Project Management Planning and Control How can we

Project Management: Planning and Control How can we make money? (or at least avoid losing it) Dr. David R. Doucette, PE Senior Vice President KLD Engineering

Why do we fail? l Most projects and companies don’t fail for technical reasons l Business reasons l Cost overruns l Schedule slippage l Marketing (not addressed here) l We don’t want to die!

Comments l “We had the seeds of our own destruction from the very beginning” l Typically, something unexpected happened l Translation: there were risks that were not recognized and could not be recovered from l Risk is unavoidable, but can be accomodated

How do we succeed? l Need to plan properly l Need to execute properly l Need to know when you’re in trouble l Need to know how to recover l Frequently none of the above happen

How do we plan? l First step: Project schedule l You know how to do this l First signs of trouble – not enough time l Start tweaking schedule to fit l You can’t create time, you’ve got to fit balance the risks of compressing selected tasks to meet schedule

Planning: The Next Step l Review l Look the plan with different views for risks l Standard Gantt Chart is OK l “Critical Path Gantt Chart” is better l Called l Every a “Tracking Gantt” by MS Project project has a critical path l Identified in red on chart

Case Study: EG 1003 Doghouse l Need to build a computer-controlled doghouse l Prototype l Hardware unit, to be put into production and software tasks l A variety of people available l $11, 000 budget

Doghouse Critical Path Gantt Chart Critical Path Not critical

Planning: What now? l You now have a schedule (time) l Address budget (money) l Assign l You l Look “resources” (people) to tasks know how to do this at “Resource Sheet” l If anything is red, ask why l Could be OK (level loading)

Planning: Resource Sheet (OK) Note: Some fields are missing to allow to expand to larger size Al, Diane, and Ed are red because their load fluctuates (sometimes full time, sometimes unassigned)

Project Labor and Rates (3 Kinds) l Direct Labor l Also called “touch labor” l Directly contribute to product l Project indirect l Don’t directly contribute, but needed l Project manager, clerical help l Overall indirect l Also called “General and Administrative” (G&A) l Corporate management, facilities, etc.

Labor Rates l Three l Just different labor rates direct (lowest rate) l Also called “unburdened” l Direct plus project indirect (not used much) l Everything (highest rate) l Also l As called “fully burdened” business people, we usually use fully burdened

Resource Sheet: Revisited For planning, work year is about 2000 hours So Betty is making $200 K? ? ? No, she makes much less – these are all fully burdened labor rates, typically 2 to 3 times the unburdened rate

Show me the money! l Assign the proper rate to each “resource” l What’s the budget? l Click Project/Project Information/Statistics l Look at bottom right corner l It’s probably too high l What now?

Doghouse Project l Estimated budget is $11, 280. 00 l Specification is $11, 000 l What now? l Change resources – use cheaper stuff l Ed is expensive, Fran is cheaper l Give Fran some of Ed’s work (floor)

Not There Yet l Cost is now $11, 120, still over budget l Give Fran the roof too l Cost is now $10, 960 l We’re within budget l Reserve of $40 (not much!) l We met the budget, but it’s risky l In real world, get a bigger reserve, but OK for here to fit in the hour I have

Planning is done Project starts

Now We Need to Execute l Stay on schedule l Stay on budget l Find problems early l Start fixing them

Earned Value Analysis l Attacks both problems at once l Two-dimensional way of looking at project l X Axis is time (project duration) l Y Axis is money (project budget)

Typical Project - Plan Project Budget Money Final testing, project winding down Implementation, maximum staff Initial Design, few People Involved 0 Start Date End Date Time

Typical Project - Actual Project We’re on time Spent Money Budget We’re on budget Life is good (We’re probably lying) Progress 0 Start Date Today Time End Date

Typical Project - Actual Project Spent Money Budget We’re ahead of schedule We’re on budget Life is great! Now we’re really lying! Progress 0 Start Date Today Time End Date

Typical Project - Actual Project We’re behind schedule Spent Money Budget We’re on budget We’re concerned Are there liquated damages? Progress 0 Start Date Today Time End Date

Typical Project - Actual Project Spent Money Budget We’re on time We’re over budget We’re worried This is typical Progress 0 Start Date Today Time End Date

Typical Project - Actual Project Spent Money Budget We’re ahead of schedule We’re over budget We’re too aggressive Technical machismo Progress 0 Start Date Today Time End Date

Typical Project - Actual Project Spent Money Budget We’re behind schedule We’re over budget We’re scared! This happens all the time Progress 0 Start Date Today Time End Date

The Prime Directive - Financial Project Budget Money BAD GOOD 0 Start Date End Date Time

How do I know the numbers? l Labor rates were part of planning l We can calculate costs via progress bars on the schedule l Example: l Schedule shows 2 days (16 hours) for task l Labor rate is $50/hour l Task costs 16*$50=$800 l It’s half done, therefore we “earned” $400

A More Accurate Cost l Preceding is called “Budgeted cost of work performed” l Based on estimates l Better: Actually track the money spent and use that instead l Called “Actual cost of work performed” l More accurate gauge of progress

Actual Cost of Work Performed l Usually tracked through financial systems l Track how many who worked on what tasks l Multiply by their actual labor rate l Takes care of additional resources being added without replanning l Takes care of bad estimates

How do we track progress? l Fill in progress on the task bars, like the EG 1003 project l Click on Project/Project Information/Statistics l Lower left corner will show Percent Complete in terms of duration and work hours l Duration is offset along the X Axis (progress)

Tracking Progress X Axis Progress Y Axis Progress (Budgeted Cost of Work Performed)

Put It All Together l The baseline plan is a plot of the budgeted cost of work scheduled versus time l The “S” curve on the examples l We know what day it is l We got progress from preceding slide l We know actual cost of work performed l If we don’t, we’ll use budgeted cost of work performed

The Finishing Touches l Make a vertical line for today - green line l The curve intersection is your baseline budgeted cost of work scheduled for today l Make a vertical line for progress (if not today) – white line l You now know if you’re early or late l The curve intersection is budgeted cost of work performed

Finishing the Finishing Touches l For the progress, mark the actual cost of work performed l Will be above or below the budgeted cost of work performed l If you’re above, you’re in budget trouble!

What are the keys? l Good planning and estimating l Good risk assessment – knowing what can go wrong l Good execution – watching progress versus budget carefully

What’s next? l This is only the prototype l What about production? l Some jobs (software, custom system integration) are nothing more than “one of a kind” l Others need to make lots of these things

The bigger picture l We need to consider two kinds of cost l “One time” development costs to make the prototype (probably high) l Includes Research and Development (R&D) expenses l Includes initial tooling to make the first item l Recurring costs to make each additional unit (probably low), also known as “marginal cost” l Labor to make each unit (discussed earlier) l Materials

What do I do? l First, estimate the production run l Need to know the market so you can make an intelligent guess l Divide the “one time” cost by the number of expected units l Add the recurring (marginal) cost l Use fully burdened numbers in all cases l This gives you a “per unit” cost

What next? l This cost has no margin for error l Add a reserve l Add profit margin (sometimes additional reserve in case you guess wrong) l Consider risk factors l What can cause you to run late l What unexpected expenses can cause you to lose money

Rejoice! The end is near! l Consider “cash flow” l You’ll be paying for labor and materials before you make sales l You’ll need money to tide you over l Profits from earlier projects l Loans l Venture l Try capital to minimize cash flow

How? l Try to spread out production run l Order materials only when needed l “Just in time” manufacturing l Turns cost into revenue quickly l Minimize use of labor l High production rates need lots of people l And lots of cash l Spread out and save money on cash flow

Conclusion l Many engineers do not practice what’s shown here l Results are frequently catastrophic l This is why 90 -95% of companies fail l Failures due to financial and planning, not technical reasons l Technical skill alone is not enough