Problems

15-1 Do cost overruns just happen, or are they caused?

15-2 Cemeteries are filled with projects that went out of control. Below are several causes that can easily develop into out-of-control conditions. In which phase of a project should each of these conditions be detected and, if possible, remedied?

a. Customer's requirements not understood b. Project team formed after bid was prepared c. Accepting unusual terms and conditions d. Permitting a grace period for changing specifications e. Lack of time to research specifications f. Overestimation of company's capabilities

15-3 Below are several factors that can result in project delays and cost overruns. Explain how these problems can be overcome.

a. Poorly defined milestones b. Poor estimating techniques c. A missing PERT/CPM chart d. Functional managers not having a clear understanding of what has to be done e. Poor programming procedures and techniques f. Changes constantly being made deep in the project's life cycle

15-4 Under what circumstances would each of the figures in Chapter 13 be applicable for customer reporting? In-house reporting? Reporting to top-level management?

15-5 What impact would there be on BCWS, BCWP, ACWP, and cost and schedule variances as a result of the:

a. Early start of an activity on a PERT chart?

b. Late start of an activity on a PERT chart?

15-6 Alpha Company has implemented a plan whereby functional managers will be held totally responsible for all cost overruns against their (the functional managers') original estimates. Furthermore, all cost overruns must come out of the functional managers' budgets, whether they be overhead or otherwise, not the project budget. What are the advantages and disadvantages of this approach?

15-7 Karl has decided to retain a management reserve on a $400,000 project that includes a $60,000 profit. At the completion of the project, Karl finds that the management reserve fund contains $40,000. Should Karl book the management reserve as excess profits (i.e., $100,000), or should he just book the target profit of $60,000 and let the functional managers "sandbag" on the slush fund until it is depleted?

15-8 ABC Corporation has recently given out a nine-month contract to a construction subcontractor. At the end of the first month, it becomes obvious that the subcontractor is not reporting costs according to an appropriate WBS level. ABC Corporation asks the subcontractor to change its cost reporting procedures. The subcontractor states that this cannot be done without additional funding. This problem has occurred with other subcontractors as well. What can ABC Corporation do about this?

15-9 What would be the result if all project managers decided to withhold a management reserve? What criteria should be used for determining when a management reserve is necessary?

15-10 Alpha Company, a project-driven organization, pays its department managers a quarterly bonus that is dependent on two factors: the departmental overhead rate and direct labor dollars. The exact value of the bonus is proportional to how much these two factors are underrun.

Department man-hours are priced out against the department average, which does not include the department manager's salary. His salary is included under his departmental overhead rate, but he does have the option of charging his own time as direct labor to the projects for which he must supply resources.

What do you think of this method? Is it adequate inducement for a functional manager to control resources more effectively? How would you feel, as a project manager, knowing that the functional managers got quarterly bonuses and you got none?

15-11 Many executives are reluctant to let project managers have complete control of project costs because then the project managers must know the exact salaries of almost all project personnel. Can this situation be prevented if the contract requires reporting costs as actuals?

15-12 How can a country's inflation rate influence the contractual payment policy?

15-13 Consider a situation in which several tasks may be for one to two years rather than the 200 hours normally used in the work-package level of the WBS.

a. How will this affect cost control?

b. Can we still use the 50/50 rule?

c. How frequently should costs be updated?

15-14 By now you should be familiar with the various tools that can be used for planning, controlling, scheduling, and directing project activities. Table 15-8 contains a partial list of

TABLE 15-8. PROJECT PLANNING, CONTROLLING, AND DIRECTING

Useful for

Tool

Planning

Controlling

Directing

Interface Relationships

Project organizational charts

Work breakdown structure

Task descriptions

Work packages

Project budget

Project plan

Charts/schedules

Progress reports

Review meetings o somewhat useful • very useful such tools and how they relate to specific project management functions. Complete the table (using the legend at the bottom) to indicate which are very useful and which are somewhat useful.

Obviously there will be some questions about what is very useful and what is somewhat useful. Be able to defend your answers.

15-15 Complete the table below and plot the EAC as a function of time. What are your conclusions?

Week

Cumulative Cost, in Thousands

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