UNIVERSITY OF SUNDERLAND SCHOOL OF COMPUTING AND TECHNOLOGY LEVEL 3 EXAMINATION ENX314: PROJECT MANAGEMENT MANAGEMENT and APPRAISAL
Revision / Tutorial Questions and Answers
Question 1. The lifecycle of a project may be broken down into 4 stages, namely concept, design, implementation implementation and commission. commission. Figure Q1 below shows how the level of effort typically changes through the lifecycle.
Figure Q1. The stages of the project lifecycle lifecycle and the the level of effort effort associated with each (a) Explain why the level of effort is likely likely to vary between lifecycle phases as shown in Figure 1. (5 marks) (b) What typical tasks are likely to feature in each of the generic lifecycle phases listed above? (12 marks) (c) Explain how the ability of the project manager to to influence influence the project (i.e. add value) varies through each of the lifecyc lifecycle le phases. How does the cost to change the project vary through these phases? (8 marks)
Question 2. (a) The Project Management Institute Body of of Knowledge (PMI BOK) breaks the field of Project Management into NINE (9) different areas. Choose THREE (3) of these and give a summary of the important features of each. (3 x 5 marks) (b) Before any project can go ahead, the interests of stakeholders stakeholders must be considered and managed. Who are these stakeholders and how would you manage their interests? (10 marks) Question 3. A potential 6-year project requires the purchase of a new piece of machinery. You are the project manager and you must choose between two potential machines (Machine A and Machine B), either of which would be suitable. The cost of each machine machine is identical identical at £80,000. £80,000 . However, they differ in performance such that the projected future cash flows are different for each machine. Projected cash flows over the 6 years of the project are as follows in Table Q3a: Year
Cash Flow: Machine A
Cash Flow: Machine B
0
-£80,000
-£80,000
1
£5,000
£35,000
2
£8,000
£25,000
3
£12,000
£18,000
4
£20,000
£10,000
5
£25,000
£7,000
6
£30,000
£5,000
Table Q3a. Six year cash cash flow figures for Machine Machine A and Machine B. (a) (i) By simple inspection of the cash flow figures, state which machine you you would choose and justify your choice. (ii) Your colleague disagrees with your choice. Suggest one valid reason why your colleague’s choice may be justified? (3, 3 marks)
(b) (b) Calculate the total NPV for each each machine after 6 years assuming a discount (inflation) rate of 7% for each year year of the project. Table Q3b provides a list list of discount factors for a range of discount/inflation rates. (10 marks) (c) Calculate Calculat e the Internal Rate of Return (IRR) (IRR) for Machine A A over the 6 year period. You may do the calculation graphically or by any valid method of your your own choice. (9 marks)
Discount Factors for given discount (inflation) rates over a 6-year project Years
1%
2%
3%
4%
5%
6%
7%
8%
9%
1
0.9901
0.9804
0.9709
0.9615
0.9524
0.9434
0.9346
0.9259
0.9174
0.9091
2
0.9803
0.9612
0.9426
0.9246
0.9070
0.8900
0.8734
0.8573
0.8417
0.8264
3
0.9706
0.9423
0.9151
0.8890
0.8638
0.8396
0.8163
0.7938
0.7722
0.7513
4
0.9610
0.9238
0.8885
0.8548
0.8227
0.7921
0.7629
0.7350
0.7084
0.6830
5
0.9515
0.9057
0.8626
0.8219
0.7835
0.7473
0.7130
0.6806
0.6499
0.6209
6
0.9420
0.8880
0.8375
0.7903
0.7462
0.7050
0.6663
0.6302
0.5963
0.5645
Table Q3b. Discount Factors over 6 years for various inflation/discount rates.
Question 4. Table Q4 gives information on the daily employee resource required for a 6-task project together with the early start dates, durations and associated float for each task.
Activity
Float (Days)
Early Start Date (Day)
Duration (Days)
Employees Required (per Day)
A1
0
1
2
2
A2
2
3
2
2
A3
0
3
2
6
A4
2
5
2
3
A5
0
5
4
1
A6
0
9
1
2
Table Q4: Project Employee Resource Requirements
10%
(a) On the basis of the information presented in Table Q4, draw up a Gantt Chart showing activities and their their relative timing. Indicate Indicat e available float on the diagram. Finally, superimpose the required resources on each day of each each activity. Use a format (such as as that shown below in the Figure Q4 template (Activity A1 has been completed for you). Activity Number A1 A2 A3 A4 A5 A6 Total Resources
Day 1
2
2
2
2
2
3
4
5
6
7
8
9
Figure Q4: Template for Gantt Chart (10 marks) (b) Draw up Resource Resource Histograms Histograms for (i) Early Starts and (ii) Late Starts. Comment on the results in terms of employee resource requirements over the duration of the project project given that you are limited to a maximum of 6 employees per day. (15 marks)
Question 5. (a) Table Q5 shows the logic table for a particular project. Task A B C D E F G
Predecessors A A C B B, C D, E, F
Duration (Days) 3 7 5 3 2 4 6
Table Q5. Logic table for project project activities activities A through through G. (i) Construct a Network Diagram showing the various logical activity activit y relationships from this information. (5 marks)
(ii) Perform a forward and backward pass to to complete activity boxes. boxes. Arrange data within activity boxes as outlined in Figure Q5 below.
Figure Q5. Layout of Activity Box information. (5 marks) (iii) (iii) Highlight the critical path on your diagram. (3 marks) (b) It is suggested that the duration of the whole project could be shortened shortene d by 4 days by completing Activity B in 3 days rather than 7 days. Rework the Network Diagram and comment on whether this strategy would succeed. State the reasons for your answer. (12 marks)
Question 6. (a) Consider the two graphs depicted in Figures Q6a and Q6b. Explain the nature of the information provided by each graph and comment on the differing views they present on project performance to “timenow”.
Planned
Actual
Figure Q6a
Planned
Actual
Figure Q6b (10 marks)
(b) What do you understand by the term “Earned Value”? (5 marks) Draw a fully-labelled Earned Value Curve, ensuring you include the following information on your graph. · · · · ·
BCWS, BCWP and ACWP Schedule Variance (SV) and Cost Variance (CV) Estimate at completion (EAC) and Budget at Completion (BAC) Overrun and Slippage Timenow. (10 marks)
Question 7. (a) Sales estimates estimates for a project project are given in Table Table Q7a. With the aid of of this information prepare a cash flow statement for the months June to November. Sales Estimates: JUN JULY Sales 1900 2400 estimate s (units)
AUG 1300
SEPT 2000
OCT 2100
NOV 3800
DEC 2500
JAN 1800
Table Q7a Additional relevant information is given below: ·
·
· · ·
Sales prices prices per unit unit are £40. £40. Customers are given given two months’ credit (i.e. they pay you 2 months later ). ). Material price per unit is £10. Suppliers allow you you one month credit (i.e. you pay them 1 month later ). ). Labour costs per unit are £15. Labour is paid for for in the month of use. Overheads are £3,200 per month. There is a scheduled loan repayment of £24,000 per month for the duration of this project.
Use a template like that shown in Table Q7b to construct your answer. Income & Expenditure Details (£) for months of: August
Brought Forward Income Total Available Expenditure Overheads Materials Labour Loan Total Expenditure Closing Balance
September
Octob er
November
December
January
6,000
Table Q7b (15 marks) (b) As a project manager involved in planning and control, rigorous project monitoring is vital to success. Efficient project control relies relies on the project project manager being being given relevant and timely data on project performance. This involves “data capture”. List, and briefly discuss, 5 aspects of feedback/data capture which you consider important in ensuring efficient project management. (10 marks)
Solutions
Question 1. The lifecycle of a project may be broken down into 4 stages, namely concept, design, implementation implementation and commission. commission. Figure Q1 below shows how the level of effort typically changes through the lifecycle.
Figure Q1. The stages of the project lifecycle lifecycle and the the level of effort effort associated with each (a) The graph above depicts both (i) the instantaneous input to the project and (ii) the accumulated input to the project over the 4 lifecycle phases. During the concept/initiation phase, the level of effort is relatively low and may involve very few people. Once the go-ahead is given to the design/development stage the level of input required is likely to be higher as more detailed planning is put together. togethe r. When Whe n moving to the full-blown implementation/execution implementation/ execution phase the whole project team will be involved and the level of input will rise to a maximum. Finally, once the execution is complete, only commissioning and handover remains and the level of input will fall again. (5 marks)
(b) The main tasks associated with each of the generic project project phases (concept, design, implementation and commission) are likely to include those in the diagram below. The student’s answer need not be exhaustive with respect to the diagram below, but a comprehensive treatment is required for full marks. Similarly, the answer may be presented in diagram, list or essay format, provided the level of information presented is appropriate.
(12 marks) (c) In essence the level level of ability to influence the project decreases with time through each successive project phase. Similarly, Similarl y, the cost to make changes to the project project increases with time through each successive project phase. phase. The student may well choose to explain this with the aid of a sketch graph as below:
(8 marks)
Question 2. (a) The nine areas, plus associated associated important features are given below. Any 3 may be chosen and discussed for 5 marks per area:
PROJECT INTEGRATION MANAGEMENT A subset of project management that includes the processes required to ensure that the various elements of the project are properly coordinated. It consists of: o
o
o
Project plan development - integrating and coordinating all project plans to create a consistent, coherent document. Project plan execution - carrying out the project plan by performing the activities included therein. Integrated change control - coordinating changes across the entire project.
PROJECT SCOPE MANAGEMENT A subset of project management that includes the processes required to ensure that the project includes all the work required, and only the work required, to complete the project successfully. It consists of: o o
o
o o
Initiation - authorizing the project or phase. Scope planning - developing a written scope statement as the basis for future project decisions. Scope definition - subdividing the major project deliverables into smaller, more manageable components. Scope verification - formalizing acceptance of the project scope. Scope change control - controlling changes to project scope.
PROJECT TIME MANAGEMENT A subset of project management that includes the processes required to ensure timely completion of the project. It consists of: o
o
o
o
o
Activity definition definit ion - identifying the specific activities that must be performed to produce the various project deliverables. Activity sequencing sequenc ing - identifying and documenting interactivity interactivit y dependencies. Activity duration estimating - estimating the number of work periods that will be needed to complete individual activities. Schedule development - analysing activity sequences, activity durations, and resource requirements to create the project schedule. Schedule control - controlling changes to the project schedule.
PROJECT COST MANAGEMENT A subset of project management that includes the processes required to ensure that the project is completed within the approved budget. It consists of: o
o
o
o
Resource planning - determining what resources (people, equipment, materials) and what quantities of each should be used to perform project activities. Cost estimating - developing an approximation (estimate) of the costs of the resources needed to complete project activities. Cost budgeting - allocating the overall cost estimate to individual work activities. Cost control - controlling changes to the project budget.
PROJECT QUALITY MANAGEMENT A subset of project management that includes the processes required to ensure that the project will satisfy the needs for which it was undertaken. It consists of: o
o
o
Quality planning - identifying which quality standards are relevant to the project and determining how to satisfy them. Quality assurance - evaluating overall project performance on a regular basis to provide confidence that the project will satisfy the relevant quality standards. Quality control - monitoring specific project results to determine if they comply with relevant quality standards and identifying ways to eliminate causes of unsatisfactory performance.
PROJECT HUMAN RESOURCE MANAGEMENT A subset of project management that includes the processes required to make the most effective use of the people involved with the project. It consists of: o
o
o
Organizational planning - identifying, documenting, and assigning project roles, responsibilities, and reporting relationships. Staff acquisition - getting the needed human resources assigned to and working on the project. Team development - developing individual and group skills to enhance project performance.
PROJECT COMMUNICATIONS MANAGEMENT A subset of project management that includes the processes required to ensure timely and appropriate generation, collection, dissemination, storage, and ultimate disposition of project information. It consists of: o
o
o
o
Communications planning determining the information and communications needs of the stakeholders: who needs what information, when they will need it, and how it will be given to them. Information distribution - making needed information available to project stakeholders in a timely manner. Performance reporting - collecting and disseminating performance information. This includes status reporting, progress measurement, and forecasting. Administrative closure - generating, gathering, and disseminating disse minating information to formalize phase or project completion.
PROJECT RISK MANAGEMENT Risk management is the systematic process of identifying, analysing, and responding to project risk. It includes maximizing the probability and consequences of positive events and minimizing the probability and consequences of adverse events to project objectives. It includes: o
o
o
o
o
Risk management planning - deciding how to approach and plan the risk management activities for a project. Risk identification - determining which risks might affect the project and documenting their characteristics. Qualitative risk analysis - performing a qualitative analysis of risks and conditions to prioritise their effects on project objectives. Quantitative risk analysis - measuring the probability and consequences of risks and estimating their implications for project objectives. Risk response planning - developing procedures and techniques to enhance opportunities and reduce threats from risk to the project’s objectives.
Risk monitoring and control - monitoring residual risks, identifying new risks, executing risk reduction plans, and evaluating their effectiveness throughout the project life cycle. (3 x 5 marks)
(b) In brief, stakeholders are people or organisations who are either actively involved in the project, or whose interests may be affected by the project being positively or negatively by the implemented. implemented. Stakeholders Stakeholders may be affected affected either positively project. Hence some will support the project and some will will oppose it. Hence there is a need to identify and prioritise stakeholders’ needs and make this the basis for action. This may be achieved achieved via an amalgamation of relevant relevant information collected, e.g. by a proforma such as shown below:
(10 marks)
Question 3. (a) (i) Both machines produce an income income of £100,000 over the six years years of the project. Hence return on investment over the six years is is the same for both machines. However, Machine B has the shortest payback period since the level of income is higher in the earlier years. years. Hence machine B would be favoured on a payback period argument. (3 marks) (a) (ii) The main point in favour of Machine A is that the level of income is high at the end of the project and hence income beyond beyond the original project tenure could be significantly higher than that for Machine B. (3 marks) (b) The cash flows should be discounted each year by the relevant discount factor and the total NPV calculated. The relevant relevant calculations calculations are shown in the following tables:
Discount Rate =
7%
Year 0 1 2 3 4 5 6
Cash Flow: Machine A -£80,000 £5,000 £8,000 £12,000 £20,000 £25,000 £30,000
Discount Rate for Year 7% 7% 7% 7% 7% 7%
Year 0 1 2 3 4 5 6
Cash Flow: Machine B -£80,000 £35,000 £25,000 £18,000 £10,000 £7,000 £5,000
Discount Rate for Year 7% 7% 7% 7% 7% 7%
Discount Factor 0.9346 0.8734 0.8163 0.7629 0.7130 0.6663 Total NPV
Present Value -£80,000 £4,672.90 £4,672. 90 £6,987.51 £6,987. 51 £9,795.57 £9,795. 57 £15,257.90 £17,824.65 £19,990.27 -£5,471.19
Discount Factor 0.9346 0.8734 0.8163 0.7629 0.7130 0.6663 Total NPV
Present Value -£80,000 £32,710.28 £21,835.97 £14,693.36 £7,628.95 £7,628. 95 £4,990.90 £4,990. 90 £3,331.71 £3,331. 71 £5,191.18 (10 marks)
(c) The IRR is the inflation inflation (discount) (disc ount) rate at the point at which the total NPV equals zero. zero. Hence this may be found found by plotting the total total NPV against discount rate as shown in the graph below:
IRR plot for Machine A 6000
4000
2000 V P N l a t o T
0
-2000 IRR = 5.25% -4000
-6000 3
4
5
6
7
8
Rate (%)
(9 marks)
Question 4. (a) (a) The completed Gantt Chart should appear as shown: Activity Number A1 A2 A3 A4 A5 A6 Total Resources
1 2
2 2
3
4
2 6
2 6
Day 5
6
7
8
3 1
3 1
1
1
9
2 2
2
8
8
4
4
1
1
(10 marks) (b) Activities 200 and 400 have have a degree of float, so can be scheduled scheduled flexibly flexibly within this float. The Early Start scenario leads to daily resource requirements as shown in the resource histogram below:
(5 marks)
The Late Start scenario leads to different daily resource requirements as shown in the resource histogram (together with revised Gantt Chart) below:
2
(5 marks) The discussion should centre on the “resource smoothing” effect which can be achieved by moving moving activities within their float. If this mechanism mechanis m is not sufficient, other remedies must be sought to balance available and required resources. (5 marks)
Question 5. (a) The completed Network Diagram Diagram should appear as below:
Logical structure:
(5 marks)
Activity Box Data:
(5 marks)
Critical path ABFG (highlighted red):
(3 marks)
(b) After crashing Activity B, the redrawn Network Diagram would appear:
(8 marks) Project would NOT NOT be shortened overall by 4 days - only by 2 days (20 days to 18 days duration):
(2 marks)
This is because the change to the duration of activity B has changed the critical path (ABFG to ACFG):
(2 marks)
(b) After crashing Activity B, the redrawn Network Diagram would appear:
(8 marks) Project would NOT NOT be shortened overall by 4 days - only by 2 days (20 days to 18 days duration):
(2 marks)
This is because the change to the duration of activity B has changed the critical path (ABFG to ACFG):
(2 marks)
Question 6. (a) Two project performance graphs graphs are presented separately:
Question 6. (a) Two project performance graphs graphs are presented separately:
In the first diagram, the project spending performance (planned and actual) is plotted as a function of time up to timenow. On the basis of this graph, the project appears to be performing well because expenditure is below that planned (45% of budget compared to an expected 55% of budget). The project appears to be coming in under budget. In the second diagram, the project progress performance (planned and actual) is plotted as a function of time up to timenow. Here it can be seen that the progress achieved up to timenow is below that expected (40% complete compared to an expected 55% complete). Hence the first suggests good performance while the second suggests poor performance. performance . In fact, 45% of the project budget budget has been spent, while the project has only been 40% completed. This highlights the fact that expenditure and progress data should be presented in an integrated form, such that a true picture of performance against plan is presented. (10 marks)
(b) “Earned Value” Value” is a method method of providing providing the integrated integrated progress progress & cost information that part (a) of this question identified. Earned value is also often termed the “Budgeted Cost for Work Performed” (BCWP ). It is a measure of the the value value of the work that has been performed to date (i.e. up to to timenow). It may be calculated as a proportion of the total project “Budget at Completion” (BAC), depending on how much of the project has actually been completed at that time. time. Very simply, if a project is 50% complete, the Earned Value is 50% of the total project BAC. Earned Value (BCWP) (BCWP ) BAC
=
Percentage Complete (PC or earned progress)
x
(5 marks) The graph should appear much like that shown below.
£ , e r u t i d n e p x E
For a complete diagram:
(10 marks)
Question 7. (a) The cash flow table should be completed as shown below: Income & Expenditure Details (£) for months of:
Brought Forward Income Total Available Expenditure Overheads Materials Labour Loan Total Expenditure Closing Balance
August
September
October O ctober
November
December
January
6,000
11,300
37,100
10,400
- 14,800
- 33,500
76,000 82,000
96,000 107,300
52,000 89,100
80,000 90,400
84,000 69,200
152,000 118,500
3,200 24,000 19,500 24,000 70,700
3,200 13,000 30,000 24,000 70,200
3,200 20,000 31,500 24,000 78,700
3,200 21,000 57,000 24,000 105,200
3,200 38,000 37,500 24,000 102,700
3,200 25,000 27,000 24,000 79,200
11,300
37,100
10,400
- 14,800
- 33,500
39,300
(15 marks) (b) This is a somewhat more open-ended question, but something along the following lines is expected (though marks will be available for any valid/relevant points made: ·
·
·
·
·
The frequency of data capture should be sufficient to allow for adequate response. Daily, weekly or monthly may be appropriate depending on the project. Data should be received before important decision points. Accuracy of data is paramount as it affects control decisions, e.g. ±20% data accuracy is not good enough if control decisions are triggered on a ±10% deviation from plan. In any event, accuracy of data should be better than the profit margin. A higher level of accuracy is usually needed for critical activities, since any delays in these will extend project duration. It often helps to use lots of milestones milestones to report against. These help avoid “optimistic” reporting. Accuracy of data can be improved by reporting progress (% complete) against mini-milestones (10 marks)
