Mbad 782 Project Management Notes

8/3/2019 Mbad 782 Project Management Notes

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MBAD 782: Project Management By Nyaoga B. Richard 0721 464 673 Sept 2011

PROJECT MANAGEMENTINTRODUCTION

All of us have been involved in projects, whether personal projects or in business and industry.Examples of typical projects are for example:

Personal projects (obtain a degree, diploma, write a report, plan a wedding, plant a

garden, build a house extension)

Industrial projects (construct a building, provide a gas supply to an industrial estate,

build a motorway, design a new car)

Business projects (develop a new course, develop a new course, develop a computer

system, introduce a new product, prepare an annual report, set up a new office)

Projects can be of any size and duration. They can be simple, like planning a party, or complex

like launching a space shuttle.

Generally projects are made up of:

a defined beginning,

multiple activities which are performed to a plan,

a defined end.

Therefore a project may be defined as a means of moving from a problem to a solution via a

series of planned activities.

A project is a means of moving from a problem to a solution via a series of planned

activities.

A project has a definite beginning and end.

Projects consist of several activities.

Two essential features are present in every project no matter how simple or complicated they

are. In the first place, all projects must be plannedout in advance if they are to be successfully

executed. Secondly, the execution of the project must be controlledto ensure that the desired

results are achieved.

On most projects it is possible to carry out multiple activities simultaneously. Usually it is

possible to perform several activities at the same time; however there will be activities which

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cannot begin until a preceding activity has been completed. Such relationships are referred to

as dependencies or precedences, and when planning a project it is important to establish the

order of precedence of dependent activities, and to establish those activities which can beperformed in parallel with other activities.

Regardless of the nature or size of your project a successful outcome can only be achieved

by using sound projectmanagement techniques. The most widely used and popular methods

of project management are Gantt Charts, Critical Path Method (CPM) and Programme

Evaluation and Review Technique (PERT). However, it is important to remember that projects

are carried out by people, and the human aspects ofprojectmanagement are critical for the

project success.

Definition 1

A project is a set of activities which should be undertaken in a logical sequence for the propose

of attaining some specified objectives within a given time period, budget and at a given quality

specification

Definition 2

A project is a temporary endeavor undertaken to provide or to produce a unique service or

product.

Temporary means it has a specified beginning and time to end.

Unique means no two projects are the same, they differ from one another unlike

operations.

Examples of projects include: - Construction activities, roads, bridges, houses: Research and

development activities: Campaigns, political, diseases, promotions, marketing: Information

System Developments, Launching of new fields, undertaking a Degree course etc.

Definition 3

A project is an interrelated set of activities that has a definite starting and ending point andresults in the accomplishment of a unique, often major outcome.

"Project management" is, therefore, the planning and control of events that, together,comprise the project.

Projectmanagement aims to ensure the effective use of resources and delivery of the project

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objectives on time and within cost constraints.

An activity or task is the smallest unit of work effort within the project and consumesresources which are both financial and non-financial and which are under the control of the

project manager.

A project is a sequence of activities that has a definite start and finish, an identifiable goal andan integrated system of complex but interdependent relationships.

Aschedule allocates resources to accomplish the activities within a timeframe. The schedulesets priorities, start times and finish times.

Project managementis: the adept use of techniques and skills (hard and soft) in planning andcontrolling tasks and resources needed for the project, from both inside and outside of theorganization to achieve results.

The purpose of project management is to achieve successful project completion with the

resources available. A successful project is one which: has been finished on time

is within its cost budget

Performs to a technical/performance standard which satisfies the end user.In recent years more and more activities have been tackled on a project basis. Project teamsand a project management approach have become common in most organizations. The basicapproaches to project management remain the same regardless of the type of project beingconsidered.

Examples of Projects

1. Engineering and constructionThe projects are concerned with producing a clear physical output, such as roads, bridges or buildings. The requirements of a project team are well defined in terms of skills and background, as are the main procedures that have to be undergone. Most of the problemswhich may confront the project team are likely to have occurred before and therefore theirsolution may be based upon past experiences.

2. Introduction of new systems

These projects would include computerization projects and the introduction of new systemsand procedures including financial systems. The nature and constitution of a project team mayvary with the subject of the project, as different skills may be required and different end-users

may be involved. Major projects involving a systems analysis approach may incorporateclearly defined procedures within an organization.

3. Responding to deadlines and changeAn example of responding to a deadline is the preparation of an annual report by a specifieddate. An increasing number of projects are concerned with designing organizational orenvironmental changes, involving developing new products and services.

Some of the characteristics of a project include:-

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1. Specific Objectives: The three generic objectives of a project area) Time-determined by the schedule of activitiesb) Cost-determined by the budget

c) Quality-determined by the specification of customersProjects should meet the requirements/specifications of the stakeholders. Stakeholdersinclude:-beneficiaries, financiers, implementers, victims of the project. (For exampleTitanium in Kwale- if mining activities has to displace some people)

2. Limited Life Span i.e. it is temporal3. Single Entity i.e. it is a stand alone. It comes up to specific product.4. Relies on Teamwork: Implemented by teams5. Follows a Specific Life Cycle

6. Unique i.e. no two projects are the same. Even when undertaking a similar project, theachieve project provides a template.7. Keep Changing i.e. projects keep changing depending on circumstances. Thus they

must be adaptable.8. Projects Are Made To Order: Unlike operations where one produces and then look 4customers.9. Have High Level of Risk and Uncertainty

What is Program Management?

A program consists of a related group of projects. Program management is the process of

managing multiple on-going projects. An example would be that of designing, manufacturing

and providing support infrastructure for an automobile make. Program management involves

centrally managing and coordinating groups of related projects to meet the objectives of the

program. In some cases Project Management is a subset of Program Management. The project

manager may report to the program manager in such cases. A portfolio consists of multiple

programs.

Roles and Responsibilities of the Project Manager

The following make the roles and responsibilities of a project manager:1. To plan thoroughly all aspects of the project, soliciting the active involvement of allfunctional areas involved, in order to obtain and maintain a realistic plan that satisfies theircommitment for performance.

2. To control the organizations manpower needed by the project.3. To control the basic technical definition of the project, ensuring that "technical" versus"cost" trade-offs determine the specific areas where optimization is necessary.4. To lead the people and organizations assigned to the project at any given point in time.Strong positive leadership must be exercised in order to keep the many separate elementsmoving in the same direction in a co-operative way.5. To monitor performance, costs and efficiency of all elements of the project and the project as a whole, exercising judgment and leadership in determining the causes of

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problems and facilitating solutions.6. To complete the project on schedule and within costs, these being the overall standardby which performance of the project manager is evaluated.

7. Responsible for defining and maintaining the integrity of a project.8. Develops the execution plan and organizes for its execution.9. Involved in negotiation for commitments with the various stakeholders. E.g. teams andconditions of grants, employees Contracts,10. He is the director/coordinator and controller of project activities.11. He manages resources used in the project including equipment, finances and humanresources.12. Responsible for satisfying a customers needs, for instance the government, public etc.13. Responsible for problem solving and conflict resolution.

Difference between Project Management and General Management

1. Project Management involves a temporal undertaking while General Management is

a going concern.

2. In general Management, budgeting is done periodically while in Project

Management budgeting is done for the whole project.

3. General management tends to be specialized e.g. Finance, Operations, Marketing,

Accounting etc while Project Management requires a multiplicity of skills.

4. The environment of General Management usually tends to be stable while Project

Managements environment tends to be dynamic- uncertainties and risks are many.

5. The General Management tends to rely on positional authority- main source of

authority while Project Management tends to rely on other sources of influence such as

technical expertise, ability to negotiate with various stakeholders. Project Management will

involve all functions of Management i.e. POSDCORB.

PROJECT PARAMETERS

These are the key issues in Project Management. They include:

A. Quality of the Project.These are the specifications of the project deliverables. The quality of the project should be

agreed upon by the client and the project team. At the end this, it has to be evaluated for

achievement.

B. Cost

These are the budgetary provisions for projects. This has to be ascertained before the start of

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the project. At the end we may experience cost overruns which may be as a result of:

Poor budgetary estimates

Probably there are extra-ordinary occurrences like inflation, bad political climate etc.

When these happens, two things will happen

Need to look for additional funds

The project stalls.

A cost under-run is a result of

Overprovision of the cost of the project provided

Gains in foreign exchange

C. Time

There should be a project schedule to guide the implementation. Promised delivery time has to

be achieved. This may not be achieved due to:

Time over-run which is as a result of poor management skills for the project

Extra-ordinary occurrences like bad weather, developments in regulatory environment

e.g. KRA IT based clearing system.

Ways of dealing with time over-runs include: project crashing, penalties, bonuses, etc.

Project Management Skills:

Many of the tools and techniques for managing projects are specific to project management.

However, effective project management requires that the project management team acquire the

following three dimensions of project management competencies:

Project Management Knowledge Competency: This refers to what the project

management team knows about project management.

Project Management Performance Competency: This refers to what the project

management team is able to do or accomplish while applying their project management

knowledge.

Personal Competency: This refers to how the project management team behaves when

performing the project or activity.

Interpersonal Skills Management:

The management of interpersonal relationships includes:

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Effective communication: The exchange of information

Influencing the organization: The ability to "get things done"

Leadership: Developing a vision and strategy, and motivating people to achieve thatvision and strategy

Motivation: Energizing people to achieve high levels of performance and to overcome

barriers to change

Negotiation and conflict management: Conferring with others to come to terms with them

or to reach an agreement

Decision Making: Ability to take decision independently.

Political and cultural awareness: Important to handle various personal and professional

issues.

Team Building: Ability to create a productive team.

Ten Commandments of Project Management

i. Set a clear project goal. (Covey: Begin with the end in mind.)

ii. Determine the project objectives. (Sub-units or Sub-goals)

iii. Establish checkpoints (milestones), activities, relationships (how tasks are interrelated),

and time estimates.

iv. Draw a picture of the project schedule (MS Project).

v. Direct people individually and as a project team.

vi. Reinforce commitment (walk the talk) and excitement of the project team.

vii. Keep everyone connected with the project informed.

viii. Build agreements that vitalize (win/win) team members.

ix. Empower yourself and others of the project team.

x. Encourage risk taking and creativity but manage it closely.

PROJECT LIFE CYCLE.

This consists of sequential phases through which projects undergo. The phases are important in

planning a project since they provide a framework for budgeting, manpower, resource

allocation, scheduling project milestones, project reviews etc. All projects go through the

following stages whether big or small

Project idea Identification Preparation

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(Conception)

Terminal Appraisal

Evaluation

Selection

Ongoing

Evaluation

Negotiation & Financing

Participatory Implementation Planning for Implementation

Reporting

a) Project idea /conception

An idea regarding intervention in a specific area to address and identify a problem is developed

or formed. Sources of ideas include

Market demand where one may be facing increasing demand thus becoming a problem

Technological changes- this forces an organization to change in order to make use of

the new technology e.g. utilization of internet, mobile telephony

Natural calamities like fire, floods, landslides, drought etc.

Resource availability- makes use of the available resources e.g. waste products in a

manufacturing plant to generate by-products.

Political considerations

Need to avail basic requirements or necessities to a community

b) Project Identification

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After conception of ideas, Potential projects arising from the ideas crystallised above are

identified. The information may be captured in the form of a proposal or proposals and

submitted to an agent or agency for consideration and objective judgement to assess thepotential and justification for the intervention before the idea goes to the next stage in the

cycle.

c) Project Preparation

Involves a more thorough and detailed collection of data and information on the proposed

project. This is normally done by people with technical and analytical skills in consultation

with the target beneficially. The objective of the project is defined and alternative solutions

described. Its usually conducted by people with technical and analytical skills in order to

determine whether the project can be achieved and to establish whether the project is feasible.

Feasibility involves viability of the project i.e. costs of the project and benefits of the project.

This include

Financial feasibility

Economic feasibility

Technical feasibility

Environment feasibility

Market feasibility

Legal feasibility & Social feasibility

Reasons

Projects may be made on the scope, location and size of the project based on the analyzed of he

data collected

In big projects, careful preparation including feasibility analysis may take upto 10% of the total

cost of the project.

Do all projects (whether government or public) go through feasibility studies? Yes e.g. Eldoret

Airport, Kenya Nyayo car, Kabarak Airport, white Elephants projects.

d) Project appraisal

This involves further comprehensive and systematic analysis of the proposed projects by an

independent team of experts in consultation with the stakeholders of the project, so as to assess

whether the proposal is justified before large amounts of money are committed. The effects of

the project on the organization and society are investigated and documented. On the basis of

appraisal a decision is made on whether to go ahead with the project or not where a critical a

view is done by a team of independent experts who are not involved in feasibility studies done

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earlier. This provides an opportunity to reexamine every aspect of the project before funds

raised are committed.

e) Project selection

From appraisal, several projects may be found to be beneficial. However not all viable projects

can be implemented. We therefore need to choose one or a few based on available resources

and the priorities of the shareholders. Where all projects are viable we may also need to

prioritise them in order of possible implementation. This is due to scarcity of resources for

project implementation

f) Negotiation and Financing

Once the project to be implemented is selected and agreed upon, the next step is to negotiate

for funding and other related aspects e.g. conditions for grants, repayment period, interest rates,

graze period, flow of funds, contributions from stakeholders etc. This culminates into a binding

document for all concerned.

g) Planning for implementation

This is done before final implementation of project. This stage involves all stakeholders

including implementers, beneficiaries, funding agency. It enables the Project Manager to

address issues like the project objectives, scope of the project, financial arrangements,

implementation schedules, project environment, likelihood of changes to design, monitoring

and evaluation plans etc. It enables definition of objectives, outputs, inputs, activities that will

go into the project, the indicators, means of verification and assumptions of the project. The

most important outcomes of such planning include time schedules. Budget committed for

various activities and quality plans. It is also important to come up with project log frames

(logical formulae) i.e. PPM (project planning matrix) especially for developmental project.

h) Project Implementation

It is the most crucial stage for most projects since project activities are carried out at this stage.

Many projects that fail normally do so at this stage. Monitoring of progress and reporting are

crucial. Implementation is considered to be a mini-cycle within the project life cycle. It has

three phases: Investment, development, and the full development phase. It goes through three

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development phases

i. Investment period

It can take 1-3 years depending on the project. The major investment like buying of capitalitems, warehouses etc of the project undertaken.

ii. Development period

This occurs when production builds up and the actual activities are being done.

iii. Full development period

This is reached when production picks up and continues until the project ends.

Fulldevelopment

Development

Investment

i) Monitoring and Reporting)

This is an on-going activity during implementation. Monitoring is the collection of data on

project implementation. The aim is to ensure that the activities go on according to plan. Any

problems can be easily detected and corrective action taken. It can be done by beneficiaries,

implementing staff, supervisory staff and PM team. Communication channels should be clear

and easy to allow transparency and accountability of those involved.

j) Evaluation

It involves a systematic review or examination of the element of success and failure in projects.

The information collected from monitoring is the main input into evaluation.

Is conducted at three stages:-

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Ex-Ante evaluation-done before implementation is done e.g. skills, resources required

Concurrent/ongoing Evaluation-done during process of implementation

Ex-Post Evaluation-done at the end of the implementation i.e. what has been achieved?

What is not achieved? Why we didnt achieve.

Reasons for failure of projects (e.g. government)

What is project failure?

This is a project which does not meet any of the following

Cost estimates

Time estimates

Quality specifications

Acceptance from stakeholders

The following are some of the reasons why projects fail

i. Insufficient resources

ii. Poor implementation

iii. Corruption

iv. Dependency on donor funding

v. Natural calamities

vi. Macroeconomic factors

vii. Poor selection criteria

viii. Deliberate sabotage- either

through political interference

ix. Changes in environment

x. Poor feasibility studies

xi. Lack of monitoring

There can be many other reasons why projects go wrong. The most common reasons are asfollows:

i. Project goals are not clearly definedii. There can be constraints on the completion of projects arising from the different

objectives of: Short time scale; Resource availability; Quality factors; Human factors

There are perhaps two stages which can help in ensuring that goals are properly defined andachievable:

1. Ensuring that the client specification is clear and understandable. To do this you

must first of all establish the objectives of the project. It would help to ask the

following questions:

What is it that the organization is setting out to achieve or is being asked to

achieve?

Will the suggested project fulfill these objectives?

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Have all the alternatives been considered and is the chosen option the best one

available?

Have the full effects of the project, both inside and outside the organization, beenconsidered?

2. Preparation of Project overviews (Project brief). The brief should take the

objectives set out in the previous exercise and translate them into targets and

goals. Any key constraints should also be identified and stated at this stage.

This brief should be agreed by the sponsor/client and communicated to the

project manager. Any ambiguities or queries should be sorted out as soon as

possible.

Constraints on the Completion of Projects

1. Time

Our definition of a project stated that it was an activity which had a defined beginning and

ending point. Most projects will be close-ended in terms of there being a requirement for

completion by a certain point in time. This point may be the result of an external factor such as

new legislation, or may be derived from organizational requirements. It may also be partly

determined by other constraints. There is likely to be some relationship between the time taken

for a project and its cost. A trade-off between the two constraining factors may then be

necessary.

2. Resource Availability

There is likely to be a budget for the project and this will clearly be a major constraint. Cost

constraints may be set in a number of ways, for example as an overall cash limit or as

a detailed budget broken down over a number of expenditure headings. Labour resources in

particular may be a limiting factor on the completion of the project. In the short run it is likely

that labour will be fixed in supply. Whilst the overall resource available may in theory be

sufficient to complete the project, there may be difficulties arising out of the way in which the

project has been scheduled. That is, there may be a number of activities scheduled to take

place at the same time and this may not be possible given the amount of resources available.

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3. Quality factors

You need to ask yourself whether the project delivers the goods of the right quality. There are

techniques which can be used to overcome the problems referred to above. These include: Budgeting and the corresponding control of the project budget through budgetary

control procedures.

Project planning and control techniques such as Gantt charts and network analysis.

An important point to note at this stage is how the various constraints on project completion

are likely to be interlinked with each other. For example, problems with time constraints or

resource constraints may be overcome by spending more through working overtime,

employing more people or purchasing better machines. Budget problems may have a knock-on

effect on the achievement of deadlines.

It is important to remember that while project management techniques are important, they tend

to understate the importance of the key resource: people. In a fact changing environment

where tasks are often difficult, controversial with uncertain outcomes, "people management"

skills are called for.

NB/Summary:A project should possess identifiable goals and a definite starting and finishing

point. Project goals must be defined clearly. A useful checklist can be developed in relation to

success criteria. Criteria may be hard and concerned with what the project should achieve, or

soft when they will cover how the project should proceed. The major constraints on the

completion of projects are Time, Resource Availability and the need to achieve the required

standard of performance for the project.

CHARACTERISTICS OF SUCCESSFUL TEAMS

These ten main characteristics of successful project teams are:

Clearly defined goals

Clearly defined roles

Open and clear communication

Effective decision making

Balanced participation

Valued diversity

Managed conflict

Positive atmosphere

Cooperative relationships

Participative leadership

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Clearly defined goals

Clearly defined goals are essential so that everyone understands the purpose and vision of the

team. Its surprising to learn sometimes how many people do not know the reason they aredoing the tasks that make up their jobs, much less what their team is doing. Everyone must be

pulling in the same direction and be aware of the end goals.

Clear goals help team members understand where the team is going. Clear goals help a team

know when it has been successful by defining exactly what the team is doing and what it wants

to accomplish. This makes it easier for members to work together and more likely to be

successful. Clear goals create ownership. Team members are more likely to own goals and

work toward them if they have been involved in establishing them as a team. In addition, the

ownership is longer lasting if members perceive that other team members support the same

efforts.

Clear goals foster team unity, whereas unclear goals foster confusion or sometimes

individualism. For example If team members dont agree on the meaning of the team goals,

they will work alone to accomplish their individual interpretations of the goals. They may also

protect their own goals, even at the expense of the team.

Clearly defined roles

If a teams roles are clearly defined, all team members know what their jobs are, but defining

roles goes beyond that. It means that we recognize individuals talent and tap into the expertise

of each member both job-related and innate skills each person brings to the team, such as

organization, creative, or team-building skills. Clearly defined roles help team members

understand why they are on a team. When the members experience conflict, it may be related

to their roles. Team members often can manage this conflict by identifying, clarifying, and

agreeing on their individual responsibilities so that they all gain a clear understanding of how

they will accomplish the teams goals.

Once team members are comfortable with their primary roles on the team, they can identify the

roles they play during team meetings. There are two kinds of roles that are essential in team

meetings.

Open and clear communication

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The importance of open and clear communication cannot be stressed enough. This is probably

the most important characteristic for high-performance teams. Many different problems that

arise on projects can often be can be traced back to poor communication or lack ofcommunication skills, such as listening well or providing constructive feedback.

Enough books have been written about communication to fill a library. And Ive personally

written several articles on this subject alone for this site over the past few months. Excellent

communication is the key to keeping a team informed, focused, and moving forward. Team

members must feel free to express their thoughts and opinions at any time. Yet, even as they

are expressing themselves, they must make certain they are doing so in a clear and concise

manner.Unfortunately, most of us are not very good listeners. Most of us could improve our

communication if we just started to listen betterto listen with an open mind, to hear the entire

message before forming conclusions, and to work toward mutual understanding with the

speaker. We allow distractions to prevent us from giving our full attention to the speaker. We

allow our minds to wander instead of focusing on the speaker. We allow our biases and

prejudices to form the basis for our understanding. Instead, we should allow the new

information we are hearing to form the basis for our understanding. Many benefits exist for

working toward improving communication for your team. Consider these.

Open communication encourages team members to express their points of view and to offer

all the information they can to make the team more effective.

Clear communication ensures that team messages are understood by speakers and listeners.

Two-way communication increases the likelihood that all team members hear the same

message.

Good listening skills ensure that both the speakers content (words) and the intent are heard.

Attention to nonverbal communication helps further identify feelings and hidden messages

that may get in the way of teamwork.

If team members attend to no other high-performing team characteristic, working to improve

their communication with other team members will increase trust, decrease problems and

rework, and build healthy interpersonal relationships. Invest in improved communication the

payback can be enormous.

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Effective decision making

Decision making is effective when the team is aware of and uses many methods to arrive at

decisions. Consensus is often touted as the best way to make decisionsand it is an excellentmethod and probably not used often enough. But the team should also use majority rule, expert

decision, authority rule with discussion, and other methods. The team members should discuss

the method they want to use and should use tools to assist them, such as force-field analysis,

pair-wise ranking matrices, or some of the multi-voting techniques.

Effective decision making is essential to a teams progress; ideally, teams that are asked to

solve problems should also have the power and authority to implement solutions. They must

have a grasp of various decision-making methods, their advantages and disadvantages, and

when and how to use each. Teams that choose the right decision-making methods at the right

time will not only save time, but they will also most often make the best decisions. This

completes the four basic foundation characteristics: clear goals, defined roles, open and clear

communication, and effective decision making. The next three blocks in the model build on

their foundation.

Balanced participation

If communication is the most important team characteristic, participation is the second most

important. Without participation, you dont have a team; you have a group of bodies. Balanced

participation ensures that everyone on the team is fully involved. It does not mean that if you

have five people each is speaking 20 percent of the time. Talking is not necessarily a measure

of participation. We all know people who talk a lot and say nothing. It does mean that each

individual is contributing when its appropriate. The more a team involves all of its members in

its activities, the more likely that team is to experience a high level of commitment and

synergy.

Balanced participation means that each team member joins the discussion when his or her

contribution is pertinent to the team assignment. It also means that everyones opinions are

sought and valued by others on the team. Participation is everyones responsibility. As a team

moves from a forming stage to more mature stages of group development, team members must

make certain that everyone is an active participant. If you have team members who did not

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participate early in the formation of the team, they will withdraw even more as the going

becomes more difficult. To achieve the best participation, a team might start by asking some of

these questions: Did everyone on the team give his or her point of view when we established the ground

rules?

Did everyone have input into our goals?

When we solve problems, do we make sure everyone has spoken before we decide?

Do we consistently ask the shy members of our team what we think?

Do we seek opposing points of view?

Do we ask all team members what they want?

Two important things influence team participation: the leaders behaviour and the participants

expectations.

Leaders behaviour

A leaders behaviour comes as much from attitude as from anything. Leaders who are effective

in obtaining participation see their roles as being a coach and mentor, not the expert in the

situation. Leaders will get more participation from team members if they can admit to needing

help, not power. Leaders should also specify the kind of participation they want right from the

start. Will everyone share their own ideas and then decide what to do or will the group discuss

the pros and cons of the leaders idea? If everyone knows the answer, then there are no

lingering questions.

Leaders need to create a participative climate. They must make it a practice to speak last to

avoid influencing others. Often a leader may put an idea on the table just to get things

started. But what happens? Everyone jumps on the idea and stops thinking. People may feel,

Well, if thats what she wants, thats it.

Leaders need to reward risk taking. Those half-baked partial ideas that people bring up may

be just what gets the team moving toward a solution, idea, or new opportunity. Leaders must

always protect the minority views. Anyone can think like everyone else. It takes courage to

think and speak differently.

Leaders need input from everyone, but usually some team members have been selected for

their expertise and experience. To ask for input, the leader must recognize those people for

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their expertise and/or experience, direct questions to them, and lead the discussion that results

so that everyone is included. Thats what participation is all about.

Participants expectationsParticipants must volunteer information willingly rather than force someone to drag it out of

them. They should encourage others participation as well by asking question of others,

especially those who have been quiet for a while. Participants can assist the leader by

suggesting techniques that encourage everyone to speak, for example, a round robin. To

conduct a round robin, someone directs all members to state their opinions or ideas about the

topic under discussion. Members go around the group, in order, and one person at a time says

whats on his or her mind. During this time, no one else in the group can disagree, ask

questions, or discuss how the idea might work or not work, be good or not good.

Only after everyone has had an opportunity to hear others and to be heard him- or herself, a

discussion occurs. This discussion may focus on pros and cons, on clarifying, on similarities

and differences, or on trying to reach consensus. Participants can also encourage participation

by establishing relationships with other team members between meetings. Another thing they

can do is to call people by name. We all like to hear our names used by othersespecially in

positive ways! Remember that each and every member of a team has responsibility not only to

participate, but also to ensure that everyone else is given the opportunity to participate.

Why Project Communication?

Constant, effective communication among all project stakeholders ranks high among the

factors leading to the success of a project. It is a key prerequisite of getting the right things

done in the right way. As knowledge is power, sharing knowledge is empowering every project

stakeholder.

Communication Plan

A project communication plan is the written strategy for getting the right information to the

right project stakeholders at the right time. Each stakeholder has different requirements for

information as they participate in the project in different ways.

Making Information Timely

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For information to be used, it has to be delivered to its target users timely. As a project

manager, while developing your communication plan, you need to decide how often to contact

each stakeholder and with what information.Communicating within the Team

Internal communication within the project teams is to meet their four major communication

needs

1. Responsibility of each team member for different parts of the project

2. Coordination information that enables team members to work together efficiently

3. Status information tracking the progress, identifying problems and enabling team members

to take corrective action

4. Authorization information - decisions made by customers, sponsors, and upper

management - that relates to the project and its business environment, and enables the team

members to keep all project decisions synchronized.

Internal communications happen primarily through team meetings, memos, voice mail, and e-

mail. Project managers need to be able to write, speak, and listen well, lead meeting and

resolve conflicts effectively

FEASIBILITY ANALYSIS (FA)

Definitions:-

Feasibility is the measure of how beneficial the development/ project will be to the wishes of

the society or the workability of a project. Feasibility analysis is the process by which the

feasibility is measured.

It is looked at in 2 ways:-

Whether the organization is be able to implement it i.e. technical ability etc

Whether the project justifies the investment i.e. benefits and costs

Feasibility is part of the process of identification, preparation and selection. The purpose of theFeasibility Analysis is to establish whether the proposed project is attractive enough to justify a

more detailed preparation of the project. After classifying the nature of the project and defining

goals and objectives the next step is to conduct feasibility studies for each of the alternative

project identified.

The basic questions to asked are:-

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Is the project feasible?

How feasible is the alternatives under consideration?

The aim of the FA is to carry out a preliminary investigation which should help to determine

whether the project should proceed further and how it should proceed. The relevance of this

approach will vary with the nature of the project itself. The more concrete the project is, the

more likely that these will be established produces in relation to feasibility.

However despite of these benefits of FA, not all projects go through FA. Even those that must

undergo FA, they may not all require detailed FA. These will be dictated by the nature of the

project.

Projects that may not undergo Feasibility Analysis include:

1. The sacred cow project

This is one that is started by powerful individuals in organization or government. These types

of projects are started to satisfy the agenda of the powerful persons behind them. In many

developing countries there are many projects proposed by rich peoples, and even where F.A are

conducted, results may be ignored.

2. The operating Necessity projects

They are those that are required to keep a system in operation e.g. those projects that are meant

to prevent catastrophe or those required to respond to emergencies e.g. projects to respond to

floods, risk (millennium bug)

3. Competitive Necessity projects

These projects are conducted in order to maintain a competitive edge over other organizatione.g. in response to a competitors actions. They are considered to be of survival importance.

And careful analysis may not be carried out e.g.: New look channel for KBC channel 1 News,

East Africa Breweries Limited in response to castle Beer.

4. Product line Extension

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These projects are intended to develop and distribute products that can be said to be related to

existing products. Such projects are carried out e.g. toothpastes, Ribena apple.

5. Comparative Benefit Model

This is where projects are carried based on some criteria e.g. where projects are ranked as

good, fair, poor), rank order or through peer review.

This is how some projects may be undertaken only to discover that they are not viable.

However, not every project idea needs to go through FA. It is only those with promising

potential that may be allocated resources for feasibility analysis. These projects may be

identified through preliminary screening and pre-feasibility analysis

STAGES OF FEASIBILITY ANALYSIS

1. Preliminary screening

It examines the new projects ideas in relation to key factors. Key factors determine whether the

project is workable e.g. of key factors are availability of raw materials, infrastructure, skilled

labour etc

2. Pre-feasibility analysis

Look at the basic criteria for those projects that have passed step 1 the purpose is to determine

the sustainability of the project i.e. how successful it will be.

Qualifying projects are ranked and then evaluated subjectively in relation to a few basic

criteria:-

Availability of adequate machinery

Project growth potential

Magnitude of investment/investment costs

Operation and distribution cost

Demand and supply factors

Social and environmental considerations

Also look at legal viability i.e. not illegal

3. Actual feasibility analysis /study

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We conduct a detailed study that culminates in a feasibility report that will be used by the

decision makers for project appraisal. It involves collection and analysis of data in the field. It

may build on the project plan and beings in any new assumption and questions.

A complete FA of a project needs to cover 7 important study areas

Technical feasibility: includes man power and technological requirements.

Economic justification: such as the costs and benefits

Administrative/managerial, including external linkages and internal organization

Environmental, including present baseline data and the impact of those data

Social and political including demographic data and social needs

Financial for funding needs and sources

Market needs

Importance of FA

a) It provides information in the preliminary design projects.

b) Feasibility and appraisal help to guide the implementation of the project. They point out

potential trouble spots, and help make contingency plans

c) By examining projects, it include criteria and baseline measure to evaluate the project,

providing the peacemaker both for monitoring and the project driving implementation and

for evaluating its overall success and completion

TYPES OF FEASIBILITY STUDIES

1. Technical feasibility

This looks at technical and physical parameters of the project. It addresses 3 interrelated

questions

Is there adequate choice of available technology for alternative design proposes,

considering the physical layout, engineering design and availability of raw materials? Howwide a choice do we have?

What are the costs of constructing and operating project facilities (and services)

including machinery, equipments and space parts?

What are the manpower requirements, from professional to labour, and are they locally

available?

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2. Economic Feasibility

It examines a proposed project in terms of its net contribution to the economy and to the

society. It answers question like:- Will the projects planned economic outputs adequately serve the intended propose?

Is the project responsive to an agent present or anticipated economic or social need?

Will the service proposed to be performed by the project be adequate and will the

benefits justify the costs?

It is especially important for public projects e.g. roads construction, bridges, fewer

supply, water, and health.

It looks at variables like:-

a) Demand and supply of all projects outputs

b) Projects ability to increase employment with multiplier effects on increased purchases

of goods and services

Its effect on increasing public sector revenue its use of locally available resources in cooperate

projects, the owners will be interested in the financial return of the project. Upon completion it

is possible to asses the net contribution to the economic and social welfare of the community. It

is done via a comparison of the social and economic benefits against the costs of constructionand operation of the project. Cost-benefit analysis is normally done for each technical

alternative. There is therefore need to approximate the costs and benefits expected from the

projects for each of the projects years. Costs include capital expenditure, labour, materials,

equipment, quality control, maintenance, vehicle operation etc.

Benefits include serving in transport costs, people, labour, stimulation of new economic

growth, new industries, how housing, and shopping facilities, reductions in accidents, and other

tangible and intangible benefits quantified to the extent possible. Include quantifiable and nonquantifiable costs and benefits. How do we quantify reductions in accidents, people?

3. Administrative/ managerial Feasibility

This is also known as original feasibility. Look at the structures of the firm implementing the

project. It may not lead to disqualification of project but comes up with ways of improving the

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project.

Evaluate the strategy of the implementing agency in carrying out projects characteristics.

Although it is meant to assess f. of this strategy, it should concentrate on providing information

and guidelines that can be used to improve overall project administration.

External linkages, internal original, personnel and management plan:-

External linkages

Structure of government and private organization will directly or indirectly affect the projects,

environment. The administration funding agency, the regulating agency and the human

advisory organization that provide political, technical and other types of rapport as seen on

construction sites.Internal organizations

Internal organization is the actual of he implementation unit. The study should determine

whether the proposed organization can implement the project satisfactorily issues include:-

Is it comprehensive enough?

Is it appropriate for carrying out project goals?

Is it flexible enough?

Is internal communication well established and are lines of authority clearly defined?

Management

Its the specified management plan of the project. Issues include:-

Are schedules and networks sufficiently worked out? What are the control techniques and

methods of supervision? Is the entire management plan integrated so that the project

management can control all aspects of the project? Is the management of the project

formulated well enough to ensure that the project will be well coordinated and controlled?

Does the plan provide for contingencies?

Personnel

Its the key issue in administration feasibility. It looks at competency and appropriateness of

personnel. Then the impact on every area of a project made by the choice of foreign or local

personnel-not only in a duration and implementation but also in preliminary design, technical

analysis and general consulting should be examined. The analysis should question whether

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there is adequate provision for hiring expert.

4. Environmental Feasibility

We look at two aspects. Namely:

a) how the environment affects the project

b) how the project will affect the environment

Is environment suitable for the success of the project? Is soil quality appropriate for proposed

crops? Is water sufficient? Is drainage adequate? Is there adequate sunlight? Is the climate

right? What is the projects impact on the environment? The projects effect on soil erosion,

water supplies, wildlife, Potential to deplete non renewable resources, Create adverse micro-

climatic changes, Pollute water, air, land.

5. Social/political Feasibility

What is the impact of social/political structures affect on the project and how project will affect

the social/political structures? Look at formal social/political structures and formal ones. Start

with conducting a study on the baseline economic and social. Data on the community for

which this project is intended is as to get the general profile of the areas residents and should

include demographic information such as population level and distribution, employment

pattern, level and distribution of y, education and housing and health situations

We also look at the various stakeholders of the project and how they are affected by the project.

The stakeholders may be classified as: - Client gaps-owners, Uses gaps, Agents-managers,

Victims-suffix. Their the political structure is studied by focusing on the decision making

process and understanding the political relationship to regional and national governments as

assess the political autonomy.

Its also describes the areas informal and formal political organization and specifies the local

ordinances, zoning requirements and status that will affect the project. Finally information

must be gathered on the opinions and attitude of residents and leaders towards the project.

6. Financial Feasibility

Addresses the following questions: - What are the operation and operating costs of the project?

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What are the sources of funds and draw-down schedules and are they Sufficient to cover the

costs of activities and implementation? What are the alternative financing schemes from other

funding sources? What is the projected cash flow of the project? To what extent are necessarybecoming scheduled to meet the running defeats at activation? How soon will initial revenues

cover part or all of operating costs? Is there an adequate accounting system to provide regular

balance sheets, costs, debt servicing schedules and other financial reports? What are the

provisions for completion investment and other means of recovery investment and operating

cost?

Financial study addresses issues such as:

Whether the project can succeed with the amount of money stated in the proposal

Whether project is expected (if in the private sector) to show a profit.

7. Market Feasibility

We collect information that helps us determine whether the outputs will sold, the targeted gaps,

the competition levels, output of competitions etc. This helps us to cater the demand potential

for which the project is being established

FEASIBILITY REPORT

After feasibility studies have been done and completed, they need to be presented in a single

document which should be handed to the stakeholders.

The report has the following parts/contents:-

i. The introduction chapter should clearly list the goals and objectives of the project=TITLE

OF THE PROJECT

ii. EXECUTIVE SUMMARY including terms of reference, brief description of exercise, key

finding and recommendations

iii. PROJECT DEFINITION covering goals and objectives

iv. GENERAL B/GROUND AND INTRODUCTION within outline description of the

options/alternatives, general information e.g. analysis of industry, structure of project,

description etc.

v. CLEAR DEFINITION OF SUCCESS CRITERIA OR FEASIBILITY CRITERIA

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vi. FINDINGS OF the FA on marketing analysis, operating requirements and costs, technical

analysis, original analysis, financial analysis, economic analysis, political and social analysis,

environmental impact assessment etcvii. PRELIMINARY COMPLIANCE-Show the project meets or complies to all the criteria

viii. PLAN FOR THE MANAGEMENT of the project including implementation

ix. CONCLUSION

PROJECT FINANCING

Project financing is an innovative and timely financing technique that has been used on many

high-profile corporate projects, including Euro Disneyland and the Eurotunnel. Employing a

carefully engineered financing mix, it has long been used to fund large-scale natural resource

projects, from pipelines and refineries to electric-generating facilities and hydro-electric

projects. Increasingly, project financing is emerging as the preferred alternative to conventional

methods of financing infrastructure and other large-scale projects worldwide.

Project Financing includes understanding the rationale for project financing, how to prepare the

financial plan, assess the risks, design the financing mix, and raise the funds. In addition, one

must understand the cogent (intellectual, powerful) analyses of why some project financing

plans have succeeded while others have failed. A knowledge-base is required regarding the

design of contractual arrangements to support project financing; issues for the host government

legislative provisions, public/private infrastructure partnerships, public/private financing

structures; credit requirements of lenders, and how to determine the project's borrowing

capacity; how to prepare cash flow projections and use them to measure expected rates of

return; tax and accounting considerations; and analytical techniques to validate the project's

feasibility

Project finance is finance for a particular project, such as a mine, toll road, railway, pipeline,

power station, ship, hospital or prison, which is repaid from the cash-flow of that project.

Project finance is different from traditional forms of finance because the financier principally

looks to the assets and revenue of the project in order to secure and service the loan. In contrast

to an ordinary borrowing situation, in a project financing the financier usually has little or no

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recourse to the non-project assets of the borrower or the sponsors of the project. In this

situation, the credit risk associated with the borrower is not as important as in an ordinary loan

transaction; what is most important is the identification, analysis, allocation and managementof every risk associated with the project.

Risk minimization process

Financiers are concerned with minimizing the dangers of any events which could have a

negative impact on the financial performance of the project, in particular, events which could

result in: (1) the project not being completed on time, on budget, or at all; (2) the project not

operating at its full capacity; (3) the project failing to generate sufficient revenue to service the

debt; or (4) the project prematurely coming to an end.

The minimization of such risks involves a three step process. The first step requires the

identification and analysis of all the risks that may bear upon the project. The second step is the

allocation of those risks among the parties. The last step involves the creation of mechanisms

to manage the risks.

If a risk to the financiers cannot be minimized, the financiers will need to build it into the

interest rate margin for the loan.

STEP 1 - Risk identification and analysis

The project sponsors will usually prepare a feasibility study, e.g. as to the construction and

operation of a mine or pipeline. The financiers will carefully review the study and may engage

independent expert consultants to supplement it. The matters of particular focus will be

whether the costs of the project have been properly assessed and whether the cash-flow streams

from the project are properly calculated. Some risks are analyzed using financial models to

determine the project's cash-flow and hence the ability of the project to meet repayment

schedules. Different scenarios will be examined by adjusting economic variables such as

inflation, interest rates, exchange rates and prices for the inputs and output of the project.Various classes of risk that may be identified in a project financing will be discussed below.

STEP 2 - Risk allocation

Once the risks are identified and analyzed, they are allocated by the parties through negotiation

of the contractual framework. Ideally a risk should be allocated to the party who is the most

appropriate to bear it (i.e. who is in the best position to manage, control and insure against it)

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and who has the financial capacity to bear it. It has been observed that financiers attempt to

allocate uncontrollable risks widely and to ensure that each party has an interest in fixing such

risks. Generally, commercial risks are sought to be allocated to the private sector and politicalrisks to the state sector.

STEP 3 - Risk management

Risks must be also managed in order to minimize the possibility of the risk event occurring and

to minimize its consequences if it does occur. Financiers need to ensure that the greater the

risks that they bear, the more informed they are and the greater their control over the project.

Since they take security over the entire project and must be prepared to step in and take it over

if the borrower defaults. This requires the financiers to be involved in and monitor the project

closely. Such risk management is facilitated by imposing reporting obligations on the borrower

and controls over project accounts. Such measures may lead to tension between the flexibility

desired by borrower and risk management mechanisms required by the financier.

Types of risks

Of course, every project is different and it is not possible to compile an exhaustive list of risks

or to rank them in order of priority. What is a major risk for one project may be quite minor for

another. In a vacuum, one can just discuss the risks that are common to most projects and

possible avenues for minimizing them. However, it is helpful to categorize the risks according

to the phases of the project within which they may arise: (1) the design and construction phase;

(2) the operation phase; or (3) either phase. It is useful to divide the project in this way when

looking at risks because the nature and the allocation of risks usually change between the

construction phase and the operation phase.

1. Construction phase risk - Completion risk

Completion risk allocation is a vital part of the risk allocation of any project. This phase carries

the greatest risk for the financier. Construction carries the danger that the project will not becompleted on time, on budget or at all because of technical, labour, and other construction

difficulties. Such delays or cost increases may delay loan repayments and cause interest and

debt to accumulate. They may also jeopardize contracts for the sale of the project's output and

supply contacts for raw materials.

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Commonly employed mechanisms for minimizing completion risk before lending takes place

include: (a) obtaining completion guarantees requiring the sponsors to pay all debts and

liquidated damages if completion does not occur by the required date; (b) ensuring thatsponsors have a significant financial interest in the success of the project so that they remain

committed to it by insisting that sponsors inject equity into the project; (c) requiring the project

to be developed under fixed-price, fixed-time turnkey contracts by reputable and financially

sound contractors whose performance is secured by performance bonds or guaranteed by third

parties; and (d) obtaining independent experts' reports on the design and construction of the

project. Completion risk is managed during the loan period by methods such as making pre-

completion phase draw schedules of further funds conditional on certificates being issued by

independent experts to confirm that the construction is progressing as planned.

2. Operation phase risk - Resource / reserve risk

This is the risk that for a mining project, rail project, power station or toll road there are

inadequate inputs that can be processed or serviced to produce an adequate return. For

example, this is the risk that there are insufficient reserves for a mine, passengers for a railway,

fuel for a power station or vehicles for a toll road. Such resource risks are usually minimized

by: (a) experts' reports as to the existence of the inputs (e.g. detailed reservoir and engineering

reports which classify and quantify the reserves for a mining project) or estimates of public

users of the project based on surveys and other empirical evidence (e.g. the number of

passengers who will use a railway); (b) requiring long term supply contracts for inputs to be

entered into as protection against shortages or price fluctuations (e.g. fuel supply agreements

for a power station); (c) obtaining guarantees that there will be a minimum level of inputs (e.g.

from a government that a certain number of vehicles will use a toll road); and (d) "take or pay"

off-take contacts which require the purchaser to make minimum payments even if the product

cannot be delivered.

a) Operating risk

These are general risks that may affect the cash-flow of the project by increasing the operating

costs or affecting the project's capacity to continue to generate the quantity and quality of the

planned output over the life of the project. Operating risks include, for example, the level of

experience and resources of the operator, inefficiencies in operations or shortages in the supply

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of skilled labour. The usual way for minimizing operating risks before lending takes place is to

require the project to be operated by a reputable and financially sound operator whose

performance is secured by performance bonds. Operating risks are managed during the loanperiod by requiring the provision of detailed reports on the operations of the project and by

controlling cash-flows by requiring the proceeds of the sale of product to be paid into a tightly

regulated proceeds account to ensure that funds are used for approved operating costs only.

b) Market/ off-take risk

Obviously, the loan can only be repaid if the product that is generated can be turned into cash.

Market risk is the risk that a buyer cannot be found for the product at a price sufficient to

provide adequate cash-flow to service the debt. The best mechanism for minimizing market

risk before lending takes place is an acceptable forward sales contact entered into with a

financially sound purchaser.

3. Risks common to both construction and operational phases

a) Participant / credit risk

These are the risks associated with the sponsors or the borrowers themselves. The question is

whether they have sufficient resources to manage the construction and operation of the project

and to efficiently resolve any problems which may arise. Of course, credit risk is also

important for the sponsors' completion guarantees. To minimize these risks, the financiers need

to satisfy themselves that the participants in the project have the necessary human resources,

experience in past projects of this nature and are financially strong (e.g. so that they can inject

funds into an ailing project to save it).

b) Technical risk

This is the risk of technical difficulties in the construction and operation of the project's plant

and equipment, including latent defects. Financiers usually minimize this risk by preferring

tried and tested technologies to new unproven technologies. Technical risk is also minimized before lending takes place by obtaining experts reports as to the proposed technology.

Technical risks are managed during the loan period by requiring a maintenance retention

account to be maintained to receive a proportion of cash-flows to cover future maintenance

expenditure.

c) Currency risk

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Currency risks include the risks that: (a) a depreciation in loan currencies may increase the

costs of construction where significant construction items are sourced offshore; or (b) a

depreciation in the revenue currencies may cause a cash-flow problem in the operating phase.Mechanisms for minimizing resource include: (a) matching the currencies of the sales contracts

with the currencies of supply contracts as far as possible; (b) denominating the loan in the most

relevant foreign currency; and (c) requiring suitable foreign currency hedging contracts to be

entered into.

d) Regulatory/ approvals risk

These are risks that government licenses and approvals required to construct or operate the

project will not be issued (or will only be issued subject to onerous conditions), or that the

project will be subject to excessive taxation, royalty payments, or rigid requirements as to local

supply or distribution. Such risks may be reduced by obtaining legal opinions confirming

compliance with applicable laws and ensuring that any necessary approvals are a condition

precedent to the drawdown of funds.

e) Political risk

This is the danger of political or financial instability in the host country caused by events such

as insurrections, strikes, suspension of foreign exchange, creeping expropriation and outright

nationalization. It also includes the risk that a government may be able to avoid its contractual

obligations through sovereign immunity doctrines. Common mechanisms for minimizing

political risk include: (a) requiring host country agreements and assurances that project will not

be interfered with; (b) obtaining legal opinions as to the applicable laws and the enforceability

of contracts with government entities; (c) requiring political risk insurance to be obtained from

bodies which provide such insurance (traditionally government agencies); (d) involving

financiers from a number of different countries, national export credit agencies and multilateral

lending institutions such as a development bank; and (e) establishing accounts in stablecountries for the receipt of sale proceeds from purchasers.

f) Force majeure risk

This is the risk of events which render the construction or operation of the project impossible,

either temporarily (e.g. minor floods) or permanently (e.g. complete destruction by fire).

Mechanisms for minimizing such risks include: (a) conducting due diligence as to the

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possibility of the relevant risks; (b) allocating such risks to other parties as far as possible (e.g.

to the builder under the construction contract); and (c) requiring adequate insurances which

note the financiers' interests to be put in place.

SOURCES OF FUNDS

a) Tax Payers through Government budget

b) User of the service or product

c) Private participation

d) External sources such as NGOs, Philanthropic organizations, lending Institutions etc

providing free money in the form of grants or subsidised loans

PROJECT SELECTION

Everything that can be counted does not necessarily count and everything that counts cannot

necessarily be counted. (Albert Einstein (1879-1955)

After feasibility studies are finalized we may have several projects that are viable. These viable

projects will be competing for the same scarce resource. Thus project selection enables us to

choose the best alternative or to practice the projects (Rank).

Project Selection: Is the process by which we identify the projects to be implemented based

on the priorities of the stakeholders. In order to choose the projects, we make use of models

that may be qualitative or quantitative or both.

Whichever models we choose, they need to meet at least some basic criteria. The criteria of

choosing a selection model are:-

a) Realism : The model chosen should reflect the reality of the managers dream and

situation. This way we can have a common basis for comparisons on of projects.

b) Capability : The model chosen should allow the manager to remain focused on the

organization abilities and goals; it should also enable the manager to consider the likelyrisks benefits and costs and provide a way of considering the multiple changes in the

environment.

c) Flexibility : The model should be able to accommodate changes within the

environment. It should be self adjusting and responsive to the changes in the projects

environment with speed and accuracy e.g. it should be easy to carry out each analysis

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d) Ease of use : The model should be easy to use and understand. It should be possible to

interpret the results without unnecessarily looking for specialist interpretation. It should

also take a shorter time to execute. Also relates to the case with which the relevantinformation is required.

e) Cost : The cost of data gathering and modeling should be moderate, i.e. the cost of

choosing the project should be reasonable in relation to the benefits of project selection

f) Ease of computerization: It should be easy to automate

Earned Value Management

This is aproject management technique for measuring project progress in an objective manner.

EVM has the ability to combine measurements of scope, schedule, and cost in a single

integrated system. When properly applied, EVM provides an early warning of performance

problems. Additionally, EVM promises to improve the definition ofproject scope, prevent

scope creep, communicate objective progress to stakeholders, and keep the project team

focused on achieving progress.

Essential features of any EVM implementation include

1. Aproject plan that identifies work to be accomplished,

2. A valuation of planned work, called Planned Value (PV) or Budgeted Cost of Work

Scheduled (BCWS), and

3. Pre-defined earning rules (also called metrics) to quantify the accomplishment of

work, called Earned Value (EV) orBudgeted Cost of Work Performed (BCWP).

EVM implementations for large or complex projects include many more features, such as

indicators and forecasts of cost performance (over budget or under budget) and schedule

performance (behind schedule or ahead of schedule). However, the most basic requirement of

an EVM system is that it quantifies progress using PV and EV.

Project tracking without EVM

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Project tracking with EVM

Consider the same project, except this time the project plan includes pre-defined methods ofquantifying the accomplishment of work. At the end of each week, the Project Manager

identifies every detailed element of work that has been completed, and sums the PV for each of

these completed elements. Earned value may be accumulated monthly, weekly, or as progress

is made.

Earned value (EV)

The following figure shows three curves together which is a typical EVM line chart. The best

way to read these three-line charts is to identify the EV curve first, then compare it to PV (for

schedule performance) and AC (for cost performance). It can be seen from this illustration that

a true understanding of cost performance and schedule performance relies first on measuring

technical performance objectively. This is thefoundational principle of EVM

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Intermediate implementations (integrating technical and schedule performance)

In many projects, schedule performance (completing the work on time) is equal in importance

to technical performance. It is not that cost is unimportant, but finishing the work later than a

competitor may cost a great deal more in lost market share. The project manager may employ a

critical path or critical chain to build a project schedule model. The project manager must

define the work comprehensively, typically in a WBS hierarchy. He/she will construct a project

schedule model that describes the precedence links between elements of work. It should be

noted that measuring schedule performance using EVM does not replace the need to

understand schedule performance versus the project's schedule model (precedence network).

However, EVM schedule performance provides an additional indicator one that can be

communicated in a single chart. Although it is theoretically possible that detailed schedule

analysis will yield different conclusions than broad schedule analysis, in practice there tends to

be a high correlation between the two. Although EVM schedule measurements are not

necessarily conclusive, they provide useful diagnostic information.

The following EVM formulas are for schedule management, and do not require accumulation

of actual cost (AC). This is important because it is common in small and intermediate size

projects for true costs to be unknown or unavailable.

Schedule variance (SV)

EV-PV greater than 0 is good (ahead of schedule)

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Schedule performance index (SPI)

EV/PV greater than 1 is good (ahead of schedule)

Advanced implementations (integrating cost, schedule and technical performance)In addition to managing technical and schedule performance, large and complex projects

require that cost performance be monitored and reviewed at regular intervals. To measure cost

performance, planned value (or BCWS - Budgeted Cost of Work Scheduled) and earned value

(or BCWP - Budgeted Cost of Work Performed) must be in units of currency (the same units

that actual costs are measured.) In large implementations, the planned value curve is commonly

called a Performance Measurement Baseline (PMB) and may be arranged in control accounts,

summary-level planning packages, planning packages and work packages.

Budget at completion (BAC): The total planned value (PV or BCWS) at the end of the

project. If a project has a Management Reserve (MR), it is typically in addition to the BAC.

Cost variance (CV)

EV - AC, greater than 0 is good (under budget)

Cost Performance Index (CPI)

EV/AC, greater than 1 is good (under budget)

< 1 means that the cost of completing the work is higher than planned (bad)

= 1 means that the cost of completing the work is right on plan (good)

> 1 means that the cost of completing the work is less than planned (good or sometimes bad).

Having a CPI that is very high (in some cases, very high is only 1.2) may mean that the plan

was too conservative, and thus a very high number may in fact not be good, as the CPI is being

measured against a poor baseline. Management or the customer may be upset with the planners

as an overly conservative baseline ties up available funds for other purposes, and the baseline

is also used for manpower planning.

Estimate at completion (EAC)

EAC is the manager's projection of total cost of the project at completion.

ETC is the estimate to complete the project.

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To-complete performance index (TCPI)

The To Complete Performance Index (TCPI) provides a projection of the anticipated

performance required to achieve either the BAC or the EAC. TCPI indicates the future requiredcost efficiency needed to achieve a target BAC (Budget At Complete) or EAC (Estimate At

Complete). Any significant difference between CPI, the cost performance to date, and the

TCPI, the cost performance needed to meet the BAC or the EAC, should be accounted for by

management in their forecast of the final cost.

For the TCPI based on BAC (describing the performance required to meet the original BAC

budgeted total):

or for the TCPI based on EAC (describing the performance required to meet a new, revised

budget total EAC):

Independent estimate at completion (IEAC)

The IEAC is a metric to project total cost using the performance to date to project overall

performance. This can be compared to the EAC, which is the manager's projection.

Limitations of EVM

1. EVM has no provision to measure project quality, so it is possible for EVM to indicate a

project is under budget, ahead of schedule and scope fully executed, but still have unhappy

clients and ultimately unsuccessful results.

2. Because EVM requires quantification of a project plan, it is often perceived to be

inapplicable to discovery-driven or Agile software development projects. For example, it

may be impossible to plan certain research projects far in advance, because research itself

uncovers some opportunities (research paths) and actively eliminates others.

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3. Traditional EVM is not intended for non-discrete (continuous) effort. In traditional EVM

standards, non-discrete effort is called level of effort" (LOE). If a project plan contains a

significant portion of LOE, and the LOE is intermixed with discrete effort, EVM results willbe contaminated. This is another area of EVM research.

Definition of Terms

Estimate at Completion (EAC): Computes project performance by looking at the total cost of

the project when it is completed based on the current rate of progress.

Estimate to Complete (ETC): Calculates project performance by looking at the amount of

money required to complete the project based on the current rate of progress.

Variance at Completion (VAC): Computes project performance by looking at the variance of

the total project cost at completion when compared with the project budget.

To-Complete Performance Index (TCPI) based on BAC: Represents the level of project

performance that future project work ne

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Mbad 782 Project Management Notes

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