Pinto Pm2 Ism Ch13

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INSTRUCTOR’S RESOURCE MANUAL

CHAPTER THIRTEEN Project Evaluation and Control

To Accompany PROJECT MANAGEMENT: Achieving Competitive Advantage

By Jeffrey K. Pinto

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

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CHAPTER 13

PROJECT PROFILE: Solar Power on the Rise Introduction 13.1 CONTROL CYCLES – A GENERAL MODEL 13.2 MONITORING PROJECT PERFORMANCE Project S-Curves Milestone Analysis Gantt Charts 13.3 EARNED VALUE MANAGEMENT Creating Project Baselines Why Bother with Earned Value? Terminology for Earned Value Conducting an Earned Value Analysis 13.4 USING EARNED VALUE TO MANAGE A PORTFOLIO OF PROJECTS PROJECT PROFILE: Earned Value at Northrop-Grumman 13.5 ISSUES IN THE EFFECTIVE USE OF EARNED VALUE ANALYSIS 13.6 HUMAN FACTORS IN PROJECT EVALUATION AND CONTROL Critical Success Factor Definitions Summary Key Terms Solved Problems Discussion Questions Problems Case 13.1 – The IT Department at Kimble College Case 13.2 – The Superconducting Supercollider Internet Exercises MSProject Exercises PMP Certification Sample Questions Bibliography


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CHAPTER 13

PROJECT PROFILE: Solar Power on the Rise Introduction 13.1 CONTROL CYCLES – A GENERAL MODEL 13.2 MONITORING PROJECT PERFORMANCE Project S-Curves Milestone Analysis Gantt Charts 13.3 EARNED VALUE MANAGEMENT Creating Project Baselines Why Bother with Earned Value? Terminology for Earned Value Conducting an Earned Value Analysis 13.4 USING EARNED VALUE TO MANAGE A PORTFOLIO OF PROJECTS PROJECT PROFILE: Earned Value at Northrop-Grumman 13.5 ISSUES IN THE EFFECTIVE USE OF EARNED VALUE ANALYSIS 13.6 HUMAN FACTORS IN PROJECT EVALUATION AND CONTROL Critical Success Factor Definitions Summary Key Terms Solved Problems Discussion Questions Problems Case 13.1 – The IT Department at Kimble College Case 13.2 – The Superconducting Supercollider Internet Exercises MSProject Exercises PMP Certification Sample Questions Bibliography


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TRANSPARENCIES

13.1 A GENERAL MODEL OF THE PROJECT CONTROL CYCLE

The Project Control Cycle


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13.2 – BUDGETED COSTS FOR SAMPLE PROJECT Duration (in weeks)

Design

5

10

6

2

Engineer

4

15

20

25

8

8

8

4

20

Install Test

30

35

40

45

2

6

4

2

Total

6

Total

6

6

8

12

28

8

6

4

2

Cumul.

6

12

20

32

60

68

74

78

80

80


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13.3 PROJECT S-CURVE

Cumulative Cost ($ in thousands)

80

60

40

20

5

10

15

20

25

30

35

40

45

Elapsed Time (in weeks)


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13.4 PROJECT S-CURVE SHOWING NEGATIVE VARIANCE


80

60

$10,000 Negative Var. 40

20

5

10

15

20

25

30

35

40

45


Cumulative Budgeted Cost Cumulative Actual Cost


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13.5 GANTT CHART WITH MILESTONES

Microsoft product screen shot(s) reprinted with permission from Microsoft Corporation.


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13.6 TRACKING GANTT WITH PROJECT ACTIVITY DEVIATION


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13.6 TRACKING GANTT WITH PROJECT ACTIVITY DEVIATION



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13.7 EARNED VALUE TABLE WITH PERCENTAGE OF TASKS COMPLETE

Duration (in weeks)

Design Engineer Install T t

5

10

6

2 4

15

20

25

30

35

40

45

% Comp. 100

8

8

8

4

20

100 6 2

50 6

4

2

0

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13.7 EARNED VALUE TABLE WITH PERCENTAGE OF TASKS COMPLETE

Duration (in weeks)

Design

5

10

6

2

Engineer

4

15

20

25

30

35

40

45

% Comp. 100

8

Install

8

8

4

20

Test

100 6

50

2

6

4

2

Total

6

6

8

12

28

8

6

4

2

Cumul.

6

12

20

32

60

68

74

78

80


0

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13.8 CALCULATING EARNED VALUE (All numbers are in thousands $)

Planned Design

% Comp.

Earned Value

8

100

8

Engineer

28

100

28

Install

30

50

15

Test

14

0

0

Cumul. Earned Value

51


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13.9 PROJECT BASELINE, USING EARNED VALUE


80

Project Baseline 60

Earned Value

40

20

5

10

15

20

25

30

35

40

45



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13.10EARNED VALUE MILESTONES

AC

Actual

Overspend

Cost PV

EV

Budget

Slip

Schedule

Performed

Schedule


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13.11EARNED VALUE TABLE

Activity

Jan

Feb

Staffing

8

7

Blueprinting

Mar

Apr

May

Jun

Jul

Plan

%C

Value

15

100

15

4

6

10

80

8

2

8

10

60

6

Prototype Devel

Full Design

3

Construction

8

10

21

33

7

2

30

32

25

8

10

10

0

0

5

20

0

0

Transfer

Punch List

15

Σ=

118

Monthly Plan

8

7

6

17

10

55

15

Cumulative

8

15

21

38

48

103

118

Monthly Actual 8

11

8

11

10

30

19

27

38

48

78

44

0

Cumulative Actual

8


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13.12 SCHEDULE VARIANCES FOR EVM

Schedule Variances

Planned Value (PV)

103

Earned Value (EV)

44

Schedule Performance Index

EV/PV = 44/103 = .43

Estimated Time to Completion

(1/.43 x 7) = 16.3 months


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13.13 COST VARIANCES FOR EVM

Cost Variances

Actual Cost of Work (AC)

78

Earned Value (EV)

44

Cost Performance Index

EV/AC = 44/78 = .56

Estimated Cost to Completion

(1/.56 x $118,000) = $210,714


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13.14 CRITICAL SUCCESS FACTORS IN PROJECT IMPLEMENTATION 1. PROJECT MISSION

2. TOP MANAGEMENT SUPPORT

3. PLANS AND SCHEDULES

4. CLIENT CONSULTATION

5. PERSONNEL

6. TECHNICAL TASKS

7. CLIENT ACCEPTANCE

8. MONITORING AND FEEDBACK

9. COMMUNICATION

10.TROUBLE-SHOOTING


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DISCUSSION QUESTIONS

1. Why is the generic four-stage control cycle useful for understanding how to monitor and control projects?

One of the more difficult challenges of project control is finding a way to accurately measure progress. The four-stage cycle breaks project down into specific goals that can be measured against the project baseline. Deviations from the planned budget or time line can be identified and corrected swiftly. The fact that it is a cycle, implying repetition of the process, demonstrates the constant need for project monitoring and control measures. The final step in the cycle is to recycle the process resulting in continuous project control.

2. Why was one of the earliest project tracking devices referred to as an “S-curve?” Do you see value in the desire to link budget and schedule to view project performance?

This early device compared project time and cost graphically. The nature of project time and costs creates an S when the points are plotted on a graph, hence the term “S-curve.” There is value in linking the budget and schedule as an indicator of project performance. Following the S-curve, managers can get a rough depiction of expected progress. They can also see deviations of their own project from the typically expected progression.

3. What are some of the key drawbacks with S-curve analysis?

The cause of S-curve drawbacks lies mainly in its lack of tying the schedule and budget to actual project progress. S-curves give little indication as to the cause of variations from projections. The S-curve simply points out deviation of cost in relation to time. It does not relation task completion to time or cost. Therefore, when a deviation is


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discovered it is unknown whether the project is on target so far as physical progress (whether work is being completed on, ahead or behind the anticipated time and budget). Without knowing the cause of the variance, managers may make incorrect assumptions about the status of the project.

4. What are the benefits and drawbacks with the use of milestone analysis as a monitoring device?

Milestone analysis is beneficial in signaling the completion of important project stages and in creating distinctions between work packages. This increases the team’s ability to respond to change and create logical review points. Milestones also provide periodic goals that keep team members motivated. They represent significant accomplishments within the larger picture of the project. It also draws the team’s attention to the project’s status. Overall, the analysis provides a clear picture of project development. However, this form of analysis only allows for reaction to problems, not foresight or prevention. Problems are then able to compound and grow to the point of unmanageable resulting in a significantly over budget/schedule project.

5. It has been said that Earned Value Management (EVM) came about because the Federal Government often used “Cost plus” contractors with project organizations. Cost plus contracting allows the contractor to recover full project development costs plus accumulate profit from these contracts. Why would requiring contractor firms to employ earned value management help the government hold the line against project cost overruns?

Earned Value Management goes beyond reporting costs and progress. It links costs incurred to the time and budget baseline as well as to measurable performance milestones. By using EVM, the government is requiring that costs incurred during the project be directly tied to performance or progress of the project. The cost of the project


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is based on the budgeted cost of work performed. Therefore, negative or positive variances in performance are measured by the value of the work performed, not by the costs spent to complete the work. This allows companies to have a better understanding of what variances mean and their impact on the overall project. By understanding why the meaning of variances, managers are in a better position to take corrective action and to keep the project on schedule.

6. What are the major advantages of using EVM as a project control mechanism? What do you perceive are its disadvantages?

The major advantages of EVM are that it is a comprehensive approach to measuring progress (links cost, time and completion), its use of objective criteria, and it enables more accurate information for decision making. Disadvantages may include the time consuming nature of analysis in large scale projects, mathematical formulas used for efficiency do not take into account unique problems that stall the project or spike costs in one area (which may not lead to overall poor efficiency), and a lack of information regarding what type of corrective action may need to be taken.

7. Consider the major findings of the research on human factors in project implementation. What common themes seem to emerge from the research of Baker, Morris, and Pinto?

The overarching theme is that in order to understand why a project is progressing the way it is the project must be evaluated on human performance criteria. There are several human factors proven to be influential in project success. Some of the main areas that need to be measured are motivation, leadership, expertise and top management support. The problem with this area of assessment is that it lacks a straightforward, objective system for measurement.


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8. The ten critical success factors have been applied in a variety of settings and project types. Consider a project with which you were involved. Did any sub-set of these factors emerge as clearly the most important for project success? Why?

This question requires students to give a specific answer based on their own experience with projects. Responses will vary depending upon the project they select to respond to with the critical success factor model.

9. Identify the following terms: PV, EV, and AC. Why are these terms important? How do they relate to each other?

PV refers to Planned Value. This is the expected (planned) budget for all project activities that are planned to occur within a specific time period. Planned Value is compared with Earned Value to determine the “real” progress that has been made on a project.

EV refers to Earned Value. Earned value is the budgeted cost of the work performed. This is important in establishing the true progress of the project and in understanding the meaning of variances from the project baseline.

AC stands for Actual Cost. These are the total costs incurred to complete project work.

10. What do the schedule performance index and budget performance index demonstrate? How can a project manager use this information to estimate future project performance?

The indexes compare the planned value and actual cost of the project with the earned value (EV) measure to assess “true” project performance. The goal for an organization is


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to maintain SPI and BPI of 1.0 or higher, indicating that the project’s progress is ahead of schedule. The lower the project’s SPI and CPI are from 1.0, the less progress is being made on the project and the higher the likely overruns on schedule and budget we can anticipate.

11. Suppose the SPI is calculated as less than 1.0. Is this good news for the project or bad news? Why?

This would probably be viewed as bad news. A performance index of less than 1.0 indicates that the project, based on current EV and PV information, is not progressing at the planned rate. Depending upon how much less than 1.0 the SPI is, the project’s schedule could either be marginally or significantly delayed.


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CASE STUDIES

Case Study 13.1 - The IT Department at Kimble College

This case identifies some of the serious problems and challenges involved in accurately tracking and determining the status of ongoing projects. In this case, there is no clear method for tracking and identifying project performance midstream. Either it succeeds, or (more often) it comes in very late and over budget. Dan Gray, the new head of the IT department, is not helping the process because he himself has a tendency to paint a rosy picture of his projects.

Questions:

1. As a consultant monitoring this problem, what are your proposed solutions? To what degree has Dan’s management style contributed to the problems?

This department needs to develop a monitoring and control system that allows project managers and administrators the ability to get real-time information on project development so there are no end-game surprises, when a project is “suddenly” late and over budget. The use of earned value, milestones, or some other tracking mechanism is critical.

2. What are some of the types of project status information you could suggest they begin to collect to assess the status of their projects?

Use of standard monitoring and control metrics such as milestones would begin to give some interim updates on project status. The problem with milestones is that they are a reactive measure (you know you missed one only when you miss one). On the other hand, earned value, combined with frequent updates regarding project activity development, can provide real-time information and well as the ability to make


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reasonable projections into the future to avoid any surprises regarding how projects are performing.

3. How would you blend “hard data” and “managerial or behavioral” information to create a comprehensive view of the status of ongoing projects at Kimble College?

Using concepts such as earned value, coupled with “softer” information provided by tools such as critical success factor analysis, will give project managers and top management a more comprehensive assessment or how projects are performing, how effectively project teams are functioning, and early-earning signs in cases where behavioral issues may be poised to negatively affect the project’s performance. “Hard data” and “soft data” each serve a purpose in detailing a clear view of the project’s current status as well as the status of project team performance, which is critical to the a bility to successfully complete the project.

Case Study 13.2 – The Superconducting Supercollider

A famous example of a project that started with great fanfare and was quietly shut down was the Superconducting Supercollider. A particle physics structure as it was conceived, the project received funding after an intense (and some would argue, divisive) competition among various communities seeking to house the complex. A combination of incremental funding coupled with very poor project oversight led to allegations of slipshod work, inflated costs, and unnecessary expenses. All these problems contributed to a rapid decline in the attitude of the Federal Government toward keeping the project alive and it was finally killed through withdrawal of funding. This case also makes an excellent discussion point for that argument that good project management also requires


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good stakeholder management; that is, keeping all the powerful project stakeholders happy and supportive of the project.

Questions:

1. Suppose you were a consultant called into the project by the Federal Government in 1990, when it was still seemingly viable. Given the start to the project, what steps would you have taken to reintroduce some positive “spin” on the Superconducting Supercollider?

This question asks students to think about developing stakeholder management strategies for the project to enhance its reputation. Early warning signs were already emerging about poor cost control and slow, expensive development. However, there was still a window of time in which a canny project manager could have worked to reestablish support for the project from the key funding agencies and powerful congressional members. Students should consider steps to reengage these crucial supporters.

2. What were the warning signs of impending failure as the project progressed. Could these signs have been foreseen and addressed or, in your opinion, was the project simply impossible to achieve? Take a position and argue its merits.

There are several points of departure that students can adopt in answering this question. First, the divisive nature of the competition for the location of the Superconducting Supercollider was guaranteed to ensure that losing communities, and their federal


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representatives, would be upset and unlikely to give the project the benefit of the doubt downstream. Second, the way that project funding was initially doled out at a slow pace (due to Federal budget deficit concerns) made it difficult for the project to kick off strongly; in fact, they had to begin slowly and never were able to gain much momentum. Third, the project also was sold on the basis of European financial support, which never materialized. When this lack of funding became evident, it gave the project’s enemies powerful ammunition to move to kill the program.

The larger question regarding how much of these problems were foreseeable is a debatable issue and one that can generate a lot of in-class discussion as students take one position or the other. The ultimate goal of this component of the case is for them to develop some guidelines for their own careers in projects, in terms of how to uncover warning signs of project difficulties and what positive steps can be taken to address them before they become debilitating to the project.

3. Google “Superconducting supercollider” on the internet. How do the majority of stories about the project present it? Given the negative perspective, what are the top three lessons to be learned from this project?

This is a summary question that asks students to consider the lessons to be learned from this disaster. Most internet sites that address just the science underlying the Superconducting Supercollider offer a mixed view of it and are supportive of the particle


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physics science that drove its development. Federal watchdog groups, on the other hand, view the project as a classic case of governmental waste with nothing to show for it.


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PROBLEMS

1) Using the following information, develop a simple S-curve representation of the expected cumulative budget expenditures for this project.

Duration (in days) 10

20

30

40

50

60

70

80

Activities

4

8

12

20

10

8

6

2

Cumulative

4

12

24

44

54

62

68

70

(Figures are in thousands $)


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Solution:

2) Suppose the above expenditure figures were modified as follows:

Duration (in days) 10

20

30

40

50

60

70

80

Activities

4

8

10

14

20

24

28

8

Cumulative

4

12

22

36

56

80

108

116

Figures are in thousands

Draw this S-curve. What does the new S-curve diagram represent? How would you explain the reason for the different, “non S” shape of the curve?


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Solution:

The “non-S” shape of the curve reflects the fact that project expenditures occurred later in the project, suggesting that the project’s activities may not have followed the traditional life cycle model for resource usage.


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3) Assume the following information:

Budgeted Costs for Sample Project

Duration (in weeks)

Design Engineer

5

10

15

4

4

2

3

Install Test

20

25

30

6

12

8

4

12

24

6

2

6

35

40

45

6

4

2

Total

Total Monthly Cumul.

a) Calculate the monthly budget and the monthly cumulative budgets for the project.

b) Draw a project S-curve identifying the relationship between the project’s budget baseline and its schedule.


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Solution: a) Budgeted Costs for Sample Project

Duration (in weeks)

Design

5

10

15

4

4

2

3

Engineer Install

20

25

6

12

8

4

12

24

6

2

Test

30

35

40

45

6

6

4

2

Total Monthly

4

7

12

24

34

12

6

4

2

Cumul.

4

11

23

47

81

93

99

103

105

Total

a. S-Curve rendering


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4) Use the following information to construct a “Tracking Gantt” chart using MS Project.

Activities

Duration

Preceding Activities

A

5 days

none

B

4 days

A

C

3 days

A

D

6 days

B, C

E

4 days

B

F

2 days

D, E

Highlight project status on day 14 using the tracking option and assuming that all tasks to date have been completed on time. Print the output file.


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Solution:



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5) Using the above information, highlight the project’s status on day 14 but assume that activity D has not yet begun. What would the new tracking Gantt chart show? Print the output file.

Solution:


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5) Using the above information, highlight the project’s status on day 14 but assume that activity D has not yet begun. What would the new tracking Gantt chart show? Print the output file.

Solution:



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6) Use the following table to calculate project schedule variance based on the units listed below.

Schedule Variance Work Units

Planned

A 20

B 15

C 10

D 25

E 20

F 20

Value Earned

10

10

10

20

25

25

Value Schedule variance

Total 110

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6) Use the following table to calculate project schedule variance based on the units listed below.

Schedule Variance Work Units

Planned

A 20

B 15

C 10

D 25

E 20

F 20

Value Earned

10

10

10

20

25

25

Total 110

Value Schedule variance

Solution: Schedule Variance Work Units

Planned

A 20

B 15

C 10

D 25

E 20

F 20

Total 110

Value Earned

10

10

10

20

25

25

100

Value Schedule

-10

-5

0

-5

5

5

-10

variance


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7) Using the following data, calculate the planned and actual monthly budgets through the end of June. Assume the project is planned for a 12-month duration and $250,000 budget.

Activity

Jan

Feb

Staffing

8

7

Blueprinting

4

Prototype Development

Mar

Apr

May

Jun

6

2

Full Design

8 3

Construction

Plan

%C

15

100

10

100

10

70

8

10

21

67

2

30

32

25

10

10

0

Transfer

Value

Monthly Plan Cumulative Monthly Actual

10

15

6

14

9

40

Cumul. Actual


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Solution:

Activity

Jan

Feb

Staffing

8

7

Blueprinting

4

Prototype Development

Mar

Apr

May

Jun

6

2

Full Design

8 3

Construction

Plan

%C

Value

15

100

15

10

100

10

10

70

7

8

10

21

67

14

2

30

32

25

8

10

10

0

0

Σ=

54

Transfer

Monthly Plan

8

11

8

11

10

50

Cumulative

8

19

27

38

48

98

Monthly Actual

10

15

6

14

9

40

Cumul. Actual

10

25

31

45

54

94


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8) Using the data from #7 above, calculate the following values:

Schedule Variances

Planned Value of Work Scheduled (PV) Earned Value (EV) Schedule Performance Index (SPI) Estimated Time to Completion

Cost Variances

Actual Cost of Work Performed (AC) Earned Value (EV) Cost Performance Index (CPI) Estimated Cost to Completion

Solution: Schedule Variances

Planned Value (PV)

98

Earned Value (EV)

54

Schedule Performance Index (SPI) Estimated Time to Completion

EV/PV = 54/98 = .55 (1/.55) x 12 mos. = 21.75

mos.

Cost Variances

Actual Cost of Work Performed (AC)

94

Earned Value (EV)

54

Cost Performance Index (CPI)

EV/AC = 54/94 = .58


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Estimated Cost to Completion

(1/.58) x $250,000 = $434,622

9) You are calculating the estimated time to completion for a project of 1-year duration and a budgeted cost of $500,000. Assuming the following information, please calculate the schedule performance index and estimated time to completion.

Schedule Variances

Planned Value of Work Scheduled (PV)

65

Earned Value (EV)

58

Schedule Performance Index

Estimated Time to Completion

Solution: Schedule Performance Index (SPI) = 58/65 = .89

Estimated Time to Completion = (1/.89) x 12 months = 13.45 months, or almost 2 months behind schedule .


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10) Suppose, for the problem above, that your PV was 75 and your EV was 80. Recalculate the SPI and estimated time to completion for the project with this new data.

Solution: Schedule Performance Index (SPI) = 80/75 = 1.07

Estimated Time to Completion = (1/1.07) x 12 months = 11.25 months, or approximately 3 weeks ahead of schedule .


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11) Assume you have collected the following data for your project. Its budget is $75,000 and it is expected to last 4 months. After two months, you have calculated the following information about the project:

PV

=

$45,000

EV

=

$38,500

AC

=

$37,000

Calculate the SPI and CPI. Based on these values, estimate the time and budget necessary to complete the project? How would you evaluate these findings (i.e., are they good news or bad news?)

Solution: SPI = EV/PV = $38,500/45,000 = .86

CPI = EV/AC = $38,500/37,000 = 1.04

Estimated Time to Completion = (1/.86) x 4 months = 4.68 months

Estimated Cost to Completion = (1/1.04) x $75,000 = $72,078

The findings are a bit of good news and a bit of bad. The good news is that your estimated cost to completion is lower than the original budget; however, the bad news is that the project is behind schedule and is likely to take 4.65 months to complete, rather than the originally planned 4 months.


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MSProject EXERCISES

Problem 13.1

Using the following data, enter the various tasks and create a Gantt chart using MSProject. Assign the individuals responsible for each activity and once you have completed the network, update it with the percentage complete tool. What does the MSProject output file look like?

Activity

Duration

Predecessors

Resource

% complete

A. Research product

6

-

Tom Allen

100

B. Interview customers

4

A

Liz Watts

75

C. Design Survey

5

A

Rich Watkins

50

D. Collect Data

4

B, C

Gary Sims

0

Solution:



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Problem 13.2

Now, suppose we assign costs to each of the resources in the following amounts:

Resource

Cost

Tom Allen

$50/hour

Liz Watts

$55/hour

Rich Watkins

$18/hour

Gary Sims

$12.50/hour

a. Create the resource usage statement for the project as of the most recent update. What are project expenses per task to date?

Solution:



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Problem 13.3

Use MSProject to create a Project Summary Report of the most recent project status.

Solution:



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Problem 13.4

Using the data shown in the network precedence table below, enter the various tasks onto MSProject. Then select a date approximately halfway through the overall project duration and update all tasks in the network to show current status. You may assume that all tasks in the first half of the project are now 100% completed. What does the Tracking Gantt look like?

Project - Remodeling an Appliance Activity

Duration

Predecessors

A.

Conduct competitive analysis

3

-

B.

Review field sales reports

2

-

C.

Conduct tech capabilities assessment

5

-

D.

Develop focus group data

2

A, B, C

E.

Conduct telephone surveys

3

D

F.

Identify relevant specification improvements

3

E

G.

Interface with Marketing staff

1

F

H.

Develop engineering specifications

5

G

I.

Check and debug designs

4

H

J.

Develop testing protocol

3

G

K.

Identify critical performance levels

2

J

L.

Assess and modify product components

6

I, K

M.

Conduct capabilities assessment

12

L

N.

Identify selection criteria

3

M

O.

Develop RFQ

4

M

P.

Develop production master schedule

5

N, O

Q.

Liaison with Sales staff

1

P

R.

Prepare product launch

3

Q


Pinto Pm2 Ism Ch13

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