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Cost Estimation and Management Strategies

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Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Introduction

Cost is one of the three pillars supporting project success or failure, the other two being Time and performance. Projects that go significantly "over budget" are often terminated without achieving the construction project goals because stakeholders simply run out of money or perceive additional expenditures as "throwing good money after bad." Projects that stay within budget are the exception, not the rule. A construction project manager who can control costs while achieving performance and schedule goals should be viewed as somewhat of a hero, especially when we consider that cost, performance, and schedule are closely interrelated.

The level of effort and expertise needed to perform good cost management are seldom appreciated. Too often, there is the pressure to come up with estimates within too short a period of time. When this happens, there is not enough time to gather adequate historical data, select appropriate estimating methods, consider alternatives, or carefully apply proper methods. The result is estimates that lean heavily toward guesswork. The problem is exacerbated by the fact that estimates are often not viewed as estimates but more as actual measurements made by some time traveller from the future. Estimates, once stated, have a tendency to be considered facts. Project managers must remember that estimates are the best guesses by estimators under various forms of pressure and with personal biases. They must also be aware of how others perceive these estimates.

It requires an understanding of costs far beyond the concepts of money and numbers. Cost of itself can be only measured, not controlled. Costs are one-dimensional representations of three-dimensional objects travelling through a fourth dimension, time. The real-world things that cost represents are people, materials, equipment, facilities, transportation, etc. Cost is used to monitor performance or use of real things but it must be remembered that management of those real things determines cost, and not vice versa.

Cost Management

Cost management is the process of planning, estimating, coordination, control and reporting of all cost-related aspects from project initiation to operation and maintenance and ultimately disposal. It involves identifying all the costs associated with the investment, making informed choices about the options that will deliver best value for money and managing those costs throughout the life of the project, including disposal. Techniques such as value management help to improve value and reduce costs. Open book accounting, when shared across the whole project team, helps everyone to see the actual costs of the project.

Process Description

The first three cost management processes are completed, with the exception of updates, during the project planning phase. The final process, controlling costs, is ongoing throughout the remainder of the project. Each of these processes is summarized below.

Resource Planning

Cost management is begun by planning the resources that will be used to execute the project. Figure 6-2 shows the inputs, tools, and product of this process. All the tasks needed to achieve the project goals are identified by analyzing the deliverables described in the Work Breakdown Structure (WBS). The planners use this along with historical information from previous similar projects, available resources, and activity duration estimates to develop resource requirements. It is important to get experienced people involved with this activity, as noted by the "expert judgment" listed under Tools. They will know what works and what doesn't work.

In trying to match up resources with tasks and keep costs in line, the planners will need to look at alternatives in timing and choosing resources. They will need to refer back to project scope and organizational policies to ensure plans meet with these two guidelines.

Except for very small projects, trying to plan without good project management software is tedious and subject to errors, both in forgetting to cover all tasks and in resource and cost calculations.

The output of this process is a description of the resources needed, when they are needed, and for how long. This will include all types of resources, people, facilities, equipment, and materials. Once there is a resource plan, the process of estimating begins.

Estimating Costs

Estimating is the process of determining the expected costs of the project. It is a broad science with many branches and several popular, and sometimes disparate, methods. There are overall strategies to determining the cost of the overall project, as well as individual methods of estimating costs of specific types of activity. Several of these can be found in the resources listed at the end of the chapter. In most software development projects the majority of the cost pertains to staffing. In this case, knowledge of the pay rates (including overhead) of the people working on the project, and being able to accurately estimate the number of people needed and the time necessary to complete their work will produce a fairly accurate project cost estimate. Unfortunately, this is not as simple as it sounds. Most project estimates are derived by summing the estimates for individual project elements. Several general approaches to estimating costs for project elements are presented here. [3] Your choice of approach will depend on the time, resources, and historical project data available to you. The cost estimating process elements are shown in Figure.

Figure 6-3 Cost Estimating Elements

Cost estimating uses the resource requirements, resource cost rates, and the activity duration estimates to calculate cost estimates for each activity. Estimating publications, historical information, and risk information are used to help determine which strategies and methods would yield the most accurate estimates. A chart of accounts may be needed to assign costs to different accounting categories. A final, but very important, input to the estimating process is the WBS. Carefully comparing activity estimates to the activities listed in the WBS will serve as a reality check and discover tasks that may have been overlooked or forgotten.

The tools used to perform the actual estimating can be one or more of several types. The major estimating approaches shown in Figure 6-3 are discussed here. While other approaches are used, they can usually be classed as variations of these. One caution that applies to all estimating approaches: If the assumptions used in developing the estimates are not correct, any conclusions based on the assumptions will not be correct either.

Bottom-Up Estimating

Bottom-up estimating consists of examining each individual work package or activity and estimating its costs for labour, materials, facilities, equipment, etc. This method is usually time consuming and laborious but usually results in accurate estimates if well prepared, detailed input documents are used.

Analogous Estimating

Analogous estimating, also known as top-down estimating, uses historical cost data from a similar project or activities to estimate the overall project cost. It is often used where information about the project is limited, especially in the early phases. Analogous estimating is less costly than other methods but it requires expert judgment and true similarity between the current and previous projects to obtain acceptable accuracy.

Parametric Estimating

Parametric estimating uses mathematical models, rules of thumb, or Cost Estimating Relationships (CERs) to estimate project element costs. CERs are relationships between cost and measurements of work, such as the cost per line of code. [3] Parametric estimating is usually faster and easier to perform than bottom-up methods but it is only accurate if the correct model or CER is used in the appropriate manner.

Design-to-Cost Estimating

Design-to-cost methods are based on cost unit goals as an input to the estimating process. Tradeoffs are made in performance and other systems design parameters to achieve lower overall system costs. A variation of this method is

cost-as-the-independent-variable

, where the estimators start with a fixed system-level budget and work backwards, prioritizing and selecting requirements to bring the project scope within budget constraints.

Computer Tools

Computer tools are used extensively to assist in cost estimation. These range from spreadsheets and project management software to specialized simulation and estimating tools. Computer tools reduce the incidence of calculation errors, speed up the estimation process, and allow consideration of multiple costing alternatives. One of the more widely used computer tools for estimating software development costs is the Constructive Cost Model (COCOMO). The software and user's manual are available for download without cost (see COCOMO in the Resources.) However, please note that most computer tools for developing estimates for software development use either lines of code or function points as input data. If the number of lines of code or function points cannot be accurately estimated, the output of the tools will not be accurate. The best use of tools is to derive ranges of estimates and gain understanding of the sensitivities of those ranges to changes in various input parameters.

The outputs of the estimating process include the project cost estimates, along with the details used to derive those estimates. The details usually define the tasks by references to the WBS. They also include a description of how the cost was derived, any assumptions made, and a range for estimate (e.g. $20,000 +/- $2000.) Another output of the estimating process is the Cost Management Plan. This plan describes how cost variances will be managed, and may be formal or informal. The following information may be considered for inclusion in the plan:

  • Cost and cost-related data to be collected and analyzed.
  • Frequency of data collection and analysis.
  • Sources of cost-related data.
  • Methods of analysis.
  • Individuals and organizations involved in the process, along with their responsibilities and duties.
  • Limits of acceptable variance between actual costs and the baseline.
  • The authority and interaction of the cost control process with the change control process.
  • Procedures and responsibilities for dealing with unacceptable cost variances.

Cost Budgeting

Once the costs have been estimated for each WBS task, and all these put together for an overall project cost, a project budget or cost baseline must be constructed. The budget is a spending plan, detailing how and at what rate the project funding will be spent. The budgeting process elements are shown in Figure 6-4. All project activities are not performed at once, resources are finite, and funding will probably be spread out over time. Cost estimates, WBS tasks, resource availability, and expected funding must all be integrated with the project schedule in a plan to apply funds to resources and tasks. Budgeting is a balancing act to ensure the rate of spending closely parallels the resource availability and funding, while not exceeding either. At the same time, task performance schedules must be followed so that all tasks are funded and completed before or by the end of the project schedule.

The spending plan forms the cost baseline, which will be one of the primary measures of project health and performance. Deviations from this cost baseline are major warning signs requiring management intervention to bring the project back on track.

Various tools and techniques are available to assist in the budgeting process. Most of these are implemented in some form of computer software. Budgeting is usually a major part of project management software.

Cost Control

Cost control is the final step of the cost management process but it continues through the end of the project. It is a major element of project success and consists of efforts to track spending and ensure it stays within the limits of the cost baseline. The following activities make up the cost control process:

  • Monitor project spending to ensure it stays within the baseline plan for spending rates and totals.
  • When spending varies from the plan determine the cause of variance, remembering that the variance may be a result of incorrect assumptions made when the original cost estimate was developed.
  • Change the execution of the project to bring the spending back in line within acceptable limits, or recognize that the original estimate was incorrect, and either obtain additional funding or reduce the scope of the project.
  • Prevent unapproved changes to the project and cost baseline.

When it is not possible to maintain the current cost baseline, the cost control process expands to include these activities:

  • Manage the process to change the baseline to allow for the new realities of the project (or incorrectly estimated original realities.)
  • Accurately record authorized changes in the cost baseline.
  • Inform stakeholders of changes.

The cost control process compares cost performance reports with the cost baseline to detect variances. Guidance on what constitutes unacceptable variance and how to deal with variance can be found in the cost management plan, developed during the estimation activities. Few projects are completed without changes being suggested or requested. All change requests should run the gauntlet of cost control to weigh their advantages against their impact to project costs.

Cost control tools include performance measurement techniques, a working cost change control system, and computer based tools. A powerful technique used with considerable success in projects is

Earned Value Management

, if used appropriately. It requires a fully defined project up front and bottom-up cost estimates, but it can provide accurate and reliable indication of cost performance as early as 15% into the project.

The outputs of cost control include products which are ongoing throughout the life of the project: revised cost estimates, budget updates, corrective actions, and estimates of what the total project cost will be at completion. Corrective actions can involve anything that incurs cost, or even updating the cost baseline to realign with project realities or changes in scope. Cost data necessary to project closeout are also collected throughout the life of the project and summarized at the end. A final product, extremely important to future efforts, is a compilation of lessons learned during the execution of the project.

Tools for analyzing/evaluating Cost Management

Some construction insurance projects don't only exceed their budget because they turn out to be bigger than originally estimated. They often blow the budget because the estimates were badly managed. As a result, the profitability analyses are not well quantified because the estimates of future return were not accurate.

Accurate estimates turn to be really important, as they are frequently required for three principal reasons:

  1. The first is to well-define the costs/budget of the project.
  2. The second is to justify the project. It enables the cost to be compared with the anticipated benefits.
  3. The third is to evaluate and control the actual costs vs. estimated and take corrective actions when needed to make the project succeed.

Applying Activity-Based Costing (ABC) to construction projects can help insurance companies to better understand their costs and maximize construction resources. Combined with the Earned Value Management, construction projects can be tracked and controlled effectively in terms of time and budget.

Activity-Based Costing (ABC)

Activity Based Costing (ABC) is a method for developing cost estimates in which the project is subdivided into discrete, quantifiable activities or a work unit. The activity must be definable where productivity can be measured in units (e.g., number of samples versus man hours). After the project is broken into its activities, a cost estimate is prepared for each activity. These individual cost estimates will contain all labour, materials, equipment, and subcontracting costs, including overhead, for each activity. Each complete individual estimate is added to the others to obtain an overall estimate. Contingency and escalation can be calculated for each activity or after all the activities have been summed. ABC is a powerful tool, but it is not appropriate for all cost estimates. This chapter outlines the ABC method and discusses applicable uses of ABC.

ABC methodology is used when a project can be divided into defined activities. These activities are at the lowest function level of a project at which costs are tracked and performance is evaluated. Depending on the project organization, the activity may coincide with an element of the work breakdown structure (WBS) or may combine one or more elements of the WBS. However, the activities must be defined so there is no overlap between them. After the activity is defined, the unit of work is established. All costs for the activity are estimated using the unit of work.

The estimates for the units of work can be done by performing detailed estimates, using cost estimating relationships, obtaining outside quotes for equipment, etc. All costs including overhead, profit, and markups should be included in the activity cost.

Earned Value Management (EVM)

An interesting phenomenon exists in the construction industry. The industry probably uses parts of Earned Value management about as well as any industry. But, what makes it interesting is that in construction work, practitioners rarely use the term "Earned Value."

The Earned Value Management (EVM) technique is a valuable tool to measure a project's progress, forecast its completion date and final cost, and provide schedule and budget variances along the way.

 

Earned Value management is a technique that can be applied, at least in part, to the management of all capital projects, in any industry, while employing any contracting approach. The employment of Earned Value requires a three-dimensional measurement of project performance, ideally from as early as possible—perhaps as early as 15 percent complete, up to 100 percent final completion. However, two of the three dimensions of Earned Value—the baseline plan and the physical performance measurement—will apply to all capital projects, in any industry, using any contracting method.

Using Earned Value metrics, any project can accurately monitor and measure the performance of projects against a firm baseline. Using the three dimensions of Earned Value, the project management teams can at all times monitor both the cost and the schedule performance status of their projects.

The Earned Value Management (EVM) technique is a valuable tool to measure a project's progress, forecast its completion date and final cost, and provide schedule and budget variances along the way. EVM provides consistent indicators to evaluate and compare projects and give an objective measurement of how much work has been accomplished. It lets the project manager combine schedule performance and cost performance to answer the question: "What did we get for the money we spent?"

Using EVM process, management can easily compare the planned amount of work with what has actually been completed, to determine if cost, schedule, and work accomplished are progressing as planned. It forces the project manager to plan, budget and schedule the work in a time-phased plan. The principles of ABC and EVM techniques provide innovative cost and performance measurement systems, allowing productivity improvements, and therefore can enhance the project's profitability and performance.

Quality Management (QM)

The process of planning, organizing, implementing, monitoring, and documenting a system of management practices that coordinate and direct relevant project resources and activities to achieve quality in an efficient, reliable, and consistent manner.

Quality Management Plan (QMP)

A project-specific, written plan prepared for certain projects which reflects the general methodology to be implemented by the Construction Manager during the course of the project to enhance the owner's control of quality through a process-oriented approach to the various management tasks for the program. The Quality Management Plan complements the Construction Management Plan (CMP) and forms a basis of understanding as to how the project team will interrelate in a manner that promotes quality in all aspects of the program, from the pre-design phase through completion of construction. Its purpose is to emphasize the quality goals of the project team in all issues associated with the work. This pertains not only to the traditional QA/QC of constructing elements of the work, but also addresses the quality needs of management tasks such as performing constructability reviews during design, checking estimates, making appropriate decisions, updating schedules, guiding the selection of subcontractors and vendors from a quality-oriented basis, to dealing with the public when applicable.

Owners, for certain projects, require that a separate Quality Management Plan be prepared by the Construction Manager. In these cases, the QMP is a project-specific plan which reflects the approach of the CM towards achieving quality in the constructed project. It is developed with heavy reliance on many of the sections included in these Guidelines, and fully supports the Construction Management Plan (CMP). When a separate QMP is prepared, most of the quality-oriented issues and discussion of processes, check lists, audits, etc., are contained in the QMP rather than the CMP. The CMP then addresses the day-to-day performance of the various functions and outlines the methods by which the Construction Manager's forces will perform their services.

The QMP typically will include some of the following:

• Overall project organization

• Project QA/QC organization

• QA/QC representatives of design team and contractors

• Management decision flow chart

• Formats for various elements of the CM services (i.e., formats for job meeting minutes, progress payment applications, field observation reports, shop drawing logs, notice of proposal change order, etc.)

• Detailed check lists or audit plans to provide for quality in the practice of CM functions (i.e., check lists for approving contractor's schedules, approving revisions to schedules, reviewing change order costs, obtaining approval within the owner organization for changes, approval to start foundation construction, approval to start concrete pour, approval to start steel erection, preliminary and final acceptance, etc.).

• Project Quality Audit forms

The CM will prepare quality management narratives for the use of his staff for each of the check lists and quality procedures contained in the QMP to provide for an acceptable level of quality at all levels of CM practice.

Inputs to Quality Planning.

Quality policy

. Quality is "the overall intentions and direction of a construction organization with regard to quality, as formally expressed by top management". The quality policy of the performing organization can often be adopted "as is" for use by the project. However, if the performing organization lacks a formal quality policy, or if the project involves multiple performing organizations (as with a joint venture), then the project management team will need to develop a quality policy for the project. Regardless of the origin of the quality policy, the project management team is responsible for ensuring that the project clients are fully aware of it.

Scope statement.

The scope statement is a key input to quality planning since it documents major project deliverables, as well as the project objectives that serve to define important client requirements.

Project description.

Although objectives of the project description may be embodied in the scope statement, the project description will often contain details of technical issues and other concerns that may affect quality planning.

Standards and regulations.

The project management team must consider any application area-specific standards or regulations that may affect the project.

Other process outputs

.

In addition to the scope statement and project description, processes in other knowledge areas may produce outputs that should be considered as part of quality planning. For example, procurement planning may identify contractor quality requirements that should be reflected in the overall quality management plan.

Tools and Techniques for Quality Planning.

Benefit/cost analysis

.

The quality planning process must consider benefit/cost tradeoffs. The primary benefit of meeting quality requirements is less rework, which means higher quality, lower costs, and increased client satisfaction. The primary cost of meeting quality requirements is the expense associated with project management activities. It is axiomatic of the quality management discipline that the benefits outweigh the costs.

Benchmarking.

Benchmarking involves comparing actual or planned project practices to those of other projects to generate ideas for improvement and to provide a standard by which to measure performance. The other projects may be within the performing organization or outside of it, and may be within the same application area or in another.

Flowcharting.

A flow chart is any diagram that shows various elements of a system relate. Flowcharting techniques commonly used in quality management include:

Cause-and-effect diagrams

A cause-and-effect diagram is an analysis tool that provides a systematic way of looking at effects and the causes that create or contribute to those effects. It was develop by Dr. Kaoru Ishikawa of Japan in 1943 and is sometimes referred to as an Ishikawa Diagram or a Fishbone Diagram because of its shape. Cause-and-effect diagrams, also called Ishikawa diagrams or fishbone diagrams, which illustrate how various factors might be linked to potential problems or effects.

 

A Cause-and-Effect Diagram is a tool that helps identify, sort, and display possible causes of a specific problem or quality characteristic. It graphically illustrates the relationship between a given outcome and all the factors that influence the outcome. A Cause-and-Effect Diagram is a tool that is useful for identifying and organizing the known or possible causes of quality, or the lack of it. The structure provided by the diagram helps team members think in a very systematic way.

  1. At the head of the Fishbone is the defect or effect, stated in the form of a question.

  2. The major bones are the capstones, or main groupings of causes.

  3. The minor bones are detailed items under each capstone.

 

Applying cause-and-effect diagram

A cause-and-effect diagram is a tool that is useful for identifying and organizing the known or possible causes of quality, or the lack of it. The structure provided by the diagram helps team members think in a very systematic way. Some of the benefits of constructing a cause-and-effect diagram are that it:

  • helps determine the root causes of a problem or quality characteristic using a structured approach;

  • encourages group participation and utilizes group knowledge of the process;

  • uses an orderly, easy-to-read format to diagram cause-and-effect relationships;

  • indicates possible causes of variation in a process;

  • increases knowledge of the process by helping everyone to learn more about the factors at work and how they relate; and

  • identifies areas where data should be collected for further study.

 

System or process flow charts, which show how various elements of a system, interrelate.

Flow chart is used to provide a diagrammatic picture using a set of symbols. They are used to

show all the steps or stages in a process project or sequence of events. A flowchart assists in documenting and describing a process so that it can be examined and improved. Analyzing the data collected on a flowchart can help to uncover irregularities and potential problem points.

Flowcharts, or Process Maps, visually represent relationships among the activities and tasks that make up a process. They

 

are typically used at the beginning of a process improvement event; you describe process events, timing, and frequencies at the highest level and work downward. At high levels, process maps help you understand process complexity. At lower levels, they help you analyze and improve the process

Pareto Analysis

A Pareto Chart is "a series of bars whose heights reflect the frequency or impact of problems. The bars are arranged in descending order of height from left to right. This means the categories represented by the tall bars on the left are relatively more significant than those on the right". The chart gets its name from the Pareto Principle, which postulates that 80 percent of the trouble comes from 20 percent of the problems.

It is a technique employed to prioritize the problems so that attention is initially focused on those, having the greatest effect. It was discovered by an Italian economist, named Vilfredo Pareto, who observed how the vast majority of wealth (80%) was owned by relatively few of the population (20%). As a generalized rule for considering solutions to problems, Pareto analysis aims to identify the critical 20% of causes and to solve them as a priority.

 

The use Pareto Charts

You can think of the benefits of using Pareto Charts in economic terms. A Pareto Chart:

  • breaks big problem into smaller pieces;

  • identifies most significant factors; and

  • helps us get the most improvement with the resources available by showing where to focus efforts in order to maximize achievements.

The Pareto Principle states that a small number of causes accounts for most of the problems. Focusing efforts on the "vital few" causes is usually a better use of valuable resources.

Applying Pareto Chart

A Pareto Chart is a good tool to use when the process you are investigating produces data that are broken down into categories and you can count the number of times each category occurs.

No matter where you are in your process improvement efforts, Pareto Charts can be helpful, ".early on to identify which problem should be studied, later to narrow down which causes of the problem to address first. Since they draw everyone's attention to the "vital few" important factors where the payback is likely to be greatest, (they) can be used to build consensus. In general, teams should focus their attention first on the biggest problems-those with the highest bars".

Making problem-solving decisions isn't the only use of the Pareto Principle. Since Pareto Charts convey information in a way that enables you to see clearly the choices that should be made, they can be used to set priorities for many practical applications in your command. Some examples are:

  • process improvement efforts for increased unit readiness;

  • skills you want your division to have;

  • customer needs;

  • suppliers; and

  • investment opportunities.

To construct a Pareto Chart, you need to start with a meaningful data which you have collected and categorized. You may want to turn to the Data Collection module at this point to review the process of collecting and categorizing data that you can chart.

Construction of Pareto Chart

Construction of Pareto Chart is simple. There are five steps:

  1. Determine the method of classifying data: by problem, cause, non-conformity, and so forth.

  2. Decide if Money, frequency, or both are to be used to rank the characteristics.

  3. Collect data for an appropriate time interval or use historical data.

  4. Summarize the data and rank order categories from largest to smallest.

  5. Construct the diagram and find vital few.

Scatter Diagrams

A scatter diagram shows the relationship between two variables (for example: speed and gas consumption, hours worked and production output). It provides an easy way to analyze data.

Applying a scatter diagram

We can use a scatter diagram when we want to:

  • examine how strong a relationship is between two variables (e.g., the relationship between advertising costs and sales, years of experience and employee performance, etc.);

  • confirm "hunches" about a direct cause-and-effect relationship between types of variables; and

  • determine the type of relationship (positive, negative, etc.).

Scatter diagrams are easy to use, and the results are easy to understand. This tool can be adapted for use in many types of situations.

Constructing a scatter diagram

The scatter diagram consists of four major steps:

  1. Collect data

  2. Draw the horizontal and vertical axes

  3. Plot the data on the diagram

  4. Interpret the scatter diagram

 

Control Charts:

A control chart is a statistical tool used to distinguish between variation in a process resulting from common causes and variation resulting from special causes. It presents a graphic display of process stability over time.

Trend analysis: the process of using mathematical techniques to predict future outcomes based on past results is performed using run charts. It is often used to monitor:

Technical performance: How many mistakes or defects have been uncovered and how many remain undetected?

Cost and schedule performance: How many activities per period were done with significant variances?

Applying a control chart

A stable process is one that is consistent over time with respect to the center and the spread of the data. Control charts help you monitor the behaviour of your process to determine whether it is stable. Like run charts, they display data in the time sequence in which they occurred. However, control charts are more efficient than run charts in assessing and achieving process stability.

  • monitor process variation over time;

  • differentiate between special cause and common cause variation;

  • assess the effectiveness of changes to improve a process; and

  • communicate how a process performed during a specific period.

Developing a control chart

Developing a control chart consists of four major steps:

Step 1: Determine what to measure

Step 2: Collect the data

Step 3: Plot the data

Step 4: Calculate the control limits

Creating a control chart consists of four major steps:

Step 1: Determine what to measure

Step 2: Collect the data

Step 3: Plot the data

Step 4: Calculate the control limits

Histograms

A histogram is a basic graphing tool that displays the relative frequency or occurrence of continuous data values showing which values occur most and least frequently. It illustrates the shape, centering, and spread of data distribution and indicates whether there are any outliers.

Applying a histogram

When you are unsure what to do with a large set of measurements presented in a table, you can use a histogram to organize and display the data in a more user-friendly format. A histogram will make it easy to see where the majority of values fall in a measurement scale, and how much variation there is. It is helpful to construct a histogram when you want to do the following:

  • Summarize large data sets graphically

    . We can make it much easier to understand by summarizing data on a tally sheet and organizing it into a histogram.
  • Compare process results with specification limits.

    If we add the process specification limits to the histogram, we can determine quickly whether the current process was able to produce "good" products. Specification limits may take the form of length, weight, density, quantity of materials to be delivered, or whatever is important to produce the required results of a given process.
  • Communicate information graphically.

    We can easily see the values which occur most frequently. When you use a histogram to summarize large data sets, or to compare measurements to specification limits, you are employing a powerful tool for communicating information.
  • Use a tool to assist in decision-making.

    As we move along, you will see that the shapes, sizes, and the spread of data have meanings that can help us in investigating problems and making decisions. However, always bear in mind that if the data we have in hand are not the

most recent, or we do not know the manner how the data were collected, it is a waste of time trying to chart them. Measurements cannot be used for making decisions or predictions when they were produced by a process that is different from the current one, or were collected under unknown conditions.

Parts of a histogram

A histogram is made up of five (5) parts:

  1. Title:

    The title briefly describes the information that is contained in the histogram.
  2. Horizontal or X-axis:

    The horizontal or X-axis shows the scale of values into which the measurements fit. These measurements are generally grouped into intervals to help you summarize large data sets. Individual data points are not displayed.
  3. Bars:

    The bars have two important characteristics -- height and width. The height represents the number of times the values within an interval occurred. The width represents the length of the interval covered by the bar. It is the same for all bars.
  4. Vertical or Y-axis:

    The vertical or Y-axis is the scale that shows the number of times the values within an interval occurred. The number of times is also referred to as "frequency."
  5. Legend:

    The legend provides additional information that documents where the data came from and how the measurements were gathered.

Check Sheets

A clear, easy to use form used in the collection of data, and in the observation of how often certain events happen. A check sheet can be constructed in whatever shape, size and format, as appropriate for the data collection task at hand because check sheets are used in collecting and recording data unique to a specific process.

Applying check sheet

We should use a check sheet as a data gathering and interpretation tool when you want to:

  • distinguish between opinion and fact;

  • gather data about how often a problem is occurring; and

  • gather data about the type of problem occurring.

Types of check sheets

No matter which type you are using, make sure that it is clear, complete, and user-friendly. The three (3) types of check sheets are described below:

  • tally sheet" is easy for you and your team to use when you simply want to count how often something happens or to record a measurement. Depending on the type of data required, the data collector simply makes a checkmark in a column to indicate the presence of a characteristic, or records a measurement, such as temperature in degrees centigrade, weight in pounds, diameter in inches, or time in seconds.

  • Location Format. A location check sheet allows you to mark a diagram showing the exact physical location of a defect or characteristic. An insurance adjuster's pictorial claim form detailing your latest bumper bruise is an example of a location check sheet.

  • Graphic Format. Another way of collecting data is by using a graphic form of check sheet. It is specifically designed so that the data can be recorded and displayed at the same time. Using this check sheet format, you can record raw data by plotting them directly onto a graph-like chart.

Flowcharting can help the project team anticipate what and where quality problems might occur, and thus can help develop approaches for dealing with them.

Design of experiments

.

Design of experiments is a statistical method that helps identify which factors might influence specific variables. The technique is applied most frequently to the product of the project (e.g., automotive designers might wish to determine which combination of suspension and tires will produce the most desirable ride characteristics at a reasonable cost).

However, it can also be applied to project management issues, such as cost and schedule tradeoffs. For example, senior engineers will cost more than junior engineers, but can also be expected to complete the assigned work in less time. An appropriately designed "experiment" (in this case, computing project costs and durations for various combinations of senior and junior engineers) will often allow determination of an optimal solution from a relatively limited number of cases.

Cost of quality

.

Cost of quality refers to the total cost of all efforts to achieve product/service quality, and includes all work to ensure conformance to requirements, as well as all work resulting from non-conformance to requirements. There are three types of costs that are incurred: prevention costs, appraisal costs, and failure costs, where the latter is broken down into internal and external costs.

Outputs from Quality Planning

Quality management plan

The quality management plan should describe how the project management team will implement its quality policy. In ISO 9000 terminology, it should describe the project quality system: "the organizational structure, responsibilities, procedures, processes, and resources needed to implement quality management".

The quality management plan provides input to the overall project plan, and must address quality control, quality assurance, and quality improvement for the project.

The quality management plan may be formal or informal, highly detailed, or broadly framed, based on the requirements of the project.

Operational definitions.

An operational definition describes, in very specific terms what something is and how it is measured by the quality control process. For example, it is not enough to say that meeting the planned schedule dates is a measure of management quality; the project management team must also indicate whether every activity must start on time or only finish on time; whether individual activates will be measured, or only certain deliverables, and if so, which ones. Operational definitions are also called metrics in some application areas.

Checklists.

A checklist is a structured tool, usually item specific, used to verify that a set of required steps has been performed. Checklists may be simple or complex. They are usually phrased as imperatives ("Do this!") or interrogatories ("Have you done this?"). Many organizations have standardized checklists available to ensure consistency in frequently performed tasks. In some application areas, checklists are also available from professional associations or commercial services providers.

Quality metric

Quality metrics describe the specific attributes of the project work that will be measured to determine whether the work meets quality standards. Quality metrics are used in the Perform Quality Assurance and the Perform Quality Control processes.

Project managers use quality metrics information on cost, rework, and cycle time to improve the quality of the project deliverables and work processes. Examples of quality metrics include defect density, failure rate, availability, reliability, and test coverage.

By using proven quality processes when planning and carrying out a project, project managers can ensure that both the project and its deliverables achieve the desired quality standards.

Time Management

Project Time Management includes the processes required to accomplish timely completion of the project. The Project Time Management processes include the following:

Activity Definition

The Activity Definition process will identify the deliverables at the lowest level in the work breakdown structure (WBS), which is called the work package. Project work packages are planned (decomposed) into smaller components called schedule activities to provide a basis for estimating, scheduling, executing, and monitoring and controlling the project work. Implicit in this process is defining and planning the schedule activities such that the project objectives will be met.

Activity Sequencing

Activity sequencing involves identifying and documenting the logical relationships among schedule activities. Schedule activities can be logically sequenced with proper precedence relationships, as well as leads and lags to support later development of a realistic and achievable project schedule.

Activity Resource Estimating

Estimating schedule activity resources involves determining what resources (persons, equipment, or materiel) and what quantities of each resource will be used, and when each resource will be available to perform project activities.

Activity Duration Estimating

The Activity Duration Estimating process requires that the amount of work effort required to complete the schedule activity is estimated, the assumed amount of resources to be applied to complete the schedule activity is estimated, and the number of work periods needed to complete the schedule activity is determined. All data and assumptions that support duration estimating are documented for each activity duration estimate.

Schedule Development

Project schedule development, an iterative process, determines planned start and finish dates for project activities. Schedule development can require that duration estimates and resource estimates are reviewed and revised to create an approved project schedule that can serve as a baseline against which progress can be tracked.

Schedule Control

Schedule control is concerned with Determining the current status of the project schedule, influencing the factors that create schedule changes, determining that the project schedule has changed, managing the actual changes as they occur.

TOOLS AND TECHNIQUES

ACTIVITY DEFINITION

Decomposition

The technique of decomposition, as it is applied to activity definition, involves subdividing the project work packages into smaller, more manageable components called schedule activities. The Activity Definition process defines the final outputs as schedule activities rather than as deliverables.

Expert Judgment

Project team members or other experts who are experienced and skilled in developing detailed project scope statements, WBSs, and project schedules can provide expertise in defining activities.

Rolling Wave Planning

The WBS and WBS dictionary reflect the project scope evolution as it becomes more detailed until the work package level is reached. Rolling wave planning is a form of progressive elaboration planning where the work to be accomplished in the near term is planned in detail at a low level of the WBS, while work far in the future is planned for WBS components that are at a relatively high level of the WBS. The work to be performed within another one or two reporting periods in the near future is planned in detail as work is being completed during the current period. Therefore, schedule activities can exist at various levels of detail in the project's life cycle. During early strategic planning, when information is less defined, activities might be kept at the milestone level.

Templates

A standard activity list or a portion of an activity list from a previous project is often usable as a template for a new project. The related activity attributes information in the templates can also contain a list of resource skills and their required hours of effort, identification of risks, expected deliverables, and other descriptive information. Templates can also be used to identify typical schedule milestones.

Planning Component

When insufficient definition of the project scope is available to decompose a branch of the WBS down to the work package level, the last component in that branch of the WBS can be used to develop a high-level project schedule for that component. These planning components are selected and used by the project team to plan and schedule future work at various higher levels within the WBS. The schedule activities used for these planning components may be summary activities that are not enough to support detailed estimating, scheduling, executing, monitoring, or controlling of the project work.

ACTIVITY SEQUENCING

Precedence Diagramming Method (PDM)

PDM is a method of constructing a project schedule network diagram that uses boxes or rectangles, referred to as nodes, to represent activities and connects them with arrows that show the dependencies. This technique is also called activity on-node (AON), and is the method used by most project management software packages.

PDM includes four types of dependencies or precedence relationships:

Finish-to-Start. The initiation of the successor activity depends upon the completion of the predecessor activity.

Finish-to-Finish. The completion of the successor activity depends upon the completion of the predecessor activity.

Start-to-Start. The initiation of the successor activity depends upon the initiation of the predecessor activity.

Start-to-Finish. The completion of the successor activity depends upon the initiation of the predecessor activity.

 

Arrow Diagramming Method (ADM)

ADM is a method of constructing a project schedule network diagram that uses arrows to represent activities and connects them at nodes to show their dependencies. This technique is also called activity-on-arrow (AOA) and, although less prevalent than PDM, it is still used in teaching schedule network theory and in some application areas.

ADM uses only finish-to-start dependencies and can require the use of "dummy" relationships called dummy activities, which are shown as dashed lines, to define all logical relationships correctly. Since dummy activities are not actual schedule activities (they have no work content), they are given zero value duration for schedule network analysis purposes.

Dependency Determination

Three types of dependencies are used to define the sequence among the activities.

  • Mandatory dependencies

    . The project management team determines which dependencies are mandatory during the process of establishing the sequence of activities. Mandatory dependencies are those that are inherent in the nature of the work being done. Mandatory dependencies often involve physical limitations, such as on a construction project, where it is impossible to erect the superstructure until after the foundation has been built, or on an electronics project, where a prototype must be built before it can be tested. Mandatory dependencies are also sometimes referred to as hard logic.
  • Discretionary dependencies

    . The project management team determines which dependencies are discretionary during the process of establishing the sequence of activities. Discretionary dependencies are fully documented since they can create arbitrary total float values and can limit later scheduling options. Discretionary dependencies are sometimes referred to as preferred logic, preferential logic or soft logic. Discretionary dependencies are usually established based on knowledge of best practices within a particular application area or some unusual aspect of the project where a specific sequence is desired, even though there are other acceptable sequences. Some discretionary dependencies include preferred schedule activity sequences based upon previous experience on a successful project performing the same type of work.
  • External dependencies

    . The project management team identifies external dependencies during the process of establishing the sequence of activities. External dependencies are those that involve a relationship between project activities and non-project activities. For example, the testing schedule activity in a software project can be dependent on delivery of hardware from an external source, or governmental environmental hearings may need to be held before site preparation can begin on a construction project.

Schedule Network Templates

Standardized project schedule network diagram templates can be used to expedite the preparation of networks of project schedule activities. They can include an entire project or only a portion of it. Portions of a project schedule network diagram are often referred to as a subnetwork or a fragment network. Subnetwork templates are especially useful when a project includes several identical or nearly identical deliverables.

Applying Leads and Lags

The project management team determines the dependencies that may require a lead or a lag to accurately define the logical relationship. The use of leads and lags and their related assumptions are documented.

A lead allows an acceleration of the successor activity. For example, a technical writing team can begin writing the second draft of a large document (the successor activity) fifteen days before they finish writing the entire first draft (the predecessor activity). This could be accomplished by a finish-to-start relationship with a fifteen-day lead time.

A lag directs a delay in the successor activity. For example, to account for a ten-day curing period for concrete, a ten-day lag on a finish-to-start relationship could be used, which means the successor activity cannot start until ten days after the predecessor is completed.

ACTIVITY RESOURCE ESTIMATING

Project Management Software

Project management software has the capability to help plan, organize, and manage resource pools and develop resource estimates. Depending upon the sophistication of the software, resource breakdown structures, resource availabilities, and resource rates can be defined, as well as various resource calendars.

Expert Judgment

Expert judgment is often required to assess the resource-related inputs to this process. Any group or person with specialized knowledge in resource planning and estimating can provide such expertise.

Alternatives Analysis

Many schedule activities have alternative methods of accomplishment. They include using various levels of resource capability or skills, different size or type of machines, different tools (hand versus automated), and make-or-buy decisions regarding the resource

Published Estimating Data

Several companies routinely publish updated production rates and unit costs of resources for an extensive array of labour trades, materiel, and equipment for different countries and geographical locations within countries.

Bottom-up Estimating

When a schedule activity cannot be estimated with a reasonable degree of confidence, the work within the schedule activity is decomposed into more detail. The resource needs of each lower, more detailed piece of work are estimated, and these estimates are then aggregated into a total quantity for each of the schedule activity's resources. Schedule activities may or may not have dependencies between them that can affect the application and use of resources. If there are dependencies, this pattern of resource usage is reflected in the estimated requirements of the schedule activity and is documented.

ACTIVITY DURATION ESTIMATING

Three-Point Estimates

The accuracy of the activity duration estimate can be improved by considering the amount of risk in the original estimate. Three-point estimates are based on determining three types of estimates:

  • Most likely: The duration of the schedule activity, given the resources likely to be assigned, their productivity, realistic expectations of availability for the schedule activity, dependencies on other participants, and interruptions.

  • Optimistic: The activity duration is based on a best-case scenario of what is described in the most likely estimate.

  • Pessimistic: The activity duration is based on a worst-case scenario of what is described in the most likely estimate.

Task Duration = (O + 4M + P) / 6

Standard Deviation = (P - O) /6

Expert Judgment

Activity durations are often difficult to estimate because of the number of factors that can influence them, such as resource levels or resource productivity. Expert judgment, guided by historical information, can be used whenever possible. The individual project team members may also provide duration estimate information or recommended maximum activity durations from prior similar projects. If such expertise is not available, the duration estimates are more uncertain and risky.

Analogous Estimating

Analogous duration estimating means using the actual duration of a previous, similar schedule activity as the basis for estimating the duration of a future schedule activity. It is frequently used to estimate project duration when there is a limited amount of detailed information about the project for example, in the early phases of a project. Analogous estimating uses historical information and expert judgment.

Parametric Estimating

Estimating the basis for activity durations can be quantitatively determined by multiplying the quantity of work to be performed by the productivity rate. The total resource quantities are multiplied by the labour hours per work period or the production capability per work period, and divided by the number of those resources being applied to determine activity duration in work periods.

Reserve Analysis Project teams can choose to incorporate additional time referred to as contingency reserves, time reserves or buffers, into the overall project schedule as recognition of schedule risk. The contingency reserve can be a percentage of the estimated activity duration, a fixed number of work periods, or developed by quantitative schedule risk analysis. Contingency reserve can be used completely or partially, or can later be reduced or eliminated, as more precise information about the project becomes available.

SCHEDULE DEVELOPMENT

What-If Scenario Analysis

This is an analysis of the question "What if the situation represented by scenario 'X' happens?" A schedule network analysis is performed using the schedule model to compute the different scenarios, such as delaying a major component delivery, extending specific engineering durations, or introducing external factors.

Critical Path Method

The critical path methods calculates the theoretical early start and finish dates and late start and finish dates, for all schedule activities without regard for any resource limitations, by performing a forward pass analysis and a backward pass analysis through the project schedule network paths. The resulting early and late start and finish dates are not necessarily the project schedule; rather, they indicate the time periods within which the schedule activity should be scheduled, given activity durations, logical relationships, leads, lags, and other known constraints.

  • Free Float: The amount of time that a schedule activity can be delayed without delaying the early start of any immediately following schedule activities.

  • Total Float : The total amount of time that a schedule activity may be delayed from its early start date without delaying the project finish date, calculated by LS-ES or LF - EF

Critical paths have a zero or negative total float

Schedule Compression

Schedule compression shortens the project schedule without changing the project scope, to meet schedule constraints, imposed dates, or other schedule objectives. Schedule compression techniques include:

Crashing

. Schedule compression technique in which cost and schedule tradeoffs are analyzed to determine how to obtain the greatest amount of compression for the least incremental cost. Crashing does not always produce a viable alternative and can result in increased cost.

Fast tracking

. A schedule compression technique in which phases or activities that normally would be done in sequence are performed in parallel.

Resource Levelling

Resource levelling is a schedule network analysis technique applied to a schedule model that has already been analyzed by the critical path method. Resource levelling is used to address schedule activities that need to be performed to meet specified delivery dates, to address the situation where shared or critical required resources are only available at certain times or are only available in limited quantities, or to keep selected resource usage at a constant level during specific time periods of the project work. This resource usage levelling approach can cause the original critical path to change. Critical Chain Method Critical chain is another schedule network analysis technique that modifies the project schedule to account for limited resources. The critical chain method adds duration buffers that are non-work schedule activities to maintain focus on the planned activity durations. Once the buffer schedule activities are determined, the planned activities are scheduled to their latest possible planned start and finish dates.

Other Tools

  • Project Management Software

  • Applying Calendars

  • Adjusting Leads and Lags

SCHEDULE CONTROL

Schedule Comparison Bar Charts

To facilitate analysis of schedule progress, it is convenient to use a comparison bar chart, which displays two bars for each schedule activity. One bar shows the current actual status and the other shows the status of the approved project schedule baseline. This shows graphically where the schedule has progressed as planned or where slippage has occurred.

Progress Reporting

The progress reporting and current schedule status includes information such as actual start and finish dates, and the remaining durations for unfinished schedule activities.

Schedule Change Control System

The schedule change control system defines the procedures by which the project schedule can be changed. It includes the paperwork, tracking systems, and approval levels necessary for authorizing changes.

Performance Measurement

Performance measurement techniques produce the Schedule Variance (SV) and Schedule Performance Index (SPI) which are used to assess the magnitude of any project schedule variations th


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