Project Time Cost Management Schwalbe Chapters 6 7

Project Time & Cost Management Schwalbe Chapters 6 & 7 ICT 327 Management of IT Projects Semester 1, 2004 1

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 ICT 327 Management of IT Projects Semester 1, 2004 2

Learning Objectives • Understand 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 ICT 327 Management of IT Projects Semester 1, 2004 3

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 ICT 327 Management of IT Projects Semester 1, 2004 4

Figure 6 -1. Conflict Intensity Over the Life of a Project ICT 327 Management of IT Projects Semester 1, 2004 5

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 ICT 327 Management of IT Projects Semester 1, 2004 6

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 ICT 327 Management of IT Projects Semester 1, 2004 7

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 ICT 327 Management of IT Projects Semester 1, 2004 8

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 ICT 327 Management of IT Projects Semester 1, 2004 9

Figure 6 -2. Sample Activity-on-Arrow (AOA) Network Diagram for Project X ICT 327 Management of IT Projects Semester 1, 2004 10

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 ICT 327 Management of IT Projects Semester 1, 2004 11

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 ICT 327 Management of IT Projects Semester 1, 2004 12

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 ICT 327 Management of IT Projects Semester 1, 2004 13

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 ICT 327 Management of IT Projects Semester 1, 2004 14

Figure 6 -3. Task Dependency Types ICT 327 Management of IT Projects Semester 1, 2004 15

Sample PDM Network Diagram ICT 327 Management of IT Projects Semester 1, 2004 16

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 ICT 327 Management of IT Projects Semester 1, 2004 17

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 ICT 327 Management of IT Projects Semester 1, 2004 18

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 ICT 327 Management of IT Projects Semester 1, 2004 19

Figure 6 -5. Gantt Chart for Project X ICT 327 Management of IT Projects Semester 1, 2004 20

Gantt Chart for Software Launch Project ICT 327 Management of IT Projects Semester 1, 2004 21

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 ICT 327 Management of IT Projects Semester 1, 2004 22

Sample Tracking Gantt Chart ICT 327 Management of IT Projects Semester 1, 2004 23

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 ICT 327 Management of IT Projects Semester 1, 2004 24

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 ICT 327 Management of IT Projects Semester 1, 2004 25

Simple Example of Determining the Critical Path • Consider the following project network diagram. Assume all times are in days. 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? ICT 327 Management of IT Projects Semester 1, 2004 26

Figure 6 -8. Determining the Critical Path for Project X ICT 327 Management of IT Projects Semester 1, 2004 27

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 ICT 327 Management of IT Projects Semester 1, 2004 28

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 ICT 327 Management of IT Projects Semester 1, 2004 29

Calculating Early & Late Start and Finish Dates ICT 327 Management of IT Projects Semester 1, 2004 30

Project 2002 Schedule Table View Showing Free and Total Slack ICT 327 Management of IT Projects Semester 1, 2004 31

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 ICT 327 Management of IT Projects Semester 1, 2004 32

Crashing and Fast Tracking ICT 327 Management of IT Projects Semester 1, 2004 33

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 ICT 327 Management of IT Projects Semester 1, 2004 34

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 ICT 327 Management of IT Projects Semester 1, 2004 35

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 ICT 327 Management of IT Projects Semester 1, 2004 36

Multitasking Example ICT 327 Management of IT Projects Semester 1, 2004 37

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 ICT 327 Management of IT Projects Semester 1, 2004 38

Figure 6 -11. Example of Critical Chain Scheduling ICT 327 Management of IT Projects Semester 1, 2004 39

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 ICT 327 Management of IT Projects Semester 1, 2004 40

PERT Formula and Example • PERT weighted average formula: optimistic time + 4 X 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 ICT 327 Management of IT Projects Semester 1, 2004 41

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 ICT 327 Management of IT Projects Semester 1, 2004 42

Working with People Issues • Strong leadership helps projects succeed more than good PERT charts • Project managers should use • • empowerment incentives discipline negotiation ICT 327 Management of IT Projects Semester 1, 2004 43

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. ICT 327 Management of IT Projects Semester 1, 2004 44

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 ICT 327 Management of IT Projects Semester 1, 2004 45

Table 6 -2. Project 2000 Features Related to Project Time Management ICT 327 Management of IT Projects Semester 1, 2004 46

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 ICT 327 Management of IT Projects Semester 1, 2004 47

Project Cost Management Schwalbe Chapter 7 ICT 327 Management of IT Projects Semester 1, 2004 48

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 ICT 327 Management of IT Projects Semester 1, 2004 49

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 ICT 327 Management of IT Projects Semester 1, 2004 50

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 ICT 327 Management of IT Projects Semester 1, 2004 51

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 1990 s, 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 People. Soft over an aborted installation of a finance system. ICT 327 Management of IT Projects Semester 1, 2004 52

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 ICT 327 Management of IT Projects Semester 1, 2004 53

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 ICT 327 Management of IT Projects Semester 1, 2004 54

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 ICT 327 Management of IT Projects Semester 1, 2004 55

Table 7 -1. Cost of Software Defects It is important to spend money up-front on IT projects to avoid spending a lot more later. ICT 327 Management of IT Projects Semester 1, 2004 56

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? ICT 327 Management of IT Projects Semester 1, 2004 57

Sample Headcount Information to Help Estimate Resource Costs A large percentage of the costs of many IT projects are human resource costs. ICT 327 Management of IT Projects Semester 1, 2004 58

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 ICT 327 Management of IT Projects Semester 1, 2004 59

Table 7 -3. Types of Cost Estimates ICT 327 Management of IT Projects Semester 1, 2004 60

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 ICT 327 Management of IT Projects Semester 1, 2004 61

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 decisionmaking ICT 327 Management of IT Projects Semester 1, 2004 62

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 ICT 327 Management of IT Projects Semester 1, 2004 63

Table 7 -4. Business Systems Replacement Project Cost Estimate Overview ICT 327 Management of IT Projects Semester 1, 2004 64

Table 7 -5. Business Systems Replacement Project Cash Flow Analysis ICT 327 Management of IT Projects Semester 1, 2004 65

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 FY 97 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 ICT 327 Management of IT Projects Semester 1, 2004 66

Table 7 -6. Business Systems Replacement Project Budget Estimates for FY 97 and Explanations ICT 327 Management of IT Projects Semester 1, 2004 67

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 ICT 327 Management of IT Projects Semester 1, 2004 68

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 ICT 327 Management of IT Projects Semester 1, 2004 69

Figure 7 -1. Cost Control Input Form for Business Systems Replacement Project ICT 327 Management of IT Projects Semester 1, 2004 70

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 ICT 327 Management of IT Projects Semester 1, 2004 71

Earned Value Calculations ICT 327 Management of IT Projects Semester 1, 2004 72

Earned Value Formulas ICT 327 Management of IT Projects Semester 1, 2004 73

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 ICT 327 Management of IT Projects Semester 1, 2004 74

Figure 7 -2. Earned Value Calculations for a One-Year Project After Five Months ICT 327 Management of IT Projects Semester 1, 2004 75

Earned Value Chart ICT 327 Management of IT Projects Semester 1, 2004 76

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 ICT 327 Management of IT Projects Semester 1, 2004 77

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 ICT 327 Management of IT Projects Semester 1, 2004 78

Sample Enterprise Project Management Screen ICT 327 Management of IT Projects Semester 1, 2004 79