january 2017

CERTIFIED
PROJECT
MANAGEMENT ANALYST
COURSEBOOK

www.iqnglobal.com
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CERTIFIED PROJECT
MANAGEMENT
ANALYST
COURSEBOOK
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 Contents

TABLE OF CONTENTS
CHAPTER 1 PROJECT & PROJECT STAKEHOLDERS .............................................................................................. 1
1 Understanding Project Management ........................................................................................................... 2
2 The Project Manager........................................................................................................................................... 4
3 The Project Team.................................................................................................................................................. 9
4 Project Stakeholders .........................................................................................................................................14

CHAPTER 2 ORGANISATIONAL CONTEXT FOR PROJECTS .............................................................................17

1 Project Portfolio Management .....................................................................................................................18
2 Project Success ....................................................................................................................................................19
3 A Project-Oriented Organisation (‘Poo’) ...................................................................................................21
4 Projects and Strategy ........................................................................................................................................21
5 The Project-Structured Organisation .........................................................................................................24
6 Types of Projects ................................................................................................................................................27

CHAPTER 3 PROJECT FEASIBILITY & APPRAISAL ................................................................................................33

1 The Feasibility Study .........................................................................................................................................34
2 Investment Appraisal Techniques ................................................................................................................36
3 NPV ..........................................................................................................................................................................39
4 IRR ............................................................................................................................................................................43
5 NPV and IRR Compared ..................................................................................................................................45

CHAPTER 4 PROJECT APPRAISAL: SENSITIVITY ANALYSIS & CAPITAL RATIONING ............................49

1 Risk & Uncertainty .............................................................................................................................................50
2 Uncertainty & Sensitivity Analysis ...............................................................................................................51
3 Risk & Scenario Analysis .................................................................................................................................54
4 Capital Rationing & Profitability Index ......................................................................................................58

CHAPTER 5 PROJECT PHASES .....................................................................................................................................63

1 The project life cycle .........................................................................................................................................64
2 Defining Phase ....................................................................................................................................................66
3 Planning Phase ....................................................................................................................................................68
4 Implementing Phase .........................................................................................................................................71
5 Controlling Phase ...............................................................................................................................................71
6 Completing Phase ..............................................................................................................................................71

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 Contents

CHAPTER 6 PROJECT SCOPE .......................................................................................................................................73

1 Developing an Understanding of Project Scope ...................................................................................74
2 Process of Scope Definition ...........................................................................................................................74
3 Defining the Key Issues – Fishbone Analysis ...........................................................................................76
4 Determining Performance Drivers ...............................................................................................................76
5 Scope Creep and Scope Change..................................................................................................................77
6 Avoiding Scope Creep ......................................................................................................................................78

CHAPTER 7 PROJECT TOOLS & TECHNIQUES .....................................................................................................81

1 Determining the Work Breakdown Structure .........................................................................................82
2 Estimating Timing and Task Duration ........................................................................................................86
3 Determining Requirements – A Resource Checklist .............................................................................87
4 Sequencing Work ...............................................................................................................................................87
5 Project Management Software .................................................................................................................. 101

CHAPTER 8 PROJECT BUDGET & RISK MANAGEMENT ................................................................................. 105

1 The Project Budget ......................................................................................................................................... 106
2 The Project Risk Management ................................................................................................................... 107

CHAPTER 9 PROJECT MONITORING, TERMINATION & REPORTING ...................................................... 113

1 Project Monitoring.......................................................................................................................................... 114
2 Reporting Progress ......................................................................................................................................... 115
3 The Project Termination Decision ............................................................................................................. 120
4 The Project Report .......................................................................................................................................... 123

PRACTICE QUESTIONS ................................................................................................................................................ 129

ANSWERS .......................................................................................................................................................................... 163

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 Chapter 1 | Project & Project Stakeholders

CHAPTER 1
PROJECT & PROJECT
STAKEHOLDERS
 Chapter 1 | Project & Project Stakeholders

1 UNDERSTANDING PROJECT MANAGEMENT

1.1 WHAT IS A PROJECT?

To understand project management it is necessary to first define what a project is. A Project can be
defined as an undertaking that has a beginning and an end and is carried out to meet established
goals within cost schedule and quality objectives.

A project often has the following characteristics:

 A defined beginning and end

 Resources allocated specifically to them
 Intended to be done only once (although similar separate projects could be undertaken)
 Follow a plan towards a clear intended end-result
 Often cut across organisational and functional lines.

In general, the work organisations undertake involves either operations or projects. Operations and
projects are planned, controlled and executed. So how are projects distinguished from 'ordinary
work' or day-to-day operations? The following table differentiates between projects and
operations.

Projects Operations
Have a defined beginning and end On-going
Have resources allocated specifically to them, Resources used 'full-time'
although often on a shared basis
Are intended typically to be done only once A mixture of many recurring tasks
Follow a plan towards a clear intended end- Goals and deadlines are more general
result
Often cut across organisational and functional Usually follows the organisation or functional
lines structure

Common examples of projects include:

 Producing a new product, service or object

 Changing the structure of an organisation
 Developing or modifying a new information system
 Implementing a new information system

1.2 WHAT IS PROJECT MANAGEMENT?

Project management is the combination of systems techniques and people used to control and
monitor activities undertaken within the project. Project management involves coordinating the

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resources necessary to complete the project successfully (i.e. on time, within budget and to
specification).

The objective of project management is a successful project. A project will be deemed successful if
it is completed at the specified level of quality, on time and within budget.

Quality: The end result should conform to the project specification. In other words, the result
should achieve what the project was supposed to do.

Budget: The project should be completed without exceeding authorised expenditure.

Timescale: The progress of the project must follow the planned process, so that the 'result' is ready
for use at the agreed date. As time is money, proper time management can help contain costs.

Project management ensures responsibilities are clearly defined and that resources are focussed on
specific objectives. The project management process also provides a structure for communicating
within and across organisational boundaries.

All projects share similar features and follow a similar process. This has led to the development of
project management tools and techniques that can be applied to all projects, no matter how
diverse. For example, with some limitations similar processes and techniques can be applied to
whether building a major structure or implementing a company-wide computer network.

1.3 THE CHALLENGES OF PROJECT MANAGEMENT

Managing a project presents a variety of challenges. Some common challenges are outlined in this
section.

Teambuilding: In projects, the work is carried out by a team of people often from varied work and
social backgrounds. The team must 'gel' quickly and be able to communicate effectively with each
other.

Planning: Successful projects require careful planning. Many possible problems may be avoided
by careful design and planning prior to commencement of work.

Problem solving mechanisms: There should be mechanisms within the project to enable
unforeseen problems to be resolved quickly and efficiently.

Delayed benefit: There is normally no benefit from a project until the work is finished. This means
that significant expenditure is being incurred for no immediate benefit – this can be a source of
pressure for people related to the project.

Dealing with specialists: Project managers often have to deal competently and realistically with
specialists at differing stages of the project.

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Potential for conflict: Projects often involve several parties with different interests. This may lead
to conflict.

All projects require a person who is ultimately responsible for delivering the required outcome and
cope with challenges discussed above. This person is the project manager.

2 THE PROJECT MANAGER

The person who takes ultimate responsibility for ensuring the desired result is achieved on time
and within budget is the project manager. Most project managers have the same job title 'Project
Manager'. These people usually have one major responsibility: the project.

Most people in business will have 'normal work' responsibilities outside their project goals – which
may lead to conflicting demands on their time. Anybody responsible for a project (large or small)
is a project manager.

The way in which a project manager co-ordinates a project from initiation to completion, using
project management and general management techniques, is known as the Project Management
process.

Project management as a discipline developed because of a need to co-ordinate resources to

obtain desired results within a set timeframe. Common project management tasks include
establishing goals and objectives, developing a work-plan, scheduling, budgeting, co-ordinating a
team and communicating.

2.1 PROJECT MANAGER V OPERATIONS MANAGER

The role a project manager performs is in many ways similar to those performed by other managers.
There are however some important differences, as shown in the following table.

Project managers Operations managers

Project managers are often 'generalists' with Operations managers are usually specialists in
wide-ranging backgrounds and experience the areas managed
levels

Project managers oversee work in many Operations managers relate closely to technical
functional areas tasks in their area

Project managers facilitate, rather than Operations managers have direct technical
supervise team members supervision responsibilities

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2.2 DUTIES OF THE PROJECT MANAGER

Duties of the project manager include: Planning, teambuilding, communication, coordinating

project activities, monitoring and control, problem resolution and quality control. The duties of a
project manager are summarised below.

Outline planning: Project managers need to conduct Project planning (e.g. targets, sequencing).
The duties related to planning outline will include the following:

 developing project targets such as overall costs or timescale needed (e.g. project should
take 20 weeks)
 dividing the project into activities and placing these activities into the right sequence, often
a complicated task if overlapping
 developing a framework for the procedures and structures, manage the project (e.g. decide,
in principle, to have weekly team meetings, performance reviews etc.).

Detailed planning: Project managers need to prepare work breakdown structure (WBS), list of
resource requirements and network analysis for scheduling.

Team building: People management is important duty of a project manager. He needs to build
cohesion and team spirit.

Communication: The project manager must let superiors know what is going on, and ensure that
members of the project team are properly briefed.

Coordinating project activities: The project manager needs to coordinate between the project
team and users, and other external parties (e.g. suppliers of hardware and software).

Monitoring and control: The project manager should estimate the causes for each departure from
the standard, and take corrective measures.

Problem-resolution: Even with the best planning, unforeseen problems may arise. The project
manager is responsible for resolving the problems as and when they occur.

Quality control: There is often a short-sighted trade-off between getting the project out on time
and the project's quality. The project manger’s duty is to control quality and equally balance the
challenges of maintaining budget, time and quality.

Risk management: A key consideration is project failure and hence project risks and potential risk
areas must be identified and monitored by the project manager.

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2.3 THE RESPONSIBILITIES OF A PROJECT MANAGER

An effective project management process helps project managers maintain control of projects and
meet their duties and responsibilities. A project manager has responsibilities to both management
and to the project team.

Responsibilities to management
(a) Ensure resources are used efficiently – strike a balance between cost, time and results
(b) Keep management informed with timely and accurate communications
(c) Manage the project to the best of his or her ability
(d) Behave ethically, and adhere to the organisation's policies
(e) Maintain a customer orientation (whether the project is geared towards an internal or
external customer) – customer satisfaction is a key indicator of project success

Responsibilities to the project team

(a) Ensure the project team has the resources required to perform tasks assigned.
(b) Provide new team members with a proper briefing and help them integrate into the team.
(c) Provide any support required when members leave the team either during the project or
on completion.
(d) Listen properly to team members so that potential problems are identified and can be dealt
with as soon as possible.

2.4 THE SKILLS REQUIRED OF A PROJECT MANAGER

To meet these responsibilities a project manager requires a wide range of skills. The skills required
are similar to those required when managing a wider range of responsibilities. The narrower focus
of project management means it is easier to make a judgement as to how well these skills have
been applied.

Project managers require the following skills: Leadership and team building, organisational ability,
communication skills (written, spoken, presentations, meetings), some technical knowledge of the
project area and inter-personal skills.

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Type of skill How the project manager should display the type of skill
Leadership and Be enthusiastic about what the project will achieve.
team building Be positive (but realistic) about all aspects of the project.
Understand where the project fits into the 'big picture'.
Delegate tasks appropriately – and not take on too much personally.
Build team spirit through encouraging co-operation.
Do not be restrained by organisational structures – a high tolerance for
ambiguity (lack of clear-cut authority) will help the project manager.
Organisational Ensure all project documentation is clear and distributed to all who require
it. Use project management tools to analyse and monitor project progress

Communication Listen to project team members.

Use persuasion to coerce reluctant team members or stakeholders to
support the project.
Ensure management is kept informed and is never surprised.
Technical By providing (or at least providing access to) the technical expertise and
experience needed to manage the project.
Personal Be flexible. Circumstances may develop that require a change in plan. Show
persistence. Even successful projects will encounter difficulties that require
repeated efforts to overcome.
Be creative. If one method of completing a task proves impractical a new
approach may be required.
Patience is required even in the face of tight deadlines. The 'quick-fix' may
eventually cost more time than a more thorough but initially more
timeconsuming solution.

2.5 LEADERSHIP STYLES OF A PROJECT MANAGER

As in other forms of management, different project managers have different styles of leadership.
There is no 'best' leadership style, as individuals suit and react to different styles in different ways.
The key is adopting a style that suits both the project leader and the project team.

Managers will usually adopt a style from the range shown in the following diagram.

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 Chapter 1 | Project & Project Stakeholders

Leadership Styles

Project manager (PM) centred leadership Team centred leadership

Autocratic management Participative management
(empowerment)

PM makes PM makes PM presents PM presents PM defines

decision and decision and tentative problems, problem,
announces it 'sells' it to decision, gets shares
team invites
suggestions decision-
questions,
making
makes
decision responsibility
with team

The leadership style adopted will affect the way decisions relating to the project are made. Although
an autocratic style may prove successful in some situations (e.g. 'simple' or 'repetitive' projects), a
more consultative style has the advantage of making team members feel more a part of the project.
This should result in greater commitment.

Not all decisions will be made in the same way. For example, decisions that do not have direct
consequences for other project personnel may be made with no (or limited) consultation. A balance
needs to be found between ensuring decisions can be made efficiently, and ensuring adequate
consultation.

The type of people that comprise the project team will influence the style adopted. For example,
professionals generally dislike being closely supervised and dictated to. (Many non-professionals
dislike this too!) Some people however prefer to follow clear, specific instructions and not have to
think for themselves.

Project management techniques encourage management by exception by identifying, from the

outset, those activities which might threaten successful completion of a project.

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3 THE PROJECT TEAM

The Project Team comprises the people who report directly or indirectly to the project manager.
Project success depends to a large extent on the team members selected. The ideal project team
achieves project completion on time, within budget and to the required specifications – with the
minimum amount of direct supervision from the project manager.

3.1 PROJECT TEAM COMPOSITION

The team will comprise individuals with differing skills and personalities. The project manager
should choose a balanced team that takes advantage of each team member's skills and
compensates elsewhere for their weaknesses.

The project team will normally be drawn from existing staff, but highly recommended outsiders
with special skills may be recruited. When building a team the project manager should ask the
following questions.

(a) What skills are required to complete each task of the project?
(b) Who has the talent and skills to complete the required tasks (whether inside or outside the
organisation)?
(c) Are the people identified available, affordable, and able to join the project team?
(d) What level of supervision will be required?

This information should be summarised in worksheet format, as shown in the following example.

Worksheet example

Project Skill Requirements

Project Name:
Project manager: Date worksheet completed

Task Skill needed Responsibility

The completed worksheet provides a document showing the skills required of the project team.
Deciding who has the skills required for each task and if possible seconding those identified to the
project team, should be done as early as possible. Team members should then be able to participate
in the planning of schedules and budgets. This should encourage the acceptance of agreed
deadlines, and a greater commitment to achieve project success.

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The individuals selected to join the team should be told why they have been selected, referring
both to their technical skills and personal qualities. This should provide members with guidance as
to the role they are expected to play.

Although the composition of the project team is critical, project managers often find it is not
possible to assemble the ideal team, and have to do the best they can with the personnel available.
If the project manager feels the best available team does not possess the skills and talent required,
the project should be abandoned or delayed.

Once the team has been selected each member should be given a (probably verbal) project briefing,
outlining the overall aims of the project, and detailing the role they are expected to play.

3.2 PROJECT TEAM PERFORMANCE

Collaboration and interaction between team members will help ensure the skills of all team
members are utilised, and should result in 'synergistic' solutions. Formal (e.g. meetings) and
informal channels (e.g. e-mail links, a bulletin board) of communication should be set up to ensure
this interaction takes place.

Group cohesiveness is an important factor for project success. It is hoped that team members will
develop and learn from each other, and solve problems by drawing on different resources and
expertise.

Team members should be responsible and accountable. The project manager should provide
regular updates on project progress and timely feedback on team and individual performance. Most
effective project managers display the ability to select the right people, connect them to the right
cause, solve problems that arise, evaluate progress towards objectives, negotiate resolutions to
conflicts and heal wounds inflicted by change

The performance of the project team will be enhanced by the following.

 Effective communication
 All members being aware of the team's purpose and the role of each team member
 Collaboration and creativity among team members
 Trusting, supportive atmosphere in group
 A commitment to meeting the agreed schedule
 Innovative/creative behaviour
 Team members highly interdependent, interface effectively
 Capacity for conflict resolution
 Results orientation
 High energy levels and enthusiasm
 An acceptance of change

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3.3 MANAGING CONFLICT

Wherever there is a potential for conflict a process to resolve it should be established before the
conflict occurs. It is inevitable when people from wide-ranging backgrounds combine to form a
project team that conflict will occasionally occur. Some conflicts may actually be positive, resulting
in fresh ideas and energy being input to the project. Other conflicts can be negative and have the
potential to bring the project to a standstill.

An open exchange of views between project personnel should be encouraged as this will help
ensure all possible courses of action and their consequences are considered. The project manager
should keep in touch with the relationships of team members and act as a conciliator if necessary.

Ideally, conflict should be harnessed for productive ends. Conflict can have positive effects such as
those listed below.

 Results in better, well thought-out ideas

 Forces people to search for new approaches
 Causes persistent problems to surface and be dealt with
 Forces people to clarify their views
 Causes tension which stimulates interest and creativity

Most conflicts that arise during a project should be able to be resolved using negotiation and
resolution techniques.

When conflict occurs the project manager should avoid displaying bias and adopt a logical, ordered
approach towards achieving resolution. The following principles should be followed.

 Focus on the problem, not the personalities

 Define the problem carefully
 Try to develop options that would result in mutual gain
 Look for a wide variety of possible solutions

Ideally the conflict will be resolved by the parties involved agreeing on a course of action. In cases
where insufficient progress towards a resolution has occurred the project manager should attempt
to bring about a resolution.

The project manager should employ the following techniques in an attempt to resolve the conflict.

(a) Work through the problem using the negotiation techniques described above.
(b) Attempt to establish a compromise – try to bring some degree of satisfaction to all parties
(c) through give and take.
(d) Try to smooth out any differences and downplay the importance of any remaining
differences.
(e) Emphasise areas of agreement.

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(f) If all else fails, and resolution is vital, the project manager should force the issue and make
a decision. He or she should emphasise to all parties that their commitment to the project
is appreciated, and that the conflict should now be put behind them.

3.4 CONTROLLING THE TEAM

The project manager is responsible for overall control of the project team.

There are two types of control strategies related to supervision.

(a) Behaviour control deals with the behaviour of team members. In other words, control is
exercised through agreed procedures, policies and methodologies.
(b) Output control is where management attention is focused on results, more than the way
these were achieved.

Handy writes of a trust-control dilemma in which the sum of trust + control is a constant amount:

T+C=Y

Where T = the trust the superior has in the subordinate, and the trust which the subordinate feels

the superior has in him;

C = the degree of control exercised by the superior over the subordinate;

Y = a constant, unchanging value.

Any increase in C leads to an equal decrease in T; that is, if the manager retains more 'control' or
authority, the subordinate will immediately recognise that he or she is being trusted less. If the
superior wishes to show more trust in the subordinate, this can only be done by reducing C, that is
by delegating more authority.

Span of control or 'span of management’ refers to the number of subordinates or team members
responsible to a person.

Classical theorists suggest:

(a) There are physical and mental limitations to a manager's ability to control people,
relationships and activities.
(b) There should be tight managerial control from the top of an organisation downward. The
span of control should be restricted to allow maximum control.

Project managers may control very large teams. On large projects management layers will be
required between the overall project manager and team members. The appropriate span of control
will depend on:

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 Chapter 1 | Project & Project Stakeholders

(a) Ability of the manager. A good organiser and communicator will be able to control a
larger number. The manager's workload is also relevant.
(b) Ability of the team members. The more experienced, able, trustworthy and well-trained
subordinates are, the easier it is to control larger numbers.
(c) Nature of the task. It is easier for a supervisor to control a large number of people if they
are all doing routine, repetitive or similar tasks.
(d) The geographical dispersal of the subordinates, and the communication system of the
organisation.

The span of control has implications for the 'shape' of a project team and of an organisation overall.
An organisation with a narrow span of control will have more levels in its management hierarchy –
the organisation will be narrow and tall. A tall structure reflects tighter supervision and control, and
lengthy chains of command and communication.

A team or organisation of the same size with a wide span of control will be wide and flat. The flat
organisation reflects a greater degree of delegation – the more a manager delegates, the wider the
span of control can be.

The wide range of people and skills required to successfully complete certain types of project such
as systems development project has led to the acceptance of flat management structures being the
most appropriate for some projects. The justification is that by empowering team members (or
removing levels in hierarchies that restrict freedom), not only will the job be done more effectively
but the people who do the job will get more out of it.

3.5 COMMITMENT FROM PROJECT TEAM

Project team members must be flexible to be able to respond quickly to specific and varied
customer demands. Team members must therefore be committed. The following steps may help
increase commitment.

(a) Develop identification with the team and the project by means of:
 Communications
 Participation
 Team member ideas
 Financial bonuses
(b) Ensure that people know what they have to achieve and are aware of how their
performance will be measured against agreed targets and standards.
(c) Introduce a reward system, which relates at least partly to individual performance.
(d) Treat team members as human beings, not machines.

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4 PROJECT STAKEHOLDERS
Project stakeholders are the individuals and organisations who are involved in or may be affected
by project activities. It is important to understand who has an interest in a project, because part of
the responsibility of the project manager is communication and the management of expectations.
An initial assessment of stakeholders should be made early in the project’s life, taking care not to
ignore those who might not approve of the project, either as a whole, or because of some aspect
such as its cost, its use of scarce talent or its side-effects. The nature and extent of each
stakeholder’s interest in, and support for (or opposition to) the project should be established as
thoroughly as possible and recorded in a stakeholder register. This will make it possible to draw on
support where available and, probably more important, anticipate and deal with stakeholder-
related problems.

The project manager should be aware of the following matters for each stakeholder or stakeholder
group:

(a) Goals
(b) Past attitude and behaviour
(c) Expected future behaviour
(d) Reaction to possible future developments

We have already looked at the role of the Project Manager and the Project Team. Other key
stakeholders are defined as follows.

Project sponsor is accountable for the resources invested into the project and responsible for
the achievement of the project's business objectives. The sponsor may be owner, financier,

client etc., or their delegate.

Project support team is a term used to designate the personnel working on a project who

do not report to the project manager administratively.

Users are the individual or group that will utilise the end product, process (system), or service
produced by the project.

Risk manager. For large projects it may be necessary to appoint someone to control the

process of identifying, classifying and quantifying the risks associated with the project.

Quality manager. For large projects it may be necessary to appoint someone to write the
quality plan and develop quality control procedures.

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4.1 TYPES OF PROJECT STAKEHOLDERS

Project stakeholders may be divided into two main groups.

(a) Process stakeholders have an interest in how the project process is conducted. This group
includes those involved in it, those who want a say in it, and those who need to evaluate
and learn from it.
(b) Outcome stakeholders have an interest in the outcomes, results or deliverables of the
project. This group includes not only the customer groups described above, but also,
typically, some regulators and compliance staff.

The project manager must manage a broad range of complex relationships if the project is to
succeed. This amounts to achieving co-operation through influence rather than authority. Gray and
Larson (2008) speak of creating a social network to manage the relationships with those the project
depends on. The project manager should know whose co-operation, agreement or approval is
required for the project to succeed and whose opposition could prevent success. It is particularly
important to enlist the support of top management. This not only brings an adequate budget, it
signals the project's importance to the organisation and enhances the motivation of the project
team.

Project stakeholders should all be committed towards a common goal – successful project
completion The Project Plan should be the common point of reference that states priorities and
provides cohesion.

However, the individuals and groups that comprise the stakeholders all have different roles, and
therefore are likely to have different points of view. There is therefore the potential for
disagreements between stakeholder groups.

4.2 MANAGING STAKEHOLDER DISPUTES

The first step is to establish a framework to predict the potential for disputes. This involves risk
management, since an unforeseen event (a risk) has the potential to create conflict, and dispute
management – implementing dispute resolution procedures that have minimal impact on costs,
goodwill and project progress.

One approach to dispute management strategy is to organise affairs in a way that minimises
exposure to the risk of disputes. This means employing effective management techniques
throughout all areas of operation.

Resolution is the solution of a conflict. Settlement is an arrangement, which brings an end to the
conflict, but does not necessarily address the underlying causes. Wherever there is a potential for
conflict, a process to resolve it should be established before the conflict occurs.

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We have already discussed negotiation and resolution techniques in the context of project team
conflict. Many of the principles discussed previously can be applied to stakeholder conflicts,
although the relative positions of the stakeholders involved can complicate matters.

Conflict between project stakeholders may be resolved by:

 Negotiation (perhaps with the assistance of others)

 Partnering
 Mediation
 A third party neutral may judge or intervene to impose a solution

On very large projects a Disputes Review Board (DRB) may be formed. This may comprise persons
directly involved in the project engaged to maintain a 'watching brief' to identify and attend upon
disputes as they arise.

Usually there is a procedure in place which provides for the DRB to make an 'on the spot' decision
before a formal dispute is notified so that the project work can proceed, and that may be followed
by various rights of review at increasingly higher levels.

In practice, disputes are often resolved by the acceptance of the view of the party that has the most
‘financial clout' in the project. In such a situation mediation and negotiation may only deliver an
outcome which is a reflection of the original power imbalance.

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 Chapter 2 | Organisational Context for Projects

CHAPTER 2
ORGANISATIONAL
CONTEXT FOR PROJECTS
 Chapter 2 | Organisational Context for Projects

1 PROJECT PORTFOLIO MANAGEMENT

Every strategic initiative in a firm involves change management and change management is best
accomplished through the tools, tactics and techniques of project management. Project
management thus becomes the enabler, the vehicle through which all strategic change happens.
The project itself is the gap filler, the bridge between what is and what will be (Baker, 2008).

Projects should be undertaken within the usual corporate and functional planning processes. The
objectives set at different levels will set the foundations of strategy. Project management is often
critical in ensuring that required changes are put in place.

Projects can be set at corporate level, departmental level, product level and market level or even
across departments or geographies. Top-level projects include culture change throughout the
organisation, new market entry or even implementation of an enterprise system. Departmental,
product and market levels could include research or promotional projects for marketers, or the roll
out of a new sales force reporting system as examples. Projects that span departments and
geographies include new product development projects.

It is clear that projects are an essential part of the business activities at all levels. The challenge then
is to prioritise and manage these appropriately to meet the organisation’s needs.

Organisations and departments typically have many projects at any given time. Projects need to be
aligned with the organisation’s strategic priorities, and prioritised to ensure that the organisation’s
resources are focused on the priorities of the organisation. However, Rad and Levin (2008) comment
that often projects appear like ‘floating’ islands and are not best integrated into the organisation.

They recommend the use of Project Portfolio Management (PPM), which enables organisations to
select, resource and implement projects to ensure that the right projects are selected on the basis
of their benefit to the organisation, and also taking account of the organisation’s resources. Most
PPM approaches result in a prioritised list of the most important projects. The project at the top of
the list should have priority over others, and resourcing decisions should follow.

This PPM approach is not limited to new projects, but places a check on the relevance of projects
as the organisation’s strategy changes. As the portfolio term implies, this assessment must not only
apply in the original selection decision, but also review the project at key stages to test the current
alignment with the organisation’s objectives and strategy, failing which can result in early project
termination.

While the discipline of a PPM approach is perfectly logical, it must be recognised that the outcomes
are often not. If a number of projects are competing for approval at a project board or equivalent,
then the relative strength of support and positions of power of the project champions will often
influence the decision.

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External conditions may have an impact – it is much harder to get approval for expenditure during
recessionary times, as otherwise important work will be cancelled or postponed.

It is often more difficult to make a case for large-scale in-house projects that do not directly relate
to profitability. For example, a company may have a series of databases within separate
departments that are not integrated. To rationalise them into a consolidated database with much
more potential for improving, Customer Relationship Management could give significant longer-
term returns. The problem is that it might be forgotten when a campaign shows good results that
it was the refined database that pointed the way to better targeting of new clients.

Professional project management started on major projects, such as new airport developments or
major industrial developments. In such instances, project managers were required to co-ordinate
and control the development process and the interaction of all players (e.g. owners, funding
agencies, developers, designers, contractors, suppliers, operators, regulatory bodies etc.). The
complex nature of these projects meant that a formal management was required.

Successful project management in this sphere led to an awareness that organisations with strong
project management were more effective than those that did not manage projects well.

2 PROJECT SUCCESS
Project management’s contribution is now widely recognised as important within the functional
areas of organisations. Business initiatives, activities and campaigns often fit the above definition
of projects. Professional project management gives attention to the various players, tasks and
outcomes for their success.

The consideration of project management will first address the types of projects (activities), how
these are undertaken (people and processes) and why they do it (strategic goals and competitive
position). Success results from their effective co-ordination and integration.

2.1 PROJECT SUCCESS FACTORS

Projects, small or large, are prone to fail unless they are appropriately managed and some effort is
applied to ensure that factors that might contribute to success are present. Here are some of the
key factors.

 Clearly defined mission and goals effectively communicated to, and understood by, all
participants.
 Top management support that is visible is important in sending out the right messages
regarding the significance of the project.
 Competent project manager with the necessary technical and inter-personal skills.
 Well designed operational process to ensure that work proceeds efficiently.

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 Competent team members with the appropriate knowledge, skills and attitudes. A good
team spirit helps to smooth the path to completion.
 Sufficient resources in terms of finance, materials, people and processes.
 Excellent communication ethos to ensure information is shared and there are no
misunderstandings.
 Use of effective project management tools such as charts, leading edge software and
project progress meetings.
 Clear client focus so that all work is done bearing in mind the needs of internal and external
customers.

Project management ensures responsibilities are clearly defined and that resources are focused on
specific objectives. The project management process also provides a structure for communicating
within and across organisational boundaries.

All projects share similar features and follow a similar process. This has led to the development of
project management tools and techniques that can be applied to all projects, no matter how
diverse. For example, with some limitations, similar processes and techniques can be applied
whether building a major structure (e.g. Terminal 5 at Heathrow Airport) or implementing a
company-wide computer network.

2.2 WHY DO PROJECTS GO WRONG?

Project planning is fundamental to project success. Realistic timescales and resource requirements
must be established, use of shared resources must be planned and, most fundamental of all, jobs
must be done in a sensible sequence.

Common reasons for project failure are also:

 Poor project planning (specifically inadequate risk management and weak project plan)
 A weak business case
 Lack of top management involvement and support

However, even if all these aspects are satisfactory there are other potential pitfalls that the project
planner must avoid or work around. Here are some examples.

(a) Unproven technology

The use of new technological developments may be a feature of any project. The range of such
developments extends from fairly routine and non-critical improvements, through major
innovations capable of transforming working practices, costs and time scales, to revolutionary
techniques that make feasible projects that were previously quite impracticable. As the practical
potential of a technical change moves from minor to major, so its potential to cause disruption
if something goes wrong with it also increases.

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(b) Changing client specifications

It is not unusual for clients' notions of what they want to evolve during the lifetime of the
project. However, if the work is to come in on time and on budget, they must be aware of what
is technically feasible, reasonable in their aspirations, prompt with their decisions and,
ultimately, prepared to freeze the specification so that it can be delivered. Note that the term
'client' includes internal specifiers.

(c) Politics

This problem area includes politics of all kinds, from those internal to an organisation managing
its own projects, to the effect of national (and even international) politics on major
undertakings. Identification of a senior figure with a project; public interest and press hysteria;
hidden agendas; national prestige; and political dogma can all have disastrous effects on
project management. Lack of senior management support is an important political problem.

3 A PROJECT-ORIENTED ORGANISATION (‘POO’)

A project oriented organisation (POO) is an organisation, which:

 Defines ‘Management by Projects’ as an organisational strategy

 Applies temporary organisations for the performance of complex processes
 Manages a project portfolio of different project types
 Has specific permanent organisations to provide integrative functions
 Applies a ‘New Management Paradigm’
 Has an explicit project management culture
 Perceives itself as project-oriented

A project-oriented culture (‘POC’) is characterised by the existence of an explicit culture of project

management. In the POC, project management is considered as a business process, for which there
exist specific procedures and a common understanding of the performance of this process.

4 PROJECTS AND STRATEGY

4.1 LINKING PROJECTS WITH STRATEGY

Grundy and Brown (2002) see three links between strategic thinking and project management.

(a) Many projects are undertaken as consequences of the overall strategic planning process.
These projects may change the relationship between the organisation and its environment
or they may be aimed at major organisational change.

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(b) Some important projects arise on a bottom-up basis. The need for action may become
apparent for operational rather than strategic reasons: such projects must be given careful
consideration to ensure that their overall effect is congruent with the current strategy.
(c) Strategic thinking is also required at the level of the individual project, in order to avoid the
limitations that may be imposed by a narrow view of what is to be done.

4.2 PROJECT MANAGING STRATEGY

Project management in its widest sense is fundamental to much strategy. This is because very few
organisations are able to do the same things in the same ways year after year. Continuing
environmental change forces many organisations to include extensive processes of adaptation into
their strategies. Business circumstances change and new conditions must be met with new
responses or initiatives. Each possible new development effectively constitutes a project in the
terms we have already discussed.

Gray and Larsen (2010) give examples, some of which are noted below.

(a) Compression of the product life cycle: product life cycles have fallen to one to three years,
on average, and it has become necessary to achieve very short time to market with new
products if advantage is to be retained.
(b) Global competition emphasises cost and quality; project management techniques are used
to achieve the new requirements.
(c) Increased product complexity requires the integration of diverse technologies.
(d) Management delayering has eliminated routine middle-management posts while much
work has been outsourced: such organisational change tends to be continuous and project
management techniques are required to get things done in a flexible manner.
(e) Increased customer focus in the form of customised products and close service
relationships is often achieved through a project management approach.

Grundy and Brown (2002) offer an integrative analysis of this trend and suggest three reasons for
taking a project management view of strategic management.

(a) Much strategy appears to develop in an incremental or fragmented way; detailed strategic
thinking may be best pursued through the medium of a strategic project or group of
projects. Project management is a way of making ad hoc strategy more deliberate and
therefore better considered.
(b) Strategic implementation is more complex than strategic analysis and choice; a project
management approach, as outlined above, has an important role to play here, but must
become capable of handling more complex, ambiguous and political issues if it is to play it
effectively. When an apparent need for a project emerges, it should be screened to ensure
that it supports the overall strategy.

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(c) Even at the smaller, more traditional scale of project management, wider strategic
awareness is vital if project managers are to deliver what the organisation actually needs

Of course, not all new developments are recognised as worthy of project management. For
example, the installation of a new, shared printer in an office would probably be regarded as a
matter of routine, though it would no doubt have been authorised by a responsible budget holder
and installed and networked by a suitable technician. There would probably have been a small
amount of training associated with its use and maintenance and it might have been the subject of
a health and safety risk assessment. All these processes taken together look like a project, if a very
small one.

In contrast to the multitude of such small events, modern organisations are likely to undergo
significant change far less often, but sufficiently frequently and with developments that have
sufficiently long lives for project management to be an important aspect of strategic
implementation. Project management and change management are thus intimately linked.

An atmosphere of change and continuing development will be particularly evident in relation to

marketing; information systems and technology; organisation structure; and organisation culture.

4.3 PROJECT MANAGEMENT AS A CORE COMPETENCE

Project management can be a core strategic competence for many companies. This is particularly
true for companies working in such industries as consulting and construction, but it is also true of
organisations of all kinds that can benefit from Grundy and Brown's (2002) approach outlined
above. Such companies must ensure that they maintain and improve their project management
abilities if they are to continue to be commercially successful.

Kerzner (2009) describes a five-level project management maturity model of continuous

organisational improvement in the methodology of project management. Organisations should
aspire to progress to the highest level, which is a state of continuous improvement. The five levels
need not necessarily follow one another in a linear fashion: they may overlap, but the degree of
overlap allowed is reflected in the risk associated with the overall process.

Level 1 Common knowledge

The importance of project management to the organisation is understood and
training in the basic techniques and terminology is provided.

Level 2 Common processes

The processes employed successfully are standardised and developed so that they
can be used more widely, both for future projects and in concert with other
methods such as Total Quality Management. Total Quality Management (TQM)
is a commitment to quality that goes beyond internal company issues to suppliers
and customers.

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Level 3 Singular methodology

Project management is placed at the centre of a single corporate methodology,
achieving wide synergy and improving process control in particular.

Level 4 Benchmarking
Competitive advantage is recognised as being based on process improvement
and a continuing programme of benchmarking is undertaken

Level 5 Continuous improvement

Benchmarking information is critically appraised for its potential contribution to
the improvement of the singular methodology.

Models such as Kerzner’s are a guide to progress; in particular they indicate corporate training
needs and career development routes for project managers.

4.4 STRATEGIC PROJECT MANAGEMENT

It is possible to move from the slightly ad hoc approach outlined above, where project management
is essentially an implementation method, to a more all-embracing theory of strategic development
(which will inevitably involve marketing management activities). Grundy and Brown (2002)
suggest that it is often appropriate for organisations to combine project management and strategic
management into a process that they call strategic project management. This envisages strategy as
a stream of projects.

5 THE PROJECT-STRUCTURED ORGANISATION

5.1 ORGANISATIONAL STRUCTURES

Globalisation, other aspects of rapid environmental change and, above all, the need to exploit
knowledge make the structures, processes and relationships that compose configurations vital for
strategic success.

Johnson, Scholes and Whittington (2008) identify three major groups of challenges for twenty-first
century organisation structures.

1. The rapid pace of environmental change and increased levels of environmental uncertainty
demand flexibility of organisational design.
2. The creation and exploitation of knowledge requires effective systems to link the people who
have knowledge with the applications that need it.
3. Globalisation creates new types and a new scale of technological complexity in communication
and information systems; at the same time, diversity of culture, practices and approaches to
personal relationships bring their own new problems of organisational form.

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Of these three sets of issues, the need to capture, organise and exploit knowledge is probably the
most pressing for most organisations. An important element of response to this need is therefore
an emphasis on the importance of facilitating effective processes and relationships when designing
structures. Johnson, Scholes and Whittington (2008) use the term configuration to encompass these
three elements.

(a) Structure has its conventional meaning of organisation structure.

(b) Processes drive and support people: they define how strategies are made and controlled;
and how the organisation’s people interact and implement strategy. They are fundamental
to systems of control.
(c) Relationships are the connections between people within the organisation and between
those internally and those externally.

Effective processes and relationships can have varying degrees of formality and informality and it
is important that formal relationships and processes are aligned with the relevant informal ones.

It is very important to be aware that structures, processes and relationships are highly
interdependent: they have to work together intimately and consistently if the organisation is to be
successful.

An organisation’s formal structure reveals much about it.

(a) It shows who is responsible for what.

(b) It shows who communicates with whom, both in procedural practice and, to a great extent,
in less formal ways.
(c) The upper levels of the structure reveal the skills the organisation values and, by extension,
the role of knowledge and skill within it.

We are concerned here with the project-structured organisation, but we will approach it via some
other forms that are relevant to it.

5.2 THE FUNCTIONAL STRUCTURE

In a functional organisation structure, departments are defined by their functions, that is, the work
that they do. It is a traditional, common sense approach and many organisations are structured like
this. Primary functions in a manufacturing company might be production, marketing, finance, and
general administration. Sub-departments of marketing might be selling, advertising, distribution
and warehousing.

Functionally structured organisations can undertake projects successfully, partly, because they are
able to provide in-depth expertise to project managers by allocating expert staff from appropriate
functions. However, such staff can suffer from lack of focus if they still have a major functional role
to play and it can be difficult to integrate their efforts properly.

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Functional structures are simple and almost intuitive in their operation. However, they tend to
promote insularity of thought and even distrust between functions. Achieving full co-ordination of
the work of the various departments can be very difficult. This sort of problem leads to the matrix
structure.

5.3 THE MATRIX STRUCTURE

The matrix structure imposes an extra layer of cross-functional management on top of the
functional structure in order to improve co-operation and integration of effort by granting authority
to project managers. Typically, the superimposed structure will be concerned with individual
products or product groups. Product or brand managers may be responsible for budgeting, sales,
pricing, marketing, distribution, quality and costs for their product or product line, but have to liaise
with the R&D, production, finance, distribution, and sales departments in order to bring the product
to the market and achieve sales targets.

The product managers may each have their own marketing team; in which case the marketing
department itself would be small or non-existent. The authority of product managers may vary from
organisation to organisation.

The division of authority between product managers and functional managers must be carefully
defined. Many decisions and plans will require careful negotiation if there is to be proper
cooperation. This can result in stress, conflict and slow progress.

The matrix structure is now regarded as rather old-fashioned, since it is essentially a complex way
of retaining the basic functional structure by adding extra resources to overcome its disadvantages.
More modern approaches seek fundamental improvements and tend to focus on processes and
projects.

5.4 THE TEAM-BASED STRUCTURE

Both team- and project-based structures use cross-functional teams. The difference is that projects
naturally come to an end and so project teams disperse.

A team-based structure extends the matrix structures’ use of both vertical functional links and
horizontal, activity-based ones by utilising cross-functional teams. Business processes are often
used as the basis of organisation, with each team being responsible for the processes relating to
an aspect of the business. Thus, a purchasing team might contain procurement specialists, design
and production engineers and marketing specialists, to ensure that outsourced sub-assemblies are
properly specified and contribute to brand values as well as being promptly delivered at the right
price.

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5.5 THE PROJECT-BASED STRUCTURE

The project-based structure is similar to the team-based structure except that projects, by
definition, have a finite life and so, therefore, do the project teams dealing with them. Staff are
allocated to a project team as needed to deliver the project end state. This approach has been used
for many years by such organisations as civil engineers and business consultants.

A high level of motivation is common and the integration of specialist work is eased by commitment
to project delivery. Staff may work on several projects at the same time and thus have
responsibilities to several project managers.

This approach is very flexible and easy to use; it tends to complete projects quickly if the discipline
of project management is well-understood. In particular, it requires clear project definition if control
is to be effective and comprehensive project review if longer-term learning is to take place.

However, there is a downside to project-based organisation:

 It can be expensive in staff and loss of economies of scale.

 Project teams can become insular, rivalrous and unwilling to import expertise when
necessary.

In the project-based organisation, specialist functional departments still exist, but their role is to
support the project teams. Since the project teams are staffed from a pool of experts, the functional
structure remains intact and is not weakened by secondments to project work.

6 TYPES OF PROJECTS
The differences between projects indicate how they should be managed. Brown (2000) sees projects
as spreading across a continuum, with complexity increasing on a number of dimensions.

These dimensions include:

 Budget size
 Time span
 Human resources involved
 Complexity of tasks
 Cross-functional involvement
 Co-ordination required

Simple projects, characterised as low budget, short term, simple tasks, within a functional domain,
would require more administrative management. Those that are more complex, with higher
budgets, often with people from different departments (and may be organisations) and spanning
a longer term would require more sophisticated project management.

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6.1 ‘UNCERTAINTY’ AND PROJECT CATEGORIES

Obeng (1994) takes a related approach to characterise four distinct project environments, with
differences in process uncertainty (i.e. what to do) and the level of outcome uncertainty (i.e. what
can be achieved) and named the four resulting categories.

1 Paint by numbers – Projects are low in process and outcome uncertainty, e.g. installing
point of sale (POS) displays in retailers’ outlets. The outcome is the same – the installation
of the POS display – and the process (the way in which it is implemented) would be similar.
However, differences, such as environmental factors (e.g. existing store design), time issues
(e.g. minimising staff and customer inconvenience) and cost issues (e.g. adaptations for a
given situation) mean this is not a completely routine process. Often, organisations have
process protocols or manuals detailing core processes. These types of projects are
considered ‘hard’ projects, because of their fixed processes and clarity of outcome.

2 Making a movie – Projects are low in process uncertainty and high in outcome uncertainty.
Producers and directors know what is involved in making the movie, although the topic,
location and people vary. However, predicting the success of the movie is difficult. Projects
such as new product or advertising campaign launches often have a similar pattern of high
costs and a high risk of failure. These projects need clear, precise definition of outcomes,
and stakeholders’ expectations must be managed throughout the process. Timescales and
budgets must be tightly controlled.

3 The quest – Projects are high in process uncertainty and low in outcome uncertainty. These
projects have focused outcomes, but it is not clear how or when this will be achieved. Some
exploratory development projects, such as AIDS cures for pharmaceutical companies, are
in this category. Progress and resources reviews throughout these projects are essential to
keep within cost. Further, focus is essential to keep the project on target.

4 The foggy project – Projects are vague in what is involved and in the expected results, so
they have no set process and uncertainty outcomes. The original dot-com companies, like
boo.com and lastminute.com, were foggy projects in their development stages, with little
to guide them. Foggy projects need control over costs and level of risk. Project managers
need to manage stakeholder relationships as the project develops.

6.2 HARD AND SOFT PROJECTS

Project management, as a management discipline, has largely been developed in a context of

engineering, where there have been well-defined, tangible objectives to be achieved. Examples
abound in the civil engineering and aircraft industries. Even where objectives have been events
rather than things, such as mounting the Olympic Games, it has been fairly clear what the desired
outcomes were and what was involved in achieving them. There is, however, a wide category of
projects for which clear-cut scope does not exist and it is difficult to see quite how to proceed. The

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project sponsors are aware that something must be done, but they are not quite sure what,
precisely, it is, nor how to achieve it. The public sector could provide many illustrations, such as, for
example, a perceived need to improve secondary education. Such a mission would be subject to
extensive debate: first as to what was to be understood by ‘improve’; and, second, how to go about
the ‘improving’.

6.3 HARD AND SOFT LABELS

This apparent dichotomy represented by clearly defined, engineering-oriented programmes on the

one hand and, vaguer areas of aspiration on the other has led to the use of the terms hard and soft
to label the two types of project. This usage is not confined to the sphere of project management.
Professor Mike Pidd of Lancaster University Business School in relation to operations research (OR)
says: ‘Unfortunate though these terms are, they have crept into common usage in recent years.
They are really extreme points on a spectrum ...’ (Pidd, 2010).

 In hard OR, the question of problem definition is seen as relatively straightforward, and is more
a question of finding out what is going on so that some appropriate analysis can be conducted.
The key assumption is that this real world can be understood and (sic) a taken-for-granted way.

 By contrast, in soft OR, problem definition is seem as problematic and the process of problem
structuring is regarded as crucial to the success of any soft OR. This relates to John Dewey’s
maxim that, ‘a problem well put is a problem half solved’. The world is seen as multi-faceted,
and the approaches adopted to try to understand it are interpretive or pluralistic. Thus, problem
definition is seen as something which must be negotiated between parties who may have
different interests and interpretations.

Professor Pidd’s remarks about problem definition are as applicable to project management as to
OR. The other insight he offers us here is the idea of hard and soft as extreme points on a spectrum:
an awareness that an apparently hard project has some soft aspects will be very useful to the project
manager, as will be an awareness of the opposite case.

6.4 SEVEN DIMENSIONS FOR ANALYSIS

Crawford and Pollack (2004) offer further description of what is meant by the terms hard and soft
in the context of project management and offer a seven element analysis (outlined below) of the
practical differences. They say: generally, objectivist, scientific approaches are hard, while
subjectivist, social approaches are soft. ‘Hard’ approaches are about seeking and deploying
objective knowledge, while soft approaches depend on the construction and subjective
interpretation of knowledge.

Just as the overall classifications of hard and soft should be seen as ends of a spectrum, so Crawford
and Pollacks’s factors have degrees of presence in a project; they are not qualities that are present

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or absent. Most of these factors are both visible in the project and in the methods used in its
management, though some are more relevant to one or the other.

(a) Goal/objective clarity. The degree of definition of the goal or objectives is the first
dimension of analysis. Clear and specific desired outcomes are typical of engineering
projects, while projects relating to research or organisational change, for example, tend to
have less well-defined objectives.
(b) Goal/objective tangibility. The clarity and tangibility of project goals and objectives are
often linked and the link may be very strong indeed, as with many engineering projects,
where the objective is the construction of a physical object. However, this is not always the
case: very clear goals can relate to intangible outcomes, such as individual exam success,
while some very tangible construction objectives, for example, may be approached via
ambiguous specifications.
(c) Success measures. Generally, it is easier to measure the degree of success of hard projects
than of soft ones, partly as a result of their higher degree of goal tangibility and clarity.
Quantitative performance measures are associated with hard projects and qualitative with
soft. It should not be assumed that quantitative measures are superior to qualitative ones:
each has its place. Quantitative measures are generally confined to a few variables
considered significant in order to minimise the cost of data capture; this does not give a
full picture. Nor are quantitative measures adequate when projects deal with qualitative
matters such as attitude, learning and morale.
(d) Project permeability. The permeability of a project is the extent to which its objectives
and processes are subject to influences outside the control of the project manager. The
extent of these influences might be very limited in a short, simple project of a well-
understood type. However, larger, less well-defined projects in less well-understood
environments are likely to display considerable permeability. A good example of a factor
increasing project permeability is the use of sub-contractors: their competence and
diligence are far less subject to the control of the project manager than are those of in-
house teams.
(e) Number of solution options. Hard projects will normally have one or more clearly defined
outcomes, possibly handed down by authority. Softer projects will tend to have a range of
possible outcomes that require consideration.
(f) Degree of participation and practitioner role. This dimension relates specifically to the
nature of the appropriate project management practice and is dealt with below under
implementation.
(g) Stakeholder expectations. Clear and logical stakeholder relationships are typical in hard
projects, where the emphasis is on efficiency and predictability. Soft projects, because of
their indeterminate nature, require a greater degree of interaction between stakeholders in
order to overcome differences of style, language, assumptions and competence. The
credibility of project staff in the eyes of stakeholders may become an issue.

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6.5 IMPLEMENTATION CONSIDERATIONS

The chances of making a project a success are enhanced if project management methods are
tailored to the degree of its hardness or softness. Hard and soft approaches are not mutually
exclusive and can be combined in ways that reflect the project's position on the various dimensions.

(a) Goal/objective clarity. The extent of clarity in the definition of a project's goals and objectives
affects the methods that are used to move the project forward. Well-defined goals permit the
application of techniques designed to achieve them efficiently. Where there is goal ambiguity,
effort must be deployed on consultation, learning and negotiation in order to reach an
adequate degree of goal definition. These processes will almost certainly have to be continued
throughout the life of the project as new ambiguities arise and have to be dealt with. The
management of the project thus entails as much consideration of what is to be done as of how
to do it.

(b) Project permeability. Where project permeability is low, hard management methods that
concentrate on clear objectives and techniques are appropriate. However, where permeability
is high, a softer approach is needed. It may be necessary to deal with, for example, bureaucratic,
organisational, cultural and political influences that are capable of affecting both objectives
and methods. These influences will probably have to be dealt with sympathetically and
diplomatically. They will require a learning approach to management and a degree of
adjustment to project processes and intended outcomes as understanding of the environment
grows.

(c) Number of solution options. Hard projects tend to be managed to achieve efficient delivery
of clearly defined outcomes. Softer project management methods will tend to explore a range
of methods and solutions to problems. This will be appropriate when there is potential benefit
in questioning assumptions and exploring a range of options. Crawford and Pollack (2004) say
‘the soft paradigm emphasises learning, debate, participation, exploration and questioning’.

(d) Degree of participation and practitioner role. A soft approach to project management is
participative and collaborative, with expertise in facilitating the efforts of others being a major
competence for the project manager. By contrast, the hard project management style tends to
be based on individuals’ technical expertise in their areas of concern. Project staff will have
clearly defined roles and boundaries. This hard approach can achieve faster project delivery,
but at a potential cost in lost innovation and learning.

(e) Stakeholder expectations. The implementation aspects of this dimension follow on from the
previous one. A hard management approach will tend towards command and control, whereas
a soft approach ‘has culture, meaning and value as central concerns’. Organisations are seen as
cultural systems and project success will depend on the perceptions of the stakeholders
involved.

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 Chapter 3 | Project Feasibility & Appraisal

CHAPTER 3
PROJECT FEASIBILITY &
APPRAISAL

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 Chapter 3 | Project Feasibility & Appraisal

1 THE FEASIBILITY STUDY

A feasibility study is a formal study to decide whether a project is viable. When considering a project,
the study would investigate the feasibility of project that could be undertaken to meet the needs
of the organisation. In other words, a feasibility study is a formal study to decide whether proposed
projects can be undertaken to best meets the needs of the organisation.

1.1 THE FEASIBILITY STUDY TEAM

A feasibility study team should be appointed to carry out the study (although individuals might be
given the task in the case of smaller projects).

Members of the team should be drawn from the departments affected by the project. At least one
person must have a detailed and technical knowledge related to project proposal. At least one
person should have a detailed knowledge of the organisation and in particular of the workings and
staff of the departments affected.

Before selecting the members of the feasibility study group, organisation must ensure that they
possess suitable personal qualities, e.g. the ability to be objectively critical.

It is possible to hire consultants to carry out the feasibility study, but their lack of knowledge about
the organisation may adversely affect the usefulness of their proposals.

The remit of a feasibility study may be narrow or wide. The feasibility study team must engage in a
substantial effort of fact finding.

1.2 KEY AREAS OF FEASIBILITY

There are four key areas in which a project must be feasible if it is to be selected. It must be
justifiable on technical, operational, social and economic grounds.

There are four key areas of feasibility:

1. Technical feasibility
2. Operational feasibility
3. Social feasibility
4. Economic feasibility

Technical feasibility
The requirements, as defined in the feasibility study, must be technically achievable. This means
that any proposed solution must be capable of being implemented. For a computer system project
for example, any proposed solution must be capable of being implemented using available
hardware, software and other technology.

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Operational feasibility
Operational feasibility is a key concern. If an investment makes technical sense but conflicts with
the way the organisation does business, the solution is not feasible. Thus an organisation might
reject a solution because it forces a change in management responsibilities, status and chains of
command, or does not suit regional reporting structures, or because the costs of redundancies,
retraining and reorganisation are considered too high.

Social feasibility
An assessment of social feasibility will address a number of areas, including the personnel policies,
redrawing of job specifications, threats to industrial relations, expected skills requirements and
motivation.

Economic feasibility
Any project will have economic costs and economic benefits. Economic feasibility has three strands.

(a) The benefits must justify the costs.

(b) The project must be the 'best' option from those under consideration for its particular
purpose.
(c) The project must compete with projects in other areas of the business for funds. Even if it
is projected to produce a positive return and satisfies all relevant criteria, it may not be
chosen because other business needs are perceived as more important.

1.3 FEASIBILITY STUDY REPORT

Once each area of feasibility has been investigated a number of possible projects may be put
forward. The results are included in a feasibility report. Once each area of feasibility has been
investigated a number of possible projects may be put forward. The results of the study should be
compiled into a report that makes a recommendation regarding future action.

The feasibility study report may be submitted to the organisation's steering committee for
consideration or perhaps to the likely project manager (this will depend upon the size and nature
of the project and the preferences of the organization).

A typical feasibility study report may include the following sections: terms of reference, details of
the project cost/benefit analysis, development and implementation plans and recommendations as
to the preferred option. Following section discusses different investment appraisal techniques that
are commonly used to evaluate the economic or financial feasibility of a proposed project.

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2 INVESTMENT APPRAISAL TECHNIQUES

One of the most important elements of the feasibility study is the cost-benefit analysis. Costs
include equipment costs, installation costs, development costs, personnel costs and running costs.
Benefits are usually more intangible, but include cost savings, revenue benefits and qualitative
benefits.

A cost-benefit analysis relating to the development of information systems is complicated by the

fact that many system cost elements are poorly defined and that benefits can often be highly
qualitative and subjective in nature.

There are three principal methods of evaluating the economic viability of a project: Payback,
Accounting Rate of Return and Discounted Cash Flow.

Payback period: This method of investment appraisal calculates the length of time a project will
take to recoup the initial investment; in other words how long a project will take to pay for itself.
The method is based on cash flows.

Accounting rate of return: This method, also called return on investment, calculates the profits
that will be earned by a project and expresses this as a percentage of the capital invested in the
project. The higher the rate of return, the higher a project is ranked. This method is based on
accounting results rather than cash flows.

Discounted cash flow (DCF): This is a method which may be sub-divided into two approaches.

(a) Net present value (NPV), which considers all relevant cash flows associated with a project

over the whole of its life and adjusts those occurring in future years to 'present value' by
discounting at a rate called the 'cost of capital'.

(b) Internal rate of return (IRR), which involves comparing the rate of return expected from the
project calculated on a discounted cash flow basis with the rate used as the cost of capital.
Projects with an IRR higher than the cost of capital are worth undertaking.

Before looking at each of these methods in turn it is worth considering one problem common to
all of them, that of uncertainty. Estimating future cash flows and other benefits cannot be done
with complete accuracy, particularly as the future period under consideration may as long as five
or even ten years. It is therefore important that decision makers should consider how variations in
the estimates might affect their decision.

2.1 THE PAYBACK METHOD

The Payback method calculates the length of time a project will take to recoup the initial investment.
The payback period is the length of time required before the total cash inflows received from the

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project is equal to the original cash outlay. In other words, it is the length of time the investment
takes to pay itself back.

Example: Payback

Consider the case of two projects for which the following information is available.

Project P Project Q
$ $
Cost 100,000 100,000
Cash savings
Year 1 10,000 50,000
2 20,000 50,000
3 60,000 10,000
4 70,000 5,000
5 80,000 5,000
240,000 120,000

Solution

Project Q pays back at the end of year two and Project P not until early in year four. Using the
payback method Project Q is to be preferred, but this ignores the fact that the total profitability of
Project P ($240,000) is double that of Q.

Despite the disadvantages of the payback method it is widely used in practice, though often only
as a supplement to more sophisticated methods.

Besides being simple to calculate and understand, the argument in its favour is that its use will tend
to minimise the effects of risk and help liquidity. This is because greater weight is given to earlier
cash flows which can probably be predicted more accurately than distant cash flows.

2.2 ACCOUNTING RATE OF RETURN

The Accounting Rate of Return (ARR) method, also called return on investment, expresses the profits
that will be earned by a project as a percentage of the capital invested.

A project may be assessed by calculating the accounting rate of return (ARR) and comparing it with
a pre-determined target level. Various formulae are used, but the important thing is to be consistent
once a method has been selected.

Accounting rate of return is calculated as follows

𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑝𝑟𝑜𝑓𝑖𝑡𝑠

𝐴𝑃𝑅 = 𝑥100%
𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡

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Example: ARR

Caddick Limited is contemplating a computerisation project and has two alternatives. Based on the
ARR method which of the two projects would be recommended?

Project X Project Y

Hardware cost $100,000 $120,000

Estimated residual value 10,000 $15,000

Estimated life 5 years 5 years

Estimated future cost savings per annum before depreciation$19,000 $21,800

Solution

It is first necessary to calculate the average profits (net savings) and average investment over the
life of the project (five years in this example).

Project X Project Y
$ $
Total savings before depreciation (e.g. $19,000 pa × 5 years) 95,000 109,000
Total depreciation 90,000 105,000
Total savings after depreciation 5,000 4,000

Average savings per annum (5 years so divide by 5) 1,000 800

Value of investment initially 100,000 120,000

Less eventual scrap value (10,000) (15,000)
90,000 105,000

Average investment per annum (5 years so divide by 5) 18,000 21,000

The accounting rates of return are as follows. Project X would therefore be chosen.

$1,000
𝑃𝑟𝑜𝑗𝑒𝑐𝑡 𝑋 = 𝑥5.56%
$18,000

$800
𝑃𝑟𝑜𝑗𝑒𝑐𝑡 𝑋 = 𝑥3.8%
$21,000

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The return on investment is a measure of (accounting) profitability and its major advantages that it
can be obtained from readily available accounting data and that its meaning is widely understood.

Its major shortcomings are that it is based on accounting profits rather than cash flows and that it
fails to take account of the timing of cash inflows and outflows. For example, in the problem above
cash savings in each year were assumed to be the same, whereas management might favour higher
cash inflows in the early years. Early cash flows are less risky and they improve liquidity. This might
lead them to choose a project with a lower ARR.

2.3 DISCOUNTED CASH FLOW (DCF)

Discounted Cash Flow (DCF) may be sub-divided into two approaches. Net Present Value (NPV)
considers expected future cash flows but discounts future flows by the 'cost of capital'.

Discounted cash flow or DCF is a technique of evaluating capital investment projects, using
discounting arithmetic to determine whether or not they will provide a satisfactory return.

A typical investment project involves a payment of capital for fixed assets at the start of the project
and then there will be profits coming in from the investment over a number of years. When the
system goes live, there will be running costs as well. The benefits of the system should exceed the
running costs, to give net annual benefits.

DCF recognises that there is a 'time value' and risk cost to investing money, so that the expected
benefits from a project should not only pay back the costs, but should also yield a satisfactory
return. Only relevant costs are recognised: accounting conventions like depreciation, which is not a
real cash flow, are ignored.

$1 is now worth more than $1 in a year's time, because $1 now could be used to earn more by the
end of year 1. Money has a lower and lower value, the further from 'now' that it will be earned or
paid. With DCF, this time value on money is allowed for by converting cash flows in future years to
a smaller, present value, equivalent.

3 NPV
Net present value or NPV is the value obtained by discounting all cash outflows and inflows of a
capital investment project by a chosen target rate of return or cost of capital. The sum of the present
value of all expected benefits from the project and the present value of all expected cash outlays is
the 'net' present value amount.

With the NPV method of project appraisal, all expected cash inflows and all expected cash outflows
from the project are discounted to a present value at the organisation's cost of capital or required
rate of return. The net present value is the difference between the present value of total benefits
and the present value of total costs.

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If the PV of benefits exceeds the PV of total costs, the NPV is positive, and the project is expected
to earn a return in excess of the organisation's cost of capital (required rate of return).

If the PV of benefits is less than the PV of total costs, the NPV is negative, and the project will earn
a return that is lower than the organisation's cost of capital (required rate of return).

Projects with a positive NPV are financially viable, but projects with a negative NPV are not.

3.1 NPV EXAMPLE

A DCF evaluation, using NPV analysis, of a proposed computer project might be as follows.

Project: new network system for administration department

Development and hardware purchase costs (all incurred over a short time) $150,000
Operating costs of new system, expressed as cash outflows per annum $55,000
Annual savings from new system, expressed as cash inflow $115,000
Annual net savings (net cash inflows) $60,000
Expected system life 4 years
Required return on investment 15% pa

Solution

The calculation of NPV is performed as follows.

Year Cost/Savings Discount factor at 15% Present value at 15%
$ (from NPV tables) $
0 (150,000) 1 (150,000)
1 60,000 0.870 52,200
2 60,000 0.756 45,360
3 60,000 0.658 39,480
4 60,000 0.572 34,320
Net Present Value of the project 21,360

In this example, the present value of the expected benefits of the project exceed the present value
of its costs, all discounted at 15% pa, and so the project is financially justifiable because it would be
expected to earn a yield greater than the minimum target return of 15%. Payback of the
development costs and hardware costs of $150,000 would occur after 2½ years.

One disadvantage of the NPV method is that it involves complicated maths and this might make it
difficult to understand also, it is difficult in practice to determine the true cost of capital.

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3.2 ANNUITY DISCOUNT FACTOR TABLES

An annuity is a constant annual cash flow, for a number of years. An example of an annuity would
be, say, cash receipts of $50,000 a year for six years, Years 1 – 6. To save time with calculating the
present value of all the individual annual cash flows of an annuity, tables are available for the
cumulative discount factors. Annuity tables give the total of all the discount factors for each year in
Year 1 to Year n, for a given cost of capital r.

For example, the annuity factor for a cost of capital of 12% for Years 1 – 3 is 2.402. This is simply
the sum of the discount factors for Year 1, 2 and 3.

Year Discount Factor At 12%

1 0.893
2 0.797
3 0.712
1-3 2.402 = Annuity factor at 12%, years 1-3
If the amount of the annual cash flow for Years 1 – 3 is, say, $10,000 per annum, and the cost of
capital is 12%, it is quicker to calculate the present value of these cash flows in one calculation
($10,000 × 2.402 = $24,020) instead of having to calculate the present value for the cash flow in
each individual year and then add up the total.

These total discount factors could be described as 'same cash flow per annum' factors, or
'cumulative present value' factors, but the term 'annuity' factors is commonly used.

3.3 EXAMPLE: NPV INCLUDING USE OF ANNUITY TABLES

IMC is considering the manufacture of a new product which would involve the use of both a new
machine (costing $150,000) and an existing machine, which cost $80,000 two years ago but has no
resale value. There is sufficient capacity on this machine, which has so far been under-utilised.
Annual profits before depreciation would be $40,000.

The project would have a five-year life, after which the new machine would have a net residual value
of $5,000.

Working capital requirements would be $10,000 in the first year, rising to $15,000 in the second
year and remaining at this level until the end of the project, when it will all be recovered. The
company's cost of capital is 10%.

You are required to assess whether the project is worthwhile.

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Year Discount factor at 10%

1 0.909
2 0.826
3 0.751
4 0.683
5 0.621
1-5 3.791

Solution

The project requires $10,000 of working capital at the end of Year 1 and a further $5,000 at the start
of Year 2. Increases in working capital reduce the net cash flow for the period to which they relate.
When the working capital tied up in the project is 'recovered' at the end of the project, it will provide
an extra cash inflow (for example receivables will eventually be received in cash).

The historic cost of the current machine is not a relevant cost and must be ignored in the appraisal.
The NPV is calculated as follows.

Year Equipment Working Contribution Net Cash Discount PV or net

Capital flow Factor cash flow
$ $ $ $ 10% $
0 (150,000) (10,000) (160,000) 1.000 (160,000)
1 (5,000) (5,000) 0.909 (4,525)
1-5 40,000 40,000 3.791 151,640
5 5,000 15,000 20,000 0.621 12.420
NPV = (485)
The NPV is negative (although not by much) and the project is therefore not recommended for
acceptance, because it fails to earn a return of 10%.

3.4 PERPETUITIES

A perpetuity is a constant annual cash flow that continues indefinitely (a perpetual annuity). The
present value of a perpetuity is given by:

𝐴𝑛𝑛𝑢𝑎𝑙 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤

𝑃𝑉 =
𝑟

where r is the discount rate, expressed as a decimal.

Thus the present value of $400 to be received annually, for ever, if the cost of capital is 8% pa, is:

400
𝑃𝑉 (𝑇1−00 ) $400 = = $5,000
0.008

Notice that the value of the perpetuity is finite because the cash flows that arise far into the future
will have very low present values.

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4 IRR
Internal Rate of Return (IRR) compares the rate of return expected from the project calculated on a
discounted cash flow basis with the rate used as the cost of capital. Projects with an IRR higher than
the cost of capital are considered to be worth undertaking.

The internal rate of return methods of DCF involves two steps.

(a) Calculating the rate of return which is expected from a project.

(b) Comparing the rate of return with the cost of capital.

If a project earns a higher rate of return than the cost of capital, it will be worth undertaking (and
its NPV would be positive). If it earns a lower rate of return, it is not worthwhile (and its NPV would
be negative). If a project earns a return which is exactly equal to the cost of capital, its NPV will be
0 and it will only just be worthwhile.

The manual method of calculating the rate of return is sometimes considered to be rather 'messy'
and unsatisfactory because it involves some guesswork and approximation, but spreadsheets can
do it with speed and precision.

A company is trying to decide whether to buy a machine for $80,000 which will save costs of $20,000
per annum for five years and which will have a resale value of $10,000 at the end of Year 5. If it is
the company's policy to undertake projects only if they are expected to yield a DCF return of 10%
or more, ascertain whether this project should be undertaken.

Use the following discount factors to estimate the IRR of the project.

Year Discount factor at 9% Discount factor at 12%

1-5 3.890 3.605
5 0.650 0.567

Solution

The IRR is the rate for the cost of capital at which the NPV = 0.

Try 9%:
Year Cash flow PV factor PV of cash flow
$ 9% $
0 (80,000) 1.000 (80,000)
1-5 20,000 3.890 77,800
5 10,000 0.650 6,500
NPV 4,300
This is fairly close to zero. It is also positive, which means that the IRR is more than 9%. We can use
9% as one of our two NPVs close to zero, although for greater accuracy, we should try 10% or even
11% to find an NPV even closer to zero if we can. However, a discount rate of 12% will be used
here, to see what the NPV is.

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Try 12%:

Year Cash flow PV factor PV of cash flow

$ 12% $
0 (80,000) 1.000 (80,000)
1-5 20,000 3.605 72,100
5 10,000 0.567 5,670
NPV (2,230)

This is fairly close to zero and negative. The IRR is therefore greater than 9% (positive NPV of $4,300)
but less than 12% (negative NPV of $2,230).

If we were to draw a graph of the NPV at different costs of capital of a 'typical' capital project, with
a negative cash flow at the start of the project, and positive net cash flows afterwards up to the end
of the project, it would look like Figure 1.

FIGURE: 1

If we use a cost of capital where the NPV is slightly positive, and use another cost of capital where
it is slightly negative, we can estimate the IRR - where the NPV is zero - by drawing a straight line
between the two points on the graph that we have calculated.

FIGURE: 2

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Study the diagram above carefully.

(a) If we establish the NPVs at the two points P, we would estimate the IRR to be at point A.
(b) If we establish the NPVs at the two points Q, we would estimate the IRR to be at point B.

The closer our NPVs are to zero, the closer our estimate will be to the true IRR.

We shall now use the two NPV values calculated earlier to estimate the IRR. The interpolation
method assumes that the NPV rises in linear fashion between the two NPVs close to 0. The real rate
of return is therefore assumed to be on a straight line between NPV = $4,300 at 9% and NPV = –
$2,230 at 12%.

The formula to apply is as follows.

where A is the lower rate of return

B is the higher rate of return

NA is the NPV discounted at A

NB is the NPV discounted at B

Let us go back to our example.

If it is company policy to undertake investments which are expected to yield 10% or more, this
project would be undertaken.

5 NPV AND IRR COMPARED

5.1 ADVANTAGES OF IRR METHOD

The main advantage of the IRR method is that the information it provides is more easily understood
by managers, especially non-financial managers. For example, it is fairly easy to understand the
meaning of the following statement.

'The project will be expected to have an initial capital outlay of $100,000, and to earn a yield of 25%.
This is in excess of the target yield of 15% for investments.'

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It is not so easy to understand the meaning of this statement:-

'The project will cost $100,000 and have an NPV of $30,000 when discounted at the minimum
required rate of 15%.'

5.2 DISADVANTAGES OF IRR METHOD

A major weakness of the IRR method is its failure to take account of the total value of a capital
project (the project's NPV). When there are mutually exclusive investments, the IRR method might
favour a project with a higher IRR but a lower NPV. In this case NPV should be used.

It might be tempting to confuse IRR and accounting return on capital employed (ROCE). The
accounting ROCE and the IRR are two completely different measures. If managers were given
information about both ROCE (or ARR) and IRR, it might be easy to get their relative meaning and
significance mixed up.

The IRR method ignores the relative size of investments. Both the following projects have an IRR of
18%.

Project A Project B
$ $
Cost, year 0 350,000 35,000
Annual savings, years 1-6 100,000 10,000

Clearly, project A is bigger (ten times as big) and so more 'profitable' but if the only information on
which the projects were judged were to be their IRR of 18%, project B would be made to seem just
as beneficial as project A, which is not the case.

5.3 MUTUALLY EXCLUSIVE PROJECTS

Mutually exclusive projects are two or more projects from which only one can be chosen. Examples
include the choice of a factory location or the choice of just one of a number of machines. The IRR
and NPV methods can, however, give conflicting rankings as to which project should be given
priority. Let us suppose that a company is considering two mutually exclusive options, option A and
option B. The cash flows for each would be as follows.

Year Option A Option B

$ $
0 Capital outlay (10,200) (35,250)
1 Net cash flow 6,000 18,000
2 Net cash flow 5,000 15,000
3 Net cash flow 3,000 15,000

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The company’s cost of capital is 16%

The NPV of each project is calculated below.

Option A Option B
Year Discount factor at 16% Cash flow Present value Cash flow Present value
$ $ $ $
0 1.000 (10,200) (10,200) (35,250) (35,250)
1 0.826 6,000 5,172 18,000 15,516
2 0.743 5,000 3,715 15,000 11,145
3 0.641 3,000 1,923 15,000 9,615
NPV = +610 NPV = +1,026

The DCF yield (IRR) of option A is 20% and the yield of option B is only 18% (workings not shown.)
On a comparison of NPVs, option B would be preferred, but on a comparison of IRRs, option A
would be preferred.

FIGURE: 3

The fact that A has a higher IRR than B indicates that, if the company's cost of capital were to
increase from 16%, A would yield a positive NPV for a larger range of costs than B. (It is 'less
sensitive' to increases in the discount rate).

However, at the company's actual cost of capital, B gives a higher NPV, thereby increasing
shareholder wealth by a greater amount than A.

Thus in the case of mutually exclusive projects where NPV and IRR rankings appear to conflict, the
NPV approach should be used to decide between them.

Of course, if the projects were independent all this would be irrelevant since under the NPV rule
both would be accepted and the organisation would be indifferent as to the order in which they
were accepted.

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 Chapter 4 | Project Appraisal: Sensitivity Analysis & Capital Rationing

CHAPTER 4
PROJECT APPRAISAL:
SENSITIVITY ANALYSIS &
CAPITAL RATIONING
 Chapter 4 | Project Appraisal: Sensitivity Analysis & Capital Rationing

1 RISK & UNCERTAINTY

The terms risk and uncertainty are often used interchangeably but a distinction should be made
between them.

Risk can be applied to a situation where there are several possible outcomes and, on the basis of
past relevant experience, probabilities can be assigned to the various outcomes that could prevail.
Uncertainty can be applied to a situation where there are several possible outcomes but there is
little past relevant experience to enable the probability of the possible outcomes to be predicted.

A risky situation is one where we can say that there is a 70% probability that returns from a project
will be in excess of $100,000 but a 30% probability that returns will be less than $100,000. If,
however, no information can be provided on the returns from the project, we are faced with an
uncertain situation.

In general, risky projects are those whose future cash flows, and hence the projects returns, are
likely to be variable - the greater the variability, the greater the risk. The problem of risk is more
acute with capital investment decisions than other decisions for the following reasons.

(a) Estimates of capital expenditure might be for up to several years ahead, such as for major
construction projects, and all too often with long-term projects, actual costs escalate well
above budget as the work progresses.
(b) Estimates of benefits will be for up to several years ahead, sometimes 10, 15 or 20 years
ahead or even longer, and such long-term estimates can at best be approximations.

1.1 WHY ARE PROJECTS RISKY?

The term 'uncertainty analysis' may be used to describe a situation where doubts about the future
cash flows cannot be measured, whereas the term 'risk analysis' might be used to describe a
situation where probabilities are estimated for possible future outcomes.

A decision about whether or not to go ahead with a project is based on expectations about the
future. Forecasts of cash flows (whether they be inflows or outflows) that are likely to arise following
a particular course of action are made. These forecasts are made, however, on the basis of what is
expected to happen given the present state of knowledge and the future is, by definition, uncertain.
Actual cash flows are almost certain to differ from prior expectations. It is this uncertainty about a
project's future income and costs that gives rise to risk in business generally and investment activity
in particular.

1.2 COPING WITH RISK

Recognising the fact that the values projected are not certain, attempts to measure risk
quantitatively may include sensitivity analysis and scenario analysis.

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 Sensitivity analysis, in its simplest form, involves changing the value of a variable in order
to test its impact on the final result. It is therefore used to identify the project's most
important, highly sensitive, variables.
 Scenario analysis remedies one of the shortcomings of sensitivity analysis by allowing the
simultaneous change of values for a number of key project variables thereby constructing
an alternative scenario for the project. In its simplest form pessimistic, most likely and
optimistic scenarios are presented.

These techniques are considered below and are also discussed, along with other risk management
techniques discussed in other sections of this coursebook.

2 UNCERTAINTY & SENSITIVITY ANALYSIS

Uncertainty can be analysed through sensitivity analysis. One way of analysing uncertainty is to
ask 'what if…?' questions. Another approach is to measure by how much estimates of cash flows
for key variables (sales price, sales volume, running costs, capital cost, etc.) would need to change
for the worse before the project ceased to be financially viable.

Sensitivity analysis is one method of analysing the uncertainty surrounding a capital expenditure
project and enables an assessment to be made of how the project's NPV would change if there is
a change in any of the estimated costs, revenues or savings that are used to calculate that NPV.

The NPV could depend on a number of uncertain cash flow items.

(a) Estimated selling price

(b) Estimated sales volume
(c) Estimated cost of capital
(d) Estimated initial cost
(e) Estimated operating costs
(f) Estimated benefits

There are two basic approaches to sensitivity analysis when there is uncertainty about the estimates
of costs or benefits.

(a) One method is to ask 'What if …?' questions. For example, what if the sales price is, say, 5%
lower than estimated? Or what if sales volumes are, say, 20% below estimate? Or what if the
running costs are 10% per annum higher than estimated? Each cash flow item or 'variable' can
be analysed in turn, and the effect on the NPV of a possible change in the cash flow estimates
calculated. An indication is thus provided of those variables to which the NPV is most sensitive
(critical variables).
(b) A second approach is to take each variable (cash flow item) in turn, and calculate by how much
(in percentage terms) the cash flow estimates would have to change for the worse before the

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project's NPV fell to zero. Any change in cash flows in excess of this percentage amount would
make the project NPV negative, so that the project would not be financially viable.

Sensitivity analysis therefore provides an indication of how a project might fail, and which cash flow
items are particularly critical. Once these critical variables have been identified, management should
review them to assess whether or not there is a strong possibility of events occurring that will lead
to a negative NPV. Management should also pay particular attention to controlling those variables
to which the NPV is particularly sensitive, once the decision has been taken to accept the
investment.

Let's consider an example.

2.1 EXAMPLE: SENSITIVITY ANALYSIS

Kenney is considering a project with the following cash flows.

Year 0 1 2
$'000 $'000 $'000
Initial investment (7,000)
Variable costs (2,000) (2,000)
Cash inflows (650,000 units at $10 per unit) 6,500 6,500
Net cash flows (7,000) 4,500 4,500

The cost of capital is 8%.

Year Discount factor at 8%

1 0.926
2 0.857

Required

Measure the sensitivity of the project to changes in variables.

Solution

The NPV of the project can be calculated by first of all calculating the total PV of the cash flows for
each cash flow item, i.e. for variable costs and sales revenues, and the capital outlay. The NPV of
the project is the sum of these totals.

Discount PV of initial PV of variable PV of cash PV of net

Year factor investment costs inflows cash flow
8% $'000 $'000 $'000 $'000
0 1.000 (7,000) (7,000)
1 0.926 (1,852) 6,019 4,167
2 0.857 (1,714) 5,571 3,857
(7,000) (3,566) 11,590 1,024

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The project has a positive NPV of $1,024,000 and would appear to be worthwhile. The changes in
cash flows which would need to occur for the project to only just break even (NPV = 0), and hence
be on the point of being unacceptable, are as follows.

(a) Initial investment. The initial investment can rise by $1,024,000 before the investment
breaks even. The initial investment may therefore increase by 1,024/7,000 ×100% = 14.6%.
(b) Sales volume. The present value of the cash inflows less the present value of the variable
costs is $(11,590,000 – 3,566,000) = $8,024,000. These will have to fall to $7,000,000 for the
NPV to be zero, and so would have to fall by $1,024,000. Since the estimated PV of
contribution is $8,024,000, sales volume would therefore need to fall by ($1,024/$8,024) ×
100% = 12.8% before the NPV fell to zero.
(c) Selling price. The PV of sales revenue is $11,590,000. Given no change in estimated sales
volume, sales revenue would need to fall by $1,024,000 before the NPV fell to zero. If there
is no change in sales volume, any such fall in sales revenue would have to be due to the
sales price being less than estimated, by ($1,024/$11,590) × 100% = 8.8%.
(d) Variable costs. The estimated PV of variable costs is $3,566,000. Given no change in sales
volume, total variable costs can increase by $1,024,000, before the NPV falls to zero. This
would represent an increase in variable costs above estimate by ($1,024/$3,566) × 100% =
28.7%.
(e) Cost of capital. We can calculate the IRR of the project. Let's try discount rates of 15% and
20%.

Year Net Cash flow Discount factor PV Discount factor PV

$'000 15% $'000 20% $'000
0 (7000) 1.000 (7000) 1.000 (7000)
1 4,500 0.870 3,915 0.833 3,749
2 4,500 0.756 3,402 0.694 3,123
NPV = +317 NPV = (128)

The cost of capital can therefore increase from 8% to over 18% before the NPV becomes negative.
The elements to which the NPV appears to be most sensitive are the selling price followed by the
sales volume, and it is therefore important for management to pay particular attention to these
factors so that they can be carefully monitored.

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2.2 WEAKNESSES OF THE APPROACH TO SENSITIVITY ANALYSIS

There are some weaknesses with this approach to sensitivity analysis.

(a) The method requires that changes in each key variable are isolated but management
should also be interested in the combination of the effects of changes in two or more key
variables. Looking at factors in isolation is unrealistic, since they are often interdependent.
(b) Sensitivity analysis does not examine the probability that any particular variation in costs
or revenues might occur.
(c) Sensitivity analysis does not distinguish between cash flow estimates that might be
controllable by management actions and those that are uncontrollable.
(d) In itself, it does not provide a decision rule. What is a tolerable variation in cash flow
estimates that would not affect an investment decision? When is a project so uncertain that
it would be unacceptably risky to undertake it? Parameters defining tolerable levels of
variation must be laid down by managers.

3 RISK & SCENARIO ANALYSIS

Risk means the variability of returns from the expected value, which could be either beneficial or
detrimental. As we noted earlier, the distinction between uncertainty and risk is that with risk we
can determine the potential possible outcomes and their associated probability of arising.

To undertake risk analysis on a given project we need to go through the following stages

 Risk identification – Identify the risks specific to the project

 Risk analysis – Estimate the frequency of occurrence and the consequences of their
occurrence.
 Risk mitigation – Consider the possibility of mitigating the downside risks, by reducing
the frequency of occurrence, reducing the adverse consequences if they do occur, or both,
along with the costs of any possible mitigation options, to see whether they are financially
viable or not. We can then to select the best combination of mitigation options.
 Residual risks – The remaining or residual risks must be acceptable to the business if the
project is to be undertaken.

If the project is to be undertaken we need to control these residual risks, through a series of
measures which may include

 Appointment of risk custodians

 Plans for dealing with foreseeable and unforeseeable crises
 Regular monitoring of the risks
 Regular management reviews

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3.1 IDENTIFYING RISKS

Risks could be identified through the use of a risk matrix or table. Such a matrix would have various
risk factors as column headings, e.g. Political, Business, Economic, Project, Natural, Financial and
Crime. The table rows would relate to the risks inherent in the various stages of the project:
initiation, formation, objective setting, task planning, feasibility, design & development,
implementation, etc.

Each of these main headings would have a number of subheadings, e.g. the Natural risk column
may have sub-columns headed Weather, Earthquake, Fire, Explosion and Ground conditions etc.
The design & development row may have sub-rows in the table covering Failure to meet specified
standards, Professional negligence, etc. The matrix would act as a checklist to show that all
possibilities have indeed been covered.

It may be that it is not possible to obtain realistic estimates of the probability of occurrence or likely
consequences of some of the identified risks, however, it should be emphasised that risks of very
serious or disastrous events, however uncertain or however low the probability of occurrence,
should never be ignored. Such risks should always be the subject of searching analysis, and any
which cannot be eliminated should be highlighted in the feasibility report.

3.2 SCENARIO ANALYSIS

The aim of risk analysis is to ascertain the frequency of occurrence and the consequences of the
occurrence of any of the identified risks. A guide to the frequency of occurrence could possibly be
obtained by consulting experts in each risk. It may be possible to obtain a probability distribution
for the risk. The analysis should be supplemented by a study of the statistics available, if any, from
other projects. The financial consequences if the event occurs will be expressed in present value
terms. The objective is to determine a distribution of possible NPVs and associated probabilities for
each identified risk.

The risks will then be prioritised for further analysis, with those having a minimal impact perhaps
being disregarded to be covered by a general contingency allowance later. However, any risks which
may have a significant consequences should be retained for further analysis along with the risks
having higher expected NPVs.

With this information we can now undertake scenario analysis on the various possible combinations
of scenario that exist, taking account of their probability of occurrence and NPV consequences. This
may be undertaken using decision tree type techniques to identify the various possibilities and
associated probabilities whenever the possibilities are discrete in nature, i.e. the risk event either
arises or does not. Where, however, the risk is continuous, e.g. a range of possible sales volumes
with likelihoods perhaps following a normal distribution, computer based stochastic modelling may
be necessary in order to determine a distribution of possible NPVs.

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Although it may appear that the second method would be superior, practical experience has shown
that the number of assumptions that have to be made in building a stochastic model is so large
that it is frequently doubtful whether the results can be relied upon with sufficient confidence to
justify the effort and expense involved. More seriously, there is the danger of losing sight of key
factors and assumptions in looking at the output from such a model, whereas the effort of working
up a scenario analysis by hand often forces the analyst to concentrate on the important risks and
assumptions.

Despite this, however, a comparatively simple stochastic model may well be useful to simulate one
specific project activity, where the assumptions underlying the model, and its limitations, can be
kept clearly in view.

If, having now arrived at a probability distribution of NPVs for the project as a whole, we find that
all the NPVs are positive then the project is clearly acceptable. If, as is more likely, we find that some
of the resulting NPVs are negative then we will be aware that, under certain circumstances, the
project is not viable. In either case, and more so in the latter case, we should now go on to consider
methods of mitigating these downside risks to increase their NPVs and the projects viability.

3.3 RISK MITIGATION

For each of the major downside risks, consideration would now be given to identifying the main
options for mitigating the risks, by one of the following.

 Risk avoidance – Some risks will only be contained at acceptable levels by terminating the
activity. Risk avoidance means not undertaking or terminating an activity that carries risk.
Examples of this would be not entering a contract with many contingencies, or not buying
a business to avoid any potential tax consequences. Avoidance may seem to be the
obvious answer to all risks, but avoiding risks also means losing out on the potential return
or profit associated with it
 Risk reduction – Risk reduction involves retaining the activity in the business whilst
undertaking actions to constrain the risk to acceptable levels, establishing systems and
procedures to mitigate the effects of any risk. Risk reduction examples include alarm
systems to warn of a fire or sprinkler systems to reduce its effects
 Risk transfer – Risk transfer involves transferring the risk to a third party through either
contractually or by hedging. Insurance is a contractual method of transferring risk as are
many construction contracts. Financial risks, on the other hand, tend to be hedged through
the use of offsetting derivatives positions

The viability or cost-effectiveness of each of these options would need to be considered and the
costs factored into the NPV model/distribution. Where no viable mitigation approach exists, the
only option remaining is risk retention.

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Risk retention involves tolerating the loss when it arises and all risks that are not avoided or
transferred fall into this category. Many business risks are tolerable without any further action being
taken. Risk retention is a viable strategy for small risks where the cost of insuring against the risk
would be greater than the total losses sustained over time. It is also the only treatment for
uninsurable risks such as the effects of war. In this situation, the decision to tolerate the risk may,
however, be supplemented by contingency planning to mitigate its effects.

The amount of work involved at this stage of the analysis can sometimes be considerable, especially
in relation to the secondary risks and their mitigation, which may necessitate recycling through the
whole process.

The result of risk mitigation is to

 Reduce adverse NPV effect of any downside risk

 Reduce the overall NPV as a result of the costs of any mitigation measures

As a result, the distribution of possible NPVs gets narrowed, typically with a lower mean (lower risk,
lower return). In the extreme, if all risks are mitigated the company can expect no more than the
risk-free return.

A decision can now need to be taken on whether the project should proceed or not. An investment
submission should be prepared based on the best possible combination of mitigation options. It
should show the expected NPV and the probability distribution of NPVs.

Any residual risks should be fully identified and analysed, and particular attention paid to any
remaining risks which (even if they have a low or uncertain probability of occurrence) could have a
serious or catastrophic effect on the outcome of the project as a whole. The project finance method
should be specified and an analysis provided showing the likely effect on investors after taking
account of expected price inflation, borrowing, tax, etc.

With such information, allied to business experience, the managers of the business will now be in a
position to assess whether the project lies within the risk appetite or risk tolerance of the business
in order to determine whether the project should proceed.

3.4 OTHER METHODS FOR ASSESSING RESIDUAL RISKS

In practice, it is common for organisations to use crude methods to try to assess investment risk,
such as using pessimistic estimates, or increasing the target cost of capital. Alternatively, a
maximum payback period might be applied.

Only if management know for certain what is going to happen in the future can they appraise a
project in the knowledge that there is no risk. It is, of course, unlikely that such information would
be available since the future is uncertain by nature. There are, however, some crude but effective

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steps that management can take to assess the acceptability of any residual risk in investment
decision-making.

(a) A maximum payback period can be set to reflect the fact that the longer the time
period under consideration the more risk increases.
(b) A high discount rate can be used, to make it more difficult for projects to be seen
as financially acceptable.
(c) Sensitivity analysis can be used to determine the critical factors within the decision-
making process. Management effort can then be directed to those factors that are
critical to the success of a particular decision.
(d) To ensure that future events are no worse than predicted, prudence, and overly-
pessimistic estimates can be applied.

As already mentioned, these methods are quite crude for risk assessments, being unscientific and
subject to judgements/opinion. Some of them may, however, be useful in other circumstances, e.g.
payback period when cash flow is a priority.

4 CAPITAL RATIONING & PROFITABILITY INDEX

Capital rationing is a situation in which a company has a limited amount of capital to invest in
potential projects, such that the different possible investments need to be compared with one
another in order to allocate the capital available most effectively.

Capital rationing is necessary when there is insufficient capital to undertake all projects that are
available with a positive NPV. When there is capital rationing in a single period only, and projects
are divisible, they should be ranked by their profitability index. Projects with the highest
profitability indices should be selected.

The decision rule with DCF techniques is to accept all projects which result in a positive NPV when
discounted at the organisation's cost of capital. If an organisation is in a capital rationing situation,
and does not have enough capital to invest, it will not be able to enter into all projects with a
positive NPV.

4.1 REASONS FOR CAPITAL RATIONING

Capital rationing may arise for self-imposed reasons or for external reasons.

Self-imposed reasons, sometimes referred to as 'soft capital rationing', may arise for one of the
following reasons.

(a) Management might be reluctant to raise more capital for investment by issuing new shares,
because of concern that this may lead to outsiders gaining control of the business.
(b) Management might be unwilling to issue additional share capital if it will lead to a short-
term dilution in earnings per share.

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(c) Management might not want to raise additional debt capital because they do not wish to
be committed to large fixed interest payments.
(d) There may be a desire within the organisation to limit investment to a level that can be
financed solely from retained profits.
(e) The capital expenditure budget might set a restriction on capital spending.

External reasons for capital rationing, sometimes known as 'hard capital rationing', may arise for
one of the following reasons.

(a) Raising money through the stock market may not be possible if share prices are
depressed.
(b) Financial institutions may consider the organisation to be too risky to be granted
further loan capital.

The analysis in this chapter is mainly related to a situation where capital rationing is required in one
time period only, and is not expected to be an ongoing problem. In other words, capital is a
'limiting factor' in Year 0 only.

The following further assumptions will be made.

(a) If a project is not accepted and undertaken during the period of capital rationing, the
opportunity to undertake it is lost. It cannot be postponed until a subsequent period when
no capital rationing exists.
(b) There is complete certainty about the outcome of each project, so that the choice between
projects is not affected by considerations of risk.
(c) Projects are divisible, so that it is possible to undertake, say, half of Project X in order to
earn half of the net present value (NPV) of the whole project.

4.2 PROFITABILITY INDEX

When there is single period capital rationing, the problem is to decide which projects to undertake
now, and which will not be undertaken. Since capital in Year 0 is a limiting factor, the basic approach
is to rank all investment opportunities in terms of the PV of net cash inflows per $1 of capital outlay.

The profitability index of a project is the ratio of the present value of its net cash inflows to the
amount of capital expenditure in Year 0, the year of the capital shortage.

The PV of net cash inflows per $1 of capital outlay is known as a profitability index. (For example,
if you get $2 back when you spend $1 the profitability index is 2.) The organisation should undertake
the projects with the highest profitability indices, starting at the top of the rankings and working
down through the list of projects until all the available capital is committed.

Please note that ranking projects in terms of their total NPVs will normally result in a sub-optimal
capital rationing decision, since this method of choosing projects leads to the selection of large

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projects each with a high individual NPV, but with a combined total NPV lower than could be
obtained by investing in a larger number of smaller projects.

4.3 EXAMPLE: SINGLE PERIOD CAPITAL RATIONING

Hard Times is considering five projects, V, W, X, Y and Z. Relevant details are as follows.

Project Investment required Present value of net NPV

cash inflows
$ $ $
V (25,000) 28,750 3,750
W (10,000) 10,640 640
X (20,000) 22,801 2,801
Y (30,000) 32,230 2,230
Z (40,000) 43,807 3,807
The company has only $75,000 of capital available to invest. All projects are divisible. Which projects
should the company undertake in order to maximise the total NPV from its investments?

Solution

Without capital rationing all five projects would be viable investments. However, there is only
$75,000 available for projects that would require $125,000 of capital expenditure in total in Year 0.

The selection should be based on rankings in order of profitability index. This is derived by dividing
the present value of the net cash inflows by the investment required.

Project Present value of net Investment Profitability index Ranking

cash inflows required
$ $ $ $
V 28,750 (25,000) 1.15 1
W 10,640 (10,000) 1.06 5
X 22,801 (20,000) 1.14 2
Y 32,230 (30,000) 1.07 4
Z 43,807 (40,000) 1.10 3

The optimal project selection is as follows.

Project Ranking Capital outlay NPV

$ $
V 1 (25,000) 3,750
X 2 (20,000) 2,801
Z 3 (balance) (30,000) (30/40 × $3,807) 2,855
(75,000) (9,406)
There is sufficient capital to invest in three-quarters of project Z, the third-ranked project
($30,000/$40,000). The NPV of this investment in 75% of Z will be three-quarters of the NPV of all
project Z, i.e. 75% of $3,807 = $2,855.

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The maximum obtainable NPV, given the capital rationing, is $9,406.

If the company had invested in the projects with the largest absolute NPV, the total NPV would not
have been as large.

Project Ranking by size of NPV Capital outlay NPV

$ $
Z 1st (40,000) 3,807
V 2nd (25,000) 3,705
X 3rd (10,000) (10/20 × $2,801) 1,401
75,000 8,958

4.4 PROBLEMS WITH THE PROFITABILITY INDEX METHOD

The use of a profitability index to rank projects in order of priority has a number of problems.

(a) The approach can only be used if projects are divisible. If the projects are not divisible a
decision has to be made by examining the absolute NPVs of all possible combinations of
complete projects that can be undertaken within the constraints of the capital available.
The combination of projects which remains at or under the limit of available capital without
any of them being divided, and which maximises the total NPV, should be chosen.
(b) The selection criterion is fairly simplistic, taking no account of the possible strategic value
of individual investments in the context of the overall objectives of the organisation.
(c) The approach does not take into account the possibility that some of the capital projects
could be deferred, and undertaken at a later date.

We have so far assumed that projects cannot be postponed until Year 1. If this assumption is
removed, the choice of projects in year 0 would be made by reference to the loss of NPV from
postponement.

When capital is expected to be in short supply for more than one period, the selection of an optimal
investment programme cannot be made by ranking projects according to a profitability index.
Other techniques, notably linear programming, should be used.

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 Chapter 5 | Project Phases

CHAPTER 5
PROJECT PHASES
 Chapter 5 | Project Phases

1 THE PROJECT LIFE CYCLE

A successful project relies on two activities – planning first, and then doing. These two activities
form the basis of every project.

Projects can be divided into several phases to provide better management control. Collectively
these phases comprise the project life cycle.

The term project life cycle refers to the major time periods through which any project passes. Each
period may be identified as a phase and further broken down into stages.

Although the principles of the project life cycle apply to all projects, the number and name of the
phases identified will vary depending on what the project aims to achieve, and the project model
referred to.

When studying Project Management it is convenient to give generic names to the phases of the
project life cycle. Remember though, in 'real' situations (or in examination questions!) the model
can be modified to suit circumstances.

The diagram below shows a generic model of the five main phases of a project.

As shown on the diagram, resource use (such as funds and staff hours required) is relatively low at
the start of the project, higher towards the end and then drops rapidly as the project draws to a
close.

The cost of making changes to the project increases the further into the life cycle the project has
progressed.

A project typically passes through five phases: defining, planning, implementing, controlling and
completing. The number and sequence of stages of a project will vary across organisations

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The phases of a project can be broken down into a number of stages. Again, the number of stages
identified varies depending on type of project and the conventions of the organisation undertaking
the project.

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2 DEFINING PHASE
The defining phase of a project is concerned with deciding whether a project should begin and
committing to do so. Limits to resource availability mean that not all potential projects will be
undertaken; rational methods are used to select them.

2.1 INITIATION STAGE

Project initiation describes the beginning of a project at which point certain management activities
are required to ensure that the project is established with clear reference terms and an appropriate
management structure.

Projects originate from someone attempting to resolve a problem, or seeing an opportunity to

do something new.

It is often not clear precisely what the problem is. The project team should study, discuss and
analyse the problem, from a number of different aspects (e.g. technical, financial).

Not all ideas will result in viable projects. A 'reality test' should be applied to all ideas. This is not a
detailed feasibility study, and is intended to eliminate only concepts that are obviously not viable.
For example, a small construction company should not waste resources investigating the possibility
of submitting a tender to build the second channel tunnel.

At the start of a project, a Project Initiation Document (PID) may be drawn up, setting out the
terms of reference for the project. Typical contents might include.

(a) The business objectives. Projects should not be undertaken simply for their own sake: the
business advantages should be clearly identified and be the first point of reference when
progress is being reviewed, to make sure that the original aim is not lost sight of.
(b) Probable project objectives, stated in a general manner.
(c) The scope of the project: what it is intended to cover and what it is not.
(d) Constraints, such as maximum amount to be spent and interim and final deadlines.
(e) The ultimate customer of the project, who will resolve conflicts as they occur (for example
between two different divisions who will both be using the new system) and finally accept
it.
(f) The resources that will be used – staff, technical resources, finance.
(g) An analysis of risks inherent in the project and how they are to be avoided or reduced (for
example, the consequences of replacing the old sales ledger system and only discovering
after the event that the new one does not work).
(h) A preliminary project plan (targets, activities and so on) and details of how the project is
to be organised and managed (see the next section).
(i) Purchasing and procurement policy, perhaps specifying acceptable suppliers and
delivery details.

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Initiating tasks are carried out by the project manager. These tasks will include:

(a) Identification of project stakeholders and their characteristics.

(b) Preparation of a business case for the project.
(c) Drafting of a project charter.
(d) Drafting an initial statement of project scope.
(e) Holding a project initiation meeting.

2.2 FORMATION STAGE

The formation stage involves selecting the personnel who will be involved with the project. First to
be selected is usually the Project Manager and the Project Board.
The project manager should select and build the project team.

2.3 OBJECTIVE SETTING STAGE

Before specific objectives can be set it is necessary to establish more general project goals. Clear
goals and objectives give team members quantifiable targets to aim for. This should improve
motivation and performance, as attempting to achieve a challenging goal is more inspiring than
simply being told 'do your best.'

The overall project goal or project definition will be developed. On complex projects it is likely
that the goal will require be written in stages, with each definition being more detailed and refined
than before. The project goal might be defined in a:
 Contract
 Product specification
 Customer's specification

A goal is a result or purpose that is determined for a project. Goals are broader than objectives.

An objective is a specific project outcome required – including required resources and timing.

Objectives are developed from broad goals. In an accounting software installation project a project
goal could be 'to produce timely and accurate management accounting reports.' An objective of
the same project could be 'to have the nominal ledger system live and fully operational by
November 1 200X.' Project objectives should be SMART:

 Specific – so all involved are working towards the same end

 Measurable – how will success be measured
 Agreed upon – by all team members and stakeholders
 Realistic – to motivate goals and objectives must be achievable
 Time-bound – a date must be allocated to provide focus and aid priority setting
 Allocated – in terms of responsibility

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3 PLANNING PHASE
The planning phase of a project aims to devise a workable scheme to accomplish the overall
project goal.

3.1 TASK PLANNING STAGE

After the project team is in place and project goals and objectives have been set, the project should
be broken down into manageable tasks. This process is often referred to as Work Breakdown
Structure (WBS). A brief overview of the process follows. We cover WBS in greater detail later in this
chapter.

A task is an individual unit of work that is part of the total work needed to accomplish a project.

An activity is a set of tasks that are carried out in order to create a deliverable.

A deliverable is another name for a required outcome (e.g. product, service, document etc.) from
a project.

By breaking the project down into a series of manageable tasks it is easier to determine the skills
needed to complete the project. A task list should be produced showing what tasks need to be
done and the work sequences necessary.

Building a task list for a complex project can be an involved and lengthy process. It can be difficult
deciding what constitutes a task, and where one task ends and another begins.

Tasks should be:

(a) Clear. e.g. Design the layout of the fixed asset depreciation schedule.
(b) Self-contained. No gaps in time should be apparent on work-units grouped together to
form a task. All work-units within a task should be related.

3.2 FEASIBILITY AND FACT FINDING STAGE

Once all the tasks have been defined a basic network diagram can be developed, together with a
complete list of resources required.

A more realistic judgement as to the feasibility of the project can now be made. Earlier feasibility
decisions, such as a pre-project feasibility study, have been fairly general. Feasibility concerns now
are more specific – such as whether initial time and cost estimates are realistic.

Fact finding may have been performed substantially during a pre-project feasibility study.

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3.3 POSITION ANALYSIS, OPTIONS GENERATION AND OPTIONS

EVALUATION STAGES

Once the current position has been clearly established options can be generated with the aim of
utilising the internal strengths identified.

The general management technique of SWOT analysis can be applied to establish the current
position, generate available options and evaluate those options.

SWOT analysis is a process that aims to determine:

What Strengths do we have? (How can we take advantage of them?)

What Weaknesses do we have? (How can we minimise them?)

What Opportunities are there? (How can we capitalise on them?)

What Threats might prevent us from getting there? (e.g. Technical obstacles.)

A strengths and weaknesses analysis should identify:

(a) Strengths the organisation has that the project may be able to exploit.
(b) Organisational weaknesses that may impact on the project. Strategies will be required to
improve these areas or minimise their impact.

The strengths and weaknesses analysis has an internal focus. The identification of shortcomings
in skills or resources could lead to a decision to purchase from outsiders or to train staff.

An external appraisal is required to identify opportunities which can be exploited by the company
and also to anticipate environmental threats (a declining economy, competitors' actions,
government legislation, industrial unrest etc.) against which the company must protect itself.

The internal and external appraisals of SWOT analysis will be brought together.

(a) Major strengths and profitable opportunities can be exploited especially if strengths and
opportunities are matched with each other.
(b) Major weaknesses and threats should be countered, or a contingency strategy or
corrective strategy developed.

The elements of the SWOT analysis can be summarised and shown on a cruciform chart. The
following example relates to a project that proposes to install a new computerised accounting
system.

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3.4 EXAMPLE: NEW COMPUTERISED ACCOUNTING SYSTEM

STRENGTHS WEAKNESSES

$1 million of funds allocated Workforce has very limited experience of

computerised systems
Willing and experienced workforce Seems to be an expectation that the new
system will 'do everything'
THREATS OPPORTUNITIES

The software vendor is rumoured to be in Chance to introduce compatible systems in

financial trouble and may 'disappear' other departments at a later date
Choosing a poor system will result in increased Later integration with e-commerce functions is
risk of system failure possible

One potential strategy identified as a result of this SWOT analysis is explained below.

 Significant benefits can be obtained from the project, which should be able to achieve its
aims within the $1 million budgeted.
 Assurances should be sought from the software vendor as to their future plans and
profitability. Contractual obligations should be obtained in regard to this. If the rumours
are justified, either another supplier should be approached or the possibility of employing
the original vendor's staff on a contract basis could be explored. (This is an example of an
alternative strategy coming out of the SWOT analysis.)
 The end users of the system must be involved in all aspects of system design. Training of
staff must be thorough and completed before the system 'goes live'. Management and
users must be educated as to what the system will and will not be able to do.
 A contingency plan should be in place for repairing or even replacing hardware at short
notice.

It is important to spend time at the earliest stage of project planning on reaching a shared
understanding of what the project is about. This applies to all projects but is particularly vital to the
kind of ‘soft’ project. Lewis (2008) recommends a process of brainstorming, discussion and group
activity in order to create a sense of ownership and an agreed vision and understanding of what
the project is to achieve. Lewis also recommends the use of mindmaps as an aid to this process and
suggests that the outcome should effectively be a list of desired features to be provided at the
culmination of the project. These features or attributes should be prioritised into three groups:

 Musts
 Wants
 Nice to haves

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4 IMPLEMENTING PHASE
The implementing phase is concerned with co-ordinating people and other resources to carry out
the project plan.

4.1 DESIGN AND DEVELOPMENT STAGE

The design and development stage is where the actual product, service or process that will be the
end result of the project is worked on.

The activities carried out in this stage will vary greatly depending on the type of project. For
example, in a software implementation this is when the programming of the software would take
place, in a construction project the building design would be finalised.

4.2 IMPLEMENTATION STAGE

After the process, service or product has been developed it will be implemented or installed so it is
available to be used.

If the project involves a new system or process, a period of parallel running alongside the existing
system or process may be carried out. This enables results to be checked, and any last-minute
problems to be ironed out before the organisation is fully reliant on the new system or process.

5 CONTROLLING PHASE
The completion phase is concerned with ensuring project objectives are met by monitoring and
measuring progress and taking corrective action when necessary.

Actual performance should be reviewed against the objectives identified in the project plan. If
performance is not as expected, control action will be necessary.

6 COMPLETING PHASE
Completion involves formalising acceptance of the project and bringing it to an orderly end.

Following installation and review there should be a meeting of the Project Board to:

 Check that all products are complete and delivered

 Check the status of any outstanding requests for change
 Check all project issues have been cleared
 Approve the project completion report
 Arrange for a post-implementation review

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CHAPTER 6
PROJECT SCOPE
 Chapter 6 | Project Scope

1 DEVELOPING AN UNDERSTANDING OF PROJECT

SCOPE
Project scope is the part of project planning that involves determining and documenting a list of
specific project goals, deliverables, tasks, costs and deadlines.

The documentation of a project's scope explains the boundaries of the project, establishes
responsibilities for each team member and sets up procedures for how completed work will be
verified and approved. The documentation may be referred to as a scope statement, statement of
work (SOW) or terms of reference. During the project, this documentation helps the project team
remain focused and on task.

The scope statement also provides the project team leader or facilitator with guidelines for making
decisions about change requests during the project. It is natural for parts of a large project to
change along the way, so the better the project has been "scoped" at the beginning, the better the
project team will be able to manage change. When documenting a project's scope, stakeholders
should be as specific as possible in order to avoid scope creep, a situation in which one or more
parts of a project ends up requiring more work, time or effort because of poor planning or
miscommunication.

Effective scope management requires good communication to ensure that everyone on the team
understands the scope of the project and agrees upon exactly how the project's goals will be met.
As part of project scope management, the team leader should solicit approvals and sign-offs from
the various stakeholders as the project proceeds, ensuring that the finished project, as proposed,
meets everyone's needs.

2 PROCESS OF SCOPE DEFINITION

The word ‘scope’ is used in project management to mean both the outcomes that are required and
the work that is to be done to achieve them. It is obviously of great importance that everyone
involved in a project should have a common understanding of these matters. If this common
understanding is not reached, sooner or later there will be acrimonious disputes. A careful
specification of project scope is, therefore, of great importance and the project management
methodology in use may require that this be a separate document, known as a project scoping
document. Equally, it may be that the business case and the project charter between them provide
a clear statement of agreed scope.

Gray and Larson (2010) say that the document defining scope should be developed under the
direction of the project manager and customer (or project owner). It will be an essential foundation
for project planning and measuring the extent of project success, and needs to be developed in
conjunction with key project stakeholders.

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The following diagram shows the process of scope definition.

FIGURE: Scoping process

Scope statements identify all of the elements of work in the project. A scope statement must be
linked directly to meeting the defined project requirements. For example, a marketing project may
be to investigate and recommend a low cost communication strategy for improving awareness of
a new brand of high fibre bread and thereby increasing sales by 15%.

The project scoping document would specify factors to be considered:

 Ways to achieve the sales target
 Likely audience/stakeholders
 Costings
 Timeframes
 Resource considerations
 Effect on sales of other products

It is likely that in larger projects it will become necessary to adjust the project scope. This might
occur, for example, if resources are unavoidably reduced or it becomes clear that a feasibility study
was too optimistic or too pessimistic. When a change to project scope becomes apparent, it is
important that it is clearly stated and that the revision is approved by the interested stakeholders.

Grundy and Brown (2002) summarise the process of project definition as the preparation of answers
to a series of questions.

 What opportunities and threats does the project present?

 What are its objectives?
 What are its potential benefits, costs and risks?
 What is its overall implementation difficulty?
 Who are the key stakeholders?

A number of techniques that aid analytical thinking may be used when addressing these questions.

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3 DEFINING THE KEY ISSUES – FISHBONE ANALYSIS

Fishbone analysis (root-cause, cause and effect or Ishikawa diagram analysis) is useful for
establishing and analysing key issues. It can be used both on existing problems, opportunities and
behavioural issues, and on those that may be anticipated, perhaps as a result of the construction of
a scenario. The essence of fishbone analysis is to break down a perceived issue into its smallest
underlying causes and components, so that each may be tackled in a proper fashion. It is called
fishbone analysis because the overall issue and its components are traditionally analysed and
presented on a diagram such as the one below.

FIGURE: Fishbone analysis

The major issue or problem is shown at the right-hand side of the page and the perceived causes
and influences are shown, in no particular order, on the ‘bones’ radiating from the central spine.
Each ‘bone’ can be further analysed if appropriate. It is common to use familiar models such as the
Ms list of resources (men, money, machines and so on) to give structure to the investigation, though
not necessarily to the diagram. The fish bone diagram itself is not, of course, essential to the process
of analysis, but it forms a good medium for brainstorming a problem and for presenting the
eventual results.

4 DETERMINING PERFORMANCE DRIVERS

Many projects are aimed at or include improving some aspect of the performance of a department,
activity or function: this is true at the strategic level and is likely to be true of projects at lower levels,
such as marketing projects. Performance driver analysis is useful in such cases; essentially it is
another brainstorming and presentation technique.

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The essence of the technique is to identify two groups of performance-related influences: those
that enable good performance and those that hinder or prevent it. The factors in these two groups
are drawn as arrows against a baseline, the length of each arrow representing the perceived
strength of the influence it represents.

FIGURE: Performance drivers

5 SCOPE CREEP AND SCOPE CHANGE

As the earlier materials identify, projects often change over time. Changes may be:

 Mandatory – for example, resulting from changes in legislation.

 Required – for example, where a change is necessary to solve a problem, such as an error
in copy; or where something was not defined correctly in the first instance.
 Optional – where an improvement to the original work is possible or desirable.

In many sectors, changes to a project plan may indicate that there has been a problem with the
initial project goals or planning. However, often changes will be required by factors that are outside
the control of the project team.

IT consultant Gopal Kapur (2004) says that project managers should act like guide dogs at times,
and show ‘intelligent disobedience’. He comments that as the business environment and business
knowledge change, then it is tempting for project sponsors to ask for changes in the project scope.
However, he comments that some of these changes can be ‘half-baked’, and that accepting these
can lead to extensive scope creep. He advises project managers to learn to say no to their sponsors,
using the analogy of a guide dog and its owner going to cross the road. If the owner wishes to

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cross the road, it is the guide dog’s responsibility to sense the danger, and overrule its owner when
appropriate.

Many people working on projects find managing unreasonable expectations from sponsors to be
the most difficult. However, practicing ‘intelligent disobedience’ can result in a more focused
project. Scope creep is the term when work is added to the project after the scope has been
established and agreed.

Scope creep involves the changes to the project’s ongoing requirements or activities increasing,
without approved changes to cost and schedule allowances. Changes can and will occur, but these
need to be managed through a scope management process.

Scope creep often changes many aspects, such as the timescales, costs and often outcomes. Scope
creep often starts with small changes, in the total project or in one aspect of the project. These
could include changes to fulfilment processes, or extent of catering menus etc. or venues. Often,
these will have ‘knock on’ effects, such as cancellation charges, additional costs, delays in
completion etc. Indeed, it is commonly believed that small incremental changes can lead to project
failure. Although small, these can impact on the costs, schedule and the risk of the project.

Saunders et al (2005) undertook research on the screening and evaluation criteria for new product
development (NPD) research. They found that criteria for acceptance or rejection of product
concepts vary through the NPD process. At the initial screening stage, there is a focus on the
financial criteria. In the detailed screening and predevelopment stages, evaluation focuses on
marketing issues, including the product, brand, promotional and market requirements. Post-launch,
the decision-makers are more interested in how the new product fits with the business
commercially and with its production processes. Only financial criteria are highly valued at all stages
of the project.

6 AVOIDING SCOPE CREEP

Scope creep can be limited by setting systems in place. Common approaches for avoiding scope
creep include:

(a) Education of the project team or sponsor. Explaining the impact of change on the project
success often focuses people on avoiding the ‘best’ solution (e.g. adding every feature to
a new product, rather than those specified in the project plan or that meet the target
segment’s requirements).

(b) Establishing processes for changes, such as a change request process. Often, individuals
make decisions that may impact on others in the project. Using formal processes for
approving changes can stop regular and minor changes – or indeed more substantial ones.
Change request processes can be initiated, with supporting documentation, which are to

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be submitted in writing to the project manager, and (depending on the scale of the change)
reviewed by the project manager, the project team and/or the project sponsors. Clearly,
agreed (and openly communicated) criteria to judge whether changes are appropriate (i.e.
fitting to the project outcomes) and viable (in terms of value for money, ROI etc.) can reduce
changes.

Projects should also have a project contingency fund to be used in case of essential changes in
scope.

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ACTIVITY

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CHAPTER 7
PROJECT TOOLS &
TECHNIQUES
 Chapter 7 | Project Tools & Techniques

1 DETERMINING THE WORK BREAKDOWN

STRUCTURE
The key element of good project plans is the work breakdown structure. WBS can be defined as a
deliverable-oriented grouping of project elements that organises and defines the total work scope
of the project. Each descending level represents an increasingly detailed definition of the project
work’.

In his book Project Management: Planning and Control Techniques, Rory Burke (2003) argued a
structure that is based on the four project phases of Concept, Design, Implementation and
Handover. He contends that each of these individual phases can also be broken down into the full
four at a subproject level. Let us take the concept phase as an example. It would include within it
the original idea, but that idea would need to be checked and researched to put an overview
together. That rough design overview needs to be built into enough of a case to allow the project
to gain approval, and that is the implementation that is aimed for. Once that has been gained, then
there is a handover to those responsible for the next stage in the process.

The WBS is a structured hierarchy of the work that needs to be accomplished on a project. This
organises work in an organisational chart-type structure, with different levels showing how goals,
objectives, topics etc. can be broken down into increasingly detailed activities (see Figure below).

FIGURE: WBS — implementing a customer relationship management system

(Adapted from Mayer, 2005)

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1. Define the needs – what do we need to allocate to the system and what do we need in return?
 What do we want from the software package?
 What are the IT requirements e.g. compatibility?
 What does the sales team expect to get?
 How will we able to fit it in to our overall marketing processes?
 We must remember that the customer is the C in CRM
 What are the hardware requirements – do we need to upgrade?

2. Research the suppliers that potentially have suitable software/hardware to satisfy our needs
 Shortlist those suppliers we will invite to bid after more detailed research e.g. costs,
testimonials, product limitations.

(Note that this is only the start of the structure for illustrative purposes and it may go down through
many more levels until it is broken down into discrete work packages. You may also note that the
text that follows the diagram reflects the hierarchical structure of the diagram.)

The WBS will go down through a series of levels until the project tasks produce manageable
outputs. These are called work packages. Work packages are normally viewed as being
deliverables or products at the lowest level of the WBS. Deliverables are the tangible outputs from
work, which are normally then signed off as complete. This may be a milestone – the end of a period
of work.

Identifying the work packages forms the foundation for developing schedules, budgets and
resource requirements, and also forms the foundation for assigning responsibilities.

Work packages can be split into activities or tasks that are used to create a workflow. These contrast
with activities and tasks, which are about what is involved in doing work.

Figure below looks at the process that would be involved in the purchasing of the CRM software
outlined in previous Figure. It considers a traditional purchasing of traditional physical goods with
the alternative of buying software. Again, remember that it is included as an illustration, and you
may very well see variations in your organisation.

Some people refer to the 80-hour rule to make the decision about the bottom level. The bottom
level of a WBS should identify 80 hours or fewer of work. This WBS is the foundation for the other
elements of the project plan. The project manager’s mantra states that ‘if it is not in the WBS, then
it is not in the plan’. Clearly, there must be attention to this for the project to be successful, but you
may well miss some issues if you are new to project management.

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FIGURE: Buying physical or electronic products

Seek advice from others to check that this is not a major issue.

Some key things to review concerning a WBS are:

 Does the WBS go outside the scope of the project?

 Does the WBS cover the entire scope of the project?
 Does the WBS ultimately result in deliverables?

1.1 DEPENDENCIES AND INTERACTIONS

A very important aspect of project planning is the determination of dependencies and

interactions. At any level of WBS analysis, some tasks will be dependent on others; that is to say, a
dependent task cannot commence until the task upon which it depends is completed. Careful

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analysis of dependencies is a major step towards a workable project plan, since it provides an order
in which things must be tackled. Sometimes, of course, the dependencies are limited and it is
possible to proceed with tasks in almost any order, but this is unusual. The more complex a project,
the greater the need for analysis of dependencies.

Interactions are slightly different; they occur when tasks are linked but not dependent. This can
arise for a variety of reasons: a good example is a requirement to share the use of a scarce resource.
If there were two of us working on our vegetable plot but we only possessed one spade, we could
not use it simultaneously both to cultivate the plot itself and to dig the trench in which we wish to
place the kerbstones. We could choose to do either of these activities first, but we could not do
them both at the same time.

The output from the WBS process is a list of tasks, probably arranged hierarchically to reflect the
disaggregation of activities. This then becomes the input into the planning and control processes
described in the rest of this section.

1.2 PRINCE2 – PRODUCT BREAKDOWN

PRINCE (PRojects INControlled Environments) methodologies are commonly used in public sector
project management, although they were originally designed for developing and implementing
information systems. It is the default methodology for public sector organisations in the UK, and is
widely used by large organisations across Europe.

In terms of progress planning and monitoring, PRINCE2 shows:

 The project life cycle stages
 Progress against plan and key user-defined decision points
 Alerts for any variance from plan

In addition, PRINCE2 enables:

 Management and stakeholder involvement at critical times in the project
 Effective communication within the project team and other stakeholders

However, PRINCE2 has its critics, who claim it will:

 Make projects longer
 Increase project costs
 Tie up resources
 Delay payback on the project
 Increase risks of failure

Rather than using work breakdown structure, PRINCE2 uses a product-based approach to
planning. This has the advantage of directing management attention to what is to be achieved
rather than how to do it, thus providing an automatic focus on achieving the product goals. Also, it
can be helpful in complex projects, where the processes involved may be initially unclear.

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Under this approach, work breakdown is preceded by product breakdown. PRINCE2 starts this
analysis by dividing the project products into three groups.

(a) Technical products are the things the project has been set up to provide to the users. For
an IT system, for example, these would include the hardware, software, manuals and
training.
(b) Quality products define both the quality controls that are applied to the project and the
quality standards the technical products must achieve.
(c) Management products are the artefacts used to manage the project. They include the
project management organisation structure, planning documentation, reports and so on.

Each of these groups of products is then broken down into manageable components as part of the
planning process, using the traditional work breakdown structure approach if the complexity of the
project requires it. Project and stage plans may make use of the normal planning tools such as CPA,
Gantt charts and resource histograms.

2 ESTIMATING TIMING AND TASK DURATION

Project duration defines the length of time (in hours, days, weeks or months) to complete an activity.
Typically, in marketing projects, the deadline will be set, such as to launch in time for a religious
holiday or before the Olympics. Working back from the set deadlines is stressful for a project
manager, and often for all other members of the project team too.

Task and activity duration also needs to be determined for planning purposes. Estimating the task
duration for work packages is one of the most difficult things for a novice project manager. There
are several ways to try and determine this:

 Consider similar activities for which you have information about the task duration. However,
this may not be possible for all tasks.
 Historical data may identify how long tasks or activities have taken in the past. However,
some project tasks may be new tasks.
 Expert advice – or knowledge – from senior managers can give indications of the likely – or
desired – outcomes.

Problems with establishing time periods include:

 Lack of experience in planning time duration for tasks, and in doing activities.
 Clearly, novices will typically take longer than experienced workers to do the same tasks,
and may be unaware of the problems that take time. Clearly, lack of experience here can
lead to unrealistic timescales.
 Complexity of the marketing problems – often these involve creative tasks, for which
focusing on time may detract from quality.

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 Unexpected events or delays due to illness etc. Also, mistakes or other problems can add
to the time needed. Contingencies may have to be built into the systems.
 Novices tend to underestimate the amount of work involved in any tasks. Expert project
managers tend to use the longest predicted duration in scheduling, as this allows for
possible delays.
 There is a dual issue here. It is very difficult to judge the time taken for new projects or new
activities or tasks. Some tasks such as creative work – are especially difficult to do ‘to a
timescale’. This in turn will impact on the feasibility of the project completion date.

3 DETERMINING REQUIREMENTS – A RESOURCE

CHECKLIST
Project resourcing clearly varies depending on the type and size of projects. The central issue in
identifying this is using the WBS and estimated timings to determine the resource requirements to
complete the project on time and budget:

(a) The people to be involved in the project, the level of their commitment, and the required
level of skills.
(b) The facilities for the project planning, and depending on the project, its implementation.
(c) The equipment required, such as computers, cameras, or other audio-visual equipment.
(d) The money – a budget needed to complete the task. There will often be an iterative process
to determine budgets, taking account of the costs, timescales etc.
(e) The materials – what tangibles, consumables or other items will be required in the process.

The resources need to be determined at this stage, and this becomes a reference point for
monitoring resource use once the project starts. While the WBS tends to work top-down, many
argue that resources should be determined from the bottom-up. Contingencies may need to be
built in for some resources.

4 SEQUENCING WORK
The tasks so far have complexities, but the real difficulties in project planning come through
scheduling.

Scheduling is essentially about the links between and among activities/tasks and or people and
organisations. Some work tasks will be completed in parallel, while others will be dependent on the
completion of other activities.

Scheduling examines the sequence of tasks, both independent and interrelated, that will be
undertaken. This is then organised into a series of subschedules and charts, which can be prepared

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from the master plan, detailing what will happen when, by whom, and detailing the interfaces and
the milestones for the tasks.

For example, a brochure cannot be printed until the content has been prepared. The content cannot
be prepared until a copywriter has been appointed and the R&D team has provided the product
information. However, a printer can be sourced while the copy is being written.

Once you know what needs to be done, you need to examine the work involved to determine:

Predecessor tasks: those required for another task to be completed.

Successor tasks: those that cannot start until another task has been completed.

The schedule can be prepared once this workflow is established. The schedule becomes a key tool
in managing progress.

Detailed scheduling turns the project plan into action plans, on the basis of the WBS. Each WBS
task is normally named and numbered, and the duration of tasks, any lead or lag times, and
resources and budget involved must be estimated in order for a detailed schedule to be undertaken.
Clearly, this reinforces the need for good time and resource estimates. Each WBS task should
become the responsibility of a named individual.

However, schedules will often feature ideal start dates and late finish dates. Ideal start dates are the
latest dates for an activity to start, if delays are to be avoided. Late finish dates are the latest dates
for an activity to finish without causing delays in the project.

Later in the project, revised schedules are prepared as issues emerge. Rescheduling does not always
result in delays in completion, as contingencies – for time or budget – may be built into the project
plan. However, if the delays exceed this, and there is no flexibility with the delivery date or resources,
terminating the project should be considered. Many tools are used to present schedules.

4.1 GANTT CHARTS

Gantt charts are a visual planning tool useful for projects but are limited in their use as they do
not recognise the interrelations between tasks.

A Gantt chart, named after the engineer Henry Gantt who pioneered the procedure in the early
1900s, is a horizontal bar chart used to plan the time scale for a project and to estimate the
resources required.

The Gantt chart displays the time relationships between tasks in a project. Two lines are usually
used to show the time allocated for each task, and the actual time taken.

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A simple Gantt chart, illustrating some of the activities involved in a network server installation
project, follows.

FIGURE: Gantt chart

The chart shows that at the end of the tenth week Activity 9 is running behind schedule. More
resources may have to be allocated to this activity if the staff accommodation is to be ready in time
for the changeover to the new system.

Activity 4 has not been completed on time, and this has resulted in some disruption to the computer
installation (Activity 6), which may mean further delays in the commencement of Activities 7 and 8.

4.2 NETWORK ANALYSIS

Network analysis, also known as Critical Path Analysis (CPA), is a useful technique to help with
planning and controlling large projects, such as construction projects, research and development
projects and the computerisation of systems.

Network analysis requires breaking down the project into tasks with estimated durations and
establishing a logical sequence. This enables the minimum possible duration of the project to
be found

CPA aims to ensure the progress of a project, so the project is completed in the minimum amount
of time.

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It pinpoints the tasks which are on the critical path, i.e. those tasks which, if delayed beyond the
allotted time, would delay the completion of the project as a whole. The technique can also be
used to assist in allocating resources such as labour and equipment.

Critical path analysis is quite a simple technique. The events and activities making up the whole
project are represented in the form of a diagram. Drawing the diagram or chart involves the
following steps.

Step 1 Estimating the time needed to complete each individual activity or task that makes up a
part of the project.

Step 2 Sorting out what activities must be done one after another, and which can be done at the
same time, if required.

Step 3 Representing these in a network diagram.

Step 4 Estimating the critical path, which is the longest sequence of consecutive activities through
the network.

4.2.1 The critical path

The duration of the whole project will be fixed by the time taken to complete the largest path
through the network. This path is called the critical path and activities on it are known as critical
activities.

Activities on the critical path must be started and completed on time, otherwise the total project
time will be extended.

Network analysis shows the sequence of tasks and how long they are going to take. The diagrams
are drawn from left to right. To construct a network diagram you need to know the activities
involved in a project, the expect time of each order (or precedences) of the activities.

4.2.2 Example
The table below shows the Activities, time scales and precedences of a particular project. This
information could be used to construct the network diagram shown below the table.
Activity Expected time Preceding activity
A 3 –
B 5 –
C 2 B
D 1 A
E 6 A
F 3 D
G 3 C, E

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Points to note from the diagram:

(a) Events (e.g. 1 and 2) are represented by circles. Tasks (e.g. A) connect events.
(b) The critical path may be shown by drawing a small vertical line through the arrow or by
making arrows on the critical path thicker. The critical path is the longest (in terms of time)
path through the network – which is the minimum amount of time that the project will
take.
(c) It is the convention to note the earliest start date of any task in the top right hand corner
of the circle.
(d) We can then work backwards identifying the latest dates when tasks could start. These we
insert in the bottom right quarter of the circle.

The critical path in the diagram above is AEG.

Note the float time of five days for Activity F. Activity F can begin any time between days 4 and 9,
thus giving the project manager a degree of flexibility.

The diagram above uses 'Activity on line' notation – as Activities are shown on the lines or arrows
that connect events.

4.2.3 Activity-on-node presentation

Network diagrams may also be drawn using Activity-on-node presentation which is similar in style
to that used by the Microsoft Project software package.

4.2.4 Example: Activity on Node

Suppose that a project includes three activities, C, D and E. Neither activity D nor E can start until
activity C is completed, but D and E could be done simultaneously if required.

This would be represented as follows.

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Note the following.

(a) An activity within a network is represented by a rectangular box. (Each box is a node.) (b)
(b) The 'flow' of activities in the diagram should be from left to right.
(c) The diagram clearly shows that D and E must follow C.

A second possibility is that an activity cannot start until two or more activities have been completed.
If activity H cannot start until activities G and F are both complete, then we would represent the
situation like this.

In some conventions an extra node is introduced at the start and end of a network. This serves no
purpose (other than to ensure that all the nodes are joined up), so we recommend that you do not
do it.

Just in case you ever see a network presented in this way, both styles are shown in the next example.

4.3 EXAMPLE SHOWING START AND END NODES

Draw a diagram for the following project. The project is finished when both D and E are complete.

Activity Preceding activity

A -
B -
C A
D B&C
E B

The first solution that follows excludes start and end nodes – the second solution includes them.

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Solution

4.3.1 Microsoft Project style

A D

4.3.2 With start and end nodes

A D

Start End

B
E

Any network can be analysed into a number of different paths or routes. A path is simply a sequence
of activities which can take you from the start to the end of the network.

In the example above, there are just three possible routes or paths (based on the precedences given
earlier).

(a) A C D.
(b) B D.
(c) B E.

4.3 SHOWING THE DURATION OF ACTIVITIES

The time needed to complete each individual activity in a project must be estimated. This duration
may be shown within the node as follows. The meaning of the other boxes is explained later.

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Task A

ID 6 days

Note that there are a range of acceptable notation styles for network diagrams. You should learn
the principles of the technique so you are able to interpret diagrams presented in a variety of
formats (with an explanatory key).

4.4 EXAMPLE: THE CRITICAL PATH

Activity Immediately preceding activity Duration (weeks)

A - 5
B - 4
C A 2
D B 1
E B 5
F B 5
G C, D 4
H F 3
I F 2

(a) What are the paths through the network?

(b) What is the critical path and its duration?

Solution

The first step in the solution is to draw the network diagram, with the time for each activity shown.

C
2
A G
5 4

D H
3

B F
4 5

I
E 2
5

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We could list the paths through the network and their overall completion times as follows.

Path Duration (weeks)

ACG (5 + 2 + 4) 11
BDG (4 + 1 + 4) 9
BE (4 + 5)
BFH (4 + 5+ 3) 2
BFI (4 + 5 + 2 + 0) 1

The critical path is the longest, BFH, with a duration of 12 weeks. This is the minimum time needed
to complete the project.

The critical path may be indicated on the diagram by drawing thick (or double-line) arrows, or by
the addition of one or two small vertical lines through the arrows on the critical path. In Microsoft
Project the arrows and the nodes are highlighted in red.

Listing paths through the network in this way should be easy enough for small networks, but it
becomes a long and tedious task for bigger and more complex networks. This is why software
packages are used in real life.

Conventionally it has been recognised as useful to calculate the earliest and latest times for
activities to start or finish, and show them on the network diagram. This can be done for networks
of any size and complexity.

Project management software packages offer a much larger variety of techniques than can easily
be done by hand. Microsoft Project allows each activity to be assigned to any one of a variety of
types: 'start as late as possible', 'start as soon as possible', 'finish no earlier than a particular date',
'finish no later than a particular date', and so on.

In real life, too, activity times can be shortened by working weekends and overtime, or they may
be constrained by non-availability of essential personnel. In other words with any more than a
few activities the possibilities are mind-boggling, which is why software is used. Nevertheless, a
simple technique is illustrated in the following example.

4.5 EXAMPLE: EARLIEST AND LATEST START TIMES

One way of showing earliest and latest start times for activities is to divide each event node into
sections. This is similar to the style used in Microsoft Project except that Project uses real dates,
which is far more useful, and the bottom two sections can mean a variety of things, depending what
constraints have been set.

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These sections record the following things.

(a) The name of the activity, for example Task A. This helps humans to understand the diagram.
(b) An ID number which is unique to that activity. This helps computer packages to understand
the diagram, because it is possible that two or more activities could have the same name.
For instance two bits of research are done at different project stages might both be called
'Research'.
(c) The duration of the activity.
(d) The earliest start time. Conventionally for the first node in the network, this is time 0.
(e) The latest start time.

(Note. Don't confuse start times with the 'event' times that are calculated when using the activity-
on-arrow method, even though the approach is the same.)

Task D
ID number: 4 Duration: 6 days
Earliest start: Day 4 Latest start: Day 11

4.5.1 Earliest start times

To find the earliest start times, always start with activities that have no predecessors and give them
an earliest starting time of 0. In the example we have been looking at, this is week 0.

Then work along each path from left to right through the diagram calculating the earliest time
that the next activity can start. For example, the earliest time for activity C is week 0 + 5 = 5. The
earliest time activities D, E and F can start is week 0 + 4 = 4.

To calculate an activity's earliest time, simply look at the box for the preceding activity and add the
bottom left figure to the top right figure. If two or more activities precede an activity take the
highest figure as the later activity's earliest start time: it cannot start before all the others are
finished!

4.5.2 Latest start times

The latest start times are the latest times at which each activity can start if the project as a whole
is to be completed in the earliest possible time, in other words in 12 weeks in our example.

Work backwards from right to left through the diagram calculating the latest time at which the
activity can start, if it is to be completed at the latest finishing time. For example the latest start
time for activity H is 12 – 3 = week 9 and for activity E is 12 – 5 = week 7.

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Activity F might cause difficulties as two activities, H and I, lead back to it.

(a) Activity H must be completed by week 12, and so must start at week 9.
(b) Activity I must also be completed by week 12, and so must start at week 10.
(c) Activity F takes 5 weeks so its latest start time F is the either 9 – 5 = week 4 or 10 – 5 =
week 5. However, if it starts in week 5 it not be possible to start activity H on time and the
whole project will be delayed. We therefore take the lower figure.

The final diagram is now as follows.

Critical activities are those activities which must be started on time, otherwise the total project
time will be increased. It follows that each event on the critical path must have the same earliest
and latest start times. The critical path for the above network is therefore B F H.

4.6 CRITICISMS OF CRITICAL PATH/NETWORK ANALYSIS

The following criticisms are often made in relation to network analysis.

(a) It is not always possible to devise an effective WBS for a project.

(b) It assumes a sequential relationship between activities. It assumes that once Activity B
starts after Activity A has finished. It is not very good at coping with the possibility that an
activity 'later' in the sequence may be relevant to an earlier activity.
(c) There are problems in estimation. Where the project is completely new, the planning
process may be conducted in conditions of relative ignorance.
(d) Although network analysis plans the use of resources of labour and finance, it does not
appear to develop plans for contingencies, other than crashing time.
(e) CPA assumes a trade-off between time and cost. This may not be the case where a
substantial portion of the cost is indirect overheads or where the direct labour proportion
of the total cost is limited.

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4.7 EXAMPLE: NETWORK ANALYSIS AND GANTT CHARTS

This example is provided as an illustration of how Gantt charts may be used to manage resources
efficiently. A company is about to undertake a project about which the following data is available.

Activity Preceded by activity Duration Days Workers required

A - 3 6
B - 5 3
C B 2 4
D A 1 4
E A 6 5
F D 3 6
G C, E 3 3

There is a multi-skilled workforce of nine workers available, each capable of working on any of the
activities. Draw the network to establish the duration of the project and the critical path. Then draw
a Gantt chart, using the critical path as a basis, assuming that jobs start at the earliest possible time.

Solution

Here are the diagrams.

It can be seen that if all activities start at their earliest times, as many as 15 workers will be required
on any one day (days 6-7) whereas on other days there would be idle capacity (days 8-12).

The problem can be reduced, or removed, by using up spare time on non-critical activities. Suppose
we deferred the start of activities D and F until the latest possible days. These would be days 8
and 9, leaving four days to complete the activities by the end of day 12.

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The Gantt chart would be redrawn as follows.

4.8 PROJECT EVALUATION REVIEW TECHNIQUE (PERT)

Project evaluation and review technique (PERT) is a technique for allowing for uncertainty in
determining project duration. PERT analysis requires management to determine outcomes of
activity by assigning probable scenarios. Each task is assigned a best, worst, and most probable
completion time estimate. These estimates are used to determine the average completion time. The
average times are used to establish the critical path and the standard deviation of completion times
for the entire project.

PERT is a modified form of network analysis designed to account for uncertainty. For each activity
in the project, optimistic, most likely and pessimistic estimates of times are made, on the basis of
past experience, or even guess-work. These estimates are converted into a mean time and also a
standard deviation.

Once the mean time and standard deviation of the time have been calculated for each activity, it
should be possible to do the following.

(a) Estimate the critical path using expected (mean) activity times.
(b) Estimate the standard deviation of the total project time.

4.9 RESOURCE HISTOGRAM

A useful planning tool that shows the amount and timing of the requirement for a resource (or a
range of resources) is the resource histogram.

A resource histogram shows a view of project data in which resource requirements, usage, and
availability are shown against a time scale.

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A simple resource histogram showing programmer time required on a software development is

shown below.

Some organisations add another bar (or a separate line) to the chart showing resource availability.
The chart then shows any instances when the required resource hours exceed the available hours.
Plans should then be made to either obtain further resource for these peak times, or to re-schedule
the work plan. Alternately the chart may show times when the available resource is excessive, and
should be re-deployed elsewhere. An example follows.

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The number of workers required on the seventh day is 13. Can we re-schedule the non-critical
activities to reduce the requirement to the available level of 10? We might be able to re-arrange
activities so that we can make use of the workers available from day 9 onwards.

Float time is the time built in to allow for unforeseen circumstances.

(a) Total float on a job is the time available (earliest start date to latest finish date) less time
needed for the job. If, for example, job A's earliest start time was day 7 and its latest end
time was day 17, and the job needed four days, total float would be:
(b) (17 - 7) - 4 = 6 days
(c) Free float is the delay possible in an activity on the assumption that all preceding jobs start
as early as possible and all subsequent jobs also start at the earliest time.
(d) Independent float is the delay possible if all preceding jobs have finished as late as
possible, and all succeeding jobs have started as early as possible.

5 PROJECT MANAGEMENT SOFTWARE

Project management techniques are ideal candidates for computerisation. Inexpensive project
management software packages have been available for a number of years. Microsoft Project and
Micro Planner X-Pert are two popular packages.

Software might be used for a number of purposes:

(a) Planning and scheduling

Calendars, network diagrams (showing the critical path) and Gantt charts (showing resource use)
can be produced automatically once the relevant data is entered. Packages also allow a sort of 'what
if?' analysis for initial planning, trying out different levels of resources, changing deadlines and so
on to find the best combination.

(b) Estimating and controlling costs

As a project progresses, actual data will become known and can be entered into the package and
collected for future reference. Since many projects involve basically similar tasks (interviewing users
and so on), actual data from one project can be used to provide more accurate estimates for the
next. The software also facilitates and encourages the use of more sophisticated estimation
techniques than managers might be prepared to use if working manually.

(c) Monitoring

Actual data can also be entered and used to facilitate monitoring of progress and automatically
updating the plan for the critical path and the use of resources as circumstances dictate.

(d) Reporting

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Software packages allow standard and tailored progress reports to be produced, printed out and
circulated to participants and senior managers at any time, usually at the touch of a button. This
helps with co-ordination of activities and project review.

Most project management packages feature a process of identifying the main steps in a project,
and breaking these down further into specific tasks. A typical project management package requires
four inputs:

(a) The length of time and the resources required for each activity of the project.
(b) The logical relationships between each activity.
(c) The resources available.
(d) When the resources are available.

The package is able to analyse and present this information in a number of ways. The views available
within Microsoft Project are shown in the following illustration – on the drop down menu.

FIGURE: Microsoft project screenshot

The advantages of using project management software are summarised in the following table.

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TABLE: Software benefits

Advantage Comment

Enables quick replanning Estimates can be changed many times and a new schedule produced almost
instantly. Changes to the plan can be reflected immediately.
Document quality Outputs are accurate, well presented and easy to understand.
Encourages constant Actual times can be captured, enabling the project manager to compare
progress tracking actual progress against planned progress and investigate problem areas
promptly.
What if? analysis Software enables the effect of various scenarios to be calculated quickly and
easily. Many project managers conduct this type of analysis using copies of
the plan in separate computer files – leaving the actual plan untouched.
Complexity Software can handle projects of size and complexity that would be very
difficult to handle using manual methods.

The software also has several disadvantages, some of which also apply to manual methods.

(a) Focus. Some project managers become so interested in software that they spend too much
time producing documents and not enough time managing the project. Entering actual
data and producing reports should be delegated to an administrator.
(b) Work practices. The assumptions behind work breakdown structure are not always
applicable: people tend to work in a more flexible way rather than completing discrete tasks
one by one.
(c) Estimates. Estimation is as much an art as a science and estimates can be wildly wrong.
They are subject to the experience level of the estimator; influenced by the need to
impress clients; and based on assumptions that can easily change.
(d) Human factors. Skill levels, staff turnover and level of motivation can have profound
effects on performance achieved. Also, human variation makes rescheduling difficult since
employing more people on an activity that is running late may actually slow it down at
first, while the newcomers are briefed and even retrained.

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CHAPTER 8
PROJECT BUDGET & RISK
MANAGEMENT
 Chapter 8 | Project Budget & Risk Management

1 THE PROJECT BUDGET

Building a project budget should be an orderly process that attempts to establish a realistic estimate
of the cost of the project. There are two main methods for establishing the project budget: top-
down and bottom-up.

Top-down budgeting describes the situation where the budget is imposed 'from above'. Project
managers are allocated a budget for the project based on an estimate made by senior management.
The figure may prove realistic, especially if similar projects have recently been undertaken. However,
the technique is often used simply because it is quick, or because only a certain level of funding is
available.

In bottom-up budgeting, the project manager consults the project team, and others, to calculate
a budget based on the tasks that make up the project. Detailed analysis of the deliverables and
work to be done to achieve them will be necessary in order to produce an accurate and detailed
budget.

It is useful to collate information on a budgeting worksheet.

Budgeting worksheet
Project Name:
Date worksheet completed
Project Manager:

Task Responsible staff member or Estimated Estimated labour Total cost of task
code external supplier material cost costs

Estimates (and therefore budgets) cannot be expected to be 100% accurate. Business conditions
may change, the project plan may be amended or estimates may simply prove to be incorrect.

Any estimate must be accompanied by some indication of expected accuracy.

Estimates can be improved by:

(a) Learning from past mistakes.

(b) Ensuring sufficient design information.
(c) Ensuring as detailed a specification as possible from the customer.
(d) Properly analysing the job into its constituent units.

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The overall level of cost estimates will be influenced by:

(a) Project goals. If a high level of quality is expected costs will be higher.
(b) External vendors. Some costs may need to be estimated by outside vendors. To be
realistic, these people must understand exactly what will be expected of them.
(c) Staff availability. If staff are unavailable, potentially expensive contractors may be
required.
(d) Time schedules. The quicker a task is required to be done the higher the cost is likely to
be – particularly with external suppliers.

The budget may express all resources in monetary amounts, or may show money and other
resources – such as staff hours.

Budgets should be presented for approval and sign-off to the stakeholder who has responsibility
for the funds being used.

Before presenting a budget for approval it may have to be revised a number of times. The 'first
draft' may be overly reliant on rough estimates, as insufficient time was available to obtain more
accurate figures.

On presentation, the project manager may be asked to find ways to cut the budget. If he or she
agrees that cuts can be made, the consequences of the cuts should be pointed out – e.g. a reduction
in quality.

It may be decided that a project costs more than it is worth. If so, scrapping the project is a perfectly
valid option. In such cases the budgeting process has highlighted the situation before too much
time and effort has been spent on an unprofitable venture.

2 THE PROJECT RISK MANAGEMENT

Projects and other undertakings carry an element of risk, for example the risk of an inappropriate
system being developed and implemented.

Project managers must address the levels of risk. The foundations of project risk management are
summarised here (some of which we have discussed previously in this coursebook).

1. Risk identification – have we identified the risks for the project, and the implications of
these on the business? The identification of risks involves an overview of the project to
establish what could go wrong, and the consequences.
2. Risk analysis – have we identified risks, and the chances of these affecting the time, cost,
performance and outcomes of the project, and what the consequences of these risks are?

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3. Risk planning – have we prepared contingency plans to avoid, address or minimise risks
to the project achieving its time, cost and performance outcomes?
4. Risk monitoring – have we got a system in place to monitor these potential risks and to
pick up on any other risks that might impact on the project process or outcomes?

Risk management is concerned with identifying such and putting in place policies to eliminate or
reduce these risks.

2.1 RISK MANAGEMENT PROCESS

Risk management may be viewed as a six-stage process:

Stage 1 Plan risk management approach.

Stage 2 Identify and record risks, for example in a risk register.

Stage 3 Assess risks and record this assessment.

Stage 4 Plan and record risk responses.

Stage 5 Carry out risk reduction actions.

Stage 6 Review the risk management approach.

2.2 RISK ASSESSMENT PROCESS

The likelihood and consequences of risks can be plotted on a matrix – as follows.

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2.3 CONTINGENCY PLAN

For each risk on the risk register it should be recorded what approach will be taken to deal with the
risk.

Developing a risk contingency plan that contains strategies for risks that fall into the VH quadrant
(of risk assessment matrix) should have priority, followed by risks falling into the two H quadrants
(of risk assessment matrix). Following the principle of management by exception, the most
efficient way of dealing with risks outside these quadrants may be to do nothing unless the risk
presents itself.

2.4 DEALING WITH RISK

Dealing with risk involves four strategies.

(a) Avoidance: the factors which give rise to the risk are removed.
(b) Reduction or mitigation: the potential for the risk cannot be removed but analysis has
enabled the identification of ways to reduce the incidence and / or the consequences.
(c) Transference: the risk is passed on to someone else – or is perhaps financed by an insurer.
(d) Absorption: the potential risk is accepted in the hope or expectation that the incidence
and consequences can be coped with if necessary.

Risk management is a continuous process. Procedures are necessary to regularly review and
reassess the risks documented in the risk register.

2.5 RISK IN MEETING TIME, COST AND QUALITY

A project is affected by a number of factors, often in conflict with each other.

(a) Quality of the system required, in terms of basic system requirements.

(b) Time, both to complete the project, and in terms of the opportunity cost of time spent on
this project which could be spent on others.
(c) Costs and resources allocated to the project.
(d) The balance between the constraints of time, cost and quality will be different for each
project.
(e) If a system aims to provide competitive advantage then time will tend to be the dominant
factor.
(f) If safety is paramount (e.g. an auto-pilot system) then quality will be most important.

(a) If the sole aim of a project is to meet administrative needs that are not time dependent,
then cost may be the dominant factor.

The relationship can be shown as a triangle.

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The Time/Cost/Quality Triangle

TIME

‘Competitive edge' project

Low-budget project

Safety-critical project

COST QUALITY

The balance of time, cost and quality will influence decision making throughout the project – for
example whether to spend an extra $5,000 to fix a problem completely or only spend $1,000 on a
quick fix and implement a user work-around?

2.6 DEALING WITH SLIPPAGE

'Slippage' or slipping behind schedule is a common problem.

When a project has slipped behind schedule there are a range of options open to the project
manager. Some of these options are summarised in the following table.

Action Comment

Do nothing After considering all options it may be decided that things should be allowed
to continue as they are.

Add resources If capable staff are available and it is practicable to add more people to certain
tasks it may be possible to recover some lost ground. Could some work be
subcontracted?
Work smarter Consider whether the methods currently being used are the most suitable – for
example could prototyping be used.

Replan If the assumptions the original plan was based on have been proved invalid a
more realistic plan should be devised.

Reschedule A complete replan may not be necessary – it may be possible to recover some
time by changing the phasing of certain deliverables.

Introduce If the main problem is team performance, incentives such as bonus payments
incentives could be linked to work deadlines and quality.

Change the If the original objectives of the project are unrealistic given the time and money
specification available it may be necessary to negotiate a change in the specification.

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2.7 PROJECT CHANGE PROCEDURE

Some of the reactions to slippage discussed above would involve changes that would significantly
affect the overall project. Other possible causes of changes to the original project plan include:

 The availability of new technology

 Changes in personnel
 A realisation that user requirements were misunderstood
 Changes in the business environment
 New legislation e.g. Data protection

The earlier a change is made the less expensive it should prove. However, changes will cost time
and money and should not be undertaken lightly.

When considering a change an investigation should be conducted to discover:

 The consequences of not implementing the proposed change.

 The impact of the change on time, cost and quality.
 The expected costs and benefits of the change.
 The risks associated with the change, and with the status-quo.

The process of ensuring that proper consideration is given to the impact of proposed changes is
known as change control.

Changes will need to be implemented into the project plan and communicated to all stakeholders.

2.8 OTHER RISK FACTORS

Some other common risk factors are identified below.

(a) The project manager may accept an unrealistic deadline – the timescale is fixed early in
the planning process. User demands may be accepted as deadlines before sufficient
consideration is given to the realism of this.
(b) Poor or non-existent planning is a recipe for disaster. Unrealistic deadlines would be
identified much earlier if a proper planning process was undertaken.
(c) A lack of monitoring and control.
(d) Poor time-tabling and resourcing.

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CHAPTER 9
PROJECT MONITORING,
TERMINATION &
REPORTING
 Chapter 9 | Project Monitoring, Termination & Reporting

1 PROJECT MONITORING
Planning and control is different within the project environment from the analysis, planning,
implementation and control cycle in other operational activities of organisations.

According to Meredith and Mantell (2003): ‘Monitoring is the collecting, recording and reporting
information concerning any and all aspects of project performance that the project manager or
others in the organisation wish to know.’

Tracking and monitoring progress helps to ensure an effective and efficient project, by reviewing
project implementation against the approved plan and budget. Monitoring focuses on tracking
data about activities and progress. It needs to be built on a good plan and substantial data. The
design of a realistic chain of results, outcomes, outputs and activities is particularly important.

Monitoring cannot make a project successful – it is a ‘neutral’ part of the project process. However,
timely monitoring (followed by effective control) can help identify – and avoid if necessary – the
three Cs that challenge projects:

 Crises
 Catastrophes
 Change

Monitoring is usually the responsibility of the project coordinator and may be carried out informally
(through weekly briefs) or through routine review of the project documents. The minimum forms
of review for a project should be on the ‘triple constraints’ or:

 Time (schedule)
 Cost (budget)
 Performance

Within this, the key parameters are:

 Current project status

 Progress to date

The key stages in designing a monitoring system are:

 Identify the information requirements

 Identifying the key factors to be monitored
 Identifying the boundaries

Project monitoring normally relies on the parent organisation having a robust internal information
system for monitoring and control.

The project monitoring system needs to be specified at the project initiation. Typically, this will look
at the data collection process, the standards and the performance criteria. Unfortunately, these may

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change over time, because of changes affecting scope, legal changes or other budgetary or
business priorities.

The project action plan, WBS system and the further more detailed subplans are important
reference. These describe the project activities, tasks, schedules, resource levels and costs for all
elements. However, these factors may not identify all elements needed for project monitoring.
Indeed, focusing on monitoring activity, rather than the output, is a common error. A project may
have a considerable amount of activity, but the output may still be hidden. Focusing on the activity
may mask the problems in creating output.

The monitoring system should also consider project mile stones of performance criteria (such as
the number of changes to plan or variations in resources usages and procurement). For example,
project procurement decisions needs to be reviewed. Inspection points related to the purchased
product will include receipt of goods from the supplier, before the product is shipped/transferred
to the project team (or customers) and during the production process (in order to ensure quality of
inputs). Project may have internal costs, for example, inspection, scrap and repair. These types of
internal costs need to be monitored as well.

2 REPORTING PROGRESS
The above discussion has identified various ways of monitoring progress, but these analyses are
not only for the project manager. Commonly, monitoring is communicated to others through
reports and meetings. Reports can be prepared by the project team, or prepared by independent
auditors, depending on the organisation, type of project and the level of project risk. The reports
will also form the record on which the project history will be based. However, the project manager
has the ultimate responsibility for defining how reports and meetings are managed.

2.1 PROJECT STATUS REPORTS

Project status reports provide updates on the project status.

Routine reports are normally those that provide updates on the project status.

 An executive status report, for the project sponsors or other key stakeholders who are
not directly involved in the project activities. These should be prepared on an agreed
schedule, often monthly or quarterly, and timed to fit with meetings with executive
stakeholders.

The focus of this report should be on the ‘top-level’ issues affecting progress and plans.

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 Project progress status reports will be prepared on a regular time schedule. Projects with
full-time team members or working within a tight schedule will commonly have these
prepared weekly. Part-time projects may have a less frequent reporting schedule, as long
as they do not have a short time duration.

Project status reports are normally prepared by those in key roles in the project team. These keep
the project manager and project team up-to-date with progress or problems, and enable all to be
aware of plans to reduce problems or recover from problems.

The frequency and contents of progress reports will vary depending on the length of, and the
progress being made on, a project.

The report is a control tool intended to show the discrepancies between where the project is, and
where the plan says it should be. Major considerations will be time and cost and reports will
highlight comparisons of planned and actual progress.

Any additional content will depend on the format adopted. Some organisations include only the
‘raw facts’ in the report, and use these as a basis for discussion regarding reasons for variances and
action to be taken, at a project review meeting.

Other organisations (particularly those involved in long, complex projects) produce more
comprehensive progress reports, with more explanation and comment.

Gray and Larson (2010) suggest the following basic format for a control report:

1. Progress since last report

2. Current project status
3. Time schedule
4. Cost Scope
5. Cumulative trends
6. Problems and issues since last report Actions and resolution of earlier problems New
variances and problems identified
7. Corrective action planned

2.2 BUDGET REPORTS – EARNED VALUE

The progress report should include cost information: the earned value approach is widely used. The
essence of monitoring using earned value is the computation of variances for cost and schedule
(schedule here means time progress). Three cost figures are required for the computations.

Actual cost of work completed (AC). This is the amount spent to date on the project.

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(a) Planned value of the work scheduled to date (PV). The amount that was budgeted to
be spent to this point on scheduled activities.
(b) Earned value (EV). This figure is calculated by pricing the work that has actually been done
– using the same basis as the scheduled work.

EV – AC = The cost variance for the project.

EV – PV = The schedule variance for the project.

It should be noted that the schedule variance, while a useful overall indicator, is not the best
indicator of time progress: the project network is far more accurate and informative.

2.3 TRAFFIC LIGHT REPORTS

Traffic light control can also provide a higher level visual summary of progress.

In the traffic light approach, project members estimate the likelihood of various aspects of a project
meeting its planned target date. Each aspect is then colour-coded.

Green Means ‘on target’: the work is on target and is expected to meet stakeholder
expectations.

Yellow Signifies the work is behind target, but the slippage is recoverable. Yellow
indicates that some problem areas have been identified, but corrective actions can
be taken to deal with them.

Red Signifies the work is behind target and will be difficult to recover. A ‘red’ traffic
light suggests there are major problems: for example, if a major component of the
project is behind target it could significantly affect the progress of the project as
a whole.

Traffic light control can also be applied to cost and quality aspects of a project as well as time.
Equally, traffic light control could be applied to the three elements of time, cost and quality
together. If a project is on course to substantially meet its objectives in all three elements, it will be
indicated by a green traffic light. If two out of the three are likely to be substantially met, the traffic
light will be yellow, but if less than two objectives are substantially met, the traffic light will be red.

2.4 CONTROL CHARTS

Several different types of chart may be used to display project progress. The Gantt chart is
inherently suited to use as a control chart, displaying planned and actual usage of resources, as is,
to some extent, the resource histogram. A 'project schedule control chart' displays overall progress
against plan. An example is shown below.

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FIGURE: Sample control chart

This chart shows that after a good start, by the end of period 3, the project had fallen behind by
almost two days. Efforts were obviously made to recover the lost time, because the latest report, at
the end of period 8, shows the project only about half a day behind.

2.5 MILESTONES

Milestones should be definite, easily identifiable events that all stakeholders can understand.
Monitoring progress towards key milestones can be done on a control chart of the type described
above, or on a milestone slip chart such as that shown below. This chart compares planned and
actual progress towards project milestones. Planned progress is shown on the X- axis and actual
progress on the Y-axis. Where actual progress is slower than planned progress slippage has
occurred.

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FIGURE: Milestone slip chart

On the chart above milestones are indicated by a triangle on the diagonal planned progress line.
The vertical lines that meet milestones 1 and 2 are straight–showing that these milestones were
achieved on time.

At milestone 3 some slippage has occurred. The chart shows that no further slippage is expected
as the progress line for milestone 4 is the same distance to the right as occurred at milestone 3.

2.6 THE PROJECT SCORECARD

Project scorecards extend the traffic light approach to provide progress summaries on key
performance metrics for a project. They are produced on a regular basis, for example weekly,
monthly or quarterly, depending on the project. This scorecard approach complements, rather than
replaces, other planning and monitoring systems.

Organisations must determine appropriate metrics to include in their project scorecards. These can
take one of the two forms. The first focuses on key project management dimensions, including:

 Cost , e.g. between the actual spend against planned spend

 Quality, e.g. the percentage of work completed to standard
 Time, e.g. the extent to which the project is meeting the project schedule
 Corporate factors, e.g. the extent to which corporate goals or standards are being met

The second takes a ‘balanced scorecard’ approach, and assumes that assessing the following
dimensions will deliver the above benefits:

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 The financial perspective, e.g. EVA, ROI

 The customer perspective, customer satisfaction, economic value added. (Notice the
difference between earned value analysis and economic value added. The commonality of
the acronyms can cause confusion.)
 The training and innovation perspective, staff PM expertise, lessons learned
 The project or other internal business perspective, e.g. satisfaction indices, fit with
corporate objectives

This information can be presented in different ways. Some organisations produce a simple one-
page sheet, which:

 Highlights key developments

 Shows the tracking of the key performance matrices
 Identifies areas that need attention (i.e. are over budget, late, possible risks on the horizon
etc)

The temporary nature of projects means that tracking and monitoring systems must be accessible,
easy to use and current. As a temporary initiative, some or all aspects of the project tracking may
not fit well within the existing information systems. Further, often only the larger projects have staff
with responsibilities, for example information systems or finance. Therefore, the tracking data
should be, wherever possible, gathered as part of the normal routine of the project.

3 THE PROJECT TERMINATION DECISION

Two key models or forms of project decision-making exist:

 Models based on the extent to which the project has achieved – or failed to achieve – its
desired outcomes
 Models that compare the project against generally accepted standards for success and
failure for a project

3.1 ASSESSING PROJECT TERMINATION

A project can be terminated at any stage in the project process. Whether projects should continue
is essentially a resource allocation decision. Generally, this follows a project review, or results from
other organisational decisions.

Meredith and Mantell (2003) state ‘that the primary criterion for project continuance or termination
is whether or not the organisation is willing to invest the estimated time and cost required to
complete the project, given the project’s current status and expected outcome.’

They argue that this definition can be applied to all projects. In practice, some managers allow
tactical projects to continue, without substantial review, if there is no ‘bad news’ associated with

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them. A departmental plan will have a range of subprojects, such as those designed to support a
new brand launch.

Each element will normally continue – unless risk, budget or other factors go right out of control.

While project managers should be committed to their projects, they should also recognise when
and how to stop unsuccessful projects. Often, project managers will protect their projects, because
of an emotional involvement or concern over their careers. Early project termination can be
emotional though, as reflected in the language used.

Projects that finish early are ‘culled’ or have ‘hatchets’ taken to them. In reality, continuing some
projects may have worse outcomes on the careers of the managers and of the sponsoring
organisation. Usually, project termination decisions are made by senior sponsors rather than project
managers.

3.2 CRITERIA FOR REVIEWING ONGOING PROJECT TERMINATION

Relatively little attention has been given to criteria for ongoing project termination in formal studies.
Dean (1968) identified the following criteria for terminating a project early.

TABLE: Project termination criteria

Termination evaluation criteria Possible tools for evaluation

Market research, profit/loss analysis, value
Probability of technical/commercial success
analysis
Market research, profit/loss analysis, value
Profitability/ROI/market potential
analysis
Cost growth Budgeting, variance analysis

Changing competitive factors/market needs Market intelligence, profit/loss analysis

Technical problems that cannot be resolved Project viability, marketing mix analysis
Competing projects having higher priority Investment performance analysis, project priority
within the organisation or department review

Organisations rarely have formal criteria for evaluating the early termination of projects. Often, it is
easier – in terms of the level of investment and the external evidence of the project – to stop
marketing projects than those with tangible evidence of work completed, for example construction
projects. It is also easier to stop projects that do not have a full-time team as there are no
redundancies. Notably, staff motivation and concerns are often not included in project termination
decisions.

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3.3 IMPLEMENTATION OF PROJECT TERMINATION

By definition, a project will eventually be terminated once it has achieved its outcomes and is no
longer required. Examples of this would be the launch of the new product or the construction of a
factory.

Projects – irrespective of whether they are culled prematurely or finish along their expected course
can be terminated:

 Following a planned and structured process

 Suddenly, and without any warning or support

In many cases, the project manager’s final responsibility is to complete the project review. The
project review is to detail the lessons learnt and the outcomes of the project. However, without full
budgeting and scheduling of this activity, it may not happen. Often, organisations forget the value
of learning from the project experience, despite increasing commitment to ideas of ‘learning from
success’ or defining themselves as ‘learning organisations’.

Project termination decisions consider many aspects that are part of the project process. In minor
projects, many of these will be irrelevant. In others, they will be key factors for future project success.

Key termination tasks include:

 Personnel issues, which will differ depending on the type of project organisation. In project
team organisation, some team members will need help in finding new jobs and in
disengaging from the project and project issues. This can also apply to external parties –
the loss of a major advertising account can impact on personnel who have been heavily
involved in projects for that customer.
 Operations/Logistics/Manufacturing, which will change post-project, when this moves
to general activity. Support specialists in these functions may return to general
management and not focus on issues related to the project.
 Accounting and financial matters need to be ‘closed’. The project budget and expenditure
need to be audited or verified and signed-off. Any balances (positive or negative) need to
be addressed.
 Processes will need to be clearly specified and operationalised. For example, compliance
issues will need to be clearly specified with appropriate training briefs for their
implementation in a new financial product. This may require specification for all new
procedures.
 Information systems are closely related to other processes. However, data protection
issues may require more attention to personal details, and examination of personal data
into internal systems.

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4 THE PROJECT REPORT

At the end of the project, two differing views of the project report exist:

1. Project report identifying the success of the project

2. Project history to encourage learning

A Project Success Report focuses on the outcomes of the project, and should identify:

(a) Whether the project’s objectives have been met and identifying the success of the project
on the basis of this.
(b) A comparison of the performance against the planned target time and cost.
(c) Whether the original project plan needed changes.
(d) Analysis of any changes to time, cost, outcomes, during the project.
(e) Any other organisational requirements, e.g. staff performance, testing etc.

On project completion, the project manager will produce a completion report. The main purpose
of the completion report is to document (and gain client sign-off for) the end of the project.

The report should include a summary of the project outcome:

(a) Project objectives and the outcomes achieved.

(b) The final project budget report showing expected and actual expenditure (If an external
client is involved this information may be sensitive – the report may exclude or amend the
budget report).
(c) A brief outline of time taken compared with the original schedule.
(d) Responsibilities and procedures relating to any such issues should be laid down in the
report.

Another general rule is that the reporting should be kept brief. Therefore, an updated report should
be only a page or two for most projects.

Often, organisations do not require these reports despite their contribution to project management
knowledge and future projects. Often, other priorities overtake this, or the project manager has
moved to other projects or has a wish to move on. Further, on longer projects, there is much
documentation, but often the reasons for changes or problems are not noted.

4.1 THE OUTCOME MATRIX

A matrix approach may be taken to the presentation of various aspects of the completion report.
The simplest kind of matrix will simply list project deliverables in the left-hand column of cells and
show an objective assessment of achievement in the right-hand column. The matrix can be made
more informative by incorporating further columns to summarise outcomes in terms of, for
example, time, cost and stakeholder satisfaction. An example is given below.

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TABLE: New product development project outcomes

Deliverable Schedule Cost Production Sales Finance

engineering
Product design Three $10,900 Complexity Good market Breakeven
weeks late under considered performance unlikely below
budget marginally anticipated 14,600 units
acceptable per month
Packaging On time $2,700 over Satisfactory Satisfactory Considered
budget expensive
Service Six weeks $4,900 over Satisfactory Over-complex Satisfactory
requirements late budget
specification

A more complex type of outcome matrix can be used to analyse performance against two
interacting criteria. An example of an outcome matrix would be one that analysed technical aspects
of a project deliverable in terms of quality of design and quality of execution.

4.2 THE POST-COMPLETION AUDIT

Any project is an opportunity to learn how to manage future projects more effectively.

The post-completion audit is a formal review of the project that examines the lessons that may
be learned and used for the benefit of future projects.

The audit looks at all aspects of the project with regard to two questions:

(a) Did the end result of the project meet the client's expectations?

i. The actual design and construction of the end product

ii. Was the project achieved on time?
iii. Was the project completed within budget?
(b) Was the management of the project as successful as it might have been, or were there
bottlenecks or problems? This review covers:

iv. Problems that might occur on future projects with similar characteristics.
v. The performance of the team individually and as a group.
The post-completion audit should involve input from the project team. A simple questionnaire
could be developed for all team members to complete, and a reasonably informal meeting held to
obtain feedback, on what went well (and why), and what didn't (and why).

This information should be formalised in a report. The post-completion audit report should contain
the following:

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(a) A summary should be provided, emphasising any areas where the structures and tools
used to manage the project have been found to be unsatisfactory.
(b) A review of the end result of the project should be provided, and compared with the
results expected. Reasons for any significant discrepancies between the two should be
provided, preferably with suggestions of how any future projects could prevent these
problems recurring.
(c) A cost-benefit review should be included, comparing the forecast costs and benefits
identified at the time of the feasibility study with actual costs and benefits.
(d) Recommendations should be made as to any steps which should be taken to improve the
project management procedures used.

Lessons learnt that relate to the way the project was managed should contribute to the smooth
running of future projects.

A starting point for any new project should be a review of the documentation of any similar projects
undertaken in the past.

4.3 BENEFITS REALISATION

It is obviously important that the benefits expected from the completion of a project are actually
enjoyed. Benefits realisation is concerned with the planning and management required to realise
expected benefits. It also covers any required organisational transition processes.

Here we will discuss the practice of the UK Office of Government Commerce. The department has
identified a six-stage procedure for benefits realisation. This is most relevant to projects aimed at
process improvement and changing the organisation's way of doing things.

Stage 1 Establishing benefits measurement

Measure the start state and record it in the benefits profile. The benefits profile defines
each anticipated benefit and is used to track progress towards its realisation. Determine
how benefit realisation will be measured. Benefits may be complex and spread across
departments: designing usable and realistic measures may be difficult.

Stage 2 Refining the benefits profile

The benefits profile should be refined and controlled throughout the life of the project.
Project managers should conduct regular benefits profile reviews in collaboration with
key stakeholders.

Stage 3 Monitoring benefits

There should be regular monitoring of benefits realisation. It must be accepted that

some projects will only be beneficial in enabling other projects to be successful.

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Stage 4 Transition management

Projects are likely to bring change and this must be managed in a proper way. Effective
communications will be required as will the deployment of good people skills

Stage 5 Support for benefit realisation

Benefits realisation will mainly accrue after the end of the project. Where a project
brings changes in methods and processes, there is likely to be a period for settling-
down before benefits are fully realised. During this period, costs may rise and problems
may occur. Careful management is required to overcome these short-term effects. A
philosophy of continuous improvement is required if further benefits are to be
achieved.

Stage 6 Measuring the benefits

Benefits achieved should be established by comparison with the pre-improvement

state recorded in the benefits profile.

4.4 PROJECT HISTORY

As discussed, the Project Success Report can be an important way of showing stakeholders that
the project has achieved its outcomes, or identifying the reasons for failure. This is critical for the
project manager’s future career.

The Project History focuses on ‘lessons learned’ for future projects, rather than on the merits of
the project. This report is sometimes called a project history. This history will examine the following
to determine what worked and what did not, and when and why problems occurred.

It will address:

Project performance – the outcomes, successes, failures and challenges.

Administrative performance – reports and reporting, communications and meetings, review

procedures, scoping and change procedures, financial management.

Project organisation – how this changed throughout the project, and how this helped or hindered
the project.

Project teams – how these performed, recommendations for future teams.

Project management – scoping, plans, methodologies, budgets, schedules, risk management etc.

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TABLE: Project review

Summary of project history

What went well What went badly Recommendations

Project performance

Admin performance

Project organisation

Project teams

Project management

Often, these reviews will be presented in a meeting or presentation. Simply, this basic finding can
be summarised in a presentation, and above Table will help identify these key issues.

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PRACTICE
QUESTIONS
 Practice Questions

Chapter 1
1. Although the composition of the project team is critical, project managers often find it is not
possible to assemble the ideal team, and have to do the best they can with the personnel
available. If the project manager feels the best available team does not possess the skills and
talent required, the project should be_________________.

(a) abandoned or delayed

(b) abandoned rather than delayed
(c) delayed rather than abandoned
(d) first delayed and then abandoned

2. Most project managers have the job title 'Project Manager'. Which is TRUE about them?

(a) These people usually have one major responsibility: the project planning.
(b) These people usually have one major responsibility: the project.
(c) These people usually have one major responsibility: the project monitoring.
(d) These people usually have one major responsibility: the project initiating.

3. Project management is the combination of ________________and _______________used to control

and monitor activities undertaken within the project.

(a) systems techniques, people

(b) machine, technicians
(c) software, programmer
(d) techniques, project managers

4. A project will be deemed successful if it is completed at the specified level of quality _______and
______.

(a) by the manager, in time

(b) on time, within budget
(c) within budget, before planned time
(d) on time, in minimal budget

5. The way in which a project manager co-ordinates a project from initiation to completion, using project
management and general management techniques, is known as the ____________________.

(a) Project Management system

(b) Project Management technique
(c) Project Management process
(d) Project Management coordination

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6. An effective project management process helps project managers maintain _________________and

meet their responsibilities.

(a) adjusting projects

(b) control of projects
(c) ad hoc tasks
(d) cost of projects

7. Project management techniques encourage ______________________by identifying, from the

outset, those activities which might threaten successful completion of a project.

(a) management of action

(b) management by section
(c) management by exception
(d) managing from direction

8. The ideal project team achieves project completion on time, within budget and to the required
specifications – with the minimum amount of ________________from the project manager.

(a) direct supervision

(b) indirect supervision
(c) complex supervision
(d) mix supervision

9. The project team will comprise individuals with___________________________. The project manager
should choose a balanced team that takes advantage of each team member's skills and
compensates elsewhere for their weaknesses.

(a) equal skills and education

(b) differing skills and personalities
(c) various experiences and complexions
(d) same age and equal abilities

10. The project manager should keep in touch with the relationships of team members and act as
a ___________________ if necessary.

(a) conciliator
(b) facilitator
(c) substitute
(d) mentor

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 Practice Questions

11. __________________ is accountable for the resources invested into the project and responsible for
the achievement of the project's business objectives.

(a) Project vendor

(b) Project manager
(c) Project stakeholder
(d) Project sponsor

12. One approach to stakeholders dispute management strategy is to organise affairs in a way that
minimises exposure to the___________________.

(a) risk of disputes

(b) risk of control
(c) risk of management
(d) risk of functions

13. Conflict between project stakeholders may be resolved by all EXCEPT

(a) Negotiation
(b) Partnering
(c) Mediation
(d) Bargaining

14. Which of the following is NOT a required objective of a Project? A project should be-

(a) Specific
(b) Measurable
(c) Unique
(d) Time bound

15. It is important to understand who has an interest in a project, because part of the responsibility
of the project manager is ________________________________.

(a) communication and the management of expectations

(b) confirmation and management by exceptions
(c) communication and management of conflict
(d) confirmation and management of exploitation

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16. The project manager should be aware of the following matters for each stakeholder or
stakeholder group EXCEPT

(a) Goals
(b) Past attitude and behaviour
(c) Expected future behaviour
(d) Reaction to possible past developments

17. Project management as a discipline developed because of a need to __________________ to

obtain desired results within a set time frame. Common project management tasks include
establishing goals and objectives, developing a work-plan, scheduling, budgeting, co-
ordinating a team and communicating.

(a) co-ordinate resources

(b) cooperate mechanisms
(c) construct business logic
(d) conduct business analysis

18. The leadership style adopted will affect the way decisions relating to the project are made.
Although an autocratic style may prove successful in some situations, a more consultative style
has the advantage of making team members feel more a part of the project. This should result
in greater ___________.

(a) commitment
(b) sincerity
(c) comprehension
(d) motivation

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Chapter 2

19. Functional structures are simple and almost intuitive in their__________.

(a) operation
(b) implementation
(c) application
(d) synchronization

20. Functional organisation structures are simple and almost intuitive in their operation. However,
they tend to promote insularity of thought and even distrust between functions. Achieving full
co-ordination of the work of the various departments can be very difficult. This sort of problem
leads to the _______ structure.

(a) matrix
(b) complex
(c) analytic
(d) vertical

21. __________________ structured organisations can undertake projects successfully, partly, because
they are able to provide in-depth expertise to project managers by allocating expert staff from
appropriate functions. However, such staff can suffer from lack of focus if they still have a
major functional role to play and it can be difficult to integrate their efforts properly.

(a) Globally
(b) Functionally
(c) Matrix
(d) Ce-metrical

22. Primary functions in a manufacturing company might NOT be

(a) production
(b) sales
(c) finance
(d) warehousing

23. Sub-departments of marketing might NOT be

(a) selling
(b) advertising
(c) distribution
(d) finance

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24. The ____________ structure imposes an extra layer of cross-functional management on top of
the___________ structure in order to improve co-operation and integration of effort by granting
authority to project managers. Typically, the superimposed structure will be concerned with
individual products or product groups.

(a) matrix, functional

(b) functional, matrix
(c) team based, functional
(d) project based, team based

25. Following is an excerpt from the text: "This approach is very flexible and easy to use; it tends
to complete projects quickly if the discipline of project management is well-understood. In
particular, it requires clear project definition if control is to be effective and comprehensive
project review if longer-term learning is to take place." Which approach does the excerpt refer
to?

(a) Project-based
(b) Functional
(c) Team-based
(d) Matrix

26. A high level of motivation is common and the integration of specialist work is eased by
commitment to project delivery. Staff may work on several projects at the same time and thus
have responsibilities to several project managers.

In which structure of organisation is the above mentioned situation TRUE?

(a) Project-based
(b) Functional
(c) Team-based
(d) Matrix

27. Project management in its widest sense is fundamental to much strategy. This is because very
few organisations are able to do the same things in the same ways year after year.
___________________ change forces many organisations to include extensive processes of
adaptation into their strategies.

(a) Continuing environmental

(b) Policies
(c) Management discretion
(d) Organisational structure

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 Practice Questions

28. The product managers may each have their own ________________; in which case the
_______________department itself would be small or non-existent. The authority of product
managers may vary from organisation to organisation.

(a) marketing team, marketing

(b) finance team, finance
(c) hr team, hr
(d) IT team, IT

29. The consideration of project management will first address the types of projects (_____________),
how these are undertaken (_______________) and why they do it (______________).

(a) activities, strategic goals & competitive position, people and processes
(b) people and processes, activities, strategic goals & competitive position
(c) strategic goals & competitive position, people and processes, activities
(d) activities, people and processes, strategic goals & competitive position

30. While the discipline of a Project Portfolio Management approach is perfectly logical, it must
be recognised that the ____________ are often not.

(a) steps
(b) conditions
(c) outcomes
(d) methodologies

31. In contrast to the multitude of such small events, modern organisations are likely to undergo
_______________ change far less often, but sufficiently frequently and with developments that
have sufficiently long lives for project management to be an important aspect of strategic
implementation.

(a) significant
(b) specific
(c) sporadic
(d) minor

32. Which of the following statements is TRUE?

(a) Relationship Management could give significant shorter-term returns.

(b) Relationship Management could give significant longer-term returns.
(c) Relationship Management could give insignificant shorter-term returns.
(d) Relationship Management could give insignificant longer-term returns.

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 Practice Questions

33. ______________________refers to the number of subordinates or team members responsible to a

person.

(a) Span of management

(b) Area of management
(c) Focus of management
(d) Circle of management

34. Meredith and Mantell (2003) state that success or failure of a project is based on whether they
have achieved targets on the following EXCEPT

(a) Required performance

(b) No. of projects
(c) Cost
(d) Due date

35. Project management’s contribution is now widely recognised as important within the
_______________areas of organisations.

(a) business
(b) management
(c) departmental
(d) functional

36. For project planning is fundamental to project success, ________________________must be

established, use of shared resources must be planned and, most fundamental of all, jobs must
be done in a sensible sequence.

(a) prudent management and online support

(b) practical understanding and trained-up team
(c) realistic timescales and resource requirements
(d) quick reviews and suitable locations

37. Models such as Kerzner’s are a guide to progress; in particular they indicate _________________
for project managers.

(a) leading challenges

(b) organisational changes
(c) departmental progress
(d) career development routes

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 Practice Questions

38. Project management is a way of making ___________________ more deliberate and therefore
better-considered.

(a) competitive strategy

(b) policy changes
(c) ad hoc strategy
(d) management style changes

39. According to Johnson, Scholes and Whittington (2008), the ________________________of

knowledge requires effective systems to link the people who have knowledge with the
applications that need it.

(a) collection and dissemination

(b) creation and exploitation
(c) achievement and allocation
(d) moderation and storage

40. Functional structures of organisations are simple and almost intuitive in their________________.

(a) operation
(b) implementation
(c) application
(d) synchronization

41. The matrix structure is now regarded as rather _______________, since it is essentially a
_______________way of retaining the basic functional structure.

(a) latest, simple

(b) old, modern
(c) old-fashioned, complex
(d) classical, traditional

42. The permeability of a project is the extent to which its ___________________________are subject to
influences outside the control of the project manager. The extent of these influences might be
very limited in a short, simple project of a well-understood type.

(a) objectives and solutions

(b) solutions and processes
(c) objectives and processes
(d) management and solutions

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 Practice Questions

Chapter 3

43. An investment should be justified in _____________.

(a) human resource terms

(b) financial terms
(c) political terms
(d) social benefits

44. If an investment makes technical sense but conflicts with the way the organisation does
business, the solution __________.

(a) is feasible
(b) may be feasible
(c) is not feasible
(d) highly feasible

45. Technical feasibility determines whether the proposed solution –

(a) is implementable using available technical supports(software, hardware, etc.).

(b) is technically sound or not.
(c) is financially feasible or not.
(d) Is logical or not.

46. An assessment of social feasibility will address a number of areas, among those is:

(a) Selecting jobs

(b) Building industrial relations
(c) Management policies
(d) Motivation

47. The remit of a feasibility study may be __________________.

(a) narrow or wide

(b) narrow
(c) wide
(d) medium

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 Practice Questions

48. __________ measures are an important measure of many investments’ success.

(a) Political
(b) Productivity
(c) Managerial
(d) Financial

49. The project appraisal method “return on investment” is based on -

(a) cash flows

(b) accounting result
(c) investors' assessment
(d) cash flows and accounting result

50. Any project will have economic costs and economic benefits. Economic feasibility has all three
strands BUT NOT necessarily

(a) The benefits must justify the costs.

(b) The project must be the 'best' option from those under consideration for its particular
purpose.
(c) The project must compete with projects in other areas of the business for funds.
(d) The costs, benefit and funding should be always be justified in pre-determined parameter

51. How many methods are there for discounted cash flow (DCF)?

(a) 7
(b) 5
(c) 3
(d) 2

52. ________ is often used as a 'first screening method'.

(a) ARR
(b) NPV
(c) Payback
(d) IRR

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 Practice Questions

53. What is the Net Present Value (NPV) of a project that costs $100, 000 and returns $45, 000
annually for three years if the cost of capital is 14%?

Number of periods Discount factor

1 0.877
2 0.769
3 0.675

(a) $16, 100.00

(b) $35, 000.00
(c) $3, 397.57
(d) $4, 445.00

54. Which of the following statements is correct for a project with a positive Net Present Value
(NPV)?

(a) Internal rate of return (IRR) exceeds the cost of capital

(b) Accepting the project has an indeterminate effect on shareholders
(c) The discount rate exceeds the cost of capital
(d) The profitability index equals one

55. Which of the following capital budgeting methods states the project return as a percentage?

(a) Payback period

(b) Net present value
(c) Internal Rate of Return
(d) Discounted payback period

56. Paisley Ltd plans to purchase a machine costing $13,500. The machine will save labour costs
of $7,000 in the first year. Labour rates in the second year will increase by 10%. The estimated
average annual rate of inflation is 8% and the company's real cost of capital is estimated at
12%.

The machine has a two-year life with an estimated actual salvage value of $5,000 receivable at
the end of Year 2. All cash flows occur at the year end.

What is the NPV (to the nearest $10) of the proposed investment?

Note: The present value at a discount rate of 11%:

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 Practice Questions

Period Discount Rate

1 1.0000
2 0.8267
3 0.6835

What is the NPV (to the nearest $10) of the proposed investment?

(a) $1,150
(b) $970
(c) $770
(d) $550

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 Practice Questions

Chapter 4

57. A project requires an initial investment of $70,000 and has a project profitability index of 0.932.
The present value of the future cash inflows from this investment is:

(a) $70,000
(b) $36,231
(c) $135,240
(d) Cannot be determined from the data provided.

58. Bowen Company is considering several investment proposals, as shown below:

If the project profitability index is used, the ranking of the projects would be:

(a) A above
(b) B above
(c) C above
(d) D above

59. Information on four investment proposals is given below:

Rank the proposals in terms of preference according to the project profitability index:

(a) 1, 4, 3, 2
(b) 4, 1, 3, 2
(c) 3, 4, 1, 2
(d) 2, 1, 4, 3

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 Practice Questions

60. Information on four investment proposals is given below:

Rank the proposals in terms of preference using the project profitability index:

(a) 3, 2, 1, 4
(b) 2, 3, 1, 4
(c) 2, 1, 3, 4
(d) 4, 1, 2, 3

61. 5. The Gomez Company is considering two projects, T and V. The following information has
been gathered on these projects:

Based on this information, which of the following statements is (are) true?

I. Project T has the highest ranking according to the project profitability index criterion.

II. Project V has the highest ranking according to the net present value criterion.

(a) Only I
(b) Only II
(c) Both I and II
(d) Neither I nor II

62. The management of Edelmann Corporation is considering the following three investment
projects:

Rank the projects according to the profitability index, from most profitable to least profitable .

(a) T,S,R
(b) R,T,S
(c) S,T,R
(d) T,R,S

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 Practice Questions

63. Villena Corporation is considering a project that would require an investment of $48,000. No
other cash outflows would be involved. The present value of the cash inflows would be $52,800.
The profitability index of the project is closest to:

(a) 0.90
(b) 0.10
(c) 1.10
(d) 0.09

64. Crowley Corporation is considering three investment projects-F, G, and H. Project F would
require an investment of $21,000, Project G of $49,000, and Project H of $82,000. No other
cash outflows would be involved. The present value of the cash inflows would be $21,210 for
Project F, $57,820 for Project G, and $95,120 for Project H. Rank the projects according to the
profitability index, from most profitable to least profitable.

(a) F,H,G
(b) G,H,F
(c) H,F,G
(d) H,G,F

65. The management of Cantell Corporation is considering a project that would require an initial
investment of $47,000. No other cash outflows would be required. The present value of the
cash inflows would be $55,930. The profitability index of the project is closest to:

(a) 1.19
(b) 0.81
(c) 0.19
(d) 0.16

66. Which of the following statement is FALSE?

(a) Risk can be applied to a situation where there are several possible outcomes and, on the
basis of past relevant experience, probabilities can be assigned to the various outcomes
that could prevail.
(b) Uncertainty can be applied to a situation where there are several possible outcomes but
there is little past relevant experience to enable the probability of the possible outcomes
to be predicted.
(c) In general, risky projects are those whose future cash flows, and hence the projects returns,
are likely to be variable - the greater the variability, the greater the risk.
(d) The problem of risk is less acute with capital investment decisions than other decisions for
the following reasons.

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 Practice Questions

67. Risk _______________ involves transferring the risk to a third party through either contractually
or by hedging. Insurance is a contractual method of transferring risk as are many construction
contracts. Financial risks, on the other hand, tend to be hedged through the use of offsetting
derivatives positions

(a) transfer
(b) avoidance
(c) reduction
(d) increment

68. Self-imposed reasons, sometimes referred to as 'soft capital rationing', may arise for all of the
following reasons EXCEPT

(a) Management might be reluctant to raise more capital for investment by issuing new shares,
because of concern that this may lead to outsiders gaining control of the business.
(b) Management might be unwilling to issue additional share capital if it will lead to a short-
term dilution in earnings per share.
(c) Management might not want to raise additional debt capital because they do not wish to
be committed to large fixed interest payments.
(d) The capital expenditure budget might not have a restriction on capital spending.

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 Practice Questions

Chapter 5

69. The ___________ phase of a project is concerned with deciding whether a project should begin
and committing to do so.

(a) Defining
(b) Planning
(c) Implementing
(d) Controlling

70. The _______________ stage involves selecting the personnel who will be involved with the project.

(a) Formation
(b) Objective setting
(c) Task planning
(d) Feasibility

71. Before specific objectives can be set it is necessary to establish more _________ project goals.

(a) unique
(b) general
(c) strategic
(d) ambitious

72. ______________ phase of a project aims to devise a workable scheme to accomplish the overall
project goal.

(a) Defining
(b) Planning
(c) Implementing
(d) Controlling

73. Which of the following is FALSE regarding SWOT analysis?

(a) A strengths and weaknesses analysis should identify strengths the organisation has that
the project may be able to exploit.
(b) The strengths and weaknesses analysis has an external focus.
(c) An external appraisal is required to identify opportunities which can be exploited by the
company and also to anticipate environmental threats against which the company must
protect itself.
(d) The internal and external appraisals of SWOT analysis will be brought together.

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 Practice Questions

74. The ____________ phase is concerned with co-ordinating people and other resources to carry
out the project plan.

(a) Defining
(b) Planning
(c) Implementing
(d) Controlling

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 Practice Questions

Chapter 6

75. _______ is the part of project planning that involves determining and documenting a list of
specific project goals, deliverables, tasks, costs and deadlines.

(a) Project scope

(b) Project life-cycle
(c) Project review
(d) Project feasibility

76. The documentation of a project's scope explains the boundaries of the project, establishes
responsibilities for each team member and sets up procedures for how completed work will
be verified and approved. The documentation may be referred to any of the following EXCEPT

(a) scope statement

(b) statement of work (SOW)
(c) terms of reference (TOR)
(d) post-completion audit

77. Which of the following is FALSE regarding Fishbone analysis?

(a) Fishbone analysis (root-cause, cause and effect or Ishikawa diagram analysis) is useful for
establishing and analysing key issues.
(b) Fishbone analysis cannot be used both on existing problems, opportunities and
behavioural issues, and on those that may be anticipated, perhaps as a result of the
construction of a scenario.
(c) The essence of fishbone analysis is to break down a perceived issue into its smallest
underlying causes and components, so that each may be tackled in a proper fashion.
(d) It is called fishbone analysis because the overall issue and its components are traditionally
analysed and presented on a diagram such as the one below.

78. Projects often change over time. Changes may be any of the following EXCEPT:

(a) Mandatory – for example, resulting from changes in legislation.

(b) Required – for example, where a change is necessary to solve a problem, such as an error
in copy; or where something was not defined correctly in the first instance.
(c) Optional – where an improvement to the original work is possible or desirable.
(d) Pre-determined - where a change was decided beforehand and was ignored at the beginning

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 Practice Questions

Chapter 7

79. Which one of the following is NOT a benefit of the project management software?

(a) Enables quick replanning

(b) Estimates can be changed many times and a new schedule produced almost instantly
(c) Skill levels, staff turnover, and level of motivation can have profound effects on
performance achieved
(d) Changes to the plan can be reflected immediately

80. Project management techniques are ideal candidates for __________.

a) computerisation
b) globalisation
c) standardisation
d) communciation

81. The duration of the whole project will be fixed by the time taken to complete the largest path
through the network. This path is called the ____________and activities on it are known as
_______________.

Activities on the critical path must be started and completed on time, otherwise the total project
time will be extended.

(a) critical path, critical activities

(b) critical way, critical works
(c) critical fact, critical activities
(d) critical act, works

82. Project task breakdown process is often referred as

(a) Task breakdown process

(b) Work breakdown process
(c) Task breakdown structure
(d) Work breakdown structure

83. A typical project management package requires ______ inputs.

(a) eight
(b) six
(c) four
(d) two

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 Practice Questions

84. The WBS will go down through a series of levels until the project tasks produce manageable
outputs. These are called___________________.

(a) work packages

(b) tangible outputs
(c) lowest level products
(d) deliverables

85. A very important aspect of project planning is the determination of dependencies and
interactions. Careful analysis of dependencies is a major step towards a workable project plan,
since it provides _____.

(a) an order in which things must be tackled

(b) a sequence in which procedures are executed
(c) a combination of methodologies
(d) an alternative way-out to resist loss

86. Identifying the work packages forms the foundation for developing schedules, budgets and
resource requirements, and also forms the foundation for assigning _____________.

(a) adhoc tasks

(b) responsibilities
(c) workflows
(d) package work

87. _________________ can be split into activities or tasks that are used to create a workflow. These
contrast with activities and tasks, which are about what is involved in doing work.

(a) Work functions

(b) Work packages
(c) Work statuses
(d) Work tasks

88. A very important aspect of ________________ is the determination of dependencies and

interactions. At any level of WBS analysis, some tasks will be dependent on others; that is to
say, a dependent task cannot commence until the task upon which it depends is completed.

(a) project terminating

(b) project implementing
(c) project planning
(d) project initiating

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 Practice Questions

89. What is predecessor tasks?

(a) Which are not required for any other tasks

(b) Which are required for another task to be completed
(c) Which cannot start until another task has been completed
(d) None of above

90. CPA aims to ensure ________ of a project.

(a) successful completion

(b) proper tasks plan
(c) the progress
(d) standard management

91. Scheduling is essentially about the links between and among activities/tasks and or
______________________

(a) people and organisations

(b) people
(c) organisations
(d) the management

92. __________________are the artefacts used to manage the project. They include the project
management organisation structure, planning documentation, reports and so on.

(a) Technical products

(b) Quality products
(c) Mature products
(d) Management products

93. Following is a simple network diagram that illustrates a typical computer installation project in
one of the factory of super motor car company Bintally Motor Works.

D1 F3

A3

START E6 G3 END

B5 C2

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 Practice Questions

Can activity D be delayed without delaying the completion of the project? If so, how many
days?

(a) Yes, 4 days

(b) No, 4 days
(c) Yes, 8 days
(d) No, 8 days

94. Following is a simple network diagram that illustrates a typical computer installation project in
one of the factory of super motor car company Bintally Motor Works.

D1 F3

A3

START E6 G3 END

B5 C2

What is the duration of the critical path for this project?

(a) 7 days
(b) 12 days
(c) 10 days
(d) Days

95. Following is a simple network diagram that illustrates a typical computer installation project in
one of the factory of super motor car company Bintally Motor Works.

D1 F3

A3

START E6 G3 END

B5 C2

What is the earliest start time for Activity G?

(a) days
(b) 9 days
(c) days
(d) days

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 Practice Questions

96. Following is a simple network diagram that illustrates a typical computer installation project in
one of the factory of super motor car company Bintally Motor Works.

D1 F3

A3

START E6 G3 END

B5 C2

What is the latest start time for Activity F?

(a) days
(b) days
(c) 7 days
(d) 9 days

97. PERT is a modified form of ______________ designed to account for uncertainty.

(a) network analysis

(b) critical path
(c) gantt chart
(d) resource histogram

98. A resource histogram is used to:

(a) Show how activities are related.

(b) Show when activities take place.
(c) Enable the critical path to be evaluated.
(d) Show resources used over time.

99. If the earliest start time and latest start time of an activity are 8 and 9 respectively, the float for
this activity is:

(a) Zero
(b) 1
(c) 17
(d) 3

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 Practice Questions

Chapter 8

100. How can an estimate be improved?

(a) By estimating very conservative

(b) By following “copy book” strategy
(c) By learning from past mistakes
(d) By evaluating past market

101. Estimates can be improved by all EXCEPT

(a) Learning from past mistakes

(b) Ensuring sufficient development information
(c) Ensuring as detailed specification as possible from the customer
(d) Properly analysing the job into its constituent units

102. Risk management may be viewed as a _____ stage process:

(a) 3
(b) 4
(c) 5
(d) 6

103. Dealing with risk involves _______ strategies.

(a) 2
(b) 3
(c) 4
(d) 5

104. The potential for the risk cannot be removed but analysis has enabled the identification of
ways to reduce the incidence and / or the consequences. This strategy to deal with risk is
known as _________.

(a) Risk reduction

(b) Risk transfer
(c) Risk avoidance
(d) Risk absorption

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 Practice Questions

105. The potential risk is accepted in the hope or expectation that the incidence and consequences
can be coped with if necessary. This strategy to deal with risk is known as _________.

(a) Risk reduction

(b) Risk transfer
(c) Risk avoidance
(d) Risk absorption

106. Which of the following is a FALSE statement?

(a) 'Slippage' or slipping behind schedule is a common problem.

(b) The balance of time, cost and quality will influence decision making throughout the project
(c) A project is affected by a number of factors, often in conflict with each other.
(d) The balance between the constraints of time, cost and quality will be same for each project.

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 Practice Questions

Chapter 9

107. After the project has been completed, there should be a ___________________.

(a) post-completion appraisal

(b) post-completion evaluation
(c) post-completion audit
(d) risk assessment

108. The decision to terminate a project is not the end of the project management process, which
ends after the ________________.

(a) project analysis

(b) project supervision
(c) project cancellation
(d) project evaluation

109. ________________ determines how well the project met its objectives, including time, cost
and quality, and how well the needs of its stakeholders were met.

(a) Evaluation
(b) Supervision
(c) Communication
(d) Formulation

110. Milestone slip chart compares planned and actual progress towards project milestones. Shown
below is a typical milestone chart:

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 Practice Questions

State what is indicated by milestone 4?

(a) Planned and actual progress towards milestones was achieved.

(b) Planned and actual progress towards milestones was not achieved.
(c) Planned progress was faster than actual progress but repetition is not expected.
(d) Planned progress was faster than actual progress but repetition is not possible.

111. Monitoring cannot make a project successful – it is a ‘neutral’ part of the project process.
However, timely monitoring (followed by effective control) can help identify – and avoid if
necessary – the three Cs constrictions that challenge projects, which DOES NOT include:

(a) Crises
(b) Catastrophes constraint
(c) Change
(d) Complexity

112. _________________ is usually the responsibility of the project co-ordinator and may be carried
out informally (through weekly briefs) or through routine review of the project documents.

(a) Project planning

(b) Monitoring
(c) Estimating
(d) Delayering

113. Focusing on monitoring activity, rather than ___________, is a common error.

(a) the reporting process

(b) the input
(c) the output
(d) monitoring tool

114. Commonly, monitoring is communicated to others through _________________.

(a) tasks and reports

(b) reports and meetings
(c) reports
(d) meetings and notices

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 Practice Questions

115. __________________ provide updates on the project status.

(a) Project status reports

(b) Project development log
(c) Project status log
(d) Project progress reports

116. Which types of reports are prepared for the project sponsors or other key stakeholders who
are not directly involved in the project activities?

(a) Project progress status reports

(b) Reports for project stakeholders
(c) Executive status report
(d) All types of reports

117. The frequency and contents of progress reports will vary depending on the length of, and the
progress being made on, a project.

(a) report types and contents

(b) report format and report types
(c) report format and frequency
(d) frequency and contents

118. __________________ is the amount spent to date on the project.

(a) Actual cost of work completed (AC)

(b) Planned value of the work scheduled to date (PV)
(c) Earned value (EV)
(d) None of above

119. Accroding to traffic light report, Yellow means-

(a) ‘on target’: the work is on target and is expected to meet stakeholder expectations.
(b) Signifies the work is behind target, but the slippage is recoverable.
(c) Signifies the work is behind target and will be difficult to recover.
(d) there are major problems: for example, if a major component of the project is behind target
it could significantly affect the progress of the project as a whole.

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 Practice Questions

120. Projects that ___________ are ‘culled’ or have ‘hatchets’ taken to them.

(a) start early

(b) start lately
(c) finish early
(d) finish lately

121. Usually, project termination decisions are made by ________________________________.

(a) senior manager

(b) top management
(c) project managers rather than senior sponsors
(d) senior sponsors rather than project managers

122. Which one of the following is not a project termination evaluation criteria?

(a) Change request frequency

(b) Cost growth
(c) Technical problems that cannot be resolved
(d) Competing projects having higher priority within the organisation or department

123. A starting point for any new project should be-

(a) a review of the documentation of any similar projects undertaken in the past.
(b) having expertise of similar projects in the project team
(c) understanding project requirements from the project stack-holders properly
(d) selecting a frequently used project management tool for similar projects

124. A ‘balanced scorecard’ approach assess several dimensions but not the following one –

(a) The training and innovation perspective, staff PM expertise, lessons learned
(b) The financial perspective, e.g. EVA, ROI
(c) The project or other internal business perspective, e.g. satisfaction indices, fit with
corporate objectives
(d) Corporate factors, e.g. the extent to which corporate goals or standards are being met

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 Practice Questions

125. Project managers often use control chart to view overall progress of projects against planned
schedule. Following is a typical project schedule control chart demonstrating progress of a
software programme development of Apple i-Phone:

What should be interpreted from this control chart?

A. By the end of period 3, the project had fallen behind by almost one and a quarter day.
B. By the end of period 3, the project had fallen behind by almost one and a half days.
C. By the end of period 3, the project had fallen behind by almost two days.
D. By the end of period 3, the project had fallen behind by almost one day.

126. Which of following is FALSE regarding project status report?

(a) Project status reports are normally prepared by those in key roles in the project team
(b) The frequency and contents of progress reports will vary depending on the length of, and
the progress being made on, a project
(c) The report is a control tool intended to show the discrepancies between where the project
is, and where the plan says it should be
(d) All reports normally provide updates on the project status

127. Project termination decisions consider many aspects that are part of the project process. In
minor projects, many of these will be ____________. In other words, they will be key factors for
future project success.

(a) significant
(b) irrelevant
(c) costly
(d) distinct

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 Practice Questions

128. Which of the following is not a typical inspection point?

(a) upon receipt of goods from your supplier

(b) during the production process
(c) before the product is shipped to the customer
(d) after a costly process

129. Inspection, scrap and repair are examples of

(a) internal costs

(b) external costs
(c) costs of dissatisfaction
(d) societal costs

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 Answers

ANSWERS
 Answers

Answers to practice questions

Question Answer Question Answer Question Answer
CHAPTER 1 47 A 92 D
1 A 48 D 93 C
2 B 49 B 94 B
3 A 50 D 95 B
4 B 51 C 96 D
5 C 52 C 97 A
6 B 53 D 98 D
7 C 54 A 99 B
8 A 55 C CHAPTER 8
9 B 56 B 100 C
10 A CHAPTER 4 101 B
11 D 57 C
12 A 58 A 102 D
13 D 59 C 103 C
14 C 60 D 104 A
15 A 61 A 105 D
16 D 62 C 106 D
17 A 63 B CHAPTER 9
18 A 64 B 107 C
CHAPTER 2 65 C 108 D
19 A 66 D 109 A
20 A 67 A 110 C
21 B 68 D 111 D
22 D CHAPTER 5 112 B
23 D 69 A 113 C
24 A 70 A 114 B
25 A 71 B 115 A
26 A 72 B 116 C
27 A 73 B 117 D
28 A 74 A 118 A
29 D CHAPTER 6 119 B
30 C 75 A 120 C
31 A 76 D 121 D
32 B 77 B 122 A
33 A 78 D 123 A
34 B CHAPTER 7 124 D
35 D 79 C 125 C
36 C 80 A 126 D
37 D 81 A 127 B
38 C 82 D 128 D
39 B 83 C 129 A
40 A 84 A
41 C 85 A
42 C 86 B
CHAPTER 3 87 B
43 B 88 C
44 C 89 B
45 A 90 C
46 D 91 A

============ 0 ============

164