3-project organisation 2
TRANSCRIPT
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 1/34
CECE 4270 & CEQS 3230
Miss Samira Said Al Esry
DEPARTMENT OF ENGINEERING
1
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 2/34
ConceptionFeasibility &
Selection
Design &
PlanningDevelopment
CloseoutOperationsDe-
commissioning
2
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 3/34
Fundamentals: Risk
Payment Methods
Lump Sum / fixed price
Time & materials - Unit Prices
Cost Plus Percentage
Cost Plus Fixed Fee
Guaranteed Maximum Price
Incentive
3
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 4/34
Involves identifying, analysing and respondingto risks throughout the project life cycle, in thebest interest of meeting project objectives
Can improve project success
Help in project selection, scope determinationand realistic development of schedules and cost
estimates
Schwalbe, 2006
4
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 5/34
Uncertainty inherent in plans and the possibility
of something happening that can affect the
prospects of achieving business or project goalsBS6079-3:2000
Risk is the likelihood of an event or hazard
impacting the project
5
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 6/34
In commerce, a ‘high risk venture’ implies a
potential for large gains as well as potential for
large losses
Where there are opportunities there are risks
All projects require risk management, risk
monitoring and risk control
6
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 7/34
Table 3-1: Potential negative risk conditions associated with each knowledge area
Knowledge Area Risk Conditions
IntegrationInadequate planning; poor resource allocation; poor integration management;
lack of post-project review
Scope Poor definition of scope or work packages; incomplete definition
Time
Errors in estimating time or resource availability; errors in determining the
critical path; poor allocation and management of float; early release of
competitive products
Cost Estimating errors; inadequate productivity, cost, change, or contingency
QualityPoor attitude toward quality; substandard design/materials/workmanship;
inadequate quality assurance program
Human ResourcesPoor conflict management; poor project organisation and definition of
responsibilities; absence of leadership
CommunicationsCarelessness in planning or communicating; lack of consultation with key
stakeholders
Risk Ignoring risk; unclear analysis of risk; poor insurance management
Procurement Unenforceable conditions or contracts clauses; adversarial relations
Source: Wideman, R. Max, “Project and Program Risk Management: A Guide to Managing Project Risks & Opportunities”, Upper Darby,PA: Project Management Institute, 1992, II – 4.
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 8/34
Technical / quality/ performance risks: include risksassociated with unproven technology, complextechnology, changes to technology, unrealisticperformance goals, etc.
Project management risks: includes improperschedule and resource planning, poor project planning,improper project management methodologies.
Organisational risks: include resource conflicts due to
multiple projects; unrealistic scope, time and costobjectives; lack of funding.
External risks: include new laws or regulations, labourissues, weather, changes in ownership, etc.
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 9/34
Records and other sources of historical data
Relevant experience
Reviews of research into project success and
failure
Market testing and research
Application of behavioural, financial, economic,
engineering and/or other relevant modelsUse of specialist and/or external expertise
9
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 10/34
Medium
Small risk Medium
Big risk
Likelihood/
probability
Severity of impact
Impact can be in terms of cost, time, quality, reputation,
safety
1010
Figure 3-1: Risk classification
based on likelihood of occurrence
and impact on project
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 11/34
Cost(OMR) Delay Quality Reputation
Major
ImpactExtra
100,000s
Several
months
Severe
impairment or loss
of a function
Negative publicity in
major news channels
Loss of public trust
Significant impact onGoodwill
Medium
impact
Extra 10,000s A few
weeks
Some impairment
of a major
function
Some impact on
Goodwill
Low
Impact
Extra 1,000s A few
days
Some impairment
of a minor
function
Minor impact on
Goodwill
11
Table 3-2: Sample Impact / Effect for risk assessment
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 12/34
Response: Negative risks
Response/ treatment Summary
Accept Continue without altering the project goals or approach
Eliminating or avoiding Changing or abandoning goals specifically associated with
the risk in question, or choosing alternative approaches/processes that make the risk no longer relevant
Risk sharing Sharing risks in part or in full with another stakeholder who
could be involved solely to facilitate risk treatment, e.g. an
insurer
Reducing thelikelihood Changing project approach, identifying causal links betweenthreat and impact, or causes of threats, and intervening to
mitigate occurrence, acting to reduce the threat
Reducing the impacts Developing contingency plans for responding to the threat if
it occurs, even if other steps have been taken to minimize the
risk
12
Table 3-3: Basic response strategies for risks
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 13/34
Contractors are risk averse
Risks that can be controlled by contractor,contractor will manage them rather than reduce
chargesRisks that cannot be controlled by contractor,contractor will typically reduce charges so
owner assumes themHigh contractor risks: higher price, morechances for delays
13
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 14/34
14
Likelihood
(L)
Severity
(S)
1 Very unlikely 1 No impact or harm
2 Unlikely 2 Low Impact – minor injury – no lost time
3 Likely 3 Medium impact – injury or ill health OVER 3 days lost time
4 Very Likely 4 High impact – major injury or possible loss, including death
5 Probable 5 Very high impact – multiple casualties or loss of more than one
life
5 10 15 20 25
4 8 12 16 20
3 6 9 12 15
2 4 6 8 10
1 2 3 4 5
HIGH
MEDIUM
LOW
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 15/34
Fundamentals
Payment Methods
Fixed price or Lump Sum
Time and Materials (T&M) -Unit Prices
Cost reimbursableCost Plus Percentage
Cost Plus Fixed FeeGuaranteed Maximum Price
Incentive
15
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 16/34
Set a specific, firm price for the goods andservices.
Owner and contractor agree on a well-defined
deliverable.Lower owner risks, biggest risk borne by thecontractor.
Typically used with traditional design/bid/build
Typically results in a desire to finish the projectin minimum time, with minimizes cost andquality uncertainty.
16
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 17/34
Example:
Owner and contractor enter into a Lump Sum
agreement, OMR 20,000. The actual costsincurred by the contractor are OMR 18,500.
Price charged to owner:
Contractor profit:
17
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 18/34
Fundamentals
Payment Method
Lump SumUnit Prices
Cost Plus Percentage
Cost Plus Fixed FeeGuaranteed Maximum Price
Incentive
18
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 19/34
Time and materials contracts are a crossbetween fixed price and cost-reimbursable.
The full amount of material costs is not knownat the time of contract awarding: the costs willcontinue to grow during the contract’s life.
Unit rates (agreement of charges per unit ofwork) may be used to preset certain portions of
the project.The owner bears the biggest risk.
19
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 20/34
Fundamentals
Payment Method
Lump Sum
Unit Prices
Cost Plus Percentage
Cost Plus Fixed Fee
Guaranteed Maximum Price
Incentive
20
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 21/34
Owner pays actual cost plus a percentage fee
Used if price cannot be determined in another
way and for urgency (e.g. ill-defined risky scope)
Maximum flexibility for owner (change orders)
High risk for owner
Little incentives for contractor to improve
efficiencyNo consideration of quality in payment
Permits collaboration at early stages – minimum
negotiation time, fear of commitment21
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 22/34
Example:Your company has entered into a Cost plusPercentage contract with contractor X. At the endof the project the contractor’s actual costs are
OMR10,000. The contract percentage is 2%. Whatis the price charged to the owner? What is thecontractor’s profit?
Price charged:
Contractor profit:
22
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 23/34
Fundamentals
Payment Method
Lump SumUnit Prices
Cost Plus Percentage
Cost Plus Fixed FeeGuaranteed Maximum Price
Incentive
23
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 24/34
Owner agrees to pay the cost of workplus a fixed fee
Unknown cost up-front
Used if the price cannot be determinedin another manner
Fee is independent of project duration
Little incentive to reduce costHigh incentive to finish early
24
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 25/34
Example:
Owner and contractor enter into Cost plus fixedfee agreement with the owner agreeing to pay
the contractor his costs plus an additionalOMR500. The actual costs were OMR3000.What is..
The price charged to the owner:Contractor profit:
25
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 26/34
100%
100%
0%
0%
Lump Sum
CPFF
CP%
Contractor’s risk Owner’s risk
26
Figure 3-2: Risk sharing meter; comparing between lump sum, CPFF &
CPPC
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 27/34
FundamentalsPayment Method
Lump Sum
Unit Prices
Cost Plus Percentage
Cost Plus Fixed Fee
Guaranteed Maximum Price
Incentive
27
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 28/34
Same as Cost Plus Fixed Fee (CPFF), but with a
Guaranteed Maximum Price (GMP)
Contractor assumes any risks of cost goingbeyond GMP
Quality may be sacrificed to remain below GMP
28
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 29/34
Fundamentals
Payment Method
Lump Sum
Unit Prices
Cost Plus Percentage
Cost Plus Fixed Fee
Guaranteed Maximum Price
Incentive
29
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 30/34
Owner and contractor agreeing to a ratio forsharing savings and overruns (e.g. 80/20)
If savings of 1000, owner’s cost is reduced by800 and contractor’s profit is increased by 200
If overrun of 1000, owner shoulders 800 andcontractor shoulders 200
Can have limitations on price or profit
30
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 31/34
Target Estimate contract2% basic markup
70/30 O/C sharing arrangement
Original estimate: 10,000,000 OMROwner’s payment?= Actual cost + [markup*estimate] +
[contractor’s share*(estimate-actual cost)]
Contractors Profit/loss?= Price charged to owner –
Contractor actual cost
Owner’s savings/losses= Estimate + [markup*Estimate] –
owner’s payment
31
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 32/34
Estimate 10000000Mark-up 2%
Contractor share 30%
Owner Share 70%
Actual cost Owner's PaymentContractor's Gross
Profit
Owner's
Savings/Losses8000000
8500000
9000000
9500000
10000000
10500000
11000000
11500000
12000000
32
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 33/34
Estimate 10000000Mark-up 2%
Contractor share 30%
Owner Share 70%
Actual cost Owner's PaymentContractor's Gross
Profit
Owner's
Savings/Losses8000000 8800000 800000 1400000
8500000 9150000 650000 1050000
9000000 9500000 500000 700000
9500000 9850000 350000 350000
10000000 10200000 200000 0
10500000 10550000 50000 -350000
11000000 10900000 -100000 -700000
11500000 11250000 -250000 -1050000
12000000 11600000 -400000 -1400000
33
R f
8/10/2019 3-Project Organisation 2
http://slidepdf.com/reader/full/3-project-organisation-2 34/34
ReferencesDr. Lee, S. (2007). Presentation to Project Management course in
MIT.
“Project Management for Construction” by Chris Hendrickson
available at http://pmbook.ce.cmu.edu/
Schwalbe, K., Information Technology Project management, 4th
Edition, 2006, Thomson Course Technology
Harold Kerzner, Ph.D., Project Management A systems approach
to planning, scheduling & controlling, 9th ed., 2006, John Wiley
& Sons, Inc.
Heldman, Kim, PMP: Project Management Professional, Study
Guide, 3rd edition, 2005, Wiley Publishing
Dr. Ammar Al Ojaili
34