Project Management & Contract Administration

Unit-1
Introduction to Projects
Learning
objectives
After completion of this unit, students will be able to:

Understand the importance of project approach.

Understand the differentiating characteristics of projects from conventional organizations.

Understand the phases of the life cycle of projects and their significance.

Understand the objectives of the project and interdependence of cost on schedules.

Defining a Project they start one day and finish one day, contrary
to mass manufacture where the operations
Consider the following activities: are perpetual.
• A flyover is built in a city.
All these activities described above fall in the
• Metro rail is constructed in New Delhi.
category of projects.
• A ship is built for the navy.
• A new residential building is constructed.
A project can be defined as a temporary
Do you see anything common in all these endeavor to achieve a specific, well-defined
activities? objective.
Now consider some more activities:

• A company launches a new product Projects in

development program. Contemporary
• A manufacturing organization begins a Organizations
survey for assessing customer
satisfaction with its products. Initially, the projects were considered different
• A manufacturing organization constructs from the conventional manufacturing systems.
a new warehouse. The word project was associated with large
• A new machine is procured and installed. projects like infrastructure projects,
shipbuilding, construction, etc. But in due
Do you see anything common in all these course of time, it was realized that if
activities? Do you see anything common in conventional manufacturing systems can
first set and second set of activities? adopt the project methodology, it results in
You can observe that although all these higher efficiency for the organization.
activities are entirely different from each
other, they all are temporary in nature,i.e.,

1
Hence, project method comprises three as already discussed, are temporary
major entities endeavors. While the projects are in
progress, they pass through well-defined
stages of life cycle.
Parent Project Team Customer
Organisation • Each project produces a unique product:
The projects are not repetitive
manufacturing activities. The product of a
project is unique. Future projects will never
Figure 1.1: Projects in contemporary organizations create the same specifications of a product.

The parent organization selects the team • Interdependence: Each project is comprised
leader and the team members from its of a number of tasks. All the tasks involved
different divisions as per requirement of skills in a project are unique independent entities,
and qualifications for the project. The project but they depend upon each other for their
team is responsible for interacting with the performance. For example, a specific task
customer and ensure that the outcome of the may not be able to start unless some of the
project meets the requirements of the precedingtasksare completed.
customer.

Note that the customer for the product may

Project Life Cycle
be the parent organization itself, for example,
One of the characteristics of projects that we
development of an IT system for a company’s
discussed in the last section is that the projects
operations or construction of a new
are temporary endeavors and characterized
warehouse or installation of new technology.
by a life cycle. Although the projects differ in
size, nature, product, and requirements, the
Characteristics of life cycle of all projects is typically similar. The
Projects phases of the life cycle of projects are shown
in the form of a graph below. The x-axis of the
The projects differ from traditional forms of graph indicates the time and the y-axis
production and are characterized by some indicates the level of effort required during
unique features as follows: various stages.

• The projects have a purpose: Each project

has a well-defined purpose or objective. For
example, the project of new product
development may have the objective of
achieving a competitive edge. The
construction of a flyoveron the road may
have a purpose of reducing traffic
congestion. The purpose of constructing an Planning Evaluation
underpass on the road may be to provide a Conception Selection Scheduling and
Monitoring
safe road cross to pedestrians. termination
& control

• The projects have a life cycle: The projects, Figure 1.2: Stages in the life cycle of a project

2
Conception: Scheduling:
During this stage, the management of the The project time schedules are developed
parent organization, comes across various during this phase. The project is broken into
ideas of projects, each project having its own smaller tasks and work packages, and the time
necessity, and significance. The project ideas required for individual tasksis assessed. The
are generally the outcome of brainstorming or breaking of the project into smaller tasks and
other means of idea generation. The ideas work packages is called Work Breakdown
thus generated are subjected to screeningon Structure (WBS). The interdependence of the
the basis of management’s priorities, tasksis also established during this phase. The
organizational needs, and importance of the time required for completion of the project is
project to achieve organizational goals. then assessed using the compiled information
of tasks interdependence and task time
Selection: requirements. Various techniques used for
The scarcity of resources may prohibit the scheduling are PERT, CPM, Gantt chart, and
management to launch all screened projects Milestone analysis.
simultaneously. The management then selects
various projects to be undertaken considering Monitoring and control:
various criteria like management priorities, Once the project is in process, it is necessary
competitive necessity, significance of project, to ensure that the various activities are
etc. For example, the management may completed at the scheduled time and within
considera project for new product decided budget. Exceeding time or cost will
development more significant than the lead to schedule overrun or cost overrun.
construction of a new warehouse. A number Also, since the projects are also characterized
of numeric and non-numeric techniques are by scarcity of resources and the simultaneous
used by management for the purpose of demand for resources by different tasks and
project selection. The numeric techniques work packages, it becomes essential to apply
include the financial assessment of projects techniques for rational and optimum
and also the comparative scoring. utilization, and allocation of the resources in
such a manner that the impact on project
Planning: objectives is minimum. The process
The selection phase is followed by planning ofcomparing the project progress with plans
the project. During this phase, various aspects refers to monitoring. Control refers to
relating to the projectare planned which identifying deviations and taking action to
include scope definition, resource minimize the impact of deviations. This phase
requirement planning, skills required for the also monitors the assessed risks and in the
project, manpower requirement, event of a risk becoming a reality, responds to
procurement requirement, financial planning, risk, mitigating its impact and changes are
and specification definition. The outcome of made to the plan if necessary due to the
this process is a project plan which remains to occurrence of the risk.
be a roadmap to the project. The project plan
is also used as a tool for project control. Evaluation:
Another important aspect of this phase is Evaluation refers to analyzing the project
identifying the risks involved during the project performance to ensure that the project
life and planning to counter these risks in the objectives are met. Evaluation involves
event of them becoming a reality. schedule performance, cost performance,

3
specifications achievement, actions taken to a lot of confusion and conflict regarding the
respond to risks, resource use and allocation, authority and reporting hierarchy.
and management of outsourcing and
contracting. The evaluation is carried out at Quick Momentum:
the end of the project and during different As the aspects relating to project become
stages of project progress. The during project clear, and direction is established, the project
progress evaluation provides the basis for gains speed. This is the phase of quick
taking corrective actions if needed and the momentum. The speed increases fast and
end of project evaluation is carried out to reaches a peak. This is the phase when
learn from the completed project so as to monitoring and control of the projectare in
perform the future projectsmore efficiently existence.
and effectively. The technique generally used
for evaluation is called project audit.

Project completion
Termination:
The project comes to the finishing part at this
stage. This phase identifies the need for
terminating a project. Please note that
termination does not always mean successful
completion of the project. Termination of
project may be a result of project failure or
changed management priorities or lack of
funds and resources. Final accounting of
project is carried out in this phase, and the Slow beginning Quick Momentum Slow finish

projectis closed. The project assets are

Figure 1.3: Project life cycle
distributed among different divisions, and the
project team members are returned to their
parent divisions. If the termination is due to Slow Finish:
successful completion of the project, the As the project approaches the finish, the
product is handed over to the customer. It is various parts of project output now need
also important to understand the life cycle of integration. The integration may require
the project with reference to the speed of the careful analysis and inspection of each part
project. Typically, the projects have a slow before it is integrated. This phase may also
beginning followed by quick momentum and require minor changes to the parts of the
finally a slow finish. The following graph can project outcomes.
help understand it.
Project Objectives
Slow Beginning:
The projects typically begin slowly. The A project will be called successful if it can
specifications are under development and achieve the project objectives. There are
negotiation at this time, and changes are being three criteria for defining and evaluating the
incorporated. Since the project is new, the success of a project:
requirement of resources is being assessed.
• Performance
As the team members are drawn from
• Cost
different divisions of the organization, there is
• Time

4
The planned measures of the three criteria Performance
make the target for the project.

Performance:
The product of a project must perform what Target
it was intended for. The specifications of
project output must meet the planned and Time Cost
agreed specifications. Performance is generally
one of the aspects leading to conflict between
client and project team leader. It is essential to
Figure 1.4: Project success criteria
clearly define the project objectives in the
planning phase leaving no scope for dispute.
Performance is the most important criteria for
the success of a project.

5
Cost: cause intangible losses like loss of reputation,
No project can be provided with unlimited loss of trust, and customer dissatisfaction but
resources. Each project is associated with a also leads to cost overrun. Many times the
budget in totality and a budget for each part of schedule overruns lead to financial
the project. For a project to be termed as compensations to the customer apart from
successful, it is essential that the project is additional expense in resources. A project for
completed within defined budget. The reasons being termed as successful needs to be
causing cost overrun need to be identified at completed in scheduled time.
the planning stage and controls need to be
applied to avoid such circumstances to arise. A project is successful if it can achieve its
performance objectives within scheduled
Time: time and allotted budget or cost.
Finishing in scheduled time is an important
aspect of projects. Schedule overruns not only

Review Questions

1. Define a project. How is a project

different from conventional forms of
manufacturing?

2. “The project approach leads to higher

efficiency and effectiveness.” Comment.

3. “The tasks involved in a project are

independent entities but interdependent.”
Elaborate.

4. Explain the stages involved in a project’s

life cycle with the help of a diagram.

5. What are the criteria for assessing the

success of a project?

6
Project Management & Contract Administration

Unit-2
Overview of
Project Management
Learning
objectives
After studying this unit, the student will be able to:

Appreciate the need for the use of project management tools.

Understand the various aspects involved in project management.

Identify tools and techniques of project management at different stages of project progress.

Need for underperformance or even the project failure.

Project Management Project management is the set of concepts,
tools, and techniques to effectively manage all
In the last unit, it has been explained that there aspects of the project effectively during all
are three project objectives – performance, stages of the project.
cost, and quality. So, the project needs to be
expedited in a manner which ensures that
project is completed in planned time and cost Aspects of Project
and conforms to specifications and Management
performance standards. In order to achieve
The aspects of project management are as
this objective, it is necessary to make use of
follows:
tools and techniques which help in managing
these objectives of the project.
Scope management:
This aspect deals with planning and fulfillment
In addition, the project is executed by a
of the project specifications. The scope of the
project team, members of which come from
project includes the responsibilities of project
different functional areas and conflicts in the
team. The scope of the project needs to be
team are inevitable. Conflicts may also arise
defined unambiguously in agreement with the
between the project team leader and
customer to avoid any conflict later. The
customer or the project team leader and
scope management also includes the
parent organization’s management.
management of scope creep (change in
project specifications by the project team or
Riskis involved at each stage of the project.
the customer).
The risk needs to be anticipated and managed
in a manner that it does not have any adverse
Time management:
impact on project performance.
Completion of a project in scheduled time is
crucial to its success. The aspect of time
Inability to effectively manage any of the
management involves project scheduling,
above-mentioned aspects may lead to project
activity scheduling, identifying the slack of

1
activities (time by which activities can be
delayed without delaying the project),
monitoring of progress with respect to time
and corrective actions if needed.

Cost Management:
The budget is one of the constrained
resources for projects. Lack of financial
resources may cause a project to shut down
before completion. So it is necessary to
estimate the cost involved in the project and
also the cost involved in individual tasks of the
project. Cost management is about analyzing Risk Management:
and anticipating the cost involved in a project Risk is involved in the project at every stage of
and its continuous monitoring to avoid cost its life cycle. The risk, ifbecomes a reality may
overrun. It involves planning, budgeting, result in cost overrun and schedule overrun or
allocating and controlling the project cost. even project failure. Risk management is about
anticipating the risks for the complete
Human resource management: project,assessing the gravity of risks, planning
People involved in a project are important to for responding to risks and actually responding
its success. Forming the right and competent to risk if it materializes. Risk management also
project team is necessary for any project. involves management of changes in project
Also, since the personnel in the team are from plans if needed as a result of a riskactually
different functional groups, it is necessary to happening.
define responsibilities unambiguously and
avoid any conflicts. Human resource Procurement management:
management is about selection of personnel Outsourcing is an integral part of projects.
for the project, team development, managing Organizations outsource part of projects
conflicts, and motivating and leading the team. either because of lack of in-house
competence or because outsourcing may be
economical as compared to doing it in-house.
The outsourced part is not in direct control of
Cost Time the project leader, so it is essential to install
Management Management controls to ensure the quality of work
outsourced. Procurement management is
about selecting vendors, contracting and
Scope Project Human contract management.
Management Management Resource
Management

Tools and Techniques of

Procurement Risk Project Management
Management Management
The following diagram illustrates the common
tools and techniques used for project
management during various stages of its life
Figure 2.1: Aspects of project management cycle.

2
 • WBS
• Budgeting
• Work element
costing
• Risk

Level of effort
identification
• Risk
assessment • CPM
• Risk response • PERT
development • Slack • Project audit
• Gantt chart • Project audit
• Resource life cycle • Extinction
leveling • Audit report • Addition
• Resource • Integration
allocation • Starvation

Human resource management Procurement management

Conflict management Quality management

Time

Conception Selection Planning Scheduling Monitoring Control Evaluation Termination

• Idea generation • Project crashing

• Screening • Gantt chart
• Mile stone analysis
• CPI / SPI / Critical Ratio
Numeric (profitability) Numeric (scoring) Non numeric • Forecasting final project cost
Pay back period Unweighted 0-1 Sacred cow • Tracking signal
Rate of return Unweighted factor scoring operating necessity • Risk response control
Net present value weighted factor scoring competitive necessity • Change control (Scope creep)

Figure 2.2: Tools and techniques of project management

Conception phase Numeric (profitability) models evaluate

This phase is about generating ideas for project ideas on the basis of financial feasibility
projects. The projects ideas generated during and include payback period, rate of return and
this phase are subjected to project selection in net present value.
the next phase. The techniques involved
during this phase include idea generation and Numeric (scoring) models compare the
screening. The sources of idea generation may project ideas on subjective factors and include
be brainstorming, or idea shared by any unweighted 0-1 scoring, weighted factor
stakeholder of the organization. Screening is scoring and unweighted factor scoring models.
about evaluating the viability of the generated
ideas. Non-numeric models, in fact, do not include
sacred cow, competitive necessity and
Selection phase operative necessity.
This phase evaluates the screened project
ideas with an objective to prioritize them in Planning phase
view of the management’s priorities and their This phase is about planning the project with
significance to organization’s objectives. The respect to cost, risk, and resource
various techniques include numeric requirement.
(profitability) models, numeric (scoring)
models and non-numeric models. The techniques used for cost planning involve

3
work breakdown structure, work element impact of the occurred risk.
costing, and budgeting.
The occurrence of the risk and the action
Tools used for planning risk include risk taken to counter the risk may sometimes lead
identification, risk assessment, and risk to the requirement of reducing total time for
response development. finishing the project, and the technique of
project crashing is used to evaluate the extent
The technique used for planning resource to which a project can be crashed and the cost
requirements is work breakdown analysis. involved for crashing the project.

Scheduling Evaluation
This phase of project management plans the It is important to evaluate the performance of
time schedules for various tasks involved in project at various stages of its progress to
the project and also for the project in totality. identify any hidden or probable problems so
The start and finish time of varioustasksis that corrective actions can be taken before
determined along with slack of the tasks. The the problems cause major adverse impact on
critical activities of the project are identified project objectives. The tool used for
which if delayed, will cause the project to be evaluation is project audit, which involves an
delayed. The interdependence of various in-depth examination of the project
tasksis also established during this phase. The performance on various performance criteria.
techniques used during this phase involve The result of audit is an audit report which
Critical path method (CPM), project forms the basis of taking corrective measures
evaluation and review technique (PERT), for the project and preventive measures for
Gantt chart and milestone analysis. The the future project.
optimal utilization of resources is also planned
during this phase which uses techniques like Termination
resource allocation and resource leveling. This phase recognizes the need for
terminating a project with or without
Monitoring and control successful completion. The conditions leading
While the project is in progress, it is important to project termination include extinction,
to ensure that progress is in line with the plans. addition, integration, and starvation.
The monitoring and control is on the basis of
comparing and evaluating the work completed
at a specific time with the planned schedule
and planned budget for various tasks of the
project. Analytical techniques like cost
performance index (CPI), schedule
performance index (SPI), critical ratio (CR),
milestone analysis and tracking signal are used
during this phase. Gantt chart is also used to
compare performance with plans.

The phase also monitors the identified risks

and in the event of a risk becoming a reality
uses risk response control to minimize the

4
Review Questions

1. What are the various aspects involved in

project management?

2. The success of a project depends on the

use of appropriate project management
tools and techniques. Elaborate.

3. What is the importance of audit in the

successful completion of a project? How
it helps the future project leaders?

4. Name various profitability based numeric

models for project selection.

5. Effective human resource management is

essential for successful completion of
projects. Explain the statement.

5
Project Management & Contract Administration

Unit-3
Project Selection
Non-numeric Models
Learning Project Selection
Non-numeric Models
objectives roject Selection
Non-numeric Models
After studying this unit, the student will be
able to : Can you identify the project proposals in the
above scenario?
Understand the importance of project
selection Consider a top management meeting of ABC
Corporation in progress.
Identify and apply appropriate
non-numeric selection model for project Managing Director:
selection Gentlemen, we have called for this meeting to
discuss the recently observed fall in our sales.
There seems to be a serious quality issue
which we need to resolve.

Marketing Manager:
Sir, we need to launch a customer survey
project to get direct information about
customer satisfaction and complaints. The
sales have recently dropped and the customer
loyalty seems to be shifting to a new
competitor.

Product Manager:
I understand the competitors have provided
many innovative features in their product.
Why don’t we go for redesign and
development of additional features in our
existing product or develop a new product
model itself? That may help in building
customer trust and loyalty.

Marketing Manager:
I think we can go ahead with product design
part after the customer needs are understood
through a survey.

Production Manager:
We have been using our existing technology
to the full potential. I was just thinking of
placing a request for new technology
procurement and installation. I feel that the
new technology will be able to raise the
 maybe a good number and it becomes
quality standards of the existing product to
necessary to select project proposals for
the extent that may again attract the buyers to
implementation. It requires prioritization of
us. These days we are just producing and
the available project ideas.
stocking, sales not being able to push products
in the market.
Project selection is the process of evaluating
and analyzing the available project proposals
Materials Manager:
to identify and prioritize the projects on the
That reminds me, we need to build a new
criteria of their significance to organizational
warehouse to stock our raw materials and
goals and the budget constraints.
products. The current space is not adequate
to store all we have. We are sometimes
forced to keep our material in the open. Process of Project
Recently there was a theft also at night. I really Selection
don’t know what our security is doing.
The project selection process involves the
Security in charge: following:
We are managing this large premise with just a
handful of security guards. If the company is Gathering of project ideas:
not willing to employ more staff, at least the The ideas are gathered for projects from
boundary wall may be raised by another three different channels like employee suggestions,
feet with wire fencing and halogen light. operative or competitive necessity, and
customer requests.
The various project proposals that crop up
can be: Screening:
• A customer satisfaction survey The gathered ideas are subjected to screening
• New product development which evaluates ideas on the basis of their
• Existing product redesign and modification significance to the organization and financial
• New technology purchase and installation viability. The ideas not significant for
• Construction of a new warehouse organizational objectives or not financially
• Raising and fencing of boundary wall with viable are rejected, and the ones which are
halogen lighting viable and significant are subjected to the next
step.

Need for Project Choice of selection model:

Selection The project ideas with cross the screening
stage need to be evaluated and compared. A
A number of project ideas may crop up as a model is required for comparison and
result of brainstorming or suggestions or evaluation. Various models are available for
necessity. Organisations rarely can initiate all this purpose. The numeric and non-numeric
projects simultaneously because of resource models are available based on both subjective
scarcity. The project ideas are subjected to and profitability criteria. A model is chosen
screening to identify the project ideas which which is suitable to the decision environment
are significant to organization’s objectives. and selection criteria.
Even the ideas for the project, which have
been termed as significant to the organization,

2
 Employee Customer
suggestions requests
Management
priorities
Operational Competitive
needs needs

Project ideas

Screening

Significant Reject
and viable?

Determine
selection criteria

Choose a project
selection model

Compare projects
using model Meets
criteria?

Select

Figure 3.1: Project selection process

Evaluation of project ideas: compared on the basis of selection criteria.

The available screened project ideas are The ideas which do not meet the selection
subjected to evaluation using the selected criteria are dropped. Those ideas which meet
model. The results of evaluation are the selection criteria are prioritized on the

3
basis of their relative significance and financial the projects. The models in this category
analysis results. include:
• Payback period
Selection: • Present value
The projects are selected for implementation • Net present value
on the basis of their relative priority. • Benefit-cost ratio
• Rate of return

Types of Project Scoring based:

Selection Models These models compare the projects on a
scale, on the basis of various factors which
The project selection models broadly fall into affect organizational objectives.
two categories The models in this category include
• Numeric • 0-1 Rating model
• Non-numeric • Factor scoring model
• Weighted factor scoring model
The numeric models are based on either
financial analysis of profitability or on factor
scoring on a defined scale. The non-numeric Non-numeric models
models do not, in fact, rely upon the formal
analysis but are based on situation or These models are based on the subjective
management priority. situational selection of projects. Non-numeric
models include:
• Sacred cow
Numeric models • Operating necessity
• Product line extension
Numeric models further are of two types: • Competitive necessity
• Comparative benefit model (Q-Sort)
Profitability based:
These models evaluate the financial viability of

Project
selection

Numeric Non-Numeric

Profitability Scoring based Sacred cow Competitive

necessity

Playback Present Umweighted Factor Operative Product line

period value 0-1 scoring scoring necessity extension

Internal Rate Weighted Comparative

Net present of return factor scoring benefit
value model

Figure 3.2: Project selection models

4
Sacred Cow Model of generator becomes necessary. If
government policy restricts the operation of
This model selects the project on the basis of industry that causes water pollution,
wish and enthusiasm of some senior and installation of water treatment plant may be
powerful manager in the organization. Being necessary to avoid plant shut down.
the dream of senior officer, it is accepted by
the junior managers although they may not be All the situations mentioned above are in the
fully convinced of the idea. The junior category of operating necessity because if
managers in such situation are unable to those projects are not initiated, the
express their disagreement even though they organization shall not remain operative.
may have all the doubts in the success of the
project. Often formal evaluation and financial viability
is skipped in such situations and project is
Many times in organizations we find senior started immediately.
officers saying in a meeting:
Competitive Necessity
“Why don’t we develop an IT system that
merges all our operations and also A project may be selected because it becomes
connects us to the customer” essential to maintain competitive status in the
“I think we should try to design software market.
for” Consider the following situations
“Can’t we initiate a project for”
• The competitor has introduced new
features in the product with reduced
Such suggestions of the officer are taken as an price threatening the loss of market share
instruction by the junior officers and project is to the organization.
initiated. • The competitor has developed software
which makes it possible for customers to
The model is sacred in the sense that the contact and order online and the product
project remains in existence until it is can be delivered at the doorstep,
successfully finished or the senior officer threatening shift of customer loyalty
himself realizes that the idea will not work and because of ease.
terminates the project midway.
What action does the management of the
organization is expected to take to counter
Operating Necessity the threat and retain its market share?

The project may be selected for The first situation would call for a redesign of
implementation because it is necessary for the the product that will enhance product
plant to remain in operation. specification and can be produced at lower
cost. In the second situation, it may be
If heavy rains are expected, and a lot of necessary for the organization to develop a
material is stocked in the open, it may be system that allows better reach to the
necessary to construct a covered warehouse customers.
immediately. If a power cut is expected for a
long duration in next few months, installation Both the situations described above make it

5
necessary for the organization to initiate a are subjected to careful financial and
project for product design and development subjective analysis. The project is initiated if it
or customer contact system development. is found to be financially viable and meets
Projects are necessary because the market organization’s objectives. The payback period
share and loyalty of customers to the of the new FMCG product may be too large
organization are threatened. These are the or return on investment may be too low. The
examples of project selection on the basis of cost of establishing and operating a testing
competitive necessity model. house may not be economical and also the
skills needed may not be available with the
Like operating necessity, the model of organization. The distribution channels for
competitive necessity also bypasses formal thread and cloth may be different with
evaluation and financial analysis. different market segments.

However, note that operating necessity

dominates the competitive necessity because
Competitive Necessity
it is important first to be operative to remain
The selection models discussed so far
in the market
consider one project at a time. The objective
of those models is to consider a project and
Competitive Necessity either accept or reject it.

The objective of any project is the growth of Comparative benefit model compares many
the organization. A project may be selected projects in consideration at a time. The
because it is in alignment with the existing projects under consideration are evaluated on
product line of business or it fills a gap in the their relative merit and are prioritized.
existing operating system leads to the vertical
integration of the organization. The technique used for comparative benefit
model is Q-Sort.
An FMCG company may initiate a project for Q-Sort adopts the following process:
installation of the facility for an additional • The relative merits of the projects are
FMCG product because it is in alignment with assessed.
existing distribution channels and existing • The projects are divided into Good, Fair
customer segment. (Project in alignment with and Poor categories on the basis of their
existing product line) relative merits.
• If the number of projects in any category
A manufacturing company initiates a project exceeds eight, it is further subdivided into
for establishing a testing laboratory, so the + and –, for example, good+ and Good–,
product testing can be carried out inhouse in fair+ and fair–, poor+ and poor–.
place of being outsourced. (Project fills a gap • The process is repeated until all groups
in the existing system) have 8 or less members.
• On the basis of relative merits of projects,
A textile factory manufacturing thread initiates all projects within the group are arranged
a project for establishing a facility for cloth in order from best to worst.
manufacturing. (Vertical Integration) • The priority of the project is determined
on the basis of the group they belong to
However the projects, before being initiated, and their position within the group.

6
 Identify all Projects

Divide in three groups

(good, fair, poor)

Number of Subdivide the projects

members in each in large groups
group is < 8?

Arrange in order from

best to worst as per
merit

Determine relative
priority position of the
projects

Figure 3.3: Q-Sort Techniques

7
Project Management & Contract Administration

Unit-4
Project Selection
Numeric Models
Learning Present Value

objectives Present value analysis is one of the most

common financial analysis models for the
After studying this unit, the student will be projects. A project needs investment, which
able to : could include an initial investment at time zero
and subsequent investments at different times
Understand the importance of project of the project. Similarly, a project yields
selection returns at different times during the life of the
project.
Identify and apply appropriate
non-numeric selection model for project The management is interested in ascertaining
selection the value of future investment or future return
at the present time or time zero. The value
depends upon the rate of interest. Higher the
rate of interest, lower shall be the value at
zero time.

The value of a future transaction at present

time, for a specific rate of interest (also
termed as the rate of discount), is called the
PRESENT VALUE of the transaction.

Present value is calculated using the following

formula

F
PV =
(1+r)n

Where, PV is present value

F is Future transaction
r is rate of interest
n is number of years

Example
If a project is expected to generate ` 1000 at
the end of 1 year and ` 5000 at the end of 2
years, calculate the present value of both the
transactions if the rate of interest is 12%.

Solution:

F
PV =
(1+r)n
For the first transaction
 1000 interest is 10%, calculate the present value of
PV =
(1+ 0.12)1 the revenue.

1000
= = 892.9 7000
(1.12)1 PV =
(1+ 0.10)5
For the second transaction Solution
Instead of calculating we will use the present
5000
PV = value table
(1+ 0.12)2

1000 The factor for year 5 and rate of interest 10%

= 3985.96
1.12 X 1.12 is 0.62092 in the table

As the number of years increases, the So present value of ` 7000, received after five
calculation becomes more cumbersome. years
Present value tables may be used for finding
the present value. = 0.0.62092 × 7000 = ` 4346.44

The PV table indicates present value of Rs.1

for various numbers of years and rate of Net Present Value (NPV)
interest. This present value multiplied by the
A project may incur a cost at time zero (initial
future amount gives the present value of
investment) and at various points of time
future amount.
during the life of the project (future
investment). Also, the project generates
Example revenue at different points in time during its
For the data in the example, life cycle (future revenue). The project may
also generate revenue by sale of assets at the
The factor for year 1 and rate of interest 12% end of project life (Salvage value).
is 0.89286 in the table
Net present value is the difference between
So present value of ` 1000, received after one the total present value of all revenues and the
year total present value of all investments.
= 0.89296 × 1000 = 892.96
NPV = ∑ (Total present value of all revenues)
The factor for year 2 and rate of interest 12% − ∑ (Total present values of all investments).
is 0.79719 in the table
A positive value of NPV indicates profit from
So present value of ` 5000, received after two
the project while a negative value indicates
years
loss from the project.

= 0.79719 × 5000 = 3985.95

Example
The expected investment and revenue from a
Example
project are given below. The life of the project
A project is expected to generate revenue of
is estimated as ten years.
` 7000 after five years from now. If the rate of

2
 Year Investment ( ) Revenue ( )
(Initial investment) 50,000
1 20,000
2
3 10,000
4 35,000
5 5,000
6 25,000
7
8 40,000 5,000
9
10 12,000
Salvage value 2,000

Calculate the net present value of the project.

Should the management take up this project?
The rate of interest is 8%.

Solution
Let us identify the factors for all transactions
from the PV Table and calculate the individual
present values.

Factor from Present Value Present Value

Year Investment ( ) Revenue ( )
PV Table (Investment) (Revenue)

0 50,000 1.0 50,000

1 20,000 0,92593 18518.6

3 10,000 0.79383 7938.3

4 35,000 0.73503 25726.05

5 5,000 0.68058 3402.9

6 25,000 0.63017 15754.25

8 40,000 5,000 0.54027 21610.8 2701.35

10 12,000 0.46319 5558.28

Salvage 2,000 0.46319 926.38

value

Total 95303.35 56833.56

3
NPV = ∑ (Total present value of all revenues) NPV = ∑ (Total present value of all revenues)
− ∑ (Total present values of all investments). − ∑ (Total present values of all investments).
= 1,33,373.25 − 1,13,723.70
C= 56833.56 − 95303.35 = −38469.79 = ` 19,649.55

The net present value of the project is

` −38469.79.

Since the NPV is negative, the project will

result in a loss and should not be taken up.

Use of Annuity

If the financial transaction (investment or

revenue) is equal to n number of years,
calculation of PV for individual values can be
avoided by using the Present value annuity
table. The Table gives the present value factor
of an annuity of ` 1 at a specific rate of
interest. This factor multiplied by annuity gives
the present value of the annuity.

Example
A project involves an investment of ` 30,000
at the end of each year for five years. The
returns are ` 25000 at the end of each year for
eight years. Calculate the NPV. The rate of
interest is 10%.

Solution
The factor for an annuity for five years at 10%
rate of interest is 3.79079.

Present value of investment of ` 30000 for 5

years
= 3.79079 × 30000 = ` 1,13,723.70

The factor for annuity for 8 years at 10% rate

of interest is 5.33493

Present value of revenue of ` 25000 for 8

years Example
= 5.33493 × 25000 = ` 1,33,373.25 The financial outlay (in `) of two projects is as
follows:

4
 Project A Project B
Year

Investment Return Investment Return

Initial investment 40,000 60,000

1 10,000 20,000 8,000 25,000

2 20,000 25,000

3 25,000 20,000 25,000

4 20,000 32,000 25,000

5 20,000 25,000

The rate of interest is 8%. Which of the

projects gives higher profits?

Solution

Project A

Year
Investment Return Annuity Present
PV of
Investment PV Factor Return Factor for Value of
Investment
5 Years Annuity

Initial
investment 40,000 1.0 40,000

1 10,000 0.92593 9,259.30 20,000

2 20,000

3 25,000 0.79383 19,845.75 20,000 3.99271 79,854.20

4 20,000

5 20,000

Total 69,105.05

NPV = 79,854.20 − 69,105.05 = ` 10,749.15

5
 Project A

Year Investment Return Annuity Present

PV of
Investment PV Factor Return Factor for Value of
Investment
5 Years Annuity

Initial
investment 60,000 1.0 60,000

1 8,000 0.92593 7,407.44 25,000

2 25,000

3 25,000 3.99271 99,817.75

4 32,000 0.73503 23,520.96 25,000

5 25,000

Total 90,928.40

NPV = 99,817.75 − 90,928.40 = ` 8889.35

Project A will give higher profits because its Solution

NPV is higher than NPV of Project B.
Payback period = Total investment
Annual return
Payback Period
5,50,000
=
Payback period is one of the most commonly 50,000
used methods to evaluate projects on the = 11 years
basis of financial analysis. It determines the
period in years required to return the initial Example
investment of the project. The rate of interest Financial outlay of a project is as under:
is not taken into consideration in this method.
Period Investment ( ) Return ( )
The method considers the future revenues of Initial investment 1,00,000
the project and determines the period 1 20,000
required for payback of initial investment. 2 25,000
Interpolation is used if the number of years 3 60,000
for payback is in fraction. 4 15,000
5 25,000
Example
The initial investment of a project is estimated Determine the payback period of the project
to be Rs.5,50,000.
The project is expected to give an annual Solution
return of Rs.50,000. What is the payback The payback at the end of 2 years = 20,000 +
period of the project? 25,000 = ` 45,000

6
For recovering, ` 1,00,000, another ` 55,000 is
required. However, in the third year, the
revenue is ` 60,000. We will use interpolation
to determine payback period.

Total revenue in 3rd year = 60,000

` 60,000 is recovered in 12 months

` 55,000 will be recovered in (55,000 ×

12)/60,000 = 11months

So, Payback period is 2 years and 11 months

Internal Rate of Return

The management of the organization has a

rate of return that it expects. If the rate of
return of a project is more than the expected
return, the project is acceptable. However, if
the rate of return anticipated from a project is
less than the expected return, the project is
liable to be rejected.

A common method of assessing whether a

project meets the expected return of the
project is internal rate of return.

The internal rate of return is the interest rate

which makes the NPV of a project zero. If the
internal rate of return is more than the
expected return, the project meets the
expectations of the management and is a
candidate for being accepted.

The hit and trial method determines the

internal rate of return.

Example
A project is expected to generate revenue of
` 5000 annually for five years. If investment in
the project is ` 15,000, determine the internal
rate of return. If management expects a rate

7
of return 10%, is the project viable?

Solution
Present value of investment = ` 19,000
For an annuity of ` 5,000 for five years:

Rate of interest Annuity factor Present value NPV

8% 3.99271 19963.55 963.55

9% 3.88965 19448.25 448.25

10% 3.79079 18953.95 −46.05

The investment being ` 19,000, the internal

rate of return will be between 9% and 10%.
The internal rate of return now can be
identified by hit and trial on various values of
rate of interest between 9% and 10%.

At a rate of interest 9.9%

(1 + r)n r = 1.099 PV

1.09955 1.603 3118

1.09954 1.459 3426

1.09953 1.327 3767

1.09952 1.207 4141

1.09951 1.099 4548

Total PV 19000

NPV = 19000 − 19000 = 0

The internal rate of return is 9.99%.

Since the expected return is less than the

internal rate of return, the project is viable.

8
Project Management & Contract Administration

Unit-5
Case Study 1
 New Delhi Laboratories
Private Limited (NDL)

“Finally, we did it successfully,” Divyansh said

while relaxing in the office chair sitting in front
of Anil. Anil looked at his face, exhausted but
reflecting confidence and satisfaction.

“So what have you learned during this

project?” Anil asked.

“Well, it needs really a lot of time to describe

the learnings from the project, what looked
simple in the beginning became an endless
venture while executing and we had a hard
time bringing each piece of work together and
assemble all those pieces into a product,”
Divyansh replied his eyes lost into recollecting
the memories of stressful days and sleepless
nights during past two years.

“I have all the time to listen to your

experiences. And by the way, do you think you
could do better?”

“Do better? What are you coming to? You

know I did my best.”

“I mean given a chance, would you have

managed the project in a different way?”

Divyansh thought for a moment and said “I

think you are right. When I think of it, I feel
that I could manage the project better. But I
am better equipped for my next project now.”

“Have you been able to achieve all objectives

that you planned for the project?”

“To be honest, I did not really define the

objectives when I started with the project. But
since you have asked, we have been able to
complete the project in time with reasonable
deviations, and those deviations were also the
result of scope change at times. I admit, the

1
profits have not been up to expectation, but
that was because we ventured into a project
for the first time and we could not anticipate
expenses accurately.” Divyansh replied.

“You are missing one more important

objective,” Anil said.

“Okay, let me understand your experiences

and your learnings from the project.”

Divyansh wondered where to start and then

decided to start from the day they got a query
from Qatar.

Anil is the founder and managing director of

NDL; a venture started in 1984 with facilities
for transformer oil testing. The operations of
the company later expanded to electrical
maintenance of panels, transformers, and
switchgears. The company started offering a
complete solution for maintenance of power
equipment, and soon it started a new division
“NDL Power.” The business of the company
expanded in a geographical territory covering
clients from all over India and later a few
international contracts also. The company
which started with four employees today
employs over seventy personnel in various
capacities.

Divyansh, son of Anil, joined the company in

2011 after graduating in a management
course. He joined the company as CEO of
operations. He decided to expand in
international markets and in place of offering
only part services, he decided to venture into
full turnkey projects.

Question for Review

Was Divyansh missing an important project

objective? If yes, which objective was he
missing?

2
Project Management & Contract Administration

Unit-6
Project Selection
Scoring Models
Learning
objectives
After studying this unit, the student will be able to:

Understand the importance of project selection

Identify and apply appropriate scoring selection model for project selection

Numeric Models criteria on which the project qualifies is

(Scoring Based) adequate. Since the rating scale has only two
options – “Qualifies & Does Not Qualify,” the
The numeric models discussed above evaluate model is called 0-1 scoring model.
the project only on the basis of profitability or
financial returns. In practice, however, there Consider the following criteria for project
are a number of factors affecting project selection, decided by the management.
selection decision, which are not quantifiable.
An illustrative list of such factors is given
below: Factors

• Training requirements Should not take more than one year to complete
• Safety
Should be compliant with government
• Consistent with current operations safety regulations
• Availability of raw materials Should not require the hiring of additional
man power
• Potential market
• Government policies In-house competence should be available
• Impact on brand value and image of the Raw material should be available easily,
organization and its prices should be stable
Should be complementary to existing business

Unweighted 0-1 Scoring Should help in improving company’s image

and brand value
Model

This model evaluates the project on various All projects in consideration are evaluated on
subjective criteria and indicates whether a each of the deciding factors, and the project
project qualifies for specific criterion or not. must qualify on an adequate number of
The project is selected if the total number of factors to be selected.

1
 Project 1 Project 2
Factors
Does not Does not
Qualifies qualify Qualifies qualify
Should not take more than
one year to complete

Should be compliant with

government safety regulations

Should not require the

hiring of additional man power

In-house competence should

be available

Raw material should be available

easily, and its prices should be stable

Should be complementary
to existing business

Should help in improving

company’s image and brand value

However, one of the limitations of this model

is considering each factor as equally
important. Also, it does not consider the
partial applicability of the factors, it only
works on the principle of Qualify or Does not
qualify. In practice, however, absolute
presence or absence of factors may not be
there.

ACTIVITY
A company manufacturing automobile spare parts is
planning to initiate a project for development and
installation of an IT system for integrating its
marketing, operations, design, stores, and quality
control sections. List the factors that you would
consider as criteria for evaluating the project.

Factor Scoring Model

The factor scoring model evaluates the

project on various criteria on a scale of 1 to 5,
1 being least qualifying and 5 being strongly
qualifying. The total score so obtained is
calculated and the total score is an indicator of
the extent to which the project is compliant to
project objectives.

2
 Project XYZ
Factors
1 2 3 4 5

Should not take more than

one year to complete

Should be compliant with

government safety regulations

Should not require the

hiring of additional man power

In-house competence should

be available

Raw material should be available

easily, and its prices should be stable

Should be complementary
to existing business

Should help in improving

company’s image and brand value

The total score in the above example is Weighted factor scoring

4+3+2+4+3+1+3 = 20 model
The model considers the partial presence or
absence of factors in the project. However, Weighted factor scoring model is similar to
like the unweighted 0-1 model, this model also unweighted factor scoring model except that
suffers from the drawback of considering all is allocates weights to the factors. So, the
factors as equally important.

Project XYZ
Factors Weight
1 2 3 4 5

Should not take more than

one year to complete 5

Should be compliant with

government safety regulations 2

Should not require the

hiring of additional man power 10

In-house competence 1
should be available

Raw material should be available

easily, and its prices should be stable 3

Should be complementary 5
to existing business

Should help in improving

company’s image and brand value 4

3
relative importance and significance of the Rating = (∑weight × rating)
factors affecting project selection decision are = 5 × 4 + 2 × 3 + 10 × 2 + 1 × 4 + 3 × 3 + 5
established. ×1+4×3
= 20 + 6 + 20 + 4 + 9 + 5 + 12 = 76

Review Questions (a) On the basis of NPV, which project is a

better project?
1. Compare the relative merits and demerits (b) What is the internal rate of return on the
of different scoring models of project projects?
selection.
3. Calculate the payback period for the
2. Explain the process of selection of following data of a project.
projects. Initial investment ` 20,000
Returns
3. Explain project selection by Q-sort
Year 1 2 3 4
method.
Return 5,000 7,000 11,000 3,000

4. Describe sacred cow model of project

selection. How effective can this model 4. Following is the data of two projects:
be for project selection? Project A Project B
Year
Investment Return Investment Return

5. What are the merits and demerits of Initial

Investment 15,000 18,000
payback period method of project 1 8,000 10,000 6,000 14,000
selection?
2 10,000 14,000

3 3,000 10,000 14,000

Factor Scoring Model
4 7,000 10,000 4,000 14,000

1. A project is expected to generate annual 5 10,000 14,000

revenue of ` 54,000. The project has a life
of 10 years. The project involves an initial Rate of interest is 10%
investment of ` 2,20,000. Calculate the Determine the following for both projects
NPV of the project if the rate of interest and compare the projects on all
is 8%. parameters.
• Payback period
2. Two projects are under consideration. • NPV
The financial outlay is as follows: • Internal rate of return

Initial
Periods in years investment 1 2 3 Salvage 5. Calculate the payback period for the
Cash
inflow 2,00,0001,50,000 80,000 10,000 following data of a project.
Project X
Cash
outflow 50,000 30,000 30,000 30,000 30,000 Initial investment ` 50,000
Cash 2,25,0001,10,000 90,000 15,000 Returns
inflow
Project Y
Cash 70,000 28,000 28,000 28,000 28,000
outflow
Year 1 2 3 4
The rate of interest is 10% Return 20,000 15,000 18,000 5,000

4
Project Management & Contract Administration

Unit-7
Project Planning
Learning
objectives
After studying this unit, the student will be able to:

Disintegrate the project into smaller tasks and work packages and create the WBS

Develop responsibility matrix on the basis of WBS

Introduction The project planning refers to the process of

identifying and describing various aspects of
The selection of projects identifies the the project to avoid any ambiguity while the
projects to be initiated. As we have already project is in progress. The project plan
understood, project is a complex system of a establishes the direction and path of the
number of unique bur independent tasks. project.
Before initiating a project, it is important to
understand: The outcome of project planning process is a
• Relation between the tasks project plan.
• Time requirement of each task
• Resource requirement of the tasks The major components of project plan
• Fund requirement for the task include:
• Risks associated with the tasks • Work breakdown structure
• Responsibility chart
Also, the project team is acquired in
accordance with project skill requirement and
as such personnel from different divisions of Planning for
the organization are introduced as team Responsibility
members. So it becomes necessary to clearly
describe the responsibilities of team members As already discussed, the members of the
so as to avoid any disputes during the project project team are drawn from different
life. divisions of the organization, and there may
be confusion about hierarchy and
These aspects relating to the product are responsibility of work. Hence it is essential to
decided during the planning phase of the assign the responsibility of specific tasks
project. clearly and unambiguously so as to avoid any

1
conflict during the project life. ensured that it has a proper mix of authority
also.

Types of Responsibilities
Allocating Responsibility
Primary responsibility:
Primary responsibility refers to overall Identify all tasks involved in the project.
responsibility for the task assigned including
managing people involved in task and ensuring Develop the work breakdown structure.
time, cost and quality of the work.
Allocate primary responsibility for level 1
Secondary responsibility: tasks.
It refers to the responsibility assigned to a
person for ensuring better fulfillment of Allocate responsibility for level 2 tasks in
primary responsibility. consultation with the person responsible
for level 1 tasks.
Supportive responsibility:
The responsibility assigned for providing Allocate responsibilities in this fashion up
technical or managerial support to the to the last level of work packages.
persons with primary or secondary
responsibility. Generally, the supportive Identify the need for secondary
responsibility is assigned to a person, responsibility and supportive
considered as an expert in the area of work. responsibility for all the tasks.
Supportive responsibility may be given to any
member of the organization, whether in the Allocate the secondary and supportive
project team or not. responsibilities accordingly.

Here it is important to understand the

difference between responsibility and Allocating Responsibility
authority. Responsibility is the work for which
a person is accountable and answerable. Responsibility matrix is a tool for assigning
Authority is the extent to which a person can responsibility to the project team members
make independent decisions. for the project tasks. Notations of different
sorts or colors may be used to indicate the
While allocating responsibility, it should be type of responsibility.

2
 Responsibility Primary Secondary

Level Task Task Manager Assistant

Project Sales Manager MIS Hired
No. Business Sales
Manager Assistant Services Executive Consultant
Analytics Manager

Survey for assessing

0 - consumer needs

Development of
1 1.1 survey questionnaire

2 1.1.1 Identifying aspects for

survey

2 1.1.2 Preparation of
questionnaire

2 1.1.3 Approval of
questionnaire

1 1.2 Deciding the sample

customer group

Filter consumer
data base and select
2 1.2.1 consumers who
purchased company’s
TV in last 3 years

Select 200 customers at

2 1.2.2 random and develop
details of product and
customer

Responsibility Primary Secondary

Level Task Task Manager Assistant

Project Sales Manager MIS Hired
No. Business Sales
Manager Assistant Services Executive Consultant
Analytics Manager
Collect data of sales in
2 1.2.3 different zones and identify
zones with dropped sales
Hiring consultant for
1 1.3 conducting survey

2 1.3.1 Identifying consultant

Develop requirement
2 1.3.2 document and
seek quotations

2 1.3.3 Personal meeting with

consultant

2 1.3.4 Negotiation and finalization

1 1.4 Conducting survey

1.4.1 Pilot survey by consultant

Analysis of results and

2 1.4.2 modification on
questionnaire

3
 Responsibility Primary Secondary

Level Task Task Manager Assistant

Project Sales Manager MIS Hired
No. Business Sales
Manager Assistant Services Executive Consultant
Analytics Manager

2 1.4.3 Main survey

by consultant
Submission of survey
2 1.4.4 reports by consultant
after scrutiny
Analysis of survey
1 1.5 results and report
preparation

Transfer of survey
2 1.5.1 data on computer

2 1.5.2 Generation of reports

Analysis and study

2 1.5.3 of reports
Compilation of
2 1.5.4 analysis results with
recommendations

Planning for Time Pessimistic time:

The time an activity will take under
One of the key performance criteria, as we adverse conditions.
have discussed before is time. It is important
to estimate the time rationally before starting Optimistic time:
the project execution and control it The time an activity will take if conditions
throughout the progress of the project. are favorable.
Schedule overrun projects (projects finishing
late) not only result in customer dissatisfaction Most likely time:
but also result in cost overrun. The timely The time an activity will take with the
completion of the project depends upon the highest probability.
timely completion of the activities involved in
the project. However as we will see in
subsequent units, the impact of schedule Advantages of Time
overrun of all activities is not equal. There are Estimation
some activities in the project which even if
delayed to some extent, don’t impact the It acts as a control tool for the project.
project finishing time. However, some of the
activities if delayed cause the project to be It provides information, necessary for
delayed in totality. costing and budget allocation.

The time estimates of the project activities are It provides information about the impact
determined on the basis of: of various activities on project
completion.
• Estimates from records of past projects
• Experience of the project team members
It forms a basis for planning the
• Critical study of work involved in the task
resources.
Generally, three types of time estimates are
determined for all tasks and work packages:

4
Time EstimatE MATRIX

Time estimate (in days)

Task
Level Task
No.
Pessimistic time Most likely time Optimistic time

0 - Survey for assessing

consumer needs

1 1.1 Development of survey

questionnaire

2 1.1.1 Identifying aspects for survey 10 7 4

2 1.1.2 Preparation of questionnaire 15 9 6

2 1.1.3 Approval of questionnaire 5 3 2

Deciding the sample

2 1.2 customer group

Filter consumer database and select consumers

2 1.2.1 who purchased company’s TV in last 3 years 20 17 12

Select 200 customers at random and

2 1.2.2 develop details of product and customers 6 5 4

Collect data of sales in different zones 15 13 12

2 1.2.3 and identify zones with dropped sales

Hiring consultant for

1 1.3 conducting survey

2 1.3.1 Identify consultants 7 5 3

2 1.3.2 Develop requirement document

and seek quotations 10 8 5

2 1.3.3 Personal meeting with consultants 15 11 9

2 1.3.4 Negotiation and finalization 5 4 3

1 1.4 Conducting survey

1.4.1 Pilot survey by consultant 14 10 8

2 1.4.2 Analysis of results and 10 7 3

modification in questionnaire

2 1.4.3 Main survey by consultant 30 22 12

2 1.4.4 Submission of survey report

by consultant after scrutinys 8 5 3

Analysis of survey results

1 1.5 and report preparation

2 1.5.1 Transfer of survey data on computer 6 5 2

2 1.5.2 Generation of reports 4 2 1

2 1.5.3 Analysis and study of reports 10 6 5

2 1.5.4 Compilation of analysis 12 9 8

results with recommendations

5
Summary Review Questions

Planning is an integral part of project 1. What do you mean by project

management. Planning needs to be done for breakdown structure? How is it
time, responsibilities and work specifications. important for project planning?
The method of defining work specifications of
a project is Work Breakdown Structure 2. Differentiate between different types of
(WBS). WBS disintegrates the project into project responsibilities with examples.
small work components. It acts as a base for
project costing and time scheduling. It also 3. How are time estimates decided for
helps in assigning project responsibilities and project activities?
identifying resource requirements of the
project. 4. What is the significance of time planning?
What are its advantages?
Time planning involves estimating time for
various components of the projects. 5. “Project plan acts as a tool for project
Generally, the time estimates are for three control.” Explain.
conditions – pessimistic, optimistic and most
likely. The time estimates for the project
components help in estimating the project
completion time and the slack of activities,
which further help in the allocation of scarce
resources.

The responsibility planning focusses on

assigning project responsibilities for its various
components. Primary, secondary and
supportive responsibilities are assigned. The
outcome of responsibility planning is a
responsibility matrix.

6
Project Management & Contract Administration

Unit-8
Work Breakdown Structure
Learning Planning Work
Scope—Work Breakdown
objectives Structure
After studying this unit, the student will be Work breakdown structure is a technique of
able to: exploding the project into smaller work
packages with an objective of creating clarity
Identify project as a system of work about the work to be done for accomplishing
packages the project.

Create a WBS for the project It creates a hierarchy structure of various

tasks and activities involved in a project. As
the tasks move down to the lower level of
WBS, the work specification acquires greater
clarity.

Consider the project of construction of a

building. The project may be broken into
major elements like identifying the builder,
designing of the building, procurement of
material and equipment, laying of the
foundation, raising pillars, etc. These are level
one tasks as they have been directly derived
from the project.

“Identifying the builder” may further be

divided into seeking tenders from builders,
tender evaluation, selection of builder, etc.
These are level two tasks.

“Seeking tenders from builders” may further

be broken into developing building
specifications, developing the tender
document, identifying prospective builders,
and inviting bids from the builders. These are
all level three tasks.

The level three tasks identified above seem to

be quite clear about the work to be done and
as such it is no more necessary to break them
into smaller element further. The last level
tasks which will not be broken further are
called the work packages. Each work package
has its own requirement with respect to time,
budget, resources and competence.
When a set of work packages is completed,
complete a higher-level task in the hierarchy.
When a set of level 3 tasks is completed,
complete a level 2 task and so on. The project
is completed when all level 1 tasks are
completed.

The structure of WBS resembles the

organization chart. However, it is entirely
different from the organization chart. The
organization chart depicts the hierarchy of the
personnel whereas the WBS is a technique of
grouping the tasks needed for a project.

Construction
Project of building

Identifying Designing Material

Level 1 the contractor the building procurement

Level 2 Seeking Evaluating Selecting

tenders tenders contractor

Level 3 Development Preparing Identifying

of building tender prospective Inviting
specifications documents contractors bids

Figure 8.1: Work Breakdown Structure

Example 8.1 The sales manager identifies the major tasks to

A manufacturing organization, manufacturing be undertaken for this project as under
LED televisions is interested in identifying the Development of survey questionnaire
reasons for its dropping sales and
understanding customer expectations from its Deciding the sample customer group
products. The sales manager has suggested
conducting a customer survey for this Hiring a consultant body for conducting
purpose. The management has decided to survey
initiate a customer survey project on the
recommendations of the sales manager, and Analysis of survey results
the sales manager has been appointed as the
project manager. Preparation of survey report with
recommendations

2
 SURVEY FOR ASSESSING CONSUMER NEEDS

Level 1 tasks
1.1 Development of survey questionnaire
1.2 Deciding the sample customer group
1.3 Hiring a consultant for conducting survey
1.4 Conducting survey
1.5 Analysis of survey results and report preparation

SURVEY FOR ASSESSING CONSUMER

NEEDS

Hiring a Analysis of
Development Deciding consultant for Conducting survey results
of survey the sample conducting survey and report
questionnaire customer group survey preparation

Figure 8.2: LEVEL 1 Tasks

Level 2 tasks Level 2 tasks

1.1 Development of Survey questionnaire 1.4 Conducting survey
1.1.1 Identifying aspects for survey 1.4.1 Pilot survey by consultant
1.1.2 Preparation of questionnaire 1.4.2 Analysis of results and modification in
1.1.3 Approval of questionnaire questionnaire
1.4.3 Main survey by consultant
Level 2 tasks 1.4.4 Submission of survey reports by consultant

1.2 Deciding the sample customer group after scrutiny

1.2.1 Filter consumer data base and select

consumers who purchased company’s TV in last 3
Level 2 tasks
years
1.2.2 Select 200 customers at random and develop 1.5 Analysis of survey results

details of product and customers 1.5.1 Transfer of survey data on computer

1.2.3 Collect data of sales in different zones and 1.5.2 Generation of reports

identify zones with dropped sales 1.5.3 Analysis and study of reports
1.5.4 Compilation of analysis results with
recommendations
Level 2 tasks
1.3 Hiring consultant
1.3.1 Identify consultants
1.3.2 Develop requirement document and seek
quotations
1.3.3 Personal meeting with consultants
1.3.4 Negotiation and finalization

3
 Development of Survey questionnaire

Identifying aspects Preparation of Approval of

for survey questionnaire questionnaire

Deciding the sample customer group

Filter consumer data base Select 200 customers at Collect data of sales in
and select consumers random and develop different zones and
who purchased details of product and identify zones with
company’s TV in last 3 customers dropped sales

Analysis of survey results

Compilation of
Transfer of survey Generation Analysis analysis
data on computer of reports and study of results with
reports recommendations

Conducting survey

Submission of
Analysis of results survey
Pilot survey by and modification Main survey by reports by
consultant in questionnaire consultant consultant
after sertiny

Hiring consultant

Develop
Identify requirement Personal meeting Negotiation and
consultants document and see with consultants finalisation
quotations

Figure 8.2: LEVEL 2 Tasks

Since all level 2 tasks seem to be clearly need be, the level 2 tasks can be broken into
defined with respect to work specifications, smaller work elements at level 3.
further breakup is not necessary. However, if

4
 ACTIVITY
A company manufacturing machine tools is planning
to initiate a project for procurement and installation
of a latest CNC machine to enhance capacity and
quality of its products. Identify various activities
involved, and prepare a work breakdown structure.

The detailed activity chart for the above

example of Survey project is as given below:

Project Level 1 Level 2

1.1.1 Identifying aspects for survey

Development
1.1 of survey 1.1.2 Preparation of questionnaire
questionnaire
1.1.3 Approval of questionnaire

1.2.1 IFilter consumer database and select

consumers who purchased company’s TV
Deciding the in last 3 years
sample
1.2 customer 1.2.2 Select 200 customers at random and
group develop details of product and customers
Survey for assessing consumer needs

1.2.3 Collect data of sales in different zones

and identify zones with dropped sales

1.3.1 Identify consultants

Hiring a 1.3.2 Develop requirement document
1.3 consultant for and seek quotations
conducting
survey 1.3.3 Personal meeting with consultants
1.3.3 Negotiation and finalization

1.4.1 Pilot survey by consultant

1.4.2 Analysis of results and modification in
Conduction questionnaire
1.4 survey
1.4.3 Main survey by consultant
1.4.3 Submission of survey reports by
consultant after scrutiny

1.5.1 Transfer of survey data on computer

Analysis of 1.5.2 Generation of reports
survey results
1.5 and report 1.5.3 Analysis of and study of reports
preparation
1.5.3 Compilation of analysis results
with recommendations

5
Project Management & Contract Administration

Unit-9
Developing Project Network
Learning Project Monitoring and
Control
objectives
The project time plan as referred to in the
After studying this unit, the student will be previous section provides the generic time
able to: estimates for different work packages or
activities of a project. It is now required to
Develop network schedule for a project estimate the completion time of the project in
and estimate time for completion totality. It is important to note here that the
project completion time is not the sum of the
Determine activity slack time taken by all work components
individually. It is because some of the activities
Estimate probability of project may be parallel while others might be
completion in a specific time sequential. So, the total time taken by the
project shall be less than the sum of the time
Determine the extent to which project taken by its individual activities.
can be crashed
In this section, we shall understand the
Develop Gantt chart for the project concepts behind the scheduling of the
activities of a project, i.e., establishing start
time and finish time of the various activities of
a project. We shall broadly understand two
techniques of project scheduling viz. Network
analysis and Gantt chart.

Network Analysis

Network analysis is the most widely used

technique of project scheduling. The
technique involves identifying the precedence
relation between various activities of the
project and drawing a network of the activities
in accordance with their precedence
relationship. An activity A is a predecessor to
another activity B if activity B cannot be
started unless A is complete.

Two notations are used for the drawing of the

network:
A circle denotes an event.

An arrow denotes an activity.

An event is a specific moment of time when
something has been accomplished.
Completion of each activity leads to an event.
Activity A is predecessor
The project network starts with an event to Activity B and Activity C
denoting that nothing has been accomplished
so far. The network ends with a single event
denoting that all activities involved in the
project have been finished and the project is
completed.
This is a burst event
Let us understand the use of circle and arrow
for drawing the project network. Activity A and B are predecessor to Activity C

However, we need to follow some basic rules

for developing the network.

1. Network typically flows from left to right.

2. An activity cannot begin unless all This is a merge event

immediately preceding activities are

completed. Activity A and B are predecessor
to Activity C and Activity D

3. Looping is not allowed.

4. Conditional activities are not allowed.

5. An activity is represented by a single

arrow.

6. More than one activity cannot connect a This is a merge event

pair of events.
Let us look at a specific case now.
7. There must be a single start and single
end to the project network. Activity Predecessor

8. The length of the arrow is NOT A -

proportional to activity time.
B A

C A

Activity A is predecessor to Activity B D B,C

Activity A has no predecessor, so that it can

be started at any time.

This is a simple event

2
Activities B and C can start after activity A is
complete.

ACTIVITY

However, activity D can start only after both Consider a project for construction of a building.
activities B and C are complete. It is not Identify various activities involved and establish their
possible to draw an arrow from both the precedence relationship. Draw a network for the
activities B and C, as one activity can be identified activities. How many burst, merge,
represented by one arrow only. We make use hybrid, and simple events are contained in the
of a dummy activity in such cases. A dummy network?
activity is one which is not real, does not
consume time, used only for the continuation
of network and generally represented by a
dotted arrow.

OR

Consider another specific case now.

Activity Predecessor

A -

B A

Consider the following precedence C A

relationship and draw a network.
D B
Activity Predecessor
E C
A -

B A F B,C

C A
Let us try to draw the network for above
D B situation.
E B,C
For the first five steps, we can use the
F D,E
situations discussed above.

3
Since activity F can start only after both
activities B and C are complete, we will have
to use two dummy activities to depict it.

Example 9.1
Following is the information related to a
software development project.

S. No. Task Task Predecessors code

1 Specification development A -

2 Process mapping B -

3 Developing software for process components C A,B

4 Testing of software D C

5 Developing hardware specifications E B

6 Procurement of hardware F E

7 Integration of software components G C

8 Installation of software on hardware H F,G

9 Pilot test I H

10 Training of users J I

Develop a network for the project.

4
Solution

Example 9.2
Following is the information related to a
construction project.

S. No. Task Task Predecessors code

1 Design development A -

2 Design approval B A

3 Vendor identification C A

4 Procurement of construction material D B,C

5 Laying foundation E D

6 Raising pillars F E

7 Structure development G F

8 Finishing H G

9 Electrical work I G

10 Inspection J I

Develop a network for the project.

5
Project Management & Contract Administration

Unit-10
CPM
Critical Path Method CPM involves the following steps:
(CPM) • Draw the project network

After the development of the network, the • Identify the paths leading from start to
interrelation of the various activities involved finish
in the project is established. The next process
is establishing a time for the activities. The • Calculate the total time along each path
time estimation has already been discussed in
previous sections. The establishment of time • The path with longest total time is the
taken by activities becomes the basis of critical path
further analysis which involves the
determination of project completion time and • The activities on the critical path are
slack of activities. critical activities

Critical path method (CPM) is the technique Example 10.1

of analyzing the project network and Apply CPM to identify the project completion
determining the project completion time. time for following data:

1
 Activity Activity Activity time

A - 3

B - 5

C - 7

D C 3

E A, B 7

F E, D 3

G D 2

H F, G 2

Let us start with the development of a

network for this project.

A3

B5 E7 F3
H2

C7
D3 G2

Figure 10.1

Let us try to identify all paths on the network A –E–F–H 15

for reaching the finish from the start. B –E–F–H 17
Remember to take care of the direction of C–D–G–H 14
arrows. C–D–F–H 15

We can identify four paths along this network. The longest path on the network is the
Critical Path.
A–E–F–H
B–E–F–H BEFH with a time requirement of 17 days is
C–D–G–H the longest path and is the critical path.
C–D–F–H
Project completion time is equal to the time
Calculate the time taken by each path by required by critical path and is equal to 17 days
adding the activity time on the path. for this project.

2
However, the method requires physically time is 3, 5, and 7 respectively, so the early
identifying all paths and calculating time finish for these activities is 3, 5, and 7.
required by each path. If the number of
activities is more, the network gets Activity D can start after activity C is
complicated, and it becomes almost completed, so that activity D cannot start
impractical to identify each path by before 7, i.e., ES of activity D is 7 and its
observation. So, a more scientific technique is activity time being 3, its early finish is
required to identify the critical path on the 7 + 3 = 10.
network.
Activity ES EF LS LF
The technique involves identifying four values A 0 3
for each activity: B 0 5
C 0 7
Early start: D 7 10
The earliest start time for the activity. It E 5 12
depends upon earliest completion time of all F 12 15
predecessor activities. G 10 12
H 15 17
Early finish:
The earliest time for the finish of the activity is
obtained by adding the activity time to the Activity E can start after both activities A and
earliest start. For example, if the earliest start B are completed. So, activity E can start
of the activity is 32, and time required by the earliest at 5 and its activity time being 7, its EF
activity is 4, the early finish will be 32 + 4 = 36. is 5 + 7 = 12.

Late start: Activity F can start after the completion of

The latest time by which an activity must start activities D and E, so it starts at 12 (ES) and
if the project is to be completed in time. It is finishes at 12 + 3 = 15.
obtained by subtracting the activity time from
the late finish time of the activity. Activity G can start after the completion of
activity D, so its ES is 10 and EF is 12.
Late finish:
The latest time by which an activity must The last activity H can start after activities F
finish. It depends on the late start of all and G, i.e., at 15 (ES) and finishes at 17.
succeeding activities. Each activity must finish
latest by the time of late start of the Since early finish of the last activity is 17, the
succeeding activities to ensure that project is project cannot be completed in less than 17
completed in time. time periods, so the project completion time
is 17.
Let us try to determine early start (ES), early
finish (EF), late start (LS), and late finish (LF) Let us now determine the late start and late
for the activities in the above network. finish for all activities.

Activities A, B, and C have no predecessor, so Since we would like to finish the project at the
that they can start at time zero. The activity earliest, the late finish of the last activity is

3
equal to its early finish. So LF for activity H is non-critical activities can be delayed to some
17. Since activity H has to finish at 17, it must extent without affecting the completion time
start at 17 − 2 = 15 (LS). of the project but delay in any critical activities
leads to project delay.
Activities F and G must be completed before
activity H starts, so both activities F and G
must finish at 15. The late start of succeeding
activity is equal to late finish of all preceding
activities. The late start of activities F and G is
therefore 12 and 13 respectively.

The late finish of activity E is equal to late start

of activity F, i.e., 12, and therefore its late start
is 12 − 7 = 5.

Activity ES EF LS LF
A 0 3 2 5
B 0 5 0 5
C 0 7 2 9
D 7 10 9 12
E 5 12 5 12
F 12 15 12 15
G 10 12 13 15
H 15 17 15 17

Now consider activity D. The start of activities

F and G depends on the completion of activity
D. Late start of activities F and G is 12 and 13
respectively. To allow both activities F and G
to start at their LS, activity D must finish by 12
and so must start by 9.

The late finish of activities A and B is equal to

the late start of activity E, i.e., 5. So, their late
start is 2 and 0 respectively. Similarly, LF of
activity C is 9 (Late finish of activity D) and its
late start is 9 – 7 = 2.

Observe the ES and LS of all the activities. The

activities B, E, F, and G have equal late start
and early start. They are critical activities and
so BEFH is the critical path. Late start and
early start of activities A, C, D, and G is not
equal, so they are non-critical activities. The

4
Example 10.2
The time required for completion of activities
for example 9.1 is as follows:

S. No. Task Task code Predecessors Time (in days)

1 Specification development A - 20

2 Process mapping B - 15

Developing software for

3 C A, B 90
process components

4 Testing of software D C 5

5 Developing hardware specifications E B 5

6 Procurement of hardware F E 25

7 Integration of software components G C 30

8 Installation of software on hardware H F, G 10

9 Pilot test I H 10

10 Training of users J I 30

Determine the project completion time.

Solution
Let us start with developing the project
network.

C 90
D5
A 20

G 30

J 30
B 15 I 10
H 10
E5 F 25

Let us now determine ES, EF, LS, and LF for all

the activities.

5
 S. No. Task code ES EF LS LF

1 A 0 20 0 20

2 B 0 15 5 20

3 C 20 110 20 110

4 D 110 115 165 170

5 E 15 20 110 115

6 F 20 45 115 140

7 G 110 140 110 140

8 H 140 150 140 150

9 I 150 160 150 160

10 J 160 170 160 170

So, the critical path is ACGHIJ and project

completion time is 170 days.

6
Project Management & Contract Administration

Unit-11
Case Study 2
Alpha solutions private clients from visiting site and they may
limited – Should we really offer business to competitors. they may
go for this project? offer business to competitors.

“Sir, I had been discussing this new building • Our work requires late sitting many
project with Anuj. He has many valid reasons times, which may not be possible due to
for continuing at the present premises rather inconvenient location. due to
than constructing a new building” Anil said inconvenient location.
looking at Mehra.
• Is the internet connectivity good there?
“Is it so? I always thought owning our own
office building was a great idea. Why don’t • Support services may not be nearby.
you call Anuj and we can discuss this issue?”
Mehra said. • Is it really financially worth? We are
paying a rent of just e are paying a rent
After half an hour, Anil and Anuj were sitting in of just ` 35000/ - per month. - per
chairs in Mehra’s cabin. month.

“Yes Anuj, what you have to say? I understand • Being on a single floor here, our
you have some disagreement with this interpersonal relations are excellent.
project.” Being on a single floor here, our
interpersonal relations are excellent.
“Sir, with due regards to your decision for We are all working like a team. A large
shifting to a new building, I have some building may lead to
reservations on this issue.” compartmentalization and will impact
organization culture.
“I do not deny the positive aspects of shifting, compartmentalization and will impact
but we cannot ignore some factors.” organization culture.

“Can you tell me about your concerns?” • Is it really our priority today?
Mehra said.

“I prepared a list of some factors that we

cannot ignore, sir.” Anuj said and kept a paper
on the table.

• No public transport for the location.

• It will be really uncomfortable for

employees to commute. It will be really
uncomfortable for employees to
commute.
• Difficult approach may dissuade local

1
Mehra looked at the list carefully for some
time. “Anil, what you have to say about it?”

“I do agree with some issues raised by Anuj. In

fact the location will be very uncomfortable to
the female employees of the company.” Anil
said.

“Anuj, you give it more thought and list down

all the factors that may impact our decisions.
And Anil I want a complete analysis, so we can
rethink about shifting to a new building”
Mehra said looking at both of them.

REVIEW QUESTIONS

1. Which tools should Anil use for analysis?

2. Identify all factors affecting the decision

to relocate.

3. Prepare analysis report for presentation

at the meeting.

2
Project Management & Contract Administration

Unit-12
PERT
Learning
objectives
After studying this unit, the student will be able to:

Understand the significance of probabilistic time estimates

Analyze probability of project completion in specific periods

Project Evaluation and Pessimistic time:

Review Technique (PERT) The time an activity will take under
adverse conditions.
The estimate of time used in CPM is
deterministic. However, in real time projects, Optimistic time:
deterministic time for all activities is least The time an activity will take if conditions
expected. There are a number of factors are favorable.
which affect the time taken by each activity.
The time of activities is dependent on a Most likely time:
number of uncertainties, which cannot be The time an activity will take with the
ascertained precisely. For example, a highest probability.
construction project may have uncertainties
The expected time and standard deviation of
related to weather, transport time, manpower
the activities are calculated, which are then
availability, etc. A software development
used to derive the expected completion time
project may need redesigning as a result of
of the project and standard deviation of the
unacceptable test results, leading to increase in
project. This information helps in anticipating
time. On the other hand, if the conditions
probability of the project being completed in a
governing the time of activity are highly
specific time.
favorable, the activity may even take less time
than expected.

So, the time estimates of various activities in a Expected Time = PT + 4MLT + OT

6
project are in general probabilistic rather than
deterministic. The technique used for Standard Deviation = PT - OT
6
network analysis when activity time is 2

probabilistic is called Project Evaluation and Variance = PT - OT

6
Review Technique (PERT). Three different
time estimates are determined for each Example 12.1
activity of the project viz. pessimistic time The time estimates and precedence
(PT), optimistic time (OT) and most likely requirements of activities involved in a project
time (MLT).

1
are as follows:

Time estimate (days)

S. Task Immediate
No. Code Predecessors
Optimistic Most Pessimistic
Time likely Time
Time

1 A - 1 3 5

2 B - 1 3 11

3 C A, B 2 5 8

4 D C 3 4 11

5 E C 4 7 16

6 F D 1 2 3

7 G E 4 6 14

8 H F, G 1 1 1

Determine the expected time, standard

deviation, and variance for all activities.

Solution:

Time estimate (days) Standard Variance

ET Deviation
S. Task 2
No. Code Optimistic Most likely Pessimistic PT+4MLT+OT PT - OT PT - OT
Time Time Time 6 6 6

4 1 1
1 A 1 3 5 3 =
6 3 9

10 5 25
2 B 1 3 11 4 =
6 3 9
6
3 C 2 5 8 5 = 1 1
6

8 4 16
4 D 3 4 11 5 =
6 3 9

12
5 E 4 7 16 8 = 2 4
6
2 1 1
6 F 1 2 3 2 =
6 3 9

10 5 25
7 G 4 14 14 7 =
6 3 9
0
8 H 1 1 1 1 = 0 0
6

2
The expected time estimates can now be used • Draw project network.
to estimate the expected completion time of • Identify critical activities.
the project along the same lines as in case of • Determine variance of all critical
CPM. The standard deviation of the project activities.
completion time can also be estimated. The • Calculate the sum of variances of all
standard deviation of the project completion critical activities (This is the variance of
will depend upon the standard deviation of project completion time).
critical activities. • Calculate the standard deviation of the
project completion time by taking the
To estimate project completion standard square root of the variance.
deviation:

Example 12.2
Determine the expected project completion
time and project completion time’s standard
deviation for example 10.5.

Solution:
Standard Variance
ET Deviation
S. Task Immediate 2
No. Code Predecessors PT+4MLT+OT PT - OT PT - OT
6 6 6

4 1 1
1 A - 3 =
6 3 9

10 5 25
2 B - 4 =
6 3 9
6
3 C A, B 5 = 1 1
6

8 4 16
4 D C 5 =
6 3 9

12
5 E C 8 = 2 4
6
2 1 1
6 F D 2 =
6 3 9

10 5 25
7 G E 7 =
6 3 9
0
8 H F, G 1 = 0 0
6

3
Let us draw the network for the project. The
time indicated against each activity is the
expected time for the activity.

A3

D5 F2

B4 C5 H1

E8 G7

Figure 12.1

The paths from start to finish in the network The extent of variation depends upon the
and the time required on each path can be standard deviation. The larger the standard
identified as: deviation of the project time, larger can be the
• A – C – D – F – H (3 + 5 + 5 + 2 + 1 = 16) variation in the actual project completion
• A – C – E – G – H (3 + 5 + 8 + 2 + 1 = 19) time.
• B – C – D – F – H (4 + 5 + 5 + 2 + 1 = 17)
• B – C – E – G – H (4 + 5 + 8 + 2 + 1 = 20) We will now understand how the probability
of project completion in a specific time can be
determined. The variation in the project
BCEGH being the longest path is the critical completion time is expected to follow a
path and activities on this path are critical normal distribution. For determining
activities. The expected time of project probability of project completion in a specific
completion is equal to the time required by time T, calculate standard normal variate Z.
longest path, i.e., 20 days.
T-Te
Z=
σ
Sum of variances of the critical activities:
Where T is the time period
25 25
= +1+4+ +0
9 9 Te is the expected time of project
95 completion
= = 10.56
9
Standard deviation of the project completion σ is the standard deviation of the
time is equal to the square root of the project completion time
variance of project completion time
Determine the area under the curve for the
= 10.56 = 3.25 relevant part as indicated in the graph below.

The project completion time determined in

The area indicates the probability of project
above example is Expected Time and actual
completion in a specific time period.
time taken by the project may vary.

4
 Example 12.4
What is the probability of completing the
Probability
of project project in 17 days in example 5.5?
Completion
in time T
Solution:

Probability of project
Te T completion in 17 days

Figure 12.2
Example 12.3
What is the probability of completing the
project in 24 days in the example 10.5?
T Te
Solution: Figure 12.3

Te = 20 days Te = 20 days
T = 24 days T = 17 days
Standard deviation = 3.25 days Standard deviation = 3.25 days
T-Te T-Te
Z= Z=
σ σ
24-20 17-20
Z= = 1.23 Z= = 0.92
3.25 3.25

The value of the area under the curve for Z = The value of the area under the curve for Z =
1.23 (From normal distribution table) is 0.92 (From normal distribution table) is
0.3907. This is the area between Te and T. The 0.3212. This is the area between Te and T. The
area on the left side of Te is 0.5 (The normal area on the left side of Te is 0.5 (The normal
curve being symmetrical and total area under curve being symmetrical and total area under
the curve is 1.0). the curve is 1.0).

So the total shaded area = 0.5 + 0.3907 = So, the total shaded area = 0.5 − 0.3907 =
0.8907 0.1093

The probability of the project being The probability of the project being
completed in 24 days is thus 0.8907. completed in 17 days is thus 0.1093.

5
Example 12.5
What is the probability of completing the
project in 19 to 22 days in example 10.5?

Solution:

Probability of
project completion
between times

T1 and T2

T1 Te T2
Figure 12.4
Te = 20 days
T1 = 19 days
T2 = 22 days
Standard deviation = 3.25 days

T-Te
Z=
σ
22-20
Z= = 0.62
3.25
19-20
Z= = 0.31
3.25

The value of the area under the curve for Z =

0.62 (From normal distribution table) is
0.2324 and for Z = 0.31, the value is 0.1217.
So, the area between 20 and 22 is 0.2324 and
area between 19 and 20 is 0.1217. The total
shaded area is 0.2324 + 0.1217 = 0.3541.

The probability of the project being

completed in 19 days to 22 days is thus
0.3541.

6
Project Management & Contract Administration

Unit-13
Slack
Learning
objectives
After completion of this unit, students will be able to:

Understand the difference between critical and non critical activities

Estimate the slack in activities

Slack However, if activity A starts one day late, it

would finish on day 21, leading to one day
We have understood the difference between delay in the project completion. The same is
critical and non-critical activities. The critical not applicable to activity B, which can start up
activities are those which if delayed, result in to five days late and still finish on the 20th day.
the project getting delayed. Non-critical Activity B, in this case, is said to have slack.
activities can be delayed to some extent
without affecting the project completion time. A
The extent by which non-critical activities can
B
be delayed is termed as “Slack.”

Just consider a project with only two activities 0 15 20

A and B, both having no predecessors. So, Figure 13.2

both activities A and B can be started at zero
Each activity of the project has three types of
time. If the time required by activity A is 20
slack as described below.
days and that by activity B is 15 days, the
project will be completed in 20 days, because
Total slack:
both can start at time zero simultaneously.
Total slack is the time by which an activity can
A
be delayed without affecting project
completion time, subject to the condition that
B all other activities start and finish as scheduled.
Total slack is calculated as follows:
0 5 20
TS = LS − ES
Figure 13.1

1
 Activity time
ES ES ES

EF EF EF

LS LS Total Slack LS

LF LF LF

Figure 13.3

Consider a project with three activities A, B,

and C with the following relation:

Activity Predecessor Time

A - 6

B A 3

C - 10

The network for above is as below:

C 10

B3
A6

Figure 13.4

Total Slack
Activity Predecessor Time ES EF LS LF
TS=LS-ES

A - 6 0 6 1 7 1

B - 3 6 9 7 10 1

C B 10 0 10 0 10 0

2
So, both activities A and B have a slack of one
day. However, note that if slack of one day is
consumed by activity A, then activity A
finishes in 7 days. To finish in 10 days, activity B
has to start immediately without an
opportunity to utilize its total slack. However,
if slack was not consumed by activity A, it was
possible for activity B to start one day late. So,
if total slack is consumed by an activity, it
impacts the slack available to the subsequent
activities.

Example 13.1
Calculate total slack for each of the activities
for following data of a project.

Activity Predecessor Activity Time

A - 3

B - 5

C - 7

D C 3

E A, B 7

F E, D 3

G D 2

H F, G 2

Solution:
Let us start with the development of a
network for this project and determine ES, EF,
LS, and LF for all activities.

A3

B5 E7
F3
H2

C7

D3 G2

Figure 13.5

3
 Total Slack
Activity ES EF LS LF
TS = LS - ES

A 0 3 2 5 2-0=2

B 0 5 0 5 0-0=0

C 0 7 2 9 2-0=2

D 7 10 9 12 9-7=2

E 5 12 5 12 5-5=0

F 12 15 12 15 12 - 12 = 0

G 10 12 13 15 13 - 10 = 3

H 15 17 15 17 15 - 15 = 0

Note that the total slack for critical activities is

zero, indicating that critical activities cannot be
delayed without delaying the project
completion.

Free slack:
Free slack refers to the time by which an
activity can be delayed without affecting the
early start of its succeedingactivities.

Free slack is determined as:

FS = ESs − EF
Where FS is free slack, ESs is early start of
succeeding activity, and EF is early finish of
activity for which slack is being determined.

ES ES ES

EF EF EF

LS LS LS

LF LF LF

Figure 13.6

4
Example 13.2
Calculate free slack for each of the activities
for the data from example 9.1.

Activity Predecessor Activity Time

A - 3

B - 5

C - 7

D C 3

E A, B 7

F E, D 3

G D 2

H F, G 2

Solution:
Let us start with the development of a
network for this project and determine ES, EF,
LS, and LF for all activities.

A3

B5 E7
F3
H2

C7
D3 G2

Figure 13.7

5
 Total Slack
Activity ES EF LS LF
TS = LS - ES

A 0 3 2 5 5-3=2

B 0 5 0 5 5-5=0

C 0 7 2 9 7-7=0

D 7 10 9 12 10 - 10 = 0

E 5 12 5 12 12 - 12 = 0

F 12 15 12 15 15 - 15 = 0

G 10 12 13 15 15 - 12 = 3

H 15 17 15 17 17 - 17 = 0

Free slack for A = ESE – EFA or 5 – 3 = 2

Free slack for B = ESE – EFB or 5 – 5 = 0
Free slack for C = ESD – EFC or 7 – 7 = 0
Free slack for D = ESG – EFD or 10 – 10 = 0

(Both activities G and F are succeeding

activities for activity D with ES as 10 and 12
respectively. To allow both activities to start at
their ES, the activity with lower ES is
considered as ESs.)
Free slack for E = ESF – EFE or 12 – 12 = 0
Free slack for F = ESH – EFF or 15 – 15 = 0
Free slack for G = ESH – EFG or 15 – 12 = 3
Free slack for H = ES(next hypothetical activity) – EFH
or 17 – 17 = 0

(Since there is no succeeding activity to

activity H, the early finish of activity H is
considered as early start of next hypothetical
activity)

Independent slack:
Independent slack refers to the time by which
an activity can be delayed if the preceding
activity finishes late and succeeding activity
starts early. This slack is independent because
its consumption by the activity does not
impact the slack of other succeeding activities.

6
The slack if not consumed is lost and is not
transferred to succeeding activities, in contrast
to total slack. Independent slack can be
calculated as:

IS = ESs – LFp – t

Where IS is independent slack, ESs is early

start of succeeding activity, LFp is late finish of
preceding activity, and t is time of activity for
which slack is being determined.

ES ES ES

EF
EF EF
LS
LS LS

Slack
LF LF LF

Activity Time

Figure 13.8
Example 13.3
Calculate free slack for each of the activities
for the data from example 11.1.

Activity Predecessor Activity Time

A - 3

B - 5

C - 7

D C 3

E A, B 7

F E, D 3

G D 2

H F, G 2

Solution:
Let us start with the development of a
network for this project and determine ES, EF,
LS, and LF for all activities.

7
 A3

B5 E7
F3
H2

C7
D3 G2

Figure 13.9

Independent Slack
Activity ES EF LS LF
IS = ESS - LFP - t

A 0 3 2 5 5-0-3=2

B 0 5 0 5 5-0- 5=0

C 0 7 2 9 7-0-7=0

D 7 10 9 12 10 - 9 - 10 = -2

E 5 12 5 12 12 - 5 - 7 = 0

F 12 15 12 15 15 - 12 - 3 = 0

G 10 12 13 15 15 - 12 - 2 = 1

H 15 17 15 17 17 - 15 - 2 = 0

Independent slack for A (Both activities G and F are succeeding

= ESE – LF(preceding hypothetical activity) – tA activities for activity D with ES as 10 and 12
or 5 – 0 – 3 = 2 respectively. To allow both the activities to
start at their ES, the activity with lower ES is
Independent slack for B considered as ESs.)
= ESE – LF(preceding hypothetical activity) – tB Independent slack for E
or 5 – 0 – 5 = 0 = ESF – LF(A or B whichever is higher) – tE
or 12 – 5 – 7 = 0
Independent slack for C
(Both activities A and B are succeeding
= ESD – LF(preceding hypothetical activity) – tC
activities for activity E with LF as 5 and 5
or 7 – 0 – 7 = 0
respectively. To allow both the activities to
finish late, the activity with higher LF is
Independent slack for D =
considered as LFP.)
ES(F or G whichever is lower) – LFC – tD
or 10 – 9 – 3 = –2 Independent slack for F = ESH – LFE – tF
or 15 – 12 – 3 = 0

8
Independent slack for G = ESH – LFD – tG or
15 – 12 – 2 = 1

Independent slack for H

= ES(next hypothetical activity) – LF(F & G) – tH
or 17 – 15– 2 = 0

(Since there is no succeeding activity to

activity H, the early finish of activity H is
considered as early start of next hypothetical
activity)

Note that the independent slack of D is

–2, which indicates that if preceding
activities of activity D finish late, the
succeeding activities cannot start early.

Example 13.4
The time required for completion of activities
in example 5.1 is as follows:

S. Task Task Time

Predecessors
No. Code (in days)

1 Specification development A - 20

2 Process mapping B - 15

3 Developing software for process components C A, B 90

4 Testing of software D C 5

5 Developing hardware specifications E B 5

6 Procurement of hardware F E 25

7 Integration of software components G C 30

8 Installation of software on hardware H F, G 10

9 Pilot test I H 10

10 Training of users J I 30

9
Determine total slack, free slack, and
independent slack for all activities.

Solution:
Let us start with developing the project
network.

C 90
D5
A 20

G 30

J 30
B 15 I 10
H 10
E5 F 25

Figure 13.10

Independent
S. Task Total Slack Free Slack Slack
ES EF LS LF FS = ESS - EF IS =
No. Code TS = LS - ES
ESS = LFP - t

1 A 0 20 0 20 0-0=0 20 - 20 = 0 20 - 0 - 20 = 0

2 B 0 15 5 20 5-0=5 15 - 15 = 0 15 - 0 - 15 = 0

3 C 20 110 20 110 20 - 20 = 0 110 - 110 = 0 110 - 20 - 90

=0

4 D 110 115 165 170 165 - 110 = 55 170 - 115 = 55 170 - 110 - 5
= 55

5 E 15 20 110 115 110 - 15 = 95 20 - 20 = 0 20 - 20 - 5

= -5

6 F 20 45 115 140 115 - 20 = 95 140 - 45 = 95 140 - 115 - 25

=0

7 G 110 140 110 140 110 - 110 = 0 140 - 140 = 0 140 - 110 - 30
=0

8 H 140 150 140 150 140 - 140 = 0 150 - 150 = 0 150 - 140 - 10
=0

9 I 150 160 150 160 150 - 150 = 0 160 - 160 = 0 160 - 150 - 10
=0

10 J 160 170 160 170 160 - 160 = 0 170 - 170 = 0 170 - 160 - 30
= -30

10
Knowledge of activity slack is important for
project managers. Slack provides an
understanding of the time by which activities
can be delayed and as such help in focusing
attention on activities with lower slack to
ensure project completion in time. Slack also
helps in resource planning. If the requirement
of resources varies widely over different
periods, slack is used to shift the start time of
activities in a manner that resource
requirement over different periods becomes
uniform without affecting project completion
time. In case of limited resources, slack
provides the basis for deciding priorities for
resource allocation to competing activities.

11
Project Management & Contract Administration

Unit-13
Slack
Project Management & Contract Administration

Unit-14
Project Crashing
Learning Project Crashing

objectives We have been discussing determination of the

project completion time on the basis of the
After studying this unit, the student will be time required by activities of the project,
able to: specifically time required by critical activities.
However, sometimes a manager is under
Understand the concept of schedule
pressure to complete the project at an early
compression of projects
date. The pressures for early completion
could initiate from the customer or the parent
Evaluate the time by which project
organization’s management. The reduction in
duration can be reduced
project completion time requires slashing the
time requirements of various activities. There
Understand the time cost relationship in
are three aspects of slashing the time
projects
requirement of activities:
The activity time cannot be reduced
beyond a certain limit. In fact, some of
the activities can’t be slashed at all.

If the time period of an activity needs to

be reduced, additional resources may be
required which impacts the activity cost
and project cost eventually.

Reduction in time requirement of every

activity of the project may not actually
result in the reduction of project
completion time, even though the
additional resources employed cause cost
escalation.
The process of reducing project completion
time by slashing time requirement of its
activities by providing additional resources is
called project crashing.
Project crashing involves
Identifying activities which can be slashed
in time resulting in reduction of project
completion time.

Identifying the cost impact of such time

reduction.

Identifying the methods of project time

reduction with least cost.
 Deciding the time by which project will be Let us understand the project crashing further
crashed considering time cost with the help of an example.
relationship.
Example 14.1
Consider the following project.
Let us try to understand the relation between
time and cost of activities with the help of a Normal Crash Normal Crash
Activity Predecessor
graph. time time cost cost
A - 8 6 2000 3000
B - 4 2 1500 3000
TIME COST RELATIONSHIP C - 12 7 1500 4000
D A 6 5 2500 3250
E B 7 4 1800 3600
Crash
cost
Determine the project completion time,
period by which project can be crashed and
Cost
cost of crashing the project.

Normal Solution:
cost Let us first draw the network of the project
and identify the project completion time.
Crash time Normal time

Time
D6
A8
Figure 14.1 C 12

Normal time: The time required to B4 E7

complete an activity under normal
circumstances with planned resources. Figure 14.2

Crash time: The minimum time Find the paths leading to finish from the start
required for completion of an activity. of the network and their time requirement.

• C 12
Normal cost: The cost of completing
• A – D 14
an activity under normal circumstances
• B – E 11
with planned resources.
A – D is the critical path, being the longest
Crash cost: The cost required to route, and A and D are critical activities.
complete an activity in minimum possible
time. Note that if we want to reduce project
completion time, activity on the critical path
As can be observed from the graph, as we has to be slashed. Reduction in time of a
move from normal time toward crash time, non-critical activity will not result in project
the cost increases, i.e., the crash cost is higher time reduction. Let us now find out the crash
than the normal cost of the activity. This cost per day for each activity.
additional cost is due to additional resources Crash cost - Normal cost
Creash cost per day =
employed for completing the activity in Normal time - Crash time
shorter period.

2
 Activity Normal Crash Normal Crash Crash Cost
Time Time Cost Cost per Day

A 8 6 2000 3000 1000

= 500
2

B 4 2 1500 3000 1500

= 750
2

C 12 7 1500 4000 2500

= 500
5

D 6 5 2500 3250 750

= 750
1

E 7 4 1800 3600 1800

= 600
3

Let us now try to crash the project and

determine the cost of crashing.

Project Crashed
Activities
Critical Activity Cost of project
completion Paths that can
Path crashed crashing completion
time be crashed time

C 12
14 AD 14 A-D A, D A 500 13
BE 11

C 12
13 AD 13 A-D A, D A 500 12
BE 11

C 12
A-D D D 750
12 AD 12 500 11
C C C
BE 11

C 11 A-D None
Further crashing is not possible because on
11 AD 11 C C one of the critical path, no activity can be
further crashed.
BE 11 B-E B-E

So the project can be crashed by three days, Cost of crashing by 2 days 500 + 500 =
completing it in eleven periods in the place of 1000
fourteen and cost of crashing is as below: Cost of crashing by 3 days 500 + 500 +
Cost of crashing by 1 day 500 750 + 500 = 2250

3
Example 14.2
Consider the following project

Activity Predecessor Normal Crash Normal Crash

time time cost cost

A - 12 8 4000 5600

B A 6 4 2500 3500

C A 3 2 600 900

D A 5 4 1600 1950

E C, D 4 2 3400 3800

F B, E 8 5 1000 2800

G D 4 2 1200 2800

H F, G 7 5 1800 4000

Determine the project completion time,

period by which project can be crashed and
cost of crashing the project.
Solution:

F8
B6
E4
A 12 C3 H7

D5
G4

Figure 14.3

The paths from start to finish and their time

requirement are as follows:
A–B–F–H 33 Days
A–C–E–F–H 34 Days
A–D–E–F–H 36 Days
A–D–G–H 28 Days
The project completion time is 36 days
Critical path is A – D – E – F – H.

4
 Normal Crash Normal Crash Crash cost
Activity time time cost cost per day

A 12 11 4000 4400 400

B 6 4 2500 3500 500

C 3 2 600 900 300

D 5 4 1600 1950 350

E 4 2 3400 3800 200

F 8 7 1000 1600 600

G 4 2 1200 2800 800

H 7 5 1800 4000 1100

5
 Crashed
Project Activities
Critical Activity Cost of project
completion Paths that can be
Path crashed crashing completion
time crashed time

ABFH 33
ACEFH 34
36 ADEFH A, D, E, F, H E 200 35
ADEFH 36
ADGH 28

ABFH 33
ACEFH 33
35 ADEFH A, D, E, F, H E 200 34
ADEFH 35
ADGH 28

ABFH 33
ACEFH 32
34 ADEFH A, D, E, F, H D 350 33
ADEFH 34
ADGH 28

ABFH 33
ACEFH 32 ADEFH A, F, H
33 A 400 32
ADEFH 33 ABFH A, B, F, H
ADGH 27

ABFH 32
ACEFH 31 ADEFH F, H
32 F 600 31
ADEFH 32 ABFH B, F, H
ADGH 26

ABFH 31
ACEFH 30 ADEFH H
31 ABFH H 1100 30
ADEFH 31 B, H
ADGH 26

ABFH 30
ACEFH 29 ADEFH H
30 H 1100 29
ADEFH 30 ABFH B, H
ADGH 25

ABFH 29
ACEFH 28 ADEFH Further crashing is not possible because on
None one of the critical path, no activity can be
29 ABFH B
ADEFH 29 further crashed.
ADGH 24

6
Project Management & Contract Administration

Unit-15
Developing Gantt Chart
Learning Gantt Chart

objectives One of the basic limitations of network

analysis is that it does not have provision to
After studying this unit, the student will be indicate the start of an activity after partial
able to: completion of preceding activity. However, in
practice, often an activity can start after a
Create a Gantt chart for the project preceding activity has been completed
partially. Gantt chart is a graphical technique
which can be used for simply depicting the
sequence of activities. It was developed by H
L Gantt in 1917. The x-axis of the graph is the
time scale and the y-axis indicates various
activities involved in the project. Horizontal
bars are drawn along the x-axis for individual
activities. The length of the bars is
proportional to the time required by activities.
However, Gantt chart fails to establish the
interdependence of activities clearly. Still, it is
one of the most commonly used techniques
because of its simple approach.

The Gantt chart can be used during various

phases of the project.

Scheduling:
Gantt chart is a simple tool to depict the
sequence of activities in a project and can be
used to estimate the scheduled finish of the
project. The Gantt chart created to show the
planned start and finish of activities is called
the Baseline Gantt chart.

Resource allocation:
Often the projects deal with limited resources,
and it becomes important to allocate
resources to the activities in a manner that has
least impact on project completion schedule.
Also, a project manager is always interested in
the allocation of resources in such a manner
that the demand for resources is uniform to
the extent possible during the project life.
Gantt chart forms the basis for identifying
resource requirements at different periods
during the project and helps the manager to
allocate resources in most efficient manner. differentiating between planned progress and
actual progress.
Controlling:
The baseline Gantt chart becomes the basis of The structure of the Gantt chart looks as
control. Apart from the scheduled activities, below, ABCD and E being the activities
the current state of the project can also be involved in the project.
depicted on the Gantt chart which provides
basis for comparing planned versus actual A
progress and taking actions as necessary. B

Time Scale
C

D
Structure of Gantt Chart
E
As discussed earlier, Gantt chart is a graph
with x-axis indicating time scale and Y-axis Time Scale
shows various activities involved in the Figure 15.1
project. Horizontal bars along x-axis indicate
the activities, their length being proportional Example 15.1
to the time required by the activities. Colors, Develop a Gantt chart for a project with
shades or outlines can be used in the bars for following data

2
 Activity Predecessor Time
A - 3
B - 5
C - 7
D C 3
E A,B 7
F E,D 3
G D 2
H F,G 2

Solution:

H
12
34
36
78

10
11
12
13
14
15
16
17
18
9

Figure 15.2

Example 15.2
Create a baseline Gantt chart for the following
project.

Activity A B C D E F G H

Predecessor - A A A C,D B,E D F,G

Time 12 6 3 5 4 8 4 3

3
Solution:

A
B
C
D

E
F
G
H
12
34
56
78

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
9

Figure 15.3

Example 15.3
Following is the data pertaining to plan and
actual progress on day 17 for the project in
example 15.2. Show the plan and progress on
a Gantt chart.

Activity A B C D E F G H

Predecessor - A A A C,D B,E D F,G

Time 12 6 3 5 4 8 4 3
Progress on
100% 75% 100% 60% - - - -
day 17

Solution:

H
12
34
56
78

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
9

Figure 15.4

4
Example 15.4
Develop the Gantt chart for the following
network.

A3

F2
D5
B4 H1
C5

E8 G7

Figure 15.5

Solution:

B
C

F
G

H
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
1
2
3
4
5
6
7
8
9

Figure 15.6

5
Project Management & Contract Administration

Unit-16
Case Study 3
Alpha solutions private limited was established The schedule of the project was
in 2012. The company started undertaking as follows:
projects for developing internet security
A 10 B 12 D 30 F5
software from corporates. By the year 2016,
the company was already doing business with
more than 30 corporates and had developed
the reputation of its expertise in the field. The C 15
E 10
company was headed by Mr. Mehra as the
Managing Director, and Anil assisted him as
chief project manager. Anil was responsible
Anil received a call from CEO of Mohit
for allotting the new projects to one of eight
industries before the start of the project,
project managers working for the company.
requesting him to see if the project instead
could be delivered five days earlier. Anil
Anuj was the project manager for a project
promised to reply by the end of the day. Anil
with Mohit Industries, one of the most
had a discussion with Anuj and Mr. Mehra.
important clients of Alpha Solutions. The
While Anuj was reluctant to accept the
project started on January 1, 2016 and was
change, Mr. Mehra did not want to antagonize
scheduled to be handed over to the client in
an important client. He asked Anil to handle
60 days.
the situation. While Anil talked to the client
again, telling him that completing the project

1
earlier would involve additional resources and
will not remain viable for the organization, the
client offered to cover additional expenses up
to Rs. one lakh. Anil again had a meeting with
Mr. Mehra and appraised him of the discussion
with client. Mr. Mehra asked Anil to analyze
the cost involved and also whether the project
can be shortened by five days at all.

On directions of Anil, Anuj immediately

started collecting relevant data for the
analysis.

The summarized data is as below.

Normal Time Crash Time Crash Cost per day

Activity
(Days) (Days) ()

A 10 8 12000

B 12 12 -

C 15 12 20000

D 30 25 18000

E 10 10 -

F 5 5 -

Mr. Mehra was presented with the data, and

he asked Anil “Should we accept the change?”

Questions

1. Should the change be accepted? Justify

your answer.

2. What is the minimum cost of crashing the

project by five days?

2
Project Management & Contract Administration

Unit-17
Developing Baseline
Cost Curve
1
Learning
objectives
After completion of this unit, students will be able to:

Estimate the cost required during various project phases

Create a base line curve as a means of project monitoring

Creating Baseline Cost Curve

Project X

A B C D

Activity Time Predecessors A

A 5 - C
B
B 2 -
D
C 4 B

D 6 B

1
 0 1 2 3 4 5 6 7 8 9 10
Cost

A 100

B 70

C 200

D 150

Activity Budget cost 1 2 3 4 5 6 7 8

A 100 30 20 20 20 10

B 70 20 50

C 200 70 30 40 60

D 150 40 20 30 30 20 10

Period Total 50 70 130 70 80 90 20 10

Cumulative 50 120 250 320 400 490 510 520

2
 1 2 3 4 5 6 7 8

Figure 17.1

Mr. and Mrs. Tolstoy are building a house on a

hill. It is a wooden house with a slanted tiled
roof. The size of the house is 3000 sq. feet and
will cost ` 1000 per sq. foot (including the plot
and the construction).

The activities in building the house, the

precedence, the duration and the percentage
of total cost are given below.

Activity ID Description Precedence Duration (Weeks) %age of Total Cost

A Excavation and framing - 4 24

B Roof and Fireplace A 3 8

C Wiring roughed in A 1 3

D Plumbing roughed in B,C 2 6

E Siding on D 2 5
Windows, insulation, walks,
F plaster and garage E 8 17

G Furnace B 1 9

H Plumbing fixtures installed D 2 4

Exterior paint, light fixtures,
J hardware installed F,G,H 6 10

K Floors laid and finished H 4 6

L Carpet and trim installed K 1 4

M Interior decoration J,L 2 4

3
Activities

A 1.80 1.80 1.80 1.80

B 0.80 0.80 0.80

C 0.90

D 0.90 0.90

E 0.75 0.75

F 0.64 0.64 0.64 0.64 0.64 0.64 0.64 0.64

G 2.70

H 0.60 0.60

J 0.50 0.50 0.50 0.50 0.50 0.50

K 0.45 0.45 0.45 0.45

L 1.20

M 0.60 0.60

Week 1.80 1.80 1.80 1.80 1.80 1.80 0.80 3.60 0.90 1.35 1.35 1.09 1.09 1.09 1.09 1.84 0.64 0.64 0.64 0.50 0.50 0.50 0.50 0.50 0.50 0.60 0.60
cost

Cum- 1.80 3.60 5.40 7.20 8.90 9.70 10.5014.1015.0016.3517.7018.7919.88 20.9722.0623.9024.5425.1825.8226.3226.8227.3227.8228.3228.8229.4230.02

cost

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Time
(weeks)

4
35

30

25

20

15

10

1 4 7 10 13 16 19 22 25

Figure 17.2

5
Project Management & Contract Administration

Unit-18
Project Budgeting
and Activity Costing
Learning A budget is a plan for resource allocation.
Also, it acts as a control mechanism.
objectives
Allocation on the basis of forecast of
After studying this unit, the student will be
resources, quantities needed, and when it
able to:
is needed.
Understand the process involved in
Uncertainties are involved.
project budgeting

No past budget is available for use as a

Estimate cost of project activities
base.
Understand methods of budgeting
 Expert judgment uses the experience and knowledge of experts
to estimate the cost of the project. This technique can take into
Expert Judgment
account unique factors specific to the project. However, it can
also be biased.

Analogous estimating uses historical data from similar projects as

a basis for the cost estimate. The estimate can be adjusted for
Analogous Estimating known differences between the projects. This type of estimate is
usually used in the early phases of a project and is less accurate
than other methods.

Parametric estimating uses statistical modeling to develop a cost

estimate. It uses historical data of key cost drivers to calculate an
Parametric Estimating
estimate for different parameters such as cost and duration. For
example, square footage is used in some construction projects.

Bottom-up estimating uses the estimates of individual work

packages which are then summarized or “rolled up” to
Bottom-Up Estimating determine an overall cost estimate for the project. This type of
estimate is generally more accurate than other methods since it
is looking at costs from a more granular perspective.

Reserve analysis is used to determine how much contingency

Reserve Analysis reserve, if any, should be allocated to the project. This funding is
used to account for cost uncertainty.

Cost of Quality (COQ) includes money spent during the project

to avoid failures and money spent during and after the project
Cost of Quality
due to failures. During cost estimation, assumptions about the
COQ can be included in the project cost estimate.

Vendor analysis can be used to estimate what the project should

Vendor Bid Analysis
cost by comparing the bids submitted by multiple vendors.

2
Top Down Budgeting

Collecting the judgment and experience

of top managers.

Collecting available past data in similar

activities.

Estimation of overall project cost and

cost of major components by senior
managers.

Cost estimates given to lower level

managers.

Budget is broken into estimates for

specific tasks and work activities.

Bottom Up Budgeting

Elemental tasks, their schedules, and

budgets are constructed.

People doing the work are consulted.

Difference of opinion resolved by

discussion between junior and senior
managers.

Advocate participative management.

Work Element Costing

Each work element is evaluated for its

resource requirement.

Cost of each resource is estimated.

Considers

Overheads
Allowances
General and administrative costs

3
Project Management & Contract Administration

Unit-19
Project Monitoring
with Gantt Chart
Learning Project Monitoring and
Control
objectives
While it is important to plan a project
After studying this unit, the student will be adequately, it is equally important to ensure
able to: that the plans are implemented in a manner
that project objectives are achieved. It
Understand the basic process of project involves two aspects:
monitoring and control
• Continual and periodic verification of the
project progress.
Use tracking Gantt chart for monitoring
• Identifying deviation from plans and taking
of projects
actions if required.
Project monitoring is the process of verifying
the project performance on the basis of data
collected from the project and project control
refers to comparing the actual performance
with targets or plans, identifying deviations if
any and taking the required actions. Deviation
can be defined as the differences between
“What is and what should be.” The various
aspects of the project that need to be
controlled are:
• Schedules
• Cost
• Specifications or quality

Process of Project
Monitoring and Control

The process of monitoring and control is

depicted in the below flow chart.
Define project
objectives

Develop base plan Develop monitoring

plan

Collect data as per Compare perfomance

monitoring plan with plan

Identify deviation Compare perfomance

with plan

Apply action
Verify effectiveness of
action taken

Figure 19.1
Define project objectives: Identify deviation:
The project objectives include the information The difference between the actual progress
about the desired time of project completion, and desired progress indicates a deviation.
the budget for completion of the project and
the quality specification of the project output. Various tools used for the monitoring and
control of the projects are

Develop base plan: • Gantt chart

Control requires comparison of the actual • Milestone analysis
with plan. So, the first requirement for • Earned value analysis
monitoring and control process is to have a • S curve analysis
base plan which forms the basis of
comparison. The plans are required for
various performance criteria of the project Gantt Chart as a
viz. cost, schedules, and quality. Cost plans are monitoring tool
in the form of budgets and activity costing
while schedule plans can be in the form of Gantt chart and its use we have discussed in
Gantt charts, milestones, and project the previous sections. It is one of the most
networks. commonly used techniques for project
monitoring due to several advantages offered
by it.
Develop monitoring plan: • Easy to understand, being a pictorial
The monitoring plan involves a decision about: representation.
• The monitoring tools to be used. • Easy to construct and maintain.
• Stages of the project where the controls • Shows progress against the plan on the
shall be applied. same graph.
• Responsibility allocation for monitoring • Can be used for resource planning also.
and control.
A baseline Gantt chart indicates the start and
• Development of tools for collecting and
finish of various activities of the project and
reporting data.
their interrelationship. As the project
progresses, the progress of various activities
Collect data as per monitoring plan: can also be plotted on the same chart enabling
It involves implementing the monitoring and the project manager to compare the plan with
control plans. It is always preferable to performance and take corrective measures if
develop suitable tools for data collection to required.
ensure ease in the analysis. The tools can
include various graphs and formats. Care must
be taken to ensure that data is reliable so that
appropriate decisions can be made.

Compare performance with plans:

The collected data highlights the actual
performance of the project, and it needs to be
compared with desired progress with the
project.

2
Example 19.1
Develop the Gantt chart for the following
network.

A3
D5 F2

B4 C5 H1

E8 G7

Figure 19.2

The status of completion of various activities

is as follows:

Activity A B C D E F G H

% complete
100% 100% 100% 80% 60% 0 - -
on day 14

Solution:

H
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
1
2
3
4
5
6
7
8
9

Figure 19.3

3
Following is the tracking Gantt chart:

H
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
1
2
3
4
5
6
7
8
9

Figure 19.4

The chart indicates that activity D is lagging will get delayed unless activity D is
behind on day 14. As a result, activity F has controlled at this point and is completed in
not yet started, where it should have started another one day. However, activity E seems
by this time. The indication is that project to be faster than scheduled.

4
Project Management & Contract Administration

Unit-20
Project Monitoring
(Earned Value Analysis)
Learning
objectives
After studying this unit, the student will be able to:

Understand the process of project control

Use earned value analysis to track the progress of projects

Earned Value Analysis done with respect to the budget.

Earned value analysis is a technique for Example

monitoring of both cost and schedule. The If the budgeted cost of an activity is ` 2000,
monitoring for both cost and schedule is in and on a specific day, 70% of activity has been
financial terms. It compares the budgeted cost completed, determine the BCWP.
of work performed with the actual cost of Work completed = 70%
work performed and budgeted cost of work Total activity cost = ` 2000
scheduled. The comparisons provide a Value of work completed = 70%
measure to assess the project performance in of 2000 = 1400
terms of cost and schedule. So, BCWP = 1400

The terms and notations used are as follows: Example

Consider the following information about a
Budgeted cost of work project during its implementation.
performed (BCWP) Activity % Completion Budgeted cost
A 100 2000
Earned value analysis is a technique for It
B 90 3500
indicates the budgeted cost of work
performed. It is determined by identifying the C 90 1500
work completion status in terms of D 35 3000
percentage and calculating the value of work E 0 1000

1
Determine BCWP for each activity and the
project in totality.

Activity % Completion Budgeted cost BCWP

A 100 2000 100% of 2000 = 2000

B 90 3500 90% of 3500 = 3150

C 90 1500 90% of 1500 = 1350

D 35 3000 35% of 3000 = 1050

E 0 1000 0% of 1000 = 0

Total project cost which was expected to be completed by this

= 2000 + 3500 + 1500 + 3000 + 1000 time. The comparison of BCWP and BCWS
= 11000 provides information about schedule
BCWP performance of the project.
= 2000 + 3150 + 1350 + 1050 + 0
= 7550

Actual Cost of Work

Performed (ACWP)

This is the cost incurred on an activity or

project for the completed part. The
comparison of ACWP with BCWP provides
information about the cost performance of
the project and level of utilization of budget. It
also forms the basis for identifying the budget
needs for completion of the project.

Budgeted Cost of Work

Scheduled (BCWS)

BCWP determines the cost of planned work.

The cost of planned work may be more than
or less than the actual cost incurred so far.
BCWP is determined by identifying the
percent work, scheduled to be completed and
calculating its cost with reference to budgeted
cost. It indicates the value of scheduled work

2
Example:
Consider the following information about a
project during its implementation.

Activity Scheduled Completion (%) Budgeted cost

A 100 2000

B 100 3500

C 100 1500

D 60 3000

E 40 1000

Determine BCWS for each activity and the

project in totality.

Activity % Completion Budgeted cost BCWP

A 100 2000 100% of 2000 = 2000

B 100 3500 100% of 3500 = 3500

C 100 1500 100% of 1500 = 1500

D 65 3000 60% of 3000 = 1800

E 40 1000 40% of 1000 = 400

Total project cost performance of the project. The various

= 2000 + 3500 + 1500 + 3000 + 1000 indices used for this purpose are:
= 11000
• Cost performance index (CPI)
BCWS
• Cost Variance (CV)
= 2000 + 3500 + 1500 + 1050 + 400
• Schedule performance index (SPI)
= 8450
• Schedule variance (SV)
• Critical ratio (CV)
Project Performance
Indices Cost Performance Index
(CPI)
The parameters of BCWS, BCWP, and
ACWP provide the basis for evaluating the CPI is the ratio of BCWP to ACWP. This

3
index compares the planned cost with actual
cost incurred.

BCWP
CPI =
ACWP

CPI value of greater than 1 indicates that the

actual cost spent was less than the budgeted
cost, and hence the project is over performing
on this front. However, a very high value
indicates a need for review. A very high value
of CPI may indicate

• Over budgeting in planning

• Quality compromise in project

In fact, if the reason was over budgeting, an

underperformance is also disguised as over
performance.

CPI value of less than 1 indicates

underperformance, i.e., actual expenditure
exceeding the budgeted expenditure.
However, the low value of CPI may also be
the result of project crashing.

Cost Variance (CV)

Cost variance determines the actual difference
in BCWP and ACWP and is calculated as:

CV = BCWP − ACWP

A positive value of CV indicates budgeted cost

to be more than actual cost whereas a
negative value of CV indicates over
expenditure.

Example:
Determine CPI and CV for all activities and
the project in totality.

4
 Activity % Completion Budgeted cost ACWP

A 100 2000 2200

B 100 3500 4000

C 100 1500 1500

D 60 3000 1500

E 40 1000 500

% Budgeted BCWP CV =
Activity Completion ACWP BCWP CPI =
cost ACWP BCWP - ACWP

A 100 2000 2200 100% of 2000 2000/2200 -200

= 2000 = 0.909

100% of 3500 3500/4000 -500

B 100 3500 4000
= 3500 = 0.875

100% of 1500 1500/1500 0

C 100 1500 1500
= 1500 = 1.0

60% of 3000 1800/1500 300

D 60 3000 1500
= 1800 = 1.2

40% of 1000 400/500 -100

E 40 1000 500
= 400 = 0.8

Total BCWP = 7550 indicates work completion before schedule. A

Total ACWP = 9700 value of SPI = 1 indicates work completion on
7550 schedule. Too high or too low value of SPI
CPI = = 0.778
9700 needs review for following possibilities:
CV = 7550 – 9700 = –2150
Very high value of SPI:

Schedule Performance • Whether there was any activity crashing

Index (SPI) • Whether there was any compromise on
quality
SPI is the ratio of BCWP to BCWS. This index
Very low value of SPI:
compares the value of planned work with
value of completed work. • Reasons for delay
• Whether the planned duration of
BCWP
SPI = activity was over-optimistic
BCWS
If the value of planned work (BCWS) is more
than the value of completed work, it indicates
a delay in schedule while the vice versa

5
Schedule variance (SV):
Schedule variance determines the actual
difference in BCWP and BCWP and is
calculated as

SV = BCWP – BSWS

Example:

% Scheduled
Activity Budgeted cost % Actual Completion
Completion

A 100 2000 100

B 100 3500 90

C 100 1500 90

D 60 3000 35

E 40 1000 0

For the above data, calculate SPI and cost

variance of all activities and for the project in
totality.

&
% Actual BCWP
Activity Scheduled Budgeted SV =
Comple BCWP BCWS SPI =
Completion cost BCWS BCWP - ACWP
-tion

100% of 2000 100% of 2000 2000/2000 2000 - 2000

A 100 2000 100
= 2000 = 2000 = 1.0 =0

90% of 3500 100% of 3500 3150/3500 3150 - 3500

B 100 3500 90 = -350
= 3150 = 3500 = 0.9

90% of 1500 100% of 1500 1350/1500 1350 - 1500

C 100 1500 90
= 1350 = 1500 = 0.9 = -150

35% of 3000 60% of 3000 1050/1800 1050 - 1800

D 60 3000 35
= 1050 = 1800 = 0.58 = -750

0% of 1000 40% of 1000 0/400 0 - 400

E 40 1000 0
=0 = 400 =0 = -400

6
Total BCWP = 7550 The value of CR is considered acceptable in
Total BCWS = 9200 the range of 1.05 to 0.9. It is a general practice
7550 by project managers to plot the value of CR
SPI =
9200 on a control chart and take action when it
Cost variance = 7550 – 9200 = –1650 crosses the acceptable limits.
The work done is lagging behind the schedule
by work worth 1650.
1.05

Critical ratio
1.0
Critical Ratio (CR)
0.9
SPI and CPI individually evaluate the
performance of the project with respect to
Figure 20.1
schedule and cost respectively. However, as
we have seen, these two aspects are not
independent. Impact of the variance in one
parameter affects the performance of another
parameter.

A high SPI may lead to high CPI also because

of use of resources for a longer period. An
effort for crashing the project duration results
in higher cost and shorter schedule for some
activities.

Project managers investigate when it becomes

necessary on the basis of SPI and CPI.
However, a tool is required to monitor the
project with respect to both schedule and
cost, which provides an estimate of the
relation between the two.

Critical ratio provides a tool for monitoring

the project performance with respect to both
schedule and cost and their interrelationship.
Critical ratio is defined as the product of CPI
and SPI

CR = CPI × SPI

The ideal value of CR is 1 (If both SPI and CPI

are equal to one). However, the value of CPI
does not indicate CPI or SPI with certainty
because a high value of one parameter
influences the value of CR.

7
 % % Actual
Budgeted
Activity Scheduled Actual Cost
cost
Completion Completion Incurred

A 100 2000 100 2200

B 100 3500 90 4000

C 100 1500 90 1500

D 60 3000 35 1500

E 40 1000 0 500

Example:
For the above data collected during a
milestone of the project, calculate the critical
ratio.

Solution:

% % Actual
Budgeted
Activity Scheduled Actual Cost BCWP BCWS
cost
Completion Completion Incurred

A 100 2000 100 100% 100% of 2000 100% of 2000

= 2000 = 2000

90% of 3500 100% of 3500

B 100 3500 90 4000
= 3150 = 3500

90% of 1500 100% of 1500

C 100 1500 90 1500
= 1350 = 1500

35% of 3000 60% of 3000

D 60 3000 35 1500
= 1050 = 1800

0% of 1000 40% of 1000

E 40 1000 0 500
=0 = 400

Total ACWP = 9700 0.78 × 0.82 = 0.64

BCWP = 7550
BCWS = 9200 Example:
7550 A project was evaluated at different
CPI = = 0.78 milestones for performance. The data
9700
7550 collected at different milestones is as under.
SPI = = 0.82
9200
CR = CPI × SPI

8
 Milestone 1 2 3 4 5

Actual cost incurred 1,02,000 1,65,000 2,75,000 2,98,000 3,79,000

Work completed 20% 35% 54% 60% 75%

Work scheduled 24% 39% 52% 64% 73%

If the total budgeted cost for the project was

Rs.5,00,000, comment on the performance of
the project.

Solution:

Milestone 1 2 3 4 5

Actual cost incurred 1,02,000 1,65,000 2,75,000 2,98,000 3,79,000

Work completed 20% 35% 54% 60% 75%

Work scheduled 24% 39% 52% 64% 73%

ACWP 1,02,000 1,65,000 2,75,000 2,98,000 3,79,000

BCWP 1,00,000 1,75,000 2,70,000 3,00,000 3,75,000

BCWS 1,20,000 1,95,000 2,60,000 3,20,000 3,65,000

CPI 0.98 1.06 0.98 1.01 0.99

SPI 0.83 0.90 1.03 0.94 1.03

CR 0.81 0.95 1.01 0.95 1.02

1.05 low value of SPI indicating schedule delay also

Critical ratio

1.0 resulting in higher cost and as a result, CR is

low. However, during milestone 2, SPI is
0.9 greater than 1 and CPI is less than 1, which
could be a result of crashing to compensate
1 2 3 4 5 for previous period schedule delay. The CR
Figure 20.2 since second milestone has been maintained in
the control limits indicating a satisfactory
The graph indicates that at milestone one, the project performance.
critical ratio was below 0.9, that was due to

9
Project Management & Contract Administration

Unit-21
Case Study 4
Alpha Solutions Private “Please plan for the requirement of cash also
Limited – Planning for a with the timeline so we can arrange it when
New Office Building required.”

“Anil, you can consider the budget as “I will do that sir” Anil responded.
approved. Schedule a meeting with Mr. Arya
and prepare the complete plan for In a detailed meeting with Mr. Arya, three days
construction” Mehra told Anil while crossing later, Anil and Anuj arrived at the time
his cabin. “You can involve Anuj with you if estimates of the project activities. They also
you want.” established the interrelationship of the
activities.
“Yes sir, I would like Anuj with me. Recently he
has been showing his analytical capabilities. I The details were presented to Mehra in a
plan to raise him to senior project assistant meeting a few days later.
shortly.” Anil said.

1
 Budgeted Time estimate (in weeks)
Activity Activity Code
number cost
(in lakhs) Optimistic Most likely Pessimistic

Advertisement
A P11A 1.75 3 3 3
for architect

Selection of
B P11B 0.75 2 4 7
architect

Design by
C P12A 2.25 5 9 15
for architect

Design approval from

D P12B 2.00 6 12 22
regulatory body

Advertisement
E P22A 1.50 3 3 3
for contractor

Selection of
F P22B 0.50 2 5 8
Contractor

Specification
G P23A 1.25 4 9 14
development

Order placement
H P23B 0.55 2 3 6

Building
I P23C1 65.45 30 42 48
construction

Wood work
J P23C2-1 32.50 6 9 14

Furnishing
K P23C2-2 20.50 3 7 12

Upholstery
L P23C2-2 5.50 3 5 9

2
 Activity Predecessor
Activity Activity
number activities

A Advertisement for architect P11A -

B Selection of architect P11B A

C Design by architect P12A B

D Design approval from regulatory body P12B C

E Advertisement for contractor P22A -

F Selection of Contractor P22B E, G

G Specification development P23A D

H Order placement P23B F

I Building construction P23C1 D, F

J Wood work P23C2-1 I

K Furnishing P23C2-2 I

L Upholstery P23C2-3 J, K

“Can we complete everything in 42 weeks? 3. What is the expected time of project

And where is the plan for resource completion?
requirement?” Mehra asked.
4. Develop a PERT network for the project.
“We are developing resource plan and
responsibility plan sir, it will be ready by day 5. Prepare an S curve for the project.
after tomorrow” Anil said.

QUESTIONS
1. Prepare a weekly cash requirement for
the project. (Consider that the cost of
activities is uniformly spread over its
duration)

2. What is the probability of completing the

project in 42 weeks?

3
Project Management & Contract Administration

Unit-22
Project Monitoring
with S Curve
Learning
objectives
After studying this unit, the student will be able to:

Understand the process of project control

Use S curves to track the progress of projects

S Curve Analysis Following is the shape of a typical S curve. The

curve represents the baseline plan of the
We have just understood the concept of project. The blocks in the curve represent the
earned value analysis. The three parameters activities of the project, undertaken at a
that we came across are BCWP, ACWP, and different time during the life of the project.
BCWS. These activities are the cost elements of the
project and the cumulative cost of various
The relation between these three parameters activities at different points of time define the
can be understood graphically if all three are shape of S Curve.
plotted on the same graph. Just like the project
life cycle, these curves also assume a shape
similar to alphabet S and are known by the
name S curve. S curve provides vital
information about the project performance at
Cost

a glance. The x-axis of the curve indicates time

scale and the y-axis is for the total cost. The
three cost parameters ACWP, BCWP, and
BCWS result in three different cost curves.

Time
Figure 22.1

1
However, the cost curves for ACWP and
BCWP may not follow the same pattern. The
variation in patterns of ACWP and BCWP as
compared with the BCWS curve provides vital
information about project performance.

Let us understand the construction of curves.

S. Task Time Budgeted

Task Predecessors
No. code (in days) cost

1 Specification development A - 20

2 Process mapping B - 15

3 Developing software for C A, B 90

process components

4 Testing of software D C 5

5 Developing hardware specifications E B 5

6 Procurement of hardware F E 25

7 Integration of software components G C 30

8 Installation of software on hardware H F, G 10

9 Pilot test I H 10

10 Training of users J I 30

C
A D

B J
I
H
E F

2
 15 20 45 110 115 140 150 160 190

Figure 22.2

Mile Days Percent Total mile Cumulative

Activities Cost
stone elapsed complete stone cost cost

A 100 200
1 20 B 100 500 1000 1000
E 100 300

2 20 C 50 3000 4000 5000

F 100 1000

3 110 C 50 3000 3000 8000

4 140 D 100 500 2000 10000

G 100 1500

5 150 H 100 2000 2000 12000

6 160 I 100 1000 1000 13000

7 175 J 50 500 500 14500

8 190 J 50 500 500 15000

3
 Figure 22.3

Let us now understand the interpretation of

curves to assess the performance of the
project.

Actual cost at completion

Cost over run
Budgeted cost
at completion
BCWS
Schedule
variance
ACWP

Cost
Variance

BCWP

Schedule
slipage

Figure 22.4

The above graph shows three curves namely been completed and so BCWP is 100%, same
ACWP, BCWP, and BCWS. You can observe as BCWS. The SPI, therefore, will be 1. So, at
that the ACWP curve finishes after the BCWS project finish, SPI will be equal to 1. Note that
curve on x-axis and higher on y-axis. The SPI and schedule slip are not same. Schedule
difference between planned finish time and slip refers to the period by which project has
actual finish time is termed as schedule slip. been delayed whereas SPI is the ratio of
Observe that BCWP curve finishes after BCWP to BCWS.
BCWS on time scale but finishes at the same
point as BCWS on cost scale. It is due to the
fact that at completion, 100% of work has

4
The following can be interpreted from the ACWP at project finish = 52000
graph: Scheduled finish = 200 days
Actual finish = 210 days
Schedule slip:
Difference between the actual finish and
planned finish

Schedule variance:
Difference along cost curve between BCWP
and BCWS

Cost variance:
Difference along cost curve between BCWP
and ACWP

SPI:
Ratio of the value of BCWP to BCWS along
cost axis

CPI:
Ratio of the value of BCWP to ACWP along
cost axis

Cost overrun:
Difference between BCWP and ACWP along
cost axis at project finish

Example:
Interpret the following graph.

52000
50000

ACWP BCWS

BCWP

200 210

Figure 22.5

Observations from graph

BCWS at project finish = 50000
BCWP at project finish = 50000

5
Example:
Consider the following curves developed
during the project. Prepare a project
performance report based on weeks 20, 35,
60, and 75.

90

80

70

60

BCWS
50
ACWP

40
BCWP

30

20

10

10 15 20 25 30 35 40 45 50 55 60 65 70 75

Figure 22.6

Week 20 35 60 75

BCWP 11 28 65 71

BCWS 16 40 68 71

ACWP 30 56 72 77

CPI 0.36 0.50 0.90 0.92

SPI 0.69 0.70 0.95 1.00

CV -19 -28 -7 -6

SV -5 -12 -3 0

CR 0.25 0.35 0.86 0.92

6
Project Management & Contract Administration

Unit-23
Resource Planning
Learning
objectives
After studying this unit, the student will be able to:

Identify the resources required for the project

Estimate the requirement of resources

Apply resource levelling to smoothen the resource requirements

Resource Planning and In this unit, we will try to answer the above
Allocation questions faced by project managers.

Cost and schedule are two major objectives The resources can be
of projects. However, both these objectives • Human resource
are influenced by the availability of resources • Machinery
at the right time and right place. One of the • Equipment
concerns of the project manager is to ensure • Materials
effective utilization of the resources in order • Skills
to achieve the project objectives.
Resources maybe available in-house or maybe
The project manager is faced with questions outsourced. The uncertainty about resource
like availability is higher if it is outsourced.

• What resources are required?

What resources would be
required?
• When are the resources required?

Availability of right resources at the right time

• Do we have enough resources?
is crucial to the success of the projects.
Planning for resources starts with the
• Is the load on resources uniform?
development of work breakdown structure.
Resources are identified for each work
• Whether the project can be completed
package separately. In fact, it becomes the
in scheduled time with these resources?
basis of development of budget also by

1
identifying the cost implications of resources
required for various work packages.

The outcome of resource planning is a

resource matrix which defines the resources
required for the project.

Let us consider a product development

project undertaken by the R&D department
of a manufacturing company involved in
manufacturing engineering assembly.

iThe project breakdown structure is as below

Developing a new joint

assembly for hydraulic
cranes

Specification Prototype
development development
(A) (B)

Development of
Designing the Casting Moulding
engineering drawing
assembly (A2) (B1) (B2)
(A1)

Computer simulation Heat Treatment Finishing

of design (A3) (B3) (B4)

Inspection
Prototype testing (B5)
(A)

Trial of prototype Trial result analysis

(C1) (C2)

Figure 23.1

The resource requirements are identified for responsible for the work packages. The
individual work package by the managers resource matrix may be in the below shape.

2
 Resource Requirement for work packages
Code Work package
Manpower Machinery Equipment Material

Development of
CAD-1
A1 engineering Draughtsman-2
Digitizer-1
drawing

Design engineer-1
Designing Hydraulic CAD-1
A2 Civil engineer-1
assembly crane Digitizer-1
Draughtsman-1

Systems
engineer-1 Simulation
A3 Simulation
Design software
engineer-1

Mechanical
engineer-1 Casting Cast iron
B1 Casting
Casting Machine -3KG
operator-2

Mechanical
engineer-1 Moulding
B2 Moulding Machine
Moulding
operator-2

Mechanical
Heat treatment engineer-1 Heat treatment
B3
Heat treatment chamber
operator-1

Cast die Finishing

B4 Finishing
machine equipment

Inspection Mould test

B5 Inspection
engineer equipment

Design engineer
Hydraulic
C1 Prototype trial Hydraulic crane
crane
operator

Design engineer Analysis software

C2 Trial analysis Mechanical with necessary
engineer hardware

The resource requirements for various work Similarly, the addition of requirements for
packages can be converted to the resource level 1 activity provides the resource
requirement for level 1 activity. requirements for the project.

3
 Resource Requirement for Level 1 Activities

Code Work package

Manpower Machinery Equipment Material

Draughtsman-2 CAD-1
Specification Design engineer-1 Digitizer-1
A Hydraulic crane
development Civil engineer-1 Simulation
System engineer-1 software

Mechanical
engineer-1
Casting operator-2 Casting machine Finishing
Prototype Moulding operator-2 Moulding machine equipment Cast iron
B development Heat treatment
Heat treatment Mould test -3KG
operator-1 chamber equipment
Cast die mechanic
Inspection engineer

Design engineer Analysis

Prototype Mechanical engineer software with
C Hydraulic crane
testing Hydraulic crane necessary
operator hardware

Resource Requirement for Project

Project

Manpower Machinery Equipment Material

Development of a Draughtsman-2 Hydraulic crane CAD-1 Cast iron

new joint assembly Design engineer-1 Casting Machine Digitizer-1 -3KG
for hydraulic crane Civil engineer-1 Moulding machine Simulation software
Systems engineer-1 Heat treatment Finishing
Mechanical chamber equipment
engineer-1 Mould test
Casting Operator-2 equipment
Moulding opera- Analysis software
tor-2 with necessary
Heat treatment hardware
operator-1
Cast die mechanic
Inspection engineer
Hydraulic crane
operator

4
When are the Resources
Required?
However, the above table does not show the
duration for which the resources are required
or the period when they are required. To
assess it, information needs to be compiled for
the time taken by activities and the start and
finish of the activities.

Time Estimate Precedence

Code Activity (Days) Requirements

A1 Development of engineering drawing 15 -

A2 Designing assembly 25 -

A3 Simulation 3 A1, A2

B1 Casting 2 A2

B2 Moulding 4 B1

B3 Heat treatment 2 B2

5
Project Management & Contract Administration

Unit-24
Resource Loading
and Leveling
Learning Types of Resource
Constraints
objectives
• People
After studying this unit, the student will be • Materials
able to: • Equipment
• Working Capital
Identify the resources required for the
project Projects may be

Estimate the requirement of resources • Time-constrained project must be

finished by a certain time.
Apply resource levelling to smoothen the
resource requirements • Resource-constrained project must be
finished without exceeding some specific
level of resource usage.

Time-constrained projects

• Focusses on resource utilization.

• Demand for resources may be erratic.
• Demand for resources is balanced by
resource loading and resource leveling
techniques.

Resource Loading

• The amount of individual resources an

existing schedule requires during specific
time periods.

• Gives general understanding of demands

a project makes.

Activity Time Precedence Resource

requirement

A 2 - 2
B 3 - 2

C 5 - 4
 A (2)
C (5)
Project network

B (3)

B
Gantt Chart
C

Figure 24.1

Day 1 2 3 4
A 2 2 - -
B 2 2 2 -
C 4 4 4 4
Resource requirement 8 8 6 4

5
C
4
B
3
A
2

Day 1 Day 2 Day 3 Day 4 Day 5

Figure 24.2

2
Resource Leveling

Resource leveling aims to minimize the period

by period variations in resource loading by
shifting tasks within their slack allowances.

Day 1 2 3 4 4

A 2 2 - - -

B 2 2 2 - -

C 4 4 4 4 4
Resource 8 8 6 4 4
requirement

10

C
4
B

A
2

Day 1 Day 2 Day 3 Day 4 Day 5

A (2)

C (5)
Project network

B (3)

3
 A

B
Gantt Chart
C

Figure 24.3

Day 1 2 3 4 5
A 2 2 - - -
B 2 2 2 2 2
C 4 4 4 4 4
Resource requirement 8 8 6 6 6

5
C
4
B
3
A
2

Day 1 Day 2 Day 3 Day 4 Day 5

Figure 24.4

4
Project Management & Contract Administration

Unit-25
Project Termination
Learning
objectives
After studying this unit, the student will be able to:

Understand the types of project termination

Understand the project termination methods

Identify issues in project termination

A project is said to be terminated • All activity on the project substance

when: ceases.
• Work on the substance of the project has • Property, equipment, and materials of
ceased (Normal or failed project). the project are disbursed.
• Work has slowed down to the point that • Project final report is prepared.
further progress is not possible
(premature). Termination by addition:
• The project has been indefinitely delayed • In case of projects for use in the parent
(Perpetual). organization.
• Resources have been deployed to other • Institutionalizing the project as a formal
projects (Changed priority). part of the parent organization.
• For some time lives in protected status.
Ways to close a project: • Project assets are transferred from project
• Extinction • Addition to the newly created division.
• Integration • Starvation
Termination by integration:
• The property of the project and
Termination by extinction:
personnel are distributed among the
• The project is stopped because it has been
existing elements of the organization.
successful and achieved its objectives.
• The output becomes a standard part of
• Output handed over to client.
the operating system.
OR
Termination by integration:
• The project has been stopped because it
• Slow starvation by a budget decrement.
has been unsuccessful and has been
• Sometimes budget decrements are used
superseded.
to mask project termination.

1
The Termination Process

Step 1: Decision
• Based on the degree to which the project
meets goals and objectives set for it.
• Factor scoring or weighted factor scoring
or Delphi or a combination may be used
for making a decision.

Information Information Information

system system system
finance marketing production

Information Information Information

system system system
project internal external
environment environment
Criteria
database
Global database

Delphi
database Scoring
model

Termination
rule set

Continue No Termination Uncertain Sensitivity

project decision analysis

Yes

Terminate
project

Figure 25.1

Step 2: Implementation • Including the final project report.

• Ensure completion of work including tasks • Clear for final billings and invoices.
performed by sub-contractors. • Redistribute resources including
• Notify the client of project completion; personnel.
Client must acknowledge acceptance of • Ascertain product support requirements.
the project. • Oversee the closing of the project book.
• Ensure that documentation is complete.

2
Project Management & Contract Administration

Unit-26
Case Study 5
 Alpha Solutions Private
Limited – Planning Under
Time and Resource
Constraint

The managing director of Alpha solutions, Mr.

Mehra, was pacing in his cabin with a grim face
and Anil was sitting uncomfortably in a chair.
Anuj was standing near the door in deep
thoughts.

“Why didn’t you anticipate it before accepting

the contract?” Mehra blurted out.

It was only a month back when an order was

received from a reputed new client for
software development. It was an opportunity
for longterm association. Anil had prepared
the list of activities and the Gantt chart for the
project. The Gantt chart indicated that the
project would take 15 weeks, as specifically
desired by the customer.

Activity Time (in weeks) Predecessors

A 2 -
B 4 A
C 3 A
D 3 -
E 6 B
F 8 C
G 2 D, E, F

D G

E
A B

F
C

Figure 26.1

“The only resource we require is only one

specialist for this type of software, and that
should pose no problem.” Anil had said.

When the project was being planned, Anil

came through the problem. All the activities

1
required the same specialist, and he could
work on only two activities at a time. There
are periods when three activities are working
together, and that means some activities will
have to wait. The project will take 17 weeks in
place of 15, and the customer will be lost
forever.

Anil had gone to Mehra with this new

discovery to find the possibility of requesting
customer for extending the time limit.

“Can we hire an additional specialist?” Mehra

asked. In a dim voice, Anil said, “I am afraid,
we cannot find one at this moment.”

“I really don’t know how to face the

customer,” Mehra said with a tense face.

At this point, Anuj said “Sir, I think we can

deliver the project within schedule even with
one specialist.”

“HOW,” Mehra and Anil both said

simultaneously turning their faces toward the
door where Anuj was standing.

Anuj took a piece of paper from the table and

explained his plan. Anil looked unbelievingly at
the plan, and Mehra suddenly relaxed. “Anuj
you really deserve a pat on the shoulder,
“Mehra said smilingly patting his shoulder.

QUESTIONS
1. Prepare a resource load table of the
project on the basis of given information.

2. Can the project really be done in 15 days

with one specialist?

3. Prepare a plan for allocation of specialist

to different activities to complete the
project in 15 days and plot your plan on a
Gantt chart. (Assume that activities can
be split).