Chapter 2:
The Project Management in Context
of Organization Environment
303KM Project Management
1
1 Systems View of Project Management


A systems approach emerged in the 1950s to describe a
more analytical approach to management and problem
solving
Three parts include:



Systems philosophy: View things as systems, interacting
components working within an environment to fulfill some purpose
Systems analysis: problem-solving approach
Systems management: Address business, technological, and
organizational issues before making changes to systems
303KM Project management
Figure 2-1. Three Sphere Model for
Systems Management
303KM Project management
2 Understanding Organizations
Structural frame:
Focuses on roles and
responsibilities,
coordination and control.
Organizational charts help
define this frame.
Human resources frame:
Focuses on providing
harmony between needs of
the organization and needs
of people.
Political frame:
Assumes organizations
are coalitions composed
of varied individuals and
interest groups. Conflict
and power are key issues.
Symbolic frame: Focuses
on symbols and meanings
related to events. Culture
is important.
303KM Project management
4 Recognize the Importance of Project
Stakeholders




Recall that project stakeholders are the people involved
in or affected by project activities
Project managers must take time to identify, understand,
and manage relationships with all project stakeholders
Using the four frames of organizations can help meet
stakeholder needs and expectations
Senior executives are very important stakeholders
303KM Project management
Why Have Project Phases and
Management Reviews?


A project should successfully pass through
each of the project phases in order to
continue on to the next
Management reviews (also called phase exits
or kill points) should occur after each phase
to evaluate the project’s progress, likely
success, and continued compatibility with
organizational goals
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6 Aligning Projects with Business Strategy


Most organizations cannot undertake most of the
potential projects identified because of resource
limitations and other constraints.
An organization’s overall business strategy should
guide the project selection process and
management of those projects.
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Strategic Planning


Strategic planning involves determining longterm objectives by analyzing the strengths and
weaknesses of an organization, studying
opportunities and threats in the business
environment, predicting future trends, and
projecting the need for new products and
services.
Strategic planning provides important information
to help organizations identify and then select
potential projects.
303KM Project management
SWOT Analysis


SWOT analysis involves analyzing Strengths,
Weaknesses, Opportunities, and Threats.
It can help you identify potential projects, as is
shown in the example about four people trying
to start a new business.
303KM Project management
7 Four-Stage Strategic Planning Process for Project
Selection



Organizations often follow a detailed
planning process for project
selection.
The figure shows a four-stage
planning process for selecting
projects.
It is very important to start at the top
of the pyramid to select projects that
support the organization’s business
strategy.
303KM Project management
Methods for Selecting Projects

Discuss more on Integration management e.g.:

Focus on competitive strategy and broad organizational needs.

Perform net present value analysis or other financial projections.

Use a weighted scoring model.

Implement a balanced scorecard.

Address problems, opportunities, and directives.

Consider project time frame.

Consider project priority.
303KM Project management
Focusing on Competitive Strategy and
Broad Organizational Needs

Competitive strategies:



Cost leadership: Attract customers primarily because
products or services are inexpensive. Examples include WalMart and McDonald.
Focus: Develop products and services for a particular
market niche. Examples include Starbucks Coffee and most
skin-care product shops.
Broad organizational needs: People agree there is a
need for a project, they will make funds available,
and there is a strong will to make the project
succeed.
303KM Project management
Chapter 4:
Project Integration Management
303KM Project management
Project Integration Management
Processes
1.
2.
3.
4.
5.
6.
7.
Develop the project charter. (3)
Develop the preliminary project scope statement (4)
Develop the project management plan (5)
Direct and manage project execution (6)
Monitor and control the project work (7)
Perform integrated change control (8)
Close the project (9)
303KM Project management
2.1 Financial Analysis of Projects
 Financial considerations are often an important
aspect of the project selection process.
 Three primary methods for determining the
projected financial value of projects:
 Net present value (NPV) analysis
 Return on investment (ROI)
 Payback analysis
303KM Project management
3 Project Charters
 After deciding what project to work on, it is
important to let the rest of the organization know.
 A project charter is a document that formally
recognizes the existence of a project and provides
direction on the project’s objectives and
management.
 Key project stakeholders should sign a project
charter to acknowledge agreement on the need and
intent of the project; a signed charter is a key output
of project integration management.
303KM Project management
4 Preliminary Scope Statements
 A scope statement is a document used to develop and
confirm a common understanding of the project scope.
 It is an important tool for preventing scope creep:
 The tendency for project scope to keep getting bigger.
 A good practice is to develop a preliminary or initial
scope statement during project initiation and a more
detailed scope statement as the project progresses.
303KM Project management
5 Project Management Plans
 A project management plan is a document used to
coordinate all project planning documents and help
guide a project’s execution and control.
 Plans created in the other knowledge areas are
subsidiary parts of the overall project management
plan.
303KM Project management
6 Project Execution
 Project execution involves managing and performing
the work described in the project management plan.
 The majority of time and money is usually spent on
execution.
 The application area of the project directly affects
project execution because the products of the project
are produced during project execution.
303KM Project management
7 Monitoring and Controlling Project Work
 Changes are inevitable on most projects, so it’s
important to develop and follow a process to monitor
and control changes.
 Monitoring project work includes collecting,
measuring, and disseminating performance
information.
 Two important outputs of monitoring and controlling
project work include recommended corrective and
preventive actions.
303KM Project management
8 Integrated Change Control


Three main objectives are:

Influence the factors that create changes to ensure that
changes are beneficial.

Determine that a change has occurred.

Manage actual changes as they occur.
A baseline is the approved project management plan
plus approved changes.
303KM Project management
9 Closing Projects
 To close a project, you must finalize all activities and
transfer the completed or cancelled work to the
appropriate people.
 Main outputs include:
 Administrative closure procedures.
 Contract closure procedures.
 Final products, services, or results.
 Organizational process asset updates.
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Chapter 5:
Project Scope Management
303KM Project management
Table 5.1. Sample Project Charter
303KM Project management
Table 5.1. Sample Project
Charter (cont’d)
303KM Project management
3 Scope Definition and the
Project Scope Statement
 The preliminary scope statement, project charter,
organizational process assets, and approved change
requests provide a basis for creating the project scope
statement.
 As time progresses, the scope of a project should
become clearer and more specific.
303KM Project management
Creating the Work Breakdown
Structure (WBS)
 A WBS is a deliverable-oriented grouping of the work
involved in a project that defines the total scope of the
project.
 A WBS is a foundation document that provides the
basis for planning and managing project schedules,
costs, resources, and changes.
 Decomposition is subdividing project deliverables into
smaller pieces.
303KM Project management
The WBS Dictionary and Scope Baseline
 Many WBS tasks are vague and must be explained in
more detail so people know what to do and can
estimate how long the work will take and what it will
cost.
 A WBS dictionary is a document that describes
detailed information about each WBS item.
 The approved project scope statement and its WBS and
WBS dictionary form the scope baseline, which is
used to measure performance in meeting project scope
goals.
303KM Project management
Advice for Creating a WBS and WBS
Dictionary*
 A unit of work should appear in only one place in the WBS.
 The work content of a WBS item is the sum of the WBS items below it.
 A WBS item is the responsibility of only one individual, even though
many people may be working on it.
 The WBS must be consistent with the way in which work is actually
going to be performed; it should serve the project team first, and other
purposes only if practical.
 Project team members should be involved in developing the WBS to
ensure consistency and buy-in.
 Each WBS item must be documented in a WBS dictionary to ensure
accurate understanding of the scope of work that is included and not
included in that item.
 The WBS must be a flexible tool to accommodate inevitable changes
while properly maintaining control of the work content in the project
according to the scope statement
303KM Project management
5 Scope Verification
 It is very difficult to create a good scope statement and
WBS for a project.
 It is even more difficult to verify project scope and
minimize scope changes.
 Many IT projects suffer from scope creep and poor
scope verification (see “What Went Wrong?”).
303KM Project management
6 Scope Control
 Scope control involves controlling changes to the
project scope.
 Goals of scope control are to:
 Influence the factors that cause scope changes.
 Ensure changes are processed according to procedures
developed as part of integrated change control.
 Manage changes when they occur.
 Variance is the difference between planned and actual
performance.
303KM Project management
Suggestions for Reducing Incomplete and
Changing Requirements
 Develop and follow a requirements management process.
 Use techniques such as prototyping, use case modeling, and JAD to get more
user involvement.
 Put requirements in writing and keep them current.
 Create a requirements management database for documenting and controlling
requirements. Conduct adequate testing throughout the project life cycle.
 Review changes from a systems perspective.
 Emphasize completion dates to help focus on what’s most important.
 Allocate resources specifically for handling change requests and
enhancements.
303KM Project management
Chapter 6:
Project Time Management
303KM Project management
Critical Path Method (CPM)
 CPM is a network diagramming technique used to
predict total project duration.
 A critical path for a project is the series of activities that
determines the earliest time by which the project can be
completed.
 The critical path is the longest path through the network
diagram and has the least amount of slack or float.
 Slack or float is the amount of time an activity can be
delayed without delaying a succeeding activity or the
project finish date.
303KM Project management
Calculating the Critical Path
 Develop a good network diagram.
 Add the duration estimates for all activities on each
path through the network diagram.
 The longest path is the critical path.
 If one or more of the activities on the critical path takes
longer than planned, the whole project schedule will
slip unless the project manager takes corrective action.
303KM Project management
3 Network Diagrams
 Network diagrams are the preferred technique for
showing activity sequencing.
 A network diagram is a schematic display of the
logical relationships among, or sequencing of, project
activities.
 Two main formats are the arrow and precedence
diagramming methods.
303KM Project management
Figure 6-2. Sample Activity-on-Arrow (AOA)
Network Diagram for Project X
303KM Project management
Calculating the Critical Path
 Develop a good network diagram.
 Add the duration estimates for all activities on each
path through the network diagram.
 The longest path is the critical path.
 If one or more of the activities on the critical path takes
longer than planned, the whole project schedule will
slip unless the project manager takes corrective action.
303KM Project management
Figure 6-8. Determining the Critical
Path for Project X
303KM Project management
Using Critical Path Analysis to Make
Schedule Trade-offs
 Free slack or free float is the amount of time an
activity can be delayed without delaying the early start
of any immediately following activities.
 Total slack or total float is the amount of time an
activity can be delayed from its early start without
delaying the planned project finish date.
 A forward pass through the network diagram
determines the early start and finish dates.
 A backward pass determines the late start and finish
dates.
303KM Project management
Chapter 7:
Project Cost Management
303KM Project management
Basic Principles of Cost Management
 Tangible costs or benefits are those costs or benefits that an
organization can easily measure in dollars.
 Intangible costs or benefits are costs or benefits that are
difficult to measure in monetary terms.
 Direct costs are costs that can be directly related to producing
the products and services of the project.
 Indirect costs are costs that are not directly related to the
products or services of the project, but are indirectly related to
performing the project.
 Sunk cost is money that has been spent in the past; when
deciding what projects to invest in or continue, you should not
include sunk costs.
303KM Project management
Basic Principles of Cost Management
 Learning curve theory states that when many items are
produced repetitively, the unit cost of those items decreases
in a regular pattern as more units are produced.
 Reserves are dollars included in a cost estimate to mitigate
cost risk by allowing for future situations that are difficult
to predict.
 Contingency reserves allow for future situations that may be
partially planned for (sometimes called known unknowns)
and are included in the project cost baseline.
 Management reserves allow for future situations that are
unpredictable (sometimes called unknown unknowns).
303KM Project management
5 Earned Value Management (EVM)
 EVM is a project performance measurement technique
that integrates scope, time, and cost data.
 Given a baseline (original plan plus approved changes),
you can determine how well the project is meeting its
goals.
 You must enter actual information periodically to use
EVM.
 More and more organizations around the world are
using EVM to help control project costs.
303KM Project management
Earned Value Management Terms
 The planned value (PV), formerly called the budgeted cost of
work scheduled (BCWS), also called the budget, is that portion
of the approved total cost estimate planned to be spent on an
activity during a given period.
 Actual cost (AC), formerly called actual cost of work
performed (ACWP), is the total of direct and indirect costs
incurred in accomplishing work on an activity during a given
period.
 The earned value (EV), formerly called the budgeted cost of
work performed (BCWP), is an estimate of the value of the
physical work actually completed.
 EV is based on the original planned costs for the project or
activity and the rate at which the team is completing work on
the project or activity to date.
303KM Project management
Rate of Performance
 Rate of performance (RP) is the ratio of actual work
completed to the percentage of work planned to have been
completed at any given time during the life of the project or
activity.
 Brenda Taylor, Senior Project Manager in South Africa,
suggests using this approach for estimating earned value.
 For example, suppose the server installation was halfway
completed by the end of week 1. The rate of performance
would be 50 percent (50/100) because by the end of week
1, the planned schedule reflects that the task should be 100
percent complete and only 50 percent of that work has been
completed.
303KM Project management
Earned Value Calculations for One
Activity After Week One
Activity
Week 1
Earned Value (EV)
$10K *50% = $5K
Planned Value (PV)
$10K
Actual Cost (AC)
$15K
Cost Variance
EV-AC = -$10K
Schedule Variance (SV)
EV-PV = -$5K
Cost Performance Index (CPI)
EV/AC = 33%
Schedule Performance Index (SPI)
EV/PV = 50%
303KM Project management
Table 7-5. Earned Value Formulas
303KM Project management
Rules of Thumb for Earned
Value Numbers
 Negative numbers for cost and schedule variance
indicate problems in those areas.
 A CPI or SPI that is less than 100 percent indicates
problems.
 Problems mean the project is costing more than
planned (over budget) or taking longer than planned
(behind schedule).
303KM Project management
Figure 7-4. Earned Value Calculations for a
One-Year Project After Five Months
To Date PlannedActual
+
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
PV % Cmpl.% Cmpl. RP
EV
4,000
8,000 100 100 100%
8,000
6,000 6,000
12,000 100 100 100% 12,000
4,000 4,000
8,000 100 100 100%
8,000
6,000 4,000
10,000 100 100 100% 10,000
8,000 4,000
8,000
75
50 67%
5,333
8K*75%=6K
10,000
6K/12K =50%
2,000 6,000
4,000 6,000 4,000
RP=50% / 75% = 67%
4,000 4,000 2,000
3,000
1,000
8K * 67% = 5,333
4,000
10,000 10,000 10,000 12,000 16,000 10,000 6,000 8,000 4,000 5,000
5,000
14,000 24,000 34,000 46,000 62,000 72,000 78,000 86,000 90,000 95,000 100,000
11,000 11,000 12,000 15,000
15,000 26,000 38,000 53,000
10,000 10,000 10,000 9,333
14,000 24,000 34,000 43,333
43,333
+
+
Activity
Jan
Plan and staff project
4,000
Analyze requirements
Develop ERDs
Design database tables
Design forms, reports, etc
Construct working prototype
Test/evaluate prototype
Incorporate user feedback
Test system
Document system
Train users
Monthly PV
4,000
Cumulative PV
4,000
Monthly AC
4,000
Cumulative AC
4,000
Monthly EV
4,000
Cumulative EV
4,000
Project EV as of 31/5 43,333
Project PV as of 31/5 46,000
Project AC as of 31/5 53,000
CV = EV - AC
-9,667
SV = EV - PV
-2,667
CPI = EV / AC
81.76%
SPI = EV / PV
94.20%
Estimate at
Completion (EAC)
122,309
Estimated time
to Complete
12.74
303KM Project management
Plot
Graph
Figure 7-5. Earned Value Chart for
Project after Five Months
If the EV
line is
below the
AC or PV
line, there
are
problems
in those
areas.
303KM Project management
Chapter 8:
Project Quality Management
303KM Project management
2 What Is Project Quality
Management?
 Project quality management ensures that the project will
satisfy the needs for which it was undertaken.
 Processes include:
 Quality planning: Identifying which quality standards are
relevant to the project and how to satisfy them.
 Quality assurance: Periodically evaluating overall project
performance to ensure the project will satisfy the relevant
quality standards.
 Quality control: Monitoring specific project results to
ensure that they comply with the relevant quality standards.
303KM Project management
4 Quality Assurance
 Quality assurance includes all the activities related to
satisfying the relevant quality standards for a project.
 Another goal of quality assurance is continuous quality
improvement.
 Benchmarking generates ideas for quality improvements by
comparing specific project practices or product
characteristics to those of other projects or products within or
outside the performing organization.
 A quality audit is a structured review of specific quality
management activities that help identify lessons learned that
could improve performance on current or future projects.
303KM Project management
5 Quality Control
 The main outputs of quality control are:
 Acceptance decisions
 Rework
 Process adjustments
 Some tools and techniques include:




Pareto analysis
Statistical sampling
Six Sigma
Quality control charts
303KM Project management
6.1 Pareto Analysis
 Pareto analysis involves identifying the vital few
contributors that account for the most quality problems
in a system.
 Also called the 80-20 rule, meaning that 80 percent of
problems are often due to 20 percent of the causes.
 Pareto diagrams are histograms, or column charts
representing a frequency distribution, that help identify
and prioritize problem areas.
303KM Project Management
56
Sample Pareto Diagram
303KM Project Management
57
Figure 8-2. Normal Distribution and
Standard Deviation
303KM Project management
6.4 Quality Control Charts and the
Seven Run Rule
 A control chart is a graphic display of data that
illustrates the results of a process over time. It helps
prevent defects and allows you to determine whether a
process is in control or out of control.
 The seven run rule states that if seven data points in a
row are all below the mean, above the mean, or are all
increasing or decreasing, then the process needs to be
examined for non-random problems.
303KM Project management
Quality Control Charts
 A control chart is a graphic display of data that illustrates the
results of a process over time.
 The main use of control charts is to prevent defects, rather than
to detect or reject them.
 Quality control charts allow you to determine whether a process
is in control or out of control.
 When a process is in control, any variations in the results of the
process are created by random events; processes that are in control
do not need to be adjusted.
 When a process is out of control, variations in the results of the
process are caused by non-random events; you need to identify the
causes of those non-random events and adjust the process to
correct or eliminate them.
303KM Project management
The Seven Run Rule
 You can use quality control charts and the seven run
rule to look for patterns in data.
 The seven run rule states that if seven data points in a
row are all below the mean, above the mean, or are all
increasing or decreasing, then the process needs to be
examined for non-random problems.
303KM Project management
Figure 8-3. Sample Quality
Control Chart
303KM Project management
Chapter 9:
Project Human Resource Management
Information Technology Project Management,
Fourth Edition
303KM Project management
Figure 9-1. Maslow’s Hierarchy
of Needs
303KM Project management
Herzberg’s Motivational and Hygiene
Factors
 Frederick Herzberg wrote several famous books and
articles about worker motivation. He distinguished
between:
 Motivational factors: Achievement, recognition, the
work itself, responsibility, advancement, and growth.
These factors produce job satisfaction.
 Hygiene factors: Larger salaries, more supervision, and
a more attractive work environment. These factors cause
dissatisfaction if not present, but do not motivate
workers to do more.
303KM Project management
McClelland’s Acquired-Needs Theory
 Specific needs are acquired or learned over time and are shaped
by life experiences. The following are the main categories of
acquired needs:
 Achievement (nAch): People with a high need for achievement
like challenging projects with attainable goals and lots of feedback.
 Affiliation (nAff): People with high need for affiliation desire
harmonious relationships and need to feel accepted by others, so
managers should try to create a cooperative work environment for
them.
 Power (nPow): People with a need for power desire either
personal power (not good) or institutional power (good for the
organization). Provide institutional power seekers with
management opportunities.
303KM Project management
Myers-Briggs Type Indicator (MBTI)
 MBTI is a popular tool for determining personality
preferences and helping teammates understand each
other.
 Four dimensions include:




Extrovert/Introvert (E/I)
Sensation/Intuition (S/N)
Thinking/Feeling (T/F)
Judgment/Perception (J/P)
 NTs, or rationals, are attracted to technology fields.
 IT people vary most from the general population in
their tendency to not be extroverted or sensing.
303KM Project management
Figure 9-6. Sample Resource Histogram
303KM Project management
Resource Loading
 Resource loading refers to the amount of individual
resources an existing schedule requires during specific
time periods.
 Helps project managers develop a general
understanding of the demands a project will make on
the organization’s resources and individual people’s
schedules.
 Overallocation means more resources than are
available are assigned to perform work at a given time.
303KM Project management
Resource Leveling
 Resource leveling is a technique for resolving resource
conflicts by delaying tasks.
 The main purpose of resource leveling is to create a
smoother distribution of resource use and reduce
overallocation.
303KM Project management
Figure 9-8. Resource Leveling Example
303KM Project management
Benefits of Resource Leveling
 When resources are used on a more constant basis, they
require less management.
 It may enable project managers to use a just-in-time
inventory type of policy for using subcontractors or
other expensive resources.
 It results in fewer problems for project personnel and
the accounting department.
 It often improves morale.
303KM Project management
Chapter 10:
Project Communications
Management
Information Technology Project Management,
Fourth Edition
303KM Project management
Determining the Number of
Communications Channels
 As the number of people involved increases, the
complexity of communications increases because there
are more communications channels or pathways
through which people can communicate.
 Number of communications channels = n(n-1)
2
where n is the number of people involved.
e.g. if six people involved, number of communications
channels = 6( 6-1)/2 = 15
303KM Project management
Figure 10-1. The Impact of the Number
of People on Communications Channels
303KM Project management
4. Performance Reporting
 Performance reporting keeps stakeholders informed
about how resources are being used to achieve project
objectives.
 Status reports describe where the project stands at a
specific point in time.
 Progress reports describe what the project team has
accomplished during a certain period of time.
 Forecasts predict future project status and progress
based on past information and trends.
303KM Project management
Chapter 11:
Project Risk Management
Information Technology Project Management,
Fourth Edition
303KM Project management
5. Quantitative Risk Analysis
 Assess the likelihood and impact of identified risks
to determine their magnitude and priority.
 Risk quantification tools and techniques include:
 Probability/impact matrixes
 The Top Ten Risk Item Tracking
 Expert judgment
303KM Project management
Probability/Impact Matrix
 A probability/impact matrix or chart lists the relative
probability of a risk occurring on one side of a matrix
or axis on a chart and the relative impact of the risk
occurring on the other.
 List the risks and then label each one as high, medium,
or low in terms of its probability of occurrence and its
impact if it did occur.
 Can also calculate risk factors:
 Numbers that represent the overall risk of specific events
based on their probability of occurring and the
consequences to the project if they do occur.
303KM Project management
6. Quantitative Risk Analysis
 Often follows qualitative risk analysis, but both can be
done together.
 Large, complex projects involving leading edge
technologies often require extensive quantitative risk
analysis.
 Main techniques include:
 Decision tree analysis
 Simulation
 Sensitivity analysis
303KM Project management
Decision Trees and Expected
Monetary Value (EMV)
 A decision tree is a diagramming analysis technique
used to help select the best course of action in
situations in which future outcomes are uncertain.
 Estimated monetary value (EMV) is the product of a
risk event probability and the risk event’s monetary
value.
 You can draw a decision tree to help find the EMV.
303KM Project management
Figure 11-6. Expected Monetary
Value (EMV) Example
303KM Project management
7. Risk Response Planning
 After identifying and quantifying risks, you must
decide how to respond to them.
 Four main response strategies for negative risks:




Risk avoidance
Risk acceptance
Risk transference
Risk mitigation
303KM Project management
Residual and Secondary Risks
 It’s also important to identify residual and secondary
risks.
 Residual risks are risks that remain after all of the
response strategies have been implemented.
 Secondary risks are a direct result of implementing a
risk response.
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Chapter 12:
Project Procurement Management
Information Technology Project Management,
Fourth Edition
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Why Outsource?
 To reduce both fixed and recurrent costs.
 To allow the client organization to focus on its core
business.
 To access skills and technologies.
 To provide flexibility.
 To increase accountability.
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Types of Contracts
 Different types of contracts can be used in different
situations:
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
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Fixed price or lump sum contracts: Involve a fixed total price
for a well-defined product or service.
Cost reimbursable contracts: Involve payment to the seller for
direct and indirect costs.
Time and material contracts: Hybrid of both fixed price and
cost reimbursable contracts, often used by consultants.
Unit price contracts: Require the buyer to pay the seller a
predetermined amount per unit of service.
 A single contract can actually include all four of these
categories, if it makes sense for that particular
procurement.
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Cost Reimbursable Contracts
 Cost plus incentive fee (CPIF): The buyer pays the
supplier for allowable performance costs plus a
predetermined fee and an incentive bonus.(P.500 text)
 Cost plus fixed fee (CPFF): The buyer pays the
supplier for allowable performance costs plus a fixed
fee payment usually based on a percentage of
estimated costs.
 Cost plus percentage of costs (CPPC): The buyer
pays the supplier for allowable performance costs plus
a predetermined percentage based on total costs.
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CPIF example (p.500 of text)
 Expected cost on the contract (agreed by buyer & supplier base on past
experience) = $100K
 Share formula on contract for buyer & supplier : 85/15
 Predetermined fee to supplier = $10K
If final cost is $800K,
then cost saving = expected cost – final cost = $20K
Incentive bonus of supplier = (cost saving*15%)=$3K
Buyer paid : predetermine fee + incentive bonus + final cost
= $10K + $3K + $800K
= $93K (saving of $7K compare with expected cost)
Supplier receive : predetermine fee + incentive bonus
= $10K + $3K = $13K
If final cost is less then expected cost, both the buyer and the supplier benefit
from a CPIF plan.
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Figure 12-2. Contract Types Versus
Risk
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Evaluation Criteria
 It’s important to prepare some form of evaluation
criteria, preferably before issuing a formal RFP or RFQ.
 Beware of proposals that look good on paper; be sure
to evaluate factors, such as past performance and
management approach.
 Can require a technical presentation as part of a
proposal.
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2. PROJECT ORGANIZATION
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3. PROJECT PLANNING
 Planning
 Product Based Planning: focus attention on goal rather
than on process
 Staging
 breaking a project into stages enables more effective
management and control of project
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3.1 Techniques for Product Based Planning
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Product Breakdown Structure (PBS)
Product Flow Diagrams (PFD)
Product Descriptions
Product Transformation
,
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3.2 Benefit of Staging
 ESA provide discrete packages of work to be review by
senior management and make objective assessments of the
progress to date
 ESA facilitate control against project momentum to
progress regardless of cost by reappraisal of business case
 More realistic estimation and monitoring before the
commencement of next stage.
 Monitor of project is enabled within and at the end of each
stage.
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3.3 Staging Guidelines
 Each Stage should define:
 Start & finish dates
 end-products to be produced
 resource needed to produce the end-product
 Stage setting should consider:
 stage upon the completion of major end-product (not divide a
maj. end-product)
 stage at decision about the ongoing viability of project
 stage at critical points where visible tight control is necessary.
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3.4 Plans for decision making and control
 Project level
 Technical Plans
 Resource Plans
 Stage level
 Technical Plans
 Resource Plans
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4. Project Control
 Management by Exception
 Quality Control
 Control Meeting
 Formal Assessment Meeting(PSC)
 Checkpoint Meetings/Reviews(PM)
 Management of Risk
 Configuration Management
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4.3 Control Meetings
 Formal assessment Meetings: Event driven meeting
with necessary info. for decision making is circulated
well in advance and Chairmen ensures the discussion is
confined to real management issues.
 Project Initiating Meeting
 End-stage Assessment
 Project Closure Meeting
 Checkpoint Meeting: regular time driven meeting held
by PM
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5. Project Activities
 Project Initiation
 Project Initiation Meeting
 Project Initiation Document (PID)
 Project Stages
 Checkpoint Review
 Highlight Reports (monthly) PM to PSC
 End-Stage Assessments (ESA)
 Project Closure
 Project Evaluation Report
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6. Summary - Why PRINCE?
 Standard Project Management Method: staff move
from one project to another can still aware of the roles,
procedures, processes and reporting formats.
 Standard training materials, courses available, no need
to redevelopment.
 Enable refinement over years of practice.
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6. Summary - Why PRINCE ?
(conti)
 It is a flexible method, suitable to many shape and size
of project. Its particular strengths are:
 Definition of the roles in a project
 involvement of user at all level in all aspects from beginning
to end.
 insistence on establishing a business case before any major
expenditure.
303KM Project management