project management
TRANSCRIPT
![Page 1: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/1.jpg)
Department of Electrical Services Engineering
Course Code / Year DT 018 /2012 Year 1
Module Services Development and Management
Lecturer Mr. Alan Harrison
Student Name Steven Agunbiade D11125287
Rory Conlon D07114364
Paul Derwin D07114349
Paul Dunne D11124233
Submission Date 20/3/2012
![Page 2: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/2.jpg)
DT018 year 1
ii
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
1.1 Declaration
I hereby certify that the material, which is submitted in this assignment/project, is entirely my
own work and has not been submitted for any academic assessment other than as part fulfilment of
the assessment procedures for the program Bachelor of Science in Electrical Services and Energy
Management (BSc (Hons)) (DT 018).
Signature of students: Steven Agunbiade,
Rory Conlon,
Paul Derwin,
Paul Dunne
Date: 20/ March /2012
![Page 3: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/3.jpg)
DT018 year 1
iii
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
2.0 Glossary of Terms
WBS Work Breakdown Schedule
PERT Project Evaluation Review Technique
CPM Critical Path Method
BCWS Budgeted Cost of Work Scheduled
ACWP Actual Cost of Work Performed
ETC Estimate to Complete
EAC Estimate at Completion
SSM Soft System Methodology
![Page 4: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/4.jpg)
DT018 year 1
iv
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
Contents
1.1 Declaration......................................................................................................................................................ii
2.0 Glossary of Terms ..................................................................................................................................................iii
3.0 Table of Figures:.................................................................................................................................................... vi
4.0 Project Management an Overall Introduction. ...................................................................................................1
5.0 Planning Introduction- Written by : Paul Derwin ..............................................................................................2
5.1 Network Technologies ..................................................................................................................................2
5.2 PERT Charts...................................................................................................................................................2
5.3 Gantt Charts....................................................................................................................................................3
5.4 Work Breakdown Structure .........................................................................................................................3
6.0 Project Planning .......................................................................................................................................................4
7.0 Planning for Error....................................................................................................................................................5
7.1 Factors Affecting ...........................................................................................................................................5
7.2 1 Project Goals ...............................................................................................................................................6
7.3 Project Schedule ............................................................................................................................................6
7.4 Project Closure...............................................................................................................................................7
8.0 Risk Management---Written by: Stephen Agunbiade .................................................................................8
8.1 Introduction ....................................................................................................................................................8
8.2 Risk Identification and analysis ..................................................................................................................8
8.3 Risk assessment .............................................................................................................................................8
8.4 Risk Management Process ...........................................................................................................................9
8.5 Risk Analysis..................................................................................................................................................9
8.6 Risk Management Strategies .....................................................................................................................10
8.7 Avoiding the risk .........................................................................................................................................10
8.8 Reducing the risk .........................................................................................................................................10
8.9 Transferring the risk (Insurance) ..............................................................................................................11
8.10 Contingency Plans .......................................................................................................................................11
8.11 Accepting the risk........................................................................................................................................12
8.11.1 Risk monitoring ............................................................................................................................12
![Page 5: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/5.jpg)
DT018 year 1
v
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
8.12 General Pro ject management problems ...................................................................................................13
9.0 Estimation ---Written by: Pau l Dunne ...............................................................................................................14
10.0 Estimation .....................................................................................................................................................15
10.1 Methodology and IT....................................................................................................................................15
10.2 Methods in Construction ............................................................................................................................16
10.3 Generalised Terms.......................................................................................................................................17
11.0 Work Breakdown Structure........................................................................................................................18
11.1 Estimation Technical ..................................................................................................................................18
11.2 ETC ................................................................................................................................................................19
12.0 Analysis .........................................................................................................................................................20
12.1 Future Developments ..................................................................................................................................20
13.0 Cost Reports---Written by: Rory Conlon.................................................................................................21
14.0 Real Costs......................................................................................................................................................22
14.1 Cash Flow Statement ..................................................................................................................................22
14.2 Income statement .........................................................................................................................................22
14.3 Balance sheet................................................................................................................................................22
14.4 Variable Cost Increases ..............................................................................................................................23
15.0 Earned Value Analysis ................................................................................................................................24
15.1 Example of Earned Value ..........................................................................................................................24
16.0 NPV (Net Present Value) ...........................................................................................................................26
16.1 Example of NPV: ........................................................................................................................................27
17.0 Conclusion –Written by Group .................................................................................................................29
18.0 Bibliography .................................................................................................................................................30
19.0 Appendix 1 Soft System Methodology ....................................................................................................32
![Page 6: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/6.jpg)
DT018 year 1
vi
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
3.0 Table of Figures:
Page No.
Figure 1 (Carnegie, 2012) ........................................................................................................................................... 5
Figure 2 Risk management assessment..................................................................................................................... 9
Figure 3(Field Mark, et al 2000) .............................................................................................................................. 11
Figure 4 Risk, strategy and type (Field Mark et al, 2000) ................................................................................... 12
Figure 5(Turner, 1995)............................................................................................................................................... 15
Figure 6 (Kerzner, 2009) ........................................................................................................................................... 16
Figure 7(Lock, 2007).................................................................................................................................................. 17
Figure 8(Lock, 2007).................................................................................................................................................. 18
Figure 9(Conlon, 2012).............................................................................................................................................. 24
Figure 10(Conlon, 2012) ........................................................................................................................................... 25
Figure 11(Barrett, 2012) ............................................................................................................................................ 26
Figure 12 (Conlon, 2012) .......................................................................................................................................... 27
Figure 13(Conlon, 2012) ........................................................................................................................................... 27
Figure 14(Hemanta Kumar, 2011) ........................................................................................................................... 32
![Page 7: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/7.jpg)
4.0 Project Management an Overall Introduction.
Modern project management is a product of the late 1930’s. It owed its evolution to the demands
of modern life and particularly modern industry. The complexity and minutiae of large projects led
directly to the requirement of systems capable of controlling them. So for instance when the Polaris
project was first undertaken it was necessary to develop a control system to try and tie in all the disparate
elements in an effort to make progress as economically and as efficiently and as possible. This led
directly to the development of the PERT (programme evaluation and review technique) system. Since
then numerous methodologies have evolved in the hope of achieving even better results.
This assignment will look at how the project management systems exist today by dividing the
subject into four areas; Project Planning, Risk Analysis, Estimation, and Cost Reports. Even though the
writers came at the subject from an energy management perspective the headings were generic and it was
thus found that the application of technique was for the most part ubiquitous through all situations.
However where possible an effort was made to apply the theories and lessons learned , to a green energy
situation or indeed to apply them to an energy efficiency project.
Project planning will delve more deeply into the generic systems for project analysis including
both PERT and Gantt systems. However at the same time it has to be appreciated that some cross-over is
inevitable. So for instance the Work Breakdown Structure will make more than one appearance because
of its usage in both planning and estimation.
Risk assessment will cover some common ground as well as it tries to explain the necessity of
how to deal with the factors of risk in all its forms. Here again it will be necessary to explain how there is
a commonality with some issues which cross over boundaries between some of the headings.
Nevertheless if approached from a strictly risk analysis point of view it would be hoped to illustrate some
different nuances and insights.
Estimation will try to delve into the process by which proper estimation can be delivered. In this
less than exact science it would be hoped to show both the past and future developments in this aspect of
project control. The on-going struggle to increase accuracy will be highlighted by a look at what might be
future tendencies.
The Cost Reports will look at different methodologies associated with on-going financial
reckoning with regard to project progress. In order to do this it will be necessary to examine Cash Flow
Statements, Income Statements, and associated Balances. Finally some time will also have to be devoted
to the application of how Net Present Values and Earned Values are calculated.
![Page 8: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/8.jpg)
DT018 year 1
2
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
5.0 Planning Introduction- Written by : Paul Derwin
In this section I will be reporting on project planning, so of the topics will include Bar Charts, (Gantt
Charts), PERT Charts (Critical Path Analysis, WBS (Work Breakdown Structure) and the step required in
Project Planning. I will be gathering information from the D.I.T. library, lecture notes and the Internet.
If success is to be achieved in the construction industry where labour costs are very high and all
subcontractors have various portions of works to be undertaken. Coordination and planning is the key to
the successful completion of a project. It is an important duty of the project manager that all construction
work from subcontractors and builder fits exactly into a jigsaw pattern. The timing of various tasks must
be right otherwise delays with consequent financial loss will occur. As a project manager it is very
important to understand that two projects are never the same and whatever the size or complexity the
supervisory personal must have objectives of cost planning and office to increase productivity, quality
and efficiency.
5.1 Network Technologies
5.2 PERT Charts
The Programme Evaluation and Review Technique (PERT) was developed by the US Navy in
cooperation with Booz Allen Hamilton and the Lockheed Corporation for the Polaris missile/submarine
project in 1958” (Meredith, 2012).
A PERT Chart, which sometimes called “Critical Path Method”, is an event-oriented planning
aid which is used to estimate project duration when there is uncertainty in estimates of duration times for
individual activities. It helps the project manager to order the activities that must be completed.
A PERT Chart is a graphical illustration of a project as a network diagram consisting of
numbered nodes (either circles or rectangles) representing events or milestones in the project linked by
directional lines. The direction of lines (arrows) indicates the sequence of events. Events must be
completed in sequence according to the PERT Chart; some events can be dependent on other events and
cannot start. The PERT Chart is sometimes preferred over other methods of network techniques because
it clearly illustrates task dependencies, but sometimes it can be more difficult to understand, especially on
complex projects. Some project managers can sometimes use both PERT and Gantt Charts.
When the PERT Charts are finished the project manager will be able to identify:
![Page 9: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/9.jpg)
DT018 year 1
3
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
How long the project will take
At what points in time can the supervisor expect to start and finish various jobs
If the project has a scheduled completion date what are the latest point in time at which jobs can
be started and finished so not to let the project over-run the finishing date
How long a job can be delayed without affecting the scheduled completion date
If more labour becomes available to which job can they be moved to?
5.3 Gantt Charts
An old but very useful method of producing project schedule information is the Gantt chart. Henry
L. Gantt developed the Gantt chart in 1917. The Gantt chart displays planned and progress for a number
of tasks displayed as bars against a horizontal time scale. It is an effective and easy to read method of
indicating the actual current status for each of a set of tasks compared to the planned progress for each
item of the set. As a result, the Gantt chart can be helpful in reallocating resources among tasks, as well as
in the job of keeping track of the project (Meredith, 2012).
Gantt charts are drawn on a scale where the horizontal axis is directly proportional to time.
Depending on the time scale of the project the units of time can vary form days; months and years can be
used.
A horizontal bar on the chart represents the project task, and its length is scaled to the amount of time
required to complete the task.
The advantages of using Gantt charts are firstly, they are easily understood, they can be edited and
updated very easily on Microsoft project, they can contain large amounts of data and are very easy to
construct. The Gantt chart does have drawbacks in that if a project is complicated with a lot of activities,
it may be hard to follow multiple activity paths.
5.4 Work Breakdown Structure
On very large projects critical path networks can become very difficult to handle, and it’s very
hard to manage thousands of tasks on a day-to-day basis. The Work Breakdown Structure breaks down
large projects into small sections, which allows the project manager to handle the project easily.
A Work Breakdown Structure (WBS) is a project management technique for defining and
organizing the total scope of a project, using a tree structure.
A Work Breakdown Structure starts with project as the top level deliverable and further
decomposed into sub-deliverables. The project team creates the Work Breakdown Structure of the project
by identifying tasks and subdividing these into smaller sub-deliverables. These sub-deliverables can be
broke down even further so a single person can carry out the task.
A perfect example of a Work Breakdown Structure would be a construction of a house where it’s
split into three sub-deliveries, number 1 is the excavating, foundations and pouring concrete; number two
external works which include block work roofing and plastering etc.; and number three internal works
which include electrical, plumbing and carpentry etc.
The Work Breakdown Structure has a number of benefits. A project budget can be allocated to
all the top levels of the Work Breakdown Structure and department budgets can be quickly calculated, so
when all the subcontracts for electrical and mechanical etc. go out for tender the project manager knows
how much capital is available for the subcontracts and can keep the project within the budget.
Another benefit of the Work Breakdown Structure is it can highlight potential risks in a branch if
the branch was undefined or if new energy saving technology was going to be installed in the p roject, this
can be tracked and highlighted in a project log. Other benefits include clarity; the project team can seek
out the risks and issues to be prepared for it. Timelines, the project team can obtain an easy to understand
defined project timeline.
![Page 10: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/10.jpg)
DT018 year 1
4
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
6.0 Project Planning
The key to a successful project is in the planning. Creating a project plan is the first thing you
should do when undertaking any kind of project. Often project planning is ignored in favour of getting on
with the work. However, many people fail to realise the value of a project plan in saving time, money and
many problems”(2012). Good planning and scheduling will allow:
The project to be finished or completed within the required timescale
Work to be issued at the right time and the right sequence
The project to be controlled with no panic and at an ideal pace, which leads to quality work.
![Page 11: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/11.jpg)
DT018 year 1
5
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
7.0 Planning for Error
One of the most common faults in project planning is to assume there will be no errors. An
understanding that errors will happen at some critical stages in the project life cycle is mandatory.
Implementing a monitoring strategy means that when a problem occurs the project management team can
adapt and plan to overcome that problem. There is certainly nothing wrong in recognizing that problems
will occur and in altering them to avoid the inevitable. When the project management team is planning a
project they should ask themselves what could go wrong and armed with experience from previous
mistakes on other projects, he or she can make amendments and corrections to the planning process.
Figure 1 (Carnegie, 2012)
7.1 Factors Affecting
Factors during the planning phase that are sometimes ignored which leads to project failure:
The project manager ignores vague contract terms (it’s vital to know the contract terms before
signing up).
Management wants to Start working and worry about planning later.
Management warns project manager against raising issues with the client/ stakeholder.
The project manager is too worried about losing his or her job or making people angry
Client rep. accepts work informally, but refuses to put it in writing.
Projects lack of the right resources
Inexperienced project managers
![Page 12: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/12.jpg)
DT018 year 1
6
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
Lack of methodology increases risks
No tracking of changes to the project
No up to date data about the status of the project
Project manage ignores problems
Lack of communicating between project sponsors and stakeholders
Factors that affect project planning operationally:
Design error
Component failure
Key staff leave
Strikes and lockouts
Company runs out of money
Crime (theft, fraud & vandalism)
Broken tools or equipment
7.2 1 Project Goals
A project is successful when the needs of the stakeholders have been met. A stakeholder may be a group, person or organisation that has invested money in the project.
An important first step is to identify the stakeholders in your project. It is not always easy to
identify the stakeholders of a project, particularly those impacted indirectly. Examples of stakeholders are:
• The project sponsor
• The property developer
• The users of the project outputs.
Once the project manager has identified the stakeholder/s, he/she must find out what their needs
are. The best way to do this is to start with a kickoff meeting with the project team and stakeholder/s.
During the interview recording notes on needs and what they want to achieve from the project. Often
stakeholder/s will talk about needs that aren't relevant and don't deliver benefits. These can be recorded
and set as a low priority. The next step, once project management team have conducted all the interviews,
and have a list of needs is to prioritise them.
Once you have established a clear set of goals, they should be recorded in the project plan. It’s important to include the needs and expectations of the stakeholder/s.
7.3 Project Schedule
The project team must be comprised of the right individuals with the appropriate backgrounds and skill
sets. The team can include professionals from any number of internal departments or disciplines” (Kiser,
2012)
An important step is allocating tasks or roles to each project team member. Depending on the skill
levels of each team member and the complexity some tasks can be broken down into small ones to be
completed. Individuals with leading roles in the project should be identified. The project managemen t
team must create a list of tasks that need to be carried out for each deliverable. For each task identify the
following:
![Page 13: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/13.jpg)
DT018 year 1
7
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
• The amount of time (hours or days) required to carry out the task.
• The resources that will carry-out the task (subcontractor or builder).
Once the project management team has established the amount of time required for each task,
he/she can work-out an accurate delivery date for the project. Software packages such as Microsoft
project can be used to create the project schedule. Input all of the deliverables, tasks, durations and the
resources that will complete each task. Preparation of Gantt Charts and PERT charts make the planning process easier which are composed from software packages.
A common problem discovered that could arise at this point, is when a project has an imposed
delivery deadline from the sponsor that is not realistic based on project managers estimates. If the project
manager discovers that this is the case, he/she must contact the sponsor immediately. The options
available in this situation are:
• Renegotiate the deadline.
• Request more resources
• Downsize the scale of the project.
A communications and reporting plan should be in place so all parties involved can be informed
about the progress of the project outlining targets being met and the overall performance. Holding weekly
site meetings and walk rounds to daily e-mails is key to outline or show the level of work being achieved
or if adjustment is necessary.(2012)
7.4 Project Closure
The final step is project closure; it’s good practice to carry out a project closure checklist to
insure that key tasks have been completed to the satisfaction of the project sponsor. It ensures that all
participants and stakeholders to the project are informed of follow-on activities for example new projects
and servicing. It’s important to identify lessons learned and best practices on completion with the project
management team. (Carnegie, 2012)
![Page 14: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/14.jpg)
DT018 year 1
8
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
8.0 Risk Management- Written by: Stephen
Agunbiade
8.1 Introduction
Risk management is the name given to a logical and systematic method of identifying, analysing,
treating and monitoring the risks involved in energy efficiency and green technology activity or process.
Also, risk management helps project managers to make best use of their resources.
Risk management is concerned with identifying risks and drawing up plans to minimise their effect on a
project. Essentially there are two parts to this work:
8.2 Risk Identification and analysis
Risk is inherent and inevitable in any project but the degree of risk may vary widely. When risks
in a project have been identified and the idea of their likelihood occurring , then it must be decided what to
do about them and gauge their impact on project estimates, budgets, and schedules.
A risk is a probability that some adverse circumstances will occur:
Project risks affect schedule or resources
Risks affect the quality or performance
Business risks affect the organisation developing.
8.3 Risk assessment
The process of risk assessment is more than simply identifying specific risks. It means obtaining
a clear definition of risks, including how important the risk is to the project – what the severity of its
occurrence would be, and the sensitivity and likelihood of that risk occurring (Mike et al, 2000)
The green technology projects such as solar, wind, hydro and geothermal are still developing in Ireland
and this illustrates that energy project development is a high risk undertaking.
The risks affecting green energy projects appear throughout the entire project lifetime, but vary greatly in
character. Some examples are listed below:
(a.) Construction risk: Risk of property damage or liability stemming from errors during the
building of new projects.
(b.) Company risk: Risk affecting the viability of the project developer, for example risk related to
key personnel, financial solidity to execute on plans.
(c.) Environmental risk: Risk of environmental damage caused by the green technology impact
including any liability following such damage.
(d.) Financial risk: Risk of insufficient access to investment and operating capital
(e.) Market risk: Risk of cost increases for key input factors such as labour or rate decreases for
power generated.
(f.) Operational risk: Risk of unscheduled plant closure due to the lack of resources, equipment
damages or component failures.
(g.) Technology risk: Risk of components or parts generating less power over time than expected
(h.) Political and Regulatory risk: Risk of a change in policy that may affect the profitability of the
project, for example changes in levels of tax credit. Also, changes in policy as related to
permitting and interconnection.
(i.) Climate and Weather risk: Risk of changes in electricity generation due to lack of natural
supplies, for example lack of sunshine for solar energy system
![Page 15: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/15.jpg)
DT018 year 1
9
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
(j.) Sabotage, terrorism and the theft risk: Risk that all or parts of the green technology will be
subject to sabotage, terrorism or theft and thus generate less than planned (Jon Worren
2012)
8.4 Risk Management Process
(i.) Risk Identification
Identify project, product and business risks
(ii.) Risk Analysis
Assess the likelihood and consequences of these risks;
(iii.) Risk Planning
Draw up plans to avoid or minimize the effect of the risk
(iv.) Risk Monitoring
Monitor the risks throughout the project
8.5 Risk Analysis
Assess probability and seriousness of each risk
Probability may be very low, moderate, high or very high
Risk effects might be catastrophic, serious, tolerable or insignificant
Risk Probability(1=low, 5=high)
Impact(1=low, 5=high
Organisational financial problems force reductions in project
budget
It is impossible to recruit staff with the skills required for the
project
Key staff are ill at critical times in the project
The components that should be reused contain defect which
limit their functionality
Changes to requirements that require major design rework are
proposed
The organisational is restructured so that different
management are responsible for the project
There are changes in energy policies
Sabotage, terrorism and theft of vital parts of the equipment
Figure 2 Risk management assessment
![Page 16: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/16.jpg)
DT018 year 1
10
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
8.6 Risk Management Strategies
The project manager needs to identify what cost-effective countermeasures can be applied in order
for each risk to be managed. These may need to be specified in great detail, depending upon the
complexity of the countermeasures. Possible countermeasures are:
Avoiding the risk
Reducing the risk
Transferring the risk
Contingency plans
Accepting the risk
Let’s review strategies for the risk.
8.7 Avoiding the risk
Avoiding the risk means removing the risk totally from the project to be done. Avoiding a risk
may mean not doing the project, if the risk occurs in one of the key elements of the project. It may be
possible to redefine the project to exclude the risk area.
8.8 Reducing the risk
Reducing the risk means reducing either the likelihood or the impact of the threat.
Risk reduction is an important strategy; it can be an expensive one or it can be a very cheap one,
but in most cases it is likely to be cost-effective when compared to the cost of incurring the unreduced
risk. Common risks which can be reduced are shown in the table below but there are many list s, the few
common ones are shown here in Fig 3: Common risks: reducing their probability and impact (Field Mark,
et al 2000)
Risk How probability can be
reduced
How impact can be reduced
Lack of experienced staff Recruit experienced people, train
staff, use outside consultants or
sub-contractors
Have experienced staff
informally supervise the work of
less experienced staff; increase
project time to accommodate a
‘learning curve’
Lack of technical
infrastructure in the form of
tools or access to tools
Purchase or hire appropriate
tools
Increase project time
Project manager has no prior
experience of working with a
contractor or vendor
Develop and maintain a good
relationship; establish formal
communication mechanism
Increase project time to deal with
problems of complex
communications and co-
ordination
Multiple vendors or
contractor’s involved
Name one vendor or contractor
as the prime contractor
Increase project contingency
times
Vendor’s or contractor’s Choose another contractor with a Involve management, particularly
![Page 17: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/17.jpg)
DT018 year 1
11
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
reputation shaky sound reputation to discuss concerns,regarding
vendor’s or contractor’s ability to
provide work
Potential users lack
commitment to outcome of
project
Review with them all expected
benefits; show how this fit with
their strategic plans or working
practices
Introduce the products of the
project in a phased fashion to
spread the impact over a longer
period (may involve increasing
project time )
People potentially affected by
project outcome fear changes,
resulting in their non-co-
operation
Use consensus-building
techniques to obtain their input
where possible when defining
requirements.
Review with them all expected
benefits; show how this fits with
their plans or practices
Figure 3(Field Mark, et al 2000)
8.9 Transferring the risk (Insurance)
Insurance is a means of transferring the financial impact of having a risk occur. Insurance
against fire or theft simply provides financial compensation for losses actually incurred. Compensation as
the result of an insurance claim may not be adequate to keep a project on track, because the financial
compensation may only be enough to compensate the organization of time an d resources lost, not for
repairing the damage so that the project can continue.
Many of the risks mentioned earlier in this write up can be managed through financial instruments
and insurance products, the examples listed below:
Weather risks can be mitigated through weather futures or forecasting
Technology risks can be offset through warranties
For lack of engineering studies for actuarial purposes often means that financial risk management
products are badly re-purposed from other fields and prohibitively priced
8.10 Contingency Plans
Contingency planning involves identifying the range of alternative options for providing
acceptable recovery strategies in the event of loss.
Contingency plans can involve the allocation of a fund of money to cover minor cost-overruns or
elaborate plans for alternatives, or the restoration of lost resources, work or services. For each alternative
option identified, its benefits and disadvantages must also be identified so that the optimum solution can
be presented to management for a decision. General contingency strategies are:
Do nothing (choosing this option should be a positive choice, not a default because no one has
taken the time to identify other possibilities!)
Alternative procedures, previously identified and described in detail (for example, a retreat to an
earlier stage in the project so that work can recommence), or alternative ways to proceed from
the point at which the hazard occurs.
Reciprocal arrangements with other organizations the client, contractor or subcontractor can
provide specific resources and facilities in the event of a hazard arising.
![Page 18: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/18.jpg)
DT018 year 1
12
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
8.11 Accepting the risk
The final strategy of managing a risk is the possibility of risk acceptance; the project manager
can decide nothing can or needs to be done at present, but notes that the situation needs reviewing from
time to time during the course of the project. It will be too costly to develop a contingency plan against
everything that could go wrong. During the course of the project execution it will be necessary to review
the list of risks and risk factors to determine:
Whether any risk has become or is likely to become critical at any time soon
To determine whether any new risk has arisen which might require new assessment and possible
planning, or even immediate action.
In any case each risk and any management and contingency plans should be reviewed on a periodic
basis to ensure that, should the worst happen, the project manager will have given some thought about
what to do.
Risk Strategy Type
Supplier goes bankrupt Identify and approach alternative
supplier
Contingency plan
Supplier does not deliver on
time
Insert penalty clause in contract
with supplier
Add extra time to project plan
after date told to supplier
Specification of components or
parts must be met as thy
interface with items from other
suppliers
Stipulate exactly what
specification must be met in
contract with supplier
Key expert in supplier’s
organisation may leave
Watch this situation
Figure 4 Risk, strategy and type (Field Mark et al, 2000)
8.11.1 Risk monitoring
The purpose of risk assessment is to allow the project manager to identify and plan for the risk. The
manager manages risk by monitoring the situation and controlling it when it occurs. Monitoring risk can
be tied to the tracking of milestones. The setting aside of a timetable to examine the situation for the
most likely and most damaging risks, reassessing risks as the project progresses, and, of course, taking
corrective action.
Assess each identified risk regularly to decide whether or not it is becoming less or more
probable
Assess whether the effects of the risk have changed
Each key risk should be discussed at management progress meetings
![Page 19: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/19.jpg)
DT018 year 1
13
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
8.12 General Project management problems
The list of problems within projects boiled down in one expert’s opinion to eight
clear definable reasons. Those listed below could be labelled under the general category
of ‘risk’ but they are also generic in form and so are included in this section.
Inadequate resources
Unrealistic schedules
Unclear goals
Uncommitted team
Bad planning
Unclear communications
Change of directions
Uncooperative teams (adversarial / turf clashes)(Taylor, 1998)
![Page 20: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/20.jpg)
14
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
9.0 Estimation ---Written by: Paul Dunne
Accurate cost estimation is in the words of one authority ‘ The bedrock upon which all aspects of
project pricing, budgeting and cost control are built’(Ross, 1994) The rationale for this was not hard to
find. Without engaging in the proper (cost) estimation process it would be impossible to establish any
kind of budgetary order, financial appraisal, or assess spending. Indeed the very formation of a business
plan let alone calculate the material or manpower spending would be impossible. For a project to succeed
therefore everything would seem to hinge upon the successful implementation of this initial step. The
process of estimation can be complex and it would seem pertinent to mention that all data gathered for
this purpose was only valid for a certain period of time. Yet the successful estimator has to allow for
projects which might run for years. It was at this stage that most confusion arose about the actual
difference between the estimation process and costing. Burke phrased the distinction as the idea that if
costing constituted the defined and detailed price based on a complete bill of materials and data. Then
estimation was a quick method for pricing based mostly on incomplete data.(Burke, 2004) It also gives
notice that the entire process was one in which there was the expectation of error. In fact if a project were
to come in completely within estimates it would be cause for celebration. While at the same time it would
also have to be acknowledged as just mere chance(Lock, 2007) There can be so many variables In terms
of time, inflation, shortages, and even politics, that to get it completely right would be to say the least
unusual. Yet the successful project estimator is expected to do just that. He/she has to compete and win
within these defined boundaries and have the confidence to persevere. The following recommendations
apply to every area in which project estimation is applied, from energy management to construction or
even information technology.
![Page 21: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/21.jpg)
15
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
10.0 Estimation
There are various levels or types of estimation. Below is an illustration of how these are gauged in
terms of accuracy and effort. The key to understanding the approach is to appreciate that the initial
estimate method is a highly inaccurate approximation. This carries with it a health warning that it has
used rule of thumb, to see if it is worthwhile proceeding to the next stage of the estimation process. As
each level is achieved and accepted there is a rising cost to take it to the next. Th is is because each
individual step upwards requires greater investment in terms of time and expertise. However because
there has been this investment in the first place there is a better return in terms of accuracy.
Type of Level of Effort as
Estimate Accuracy % of project cost
Proposal +- 30-50% 0.02-0.1
Budget +- 20-35% 0.1-0.3
Sanction +-10-25% 0.4-0.8
Control +- 5-15% 1-3
Tender +- 2-5% 5-10
Figure 5(Turner, 1995)
So by the final stage (tendering) the accuracy of the es timate should have approached 2-5%. In
terms of the final cost to produce this level of accuracy in estimation one expert quoted the inverse square
law that is: twice the accuracy required four times the effort, or in this case 5-10%.of total project
cost(Turner, 1995)
10.1 Methodology and IT
Estimation methodology is as varied as there are industries and processes which would employ
resources to use it in the first place. Typically there would be a completely different approach to say
estimation in the IT industry than that used for construction or indeed for a green field wind turbine site.
In fact the first two of these very different industries could serve as a template to show how a wide a
spectrum of approach would be needed to balance both. Turner highlighted the difference in end product
to illustrate this. Construction he considered to be almost mechanistic whereas, Software activities could
be at best illusive to define. Within the IT industry the more complex the task and greater the complexity
the harder it was to get an accurate estimate.(Turner, 1995) Furthermore within this same industry there
was a constant stream of innovation. This limited the value of specific information which in the
construction industry could be ascertained from historical sources. Basically they argued that this industry
was doing things so new that they had to develop their structures for estimation as they went along. In the
more traditional industries like construction it was theoretically possible to look into reoccurring
scenarios. This led to the development of approaches which could improve vital aspects to the project like
coordination, which could then be reused on other sites.(Elhag et al., 2005)
This was not to say that there were not some software manufacturing lessons which could n ot be
applied elsewhere. But where the IT industry was doing something like estimation of an Research and
Development project then the project was termed ‘high risk’.(Kerzner, 2009) In fact Kerzner
![Page 22: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/22.jpg)
16
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
recommended that the approach in these situations should be to employ the ‘rolling- wave ‘technique. In
essence this meant that the level of estimation which might be highly accurate for say the first six months
(he termed it level 5) lost its momentum in the second six. The reason for this could be the dependency on
developments from the first half year to affect the results in the second period, thus dropping the
reliability level down to what he termed level 2. This ensured its ‘high risk’ label. To improve this it was
necessary to go through a re-estimation process from for example month 2 to raise the profile of month
seven to a level 5.(Kerzner, 2009) Graphically this is shown In Fig 6
Figure 6 (Kerzner, 2009)
The’ rolling wave’ simply implied that the level of accuracy could be better estimated after an
initiation period. Going forward at this point could dramatically improve the accuracy for the estimation
process six months down the road.
10.2 Methods in Construction
One popular technique used in determining the project cost estimate was as shown below. It was
usually referred to as the above–below line system and it incorporated most of the accounting terms used
on the subject.
![Page 23: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/23.jpg)
17
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
Direct Labour
Direct Materials
Direct Expenses (Direct costs)
Overhead Costs. (Indirect or fixed costs)
Contingency Sums
Escalation
Mark-up for Profit
Selling Price
Provisional Sums (Below the line items)
Figure 7(Lock, 2007)
Most of the above terms are self-explanatory but some of the estimations for example like direct
labour might have two components such as basic wages on the one hand, and taxes insurance, etc. also
known as labour burden on the other
In a well developed industry like construction the approach to an estimation procedure was a
well worn path. In contrast to the IT example the estimator in these instances could make far more use of
things like ‘collective judgement’ or ‘comparison estimating technique’. This would involve using
experiences garnered from previous similar projects and applying them to the new circumstances.
Broadly speaking these come under five headings
Graphic and tabular relationships
Unit rate
Resources allocation method
Factor estimating
Cost indices. (Agnew, 2010)
The proviso that cost data should only be used when using order- of- magnitude estimates was included in
the above reference.
10.3 Generalised Terms
Two other forms of estimating would have to be included in the overall scheme of things and
these were usually known as Top-down or Bottom-up. The top-down version was as the name suggested
a format where the price was given by comparative estimation on a global scale that is, to a similar
project elsewhere. This estimate almost by definition was normally ball-park, but it had one distinct
advantage. It rarely underestimated the cost. The technique included allowances for dividing the project
into its constituent parts which were then priced individually. Onto this price was then added a generous
contingency allowance. Under these circumstances there was little chance of leaving out or forgetting an
item.(Lock, 2007)
The bottom–up version resembled the approach made when trying to achieve accuracies of 5-
10% as explained earlier. However in a general sense these tended to become engrossed in the minutiae
of detail and the danger then existed that a larger oversight might occur. Strangely this was a more
common occurrence when an approach of this nature was made. However for obvious reasons the
bottom-up approach was the one most favoured for use in estimation in general.
![Page 24: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/24.jpg)
18
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
11.0 Work Breakdown Structure
A desirable format for estimation could be the Work Breakdown Structure (WBS). Specifically the
‘packages’ below are used in this way to collate the different estimates or framework for estimates for the
entire project.
Figure 8(Lock, 2007)
On larger projects the above boxes represented spreadsheets. These constituted a hierarchical
structure spreading sometimes through many levels. There is or can be a high level of complexity but
what was most important was how easily the information could be retrieved and collated. With higher
complexity came the necessity to allow for different combinations and permutations of pricing and
estimation. Of the utmost importance was how easily this information could be accessed, refined and if
necessary altered. Structured as above the WBS nature of the filing system allowed for this
11.1 Estimation Technical
Two technical terms in relation to the estimation process needed explanation. The first was estimate
at completion (EAC). As the project progressed there was the need to constantly revalue or update the
original estimate. More information was obviously available to the project manager at this stage and some
of the inevitable glitches and hold-ups would have been more apparent by then. These factors allowed for
the updated version and for a constant finger-on –the –pulse approach to see where if any there was major
deviance from the original estimate. The fact that there might have been some positive gains in terms of
price for the project was also a possibility.
![Page 25: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/25.jpg)
19
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
11.2 ETC
The estimate to complete although similar in sound differed in some key areas. This estimate
was made normally towards the end of a project or from some key point along the critical path, and this
assessed the amount of money necessary from that point onward to finish the project. It normally
translated to the three part relationship below
EAC = ETC – ACWP (Actual Cost of Work Performed) (Taylor, 1998)
![Page 26: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/26.jpg)
20
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
12.0 Analysis
It was important to try and establish whether the estimation process as it existed today was successful
or not. In other words how accurate had the estimates been in general? An unbiased view would regard
this as a fundamental aspect of any report on the subject. The results of several studies were surprising in
their degree of negative outcomes. A typical report read as;
‘The “normal” cost estimation processes and methods are considered to be weak and flawed and are
beginning to yield to more efficient and less costly approaches to achieve the same results’ (Hemanta
Kumar, 2011)
The above heading would seem to reflect a despondent attitude towards the performance of
estimations in a number of key industries and processes. In the software industry the projects sampled
experienced cost overruns of between 150% -200% in one third of all cases. Overall the time overruns
were in the order of 2 -3 times the original estimates. Samples taken outside of the United States, that is
of the construction industry in Australia showed a different phenomena. In these cases it was the size of
the project which showed up the main discrepancies , for example smaller projects were normally
overestimated by a large amount. 86%of the infrastructural projects in the transportation sector of the US
were ‘overwhelmed’ with costs on average nearly one third higher.(Hemanta Kumar, 2011)
Under any heading these findings would seem to indicate a pretty flawed approach to estimation.
While as already stated the science was hardly exact nevertheless one might have expected more. There
were a number of excuses offered and these revolved around things like
attitudes and traditional methods in project estimation,
Increasingly complex projects
Unpredicted additions etc.
12.1 Future Developments
Appendix1 gives a graphic display of the Soft System Methodology which came highly
recommended in the Kumar document. The most important aspect of the report in the final analysis was
the obvious awareness of how stubbornly the problem of estimation inaccuracy persisted within
estimation practices. The system described offered their insight into how to deal with this on an on-going
basis and where the future lay in both analysing and solving the problem. The ultimate goal was to
improve prediction accuracy and it approached the problem from the point of view that the previously
held doctrine of scientific reductionism; namely reducing the investigation to isolated components was
essentially flawed. The SSM approach suggested that the better option was to have a system wide
approach or at least one which was more holistic. It meant that the perceptions of different experts
involved at all levels have an input. These were then collated and shown in their ‘soft’ imaging as shown
in the appendix.
![Page 27: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/27.jpg)
21
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
13.0 Cost Reports---Written by: Rory Conlon
Cost on a project can be defined as:
“The formal expression of plans, goals, and objectives of management that covers all aspects of operations for a designated time period” (Harrin, 2007)
The three main areas with regard to project management on a given project are:
1. Cost
2. Quality 3. Time
While each of the above are as important as one another, nevertheless it is the project itself which
will determine the key element. For example in 2008 Beijing hosted for the Olympics and was due to
build a state of the art stadium to host the games. The most important element here was time since it would have been a project failure if the stadium had not been finished for the start of the games.
Another example, is the Scottish Parliament Building, which is the home of the Scottish
Parliament at Holyrood, within the UNESCO World Heritage Site in central Edinburgh. This project
commenced in June 1999, with the demolition of the previous Scottish and Newcastle brewery and the
beginning of foundation work to support the structure of the building. MSPs began to move into the
building complex in the Summer of 2004, with the official opening by the Queen taking place in October
of the same year. From the outset, the building and its construction proved to be highly controversial. The
choices of location, architect, design, and Construction Company were all criticised by politicians, the
media and the Scottish public. Scheduled to open in 2001, it finally did so in 2004, more than three years
late with an estimated final cost of £414m, many times higher than the initial estimates of between £10m and £40m. This highlights a project failure associated with time and cost.
The Sydney Opera House in Australia is also an example of a project where cost was not
evaluated correctly and in turn ran over budget by a long way. It was formally completed in 1973, having
cost 102 million dollars. The original cost estimate in 1957 was 3,500,000 pounds (7 million dollars). The
original completion date set by the government was 26 January 1963 (Australia Day). Thus, the project
was completed ten years late and over-budget by more than fourteen times. This proved to be one of the
biggest project failures with regard to cost the world has ever seen and is frequently used to illustrate
many mistakes that ultimately can be avoided. These are just a few examples of different projects with time and cost issues.
The following section will deal specifically with cost issues in relation to project management. In
order to assess costs in relation to a project, it is important not to make assumptions or guess the order or size of a budget.
Budgets, particularly costs and charges, should only be produced after adequate research has been completed because only then will costs be controlled and the project not put at risk or compromised.
![Page 28: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/28.jpg)
22
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
14.0 Real Costs
The cost of a project is usually not as transparent as originally considered. The only way of getting a
real understanding of cost is to ensure knowledge of all the details of a project. This will help greatly in
order to get a better understanding of how much a project will ultimately cost and also will avoid any surprises along the way. (Harrin, 2007)
It is statistically shown that most companies go into liquidation due to a cash flow problem and with
this in mind it is very important to manage the amount of money available at any g iven time on a project.
Financial cost management may be defined as:
“Estimating the proper cost that should reasonably be expected to be incurred against a clear baseline,
understanding how and why actual costs occur, and ensuring that the necessary response is taken promptly to ensure actual costs come under budget “(Burke, 2003)
It is very important to ensure that current costs are monitored at all times in the life cycle of a given
project. Records should be kept for all financial dealings that are made on a project. There are three main principles of operation with regard to real costs. They are as follows:
1. Cash Flow statement
2. Income Statement
3. Balance sheet (Burke, 2003)
14.1 Cash Flow Statement
Cash flow statement monitors the amount of money that is put into and taken out of a project.
Generally, this is done on a weekly or monthly basis. It is very like a standard bank statement. The only difference being that income cash and expenditure are in the same bracket.
14.2 Income statement
Income statement should show a detail of all transactions that have been received on a project. It
measures the overall performance of a specified accounting duration. It should also include the net profit
or loss that can happen over a project usual done every month or three months can vary depending on project.
14.3 Balance sheet
Balance sheet should show a complete analysis of all transactions that have taken place on a
project showing the money being made or lost. Also it is a good indicator of a summary of a company’s assets. It allows shareholders and investors to get an idea of how much it has or hasn’t got.
![Page 29: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/29.jpg)
23
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
14.4 Variable Cost Increases
Variable cost increases are rises in materials that may not have being allowed for. An example of this
is on a project were large amounts of electrical cabling and mechanical pipes are being installed , a cost
for copper would be submitted in the original costing, However by the time the cabling is ready for
purchase the price of copper may have risen in some cases quiet significantly . Therefore it is very
important to allow for a separate cost allowance in the original contract in case of a rise in material cost.
![Page 30: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/30.jpg)
24
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
15.0 Earned Value Analysis
There is a method used widely in order to measure the performance of projects cost. It is known as
“Earned Value Analysis”. This is used by many project managers to evaluate the performance of a project
with regard to comparing planned costs to actual costs. Earned value analysis allows for better planning
and also gives early warning signs if a project is in trouble and enables managers to control the issues and to take the necessary remedial measures before it is too late. It allows potential risks to be highlighted.
There are three main factors for cost performance measurement using Earned Value Analysis:
1. Budgeted Cost of Work Scheduled (BCWS) or Planned Value (PV) - This is the sum of budgets
for all work packages scheduled to be accomplished within a given time period.
2. Budgeted Cost of Work Performed (BCWP) or Earned Value (EV) – This is known as the sum of budgets for completed work packages and open works.
3. Actual Cost of Work Performed (ACWP) or Actual Cost (AC) – The actual cost applied within a time period. (Nagrecha, 2002)
15.1 Example of Earned Value
1 2 3 4 Total
Work Scheduled (€)
(Planned Value PV)
250 250 250 250 1000
Figure 9(Conlon, 2012)
The above table indicates the amount of money to be spent over a 4 week period.
As the project progresses it can be shown what will be spent at each stage in the table below.
1 2 3 4 Total
Work Scheduled (€)
(Planned Value PV)
250 250 250 250 1000
![Page 31: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/31.jpg)
25
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
Actual Cost (€)
(Actual Cost AC)
220 200 220 300 940
Variance 30 50 30 -50 60
Figure 10(Conlon, 2012)
From this table we can see that this project is under run by €60. The project was due to spend €
1000 after four weeks but has only spent € 940. (Nagrecha, 2002)
There are many advantages to Earned Value Analysis:
1. Reliable data is received
2. Uses work breakdown structures in order to calculate budgets
3. Provides early warning signs if project is running into problems or is about to run into problems
4. Can be used as a certain method in order to forecast the overall final cost of a project
5. Can reduce an information overload
6. It uses a index based method in order to predict the final cost. (Nagrecha, 2002)
![Page 32: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/32.jpg)
26
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
16.0 NPV (Net Present Value)
NPV can be defined as:
“The difference between the present value of cash inflows and the present value of cash outflows.
NPV is used in capital budgeting to analyze the profitability of an investment or project”
(www.investopedia.com, 2011)
Net Present Value is very important in costing of a project mainly where projects duration is
long term that is, more than two years. It works of the basis that the value of a euro today compared to the
value of your euro in the future is different. NPV uses an interest rate on the value of the euro to show
that the euro today will be worth less in the future this can be a major factor in the planned costing of a
project and made be over looked
Figure 11(Barrett, 2012)
The above chart shows the value of different rates of discount that can applied depending on the
current economic situation in a given country and what level of growth is expected. This interest rate can
then be applied as in the example below in which a 6% interest rate was selected.
Discount Rate % (Or Interest Rate % )
Year 2 4 6 8 10 12 14 16
0 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000
1 0.980 0.962 0.943 0.926 0.909 0.893 0.877 0.862
2 0.961 0.925 0.890 0.857 0.826 0.797 0.769 0.743
3 0.942 0.889 0.840 0.794 0.751 0.712 0.675 0.641
4 0.924 0.855 0.792 0.735 0.683 0.636 0.592 0.552
5 0.906 0.822 0.747 0.681 0.621 0.567 0.519 0.476
6 0.888 0.790 0.705 0.630 0.564 0.507 0.456 0.410
7 0.871 0.760 0.665 0.583 0.513 0.452 0.400 0.354
8 0.853 0.731 0.627 0.540 0.467 0.404 0.351 0.305
9 0.837 0.703 0.592 0.500 0.424 0.361 0.308 0.263
10 0.820 0.676 0.558 0.463 0.386 0.322 0.270 0.227
11 0.804 0.650 0.527 0.429 0.350 0.287 0.237 0.195
12 0.788 0.625 0.497 0.397 0.319 0.257 0.208 0.168
13 0.773 0.601 0.469 0.368 0.290 0.229 0.182 0.145
14 0.758 0.577 0.442 0.340 0.263 0.205 0.160 0.125
15 0.743 0.555 0.417 0.315 0.239 0.183 0.140 0.108
![Page 33: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/33.jpg)
27
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
16.1 Example of NPV:
Years 6% Interest Rate Annual Investment (€) Present Value
(€)NPV
0 1 € 600,000.00 € 600,000.00
1 0.943 € 200,000.00 € 188,600.00
2 0.890 € 200,000.00 € 178,000.00
3 0.840 € 200,000.00 € 168,000.00
NVP +€ 534,600.00
Figure 12 (Conlon, 2012)
The above chart indicates a value of money to manage a project with a three year investment. As
you can see the money that was invested at the start of the project of €600,000.00 is not worth as much
after the three years, it is worth €65,400.00 less. This is an important area that should be considered when
costing any project lasting for a long duration.
Figure 13(Conlon, 2012)
0
100000
200000
300000
400000
500000
600000
700000
1 2 3 4 5 6 7
Year:
Annual Investment (€)
Simple Payback
(Cumulative Cash Flow)
![Page 34: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/34.jpg)
28
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
Finally the above line diagram illustrates the difference between a standard investment and an
investment in which there was an allowance for Net Present Value.
![Page 35: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/35.jpg)
29
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
17.0 Conclusion –Written by Group
Project management has evolved over the years from its infancy in the 1930’s to the rather more
sophisticated level to which it is at today. That evolution has seen innovations which have revolutionised
the science of project control. The object of these progressive steps has been to try and increase the ability
of individual project managers to control their projects. There has been a continuous d rive to increase
efficiency and to predict both time and costs on an on-going basis. This has led to the development of
various systems like PERT and Gantt Charts to help process the information and deliver more accurate
results. But the strides forward have by no means stopped there. Within each of the separate headings
chosen, Project Planning, Risk management, Estimating, and Costs Reports there have been
commensurate innovations also. Risk management has moved onto the expectation of how these
inevitable errors occur and how to prepare for such eventualities. This in turn has given the project
manager tools to deal with the same inevitable fall-out. By focusing on the causes of previous failures the
preparation can be put into place to deal with a foreseeable one in the future. Not only that but it has been
possible to build up profiles of why there is risk build up in projects in the first place. Why for instance
there is the necessity for proper personality traits in management and the desirability for certain policies
to both protect and insulate the workers and the stakeholders in any undertaking.
This assignment looked at how projects particularly those of a larger size could be dealt with using
these four major headings. Each of which brought a particular emphasis on that part of the process. There
was a biased input in favour of newer or green technologies but it was found on a general level that the
lessons in other situations also applied in much the same way here. On some levels the newer
environmental projects were almost in the same category as high risk IT projects. In other ways they
resembled construction jobs. So the lessons learned did cross over to some extent. The overall conclusion
of the assignment would have to be that the individual parts of the processes all contributed vitally to the
whole. In no one undertaking could it be said that one component was more important than the other.
Rather it was the successful combination of all the factors which led to an overall success in the outcome.
If one component failed then this had a detrimental effect on everything else. This applied as much to the
first phase of the operation like estimating as it did to examining cost reports in hindsight. This idea of
failure was a constant theme throughout the whole experience, and it reflected certain realities. These
were ever-present at each stage, and ultimately they would have had to be there. Project management is
exactly that. There are new experiences on each and every job and inevitably there are pit-falls. The ever-
present threat of failure and loss of reputation mean that the undertaking is not for the faint hearted. It
requires a good team and steady nerves.
![Page 36: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/36.jpg)
30
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
18.0 Bibliography
AGNEW, C. 2010. Estimating Techniques. In: D.I.T. (ed.). Dublin: D.I.T Kevin Street.
BARRET, M. (2010) D.I.T. (ed.). Dublin: D.I.T Kevin Street.
BLAIR, GM, Planning a Project, viewed 2 March 2012,
<http://www.ee.ed.ac.uk/~geard/Management/art8.html>.
BURKE, R. (2003) Project Management Planing and control techniques. West Sussex.John Wiley and
Sons.
BURKE, R. 2004. Project Management Planning and Control Techniques, Chichester, John Wiley and
Sons.
CARNEGIEMELLON, U. Planning and Project Management Office – Closure,
viewed 13 March 2012 http://www.cmu.edu/computing/ppmo/project-management/life-
cycle/closing/index.html#Section1
ELHAG, T. M. S., BOUSSABAINE, A. H. & BALLAL, T. M. A. 2005. Critical determinants of
construction tendering costs: Quantity surveyors’ standpoint. International Journal of Project
Management, 23, 538-545.
FIELD, M. KELLER, L. 2000. Project Management, Thomson learning
HARRIN, E. (2007) Project Management in the Real World. Edinburgh Capdm limited.
HEMANTA KUMAR, D. 2011. Understanding stakeholders' perspective of cost estimation in project
management. International Journal of Project Management, 29, 622-636.
KERZNER, H. 2009. Project Management A Systems Approach to Planning, Scheduling, and
Controlling, New York, John Wiley&Sons, Inc.
KISER, J, Elements of Effective Project Management Planning , viewed 8 March
2012 <http://www.ism.ws/files/Pubs/Preceeding/KiserALT.pdf>.
LOCK, D 1996, Project Management , Sixth Edition edn, MPG Books Ltd.
NYS Project Management Guidebook 2006, Project Execution and
Control, viewed 28 Feburary 2012,
<http://www.cio.ny.gov/pmmp/guidebook2/ExcutionAndCotrol.pdf>.
![Page 37: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/37.jpg)
31
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
LOCK, D. 2007. Project Management, Hampshire, Gower.
MEREDITH, J.R. SJM 2012, Project Management A Managerial Approach , Eight Edition edn, John
Wiley & Sons, Inc.
NAGRECHA, S. (2002) Earned Value Analysis, viewed on 11 March 2012
http://www.investopedia.com/terms/e/eva.asp#axzz1pI34CsD8
Projectsmart.co.uk 2012, Project Planning a Step by Step Guide, viewed 10
March 2012, http://www.projectsmart.co.uk/project-planning-step-by-step.html>
ROSS, D. (ed.) 1994. Handbook of Project Management, Hampshire: Gower Publishing.
ROSSO-LIOPART,M.2005, Project Planning and Scheduling , viewed 7 March 2012
<http://www.cs.cmu.edu/~aldrich/courses/413slides/5-planning-1.pdf
SOMMERVILLE,I. 2004. Software Engineering viewed 10 March 2012
http://www.softwareresearch.net/fileadmin/src/docs/teaching/WSO4/Prod/Riskmanagement.pdf
Task Management Guide 2004-12, viewed 7 March 2012,
http://www.taskmanagementguide.com/solutions/task-management-solution/task-allocation.php
TAYLOR, J. (ed.) 1998. Survival Guide for Project Managers., New York: American Management
Association.
TURNER, J. R. 1995. The Commercial Project Manager, Maidenhead., McGraw Hill.
WIDERMAN, RM 2003, Steps in Project Planning, viewed 6 March 2012,
<http://www.maxwideman.com/issacons/iac1079a/index.htm>.
WORREN, J. 2012. Assessing the Risks in Solar Project Development.viewed on 11 March 2012
http://www.renewableenergyworld.com/rea/news/article/2012/02/assessing-the-risks-in-solar-
project-development
![Page 38: Project Management](https://reader033.vdocuments.us/reader033/viewer/2022051414/55a6a7c21a28abd02e8b4848/html5/thumbnails/38.jpg)
32
Steven Agunbiade, Rory Conlon, Paul Derwin & Paul Dunne
19.0 Appendix 1 Soft System Methodology
Figure 14(Hemanta Kumar, 2011)
SSM used things like associations through visual linkages. So above would have
dotted arrows for the more obscure links, whereas the more defined solid lines indicated
stronger connections. This type of ‘rich picture’ representation was used at every stage
of the estimation process.