Project Management, Project Network Diagram - Research Paper Example

Project Management Table of Contents Table of Contents 2 Introduction 3 SMART 3 WBS 5 Project network diagram 8 PERT 10 Cash flow analysis 11 Decision tree 13 Conclusion 14 Reference 16 Introduction A project is a temporary endeavour that is comprised of a sequence of activities and requires a vast range of resources. It is designed to achieve a unique and a specific outcome and operates within a specific time, cost and quality constraints. Every project demands a unique set of knowledge, skills, tools and techniques. The process that ensures proper integration, planning, monitoring, controlling and closing of the above mentioned activities is known as project management. Project management plays a huge role in making a project successful. Project management team is entrusted with the responsibility of retaining the desired efficiency during the entire course of the project. From conceiving to executing, the project management team uses different tools and techniques to design every step of the project plan. Some of the tools are also used for evaluating the progress of the project plan. The results revealed by it are used to make the required amendments so as to retain the efficiency of the project in terms of time, cost and quality. Some of the commonly used tools in project management are SMART, WBS, Project network diagram, PERT, Cash flow and Decision tree. This project will discuss these tools in details with appropriate real life situation. This will result in a comprehensive understanding of these tools in the process of planning as well as risk measurement. SMART Before starting the project, the project management team should have a clear understanding of the needs and demands of the customers. As per the customer’s requirements, the project management team develops a set of objective for the project. Formation of project objectives can be considered as the first step towards project management and the success of the project is dependent on the clarity of the objectives. Thereafter, the project management team develops the plan design in alignment with the project objective. To develop the same, the concept of “SMART objective” is often used in many projects. SMART represents the following criteria of an effective objective. These are as follows: Specific: The objective should be specific and should clearly define the goals and objectives of the project. This will provide unambiguous information to all involved and help to nurture a common understanding. Measurable: The project objective should be measured in numeric or binary form (like yes/no, true/false, etc). These measurements help the project management team to quantify the time (in hours), cost (in currency) and volume (work/hour) allotted for accomplishing the project objectives. Agreed to: The project objective has bearing on all the members involved; hence it is logical to achieve common consensus. Therefore, all the key stakeholders of the project should give their agreement before setting up the project objectives. Realistic: The project objective should have a rational base and should be within the achievable range. In other terms, it should not have such time, cost and quality constrains that makes it almost unattainable. Time-based: The project objective should specify the time boundary within which the project should be completed. If the project crosses this time, its utility may decline or in certain cases it may lapse completely. (Hill, 2009, p.63-63). As for example, if the company considers a project for implementing a Management Information System (MIS) in the organisation, then its SMART objective should specifically explain the objective, i.e. use of a common data base throughout the organisation. The objective will also explain the time duration and the available cost that can be used while investigating data base maintained by different departments. All head of the department should discuss the matter with the project management team to explain their individual requirements and their expectation from the project. Therefore the final aim will be to take care of individual requirement of different departments. The project objective will be developing a common data base that can be used by different departments to derive the required information. This MIS should remove redundancy of data and assist in smooth flow of authenticated information throughout the organisation. While developing the objective, starting date as well as finishing data should be clearly specified. WBS “Work breakdown structure (WBS) is a detailed listing of steps required to complete a project” (Kliem, et al., 1997, p.71). Through WBS, the project management team categorises the project into specific activities that needs to be performed to accomplish the project objectives. For each activity or task, specific cost and time is assigned. Such fragmentation of time and cost eases the process of completion while retaining the quality specifications. Many a time the project manager assigns different tasks to different individuals of different teams for proper allocation of responsibility and accountability. WBS helps the project management team to have better control on the planning and implementation of the project objective. This tool is also helpful in determining the resource requirement and their appropriate allocation. WBS is used to convert a vaguely defined complex operation into series of simple and clearly defined group of task, called work package. Depending on the complexity and size of the project, levels of WBS are determined. In general 5 to 7 levels are commonly used in a moderate size project. The 1st level comprises the complete project, the 2nd level represents major deliverables and in the 3rd level supporting deliverables are represented. The 4th level constitute the lowest management responsibility level i.e., lowest sub-deliverables. In the 5th level the tasks are grouped in work packages and activity for each of the work package is identified. Hence cost account and work package form the final (5th) level. For example, consider a project of banquet development. The 1st level will constitute the complete project, the banquet. In the 2nd level, all the basic deliverables of the banquet will be identified; for example planning and supervision, dinner, room and equipment, guests, staff and the speaker. In the 3rd level, all the basic activities required under each of the deliverable are ascertained. To maintain an account of each basic task/activity specific numbers are allotted. As in the given example Banquet is indexed as 1.0, planning & supervision is indexed as 1.1 and all the activities under this particular deliverable are indexed as 1.1.1, 1.1.2, 1.1.3 and so on. Such division of labour helps in keeping a track whether all the activities are completed within the predetermined time frame. In some cases, WBS can also allow parallel processing of different activities thereby reducing the lead time of the project. This technique is quite important in project management because many other techniques such as networking, PERT, cost flow networking and Gantt chart are based on tasks derived as the final product of WBS. Therefore the tools and techniques used for planning and risk identification of project are based on the final tasks produced by WBS. Project network diagram “Network diagram is a schematic display of the logical relationships among or sequencing of project activities” (Schwalbe, 2006, p.112). This definition of the network diagram clearly specifies that this technique assists in representing the activities on the basis of their mutual relationship with each other. This network diagram is basically used while planning the project and finalising the sequence of flow of work for accomplishment of the project within the allotted time. While developing the network diagram, the project management team should first find out the time required for completing each of the tasks. After that, according to the mutual dependency of the activities on each others, predecessor activities should be identified. It is not possible to start an activity without completing the predecessor activities. It is quite important to follow the same task code for all the activities as determined during WBS. Finally, the network diagram is to be drawn where activities are presented on the arrow and the node presents starting and finishing point of the activity. On the arrow sign the unique activity code as well as the as time required by each activity should be presented. While drawing the network diagram all the activities are presented as per their dependency with each other and the final diagram resemble a web of activities with a starting and an ending time. Later on, all the possible paths are identified and the total time taken by each is calculated. The one that possess the longest time represents critical path and this also indicates the minimum possible time required for completion of the project. For better understanding, the below given example should be taken into account. It presents the activities that are required for selection process in an organisation. Job ID Task Duration(Week) Predecessor activities A Candidate list building 6 0 B Defining criteria for selection 3 0 C Candidate screening 50 A D Conducting interview 30 A, B E Conducting reference check 25 B F Compiling information 35 C G Distributing information 3 F H Conducting selection process 3 E, G For each of the possible paths the time taken is calculates as follows: A, C, F, G, H = 6+50+35+3+3= 97 Weeks (Critical path) A, D, G, H = 6+30+3+3= 42 Weeks B, E, H = 3+25+3=31 Weeks As the time taken by the first path is the highest, hence it represents the critical path. (Barkley, 2004, p.40-42) PERT “Program evaluation and review technique (PERT) is an event-oriented network analysis technique used to estimate project duration when individual activity duration estimates are highly uncertain” (Mubarak, 2010, p.264). As compared to critical path model (CPM), PERT provides a logical relation based network that represents the probability associated with the duration of each of the activities. For each of the activity, three possible time durations are derived, optimistic duration (To) which indicates the earlier possible time for competition of the activity. Most likely duration time (Tm) is the normal time the activity can take and pessimistic duration (Tp) is the longest time taken for completing the activity under worst case scenario. Therefore, the expected duration (Te) for each of the activity is calculated as Te = To + 4 Tm + Tp 6 These expected times can be used to determine deviation in the time of completion of each of the activity. PERT is used as risk management tool during project management by determining the SD as (Tp - To )/6 and variance as the square of SD. The summation of all the variances provides the total risk associated with the project. ID Task To Tm Tp Te SD Variance A Candidate list building 5 6 9 6.33 0.67 0.44 B Defining criteria for selection 2 3 5 3.17 0.50 0.25 C Candidate screening 42 50 55 49.50 2.17 4.69 D Conducting interview 25 30 39 30.67 2.33 5.44 E Conducting reference check 20 25 28 24.67 1.33 1.78 F Compiling information 29 35 40 34.83 1.83 3.36 G Distributing information 2 3 6 3.33 0.67 0.44 H Conducting selection process 2 3 7 3.50 0.83 0.69 Total       156   17.11 Cash flow analysis Finance is one of the major factors that need to be controlled while managing the project. At the beginning of the project planning, the project management team develops a budget that clearly indicates the cost of completion for each of the task. Before accepting the project, it is quite important to conduct cash flow analysis. Taking the cash outflow as developing and operating cost and cost inflow as income from the project, net present value (NPV) should be analysed. If the project provides a positive NPV, then only the project should be accepted. When the risk associated with the project is high, it is always good to use “payback period” techniques to select the ideal project. The one that has the lowest payback period should be selected. Things will be clearer when the below given example is considered: A company start a project with initial investment of $1,000,500 and cash flow for each year is used to determine the NPV of the project. As the risk associated with the project is high, hence discounting rate of 18% is used. NPV analysis All the figures are in $   Cash Flow DF@18%) PV Year 0 (1,000,500.00) 1 (1,000,500.00) Year 1 150,000.00 0.847 127,050.00 Year 2 270,000.00 0.718 193,860.00 Year 3 572,000.00 0.609 348,348.00 Year 4 455,000.00 0.516 234,780.00 Year 5 310,500.00 0.437 135,688.50 NPV 39,226.5   Positive NPV indicates that project will be profitable if accepted but as the risk associated is high, payback period analysis was conducted. Payback Value All the figures are in $   Cash flow Cumulative CF   Year 0 (1,000,500.00) (1,000,500.00)   Year 1 150,000.00 (850,500.00) 1 year Year 2 270,000.00 (580,500.00) 2 year Year 3 572,000.00 (8,500.00) 3 year +7 days Year 4 455,000.00 -   Year 5 310,500.00 -   It is found that the project will take almost 3 years to recover the initial investment of $1,000,000. As the project is quite risky and cash inflow in 1st and 2nd year is quite low, so there is a high possibility that the company will not accept this project. Decision tree Decision tree analysis is often used while taking decisions but this is seldom used as a standalone technique. As for example, when a company has to make a crucial decision regarding make and buy of an asset, then all the data pertaining to it should be taken into consideration. Probabilities associated with possible outcomes (on-time schedule and out of stock) should also be taken into consideration. It is found that expected value of ‘make’ is $245,000 and of ‘buy’ is $240,000. (Source: Goodpasture, 2004, p.109) After considering the above given condition it appears that risk associated with ‘buy’ is $240,000-($200,000+$200,000) = -$160,000 whereas the risk associates with ‘make’ is $245,00-($125,000+$200,000) = -$80,000. Hence, when the conditions are unfavourable, risk is high if the company decide to buy the products. Conclusion Project management is necessary for completing the project within the predetermined time and cost benchmarks. Therefore, the project management team uses different tools and technique for planning as well as determining the risk associated with the project. As discussed earlier SMART, WBS and project network diagram are mainly used for planning the project. PERT is used to determine the risk associated with it. After identifying the time taken by different tasks, the risk of time over-run can be detected. Cash flow analysis and decision tree analysis can effectively minimise the risk associated with the project. Therefore, each of these techniques should be carefully used for completing the project within the allotted time schedule and cost budget. Reference Barkley, B. (2004), Project risk management. McGraw-Hill Professional. Goodpasture, J. C. (2004), Quantitative methods in project management, J. Ross Publishing. Hill, G. M. (2009), The Complete Project Management Methodology and Toolkit. CRC Press. Kliem, R. L. Ludin, I. S. & Robertson, K. L. (1997), Project management methodology: a practical guide for the next millennium, Volume 1. CRC Press. Mubarak, S. (2010), Construction Project Scheduling and Control. John Wiley and Sons. Schwalbe, K. (2006), Introduction to project management. Cengage Learning. Read More