Project Management Notes

1. PROJECT
MANAGEMENT
BM 404
STUDY NOTES
1

2. A. MAFUKA
MIDLANDS STATE UNIVERSITY
DEPARTMENT OF BUSINESS MANAGEMENT
2005
PROJECT MANAGEMENT
CHAPTER 1
Introduction: Overview of project Management
1. WHAT IS AN INVESTMENT?
 It is the current commitment of dollars for a period of time in order to
derive future payments that will compensate the investor for
1. The time the funds are committed
2. The expected rate of inflation
3. The uncertainty of the future payments.
2. WHO IS AN INVESTOR?
Investor can be an individual, a government, a pension fund or
corporation. The investor is trading a known dollar amount today for some
expected future stream of payments that will be greater than the current
outlay.
- Investors invest to earn a rate of return, which compensates
for the time, the expected rate of inflation and the uncertainty
of return.
3. Investment choices are a function of a investor’s risk appetite.
Factors like
• Inflation rate, interest rate
2

3. • Financial stability
• Political – country risk
• Legal and regulatory consensus
• Liquidity needs and time horizon
• Tax concerns
• Time horizon – short term cash (liquid)
• Tax concerns – taxable income (VAT)
• Unique needs + personal preferences
• Critical skills
• Infrastructure
4. Organisations/institutions that promote development:
• Zimbabwe Investment Centre (ZIC)
• Zimbabwe Development Bank (ZBD)
• Small Enterprises Development Corporation (SEDCO)
• Industrial Development Corporation of Zimbabwe (IDC)
• Department of small and medium Enterprise (SMES)
• Ministry of Youth and Gender (MYG)
• Welfare Organizations (NGO)
-What are the functions?
-What are the objectives?
-What is the structure?
3

4. -What are the rules and regulations for the project
requirements?
-Is the role of project development being met?
PROJECT ENVIRONMENT
a) Project environment needs to be analysed, understood and addressed if
project is to be implemented successfully.
b) Project environment provides managers with a structured approach to
analyzing and handling possible external constraints
c). There must be continued interaction between the project and its environment,
and the project itself affects the environment just as it in turn is affected by it, so
that there is a two –way relationship between them.
Physical environment:
 Refers to the natural setting of the project, its geology, soils, landscape,
climate, water resources and ecological systems
 Many projects are sited in a particular location and surrounded by a
specific physical setting. Sometimes this setting is the very reason why the
projects exist e.g. mining project is established precisely to exploit
deposits in physical environment, agricultural projects exist to maximize
potential of the natural physical environment for agricultural production.
Technologies:
Technologies utilized for the exploitation or conservation of the natural resources.
Availability –provision of these technologies is a key dimension of the project
environment.
Economic and Financial management:
4

5. Projects utilize resources to create assets. Resources utilized have a cost and
these assets created have a value. Relative costs and values (worth of the
projects) are directly affected by the economic and financial environment within
which they are implemented . Such issues as budgetary constraints, foreign
currency shortages, price controls, inflation, interest rates are constantly
reviewed in order to complete project at stated cost, using resources to be
acquired. Cost-over-runs often associated with time delays are very frequently
encountered- and these are caused by constraints of the economic and financial
environment.
Institutional and political environment:
 Institutional framework concerns such matters as the legal systems within
which project managers are operating and aspects of social organization
such as the land tenure and water rights system
 Formal/less formalized organizations are crucial determinants of project
outcome:
Formal: government departments,marketing and credit institutions, local
authorities have clear terms of references
Less fomalised but official organizations- village level committees, political
groups, religious institutions may be as important
Political framework in the project environment needs to considered.
Projects necessarily reflect the political priorities of the country within which
they are implemented. Politics determine the progress of any project.
Project managers need to be political –need to lobby, negotiate, use influence
to gain political support for their project. The political environment surrounding
5

6. a project involves a complex web of political relationships which extends
beyond individuals to organizations and geographical areas.
Socio-cultural environment:
 People –orientated projects e.g most agricultural projects,
health,education and welfare projects,urban housing, water supply,
rural industrialistion projects are implemented through people who are
not directly part of the formal project organization
 Project organization provides resources, training services and
infrastructure to the population
 For the project to be successful, its objectives will need to be
consistent with values and practices of those people it is designed to
assist
 It is vital for project personnel to be sympathetic to the local culture and
to have an understanding of “why things are done the way they are.”
DISCUSSION:
1. Critically analyse the business operating environment of a
project you are familiar with. What are the prospects of its
success? Why? What are the areas of improvement, if any,
would you recommend to the project sponsors for it to be a
success?
2. Examine any one of the organizations/institutions that
promotes project development. To what extend is it fulfilling its
role in the current economic environment?
6

7. CHAPTER 2
NATURE OF PROJECTS
What is a project?
Definition:
a) It is a collection of linked activities, carried out in an organized
manner with a clearly defined start(ing) point and finish(ing) point
to achieve some specific results that satisfy the needs of an
organization as derived from the current business plans.
b) It is organization of people and resources to meet objectives
c) It is the investment of capital in a time – bound intervention to
create productive assets.
2.2 Characteristic features of a project:
• Involves new and unknown tasks
• It is an instrument of change (has elements of risk)
• It has clearly defined start and finish dates
• It has specific aims
• It should result in something being delivered
• It is the responsibility of a project manager/ management team
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8. • It involves costs, resources and time (subject to strict deadline)
• It leads to a change in people’s daily work or living conditions
• Requires the right people at the right time but people of different
backgrounds who are not used to working together.
Examples of a project
• Writing and publication of a book
• Relining of a blast furnace in steel works
• Setting up a new department at a University
• Supporting of a self help efforts of a rural community
• Technical projects: construction of bridges, dams, water pipe line
• Introducing a new product
• Organizing a trade fair.
Projects in Midlands
• Unki platinum mine project
• Relocation of Mtapa long distance bus terminus
• Construction of MSU administration Block
2.3 PROJECT MANAGEMENT
Definition
8

9. a) The dynamic process utilizing the appropriate resources of the
organization in a controlled and structured manner, employed to
achieve a change clearly defined with specific objectives identified
as strategic needs.
Characteristic features:
- Objective oriented – without these you have no outcomes
- Change oriented – creating something you need but do not
have.
- Multi disciplined – needs a wide range of skills to achieve
success
- Opportunistic – you must seek to take shortcuts and bypass
old norms
- Performance oriented – setting appropriate standards and
quality of outputs
- Control oriented – carefully designed controls to maintain the
schedule
- Avoid getting trapped by the old ways of doing things.
9

10. b) Project management is a tool for management to manage
organization:
 Interfaces between organization and its environment to achieve
 stated goals Interfaces within an organisation
2.4 Sources of projects:
1. Corporate and strategic plans/business plans
2. Normal operations/ step changes
3. Continuous improvements/ programmes cross functional
4. Growth by projects addressing needs/ opportunities
5. Growth by incremental change of quality/performance
2.5 LIFE CYCLE OF A PROJECT
All projects go through similar life cycle, comprising the following
phases namely:
Phase1: Idea generation and screening the idea
It is done through feasibility study ie whether to go for the
project or not(prefeasibility Go/and No Go)
-Needs are clearly identified and project is defined with
agreement of those people with an interest in the outcomes
-Also called conception and definition stage
-Organization realizes that a project may be needed or
receives a request from a customer to propose a plan to
perform a project.
10

11. Phase 2: feasibility study: Project formulation
-Looks at techno-economic design stage aspects of the
project
-Looks into such issues like location, finance, commercial,
institutional preliminary organizational/set up, economic
financial aspects.
-Also termed project formulation/design stage.
-Here the planning phase becomes critical to derive a
realistic schedule and budget taking into account the
constraints imposed on the project
Phase 3 Implementation/execution
-Entails launching the project work
-Manufacture, construction and installation of equipment and
facilities
-Entails procurement; production
-Requires monitoring cost schedules and specifications, plan
to be up to date
Phase 4 Handover and start up stage
- Preparing customer for acceptance and handover to ensure
the project can deliver. Any follow- up activities are
identified and assigned and project evaluation is completed
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12. Phase 5 Post project evaluation
done after project is handed over to the customer. It
provides data for future projects.
Contents of a project report(proposal)
1. INTRODUCTION:
• -purpose
• -scope(limits)
2. EXECUTIVE SUMMARY
• -executive highlights
• -summarises completed project report
• -findings
• -decisions
3. CONCLUSIONS/RECOMMENDATIONS
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13. 4. PROJECT DESCRIPTION
• General objectives
• Specific objectives
-market analysis
• Product/service description
• Market position
• Competition and marketing strategy
Project structure
• Work breakdown structure
• Work packages
Project costs
• Capital and expense requirements
• Financial plan (project budget)
• Contingencies
• Economic and financial analysis(viability)
• Risk and sensitivity analysis
Schedule
• Time estimates
• Calendar schedule
• Bar chart schedule
Network
• List of activities
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14. • Arrow diagram
Resource allocation
• Resource type
• Resource availability and constraints
Control systems
• Project evaluation methods
• Cost control
• Cost minimizing (time/cost trade offs)
• Status report
• Milestones
ORGANISATION AND ACCOUNTABILITY
• Management capacity
• Labour /employee plan
• Responsibility/accountability matrix
• Procedures
• Special conditions/contractual aspects
APPENDIX
• Reference material
• Calculations
• Curriculum vitae (cv)
NB a project plan (report) varies from organization to organization but any
project must contain most of the above elements.
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15. CHAPTER 3
3.0 PROJECT ORGANISATIONAL STRUCTURE -
Hierarchical structure: organizational chart
• Appropriate for very large, long-term projects which work on isolated tasks
and are staffed mainly by full time employees.
• Is not appropriate when project is to be integrated with the base
organization.
Advantages
• Functional specialists easily share their knowledge and normally work
together.
• Easier to implement work rules and regulations for a group of similar
functional experts.
• Share a commonality of perspectives that will help the main thrust of a
project.
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16. Disadvantages
Disadvantages of organizational projects according to hierarchical structure
• Does not develop technology useful for the future.
• Minimal career continuity for project personnel.
• It often leads to:-
- bureaucracy
- inefficiency
- poor use of resources
- collapse of authority or the project usurping responsibility it
should not have.
- Little commitment from people outside the project
- Little informal contact between the project and its
surroundings
MATRIX STRUCTURE
Can be on full or part time basis. It is a high breed organization. It is
characterized by having a pull of project managers who will be assigned to
projects. It comprises of :-
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17. - Core team members with previous experience who are not
necessarily drawn from across the functional structures.
- Extended team members who are drawn from across
functional structures and do a specific part of a job for a
relatively short time.
Advantages
• Response to changing needs is very rapid.
• Functional experts are more part of a team and are more focused
on project deliverables.
• Team members have a functional department to return to after the
project.
• Their respective departments look after careers and specific
development needs.
Disadvantages
• There can be conflict between functional line managers and project
managers over the deployment of resources.
• If the team is not physic ally located in the same area in a building,
communications and control becomes a difficulty.
• Matrix structures are frequently hindered by accusations of poor
accountability and lack of clarity in responsibilities.
Project organization
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18. It is based on assigning projects to each organizational unit (department).
The project make contribution to corporate strategy. Senior management is
involved in project process and has defined roles and responsibilities. Senior
management sponsor projects and have authority i.e. ownership over
projects. Project sponsors can form project steering team.
Advantages
- It ensures everyone in the organization focuses on important
active projects.
- The reporting structure is clear
- It priotises project for limited resources
- Reaction to market changes if rapid as authority exists in
project team
- Functional specialists work with project managers
Disadvantages
- Duplication of functional experts will exist across the
organization as they are each dedicated to a single project.
- There is a lack of information exchange between functional
experts as they are located in different parts of the
organization.
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19. Project sponsor (owns, commissions the project, chairs PST)
The project sponsor for any project is accountable (to the PST) for the
performance of their projects and must demonstrate their concern for success
to everyone involved. Responsibilities include:
• Ensuring project objectives are always aligned to corporate
needs;
• Selecting the project manager;
• Approving the project definition;
• Sustaining the project direction;
• Ensuring priorities are maintained for all their projects;
• Overseeing the project process and procedures, budget and
control; finds and wins resource(s) for the project
• Reacting promptly to issues escalating to them for decisions;
• Maintaining support and commitment;
• Approving project plans, changes and status reports.
Project steering team (created by project sponsors has representatives from
business + technical functions + user community)
This group of project sponsors – the project steering team (PST) – meets at
regular intervals to review the status of all active projects, initiate new projects
and decide the prioritization of project activity in the organization.
Responsibilities include:-
• Ensuring projects are aligned to corporate objectives;
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20. • Giving strategic direction;
• Maintaining focus on customer and business needs;
• Ensuring environmental influences are taken into account (internal
and external);
• Prioritizing all active projects and their resourcing;
• Resolving escalating issues;
• Providing the ultimate decision forum for all major problems and
issues;
• Approving start-up and abortion of projects.
• Reviews overall project direction, schedule, costs, quality of
deliverables)
Project manager ( manager project, people + paper work, attends, steering
committee meetings)
The project manager is responsible for the project work from the initial kick-off
through to closure. Responsibilities include:
• Selecting the core team with the project sponsor;
• Identifying and managing the project stakeholders;
• Defining the project and securing stakeholder approval;
• Planning then project and securing stakeholder approval
identifying + managing the risks
• Allocating + securing resource commitments
• Monitoring and tracking project progress
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21. • Solving the problems that interfere with progress
• Controlling costs
• Leading project team
• Informing stakeholders of progress status
• Delivering the project deliverables + benefits
• Managing performance of everyone involved with project
Project Manager’s deliverables
i.e The physical items to be delivered from a project. This typically includes
reports and plan as well as physical products and services project deliveries a
product or service.
• Terms of reference or project definition
• Milestone plan
• Budget
• Work breakdown structure
• Project organization chart
• Responsibility
• Task definitions
• Deliverable definitions
• Deliverablee definitions
• Quality plan
• Dependency chart
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22. • Progress reporting standards
• Change control standards
• Lost of planning + estimating assumptions
• Gantt chart
• Progress reports
• End of phase reports
• Project review report
Project Team
Successful teams have to be built through effective leadership + commitment
Criteria for selecting team members
• Relevant technical experience/specialized knowledge are essential
to project.
• Have worked in project team before i.e have experience
• Assets current non project work load
• Do they get on easily with other people
• Are they good team players
• Is line manager in agreement with possible assignments.
Project member
• Technical expert qualified to complete project tasks
• Gives regular feedback on progress to project manager
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23. • Focuses on delivering quality contributes to teamwork and
morale
CHAPTER 4
4.0 PROJECT PLANNING
“íf you fail to plan: you prepare to fail”
4.1 Purpose of planning
• To achieve a common understanding of the task to be resolved
• To obtain an overview of the work to be carried out
• To lay the foundation for allocating and committing resources
• To be able to form a suitable organization of work
• To define a programme of monitoring and control.
4.2 Definition of Project Planning
• Is “a continuous process which involved decisions and choices, about
alternative ways using available resources with the aim of achieving
particular goals at sometime in the future”( Conyers and Hill,1984).
L.Young – planning is a process of creating order out of apparent
chaos
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24. Key aspects of the definition:
• Making choices
• Concerning use of limited resources
• To achieve given goals and objectives
• Pertaining to some future time
NB: Goal – aim or objective towards which an endeavor is directed.(simply
objective)
4.3 Project planning involves stating
• Why a project should be undertaken
• What should be done and
• By whom, in order to achieve well-defined objectives by some future
dates.
4.4 Products of planning
• Plans consisting basically of graphics and text e.g. graphics – include
charts, logic diagrams, sketches and in some cases photographs
• Texts include narratives and tables.
• Logic of planning = plan.
• List of what jobs (activities) have to be done and the order of carrying
them out.
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25. 4.5 Planning cycle and project cycle
Like project cycle, planning cycle is made up of three main elements:
1. Clarity problems to be solved
2. Set out objectives and
3. Draw up the project plans
4.6 Planning procedures:
(i) Establish objectives
• State objectives – derived from requirements (problems that
motivated the project
• List interim objectives or milestones – these are significant events
in meeting the main objectives
• Designate responsible personnel or departments
- These are important groups whose participation in planning
and scheduling are required for successful project
implementations. These participating activities used to be
identified early in project developments.
(ii) Develop a plan
• List what jobs (or activities have to be done to complete the project
• Delineate the jobs by determining their relationships:
- determine which jobs proceed and succeed every other job
- determine which jobs can be accomplished concurrently
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26. (iii) Draw the arrow diagram
• Show the sequence in a planning (arrow) diagram. The planning
process becomes complete when the graphic display in the form of
a planning diagram displays the project work items and their
relationship.
4.7 Obstacles to project planning
4.7.1 Network planning Techniques
Network analysis(planning)
• This is a graphic analysis of the project showing the plan of action
through the use of a graphic diagram (used in project planning)
• Network planning techniques
Common ones include:
4.7.2 Critical Path Analysis/Critical Path Method CPA/CPM
• Developed by Rand corporation and Du Pont to
improve the planning, scheduling and controlling of
projects(as a means of scheduling shutdowns regular
shutdowns at chemical processing plants)
4.7.3 Programme Evaluation Review Technique(PERT)
26

27. • Developed from work involving the US Navy for planning,
coordinating the projects associated with the development of the
missile programme
Differences
PERT CPM
-event oriented -activity oriented
-provides starting and finishing - provides starting and finishing
times provided for the event times for the activity
-provides the probability of -has no provision for determining
meeting a scheduled date probabilities
-uses three time estimates for -uses on estimate
each activity
4.8 Network Terminology
Activity – This is a task or job of work, which takes time and resources. it is
represented by an arrow not arrow to scale.
Tail of Head of the arrow
arrow
-Indicates where Where task ends
Task begins
e.g Build a wall
- Verify debtors in a sales ledger.
a) What activities are involved in the project.
b) Establish their logical relationship i.e which activity comes after or before.
c) Establish the estimate of time that the activity is expected to take.
27

28. EVENT- It is a just in time, it indicates the start or finish of an activity or
activities. It is represented in a network by a circle or node.
Establishing of activities automatically determines events which are the start of
finish if activities e.g wall bulk, debtors verified, arrived city.
Dummy Activity – It is an activity that does not consume time or resources. It is
a fictitious activity with zero activity time used to create a PERT or CPM network.
It is used merely to show clear logical dependents between activities so as not to
violet the rules for drawing network.
It is represented is a network by a dummy activities are not usually listed with led
activities may become necessary as the network is drawn.
CONCURRENT ACTIVITY – They are activities as tasks that are designed to be
carried out in parallel i.e at the same time.
SERIES ACTIVITIES – are activities or tasks that are designed to be carried out
are after another each strictly dependent on compilation of the earlier activity.
28

29. NETWORK – A combination of activities, dummy activities and events in a logical
sequence according to the rules for drawing networks.
RULES FOR DRAWING NETWORKS
A – A Complete network should have one part of entry i.e a start event and only
Part of exist i.e a finish event.
B – Every activity must have one preceding as task event and one succeeding or
head event.
NOTE :- that activities may use the same head event.
Tail Head event
Events Head
Events Tail event
- However an activity must not share the same tail event and the same head
event with any other activities (use dummies)
- An event is not complete until all activities leading into if are complete.
- ‘Loops’ i.e a series of activities which lead back to the same event are not
allowed because the essence of networks is a progression of activities away
making onwards in time.
- All activities must be tied into the network i.e they must contribute to the
progression or be discussed as irrelevant.
- Activities which do not link to the overall network are called ‘danglers’ they are
not to be used.
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30. Dangling activity not to be used.
CONVENTIONS FOR DRAWING NETWORKS
a) Networks proceed from left to right.
b) Networks are not draws to scale i.e the length of the arrow does not
represent the time elapsed.
c) Arrows need not be draws in the horizontal plane.
- If they are not already numbers events or nodes should be progressively
numbered from left to right.
Simple networks have events numbers in simple numeric progression i.e
0,1,2,3,e.t.c
Activity identification
Typical methods of presentation include:-
a) Shortened description of the job of plaster wall e.g order raw material.
b) Alphabetical or numeric code i.e A.B.C. D e.t.c or 100.101,102 e.t.c
c) Identification by the fail and head event numbers e.g 0-1, 1-2, 2-3
30

31. Dummy activities
Part of a network involves a car arriving at a service station during which 2
independent activities take place, filling petrol (A) and topping up with oil (B)
Fill petrol
A
Dummy activity
B
Top up with oil
EXAMPLE
Assume that part of the network involves a man lighting a cigarette. Activities and
there relationship are assumed to be as follows.
ACTIVITY DESCRIPTION PRECEDING ACTIVITY
A Remove cigarette from case -
C Put cigarette case away A
B Strike match -
D Light cigarette A , B
REQUIRED - A network diagram
Remove cigarette from Put cigar away
Case
A C
B D
31
Car
arrives
Car filled
with
Petrol
Oil
Topped
up

32. Network Analysis: (Time Analysis)
Assessing the time
Once outline network has been drawn there is need to complete it by in settling
the activity duration time.
a) Time estimate – an estimate is a decision about how much time and
resources are required to carry out a piece of work to acceptable
standards of work performance – You determine the size of group of
tasks, the amount of effort required to complete the work. Effort is
measured in project time units, e.g hours days weeks.
Sources of accurate estimates.
- Use experience of others
- Seek expert views (advice)
- Historical data from other projects
NETWORK TERMINOLOGY
3.1.3 Three time estimate approach
This approach is used to offset bias. Before beginning scheduling of a
project it is necessary to estimate the time required to complete each
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33. activity. After completing the initial arrow diagram, a time estimate is
obtained for each job in the project. Persons familiar with work to be
performed make the time estimates based on their best judgment.
Sources for accurate estimates:
- Experience from others
- The expert view
- Historical data from other projects
Estimate is a decision about how much time and resources are required to carry
out a piece of work of performance.
Determine:
• The “size” of the task or group of tasks
• The amount of “effort” required to complete the work; effort is measured in
project time units (hours, days, weeks)
Effort Duration Schedule
3.1.4 PROJECT SCHEDULING
This is the second phase of a project after planning, detailing the time at
which each job is to be started and completed. This phase represents
when the work need to be done.
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34. Scheduling Procedure:
1. After the sequence of jobs has been planned and laid in a network
diagram, establish the timing
a. Estimate the time required to complete each project item
b. Calculate the scheduled time for each project
c. Compare the required time (time estimate) with the available
time to complete each job.
d. Identify the critical jobs
e. Determine the front times of non critical jobs
2. If the project duration time calculated initially is not acceptable make
adjustments to the plan so as to meet project deadline that is acceptable.
3. Establish a time schedule (using a bias chart)
EXPECTED TIME CALCULATION
Expected time = Optimistic time +4 (normal time) + pessimistic time
6
Optimistic Time - is the shortest possible time required for completing an
activity i.e. everything goes as planned; deliveries are on time, machines and
equipment operate without breakdowns, personal work within the standards.
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35. Normal Time - is the time most frequently required if activity were repeated
many times under similar conditions. This is the estimate that should be used in
an arrow diagram, as there is no contingency added.
Pessimistic Time - is the maximum possible time required to complete an
activity i.e. about everything goes wrong: delivery difficulties work delays,
accidents.
e.g. Assume that three estimates for an activity are :
DAYS
(O) Optimistic 11
Most likely 15
(P) Pessimistic 18
EXPECTED TIME = 11+18+4(15)
6
=14.8 days = 15 days
a) Time Units
Time estimates may be given in many unit i.e. minutes, hours, days, weeks
depending on the project. All time estimates within a project must be in the same
units to avoid confusion.
b) Use of time estimates
Project with multiple time estimates can be further analysed to give an estimates
of the probability of completing the project by a scheduled date
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36. BASIC TIME ANALYSIS - CRITICAL PATH
CRITICAL PATH
- critical path of a network gives the shortest time in which the whole
project can be completed.
- It is the chain of activities with the longest duration times
- There may be more than one critical path in a network and it is
possible for the critical path to run through a dummy.
Step by step procedure for establishing critical path
1. Earliest start times (EST)
- it is the earliest possible time at which a succeeding activity can start
Method of calculation : FORWARD PASS
a) EST of a head event is obtained by adding onto the EST of the tail event,
the linking activity duration starting from event o, time o and working
forward through the network.
b) Where two or more routes arrive at an event the longest route time must
be taken e.g. activity F depends on completion of D and E. E is completed
by day 5 and D is not complete until day 7 ; F cannot start before day 7.
c) The EST in the finish event no 5 is the project duration and is the shortest
time which the whole project can be completed.
2
B 2 days 4days D
A 1 C 3 E 4 F 5
1 day 3 days 1 day 2 days
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37. A – F = Activities
0– 5 = Events
Find the critical path (forward pass)
2
B 2 4 D
A 1 C 3 E 4 F 5
1 3 1 2
The EST of the head event =
Zero starting time + 1 day =
1 + 2 = 3
1 + 3 = 4
4 + 1 = 5
3 + 4 = 7
7 + 2 = 9
b) where two or more groups arrive at an event the longest route T must be
taken e.g. Activity F dependent on compilation of ‘D’ and ‘E’. ‘E’ is completed
by day 5 and D is not complete until day 7 therefore F cannot start before
37
0
0
0
09
98
l0
o0
00
2
3
1
1
3
4
4
7
5
9

38. day 7.
c) The EST in the finishing event number 5 is the project duration and it is the
shortest time in which the where project can be completed.
2. Latest start time (LST) (Backward pass)
LST for each activity must be established to enable critical path to be
isolated. LST is the latest possible time at which preceding activity can
finish without project duration.
Calculating LST (backward pass)
a) starting at finish event no5 insert LST i.e. day a and work backwards
through the network deducting each activity duration from previous
calculated LST.
b) Where tails of activities B & C join event no1, LST for C is day 3 and LST
for B is day 1. The lowest number is taken as LST for event no 1 because
if event no 1 occurred at day 3 then activities B and D could not be
completed by day 7 as required and project would be delayed.
2
B 2 4 D
A 1 C 3 E 4 F 5
1 3 1 2
38
0
0
0
0
09
98
l0
o0
3
3
1
1
4
6
7
7
5
9

39. CRITICAL PATH
One path through the network (A, B, D,F) has EST’s and LST’s which are
identical. This is the critical path (chain of activities which has the longest
duration), which can be indicated by a different colour or by two small transverse
lines across the arrows along the path.
Critical path implications:
- Activities along article path are vital activities which must be completed
by their EST’s/LST’s otherwise project will be delayed.
- Float is the spare time available on non critical activities(i.e. (C and E).
C and /or E could takeuptoanadditional2daysintotalwithoutdelaying the
project duration.
- If required to reduce overall project duration then the time of using
more labour, or more or better equipment or some other method of
reducing job times must reduce one or more of the activities on critical
path.
Float
Types of float
a) Total Float - This is the amount of time a path of activities could be
delayed without affecting the overall project duration.
Total Float = Latest Heat time –Earliest
Tail time –Activity duration
Total float = 50-10-10
=30 days.
39
00

40. b) Free Float - This is the amount of time activity can be delayed
without affecting the commencement of a subsequent activity at its earliest
start time, but may affect float of a previous activity.
Free float = Earliest Head Time –Earliest
Tail Time – Activity Duration
Free float = 40 – 10 - 10
20 days
c) Independent Float - This is the amount of time an activity can be
delayed when all preceding activities are completed as late as possible and
all succeeding activities are completed as early as possible. Independent float
does not affect the float of either preceding or subsequent activities.
Independent Float = Earliest Head Time –
Latest Tail Time –
Activity duration.
Independent float = 40 –20 –10
10 days.
For examination purposes the most important type of float is Total Float.
Calculate float (total)
1) Calculating separately
2) or calculating for total float over chains.
Non –critical chain Time read time available total float over chain
40

41. C, E 3+1 = 4days 7 – 1 = 6days 2 days
Slack
This is the difference between EST and LST for each event. Strictly speaking it
does not apply to activities but on occasions the terms are confused in exam
questions.
Exercise:
A project has five activities as follows:
Project data activity Preceding activity Duration (days) normal
A - 4
B - 8
C A 5
D A 9
E B, C 5
a) Find critical path using EST’s /LST’s
b) Calculate the floats of the network.
NETWORK ANALYSIS
a) Cost scheduling
A further important feature of network analysis is concerned with costs of
activities and of the project as a whole.
Cost analysis objectives
The primary objective of network cost analysis is to be able to calculate the cost
of various project durations. Normal duration of a project numbers a given cost:
More labour
41

42. Working overtime
More equipment
Network cost analysis seeks to find the cheapest way of reducing overall
duration.
b) Resource scheduling
Management need to know what activities and what resources are critical to the
project duration and if resources limitations e.g. (shortage of materials, limited
number of skilled labour might delay the project.
Resources scheduling requirements:
i) resource requirements for each activity showing classification of the
resource and quantity required
ii) resources in each classification that are available to project
iii) might need restrictions that need to be considered e.g. limitations on
labour mobility
iv) activity times, descriptions and sequences
1) Submissions of assignments – late submission not considered
2) Group presentation towards end of session
3) Lecture
4) Effort - schedule – duration
42

43. CONSTRUCTING THE NETWORK – Worked Example
Tasks Precedence Time Cost Who does
A - 5days - -
B - 4days - -
C a 6days - -
D b 2days - -
E b 5days - -
F c, d 8days - -
Find
a) Critical path
b) How long it will take to complete the project
i) Node numbered I denotes event called “START”
ii) Activities a and b have no predecessors, assume source is at “start” –
Node 1
iii) Destination at nodes are numbered 2 and 3 respectively
iv) Arrow heads show direction of flow.
i) Activity c follows a activity d follows b activity e follows b
Note
Number event nodes sequentially from left to right as you construct the network
ii) activity f follows both CTD but any given activity must have its source
in one and only one node ‘ ctd finish in the same node.
43

44. Exercise
Assume a small project with ten activities as follows:
Project activity times and precedence’s
Activity optimistic time most likely pessimistic immediate
Time time time predecessor activity
A 10 22 22 -
B 20 20 20 -
C 4 10 16 -
D 2 14 32 a
E 8 8 20 b, c
F 8 14 20 b, c
G 4 4 4 b, c
H 2 12 16 c
I 6 16 38 g, h
J 2 8 14 d, e
Question 1.
Hints
i) start network by finding those activities that have no predecessors -
activities a, b, c meet the test: they can all be drawn emerging from the
starting node
ii) look for activities that only require a, b, or c or some combination of a,
b, and c to precede them:
44

45. - activity d requires that a be completed and e, f and g all require that b
and c completed
- note that a dummy will be necessary unless we begin the network from
separate nodes b and c
- h requires only that c be completed
iii) last activity I and j are drawn in the same manner. Activity I requires
both g and h be completed; so g and h are directed to a single node
(node 5) Similarly activity j requires completion of both d and e which
are directed to node 6
iv) since no activities that f, I or j precede them the activities are directed
to the project completion node 7.
Question 2.
Expected Time (TE) = (a+4m+b)
6
Where
a = optimistic time estimate
b = pessimistic time estimates
m = most likely time estimate
TE is estimate of the mean of the distribution
It is the weighted average of a, m and b with weights 1 – 4 – 1 respectively. The
same method can be used to find the expected level of resource usage given the
45

46. approximate estimates of the modal resource level as well as optimistic and
pessimistic estimates.
Activity Expected Time
A 20
B 20
C 10
D 15
E 10
F 14
G 4
H 11
I 18
J 8
Longest of these paths is a-d-jusing43 days which means that 43 days is the
shortest time in which the entire network can be completed. A – d – j is the
critical path.
Times and slacks for network
Event Latest occurrence time earliest occurrence time Slack
1 0 0 0
2 20 20 0
3 21 20 1
46

47. 4 14 10 4
5 25 24 1
6 35 35 0
7 43 43 0
Activity LST EST Slack
A 0 0 0
B 1 0 1
C 4 0 4
D 20 20 0
E 25 20 5
F 29 20 9
G 21 20 1
H 14 10 4
I 25 24 1
J 35 35 0
Notes
EST for an activity = for the event from which activity emanates
e.g. activity I cannot start until event 5 has occurred . Event 5 has an EOT of 24
days and so activity I has an EST of 24 days
Project has critical time of 43 days, activity I requires 18 days to be
accomplished. Therefore I must be started no later than 25 (43 – 18 = 25) if the
47

48. project is to be completed on day 43.LSTfor activity I is day 25 because I cannot
begin until event 5 has occurred, latest occurrence time (LOT) for event 5 is also
25.
Slack or Float = difference between the LST and the EST for an activity
- in the case of activity I it must be started no later than day 25 but could
be started as early as day 24, so it has one day of slack
- all activities on critical path have zero slack
NB To find the slack for any activity or the LOT for any event
- make a backward pass (right to left)
To find the critical path and time and the EOT’s for al events
make a forward pass (left to right) which are also EST’s for successor
activities.
Adopt the following convention:
When there are two or more non-critical activities on a path, it is conventional to
calculate the slack for each activity as if it were the only activity in the path.
Problems
1. Given the following information, draw the PERT/CPM diagram.
Activity Immediate Predecessor
1 -
2 -
3 1, 4
4 2
48

49. 5 2
6 3, 5
2. Given the diagram below, find:
a) Critical path
b) How long it will take to complete the project
3. Given the following network
a) What is the critical path
b) How long will it take to complete this project
c) Can activity B be delayed without delaying the completion or the
project? If so, how many days?
4. Activity a m b
AB 3 6 9
AC 1 4 7
CB 0 3 6
CD 3 3 3
CE 2 2 8
BD 0 0 6
BE 2 5 8
DF 4 4 10
DE 1 1 1
49

50. EF 1 4 7
Find:
a) the critical path
b) all event slacks
c) critical path to event D
d) the effect if CD slips to 6days, to 7days,to 8days.
NB a = optimistic time estimate
B = pessimistic time estimate
M = most likely time estimate
Calculating Earliest Start Time (EST)
- this is the earliest possible time an activity can begin without
interfering with the completion of any preceding activities
- guidelines in calculating EST
• calculation of EST commences with the beginning mode of
arrow diagram (time O) and continues
50

51. • if only one arrow leads into a mode, EST for jobs starting at
the mode is determined by adding EST for the preceding job
to the time estimate for the preceding job.
EST at mode 6 4 = 6
4 EST at mode 8
select 8
project ii
project 2 8
• if more than one arrow leads into a mode, EST calculations is made
through each end of the arrows as noted below. The largest total is the
EST for the mode.
EST at mode 3 EST at mode 7
13 23
pressure equipment
51

52. 3 7
EST at mode 6
17
Develop operating procedures
6
6
Calculating latest finish time (LFT)
- LFT an activity must be completed without delaying the end of the project.
- Guidelines when calculating (LFT)
• Project duration must first be determined by calculating EST
• Project duration is the LFT of the end mode of the project
• Calculation of LFT involves working from the end mode back
through each mode to the first mode in the project
52

53. If more than one arrow originates at a mode, the calculation of LFT is made via
each arrow and the smallest result is from each mode to the end of the diagram.
LFT at mode 4 LFT at
6 select operating manager mode
4 6 17 6
9
hire operating train up
personnel 10
personnel
5
4 7
Job 4, 6 17 LFT at mode 6
- 9 Time estimate for job 4, 6
8
Job4, 5 10 LFT at mode 5
- 4 Time estimate for job 4, 5
53

54. 6
 LFT at mode 4 is 6 days the smaller of the two results.
Milestone dates can be set V12 P32 – 36
Float: optional start and finish times. A float is the difference between time
available for performing a job and the time required for doing it.
Available time = Latest finish time - earliest start time
Required time = time estimate for completing a job
DIAGRAMS
Benefits from timing calculations:
• Establishment of project duration for plan
54

55. • Identification of longest path (critical path) through the project
• Identification of jobs for which there is scheduling flexibility without
lengthening project duration.
Formula for calculating optional starting and finishing times:
Latest start = earliest start + total floats
Earliest finish = Latest finish - total float.
Tabulated schedule can be converted into a calendar schedule for reporting
and monitoring the project.
Bar Chart time schedule can be plotted after schedule is calculated.
Procedure for constructing bar chart:
1. use earliest start time for each project activity.
2. The length of each bar is the duration of each activity.
3. Plot one activity per line (in some cases, a number of activities per time)
55

56. 4.8 Benefits and limitations of network planning
Benefits
• A disciplined basis for planning a project
• A clear picture of the scope of the project that be read and
understood easily by someone who is not familiar( but
knowledge of the network diagramming technique) with the
project.
• A means of communicating what is to be done in the project
• A vehicle for use in evaluating alternative strategies and
objectives
• A means of defining relationships among the project items
• A means of pinpointing those responsible for accomplishing the
jobs that make up the project
• An excellent vehicle for training project personnel
4.9 Limitations
• Network is often difficult to interpret
• A great deal of time is usually needed to prepare changes, often
requiring a great deal of time for modifications to the network
diagram
• A network makes it difficult to note estimated costs versus actual
costs
• Individual skills are not recognized.
56

57. 4.10 Bar chart/Gant Chart Construction
• Is a graphic planning and control method
• a project is broken down into separate tasks and for each task,
estimates are made of the amount of time required and of the
termination date necessary to meet the specified completion date
for the project.
• Information is shown as a pair of brackets indicating the start and
end of dates for each task
• Grant Chart enables a manager to make commitments based on
the planned completion times, to acquire extra resources to shorten
some of the times etc.
• Grantt Chart enables manager to fill in the brackets
(accomplishment) enabling him to see immediately what tasks are
behind( or ahead of schedule and how far.
Advantages – provides excellent communication to management
Depicts more readily than network diagrams, a summary of status
of project and thus are used extensively in reporting on progress of
projects.
4.11 Deficiencies/weaknesses
-Relationships among the jobs cannot be shown and questions cannot be
answered regarding
57

58. • Parts of these jobs that can be done concurrently
• Parts of each job that must be completed be for other parts begin
• Certain jobs or parts of jobs that must be given priority so as not to hold up
scheduled completion of project
• Optional starting and end dates of some jobs or parts of jobs if any.
To overcome above deficiencies during planning
• Network diagrams explicitly show interrelationships between jobs. A
network diagram shows which jobs can be done concurrently, which owes
precede, and which ones follow other jobs
• Jobs with critical schedules are specified with their required beginning and
end dates
Using computer calculations based on the network diagram also permits more
rapid and accurate updating of project schedule.
“While PERT/CPM and Gannt charts are both scheduling techniques, they
are not merely different ways of achieving the same ends: they are
complementary rather than competitive” Discuss
The date may relate to when a decision is to be made concerning outside
financing, when announcement of a project to the press is planned, when
a thorough project review is scheduled on whatever.
Milestone scheduling indicates seluted dates by which various phases of
the entire project to be completed.
58

59. • Milestones add detail to Gantt chart
• Milestones serve as formal review points where costs, progress and
the need for replanning on schedule modification can be reviewed.
Gantt chart shows the relationship between milestones within the same task
but not within different tasks.
4.12 Milestone Planning
Is the date when a certain accomplishment, decision or event is to take
place as indicated on the horizontal bar of a chart . V12 p 14
4.13 PROJECT WORK BREAKDOWN STUCTURE (WBS)
This is a dynamic tool which divides(segments) the project into parts
before starting a project. It is updated as the work proceeds, particularly
as minor changes affect the task analysis.
Reasons for segmenting a project
• Project is large
• Project is long term
• It is advantageous to have information to plan the whole project as
one unit
• We do not have information to plan the whole project as one unit
59

60. • The project has several natural phases with completing different
contents.
NB: a characteristic of a phase is that it is possible to plan it as a whole i.e.
giving us an insight into the types of activities that should be done in this phase.
A WBS does not show dependencies other than a grouping under the key
stages.
A WBS is not time based – there is no time scale on the drawing.
e.g. feasibility(phase) study V implementation phase
Preliminary project V (main project)
-Defines precisely objectives and goals -it implements what has been
on project decided
-Requires thoroughness
completeness
4.14 PROJECT RESPONSIBILITY CHART
- It is a contract between the project and the parties involved (management
other resource persons and members from the base organization who are
drawn into the project)
60

61. - Each party must understand clearly the responsibilities for (work ending
up to a milestone) and their roles. Each key stage must be owned by one
of the team members.
- Some milestones may require authority to make decisions.
- Responsibility can consist of being responsible for progress, expecting
work, making decisions, being available for consultation, receiving
information or tutoring.
- When project responsibility chart has been developed it is useful to
evaluate the results.
- External assistance can be included in the project on project members
e.g. legal expertise, trade union representative, expert in economics and
finance (if not found from within)
- At this stage data to complete “duration” on plan “end date” is not yet in
place.
LINEAR RESPONSIBILITY CHART (LRC)
- It is a contract between the project and the parties involved i.e right and
member from the base organization who are drawn into the project as
resource persons and each party must understand clearly for work leading
up to a milestone (date of announcement)
- Responsibilities can consist of being responsible for progress or
implementing work, making decisions, being available for consultations,
receiving information or tutoring as well as evaluating the results.
61

62. - External assistant can also be included in the project as project members
such as legal practioners, TUs, economic experts if not found from within.
- If summaries the relationships between project participants and their
responsibilities in each element of a project and an element can be a
specific activity an authorization to perform an activity, a decision or a
report. The LRC has government column to represent organizational
elements and roles which correspond to the project elements and roles
which correspond to the project elements performed by the organization.
- The LRC depicts authority, responsibility and communication channels.
Activity Engineeri
ng
manager
Manufacturi
ng manager
Contract
s
manager
Project
manag
er
Marketin
g
manager
Quality
assuranc
e
manager
Negotiating
Contract
I, N I, N I, R P I A
Preliminary Design P A R O, B I A
Execution R P - O, B I R
Delivery N N P A N A
KEY
A - Approval
P - Preliminary responsibility – who is responsible for accomplishing
R - Review
N - Notification
O - Output
I - Input
B - Initiation
4.0 PROJECT DOCUMENTATION
Project work produces a large amount of data and it is important
that you record essential material. Insist that the team keep all
62

63. essential project records on a standard set of templates (format 5)
derived specifically for the purpose.
• To ensure project data is resolved in a consistent and
disciplined manner without reinventing every week.
• To get the right information recorded for the project file to
support your control system and aid project evaluation at
completion.
• Standard formats can be designed on the computer
a) Project File
- use a paper based system but more preferably on computer based file
which makes distribution of information easier with a network.
- Organize your project file into sections for different stages of the project e.
g.
 Background information
 Project definition
- project organization
- stakeholders
- project brief
 Project plans and schedules
- project risk management
63

64. - responsibility charts
- schedules
- work plans
 Project execution and implementation
- project status reports
- changes to project plans
- action plans for correction action
- cost control data
- supplier and subcontractor data
- records of meetings
 Project closure
- handover checklist
- acceptance pressure
- follow up and post project responsibilities
- project evaluation data
- completion report
b) Project logbook
- open a project log book at the start of your project
- book in an A4 bound …….book
- log book is particularly valuable to record events with third parties like
suppliers and contractors. When conflicts and differences occur the
64

65. logbook provides a record of events that can have a legal status in a
dispute
- log book is an addendum to the project file
- the logbook is an invaluable record of what actually happened throughout
the project. It is useful for post-project evaluation and a source of active
data for other projects in the future.
c) Project definition
- process of turning the data into something more solid and realistic,
something that is no longer a wish or a hope
- a clear definition of your project is critical to success – a large number of
projects (more than 75%) are perceived to fail as a consequence of poor
or nuclear definition
Documents required to effectively define project:
I. a statement of requirements
II. a stakeholder list –
- all with an interest in the project, how or in the future : customer, endures,
project sponsors, line managers of your core team members
- finance department, sales and marketing department, consultants ,
contractors, suppliers, other divisions or sites.
Project log book
65

66. Record events with essential relevant data:
• date
• time
• who is involved
• key points or content
Events to record
• Telephone calls – incoming and outgoing
• Faxes – incoming and outgoing
• Letters – sent and received
• Memos – sent and received
• E –mail - sent and received
• Purchases instructions issued
• Contracts signed
• Action plans agreed
• Decisions taken – how implemented
• Solutions derived
• Reports issued
• Meetings – sponsor team, third party, one – to – one
When using log book
 Use every page and number them sequentially
66

67.  Never remove any pages
 Start each day with anew page
 Always write with ink, never with pencil
 Write on very line
 Rule out all unused lines at the end of each day and sign the page at the
bottom
 Do not allow anyone else to write in the logbook – even the project
sponsor.
- the public, other agencies/statutory bodies
stakeholders used to be consulted for their inputs to give you a wider
perspective of:
- the real project needs and requirements
- what is realistically available in the time scale demanded.
III. Project brief – one page document with the following sub headings:
 Project title – relevant title for identification (project number)
 Project overall objective – describes project’s desired results in 25
–30 words
 Project leader and sponsor to be identified
 Project proposed start date: date when the real work starts after
definition is approved and planning begins
 Project required and date: and project is handled over to customer
67

68.  Project deliverables; tangibles outputs from the project which must
be impabale of being measured through its lifecycle, apply SMART
test to ensure that each deliverable is specific, measurable
achievable, realistic and time bound
 Project benefit
 Lists benefits and quantity them in financial terms-cost savings,
increased turnover, contribution or profitability in a specific time
scale.
 Project strategy –explore alternative, carry out feasibility study, set
up site team, involve customers in the team
 Project skills required: identify and highlight special experience and
technical skills you expect to need, external skills, expertise from
outside the organization.
 Relationships with other active projects –any project interfaces with
other projects in terms of inputs, outputs critical interface dates to
be determined.
 Project cost – if known or budget exists from earlier studies or
feasibility with them state cost, if not give estimate cost o rleave
blank.
 Risk management – risk log and management forms attached
Project brief is a document that summarizes all relevant facts about the project
and is a source of definitive information:
68

69. Contents:
 Projects origins –a need or opportunity statement
 Project …….. – why is it necessary now?
 Benefits of project –to customer and your organisation
 Project budget if known at this stage
 Current timescale and dead lines –subject always to detailed planning
later
Iv Scope of work statement (SOW)
- it is a narrative description of the project objectives in more detail, giving
more information about each deliverable and benefit identified. SOW must
identify boundary limits of project clearly stating what is not going to be
done as part of the project. It records all constraints made earlier and any
assumptions made in each of the meetings, SOW is where the applicable
specification list is recorded:
- internal product specifications
- external product specifications
- mandatory standards imposed by legislation
- process specification
- customer specifications
- standard operating procedures
- purchasing procedures
69

70. - quality standards
- testing specifications and procedures
- sub contract terms and conditions imposed on third parties
Its purpose:
- to make sure that everyone knows from the offset which standards and
specifications apply to your project
- it identifies where actual document scan be found for reference
- it identifies what exceptions, if any, apply to any specification for your
project
- if necessary record for reference purposes any other relevant documents
that have been issued previously relating to project e.g. CBA fundability
reports, studies carried out by consultants, project evaluation reports from
previous projects
v Risk Management
- a risk is any event that could prevent the project from realizing
expectations of the stakeholders as stated in the agreed project briefs or a
agreed definition. A risk that becomes a reality is treated as an issue
- there are risks to all projects and risk management is the process o
identifying and containing them to ensure your project’s success. It is
necessary to anticipate what might go wrong.
Two types of risks
70

71. o project risks – associated with technical aspects of the work of the work to
achieve the required customers
o process risks – associated with project process, procedures, tools and
techniques employed, the controls put in place, communication,
stakeholders and team performances
o can be due to external / internal factors
Project manager is made an obligation with the team to,
 identify and evaluate potential risks
 obtain agreement for action plans to contain risks
 take actions and monitor results
 promptly resolve any issues arising from risks that happen
Risk management is a continuous process throughout the life cycle of the project.
Identify the triggers or signals that suggest a risk likely to happen, and you must
maintain awareness of risk in the minds of all your project team;
 should be started at definition phase.
 Is essential to establishing project brief
 Compile a complete list of a project risk log
 Review the list at regular intervals as the project moves forward.
Approval of project definition
Requires following documents to be presented
71

72.  Project organization chart p56 T&Young
 Project stakeholder list
 Scope of work statement
 Project risk management forms
 Project brief.
5. PROJECT LAUNCHING
After project definition, plan and schedule have been approved you are
ready to launch the project work.
i) ask key stage owners(people assigned with
project work and own the work) to record
their task lists
-using WBS
-use schedule start and end dates
-note name of person responsible for
carrying out the tasks.
-prepare Gannt chart.
ii) establish milestone scheduling –milestone
should be considered as a flag or some
signal at some clearly defined point in the
project. There are selected key events that
72

73. are of major importance towards achieving
objectives.
Milestone are excellent tools for reporting project status in summary form to
management. It summarizes the status of major events.
e.g.
 completion of key task
 completion of one of the project deliverables
 stage generation of benefits
 completion of third party activity
 financial audit point
 project audit point
 quality audit
 significant decision point.
Record list of milestone on a schedule and on Gantt chart.
5.1.3 IDENTIFYING CRITICAL SUCCESS FACTORS OF PROJECT
Use process type CSF which include:
- tools, techniques, processes and procedures you use to define, plan,
execute and complete project on time, to the budget
- these must be acceptable to the key stakeholders i.e. customer and
project sponsor
73

74. Examples:
- defining project objectives, deliverables, benefits
- ensuring sponsor is appointed and sustains support and commitment to
project
- appropriate team is formed and right skill are utilized
- scheduled plans exist, up to date
- WBS is maintained
- Control procedures are understood
- Project risks regularly reviewed
- Reporting and communication procedures are established –plan a
meeting schedule (1 to 1)meetings for your project.
5.1.4. Launch Meeting: as a milestone in the project
- get together all important people involved in a project
 project sponsor
 the customer
 other stakeholders(key) –line managers
 project team
Consider preparing a document package for distribution containing:
 project organization chart
 project stakeholderlist
 key stage Gantt chart
 key stage responsibility chart
74

75.  project brief
 any other relevant information
CHAPTER 6: PROJECT WORTH
INVESTMENT DECISIONS
Decision to invest is based on 3 major factors.
(a) Investor’s beliefs in the future – such beliefs would be based on
forecasts of internal factors including: costs, revenues, inflation,
interest rates, taxation etc.
(b) Alternatives available in which to invent – appraisal techniques are
used to assess competing investments.
(c) Investor’s attitude to risk – analysis of project uncertainity, risk are
critical given the size of investment.
Appraisal techniques
Payback is the period usually expressed in yeas which it takes for the project’s
net cash inflows to recoup the original investment.
e.g
Calculate payback for the following projects:
75

76. Project 1 Project II
Year Cash flow Cash flow
0 -1500 -1500
1 +600 +400
2 +500 -500
3 +400 +600
4 -1500
5 +300
6 +500
7 +400
8 +300
9 +300
10 +300
Advantages
a) Simple to calculate + understand
b) Uses project cash flows rather than accounting
profits + hence is more objectively based.
c) Favours quick return projects which may
produce faster growth for waand enhance
liquidity
d) Choosing projects which payback quickest with
tend to minimize those risks saving the way
which are related to time.
76

77. Disadvantages
a) Payback does not measure overall project worth because it
does not consider cash flows after the payback period e.g
project III is ranked after project I + II even though it
produces cashflows over a 6 year period.
b) Payback provides only a crude measure of project
cashflows. eg project I + II are reached equally even
though there are clear differences in timing of cash flows.
In spite of above it is undoubtedly the most popular
appraisal criteria in practice.
Discounted cashflow (DCF)
Use of Def overcomes some of the disadvantages of the traditional technique of
payback.
Two common features to DCF methods:
a) Use of cash flows not accounting profit.
This is preferred because:-
- Cash flows are more objective and in the end are what
actually count. Profits cannot be spent cash is the life blood
of the company.
- Accounting conventions regarding revenue/capital
expenditure classifications, depreciation calculations, stock
valuations become largely redundant.
77

78. - The whole life of the project is to be considered therefore it
becomes unnecessary and misleading to consider
accounting profits which are related to periods (period
oriented- monthly, quarterly, annually)
- Timing or expected timing of cash flows is more easily
ascertained.
Typical cash flow items include;
1. project revenues
2. cost grants
3. resale or scrap value of assets
4. tax receipts capital injection (contribution)
5. any other cash inflows caused by accepting the project.
Cash outflows
- initial investment in acquiring the assets
- project costs (labour, materials etc)
- working capital investment
- tax payments
- any other cash outflows caused by accepting project.
78

79. b) Time value of money (money received now is worth more than money
received in use of money)
It is preferable to receive a given sum of money earlier rather than later because
the sum received earlier can be put to use by earning interest or some productive
investment within the business.
Assumptions in basic DCF Appraisal
a) uncertainty does not exist
b) inflation does not exist
c) appropriate discount ate to use is known
d) a perfect capital market existsi.e. unlimited funds can
be raised at the market rate of interest.
NPV method
It calculates the present values of expected cash inflows and outflows (i.e the
process of discounting) and finds out whether in total the present value of
cashinflows is greater than the present value of cash out flows.
NPV = ∑ C
(1 + r)
Where C = net cash flow
∑ = Summation of
r = discount rate
79

80. e.g An investment is being considered for which the net flows have been
estainated as follows.
Period cashflow PVF Discounted PV
Yr 0 Yr 1 Yr2 Yr3 Yr4
-9500 +3000 +4700 +4500 +3200
What is the NPV if the discount rate is 20%. Is the project acceptable?
NPV = -9500 + (0,833 x 3000) + (0,094 x 4700)
+ (0,579 x 14800) + (0,482 x 3200)
= $582
Use tables
To verify use calculator I
1 + r
Investment acceptable because it has positive NPV at the firm’s cost of capital.
Interpretation: the NPV means potential increase in consumption made possible
by the project valued in present day terms.
Internal Rate of return (IRR)
Alternative names:
- DCF yield
- Marginal efficiency of capital
- Trial and error method
80

81. - Discounted yield
- Actual rate of return
Definition
- It is the discount rate which gives zero NPV.
- It can be found by either
i) drawing a graph known as a present value profile or
ii) calculations involving lines interpolation.
Present value profile
- Is a graph of the project NPV’s at various discount rates
- Plot two points one at a rate which gives positive NPV and
one at a rate which gives a negative NPV
e.g 20% gives + $ 582 NPV; and a higher rate is tried to see if a negative NPV is
obtained e.g 25% discount rate gives –322 NP
Plot these points and draw a line between them to see where it crosses the
horizontal axis which gives then IRR
81

82. PRESENT VALUE PROFILE
700 -
600 -
+ VE 500 - NPV @ 20% = $ 582
400 -
300 –
200 -
100 - IRR i.e the discount rate which gives
NPV 0 - zero NPV
$ 100 - 5 10 15 20 25 30 35 40
- VE 200 -
300 - NPV @ 25% = $ -322
400 -
500 -
Note
a) at least out discount rate must be chosen which gives
a negative NPV so that the present values line
crosses the horizontal axis.
82

83. b) The present value line crosses the axis at
approximately 23% which is close enough estimate
for most practical purposes.
Finding the IRR by linear interpolation
IRR C
= 20% + 5% 582
904
(a) (b) (d)
Where
a) is a discount rate which gives a positive NPV
i.e 20% = $582
b) Is the difference between (a) and the rate which gives a negative NPV
25% - 20% = 5%
c) Is the positive NPV at discount rate chosen in a) i.e $ 582
d) Is the total range of NPV at rates chosen i.e +582 to –322 = 904
Decision rule using IRR:
Where calculated IRR is greater than company’s cost of capital then project is
acceptable.
NPV and IRR compared:
a) Accept/reject decisions
-where projects can be considered independently of each other and where
the cashflows are conventional, then NPV and IRR give the same
accept/reject decision.
Accept project Reject project
83

84. NPV positive NPV negative NPV
IRR IRR above cost of capital IRR below cost of capital
b) absolute and relative measures
NPV is an absolute measure of the return on a project whereas IRR is a
relative measure relating the size and timing of the cashflows to the initial
investment. Thus, the NPV reflects the scale of a project whereas the IRR
does not.
e.g. Assume a project has the following cashflows:
year 0 year 5
project x -$20 000 + $40 241
NPV @ 10% = $4990
IRR = 15%
Therefore, project is acceptable by both methods-assuming 10% is the cost of
capital.
Now assume that the project is scaled by a factor of 10:
Year 0 year 5
Project 10x = 200 000 +402 410
NPV = 49 900
IRR = 15%
NPV clearly distinguishes between project x and project 10x whereas IRR
remains unchanged at 15%.
c) Mutually Exclusive projects
84

85. This where only one of several alternative projects can be chosen. Projects
are ranked in order of attractiveness and choice is made on the most
profitable. In such circumstances NPV and IRR may give conflicting rankings.
A property company wishes to develop a site it owns. Three sizes of property
are considered and costs and revenues are as follows:
Year 0 year 1 to perpetuity
Expenditure rentals per annum
$million $million
small development 2 0,6
medium development 4 1
large development 6 1,35
The cost of capital is 10 % and it is required to rank the projects by NPV and
IRR and to select the most profitable.
The projects are mutually exclusive because the building of one size of
development excludes the others.
Perpetuity = is a constant stream of cashflows without end e.g. bonds give
cashflow stream (yearly interest)
PV = C + C + C
1 +r ( 1 + r) ( 1 + r)
= C
r
NB ranking is preferred i.e. large development because it leads to the
greatest increase in wealth for the company.
Non-conventional cash-flows (the multiple rate problem)
85

86. Non-conventional cashflows –where cashflows vary; opposite of conventional
cashflows i.e. an initial cashflow followed by a series of inflows.
e.g. year 0 year 2 year 3
project x -2 000 +4 700 -2 750
project y +2 000 - 4 000 +4 000
Project x has 2 outflows and is thus no-conventional.
Project y has an outflow in a year’s time instead of initially and is thus non-
conventional.
When a project has non-conventional cash-flows it may have:
i. One IRR
ii. Multiple IRRs
iii. No IRR
Multiple rates:
Project x =two IRRs at 10% and 25%
Project y =No IRR
NPV Method gives clear, unambiguous results whatever
the cash-flow pattern
Project x has positive NPVs at discount rates between
10% and 25% and negative NPVs at lower and higher
rates. Project y has a positive NPV at any discount rate.
NPV @ 0% = -50
NPV @ 10% = 0
86

87. NPV @ 15% = +10
NPV @ 25% = 0
NPV @ 30% = -14
Annuity:
This is a level of stream of regular payments that lasts for a fixed number of
periods.
PV annuity = C + C + C……..+ C
1+r 1+ r 1+r 1+r
PV annuity = C
Exercises:
1. Mr X has won a lottery paying $50 000 a year for twenty (20) years. He is
to receive his first payment a year from now. If interest rate is 8%. What is
the true value of lottery?
2. A firm can generate net cash flows of $500 000 in the first year and +
$200 000 for each of the next five (5) years . Calculate the Present
Value.
3. A firm is considering a project with a cash outlay of one million Zim.dollars
now and a five (5) yearly cash inflows of $500 000. What is the NPV at
10%?
4. What is the Net Present Value and Internal Rate of Return of the following
series at 10%
Year 0 1 2 3 4
Cash-flows -2 000 +800 +600 +700 +500
87

88. Draw a present value profile of the above. Is the project acceptable at
10% cost of capital?
5. An entrepreneur is considering buying a freezit making machine
Summary of NPV and IRR comparison:
• NPV is technically superior to IRR and is simpler to calculate
• Where cash-flow patterns are non-conventional there may be nil or
several IRRs making the IRR impossible to apply
• NPV is superior for ranking investments in order of attractiveness
• With conventional cash-flow patterns both methods give the same
accept or reject decision
• Where discount rates are expected to differ over the life of the project
such variations can be readily incorporated into NPV calculations but
not in those for the IRR.
• Notwithstanding the technical advantages of NPV over IRR is widely
used in practice so that it is essential that students are aware of its
inherent limitations.
7.1.0. EXECUTING THE PROJECT WORK
PROJECT CONTROL – 3RD
phase of project management cycle
Consists of
1. – monitoring progress o f each project item
2. – assessing its effects on the total project
88

89. 3. – taking the necessary action on the critical items to keep the project on the
planned schedule.
7.1.1 Project control system and system design
Control of a project environment involves three operating modes:
• Measuring - determining progress through formal and informal reports
• Evaluating - determining the cause of deviations from the plan and how to
react
• Correcting - taking actions to correct the situation
System design
Its purpose is to ensure that you and the team always have information to make
an accurate assessment of:
o What has happened and compare this with
o What should have happened according to the plans.
Controlling the project means managing the many problems that arise to
maintain the project schedule.
You do this on a day –to day basis through:
 Monitoring the work – observing and checking what is happening
 Identifying and resolving the problems that arise
 Tracking the project – comparing with the plan and updating the records.
Good control of any process is dependent on accurate data-keep project file up
to date. This involves a regular check and up date of:
89

90.  Project organization chart
 Stakeholder list
 Key stage responsibility chart
 Project brief
 Key stage Gantt charts
 Key stage work plan charts
 Project risk log
Control system must be capable of providing information on:
 Resource required –availability and its effective use
 Equipment and machinery required and used
 Materials used, ordered and required
 Costs incurred to date and forward commitments
 The results achieved – tasks completed
 A valuation of the results- as expected
Monitoring Progress
Monitor:
- The team (talkings to them, holding meetings)
- The stakeholders (hold 1 to 1 meetings)
- Performance (checking activity)
Do this by MBWA, observe and have conversations.
Do this by written reports which provide a historical record
Tools to use: working with WBS
90

91. Use of Gantt chart/bar charts
Project status report
Good monitoring and tracking (measuring) builds team confidence, anticipates
problems and prepares future success.
Taking corrective action:
1. rearrange work loads
2. put more effort into the job
3. put additional resources
4. more milestone date
5. lower scope /quality of results demanded.
Go through problem solving process p158 - 161
Regular progress meetings
 essential part of project control process
 keep your meetings to the point
 focus the team on what must be done next not history
 come up with an action list
 project control is dependant on good communication
7.1.4. Project status report
a project status report is prepared on a regularly scheduled basis(usually
monthly)and reflects programme content in a summary form.
• Status of key project items
• Assessment of key project items
91

92. • Resolution of “troubled” areas
• Difficulties anticipated in the work waiting to be done
Status report documents p50-55 spinner
- many include 3 documents
- cover letter
- executive highlights (listing, in a sentence or two)
- project summary
- bar chart
- project status
- milestone report
7.1.3. Cost Control Measures
Developing cost estimates
- Cost estimates for project activities are provided by experienced
personnel
- Sum total of project costs relate to cost estimates as standards
- Usually cost associated with activities on the network are reliable costs.
A completed bar chart timing schedule is a prerequisite to developing a project
cost schedule. You can use the WBS and Gantt chart as the basis of collecting
data.
Steps to develop a cost schedule
1. complete bar chart time schedule and add the cost value of each activity
to its corresponding bar.
2. calculate the cost per unit
92

93. 3. tabulate cost schedule
7.15. Managing time
Time is the most valuable resource that, if lost or misplaced is gone
forever. There is need to convert this constraint to a manageable resource
Barriers to effective time management.
- encourages good time management for:
 self
 the team
 stakeholders
8.0 People problems and role of project manager
8.1.1 Qualities of a project manager
Role of a project manager is a complex role because of involvement in a
changing environment. It is a temporary management role with specific
responsibilities that are linked only to the project.
Project manager has to balance the demands and needs of :
 Customer
 The project
 The organization
 The project team
Primary Responsibilities of a project manager include:
 Selecting the core team with project sponsor
 Identifying and managing project stakeholders
 Defining the project and securing stakeholder approval
 Identifying and managing the risks
93

94.  Allocating and securing resource commitments
 Monitoring and tracking project progress
 Solving the problems that interfere with progress
 Controlling costs
 Leading the project team
 Informing stakeholders of progress status
 Delivering the project deliverables and benefits
 Managing the performance of everyone involved with the project
8.1.2. Managing project stakeholders
Stakeholders are the people who have a specific and clearly definable interest in
the project. They have influence in the management of the project as they
provide some resources e.g. line managers.
Other stakeholders include: (internal/external stakeholders)
- Your customers
- Your project sponsor
- Customer’s user group
- Finance department
- Production
- Marketing
- Personnel e.t.c
They need to be consulted and managed all stakeholders have a hidden agenda
about what they expect from your project and you need to expose these
expectations before you define the project.
94

95. External stakeholders also have an interest in the project
 Suppliers
 Contractors
 Consultants
 Government or agencies etc
8.1.3 Projects and conflicts
Hopes, desire and needs of people across the organization as well as outside
players are often in compatible with each other resulting in conflict where
change takes place, conflict is inevitable.
Most common types of conflict:
- resources
- equipment and facilities
- budgets and costs
- technical opinions
- priorities
- procedures
- responsibilities
- personality clashes
Some common causes for conflict
1 diverse expertise in project team
2 low level of authority given to project leader
3 lack of understanding of project objectives by project team
95

96. 4 unclear or shared responsibilities
5 unclear schedules and performance targets for team members
6 local interference from high level involvement
7 people do not like each other or do not get on together in their worst
Conflict is good if it:-
- brings problems and issues out into the open for discussion
- brings the team together, screening loyalty
- promotes creativity, generating new ideas and work practices
- focuses people to give their work more detailed analysis
Good conflict generates win-win relationship between individuals, promoting
sharing of information and improved motivation.
Bad conflict
- creates stress, stiring up negative feelings
- makes the working environment less pleasant
- surely reduces effectiveness of communication processes
- interferes with coordination of effort between groups and individuals
- encourages an automatic approval to working
Bad comfort generates a win-lose relationship between individuals.
A team without conflict could be perceived as complaint and lethargic with little
creativity.
Projects and teamwork:
96

97. Successful teams do not just happen, they have to be built through effective
leadership and commitment.
 Select your core team carefully
 You want creative, enthusiastic people with a strong sense of
responsibility and commitment
 A successful team consists of a carefully designed mixture of right skills
and personalities who can work together without dissension and conflict.
Take positive actions to build the team
 Regularly review the performance
 Test team working
 Encourage participation
9.0 USE OF COMPUTERS IN PROJECT
What can software do?
Most software programmes are in project work designed around some
fundamental features that include:
 Tabulating a list of tasks at different levels of the WBS
 Inputting duration data
 Calculating critical path and float date
 Deriving the Gantt chart
 Deriving the logic diagram or Pert chart
 On putting a list of resources
 Assignment of resources by responsibility or capacity
 Inputting of cost data as resources cost rates and materials costs
 Deriving a budget and cost curves
97

98.  Scheduling the project based on input data
 “what if” analysis of issues using a Gantt chart
 reassignment of resources
 identifying and correcting resource overloads
 outputting a wide range of reports
Software programmes can be used for:
Graphics part - produces Gantt char t,logie diagram or Pert chart
And graphics used for reporting
Spread sheet part – is used for the forms, table, reports
Database part - stores and manipulates the data provided for
Calculations using the spread sheet section to
Insert results into the tables, charts, diagrams
Viewed on the screen.
Selecting project software:
Selection should not be based on price alone but includes are view of :
 past track record of performance
 ease of use
 compatibility with other software in use
 stand alone or networked and availability
 platforms available
 features for planning and scheduling
 features for control and updating
98

99.  quality and eases of reporting
 networking features-passwords , access restrictions etc
 training available
 helpline and back up available
Using a software programme
Steps:
 open a new project file
 insert project title, start date and project manager’s name
 set up the master calendar giving public and organizational holidays
 if possible design the specific formats for the tables you require
 input the project organization – the core team on a resource listing
 set up resource calendars – one for yourself and each team members to
show their available capacity for the project, including holidays
 input the list of key stages to a blank Gantt chart
 assign responsibilities for the key stages –select by responsibility
 input the durations for each key stage
 input dependencies between the key stages
 programme calculates the critical path, the key stage start and finish times
and floats
 Gantt chart produced, highlighting critical stages
 Pert diagram produced
 Table generated showing early and late start and finish times with total
float
 Total project time is now available
99

100.  Input cost data as resource lost rates and materials costs for key stages
 Operating budget cumulative curve calculated
Use “update mode” during implementation.
10.0 CLOSING, EVALUATING AND APPRAISING PROJECTS
Closure of projects does not happen, it must be planned with care.
The date may relate to when a decision is to be made concerning outside
financing, when announcement of a project to the press is planned, when
a thorough project review is scheduled on whatever.
Milestone scheduling indicates seluted dates by which various phases of
the entire project to be completed.
• Milestones add detail to Gantt chart
• Milestones serve as formal review points where costs, progress and
the need for replanning on schedule modification can be reviewed.
Gantt chart shows the relationship between milestones within the same task
but not within different tasks. Establish with customer and user group the
criteria they want to use to confirm completion. These must be measured
by agreed methods to avoid conflict
a) Acceptance process (handover) must be based on a checklist agreed with
customer and user group. Acceptance process should identify customer
representative with authority to assign the project completion report.
100

101. b) Hold a team meeting to review all tasks and present completion report for
approval and sign – off
c) Evaluate your project to learn what went well and what went wrong.
PITFALLS IN PROJECT MANAGEMENT
Possible flaws relate to the following:
• Foundations of the project [PITFALLS IN TOR]
a) Insufficient support for the project from the company or its
executives.
- project plans not aligned with business plans: project must fit
into the overall plans for the company to avoid conflict
between the direction in which the company’s management
wants business to develop and the way in which project work
contributes to that development.
- Half hearted support chokes project through lack of
necessary resources and decisions
b) Undefined principles and policies of project work in terms of
corporate and line management’s responsibility for the project;
whose responsibility it is for committing resources; what the policies
are for making resources available; what the tools and methods are
to be used for management of the project and how coordination
and cooperation are to be achieved?
101

102. c) Poor project definition
- Goals for project are imprecise affecting adversely 4 phases
to problem solving ie
• Decision making
• Decision taking
• Implementation
• Monitoring
- Undefined limits of scope (use milestone plan and a clear
responsibility chart.
- Unbalanced levels of ambition.
- Project manager has to balance technical aspects, the right
people and system (physical products) using a milestone
plan (PSO project mind set)
(ii) Planning of Project
• planning level is uniform: plan contains too much detail for
some users and too little for others: use milestone plan at
management level and activity plan at task level.
• Planning tools are too unwieldy
• Planning range is psychologically unsound
102

103. • Planning method discourages creativity and encourages
bureaucratic – democratic process, free of jargon, tools and
methods.
• Planning of time and cost are over optimistic
• Unrealistic, arbitrary plans.
• Insufficient previous experience against which to judge the
work content.
• Planning of resources overestimates their competence and
capacity.
• Project calendar ignores lost time.
• Plan omits activities: activity planning
(iii) PITFALLS IN ORGANISING
Alternative orgamisations for the project are not considered.
- Distribution of responsibility is not defined
- Principles of cooperation are unclear
- Key resources are not committed
- Communication is poor
- Project manager is a technocrat, rather than a manager
(iv) PITFALLS IN CONTROLLING
103

104. - purposes of control is not understood (difference between
monitoring and controlling)
- plan and progress reports are not integrated
- no well defined formalized communication between project
managers and project members
- project manager has responsibility but no formal authority
(v) PITFALLS IN EXECUTION OF PROJECT WORK
(PROFESSIONAL COMPETENCE OF PROJECT
MANAGER)
- complexity of coordinating a variety of resources is under
estimated
- changes to the plan or specification are uncontrolled
- activities are not completed and documented before others
begin
- the targets of time , cost and quality are unbalanced
104

105. DISCUSSION:
Review a project that has failed. Examine the reasons for its failure. At what
stage in the life cycle did this occur? What lessons can future project
managers learn?
105