Master’s Thesis Proposal and Literature Review (draft)

Project Budget Estimation with Corrections for Systemic Error and Multi-Project Portfolio Selection Master’s Thesis Proposal and Literature Review (draft) by Lilit Gevorgyan

Proposal • The research will utilize real data provided by the CARD (Center of Agriculture and Rural Development) foundation. • Established in April 2005, CARD is an independent local foundation providing agricultural services and support the development of agribusiness in Armenia. • One of the core business processes of the CARD foundation is the grants provision. Background

Proposal First step Project budget assessment – how make estimation to be close to the reality? The approach is optimal cost buffer determination for budget assessment based on Simple Bias Model, developed by Trietsch. All parameters needed for the method will be estimated through historical data. Statement of the problem

Proposal Second step • Having estimated budgets of different projects to determine which projects should be supported and how much should receive each of the projects, in such a way that quality and quantity of supported projects are maximized according to the decision maker’s preferences. • The task is most beneficial multi-project portfolio selection under the budget constraint and other predefined criteria. Statement of the problem

Proposal • Measuring success of the research - compare the cost associated with the suggested approach with the company’s actual historical costs. Evaluation of the research

Literature Review • CPM is a network–based method for modeling project in the node-arc diagram. • The CPM requires: • determination of project activities durations and precedence relationships for construction of network model; • calculation of ES & EF for each activity by moving forward; • calculation of LS & LF for each activity by moving backward; • determining of slack for each activity (possible delay of activity from its ES without delaying the project); • finally identification of Critical Path. CPM/PERT

Literature Review • PERT is a probabilistic model. • Each activity requires 3 estimates of duration: pessimistic, optimistic and most likely. • Mean is calculated by E=(a+4m+b)/6 formula, standard deviation by S=(b-a)/6 formula. • It assumes that sum of the mean durations of activities on the critical path is normally distributed according to the Central Limit Theorem, and the variance of the project is the sum of activities’ variances. • PERT uses only mean times of activities in determination of critical path and ignoring its distribution by which making the model to be deterministic. CPM/PERT

Literature Review • Critical Chain Project Management (CCPM) suggested the incorporation of safety buffers. • Buffer represents the difference between project due date and its estimated duration (or for cost). • The approach is to pool sum of activity buffers at the end of Critical Path and integrate feeding buffers where chains of activities come together with the Critical Path. • Importance of feeding buffers is that they decide when to start non-critical paths whereas neither the early start method nor the late start method gives correct approach. • The CCPM buffering technique uses the same statistical origin as PERT, but only two estimates for the task: most likely and low risk. Critical Chain

Literature Review The existing models for buffer estimation are based on the assumption that project activities are statistically independent. This leads to unrealistic conclusion that project buffers are becoming negligible for large size projects. The reasons for project planning errors - systemic estimation bias. Trietsch in his paper suggested an optimal buffering for the most basic case (projects with n activities in series not necessarily independent). • Simple Bias Model considering statistical dependence between activities caused by estimation bias. • New approach for data collection - single point activity estimates, calculate other estimates based on historical data. The Simple Bias Model can be used to provide more reliable sizing of buffers for new projects and it will serve as a base for the current thesis. Estimation Bias

Literature Review • Leach, Lawrence P. (2000). Critical Chain Project Management. Artech House. • Trietsch, Dan. (2005). The effect of systemic errors on optimal project buffers. International journal of project management. • Trietsch, Dan. (March 2005). Why a critical path by any other name would smell less sweet: towards a holistic approach to PERT/CPM. Project management journal. References

Master’s Thesis Proposal and Literature Review (draft)