

increases, the tendency for a forced conflict is more likely. These results in a

win-lose situation where one party wins at the expense of the other party.

Forcing should be used when:

A "do or die" situation is present.

Stakes are high.

Important principles are at stake.

Relationship among parties is not important.

A quick decision must be made.

5. AVOIDING

Avoiding is also described as withdrawal style. This approach is

viewed as postponing an issue for later or withdrawing from the situation

altogether. It is regarded as a temporary solution because the problem and

conflict continue to reoccur over and over again. Avoiding should be used

when:

You cannot win.

Stakes are low.

Stakes are high, but you are not prepared.

You want to gain time.

You want to maintain neutrality or reputation.

You think problem will go away.

You win by delaying.

Researchers examined the impact of the conflict resolution styles

used by individuals in shaping their work environment and affecting the level

of ongoing conflict and stress. Results of the study showed that individuals

who use a certain style to conflicts can create environments with varied

degrees of conflicts. Individuals who use more of a confronting style create

an environment with lower levels of task conflict, which reduces relationship

conflict and stress. Whereas, individuals who use more of the forcing or

avoiding styles tend to create an environment with more task conflict, which

increases relationship conflict and stress. The study suggests conflict

develops not only in environmental circumstances but in the styles used by

individuals when confronted with a conflict. The manner in which a person

responds to organizational dissension and uncertainty will influence the

responses of others and the individual's work experience.

Q. 3

Differentiate between the following:

(a) GERT and PERT

(b) PERT and CPM

In today’s highly competitive environment, management is

continually seeking new and better control techniques to cope with the

complexities, masses of data, and tight deadlines that are characteristic of

many industries.

In addition, management is seeking better methods for presenting

technical and cost data to customers.

Since World War II, scheduling techniques have taken on paramount

importance. The most common of these techniques are shown below:

1. Gantt or bar charts

2. Milestone charts

3. Line of balance

4. Networks

I. Program Evaluation and Review Technique (PERT)

II. Arrow Diagram Method (ADM) [Sometimes called the Critical Path

Method (CPM)]

III. Precedence Diagram Method (PDM)

IV. Graphical Evaluation and Review Technique (GERT)

An Introduction to CPM, PERT and GERT

How do project teams determine a project's duration? Is it an exact

science? The answer is no, it is not an exact science. It is more a process of

estimating activity durations, which can be made easier by utilizing

mathematical analysis.

Mathematical analysis is used in project schedule development to

determine early and late start dates, as well as early and late finish dates for

all project activities. The outcome indicates the time period in which the

activity should be scheduled. Note that this analysis phase does not take into

account any resource pool limitations or constraints.

The most widely known mathematical techniques used by project

management teams are the:

1. Critical Path Method (CPM)

2. Program Evaluation and Review Technique (PERT)

3. Graphical Evaluation and Review Technique (GERT)

1. Critical Path Method (CPM)

The most common mathematical technique is the Critical Path Method

(CPM). The CPM is used to predict project duration by analyzing which

sequence of activities, or path, has the least amount of scheduling flexibility.

Once you have determined the early and late start and finish dates,

you can determine float. Float is equal to the difference between the late

finish and early finish dates, or the difference between the late start and

early start dates.

The next step in the CPM is to determine the critical path (CP), which

is the longest path for the project that has little or no float. To determine the

critical path, you begin with the first activity in the network.

Look at its successors, compare the successors' float values, and select the

one with zero float. This is the second activity on the critical path.

Next, you would continue from the second activity on the critical path

and compare float for its successors, selecting the activity that has zero float

and including it in the critical path.

You continue this process to the final activity for a complete critical

path. The project can finish no sooner than the time it takes to complete the

activities on the critical path.

To calculate an activity's duration, you subtract the early start from

the early finish or the late start from the late finish. In example that follows,

the numbers indicate days.

Activity A - 1 day

Activity B - 2 days

Activity C - 3 days

Activity D - 2 days

Adding the total of the activity durations will give you the duration of

the critical path. In this example, the duration of the critical path would be 8

days.

Critical Path activities are, indeed, critical to a project's success. They need

management's careful attention. The order and duration of these activities

are important because any delays will result in the project going over the

anticipated completion date. In addition, project improvements are most

effective when made along the critical path.

Program Evaluation and Review Technique (PERT)

Have you ever performed activity duration estimates, and then

questioned your findings? There is a technique available for checking your

findings.

Program Evaluation and Review Technique (PERT) is used when there

is a high level of uncertainty about how long it will take to perform a given

task.

PERT uses network logic—the collection of activity dependencies that

make up a project network diagram—to determine duration. In PERT,

network logic is used by applying the critical path method to a weighted

average duration estimate.

Although very similar, there is one significant difference between

PERT and CPM. CPM uses the most likely estimate instead of the expected

value of the estimate that PERT uses.

PERT time estimating requires the following three estimates for each activity.

TM = most likely time

TO = optimistic time

TP = pessimistic time

To determine the expected activity time you must insert the previous

estimates into the PERT weighted average formula, which is optimistic (TO)

+ 4 x most likely (TM) + pessimistic (TP) all divided by 6.

Once you have calculated the estimated times for your project you can plot

those values on an s-curve. The s-curve allows you to easily see all three

times—optimistic, most likely, and pessimistic.

Graphical Evaluation and Review Technique (GERT)

There is one additional mathematical analysis method that is rarely

used today because it has been proven to be less accurate than PERT and

CPM. This method is the graphical evaluation and review technique (GERT).

GERT allows for probabilistic treatment of both network logic and activity

duration estimates. GERT is mainly used on project activities that are only

performed in part, as well as those activities that may be performed more

than once (loop). The above graphic illustrates a GERT diagram with a simple

loop.

For example, on a high-rise development project, the electrical

outlets for each floor may be installed as each floor is completed instead of

waiting for the completion of the entire building. Since this activity will be

performed more than once, using GERT will enable you to calculate the

entire duration of this activity.

Differences Between PERT and CPM:

Note that the principles that we have discussed so far apply not only

to PERT, but to CPM as well. The nomenclature is the same for both, and

both techniques are often referred to as arrow diagramming methods, or

activity-on-arrow networks. The differences between PERT and CPM is as

follows:

PERT uses three time estimates (optimistic, most likely, and

pessimistic). From these estimates, an expected time can be

derived. CPM uses one time estimate that represents the normal

time (that is, better estimate accuracy with CPM).

PERT is probabilistic in nature, based on a beta distribution for

each activity time and a normal distribution for expected time

duration. This allows us to calculate the "risk" in completing a

project. CPM is based on a single time estimate and is

deterministic in nature.

Both PERT and CPM permit the use of dummy activities in order

to develop the logic.

PERT is used for Research and Development projects where the

risks in calculating time durations have a high variability. CPM is

used for construction projects that are resource dependent and

based on accurate time estimates.

PERT is used on those projects, such as Research and

Development, where percent complete is almost impossible to

determine except at completed milestones. CPM is used for

those projects, such as construction, where percent complete

can be determined with reasonable accuracy and customer

billing can be accomplished based on percent complete.

Q. 4 (a)

Explain the types of estimates and discuss the estimating

pitfalls.

ESTIMATION

Estimation is the calculated approximation of a result which is

usable even if input data may be incomplete or uncertain.

WHY ESTIMATE?

Estimation is an essential part of our project methodology.

Estimation is used for a number of purposes:

To justify the project, particularly at the proposal stage, enabling

the costs to be compared with the anticipated benefits and to

enable informed comparisons to be made between different

technical or functional options.

To enforce the disciplines needed to make the project succeed.

To secure the resources required to successfully deliver the

project.

To ensure that the support impact of the project is fully

understood.

To inform and improve our software development process.

ESTIMATIONS IN PROJECT MANAGEMENT

In essence, estimates are forecasts of the future; unfortunately,

people are not very good at forecasting. While it is difficult to make

forecasts of natural phenomena such as the weather; it is even harder

to make forecasts of any processes that include people, their knowledge

and behavior. Project management is one of these

processes. Estimation is a very important step in modeling and decision

analysis. Without proper assessments of project duration, finish time,

cost, resources, success rate and other parameters, it is almost

impossible to select a proper alternative and ultimately make a good

decision.

Project managers are under a lot of pressure to produce estimates of

time and cost for systems development very early in a project, typically in

the first two weeks. However, estimating a development project from outline

requirements and not from a physical design is like a home buyer saying,

“Quote me a price for building a house, but I am not sure where I want the

house located, or about the number of rooms, or whether it should be of

brick or wood.” It is not surprising that project estimates are as bad as they

are, but that they can be made and met at all. Three approaches can be

taken to estimating:

Estimates are not blind luck. They are well-thought-out decisions

based on the best available information, some type of cost estimating

relationship, or some type of cost model. Cost estimating relationships

(CERs) are generally the output of cost models. Typical CERs might be:

Mathematical equations based on regression analysis

Cost–quantity relationships such as learning curves

Cost–cost relationships

Cost–non cost relationships based on physical characteristics, technical

parameters, or performance characteristics

TYPES OF ESTIMATES:

Note that projects can range from a feasibility study, through modification of

existing facilities, to complete design, procurement, and construction of a

large complex. Whatever the project may be, whether large or small, the

estimate and type of information desired may differ radically.

1. Order-Of-Magnitude

The first type of estimate is an order-of-magnitude analysis, which

is made without any detailed engineering data. This is an approximate

estimate made without detailed data, that is usually produced from cost

capacity curves, scale up or down factors that are appropriately escalated

and approximate cost capacity ratios. This type of estimate is used during

the formative stages of an expenditure program for initial evaluation of the

project. Other terms commonly used to identify an Order of Magnitude

estimate are preliminary, conceptual, factored, quickie and feasibility. The

order-of-magnitude analysis may have an accuracy of ±35 percent within

the scope of the project. This type of estimate may use past experience (not

necessarily similar), scale factors, parametric curves or capacity estimates

(that is, $/# of product or $/KW electricity).

2. Approximate Estimate

Next, there is the approximate estimate (or top-down estimate),

which is also made without detailed engineering data, and may be accurate

to ±15 percent. This type of estimate is prorated from previous projects that

are similar in scope and capacity, and may be titled as estimating by

analogy, parametric curves, rule of thumb, and indexed cost of similar

activities adjusted for capacity and technology. In such a case, the estimator

may say that this activity is 50 percent more difficult than a previous (i.e.,

reference) activity and requires 50 percent more time, man-hours, dollars,

materials, and so on.

3. Definitive Estimate

The definitive estimate, or grassroots buildup estimate, is prepared

from well-defined engineering data including (as a minimum) vendor quotes,

fairly complete plans, specifications, unit prices, and estimate to complete.

The definitive estimate, also referred to as detailed estimating, has an

accuracy of ±5 percent.

A definitive estimate is prepared from well defined data,

specifications, drawings, etc. This category covers all estimate ranges from a

minimum to maximum definitive type. These estimates are used for bid

proposals, bid evaluations, contract changes, extra work, legal claims, permit

and government approvals. Other terms associated with a Definitive

Estimate include check, lump sum, tender, post contract changes.

4. Learning Curves

Another method for estimating is the use of learning curves.

Learning curves are graphical representations of repetitive functions in which

continuous operations will lead to a reduction in time, resources, and money.

The theory behind learning curves is usually applied to manufacturing

operations.

ESTIMATING PITFALLS:

There are several pitfalls that can impede the pricing function.

Probably the most serious pitfall, and the one that is usually beyond the

control of the project manager, is the "buy-in" decision, which is based on

the assumption that there will be "bail-out" changes or follow-on contracts

later. These changes and/or contracts may be for spares, spare parts,

maintenance, maintenance manuals, equipment surveillance, optional

equipment, optional services, and scrap factors.

One of the most difficult tasks for many people in IT is providing

estimates for project or development work.  However, it’s one of those

necessary evils that must be performed – often at different times throughout

the project.  There’s estimating done up front to price the project and scope

out timeframes, there’s estimates for change orders throughout the project,

and there’s often times ballpark estimates given to customers periodically on

work they ‘may’ want performed.

It’s that ability to think somewhat abstractly on given tasks and figure

out with some degree of accuracy what the level of effort will be.  Of course,

there needs to be a certain level of experience and expertise – but that

experience does not always ensure that you’ll give good estimates.  Over

time, one can learn to be a good estimator, but it helps to have that gift.

With all that said, there are many things that can undermine the accuracy or

validity of your estimates. Some you have control over and many that you

can’t really control. 

Other types of estimating pitfalls include:

Misinterpretation of the statement of work

Omissions or improperly defined scope

Poorly defined or overly optimistic schedule

Inaccurate work breakdown structure

Applying improper skill levels to tasks

Failure to account for risks

Failure to understand or account for cost escalation and inflation

Failure to use the correct estimating technique

Failure to use forward pricing rates for overhead, general and

administrative, and indirect costs.

Unfortunately, many of these pitfalls do not become evident until

detected by the cost control system, well into the project.

Here are nine common pitfalls that can often negatively impact project

estimates:

1. Poorly defined scope of work. This can occur when the work is not

broken down far enough or individual elements of work are

misinterpreted.

2. Omissions. Simply put, you forget something.

3. Rampant optimism. This is the rose-colored glasses syndrome, when

the all-success scenario is used as the basis for the estimate.

4. Padding. This is when the estimator (in this case almost always the

task performer) includes a factor of safety without your knowledge, a

cushion that ensures that he or she will meet or beat the estimate.

5. Failure to assess risk and uncertainty. Neglecting or ignoring risk

and uncertainty can result in estimates that are unrealistic.

6. Time pressure. If someone comes up to you and says, “Give me a

ballpark figure by the end of the day” and “Don’t worry, I won’t hold

you to it,” look out! This almost always spells trouble.

7. The task performer and the estimator are at two different skill

levels. Since people work at different levels of efficiency, sometimes

affecting time and cost for a task significantly, try to take into

consideration who’s going to do the work.

8. External pressure. Many project managers are given specific targets

of cost, schedule, quality, or performance (and often more than one!).

If you’re asked to meet unrealistic targets, you may not be able to fight

it, but you should communicate what you believe is reasonably

achievable.

9. Failure to involve task performers. It’s ironic: an estimate

developed without involving the task performer could be quite

accurate, but that person may not feel compelled to meet the

estimate, since “it’s your number, not mine,” so the estimate may

appear wrong.

Q. 4 (b)

What are the different steps of pricing out the work? Also

discuss the special problems having severe impact on

pricing effort.

PRICING OUT THE WORK:

Logical pricing techniques are available in order to obtain detailed

estimates. The following thirteen steps provide a logical sequence in order to

better control the company's limited resources. These steps may vary from

company to company.

Step 1: Provide a complete definition of the work

Step 2: Establish a logic network with checkpoints.

Step 3: Develop the work breakdown structure.

Step 4: Price out the work breakdown structure.

Step 5: Review WBS costs with each functional manager.

Step 6: Decide on the basic course of action.

Step 7: Establish reasonable costs for each WBS element.

Step 8: Review the base case costs with upper-level management.

Step 9: Negotiate with functional managers for qualified personnel.

Step 10: Develop the linear responsibility chart.

Step 11: Develop the final detailed and PERT/CPM schedules.

Step 12: Establish pricing cost summary reports.

Step 13: Document the result in a program plan.

Although the pricing of a project is an iterative process, the project

manager must still burden himself at each iteration point by developing cost

summary reports so that key project decisions can be made during the

planning.

Detailed pricing summaries are needed at least twice: in preparation

for the pricing review meeting with management and at pricing termination.

At all other times it is possible that ''simple cosmetic surgery" can be

performed on previous cost summaries, such as perturbations in escalation

factors and procurement cost of raw materials.

The list identified below shows the typical pricing reports:

A detailed cost breakdown for each Work Breakdown

Structure (WBS) element. If the work is priced out at the task

level, then there should be a cost summary sheet for each task,

as well as rollup sheets for each project and the total program.

A total program manpower curve for each department.

These manpower curves show how each department has

contracted with the project office to supply functional resources.

If the departmental manpower curves contain several "peaks and

valleys," then the project manager may have to alter some of his

schedules to obtain some degree of manpower smoothing.

Functional managers always prefer manpower-smoothed

resource allocations.

A monthly equivalent manpower cost summary. This table

normally shows the fully burdened cost for the average

departmental employee carried out over the entire period of

project performance. If project costs have to be reduced, the

project manager performs a parametric study between this table

and the manpower curve tables.

A yearly cost distribution table. This table is broken down by

WBS element and shows the yearly (or quarterly) costs that will

be required. This table, in essence, is a project cash-flow

summary per activity.

A functional cost and hour summary. This table provides top

management with an overall description of how many hours and

dollars will be spent by each major functional unit, such as a

division. Top management would use this as part of the forward

planning process to make sure that there are sufficient resources

available for all projects. This also includes indirect hours and

dollars.

Monthly labor hour and dollar expenditure forecast. This

table can be combined with the yearly cost distribution, except

that it is broken down by month, not activity or department. In

addition, this table normally includes manpower termination

liability information for premature cancellation of the project by

outside customers.

A raw material and expenditure forecast. This shows the

cash flow for raw materials based on vendor lead times, payment

schedules, commitments, and termination liability.

Total program termination liability per month. This table

shows the customer the monthly costs for the entire program.

This is the customer's cash flow, not the contractor's. The

difference is that each monthly cost contains the termination

liability for man-hours and dollars, on labor and raw materials.

This table is actually the monthly costs attributed to premature

project termination.

It is important to note that these tables are used by both project managers

and upper-level executives. The project managers utilize these tables as the

basis for project cost control. Top-level management utilizes them for

selecting, approving, and prioritizing projects.

Special Problems Having Severe Impact on Pricing Effort

It is essential to note that there are always special problems that,

although often overlooked, have a severe impact on the pricing effort. As an

example, pricing must include an understanding of cost control— specifically,

how costs are billed back to the project. There are three possible situations:

1. Work is priced out at the department average, and all work

performed is charged to the project at the department average

salary, regardless of who accomplished the work. This technique is

obviously the easiest, but encourages project managers to fight for the

highest salary resources, since only average wages are billed to the project.

2. Work is priced out at the department average, but all work

performed is billed back to the project at the actual salary of those

employees who perform the work. This method can create a severe

headache for the project manager if he tries to use only the best employees

on his project. If these employees are earning substantially more money

than the department average, then a cost overrun will occur unless the

employees can perform the work in less time. Some companies are forced to

use this method by government agencies and have estimating problems

when the project that has to be priced out is of a short duration where only

the higher-salaried employees can be used. In such a situation it is common

to ''inflate" the direct labor hours to compensate for the added costs.

3. The work is priced out at the actual salary of those employees

who will perform the work and the cost is billed back the same way.

This method is the ideal situation as long as the people can be identified

during the pricing effort.

In this regard, some companies use a combination of all three methods. In

this case, the project office is priced out using the third method (because

these people are identified early), whereas the functional employees are

priced out using the first or second method.

Q. 5 (a)

Why effective management of a program requires a well

organized cost and control system?

COST MANAGEMENT AND CONTROL IN PROJECTS

Cost Management

It is widely used in business today and is the process whereby

companies use cost accounting to report or control various costs of doing

business. Cost Management generally describes approach and activities of

managers in short range and long range planning and cost decisions that

incorporate value for customer and lower costs of product and services.

Manager make decisions on amount and kind of material used,

changes of plant processes, changes in product designs and information

from accounting system helps managers make such decisions, but

information and accounting system not “cost management” project cost

management broad focus includes continuous control of costs. Planning and

cost is usually linked with revenue and profit planning.

Cost management involves overall planning, co-ordination, and

control and reporting of all cost-related aspects from “project initiation” to

“operation and maintenance”.

Process of identifying all costs associated with investment, making

informed choices about options that will deliver best “value for money” and

managing those costs throughout life of project. Techniques (value

management) help to improve value and reduce costs.

Cost Control:

Cost control is equally important to all companies, regardless of size.

Small companies generally have tighter monetary controls, mainly because

of the risk with the failure of as little as one project, but with less

sophisticated control techniques. Large companies may have the luxury to

spread project losses over several projects, whereas the small company may

have few projects.

Cost control is not only "monitoring" of costs and recording perhaps

massive quantities of data, but also analyzing of the data in order to take

corrective action before it is too late. Cost control should be performed by all

personnel who incur costs, not merely the project office. Cost control implies

good cost management, which must include:

Cost estimating

Cost accounting

Project cash flow

Company cash flow

Direct labor costing

Overhead rate costing

Others, such as incentives, penalties, and profit-sharing

Management Cost and Control System (MCCS):

Cost control is actually a subsystem of the Management Cost and

Control System (MCCS) rather than a complete system per se. The

Management Cost and Control System (MCCS) are represented as a two

cycle process: a planning cycle and an operating cycle. The operating cycle

is what is commonly referred to as the cost control system.

Failure of a cost control system to accurately describe the true status

of a project does not necessarily imply that the cost control system is at

fault. Any cost control system is only as good as the original plan against

which performance will be measured. It is more common for the plan to be at

fault than the control system.

Almost all project planning and control systems have identifiable

design requirements.

These include:

A common framework from which to integrate time, cost, and technical

performance

Ability to track progress of significant parameters

Quick response

Capability for end-value prediction

Accurate and appropriate data for decision making by each level of

management

Full exception reporting with problem analysis capability

Immediate quantitative evaluation of alternative solutions

Management Cost and Control System (MCCS) planning activities

include:

Contract receipt (if applicable)

Work authorization for project planning

Work breakdown structure (WBS)

Subdivided work description

Schedules

Planning charts

Budgets

Management Cost and Control System (MCCS) planning charts are

worksheets used to create the budget. These charts include planned labor in

hours and material dollars. Management Cost and Control System (MCCS)

planning is accomplished in one of these ways:

One level below the lowest level of the Work Breakdown Structure

(WBS)

At the lowest management level

By cost element or cost account

A well-disciplined Management Cost and Control System (MCCS) will

produce the following results:

Policies and procedures that will minimize the ability to distort

reporting

Strong management emphasis on meeting commitments

Weekly team meetings with a formalized agenda, action items, and

minutes.

Top-management periodic review of the technical and financial status

Simplified internal audit for checking compliance with procedures

Furthermore, for Management Cost and Control System (MCCS) to be

effective, both the scheduling and budgeting systems must be disciplines

and formal in order to prevent inadvertent or arbitrary budget or schedule

changes. This does not mean that the baseline budget and schedule, once

established, is static or inflexible. Rather, it means that changes must be

controlled and result only from deliberate management actions.

Disciplined use of Management Cost and Control System (MCCS) is

designed to put pressure on the project manager to perform exceptionally

good project planning so that changes will be minimized. As an example,

government subcontractors may not:

Make retroactive changes to budgets or costs for work that has been

completed.

Re-budget work-in-progress activities

Transfer work or budget independently of each other

Currently, two new programs are being used by the government and

industry in conjunction with the Management Cost and Control System

(MCCS) as an attempt to improve effectiveness in cost control. The zero-base

budgeting program was established to provide better estimating techniques

for the verification portion of control. The design-to-cost program assists the

decision-making part of the control process by identifying a decision-making

framework from which re-planning can take place.

Understanding Control:

Effective management of a program during the operating cycle

requires that a well-organized cost and control system be designed,

developed, and implemented so that immediate feedback can be obtained,

whereby the up-to-date usage or resources can be compared to target

objectives established during the planning cycle. The requirements for an

effective control system (for both cost and schedule/performance) should

include:

Thorough planning of the work to be performed to complete the project

Good estimating of time, labor, and costs

Clear communication of the scope of required tasks

A disciplined budget and authorization of expenditures

Timely accounting of physical progress and cost expenditures

Periodic re-estimation of time and cost to complete remaining work

Frequent, periodic comparison of actual progress and expenditures to

schedules and budgets, both at the time of comparison and at project

completion

It is essential that the management must compare the time, cost, and

performance of the program to the budgeted time, cost, and performance,

not independently but in an integrated manner. Being within one's budget at

the proper time serves no useful purpose if performance is only 75 percent.

Likewise, having a production line turn out exactly 200 items, when planned,

loses its significance if a 50 percent cost overrun is incurred.

All three resource parameters (time, cost, and performance) must be

analyzed as a group, or else we might ''win the battle but lose the war." The

use of the expression "management cost and control system" is vague in

that the implication is made that only costs are controlled. This is not true—

an effective control system monitors schedule and performance as well as

costs by setting budgets, measuring expenditures against budgets and

identifying variances, assuring that the expenditures are proper, and taking

corrective action when required.

The Work Breakdown Structure (WBS) as the element that acts as the

source from which all costs and controls must emanate. The Work

Breakdown Structure (WBS) is the total project broken down into

successively lower levels until the desired control levels are established. The

Work Breakdown Structure (WBS) therefore serves as the tool from which

performance can be subdivided into objectives and sub-objectives. As work

progresses, the

WBS provides the framework on which costs, time, and

schedule/performance can be compared against the budget for each level of

the WBS.

The first purpose of control therefore becomes a verification process

accomplished by the comparison of actual performance to date with the

predetermined plans and standards set forth in the planning phase. The

comparison serves to verify that:

The objectives have been successfully translated into

performance standards.

The performance standards are, in fact, a reliable representation

of program activities and events.

Meaningful budgets have been established such that actual

versus planned comparisons can be made.

In other words, the comparison verifies that the correct standards were

selected, and that they are properly used. The second purpose of control is

that of decision making. Three useful reports are required by management in

order to make effective and timely decisions:

The project plan, schedule, and budget prepared during the

planning phase.

A detailed comparison between resources expended to data and

those predetermined. This includes an estimate of the work

remaining and the impact on activity completion.

A projection of resources to be expended through program

completion.

Afterwards, these reports are then supplied to both the managers and the

doers. Three useful results arise through the use of these three reports,

generated during a thorough decision-making stage of control:

Feedback to management, the planners, and the doers.

Identification of any major deviations from the current program

plan, schedule, or budget.

The opportunity to initiate contingency planning early enough

that cost, performance, and time requirements can undergo

corrected action without loss of resources.

Q. 5 (b)

Write short notes on the following:

I. Variances analysis

II. Essentials of Material Accounting Criterion

VARIANCE

A variance is defined as any schedule, technical performance, or cost

deviation from a specific plan. Variances are used by all levels of

management to verify the budgeting system and the scheduling system. The

budgeting and scheduling system variance must be compared together

because:

The cost variance compares deviations only from the budget and

does not provide a measure of comparison between work

scheduled and work accomplished.

The scheduling variance provides a comparison between planned

and actual performance but does not include costs.

There are two primary methods of measurement:

Measurable efforts: Discrete increments of work with a

definable schedule for accomplishment, whose completion

produces tangible results.

Level of effort: Work that does not lend itself to subdivision into

discrete scheduled increments of work, such as project support

and project control.

Variances are used on both types of measurement:

In order to calculate variances we must define the three basic

variances for budgeting and actual costs for work scheduled and performed.

Archibald defines these variables:

Budgeted cost for work scheduled (BCWS) is the budgeted

amount of cost for work scheduled to be accomplished plus the

amount or level of effort or apportioned effort scheduled to be

accomplished in a given time period.

Budget cost for work performed (BCWP) is the budgeted amount

of cost for completed work, plus budgeted for level of effort or

apportioned effort activity completed within a given time period.

This is sometimes referred to as "earned value."

Actual cost for work performed (ACWP) is the amount reported as

actually expended in completing the work accomplished within a

given time period.

Variance Analysis

Variance means difference while analysis means breakdown. In Cost

or Management Accounting, variance would relate to difference between

Standard and Actual Costs. Analysis would break this difference into various

parts like quantity, price and capacity. Any wide variation would be

thoroughly investigated and persons responsible (purchase manager, human

resource manager, factory manager or marketing manager) would be asked

to explain. If it proved avoidable or controllable, someone would be

penalized or reprimanded else measures would be taken to avoid in future as

far as possible.

In short, variance analysis helps the management in decision-making. In

addition

1. It is used in cost-control,

2. Gives early warning for corrective action

3. Useful in accountability.

Understanding variance analysis

Many businesses, especially the small, entrepreneurial kind, ignore or

forget the other half of the budgeting. Budgets are too often proposed,

discussed, accepted, and forgotten. Variance analysis looks after-the-fact at

what caused a difference between plan vs. actual. Good management looks

at what that difference means to the business. Variance analysis ranges from

simple and straightforward to sophisticated and complex. Some cost-

accounting systems separate variances into many types and categories.

Sometimes a single result can be broken down into many different variances,

both positive and negative.

The most sophisticated systems separate unit and price factors on

materials, hours worked, cost-per-hour on direct labor, and fixed and

variable overhead variances. Though difficult, this kind of analysis can be

invaluable in a complex business.

The cost and schedule performance index is most often used for trend

analysis as shown in Figure. Companies use three-month, four-month, or six-

month moving averages to predict trends. The usefulness of trend analysis is

to take corrective action to alleviate unfavorable trends by having an early

warning system. Unfortunately, effective use of trend analysis may be

restricted to long-term projects because of the time needed to correct the

situation.

Figure: The performance index

Figure shows an integrated cost/schedule system. The figure identifies

a performance slippage to date. This might not be a bad situation if the costs

are proportionately under-run. However, from the upper portion of Figure, we

find that costs are overrun (in comparison to budget costs), thus adding to

the severity of the situation.

Figure: Integrated cost/schedule system

Also shown in Figure is the management reserve. This is identified as

the difference between the contracted cost for projected performance to

date and the budgeted cost. Management reserves are the contingency

funds established by the program manager to counteract unavoidable delays

that can affect the project’s critical path. For variance analysis, goal of cost

account Manager to take action that will correct problem within original

budget or justify a new estimation.

Five Questions must be addressed during variance analysis:

What is the problem causing the variance?

What is the impact on time, cost, and performance?

What is the impact on other efforts, if any?

What corrective action is planned or under way?

What are the expected results of the corrective action?

One of the key parameters used in variance analysis is the “earned

value” concept, which is the same as BCWP. Earned value is a forecasting

variable used to predict whether the project will finish over or under the

budget. As an example, on June 1, the budget showed that 800 hours should

have been expended for a given task. However, only 600 hours appeared on

the labor report. Therefore, the performance is (800/600) × 100, or 133

percent, and the task is under running in performance. If the actual hours

were 1,000, the performance would be 80 percent, and an overrun would be

occurring.

The difficulty in performing variance analysis is the calculation of

BCWP because one must predict the percent complete. To eliminate this

problem, many companies use standard dollar expenditures for the project,

regardless of percent complete. For example, we could say that 10 percent

of the costs are to be “booked” for each 10 percent of the time interval.

Another technique, and perhaps the most common, is the 50/50 rule:

50/50 rule

Half of the budget for each element is recorded at the time that the

work is scheduled to begin, and the other half at the time that the work is

scheduled to be completed. For a project with a large number of elements,

the amount of distortion from such a procedure is minimal. 50/50 rule

eliminate the necessity for the continuous determination of percent

complete.

Meaning of Compensation

Compensation management, also known as wage and salary

administration, remuneration management, or reward management, is

concerned with designing and implementing total compensation package.

The traditional concept of wage and salary administration emphasized on

only determination of wage and salary structures in organizational settings.

However, over the passage of time, many more forms of compensation as

discussed earlier, entered the business field which necessitated to take wage

and salary administration in comprehensive way with a suitable change in its

nomenclature.

Beach has defined wage and salary administration as follows:

"Wage and salary administration refers to the establishment and

implementation of sound policies and practices of employee compensation. It

includes such areas as job evolutional, surveys of wages and salaries,

analysis of relevant organizational problems, development and maintenance

of wage structure, establishing rules for administering wages. Wage

payments, incentives, profit sharing, wage changes and adjustments,

supplementary payments, control of compensation costs and other related

items"

Compensation committee

A committee of the board of directors responsible for reviewing and

setting the compensation of certain executive officers of the company. The

compensation committee may also be responsible for the allocation of stock

options to employees.

A committee of the board of directors responsible for reviewing and

setting the compensation of certain executive officers of the company. The

compensation committee may also be responsible for the allocation of stock

options to employees.