MASTER OF BUSINESS ADMINISTRATION

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1 MASTER OF BUSINESS ADMINISTRATION Project Management Contact details: Regenesys Business School Tel: (011) Fax: (011)

2 Version Control: 5_e_f Date of Publication: August 2013 Publisher: Regenesys Management Document Change History Date Version Initials Description of Change 13 August 5_e_f FVS Re-versioned 2013 Updating page numbers Formatting This workbook offers foundational information on the subject. It is offered as a guide to students who have limited background in the subject matter so that they can place the information into a larger contextual framework. Please consult additional literature. Copyright Regenesys, 2013 All rights reserved. No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording or otherwise) without written permission of the publisher. Any person who does any unauthorised act in relation to this publication may be liable for criminal prosecution and civil claims for damages.

3 CONTENTS 1. WELCOME TO REGENESYS TEACHING AND LEARNING METHODOLOGY ALIGNING ORGANISATIONAL, TEAM AND INDIVIDUAL OBJECTIVES INTRODUCTION ICONS USED IN THIS STUDY GUIDE STUDY MATERIAL FOR THE MODULE RECOMMENDED RESOURCES RECOMMENDED ARTICLES RECOMMENDED BOOKS RECOMMENDED MULTIMEDIA ADDITIONAL SOURCES TO CONSULT LEARNING OUTCOMES CONTENT SCOPE AND LEARNING GUIDANCE PROJECT MANAGEMENT FUNDAMENTALS DEFINING THE CONCEPTS PROJECT MANAGEMENT TRIANGLE PROJECT MANAGEMENT BODY OF KNOWLEDGE (PMBOK ) PROJECT MANAGEMENT LIFE CYCLE TYPES OF PROJECTS THE ROLE OF THE PROJECT MANAGER STRATEGIC PROJECT MANAGEMENT AN OVERVIEW OF THE PROJECT MANAGEMENT PROCESS PROJECT MANAGEMENT SUCCESS FACTORS AGILE PROJECT MANAGEMENT CONCLUSION PROJECT INITIATION THE PROJECT TEAM VIRTUAL PROJECT TEAMS STAKEHOLDER MANAGEMENT TENDER MANAGEMENT CONCLUSION PROJECT PLANNING PROJECT SCOPE MANAGEMENT CALCULATE RETURN ON INVESTMENT CONTRACT MANAGEMENT WORK BREAKDOWN STRUCTURE (WBS) SCOPE CHANGE CONTROL PROCESS PROJECT TIME MANAGEMENT PROJECT COST MANAGEMENT PROJECT RISK MANAGEMENT CONCLUSION PROJECT EXECUTION AND EVALUATION PROJECT TEAM DEVELOPMENT PROJECT MONITORING PROJECT QUALITY CONTROL PROJECT EVALUATION CONCLUSION PROJECT CLOSURE PROJECT CLOSURE / TERMINATION PROJECT BASED LEARNING

4 7.5.3 CONCLUSION REFERENCES List of Tables FIGURE 1: PROJECT MANAGEMENT TRIANGLE FIGURE 2: DIAMOND APPROACH TO PROJECT MANAGEMENT FIGURE 3: PMBOK NINE PROJECT MANAGEMENT AREAS FIGURE 4: PROJECT LIFE CYCLE OF A COMPLEX PROJECT FIGURE 5: PROJECT MANAGEMENT TYPOLOGY FIGURE 6: INTEGRATED PROJECT MANAGEMENT KNOWLEDGE AREAS FIGURE 7: WATERFALL MODEL FIGURE 8: PROJECT SUCCESS RATINGS FIGURE 9: EXAMPLES OF PROJECT STAKEHOLDERS FIGURE 10: STAKEHOLDER MANAGEMENT PROCESS FIGURE 11: POWER/INTEREST GRID FIGURE 12: TIME, COST AND QUALITY CONTINUUM FIGURE 13: LOGICAL SEQUENCING FIGURE 14: SCHEDULING STAGES FIGURE 15: SEQUENCING THE CRITICAL PATH IN A GANTT CHART FIGURE 16: EXAMPLE OF A GANTT CHART FROM MS PROJECT FIGURE 17: ACTIVITY-ON-ARC NETWORK DIAGRAM FIGURE 18: DUMMY TASKS FIGURE 19: ACTIVITY ON NODE NETWORK DIAGRAMS FIGURE 20: AON RELATIONSHIPS FIGURE 21: PRECEDENCE/NETWORK DIAGRAM OF IT REFIT PROJECT FIGURE 22: PRECEDENCE/NETWORK DIAGRAM WITH ACTIVITY DURATIONS FIGURE 23: PRECEDENCE/NETWORK DIAGRAM WITH EETS FIGURE 24: PRECEDENCE/NETWORK DIAGRAM WITH EETS AND LETS FIGURE 25: CRITICAL RESOURCE PATHING FIGURE 26: RISK RATING FIGURE 27: RISK ANALYSIS FIGURE 28: NUMERICAL RISK SCALE FIGURE 29: LIKELIHOOD OF RISK FIGURE 30: TEAM DEVELOPMENT STAGES FIGURE 31: QUALITY CONTROL PROCESS

5 List of Figures FIGURE 1: PROJECT MANAGEMENT TRIANGLE FIGURE 2: DIAMOND APPROACH TO PROJECT MANAGEMENT FIGURE 3: PMBOK NINE PROJECT MANAGEMENT AREAS FIGURE 4: PROJECT LIFE CYCLE OF A COMPLEX PROJECT FIGURE 5: PROJECT MANAGEMENT TYPOLOGY FIGURE 6: INTEGRATED PROJECT MANAGEMENT KNOWLEDGE AREAS FIGURE 7: WATERFALL MODEL FIGURE 8: PROJECT SUCCESS RATINGS FIGURE 9: EXAMPLES OF PROJECT STAKEHOLDERS FIGURE 10: STAKEHOLDER MANAGEMENT PROCESS FIGURE 11: POWER/INTEREST GRID FIGURE 12: TIME, COST AND QUALITY CONTINUUM FIGURE 13: LOGICAL SEQUENCING FIGURE 14: SCHEDULING STAGES FIGURE 15: SEQUENCING THE CRITICAL PATH IN A GANTT CHART FIGURE 16: EXAMPLE OF A GANTT CHART FROM MS PROJECT FIGURE 17: ACTIVITY-ON-ARC NETWORK DIAGRAM FIGURE 18: DUMMY TASKS FIGURE 19: ACTIVITY ON NODE NETWORK DIAGRAMS FIGURE 20: AON RELATIONSHIPS FIGURE 21: PRECEDENCE/NETWORK DIAGRAM OF IT REFIT PROJECT FIGURE 22: PRECEDENCE/NETWORK DIAGRAM WITH ACTIVITY DURATIONS FIGURE 23: PRECEDENCE/NETWORK DIAGRAM WITH EETS FIGURE 24: PRECEDENCE/NETWORK DIAGRAM WITH EETS AND LETS FIGURE 25: CRITICAL RESOURCE PATHING FIGURE 26: RISK RATING FIGURE 27: RISK ANALYSIS FIGURE 28: NUMERICAL RISK SCALE FIGURE 29: LIKELIHOOD OF RISK FIGURE 30: TEAM DEVELOPMENT STAGES FIGURE 31: QUALITY CONTROL PROCESS

6 1 WELCOME TO REGENESYS At Regenesys, we assist individuals and organisations to achieve their personal and organisational goals, by enhancing their management and leadership potential. We approach education and development holistically, considering every interaction not only from an intellectual perspective but also in terms of emotion and spirituality. Our learning programmes are designed to transform and inspire your mind, heart and soul, and thus allow you to develop the positive values, attitudes and behaviours which are required for success. Having educated over students based in highly reputable local and international corporations across over 40 countries in the past 14 years, Regenesys is now one of the fastestgrowing and leading institutions of management and leadership development in the world. Regenesys ISO 9001:2008 accreditation bears testimony to our quality management systems meeting international standards. Regenesys is accredited with the Council on Higher Education. Our work is rooted in the realities of a rapidly changing world and we provide our clients with the knowledge, skills and values required for success in the 21st century. At Regenesys, you will be treated with respect, care and professionalism. You will be taught by business experts, entrepreneurs and academics inspired by their passion for human development. You will be at a place where business and government leaders meet, network, share their experiences and knowledge, learn from each other, and develop business relationships. You will have access to a campus, in the heart of Sandton, with the tranquillity of a Zen garden, gym and meditation room. We encourage you to embark on a journey of personal development with Regenesys. We will help you to awaken your potential and to realise that everything you need to succeed is within you. We will be with you every step of the way. We will work hard with you and, at the end, we will celebrate your success with you. Areas of Expertise Have a vision. Think big. Dream, persevere and your vision will become a reality. Awaken your potential knowing that everything you need is within you. - Dr. Marko Saravanja. Regenesys Business School 1

7 1.1 TEACHING AND LEARNING METHODOLOGY Regenesys uses an interactive teaching and learning methodology that encourages self-reflection and promotes independent and critical thinking. Key to the approach utilised is an understanding of adult learning principles, which recognise the maturity and experience of participants, and the way that adult students need to learn. At the core of this is the integration of new knowledge and skills into existing knowledge structures, as well as the importance of seeing the relevance of all learning via immediate application in the workplace. Practical exercises are used to create a simulated management experience to ensure that the conceptual knowledge and practical skills acquired can be directly applied within the work environment of the participants. The activities may include scenarios, case studies, self-reflection, problem solving and planning tasks. Training manuals are developed to cover all essential aspects of the training comprehensively, in a user-friendly and interactive format. Our facilitators have extensive experience in management education, training and development. 1.2 ALIGNING ORGANISATIONAL, TEAM AND INDIVIDUAL OBJECTIVES This course will draw on a model developed by Regenesys Management, which demonstrates how the external environment, the levels of an organisation, the team and the components of an individual are interrelated in a dynamic and systemic way. The success of an individual depends on his/her self-awareness, knowledge, and ability to manage successfully these interdependent forces, stakeholders, and processes. The degree of synergy and alignment between the goals and objectives of the organisation, the team and the individual determines the success or failure of an organisation. It is therefore imperative that each organisation ensures that team and individual goals and objectives are aligned with the organisation s strategies (vision, mission, goals and objectives, etc.); structure (organogram, decision-making structure, etc.); systems (HR, finance, communication, administration, information, etc.); culture (values, level of openness, democracy, caring, etc.). Hence, an effective work environment should be characterised by the alignment of organisational systems, strategies, structures and culture, and by people who operate synergistically. Regenesys Business School 2

8 Regenesys Integrated Management Model 2 INTRODUCTION Welcome to the module of Project Management (PRM). This module concentrates on a managerial approach to Advanced Project Management. It is divided into six sections. The first section introduces the fundamental concepts of project management. The section focuses on terminology and basic project management responsibilities. It reviews the nine project management knowledge areas supported by the Project Management Body of Knowledge (PMBOK ). You will spend time studying project management success and failure factors as well as an analysis of the role of the project manager. Section two discusses the management of team members. Time is spent on exploring the project team and team development is reviewed. A part of section two is devoted to virtual teams as the reality of the global village is essential for project managers. Sections three to five focuses on the five process groups of project management. These sections discuss project management process and techniques. It allows students to review project management and also introduces new concepts. In section five project based learning is discussed which will allow project managers to reflect on the lessons learnt from projects completed. The last section of the workbook discusses tender and contract management. Regenesys Business School 3

9 Please read through this study guide carefully, as it will influence your understanding of the subject matter and the successful planning and completion of your studies. 3 ICONS USED IN THIS STUDY GUIDE Icons are added to the workbook to enhance the usability of it. Certain illustrations were used to indicate different important aspects in the workbook to help the learner to use it more effectively as a reference guide in future. The icons in this workbook were used as follows: Definition The definitions provide an academic perspective on given terminology. They are used to give students a frame-of-reference from which to define a term using their own words. Interesting source to consult The source icon is used to indicate text sources, from the Internet or resource centre, which add to the content of the topic being discussed. Self-reflection Self-reflection is an action, which the students need to complete on their own time. It requires students to think further about an issue raised in class or in the learning materials. In certain instances, students may be required to add their views to their assignments. Examples The example icon is used to indicate an extra/additional text that illustrates the content under discussion. These include templates, simple calculation, problem solution, etc. Calculations This icon indicates mathematical or linguistic formulae and calculations. Tasks The task icon indicates work activities that contact students must complete during class time. These tasks will be discussed in class and reflected upon by students and facilitators. E-learning students can use these tasks simply to reinforce their knowledge. In a nutshell This icon indicates a summary of the content of a section in the workbook and to emphasise an important issue. Regenesys Business School 4

10 Video clip or Presentation This icon indicates a URL link to a video clip or presentation on the subject matter for discussion. It is recommended that students follow the link and listen/read the required sources. Note This icon indicates important information of which to take note. 4 STUDY MATERIAL FOR THE MODULE You have received material that includes the following: Study guide; Recommended reading; Assignment. These resources provide you with a starting point from which to study the contents of this module. In addition to these, other resources to assist you in completing this module will be provided online via the link to this module. Guidance on how to access the material is provided in the Academic Handbook which you received when you registered for this qualification. Additional resources that will be provided include: List of recommended books and articles; Feedback letters. The aim of providing additional material is to broaden your understanding of, and interest in the subject. Additional feedback letters serve to provide feedback on the assignments and guidelines for studying towards the examination. These feedback letters form an integral part of the module and must also be studied. 5 RECOMMENDED RESOURCES A number of recommended resources have been identified to assist you in successfully completing this module. Regenesys Business School 5

11 5.1 RECOMMENDED ARTICLES Baccarini, D., and Archer, R. (2001) The risk ranking of projects: a methodology. International Journal of Project Management. 19, pp Dey, P. (2002) Project Risk management: a combined analytic hierarchy process and decision tree approach. Cost Engineering. 44(3), pp Duncan, W.R. (1996) A guide to the Project Management Body of Knowledge. viewed 5 September 2012, < Eloranta, E., Hameri, A,P., and Lahti, M. (2001) Improved project management through improved document management. Computers in industry. 45, pp Evaristo, R., van Fenema, P.C. (1999). A typology of project management: emergence and evolution of new forms. International Journal of Project Management. 17(5), pp Furst, S.A. Reeves, M., Rosen. B., and Blackburn, R.S. (2004) Managing the life cycle of virtual teams. Academy of Management Executive. 18(2), pp Green, S. (2005) Strategic project Management. viewed 06 September 2012, < Hazen, G.B. (2004) Writing effective project reports. Department of Industrial Engineering and Management Sciences: Northwestern University. Jackson, B. (2000) Designing projects and project evaluations using the logical framework approach viewed 08 November 2012, < Jugdev, K., and Müller, R. (2005) A retrospective look at our evolving understanding of project success, Project Management Journal. 36(4), pp Karlsen, J.T. (2002) Project stakeholder management. Engineering Management Journal. 14(4), pp Kwak, Y.H., and Ibbs, C.W. (2002) Project Management Process maturity (PM) 2 model. Journal of management in engineering. July Love, P.E.D., and Irani, Z. (2002) A project management quality cost information system for the construction industry. Information & Management. 40, pp Munns, A.K., Bjeirmi, B.F. (1996) The role of project management in achieving project success. International Journal of Project Management. 14(2), pp Murphy, K.E., Simon, S.J. (2001) Using Cost Benefit analysis for Enterprise Resource Planning Project Evaluation: a case for including intangibles. viewed 08 November 2010, < Regenesys Business School 6

12 Neal, S., Cole, J., Linington, P.F., Milosevic, Z., Gibson, S., and Kulkarni, S. (n.d) Identifying requirements for business contract language: a monitoring perspective. viewed 8 November 2010, < Rad, P.F., and Cioffi, D.F. (2000) Work and Resource Breakdown Structures for formalized bottom-up estimating. viewed 8 November 2012, < Raz, T., and Michael, E. (2001) Use and benefits of tools for project risk management. International Journal of Project Management. 19, pp Rickards, T., and Moger, S. (2000) Creative Leadership processes in project team development: an alternative to Tuckman s stage model. British Journal of Management. 11, pp Scarbrough, H., Swan, J., Laurent, S., Bresnen, M., Edelman, L., and Newell S. (2004) Project-based learning and the role of learning boundaries. Organization Studies. 25(9), pp Shendar, A.J., Dvir, D., Levy, O., Maltz, A.C. (2001) Project success: a multidimensional strategic concept. Long Range Planning. 34, pp Stock tools. (2006) How to calculate your return on investment. Viewed 23 September 2012, < White, D., and Fortune, J. (2002) Current practice in project management an empirical study. International Journal of Project management. 20, pp Wilson, J.M. (2003) Gantt charts: A centenary appreciation. European journal of operational research. 149, pp Wruck, K.H., and Jensen, M.C. (1994) Science, specific knowledge, and total quality management. Journal of Accounting and Economics. 18, pp Additional articles that may prompt discussions and further assist you in completing this course will be saved on Regenesys Online under the relevant course. Please visit the site regularly to access these additional sources. 5.2 RECOMMENDED BOOKS The following books are highly recommended for this module: Laufer, A. (2012) Mastering the leadership role in project management: practices that deliver remarkable results. Pearson Education: South Africa. Please ensure that you order your textbook well in advance to ensure that you do not delay the commencement of your studies for this module. It is highly recommended that you order and purchase all your textbooks at the beginning of the year, immediately after registration. Regenesys Business School 7

13 5.3 RECOMMENDED MULTIMEDIA Challenges with cross-functional teams. (2011) viewed 5 September 2012, < Laurie, J. (2003) Why projects fail: a university accounting system. viewed 23 September 2012, < Lecture 10 Basic scheduling with A-O-N networks. viewed 6 September 2012, < Petersen, T. (2009) Case study: Risk Management in Health Case Construction projects. viewed 23 September 2012, < Project management quick tips Lesson 3. viewed 6 September 2012, < Projectsmart.co.uk. (2011) Agile: an introduction. viewed 23 September 2012, < Quality planning vs quality assurance vs quality control project quality control. (2012) viewed 6 September 2012, < Ruopp, T. (2010) Agile project management 1 Top 5 ideas. viewed 23 September 2012, < Wideman, R.M. (2002) Project Management Case study: the custom woodworking company Woody 2000 project viewed 23 September 2012, < 5.4 ADDITIONAL SOURCES TO CONSULT As a higher education student, you are responsible for sourcing additional information that will assist you in completing this module successfully. Below is a list of sources that you can consult to obtain additional information on the topics to be discussed in this module: EBSCOhost: NetMBA: MindTools: Brunel Open Learning Archive: This is an online database containing journal articles that are relevant to your modules. Please refer to the attached EBSCOhost manual to assist you to download required articles. Information on how to access EBSCOhost is provided to you in your Academic Handbook. You will receive access to the database once you register as a learner. This is one of several web addresses that provide a selection of MBA constructs and discussion. It is one of the better of these addresses. MindTools.com is a very useful source of ideas, constructs, management models, etc. with even more useful commentary and description. A Brunel University support-site that provides an easily accessible library of ideas, concepts, constructs techniques, tools, models, etc. Regenesys Business School 8

14 ProvenModels: 12manage.com: Alliance Online: The Free Management Library: The Charity Village: ProvenModels' Digital Model Book presents digitalised management models categorised in a clear, consistent and standardised information structure to improve the usability and reusability of management literature. Management models are important generalisations of business situations when applied in context and are powerful tools for solving business issues. This is a website on which one can access numerous models as well as global comments on the models and principles. This could also serve as a place where you could voice your ideas and get feedback from all over the world. The Alliance for Non-profit Management's general introduction to strategic planning is built around 15 questions that cover just about all aspects in brief. (Click on Strategic Planning ) The Free Management Library can be used to improve your organisation, and for your own personal, professional and organisational development. This is by far the most comprehensive overview of all aspects of strategic planning covering all stages of the process. A series of twelve very short articles, by Ron Robinson, an independent Canadian consultant, appeared on Charity Village between November 2001 and October These articles are refreshing in that they do not advocate a one best way for all types of non-profit organisations. They discuss various way of approaching the strategic planning process. There are many more sites and articles available that can help you to successfully complete this module. You are encouraged to post the website addresses or URLs of any additional interesting sites that you come across on the Regenesys Learning Platform. In this way, you can assist other learners to access the same wonderful information that you have discovered. A word of caution not all information available on the Internet is necessarily of a high academic standard. It is therefore recommended that you always compare information that you obtain with that contained in accredited sources such as articles that were published in accredited journals. Regenesys Business School 9

15 6 LEARNING OUTCOMES Upon completing this course, participants should: Critically explain strategic and project management terminology, concepts, and definitions Interrogate the link between strategic management, programme management and project management Evaluate key project success and failure factors within their workplace Examine the skills and processes to manage group dynamics and project teams effectively Successfully analyse problems, develop a feasible project strategy, plan, implement, monitor and evaluate a project Identify, understand and involve appropriate stakeholders in the project management process Be able to apply key project management tools and formulate a Gantt chart, project structure, budget, PERT, Logical Framework, Work Breakdown Schedule Manage time more effectively and efficiently Identify processes and apply key skills to manage human resources Evaluate project risks and develop a proactive risk management strategy Identify, critique and manage the quality aspect of a project Critically review key issues related to outsourcing, and effective contract and tender management Be able to apply project management software as a project management tool Be able to compose professional project documents, reports and proposals Regenesys Business School 10

16 7 CONTENT SCOPE AND LEARNING GUIDANCE A number of topics will be covered to assist you in successfully achieving the learning outcomes of this module. It is important to study each of these sections to ensure that you expand your knowledge in the subject and are able to complete the required assessments. The sections that will be dealt with include: Section 1 Section 2 Section 3 Section 4 Section 5 Project Management Fundamentals Project Initiation Project Planning Project Execution and Evaluation Project Closure A more detailed framework of what is required for each of these topics follows under each section heading. A number of questions to probe discussion and guide you towards comprehension and insight are also provided. The timetable under each section heading provides guidance on the time to be spent to study each section. It is recommended that you follow the given timetable to ensure that you spend the appropriate amount of time on each section. Following the timetable will ensure that you have covered the required sections relevant to each assignment and have appropriate time to prepare for the examination. Regenesys Business School 11

17 7.1 PROJECT MANAGEMENT FUNDAMENTALS Timeframe: Learning Outcome: Recommended reading: Multimedia Section overview 8 hours Critically explain strategic and project management terminology, concepts, and definitions Interrogate the link between strategic management, programme management and project management Evaluate key project success and failure factors within their workplace A guide to the Project Management Body of Knowledge. (Duncan, (1996), A retrospective look at our evolving understanding of project success, (Jugdev, and Müller, 2005) A typology of project management: emergence and evolution of new forms. International Journal of Project Management. (Evaristo, and van Fenema, 1999). Project Management Process maturity (PM) 2 model. (Kwak, and Ibbs, 2002) Project success: a multidimensional strategic concept. (Shendar, Dvir, Levy, Maltz, 2001) Strategic project Management. (Green, 2005) agement.pdf The role of project management in achieving project success. (Munns, A.K., Bjeirmi, B.F., 1996) Agile project management 1 Top 5 ideas. (Ruopp, 2010), Agile: an introduction. (Projectsmart.co.uk. 2011) Project Management Case study: the custom woodworking company Woody 2000 project (Wideman, 2002) In this section, we will be looking at project management fundamentals, those issues concerning project management that each manager should know, whether you manage projects or not. The first section is spent on defining the concepts. Thereafter, time is allocated to discuss the project management life cycle. Types of projects are discussed and the role of a project manager. This section is concluded by discussing strategic project management and project success and failure factors Defining the concepts Project management has been used for many years to handle from simple to difficult activities in an organisation. Project management techniques are used to enhance the decision-making process, which allows critical success through making the right choices. It effects the organisation as a whole the processes, procedures, employees and managers. Project The term Project can be interpreted in many ways. Ask any school going teenager and they will frown when you use the term, as project to them means a task / assignment which they need to complete for their portfolios. In the business world, projects are related to tasks as well tasks Regenesys Business School 12

18 that have deadlines, constraints and problems. Therefore, it is important to develop a common understanding of the word project that can be understood by all during this module. Let s have a look at definitions for the word project: A project is a temporary endeavour undertaken to achieve a particular aim. Every project has a definite beginning and a definite end. While projects are similar to operations in that both are performed by people, both are generally constrained by limited resources, and both are planned, executed and controlled, projects differ from operations in that operations are on-going and repetitive while projects are temporary and unique (Project Management Body of Knowledge, 2004:5).... a temporary endeavour undertaken to create a unique product or service where temporary implies that every project has a definite end, and unique focuses on the fact that the product or service is different in some distinguishing way from all similar products or services. (Burke, 2004:2).... something that is contemplated, devised, or planned; plan; scheme (Dictionary.com, 2012). a large or major undertaking, esp. one involving considerable money, personnel, and equipment (dictionary.reference.com, 2012). Project Management Munns (1996) claims that project management is: the process of controlling the achievement of the project objectives. Below are some alternative definitions for project management: The process of integrating everything that needs to be done as the project evolves through its life cycle in order to meet the project s objectives (Burke, 2004:3). The application of knowledge, skills, tools, and techniques to project activities in order to meet or exceed stakeholder needs and expectations from a project (Project Management Body of Knowledge, 2004:8). Read the following article for further information: The role of project management in achieving project success. (Munns, A.K., Bjeirmi, B.F., 1996) As a preamble to this Study Guide, read through the case study (URL link below) which describes the praxis of project management. Project Management Case study: the custom woodworking company Woody 2000 project (Wideman, 2002) Regenesys Business School 13

19 Make sure that you understand the definitions of project and project management as the rest of the guide continues with the presumption that you do Project Management Triangle The project management triangle, lists the constraints of project management as time, cost and performance. Time represents the timeframe in which a project needs to be completed. Cost indicates the budgeting involved in project management. Performance is representative of the task specification of project management. Meredith and Mantel (2012:3) argues that a forth dimensions should be introduced: the expectations of the client. Figure 1 illustrates the principles. Figure 1: Project Management triangle Performance Time Cost (Source: Meredith and Mantel, 2012:3) More recently, a new model for project management has emerged. This model is called the Diamond approach and was developed by Aaron Shenhar and Dvir Dov from Harvard Business School in their book Reinventing project management: The Diamond approach to successful growth and innovation (published in 2007 and distributed by Harvard Business School Press). The diamond approach to project management has four vertices and customer expectations are the central factor. The model is presented in Figure 2 (Haughey, 2011). Regenesys Business School 14

20 Figure 2: Diamond approach to project management Cost Quality Expectations Time Scope (Haughey, 2011) Project Management Body of Knowledge (PMBOK ) The Project Management Institute developed the Project Management Body of Knowledge as a guide to project managers. It is seen as the sum of knowledge within the profession of project management (Duncan, 1996). PMBOK organises the knowledge needed for project management in nine areas. These are described in Table 1. Table 1: PMBOK nine project management areas 1 Project Integration Management: The processes and activities that integrate the various elements of project management. 2 Project Scope Management: The processes involved in ascertaining that the project includes all the work required, and only the work required, to complete the project successfully. 3 Project Time Management: The processes concerning the timely completion of the project. 4 Project Cost Management: The processes involved in planning, estimating, budgeting, and controlling costs so that the project is completed within the approved budget. 5 Project Quality Management: The processes involved in assuring that the project will satisfy the objectives for which it was undertaken. 6 Project Human Resource Management: The processes that organize and manage the project team. Regenesys Business School 15

21 7 Project Communications Management: 8 Project Risk Management: 9 Project Procurement Management: The processes concerning the timely and appropriate generation, collection, dissemination, storage and ultimate disposition of project information. The processes concerned with conducting risk management on a project. The processes that purchase or acquire products, services or results, as well as contract management processes. These areas are represented diagrammatically on the following pages in Figure 3 (Duncan, 1996:7): Figure 3: PMBOK nine project management areas Project integration management Project Scope management Project time management Project plan development Initiation Activity definition Project plan execution Scope Planning Activity duration estimating Overall change control Scope definition Activity sequencing Scope verification Schedule development Scope change control Schedule control Regenesys Business School 16

22 Project cost management Project quality management Project human resource management Resource planning Quality planning Organisational planning Cost estimating Quality assurance Staff acquisition Cost budgeting Quality control Team development Cost control Project communications management Project risk management Project Procurement management Communications planning Risk identification Procurement planning Information distribution Risk quantification Solicitation planning Performance reporting Risk response development Solicitation Administrative closure Risk response control Source selection Contract administration Contract closeout (Source: Duncan, 1996:7) Regenesys Business School 17

23 These aspects form the content of the manual hyperlinked below. Click on the URL to access the manual. A guide to the Project Management Body of Knowledge. (Duncan, 1996), Project management life cycle Project management, like any discipline, has stages from initiation to completion. The project management life cycle is usually divided into five phases which is described in Table 2. Table 2: Project management life cycle phases Project origination Project initiation Project planning Project execution and control Project closure This phase initiates the development of a project proposal or the evaluation of project proposal. Organisations will identify the selection criteria for selecting projects and notifying project sponsors. Project initiation includes the development of a project charter, defining the project scope, identifying the quality standards and establishing the project budget. This stage also includes risk identification and documentation and the development of the project plan. The project initiation phase also includes the signing of contracts and approval of project plans. This phase involves orientation of team members, review of project materials and the refinement of the project scope, schedule, quality standards, project plan and budget. A complete risk assessment will be performed in this phase. Confirmation of the plans will be signed in the approval form provided by the project manager During this phase the project is implemented. It includes the management of the project scope, schedule, quality control and project budget. The phase includes the monitoring and evaluation of the project outcomes and risks. It includes project change control, communication plan control and managing the project team. Project progress reporting is included in the phase. This phase includes the post-implementation review and reporting. Project managers will be expected to provide feedback on the performance of the project issues. (Source: NYS Project Management Guidebook, n.d) Figure 4 provides an example of a more complex project. It incorporates greater detail so that the project management team have a more comprehensive understanding of the elements contained in each phase. Regenesys Business School 18

24 Figure 4: Project life cycle of a complex project Accumulative Effort TOTAL PROJECT LIFE CYCLE PLAN ACCOMPLISH PHASE 1 PHASE 2 PHASE 3 PHASE 4 CONCEPT Conceive DEVELOPMENT Develop IMPLEMENTATION Execute TERMINATION Finish Gather data Appoint key team members Set up: structures, communications Finalise project deliverables Identify need / problem analysis Conduct studies Motivate team Review and accept Establish: Goals and objectives, Stakeholders, Risk level, Strategy, Potential team Estimate of resources Develop scope Establish: Master plan, budget, cash flow, WBS, policies and procedures Provide detailed technical requirements Establish: schedules, information control systems Procure goods and services Hand over Evaluate project Review alternatives Assess risk Execute work according to schedules Document results Present proposal Present project brief Direct/monitor/ forecast and control: scope, quality, time, cost Release / redirect resources Obtain approval for next phase Obtain approaval to proceed Resolve problems Reassign project team (Adapted from: Burke 2004: 32) Regenesys Business School 19

25 We can see the project life cycle is the primary tool used to plan and coordinate a project Types of projects You need to consult the following article to relate to this section: A typology of project management: emergence and evolution of new forms. International Journal of Project Management. (Evaristo, and van Fenema, 1999). The development of categorising project types emerged from the trends in which projects are organised and managed. Evaristo and van Fenema (1999) differentiated between (a) single versus multiple projects and the (b) number of sites that these projects encompass. The writers claim that their differentiation will enhance problem solving through understanding the type of project one will be dealing with. They create Project Management typology is described in Figure 5 below: Figure 5: Project Management typology (Source: Evaristo & van Fenema, 1999:277) Regenesys Business School 20

26 Make sure you understand the different cells within the diagram in order to evaluate projects according to their differentiation The role of the project manager This section covers the PMBOK knowledge area 6: Human resource management. The project manager is the person who needs to be accountable for the project planning, implementing and completion. Meredith and Mantel (2012: ) highlights the following as special demands on the project manager: Acquiring adequate resources; Acquiring and motivating personnel; Dealing with obstacles; Making project goal trade-offs; Failure and the risk and fear of failure; Breadth of communication; and Negotiation Strategic project management Strategic project management is defined as:... the management of projects in such a way as to develop competencies and capabilities, which contribute to the firm s sustainable competitive advantage (Green, 2005).... the project perspective, direction and guidelines on what to do and how to do it, to achieve the highest competitive advantage and the best project results (Shedar et al, n.d.). Shedar et. al (n.d.) suggests that strategic project management focuses on the business results of projects and how this will influence the position of the organisation in the market place. Shedar et al. (n.d) identifies the role of strategy in project management. They identify a missing link between the project plan and the organisational strategy. As projects are run in a competitive arena, the project strategy needs to focus on the overall business strategy of the organisation. The project strategy will enhance the organisational strategy and therefore the organisational competitive edge. The project strategy framework developed by Shedar et al. (n.d) distinguishes between four elements of project strategy: Product definition and competitive advantage; Business perspective; Project scope; and Strategic focus. Regenesys Business School 21

27 Read the articles indicated below for a greater understanding of Strategic Project Management. Strategic project Management. (Green, 2005) t.pdf Project success: a multidimensional strategic concept. (Shendar, Dvir, Levy, Maltz, 2001) An Overview of the Project Management Process The overall process for managing projects can be divided into related sub-processes, or process groups. Managing these groups can enable you to finish projects on time, within budget, with reduced risk, and with reasonably predictable results. Project Management Process is the theory of project management processes. Each process can only be separated theoretically, because in practice the processes overlap. Each specific task that has to be completed within a project is called a project objective, and these need to be clearly stated and determined. The objectives that need to be accomplished are based on complexity; risk; size; timeframe; project team s experience; access to resources; amount of historical information; the organisation s project management maturity and the industry and application area (PMBOK 2004:39). These objectives only serve as guides to which project management knowledge and skills need to be applied during the life cycle of a project. It is important for the project management process to continually check that it adheres to a plando-study-act cycle. This cycle is commonly referred to as the PDSA cycle and was developed by Walter Shewhart (1939). It is sometimes referred to as the Deming Cycle. In the context of project management this implies: Plan: Determine scope of project as well as interval of initial iteration Do: Execute - small steps in controlled circumstances Study: Gather empirical evidence, involve the customer if possible Act: Take action to improve or standardize the plan or process Within the context of PMBOK the integrated processes are seen as being more complex than the PDSA cycle (PMBOK 2004:40): Plan: The Planning Process Group Do: The Executing Process Group Check and Act: The Monitoring and Controlling Group In addition, the life span of a project is limited and so the initiating Process Group starts the project and the Closing Process Group ends them. The Monitoring and Controlling Group also have interaction with every aspect of the Process Group. Regenesys Business School 22

28 The five Process Groups within PMBOK are: 1. Initiating Process Group; 2. Planning Process Group; 3. Executing Process Group; 4. Monitoring and Controlling Process Group; and 5. Closing Process Group. Kwak (2002:151) integrates the project management knowledge areas and project process grouping as follows. They also explain this integration through modelling which is illustrated in Figure 6. Figure 6: Integrated project management knowledge areas Initiating Planning Executing Controlling Closing Integration Integration Integration Integration Integration Scope Scope Scope Scope Scope Time Time Time Time Time Cost Cost Cost Cost Cost Quality Quality Quality Quality Quality Communication Communication Communication Communication Communication Human Resources Human Resources Human Resources Human Resources Human Resources Risk Risk Risk Risk Risk Procurement Procurement Procurement Procurement Procurement (Source: Kwak, 2002:151) Regenesys Business School 23

29 A brief discussion of project group processing follows. Initiating process group This group defines and authorises the project or the project phase in the case of multiphase projects. Their outputs include the project charter and the preliminary project scope statement. The initialising of a project often takes place externally to the project s scope of control. It is important therefore that before starting the Initiating process that the group has a clear understanding of why the project was requested; an understanding of the project objectives; and a clear description of why the project is the best solution to satisfy the project requirements (PMBOK, 2004:43). The outputs of the Initiating Process Group are (Table 3). These outputs will be discussed later in this section. Table 3: Project initiation The Project Charter: The Preliminary Project Scope Statement: States why the project is needed and who authorised it. States the what what work needs to be accomplished and the deliverables that need to be produced. Planning process group This group defines and then refines the project objectives and then plans the course of action required to reach these objectives and scope that the project has undertaken to address. This group identifies; defines and matures the project scope, project cost and schedules the project activities that occur within the project. As new project information is received it integrates this information and resolves discrepancies. Stakeholders should also be involved within the Project Process Group as they may have knowledge and leverage important to the execution of the project. This group provides leverage across multiple processes and it normally provides (PMBOK 2004: 48-55) the outputs described in Table 4: Regenesys Business School 24

30 Table 4: Project planning Project Management Plan: Scope Planning: Scope Definition: Create Work Breakdown Structure (WBS): Activity Definition: Activity Sequencing: Activity Resource Estimating: Activity Duration Estimating: Schedule Development: Cost Estimating: Cost Budgeting: Quality Planning; Human Resource Planning: Communications Planning: Risk Management Planning: Risk Identification: Qualitative Risk Analysis: Quantitative Risk Analysis: Risk Response Planning: Plan Purchases and Acquisitions: Plan Contracting: Says how the work will be performed and includes subsidiary management plans such as scope; schedules; cost; quality; staff; communication; risk and procurement. Documents how the project scope will be defined, verified and controlled and how work breakdown structure will be controlled and verified. Developing of a detailed project scope statement as the basis for future project decisions. Process for subdividing major project deliverables and work into smaller, more manageable components. Identifies the specific activities that need to be performed to produce various project deliverables. Identifies and documents dependencies among scheduled activities. Process for estimating the type and quantities of resources required to perform each scheduled activity. Process of estimating the number of work periods that will be needed to complete individual schedule activities. Process for analysing the activity sequences, durations, resource requirements and schedule constraints to create the project schedule. Process for developing an approximation of the costs of the resources needed to complete project activities. Process for aggregating the estimated costs of individual activities or work packages to establish a cost baseline. The processes of identifying which quality standards are relevant to the project and determining how to satisfy them. Process of identifying and documenting project roles and responsibilities and reporting relationships, as well as creating a staffing management plan. Process for determining the information and communication needs of project stakeholders. Process for deciding how to approach, plan, and execute the risk management activities for a project. Process for determining which risks might affect the project and documenting their characteristics. Process for prioritising risks for subsequent further analysis or action by assessing and combining their probability of occurrence and impact. Process for numerically analysing the effect on overall project objectives of identified risks. Process for developing options and actions to enhance opportunities and to reduce threats to project objectives. Process for determining what to purchase or acquire, and determining when and how. Process for documenting products, services and results requirements and identifying potential sellers. Regenesys Business School 25

31 Executive process group This process integrates people and other resources to carry out the project management plan for the project. It is responsible for producing the project deliverables and updating the Project Management Plan by addressing the scope statements and then implementing any approved changes. Normal execution variances such as increased risks, duration or resource availability may cause some re-planning, they may affect the project management plan. Most of a project s budget is spent during this stage and may include the project management processes (PMBOK 2004: 56-58) described in Table 5: Table 5: Project execution Direct and Manage Execution: Perform Quality Assurance: Project Team: Develop Project Team: Information Distribution: Request Seller Responses: Select Sellers: Process for directing technical and organisational interfaces that exist in the project to execute the work as defined in the project management plan. The deliverables are produced as outputs from the processes performed as defined in the project management plan. Information on the completion status of the deliverables and what work has been accomplished are collected as part of project execution and input to the performance reporting process. Process of applying the planned and systematic quality activities to ensure that the project employs all the processes required to meet requirements. Process for obtaining the human resources needed to complete the project. Process for improving the competencies and interaction of team members to enhance project performance. Process for making information available to project stakeholders timeously. Process for obtaining information, quotations, bids, offers or proposals. Process for reviewing offers, choosing from among potential sellers, and negotiating a written contract with the seller. Monitoring and controlling process group This group regularly measures and monitors the progress of a project to identify variances from the project management plan so that corrective action can be taken if and when necessary to meet the project objectives. It provides the team insight into the health of the project. In multiphase projects this group also provides feedback between the different phases and in so doing may implement corrective or preventative actions that may need to be taken. When variances do occur that may jeopardise the project management plan then they may revisit the PDSA cycle in the Planning Process Group. The Monitoring and Controlling Group includes the following management processes (PMBOK 2004:61-65) (Table 6): Regenesys Business School 26

32 Table 6: Project monitoring and controlling Monitor and Control Project Work: Integrated Change Control: Scope Verification: Scope Control: Schedule Control: Cost Control: Perform Quality Control: Manage Project Team: Performance Reporting: Manage Stakeholders: Risk Management Control: Contract Administration: Process for collecting, measuring, and disseminating performance information. It also assesses tends to effect process improvements. The process has to include risk monitoring so that risks may be identified early and appropriate action taken. Performance reports need to include information on the project s performance with regard to scope, schedule, cost, resources, quality and risk. Process for controlling factors that create changes to make sure that the changes are beneficial, determining whether a change has occurred and managing the approved changes throughout the project from its initiation to its closure. Process for formalising the acceptance of the completed project deliverables. Process for controlling changes to the project scope. Process for controlling changes to the project schedule. Process of influencing the factors that create variances, and controlling changes to the project budget. Process for monitoring specific project results to determine if they comply with the predetermined quality standards and determining ways in which to eliminate the causes of unsatisfactory performance. Process for tracking team member performance, providing feedback, resolving issues and coordinating changes to enhance project performance. Process of collecting and distributing performance information such as status reporting; progress measurement and forecasting. Process for managing communications to satisfy and resolve issues with relevant stakeholders. Process for tracking identified risks, monitoring residual risks, identifying new risk, executing risk response plans, and evaluating their effectiveness throughout the project life cycle. Process for managing the contract and the relationship between buyer and seller, reviewing and documenting how a seller is performing. If it is appropriate the process may mange the contractual relationship with the outside buyer of the project. Closing process group This group formalises the acceptance of the product, service or result and brings the project or project phase to an orderly end. It verifies that all the defined processes are completed. It includes the management processes described in Table 7 (PMBOK 2004: 66-67): Regenesys Business School 27

33 Table 7: Project closure Close Project: Contract Closure: Process to finalise all activities across the Process Groups to formally close a project or project phase. Process for completing and settling each contract, including the resolution of any open items, closing each contract applicable to the project or a project phase. Read the article to enhance your understanding. Project Management Process maturity (PM) 2 model. (Kwak, and Ibbs, 2002) Project management success factors Kerzner (1995:6) states that project success was defined in the past as:... the completion of an activity within the constraints of time, cost and performance. Kerzner (ibid.) points out that changing circumstances, have resulted in a change to the understanding of what a successful project is, therefore the definition has changed as follows a successful project is one which is completed: within the allocated time period; within the budgeted cost; at the proper performance or specification level; with acceptance by the customer/user; with minimum or mutually agreed upon scope changes; without disturbing the main work flow of the organisation; and without changing the corporate culture. Research in the USA has shown that the most successful projects had these factors in common: Adequate and suitable organisational structures are in place. Adequate planning and suitable control mechanisms are in place. In the United Kingdom, common factors recognised in successful projects include: Commitment by the parent organisation, client and the project manager to: o Establish activity schedules and control procedures; o Establish budgets and control of expenditure; o Technical goals and milestones are linked to time and cost; Organisation structures suited to the nature of the project; Team participation in planning and determining methods, schedules and budgets; Regenesys Business School 28

34 Absence of legal encumbrances; Minimise the number of bureaucratic public or government agencies involved; and Enthusiastic public support. For more information, the following article should be considered: A retrospective look at our evolving understanding of project success, (Jugdev, and Müller, 2005) Agile project management Traditionally, project management assumes that all projects follow the life cycle phases and that the phases of a project are easily recognisable. This assumes further that projects are predictable and occur in an orderly sequence. It further assumes that once a phase in the project life cycle is complete the project will not return to this phase. A traditional approach to project management model is compared to a waterfall. This is illustrated in Figure 7 below (Hass, 2007). Figure 7: Waterfall model Business Requirements System Requirements Design Construction Test Deliver Operations and Maintenance (Source: Hass, 2007) Regenesys Business School 29

35 Business has become more complex in being able to address the changing nature of new and evolving business systems. According to Hass (2007) the 2006 CHAOS survey indicated the following success record of projects (Figure 8). Figure 8: Project success ratings Over time or budget: 46% Succeeded: 35% Failed: 19% Improving the almost 50% over budget and over time aspect of a project, an alternative approach to project management has been developed. This alternative approach, Agile Project Management, is used when (Hass, 2007): When the project value is clear The customer participates throughout the project The customer, designers and developers are co-located; Feature-driven development is possible; Visual documentation is acceptable. Hass (2007) further identifies key elements, which provide the basis for Agile Project Management. These are discussed in Table 8. Regenesys Business School 30

36 Table 8: Agile Management Components Visual control Co-located high-performing teams Test-driven development Adapted control Collaborative development Feature-driven development Leadership and collaboration Revenue focussed Lessons learned This approach relates to how teams organise the work of the project. The features of the project are designed using colour which are visible at a glance. This method ensures that all team members view the project in the same way All team members are located in the same room. Communication and Co-ordination is improved. This requires that once requirements of a project are defined, test plans are developed. Everyone on the team is constantly adapting. The project manager should therefore be a leader. This method requires teams continuous review of their inputs in order to improve outputs. Constant feedback and improvement is one of the strengths of this approach. The initial planning is done by the project manager and the business analyst defines and prioritises the solution features with all other stakeholders. This requires that teams are focussed on one thing at a time which reduces complexity. The project manager and analyst focus on the next priority. The core component and high risk components are built first and the other priorities are then based on this. The project manager is focussed on collaborating and leading and not on commanding and controlling. S/he is responsible to remove barriers to ensure efficient teams. The business analyst should ensure that team members are not investing too much into the development of the solution of the project. The team members holds lessons learned session after each cycle to evaluate what could be done to adapt the implementation of the next cycle. (Source: Hass, 2007) For more information on Agile Project Management, watch the clip hyperlinked below: Agile project management 1 Top 5 ideas. (Ruopp, 2010), Agile: an introduction. (Projectsmart.co.uk. 2011) Conclusion In this section we discussed the concepts of project management. We laid out the project management life cycle and types of projects. The project manager and her/his roles were identified. We also provided an overview of the project management process. Project success and failure factors were discussed and strategic project management were argued. The next section will be devoted to project team development. Regenesys Business School 31

37 Recap Questions Read the case study below. Churchill as a project manager Winston Churchill is widely regarded as one of the greatest leaders of the 20 th century. But as he became British Prime Minister in May 1940, in a period of calamitous change during World War II, what did he actually do? How did he transform his organisation to turn his perilous situation around? Both Churchill in 1940 and business people today grapple with an unprecedented level of change adversely impacting their organisations at the enterprise, business unit, or project level. A project manager needs experience in projects relative to their selection, initiation, definition, planning, risk management, resource management, budgeting, communication, tracking issues and status, and evaluating performance. Churchill had experience with large scale projects in abundance. His experience included preparing the Navy for war, to planning the Gallipoli campaign, to coordinating the economy for the production of war materials and tanks, to running the finances of the country. As well as experience, project managers require strong traits in business, technology, and behaviour, and of course leadership skills. In Churchill s situation: 1. He understood the challenges the country faced better than anyone. He had learned many lessons from the First World War which guided his priorities in May Foremost on his agenda was overcoming the lack of a central policy, which undermined resource coordination and prolonged Britain s response. 2. He was very aware of technology and could see its application providing a clear advantage. For example, in 1915 even though he was the Lord of Admiralty he sponsored the initial tank design. In 1938 he supported the development of Radar, although he would be involved in technical discussions, he would leave decisions to trusted Lieutenants people he knew could do the job 3. He was very savvy at understanding human behaviour and motivating teams around him. Communication management was a cornerstone of his strategy in 1940, communicating in all direction (cabinet, government, people) to avoid any surprises. When Churchill became PM at the age of 65 in 1940, he had to find the strength to lead his nation out of the darkest and most dangerous of times, towards the defeat of a tenacious enemy. But Churchill was ready for this and he had always believed he had a date with destiny that would require him to lead his nation. When he took over as Prime Minister, he had a very good idea of what he was undertaking, with the background he had, and could draw from him experience in tough international negotiations and fierce political battles. In many ways, he was so well prepared that he wasted little time in taking action. During the Second World War, Churchill, as a historian, understood early on what was happening and he was astute enough to maximise the impact of valuable information he had collected, and build up his case. He recognised that one of the chief goals of a project manager was to rally people to a cause, and to do this required considerable credibility gained through self-belief, steadfastness, courage, and integrity to the cause. Organisations today need to pay close attention to events and changes in the business environment, and prepare for worst case situations. Techniques like future scenario planning, better prepare potential options available to organisations which then have the ability to react and respond through a project if a series of events take a turn for the Regenesys Business School 32

38 worse. In today s world, changing events initiate projects. But the response needs to be very rapid ad so he project, vision, and scope need to be thought through, already in place, and well understood in relations to the planned response scenarios. This also requires a project team in position to enact thee project according to available options. Churchill was viewed as someone with moral conviction who could pick up a cause and stay true to it, and his stature grew as he provided leadership to a project he inherited. (Mark Kozak-Holland, Churchill as Project Manager in PM world today, Vol VIII in Meredith and Mantel, 2012) 1. Evaluate the categories of skills required to be a project manager. 2. Examine the different definitions of project management and project and explain what you understand project management is. 3. Critically evaluate the importance of project management. 4. Explain how project management can be a powerful strategic weapon. 5. Explain project success under the following headings: a. Project efficiency b. Impact on the customer c. Business and direct success d. Preparing for the future Regenesys Business School 33

39 7.2 PROJECT INITIATION Timeframe: Learning Outcome: Recommended reading: Multimedia: Section overview 8 hours Examine the skills and processes to manage group dynamics and project teams effectively Identify processes and apply key skills to manage human resources Identify, understand and involve appropriate stakeholders in the project management process Critically review key issues related to outsourcing, and effective contract and tender management Be able to compose professional project documents, reports and proposals Managing the life cycle of virtual teams. (Furst, Reeves, Rosen. and Blackburn, 2004) Project stakeholder management. (Karlsen, 2002) Challenges with cross-functional teams. (2011) Project human resource management focuses on the effective use of people involved in a project (Duncan, 1996:93). This section is devoted to analysing the management of human resources in the project life cycle. It is divided into team identification, team development and stakeholder management. A section of this chapter introduces the ideas of virtual teams The Project Team The project teams can be described as the individuals who plan, implement and execute a project. As teams change with different projects, the roles team members play will change as well. The focus of the project team needs to be a successful completion of a project. Cobb (2006:86-92) suggests that project teams structure needs to compose of the following aspects (Table 9): Table 9: Project team structure Team size: Team composition: Team Governance: Team identity: Team interaction: Team ideology Team size will depend on the size of the project. If, for example, the project is planning a yearend function the team size will considerably differ from the project team for building a bridge in Johannesburg City Centre. Team composition refers to the members in the team. This will also depend on the project as a project team will not always need, for example, an engineer. Team governance refers to the amount of control a team has over the project. The team will have a project leader yet, the project leader does not always have control over the complete project. Teams need to have an identity to be effective. The team identity will promote team effectiveness and commitment as the team members will see themselves as distinct from other employees. Teams need specific communication methods to interact with one another. Teams have to work together in order to complete a project successfully. In the world today, not all team members are located in the same area, sometimes not even in the same country. These teams are called virtual teams. Teams need to be motivated by values. These values need to be communicated and accepted by each team member. Think, for example, of the team members who built the soccer stadiums for the Soccer World Cup These members felt motivated by contributing to an historic Regenesys Business School 34

40 event. Team effectiveness characteristics Given the highly complex nature of many projects, it is not feasible to assign a task to one person or a highly specialised team. Project management requires a wide range of skills, including highly specialised skills, generalist skills, and also those with an overall understanding of how the system operates and how the component parts fit together. This complexity alone requires a team approach, and yet within it, are the seeds of misunderstanding and conflict. An effective project manager will have to be able to juggle these varying characteristics and mould a group of people of differing interests, expertise and personality into a cohesive and effective team. The characteristics of an effective project team are discussed in Table 10. Table 10: Effective project teams A clear understanding of the project objective: Clear expectations of each team member s role and responsibilities: A results orientation: A high degree of co-operation and collaboration: A high level of trust: Scope, quality, budget and schedule need to be clearly defined, and each project team member needs to have the same vision of the project outcomes. Team members need to know how their work is linked together by participation in the development of project plans and by committing to their section of the project. Each project team member needs to be committed to achieving the project outcomes or objectives. Open, honest and timely communication should be the norm. Team members should be prepared to share information and ideas. They should act as resources for each other beyond their duties, and assist other members to succeed in their tasks where possible. Team members need to comprehend their interdependency and to accept that everyone is needed for the project to be a success. Conflict should be resolved through constructive feedback and positive contributions on issues. Team members should accept their differences, and differences of opinion should be encouraged, expressed and respected. (Source: Knipe and Van der Waldt, 2002: 204-5) Selecting team members Knipe, van der Waldt et al (2002:184) emphasise the role of human resource processes in building healthy, high-functioning teams. Staffing requirements decide what type of skills is needed from what types of individuals or groups, and in what time frames (Project Management Institute, 1996:95). In order to identify the people resources needed for a project, the types of personnel (such as job descriptions) must be decided on, as well as how many personnel from each job category are needed, and when these personnel will be required. (Kerzner, 1998:186). In other words, team members need the appropriate skills and knowledge to undertake the tasks in question, and this means the project manager must ensure that team members are selected according to the requirements of the project. Regenesys Business School 35

41 Team roles and responsibilities Staff members can be assigned or appointed only once the initial planning has been accomplished. The project manager has a vital role here, although s/he may not have free choice as to staff availability with the range of competencies that are required. The closer the match, the more chance there is of the project attaining success. Project managers can, of course, if the budget allows and processes are flexible enough, call in expert help if and when required. But this also requires careful planning. Knipe and Van der Waldt (2002:186) points out that:... the project manager must ensure that all project team members understand the project roles (who does what) and responsibilities (who decides what) that are assigned. The first step in recruiting an effective project team is to look for a balance in skills needed for the project. The skills needed are discussed in Table 11. Table 11: Skills needed for project teams Functional skills: Management skills: Interpersonal skills: These skills develop because of years of study or experience. Every project will need some form of these skills and the project manager will draw up a skills list, giving priority to those essential functional skills required. Managerial skills mean the hands-on skills related to the everyday working of the project. Team members with strong functional skills but little in the way of interpersonal skills will need to be balanced with those with interpersonal skills. For more information about project teams, view the clip below: Challenges with cross-functional teams. (2011) Virtual Project Teams Furst (2004:6) describes a virtual project team as: Individuals who are geographically dispersed and interact primarily through telecommunications and information technologies to accomplish specific objectives within specified timeframes. Regenesys Business School 36

42 Virtual teams allow project managers to appoint employees for their specific talents relating to the project. Managers can therefore appoint the best of the best to complete their projects. Although this is very exciting, virtual teams pose specific challenges to project managers. Read the article below: Managing the life cycle of virtual teams. (Furst, Reeves, Rosen. and Blackburn, 2004) It is argued that, without efficient management, virtual teams can become less effective than faceto-face teams (Furts, 2004:6). Furst (ibid.) examines the development of virtual teams by using the Tuckman team development model and the Gersicks Punctuated equilibrium model. She described the challenges associated with Virtual Team development in a table on pages 8-9 in the article. Furst (ibid.) suggests that challenges experienced can be avoided if project managers are actively involved at each stage of team development. She summarises interventions for managers on p Stakeholder Management Stakeholder management comprises of two phases, namely stakeholder analysis and stakeholder planning. We will briefly look at Stakeholder Analysis, which is the technique we use to identify the key people whose support we have to gain. Stakeholder planning, which entails building the support that helps you to succeed, will then be discussed. Stakeholder planning includes the compilation of a stakeholder relationship management plan based on observation of the attitudes and needs of the stakeholders, the implementation of the plan and an evaluation of the involvement of the stakeholders. These aspects are not the focus of this manual for more information, you may read the following: Project stakeholder management. (Karlsen, 2002) A stakeholder is defined as follows on the web: Stakeholders are the specific people or groups who have a stake, or an interest, in the outcome of the project (Unknown Author, n.d.). Stakeholders are an integral part of a project. They are the end-users or clients, the people from whom requirements will be drawn, the people who will influence the design and, ultimately, the people who will reap the benefits of your completed project (Unknown Author, 2010). A stakeholder is anybody who is affected by the project. They can be internal or external and they can be at senior or junior levels. Stakeholders are crucial to the success of your project. Neglect them and they will actively work against you. Manage them well and they will actively promote you and your project (Morphy, 2008). Regenesys Business School 37

43 Based on the definitions we can conclude that stakeholders in projects are: all entities within or outside the organisation that sponsor a project; all parties that who an interest or will gain in some way in the successful completion of the project; and People/institutions who may have a positive or negative effect on the successful completion of the project. Karlsen (2002) provides the following as examples of project stakeholders: Project stakeholders can include clients, end users, contractors, consultants, labour unions, line organization, public authorities, financial institutions, insurance companies, controlling organizations, media, third parties, and competitors. Diagrammatically it is represented as follows (Figure 9): Figure 9: Examples of project stakeholders Client / customers Financial institution s End users Press / media Competitors Public authorities Project Suppliers / contractors Line organisation Controlling organisations Insurance companies Consultants / advisers Labour unions Third parties Regenesys Business School 38

44 Stakeholder management is defined by Projectsmart.co.uk (2010) as follows:... is the process of managing the expectation of anyone that has an interest in a project or will be effected by its deliverable or outputs. It is not really possible to manage stakeholders in the traditional sense, but you can manage the project s relationship with them in a systematic way. The successful management of stakeholder participation includes: Identification of all internal and external stakeholders; Prioritisation of key stakeholders; Analysis of their needs, interests and power base; and Deciding on a tactic to involve them constructively. Karlsen (2002:23) suggests the following project stakeholder management process (Figure 10): Figure 10: Stakeholder management process Plan Step 1 Identify Step 2 Analyze Step 3 Communicate Step 4 Act Step 5 Follow up Step 6 Regenesys Business School 39

45 Determine impact of stakeholders on the success of the project Once you have determined what the interests of your stakeholders are, and have recorded it, the time has come to prioritise the stakeholders in order of importance to your project. There are different ways to analyse the importance of stakeholders to your project. The most popular method used for this analysis is the Power/Interest Grid (Mindtools, 2010). An example of such a grid is given below. By using such a grid you can classify your stakeholders according to their influence and impact on the project you are managing. For example, your boss is likely to have high power and influence over your project and high interest in it. Your family may have high interest, but are unlikely to have power over it. This grid is illustrated in Figure 11. Figure 11: Power/Interest Grid High influence Low interest High influence High interest Low influence Low interest Low influence High interest Influence / power of stakeholders Interest of stakeholders Stakeholders, who have a lot of power over the successful completion of the project, will have a high interest. They will be placed in the top right hand side of the grid. The stakeholders who might have high power over the success of your project, but do not have a high interest in the project will be placed on the left top quadrant of the grid. The stakeholders who do not have much influence over your project and who will not be influenced by the outcome of the project should be, placed in the left bottom quadrant. People/organisations for whom your project is important, but they don t have much influence on it, are placed in the right bottom quadrant. Regenesys Business School 40

46 Once you have mapped your stakeholders, you can focus your efforts on the highest priority groups while providing sufficient information to keep the less influential groups happy. The stakeholders position on the grid will guide you in terms of the actions you have to take with them (Table 12): Table 12: Power/Interest Grid High power, interested people: High power, less interested people: Low power, interested people: Low power, less interested people: These are the people you must fully engage with, and make the greatest efforts to satisfy. Put enough work in with these people to keep them satisfied, but not so much that they become bored with your message. Keep these people adequately informed, and talk to them to ensure that no major issues are arising. These people can often be very helpful with the detail of your project. Again, monitor these people, but do not bore them with excessive communication. Develop a stakeholder relationship management plan After you have identified and analysed your stakeholders, it is time to plan and to engage with your key stakeholders. Once your key stakeholders are identified, the next step is to compile a stakeholder management plan. One of the most critical issues in project management is the participation or involvement of key project stakeholders. If the key stakeholders are not involved from the beginning of the project, they may sabotage the implementation of the project or they may not support it. However, too much stakeholder participation may also become frustrating, time wasting, and destructive. Therefore, project managers must have a carefully designed plan in order to manage them successfully. The key to managing stakeholders is a good understanding of their current circumstances and which factors influence them over others. This then allows you to tailor your approach involve them constructively and to achieve maximum benefit. Communication and feedback channels are crucial as this allows you to use specific management techniques, dependant on the feedback that you receive Tender Management This is probably one of the stressful processes that project managers have to go through. Opportunities do not appear magically. Project managers must be very alert of suitable business opportunities. One way of identifying suitable business is through tenders that come out every now and then. Every opportunity to do business must be carefully screened and evaluated. This is where an assessment is made as whether the product and/ or service have the returns needed for the needed resources. It involves looking at the creation and length of the opportunity, it s real and perceived value, its risks and returns, its industry and if it fits the organisation. Below is a template that you can use to assess the need as discussed above: Regenesys Business School 41

47 FACTOR ASPECT COMPETITIVE CAPABILITIES Type of need: Continuing Declining Emerging Future Timing of need: Duration Frequency Demand cycle Position in life cycle Competing ways to satisfy need: Doing without Using present way Modifying present way Perceived benefits / risks: Utility customer Appeal characteristics Customer tastes and preferences Buying motives Consumption habits Price versus performance features: Price-quantity relationship Demand elasticity Stability of price Stability of market Market size and potential: Market growth Market trends Market development requirements Threats to market Availability to customer funds: General economic conditions Economic trends Customer income Financing opportunities (Source: Hisrisch, 2004) Regenesys Business School 42

48 Tender advertisement Tenders for national government contracts are advertised in the following places: The South African Government Information website's Tenders Page. The Department of Trade and Industry's Government Tender Bulletins page. The Government Tender Bulletin, which comes out on Fridays. You can subscribe to the Bulletin by contacting the Government Printer on / / Other places where you can access tenders online are the following: Analyse tender documents Tender documents should be analysed to determine the viability of new venture possibilities. The following information explains critical factors to consider when analysing a tender document: Tender documentation Each tender or bid advert indicates where you can collect the documents you will need to fill in to submit your tender, and where they should be submitted. The advert also indicates a closing date. This is a very firm deadline, which has to be strictly adhered to - no late tenders are accepted. Tenders or bids have to be in writing. Each tender has a number of associated forms, which must accompany the tender to be submitted. The specific forms you require for your tender should be listed in the tender documentation. You should consider very carefully how you fill in these forms. Once you have all the forms completed and signed, place your tender in an envelope with the tender number on it and deliver it before the closing time to the place specified when the tender was advertised (satender.co.za, 2009). It is important to note that to submit a tender there are tender forms or bid forms that have to be completed and be sent along with the tender when you submit. Regenesys Business School 43

49 How the bid will be awarded The document called SBD 6.1 explains how tenders are awarded. According to this document the following happens: The bidder obtaining the highest number of points will be awarded the contract. Preference points shall be calculated after prices have been brought to a comparative basis. Points scored will be rounded off to 2 decimal places. In the event of equal points scored, the bid will be awarded to the bidder scoring the highest number of points for specified goals. What this means in practice, is the following. After the closing date, an elementary check is done on all the tenders submitted to see if they comply with the formal requirements. For example, if you have not indicated a price, your tender will be disqualified. Tenderers otherwise known as vendors need to be careful of the mistakes and omissions that may lead to them being disqualified from the tender process. However, some minor mistakes may not necessarily lead to being disqualified. In most cases it is up to the official checking the tender to decide whether the mistake or omission warrants disqualification. After the tender documents have been checked and found to be in line with the requirements, the next phase looks at the compliance of the product or service with the specifications and price. At this stage those products / services and prices that do not comply with the specifications are removed from the process. The ones that comply with the specifications are then listed in order of price. Those falling in the lowest price group are then considered in a lowest price tender list. It is in this phase that the preference points come into play. All the preference points claimed by those on the list of lowest price tenders are first verified. Then the formula is applied to determine who of those on the lowest price list with verifiable points come out with the best result on points, and therefore who should be awarded the contract. In other words, preference points only come into play after the most expensive tenders have first been excluded. This is to ensure that the most expensive options do not win solely on points, and also to speed up the process, as only those on the lowest price list have their preference points verified. The Tender Bulletin shows who has won previous tenders, listing the price and other factors taken into account in awarding the tender. Securing the bid Tender documentation Usually a tender submission requires the inclusion of the documents discussed in Table 13. Regenesys Business School 44

50 Table 13: Tender documentation The Bid (SBD1) Tax Clearance Requirements (SBD2) Price and motivation SBD 3.1, 3.2 and 3.3 Declaration of Interest (SBD4) Industrial Participation Programme (SBD5) Preference certificate (SBD- 6.1) Contract form (SBD 7.1 or 7.2 or 7.3) In this document you are agreeing to be bound by the tender or bid terms and conditions. Your taxes must be in order to be successful with your tender or bid. This document has an 'Application for tax clearance certificate' form attached to it. You have to complete this form and hand it in at your nearest South African Revenue Services (SARS) office, to get a tax clearance certificate. You must then attach the original tax clearance certificate that you get from SARS, to the tender or bid documents. This certificate serves as proof that you are not in arrears with your tax payments. A choice between these forms is determined by the subject of the tender. In this form, you motivate your price, by describing the product you will supply or the experience of the person who will perform the service. This form is often amended for the particular tender, so check which one you need to complete carefully. This is the document in which you declare whether or not you have a relationship (friend, family, business) with anyone who works for government. This is so that those people are not involved in awarding the tender in any way, to avoid corruption. Any contract having an imported content equivalent to or exceeding R10 million has an industrial participation (IP) obligation, which must be addressed in the tender. You must fill in the SBD 6.1 form for provincial tenders even if you are not claiming any of the preference points. If you are claiming preference points, you need to fill in those of 12 documents SBD /WCBD which relate to kinds of points you are claiming (national and provincial) as explained above. This is the contract that binds the parties should the ender be successful. There is a different form for purchases (7.1, services 7.2 or sales 7.3) There may be other specific forms to fill in for a specific tender or bid. Nevertheless, a typical package will most likely have the following documents: SBD 1 - WCBD 1 SBD 2 - WCBD 2 (Tax Certificate) SBD WCBD 3.1 (Firm pricing: purchases) SBD WCBD 3.3 (Pricing schedule: Professional services) SBD 4 - WCBD 4 (Declaration of interest) SBD WCBD 6.1 (Preferential procurement points) SBD WCBD 6.10 (Preferential points- local area) SBD WCBD 6.3 (Preferential points - SMME) SBD WCBD 6.4 (Preferential points - local content) SBD WCBD 7.1 (Contract purchase) SBD WCBD 7.2 (Contract services) Regenesys Business School 45

51 7.2.5 Conclusion In this section, we discussed the importance of the individual when practising project management. We focused on successful teams and the development of project teams. One of the most recent project management issues, virtual teams, were discussed in order to enhance project leaders with the most recent technological advances in project management. You were introduced to the process of tendering. This will enhance the project manager to secure business for the organisation as s/he can procure tenders which s/he knows the organisation is capable of doing In the section that follows we will look at project management processes and techniques. This section examines of project planning, implementation, monitoring and evaluation. Recap Questions 1. If you have to appoint a virtual team in your working environment today, what resources will you need to purchase in order to make the team effective? 2. Read the case study below and answer the questions that follow: A project management office success for the transportation security administration The Transportations Security Administration (TSA) had only 3 months and $20 million to build a 13,500 square foot coordination centre, involving the coordination of up to 300 tradespeople working simultaneously on various aspects of the centre. A strong Project Management Office (PMO) was crucial to making the effort a success. The PMO accelerated the procurement and approval process, cutting times in half in some cases. They engaged a team leader, a master scheduler, a master financial manager, a procurement specialist, a civil engineer, and other specialists to manage the multiple facets of the construction project, finishing the entire project in 97 days and on budget, receiving an award from the National Association of Industrial and Office Properties for the quality of its project management and overall facility. (Project management institute, PMO speeds success for transportation facility. PM Network, Vol 18. In Meredith and Mantel, 2012:193) 3. Explain the concept of stakeholder management. 4. Use a power/interest grid to identify the importance of the stakeholders involved in the project. 5. Differentiate between stakeholder analysis and stakeholder influence. 6. Argue the importance of efficient stakeholder management in the successful completion of a project. Regenesys Business School 46

52 7.3 PROJECT PLANNING Timeframe: Learning Outcome: Recommended reading: Multimedia: Section overview 20 hours Successfully analyse problems, develop a feasible project strategy, plan, implement, monitor and evaluate a project Be able to apply key project management tools and formulate a Gantt chart, project structure, budget, PERT, Logical Framework, Work Breakdown Schedule Be able to apply project management software as a project management tool Manage time more effectively and efficiently Evaluate project risks and develop a proactive risk management strategy Current practice in project management an empirical study. (White and Fortune, 2002) Gantt charts: A centenary appreciation. (Wilson, 2003) How to calculate your return on investment. (Stock tools, 2006), Identifying requirements for business contract language: a monitoring perspective. (Neal, Cole, Linington, Milosevic, Gibson, and Kulkarni, n.d), Project Risk management: a combined analytic hierarchy process and decision tree approach. (Dey, 2002) The risk ranking of projects: a methodology. (Baccarini and Archer, 2001) Use and benefits of tools for project risk management. (Raz and Michael, 2001) Work and Resource Breakdown Structures for formalized bottom-up estimating. (Rad and Cioffi, 2000) Case study: Risk Management in Health Case Construction projects. (Petersen, 2009) Lecture 10 Basic scheduling with A-O-N networks. Project management quick tips Lesson 3. Why projects fail: a university accounting system. (Laurie, 2003) In this section of the Study Guide we will be discussing the project management process. Different project management tools are discussed within the framework of project initiation and planning. Project time management is discussed and tools used for scheduling is provided. Regenesys Business School 47

53 7.3.1 Project Scope Management Scoping is incredibly important as it allows the project manager to: Determine the cost and timeframes of the project. Establish quality expectations. Measure outputs against indicators at the end of the project, thereby ensuring that only the work that is required by the project is actually completed. The key to an understanding of project scope is a comprehension of the interrelationship between the three factors of time, cost and quality. The time / cost / quality continuum When projects are undertaken the project team undertakes to complete the scope of work according to the criteria of cost, time and specifications. In essence, this is a form of contract, whether it is seen in the light of an internal contract (internal to the organisation or department) or if the project is for an external client/stakeholder. This has been discussed in the first chapter of this manual. It will be impossible to honour commitments made in terms of time, cost and quality if these are not carefully calculated, and in fact this is why faulty scoping can be seen as one of the greatest causes of project failure. If you develop a project scope that promises exceptional quality in an incredibly short period and at a very low cost, it is highly unlikely that the team will be able to deliver what has been promised, because the factors of time, cost and quality are interdependent, as shown in Figure 12. The higher the level of quality, the higher the requirements will be in terms of time and cost. If quality must be high but time must be short, the cost will increase even more. Regenesys Business School 48

54 Project Scope A Project Scope B Project Scope C Figure 12: Time, cost and quality continuum Note: Position is plotted by drawing a line perpendicular with the axis of each element. This project scope allows for relatively low cost and little time, therefore the quality achieved will also be relatively low This project scope allows just as little time, but by greatly increasing cost manages to achieve a high level of quality This project scope achieves the same high level of quality at a much lower cost by increasing the timeline for the project Define project scope Project scope management includes all the necessary processes to ensure that the project includes all the work required (and only the work required) to complete the project successfully on time, to the required quality and within budget. Regenesys Business School 49

55 Scope is the sum of the products, services, and results to be provided as a project (PMBOK, 2004). Table 14 provides an overview of the major scope management processes (PMBOK 2004:105). Table 14: Overview of scope management processes Scope planning: Scope definition: Creating WBS: Scope verification: Scope change control: Developing a written scope statement as the basis for future project decisions. Subdividing the major project deliverables into smaller, more manageable components. Subdividing the major project deliverables and project work into smaller, more manageable components. Formalising acceptance of the project scope. Controlling changes to the project scope. Scope planning Scope planning is defined as the process of creating a project scope management plan (PMBOK, 2004). The scope planning forms the basis for future decisions and establishes the criteria for the completion of the project activity or phase. The scope statement is often revised to accommodate changes in the project scope. Scope planning: defines the boundary of the project as agreed by the stakeholders; outlines the project objectives and major deliverables as agreed by the client and contractor; and determines whether the project is implemented according to the required condition and Informs the change control process. Scope definition Scope definition: is the process of developing a detailed project scope statement as the basis for future project decisions (PMBOK, 2004). The scope definition outlines the project content, approach, and how it will solve the client s needs or problem. Scope definition uses a method to identify the work to be implemented. The build method outlines how the project will be built or implemented. The work breakdown structure is the tool that assists to divide the scope of work Regenesys Business School 50

56 Scope verification Scope verification is the process of formularising acceptance of the completed project deliverables (PMBOK, 2004). The scope of work is formally approved at the end of each project phase. This step ensures that the project is implemented according to the required conditions and assesses whether the project has been implemented according to the required conditions. Scope change and control Scope change control is: influencing the factors which create scope changes to ensure that changes are beneficial; determining that a scope has occurred; and managing the actual changes when and if they occur. This step ensures that the project is refined or adjusted if changes occur. A management system should be developed that outlines the following areas: a change control system that outlines the steps by which the official project documents can be changed; lists the people who have the authority to make changes to the scope of work; a framework to monitor, evaluate and update the scope baseline to accommodate scope changes; automatic approval for emergency situations; and a record of all approved changes Calculate return on investment Before a project contract is finalised, the project manager should calculate the return on investment. Return on investment could be defined as: A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments (investopedia.com, 2012). To calculate the return on investment, the following formula could be used: ROI = (Gain from Investment Cost of Investment) Cost of Investment The project manager should calculate whether taking on the project is worth the time, effort and money it will cost. Regenesys Business School 51

57 To practice calculating the return on investment, you could follow the link below: How to calculate your return on investment. (Stock tools, 2006), Contract management According to Kerr (1989:3) in contracts the legal bond is formed by the parties themselves and within the limits laid down by law. The nature of the obligation is determinable by those parties. Contracts are further defined by Kopel (1996:16), as a lawful agreement entered into by two or more parties within the limits of their contractual capacity, with serious intention, each to the other without vagueness and being of the same mind as to the subject matter to perform positive or negative acts that are possible of performance. In this section, we are going to relate to the legal rule that relate to the validity of various contracts. As will be discussed further a valid contract is that which complies with certain requirements recognised by the law (Fouche, 1990). Again, we are going to look at and discuss the legal requirements of a valid contract. The requirements of a contract Let us first look at the concept of valid contract. A valid contract is not different from a contract, it s just a synonym. Therefore, in this section these terms may be used interchangeable because they mean one and the same thing. As mentioned before, in order for a contract to be a contract it has to meet some requirements and they are as follows: Serious intention to conclude a contract; Consensus; Contractual capacity; Lawfulness; Formalities; and Possibility of certain or ascertainable performance i.e. it must be physically capable of being; execute. Serious intensions to conclude a contract We have already hinted on the importance of the intentions of the parties entering into a contract. This is very critical for the importance of the conclusion of the contract. As stated by Fouche (1990) the legal system in South Africa the serious intention to conclude a contract is required as a fundamental requirement for the existence of a contract. It is a requirement for the parties entering into the transaction to be serious and deliberate. Where this intention is lacking even when the parties are serious there is no contract (Kerr, 1989). Regenesys Business School 52

58 Consensus We have already mentioned that a contract has to display a degree of consensus. Consensus can be seen as the cornerstone of any contract. When this is reached between the parties then an agreement exists between the involved parties. A consensus is reached during the negotiations. It is defined by Fouche (1990) as the meeting of minds regarding all the terms of the contract. This is achieved by offer and acceptance. Furthermore, in order to be valid, the offer needs to be clear, complete, communicated to the offered party(s) and intended to serve as an offer. It must be noted that an offer lapses through rejection, counter offer, by the passing of time, death or lack of mental capacity (insanity) of one of the parties before acceptance. In order to be valid the acceptance need to be very clear and without conditions. Some further argue that a consensus can be reached only if (Havenga et al., 2001): Every one of the parties has a serious intention to be bound by such contract. The parties have a common intention, so that they must have in their minds the same commitment. Every party makes his or her intention known to every other party by means of a declaration. Contractual capacity Contractual capacity is the capacity, which the law grants persons to perform valid legal acts. Capacity to act must be distinguished from legal capacity. According to South African law every person (natural or juristic) legally has capacity to be the bearer of the rights and duties. However, not every person who has legal capacity has capacity to act (Havenga et al. 1992). The term capacity to act refers to the capacity to perform juristic acts. Only a natural person has the capacity to perform juristic acts. Therefore, a contract has to be entered into on behalf of a legal person by a natural person. Nevertheless, not all natural persons have capacity to act. Normally the unmarried person who has reached the age of majority has full capacity to act. According to the Age of majority Act 57 of 1972 a person becomes a major once they are 21 years old (unless he or her independence is flawed by his or her marriage or mental deficiency). The same Act also stipulates that any unmarried individual who is 18 years old may apply to the Supreme Court for an order to be declared a major. If this is successful, the individual then gains capacity to perform juristic acts. Lawfulness It is also one of the requirements of a valid contract that it needs to be by all means lawful. According to Fouche (1990) a contract is lawful when it has been concluded in accordance to common law. It must be noted that a contract contradicts common law if it is against public policy or against good morals. A contract which is not expressly prohibited by statute or common law may be concluded. In sum, a contract is only lawful if it is in line with statutory and common law. If a contract contradicts the above it is unlawful and void. A restraint of trade is against public policy and thus not a valid contract. Nevertheless, if it is reasonable it will be permissible and valid as a contract. Regenesys Business School 53

59 Formalities Formalities are one of the many factors to be considered in looking at whether a valid contract exists or not. The general rule is that no formalities are prescribed for the validity of a contract. Parties do not have to announce their intentions to enter into a contract in any formal manner. The contract may be concluded verbally and still be a perfect valid contract (Fouche, 1990). However, legislation has since created an exception to that general rule. Contracts have to comply with certain formalities in order for them to be valid contracts. This is more relevant to complicated contracts to be mentioned below. These requirements are aimed at preventing fraud, reducing uncertainties and evidential problems (Havenga et al., 2001). The contract must be rendered in writing. Contracting parties may agree to set their contract down in writing and then the contract will only be valid only once it is put down in writing. This should ensure that all the contents of the contract are contained in the document. Any changes such as additions, omission and amendments are also to be in writing. There are specific contracts that have to be in writing. We are not going to go into details of these contracts. The examples are the following: Contracts for the alienation of land; Contracts of suretyship; and Contracts of donation in terms of which performance is due in the future. The contract has to be notarially executed. This entails the conclusion of a contract in the presence of a notary public. An example here would be the antenuptial contract as well lease of mineral rights. Finally, the contract must registered. Registering involves making an entry in the registers of the state. This is done with an intention to publicise the contents of the particular contract. Ascertainability The contract will be void if the performance to be undertaken by parties is not vaguely defined. Parties need to know exactly what their obligations entail and that needs to be clearly stated in the terms of the contract. Also, we need to consider the element of being realistic before entering into a contract. This refers to the possibility of performance itself. It is a general rule that if the performance of a contract is not possible than the contract is to be deemed to be void (Havenga et al. 2001). Now the question you must be asking yourself is how to ascertain whether this general rule is applicable? To answer this question we need to assess the following: The nature of the contract The relationship between the parties The circumstances of the case The nature of the impossibility Regenesys Business School 54

60 The criterion in terms of which the possibility or impossibility of performance measured is a commercial one. For instance, according to Havenga et. al (2001:83). performance is impossible if the thing which has to be delivered no longer exists or never existed, is incapable of being traded, or already belonged to the purchaser when the contract of sale was concluded. The example here would be that of a house which was to be given for occupation and has been raised to the ground. Here you can clearly see that performance is physically impossible to undertake. In addition to this, you must know that the impossibility referred to here is an objective impossibility. This means that any reasonable person must not be able to perform under similar circumstances. A subjective impossibility would be if you purchase a house for R in 2005 and due to interest rate adjustments you are unable to pay bond instalments. The reality is that you are not able to pay (it is impossible for you), but this is a subjective impossibility because someone else might be able to pay for the same amount. This does not affect the validity of the contract. Let us now discuss the concept of breach of contract. This discussion will focus on the explanation of the concept breach of contract. We are also going to look at some types examples of breach of contract. Breach of contract The primary aim when concluding a contract is its fulfilment or discharge by due and proper performance. However, if this result is not achieved due to the acts of omissions of one of the parties this constitutes breach of contract (Fouche, 1990; Havenga et al., 2001). There are five different forms of breach of contract, but in this workbook we are going to focus on three. The five forms of breach of contract are: Default by the debtor; Default by the creditor; Repudiation; Positive mal-performance; and Rendering performance impossible. Default by the debtor (mora debitoris) Default by the debtor can be defined as the failure of the debtor to perform on time. This has nothing to do with the case of impossibility of performance as discussed earlier, but is simple a case of late performance. Here the delay leading to late performance is due to no one else but the debtor. For example, the debtor must pay the purchase price on or before a specified date. If the debtor does not pay on the specified date he or she is referred to as mora meaning the debtor is late in terms of payment (Fouche, 1990; Havenga et al., 2001). Certain requirements have to be present though in order for the debtor to be said to have committed a mora debitoris or default by the debtor. There are two requirements required and they are: Regenesys Business School 55

61 A date for the performance will have to be stated, and only when the debtor has failed to perform will he or she be mora. The delay must be due to the debtors fault. If the delay is not due to the debtors fault he or she will not be guilty of mora. Some have recently argued that in addition to these two requirements another requirement must be added, and that is the debt must be due. Mora cannot exist is the date for performance has not yet occurred. (Fouche, 1990; Havenga et al., 2001) Remedies to the above would be for the creditor not to cancel the contract. Cancellation of contract will be at his disposal only where the contract makes for such provision (Fouche, 1990). Damages may be claimed for financial losses suffered by the creditor as a result of the failure of the debtor to perform on time. Default by the creditor (mora creditoris) This occurs where the creditor causes the debtor s performance to be delayed. The example here would be where person X and Y contract that Y will lay carpeting in X s house and where X therefore has to co-operate in allowing Y s workmen access to the house. The requirements for this kind of breach of contract are as follows: The performance must be dischargeable. The performance owing to the creditor must be dischargeable in terms of an existing and valid obligation and must be physically and legally capable of being discharged. To put it simply, when the day has been agreed of the performance and the debtor performs on that day, but the creditor does not accept this performance, the creditor will be in mora. The creditor will be in mora when he refuses entry to the debtor when the debtor has come to tender performance. The time for performance must have arrived. The creditor will therefore not be in mora should he refuse to accept performance before the time agreed upon in the contract. The debtor must tender proper performance. Where performance is not proper, the creditor may refuse to accept it without being in mora. The failure to receive performance must be due to the default of the creditor (Fouche, 1990; Havenga et al., 2001) Remedies to default by the creditor are the same as for the default by the debtor. For example, in the case where the debtor is innocent, he has the usual remedies for breach of contract at his disposal. Cancellation of contract is possible only where time is of the essence to the contract or where the contract states that the aggrieved party will have the right to cancel the contract in the case of breach of contract being committed. Obviously, damages can be claimed if the failure of the creditor has caused the debtor to suffer damages. Regenesys Business School 56

62 Repudiation Repudiation means the notice given by the debtor that he will not comply or continue to comply with his obligations. It can be further defined as any behaviour by a party to a contract indicating that he does not intend to honour his obligations. The example here would be the denial of obligation. This is also another form of breach of contract. Note that the debtor here tries to get out of or withdraw from the contract obligations without any justification. The debtor does not necessarily have to withdraw from his entire obligation to be considered to be in breach of contract (Fouche, 1990; Havenga et al., 2001). The requirements for repudiation are: The debtor must give notice that he will not comply or continue to comply with his obligations. In this case a positive refusal to perform is required. In other words the debtor must give notice in one way or another that he will not comply. This may be affected expressly or tacitly. Therefore, mere failure to perform is not repudiation. Terms and conditions of a contract Terms A term in a contract is a provision which imposes on a contracting party one or more contractual obligation. Therefore, the terms of a contract determine the results or the consequences of the contract (Havenga et al, 2001). Terms define the contractual obligations to which the parties bind themselves and which they can enforce against one another. To add more, it stipulates the time when or the circumstances in which the obligations either become enforceable or are terminated (Ibid.:91). In contracts, terms are statements made seriously and deliberately with the intention that they should be enforceable in law. This should be distinguishable from say for instance a sales talk which has no legal consequences, but is merely excessive praise of performance. Expressly Terms may be incorporated by means of articulated declarations of intent. A term is articulated if it expressed in so many words, whether in writing or orally (Havenga et al, 2001). Tacitly A tacit term is that which has not been expressed in words, but is based on the parties honest intentions. This is based on the parties true, but unexpressed intention where it had been considered during negotiations but had seemed so self-evident so as not to necessitate an express provision (Havenga et al, 2001). Implied terms This term too is that which has not been expressed in words and can be incorporated into a contract. Implied terms are also known as natural consequences of a contract. For example, if the Regenesys Business School 57

63 contract is a contract of sale, a guarantee against latent defects is included in the contract. Therefore guarantee against later defects forms part of every contract of sale unless the parties specifically exclude or change it (Havenga et al, 2001). The condition The words terms and conditions are usually used as if they mean the same thing. The use of these terms as synonyms is incorrect. The word condition has a special legal meaning. In law a condition is an additional term which may be added to the terms of the contract by the parties. A condition is a qualification which is added to the agreement rendering the operation of the contract dependent on the taking place, or not taking place, of an uncertain future event. Conditions refer to the uncertain, future events. The contract is concluded and is binding from the moment that consensus is reached and not when the condition is fulfilled (Havenga et al, 2001). There are different types of conditions namely: Suspensive condition; and Resolutive condition. A suspensive condition postpones the consequences of the contract until the condition has been fulfilled. On the other hand, a resolutive condition has the effect that the consequences of the contract take effect immediately, but cancelled depending upon the fulfilment or not of the condition. For more information on Project contract management, read the following: Identifying requirements for business contract language: a monitoring perspective. (Neal, Cole, Linington, Milosevic, Gibson, and Kulkarni, n.d), Work breakdown structure (WBS) The WBS is a hierarchical breakdown of the way in which the project will deliver work tasks to complete the project. It subdivides the project into smaller, more manageable pieces of work. It has been found that frequently an organisation can develop its WBS from a standard template because the work structures are often similar (Meredith and Mantel, 2012:234). The scope of the project determines its objectives, and dictates the sequencing and time frame within which they must be completed. It is necessary to gain a complete understanding of the project deliverables to ensure that the project deliverables can be completed in time and to the appropriate quality. This understanding must be achieved before scheduling and budgeting can take place that is, before we become concerned with time and cost planning. Regenesys Business School 58

64 However, considering the size and scope of certain projects, it is necessary to break them down into smaller, more manageable components. Deconstructing tasks in this way helps to: Improve the accuracy of cost, time and resource estimates; Define a baseline for performance measurement and control; Identify clear and achievable tasks and responsibilities; and Meet the overall project objectives. The work breakdown structure is a way of depicting large tasks in terms of smaller sub-tasks. Having separated projects into their building-block sub-tasks, the project manager then calculates the time, cost and quality objectives of the major task by adding those of all the minor tasks together. Levels of Definition WBSs are broken down into a variety of levels usually about six depending on the size and nature of the task. Levels could include: Level 1: The programme; Level 2: The project; Level 3: The element; Level 4: The sub-element; Level 5: The work package; and Level 6: The work package component. The number of levels increases according to the size and complexity of the project. Whereas preparing a press release may require only two or three layers, launching an IT system for an entire government structure could require six or more levels. High-risk activities should be broken down further in order to ensure that thorough plans for mitigation of those risks can be made (Meredith and Mantel, 2012: ). WBS Numbering Tasks within the WBS structure should be logically coded using a numbering system. This is particularly necessary where cost accounting code systems are in use, defining the cost centres to which different costs are allocated. Identifying codes should therefore speak to any existing cost code system that is already in place (Meredith and Mantel, 2012: ). Structuring the WBS A WBS can be structured in various ways, including by: Work type; Responsibility; Location; and Project phase. (Meredith and Mantel, 2012: ) Regenesys Business School 59

65 Shortcuts and pitfalls It may be tempting to take shortcuts by reducing the number of levels in a work breakdown structure, but it must be remembered that the actual scope of work cannot be established without breaking down every work package and task. Project Logic Evaluation (PLE) The next step after identifying the tasks and subtasks implied by the total project scope is to sequence the activities as they will be carried out. This is done through a project logic evaluation (PLE). This is important for time, cost and quality planning, as discussed in Table 15: Table 15: Project logic evaluation Time: Cost: Quality: The project manager must know when each WBS activity is going to start and finish, and, by extension, when the project as a whole will be complete. In terms of budgeting, the project manager needs to indicate when expenditure will start and end for each activity. The PLE defines the work windows for each task and work package, which will determine the scheduling of any necessary testing. (Meredith and Mantel, 2012: ) Deciding on the most logical sequence Activities may run sequentially or in parallel. This depends on which activities must be done before others, and which ones can be done at the same time. The example of one of the smallest projects imaginable making a cup of tea is illustrated in Figure 13. Figure 13: Logical sequencing Start Put water in the kettle Boil the kettle Put tea in a teapot Pour tea in a cup Regenesys Business School 60

66 7.3.5 Scope change control process There is a natural discovery process in all projects due to factors such as omissions, mistakes, creativity, misunderstandings, and external influences that normally creates pressure to expand or change aspects of the scope of the project. The purpose of a scope management process is to constructively manage that pressure. Reasons for re-planning Table 16 describes reasons for re-planning, some are beyond the project manager s control, but others can be managed. Table 16: Reasons for re-planning Internal (optional) change External (imposed) change Sequential disruption Miscalculation Even the most careful planning and design of projects cannot cover absolutely every aspect of a project. Post-design changes are often enacted to correct this kind of omission. Where a client or third party is involved, changes may be introduced after the original planning has been completed. Here, major changes will require substantial investment in re-planning. An example of externally imposed change is where a supplier or subcontractor s business fails and a replacement must be found. This can be difficult, because subcontracts can have long lead times which threaten to disrupt the project. This is where cost contingencies and time reserves become important in the design process, but even these have their limits. Sequential disruption occurs when resources are shuffled from one project to another more urgent one. For example, if one important project is falling behind, human resources and time might be shifted from a longer-term project into the delayed project in order to address the delay. While this may be effective in the short-term, there are clear resonances further down the sequence of work, where the longer term project will also find itself delayed. When project planners miscalculate the time and resources that will be required for particular work packages, there can be major cost and time implications. If insufficient time is allocated, sequential disruption may result, whereas if a work package is completed early there may be a need to re-plan in order not to waste idle resources. Scope expansion is acceptable as long as: users agree that the new requirements are justified; impact on the project is analysed and understood; and resulting changes to the project (i.e. cost, timing, quality, and human resources) are approved and properly implemented. Regenesys Business School 61

67 Implications of re-planning When considering changes to the project it should once again be emphasised that a change in any of the variables of time, cost or quality have an impact on the remaining variables. Scope change control is important because it is through this process that the project manager analyses and reports on the implications of any scope change on the other variables in the project. Often, those demanding a change in scope for example, the shortening of the project timeline assume that the project parameters, costs and deliverables will remain the same despite the scope change. If the project manager does not make the necessary amendments to any contract in place for instance, amending the budget to reflect the cost of additional contractors or staff assigned in order to speed up completion of the project s/he will find that the indicators for success remain the same despite a decrease in time resources. S/he will be expected to complete the project more quickly within the constraints of the original budget. The time-cost-quality continuum becomes useful again when considering the implications of a scope change for the remaining variables in the project. Scope change tools The main tools a project manager uses to manage scope changes are the project scope statement and the change request register. Change requests are created to document any subsequent changes to these and are tracked using the change request register. Throughout the project, proposed changes are documented and screened by the project manager. S/he determines which suggested changes might be necessary, and these are investigated to determine the impact of accepting or rejecting them. When the investigation is complete, the change is either approved and the project management plan is adjusted to reflect this decision, or the change is rejected. At any point in time, the current project scope is determined by the initial agreed project scope statement plus all the approved change requests. Procedural flow of a change request An attempt should be made, as soon as practical, to resolve change requests. This attempt at resolution should be performed at each step in the process. First, the change is identified and entered into a change request register. The change may require clarification prior to investigation and resolution. In other situations, it may be assigned for investigation immediately. After investigation, a recommendation is made, reviewed, and resolved. As part of the resolution, the change request may be accepted, deferred, or rejected. Once the final resolution is approved, the change request is closed. The problem of scope creep Changes need to be managed on even the simplest projects, because of the cumulative effects created by many small changes to a project. Creeping scope refers to the way in which a number of minor changes may have major effects on the outcome of a project. Regenesys Business School 62

68 7.3.6 Project Time Management The WBS and PLE precede any other form of scheduling; they are the first steps of the planning process. However, having dealt with these first steps, we can look at the specific techniques of time, cost and quality planning. Time management Managing time in the project management context is a challenging task as it involves the coordination of a range of different factors, many external to the project itself, and others are reliant on the commitment, skills and competence of, say team members. This unenviable task falls to the project manager, who must, of course, begin with him or herself and set a good example of efficient and effective time management. Knipe and van der Waldt (2002:139) describe project time management as follows: Project time management involves determining the time needed to complete the project, and scheduling the various activities to meet that time. It is the complex co-ordination of a project to ensure that critical deliverables are met and project completion is reached, both in a timely manner. This aspect of project management is crucial to the success of a project for, without careful scheduling and planning, a project is subject to greater risk and thus a greater chance of failure. In short, time management is the art of estimating, scheduling and tracking project progress. It includes: Activity definition Activity sequencing Activity duration estimating Schedule development Schedule control. Activity Scheduling Project managers are increasingly searching for new and easier techniques to control and manage project complexities, information, and time deadlines. The scheduling of projects needs to align with the project scope document and needs to be logically sequenced with the proper precedence relationships and leads and lags to support and achievable project schedule. In the last few decades, scheduling techniques have continuously improved. We have seen emergence of barcharts, milestone charts, network diagrams such as PERT (Program Evaluation and Review Technique), CPM (Critical Path Method) and so on. Bar-charts are the most common way of presenting project information. They are simple to understand and easy to modify. The most widely used bar-chart in project management is the Gantt Chart. A simple version of the Gantt chart lists the project activities against time. The more complex versions of the Gantt chart may include the following project elements/activities: responsibilities, events, milestones, projected versus completed activities, critical path analysis, parallel activities, etc. Regenesys Business School 63

69 Scheduling comprises of the following steps: activity listing, resource allocation, sequencing, and taking corrective action. The questions to be asked in scheduling are discussed in Table 17: Table 17: Scheduling steps Activity listing Resource allocation Sequencing Taking corrective action: What specific activities must be carried out or things must be done, and how must they be carried out / done, to achieve the project objectives? Who will carry out each activity listed, and what other resources will they need to carry out the activities i.e. money, equipment, advice etc.? How long should each activity take? What other activities must be completed before this activity takes place? When must this activity start and by when must it be completed? What is the best sequence for activities to take place? Which activities have been completed and which activities have not been completed that should have been completed? Why have they not been completed and what must be done to get them back on schedule? What resources have been used? Has too much of any resource been used e.g. money? Why has too much been used and what must be done to get planned resource utilisation back on track? Draft Master Schedules (DMS) Once the Project Logic Evaluation (PLE) has been completed, networking and scheduling follow. Networking Networking and scheduling builds on the logical PLE sequence by assigning specific durations to different project activities and determining the start and end points for each activity in order to arrive at an overall project completion date. This is generally done quickly and easily by computer programmes. Though this course will not examine software in any great detail, the principles of networking will be explained in order to provide participants with an appreciation of the main procedures and applications (Meredith and Mantel, 2012:334). A Draft Master Schedule (DMS) is the end result of the scheduling process. It is a complete network analysis of the project, showing the start and finish times of each activity. The DMS determines the critical path of the project, which is the path of activities that determines the project s final completion date. The DMS is a crucial tool to: identify an overall completion date; identify order and delivery dates for suppliers; identify notification and start dates for contractors; Identify key completion dates for progress planning; create a basis for implementation of risk management; identify logical anomalies; cross-check against contractor schedules; Regenesys Business School 64

70 check contract compatibility; create a basis for re-planning and trade-off analysis; establish data to determine the possible consequences of delay; establish data for earned value analysis; establish data for resource levelling if necessary. Scheduling therefore entails the stages indicated in Figure 14: Figure 14: Scheduling stages Assign durations to each activity Identify the start and finish window for each activity Identify activities with no critical path Re-plan as necessary Rationalise resources Formuolate a draft master schedule Refine the draft to produce a Project Master Schedule (PMS) Assigning Activity Durations Durations are assigned to activities using either the Critical Path Method (CPM) or the Programme Evaluation and Review Technique (PERT). Activity periods can be calculated with relative accuracy. For example, given the same set of standard tools it may always take you the same amount of time to change a tyre, allowing you to make a relatively accurate estimate of the time you will need. PERT: Used where activity durations cannot be accurately calculated. For example, changing a tyre where you are not certain whether or not a jack is available, or whether or not your spare tyre is flat. In this case, you might make informal calculations about the minimum, maximum and most likely time the activity will take. Regenesys Business School 65

71 Project Network/Planning Techniques Gantt Charts The oldest and simplest form of project plan is the Gantt Chart, with which many participants will be familiar. Limitations of the Gantt Chart When it comes to large and complex projects, Gantt Charts have disadvantages. These include the fact that they: Don t show the underlying links and interdependencies between activities; Show mainly finish-to-start relationships; Can t show complex resource requirements in printed form; and Make re-planning difficult. Figure 15 is a graphical representation of sequencing the critical path into a Gantt chart. Figure 15: Sequencing the critical path in a Gantt chart (Source: Visitask.com, n.d) The next page provides an example of a Gantt chart for MS Project (Figure 16). Regenesys Business School 66

72 Figure 16: Example of a Gantt Chart from MS Project (Source: Gantt-chart.biz, n.d) Regenesys Business School 67

73 To view an explanation of critical pathing in MS Project, click on the link below: Project management quick tips Lesson 3. Network Diagrams A network diagram is like a precedence diagram with activity durations added to it. Network diagrams achieve what Gantt Charts do not: they show the dependency relationships between project activities. There are two main types of network diagrams: activity-on-arc (AoA) and activity-on-node (AoN) diagrams (Meredith and Mantel, 2012: ). Activity-on-Arc Network Diagrams In the AoA diagram, the arrows (arcs) denote tasks and the circles (nodes) represent events. For example, node 10 represents the start of the project. Node 20 denotes the end of activity A and the start of activities B and C, etc. Figure 17: Activity-on-Arc Network Diagram Activity A B C Description Procure office space Install communications lines Furnish office space Activities can occur in series or in parallel. In the above example, activities A and C occur in series, while activities B and C occur in parallel (Meredith and Mantel, 2012: ). Of course, networks can become more complicated and sometimes require the use of dummy tasks represented by dashed lines. These lines do not represent an actual task. For example, in Figure 18, activity D cannot start until both B and C are complete. The dummy task line shows this logic. The network diagram in Figure 18 also shows activity durations. Figure 18: Dummy tasks Activity Description Regenesys Business School 68

74 A B C D E Procure office space Install communications lines Furnish office space Transfer staff to new offices Install computer hardware at desks A logic table explaining the relationships in the network diagram could then be set up to aid interpretation, as follows: Activity Description Dependency Duration A Procure office space - 2 days B Install communications lines A 3 days C Furnish office space A 1 day D Transfer staff to new offices B & C 1 day E Install computer hardware at desks C 2 days (Meredith and Mantel, 2012: ) Activity on Node Network Diagrams AoN network diagrams are much the same as their AoA counterparts, but this time the node boxes represent activities and the arrows only represent the dependency relationships between activities. For this reason, there is no need for dummy lines. All arrow lines represent dependencies. Various project management software programmes generate these AoN diagrams (Meredith and Mantel, 2012: ). Regenesys Business School 69

75 Figure 19: Activity on Node network diagrams In AoN diagrams it is necessary to define the relationships between activities rather carefully (Meredith and Mantel, 2012: ). For this reason, there are various conventions for representing different kinds of relationships, as follows (Figure 20): Figure 20: AoN relationships Critical Path Method The most popular method of producing a draft master schedule (DMS) from a precedence diagram or network is the critical path method. The term critical path refers to the longest path in any network diagram in other words, the expected duration of the project. Regenesys Business School 70

76 In exploring network diagrams we have already covered the first step in the critical path method drawing up the precedence diagram or network. The next steps follow. Assigning Activity Durations The two important event times necessary for each activity are the Earliest Start Time (EST) and the Latest event Time (LET). These are generated by forward and backward passes respectively (explained later). Figure 21: Precedence/Network Diagram of IT Refit Project In the above precedence diagram for replacing the server and PC systems in an office, we would add activity durations to determine the critical path. Figure 22: Precedence/Network Diagram with Activity Durations Regenesys Business School 71

77 Backward and Forward Passes Then we would enter the forward pass stage, where we would calculate the earliest event time (EET) in other words, the earliest time that an event can start. For example the EET of activity E-F above would be the latest finish time of either B-E or C-E, since both of these must be complete before E-F can begin. It is possible to split EET into earliest start time (EST) and earliest finish time (EFT). Figure 23: Precedence/Network Diagram with EETs Next, we would enter the backward pass stage to calculate the critical path. Working back from latest end of the diagram, we would calculate the latest event times of each activity. That is, the latest time at which each activity could finish without affecting the starting time of the next activity. Regenesys Business School 72

78 Figure 24: Precedence/Network Diagram with EETs and LETs We can see that this project can be completed in no less than 45 days. Wherever there is no difference between the EET and the LET, there is no float or slack time for an activity. For example, activity C must finish on day 6. If not, it will delay the entire project. However, where there is a difference, a float of time is available. For example, activity D could be finished by day 14, but there are 4 days to play with if necessary. To view an example of drawing a network diagram, click on the link below: Lecture 10 Basic scheduling with A-O-N networks. Programme Evaluation and Review Technique (PERT) The PERT technique works on the assumption that it is not a simple matter to decide on an activity duration. Therefore, this is an appropriate method to use when there is uncertainty about the duration of project activities. When using PERT, one must assign three durations to each activity an optimistic, most likely, and pessimistic duration. The expected time taken by each activity is then calculated as the average of these three figures. So in the following example a project manager may plan an activity. If all goes well and resources are delivered on time, he may complete the project in 5 weeks. It is most likely that the project will take 10 weeks, and in the worst case scenario it may be 15 weeks. To calculate the mean (estimated) duration for each activity: Regenesys Business School 73

79 Average time = (optimistic time + (4 x most likely time) + pessimistic time) 6 = (a+4m+b)/6 Calculating average activity time Optimistic time (a): 5 weeks Most likely time (m): 10 weeks (also called the mode in this calculation) Pessimistic time (b): 15 weeks So: Average time = (a+4m+b)/6 = (5 + 4 (10) + 15) /6 = 60/6 = 10 weeks The average (mean) time that the project would take to complete is 6 weeks. To calculate the standard deviation for each activity: Standard deviation = (pessimistic time optimistic time) 6 Optimistic time (a): 5 weeks Most likely time (m): 10 weeks Pessimistic time (b): 15 weeks So: Standard deviation = (b - a)/6 = (15 5)/6 = 10/6 = 1. 6 The standard deviation is 1.6 Calculating activity standard deviation In the PERT approach, forward and backward passes are also performed in exactly the same way as used in the CPM method, as is the calculation of the critical path through the PERT network. Next, the project mean duration and standard deviation are calculated: To calculate the project mean duration: Project mean duration = Σ (all individual critical path activity mean durations) Calculating project mean duration For example: There are five project activities to be completed with the following means for each activity: 14 weeks, 5 weeks, 10 weeks, 11 weeks and 25 weeks. Project mean duration = Σ (all individual critical path activity mean durations) = = 65 weeks Regenesys Business School 74

80 To calculate the project standard deviation: Project standard deviation = Σ (all individual critical path activity standard deviations) 2 If there is pressure or a demand to complete the project in less than the project mean duration, statistical calculations can help the project manager to calculate the likelihood of being able to complete the project within the specified time. Calculating project standard deviation For example in the five project activities above the standard deviations may be: (The standard deviations are estimates as a, b and m were not accurately calculated for this example) 2.3; 1.1; 1.6; 1.5; 4.2 Project standard deviation = Σ (all individual critical path activity standard deviations) 2 = = 10.7 As with Gantt Charts, Critical Path Analysis and PERT methodology helps you to plan all tasks that must be completed as part of a project. They act as the basis both for preparation of a schedule and resource planning. During management of a project, they allow you to monitor achievement of project goals. They help you to see where remedial actions need to be taken to get a project back on course. For more information concerning project time management techniques read the following: Work and Resource Breakdown Structures for formalized bottom-up estimating. (Rad and Cioffi, 2000) Current practice in project management an empirical study. (White and Fortune, 2002) Gantt charts: A centenary appreciation. (Wilson, 2003) Project re-planning Crash Analysis You may find that you need to complete a project earlier than your Critical Path Analysis says is possible. In this case you need to take action to reduce the length of time spent on project stages. This is referred to as crashing. You could pile resources into each and every project activity (critical and parallel running) to bring down time spent on each. This would probably consume huge additional resources. A Regenesys Business School 75

81 more efficient way would be to look only at the activities on the critical path and increase resources on this path after all, non-critical activities will not provide a time saving. This would shorten the overall project time providing there is still enough float time to complete the parallel activities. Figure 25: Critical resource pathing Crash analysis process 1. Begin with a list of the critical activities those without float. 2. Calculate the cost of crashing each activity. 3. Calculate the cost of crashing per unit time. This will allow you to see the relative cost and time saving of crashing each activity. This will prevent you from spending too much on crashing an activity that will not significantly reduce the length of the critical path. You may also choose to prioritise the crash sequence by cheapest cost. For example, some of the main activities on the network diagram above can be analysed as follows, with crash cost per day calculated as crash cost divided by number of days saved: Regenesys Business School 76

82 Activity Normal Duration Crash Duration Normal Cost Crash Cost Crash Increase Crash Cost per Day Saved A-B 4 1 R8 000 R R R4 000 B-E 4 1 R8 000 R R R4 000 E-F 16 5 R R R R F-G 4 2 R R R R9 000 G-H 4 2 R R R R Calculate the crash sequence. Usually, this will start with the cheapest unit-crash-cost item and end with the most expensive. 5. Check the critical path As the items in the crash sequence are crashed, the critical path will reduce. In the example shown above, if you only need to shorten the project time by three days, you may be able to stop crashing after the first crash of A-B. If you need to condense the project into the shortest amount of time possible, you will need to crash the network up to the crash limit that is, crashing the entire crash sequence. Regenesys Business School 77

83 Trade-off analysis Crash analysis is one aspect of trade-off analysis. In the example above, we examined a trade-off between time and cost. However, trade-offs between time and performance, or between cost and performance, are also possible. Trade-offs may be required if project objectives change, if errors occur or if unexpected problems arise. It is at this point that one must weigh up different solutions in terms of their impact on overall time, cost and quality of the project. Translate the WBS into an operational plan When there are a significant number of activities a thorough account of timeframes and budget allocations is advisable. The following is a generic example of a project planning matrix for operational use. The information is derived from the work breakdown structures, project logic evaluation and calculation of activity durations using the DMS. In the matrix below we see that specific team members have been assigned responsibility for particular tasks. Time frames have also been assigned, indicating that a project logic evaluation has been carried out to ascertain the best sequence for activities and the likely durations of each. Delegation must be carried out with a view to the team members skills, knowledge and experience, as well as an awareness of any time constraints they may experience due to involvement in other projects occurring simultaneously. Ensure clear communication about the nature of the tasks and elicit information on each team members other commitments to ensure that the team is equipped with the appropriate resources from time to knowledge and training to successfully commit to their assigned tasks Project Cost Management Project cost management revolves around three areas of knowledge, according to PMBOK (2004: 157) (Table 18). Table 18: Project cost management Cost Estimating Cost Budgeting Cost Control Developing an approximate schedule of the costs of the resources needed to complete project activities. Aggregating the estimated costs of individual activities or work packages to establish a cost baseline. Influencing the factors that create cost variances and controlling changes to the project budget. The first two of the above activities fall into the planning category, preceding implementation, and the third into the monitoring category which unfolds with implementation. Regenesys Business School 78

84 Cost estimating Cost estimating involves developing an approximation (estimate) of the costs of the resources needed to complete project activities. Project cost estimating is usually performed by adding estimates for individual project elements into a project total. The pieces can vary in size and number from a few large chunks of a project with known costs, to hundreds or thousands of discrete tasks or individual work packages. The estimate of a project is prepared as a measure against which to control expenditure on the project, and is known as the benchmark or baseline. Level of Detail Depending on the level of cost detail required for a specific project, estimates will vary in the level of detail they include. There are three phases of estimation described in Table 19 (Source: Roberts & Wallace, 2002). Table 19: Phases of cost estimation Order-of-Magnitude Estimation Indicative Estimation: Definitive Estimation This is done without any precise data, based on past experience of similar work, or on published output or cost information. The typical level of accuracy is about 25 %, merely to get an idea of the magnitude of the cost for example R1 000 or R Therefore, generous contingency funds are provided. The indicative estimate is based on known information and published data such as electronic databases or prices indexes. These are generally accurate to plus/minus 10 to 15 percent. A definitive estimate is produced from supplier quotes, contractor-supplied prices and so on. In other words, it is based on the most realistic and current costs obtainable. No measurement can be completely accurate, but definitive estimates should be within 5 percent of an accurate estimate of costs. (Source: Roberts & Wallace, 2002) Top down costing Here the cost of a previous, similar project is used. Care must be exercised as costs that seem analogous may actually vary because of differing specifications. Regenesys Business School 79

85 Activity based costing (ABC) This is based on the consumption of resources. It is not exact and involves many value judgements. The cost of an activity for a project is defined as the average cost of the activity multiplied by the number of times the activity is required for that project. Bottom up estimating A detailed WBS is prepared and each activity that goes into a project is estimated. The technique of bottom-up estimating involves estimating the cost of individual work items, then summarising or rolling-up the individual estimates to obtain a project total. If the work process is well understood, this can be a very accurate way of estimating costs. Supporting details Cost estimates should include: A description of the scope of work estimated (using WBS). A description of the basis for the estimate (i.e. how was it done?). A record of any assumptions made (e.g. exchange rate, fuel price, etc.). Cost budgeting The Role of the Project Budget The project budget is a management, planning and decision-making tool. It can be used to (Roberts & Wallace 2002: 6/50-51): Establish the overall budget baseline for the project, against which changes and expenditure will in future be measured; Develop, alongside the project schedule, the projected cost curve for each aspect and work package; Establish a reference point for variance analysis, allowing the performance of individual elements and tasks to be assessed through the duration of the project; Moderate the spending of those in charge of individual elements of the project; Generate the basic data for scenario analysis in calculating trade-offs; and Estimate the likely effects of change notices and variation orders Regenesys Business School 80

86 Preparing a Budget Preparing an initial budget involves (Roberts & Wallace 2002: 6/50-51): Assigning an accurate cost to each objective, ensuring that you include any possible hidden costs. Costs often run over budget when possible costs are not properly thought through, and this often means having to abandon one of the minor objectives in order to make up for the decreased budget. Estimating the expected income for the project. Don t be too optimistic, as projects often cost more than expected. Comparing income and expenditure. The costs will often exceed the income, in which case expenditure must be re-evaluated with a view to saving on costs. Build in a safety or contingency element if you are concerned that you may have underestimated costs. The final budget that results from the above steps is not in fact final. It must be changed and re-evaluated whenever unexpected changes occur in the project. It is necessary to consider a lot of detail when drawing up a budget. It is critical to draw up a budget that is based on real costs. Most importantly if the project is for a two year period the budget should factor in inflation. Costs and Allowances A variety of different types of costs may be incurred during the life of a project (listed in Table 20). Knowing the range of costs that may be incurred will assist you in thoroughly evaluating the possible costs of each project objective (Roberts & Wallace 2002: 6/50-51). Table 20: List of costs and allowances Fixed and Variable Costs Fixed costs are those that occur independently from the exact activities of a project. For example, the cost of an internet connection, office space, insurance and administrative salaries. These often form the main part of a project s indirect costs. Variable costs, on the other hand, fluctuate in a manner that depends on project activities. For example, if staff has to be transported and accommodated in the course of a project, this would be a variable cost. Variables costs are usually direct. Direct and Indirect Costs Measured Works Contingencies and Reserve Direct costs, as suggested above, are costs directly related to the project task at hand. Indirect costs are those that exist independent of project activities they are the overheads related to facilities, services and personnel costs. Often, these costs are recovered across organisational projects. Individual prices assigned for carrying out individual pieces of work. A reserve of money designated for unexpected contingencies that emerge during the project. Large, complex projects will often run over budget if they do not allow in this way for unforeseen additional costs that result Regenesys Business School 81

87 Cost Fluctuations Provisional Sums Bonds and Warranties Exchange Rate and Currency Fluctuations Insurance from the unpredictable nature of projects. When contractors are brought on board for a long-term project, the contract will usually allow for cost escalation. When the economy is stable, it is easier to predict increases in the cost of labour, materials and equipment. Provisional sums are estimated to cover work that is foreseen but not clearly defined at the start. For example if the purchase of school furniture in a province were dependent on an audit of the existing furniture so that the current furniture could be reused wherever possible, a provisional sum might be used because there is no way of knowing prior to the audit how much of the existing furniture is still usable. Projects involving public finance may include bond cover of perhaps 10 percent of the contract total. Guarantee and warranty amounts may also be required. Should foreign companies be involved in a project, for example the structural engineers for the building of Nelson Mandela Bridge, it is preferable to pay the contractor in a stable currency such as US dollars, Euros, Pounds or Swiss Francs. A contingency amount should be included to cover shortfalls due to currency fluctuation. Many types of contracts will require the parties to take out insurance for fire, flood, lightning or radiation. (Source: Roberts & Wallace, 2002: 6/16-6/20) Cost control Requirements of a Cost Control System We have already established that no part of a project works in isolation from the other components, and it is no different when it comes to cost control. In fact, your ability to control cost will depend on an accurate budget plan, which itself is dependent for accuracy upon the quality of information used to compile it. So in a sense, cost control begins right at the start of the cost planning journey. If you do not collect and compile your budget data with the need for accurate cost control in mind, you will be undermining your chances of success from the outset. Cost control systems, like most financial planning and management systems, generally incorporate an electronic system. It is important to understand the principles that such a system should embody, to ensure that any software used for this purpose is appropriate. These are discussed in Table 21 (Adapted from: Roberts & Wallace 2002: 6/6-6/9). Regenesys Business School 82

88 Table 21: Prerequisites for a Cost Control System An accurate project schedule A reliable estimating system A clear project scope Realistic budgets A clear authorisation system A flexible and responsive system A reliable approach to costtracking and variance analysis A time-dependent variance detection system A flexible approach to reserves and contingencies Budgets can t be prepared accurately if every work input to each work package has not been carefully explored. To reliably predict the resources and costs for a project, all the relevant information must be taken into account. Every aspect of a task that is overlooked will mean extra, unplanned cost at the end of the day. A cost control system can only perform within the limits imposed by the estimating process that has been used to prepare it. Estimates cannot be rough guesses; they must be based on detailed calculations and established data wither price books or estimation software or estimates taken from recent cost history. To budget accurately it is essential that the parameters of the project and its sub-tasks are clearly and unambiguously defined. If they are not, it becomes easy for work to be duplicated or omitted. Two contractors tasked with different aspects of a single work package may quote for scopes that cover some of the same ground. Alternatively, in internal projects several workers might overlook a certain task all making the assumption that someone else is responsible for that aspect. The consequent delay when the oversight is finally noticed will have cost implications. Nothing must be missed in the budgeting process, as this will lead to an unrealistic budget that is bound to be overrun. While it may be tempting to present a smaller budget, the short-term kudos this may earn could be reversed later on when you are unable to control costs within an unrealistic budget and thus overrun the budget significantly. Clearly, it will be difficult to control expenditure against budgets if the authorisation system is tangled, confusing and open to abuse. The designation of one or two individuals as the sole authorising parties increases accountability and acts as an additional check. Alternatively, different parties can be assigned different levels of authorisation over R10 000, up to R , over R , etc. Projects change, and with them, costs vary. Therefore, a cost control system must be able to respond to changing requirements for example through variation orders or change notices used to amend contract specifications. As each change notice is authorised, the cost estimates for the project must be updated accordingly. A cost control system must be able to perform rapid and frequent analyses of project data, because the frequency of analysis is a key to accurate output. Computer software, which allows project managers to compare the baseline cost plan with the latest version and again compare these to actual expenditure across multiple work packages, is increasingly used to achieve this. Any system designed to track variance should incorporate a mechanism to lower the acceptability of cost variance as the project continues it is common for variances to occur early on during the time of intensive re-planning, but in the later stages of a project there should be little or no variance. Most projects should include a contingency fund of around five percent of the project value and provisional sums of up to 10 percent of the total value. Project managers should be empowered to use these sums within the appropriate authorisation structures in order to correct cost variances on affected work packages. (Adapted from: Roberts & Wallace 2002: 6/6-6/9) Read the following case study. It describes the consequences of poor quality cost control. Regenesys Business School 83

89 Why projects fail: a university accounting system. (Laurie, 2003) Project Risk Management Defining risk The concept of risk has proven to be somewhat challenging to define. Risk indicates the existence of the expectation that the actual outcome of a decision may differ from the outcome originally expected. The terms, risk and uncertainty are often regarded as having similar meaning. But they are actually very different. Uncertainty implies that no probability can be attached to any possible outcome identified, whilst risk implies that there is a possibility of associating probabilities to expected outcomes. Risk can be defined as: Risk management is the identification and evaluation of actual and potential areas of risk as they pertain to an organisation, followed by a procedure of termination, transfer, and acceptance or mitigating of each risk. It is a continuous process of identifying, evaluating and managing risk (SAICA, 2009). If we look at the above mentioned definition you will find that it all refers to results and consequences and it also talks about future actions. One can therefore say that Risk Management is the proactive approach to avoiding or minimising the severity of potential hazardous actions. Risk categories The main categories to group individual risk exposures are discussed in Table 22: Regenesys Business School 84

90 Internal Table 22: Risk categories Risk type Risk category Description Human resources Knowledge and Information management Litigation Loss / theft of assets Material resources (procurement risk) Service delivery Information Technology Risks that relate to human resources of an institution. These risks can have an effect on an institution s human capital with regard to: Integrity and honesty; Recruitment; Skills and competence; Employee wellness; Employee relations; Retention; and Occupational health and safety. Risks relating to an institution s management of knowledge and information. In identifying the risks consider the following aspects related to knowledge management: Availability of information; Stability of the information; Integrity of information data; Relevance of the information; Retention; and Safeguarding. Risks that the institution might suffer losses due to litigation and lawsuits against it. Losses from litigation can possibly emanate from: Claims by employees, the public, service providers and other third party; and Failure by an institution to exercise certain right that are to its advantage. Risks that an institution might suffer losses due to either theft or loss of an asset of the institution. Risks relating to an institution s material resources. Possible aspects to consider include: Availability of material; Costs and means of acquiring \ procuring resources; and The wastage of material resources Every institution exists to provide value for its stakeholders. The risk will arise if the appropriate quality of service is not delivered to the citizens. The risks relating specifically to the institution s IT objectives, infrastructure requirement, etc. Possible considerations could include the following when identifying applicable risks: Regenesys Business School 85

91 Third party performance Health & Safety Disaster recovery / business continuity Compliance / Regulatory Fraud and corruption Security concerns; Technology availability (uptime); Applicability of IT infrastructure; Integration / interface of the systems; Effectiveness of technology; and Obsolescence of technology. Risks related to an institution s dependence on the performance of a third party. Risk in this regard could be that there is the likelihood that a service provider might not perform according to the service level agreement entered into with an institution. Non-performance could include: Outright failure to perform; Not rendering the required service in time; Not rendering the correct service; and Inadequate / poor quality of performance. Risks from occupational health and safety issues e.g. injury on duty; outbreak of disease within the institution. Risks related to an institution s preparedness or absence thereto to disasters that could impact the normal functioning of the institution e.g. natural disasters, act of terrorism etc. This would lead to the disruption of processes and service delivery and could include the possible disruption of operations at the onset of a crisis to the resumption of critical activities. Factors to consider include: Disaster management procedures; and Contingency planning. Risks related to the compliance requirements that an institution has to meet. Aspects to consider in this regard are: Failure to monitor or enforce compliance; Monitoring and enforcement mechanisms; Consequences of noncompliance; and Fines and penalties paid. These risks relate to illegal or improper acts by employees resulting in a loss of the institution s assets or resources. Regenesys Business School 86

92 External Financial Cultural Reputation Economic Environment Political environment Social environment Risks encompassing the entire scope of general financial management. Potential factors to consider include: Cash flow adequacy and management thereof; Financial losses; Wasteful expenditure; Budget allocations; Financial statement integrity; Revenue collection; and Increasing operational expenditure. Risks relating to an institution s overall culture and control environment. The various factors related to organisational culture include: Communication channels and the effectiveness; Cultural integration; Entrenchment of ethics and values; Goal alignment; and Management style. Factors that could result in the tarnishing of an institution s reputation, public perception and image. Risks related to the institution s economic environment. consider include: Inflation; Foreign exchange fluctuations; and Interest rates. Factors to Risks emanating from political factors and decisions that have an impact on the institution s mandate and operations. Possible factors to consider include: Political unrest; Local, Provincial and National elections; and Changes in office bearers. Risks related to the institution s social environment. Possible factors to consider include: Unemployment; and Migration of workers. Regenesys Business School 87

93 Natural environment Technological environment Legislative environment Risks relating to the institution s natural environment and its impact on normal operations. Consider factors such as: Depletion of natural resources; Environmental degradation; Spillage; and Pollution. Risks emanating from the effects of advancements and changes in technology. Risks related to the institution s legislative environment e.g. changes in legislation, conflicting legislation. (Source: nsw.gov.au, 2012) Risk identification Risk identification is a deliberate and systematic effort to understand and document all of the key risks facing the institution. Risk identification starts with understanding the institutional objectives, both implicit and explicit. Risks are those things that will affect the institution form achieving these objectives. The risks in question do not only relate to fraud, finance or safety but encompasses the whole spectrum of risk that can affect the achievement of objectives. When identifying risks, it is also important to bear in mind that risk also has an opportunity component (refer to the definition of risk as adopted in the risk management framework). This means there must also be deliberate attention to identifying potential opportunities that could be exploited to improve institutional performance. Internal and external events and/or factors affecting achievements of the organisation s objectives must be identified, distinguished between those with negative and positive impact. Events or factors with a positive impact must be channelled back to management strategy or objective setting processes. During this identification phase, all financial and non-financial factors that may influence the organisation s policy and management agenda must be identified. The organisation s risk identification methodology shall comprise a combination of techniques and supporting tools. Risk identification techniques shall look to both the past and the future. Regenesys Business School 88

94 An organisation can make use of the following questions to identify and control risks: What, when, where, why and how risks are likely to occur, and who might be involved? What is the source of each risk? What are the consequences of each risk? What controls presently exist to mitigate each risk? To what extent are controls effective? What alternative, appropriate controls are available? What are the department obligations external and internal? What is the need for research into specific risks? What is the scope of this research, and what resources are required? What is the reliability of the information? Is there scope for benchmarking with peer organisations? Identify potential risk Risks can be avoided, or at least planned for, if we stay constantly aware of triggers, causes, effects and owners. These aspects are briefly discussed below. Triggers are early warning signs of risks. Jiscinfornet (2009) cites the scenario where your most casually dressed employee comes to work in a suit and asks for the afternoon off, as a classic example of a project risk trigger scenario. If you are alert and sensitive to triggers, you can put plans in place for when things go wrong, or you may even be able to prevent it. Causes are circumstances or events that lead to events that may jeopardise the project or objectives. It is therefore extremely important to keep track of causes in order to address current problems and to avoid similar occurrences in the future. When we talk about effects, we are concerned with the impact that the risk will have on the project or unit if it actually occurs. The owner can be described as someone who will 'own' the risk. This person will be responsible for monitoring the situation and ensuring that necessary management actions are carried out. In a project situation the owner is typically someone within the project team who will be impacted by the risk and who has a vested interest in addressing it. Management know what risks the organisation is exposed to but, they do not always formally record those risks. The aim of completing a risk identification exercise is to identify, discuss and document the risks facing the organisation. These risks are supposed to be recorded in the risk register. Regenesys Business School 89

95 This register is used as: A source of information to report the key risks throughout the department, as well as to key stakeholders. A tool to help managers focus on the priorities. A tool to assist the auditors to focus their plans on the department s top risks. Qualitative assessment Qualitative assessment is applied when the risk does not lend itself to numeric quantification. In such cases more subjective means are used, the most important of which is the expert judgement of management. Risk assessment considerations The risk assessment tables need to be consistently applied for all key risks in the institution. Certain disciplines, for example, IT and Health and Safety, may use assessment methodologies that are informed by their professional norms and standards. In such circumstances, it would be prudent for the sake of the operational efficiency of these disciplines to allow them to use their preferred methodology. However, in order to maintain consistency at the institutional level the same risks should be re-assessed in terms of the institution-wide risk assessment tables (National Treasury, 2008). The assessment of likelihood of risk often imposes a challenge to management. In this respect guidance can be obtained from the historical experience of the institution, as well as the experience of similar institutions. The assessments must be considered together with the department s risk appetite to ascertain whether the risk is acceptable or not. This in turn will inform whether additional interventions will be required. Below we are going to have a look at risk rating tables as part of risk assessment tools in the process. Remember we have already touched on this before in our discussion of risk management framework. Risk Rating Tables Risk rating tables can be used to assess the potential impact of risks (Unknown author, 2012). Departments customise these tables to suit their preferred department style. The risk assessment process includes the following 4 steps: Step 1 Quantifying the parameters (scoring system) of impact and likelihood before the actual assessment (Table 23). Table 23: Risk Rating Table IMPACT (CONSEQUENCE) Regenesys Business School 90

96 Score Rating Description 5 Catastrophic 4 Major 3 Moderate 2 Minor 1 Insignificant Loss of ability to sustain on-going operations. Leads to termination of the project Significant impact on achievements of strategic objectives and targets relating to the organisational plan. Cost increase > 20% Disruption of normal operations with limited effect on achievement of strategic objectives or target relating to the organisational plan Cost increase > 10% No material impact on achievement of the organisation s strategic objectives Cost increase < 10% Negligible impact Minimal or no impact on cost LIKELIHOOD ( FREQUENCY, PROBABILITY) Score Rating Description 5 Common The risk is almost certain to occur more than once within the next 12 months/ almost every time (Probability = 100% p.a) 4 Likely The risk is almost certain to occur once within the next 12 months (Probability = % p.a) 3 Moderate The risk could occur at least once in the next 2-10 years (Probability = 10-50% p.a) 2 Unlikely The risk could occur at least once in the next years. (Probability = 1-10% p.a) 1 Rare The risk will probably not occur less than once in 100 years. (Probability = 0-1%) Step 2 Applying the parameters to the risk matrix to indicate what areas of the risk matrix would be regarded as high, medium or low risk (Table 24): Table 24: Risk index = impact x likelihood I Risk index Risk Magnitude M Maximum P High risk A Medium risk C Low risk T Minimum risk LIKELIHOOD Step 3 Determining the risk acceptance criteria by identifying what risks will not be tolerated (Table 25): Table 25: Risk acceptance criteria Regenesys Business School 91

97 Unacceptable risks Acceptable risks Step 4 Determine risk acceptability and what action will be proposed to reduce the risk (Table 26). Table 26: Risk acceptability Risk index Risk magnitude Risk Proposed actions acceptability Maximum risk Unacceptable Take action to reduce risk with highest High risk Unacceptable priority, accounting officer and executive authority attention Medium risk Unacceptable Take action to reduce risk, inform senior management. 5-9 Low risk Acceptable No risk reduction - control, monitor, inform management. 1-4 Minimum risk Acceptable No risk reduction - control, Monitor, inform management. Likelihood represents the possibility that a given event will occur, while impact represents its effect should it occur. The rating of the risks is conducted through a voting system. Risk has to be rated both on inherent and residual basis. Residual risk represents risks after considering the effectiveness of existing control. See Figure 26 below. Figure 26: Risk rating Regenesys Business School 92

98 Risk analysis (Qualitative and Quantitative) Once you have identified the risks, your next step would be to decide on the probability that it may actually occur, it s possible frequency and the impact that it will have on the organisation if it happens (Figure 27). Regenesys Business School 93

99 Figure 27: Risk analysis Risk assessment Identify Analyse Prioritise (Source: Department of Justice, 2008) Since there is quite some subjectivity and guess work involved in this decision making, it is important to brainstorm with all the stakeholders and to reach resolutions which the majority of involved parties will feel comfortable with. Take for instance a risk such as a terrorist attack or a natural disaster such as the Tsunami. The likelihood that it could happen is not really great, but if it does happen, the impact will be such that it can ruin an organisation. A numerical scale such as the one given in Figure 28, it helps to grade a risk as: High Risk (1); Medium Risk(2); Medium Risk(3); or Low Risk (4). Figure 28: Numerical risk scale (Source: Department of Justice, 2008) After grading the likelihood and impact of the risks, you and the stakeholders have to decide what your attitude towards each risk will be. You may be tempted to do nothing about a low- Regenesys Business School 94

100 probability risk, e.g. one graded as a 2. However, you should remember that it can still be highly damaging to your business if it occurred. A remote chance of a catastrophe warrants more attention than a high chance of a hiccup. To determine the possible impact of a crisis on your business, you should brainstorm and think of some of the worst possible scenarios and how they might prove debilitating for the business. For example, how could you access data on your customers and suppliers if computer equipment was stolen or damaged by a flood? Where would the business operate from if your premises were destroyed by fire? The measurement or analysis of risk is important for the following reasons: To identify the potential operational risk exposure of the organisation; To serve as a platform for the calculation of the cost of the operational risk; To serve as a basis for cost-effective decisions by management; and To ensure that the cost of risk does not exceed the benefits stemming from the actual management thereof. Figure 29 can be used to determine the likelihood of risk occurring. Figure 29: Likelihood of risk This means that all the risks need to be prioritised in order of importance and then it focused on or addressed. Risk response planning This process is about the determination of how the institution will mitigate the risks it is faced with, through consideration of alternatives such as risk avoidance, reduction, risk sharing or acceptance. Risk management response plan or treatment options are classified under the following broad categories: Regenesys Business School 95

101 Risk Avoidance Risk avoidance is a decision not to be involved with a risk or in a risk situation. The decision will be not to proceed with a particular activity or project because upon assessment, the activity represents such a great risk that there is limited ability to control the risk and that there is little benefit in pursuing the activity. Risk Control Is the pro-active control of adverse consequences of a risk by implementing preventative measures. It is the risk, which is cost effective to control or treat. Risk Transfer/sharing It is the risk that upon assessment shall be considered cost effective to transfer to third parties or otherwise sharing a portion of the risk with the third party. Risk Retention It is the risk that upon assessment shall be considered cost effective to be accepted or tolerated due to its limited impact on the Department. The response plan shall be developed once the risk assessment has been completed and shall include all the intervention to minimise the identified risks. Control activities This is about putting in place policies and appropriate procedures such as approvals, authorisations, segregation of duties, reconciliations and physical safeguards to ensure that the chosen risk responses are implemented. Concept of risk evaluation Risk evaluation is the assessment of the identified risk exposures with the aim of managing and controlling the risks that could negatively influence the business strategy. If you want to manage risk effectively it is fundamental that you measure or test the risk exposure. This is not an easy task as it is difficult to attach a value to some of the operational factors for examples the impact of virus attacks to our system. Operational risk is evaluated in quantitative and qualitative terms and therefore it entails the following two approaches: The quantitative approach aims to quantify the risk in numerical terms and determine the potential impact on the organisation. It is an analysis of loss exposure. The qualitative assessment of risk aims to evaluate the risk exposure that cannot be numerically calculated. These risks are analysed in terms of rating scales to determine the possible impact and likelihood of risk events. Regenesys Business School 96

102 Read the following text to enhance your understanding of project risk management: Use and benefits of tools for project risk management. (Raz, and Michael, 2001) Project Risk management: a combined analytic hierarchy process and decision tree approach. (Dey, 2002) The risk ranking of projects: a methodology. (Baccarini, and Archer, 2001) Access the following case study to study the implementation of project risk management: Case study: Risk Management in Health Case Construction projects. (Petersen, 2009) Conclusion The success of a project relies on efficient project initiation and planning. It lays the foundation for project execution as it provides the project manager with a map as to how to manage the project. Project managers need to understand that sufficient planning prepares the project manager for project execution and contributes to achieving the project team purpose and goals. In the next section, project execution, risk management and project quality control will be discussed. Regenesys Business School 97

103 Recap Questions 1. On the time-cost-quality continuum, try to plot a scope that allows for top quality. What would this require in terms of cost and time? 2. Now try to plot a scope that provides high quality with low cost and low time resources. 3. Define a contract. 4. Think of any contract you have once entered into and review it critically. What where your intentions of entering into this contract? 5. Discuss the formalities of a contract. 6. Discuss the concept of a void contract in relation to ascertainability. 7. What is meant by capacity to contract, discuss briefly? 8. Distinguish between a suspensive condition and a resolute condition. 9. Discuss ways and procedures in which contracts can be terminated. 10. How would a work breakdown structure look if constructed for the current project you are involved in? How many levels would it have? 11. Explain the advantages of bottom-up budgeting. 12. Explain how budgeting techniques can undermine the successful completion of a project. 13. Critically evaluate the necessity of a Gantt chart. 14. Summarise how a network is drawn. 15. Discuss the importance of a critical chain. 16. Argue the reasons why risk analysis should be done during the initiation phase of project management. 17. Read the case study below and critically argue whether the child support system software was a victim of scope creep. Ensure that you explain the concept of project creep in your response. Child support software a victim of scope creep In March 2003, the United Kingdom s Child Support Agency (CSA) started using their new 456 million software system for receiving and disbursing child support payments. However, by the end of 2004 only about 12 percent of all applications had received payments, and even those took about three times longer than normal to process. CSA thus threatened to scrap the entire system and withhold 1 million per month in service payments to software vendor. The problem was thought to be due to both scope creep and the lack of a risk management strategy. The vendor claimed that the project was disrupted constantly by CSA s 2,500 change requests, while CSA maintained there were only 50, but the contract did not include a scope management plan to help define what constituted a scope change request. And the lack of a risk management strategy resulted in no contingency or fall back plans in case of trouble, so when project delays surfaced and inadequate training became apparent, there was no way to recover. (Project Management Institute, Lack of Support. PM Network. Vol. 19 in Meredith and Mantel, 2012:325)) Regenesys Business School 98

104 7.4 PROJECT EXECUTION AND EVALUATION Timeframe: Learning Outcome: Recommended reading: Multimedia: Section overview 4 hours Identify, critique and manage the quality aspect of a project Examine the skills and processes to manage group dynamics and project teams effectively Identify processes and apply key skills to manage human resources Creative Leadership processes in project team development: an alternative to Tuckman s stage model. (Rickards, and Moger, 2000) Writing effective project reports. (Hazen, 2004) A project management quality cost information system for the construction industry. (Love and Irani, 2002). Science, specific knowledge, and total quality management. (Wruck and Jensen, 1994) Using Cost Benefit analysis for Enterprise Resource Planning Project Evaluation: a case for including intangibles. (Murphy and Simon, 2001) Designing projects and project evaluations using the logical framework approach (Jackson, 2000) Quality planning vs. quality assurance vs. quality control project quality control. (2012) In this section of the study guide, you will spend time on project execution and project evaluation. You are introduced to project monitoring and control. Time is spent and project reporting and the importance of project documentation is discussed. Project quality control is evaluated. An overview is provided for the evaluation of information to assist you with project evaluation and project auditing Project Team Development Tuckman and Jenson (1965 in Rickards and Moger, 2000) developed a team development model comprising of five stages (Figure 30): Regenesys Business School 99

105 Figure 30: Team development stages Forming Newly formed teams Avoidance of serious issues as individuals focus on the desire to be accepted Team forms project purpose and goals Sets ground rules for team behaviour Storming Problems starts surfacing and confrontation starts Uncertainties are communicated and team members might become distracted Norming Emotional struggles becomes less Struggles are sorted and team can focus on their purpose The team's working process is sorted out and team members understand one another more Performing The team performs according to the project purpose and goals Members work well together and tasks are completed on time and with enthusiasm Adjourning Team achieved the project purpose and goals and breaks up. Rickards and Moger (2000:273) suggest that this model ignores contingency effects and might be too prescriptive. They suggest creative leadership as a method of problem-solving. The writers focus on two critical questions to enhance team development modelling: Regenesys Business School 100

106 What mechanisms are at play when a team fails to achieve expected performance? What mechanisms lead to outstanding performance? (Rickards and Moger, 2000:277) The writers argue that team leaders need to encourage team openness which is linked to the transformational leadership style (if you cannot remember the transformational leadership style assumptions, revisit your Leadership, Emotional and Spiritual Intelligence module). They suggest seven team factors that might influence team development. Rickards and Moger (2000) suggest that their proposals needs further study as they identified barriers which can be breached by effective leadership involvement. Furthermore, the study focuses on problem-solving which lack a multi-level model which may offer an alternative to the Tuckman-Jensen model. For more information concerning project team development, read the article indicated below: Creative Leadership processes in project team development: an alternative to Tuckman s stage model. (Rickards, and Moger, 2000) Project Monitoring Project monitoring is an internal process required during project implementation to ensure success. Project monitoring is essentially about measuring actual progress against the project plan or indicators, detecting variance, and taking corrective action. It is mainly concerned with the following project elements: Measurement of physical and financial resources; Time management; Information management; Quality control; Human Resources performance; and Achievement of project objectives. Key Project Monitoring Questions and Time Frames Project monitoring is an integral part of day-to-day management. It provides information by which management can identify and solve implementation problems and assess progress. The questions in Table 23 should be asked regularly by the project manager and the project team: Table 27: Monitoring questions Weekly Which activities are underway and what progress has been made? Regenesys Business School 101

107 Monthly Quarterly Half yearly Half yearly At what rate are resources being used and costs incurred in relation to implementation? Are the desired results being achieved? To what extent are these results furthering the project purpose? What changes have occurred in the project environment? Reporting on Progress Progress review meetings These should be used to review progress against the plan. The questions above should be used as a guideline for the meetings. Reflection, review, and problem-solving should be the norm, not blaming and destructive conflict. Project progress reports These are an important source of information. They should refer to the indicators milestones and targets developed earlier. The following framework is useful and encourages interrogation: Data about intended achievements, which is compared to Data on actual achievements, to identify Significant deviations from the plan, as a basis for Identification of problems and opportunities, to identify Corrective action and alternatives. For more information on writing project reports, read the following article: Writing effective project reports. (Hazen, 2004) Project Planning and Control Tools Project monitoring is an integral process of the project management cycle and as such it utilises various project planning and control tools: Bar-charts Project documents and reports: work plans, project specifications, networks, schedules, progress reports, budgets and cash-flow statements, quality plan, etc. Integration change control means that as the various elements of the project as described above, alter, encounter problems, find solutions and so on, the project team and the project Regenesys Business School 102

108 manager need to keep a flow of information so that all involved are properly informed and that both macro and micro planning can be adjusted accordingly. Care must be taken that if one part of a project over-runs time or budget, this does not impact too negatively on tasks that flow from the delayed task. Management Information Systems A management information system is defined as: A formal method of making available to management the accurate and timely information necessary to facilitate the decision-making process and enable the organisation s planning, control, and operational functions to be carried out effectively. The system provides information about the past, present, and projected future and about relevant events inside and outside of the organisation. A management information system must be able to satisfy the information needs of all stakeholders. Moreover, information collected should assist to inform strategic and operational decisions of the respective stakeholders. This in turn informs the type and nature of programmes and projects that should be delivered. Key problems with Management Information Systems (Shortell and Kaluzny, 1993): Do not collect the right information. Do not store the right information. Are not computerised. Lack sufficient computer hardware and software to provide adequate retrieval and analysis information. Are not integrated with other systems (e.g. human resources, finances, planning, etc.). Do not analyse the information. Do not use the information in decision making processes. Monitoring Human Resources The key resource in any organisation and particularly in a project situation is the human resources. Without the support, skills and knowledge of the project team members, projects will most likely fail. Project managers therefore have to be equipped with essential hard and soft human resource skills to manage project team members effectively. Some of the hard skills refer to performance management, meeting management, planning and scheduling, delegation, written communication, etc. Some of the soft skills entail: effective verbal and non-verbal communication, conflict resolution, management of group dynamics, motivating and inspiring of members, etc. As projects nowadays are invariably complex, project managers are not charged with managing individuals, but with managing teams. Setting Performance Indicators Performance indicators can be defined as quantifiable indicators of performance. These are used to assess the extent to which projects are meeting their aims while using the assigned Regenesys Business School 103

109 and available resources (people, time, money, equipment, etc.) efficiently. Performance indicators should be derived from, and linked to, each activity listed in the WBS. Performance is affected by a number of factors (Knipe, van der Waldt et al 2002:228-9): Personal factors: the project team member s skill, confidence, motivation and commitment Leadership factors: the quality of encouragement, guidance and support provided by project managers; Team factors: the quality of support provided by team members to the project; System factors: the system of processes, resources and facilities provided by the organisation to the project; and Contextual (situational) factors: internal and external environmental pressures and changes on the project. Team Monitoring: Conflict Management Conflict is a process that begins when one party perceives that another party has negatively affected, or is about to negatively effect, something that the first party cares about. Conflict is not an aberration something that is abnormal. It occurs in all organisations and teams, unless there is a culture of compliance, which means that little questioning occurs. Project team managers need to be able to manage conflict and harness it so that it becomes a creative, and not a destructive, force. Regenesys Business School 104

110 The following list of causes of conflict and conflict escalators are worth reflecting on: 1. Poor communication inappropriate communication channels and too little attention given to efficient and effective communication. 2. Unreasonable workloads/short staffed high concern for task and low concern for people. 3. Power plays inappropriate use of power. 4. Interest parties sharing different interests. This is often strongly associated with power. 5. Understanding sharing a different understanding about the same situation. 6. Value placing a different value on the issue and/or applying a different set of values. 7. Style different ways of doing something. 8. Opinion holding a different view on the issue. 9. Scarce or limited resources limitations in human or financial resources can cause intra-organisational conflict. 10. Divisions and specialisation each division concentrates on its own concerns and co-operation ma become problematic. 11. The interdependent nature of work activities fluctuations in performance in one area which is dependent on another, especially if linked to reward systems. 12. Role conflict at times our roles may appear conflicting and if these tensions are not recognised complex conflict can arise (e.g. role as a line manager at conflict with role as team member or project leader). 13. Inequitable treatment perceived and actual unfairness can lead to friction and conflict. 14. Violation of territory people tend to become attached to their own work territories (work station, place in the staff room, personal clients etc.). Resentment arises out of disturbing this comfort zone or perceived inequity in territorial rights (e.g. amount of office space, additional staff, and perceived benefits). 15. Environmental change uncertainty can give rise to overt resistance (e.g. blocking proposed changes, making implementation difficult). Make use of the problem analysis tools already covered to surface the root cause(s) so that these can be resolved. Variance Analysis and Earned Value On tasks that are 100% complete, the earned value equals the original budget (Roberts & Wallace 2002: 6/66). Therefore, if Task B has been completed, we can say that it has earned the value of the planned budget even though it has overspent. Similarly, if Task A is complete, it has achieved an earned value of R5 200 despite the fact that less was actually spent. Let us present this visually for the project we are considering. Table 28 below (sourced from Roberts & Wallace 2002) will provide a better idea of the progress of this project towards its goals. Regenesys Business School 105

111 Table 28: Project progress Variance Analysis Actual Expenditure at end of Month 3 Budgeted Expenditure at end of Month 3 Variance (3 2) Forecast cost to complete task Forecast cost of task (2+5) Original Budget Forecast overrun/ under run (7-6) A B C D E F G H I The variance analysis shows quite a positive position for the project. The project manager will concentrate on minimise the forecast overruns in Task A, E and G (although in this case the overruns are very small and in some projects would be seen as insignificant). The principles demonstrated in the last variance analysis table underlie the earned value method, which analyses the following variables (Roberts & Wallace 2002) (Table 29): Regenesys Business School 106

112 Table 29: Variance analysis Actual cost of the works performed (ACWP) Budgeted cost of the works performed (BCWP) Budgeted cost of the works scheduled (BCWS) Scheduled time for work performed (STWP) Actual time for work performed (ATWP) Cost variance (CV) Schedule variance (SV) Budget at completion (BAC) Estimate at completion (EAC) Variance at completion (VAC) Payments or legally committed expenditure incurred to get the project to its current level of completion. This includes both fixed and variable costs. This is also known as the actual earned value, and it represents the budgeted cost that should have been required in order to get the project to its current level of completion. Also known as planned earned value, this represents the budgeted cost that should have been required in order to get the project to any specified level of completion. The estimated time required to perform a defined amount of work. The actual time taken to perform a defined amount of work. The budgeted cost of work (BCWP) minus the actual cost (ACWP). The difference between budgeted cost of work performed and budgeted cost of work scheduled (CV=BCWP-BCWS). In other words, this measures the performance of project tasks in relation to budgeted costs. For example: Total work package budgeted cost = R Actual cost to date = R ACWP = R BCWP = R BCWS = R CV = BCWP ACWP = R R = -R SV = BCWP BCWS = R R = + R In other words, this work package is over cost but ahead of schedule. This is the sum of all the individual budgets (BCWS) that make up the whole project sometimes known as the project baseline. It is the total that the project should cost to achieve final completion. This is the estimated total cost of the project the sum of all direct and indirect costs to date plus the estimated cost of work remaining. The formula would be EAC = ACWP + estimate to complete (ETC). The difference between what the project should have cost (BAC) and what it is expected to actually cost (EAC). Earned value analysis is generally associated with profit driven business models, but it is clear that its basic principles offer an excellent model for continual cost monitoring and control. Regenesys Business School 107

113 7.4.3 Project quality control Quality is a perceptual, conditional and subjective attribute and may be understood differently by different people. In the context of business, customers might focus on specific attributes of a product or service and how it matches with the competitors. Let us look at some common definitions of quality: A trait or characteristic used to measure the degree of excellence of a product or service. Meeting customers needs. It can also be said to be the degree to which a set of inherent characteristics of a product fulfils customer requirements (Metaglossary.com, 2012). The totality of features and other characteristics of a product or service that bear on its ability to satisfy stated or implied needs (ISSCO, n.d.). Duncan (1996:82) divides project quality management into three sections: Quality planning; Quality assurance; and Quality control. Quality assurance Quality assurance can be described as: Quality assurance is all those planned or systematic actions necessary to provide adequate confidence that a product or service will satisfy given requirements for quality (Storey et al., 2000) Objectives of quality assurance As shown in the definitions above, quality assurance is the process of verifying or determining whether products or services meet or exceed customer expectations. It is a process-driven approach with specific steps to help define each goals. This process takes into account the design, development, production and service. Regenesys Business School 108

114 The main objectives of quality assurance include among others: To maintain an effective Quality Assurance System complying with international quality systems; To achieve and maintain a level of quality which enhances the reputation of the organisation with customers; and To ensure compliance with statutory and safety requirements. The process required to control quality The process can be best explained through a quality control loop. It may be pertinent to mention here that the word control has many different meanings, some of which have undesirable overtones. It can spark an immediately hostile and resistant response in many people. Some find it offensive and feel that only inanimate items like material resources, expenditure and events can be controlled. You may wish to substitute this word with progress. The control loop shown below visually represents the process that a manager uses to monitor and measure what is actually happening. They then compare this with what is supposed to be happening and if all is well they need merely to continue monitoring. If things are not going according to plan, they must take corrective action to bring them back on course. In certain circumstances it might be necessary to revise the standards, to set new objectives, or to change other aspects of the quality plan. This process is illustrated in Figure 31. Figure 31: Quality control process Either Take action to correct performance Or Revise the standards START Or Continue unchanged if corrective action is not needed Agree standards (targets / SMART objectives ect.) Compare performance with agreed standards and decide whether corrective action is needed Measure performance Regenesys Business School 109

115 Plan-do-check-act The quality assurance cycle consists of at least four steps which are: Plan; Do; Check; and Act. It may happen that you do not know why you have been unable to achieve the required quality criteria and you need to use a problem solving technique. The Plan-Do-Check-Act process provides you with a structure to manage this process. The Plan-Do-Check-Act is an effective method for monitoring quality assurance. It analyses existing conditions and methods used to provide the product or service to customers. The goal of this process is to ensure that excellence is part of every component of the process. Quality assurance also helps determine whether the steps used to provide the product or services are appropriate for the time and conditions. If the PDCA cycle is repeated throughout the lifetime of the product or service, it helps improve internal company efficiency. Quality assurance demands a degree of detail in order to be fully implemented at every step. Let us use the example of planning. Planning could include investigation into the quality of the materials used in the manufacturing of the product, the actual assembly, or the inspection processes. The Checking step could include customer feedback, surveys, or other marketing tools to determine if customer needs are being exceeded and if not explain the reasons for that. The Acting step could mean a total revision in the manufacturing process with the aim of correcting a technical or any other flaw in the product. See Table 30 for an overview of the process. Table 30: Plan-do-check-act PLAN Step 1: Identify and analyse the Problem Select the problem to be analysed Clearly define the problem and establish a precise problem statement Set a measurable goal for the problem solving effort Establish a process for coordinating with and gaining approval from the project manager Identify the processes that impacted on or lead to the problem List the steps on the process as it currently exists (map or draw out) Check the process with the respective stakeholders (validate) Identify the potential root cause(s) of the problem Collect additional data if necessary to verify the root cause(s). Regenesys Business School 110

116 DO Step 2: Develop and implement the solutions CHECK Step 3: Evaluate the results ACT Step 4: Standardise the solution Establish criteria to be met by the solution Generate (brainstorm) potential solutions that will address the root cause(s) of the problem Select a solution Gain approval and support for the chosen solution Plan the solution Implement the solution (may need to be done on a trial or pilot basis) Gather data on the solution Analyse the data on the solution Identify systemic changes and training needs for full implementation Adopt the solution Plan ongoing monitoring of the solution Continue to look for incremental improvements to refine the solution Look for another improvement opportunity For more information on Project quality control, and techniques used, read the following articles: A project management quality cost information system for the construction industry. (Love and Irani, 2002). Science, specific knowledge, and total quality management. (Wruck and Jensen, 1994) Watch the following click to differentiate between quality planning, quality assurance and quality control: Quality planning vs quality assurance vs quality control project quality control. (2012) Project Evaluation When evaluating a project, the following questions are pertinent: Why is the evaluation being done? Who are the audiences for the information from the evaluation? What kinds of information are needed to make the decisions that the audience would approve of? (Usually information to understand the process of the product or programme, its inputs, activities and outputs, the customers or clients who experience the product or program, strengths and weaknesses of the product or programme, benefits to customers or clients (outcomes), how the product or program failed and why. Regenesys Business School 111

117 From what sources should the information be collected, e.g., employees, customers, clients, groups of customers or clients and employees together, programme documentation. How can that information are collected in a reasonable fashion, e.g., questionnaires, interviews, examining documentation, observing customers or employees, conducting focus groups among customers or employees. When is the information needed (so, by when must it be collected)? What resources are available to collect the information? Usually, the farther your evaluation information gets down the list, the more useful is your evaluation. Unfortunately, it is quite difficult to reliably get information about effectiveness. Still, information about learning and skills is quite useful. Methods of project evaluation The following types of evaluation are commonly used. It is important however to choose a method of evaluation by the key considerations for doing the evaluation rather that the method type though. McNamara (2007) provides us with some insights into methods for programme evaluation. Goal-based evaluation Often programmes are established to meet one or more specific goals. These goals are often described in the original program plans. Goal-based evaluations evaluate the extent to which programs are meeting predetermined goals or objectives. Questions to ask yourself when designing an evaluation to see if you reached your goals are: How were the programme goals (and objectives, is applicable) established? Was the process effective? What is the status of the programme s progress toward achieving the goals? Will the goals be achieved according to the timelines specified in the programme implementation or operations plan? If not, then why? Do personnel have adequate resources (money, equipment, facilities, training, etc.) to achieve the goals? How should priorities be changed to put more focus on achieving the goals? (Depending on the context, this question might be viewed as a programme management decision, more than an evaluation question.) How should timelines be changed (be careful about making these changes know why efforts are behind schedule before timelines are changed)? How should goals be changed (be careful about making these changes know why efforts are not achieving the goals before changing the goals)? Should any goals be added or removed? Why? How should goals be established in the future? Regenesys Business School 112

118 Process-based evaluations Process-based evaluations are geared to fully understanding how a programme works how does it produce that results that it does. These evaluations are useful if programmes are long-standing and have changed over the years, employees or customers report a large number of complaints about the programme, there appear to be large inefficiencies in delivering programme services and they are also useful for accurately portraying to outside parties how a programme truly operates (e.g. for replication elsewhere). There are numerous questions that might be addressed in a process evaluation. These questions can be selected by carefully considering what is important to know about the program. Examples of questions to ask when designing an evaluation to understand and/or closely examine the processes in projects are: On what basis do employees and/or the customers decide that products or services are needed? What is required of employees in order to deliver the product or services? How are employees trained about how to deliver the product or services? How do customers or clients come into the programme? What is required of customers or client? How do employees select which products or services will be provided to the customer or client? What is the general process that customers or clients go through with the product or program? What do customers or clients consider being strengths of the programme? What do staff consider to be strengths of the product or programme? What typical complaints are heard from employees and/or customers? What do employees and/or customers recommend improving the product or programme? On what basis do behaviour and/or the customer decide that the product or services are no longer needed? Analysing and interpreting information Analysing quantitative and qualitative data is often the topic of advanced research and evaluation methods. There are certain basics which can help to make sense of reams of data. Always start with your evaluation goals Before analysing data that is collected from questionnaires, interviews, focus groups, and so on, question why the evaluation undertaken in the first place. This will help you organise your data and focus your analysis. For example, if you wanted to fully understand how your programme works, you could organise data in chronological order in which clients go through your programme. Regenesys Business School 113

119 If you are conducting an outcomes-based evaluation, you can categorise data according to the indicators for each outcome. McNamara (2007) provides us with guidelines on analysing data: Basic analysis of quantitative information For information other than commentary, e.g. ratings, rankings, yes s, no s, etc.: Make copies of your data and store the master copy away. Use the copy for making edits, cutting and pasting, etc. Tabulate the information, i.e. add up the number of ratings, rankings, yes s, and no s for each question. For ratings and rankings, consider computing a mean, or average, for each question. For example, For question #1, the average ranking was 2.4. This is more meaningful than indicating, e.g. how many respondents ranked 1, 2, or 3. Consider conveying the range of answers, e.g. 20 people ranked 1, 30 ranked 2, and 20 people ranked 3. Basic analysis of qualitative information Respondents verbal answers in interviews focus groups, or written commentary on questionnaires: Read through all the data. Organise comments into similar categories, e.g. concerns, suggestions, strengths, weaknesses, similar experiences, program inputs, recommendations, outputs, outcome indicators, etc. Label the categories or themes, e.g. concerns, suggestions, etc. Attempt to identify patterns, or associations and causal relationships in the themes, e.g., all people who attended programs in the evening had similar concerns, most people came from the same geographic area, most people were in the same salary range, what processes or events respondents experience during the program, etc. Keep all commentary for several years after completion in case needed for future reference. Interpreting Information Attempt to put the information in perspective, e.g. compare results to what you expected, promised results; management or program staff; any common standards for your services; original program goals (especially if you re conducting a programme evaluation); indications of accomplishing outcomes (especially if you re conducting an outcomes evaluation); description of the program s experiences, strengths, weaknesses, etc. (especially if you re conducting a process evaluation). Consider recommendations to help program staff improve the program, conclusions about program operations or meeting goals, etc. Regenesys Business School 114

120 Record conclusions and recommendations in a report document, and associate interpretations to justify your conclusions or recommendations. Pitfalls to Avoid Don t balk at evaluation because it seems far too scientific. It s not. Usually the first 20% of effort will generate the first 80% of the plan, and this is far better than nothing. There is no perfect evaluation design. Don t worry about the plan being perfect. It s far more important to do something, than to wait until every last detail has been tested. Work hard to include some interviews in your evaluation methods. Questionnaires don t capture the story, and the story is usually the most powerful depiction of the benefits of your services. Don t interview just the successes. You ll learn a great deal about the programme by understanding its failures, dropouts, etc. Don t throw away evaluation results once a report has been generated. Results don t take up much room, and they can provide precious information later when trying to understand changes in the programme. Overview of Methods to Collect Information Table 31 provides an overview of the major methods used for collecting data during evaluations (McNamara 2007:8). Questionnaires, surveys, Checklists Table 31: Methods for collecting data Method Overall Purpose Advantages Challenges When need to quickly and/or easily get lots of information from people in a non-threatening way Can complete anonymously Inexpensive to administer Easy to compare and analyse Administer to many people Can get lots of data Many sample questionnaires already exist Might not get careful feedback Wording can bias client s responses Are impersonal In surveys, may need sampling expert Doesn t get full story Regenesys Business School 115

121 Interviews When want to fully understand someone s impressions or experiences, or learn more about their answers to questionnaires Get full range and depth of information Develops relationship with client Can be flexible with client Can take much time Can be hard to analyse and compare Can be costly Interviewer can bias client s responses Documentation review When want impression of how programme operates without interrupting the programme; is from review of applications, finances, memos, minutes, etc. Get comprehensive and historical information Doesn t interrupt programme or client s routine in program Information already exists Few biases about information Often takes much time Info may be incomplete Need to be quite clear about what looking for Not flexible means to get data; data restricted to what already exists Observation To gather accurate information about how a program actually operates, particularly about processes View operations of a program as they are actually occurring Can adapt to events as they occur Can be difficult to interpret seen behaviours Can be complex to categorise observations Can influence behaviours of program participants Can be expensive Focus groups Case studies Explore a topic in depth through group discussion, e.g. about reactions to an experience or suggestion, understanding common complaints, etc.; useful in evaluation and marketing To fully understand or depict client s experiences in a program, and conduct comprehensive examination through cross comparison of cases Quickly and reliably get common impressions Can be efficient way to get much range and depth of information in short time Can convey key information about programmes Fully depicts client s experience in programme input, process and results Powerful means to portray programme to outsiders Can be hard to analyse responses Need good facilitator for safety and closure Difficult to schedule 6-8 people together Usually quite time consuming to collect, organise and describe Represents depth of information, rather than breadth (Adapted From McNamara 2007:8) Regenesys Business School 116

122 Ethics for collecting data It is important to note that when conducting an evaluation programme there may be a need to collect personal and confidential information. It is vital that that the people who provide this information are confident of their protection, and so it important to get them to sign an information release form. They also participate on a voluntary basis and must be assured that they may pull out of the research programme at any time. Selecting which methods to use The overall goal in selecting evaluation method or methods is to get the most useful information to key decision makers in the most cost-effective and realistic fashion. Consider the following questions when deciding on data collection methods: What information is needed to make current decisions about a product or programme? Of this information, how much can be collected and analysed in a low-cost and practical manner, e.g. using questionnaires, surveys and checklists? How accurate will the information be? Will the methods get all of the needed information? What additional methods should and could be used if additional information is needed? Will the information appear as credible to decision makers? Will the nature of the audience conform to the methods? Will they fill out questionnaires carefully, engage in interviews or focus groups, let you examine their documentation? Who can administer the methods now or is training required? How can the information be analysed? Ideally, the evaluator should use a combination of methods. They may use a questionnaire to quickly collect a great deal of information from a lot of people, and then interviews to get more in-depth information from certain respondents to the questionnaires. Perhaps case studies could also be used for more in-depth analysis of unique and notable cases. For more information on Project Evaluation, read the following articles: Using Cost Benefit analysis for Enterprise Resource Planning Project Evaluation: a case for including intangibles. (Murphy and Simon, 2001) Designing projects and project evaluations using the logical framework approach (Jackson, 2000) Regenesys Business School 117

123 7.4.5 Conclusion This section allowed you, the student, to focus on project execution and evaluation. Project quality control was discussed. In the next section, we will look at project closure and project based learning. Recap Questions 1. Identify project team characteristics that will enhance project team development. 2. Explain the importance of project team development. 3. Analyse and explain the importance of leadership in project team development. 4. As a project manager, what action can you take to control the risk to the project if you are unable to source sufficiently skilled staff for the project team? What action can you take to better equip the organisation for the future once you notice a skills gap? 5. What is your understanding of a management information system? 6. What kind of information does your institution collect? 7. Why is it necessary to collect this information? 8. How is this information collected? 9. How is this information utilised for management improvement purposes? 10. Describe the concept of project monitoring and control. 11. What is earned value? 12. Compile an outline for a project progress report. 13. Why is it important to archive project documents? 14. What is a project audit? Regenesys Business School 118

124 7.5 PROJECT CLOSURE Timeframe: Learning Outcome: Recommended reading: Section overview 3 hours Evaluate key project success and failure factors within their workplace Be able to compose professional project documents, reports and proposals 1. Improved project management through improved document management. (Eloranta, Hameri, and Lahti, 2001) 2. Project-based learning and the role of learning boundaries. (Scarbrough, Swan, Laurent, Bresnen, Edelman, and Newell, 2004) This section concludes the project management process. We discuss project termination and the process involved with project closure. A brief discussion follows concerning project final reporting. Project based learning is introduced and a model for project based learning is introduced Project closure / termination Project closure / termination are divided into four fundamental: Closure by extinction; Closure by addition; Closure by integration; and Closure by starvation. Knowing when to terminate the project is also very important to the project management process. Project closure process Meredith and Mantel (2012:551) differentiates between two phases in the project closure process: the decision process and the implementation process. The decision process determines whether the project is ready for closure or whether the project manager needs to risk increased cost to complete the project in relevance to the project status and expected outcome. The implementation process concludes the process of closure. It focuses on the tasks involved in closing a project. Read the following article describing improved project management: Improved project management through improved document management. Hameri, and Lahti, 2001) (Eloranta, Regenesys Business School 119

125 Writing the final report Report writing skills are not the focus of this study, yet it is important to indicate the essential elements needed for a final project report. Meredith and Mantel (2012:565) indicates the following subjects to be discussed in the final report. Project performance Administrative performance Organisational structure Project and administrative teams Techniques of project management Project based learning You will need to consult the following article for this section: Project-based learning and the role of learning boundaries. (Scarbrough, Swan, Laurent, Bresnen, Edelman, and Newell, 2004) The experience of managing projects often lies within learning from previous project mistakes or successes. The article provided distinguishes between: The practice-based nature of knowledge and learning in organisations; The relative autonomy of projects within the organisational context; and The integration of knowledge within projects. The writers suggest a model for project based learning. This model is summarised in Table 28 (Scarbrough, 2004:1584). Regenesys Business School 120

126 Table 32: Project based learning (Source: Scarbrough, 2004:1584) The value of allowing learning to take place at all aspects of the project management process is endless. Learning inevitably encourages development and development is fundamental for growth Conclusion This section was devoted to project closure and project based learning. Project management, like any managerial process, needs to be terminated methodically. This completes the project life cycle. Regenesys Business School 121

127 Recap Questions Read the case study below and answer the questions that follow: Project Termination practices in Indian industry Project termination phase, the last phase of the project life cycle, plays a vital role in successful completion of a project. The process of project termination is not an easy task. It has to be planned, budgeted and scheduled like any other phase of the project life cycle. Sometimes special termination managers are put to complete the termination process. Though project termination constitutes a significant part in the total project it is often overlooked by project managers. A case study was conducted to analyse the problems faced by project managers while terminating projects in India. The case study revealed that project managers loosen their grip of monitoring the time-bound projects as soon as the installed plants or services start functioning. The last few defects continue to get rectified for long periods in the process of handing over the projects to clients. By the time these defects are rectified, new problems drop up which require further time to stabilize. It has been observed that plants are formally handed over with preliminary acceptance certificate, pending rectification of last few problems. This becomes a vicious cycle before obtaining the final acceptance certificate form the client. Due to non-realisation of the last contractual amount, project organisations face shortage of funds, particularly when they are engaged in multiple projects. For example, a company manufacturing material handling equipment ran a coal-handling plant for a power project of a leading power generating firm for almost 10 years before it could successfully terminate the project due to the project manager s inability to meet the performance guarantee tests. Another difficult aspect is the identification of the beginning of the termination phase of a project. Project managers use their perception and judgement to identify the starting of termination phase after completion of execution, commissioning, and testing activities. An analysis of the case study data revealed that the following problems are considered most significant by Indian industry during the project termination phase: Negotiating claims with clients Compliance of statutory requirements Receipt of the final instalment of payment Performance guarantee tests Handling claim of suppliers. (De, P.K. Project termination practices in Indian industry: a statistical review. International journal of Project Management. Volume 19 (2): In. Meredith and Mantel, 2012:550) 1. Evaluate the mistakes indicated in the case study made by project managers during the project closure phase. Suggest activities to ensure that these mistakes are not repeated in projects you are running / part of in your organisation. 2. Critically discuss the ways in which projects are terminated. 3. Relate managing information systems to project closure. 4. Discuss the importance of project-based learning. Regenesys Business School 122

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