Project Management Prof. Dr.-Eng. А.А. Dulzon

Tomsk Polytechnic University Department of Engineering Entrepreneurship Project Management Prof. Dr.-Eng. А.А. Dulzon

Contentsof the Course • Module 1 Introduction • Module 2 Individual and Team Issues • Module 3 Project Risk Management • Module 4 Project Management Organizational Structures and Standards • Module 5 Project Time Planning and Control • Module 6 Project Cost Planning and Control • Module 7 Project Quality Management

What is a Project? • The first stage in developing an understanding of project management is to define what a project is and what a project is not. This can be made more understandable by contrasting with other production systems: mass production, batch production, project (non-repetitive) production. • The main characteristics of a project: • It involves a single, definable purpose, product or result. • It usually has defined constrains or targets in terms of cost, time and performance requirements. • It uses skills and talents from multiple professions and organizations. • It is unique. A project is generally a one-off activity that is never repeated exactly. • It is somewhat unfamiliar. It may possess significant elements of uncertainty and risk. Failure of the project might jeopardize the organization or its goals.

Characteristics of Projects • It is a temporary activity. It is undertaken to accomplish a goal within a given period of time. Once the goal is achieved, the project is finished. This applies to the project itself, as well as to the organizational structure created to deliver it. • A project passes trough several distinct phases. Tasks, people, organizational structure and resources change as the project moves from one phase to the next. • Usually it is part of an interlinked process (between different projects). • It is generally, except pure research and development organizations, of secondary importance (not the primary objective) to the organization. • It is relatively complex as compared to the standard functional processes. • Projects can be of many sizes. Projects may be external and internal. From the project characteristics highlighted above, it is clear that projects require a unique form of management.

What is Project Management? • Definition of Project Management: - The organizing, planning, directing, coordinating and controlling of all project resources from inception to completion to achieve project objectives on time, within cost, and to the required quality standards.

Cost B A Time Quality Project-management time-cost-quality continuum

The Basic Project Management Structures • Internal or non-executive Project Management – formation of a project team operating within an existing organizational structure. • External Project Management is where an external project manager is appointed on a consultancy basis and acts as an external agent on behalf of the client.

Internal Project Management • Advantages: • Good flexibility in the use of people. Staff are primarily employed to perform a functional task but temporary assigned to projects that require their particular expertise. • Individual experts can be effectively used across a number of projects. • Specialist knowledge can easily be built up and shared within a functional department. • Continuity of expertise, procedures and administration is maintained within the function despite any personnel changes that may occur. The hybrid organization enables people in different functional areas to be formed into highly integrated and very efficient project teams.

Internal Project Management • Disadvantages: • The project manager has to negotiate with individual functional managers for to use of shared project-functional resources. Functional resources often remain under the direct control of the functional manager. • A project may be subject to two lines of authority. A project individual may report directly to both the project manager and the relevant functional manager. • Decision making, accountability, rewards and potential benefits are shared among the members of the project team and the functional units. The task of project management is more complicated and diverse than in other management areas.

External Project Management • The external project manager acts as an external agent on behalf of the client. He appoints other external consultants to form an external project team. • Advantages: • The external system is more flexible than the internal system. External consultants can be hired as required as a function of workload demand. • The external project manager has direct control over the project team. • The functional structure of the organization has no impact on the project.

Organization Senior management Interface manager Functional manager Functional manager Resource Resource Functional team Functional team External project manager External consultants External suppliers External contractors External subcontractors Typical external project management arrangement

External Project Management • Disadvantages: • Instructions and communications between the external consultants and the client have to cross the organizational boundary. This boundary represents a barrier to effective communication. • Team allegiance tends to be lower in external structures. The objectives of the external consultants do not correspond to the objectives of the client, and the external consultants owe no allegiance to the client organization. • There is a greater requirement for risk transfer and contractual control. • There is no in-built knowledge of the firm.

Characteristics of modern project management • A number of characteristics differentiate it from traditional management approaches: • It has several objectives (time, cost and quality) at once. • It is international in that there are standards that are set by an international agency. A global approach has been established and is governed by an international standard association – International Project Management Association (IPMA). This body coordinates the activities of specific international professional associates such as the Association for Project Management (APM) in the UK, the Project Management Institute (PMI) in the USA and the Project Management Association in Russia. • It has relevance and applicability across most industries. • Project management professionals provide advice in relation to full cycle of a project, from inception to completion.

Typical Life Cycle phases • Inception • Feasibility • Prototype • Full design development • Tendering and contractual arrangements • Manufacturing • Commissioning • Operation • Decommissioning • Removal and recycling

The History of Project Management • Projects are so old as the mankind itself. • Elements of project management probably first came to light in the great construction works of history, such as the Pyramids, the Great Wall of China and the Roman roads and aqueducts. • As industry has evolved, it has become more complex. This has resulted in more and more complex projects, which created a need for more effective ways to manage them. • Project management in its current form emanated from the atomic bomb development program by the US military in the 1940s. • In 1957, DuPont Corporation created the critical path method(CPM), and in 1958 the US Navy launched the program evaluation and review technique(PERT). • About ten years later, both methods were combined with computer simulation techniques into a method called graphical evaluation and review technique (GERT).

The History of Project Management • In the late 1960s, the federal government in USA mandated the use of network schedule/costing methods, first with the US Department of Defense and NASA contracts, then later with other large-scale projects such as nuclear power plants. • The Project Management Institute in the USA and the Association for Project Management (APM) in the UK were formally instituted in the late 1960s. • In the 1970s, planning and costing based on an “earned value” concept came into the widespread use. • In 1988, the APM produced its Body of knowledge and assisted greatly in the preparation of British Standard BS6079 in 1969 and European International Standard ISO 1006 in 1997. • Prior to the 1980s, project planning and tracking systems were available only for large computers. Today, low-cost microcomputer and software have made it possible to apply sophisticated planning, scheduling, cost analysis, resource planning and performance analysis to projects of all sizes.

Project Management Today • Project management is now used by numerous different disciplines and has evolved into an integral management component for a wide range of industries. • Project management has evolved into a global generic profession. • Project managers all over the world speak the same project “language”. • Project management as a profession is proving very successful. The UK and US professional bodies for project management are growing faster than any other comparable professional bodies in either country.

Individual and team issues Modern software provides project managers with a level of effective support that could not have been imagined even some years ago. Despite all the assistance from the use of modern computerized tools and techniques some projects fail, others are very successful. People make projects succeed or fail.

The Project Manager • It is very unlikely that any one human being will posses all the personal and management skills that are required of a good project manager. In practice, it has to be decided which are the most important in relation to any specific project and then selecting the person who is most suitable for this work. • A project manager is similar to a chief executive officer or managing director. Indeed, it has become relatively common for large organizations to use project management assignments as a means of developing future general managers. Therefore it is a challenge and a danger at the same time. • The biggest problem faced by project managers arises because they have the authority to make decisions about project priorities, schedules, budgets, objectives, but often do not have the official authority to give direct orders to the people who must carry out the work.

The Role of Project Manager The primary requirements of the project manager’s role can be summarized as: • planning the project activities, schedules and budgets; • organizing and selecting the project team; • interfacing with the client, the organization and all other interested parties; • negotiating with suppliers and clients; • managing the project resources; • monitoring and controlling the project status; • identifying issues and problem areas; • finding the solutions to problems; • resolving conflicts.

The role of Project Manager important to remember: • The roles of the project manager are intrinsically linked and cannot be regarded in isolation; • the project manager works in a dynamic environment.

Success orfailure criteria The requirements have to be carried out within the overall success or failure criteria established for the project as a whole. These include delivering the project: • within the agreed time limit; • within the agreed cost limit; • to at least the minimum quality standards laid down; • to the satisfaction of the client; • to compliance with the strategic plan of the organization; • within the agreed scope. In some cases, the safety standards are also very important project success criteria!

Essential Project Manager Requirements • An effective project manager needs to be able to execute a number of primary functions: • Project planning; • Authorizing; • Team organizing; • Controlling; • Directing; • Team building • Leadership; • Life-cycle leadership.

The Project TeamProject teams within Functional Organizations • Most projects are carried out within traditional organizations designed along functional lines. • The most projects within the functional organization would tend to be internal projects for the benefit of the organization itself. • Project teams are established within the existing system, using resources from within one or several functional departments. • In most project management applications, project teams lie somewhere between the pure functional and pure project extremes. • Although projects may be strategically important to the organization, they are highly unlikely to be the reason for their existence. They are likely to be development in nature and would tend to be projects to improve systems, procedures, methods or products. • There are a number of advantages and disadvantages of project teams within functional organizations.

The Project TeamGroup and team processes • A team is a specific kind of group where collections of individuals work under the direction of a team leader in pursuance of a common objective. • It is important that project managers are aware of both the formal and the informal groups that exist within organizations and the constraints/opportunities they present in executing the project. Informal groups can be as powerful – some times even more so – than formal groups. • The project team is subject to both individual and group behaviors. Individuals tend to behave and function differently depending on whether they are on their own or are acting as a part of a team.

Project team staffing, profile and operation • The effectiveness of the team performance and the whole team-building evolution will depend on the characteristics of the individual specialists who comprise the team. • The project and the project team are subject to constant change throughout the cycle of the project.

Project team staffing and profile • Staffing a project team with competent people is the first stage in team-building process. In selecting team members, a balance of various sills and experience is sought in terms of • technical skills; • management skills; • administrative skills; • interpersonal skills. • In general, there are many processes and problems accompanying the project team staffing. • Project team mix.The project team in the widest possible terms might include: • contractor’s personnel; • subcontractors; • clients; • In-house staff; • any other interested bodies such as inspectors, government, community groups, and lobby groups.

Project team motivation • Project managers are responsible for developing high motivation levels within their teams. There are a wide range of models and theories that can be used to guide them in this process. • McGregor’s “Theory X and Theory Y”. • Maslow’s “hierarchy of needs”. • Equity theory. • Expectancy theory.

Project team communications • In order to ensure good working relationship, to monitor and control, and to take swift corrective actions when required, project managers require good flows of information. • Information flows in two directions • inwards to the project managers from other people and organizations; • outwards from the project manager to others. • Both formal and informal communications will be used as appropriate. • The quality of the information flowing through the system is vitally important fur the success of the project. Inadequate project communication is a common cause of many project failures. • Organizations naturally develop barriers to communication. Most organizations tend to evolve different areas, which are separated from each other by boundaries, that are typically based on functional specialization and power.

Increasing authority Senior management Authority boundary Level 1 Functional manager (A1) Functional manager (C1) Production unit Production unit Production unit Production unit Level 2 Team (A2) Team (A2) Team (C2) Team (C2) Level 3 Team (A3) Team (A3) Team (C3) Team (C3) Function C Function A Increasing number of people Operational island Functional boundary Project team communications

Formal and informal communication systems • Formal communication tools include: • frequently issued reports on all aspects of the project, with clearly defined distribution lists to ensure that only relevant people receive the information; • regular project meetings, where information is disseminated in person; • project memos; • project newsletters, that are useful for distributing information of lower urgency or of social nature; • a project notice-board; • project away-days and events. • Informal communication systems are much less easy to manage and control. They are nevertheless essential to the project team from a social and integrative perspective.

Project team stress and conflict • Project team stress can originate from numerous sources. The three main sources are personal stress, work stress and environmental stress. • An increasing numbers of companies are developing work practices that attempt to control work stress development. • Conflict as a phenomenon is a natural by-product of human interaction. When it is constructive it can be useful in the decision-making and problem-solving approaches. In its most dramatic forms, conflict can lead to project failure. • In the project environment there are six principal areas where conflict regularly occur: • when onerous deadlines have to be met; • where errors or omissions are discovered; • when resources are reduced or are supplied in an inadequate level; • where people clash because of personalities; • in agreeing areas of concentration; • where uncertainty is high.

Project Risk Management • Projects tend to be complex and one-off. They may operate within an environment that is characterized by uncertainty. • The project manager has to make decisions under conditions where risk is an everyday factor. • The project manager has to be able to analyze the project and its environment, and identify the risks that are present. • The project manager has to be able to transfer or reduce unacceptable risks and then set up monitoring and control systems so that residual risk can be managed effectively.

Background to riskThe concept of risk • Risk in the context of project management is a measure of the probability and consequence of not achieving specific project goal. It depends both on the likelihood (probability) of an event occurring and the consequences (impact) of that event should it occur. • Risk is a function of the probability of an event occurring and the consequences of the event if it does happen: Risk = f (event, uncertainty, consequences). • Risk is also a function of the level of hazard represented by an event and the degree of the safeguard that is put in place to counter it: Risk = f ( event, hazard, safeguard).

The concept of risk • Risk and opportunity go hand in hand. Everybody is on the lookout for a good opportunity. • Opportunities exist within an uncertain world and are therefore subject to uncertainty and risk. In order to succeed, companies have to take risks. The relevant risks have to be effectively managed if opportunities are to be exploited. • Risk and risk management should not be seen static. • Risk is therefore both a good thing and a bad thing. It is a driving force behind innovation and enterprise, but it also a threat if not properly evaluated and managed.

Risk handlingApproaches to handling risk • The bunker approach. • Decision makers try to allow for every possible risk and price accordingly. They assume the worst-case scenario and try to recover every possible result. • The obvious end result is a very expensive initial estimate for the project. • This approach is often used for high-quality projects or those where the consequences of failure are large. • Overprovision can itself constitute a risk. In trying to analyze and allow every possible scenario, the product itself may become so expensive that it is no longer viable.

Risk handlingApproaches to handling risk • The ostrich approach. • It assumes that everything will be all right. (AGAP – All Goes According Plan) • Sometimes the people get away with it; at other times the result is a catastrophe. • The ”gut reaction” approach. • Some experienced decision makers use their intuition. • Gut reaction uses a combination of knowledge, experience, extrapolation and subjective assessment. • This approach is itself risky. It is not normally recommended and tends to be used where there is no other form of assessment. • The aggressive approach. • It assumes that uncontrollable risks can be brought under control by pure aggression and determination.

Project risk management Project risk assessment Project risk control Identify risk Measure and control risk Analyze risk Respond to risk Classify and prioritize risk Mitigate residual risk Propose risk response Establish contingencies Analyze residual risk Risk handlingRisk assessment and control

Likelihood of occurrence Rabbits Lions Mice Sharks Potential impact of occurrence Risk assessment and control • Risk assessment is about identifying and assessing all potential risk areas within the project. • The assessment process allows the risk taker to develop a risk typology. This can be based on probability and impact or on safeguard and hazard. • Risk can be classified on risk maps as “lions”, “sharks”, “rabbits”, and “mice”.

Predictable and unpredictable risks • Predictable risks are “known unknown” risks, such as changes in interest rates during times of fluctuation in the economy. They can be predicted with some accuracy although not with certainty. • Unpredictable risks are the “unknown unknowns”. This cannot be predicted with any accuracy. F.e., a dynamic internal unpredictable risk could be a project status change.

Risk conditions and decision making • Risk is intrinsically linked to decision making. • There are generally three main conditions under witch decisions can be made: • conditions of certainty; • conditions of risk; • conditions of uncertainty. • Conditions of certainty apply where the outcome is known. • Conditions of risk apply where is a reasonable probability that an event will occur and where some kind of assessment can be made. These are the “known unknown” events. Most risk management and decision making take place under conditions of risk. • Conditions of uncertainty apply where is not possible to identify any known events. It is not possible to predict outcomes with any accuracy.

Decision making under conditions of uncertaintyUncertainty criteria • Under conditions of uncertainty, it is not possible to predict what state of nature will apply. One of several uncertainty criteria may then apply • Hurwicz criterion (maximax criterion). • Wald criterion (maximin criterion). • Savage criterion (minimax criterion). • Laplace criterion.

Analysis Work breakdown structure Risk identification Risk checklist Internal Risk classification Controllable Risk analysis Impact of occurrence Probability of occurrence Risk-averse Management Risk-neutral Risk attitude Risk-seeking Risk response Risk management strategy Risk holder The concept of risk management

Risk types Specific risk (insurable risk) Potential losses: Fire Flood Breakdown Theft Market risk (business risk) Potential gains and losses: Share value Sales Profitability Acquisitions Risk source and scope Environmental risk Specific market or sector risk Specific company risk Specific company project risk Risk impact High impact risk Medium impact risk Low impact risk The concept of risk managementRisk classification

The concept of risk managementRisk analysis – risk map • The process of risk mapping is sometimes referred to as risk profiling or even risk footprinting. It is basically a process of showing the relationship between risk probability and impact for a range of given risks as a function of time. • A basic risk map has four quadrants, although it may be expanded to more sectors: • Quadrant 1: Red zone (high impact and high probability). • Quadrant 2: Upper yellow zone (high impact and low probability). • Quadrant 3: Lower yellow zone (low impact and high probability. • Quadrant 4: Green zone (low probability and low impact). • The risk map is dynamic. It shows the migration of certain risks over a period of time.

High impact Low probability High impact High probability Impact C Low impact Low probability Low impact High probability A B Probability The concept of risk managementRisk analysis – risk map A

A A B Impact C D Probability The concept of risk managementRisk analysis – risk map with variability limits C

The concept of risk managementRisk analysis – risk response • Risk response basically centers on risk distribution. • The distribution of risk will depend on a number of non-contractual considerations: • Is the outcome of the project worth the risk? • Who has the greatest risk control? • Who has the greatest risk liability? • What incentive does each party have? • Most forms of contract require a more or less collaborative approach to the equitable sharing of risk. • Risk response include: • risk retention; • risk reduction; • risk transfer; • risk avoidance.

The concept of risk managementRisk analysis – risk response • Ignoring the risk is obviously itself a high-risk strategy. Informed risk retention is another consideration. This is most suited to risks that are characterized by small and repetitive losses. • Risk may be reduced by a number of means. It may be possible to engineer risk out of the equation. In edition, risk may be reduced by training and development, or by redefining the aims and objectives of the project. • Risk transfer involves transferring the risk to others. Risk transfer through insurance transfers the risk to the insurance company in return for a premium. Risk can also be transferred through damages clauses within contracts (or through negotiations). • Not all risks can be transferred, and there may be some risks where it is not economical to do so. • Risk avoidance means removing the risk in all forms from the project. • Risk may sometimes be avoided or reduced by seeking additional decision-relevant information.

The concept of risk managementCommon insurance and transfer clauses

Project Management Prof. Dr.-Eng. А.А. Dulzon