topic 5- 1ict 327 management of it projectssemester 2, 2004 project time & cost management...

Topic 5- 1 ICT 327 Management of IT Projects Semester 2, 2004

Project Time & Cost Management

Schwalbe Chapters 6 & 7


Learning Objectives

• Be able to:• Understand the importance of project schedules and

good project time management• Define activities as the basis for developing project

schedules• Describe how project managers use network diagrams

and dependencies to assist in activity sequencing• Explain how various tools and techniques help project

managers perform activity duration estimating and schedule development

• Use a Gantt chart for schedule planning and tracking schedule information


Learning Objectives

• Understand and use critical path analysis• Describe how to use several techniques for

shortening project schedules• Explain the basic concepts behind critical chain

scheduling and Program Evaluation and Review Technique (PERT)

• Discuss how reality checks and people issues are involved in controlling and managing changes to the project schedule

• Describe how software can assist in project time management


Importance of Project Schedules

• Managers often cite delivering projects on time as one of their biggest challenges

• Average time overrun from 1995 CHAOS report was 222%; improved to 163% in 2001 study

• Time has the least amount of flexibility; it passes no matter what

• Schedule issues are the main reason for conflicts on projects, especially during the second half of projects


Figure 6-1. Conflict Intensity Over the Life of a Project

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

ProjectFormation

Early Phases Middle Phases End Phases

Co

nfl

ict

Inte

nsi

ty

Schedules

Priorities

Manpower

Technical opinions

Procedures

Cost

Personality conflicts

AverageTotal Conflict


Project Time Management Processes

• Project time management involves the processes required to ensure timely completion of a project. Processes include:• Activity definition• Activity sequencing• Activity duration estimating• Schedule development• Schedule control


Activity Definition

• Project schedules grow out of the basic document that initiate a project• Project charter includes start and end dates and

budget information• Scope statement and WBS help define what will be

done

• Activity definition involves developing a more detailed WBS and supporting explanations to understand all the work to be done so you can develop realistic duration estimates


Activity Sequencing

• Involves reviewing activities and determining dependencies• Mandatory dependencies: inherent in the

nature of the work; hard logic• Discretionary dependencies: defined by the

project team; soft logic• External dependencies: involve relationships

between project and non-project activities

• You must determine dependencies in order to use critical path analysis


Project Network Diagrams

• Project network diagrams are the preferred technique for showing activity sequencing

• A project network diagram is a schematic display of the logical relationships among, or sequencing of, project activities


Figure 6-2. Sample Activity-on-Arrow (AOA) Network Diagram for Project X


Arrow Diagramming Method (ADM)

• Also called activity-on-arrow (AOA) project network diagrams

• Activities are represented by arrows

• Nodes or circles are the starting and ending points of activities

• Can only show finish-to-start dependencies


Process for Creating AOA Diagrams

1. Find all of the activities that start at node 1. Draw their finish nodes and draw arrows between node 1 and those finish nodes. Put the activity letter or name and duration estimate on the associated arrow

2. Continuing drawing the network diagram, working from left to right. Look for bursts and merges. Bursts occur when a single node is followed by two or more activities. A merge occurs when two or more nodes precede a single node


Creating AOA Diagrams (cont.)

3. Continue drawing the project network diagram until all activities are included on the diagram that have dependencies

4. As a rule of thumb, all arrowheads should face toward the right, and no arrows should cross on an AOA network diagram


Precedence Diagramming Method (PDM)

• Activities are represented by boxes

• Arrows show relationships between activities

• More popular than ADM method and used by project management software

• Better at showing different types of dependencies


Figure 6-3. Task Dependency Types


Sample PDM Network Diagram


Activity Duration Estimating

• After defining activities and determining their sequence, the next step in time management is duration estimating

• Duration includes the actual amount of time worked on an activity plus elapsed time

• Effort is the number of workdays or work hours required to complete a task. Effort does not equal duration

• People doing the work should help create estimates, and an expert should review them


Schedule Development

• Schedule development uses results of the other time management processes to determine the start and end date of the project and its activities

• Ultimate goal is to create a realistic project schedule that provides a basis for monitoring project progress for the time dimension of the project

• Important tools and techniques include Gantt charts, PERT analysis, critical path analysis, and critical chain scheduling


Gantt Charts

• Gantt charts provide a standard format for displaying project schedule information by listing project activities and their corresponding start and finish dates in a calendar format

• Symbols include:• A black diamond: milestones or significant events on a

project with zero duration• Thick black bars: summary tasks• Lighter horizontal bars: tasks• Arrows: dependencies between tasks


Figure 6-5. Gantt Chart for Project X

Gantt Chart for Software Launch Project


Milestones

• Milestones are significant events on a project that normally have zero duration

• You can follow the SMART criteria in developing milestones that are:• Specific• Measurable• Assignable• Realistic• Time-framed


Sample Tracking Gantt Chart


Critical Path Method (CPM)

• CPM is a project network analysis technique used to predict total project duration

• A critical path for a project is the series of activities that determines the earliest time by which the project can be completed

• The critical path is the longest path through the network diagram and has the least amount of slack or float


Finding the Critical Path

• First develop a good project network diagram

• Add the durations for all activities on each path through the project network diagram

• The longest path is the critical path


Simple Example of Determining the Critical Path

• Consider the following project network diagram. Assume all times are in days.

2 3

4

5

A=2 B=5C=2

D=7

1 6

F=2

E=1

start finish

a. How many paths are on this network diagram?

b. How long is each path?

c. Which is the critical path?

d. What is the shortest amount of time needed to complete this project?


Figure 6-8. Determining the Critical Path for Project X


More on the Critical Path

• If one or more activities on the critical path takes longer than planned, the whole project schedule will slip unless corrective action is taken

• Misconceptions:• The critical path is not the one with all the critical

activities; it only accounts for time. Remember the example of growing grass being on the critical path for Disney’s Animal Kingdom Park

• There can be more than one critical path if the lengths of two or more paths are the same

• The critical path can change as the project progresses


Using Critical Path Analysis to Make Schedule Trade-offs

• Knowing the critical path helps you make schedule trade-offs

• Free slack or free float is the amount of time an activity can be delayed without delaying the early start of any immediately following activities

• Total slack or total float is the amount of time an activity may be delayed from its early start without delaying the planned project finish date

• A forward pass through the network diagram determines the early start and finish dates

• A backward pass determines the late start and finish dates


Calculating Early & Late Start and Finish Dates


Project 2002 Schedule Table View Showing Free and Total Slack


Techniques for Shortening a Project Schedule

• Shorten durations of critical tasks by adding more resources or changing their scope

• Crashing tasks by obtaining the greatest amount of schedule compression for the least incremental cost

• Fast tracking tasks by doing them in parallel or overlapping them


Crashing and Fast Tracking

OverlappedTasks or fasttracking

Shortenedduration thrucrashing

Original schedule


Many Horror Stories Related to Project Schedules

• Creating realistic schedules and sticking to them is a key challenge of project management

• Crashing and fast tracking often cause more problems, resulting in longer schedules

• Organizational issues often cause schedule problems. See example of needing to take more time to implement Customer Relationship Management (CRM) software so users accept it


Importance of Updating Critical Path Data

• It is important to update project schedule information

• The critical path may change as you enter actual start and finish dates

• If you know the project completion date will slip, negotiate with the project sponsor


Critical Chain Scheduling

• Technique that addresses the challenge of meeting or beating project finish dates and an application of the Theory of Constraints (TOC)

• Developed by Eliyahu Goldratt in his books The Goal and Critical Chain

• Critical chain scheduling is a method of scheduling that takes limited resources into account when creating a project schedule and includes buffers to protect the project completion date

• Critical chain scheduling assumes resources do not multitask because it often delays task completions and increases total durations


Multitasking Example


Buffers and Critical Chain

• A buffer is additional time to complete a task• Murphy’s Law states that if something can go

wrong, it will, and Parkinson’s Law states that work expands to fill the time allowed. In traditional estimates, people often add a buffer and use it if it’s needed or not

• Critical chain schedule removes buffers from individual tasks and instead creates• A project buffer, which is additional time added before

the project’s due date• Feeding buffers, which are addition time added before

tasks on the critical path


Figure 6-11. Example of Critical Chain Scheduling


Program Evaluation and Review Technique (PERT)

• PERT is a network analysis technique used to estimate project duration when there is a high degree of uncertainty about the individual activity duration estimates

• PERT uses probabilistic time estimates based on using optimistic, most likely, and pessimistic estimates of activity durations


PERT Formula and Example

• PERT weighted average formula: optimistic time + 4X most likely time + pessimistic time

6

• Example:PERT weighted average = 8 workdays + 4 X 10 workdays + 24 workdays = 12 days

6

where 8 = optimistic time, 10 = most likely time, and 24 = pessimistic time


Controlling Changes to the Project Schedule

• Perform reality checks on schedules

• Allow for contingencies

• Don’t plan for everyone to work at 100% capacity all the time

• Hold progress meetings with stakeholders and be clear and honest in communicating schedule issues


Working with People Issues

• Strong leadership helps projects succeed more than good PERT charts

• Project managers should use• empowerment• incentives• discipline• negotiation


What Went Right?

Chris Higgins used the discipline he learned in the Army to transform project management into a cultural force at Bank of America. Higgins learned that taking time on the front end of a project can save significant time and money on the back end. As a quartermaster in the Army, when Higgins' people had to pack tents, he devised a contest to find the best way to fold a tent and determine the precise spots to place the pegs and equipment for the quickest possible assembly. Higgins used the same approach when he led an interstate banking initiative to integrate incompatible check processing, checking account, and savings account platforms in various states…He made the team members analyze, plan, and document requirements for the system in such detail that it took six months just to complete that phase. But the discipline up front enabled the software developers on the team to do all of the coding in only three months, and the project was completed on time.


Using Software to Assist in Time Management

• Software for facilitating communications helps people exchange schedule-related information

• Decision support models help analyze trade-offs that can be made

• Project management software can help in various time management areas


Table 6-2. Project 2000 Features Related to Project Time Management

Reports Views and Table Views Filters Overview reports: critical

tasks and milestones Current activities reports:

unstarted tasks, tasks startingsoon, tasks in progress,completed tasks, should havestarted tasks, and slippingtasks

Assignment reports: whodoes what when

Gantt chart, PERTchart, Tracking Gantt,schedule, tracking,variance, constraintdates, and delay

All tasks,completed tasks,critical tasks,incomplete tasks,and milestonetasks


Words of Caution on Using Project Management Software

• Many people misuse project management software because they don’t understand important concepts and have not had good training

• You must enter dependencies to have dates adjust automatically and to determine the critical path

• You must enter actual schedule information to compare planned and actual progress


Project Cost Management

Schwalbe Chapter 7


Learning Objectives

• Understand the importance of good project cost management

• Explain basic project cost management principles, concepts, and terms

• Describe how resource planning relates directly to project cost management

• Explain cost estimating using definitive, budgetary, and rough order of magnitude (ROM) estimates


Learning Objectives

• Understand the processes involved in cost budgeting and preparing a cost estimate for an information technology project

• Understand the benefits of earned value management and project portfolio management to assist in cost control

• Describe how software can assist in project cost management


The Importance of Project Cost Management

• IT projects have a poor track record for meeting cost goals

• Average cost overrun from 1995 CHAOS study was 189% of the original estimates; improved to 145% in the 2001 study

• In 1995, cancelled IT projects cost the U.S. over $81 billion


What Went Wrong?

According to the San Francisco Chronicle front-page story, "Computer Bumbling Costs the State $1 Billion," the state of California had a series of expensive IT project failures in the late 1990s, costing taxpayers nearly $1 billion…ironic that the state which leads in creation of computers is the state most behind in using computer technology to improve state services. …The Internal Revenue Service (IRS) managed a series of project failures that cost taxpayers over $50 billion a year—roughly as much money as the annual net profit of the entire computer industry. …Connecticut General Life Insurance Co. sued PeopleSoft over an aborted installation of a finance system.


What is Cost and Project Cost Management?

• Cost is a resource sacrificed or foregone to achieve a specific objective or something given up in exchange

• Costs are usually measured in monetary units like dollars

• Project cost management includes the processes required to ensure that the project is completed within an approved budget


Project Cost Management Processes

• Resource planning: determining what resources and quantities of them should be used

• Cost estimating: developing an estimate of the costs and resources needed to complete a project

• Cost budgeting: allocating the overall cost estimate to individual work items to establish a baseline for measuring performance

• Cost control: controlling changes to the project budget


Basic Principles of Cost Management

• Most CEOs and boards know a lot more about finance than IT, so IT project managers must speak their language• Profits are revenues minus expenses• Life cycle costing is estimating the cost of a project plus

the maintenance costs of the products it produces• Cash flow analysis is determining the estimated annual

costs and benefits for a project• Benefits and costs can be tangible or intangible, direct

or indirect• Sunk cost should not be a criteria in project selection


Table 7-1. Cost of Software Defects

When Defect is Detected Typical Cost of CorrectionUser Requirements $100-$1,000Coding/Unit Testing $1,000 or moreSystem Testing $7,000 - $8,000Acceptance Testing $1,000 - $100,000After Implementation Up to millions of dollars

It is important to spend money up-front on IT projects to avoid spending a lot more later.


Resource Planning

• The nature of the project and the organization will affect resource planning

• Some questions to consider:• How difficult will it be to do specific tasks on the

project?• Is there anything unique in this project’s scope

statement that will affect resources?• What is the organization’s history in doing similar

tasks?• Does the organization have or can they acquire the

people, equipment, and materials that are capable and available for performing the work?


Sample Headcount Information to Help Estimate Resource Costs

A large percentage of the costs of many IT projects are human resource costs.


Cost Estimating

• An important output of project cost management is a cost estimate

• There are several types of cost estimates and tools and techniques to help create them

• It is also important to develop a cost management plan that describes how cost variances will be managed on the project


Table 7-3. Types of Cost Estimates

Type of Estimate When Done Why Done How Accurate

Rough Order ofMagnitude (ROM)

Very early in theproject life cycle,often 3–5 yearsbefore projectcompletion

Provides roughballpark of cost forselection decisions

–25%, +75%

Budgetary Early, 1–2 years out Puts dollars in thebudget plans

–10%, +25%

Definitive Later in the project, <1 year out

Provides details forpurchases, estimateactual costs

–5%, +10%


Cost Estimation Tools and Techniques

• 3 basic tools and techniques for cost estimates:• analogous or top-down: use the actual cost of a

previous, similar project as the basis for the new estimate

• bottom-up: estimate individual work items and sum them to get a total estimate

• parametric: use project characteristics in a mathematical model to estimate costs


Constructive Cost Model (COCOMO)

• Barry Boehm helped develop the COCOMO models for estimating software development costs

• Parameters include source lines of code or function points

• COCOMO II is a computerized model available on the Web

• Boehm suggests that only parametric models do not suffer from the limits of human decision-making


Typical Problems with IT Cost Estimates

• Developing an estimate for a large software project is a complex task requiring a significant amount of effort. Remember that estimates are done at various stages of the project

• Many people doing estimates have little experience doing them. Try to provide training and mentoring

• People have a bias toward underestimation. Review estimates and ask important questions to make sure estimates are not biased

• Management wants a number for a bid, not a real estimate. Project managers must negotiate with project sponsors to create realistic cost estimates


Table 7-4. Business Systems Replacement Project Cost Estimate Overview


Table 7-5. Business Systems Replacement Project Cash Flow Analysis

FY95

($000)

FY96

($000)

FY97

($000)

3 YearTotal($000)

Future AnnualCosts/Savings

($000)CostsOracle/PM Software(List Price)

992 500 0 1492 0

60% Discount (595) (595)Oracle Credits (397) 0 (397)

Net Cash for Software 0 500 500Software Maintenance 0 90 250 340 250Hardware & Maintenance 0 270 270 540 270Consulting &Training 205 320 0 525 0Tax & Acquisition 0 150 80 230 50Total Purchased Costs 205 1330 600 2135 570Information Services &Technology (IS&T)

500 1850 1200 3550 0

Finance/Other Staff 200 990 580 1770Total Costs 905 4170 2380 7455 570

SavingsMainframe (101) (483) (584) (597)Finance/Asset/PM (160) (1160) (1320) (2320)IS&T Support/Data Entry (88) (384) (472) (800)Interest 0 (25) (25) (103)Total Savings (349) (2052) (2401) (3820)

Net Cost (Savings) 905 3821 328 5054 (3250)

8 Year InternalRate of Return

35%


Cost Budgeting

• Cost budgeting involves allocating the project cost estimate to individual work items and providing a cost baseline

• For example, in the Business Systems Replacement project, there was a total purchased cost estimate for FY97 of $600,000 and another $1.2 million for Information Services and Technology

• These amounts were allocated to appropriate budgets as shown in Table 7-6


Table 7-6. Business Systems Replacement Project Budget Estimates for FY97 and Explanations

Budget Category Estimated Costs ExplanationHeadcount (FTE) 13 Included are 9 programmer/analysts, 2

database analysts, 2 infrastructuretechnicians.

Compensation $1,008,500 Calculated by employee change notices(ECNs) and assumed a 4% pay increase inJune. Overload support was planned at$10,000.

Consultant/PurchasedServices

$424,500 Expected consulting needs in support of theProject Accounting and Cascadeimplementation efforts; maintenanceexpenses associated with the Hewlett-Packard (HP) computing platforms;maintenance expenses associated with thesoftware purchased in support of the BSRproject.

Travel $25,000 Incidental travel expenses incurred insupport of the BSR project, most associatedwith attendance of user conferences andoff-site training.

Depreciation $91,000 Included is the per head share ofworkstation depreciation, the Cascade HPplatform depreciation, and the depreciationexpense associated with capitalizedsoftware purchases.

Rents/Leases $98,000 Expenses associated with the Mach1computing platforms.

Other Suppliesand Expenses

$153,000 Incidental expenses associated with thingssuch as training, reward and recognition,long distance phone charges, miscellaneousoffice supplies.

Total Costs $1,800,000


Cost Control

• Project cost control includes• monitoring cost performance• ensuring that only appropriate project changes

are included in a revised cost baseline• informing project stakeholders of authorized

changes to the project that will affect costs

• Earned value management is an important tool for cost control


Earned Value Management (EVM)

• EVM is a project performance measurement technique that integrates scope, time, and cost data

• Given a baseline (original plan plus approved changes), you can determine how well the project is meeting its goals

• You must enter actual information periodically to use EVM. Figure 7-1 shows a sample form for collecting information


Figure 7-1. Cost Control Input Form for Business Systems Replacement Project

WBS#: 6.8.1.2 Description: Design Interface Process -Customer Information

Revision: Revision Date:

Assignments ForecastHours per day Effort (in hours) Calculated

Responsible: SMC Role: PA Availability: 6 Optimistic: 20Most Likely: 30 Plan

Effort:30 Hrs

Involved: Role: Availability: Pessimistic: 40

Involved: Role: Availability: PlanDuration

:

5 Days

Involved: Role: Availability: Delay (Days):

Description Assumptions

Results / Deliverables Dependencies Predecessors (WBS#): Successors (WBS#):

4.7

Develop an operational process design for the Customer Informationinterface from the Invoicing System to Oracle Receivables. This task willaccept as input the business/functional requirements developed during thetactical analysis phase and produce as output a physical operational design,which provides the specifications, required for code development.

Process Design Document - Technical - Operation/Physical DFD - Process Specifications - Interface Data Map

- All business rules and issues will be resolved prior to this task.- The ERD & data model for Oracle Receivables & any Oracleextension required will be completed and available prior to this task.- The ERD for the Invoicing System will be completed and availableprior to this task.- Few iterations of the review/modify cycle will be required.- Primarily a documentation task.


Earned Value Management Terms

• Planned value (PV): (formerly budgeted cost of work scheduled (BCWS)), also called the budget, is that portion of the approved total cost estimate planned to be spent on an activity during a given period

• Actual cost (AC): (formerly actual cost of work performed (ACWP)), is the total of direct and indirect costs incurred in accomplishing work on an activity during a given period

• The earned value (EV): formerly called the budgeted cost of work performed (BCWP), is an estimate of the value of the physical work actually completed


Earned Value Calculations


Earned Value Formulas


Rules of Thumb for Earned Value Numbers

• Negative numbers for cost and schedule variance indicate problems in those areas. The project is costing more than planned or taking longer than planned

• CPI and SPI less than 100% indicate problems


Figure 7-2. Earned Value Calculations for a One-Year Project After Five Months


Earned Value Chart


Project Portfolio Management

• Many organizations collect and control an entire suite of projects or investments as one set of interrelated activities in a portfolio

• Five levels for project portfolio management• Put all your projects in one database• Prioritize the projects in your database• Divide your projects into two or three budgets based on

type of investment• Automate the repository• Apply modern portfolio theory, including risk-return

tools that map project risk on a curve


Using Software to Assist in Cost Management

• Spreadsheets are a common tool for resource planning, cost estimating, cost budgeting, and cost control

• Many companies use more sophisticated and centralized financial applications software for cost information

• Project management software has many cost-related features


Sample Enterprise Project Management Screen

topic 5- 1ict 327 management of it projectssemester 2, 2004 project time & cost management...

Documents

project slide

project project charter

project time management

project managers

good project time management

nonproject activities

schedule issues

study time