Project Management

CEE 501A

Course Teacher
Dr. Muhammad Saiful Islam
Associate Professor
Dept. of CEE, SUST

1
 About Me
Ph.D. (2019), Construction and Project Management, Australia

M.Sc. (2014), Construction Engineering and Management, Saudi

Arabia

B.Sc. (1998-2003/2005), Civil and Environmental Engineering, SUST

2
 Unit Aim and Learning Outcomes
Aim
• To provide knowledge and develop skills of understanding basic project
management principles and practices.

Learning outcomes
• Apply project management tools and techniques for successful project completion
• Develop skills to project time, cost, quality, and safety (KPIs) management
• Understanding project risks and uncertainties and their management strategies
• Introduce with the PMBOK and the project management manual

3
Approaches to Teaching and Learning

• Combines theory with practice

• Normally involves lectures and tutorials
• Interactive class discussions, case studies, reading materials,
• Assignment and report submissions, and
• Mid-term and final examination.

4
 Schedule & Content
Lecture week Date Content
Week 1 18/07/19 Introduction on Project Management
Week 2 25/07/19 Project cost management
Week 3 01/08/19 Project cost management
Week 4 08/08/19 Public holiday
Week 5 15/08/19 Public holiday
Week 6 22/08/19 Project schedule management
Week 7 29/08/19 Project schedule management
Week 8 05/09/19 Term test and mid-submission
Week 9 12/09/19 Project quality management
Week 10 19/09/19 Project quality management
Week 11 26/09/19 Project safety management
Week 12 03/10/19 Public holiday
Week 13 10/10/19 Public holiday
Week 14 17/10/19 Contract management (project delivery systems)
Week 15 24/10/19 Project risk management & Stakeholder
management
Week 16 31/10/19 Final submission & presentation, and Review class

5
 Assessment
The total (=100) marks are distributed as follows:
1. Class attendance = 10%
2. Project submission (group) = 10%
3. Term test = 10%
4. Final exam = 70%

6
 Making Group and Rules of working in a group

1. Please make your group having 5/7 students in each group

2. Rules to work in a group
• Everybody should have a significant contribution working in a group
• There will be a group leader
• Specific task must be divided among the group members, and you are fully
responsible for your task
• Single submission for a group
• Power point presentation of your project

7
 Academic honesty/integrity

At SUST, students and staff are expected to be honest, respectful, fair,

trustworthy, and act in a responsible manner when undertaking academic
activities.

What is academic dishonesty for students?

Actions or practices by students which defeat the purpose of assessment are
regarded as failure to maintain academic integrity. These actions and
practices include:
• Representing another person's ideas or work as one's own
• Resubmitting one's own work for another assessment
• Cheating in examinations
• Giving or providing for sale one's own work to someone else

8
 Academic honesty/integrity

What is academic dishonesty for students?-------

• Misrepresenting, falsifying or fabricating data for an assessment

• Purchasing or obtaining assessment materials from someone else
• Colluding with others to produce an assignment and then submitting it as individual
work
• You cannot also reuse the same material/content/report from one unit to another
• Be aware that your teacher can easily identify unethical issues!
• We have had a number of academic misconducts of serious nature in different
courses/units at SUST

9
 Reference books/research papers

1. Project Management Body of Knowledge (PMBOK)-PMI

2. Kenzer, H. (2013), Project management: a systems approach to planning,
scheduling, and controlling. John Wiley and Sons. ISBN-13:978-1-118-41855
3. Lewis, J.P. (2005), Project planning, scheduling, and control, 4th Ed., McGraw-Hill
Pub. ISBN-13:978-0-07-146037-8
4. Gitlow, Howard S. “Quality Management” Third Edition, McGrawHill
5. Hinze, J. W., Construction Planning & Scheduling, Essex, UK: Prentice, 3d Ed.,
2008.
6. BNBC – construction safety code
7. Some relevant research articles and supplied reading materials

I acknowledge my PhD supervisor, Dr. Madhav Nepal, QUT, Australia, some

of my MSc course teachers and internet sources to use some of their slides
partially or fully for this academic purpose.

10
 Introduction to Project Management
Project??
A project is a temporary endeavour undertaken to create a unique
product or service.
It is
• performed by people
• constrained by limited resources
• planned, executed and controlled

11
 Introduction to Project Management
A project is temporary ? As it has:

➢ a defined beginning and end in time, and

➢ defined scope and resources.

A project is unique in that:

➢ It is not a routine operation, but a specific set of
operations designed to accomplish a singular goal.
➢ A project team often includes people who don’t usually
work together – sometimes from different organizations
and across multiple geographies.

12
 Introduction to Project Management
A Project is (cont..):
Progressive elaboration
➢ A project occurs step by step to define the product or
service, in a so called “progressive elaboration” process.
➢ for instance, the development of a chemical processing
plant begins with the process engineering to define the
characteristics of the process, and ends with the final
assembly.

13
 Introduction to Project Management
Examples of projects:
The development of software for an improved business
process, the construction of a building or bridge, the relief
effort after a natural disaster, the expansion of sales into a
new geographic market — all are projects.

And all must be expertly managed to deliver the on-time, on-

budget results, learning and integration that organizations
need.

14
 Project Life-cycle
Cost and
Intermediate
Staffing
Phases (one
level
or more) Final
Initial
Phase Phase

Time
Start Finish

Milestones :
• defined state of the project
• decision point

15
Project Management: Definition and scope
Project management, then, is the application of knowledge, skills,
tools, and techniques to project activities to meet the project
requirements.

It has always been practiced informally, but began to emerge as a

distinct profession in the mid-20th century.

Ref. PMI’s A Guide to the Project Management Body of Knowledge

(PMBOK® Guide). 16
 Importance of Project Management

The Sydney Opera House

The Manhattan Project was a research Project period: 1959 to 1973
and development undertaking during Total cost = AUD 102 m
World War II that produced the first
nuclear weapons.
Project period: 1942-1946
Ashugonj Power
Plant project

17
 Why Project Management- 10 reasons:
1. Defines a plan and organizes chaos – projects are naturally
chaotic. The primary business function of project management is
organizing and planning projects to cultivated this chaos. A clear
path mapped out from start to finish ensures the outcome meets
the goals of your project.

2. Establishes a schedule and plan – Without a schedule, a project

has a higher probability of delays and cost overruns. A sound
schedule is key to a successful project.

3. Enforces and encourages teamwork – A project brings people

together to share ideas and provide inspiration. Collaboration is
the cornerstone to effective project planning and management.

18
 Why Project Management- 10 reasons:
4. Maximizes resources – Resources, whether financial or human,
are expensive. By enforcing project management disciplines such
as project tracking and risk management, all resources are used
efficiently and economically.

5. Manages integration – Projects don’t happen in a vacuum. They

need to be integrated with business processes, systems and
organizations.
You can’t build a sales system that doesn’t integrate with your
sales process and sales organization. It wouldn’t add much value.
Integration is often key to project value.
Project management identifies and manages integration.

19
 Why Project Management- 10 reasons:
6. Controls cost – some projects can cost a significant amount of
money so on budget performance is essential. Using project
management strategies greatly reduces the risk of budget
overruns.

7. Manages change – projects always happen in an environment in

which nothing is constant except change. Managing change is a
complex and daunting task. It is not optional. Project management
manages change.

8. Managing quality – Quality is the value of what you produce.

Project management identifies, manages and controls quality. This
results in a high quality product or service and a happy client.

20
 Why Project Management- 10 reasons:
9. Retain and use knowledge – projects generate knowledge or at
least they should. Knowledge represents a significant asset for
most businesses. Left unmanaged knowledge tends to quickly
fade. Project management ensures that knowledge is captured and
managed.

10. Learning from failure – projects do fail. When they do, it is

important to learn from the process. Project management ensures
that lessons are learned from project success and failure.

Failure in terms of cost (i.e. cost overrun), time (delay), and quality,
the three basic constraints.

21
Project management broadly covered --
• project,
• program, and
• portfolio management.

And more companies are clearly seeing the payoff from investing
time, money and resources to build organizational project
management expertise to: Why will
✓ lower costs, you hire a
✓ greater efficiencies, PM??
✓ improved customer and stakeholder satisfaction, and
✓ greater competitive advantage.

Ref. PMI’s A Guide to the Project Management Body of Knowledge

(PMBOK® Guide). 22
 Program Management
Program- is defined as a group of related projects, subprograms,
and program activities managed in a coordinated way to obtain
benefits from managing them.
Dhaka

Sylhet

Program management- is the application of knowledge, skills, tools and

techniques to a program in order to meet the program requirements and
to obtain benefits and control by managing project individually.

23
Portfolio Management
A portfolio- refers to projects, programs, subportfolios, and
operation managed as a group to achieve strategic objectives.

Portfolio Management- refers to centralize management of one or

more portfolios to achieve strategic objectives.

Portfolio management focuses on ensuring that projects and

programs are reviewed to prioritize resource allocation, and that
the management of the portfolio is consistent with aligned to
organizational strategies.

24
Portfolio Management

25
Portfolio, Program and Project

26
Absence of proper or no project management

Failure to achieve the project goals in terms of cost (i.e. cost

overrun), time (delay), and quality, the three basic
constraints. In addition:
Loss/waste of resources
Dissatisfaction Non-phisical

Loss of reputation

27
Project management knowledge draws on
ten areas:
Integration, Scope, Time, Cost, Quality, Procurement, Human
resources, Communications (information management), Risk
management, and Stakeholder management.

All management is concerned with these, of course. But

project management brings a unique focus shaped by the
goals, resources and schedule of each project.

Ref. PMI’s A Guide to the Project Management Body of Knowledge

(PMBOK® Guide). 28
5-phases of a project life-cycle

29
 Project Charter

• The PMBOK® Guide, 3dEdition defines a project charter as “a document issued

by the project initiator or sponsor that formally authorizes the existence of
a project, and provides the project manager with the authority to apply
organizational resources to project activities.” (PMI, 2004, 368)

• A Project Charter is a document that, while describing the purpose of a

project and its scope, it legally authorizes the beginning of the project.

• The key word in this definition is “authority.” It authorizes both the project and
the project manager.

Kick-off
meeting

30
 Project Charter

The PMBOK® Guide lists specific information that the charter should provide,
either directly or by reference, including:

✓ Requirements Example of a Project

✓ Business needs Charter???
✓ Summary schedule
✓ Assumptions and constraints
✓ Business case, including return on investment

Project Charter clarifies general specifications, the purpose of the project,

the key stakeholders, and the possible outcomes.
Nowadays, PC is an integral part of the project management due to its
importance as a legally binding document.

To learn more about Project Charter, visit: https://tallyfy.com/project-charter/ 31

Project Management
CEE 501A

Lecture week 2
Project Scope Definition and Management

Course Teacher
Dr. Muhammad Saiful Islam
Associate Professor
Dept. of CEE, SUST
1
 Lecture Content

• Scope definition
• Scope management steps
• WBS details

2
Triple Constraints and Trade-off

3
Scope definition?

4
 Project scope management
(PMI chap 5)
Project Scope Management.

✓ A subset of project management that includes the processes required

to ensure that the project includes all of the work required, and only
the work required to complete the project successfully.

✓ It consists of collecting the requirements, scope definition (WBS),

scope verification, and scope change control.

5
Project scope definition and management steps

6
Project scope definition and management steps

Need identification

7
Project scope definition and management steps

8
Define Scope- Statement of Work (SoW)
✓ Description of the project, the purpose of the project, with clear actionable
and measurable project objective/s

✓ Project budget/cost estimates (detail the forecasted budget and all sources of
funding)

✓ Project deliverables (product, service, results, reports, etc.)

✓ Project requirements, generally two types- Functional and technical

requirements or non-functional

o Requirements describe what the project will do and functionality it will

provide and how it will be expected to do the things.

o Functional requirements – high level business functions, needs or

capabilities that must be met to complete the project

o Technical requirements (the performance criteria)

✓ Major milestones
9
Define Scope- Statement of Work (SoW)-cont..
✓ Acceptance criteria

o Defines unambiguous and measurable metrics, process and conditions

that must be met for accepting completed products, services, or results

✓ Project constraints

o Constraints are known project situations or events, any known project

limitations or constraints such as budget, time, schedule milestones,
contracts, environment, regulation, etc. that are internal or external to
the project and that may effect the performance of a project, for which
the project has no control over.

✓ Specific project assumptions (things or conditions that have to be assumed)

✓ Project exclusions/boundaries (essential to know what is not included)

✓ Project risks (state the high level known risks)

10
11
Project scope definition and management steps

12
13
 WBS?
✓ Support effective project management

o Resource requirements and allocation

o Reporting and analysing of progress and status data

o Integrating and assessing schedule and cost performance

o Assessing responsibilities

✓ Representation of WBS

o Can be presented in a variety of ways

o Graphical (common practice), textual (outline view), tabular view

14
Graphical
view

Source: PMI (2006). Practice standard for work breakdown structures (2nd ed.) 15
Outline view

17
18
CRTC-CEE
project

19
WBS Dictionary

✓ WBS dictionary is a key accompanying document of the WBS

✓ It defines, details and clarifies the various elements of the WBS and will help
to develop the detailed schedule

✓ Ensures that each element is accurately articulated and can be communicated

to anyone referencing the WBS

20
21
Khadim Project

22
23
Org. WBS

24
25
WBS development: the 100% rule

26
27
Project scope definition and management steps

28
Project scope definition and management steps

29
 Recall your memory

Some key words

❖ Project definition Start your project by:

✓ Definition
❖ Project charter ✓ Project charter
❖ Project phases ✓ Scope identification
❖ Triple constraints ✓ WBS
❖ WBS

Thanks for your patience

30
Project Management
CEE 501A
Lecture week 3

Course Teacher
Dr. Muhammad Saiful Islam
Associate Professor
Dept. of CEE, SUST

1
Project Cost Management

Safety Moment??
Did anyone cycle to
university today?

2
 Project Cost Management

“Cost control during the life of a project is

probably of greater importance than the
control of any other resource. A cost overrun
will result in, at best, a reduction in profit, or
at worst bankruptcy.”
(Lockyer & Gordon)

3
 Project Cost Management

• References (PWD rate/schedule)

• Cost Plans
o A – Master Planning
o B – Feasibility Study
o C1 – Schematic Design
o C2 – Design Development
o D – Contract Documentation
• Contingency Management
• Variations
• Value Engineering & Value Management
• Earned Value Analysis

4
 Project Cost Management

The practical basics of cost

management:
Profits are revenues minus expenses.
Cash flow analysis determines the estimated annual costs and
benefits for a project and the resulting annual cash flow.

5
 Project Cost Management

Life Cycle Costing –

• This includes cost of resources needed to complete schedule
activities along with effect of cost decisions on using,
maintaining & supporting the product, service or result of the
project.
• Life cycle costing together with value engineering can
improve decision making and is used to reduce cost and
execution time.

6
 Project Cost Management

Why do we talk about an

estimate and not an actual?

7
 Project Cost Management

In a practical sense, what is cost planning?

• Also known as elemental Cost Planning.
• Relies upon the adoption of a Standard Form of Cost
Analysis for buildings which allows costs to be compared
on a common format and forms the basis of the
benchmarking analysis central to the concept of Elemental
Cost Plans.
• Can be divided into several estimates.
• Cost planning solves two problems: one is “how much to
build?”, the other one is “how to spend money to achieve
the best result?”

8
 Project Cost Management

In a practical sense, what is cost planning?

• In regard to property development, cost planning is applied as ‘designing
to a cost’ or ‘target cost planning’ since a cost limit is fixed for the scheme
and the architect must then prepare a design not to exceed this cost.
• Cost planning is a procedure from the concept to the practical completion
on the construction site, and involves several staged estimates.

• Depends on the type of project and the level of design detail available.

• Typical estimate for building construction

o Conceptual estimate – up to (+30%/-20%)
o Preliminary estimate
o Engineer’s estimate (+3%)
o Bid estimate

9
 Project Cost Management

Cost Management Plan

• Created as part of the Develop Project Management Plan process, it
includes:
o Precision levels ($100, $1000 etc)
o Units of Measure (Staff hours/days/lump sum)
o Organizational Procedure Links (Control Account, code or account
number directly linked accounting system)
o Control thresholds (Agreed amount of variation allowed)
o Earned Value rules (1.Computation Formula, Earned Value Credits
and, WBS Level) – if applicable
o Reporting Formats
o Process descriptions (Each of the three cost management processes
are documented.)

10
Project Cost Management

11
 Project Cost Management

According to PMBOK:
7.1 - Estimate Costs, developing an approximation of the monetary
resources needed to complete the project activities.
7.2 – Determine Budget, aggregating the estimate costs of individual
activities or work package to establish and authorised cost baseline.
7.3 – Control Costs, monitoring the status of the project to update the
project budget and manage changes to the cost baseline.

12
 Project Cost Management

According to PMBOK, Cost Management is:

the process of developing an approximation of the monetary resources needed
to complete project activities

• Should be refined during the course of the project to reflect additional detail
as it becomes available.
• Costs are estimated for all resources that will be charged to the project. This
includes, but is not limited to, labour, materials, equipment, services, and
facilities, as well as special categories such as an inflation allowance or
contingency costs.
• A cost estimate is a quantitative assessment of the likely costs for resources
required to complete the activity

13
Project Cost Management

14
 Project Cost Management

Who manages costs, and who is

responsible for costs? Is there a
difference in these roles??
Role of the Quantity Surveyor or role of
the PM?

15
 Project Cost Management

Accuracy of estimate depends on:

• Scope detail
• Time (time invested and project stage)
• Level of design development
• Market

16
 Project Cost Management

Estimating Methodologies:
• Job Costing (Labour, Plant, & Materials)
• Factoring (%)
• Inflation
• Economies of Scale (non linear)
• Unit Rates (PWD work schedule)
• Day Work (Hourly / Daily Rates)

17
 Project Cost Management

Contingencies:
Fixed %
Risk & Opportunities (Monte Carlo )
Client & PM Contingency
Incl / Exclude accuracy

18
 Project Cost Management

A number of contingency factors should be

considered, such as:
• Planning: covers the risk of not being able to design the
spatial relations and achieve the desired functional area.
This would usually be reduced to zero with the acceptance
of client representative or cost project 1(?)
• Design: covers the risk of the Quantity Surveyor not
adequately foreseeing the correct design or under
estimating the complexity of the design. This would usually
reduce to zero at Tender Documentation Stage

19
 Project Cost Management

A number of contingency factors should be

considered, such as (cont’d):
• Contract: covers the risks of variations and unforeseen
items encountered during construction
• Project: may be included to cover delays, inflation, major
changes, fee negotiations etc
• These items should be captured in the relevant Cost Plan,
and with discretion reported to the relevant Project Team
members and Client representatives

20
 Project Cost Management

So, what is this cost management all about??

• Process involved in estimating, budgeting and controlling
costs to complete the project with the approved budget
o Estimate costs
o Determine budget
o Control costs
• Cost Estimating is the key to good & successful cost control

22
 Project Cost Management

Cost Estimating
Cost estimating is the process of developing an approximate
value of the funding needed to complete all activities associated
with the delivery of the project.
This section should explain the procedure for achieving that cost
estimate and provide some details on the accuracy of the
estimate along with what has informed the estimate, units of
measure, inclusions, exclusions and risks.

23
 Project Cost Management

Drawings:
Which should at least include plans and elevations in sketch
form. Then you as the estimator can get an idea about
quantitative data about physical product. That is useful to
allocate money for elements.

Materials/Quality:
Clients requirement of the Quality of the project.
Depend on quality requirements and allows you as the
estimator to forecast costs for the materials for the overall
project.
Then you can allocate money from the cost plan.

24
 Project Cost Management

Suppliers and Sub contractors:

To estimate cost for the project, these details are needed,
particularly if there are specific items such as elevator systems
or other very unique, high cost items.

Contractual information:
Such as the method of securing tenders, bonds and guarantees,
contract period etc this allowing the allocation of funds.
If, available, a comparable cost analysis from a previous
project:
This is important information.
Having this type of information enables you as the estimator to
review and determine a suitable method for preparing the cost
plan and subsequently forecasting for some budget for items.
25
 Project Cost Management

Schedule of work packages:

The schedule is a critical factor in preparing the cash flow for
the project and is therefore instrumental in developing the cost
plan.
Scope of current project:
All relevant reference documents such as previous BOQ’s,
Contract Documents, Schedules and current findings like cost
indices etc. should be reviewed in conjunction with proposed
project scope.
Accuracy of data:
The information being used should be reliable thus establishing
a solid basis for the cost plan.

26
 Project Cost Management

Market condition:
Reference materials should be considered in regard to
comparable markets / economic climates and project types.

27
 Project Cost Management

Market condition:
Reference materials should be considered in regard to
comparable markets / economic climates and project types.

28
Project Cost Management

29
Project Cost Management

30
 Project Cost Management

Other Factors
Other factors that may affect cost include: market conditions,
locality, climate, building criteria, site, construction time, existing
buildings, procurement methods, codes and specification,
currency exchange fluctuation.

31
 Project Cost Management

PMBOK 7.1 – Estimate Costs

The process of developing an approximation of the monetary
resources needed to complete project activities

32
 Project Cost Management

PMBOK 7.1 – Estimate Costs

• Identification and consideration of costing alternatives
• Cost trade‐offs and risks, make versus buy, lease, sharing the
resources
• Expressed in units of some currency, staff hours, staff days
• Iterative process to increase accuracy
• Rough Order of Magnitude (ROM) [±50%] at the beginning,
narrow down to ±10%
• Include labour, materials, equipment, services, facilities,
inflation, contingency costs

33
 Project Cost Management

PMBOK 7.1 – Estimate Costs - Tools

Analogous estimating – also called top-down estimating, means using the
actual cost of a previous, similar project. It is given by management as an
expectation. It is less costly and less precise.
Parametric modelling – mathematical model to predict project costs – per
square foot of living space. It uses statistical relationship between historical
data and other variables to calculate cost estimate. It can produce higher
levels of accuracy depending on sophistication, resource quantity and cost
data.
Bottom-up estimating – The cost of individual activities or work packages
rolled up to get the estimate for whole component. It is more accurate and
costly.

34
 Project Cost Management

PMBOK 7.1 – Estimate Costs - Tools

Reserve Analysis – Contingency Reserve are estimated to be used at
the discretion of the project manger to deal with anticipated but not
certain events, called “known unknowns”.
Cost of Quality: cost of quality initiative in an organization like training,
audits etc.
Cost of poor quality: warranty cost, claims
Cost Calculations – Costs are more practical to calculate at one level
higher (Control Account) than work package level

35
 Project Cost Management

Other sources of information for cost estimates

• Records of previous projects
• Suppliers’ catalogues
• Quotations from suppliers and contractors
• Your organisation’s standard costs
• Trade and government cost indices
• Trade Magazines
• Professional journals and publications
• Reference and text books
• Industry standards
• Experience

36
 Project Cost Management

Types of Costs
Variable Costs: Changes with the amount of production / work (eg: material,
supplies & wages)
Fixed Costs: Does not change with production or project changes (eg: rental,
site establishment)
Direct Costs: Directly attributable to the work of the project (eg: team travel,
wages)
Indirect Costs: Overhead of costs incurred for benefit of more than one project
(eg: taxes, fringe benefits)

37
 Project Cost Management

Outputs of Cost Estimating

Activity cost estimates
o Summary or detail
o Labour, materials, equipment, services,
facilities, IT, inflation, contingency reserve
Basis of estimates
o Documentation of the basis of the estimate
o Documentation of assumption made
o Documentation of known constraints
o Indication of uncertainty (percentage)
o Indication of confidence level of final estimate

38
 Project Cost Management

Estimating is like witchcraft: it

involves foretelling situations
about which little is known
(Brian Fine)

39
 Project Cost Management

Cost Estimate
Cost Management Plan should include a Cost Estimate, the WBS
should form the basis of this Cost Estimate (cost all activities
and works packages associated with levels 1 – 3).

40
Project Cost Management

41
Project Cost Management

42
 Project Cost Management
Cost Estimate Allocated cost
Construction (WBS Level 2)
Site Preparation, Demolition, Repairs etc (WBS Level 3) $??
Earthworks (m2 rate) (WBS Level 3) $??
Building Works (m2 rate) (WBS Level 3) $
Finishing (m2 rate) (WBS Level 3) $
External Site Works (m2 rate) (WBS Level 3) $
SUB - TOTAL $
Preliminaries, Management Fees & Overheads (assume %) $
Client Costs (incl descriptions) $
Project Contingency (assume %) $
TOTAL $

Assignment: submit at the next class

43
 Project Cost Management

Exclusions List if applicable

Form of Procurement (Lump Sum, D&C,
List if known
MC etc)
Project Schedule (Weeks or Months) List
Site Surveys, Site Conditions, Project
List if applicable
Specific Issues
Drawings / Documents used to develop
List
Cost Estimate

44
 Project Cost Management

Estimates through Project Lifecycle

Cost Plan A (based on brief - Master Plan Study)
Cost Plan B (based on outline proposals - Feasibility
Study)
Cost Plan C1 (based on sketch design - Schematic
Design)
Cost Plan C2 (based on design - Design
Development)
Cost Plan D (based on documentation - Contract
Documentation)

45
 Project Cost Management

Cost Plans: A – Master Planning

Intended to establish an initial budget for client consideration,
or to confirm client’s budget is feasible.
Based on broad scope of works and known site specific
issues (incl. property acquisition).
Developed based on floor area schedules
Should be informed by data collected from other similar
projects, surveys of existing conditions and project specific
issues such as the suitability, age and condition of existing
facilities, including upgrade of site services, asbestos
removal, topography, heritage issues and so on.

46
 Project Cost Management

Cost Plans: B – Feasibility Study

Preliminary Cost Data may include details of:
Type of Foundation
Structural Frame System
External Enclosure
Materials
Roof System
Type of Internal Subdivision
General Quality of Finishes
Extent of Built-in Fittings
Electrical and Mechanical Services
Special Site Conditions
Specific Exclusions
47
 Project Cost Management

Cost Plans: C1 – Schematic Design

Ensures overall design is most effectives, intends to set the
final budget.
C1 is an advancement on Cost Plan B, with additional detail
and refinement due to scope development and
understanding of brief
Cost data should be prepared by measuring from drawings
and pricing the resultant quantities, and should be prepared
in sub-elemental detail.
In conjunction with C1, the scope of works would be
approved as would any recurrent operating costs.
Following client approval, is known as “Agreed Cost Plan”.

48
 Project Cost Management

Cost Plans: C2 – Design Development

Cost Plan C2 is based on more detailed data provided by the
Consultant Team. It is undertaken to confirm Cost Plan C1 and,
where necessary, a proactive tool in maintaining or identifying
cost savings.
Cost Planning for C2 is similar to that for Cost Plan C1. Where a
variance occurs between C2 and C1, a comprehensive
reconciliation statement is required together with an action plan
to reduce costs if the project is over budget.

49
 Project Cost Management

It is good practice to prepare separate

budgets for:
All specialist items (for example hospital
medical equipment)
Civil and site work
Infrastructure alterations including
alterations and connections to existing
structures

50
 Project Cost Management

Cost plans should include a calculation of:

Professional fees
Cost escalation
Contingencies and prolongation for the design and
construction components
Allowances made where hazardous material (e.g. asbestos)
removal is required and to cover removal associated with or
prior to any demolition of existing structures etc
Any special circumstances included should be identified and
justified

51
 Project Cost Management

Pre Tender Cost

The Quantity Surveyor is to review final contract documentation
and warrant that the estimates for the Project and required
contingencies and allowances are within the allocated budget.
This assurance is to be provided to the Client prior to tendering
commencement.

52
 Project Cost Management

PMBOK 7.2 – Determine Costs

Aggregating the estimated costs of individual activities or
work packages to establish an authorized cost baseline

53
 Project Cost Management

To note when determining budget and

baseline:
The baseline shall include all authorised budget, but
excludes management reserves.
Project budgets constitute the funds authorised to execute
the project.
Project cost performance will be measured against the
authorized budget.

54
 Project Cost Management

Cost Baseline
is a time-phased budget that will be used to measure and monitor cost
performance on the project. It is shown as an S curve. The difference
between maximum funding and the end of the cost baseline is
Management Reserve in the S curve.

55
Project Cost Management

56
 Project Cost Management

Cost
Baseline is
usually
represented
through an
S Curve

https://www.projectsmart.co.u
k/what-is-earned-value.php

57
 Project Cost Management

Cost Baseline, Funding & Expenditure

Requirements

58
 Project Cost Management

Inputs for Determining the Budget:

➢ Activity cost estimates, from Estimate Costs process
➢ Basis of estimates (e.g., detail drawing/preliminary design)
➢ Scope baseline, containing the scope statement, which may
contain limitations by period for project expenditures from the
organization, contract, or government agency.
➢ Scope baseline also includes the WBS and WBS dictionary.

59
 Project Cost Management

Inputs for Determining the Budget: contd.

➢ Project schedule, from Develop Schedule, which provides the
"when" for costs.
➢ Resource calendars, which may indicate resource costs over
the length of the project (e.g. rate increases) (market price
variation wrt time)
➢ Contracts for products, services or results that are purchased.
➢ Organizational process assets, including policies, procedures,
and guidelines related to budgeting, and reporting methods.

60
 Project Cost Management

PMBOK 7.3 – Control Costs

The process of monitoring the status of the project to
update the project budget and managing changes to the
cost baselines

61
 Project Cost Management

Simply defined Cost Control is about:

➢ influencing the factors that create cost variances and
controlling changes to the project budget
➢ the process of comparing actual expenditures to the baseline
cost plans to determine variances, evaluate possible
alternatives, and take appropriate action.

62
 Project Cost Management

Consider the following actions to control costs:

➢ Systematically collect cost performance data
➢ Compare expenditures to the baseline cost plans
➢ Analyze variances to determine their impact
➢ Prepare and publish reports
➢ Determine course of action
➢ Take corrective action

63
 Project Cost Management

Who controls costs??

• Designer / Architect
• Construction Manager
• Project Manager
• Cost Planner
• Quantity Surveyor

64
 Project Cost Management

How does Project Management relate to Cost

Control?
• Design to costs, not cost of design
• Rigorously apply cost coding
• Regular reporting
• Develop a budgeting manual
• Audit regularly
• Seek sign-off & approval
• Implement variation and change management
procedures

65
 Project Cost Management

What to look for when you’re managing costs

• Review the project schedule
• Look for pre-emptive corrective action
• Review savings to compensate for overruns
• Review and evaluate contingency status
• Review and consider work package estimates

66
 Project Cost Management

Cost control should be focused upon:

➢ Influencing factors that create changes to the cost
baseline
➢ Ensuring requested changes are acted on timely
➢ Managing the actual changes when and as they occur
➢ Assuring that expenditures do not exceed the authorized
funding by period and in total for the project
➢ Monitoring cost performance to detect and understand
variances from the cost baseline

68
 Project Cost Management

Cost control should be focused upon contd..:

➢ Monitoring work performance against funds expended
➢ Preventing incorrect, inappropriate, or unapproved
changes from being included in the reported cost or
resource use
➢ Informing appropriate stakeholders of approved changes
➢ Acting to bring expected cost overruns within approved
limits.

69
 Project Cost Management

Cost Plans: D – Contract Documentation

➢ Cost Plan D is prepared using the full compilation of contract
documents (drawings and specifications) and must be
completed prior to tendering. It ensures that the overall
detailed design is included within the budget.
➢ Cost data is prepared by measuring and pricing all works and
services, generally based on measured quantities. It is
presented in sub-elemental form as in the previous stage and
may include indicative cash flows separated for building
works, fees and equipment / other.

70
 Project Cost Management

Tools & Techniques for

managing and controlling
costs
• Earned value management
• Forecasting
• To-complete performance index
• Performance reviews
• Variance analysis
• Project management software

71
 Project Cost Management

Earned Value Management - basically measures what

we got for what we spent?

➢ EVM in its various forms is a commonly used method for

performance measurement.
➢ It integrates project scope, cost & schedule measure to help
the project management team assess and measure project
performance & progress.
➢ It is a project management technique that requires the
formation of an integrated baseline against which performance
can be measured for the duration of the project.

72
 Project Cost Management

How EVM relates to the Project Manager:

➢ PM should set expectation that EVM is a key performance
management tool

➢ Increases the likelihood of Performance to Plan by balancing

cost, technical, and schedule considerations in a disciplined
environment

➢ Identifies problems early, preventing downstream surprises

and accelerating corrective action

➢ Key to acquiring new and holding onto existing business

73
 Project Cost Management

➢ Success of EVM involves tailored applications and

parallel processes.
➢ The purpose is to capture the lowest cost and the
shortest schedule time.
➢ EVM is not
o A financial reporting system
o Contract administration
o Cost analysis
o Accounting
➢ EVM is related to all of these functions

74
 Project Cost Management

EVM Definitions:
Budget Plan (Resource loaded schedule)
Planned Value (PV) / Budgeted Cost for Work Scheduled
(BCWS) - The value of the resources planned and
scheduled for the work packages
Earned Value (Accomplishment)
Earned Value (EV) / Budgeted Cost for Work Performed
(BCWP) - The value of the work completed in terms of the
budgeted values for the work packages
Actual Costs
Actual Cost (AC) / Actual Cost of Work Performed (ACWP)
- The Costs incurred and recorded in the accounting system
for the work packages
75
76
 Project Cost Management

Let me give you an example of EVM in real life.

This is what your And here’s the value of
contractor was supposed This is what you what was
to accomplish. paid. accomplished.

AC = $50,000

PV = $100,000 EV = $30,000

77
 Project Cost Management

Think like a PM, what causes cost variance.

➢ Poor performance by team (unfavorable cost impact)
➢ Poor management decisions (unfavorable cost impact)
➢ ACWP incorrect
➢ EV incorrect
➢ PV incorrect
➢ Labor or OH Rates inconsistent with the baseline
➢ Poor performance by team (unfavorable schedule impact)
➢ Poor management decisions (unfavorable schedule impact)

78
 Project Cost Management

Consider During Project Reviews:

If Behind Schedule
 How critical is schedule
 Can I afford to work short term overtime to recover
 Can I do tasks concurrently
 Am I “gold plating” instead of meeting requirements
 Should I do a schedule risk assessment and implement
mitigation plans

79
 Project Cost Management

Consider During Project Reviews:

If Over Cost
 Can I reschedule tasks (time-phasing)
 Is there a less costly facility I can use
 Can I adjust the skill mix to reduce labor costs
 Are there tasks which can be deleted
 If potential in the future - add to your Risk Management profile
 Can we work on Opportunity Management to recover

Cost management plan template

Cost Management Plan Template (4306).doc

80
 Project Cost Management

ASSIGNMENT DISCUSSION
Brief description about project:
At least this description should clearly mention about scope of
the project, project details such as:
o Address
o Duration
o Budget

Next class:
o Cash flow analysis
o Earned value approach

Reading material
..\Architectural programming.pdf
81
Project Management
CEE 501A
Lecture week 4

Course Teacher
Dr. Muhammad Saiful Islam
Associate Professor
Dept. of CEE, SUST

1
 Project Cost Management

ASSIGNMENT REVIEW
Brief description about project:
At least this description should clearly mention about scope of
the project, project details such as:
o Address
o Duration
o Budget

This class: Project Cost Control Methods

o Cash flow analysis
o S-curve
o Earned value approach

2
Cash Flow

3
Cash Flow Diagram

4
Cash Flow Diagram

5
Simple and Compound Interest

6
Simple and Compound Interest

7
Cash Flow and Cash Flow Diagram

8
Common terminologies and Symbols

9
Common terminologies and Symbols

10
Example of cash flow diagram

11
Example of cash flow diagram

12
Cash flow diagram-another example

13
Cash flow diagram- Exercise for home

14
Time Value of Money

15
Time Value of Money: Relation between present worth and
future worth

16
Time Value of Money: Relation between present worth and
future worth

17
Time Value of Money: Relation between present worth and
future worth

18
Time Value of Money: Relation between present worth and
future worth

19
Example

20
Example of Net Present Worth (NPW)

21
Example of Net Present Worth (NPW)

22
NPW calculation for the example project

23
Decision Making

24
Rate of Return (ROR)

25
Investment decision based on Rate of Return (ROR)

26
Rate of Return (ROR)

27
28
 Project Evaluation and Control System
• Measures project progress and performance against a project plan to
ensure that the project is completed on time, within budget, and to the
accepted quality requirements
• Designing, implementing, and maintaining an accurate monitoring and
control systems is perhaps one of the most difficult challenges on projects.

• To control a project generally means controlling or monitoring and

managing things such as:

✓ Cost Variance
✓ Schedule Variance
✓ Scope Changes
✓ Risk

29
Project Evaluation and Control System

30
Project Cost Control: Big Picture

31
 Cost baseline and S-curve
The Cost Baseline or Cost Performance Baseline is an authorized time-phased
budget.
It is developed as a summation of the approved budgets by time period
and is typically displayed in the form of an S-Curve

32
Development of an S-curve

33
Development of an S-curve

34
Development of an S-curve

35
Development of an S-curve

36
mobilization
37
Monitoring the Status of a Project using S-curve

38
Earned Value Management

39
Earned Value Management

40
 Earned Value approach

• Earned value refers to the determination of how much work

has been performed on the basis of what was budgeted for
the work that actually been completed.
• The idea is that a contractor has earned whatever amount
budgeted for the work that has in fact been completed.
• This is also called achieved value

The earned vale compares several measures to obtain an overall

picture of project status.

41
 Earned Value approach

BCWS: Budgeted Cost of Work Scheduled:

This measure is developed at the outset of the project as it involves
assigning to activities the amount budgeted for every activity

BCWP: Budgeted Cost of Work Performed:

This is the earned value as it indicates what the budgeted costs are for
the work that has actually been performed to date.
This presents the periodic worth (progress payment) of the work that is
actually performed, based on the initial estimate.

BAC: Budgeted Cost at Completion:

This is the original cost estimate of the total cost of construction. It is
ideally the total estimated cost to complete a project.

42
 Earned Value approach

EAC: Estimated Cost at Completion:

This is the forecast of the total actual costs required to complete a
project based on performance to date and estimates of future
conditions.
ACWP: Actual Cost of Work Performed
This is the measure that brings together the monitoring of both time
schedule (work performed) and cost records (actual cost). It gives the
actual costs to date.

Comparing the BCWS and ACWP values to the earned value

(BCWP) give us an indication of variance from the expected.

43
 Earned Value approach

SV: Schedule Variance = BCWP – BCWS

The cost side of the system remains constant, so the difference between
the two amounts must be due to schedule deviation alone.

A negative value indicates that the project is behind the schedule as the
value of work performed is less than that scheduled.
A positive value indicates that the project is ahead of schedule.

CV: Cost Variance = BCWP – ACWP

A positing value indicates that the project is under budget and a negative
value indicates over budget.

Both of these variances can be further expressed as ratios in

percentage.

44
Earned Value approach

45
 Earned Value approach

% SV = 100xSV/BCWS

% CV = 100xCV/BCWP

SPI: Schedule Performance Index: BCWP/BCWS

This ratio provides a direct relationship between work performed and
work scheduled based on budgeted costs.
A value grater than 1 indicates that more work has been performed than
was scheduled, and thus the project is ahead of schedule.
CPI: Cost Performance Index: BCWP/ACWP
This ratio directly compares budgeted costs to actual costs based on work
performed.
A value grater than 1 indicates that the budgeted amount of the work is
higher than what it actually cost, and therefore the project is under
budget (good sign), otherwise over budget.
46
Earned Value approach

47
 Earned Value approach

PC: Percent completion = BCWP/BAC (%)

Earned value (BCWP) = PC x BAC

PPC: Planned percent completion = BCWS/BAC (%)

The comparison between PPC and PC gives the status of the

project, i.e. behind or ahead of schedule. For example, if PPC is
65%, but PC is 60%, it is clear that the project is running behind
the schedule.

48
 Earned Value approach
Information on the cost index and how it has changed over time can be used
to forecast what the costs will be at the end of the project, referred to as
Estimated at Completion (EAC).

EAC = ACWP + (BAC-BCWP), this is the latest revised estimate of the total cost
of the project and can be compared t the BAC (original estimated project
cost).

Here, (BAC-BCWP) represents unearned hours

49
Earned Value approach

50
Earned Value approach

51
Example of an Earned Value Analysis

52
Example of an Earned Value Analysis

53
Example of an Earned Value Analysis

54
Example of an Earned Value Analysis

55
 Earned Value approach
Difficulties in Integrating Cost and Schedule Systems

• Data collection and reporting units are the fundamental

requirements of a system that can support the integration of cost
and schedule data.
• It is necessary to develop and collect both cost and schedule data
in a manner that allows the two to be associated with one another.
• The data must be collected in a same unit (e.g., man-hour or work-
hour) at which both cost and schedule can be represented.
• The work included within a cost account can be defined as a set of
one or more tasks on which progress can be determined and that
has a measurable finish point.
• The unit also should relate to the organizational structure of the
company such that reporting and management of both cost and
progress reporting can be expected from the company personnel.

56
Earned Value approach

57
Earned Value approach

58
 Earned Value approach
Difficulties in Integrating Cost and Schedule Systems

• Front end loading could mislead this earned value approach for
integrating schedule and cost.
• For example, once the roofing work is done, the project is
considered 47.4% completed on the basis of work-hour, but is
considered 57.9% completed on the basis of costs.

➢ For owner wishing to monitor the progress of a contractor, the

pitfalls of using the schedule of values must be recognized.
➢ While the owner may have little recourse other that using the
budgeted costs as a measure, the schedule of values and the
project schedule should be carefully evaluated before using these
as a means of evaluating performance.

59
 Earned Value approach
Some Important Issues in the Effective Use of EVM

• Availability of highly accurate, up--‐to--‐date information on the

percentage of work completed
– Hinges on an honest and accurate reporting system as well
as the integrity of project team members and managers
• Assessing the value of work completed (percentage
complete) is not that easy
– What level of details is used in assessing the completion
value of activities?
– Human factor may come into play in the assessment of the
work

60
Project Management
CEE 501A
Lecture week 5
Project Planning and Scheduling

Course Teacher
Dr. Muhammad Saiful Islam
Associate Professor
Dept. of CEE, SUST

1
 Project Planning and Scheduling

• Planning is the first step to project scheduling

• It is a prerequisite to project scheduling
• Planning is a process and not a discrete activity
• Project scheduling is the process of determining the
sequential order of the planned activities, assigning
realistic duration to each activity, and determining the
start and finish dates for each activity, determining floats,
critical path, etc.
• The terms project planning and scheduling sometimes
used interchangeably!

Oberlender, Gary (2000)

2
 Benefits of Project Planning and Scheduling

• Finish the project on time

• Continuous flow of work
• Reduced amount of rework
• Minimise confusion and misunderstandings
• Knowledge of scheduled time of project work/activities

Oberlender, Gary (2000)

3
 Benefits of Project Planning and Scheduling

• Knowledge of distribution of resources, costs of the project

• Meaningful and timely reports and project status
• You run the project instead of the project running you
• Accountability of people, defined responsibility/authority
• Clear understanding of who does what, when, and how much
• Integration of all work to ensure a quality project for the owner

Oberlender, Gary (2000)

4
 Project Scheduling

• Project schedule is
developed from the
project scope
statement and
WBS.

Source: Taylor, J.C. (2008). Project Scheduling

and Cost Control, J. Ross Publishing Inc.
5
 Project Scheduling

• It is often developed in the form of project network diagrams.

• Network diagrams are the fundamental tools for planning,
scheduling, and monitoring project progress.
• Network diagrams show:
o all the project activities that must be completed
o logical sequences that must be followed to complete them
(interrelationships of the activities)
o the start and finish dates
o duration, floats (or slacks) and longest path(s), i.e. critical
path.

6
 Network Diagram Development Rules

• All the WBS tasks must be included

• Each activity must have a unique identification number and
duration to complete it.
• There are predecessors and successors for all tasks (i.e., every
task must be logically connected to some other tasks).
• There are no loops.
• There should be a clear project beginning (start) and end (finish).

7
 Network Diagram Types

Activity on node or
precedence diagram
method (PDM)

Activity on arrow (AOA)

8
 Activity on node (AON) or precedence diagram method
(PDM)

• PDM is the method used by most of the PM software

applications
• An activity of task is represented by a node (normally a
rectangular box)
• Arrow shows dependency between activities.

9
 Activity on node (AON) or precedence diagram method
(PDM)

• Four types of questions are generally required to answer:

1. Which activities must be completed immediately before the

activity? These activities are called predecessor activities

2. Which activities must immediately follow the activity?

These activities are called successor activities

3. Which activities can occur while the activity is taking place?

This is known as concurrent or parallel relationship.

4. Do activities have any lag or lead times?

10
Different notations are used to draw a precedence diagram

11
Common Relationship Types

12
 Common Relationship Types

• The initiation of the successor activity depends upon

the completion of the predecessor activity.

• In this example, Activity X must be complete before

Activity Y can begin.

13
 Common Relationship Types

• The completion of the successor activity depends upon

the completion of the predecessor activity.

• In this example, Activity X must be complete before

Activity Y can finish.

14
 Common Relationship Types

• The initiation of the successor activity depends upon the

initiation of the predecessor activity.

• In this example, Activity Y can start after Activity X has

started.

15
 Common Relationship Types

• The completion of the successor activity depends upon

the initiation of the predecessor activity.

• In this example, Activity Y can not compete until activity X

has started.

16
 Some Definitions

• Early Start (ES) – Earliest time that the activity can possibly
start
• Early Finish (EF) – Earliest possible time that the activity can
be completed
• Late Start (LS) – Latest possible time that the activity can be
started
• Late Finish (LF) – Latest time that the activity can be finished
• Lag – A minimum amount of time a dependent activity must
be delayed to begin/start or end.
• Lead – A minimum amount of time a dependent or successor
activity must be accelerated to begin or end.

17
 Some Definitions

• Total Float
–The amount of time that a schedule activity may be delayed
from its early start date without delaying the project finish
date, or violating a schedule constraint. It is the difference
between the early finish dates and late finish dates.

• Free Float
–The amount of time that an activity can be delayed without
delaying the early start date of any immediately following
schedule activities. Free float can NEVER be negative.

18
 Some Definitions

• Critical Path
–The longest activity path(s) through the network.
• Critical Path Method
–A schedule network analysis technique used to determine
early & late activity dates, floats, and the minimum total
project duration.
• Forward Pass
–The calculation of the early start and early finish dates of the
schedule activities in the project network.
• Backward Pass
–The calculation of late finish dates and late start dates of
schedule activities. It is determined by working backwards from
the project’s end date in the network diagram.
19
 Forward Pass- Earliest Times

• How soon can the activity start? (early start – ES)?

• How soon can the activity finish? (early finish – EF)?
• How soon can the project be finished?

Source: Larson, E.W., & Gray, C.F. (2008). Project Management : The managerial
process, 5th edition, McGraw Hill

20
 Forward Pass- Earliest Times

Remember the following things when computing early activity

times:
• Add activity times along each path in the network (ES +
Duration = EF)
• Carry the early finish (EF) to the next activity where it
becomes its early start (ES), unless
• The next succeeding activity is a merge activity. In this case
select the largest early finish number (EF) of all its
immediate predecessor activities.

Source: Larson, E.W., & Gray, C.F. (2008). Project Management : The managerial
process, 5th edition, McGraw Hill

21
 Backward Pass- Latest Times

• How late the activity can start? (Late Start – LS)?

• How late can the activity finish? (Late Finish – LF)?
• Which activities represent the critical path (CP)? CP is the
longest path in the network which, if delayed, will delay the
project.
• How long can the activity be delayed? This introduces slack or
float.

Source: Larson, E.W., & Gray, C.F. (2008). Project Management : The managerial
process, 5th edition, McGraw Hill

22
 Backward Pass- Latest Times

Remember the following things when computing late activity

times
• The late finish for the last project activity (ies) must be
selected
• Subtract activity time along each path starting with the
project end activity (LF – Duration = LS)
• Carry the LS to the preceding activity to establish its LF,
unless
• The next preceding activity is a predecessor to two or more
activities; in this case select the smallest LS of all its
immediate successor activities to establish its LF.

23
 Determining Total Float, Critical Path, Critical Activities

After the computation of forward and backward pass, total float

and free float of each activity can be calculated.

Total float (TF) of an activity is simply the difference between the

LS and ES (LS - ES = TF) or between LF and EF (LF – EF = TF)

24
 Determining Total Float, Critical Path, Critical Activities

• After Total Float for each activity is computed, the critical path
(s) (are) can be easily identified

• When the LF = EF for the end project activity, the critical path
becomes the one traversing the activities that have zero total
float (LF = EF, or LS = ES)

• When the EF of the end activity differs from LF, the critical
path becomes the network path that has the least total float in
common

• The activities on a critical path are critical activities.

25
 Determining Free Float

• Free Float (FF) of an activity is simply the difference between

the minimum early start (ES) of its successor activities and its
own early finish (EF).

• FF of an activity assumes that all its predecessors and

successors begin as early as possible and that activity itself
ends as early as possible.

• TF of any activity is always equal or greater than its FF.

• Non-critical activities can have FF of zero, but non-zero TF

26
Example Precedence Diagram for Developing a New
Business Centre

27
Example Precedence Diagram for Developing a New
Business Centre

Activity on Node Diagram

28
Forward Pass Calculation

29
Backward Pass Calculation

30
 Backward Pass Calculation

Bold Arrow Indicates the Critical Path

31
 Class Exercise

From the information provided below, develop a project network.

Complete the forward and backward pass, compute the total float
and free float, and identify the critical path. How many days will the
project take to complete?

32
Exercise problem (at home).
Compute the early and late activity times, and total float and free float for the
following network diagram. Identify the critical path. How many days will the project
take?

33
 Use of Lags

• Lag is the minimum amount of time a dependent activity must

be delayed to begin or finish
• It offers greater flexibility in schedule development
• Theoretically, lags can be applied to all types of relationships
Finish to Start
Start to Start
Finish to Finish
Start to Finish, and
The combination of Start to Start and Finish to Finish
relationships

34
Use of Lags

35
Use of Lags

36
Use of Lags

37
 Use of Lags

• Lag can be negative

• The use of negative lag is not recommended because they
create so much confusion with respect to the meaning of the
relationship and the schedule
• The relationship in the diagram means the finish of activity A
must occur no later than 4 days after the start of Activity B
• The 4-day negative lag is equivalent to a 4-day lead.

38
 Use of Leads

• Lead is the opposite of lag

• It is the amount of time that an activity precedes the start or
finish of its successor
• The 4-day negative lag in the following relationship is
equivalent to a 4-day lead.

39
 Schedule Calculation with Lag, Lead and FF, FS, & SS
Relationships

• Have to ensure that all the constraints imposed on activities

are still valid
• Start, finish and float time may be governed by the successor
and predecessor activity relationships
• Makes calculation more complex
• Creates numerous opportunities for creating errors, confusion
and misunderstanding in the project schedule

40
Identify One Example each Involving the Following
Relationships with or without a Lag

• Finish to Start
• Finish to Finish
• Start to Start
• Start to Finish

41
Assignment
Compute the early and late activity times, and total float and free float for the
following network diagram. This is the same diagram as in the tutorial activity 2,
there are, however three finish to start lags. Has the critical path changed? How
many days will the project take to complete?

42
 Activity on Arrow (AOA)

• An activity or task is represented by an arrow

• The node (usually represented as a small circle) represents
an event.
o Nodes represent start and end event of an activity.

• Each activity needs to have a unique identification number.

43
 Activity on Arrow (AOA)

• A dummy activity may need to be inserted when two or

more activities are parallel and have the same start and
finish nodes.
o A dummy activity is drawn using dashed arrow
o It has zero duration
o Dummy activity helps to maintain the intended logic of
the network and sequence.
Dummy activities

44
 Additional Points on Activity on Arrow (AOA) method

• AOA diagram can only show finish to start relationships.

• It’s not possible to explicitly show activity lead or lag times.

• Network analysis for forward pass and backward pass

calculations can be done in the similar way to AON diagram.

• The calculations need to be done for dummy activities as

well.

45
Example of Activity on Arrow (AOA) method

46
Example of Activity on Arrow (AOA) method

47
Example of Activity on Arrow (AOA) method

48
Some graphical representations of project scheduling

49
50
51
Project Management
CEE 501A
Lecture week 6
Project Procurement and Contracting
System

Course Teacher
Dr. Muhammad Saiful Islam
Associate Professor
Dept. of CEE, SUST

1
Lecture Outlines

• Procurement Methods
• Payments arrangements with different types of
contracts
• Cash flow profiles
• Strategies to optimize cash flows

2
3
 Scope
• The portion of the major tasks- design, construction, and finance-
that is assigned to or for which the service is sought.
Organization
• The business entity with whom the owner holds contract, such as
head contractor, construction manager
Contract
• The arrangement of how the owner/contractor will pay the
organization for work performed such as fixed price, reimbursable
contracts
Award
• The method used to select contractor and/or the price, such as
competitive bidding or negotiation

Gordon (1992)

4
 Project Delivery Methods in Construction

• Design-Bid-Build
• Design and Build
• Construction Management Contract
– Construction Management as Owner’s Agent
– Construction Management at Risk
• Alliancing
• Public Private Partnership (PPP or P3)

5
6
7
8
9
Australian Government Dept. of Infrastructure and Regional Development (2015)
10
11
12
13
Finnerty (2013)

14
15
16
17
18
Different types of commonly used
construction contracts

19
Contract Types

• Lump sum
• Unit price
• Cost Plus or Cost Reimbursable
• Guaranteed Maximum Price (GMP)

20
Lump Sum

• Also known as fixed lump sum or stipulated-sum

contract
• The contractor agrees to perform the stipulated work in
exchange for a fixed sum of money
• This lump sum commonly includes all labour, materials,
project overhead, company overhead, and profit

Gordon (1992)

21
Unit Price

• The contractor agrees to be paid a set cost per unit of

each item.
• The actual total amount paid is based on the actual
measured units constructed on the project, times the
unit price agreed to.
• Generally includes all costs including profit. Sometimes
overhead items are paid separately.

Gordon (1992)

22
23
24
Selecting an Award

25
26
Payment Arrangement

27
28
29
30
Payment Arrangement with different
types of contracts

31
32
33
34
35
36
37
38
39
40
41
Cash Flow Profiles

42
Venkataraman, & Pinto (2008)
43
44
46
Cash Flow Optimization Strategies

47
48
49
50
51
Project Management
CEE 501A
Lecture week 7
Project Quality Management

Course Teacher
Dr. Muhammad Saiful Islam
Associate Professor
Dept. of CEE, SUST

1
Lecture Outlines

• Definition of Quality
• Deming’s 14 points
• The Taguchi approach
• ISO 9000
• Quality management Concept
• The cost of quality
• The seven quality control tools
• Quality leadership
• Total Quality Management
• PMBOK PMI Quality Management

2
Definition of Quality

• The ISO 9000 definition is “the totality of feature and characteristics of a

product or service that bears on its ability to satisfy stated or implied needs.”
• Most organizations view quality more as a process than a product. To be
more specific, it is a continuously improving process where lessons learned
are used to enhance future products and services in order to
o Retain existing customers
o Win back lost customers
o Win new customers

Therefore, companies are developing quality improvement processes.

3
4
In past, quality was viewed as:
o The cost of quality
o Zero-defect programs
o Reliability engineering
o Total quality control

Today, emphasis is being placed on strategic quality management, including

such topics as:
o Quality is defined by the customer.
o Quality is linked with profitability on both the market and cost sides.
o Quality has become a competitive weapon.
o Quality is now an integral part of the strategic planning process.
o Quality requires an organization-wide commitment.

5
The most influential contributor in the quality movement is W. Edwards
Deming. He proposed a quality improvement cycle, which is called Deming
Cycle for Improvement. Deming’s definition of quality is “continuous
improvement.”

6
 Deming’s 14 Points for
Management
• The System of Profound Knowledge generates an interrelated
set of 14 Points for leadership in the Western world.
• These 14 Points provide guidelines, or a road map, for the
shifts in thinking required for organizational success.
• They form a highly interactive system of management; no one
point can be studied in isolation.

Gitlow, Howard S. “Quality Management”

Third Edition, McGrawHill
 Point 1
Create constancy of purpose toward
improvement of product and service,
with the aim to become competitive and
to stay in business and to provide jobs.

Gitlow, Howard S. “Quality Management”

Third Edition, McGrawHill
 Point 1
• Leaders must state their organization's values and beliefs.

• Leaders must create statements of vision and mission for

their organizations based on these values and beliefs

• The values and beliefs plus the vision and mission

statements provide a frame of reference for focused,
consistent behavior and decision-making by all
stakeholders of an organization.
 Point 2
Adopt the new philosophy. We are in a new
economic age. Western management must
awaken to the challenge, must learn their
responsibilities, and take on leadership for
change.

• Point 2 encompasses the paradigm shifts that leaders must

accept as a consequence of Deming's System of Profound
Knowledge.
 Point 3
Cease dependence on inspection to achieve
quality. Eliminate the need for inspection on
a mass basis by building quality into the
product in the first place.
• There is a hierarchy of views on how to pursue
predictable dependability and uniformity at low
cost:
– Defect detection
– Defect prevention
– Continuous improvement.
Defect detection involves dependence upon mass
inspection to sort conforming material from defective
material.
• Defect prevention involves improving processes so
that all output is predictably within specification limits.
– Defect prevention is the “goal post” view of quality.
• Continuous improvement is the on-going reduction of
process (unit-to-unit) variation, even within
specification limits.
– Continuous improvement is the Taguchi Loss
Function view of quality.
 Point 4
End the practice of awarding business on the basis of
price tag. Instead, minimize total cost. Move toward a
single supplier for any one item on a long-term
relationship of loyalty and trust.
• Buyers and vendors form a system.
• If each individual player in this system attempts to
optimize his own position, the system will be sub-
optimized.
• Optimization requires that policy makers understand the
three scenarios in which purchasing can take place.
Deming called these three scenarios World 1, World 2,
and World 3.
• World 1 is characterized by a purchasing situation in
which the customer knows what she wants and can
convey this information to a supplier.
• In this scenario, purchase price is the total cost of
buying and using the product (for example, no
supplier provides better service than any other
supplier), several suppliers can precisely meet the
customer's requirements, and the only difference
between suppliers is the price.
– In this world, purchasing on lowest price is the
most rational decision.
• In World 2 the customer knows what she wants
and can convey this information to a supplier.
– The purchase price is not simply the total cost of
buying and using the product (for example, one
supplier may provide better service than any other
supplier): several suppliers can precisely meet the
customer's requirements, and all suppliers quote
identical prices.
– In this world, purchasing based on best service is
the most rational decision.
– World 2 frequently includes the purchasing of
commodities.
• In World 3 the customer thinks she knows what
she wants and can convey this information to a
supplier.
– However, she will listen to advice from the supplier
and make changes based on that advice.
– Purchase price is not the total cost of buying and
using the product - for example, there is also a
cost to use the purchased goods.
– Several suppliers tender their proposals (all of
which are different in many ways) and all suppliers
quote different prices.
– In this world, selecting a supplier will be difficult.
 Point 5
Improve constantly and forever the
system of production and service to
improve quality and productivity, and
thus constantly decrease costs.
• Operational Definitions
• SDSA Cycle
• PDSA Cycle
• Empowerment
 Operational Definitions
• Operational definitions increase
communication between people and help
to optimize a system; they require
statistical and process knowledge.
 SDSA Cycle
• Standardize–Do–Study–Act (SDSA)
Cycle
 Empowerment
• The prevailing definition of empowerment relies
loosely on the notion of dropping decision-
making down to the lowest appropriate level in
an organization.
• Empowerment in a Quality Management sense
is a process that provides employees with:
– The opportunity to define and document their key
systems.
– The opportunity to learn about systems through
training and development.
– The opportunity to improve and innovate the best
practice methods that make up systems.
– The latitude to use their own judgment to make
decisions within the context of best known
methods.
– An environment of trust in which superiors will not
react negatively to the latitude taken by people in
decision-making within the context of a best
practice method.
Operationalizing Empowerment
• Empowerment is operationalized at two
levels. First, employees are empowered to
develop and document best practice
methods using the SDSA cycle. Second,
employees are empowered to improve or
innovate best practice methods through
application of the PDSA cycle
 Point 6
Institute training on the job.
• Training in job skills is a system.
• Effective training changes the skill
distribution for a job skill.
• Training is a part of everyone's job and
should include formal class work,
experiential work, and instructional
materials.
• Training courseware must take into
consideration how the trainee learns
and the speed at which she learns.
• It should utilize statistical methods that
indicate when an employee reaches a
state of statistical control.
• If an employee is not in statistical
control with respect to a job
characteristic, then more training of the
type she is receiving will be beneficial.
• if an employee is in a state of statistical
control with respect to a job
characteristic, then more training of that
type will not be beneficial
 Point 7

Institute leadership. The aim of leadership

should be to help people and machines
and gadgets to do a better job. Leadership
of management is in need of overhaul, as
well as leadership of production workers.
• A leader must see the organization as a system of
interrelated components, each with an aim, but all
focused collectively to support the aim of the
organization. This type of focus may require sub-
optimization of some system components.
• “A leader uses plots of points and statistical
calculations, with knowledge of variation, to try to
understand both his performance and that of his
people.”
• A leader must understand that experience without
theory does not facilitate prediction of future events.
For example, a leader cannot predict how a person
will perform in a new job based solely on experience
in the old job.
• A leader must be able to predict the future to plan the
actions necessary to pursue the organization's aim.
Prediction of future events requires that the leader
continuously work to create stable processes with low
variation to facilitate rational prediction.
 Point 8
Drive out fear so that everyone may work effectively
for the company.
• There are two kinds of negative reactive behaviors:
fear and anxiety.
– Fear is a reaction to a situation in which the
person experiencing the fear can identify its
source.
– Anxiety is a reaction to a situation in which the
person experiencing the anxiety cannot identify its
source.
• We can remove the source of fear because it is
known, which is not the case with anxiety.
Consequently Point 8 focuses on driving out fear.
• Fear has a profound impact on those working in
an organization, and consequently, on the
functioning of the organization.
• A statistically-based system of management will
not work in a fear-filled environment.
• Management is responsible for changing the
organization to eliminate the causes of fear.
 Point 9
Break down barriers between departments.
People in research, design, sales, and
production must work as a team to
foresee problems of production and in use
that may be encountered with the product
or service.
• Barriers between the areas of an organization
thwart communication and cooperation. The
greater the interdependence between the
components of a system, the greater is the
need for communication and cooperation
between them.
 Point 10
Eliminate slogans, exhortations, and targets for the
work force that ask for zero defects and new
levels of productivity.
• Slogans, exhortations, and targets do not help to form a plan or
method to improve or innovate a process, product, or service.
They do not operationally define process variables in need of
improvement or innovation. They do not motivate individuals or
clarify expectations. Slogans, exhortations, and targets are
meaningless without methods to achieve them.
• Slogans, exhortations, and targets shift responsibility for
improvement and innovation of the system from management to
the worker. The worker is powerless to make improvements to
the system. This causes resentment, mistrust, and other
negative emotions.
 Point 11a
Eliminate work standards (quotas) on the factory floor.
Substitute leadership.
• A work standard is a specified level of performance
determined by someone other than the worker who is
actually performing the task.
• Work standards do not provide a road map for
improvement, and they prohibit good supervision and
training.
• Work standards are negotiated values that have no
relationship to the capability of a process.
• Work standards are frequently used for budgeting,
planning, and scheduling, and provide management with
invalid information on which to base decisions.
 Point 11b
Eliminate management by objective. Eliminate management by
numbers and numerical goals. Substitute leadership.
• The Old Way
– Numerical do not include methods, and hence, do not provide a
mechanism for improvement of a process. In a stable system,
the proportion of the time an individual is above or below a
specified quota/goal is a random lottery.
– Managers use management by objectives (M.B.O.) to
systematically break down a "plan" into smaller and smaller
subsections.
• Arbitrary numerical goals hold people accountable for the
problems of the system, and consequently, steal their pride of
workmanship.
• The New Way
– A group of components come together to form a system with
an aim.
– The aim requires that the components organize in such a
way that they create subsystems.
– The subsystems are complex combinations of the
components.
– The subsystems require certain methods to accomplish the
aim.
– Resources are allocated between the methods by setting
goals or targets that may be numerical and that optimize the
overall system, not the subsystems, with respect to the aim.
– The aim, methods, and goals are all part of the same
system; they cannot be broken into three separate entities.
Separation of the aim, methods, and goals destroys them
because they are defined by their interactions.
 Point 12
Remove barriers that rob the hourly worker of his right to pride of
workmanship. The responsibility of supervisors must be
changed from stressing sheer numbers to quality. Remove
barriers that rob people in management and engineering of
their right to pride of workmanship. This means abolishment of
the annual merit rating and of management by objective.
• People enjoy taking joy in their work, but very few are able to do so
because of poor management.
• Management must remove the barriers that prevent employees from
finding joy in their work.
• In the current system of management there are many such
barriers.
– Employees not understanding their company's mission and what is
expected of them with respect to the mission.
– Employees being forced to act as automatons who are not allowed
to think or use their skills.
– Employees being blamed for problems of the system.
– Hastily designed products and inadequately tested prototypes.
– Inadequate supervision and training.
– Faulty equipment, materials, and methods.
– Management systems that focus only on results, such as daily
production reports.
– The traditional performance appraisal process.
• Organizations will reap tremendous benefits when management
removes barriers to joy in work.
 Point 13
Encourage education and self-improvement for
everyone.
• Education and self-improvement are important
vehicles for continuously improving employees,
both professionally and personally.
• Remember, training (Point 6) is to improve job
skills, while education (Point 13) is to improve
the individual, regardless of his or her job.
 Point 14
Take action to accomplish the transformation.
• The transformation of an organization from its current
paradigm of management to the System of Profound
Knowledge cannot occur without the expenditure of
energy by its stakeholders.
• Top management will expend this energy due to a variety
of causes -- for example a crisis or a vision.
• Other stakeholders will expend this energy if stimulated
by top management.
• The transformation cannot take place without a critical
mass of stakeholders.
Transformation (Paradigm Shift)
 Quality in Service, Government,
and Education
• The principles and methods for process
improvement are the same in all
organizations.
• The System of Profound Knowledge and
14 Points apply equally to all sectors of the
economy.
Taguchi Approach
Dr. Taguchi started to develop new methods to optimize the process of
engineering experimentation. He developed techniques for quality improvement
that are now known as the Taguchi Methods.

These concepts are:

1. Quality should be designed into the product and not inspected into it.

2. Quality is best achieved by minimizing the deviation from a target. The product

should be so designed that it is immune to uncontrollable environmental factors.

3. The cost of quality should be measured as a function of deviation from the

standard and the losses should be measured system-wide.

42
Taguchi built on Deming’s observation that 85 percent of poor quality is
attributable to the manufacturing process and only 15 percent to the worker.
According to Taguchi’s first concept:

• the better way to improve quality was to design and build it into the
product
• quality improvement starts at the very beginning, that is, during the
design stages of a product or a process, and continues through the
production phase.
• poor quality cannot be improved by the process of inspection,
screening, and salvaging
• quality concepts should be based upon, and developed around, the
philosophy of prevention.
• the product design must be so robust that it is immune to the influence
of uncontrolled environmental factors on the manufacturing processes.

43
His second concept deals with actual methods of effecting quality.

• He contended that quality is directly related to deviation of a design

parameter from the target value, not to conformance to some fixed
specifications.

• A product may be produced with properties skewed toward one end

of an acceptance range yet show shorter life expectancy.

• However, by specifying a target value for the critical property and

developing manufacturing processes to meet the target value with
little deviation, the life expectancy may be much improved.

44
• His third concept calls for measuring deviations from a given design
parameter in terms of the overall life-cycle costs of the product.

• These costs would include the cost of scrap, rework, inspection, returns,
warranty service calls, and/or product replacement.

• These costs provide guidance regarding the major parameters to be

controlled.

45
 ISO 9000

The International Organization for Standardization (ISO), based in

Geneva, Switzerland, is a consortium of approximately 100 of the
world’s industrial nations.
It is a quality system standard applicable to any product, service, or
process anywhere in the world.

Project Management: A systems approach to planning, scheduling and control

by Harold Kerzner, PhD

46
ISO 9000: This defines the key terms and acts as a road map for the other
standards within the series.

ISO 9001: This defines the model for a quality system when a contractor
demonstrates the capability to design, produce, and install products or services.

ISO 9002: This is a quality system model for quality assurance in production and
installation.

ISO 9003: This is a quality system model for quality assurance in final inspection
and testing.

ISO 9004: This provides quality management guidelines for any organization
wishing to develop and implement a quality system. Guidelines are also available
to determine the extent to which each quality system model is applicable.
Becoming ISO 9000 certified does not guarantee that your organization will
produce quality products or services. Instead, it confirms that the
appropriate system is in place.

47
ISO 9000 is actually a three-part, never-ending cycle including planning,
controlling, and documentation.

Planning is required to ensure that the objectives, goals, authority, and

responsibility relationships of each activity are properly defined and understood.

Controlling is required to ensure that the goals and objectives are met, and that
problems are anticipated or averted through proper corrective actions.

Documentation is used predominantly for feedback on how well the quality

management system is performing to satisfy customer’s needs and what changes
may be necessary.

Project Management: A systems approach to planning, scheduling and control

by Harold Kerzner, PhD

48
QUALITY MANAGEMENT CONCEPTS
The project manager has the ultimate responsibility for quality management
on the project.

Quality management has equal priority with cost and schedule management.
However, the direct measurement of quality may be the responsibility of the quality
assurance department or the assistant project manager for quality.

For a labor-intensive project, management support (i.e., the project

office) is typically 12–15 percent of the total labor dollars of the project.

Approximately 3–5 percent can be attributed to quality management. Therefore, as

much as 20–30 percent of all the labor in the project office could easily be attributed
to quality management.

Project Management: A systems approach to planning, scheduling and control

by Harold Kerzner, PhD

49
From a project manager’s perspective, there are six quality
management concepts that should exist to support each and every
project. They include:

● Quality policy
● Quality objectives
● Quality assurance
● Quality control
● Quality audit
● Quality program plan

Project Management: A systems approach to planning, scheduling and control

by Harold Kerzner, PhD

50
Quality Policy

The quality policy is a document that is typically created by quality

experts and fully supported by top management.

The implementation of the quality policy is the responsibility of top

management.
A good quality policy will:
● Be a statement of principles stating what, not how
● Promote consistency throughout the organization and across projects
● Provide an explanation to outsiders of how the organization views quality
● Provide specific guidelines for important quality matters
● Provide provisions for changing/updating the policy

Project Management: A systems approach to planning, scheduling and control

by Harold Kerzner, PhD

51
Quality Objectives

Quality objectives are a part of an organization’s quality policy and

consist of specific objectives and the time frame for completing them.
The quality objectives must be selected carefully. Selecting objectives that are
not naturally possible can cause frustration and disillusionment.

Good quality objectives should be:

● Be obtainable
● Define specific goals
● Be understandable
● State specific deadlines

52
Quality Assurance

Quality assurance is the collective term for the formal activities and
managerial processes that attempt to ensure that products and services
meet the required quality level.
Quality assurance also includes efforts external to these processes that
provide information for improving the internal processes.

It is the quality assurance function that attempts to ensure that the project
scope, cost, and time functions are fully integrated.

The Project Management Institute Guide to the Body of Knowledge (PMBOK)®

refers to quality assurance as the management section of quality management.
This is the area where the project manager can have the greatest impact on the
quality of his project.

Project Management: A systems approach to planning, scheduling and control

by Harold Kerzner, PhD

53
Quality Assurance

A good quality assurance system will:

● Identify objectives and standards

● Be multifunctional and prevention oriented
● Plan for collection and use of data in a cycle of continuous improvement
● Plan for the establishment and maintenance of performance measures
● Include quality audits

Project Management: A systems approach to planning, scheduling and control

by Harold Kerzner, PhD

54
Quality Control

Quality control is a collective term for activities and techniques, within

the process, that are intended to create specific quality characteristics.

Such activities include continually monitoring processes, identifying and

eliminating problem causes, use of statistical process control to reduce
the variability and to increase the efficiency of processes.

The PMBOK® refers to quality control as the technical aspect of quality

management. Project team members who have specific technical expertise
on the various aspects of the project play an active role in quality control.

Project Management: A systems approach to planning, scheduling and control

by Harold Kerzner, PhD

55
Quality Control

A good quality control system will:

● Select what to control
● Set standards that provide the basis for decisions regarding possible
corrective action
● Establish the measurement methods used
● Compare the actual results to the quality standards
● Act to bring nonconforming processes and material back to the standard
based on the information collected
● Monitor and calibrate measuring devices
● Include detailed documentation for all processes

56
Quality Audit

A quality audit is an independent evaluation performed by qualified

personnel that ensures that the project is conforming to the project’s
quality requirements and is following the established quality procedures
and policies.

A good quality audit will ensure that:

● The planned quality for the project will be met.
● The products are safe and fit for use.
● All pertinent laws and regulations are followed.
● Data collection and distribution systems are accurate and adequate.
● Proper corrective action is taken when required.
● Improvement opportunities are identified.

57
Quality Plan

The quality plan is created by the project manager and project team
members by breaking down the project objectives into a work breakdown
structure.
Using WBS the project activities are broken down into lower-level
activities until specific quality actions can be identified.

The project manager then ensures that these actions are documented and
implemented in the sequence that will meet the customer’s requirements and
expectations.

This enables the project manager to assure the customer that he has a road
map to delivering a quality product or service and therefore will satisfy the
customer’s needs.

58
 Quality Plan

A good quality plan will:

● Identify all of the organization’s external and internal customers

● Cause the design of a process that produces the features desired by the customer
● Bring in suppliers early in the process
● Cause the organization to be responsive to changing customer needs
● Prove that the process is working and that quality goals are being met

59
The Cost of Quality

To verify that a product or service meets the customer’s requirements

requires the measurement of the costs of quality.

The costs can be classified as “the cost of conformance” and “the cost of
nonconformance.”

Conformance costs include items such as training, indoctrination, verification,

validation, testing, maintenance, calibration, and audits.

Nonconforming costs include items such as scrap, rework, warranty repairs,

product recalls, and complaint handling.

60
The Cost of Quality

Trying to save a few project dollars by reducing conformance costs could prove
disastrous.

For example, an American company won a contract as a supplier of Japanese

parts. The initial contract called for the delivery of 10,000 parts. During
inspection and testing at the customer’s (i.e., Japanese) facility, two rejects were
discovered.

The Japanese returned all 10,000 components to the American supplier stating
that this batch was not acceptable. In this example, the nonconformance cost
could easily be an order of magnitude greater than the conformance cost. The
moral is clear: Build it right the first time.

61
 The Cost of Quality

Common method to classify costs includes the following:

Prevention costs are the up-front costs oriented toward the satisfaction of
customer’s requirements with the first and all succeeding units of product
produced without defects. Included in this are typically such costs as design
review, training, quality planning, surveys of vendors, suppliers, and
subcontractors, process studies, and related preventive activities.
Appraisal costs are costs associated with evaluation of product or process to
ascertain how well all of the requirements of the customer have been met.
Included in this are typically such costs as inspection of product, lab test,
vendor control, in-process testing, and internal–external design reviews.

62
 The Cost of Quality

Common method to classify costs includes the following:

Internal failure costs are those costs associated with the failure of the
processes to make products acceptable to the customer, before leaving the
control of the organization. Included in this area are scrap, rework, repair,
downtime, defect evaluation, evaluation of scrap, and corrective actions for
these internal failures.
External failure costs are those costs associated with the determination by
the customer that his requirements have not been satisfied. Included are
customer returns and allowances, evaluation of customer complaints,
inspection at the customer, and customer visits to resolve quality complaints
and necessary corrective action.

63
The Cost of Quality

64
The Cost of Quality

Prevention costs are expected to actually rise as more time is spent

in prevention activities throughout the organization.

As the process going the over long appraisal costs will go down as
the need to inspect in quality decreases.

The biggest savings will come from the internal failure areas of
rework, scrap, reengineering, redo, and so on.

The external costs will also come down as processes yield first-time
quality on a regular basis.

65
The Cost of Quality

This is not always the case. Prevention costs actually decrease without
sacrificing the purpose of prevention if we can identify and eliminate the
costs associated with waste, such as waste due to

● Rejects of completed work

● Design flaws
● Work in progress
● Improperly instructed manpower
● Excess or noncontributing management (who still charge time to the project)
● Improperly assigned manpower
● Improper utilization of facilities
● Excessive expenses that do not necessarily contribute to the project (i.e.,
unnecessary meetings, travel, lodgings, etc.)

66
The Cost of Quality

67
Total Quality Management (TQM)

There is no explicit definition of total quality

management.

Some people define it as providing the customer with

quality products at the right time and at the right place.

68
Total Quality Management (TQM)

The most common primary strategies to obtain TQM are listed below

● Solicit ideas for improvement from employees.

● Encourage and develop teams to identify and solve problems.
● Encourage team development for performing operations and service
activities resulting in participative leadership.
● Benchmark every major activity in the organization to ensure that it is
done in the most efficient and effective way.
● Utilize process management techniques to improve customer service and
reduce cycle time.
● Develop and train customer staff to be entrepreneurial and innovative in
order to find ways to improve customer service.
● Implement improvements so that the organization can qualify as an ISO
9000 supplier.

69
Total Quality Management (TQM)

70
Project Management
CEE 501A
Lecture week 8
Project Risk Management

Course Teacher
Dr. Muhammad Saiful Islam
Associate Professor
Dept. of CEE, SUST

1
Lecture Outlines

❑ Risk definition
❑ Risk management process
• Plan for risk management
• Risk identification
• Risk analysis
o Qualitative and quantitative risk analysis
• Planning for Risk response
• Monitoring and control risk

2
Risk
Risk can be defined as the combination of the probability of an event
and its consequences (ISO/IEC Guide 73) on project performance.

In all types of undertaking, there is the potential for events and

consequences that constitute opportunities for benefit (upside) or threats
to success (downside).

Risk has two primary components for a given event:

● A probability of occurrence of that event
● Impact (or consequence) of the event occurring (amount at stake)

Risk = f (probability, consequence)

3
Risk management is a central part of any organisation’s strategic
management.

It is the process whereby organisations methodically address the risks

attaching to their activities with the goal of achieving sustained benefit
within each activity and across the portfolio of all activities.
Risk management is the act or practice of dealing with risk. It includes
planning for risk, identifying risks, analyzing risks, developing risk
response strategies, and monitoring and controlling risks to determine
how they have changed.

Its objective is to add maximum sustainable value to all the activities of the
organisation.
It increases the probability of success, and reduces both the probability of
failure and the uncertainty of achieving the organisation’s overall
objectives.

4
Risk management should be a continuous and developing process which runs
throughout the organisation’s strategy and the implementation of that strategy.
Risk Management is increasingly recognised as being concerned with both
positive and negative aspects of risk. Therefore this standard considers risk
from both perspectives.

External and Internal Factors

The risks facing an organisation and its operations can result from factors both
external and internal to the organisation.

They can be categorised further into types of risk such as:

• strategic,
• financial,
• operational, and
• hazard, etc.

5
6
Risk Management Process

7
Risk Management Process
Risk management protects and adds value to the organisation and its
stakeholders through supporting the organisation’s objectives by:
• providing a framework for an organisation that enables future
activity to take place in a consistent and controlled manner
• improving decision making, planning and prioritisation by
comprehensive and structured understanding of business activity,
volatility and project opportunity/threat
• contributing to more efficient use/allocation of capital and
resources within the organisation
• reducing volatility in the non essential areas of the business
• developing and supporting people and the organisation’s knowledge
base
• optimising operational efficiency

8
Risk Management Process
It is important that a risk management strategy be established early in a project
and that risk be continually addressed throughout the project life cycle. Risk
management includes several related actions(Numbers refer to section
numbers in the 4th edition of the PMBOK Guide.):

• Plan Risk Management (11.1): The process of developing and documenting an

organized, comprehensive, and interactive strategy and methods for identifying
and analyzing risks, developing risk response plans, and monitoring and controlling
how risks have changed.
• Identify Risks (11.2): The process of examining the program areas and each critical
technical process to identify and document the associated risk.
• Perform Risk Analysis (11.3, 11.4): The process of examining each identified
risk to estimate the probability and predict the impact on the project. It includes
both qualitative risk analysis (11.3) and quantitative risk analysis (11.4).

9
Risk Management Process
• Plan Risk Response (11.5): The process that identifies, evaluates, selects, and
implements one or more strategies in order to set risk at acceptable levels given
program constraints and objectives. Response options for risks include
acceptance, avoidance, mitigation (also known as control), and transfer.

• Monitor and Control Risks (11.6): The process that systematically tracks and
evaluates the performance of risk response actions against established metrics
throughout the acquisition process and provides inputs to updating risk
response strategies, as appropriate.

10
Plan for Risk Management
Plan for risk management (risk planning) is the detailed formulation of a
program of action for the management of risk. It is the process to:

• Develop and document an organized, comprehensive, and interactive risk

management strategy.
• Determine the methods to be used to execute a program’s risk management
strategy.
• Plan for adequate resources.

11
Plan for Risk Management (RMP)

• The key to writing a good RMP is to provide the necessary information so

the program team knows the objectives; goals; tools and techniques;
reporting, documentation, and communication; organizational roles and
responsibilities; and behavioral climate to achieving effective risk
management.
• The RMP should include appropriate definitions, ground rules and
assumptions associated with performing risk management on the project,
candidate risk categories, suitable risk identification and analysis
methodologies, a suitable risk management organizational
implementation, and suitable documentation for risk management
activities.

12
Risk Identification

• This may result from a survey of the project, customer, and

users for potential concerns.
• Some degree of risk always exists in the project, such as in
technical, test, logistics, production, engineering, and other
areas. Project risks include business, contract relationship,
cost, funding, management, political, and schedule risks.
• Risk identification must continue through all project phases.

13
Risk Identification
Common practice is to classify project risk according to its
source, which is typically either objective or subjective:
Objective sources: recorded experience from past projects and
the current project as it proceeds
• Lessons learned files
• Program documentation evaluations
• Current performance data

Subjective sources: experiences based upon knowledgeable

experts
• Interviews and other data from subject matter experts

14
15
Risk Identification
Sources of information:
• Assumption analysis
• Baseline cost estimates
• Brainstorming
• Checklists
• Cost analysis
• Decision drivers
• Diagramming techniques (e.g., influence diagrams)
• Earned value analysis
• Expert judgment
• Lessons learned files

16
Risk Identification
Sources of information contd.:
• Life-cycle cost analysis
• Models
• Plan/WBS decomposition
• Root cause investigations
• Schedule analysis
• Strengths, weaknesses, opportunities, and threats (SWOT)
• Systems engineering documentation
• Technical performance measurement (TPM/) planning/analysis
• Technology analysis
• Technology development/insertion projects
• Trade studies/analyses

17
Risk Identification

• Expert judgment techniques are applicable not only for risk

identification but also for forecasting and decision-making. Among
other expert judgment techniques, the Delphi method and nominal
group technique are frequently used.
• The Delphi method has the following general steps:
– Step 1: A panel of experts is selected from both inside and
outside the organization. The experts do not interact on a face-
to-face basis and may not even know who else sits on the panel.
– Step 2: Each expert is asked to make an anonymous prediction
on a particular subject.
– Step 3: Each expert receives a composite feedback of the entire
panel’s answers and is asked to make new predictions based
upon the feedback. The process is then repeated as necessary.

18
Risk Identification

• Closely related to the Delphi method is the nominal group

technique, which allows for face-to-face contact and direct
communication.
• The steps in the nominal group technique are as follows:
– Step 1: A panel is convened and asked to generate ideas in writing.
– Step 2: The ideas are listed on a board or a flip chart. Each idea is
discussed among the panelists.
– Step 3: Each panelist prioritizes the ideas, which are then rank
ordered. Steps 2 and 3 may be repeated as necessary.

19
Risk Analysis

• Risk analyses are often based on detailed

information that may come from a variety of
techniques, including but not limited to:
– Analysis of plans and related documents
– Comparisons with similar systems
– Data from engineering or other models
– Experience and interviewing
– Modeling and simulation
– Relevant lessons-learned studies
– Results from tests and prototype development

21
Risk Analysis

• Describing and quantifying a specific risk and the

magnitude of that risk usually requires some analysis or
modeling.
• Typical tools for use in qualitative and/or quantitative
– Analysis of plans and other documents to estimate variances
– Decision analysis (including decision trees, expected value, etc.)
– Delphi techniques
– Estimating relationships
– Expert judgment
– Failure modes and effects analysis (related to reliability)risk
analysis are:

22
Risk Analysis

– Fault tree analysis (related to reliability)

– Graphical analysis
– Life-cycle cost analysis
– Logic analysis
– Network analysis
– Payoff matrices
– Probabilistic risk analysis (related to reliability)
– Process templates (e.g., DoD Directive 4245.7-M)
– Quick reaction rate/quantity impact analysis

23
Risk Analysis

– Risk mapping matrix with risk scale results

– Risk scales (typically ordinal “probability” and consequence
scales)
– Schedule analysis
– Sensitivity analysis
– Simulation (e.g., Monte Carlo) for cost, technical performance,
and schedule
– Technology state-of-the-art trending
– Total risk-assessing cost analysis (TRACE)
– Work breakdown structure simulation

24
Risk Analysis

• When a qualitative risk analysis is performed, risk ratings can be

used as an indication of the potential importance of risks on a
program.
• A representative (“strawman”) set of risk rating definitions follows:
– High risk: Substantial impact on cost, technical performance, or
schedule. Substantial action required to alleviate issue. High-priority
management attention is required.
– Medium risk: Some impact on cost, technical performance, or
schedule. Special action may be required to alleviate issue. Additional
management attention may be needed.
– Low risk: Minimal impact on cost, technical performance, or schedule.
Normal management oversight is sufficient.

25
Risk Analysis

• A number of different outputs are possible for both qualitative

and/or quantitative risk analyses.
• These include, but are not limited to:
(1) an overall project risk ranking,
(2) a list of prioritized risks,
(3) probability of exceeding project cost and/or schedule,
(4) Probability of not achieving project performance requirements,
(5) decision analysis results,
(6) failure modes and effects (reliability),
(7) fault paths (reliability), and
(8) probability of failure (reliability).

26
Qualitative Risk Analysis

• A commonly used qualitative risk analysis methodology involves risk scales

(templates) for estimating probability of occurrence and consequence of
occurrence, coupled with a risk mapping matrix.
• The risk is evaluated using expert opinion against all relevant probability of
occurrence scales as well as the three consequences of occurrence scales (cost,
technical performance, and schedule),
• The results are then transferred onto a risk mapping matrix to convert these values
to a corresponding risk level.
• The risk is included in a prioritized list based upon the risk level as well as other
considerations (e.g., frequency of occurrence, the time to impact, and
interrelationships with other risks).

27
 Qualitative Risk Analysis
• Ordinal scales are commonly used in risk analyses. Such scales and a
corresponding risk mapping matrix can be a helpful methodology for estimating
risk.
• Another type of scale is based on subjective estimates assigned to different
probability statements (e.g., high), termed here estimative probability.
• Estimative probability scales can either be ordinal (more common) or cardinal (less
common) in nature, depending upon the source of the underlying data and the
structure of the scale.
• In the best case the probability estimates are derived from a statistical analysis of
survey data from a substantial number of respondents and include point estimates
and ranges around the estimate for each probability statement.

28
Qualitative Risk Analysis
A single “probability” of occurrence scale, related to technology maturity is used,
and given in Table 17–6. (Note: Since ordinal probability scales almost never
represent true probability but only an indicator of probability, scores derived
from such scales are indicated as “probability” values.)

(e.g., low scale levels A and B, medium scale level C, and high scale levels D
and E for both probability and consequence of occurrence scores), or five
resulting risk levels (low, low medium, medium, medium high, and high)

29
Qualitative Risk Analysis
Three consequence of occurrence scales—for cost, schedule, and technical—are
used and given in Table 17–7. For each of the three consequence of occurrence
scales, assume that low scale levels A and B, medium scale level C and D, and
high scale level E.

Project
Management: A
Systematic
Approach 30
Qualitative Risk Analysis

• A risk mapping matrix is typically used to convert ordinal probability of occurrence

and consequence of occurrence scale values to a corresponding risk level. While
there is no preset size for such a matrix, its dimensions must be less than or equal
to the number of scale levels used in both the probability and consequence
dimensions.
• With five-level probability of occurrence and consequence of occurrence scales
this corresponds to a 5 x 5 or smaller matrix. (This is illustrated in Example 17–2.)

Project
Management: A
Systematic
Approach 31
Qualitative Risk Analysis

• In this example, the resulting probability of occurrence score from Table 17–6 is
level C (preprototype maturity), and from Table 17–7 Cc level C, Cs level B, and Ct
level D. Given this information and the risk mapping matrix in
• Table 17–8, the risk level relative to cost, schedule, and technical is medium, low,
and medium, respectively.
• Taking the maximum of the three risk scores yields an overall medium risk level for
CCD low-light performance.

Give some examples of our 3 papers

Project Management: A
Systematic Approach

32
Quantitative Risk Analysis

• Methods can be chosen based on different situations.

• Decision making under risk- payoff matrix
• Decision making under uncertainty- expected value (Tree Diagram)
• Decision making under uncertainty- Mote Carlo simulation

Project Management: A
Systematic Approach

33
Payoff Matrix

Risk can be viewed as outcomes (i.e., states of nature) that can be described within
established confidence limits (i.e., probability distributions). These probability
distributions should ideally be either estimated or defined from experimental data.

The best choice of strategy is, therefore, the strategy with the largest expected
value, where the expected value is the summation of the payoff times and the
probability of occurrence of the payoff for each state of nature. In mathematical
formulation,

34
Payoff Matrix

35
Payoff Matrix

Ei is the expected payoff for strategy i, 𝑃𝑖,𝑗 is the payoff element, and 𝑝𝑗 is
the probability of each state of nature occurring. The expected value for
strategy 𝑆1

Repeating the procedure for strategies 2 and 3, we find that E2 55, and E3
20. Therefore, based on the expected value, the project manager should
always select strategy S1. If two strategies of equal value occur, the
decision should include other potential considerations (e.g., frequency of
occurrence, resource availability, time to impact).

36
Tree Diagram
Consider the following problem. A product can be manufactured using machine A or
machine B. Machine A has a 40 percent chance of being used and machine B a 60
percent chance. Both machines use either process C or D. When machine A is
selected, process C is selected 80 percent of the time and process D 20 percent.
When machine B is selected, process C is selected 30 percent of the time and
process D 70 percent of the time. What is the probability of the product being
produced by the various combinations?

The following three steps are needed to construct a tree diagram:

● Build a logic tree, usually from left to right, including all decision points and
chance points.
● Put the probabilities of the states of nature on the branches, thus forming a
probability tree.
● Finally, add the conditional payoffs, thus completing the decision tree.

37
Tree Diagram

38
Planning for Risk Response
• Planning risk responses (risk handling) includes specific methods and
techniques to deal with known risks and opportunities, identifies who is
responsible for the risk or opportunity, and provides an estimate of the
resources associated with handling the risk or opportunity, if any.
• It involves planning and execution with the objective of reducing risks to
an acceptable level and exploiting potential opportunities.
• There are several factors that can influence our response to a risk or
opportunity, including but not limited to:
– Amount and quality of information on the actual hazards that caused
the risk descriptive uncertainty)
– Amount and quality of information on the magnitude of the damage
(measurement uncertainty)

39
Planning for Risk Response

– Personal benefit to project manager for accepting the risk or

opportunity (voluntary risk or opportunity)
– Risk or opportunity forced upon the project manager
(involuntary risk or opportunity)
– The existence of cost-effective alternatives (equitable risks or
opportunities)
– The existence of high-cost alternatives or possibly lack of
options (inequitable risks or opportunities)
– Length of exposure to the risk or time available for the
opportunity

40
Planning for Risk Response
• Personnel that evaluate candidate risk response strategies
may use the following criteria as a starting point for
evaluation:
– Can the strategy be feasibly implemented and still meet the user’s needs?
– What is the expected effectiveness of the response strategy in reducing
program risk to an acceptable level?
– Is the strategy affordable in terms of dollars and other resources (e.g., use of
critical materials and test facilities)?
– Is time available to develop and implement the strategy, and what effect does
that have on the overall program schedule?
– What effect does the strategy have on the system’s technical performance?

41
Planning for Risk Response

42
A brief discussion of the four response options for risks follows:

● Acceptance (i.e., retention): The project manager says, “I know the risk exists
and am aware of the possible consequences. I am willing to wait and see what
happens. I accept the risk should it occur.”

● Avoidance: The project manager says, “I will not accept this option because of
the potentially unfavorable results. I will either change the design to preclude
the issue or requirements that lead to the issue.”

● Control (e.g., mitigation): The project manager says, “I will take the necessary
measures required to control this risk by continuously reevaluating it and
developing contingency plans or fall-back positions. I will do what is expected.”

● Transfer: The project manager says, “I will share this risk with others through
insurance or a warranty or transfer the entire risk to them. I may also consider
partitioning the risk across hardware and/or software interfaces or using other
approaches that share the risk.”

43
A brief discussion of the four response options for opportunities follows:

● Acceptance (i.e., retention): The project manager says, “I know an

opportunity exists and am aware of the possible benefits. I am willing to wait
and see what happens. I accept the opportunity should it occur.”

● Enhance: The project manager says, “This is an opportunity. What can we do

to increase the probability of occurrence of the opportunity, such as by using
more aggressive advertising?”

● Exploit: The project manager says, “This is an opportunity. How can we make
the most of it? Will assigning more talented resources allow us to get to the
marketplace quicker?”

● Share: The project manager says, “This is an opportunity, but we cannot

maximize the benefits alone. We should consider sharing the opportunity with
a partner.”

44
Planning for Risk Response

• Risk assumption is an active acknowledgment of the existence of a

particular risk situation and a conscious decision to accept the
associated level of risk, without engaging in any special efforts to
control it.
• Risk assumption should not be a passive project management
behavior. To the contrary, it should be a conscious decision involving
active behavior to ensure that adequate resources exist to address
the risk should it occur.

45
Planning for Risk Response

The key to successful risk assumption is twofold:

– Identify the resources (e.g., money, people, and time) needed to
overcome a risk if it occurs. This includes identifying the specific
management actions (such as retesting, and additional time for
further design activities) that may occur.
– Ensure that necessary administrative actions are taken to identify a
management reserve to accomplish those management actions.

46
Monitoring and Control Risk

• The monitoring and control process systematically tracks and evaluates

the effectiveness of risk response actions against established metrics.
• The key to the risk monitoring and control process is to establish a cost,
technical performance, and schedule management indicator system over
the program that the program manager and other key personnel use to
evaluate the status of the program.
• The indicator system should be designed to provide early warning of
potential problems to allow management actions.
• Risk monitoring and control is not a problem-solving technique but, rather
a proactive technique to obtain objective information on the progress to
date in reducing risks to acceptable levels.

47
Monitoring and Control Risk

• Some techniques suitable for risk monitoring and control that can be used
in a program-wide indicator sys
– Earned Value (EV): This uses standard cost/schedule data to evaluate a program’s cost
performance (and provide an indicator of schedule performance) in an integrated
fashion. As such, it provides a basis to determine if risk response actions are achieving
their forecasted results.
– Program Metrics: These are formal, periodic performance assessments of the selected
development processes, evaluating how well the development process is achieving its
objective. This technique can be used to monitor corrective actions that emerged from
an assessment of critical program processes.
– Schedule Performance Monitoring: This is the use of program schedule data to evaluate
how well the program is progressing to completion.
– Technical Performance Measurement (TPM): TPM is a product design assessment that
estimates, through engineering analysis and tests, the values of essential technical
performance parameters of the current design as effected by risk response actions.

48