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Financial information is more often than not presented on a set of financial statements. We will discuss three of those statements that are of most use to the project manager. The statements are The neat thing about these statements is that they actually all play together, something engineers and project professionals would call system integration, but accountants would call balance or reconciliation. Even though one statement may measure flow and another may measure a value at a point in time, over the life of the project an entry on any one of these statements has a corresponding response on another statement. Collectively, and with their risk-adjusted partners, net present value and economic value add, the project financial statements provide a rich source of information about the performance of projects. The chart of accounts was discussed in the chapter on the work breakdown structure (WBS). The chart of accounts is the controller's WBS of the business. The WBS of the project is...
The goal of all projects in all organizations must relate to the company goal. For a profit-making company, this goal is to make money now and in the future. As noted in Chapter 1, for projects that do not have a specific date deadline, performing a project to meet the customer's needs for the budgeted cost on or before the committed delivery date will support that goal. For projects with a firm date (Olympic-stadium-type projects), meeting the date is the goal. Project measures must provide information so that people can make local decisions that favorably impact the global project goal.
Every system must have a defined aim or goal. That is the purpose of the system and defines the boundary of the system. The systems itself is a network of interdependent components that work together to try to accomplish the aim of the system. Profit-making business systems have a goal to make money, now and in the future. That is why people invest in profit-making businesses. Nonprofit businesses (those intended to be that way, anyhow) have different goals, for example, creating health, for a health care institution, or creating family well-being, for some social institutions. Projects have the goal described above to deliver the customer-specified, unique product or service on time and within budget. The client for that goal can relate the project result to the broader goal of the institution.
Software it gave them much-more-detailed information about where things were in their factories. He noticed after a while, however, that they were not making any more money using his software. He thought about this and realized that he had to derive the basic principle from a focus on the goal of a for-profit company (i.e., to make money now and in the future). The goal corresponds to what Deming means by the aim of a system. The computer systems that Goldratt was selling before he invented the TOC, as well as all other factory control systems, failed to account for the impact of the system constraint combined with statistical fluctuations and workstation dependency. Since the actual fluctuations are statistical, they are unpredictable. You can only predict the general behavior over a period of time for many items that flow through the system. Therefore, the schedules produced by the computer systems were out of date and incorrect as soon as they were produced. No wonder the scheduled...
Projects are aligned and integrated with company strategy and financial goals. Projects that are not aligned with where the company or agency is going are destined to fail. Integration with the home competency and culture is key to success. Tools used to assure such integration include a weighted scoring model, portfolio process, and top management interface.
Let us take an example of PBSC from Boeing Company, using the case of the Boeing 777 airplane development program. Figure 7 shows the strategic map of PBSC of Boeing Company. There are two large-scale strategic programs for achieving specific financial goals yet to be described. Operational projects for achieving these programs are also not explained.
This conceptual model recognizes that an organization typically has both financial and non-financial goals. The internal rate of return recognizes the financial goals. The impact portion recognizes the non-financial goals. However, it can also recognize that a project with a lower rate of return may have a bigger impact on company goals just because of the magnitude of the project.
Adding to the knowledge in the first and second stages, Project Management should involve structuring for financial independence and contract schemes using risk management, and successfully introduce Project Finance from financial institutions (Ohara, 2005 Yescomb, 2002). Since Project Finance is the most effective type of funding, the knowledge of Project Management for Project Finance contributes to better relationships among concerned stakeholders. However, as this level of knowledge of Project Management appears to be difficult for Project Managers to master, extensive and thorough educational programs in Project Finance are required.
(PFI) in Japan, effected in 1999, promotes the use of private business methods including funding in infrastructure. Such projects usually request the use of Project Finance. Additionally, bidders who want to invest in a PFI project should create proposals that verify the feasibility and the financial independence of the project. In these cases, Project Finance means independent and more effective funding that does not use the Sponsor's assets and credibility. If Project Finance is available for projects, Project Management should secure the most effective type of funding.
The knowledge of Project Management required for investment projects, business proposals for plant export and ODA loan projects further develops the knowledge of the QCD base. The Feasibility Study analyzes the project in terms of technical and financial points, including funding. While technical points may differ with respect to the business contents of a project, the financial points of a Feasibility Study are fortunately standardized to a certain level. The main financial items covered in a Feasibility Study are an analysis of investment amounts and construction and operation plans, as well as the reporting of financial statements during the construction and operation period. It also includes an evaluation of the results of financial statements, business accomplishments, return on investment and risk management using an extensive analysis, such as a Sensitivity Analysis.
Keeping one of the highest RD ratios in the world honoring the IPR seriously producing environmentfriendly products and
It is difficult to know how much each factor has contributed to the increase of profits. Many factors are interrelated, and there is no detailed breakdown showing contributions to profits in the financial statements of the firms (the same with those of the rest of the world). But it is clear that the improvement in efficiency has been done not by an increased number of human resources, but in most cases by a reduced number, and that the revision of wage salary calculation scheme has given not a small influence on the profit expansion, at least during the initial stage of recovery.10
To begin with, you must determine whether the consequences can be tolerated should a particular risk be realized. This will depend on the project. For example, is a possible one million dollar over run in costs in the overall project acceptable Most people would say no, and in a project that is projected to cost two million dollars this is certainly not acceptable. But, what if you are doing a major Enterprise project that is estimated to cost two hundred million dollars A one million dollar overrun could be acceptable in this situation.
The responses to identified risks must be in balance with the risks themselves. The cost and time invested in a risk must be met with the gains from reducing the risk's impact and probability. In other words, a million-dollar solution for a hundred-dollar problem is unacceptable. The individuals who are assigned to the risk must have the authority to react to the project risk as planned. In most cases, several risk responses may be viable for the risk the best choice for the identified risk must be documented, agreed upon, and then followed through should the risk come to fruition.
A brief synopsis of the case follows. In this case, a CIO, Sullivan, has fulfilled to the letter the role of CIO that Bennet CEO and president had described. In particular, for our analysis, Sullivan was charged with developing an information system called Lifexpress that was supposed to provide the company's insurance agents with a competitive advantage. The system took three years to develop and is being rolled out at the time of the case. Unfortunately, the company's competitors have launched similar systems. Moreover, these competitor systems seem to be better than Lifexpress. Thus, the multi-million dollar system will not have the hoped-for impact, which is a great concern to the company's executives. To Sullivan's distress, her boss was clearly trying to hold her accountable for more than the creation and implementation of the system he was putting her on the hook for the results of the system, too. The case further notes She had delivered the system on time and on budget, and...
This proposal addresses enterprise support needed to improve the Return on Investment (ROI) in the projects activated to achieve the organization's goals. This is a multi-million dollar opportunity for your organization. Getting the right projects completed far more quickly is key to meeting executive and stakeholder goals. This capability will be accomplished by deploying a PMO with the following key objectives
By focusing the process design on customer needs and value-adding activities, the spare parts packaging operation was moved from the warehouse to the plants. Packaging material cost savings alone were cut by half-a-million dollars per year. The change also contributed to major improvements in on-time-delivery, which have jumped from less than 80 to over 95 in about three years.
The TOC suggests that considerations of increased cost should compare the additional operating expense to the impact on project throughput. The throughput of project acceleration (per day) is the value of the whole project (per day). Compare the cost of increased raw material cost to the throughput increase from the acceleration. If the throughput increase exceeds the cost increase, you should elevate the constraint. The throughput increase usually greatly exceeds the cost. In two projects I recently worked with, one day's acceleration could mean 10 million and 18 million dollars, respectively. Any payment made to accelerate was immediately worthwhile.
You and your project may be judged to some extent by how professional your printed information looks. Even if your project is a million dollars over budget and four months behind, making your reports or other printouts look good can make delivering bad news easier.
Assuming that you found two companies that could do the work with equal quality to your satisfaction, one very important factor would be how long it takes each company to do the work. Suppose that most companies require three months, but that you found a company that could do the same quality work in two weeks. The value to you is that instead of being out of pocket for 90 days, you can charter your aircraft for another 75 days, giving you tens of thousands of dollars per day in charter revenue. Would you be willing to pay an extra 50,000 in modification fees, to be able to earn over a million dollars in additional charter fees
While this idea may seem radical, it is just good common sense. You only need to look at any corporation that teaches a project management discipline to all of the team members to see how successful this method is. I know of one major consulting firm that went from doing no development work to over ten million dollars' worth of development work in a little over one year, and from a staff of four to forty in that time. This company has not had a single project failure and has been successful with numerous large, complex projects. What was the key to their success Every new employee received extensive training in the methods of project management that the company used, even the new programmers.
A medium-sized project is estimated to require 14 months of effort, a total staffing level (from all areas, IT, and business sections) of 18 people, and a total budget of 3 1 2 million dollars. In addition, as a reasonable precaution, this project carries a contingency fund of ten percent, or 300,000. b. Total project expense cannot, if the incentive rules are to be met, exceed the estimate of 3 1 2 million dollars.
The SSC had experienced an intense funding battle with Congress during the 1993 fiscal year funding process. All of the warning signs existed that indicated another major funding battle would occur during the 1994 fiscal year funding process. In February 1993, GAO released a report stating that the SSC was millions of dollars over budget and construction was far behind schedule. This bad publicity be it right or wrong was released by the Associated Press for nationwide publication and independently reported by reputable newspapers such as The Wall Street Journal (11,12). Many members of Congress already felt that the SSC was a boondoggle an expensive boondoggle and such adverse publicity was obviously detrimental to the project. In retrospect, the report accusations were probably incorrect.
The news is replete with examples of IS projects having disastrous results. The state of Washington stopped developing a system that would process driver's licenses and vehicle registration the project was several years behind schedule and millions of dollars over budget. California had even more disastrous results while developing a large PC-based network the project was millions of dollars over budget and lasted over twelve years. And as with Washington, California had a Department of Motor Vehicles project that blew its schedule and exceeded its budget. Then there is the Oregon Driver and Motor Vehicle Services project, which has exceeded twice its original cost estimate.
Constrained by finite budgets, staff, and other resources, companies are continually faced with the issue of deciding where to invest money and effort to deliver the most value to the business. With millions of dollars in project investments at companies each year, it makes sense to treat these significant investment decisions in a manner similar to how a fund manager determines a portfolio of stocks.
Employ good project management techniques. One of the biggest problems with this project was that the project manager did not listen to the highly skilled project team members. The team members warned of problems and setbacks, but the project manager didn't want to hear about it. The project manager took their reports to be of the Chicken Little ilk and refused to believe the sky was falling. Unfortunately, the sky was falling Because the project manager didn't believe the reports, she refused to report the true status of the project to the stakeholders and oversight committees. Millions of dollars were wasted on a project that was doomed for failure while the project manager continued to report that the project was on time and activities were completed when in fact they were not. There are hundreds of project stories like this, and I'll bet you've got one or two from your experiences as well. Don't let your project become the next bad example. Above all, be honest in your reporting....
However, getting to the point of introducing a product or solution requires strategic assessment and planning, which must be done before anything can even commence. The senior executive team within the organization needs to come up with a strategic plan (or game plan, to use a sports metaphor) before any engagement takes place. Without a strategic plan in place, executives can literally move from one solution offering to the next, spending millions of dollars in the process, with the result being that many projects head south. The point, after all, is to make sure the organization is more valuable, has a business strategy in place, and is ready to start with this game plan.
The gains in development productivity over the last two decades or so are quite impressive. On average, most companies reduced their time to market by 40 to 60 percent across all new products. In some industries, such as pharmaceuticals, development cycles were reduced by less than that, but were still reduced by two to three years. Consider, however, that two or three years, in the context of a blockbuster drug's period of exclusivity, can easily translate to hundreds of millions of dollars in additional earnings before the patent expires. Across all industries, this improvement was so significant that a flood of new products were introduced in the mid-1990s. Some believe that this outpouring of innovation was a contributing factor to the bubble economy of the late 1990s, and that the bubble eventually burst because, at least in part, the market could not absorb all the new products.
Initial IT portfolio inventories often reveal copious and expensive redundancies, such as an insurance company with eleven billing systems, a manufacturer with four accounts payable AP systems, and a financial services provider with seven customer portals. Portfolio management projects often stop at this point, however, as the new visibility of these redundancies triggers a system or asset rationalization program that can be expected to save millions of dollars all by itself.
Since projects are by definition one-of-a-kind and first-of-a-kind, we often lack statistical information to quantify uncertainty in estimates or task performance. Consider what we do know about uncertainty. Ask someone to give you an estimate on a new house. He or she might start by saying something like, What are your specifications Permanent houses in the United States today can range in price from 80,000 to millions of dollars. The most important question on a house is, where is it Second most important is, how big is it Even with those specifications fixed, prices per square foot can range over a factor of two, depending on the type of construction, interior finishing, and so on. Then, of course, the price can vary by at least 10 for houses with identical specifications, location, and condition, depending on how much the seller has invested, how good a negotiator the buyer is, the general market in the area, the seller's motivation, and other factors.
Controlling the requirements may be the most important aspect of achieving success on a project and ensuring the full usability of the developed system. Control does not mean that there are never any changes to the original baselined requirements. It does mean that all of the stakeholders in the project are informed of and involved in a requirements control process that eliminates the single greatest threat to any system development project requirements creeping.
A project office can relieve a project or development manager of the details that can be obstacles to achieving success. It provides centralized management and coordination of multiple projects and resources, as well as establishes a project management culture. Further, a project office can serve as a center of excellence to provide quick and organized access to years of project best practices. Support is the most complex part of the rollout process. The project office must be able to keep track of the complete project portfolio. This includes the selection and prioritization of new projects coming into the organization, as well as cancellation of those that are not meeting the metrics set by the company executives. When a project is in trouble, executives do not want to hear about it only at the last moment. The project office's responsibility is, therefore, to provide a balance or checkpoint for all projects. Additionally, the management of the methodology pipeline is just one...
Quantitative evaluations show that as many as 30 of projects are canceled before completion, wasting all the time, money, and effort spent on them. Surviving projects often fail to deliver the full initial project scope, or they deliver late and or overrun the budget. Project delays and overruns frequently run to hundreds of percentage points. These failures consume billions of dollars per year. They occur in all cultures and for all kinds of projects. Attempts to improve project performance create personal and organizational pain and paperwork, with little positive, or even with negative, impact on project performance. The field of project management has not kept pace with improvements in other areas of human endeavor, such as technology and manufacturing. This book seeks to put you and your organization on a path to radically improve project success.
Globally, companies invest billions of dollars annually on IT solutions. In addition, many organizations offer visionary solutions that all call for knowledgeable project managers to plan, execute, control, and end projects ahead of any competition. Sadly, many of these projects come in behind schedule and over budget, and fail. Part of this book focuses on those projects in turmoil and offers ways to get the greater majority of these projects back on schedule, both within budget and within specification. Many projects are canceled before they are ever completed and many exceed their original estimates. The financial costs of these failures and overruns are just the tip of the iceberg. This chapter identifies causes of and offers ways to resolve many of these issues.
Once you have a list of opportunities that could be addressed, you then need to work out which is the most important. You might want to start by identifying what benefit would be generated if the process was fixed, the gap was filled, or the new service was created. Would it reduce the amount of work for someone Make the company more money Bring in new customers Reduce risk in some way
The owner, who realised that such ambitious architectural objectives would require not only functional concessions but also more money, made a budget of 18.18 million available, some sixty percent more then what would be required for a standard office building. A standard office building for the spatial requirements as listed in Table 8.2 would have cost about 11.60 million.
In addition to interim plans and baselines, task notes should include information about resource performance on a task, vendor problems, or late deliveries. Notes that are especially important to add are those you make when someone in authority over you has asked for a change and okayed more money or time to make that change. (Don't worry, this hardly ever happens.)
If management does not adhere to a priority list, the multiproject system will not work. It is a simple choice, really. Behave to double throughput, or do not. Once they see the results, many management teams are able to do much better at this than many thought. After all, when the system makes more money, people's jobs are protected, and often they make more money too.
MetaEco was in a tight spot it had been spending more money than it took in, and its product was complex and expensive. MetaEco's primary costs were new product development and development of customized solutions based on the core product. Every prospect required a customization of the product to its needs before moving forward. Making this initial investment was costly for MetaEco, and not enough prospects were becoming paying customers to make up for that cost.
Deliver fewer functions, and ask for more money It is always a mistake to try to deliver more functions by skimping on things like testing and documentation. This will invariably result in higher maintenance costs, and the life-cycle cost will far exceed the budget. Some things are scaleable (within limits), like the provision of user documentation, but as a general rule if the budget appears insufficient the only sensible option is to challenge the requirements and try to simplify or reduce them, or deliver in separately funded phases. Get the users to prioritise the functions, and then to sign off a plan which follows these priorities.
There are two primary causes of cost overruns. The obvious one is that more money is spent for the defined work than was budgeted. The second cause is that work is added to the project without additional funding to cover the cost of the additional work. In any discussion of cost contingency, we must address the common incidence of scope creep, which we do below.
Interestingly, some tasks in a project plan can suffer a schedule overrun and yet not have a financial impact on the project' s budget. If you ' ve been steadily working along and most of the project' s tasks to date have come in well under budget, there ' s probably a budgetary cushion. But perhaps there' s one task that ran into a problem and will require not only a little more time but also a little more money. No problem You' ve got the budget cushion there to take care of the financial shortfall, but what about the schedule implications
Great project plans often fall by the wayside when well-intentioned people try on their own to achieve the best possible results. They may spend more hours than the plan allowed, hoping the additional work can produce better results. They may ask people who weren't in the original plan to work on the project, hoping these people's expertise can improve the quality of the project results. Or they may spend more money for an item than the budget allowed, believing the new choice to be of higher quality.
Inflation reflects the buying power of money. Suppose you buy a unit of a certain commodity, e.g., a pound of sugar for X, today and at some future time its price changes to Y. If Y X then the buying power of your money has been reduced, that is, you have to pay more money to buy the same commodity. Put differently, one dollar buys less of that special commodity, e.g., sugar, as time passes. For any period,
The operation of interest reflects the fact that money has a time value. This is why amounts of interest depend on lengths of time interest rates, for example, are typically given in terms of a percentage per year. This principle of the time value of money can be formally defined as follows the economic value of a sum depends on when it is received. Because money has earning power over time (it can be put to work, earning more money for its owner), a dollar received today has a greater value than a dollar received at some future time.
Greed, or at least the normal desire for more money, is the most common workplace motivator. It is, after all, the basis for salary increases, sales commissions, and annual bonuses. People do tend to perform in ways that they hope will get them more money. However, these greed-related motivation systems have one big disadvantage the reward must be coupled to the desired performance. This requires a measurement and evaluation system that permits management to calculate the appropriate reward for any given level of performance. The problem with reward-based motivation systems is that few human activities are straightforward enough for simple evaluation measures.1 Even piecework systems that base the pay on the number of products produced usually motivate counterproductive behavior. For example, in a typical manufacturing plant with a piecework pay system, people often produce exactly the standard quota every day no more and no less. Anyone who produces more, in a desire for more money...
A top-down budget is one in which a fixed pot of money has been given to you for a project and you are expected to dole it out as you see fit. Usually this kind of doling out represents the fact that the company needs to make a particular profit on the implementation of the system and that any more money spent would represent diminished profit opportunity.
Obviously time, cost and scope are completely interlinked. If we start running behind the schedule, there are many ways to get back on track, but most of them involve spending more money than planned, or cutting back on the project scope. We can add resources or ask people to work overtime, but either of these would cost money. We could outsource some of the work, again at a cost. If we start to go over budget, we could drop some of the deliverables, which impacts the scope. If we increase the scope to meet some new customer requests, this will probably increase both the time and the budget. Therefore it is always advisable for the project manager to insist that not all of these three factors be set in the initial project stages. on the amount that can be spent. But, if a crunch does hit, often more money can be found if it is really necessary in order to meet the date. In a research project, the budget might be limited by the level of corporate profit, or the size of a grant, and...
Although design of experiments is most often associated with product design, it can be applied to project management activities. For example, a project manager may evaluate the activities within a project and determine the time and cost of activities, depending on which employees are assigned to complete the work. A more experienced worker may cost the project more money on an hourly basis, but this individual is expected to complete the work in a third of the time that a less experienced worker would. This is design of experiments experimenting with different variables to find the best solution at the best cost.
The term 'claims' is loosely used and has several meanings, which can cause confusion unless the context within which the word is used makes the meaning clear. In ordinary parlance the word is used to mean 'claims for more money by a contractor which may or may not be payable', that is, for matters other than those for which payment is specified in the contract. However, most contracts formally recognize and define some types of 'claim' a contractor can submit.
If you're overbudget and running out of time, you're more likely to get more time than you are to get more money. However, being in a position where you have to ask for either isn't very much fun. From your stakeholders' point of view, if you missed your target end date (no matter what the reason), it's your fault. When you ask for more time to complete the project, here are some things you should explain when you present your case
Transactions with firms to high dividends and (c) it fitted with the traditional sense of value of the common, local people, or of the vertically rooted society. One is promoted slowly but steadily over time through competition and cooperation, and one's basic salary wage rises basically in accordance to the gradual promotion, which matches one's lifestyle, namely, one that is married, with children and owns a house requires more money in aging. It is interesting that many people have regarded it as the most successful socialistic system in the world or a one-country capitalism .
Since a significant percentage (over 50 by most studies) of the overall cost of any product or service occurs after the product development, operations concerns have a very major impact on the corporation providing the product or service, and also on the customers. From the project management point of view there will be many decision points in the product design and implementation at which there will be a 'right' decision from the perspective of the cost of completing the project. This 'right' decision is often not a good direction for the long term the product operating cost may turn out to be much higher than it could have been if the project had taken a direction that cost more money during the project implementation phase. In most cases an operations perspective is needed to identify this pitfall, and to work with the project team to make the best overall decision.
The basic BSC proposed by Kaplan and Norton is an extension of performance evaluation measures into today's business environment. Their BSC is developed to support the management cycle and as a strategic communication tool for supporting strategy. However, according to this theory, there is no clear relationship between the breakdown from strategic plans with the performance measures from the operational control process in the financial planning phase. Although multiple performance evaluation measures are emphasized in the plan and policy of top management under BSC, the linkage between strategic plans and operational plans depends on the same structure of Hoshin Management. Also, in the financial terms of the planning phase, they also use traditional budgeting. a degree of the use and accumulation of technologies as specific objectives. These goals or objectives are ultimately connected to cash flow goals or financial goals.
Others are opting for early retirement at age fifty-five rather than continue to face the pressures of a demanding job. They may have successfully moved in their career to a point of having responsibility for large projects involving millions of dollars and interfacing with all kinds of people. However, by then they might prefer not to take on another vast project. They often reach a plateau or develop a neurotic suspicion that every subordinate is competing for their job. In project management, peers may become subordinates. Responsibility increases threefold. Project managers may be caught in a vise of conflicting demands demands from above to get more done with fewer people, and demands to work harder and longer to meet time constraints.
Contract complexity should be consistent with project risk Both the procurement process and the level of contract detail should be consistent with project risk. The same due diligence process that is needed for multi-million dollar project should not be used for a 50,000 project.
During development unforeseen problems usually arise. It is the responsibility of the team member who represents his group to keep the team apprised of a problem. The Project Manager should keep an eye on any problems. Problems can usually be associated with a feature. The first thing the Project Manager should do is determine if the problematic feature is a pregnant process. Pregnant processes are more difficult to manage since it's harder to put more people or more money on the problem to fix it. The Project Manager should meet with the manager responsible for the area with the problem. This should be done as soon as a problem has been identified. Keep the meeting light and informative. The goal of the meeting is to understand the scope of the problem and to create contingency plans. There are many things that can be done if a problem is identified in the opening stages. The longer you wait, the fewer choices you will have and the harder the choices will be. Many problems that are...
The knowledge of Project Management required for projects funded by Project Finance adds to the knowledge of the first and second stages to verify the possibility of financial independence of projects, which is maintained by structuring contracts among stakeholders and by risk management. JBIC performs due diligence for projects to secure a stable cash flow from projects. In such cases, Project Management should be required for due diligence only. Because Project Finance depends only on cash flow from the project, the financial institution must conduct a thorough and detailed study of the project and confirm stable repayment of the loan.
This climate of ever-faster change has created new challenges and new opportunities. All firms are challenged to keep up with the pace or risk being left behind. The opportunities for the quick and agile are exemplified by technology companies that started from scratch and made their founders billionaires within a decade or less. However, the opportunities are not limited to wireless telecommunications, computer networking, or software businesses. Starbucks, the Seattle-based coffee retailer, has grown from a few friendly shops in Seattle to a worldwide chain in less than ten years.
For Deer Meadow, the Connecticut Housing Finance Authority provided the first mortgage, the Department of Housing provided the second mortgage, and the development received nearly one million dollars in federal low income housing tax credits. But as we all know, housing does not get developed without the commitment of the local government, the developer, and so many dedicated parties.
The approach that we have seen some project managers take is to demand detailed, cast in concrete requirements of the end user or customer. The penalty, if requirements change, is that the project manager can either refuse to do the change, or will force the change through some change control board, demanding more time or more money to accomplish the change.
This method is fine in theory, but there are some problems. The NPV method assumes that financial projections are accurate for development projects (they usually are not) it assumes that only financial goals are important, for example, that strategic considerations are irrelevant it ignores probabilities of success and risk (except by using risk-adjusted discount rates) and it fails to deal with constrained resources, that is, the desire to maximize the value for a limited resource commitment, or getting the most bang for the limited buck. A final objection is more subtle the fact that NPV assumes an all-or-nothing investment decision, whereas in new product projects, the decision process is an incremental one, more like buying a series of options on a project.13 Note All figures are in millions of dollars Note All figures are in millions of dollars
Sometimes you are faced with a project that could cost a small fortune from hundreds of thousands of dollars to a few million dollars. As project manager, you are charged with delivering the project within cost, specification, and schedule. This is often the opening line for many project managers today. Without an effective project framework in place, it will not matter what you do projects will undoubtedly be more complicated and troublesome. In this chapter, I provide a few project methodologies or frameworks used today across industry, as well as the components that make up these project methodologies. Sometimes, one methodology framework is not the most appropriate to use you may need to adapt to some other methodology.
The fundamental purpose of MRP II is to establish a process that links projected demand plans to supply plans in order to anticipate demand and to plan and schedule resources in a manner that supports a company's strategic and financial goals. In ERP architecture, the MPS is the primary tool available for production planning. Linking the MPS in a Lean Production smoothing process to the flow of customer demand data, including both orders and forecasts, will allow greater visibility and flexibility. These agreements can be utilized to drive the planning or longer lead-time buckets of the model. As newer forecasts and eventual actual
The P&L expense statement is one of the three most important financial statements that the controller will provide to the project manager. The other two financial statements that are useful to project managers, as were discussed in Chapter 5, are the cash flow statement and the balance sheet. The project manager has little to say about the expense categories on the P&L the controller usually defines the expense categories when the chart of accounts is put together. On the other hand, the project manager has nearly full freedom to create the work breakdown structure (WBS) and define the expense categories on the WBS. fl
Done to significantly reduce the high percentage of failed projects without spending any more money. That's right without spending any more money. APF does not require any special tools or software or consultant expertise to be implemented. For the traditionalist, APF should be intuitive. Everything you need is in this book. In fact, we hypothesize that the APF approach that is introduced here is actually less costly than the traditional processes now in place in every organization.
In reviewing and monitoring the feasibility of the projects concerned, it is natural that the success of Project Management is a matter of keen interest for stakeholders, including financial institutions such as the JBIC. In accordance with changes in finance types indicative of the diversification of overseas projects in Japanese economic development, i.e., from export finance to economic cooperation finance, the role of Project Management should also be updated. In addition, the required knowledge of Project Management should be expanded from the basic concepts of Quality, Cost and Delivery (QCD) to include evaluation of financial results and project investment, as well as designing project schemes for maintaining financial independence, creating project value, and risk management.
Worldwide, firms are turning to project management as part of business practice. This is evident in the exponential increase of membership in project management associations, such as the Project Management Institute, as well as in the billions of dollars being invested in projects. Prior chapters of this book have examined project management in the context of the PMBOK Guide knowledge areas. Although tangible resources enable a company to execute its business processes, it is the intangible ones such as project management expertise that are more likely to be sources of competitive advantage.5 However, at present, the project management literature emphasizes tangible and codified practices. In the 1970s and 1980s, the literature focused on various tools and techniques (software, work breakdown structures, Program Evaluation and Review Techniques, design-to-cost, lifecycle costing, risk management, cost and schedule control, and control systems). A review of
There are many reasons for terminating outsourcing contracts. One reason may be that the contract period is finished (though if the arrangement has worked well, a renewal would be the logical outcome). It may be that the client or the vendor has become dissatisfied for one reason or another and wants out. A good reason is that another vendor, possibly with some advanced technology, has offered terms that could save more money and provide specialized benefits. Or possibly, the client's needs have changed in terms of product or territory, or an acquisition or merger was made that has caused the vendor's services to be unsuitable.
Risks exist on all projects, and risk planning is an important part of the project Planning processes. Just the act of identifying risks and planning responses can decrease their impact if they occur. Don't take the What I don't know won't hurt me approach to risk planning. This is definitely a case where not knowing something can be devastating. Risks that are easily identified and have planned responses aren't likely to kill projects or your career. Risks that you should have known about but ignored could end up costing the organization thousands or millions of dollars, causing schedule delays, causing loss of competitive advantage, or ultimately killing the project. There could be a personal cost as well, because cost and schedule overruns due to poor planning on your part are not easily explained.
Boundarylessness is one of Jack Welch's mantras for business success. Years before launching Six Sigma, GE's chairman was working to break down barriers and improve teamwork, up, down, and across organizational lines. The opportunities available through improved collaboration within companies and with their vendors and customers are huge. Billions of dollars are left on the table (or on the floor) every day, because of disconnects and outright competition between groups that should be working for a common cause providing value to customers.
A project comes into existence with the creation of a formal document called the project charter. The project charter is a small document but one that is extremely important to getting a project started in the right direction. Projects are done for a number of reasons. Generally, for commercial companies, the reason for doing a project is to make money. There are many other reasons for doing projects, such as establishing goodwill, conforming to government regulations and laws, and attempting to stay current with developing technology.
In another example, a procurement manager claimed to save over a million dollars per year in material costs while, at the same time, production stops due to the new materials were causing lost throughput of 100,000 per week. Every two weeks, the company was losing more than the annual savings from material cost reduction.
The costs are paid and the benefits are received during different periods of the life of the system. Money can have different values at different times. This is because money can be used to earn more money between the different instances of time. Obviously, 10,000 now is worth more than 10,000 a year from now even if there is no inflation. This is because it can earn money during the interval. One could deposit the money in the bank and earn interest on it. This is the earning power of money over time and is called time value of money, that is, 10,000 now has more value than 10,000 six months from now.
Achieving success in a matrix environment requires that you align and coordinate the people who support your project, deflecting any forces that pull those people in different directions. This section can help you get the highest-quality work from your team members along with timely and effective support from the functional and senior managers.
The Throughput World corrects these errors and focuses all decisions on the goal of the company (i.e., to make money now and in the future). All decisions and measures relate to the global goal. These often lead to different decisions than those dictated by the Cost World. For example, in the Cost World, managers measure the operating efficiencies of local workstations. Financial people count inventory as a company asset. If they do not need workers to produce product for customer need, then they produce product for inventory, increasing efficiency to make themselves and their local plant look good. Unfortunately, the plant does not make money on inventory. Inventory costs On the other hand, what do people normally consider their biggest competitive edge in knowledge industries People. What are people in the accounting system Expenses. They look bad. They are the first things you want to get rid of if business looks bad keep the assets, drop the expenses. Dump your ability to make...
Type II projects do not have specific externally driven end dates (although management may set one internally.) Many projects performed to make money (e.g., new product launch or the construction of a hotel) and most government projects fall into this category. You do not lose all of the benefits because of project delay. You just lose the benefits for some time. (This loss is usually understated or unknown.) In the case of projects that are not end-date driven, all three of the project variables (scope, schedule, time) may change.
Throughput thinking focuses all decisions on the goal of the company to make money now and in the future. All decisions and measures relate to the global goal. For example, in the cost world, managers measure operating efficiencies of local workstations. Financial people count inventory as a company asset. If they do not need workers to produce product for customer need, then they produce product for inventory, increasing efficiency to make themselves and their local plant look good. Unfortunately, the plant does not make money on inventory. Inventory costs money to make (raw materials) and to store, so it hurts cash flow and reduces disposable cash at the plant. Present accounting systems count inventory as a good thing (an asset), but it is bad for business. Earned value extends this thinking to projects, claiming value has been earned based on the estimated cost for work items. In reality, most projects are worth nothing (or have a negative value due to potential project...
Owner and President Ted Montague was sitting at his desk on the second floor of the small Groveport, Ohio plant that housed Peerless Saw Company and its new subsidiary, Peerless Laser Processors, Inc. As he scanned over the eight-page contract to purchase their third laser system, a 1200 watt computerized carbon dioxide (C02) laser cutter, he couldn't help but reflect back to a similar situation he faced three years ago in this same office. Conditions were significantly different then. It was amazing, Ted reflected, how fast things had changed in the saw blade market, especially for Peerless, which had jumped from an underdog to the technology leader. Market data and financial statements describing the firm and its market environment are given in Exhibits 1 and 2.
A surety company that is asked to write a bond for a CM GC or subcontractor with whom it has never done business will probably ask many questions and request a lot of documentation. The surety company will want to get to know the contractor and its business. Most surety underwriters consider surety to be a relationship-driven business. That relationship should include an independent bonding agent. The underwriter will want to see a few years of CPA-prepared fiscal year-end financial statements, schedules of jobs in progress and completed jobs, an interim financial statement, a copy of a bank letter of credit, the company's bylaws and legal documents, and a completed questionnaire that gives the surety some basic information about the contractor. If the surety is going to require the personal indemnity of the owners, that surety will want a current personal financial statement as well. Exhibit 10-6 is a sample questionnaire from a surety company. On what basis are financial statements...
Kanter talks about trust as a part of the solution. She also mentions the tendency for older style organizations to be risk-averse. And everyone talks about the bureaucratic structures as impeding a solution because it segments the organization. My experience has been that the degree of centralization or decentralization is not the issue. There is no evidence that I know of that shows that flatter organizations always perform better than hierarchical organizations. It is reasonable to expect a correlation between risk taking and innovation. As Kanter says a quarterly financial statement is not a good measure of economic health. Again, my experience shows that by concentrating on umpteen consecutive quarters of
(1) Firstly, it is difficult to evaluate the validity of investment in terms of expected return at the scheme stage. This is because in most cases, the extent of sales increase and cost reduction resulting from introducing a new system is not clear, and as a result, the criteria for how much should be invested tends to become unclear. Even if an investment worth several hundred million dollars is made, one cannot expect to be able to see any visible return. Yet, there are many cases of clear disadvantage compared with other companies if system is not made. Such situations make it difficult to justify the investment amount. Since the effect cannot be measured clearly, it is difficult to decide on the criteria for evaluating if the investment is viable. As a result, even in the case of similar infrastructure, investment amount differs greatly depending on the situation at the start of the project.
A constraint is a significant limitation to the alternatives that can be considered by the project manager and the team in providing the solution to the business need. All projects have constraints, and it is important to identify these early, and to make everyone aware of them. Therefore, those that are known should be clearly identified in the Scope Statement. This statement should identify the high-level limits (boundaries) that cannot be crossed by the project team when providing the project's solution. It is important to make a distinction between a constraint and an objective. A constraint is a criteria which must be met. An objective is one that it is desirable to meet. We could look at the project budget, and define an objective. We might say that we are allocating 2.3 million dollars to building a network to support the 200x Olympics. As the project progresses, we might find that despite all the good intentions and efforts of all involved, the cost to provide the network will...
Hundreds of millions of dollars were committed to ideas concerning technology that had not been developed as yet. Aerospace and defense contractors were growing without bounds, thanks to cost-plus-percentage-of-cost contract awards. Speed and technological capability were judged to be significantly more important than cost. To make matters worse, contracts were often awarded to the second or third most qualified bidder for the sole purpose of maintaining competition and maximizing the total number of defense contractors.
In the previous section we showed that approximately 85 percent of the deliverable's life-cycle cost has been committed by the end of the design phase (see Figures 14-16 and 14-17). We also showed that the majority of the total life-cycle cost of a system is in operation and support, and could account for well above 60 percent of the total cost. Clearly, the decisions with the greatest chance of affecting life-cycle cost and identifying cost savings are those influencing the design of the deliverable. Simply stated, proper planning and design can save a company hundreds of millions of dollars once the deliverable is put into use.
Resource scheduling is a strange fish. We all know that efficient workforce planning and the scheduling of resources is critical to project success. Millions of dollars are spent on tools to aid in this function, and untold hours are devoted to developing pragmatic resource plans.
It is important for CM GCs and subcontractors to know that unlike companies that write insurance policies, bonding companies that write surety bonds have the legal right to go back against any CM GC or subcontractor who causes them a loss on a surety bond and recover the total amount of the loss and the surety's associated expenses. Surety companies sometimes require that the CM GC and the subcontractor provide collateral for the value of the surety bond. Sometimes, however, the bonding company will be comfortable with the financial status, experience, reputation, and performance of the CM GC and write the bond based on their relationship with the CM GC. The CM GC and subcontractors will have to sign an indemnity agreement specifically agreeing to this before the surety company will write the bond. Often, the surety company will require the owners of the CM GC and subcontractors, along with their spouses, to sign personally for the indemnity agreement. Therefore, if the subcontractor...
Some teams have a better sense of reality than others. You can find many stories of project teams that shipped their product months or years late, or came in millions of dollars over budget (see Robert Glass' Software Runaways, Prentice Hall, 1997). Little by little, teams believe in tiny lies or misrepresentations of the truth about what's going on, and slide into dangerous and unproductive places. As a rule, the further a team gets from reality, the harder it is to make good things happen. Team leaders must play the role of keeping their team honest (in the sense that the team can lose touch with reality, not that they deliberately lie), reminding people when they are making up answers, ignoring problematic situations, or focusing on the wrong priorities.
Still, there are ways to define quality. For instance, when implementing intrusion prevention and intrusion detection systems, you want 100 percent prevention and zero percent intrusion. Is this a reasonable and achievable metric It would seem so since even one intrusion could cost your company millions of dollars, thousands of hours, and untold
The last version of the plan is not covered in most books on project management, but I've found it to be quite real and very vital to achieving success. It occurs near the end of the project, when it becomes apparent that a number of work items (sometimes referred to as a punch list) must be taken care of in order for the project to be considered complete. When you reach this stage, you may find it useful to create a new plan, just for completing all remaining work. This allows for a highly focused and efficient effort and will help you avoid being associated with a legendary project that never ends.
Stakeholders' competing interests are inherently in conflict. Upper managers and customers want more features, lower cost, less time, and more changes. Accountants mainly care about lower costs. Team members typically want fewer features to work on, more money, more time, and fewer changes. These voices ring out in cacophony. When people find that telling their problems to the project manager helps them get speedy resolution instead of recrimination, they feel like they have a true friend, one they cannot do without.
With the risk averter, utility rises at a decreasing rate. In other words, when more money is at stake, the project manager's satisfaction or tolerance diminishes. With a risk neutral position, utility rises at a constant rate. With the risk lover, the project manager's satisfaction increases when more money is at stake (i.e., an increasing slope to the curve). A risk averter prefers a more certain outcome and will demand a premium to accept risk. A risk lover prefers the more uncertain outcome and may be willing to pay a penalty to take a risk. While the project manager's (or other key decision-maker's) tolerance for risk may vary with time, different representations of this tolerance (e.g., risk averter and risk taker) should not exist at the same time or inconsistent decisions may be made.
Hourly workers typically earn 50 percent more when working overtime. When salaried workers put in overtime, it may not cost the project more money, but sustained overtime can incur other, intangible costs. In Peopleware Productive Projects and Teams, Tom DeMarco and Timothy Lister not only recognize the intangible cost of sustained overtime (divorce, burnout,
There is also a lesson here for all of us. If projects are limited in scope and they fail and there is no way to rescue them, we have reduced the dollars lost to failed projects. The alternative of undertaking larger projects is that we risk losing more money. If there is a way of finding out early that a project isn't going to deliver as promised, cut your loses. The same logic works from cycle to cycle. If we can learn early that a version will not work, kill the version and save the time and cost of the latter cycles.
In your example, this would be EAC 120,000 * 0.96 125,000. Seems logical, doesn't it You budgeted 120,000, but you know your project isn't going as efficiently as planned because your CPI is less than one. If it's not as efficient as you planned, then you know you're spending more money than you expected. If you continue going at this rate, then instead of spending 120,000 as you originally budgeted, you should expect to spend 125,000 at completion.
Deciding to spend more money to obtain the value. Sometimes projects go off the rails, and in some cases, bringing them back on track would actually cost more than the results are worth. In those cases the company would be better to write off the losses incurred and start fresh with something else. There is no point 'pouring good money after bad'. Instead the PM should base decisions on future costs and impacts.
We have worked with many organizations. We have not seen one organization yet whose purpose in life is to minimize cost. The owners of a forprofit organization expect that organization to make more money, now and in the future. In public companies, the satisfaction of the owners (shareholders) is often directly correlated with the value of the shares.
Hxpenditure monitoring is an important component of project control. Not only in itself, but also because it provides an indication of the effort that has gone into (or at least been charged to) a project. A project might be on time but only because more money has been spent on activities than originally budgeted. A cumulative expenditure chart such as that shown in Figure 9.9 provides a simple method of comparing actual and planned expenditure. By itself it is not particularly
This entails invoicing for more money than the value of the work put in place. The process of front end loading a project affords the subcontractor access to money and operating capital beyond the value of the work completed. If there is a dispute with the subcontractor, and another subcontractor has to be brought in to complete the work, there may not be sufficient money left over to complete the work. This could also be a potential problem if there is a large punch list item to be resolved and there are insufficient funds withheld to cover the remediation of the problem.
Lean Six Sigma and lean manufacturing are toolkits to reduce waste in business processes each is a proven concept that has saved practitioners millions of dollars. Lean manufacturing is a proven approach to reduce waste and streamline operations. Lean manufacturing embraces a philosophy of continually increasing the proportion of value-added activity of business through ongoing waste elimination. A lean manufacturing approach provides companies with tools to survive in a global market that demands higher quality, faster delivery, and lower prices. Lean manufacturing dramatically reduces the waste chain, reduces inventory and floor space requirements, and it also creates more robust production systems and develops appropriate material delivery systems while improving layouts for increased flexibility.
One difficulty in showing the cumulative cost curve for a large project is that the scale required in order to show the entire cost of the project may be so compact that relatively large variations are not visible. A 400 million project plotted on an 8.5-by-11-inch page would show a million-dollar variation in only one-fiftieth of an inch of space. the EV. This means that we are spending more money to accomplish the work than we had planned, and we are spending more money to accomplish work than the EV for that work.
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