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EUT443 – Engineering Management
Chapter 1
The World of Project Management
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WHAT IS A PROJECT?
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Why the emphasis on project management?
• Many tasks do not fit neatly into business-as-usual.
• Need to assign responsibility and authority for achievement of organizational goals.
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Characteristics of Projects
• Unique
• Specific Deliverable
• Specific Due Date
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Other Common Characteristics of Projects
• Multidisciplinary
• Complex
• Conflict
• Part of Programs
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PMI Definition
A temporary endeavor undertaken to create a unique product or service. Project Management Institute, 2000
Specific, timely, usually multidisciplinary, and always conflict ridden. Mantel et al.
Series of activities or tasks, specific objectives, defined start and end dates, funding limits, consumes resources, multifunctional. Kerzner
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PROJECT MANAGEMENT VS. GENERAL MANAGEMENT
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Skill Requirements for Effective Project Management
• Conflict Resolution
• Creativity and Flexibility
• Ability to Adjust to Change
• Good Planning
• Negotiation
– win-win versus win-lose
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WHAT IS MANAGED? THE THREE GOALS OF A PROJECT
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Figure 1-1: Performance, Cost, and Time Project Targets
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Project Performance Goals
• Outcomes/Quality (deliverables and quality)
– exactly what needs to be accomplished at what quality level
• Time
– doing it quickly or on schedule
• Cost
– doing it cheaply or on budget
Unfortunately, tradeoffs among these goals exist
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Project Performance Goals
Which goal is more important: time, cost, or outcomes?
Who decides which goal is more important?
Why is it important for the Project Manager (PM) to know which goal is more important?
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Examples of Projects and Goals
• What are examples of non-project activities?
• What are some examples of projects you’ve worked on?
– What were the desired deliverables/outcomes?
– What was the project time frame?
– What was the biggest challenge during the project?
– Which goals were more important?
– Were all goals fully met?
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THE LIFE CYCLES OF PROJECTS
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Figure 1-2 The Project Life Cycle
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A Common Project Life Cycle
• Slow Start– manager is selected
– team is assembled
– initial resources are allocated
– work program is organized
• Quick Momentum– work progresses
– momentum builds
• Slow Finish– many loose ends to tie up
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Figure 1-3 An Alternate Project Life Cycle
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Resources & Project Life Cycle
Start
Time
Finish
Resourc
es
Concept Planning Execution Wrap-up
Required Resources
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Implications of Project Life Cycles
• Project life cycle shape will affect the timing of resource and funding needs
• Understanding the general project life cycle may help the stakeholders better understand and accept the current status of the project
• Understanding the general project life cycle may also help the PM make better goal tradeoff decisions at particular times during the project
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SELECTING PROJECTS
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Selecting Projects
Who decides which projects will be undertaken by an organization?
What are some examples of criteria that might be used in selecting projects?
Why should the PM be made aware of why a project was selected?
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Nonnumeric Selection Methods
• Sacred Cow– President’s pet project
• Operating/Competitive Necessity– You must do this project to stay in business
• Product Line Extension– Fill the gap with firm current products
• Comparative Benefits– Examine +/- of each potential project
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Figure 1-4 The Q-Sort Method
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Numeric Selection Methods
• Financial Assessment Methods
– payback period
– discounted cash flow
• Scoring Methods
– unweighted 0-1 factor method
– weighted factor scoring method
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Payback Period
InflowsCash Net Annual
Investment Fixed Initial
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Payback Period Example
Expected project costs are $700,000
Expected returns are $200,000 per year
Payback period = 700,000 ÷ 200,000 = 3.5 years
Revenues would cover investment costs in 3.5 yrs.
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Discounted Cash Flow
= +
+=
n
tt
t
k
F
1
0)1(
I- (project) NPV
where
I0 = the initial investment
Ft = the net cash flow in period t
k = the required rate of return or hurdle rate
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Discounted Cash Flow
Initial investment I0 = $700,000;
4-year annual cash flow Ft = $200,000;
required rate of return k = 15%
NPV = -700,000 + 200,000/(1.15)1
+ 200,000/(1.15)2 + 200,000/(1.15)3
+ 200,000/(1.15)4
NPV = -700,000 + 173,913 + 151,229 + 131,503
+ 114,351
NPV = $-129,004
Should they do this project?
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The Weighted Scoring Model
=
=
n
j
jiji wsS1
where
Si = the total score of the ith project
sij = the score of the ith project on the jth criterion
wj = the weight or importance of the jth criterion
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Factor Scoring Method
Example: 3 projects; 4 factors; 1-5 scale (5=best)
Factor ProjectA ProjectB ProjectC
Cost 2 4 3
Risk 4 3 1
Suitable 4 2 5
Skills 2 2 5
Total Score: 12 11 14
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Weighted Factor Scoring Method
Example: 3 projects; 4 factors; 1-5 scale (5=best)
Factor Wt. ProjectA ProjectB ProjectC
Cost .4 2 4 3
Risk .3 4 3 1
Suitable .1 4 2 5
Skills .2 2 2 5
Wtd. Score: 2.8 3.1 3.0
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Confronting Uncertainty – The Management of Risk
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What uncertainties are encountered in project management?
• Time required to complete a project
• Availability of key resources
• Cost of resources
• Timing of solutions to technological problems
• Actions taken by competitors
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Can uncertainty surrounding projects ever be eliminated?
• No, but it can be managed
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Risk Analysis
• Estimate probabilities or distributions associated with key parameters
• Develop analytic or simulation model
• Analyze distribution of outcomes generated by model
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THE PROJECT PORTFOLIO PROCESS
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The Project Portfolio Process
• Step 1: Establish a Project Council• Step 2: Identify Project Categories and Criteria• Step 3: Collect Project Data• Step 4: Assess Resource Availability• Step 5: Reduce the Project and Criteria Set• Step 6: Prioritize the Projects within Categories• Step 7: Select the Projects to be Funded and
Held in Reserve• Step 8: Implement the Process
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The Aggregate Project Plan
RnDProjects
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Copyright
Copyright 2005200520052005 John Wiley & Sons, Inc.
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