Managing Cost Overruns on projects

1. Managing Cost Overruns on projects Rajiv Dua BSc.(Eng), PMP Managing Cost Overruns and Project Management

2. Today's AGENDA • Introduction’s • Seminar Objective • Seminar Content Introduction to Project Management The Triple Constraint and the nine knowledge areas The processes of project Management Cost Overruns Some methods of overcoming Cost Overruns

3. Seminar Objective • To provide a basic understanding of the fundamental project management principles as per the “Project Management Institute” (PMI) with particular reference to the “Triple Constraint”. With this knowledge attempt to discuss “Cost Overruns” in projects and discuss some methods to overcome these opportunities.

4. Cost Overrun definition • Cost Overruns are the additional percentage or dollar amount by which actual costs exceed estimates

5. Questions? • What kind of Cost Overruns do some of you think you have in your respective organizations? • Why do you think this is or has happened?

6. What is a Project? • A project is a temporary endeavor undertaken to create a unique product or service or result

7. Project Attributes • A project has a unique purpose. • Every project should have a well-defined objective. • A project is temporary. • A project has a definite beginning and a definite end. • A project requires resources. • Resources include people, hardware, software, or other assets.

8. Project Attributes • A project should have a primary sponsor or customer. • A project involves uncertainty

9. Project Manager • A Project Manager is the key to a projects success. • Project Managers work with the Project Sponsors, Project team and other stakeholders involved in a project to ensure successful completion of the project.

10. Definitions Project Manager Project Sponsor Project Team Members Functional Line Managers Stakeholders – Internal and External Steering Committee

11. Project Characteristics • Four Key Characteristics • It is an answer to a business opportunity or problem • It has a specific objective... • It must be approved to proceed • It consumes resources... • It is confined by definable boundaries • It has defined scope, budget, schedule... • It goes through distinct stages • It has a beginning, a middle and an end...

12. Triggers of a project • Projects can be created to answer to a business opportunity or problem • It has a specific, usually time-sensitive objective... • A project objective can be internally or externally triggered: • Internal triggers e.g. a condition impacting the operation of an organization • high costs • poor quality • new products or services • Efficiency of employees • External triggers e.g. a condition imposed on the organization • regulations, codes • competing products • external decisions

13. WHAT IS A PROJECT ? • It is confined by definable boundaries • It has defined scope, budget, schedule... • Boundaries defining a project include: • Scope: What IS and IS NOT included as part of the project • Budget : How much can be expended for direct and indirect costs • Schedule : Start and end dates for each deliverable • Quality : Qualitative terms, conditions and expectations expressing each stakeholders’ interests (ISO 9001,etc.)

14. WHAT IS A PROJECT ? • It goes through distinct stages • It has a beginning, a middle and an end... • From a project management perspective there are three main stages: • Initiation • Execution • Wrap-up

15. PROJECTS vs. OPERATIONS • Projects differ from ongoing operations in the following ways: • projects start and end • projects are focused on one objective • projects have short term strategies • projects end!! • ongoing operations are focused on continuing support of an organization • ongoing operations have long term strategies • ongoing operations focus on multiple objectives • ongoing operations don’t (normally) end!!

16. Project Constraints • Every project is constrained in different ways by its scope, time goals, and cost goals. • Scope: What is the project trying to accomplish? • Time: How long should it take to complete the project? • Cost: What should it cost to complete the project? • These limitations are referred to as the Triple Constraint of project management. • Managing the triple constraint means making trade-offs between project scope, time and cost goals for a project.

17. Project Constraints

18. Operations and Projects • Operations are existing systems and functions whereas Projects are one-time multi-disciplinary resource configuration. • Operations focus on “Maintaining”, whereas Projects focus on “Change”.

19. What is Project Management? • Project Management is “the application of knowledge, skills, tools and techniques to project activities in order to meet or exceed stakeholder needs and expectations from a project.”

20. Project Management Framework T Stakeholders: The people involved in or affected by the projects activities. These include the the project sponsor, project team, support staff, customers, users, suppliers and even opponents to the project.

21. Project Management Framework T Knowledge Areas: the NINE key competencies that project managers must develop.

22. Project Management Framework T Scope Management: involves defining and managing all the work required to successfully complete the project.

23. Project Management Framework T Time Management: includes estimating how long it will take to complete the work, developing an acceptable project schedule, and ensuring timely completion of the project.

24. Project Management Framework T Cost Management: consists of preparing and managing the budget for the project.

25. Project Management Framework T Quality Management: ensures the project will satisfy the stated or implied needs for which it was undertaken.

26. Project Management Framework T HR Management: concerned with making effective use of the people involved with the project.

27. Project Management Framework T Comm. Management: involves generating, collecting, disseminating and storing project information.

28. Project Management Framework T Risk Management: includes identifying, analyzing and responding to risks related to the project.

29. Project Management Framework T Procure. Management: involves acquiring or procuring goods and services that are needed for a project from outside the performing organization.

30. Project Management Framework T Project Mgmt. Integration: is an over-arching function that affects and is affected by all of the other knowledge areas. (This is where it is all brought together.)

31. Project Management Framework T Tool and Techniques: these assist the project managers and their teams in carrying out the management functions of the 9 Knowledge Areas. Examples of these include WBS Diagrams and Gantt Charts.

32. A Systems View of Project Management • Many IT professionals are to busy with their day-to-day activities and often become frustrated by an organizations politics and “red tape” and they often ignore key business issues. • Using a holistic (systems management) approach, helps them integrate business and organizational issues into their project planning, and helps them look at projects as a series of phases. • This ensures that project managers do a better job of planning and developing the project, which leads to increased project success.

33. Project Phases and theProject Life Cycle • A project life cycle is a collection of project phases. • Project phases vary by project or industry, but some general phases include: • Concept • Development • Implementation • Close-Out • The first two phases focus on planning and are often referred to as project feasibility. • The last two phases focus on deliverables and are often referred to as project acquisition.

34. Project Phases and theProject Life Cycle • Concept Phase • A high-level or summary project plan is developed to briefly describe the project and why it is needed. • A rough cost estimate is developed. • A rough overview of the work involved is developed in a work breakdown structure format. • Work Breakdown Structure (WBS): an outcome oriented document that defines the total scope of the project. • At the concept level the WBS document breaks the work tasks out to no more than three levels (3 level WBS).

35. Project Phases and theProject Life Cycle • Development Phase • A more detailed project plan is developed. • A more accurate cost estimate is developed. • A more thorough WBS is developed. • Implementation Phase • Project team delivers the required work. • A very accurate cost (or final cost) estimate is developed. • This phase is where the bulk of the projects time and money should be spent.

36. Project Phases and theProject Life Cycle • Close-out Phase • All of the work is completed and all project activities are wrapped up. • There should be a formal customer acceptance of the entire project and the products it produced. • A “lessons learned” document is created for reference in similar future projects. (This should be done if the project is a failure as well or does not make it to the close-out phase.) • This phased approach minimizes the time and money spent developing inappropriate projects. A project must pass the concept phase before continuing into the development phase and so on.

37. Project Phases and theProject Life Cycle

38. Organizational Frames • Project managers often do not spend enough time understanding the political context of a project in an organization. • To improve the success rate of IT projects, project managers must develop a better understanding of people and organizations. • Organizations can be viewed as having four different frames: • Structural Frame – Organizational chart • Human Resources Frame – shortage of IT and Unrealistic schedules • Political Frame – Conflict and Power struggles for resources • Symbolic Frame - Organizational Culture

39. Organizational Structures • Most organizations focus on the structural frame. • Most people know what an organizational chart is and can follow them. • New managers typically try to change the organizational structure when other changes are needed, and to carve out their piece of the pie. • There are three general classifications of organization structures: • Functional • Project • Matrix

40. Organizational Structures

41. Project Manager’s Influence

42. Top Management Is The Key • Top management commitment is crucial to the projects success for the following reasons: • Project managers need adequate resources. • Project managers often require approval for unique project needs in a timely manner. • Murphy’s Law is understood which relates to Management Reserves • Project managers require cooperation from stakeholders in other parts of the organization.

43. Top Management Is The Key • Project managers must have cooperation from people in other parts of the organization. • Project managers often need someone to coach and mentor them on the finer points of leadership.

44. Project Management Process Groups • Project management can be viewed as a number of interlinked processes. • A process is a series of actions directed toward a particular result. • The five project management process groups are : • Initiating processes • Planning processes • Executing processes • Controlling processes • Closing processes

45. Process Groups

46. Project Management Process Groups • Initiating processes: • These processes are used to initiate every phase of the project life cycle including the close-out phase. • In the concept phase it is used to define the business need for the project, the project sponsor, and the project manager. • To end a project the initiating processes are used to ensure that all work is completed, the customers acceptance of the work, the lessons learned document is created and that resources are reassigned.

47. Project Management Process Groups • Planning Processes: • Used to devise and maintain a workable scheme to accomplish the business need that the project was to address. • Project plans are createdto define each knowledge area as it relates to the project at that point in time. (As the project travels through its life cycle.) • The processes are also used to account for changing conditions on a project and in an organization, project plans are often revised during each phase of the project life cycle.

48. Project Management Process Groups • Executing processes: • These process are used to ensure the coordination of people and other resources follow the project plan and produce the deliverables of either the project or the phase that the project is currently in. Executing processes include: • developing the project team • providing leadership • verifying project scope • assuring product quality • disseminating information • procuring resources and delivering the work.

49. Project Management Process Groups • Controlling processes: • These processes are used to ensure that the project objectives are met. • Projects must be continually monitored and their progress measured against the project plan to ensure corrective actions are taken when necessary. • Controlling processes include performance and status reviews. • Controlling processes are also used to follow project changes and ensure that the changes are identified, analyzed and managed in accordance with the project plan.

50. Project Management Process Groups • Closing processes: • These processes are used to formalize the acceptance of the project or phase and bring it to an orderly end. • This often involves archiving project files, documenting lessons learned and receiving formal acceptance of work delivered. • These phases are not discrete, one-time events, but occur at varying levels throughout every phase of the projects life cycle, and even vary in activities and time for each separate project.