STUDY NOTES

FOR
PREPARING PMP EXAM
BY

TASLEEM-UZ ZAMAN

A multitalented person, proficient in Project Management, Project Control, Planning and

Evaluation, Industrial and Biological Research, Customer Services and Mentoring

zamant.ca

Copyright 2015 by zamant.ca

All rights are reserved, and information in this book are copyrighted to zamant.ca
2015. No part of this Book may be reproduced or transmitted in any form or by any
means without the express permission from the author.
http://zamant.ca
khan@zamant.ca
PMP, PMBOK Guide, and PMI are registered trademarks of Project Management
Institute (PMI), USA.

INTRODUCTION

Study Notes for Preparing PMP Exam have been designed to assist you in your studies and pass
the PMP exam.
There was a dire need to help the people who want to pass the PMP exam in first attempt. These
Study Notes really help those who do not want to read books and also spend money to prepare
PMP exam. This Study Notes book contains skimmed description of every topics of Project
Management field based on the fifth edition of the PMBOK Guide.
While preparing these Study Notes for PMP Exam reparation, I dug out for brief and
comprehensive information on each topics from the following resources: A guide to the Project
Management Body of Knowledge (PMBOK GUIDE), PMP Exam Prep Eighth Edition by Rita
Mulcahys, PMP Exam Prep Revised Fifth Edition by Christopher Scordo, Project
Management Basics courses by SAIT, Internet Resources such as PM Study Circle, and
discussion with numbers of friends and arranged in the form of these Study Notes. Furthermore,
blind learning chapter at the end will help you to memorize the formula and ITTO. I can assure
you if you study these notes, and do the Questions from My Questions Bank for Preparing PMP
Exam then there is no need to purchase costly books to prepare the PMP Exam and you will pass
this exam in first attempt.
I hope you will find these Study Notes useful for your studies.
I welcome your comments and feedback on this book. You can send me an email if you need any
assistance or clarification; Ill always be available for you.
Thank you.

Regards,
Tasleem-uz Zaman (Master of Honors)
khan@zamant.ca

CHAPTER 1: PROJECT FRAMEWORK

Portfolio: A group of programs, individual projects and related operational work to achieve a
specific strategic business goal.

Program: A group of inter-related project, managed in a coordinated way.

Projects: A project is a temporary initiative to create a unique result, product and services.
Here are some project example:

A company engages in a 10-month project to develop a new tablet computer.

A county government implements a three-year project to construct four dog parks.
A non-profit organization engages in a six-week project to increase membership by 10
percent.

Projects and Strategic Planning:

Projects start as a result of:

Market demand
Strategic opportunity and business need
Social need
Environmental consideration
Customer request
Technological Advance
Legal requirements

Project vs. Operation:

Operations are an organizational function performing an ongoing execution of activities.

Examples: Production, manufacturing, and accounting operations.
Projects help achieve the organizational goals when they are aligned with the
organizations strategy.
Projects require project management while operations require business process
management (BPM) or operations management.

Note: Projects are not always strategic or critical and not ongoing operation or processes and also
not always successful.

Organizational project management (OPM): It provides strategic framework to use and

guide the portfolio, program, and project management to deliver the organizational strategies. It is
driven by organizational strategies and aligns to organizational strategies.

OPM3: A PMI model designated to help organizations determine their level of maturity in
project management.

Portfolio Management: The centralized management of one or more portfolios for

achieving the strategic objectives.

Program Management:
The application of knowledge, skills, tools, and techniques to a program to meet the program
requirements and to obtain benefits and control not available by managing projects individually.

Project Management:
Project management is the administration and supervision of projects using a well- defined set of
knowledge, skills, tools, and techniques.

Subproject:

A manageable component of a project

May be performed by a separate organization
Could be a project phase
Subprojects are typically referred to as projects and managed as such

Figure 1-1 Portfolio, Program and Projects

Project Management Office (PMO): It centralizes and standardises the management of

project.

A management structure that standardizes the project-related governance processes and

facilitates the sharing of resources, methodologies, tools and techniques.
Provides dedicated training, enterprise-wide project management software, coordinates
overall project quality standards.
PMO may have the authority to act as an integral stakeholder and a key decision maker
through the life of the project

Figure 1-2. PMO Structure

Supporting: key word is provides (Provides process documents)

Controlling: Key word is review or audit and following policy and procedure
Directive: Key word is manages

Project Constraints:
Constraints are used to help evaluate competing demands.
They are seven:
Scope, Time, Cost, Quality Resources, Risk, Customer satisfaction

The Role of Project Manager:

1. The project manager is responsible to satisfy needs: task needs, team needs and
individual needs to achieve project goals.
2. Project managers need interpersonal skills such as:
Leadership (I get everybody on the team to understand the goal of the project so that they
can get behind them).
Team Building
Motivation (I try to figure out what each team member wants out of the project and them
I help him or her get it).
Communication
Influencing (I share power with other people in order to get some shared benefit).
Decision making
Political and culture awareness
Negotiation
Trust Building
Conflict Management
Coaching (I help team members get better at doing project work).

Project Stakeholders:
Individuals and organizations who are actively involved in the project and whose interests may be
positively or negatively affected by the project success or failure.
Key Stakeholders:
Project manager (Manages the project)
Customer (Uses the product or service)
Performing organization (Enterprise that does the project work)
Sponsor (Provides financial resources)
Figure 1-3. Project Stakeholders

The PMBOK Guide recognizes the four kinds of organizational structure:

1.
2.
3.
4.

Functional Organization
Projectized Organization
Matrix Organization
Composite Organization

Functional Organization:
In functional organization structure, the organization is grouped into various departments; e.g.
sales department, marketing department and finance department. A Functional Organization
structure is a hierarchical type of organizational structure wherein people are grouped as per their
area of specialization and supervised by the functional manager with expertise in the same field,
so that their skills can be effectively utilized and the organizations objective can be achieved.
Here, all authority, budget allocation, and decision making power stays with the functional
manager. A project manager has no role in this type of structure. Even if he exists, his role will be
very limited and he has to ask the functional manager for his requirements. Here, a project manager
may have the title of a coordinator or an expeditor.
The Functional Organizational structure is suitable for an organization which has ongoing
operations such as manufacturing and production operations.
In functional organizations, the organization is divided into various specific departments; e.g.
human resource, marketing, finance, operations, etc. Each department will have its own
department head and he will be responsible for the performance of his section. This helps control
the quality and uniformity of performance. (Figure 1-4)

Chief
Executive

Functional
Manager

Functional
Manager

Project
Coordination

Functional
Manager

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Projectized organizations:
Projectized organization takes every job as a project. Here, the project manager has all authority
to complete the project successfully. In projectized organizations, most of the organizations
resources are utilized in the project work. These types of organizations are only interested in the
project work which is undertaken for external clients. Here, the project manager has full time
project team members working under him. Usually, all personnel working for a particular project
are grouped together and are often co-located for the duration of the project.
As I said earlier, in the projectized organization structure, the project manager has all power and
authority. This does not mean that the project manager has an absolute authority to do everything
he wishes.
For example, lets say that a project is performed under a program management or a portfolio
management. And in another project under the same program or the portfolio, some equipment are
needed which are lying idle in your project. In this case, the program manager or the portfolio
manager simply allocates the equipment to the project which requires it. A project manager may
or may not agree with it, but he has to comply with it.
Organizations give project managers as much authority and power he needed to complete the
project, and accept the responsibility for the outcome of it. (Figure 1-5)

Chief
Executive

Project
Manager

Project
Manager

Project
Manager

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Staff

Matrix Organization:
Matrix organization structure is a hybrid of the functional organization structure and the
projectized organization structure. This structure takes the benefits of both worlds. In matrix
organization structure, the knowledge and skills of the talented employees could be shared between
the functional departments and the project management teams, as needed. Here, the employee
generally works under two bosses. The authority of the functional manager flows vertically
downwards and the authority of the project manager flows sideways. Since, the authorities flow
downward and sideways, this structure is called the Matrix Organization Structure.
In matrix organization structure, usually employees have two bosses to whom they may have to
report. Which boss is more powerful depends upon the type of matrix structure.
Matrix organizational structure exists in large multi-projects organizations so that they can move
or relocate employees to any team wherever their services are needed. Matrix structure has the
flexibility of applying the organizations talent where it is needed. Here, employees are considered
to be shared resources between the project teams and the functional units.
Matrix organization structure can be further divided into three categories; e.g.
1.

Strong Matrix

2.

Balanced Matrix, and

3.

Weak Matrix.

Strong Matrix:
In strong matrix, most authority and power lies with the project manager. Here, the project manager
has a full time role; he controls the project budget, and he has full time project management
administrative staff under him. Strong matrix structure has a lot of common characteristics of the
projectized organization.

Balanced Matrix:
In balanced matrix, power is shared between the functional manager and the project manager.
Although, the project manager has full time role, he has only part time project management
administrative staff under him. In a balanced matrix both managers control the project budget.

Weak Matrix:
In a weak matrix, the project manager has a part time role with very limited power and authority.
His role will be more like an expediter or a coordinator (A project expediter works as staff assistant
and communications coordinator. The expediter cannot personally make or enforce decisions.
Project coordinators have power to make some decision, have some authority, and report to a
higher-level manager). Weak matrix structure is very close to the functional organization structure.
In a weak matrix structure, the functional manager controls the project budget.

Composite Organization Structure:

In Composite Organization Structure, organizations may use any combination of the above given
type of structures. Suppose your organization is a functional organization and it needs a small
building for itself. Moreover, your organization has the capability to build this building on its own.
In this case, your organization will create a separate small project team to complete this task.

Organization Division:
1. Operational
2. Middle Management
3. Strategic

Transition Requirements:
Describes the things necessary to ensure a smooth change, which may include:
1. Training
2. Organizational change
3. Rollout plan

Project Life Cycle:

The series of phases that a project passes through from its initiation to its closure.
Figure 1-6. Project Life Cycle

Remember: Phases/stages of project life cycle

ARE NOT = Project Management Process Groups

Product life cycle:

The series of phases that represent the evolution of product, from concept through delivery,
growth, maturity, and to retirement.
Figure 1-7. Product Life Cycle versus Project Life Cycle

Product Life Cycle

Start

Project Life Cycle

Finish

Start

Project Life Cycle

Finish

Figure 1- 8. Project Management Process and Project Life cycle relationship

Deliverables:

Any unique and verifiable product, result, or capability to perform a service that is required
to be produced to complete a process, phase, or project
A deliverable often marks the end of a phase of the project or a major milestone.
Phase end = Phase exit, stage gates, or kill points

Figure 1-9. Typical Cost & Staffing levels across the project life cycle

Cost and staffing levels are low at the start, peak as the work is carried out, and drop rapidly as the
project draws to a close.

Figure 1-10. Impact of Variable Based on Project Progress

Risk and uncertainty are greatest at the start of the project. These factors decrease over the life of
the project as decisions are reached and as deliverables are accepted.

Project Phases:
Phase-to-Phase Relationship Types:
a.

Sequential Relationship

Figure 1-11. Example of Sequential Relationship

b.

Overlapping Relationship

Figure 1-12. Example of Over-lapping Relationship

Project Life Cycles:

1. Predictive Life Cycles:

Figure 1-13. Example of Predictive Life Cycle

A form of project life cycle in which the project scope, and the time and cost required to deliver
that scope, are determined as early in the life cycle as possible. These project proceed through a
series of sequential or overlapping phases, with each phase generally focusing on a subset of
project activities and project management processes. The work performed in each phase is usually
different in nature to that in the preceding and subsequent phases, therefore, the makeup and skills
required of the project team may vary from phase to phase.

2. Iterative and Incremental Life Cycles:

Figure 1-14. Example of Iterative and Incremental life cycle

A project life cycle where the project scope is generally determined early in the project life cycle,
but time and cost estimates are routinely modified as the project teams understanding of the
product increases, iterations develop the product through a series of repeated cycle, while
increments successively add to the functionality of the product.

3. Adaptive Life Cycles or Agile Method:

Figure 1-15. Example of Adaptive Life Cycle

A project life cycle, also known as change-driven or agile methods, that is intended to facilitate
change and require a high degree of ongoing stakeholder involvement. Adaptive life cycles are
also iterative and incremental, but differ in that iterations are very rapid (usually 2-4 weeks in
length) and are fixed in group techniques and quality management and control tools.

Enterprise Environmental Factors: Environment:

The definition of Environment is Relating to the natural world and the impact of human activity
on its condition. From the definition itself it is clear that the Environment is a condition which
influences us or our behavior in a certain way.
For example, in cold weather we need to wear woolen clothes to keep ourselves safe from the cold.
Hence, cold weather is the Environment which forces us to wear woolen clothes. This is the impact
of this cold environment on us.
In the same way, Enterprise Environmental Factors influence the projects outcome, and
organisations have to live and work within it. Enterprise Environmental Factors can be either
internal or external.
Some examples of Enterprise Environmental Factors are:

Organizational culture
Type of organization structure
Internal & external political conditions
Infrastructure
Government regulations
Market conditions, etc.
Figure 1-16. Enterprise Environmental Factors

Project Management information System: It is a part of environmental factors. It is an

automated system to submit and track the changes and monitor and control project
activities. It provides access to tools, such as scheduling tool, a work authorizing system, a
configuration management system, an information collection and distribution system, or interfaces
to other online automated systems. Automated gathering and reporting on key performance
indicator (KPI) can be part of this system.

Information Management System: Information Management System (IMS) is a general

term for software designed to facilitate the storage, organization and retrieval of information. It is
a kind of facilities, processes, and procedures used to collect, store, and distribute information
between producers and consumers of information in physical or electronic format.

Organizational Process Assets:

The definition of Assets is A useful or valuable thing or property owned by a person or company,
regarded as having value and available to meet debts, commitments, or legacies. Assets are
something that we can own, keep and use for our benefits; for example, we can have a car by which
we can move around, we can have house to live in, computers to work on, etc. These things; i.e.
car, house, computers, etc. are called Assets.
In the same manner, organisations also have Assets, which they call Organisational Process Assets,
and are stored in some central repository so that they could be used whenever required by anyone.
For example:

Policies
Procedures
Standard templates
Stakeholder register
Risk register
Lesson learned
Historical information, etc.
Figure 1-17. Organizational Process Assets

Work performance data, work performance information and reports:

Work Performance Data gives you rough information about the projects status, which helps you
create the Work Performance Information, and then with the help of Work Performance
Information, you can build the Performance Report.

Work Performance Data:

As per the PMBOK Guide, the Work Performance Data is the raw observations and
measurements identified during activities performed to carry out the project work; e.g. actual cost,
actual duration, and percent of work physically completed.
You can say that the Work Performance Data is the raw data of the projects status. In other words,
it is the current (as of now) status of various project parameters such as: how much work is
completed, how much time has elapsed, the cost incurred so far, etc. Once you get this information,
you can go ahead and create the Work Performance Information.
Now lets find the Work Performance Data in the PMBOK Guide:

Output of the Direct and Manage Project Work

Input to Validate Scope
Input to Control Scope
Input to Control Schedule
Input to Control Cost
Input to Control Quality
Input to Control Communication
Input to Control Risks
Input to Control Procurements
Input to Control Stakeholder Engagement

You can clearly see that the Work Performance Data is an output of the Direct and Manage Project
Work. Work Performance Data is collected throughout the execution phase of the project, and then
it is sent to various controlling processes to analyze it further; e.g. Validate Scope, Control Scope,
Control Schedule, Control Cost, etc.

Work Performance Information:

As per the PMBOK Guide, the Work Performance Information is the performance data collected
from various controlling processes, analyzed in context and integrated based on relationships
across areas; e.g. status of deliverables, and forecasted estimates to complete, etc.
Here, you will analyze the Work Performance Data. You will compare the planned performance
with actual performance.
Now lets find the Work Performance Information in the PMBOK Guide:

Input to Monitor and Control Project Work

Output of the Validate Scope
Output of the Control Scope
Output of the Control Schedule
Output of the Control Costs
Output of the Control Quality
Output of the Control Communications
Output of the Control Risks
Output of the Control Procurements
Output of the Control Stakeholder Engagement

You can see that the Work Performance Information is an output of various controlling processes,
and input to monitor and Control Project Work where it is used to generate the Performance
Report.
This was all about the Work Performance Data and Work Performance Information. Before I
complete this blog post, lets revisit some key points:

Work Performance Data is the as of now status of the project status, it provides the
current status of the project, and Work Performance Information is a comparison between
the actual performance with the planned performance.
Examples of Work Performance Data are the actual cost spent, actual time elapsed, etc.
Examples of Work Performance Information are Cost Variance, Schedule Variance, Cost
Performance Index, and Schedule Performance Index, etc.

Performance Reports:
Performance reports organize and summarize the information gathered, and present the results of
any analysis as compared to performance measured baselines.
In other words, the Performance Report organizes, and summarizes the information collected
during the Work Performance Information, and Work Performance Measurement. Then it
represent to stakeholders in such a way that they can understand the direction the project is going.
From the Performance Report, stakeholders can see the project performance, and current status. If
the project is not going as it was planned then stakeholders may decide for any corrective action
such as if any extra fund, resource, or time extension should be given to complete the project.
The format and type of Performance Reports are dependent on the stakeholders needs and
requirements and whether they want a detailed report, or just a summary.

Performance Reports may be any type of combination of these formats:

Burn down Chart

S-Curve
Bar Charts
Histograms
Tables
Run Charts.

The content of the Performance Report includes, but is not limited to:

Percentage of the work completed during the reporting period

Balance of work to be completed
Cost incurred during the reporting period
Balance of funds available
Balance of time available
Major risks that have occurred, or passed without occurring
Major remaining identified risks
Results of variance analysis; e.g. schedule variance (SV), and cost variance (CV)
Performance indexes; e.g. schedule performance index (SPI), and cost performance index
(CPI)
Forecasted fund required to complete the balance work (if project cost is over run, or under
run)
Forecasted time required to complete the balance work (if project is delayed, or ahead of
schedule)
Summary of major approved change requests during the reporting period etc.

Keep in mind that WPI is a collection of raw information of the projects status. WPM (Work
performance measurement) is a comparison of various performances like cost and schedule etc.
The Performance Report is the Report that is to be given to project stakeholders to make them
aware of the current status of the project. The Performance Report shows stakeholders how the
project is going, the forecast analysis of what they should expect if the project is allowed to keep
going in the same way, or what additional funds or resources may be required to complete the
project if there is any deviation from any baselines (e.g. cost and schedule baselines).

CHAPTER 2: PROFESSIONAL RESPONSIBILITY

Project Management Institute PMI PMP Code of Professional Conduct

You will sign this testimony
As a PMI Project Management Professional (PMP)
I agree to support and adhere to the responsibilities described in the PMI Code of Professional
Conduct.

1.

Responsibilities to the Profession:

2.

Responsibilities to the Customers and the Public:

3.

Compliance with all organizational rules and policies

Candidate/certified professional practice
Advancement of the profession

Qualification, experience and performance of professional services

Conflict of interest situations and other prohibited professional conduct

Administration of Code of Conduct:

Ethical Values that support PMP Code of Conduct

Responsibility
Respect
Fairness
Honesty

CHAPTER 3: PROJECT MANAGEMENT PROCESS GROUPS

Project Management Process Groups:
A logical grouping of project management inputs, tools and techniques and outputs. There are five
Project Management processes during specific project management activities occur.
1. Initiating: The project goal is defined and the project is authorized. The output of this
process is often a project charter.
2. Planning: The projects scope, time, cost and other details are determined. The output of
this process is a project plan. It is only process group with a set order.
3. Executing: Tasks are performed and resources are utilized to accomplish the project plan.
4. Monitoring and Controlling: The projects is tracked and corrective actions taken when
necessary to keep the project on track.
5. Closing: The projects product, services, or end result is accepted by those who authorized
it and the project is brought to an orderly conclusion.
Figure 3-1. The project management processes relate to one another as shown in the
following figure:

Monitoring and Controlling

Planning
P
Closing
Initiating

Executing

As you may have noticed, the Planning and Executing processes are a continuous cycle. As the
project plan is executed, more planning is often required. You also may have noticed that the
Monitoring and Controlling Processes interfaces with and affects the other four processes.

Table 3-1 Project Management Knowledge Areas:

There are 10 Project management knowledge areas.
Area
Project Integration Management
Project Scope Management

Project Time Management

Project Cost Management

Project Quality Management

Project Human Resources Management
Project Communication Management

Project Risk Management

Project Procurement Management
Project Stakeholders Management

Function
Unifying and coordinating the many different
facets of the project
Determining what work is needed to complete
the project successfully and ensuring that
work(and only that work) is performed
Estimating how long the work will take,
planning when the work will be performed,
and making sure the work is done according
to schedule
Estimating how much it will cost to perform
the work and ensuring that the work is done
within budget
Ensuring that the work is done in a way that it
meets agreed-upon specifications
Assigning and managing the people who will
do the work
Making sure that the right project information
is shared with the right people at the right
time
Predicting and mitigating project problems
and opportunities
Finding and buying outside resources needed
to perform the work
Identify, plan, manage and control
stakeholder

Initiating: 2 processes
Planning: 24 processes
Execution: 8 processes
Monitoring & Controlling: 11 processes
Closing: 2 processes

Table 3-2. Summary of all 47 processes

Integration(6)

Initiating

Planning

Executing

Closing

(8)

Monitoring &
Controlling
(11)

(2)

(24)

Scope(6)

Time(7)

Cost(4)

Quality(3)

HR(4)

Communication(3)

Risk(6)

Procurement(4)

Stakeholder(4)

(2)

Table 3-3. Project Management Process Group and Knowledge Area Mapping:
Knowledge
Areas

Project Integration
Management

Project Management Process Groups

Initiating

1 Develop Project
Charter

Planning

2 Develop Project
Management Plan

Executing

3 Direct and Manage

Project Work

Monitoring
and
Controlling
4 Monitor and
Control Project
5 Perform Integrated
Change Control

1 Plan Scope
Management
2 Collect
Requirements
3 Define Scope
4 Create WBS
1 Plan Schedule
Management
2 Define Activities
3 Sequence Activities
4 Estimate Activities
Resources
5 Estimate Activities
Durations
6 Develop Schedule

5 Validate Scope
6 Control Scope

Project Cost
Management

1 Plan Cost
Management
2 Estimate Cost
3 Determine Budget

4 Control Cost

Project Quality
Management
Project Human
Resources
Management

1 Plan Quality
Management

2 Perform Quality
Assurance

1 Plan Human
Resources
Management

Project
Communication
Management
Project Risk
Management

1 Plan
Communications
Management

2 Acquire Project
Team
3 Develop Project
Team
4 Manage Project
Team
2 Manage
Communications

Project Procurement
Management

1 Plan Procurement
Management

2 Conduct
Procurement

3 Control
Procurement

2 Plan Stakeholders
Management

3 Manage
Stakeholders
Engagement

4 Control
Stakeholders
Engagement

Project Scope
Management

Project Time
Management

Project Stakeholders
Management

6 Close Project
or Phase

7 Control Schedule

1 Plan Risk
Management
2 Identify Risk
3 Perform Qualitative
Risk Analysis
4 Perform
Quantitative Risk
Analysis
5 Plan Risk
Responses

1 Identify
Stakeholders

Closing

3 Control Quality

3 Control
Communications
6 Control Risk

4 Close
Procurement

The Triple Constraints:

Scope, Time, and Cost are the most important knowledge areas. In fact, they are referred to as the
Triple Constraints. The knowledge areas are dynamically linked; any change in one will impact
the others. (Figure 3-2)
SCOPE

COST

TIME

CHAPTER 4: PROJECT INTEGRATION MANAGEMETN

Project Integration Management:

Includes the processes and activities needed to identify, define, combine, unify, &
coordinate the various processes & project management activities within the project
management process groups.
Includes characteristics of unification, consolidation, articulation & integrative actions that
are crucial to project successful completion
Primarily concerned with effectively integrating the processes among the project
management process groups that are required to accomplish project objectives within an
organizations defined procedures.
Figure 4-1. Project Integration Management Overview:

Develop Project Charter:

The project charter is the document that formally authorizes a project, and provide the
project manager with the authority to apply organizational resources to the project
activities.
A document issued by the project initiator or sponsor that formally authorizes the existence
of a project and provides the project manager with the authority to apply organizational
resources to the project activities
The key benefit is a well-defined project start and project boundaries, creation of a formal
record of the project & a direct way for senior management to formally accept and commit
to the project.

Project Charter, usually includes

Project Purpose/Justification
Measurable Project Objectives
High-level requirements
Assumptions and Constraints
High level project description and boundaries
High level Risks
Summary budget & milestones
Initial Stakeholder List
Project Approval Requirements
Assigned Project Manager
Name and Authority of the sponsor

Figure 4-2. Sample Project Charter

Project Statement of Work (SOW): A narrative description of product, services or results

to be delivered by a project or a written description of the deliverables supplied by the project.
For internal projects, the project initiator or sponsor provides the statement of work based on
business need, product, or services requirements. For external project, the statement of work can
be received from the customer as part of a bid document (e.g., a request for proposal, request for
information, or request for bid) or as a part of contract. The SOW references the following:

Business Need
Product Scope Description
Strategic Plan

Business Case:
Business Case, describes the necessary information from a business standpoint to determine
whether or not the project is worth investment. It contains business need and cost benefit analysis.
Its usually a result of one of the following:

Market Demand
Legal Requirement
Organizational Need
Ecological Impact
Customer Request
Social Need
Technological Advance

Agreements: Contracts, Service Level Agreements (SLA), letter of agreements, letter intents,
etc.

Develop Project Management Plan:

The process of defining, preparing, coordinating and integrating all subsidiary plans.
The key benefit is a central document that defines the basis of all project work.
Project Plan defines how the project will be executed, monitored and controlled, and
closed.

Project Management Plan:

The project management plan is the document that describes how the project will be executed,
monitored, and controlled. It integrates and consolidates all the subsidiary plans and baselines form
the planning processes. Project baselines include, but are not limited to:
1. Scope baseline
2. Schedule baseline
3. Cost baseline

Figure 4-3. Difference between Project management plan and project documents

Scope baseline:
The scope base line is the approved version of scope statement, work break down structure, and is
associated WBS Dictionary, that can be changed only through formal change control procedures
and is used as a basis for comparison. It is a component of the project management plan.
Components of the scope base line include:
Project scope statement: It includes the description of the project scope, major deliverable,
assumptions, and constraints.
WBS: Hierarchical decomposition of the total scope of work to be carried out by the project
team to accomplish the project objective and created the required deliverables.
WBS Dictionary: it is a document that provides detailed deliverable, activity, and scheduling
information about each component in the WBS. It may include, but in not limited to:
1. Code of account identifier
2. Description of work
3. Assumptions and constraints
4. Responsible organization
5. Schedule milestone
6. Associated schedule activities
7. Resources required
8. Cost estimates
9. Quality requirements
10. Acceptance criteria
11. Technical references
12. Agreement information

Schedule baseline:
It is the approved version of a schedule model that can be changed only through formal change
control procedures and is used as a basis for comparison to actual results. It is accepted and
approved by the appropriate stakeholders as the schedule baseline with baseline start dates and
finish dates. During monitoring and controlling, the approved baseline dates are compared to the
actual start and finish dates to determine whether variance have occurred. The schedule base line
is a component of the project management plan.

Cost baseline: The cost baseline is the approved version of the time phased project budget,
excluding any management reserves, which can only be changed through formal change control
procedure and is used as a basis for comparison to actual results. It is developed as a summation
of the approved budget for the different schedule activities.

Figure 4-4. Various components of the project budget and cost base line

Direct and Manage Project Work:

The process of performing the work defined in the project plan to achieve the project's objectives
or integrate the efforts to produce the product deliverables.

It includes but are not limited to:

Activities to accomplish requirements
Create project deliverables
Staff, train & manage project team members
Establish and manage project communication channels
Generate project data (e.g. cost, schedule, technical and quality progress)
Issue change requests
Manage risks
Manage sellers and suppliers
Direct and Manage Project Work also required review of the impact of all project
changes and the implementation of approved changes:
1. Corrective action: To realign the performance of the project work to the project plan
2. Preventive action: To ensure future performance to align with project plan
3. Defect repair: To modify a non-conforming deliverable

Monitor and Control Project Work:

Tracking, reviewing, and reporting the progress to meet the performance objectives.
Corrective and preventive actions are taken to control the project performance to
resolve/prevent deviation between project results and project plan.
Compares actual project performance against the project management plan.
Assesses performance to decide whether any corrective or preventive actions are needed
Analyzes, tracks, and monitors project risk.
Maintains an accurate and timely information on the projects deliverables(s).
Provides cost and schedule forecasts.
Monitors the implementation of approved changes when and as they occur.

Perform Integrated Change Control:

The process of reviewing all change requests, approving changes & managing changes
to: the deliverables, organizational process assets, project documents & the project
management plan.
Change Control Board (CCB) is responsible for approving or rejecting change requests
Roles and responsibilities of CCB are defined within configuration control and change
control procedure

Close Project:

The process of finalizing al activities across all of the project management process groups
to formally close the project or phase
Provide lessons learned, formal ending of project work and release of organization
resources to pursue new endeavors.

Expert Judgment: Knowledgeable and experiences persons (groups) from many sources
including:

Other units within the organization

Consultants
Different Stakeholders (including the customer)
Professional and technical associations
Industry groups
Subject Matter Experts
Project Management Office

Analytical Techniques:
These techniques are applied in project management to forecast potential outcomes based on
possible variations of project or environmental variables and their relationships with other
variables. Examples of analytical techniques used in the projects are:
1. Regression analysis
2. Grouping analysis
3. Causal analysis
4. Root cause analysis
5. Forecasting methods (e.g., time series, scenario building, simulation, etc.)
6. Failure mode and effect analysis (FMEA)
7. Fault tree analysis (FTA)
8. Reserve analysis
9. Trend analysis
10. Earned value management
11. Variance analysis

Facilitation Techniques:
Brain storming, conflict resolution, problem solving, and meeting management are examples of
key techniques used by facilitators to help team and individual accomplish project activities.

Conflict resolution techniques:

There are six conflict resolution techniques, which I am going to discuss here one by one,
and finally defend the best technique for conflict resolution.

Withdrawing or Avoiding:
Here, the project manager simply chooses to avoid the conflict, and allows the persons
involved in the conflict to find their own solution. No action is taken by the project
manager.

Smoothing or Accommodating:
Here, the project manager is involved in the conflict, tries to avoid areas of disagreements,
and focuses on commonalities. Smoothing is a way to avoid tough discussions.

Compromising:
This is a mid-way approach. Here, everybody loses and gains something. All parties get
some sort of satisfaction. It is a Lose-lose approach.

Forcing:
Here, a decision is taken in favor of one partys viewpoint at the expense of others. It can
demoralize the team members and may cause to increase the conflicts. It is a win-lose
approach.

Collaborating:
This is an example of a win-win approach. Here, the project manager will work with all
parties to find a resolution that involves multiple viewpoints and negotiate for the best
solution. This technique reinforces mutual trust and commitment.

Problem Solving or Confronting:

Here, a conflict will be treated as a problem for which the project manager has to find a
solution. The project manager will conduct an in-depth root cause analysis of the reason
for the occurrence of the conflict, encourage open discussions to allow parties to express
their areas of disagreement, and then arrives at a solution.

Configuration Management vs Change Management:

Configuration vs Change Management If you have any experience in project management, Im
sure that youre aware of many kinds of changes which may happen to projects. Some changes
may affect the project baselines; e.g. scope, time and cost. Other changes might be related to the
product itself, such as its specifications.
Configuration Management System and Change Management System are used to manage these
types of changes. Although Change Management is a very common term, Configuration
Management is not, unless you are an IT Project Manager where the term Configuration
Management is used more often.
Since non-IT project managers are not well aware of the Configuration Management System, they
confuse it with the Change Management System.
Anyway, in this blog post Im going to explain you the Configuration Management System and
the Change Management System, and differentiate between them with a real world scenario.

Configuration Management System:

In the Configuration Management System, changes related to product specification are managed.
Suppose youre working on a project and the client comes to you and asks for some changes in the
product.
You will deal this change with the Configuration Management System, because the change is
related to the configuration of the product.

Change Management System:

You can have changes in your project at any time. For example, you may run out of money and
you need to approve a new budget. You may also not able to complete your project within a given
time, and you may require a time extension.
These types of changes involving the project processes or the project baselines are managed
through the Change Management System.
The purpose of the Change Management System is to implement the approved changes into the
project with a minimum of disruption.
The Change Management System ensures that every change request is received, analyzed and
either approved or rejected. If it is approved, all other project constraints will also be analyzed for
any possible impact due to this implementation of change.
A good Change Management System ensures that all affected parameters are identified and
analyzed for any impact before the change is implemented to the system, in order to avoid or
minimize the adverse effects.

Now lets see the Change Management System and Configuration Management System in a real
world example:
Suppose youre managing a project to build a school building with 10 classrooms.
Youre in the middle of your project, suddenly your contractor for steel works walks off the job,
and you are struggling to find his replacement. After a lot of searching you find a contractor for
steel works, but he wont start working on your project for one week.

This will delay your project completion date by one week.

Therefore, you will raise a change request to extend your schedule baseline by one week, and will
try to get approval for it through the Change Management System.
This was the first scenario, where you have seen the Change Management System. Now lets see
the second scenario, which shows the example of the Configuration Management System.
You are constructing the school building, suddenly the client requests you increase the number of
rooms from 10 to 15.
What will you do now?
He asked you to change the configuration of the school building, before it was a 10 room building,
and now it is a 15 room building.
Of course you will make a new plan, schedule, and budget.
And then you will raise the configuration change request and get it approved as soon as possible.
These types of changes will be handled under the Configuration Management System, because
here the specification of your product is changed. Before the school building had 10 rooms and
now it will have 15 rooms.
Please note that in the first scenario, you raised the change request, but the request was to increase
the deadline of the project by one week. There was no change required to the product (the change
was required only in schedule baseline); i.e. the school building was the same, but you will
handover this building to the client one week later.
The change in the project process will be handled under the Change Management, because here
the configuration of your school building is unchanged. Earlier it was a school building with 10
classrooms, and now it is still a school building with 10 classrooms.

The difference between the Change Management System and the Configuration
Management System:

Change Management manages the changes in project baseline or process.

An example of Change Management system can be a change in budget, schedule, etc.
Configuration Management deals with changes in product specifications.
An example of Configuration Management can be an extra feature added to the product.

Conditions for Change Management:

Delay in schedule: if your schedule is delayed, you will develop a new schedule reflecting
the current situation and try to get it approved.
Cost overrun: If you run out of money, you will need to re-estimate your cost to complete
the project and get it approved.

Conditions for Configuration Management:

Market competition forces new features to be added to the product.

The project took so long that product is nearing to obsoletion; therefore, a few
modifications will be applied to the product to keep it current.
The client dreamed about a new feature to be added to the product.

Project Selection Methods:

1. Benefit Measurement (Comparative approach)
Murder board (a panel of people who shoot down a new project ideas)
Peer review
Scoring model
Economic model
Present value (The value in todays dollars of future cash flow).
Net present value (Total of present value of time series of cash flow)
IRR (Internal rate of return) (Interest rate received from an investment consisting
income and payment that occurs at regular intervals).
Payback period (The length of time required for the organization to recover its
investment in the project before the project yielding profit).
Cost benefit analysis (Comparing the expected costs of a project to its potential
benefits (Revenue). The result of this analysis is BCR (Benefit Cost Ratio).

2. Constrained Optimization (Mathematical approach)

Linear programming
Integer programming
Dynamic programming
Multi objective programming

The following are some additional accounting terms related to project selection that you
should be familiar with for your exam:
Economic Value added (EVA): Whether the project returns to the company more value than the
initiative cost.
Opportunity Cost: This term refer to the opportunity given up by selecting one project over
another. This does not require any calculation. See the following example:
Question: an organization has two projects to choose from: project A with an NPV of $45,000 or
project B with NPV of $85,000. What is the opportunity cost of selecting project B?
Answer: $45,000
The opportunity cost is the value of project not selected.

Sunk Cost: Expended costs are sunk cost. Sunk costs should not be considered when deciding
whether to continue a troubled project.
Law of Diminishing Returns: After a certain point, adding more input will not result in a
proportional increase in productivity.
Working Capital: Current assets minus current liabilities.
Depreciation: Large assets (e.g., equipment) purchased by a company lose value over time.
Accounting standards call this depreciation.
There are two forms of depreciation:
1. Straight Line Depreciation: Depreciate the same amount each time period.
2. Accelerated Depreciation: Depreciate an amount greater than straight line each time period.
There are two forms of Accelerated Depreciation:

Double declining balance

Sum of the years digits

Four Types of Changes in Project:

1.
2.
3.
4.

Project changes
Base line changes
Deliverable changes
Process changes

Project and Base line changes come under Change Management System.
Deliverable or product and Process changes come under Configuration Management
System.

Process for Making Changes:

1.
2.
3.
4.

Evaluate the impact

Identify the option
Get the change request approved internally
Get the customer buy in

Detailed Process of Change Request:

1.
2.
3.
4.
5.

Prevent the root cause of changes.

Identify changes
Evaluate the impact
Create the change request
Perform integrated change control
Access the change
Look for option
Change is approved or rejected
Update the status of change request in change log
Adjust the project management plan, project document and baselines
6. Manage stakeholders expectation by communicating the changes to stakeholder, affected
by this changes
7. Manage the project to revise project management plan and project documents

Some of configuration management activities included in perform integrated

change control:
1. Configuration identification
2. Configuration status accounting
3. Configuration verification and audit

Project File: Part of the Organizational Process Asset, includes Project management plan,
Scope, Schedule, cost, Project calendar, Risk register and other registers, Change management
plan, Plan risk responses action and impact.

Archive: All the project document goes into the archives. The archive is the last thing to create
before releasing the remaining team members in clos project phase.
Project objectives deal with both project and product objectives in the charter must be
measureable.
Working to clearly describe and prevent, these both tell us that the project in planning
phase.

CHAPTER 5: PROJECT SCOPE MANAGEMENT

Scope:
Scope refers to all the work involved in creating the deliverables of the project and the processes
used to create them.

Project scope management: It includes the processes required to ensure that the project
includes all the work required, and only the work required, to complete the project successfully.

Project Scope: The work that needs to be accomplished to deliver a product, service, or result
with the specified features and functions.

Product scope: The futures & functions that characterize the product, service, or result.
Explanation with example:
Project Scope:
The Project Scope includes all the work needed to be done to create a product, or deliver a service,
or result. The Project Scope is all about the project, it defines the requirements of products, the
work required to create the product, and defines what is in the scope and what not.
The Project scope is also known as scope statement or statement of the work.

Product Scope:
The Product Scope is the characteristics, features, or function of the product, service, or result. It
is the outcome of the project. The Product Scope is all about the product: how will it look like,
how will it function, etc.
Got it? If not, dont worry. Just keep on reading
Let me explain this to you by our trademark school building example.
The client comes and asks you to construct a school building for him. He gave you his requirements
like what would be the size of the school building, how many rooms it will have, size of the
playground, number of toilets, color of painting, when he needs it, etc.
You take the project and start working on it. You make the plan, create the schedule, and estimate
the budget. Subsequently, you move on to the execution part. You bring workers to the site and
start constructing the school building. You complete the project and verify with client that the
school building is as per his requirements. Then you hand over the school building to the client,
get the payment, and the project is closed.

In the above example, there are two parts: in the first part client asks you to make a school building
for him and gives you his requirements (characteristics). This school building is the Product and
the requirements for this product are known as Scope. Therefore, in the first part, what he gave
you is the Product Scope.
In the second part, you work to construct the school building within the given time, and budget,
meeting all the clients requirements by following the project management plans. Lastly, you
deliver it to the client. In this part, what you have done to construct the school building, is the
Project Scope.
This was all about the Project Scope and the product scope. Now I believe that you can go for the
PMP Certification exam with no worries about having any doubt regarding the difference between
Project Scope vs Product Scope

Figure 5-1. Project Scope Management Overview

Scope Management Plan. It includes:

Process for preparing a detailed project scope statement.

Process to enable the creation of WBS
Process to establish how the WBS will be managed
Define formal acceptance criteria of deliverables
How change requests will be applied to scope

Requirements Management Plan: Describes how requirements will be analyzed,

documented, and managed. It includes, but not limited to:

How requirements activities will be planned, tracked and reported.

Configuration management activities.
Requirements prioritization process.
Product metrics
Traceability structure

Collect requirements:
Requirements can be grouped into classifications including:

Business requirements, describe the high-level needs of the organization as a whole.

Stakeholder requirements, describe needs of a stakeholder or stakeholder group.
Solution requirements, describe features, functions and characteristics of the product,
service, or results.
Transition requirements, describe temporary capabilities such as data conversion &
training needs.

Group Creativity Techniques:

Brainstorming
Nominal Group (It enhances brainstorming with a voting process used to rank the most
useful ideas for further brainstorming or for prioritization).
Idea/Mind Mapping (In this ideas created through individual brainstorming sessions are
consolidated into a single map to reflect commonality and differences in understanding,
and generate new ideas).
Affinity Diagram (It allows large numbers of ideas to be classified into groups for review
and analysis).
Multi-criteria decision analysis (A technique that utilizes a decision matrix to provide a
systematic analytical approach for establishing criteria).

Group Decision Making Techniques:

Unanimity
Majority
Plurality
Dictatorship

Prototypes: (Stakeholders examine and/or interact with model early in project used for
progressive elaboration of product).

Benchmarking: (Internal or external comparison for learning. It involves comparing actual or

planned practices).

Context Diagrams: (It is an example of a scope model). It shows boundaries of the Product
Scope and its interfaces with people, process or system.

Requirements Document:

Business Requirements
Stakeholder requirements
Solution requirements
Project requirements
Transition requirement
Requirements assumptions, dependencies, and constraints.

Requirements Traceability Matrix: (Grid that links product requirements from their
origin to the deliverables that satisfy them).

Figure 5-2. Example: Requirements Traceability Matrix

Figure 5-4. Sample Requirements Traceability Matrix

Project Scope Statement: Describes projects deliverables and the work required to
create those deliverables. It is a description of project scope, major deliverable, assumptions,
and constraints.
Figure 5-3. Difference between Project Charter and Project Scope Statement

Figure 5-6. Elements of the Project Charter and Project Scope Statement

WBS

Subdividing the project deliverables and project work into smaller and more manageable
components.
The work breakdown structure is a deliverable-oriented hierarchical decomposition of
project work.

Figure 5-4. Sample WBS

Decomposition:
The subdivision of project deliverables into smaller, more manageable components. The work
package level is the lowest level in the WBS, and is the point at which the cost an activity durations
can be reliably estimated and managed. The level of detail for work packages will vary with the
size and complexity of the project.
Activities are generated form each work package. Activities are a shown in an activity list
and network diagram.
Work package are shown in a WBS.

Validate Scope

Formalizing acceptance of the completed project deliverables.

Includes reviewing deliverables with the client and obtaining formal acceptance of
deliverables.
Scope verification is concerned with acceptance of deliverables while quality control is
concerned with correctness of the deliverables and meeting quality requirements.

Inspection: Measuring, examining, and validating to determine whether work and deliverables
meet requirements and product acceptance criteria. Inspections may be called reviews, audits, and
walkthroughs.

SPECIAL NOTE:
Project scope management involves the entire work of the project.
The lowest level of WBS is a work package, which can be completed more than one person.
The heuristic (general rule) we use in project decomposition is 80 hours for a medium sized
project. It does not matter how experience the team members.
WBS is used in many different processes but is not integral to the perform quality
assurance.
WBS Dictionary contains agreement information, code of account identifier and list of
schedule milestones. It does not contain resource assigned.
A hidden requirement is the one that the user or the customer fails to communicate or take
for granted. Hidden requirements can be identified by a "participant observer" who actually
performs a process or procedure to experience how it is done.
Facilitated workshops bring key cross-functional stakeholders together to define product
requirements. Because of their interactive nature, well-facilitated sessions lead to increased
stakeholder consensus. This ensures that issues can be discovered and resolved more
quickly than in other forums.
Benchmarking is a method of identifying requirements by comparing the performance of
the organization to that of its competition. Interview are most effective with one, or a small
group of stakeholders. Focus groups are most effective with a group of 6 to 12 stakeholders.
For large number of stakeholders survey or questionnaire are used.
In multi-criteria decision analysis requirements are ranked based on factors such as
expected risk level, time, cost, and benefit estimates.
Requirement are defined in measureable terms.
Affinity Diagram: Requirement can be sorted into different categories.
The Delphi Technique is one way to achieve unanimity.
WBS Dictionary provides the most help in controlling gold plating.
4/40 and 80/20 rule: 4/40 rule is used for creating WBS for a smaller project, breaking
down of work package of 4 hours and maximum of 40 hour. 80/20 rule is used for
understanding the quality issues. (80 percent of problems are due to 20 percent of root
causes).
User story: may be developed in facilitated work shop as a part of the requirement gathering
method-to document the function and features required by the stakeholder.
The WBS is finalized by establishing control accounts for the work packages and a unique
identifier from a code of accounts. This provides a structure for hierarchical summation of
costs, schedule and resource information
Configuration management activities are documented as part of the requirements
management plan which is an output of the Plan Scope Management process.
Product Validation and Scope Validation: Product Validation: occurs during closing and is
focused on make sure all the work is completed satisfactory. Scope validation: occurs in
Validate Scope Process focus on customer acceptance of deliverable.

CHAPTER 6: PROJECT TIME MANAGEMENT

Project Time Management:

Includes the processes required to accomplish timely completion of the project; involved
7 processes used to in developing time schedule
The schedule can have any format

Once project schedule has been reviewed and approved, it is base lined and this original
schedule is called the schedule baseline.
Figure 6-1. Project Time Management Overview

Schedule Management Plan, includes but not limited to:

Project Schedule Model Development

Level of accuracy
Rules of Performance Management
Reporting Formats
Process Description

Rolling Wave Planning

Rolling wave planning is an iterative planning technique in which the work to be accomplished
in the near term is planned in detail, while the work in the future is planned at a higher level. It is
a form of progressive elaboration. Therefore, work can exist at various levels of detail depending
on where it is the project life cycle.

Activity List: A list of all the activities that will be performed on the project and a description
of each activity

Activity Attributes: Multiple attributes associated with each schedule activity that can be
included within the activity list. Activity attributes include activity codes, predecessor
activities, successor activities, logical relationship, leads and lags, resource requirement,
imposed dated, constraints, and assumptions.
Figure 6-2. Example of Activity Attributes
1.1

Design workshop

3 days

May 1

May 3

Roger

0%

1.2

Review and revise

workshop design

2 days

May 4

May 5

Client

0%

1.3

Submit workshop design

for municipality approval

2 days

May 8

May 9

Betty

0%

Milestone List: A milestone is a significant point or event in project.

Figure 6-3. Example of Milestone list
1.0 Project Charter Approval (M)

Jan. 30

2.0 Preliminary Design & Estimate Review (O)

Mar. 15

3.0 Final Design & Estimate Approval (M)

Apr. 30

Precedence Diagramming:
The most common method of arranging the project activities visually. Activities are put in
boxes, called nodes, and connected with arrows (Activity on Node).
Figure 6-4. Example of Precedence Diagramming

PDM includes four types of dependencies or logical relationships.

1. Finish-to-Start: (most commonly used)
Predecessor activity (A) must finish before successor activity (B) can start
Figure 6-5. Example of Finish to Start relationship

2. Finish-to-Finish:
Predecessor activity (C) must finish before successor activity (D) can finish
Figure 6-6. Example of Finish to Finish relationship

3. Start-to-Start:
Predecessor activity (E) must start before the successor activity (F) can start
Figure 6-7. Example of Finish to Finish relationship

4. Start-to-Finish: (rarely used)

Predecessor activity (G) must start before successor activity (H) can finish
Figure 6-8. Example of Finish to Finish relationship

Figure 6-9. Task Dependencies in a glance

Dependency Determination:
1. Mandatory Dependencies
Activity must be performed in predefined sequence. Contractually required or inherent
in the nature of the work It is also called hard logic.
Example: Framing before installing electrical
2. Discretionary Dependencies
Desired sequencing of activities, which can be altered if required. Typically, best practice
or organizational approach to work. It is also called preferred, preferential or soft logic.
Example: Install flooring after painting complete
3. External Dependencies
Relationship between project activities and non-project activities. Project activity
depends on action by resource outside the project team. Greatest risk to project schedule
due to lack of direct control.
Example: Government must complete environmental hearings before site preparation can
begin.
4. Internal Dependencies
Precedence relationship among activities. Project activity depends on action by project
team.
Example: Team must install tile before grouting.

Lag:
Amount of time whereby a successor activity is required to be delayed with respect to a
predecessor activity Example: Three day curing period for special epoxy glue
Figure 6-10. Example of Lag
Activity A

3 days

Activity B

Lead:
Amount of time whereby a successor activity can be advanced with respect to a predecessor
activity
Example: Begin developing prototype one day before design complete
Figure 6-11. Example of Lead
Activity A

Activity B

Project Schedule Network Diagrams:

Graphical representation of the logical relationships among the Project Schedule
Activities.
Figure 6-12. Project Schedule Network Diagrams

Estimate Activity Resources:

Estimate the type and quantities of material, human resources, equipment, or supplied required to
perform each activity.
A resource is an individual or equipment or material used to complete an activity.
They are three types:
1.

Labor
A)

Direct (Productive) - Direct Labors (e.g. Labor)

B)

In Direct (Non Productive) - In Direct Labor (e.g. support staff)

2.

Equipment

3.

Material

Reserve Analysis:
Analytical technique to establish reserve for:

Schedule
Budget
Risks

Can be derived based on percentage, stipulated number of work periods, or other formula.
Contingency should be visible in schedule and budget.

Concepts of activity time to consider:

Effort = Person-hours or person-days
3 people x 16 man-hours = 48 man-hours
Duration = Work periods or work units
Work period = 1 man-day (8 hours per day)
48 man-hours 8 hours (1 man-day) = 6 man-days
6 man-days 3 people per day = 2 workdays
Elapsed time = Actual calendar time
Start Friday 1st Day
Saturday Weekend Not workday
Sunday Weekend Not workday
Finish Monday 2nd Day
= 4 elapsed days

Techniques to estimates activity duration:

There are three basic techniques most widely used by the project professionals worldwide to
estimate activity duration and build the schedule. Those techniques are as follows:
1. Analogous Estimating
2. Parametric Estimating
3. Three Point Estimates
Analogous Estimating:
The Analogous Estimates process uses analogies from the earlier similar projects. For example,
lets say you have to estimate the duration of a school building project with the help of the
analogous estimating. In this case, you will look into your organizational process assets (OPA) for
any earlier school building project completed by your organization and pick the best project, which
looks similar to your project.
Once you find the old similar project, you will compare it with your project and use your expert
judgment to find the approximate time duration for your current project.
With the analogous method of estimating, you can estimate the duration of a project very quickly.
This process is not very accurate; however, it is very useful when there is very little information
available for the project and you have to estimate the duration as quickly as possible.
The accuracy of analogous estimation depends on the degree of similarities between your project
and the project you are comparing it with.
Parametric Estimating:
The Parametric Estimation is somewhat similar to the analogous estimation because it also uses
the past records to compute the duration estimate. However, this approach is different from the
analogous estimation.
The parametric estimation uses historical data and other parameters to calculate the estimate. For
example, if constructing a ten foot wall took one day, then how long will it take to build a hundred
foot of wall? You will multiply the time taken to build ten foot of wall in the old project by ten.
Or, if one room is painted in three days in an earlier project, how much time it will take to paint
twenty rooms in this project? You will multiply the time taken to paint one room in the old
project by twenty to get the required number of days for your project.
The accuracy of the duration estimate obtained from this technique is better than that from the
analogous estimation.

Three Points Estimates:

Under the three-point estimates techniques, the PERT (Program Evolution and Review Technique)
is the most widely used statistical tool to determine the time duration of an activity.
The PERT is a weighted average technique to determine the approximate duration of an activity.
It uses three time estimates to determine an approximate average duration of an activity.
Three time estimates are as follows:

Most Likely (Tm): This is the time taken by an activity to finish it in most cases
Optimistic (To): This is the time taken by an activity to finish it in the most favorable case
Pessimistic (Tp): This is the time taken by an activity to finish it in the worst case scenario

Once you get these three estimates, you can calculate the PEART Time Estimate by using the
below given formula:
Te = (To + 4Tm + Tp)/6
The duration estimate obtained by this method is more accurate than the rest. Using three points
estimate reduces the chances of risks, bias judgment, and uncertainty.
Key Points:
Analogous Technique:

It is the fastest technique to calculate the estimate; however, less accurate

It can be used when limited information about the project is available
It is also known as Top-Down Estimating

Parametric Technique:

It uses statistical relationships between historical data and variables

It is more accurate than the analogous technique

Three Points Estimates Technique:

It uses three estimates (most likely, optimistic, and pessimistic) to calculate the average
value of activity duration
It reduces the bias, risks and uncertainties from the duration calculation
It is more accurate than the rest

Schedule Network Analysis:

Generates project schedules (Calculates early start, early finish, late start, and late
finish)
Allows path convergence or divergence to be identified and analyzed for schedule
compression

Figure 6-13. Project Schedule Network Diagrams

Diverging Activities

Converging Activities

Single predecessor with

multiple successors

Multiple predecessors with

single successor

Paint Ceiling

Prep

Paint Walls

Paint Walls
(2nd coat)

Clean-up

Paint Trim

Critical Path Method: Critical Path Method is a technique and it is utilized to calculate
project schedules.
Using schedule network, it calculates:
Forward Pass: Early start and early finish dates
Backward Pass: Late start and late finish dates
Schedule Flexibility: Total float
Activity Flexibility: Free float
Critical Path: The longest path in the project with zero float is called Critical Path. It is series
of activities that determines a project completion date. Or Network path with longest total
duration
Critical Activities: The largest activity with less float or no float between two activities is
called Critical Activity. Or On a critical path (typically zero total float along this path)

OEA: (Open End Activity)

Activity C

Activity B

Activity A

No Predecessor

Activity D

No successor

Circular Relationship: (Loops)

Loops indicate circular logic in an activity path.

The schedule will not be calculated until the loop is eliminated. To eliminate a loop:
Activity B

Activity A

Activity C

Dummy Activity:
We use dummy Activity to know duration from first to last activity
5 Days

6 Days

Activity A

Activity B

DUMMY ACTIVITY

7 Days
Activity C

Scheduling Concepts:
Forward Pass
Backward Pass
Float

Forward Pass:

The forward pass calculates Early Start (ES) and Early Finish (EF) dates for activities

Early Start = The earliest an activity can start given the logic and constraints of the path

Early Finish = The earliest an activity can finish given the logic and constraints of the path

The calculation begins with the activities without predecessors.

Early Start (ES) + Duration = Early Finish (EF)

Activity Node Layout

ES

Duration

EF

Activity A

Activity A

ES= 0

Duration= 5

EF= ES + Duration = 5

Backward Pass:

The backward pass calculates Late Start (LS) and Late Finish dates for activities

Late Start = The latest an activity can start given the logic and constraints without delaying
the project

Late Finish = The latest an activity can finish given the logic and constraints without
delaying the project

The calculation begins with the activities without successors.

Late Finish (LF) Duration = Late Start (LS)

Activity Node Layout

ES

Duration

EF

Activity A
LS

LF

ES

Duration

EF

Activity B
LS

LF

ES

Duration

EF

Activity C
LS

LF

Activity A
0

10

15

Activity B
5

15

15

20

35

Activity C
15

35

Float:
Float or slack is the amount of time that a task in a project network can be delayed without causing a
delay to:
Subsequent task (Free Float)
Project completion date (Total Float)

Total Float:

The amount of time an activity can slip from its early Start without delaying the project end
date or an intermediary milestone.

Activities with zero Total Float are critical.

Total Float = Late Finish (LF) Early Finish (EF) or (LS - ES)

An activitys Total Float is automatically calculated each time you schedule the project. You cannot edit
an activitys float values directly.

Activity A
0

Critical
Path

10

15

Activity B
5

15

From A to C
Due to zero float
15

20

35

Activity C
15

35

Free Float:

The time by which an activity can be delayed without delaying the early start of its successor
activity.

Free float can only occur when two or more activities share a common successor.

Free Float = ES of Next activity EF

Figure 6-14. Total Float vs. Free Float

Project Float: The amount of time the project can be delayed without affecting the
projects required end date.

Figure 6-15. Example of Calculating Forward pass and Backward pass

POSITIVE FLOAT:
Predecessor

Successor

Finish of Schedule is before the Must Finish Date of Project

ZERO FLOATS (Critical):

Predecessor
Successor
Zero Total Float

NEGATIVE FLOAT (Extremely Critical)

Predecessor

Finish of Schedule is after the Must Finish Date of Project

Successor

Critical Chain Method:

What are the Critical Chain, and the Critical Chain Method (CCM)?
Figure 6-16. Example of Critical Chain Method

The critical chain can be defined as the longest path in the network diagram considering activity
interdependence and resource constraints.
The critical path can be assumed as a particular case of the critical chain when the project has
access to unlimited resources that will never run out.
In other words, you can say that the critical chain method is a modified form of the critical path
method. Here, availability of resources is considered while creating the project schedule.
In critical chain project management, instead of float, buffers are used. These buffers are designed
in such a way that they completely eliminate the concept of float or slack.

Three types of buffers are used in critical chain management. These buffers are as follows:

Project Buffer:
This buffer is placed between the last task and the project completion date as a non-activity buffer,
and this buffer acts as a contingency for the critical chain activities. Any delay on the critical chain
will eat this buffer, but the project completion date will remain unchanged. Also, if there is any
gain from the early finish of any activity, this gain will be added to this buffer as well.
Usually the duration of this buffer is 50% of the contingency that you have removed from each
task estimate. This helps you move uncertainty from each task to the project buffer.
Please note that, although the critical chain starts from the beginning, it ends before the start of the
project buffer. It does not end at the end of the project.
This duration will include any time duration borrowed from the project buffer or exclude the
duration added to the buffer.

Feeding Buffers:
These buffers are added to the non-critical chain so that any delay on the non-critical chain does
not affect the critical chain. They are inserted between the last task on a non-critical chain and the
critical chain.
Feeding buffers are also calculated the same way as the project buffer. The duration of these
buffers is based on some fraction of the safety removed from the tasks on non-critical chains.

Resource Buffer:
These buffers are kept alongside the critical chain to make sure that they are available when they
are required. This buffer can be a human resource or any equipment.
Please note that, since the critical chain considers the resource constraints as well, it may be longer
than the critical path schedule. However, this might be compensated by removing the
contingencies from the activities.

Figure 6-16. Example of Buffers

Resources used in critical chain are known as critical resources.

Difference between Buffer and Float (or Slack)

The following are a few differences between the float and buffer:

Float or slack is a critical path phenomenon, and buffer belongs to critical chain.
Float is the difference between the duration of the critical path and non-critical path. On a
critical path, float is zero.
Buffer is based on contingencies. For example, the project buffer is about 50% of the safety
time that you have removed from the activity estimate duration. As per the definition of
buffer, it is not zero on a critical chain or any other chain.
Float is the same for all activities on a non-critical path, any activity can consume it
partially or fully, and balance can be utilized by other activities. There is no further
analysis.
Buffer can also be borrowed by any activity if the activity is delayed. The project manager
analyzes the remaining buffer to find the status of the project.
Buffer can be divided into three categories: project buffer, feeding buffer and resource
buffer. Float can be either total float or free float.

How to Create the Critical Chain Network Diagram:

Three steps are required to create a critical chain from the critical path. These steps are as
follows:
1. Remove all contingencies from activities, regardless of whether you have added the calculated
contingencies or any percentage of it. If youve used the PERT (Program Evaluation and Review
Technique) estimate to build the schedule, replace your estimate with optimistic estimate.
2. Align the activities with late finish dates and remove resource constraints. Give priority to
critical chain activities while assigning resources.
3. Add feeding buffers to non-critical chains so that their durations become equal to the critical
chain. Add project buffer to end of the critical chain, but before the project end date. The project
buffer should be approximately half the contingency you removed from the activities. This helps
improve the efficiency, and reduces the schedule duration.
Now, lets see a real world example.
Suppose you get a project to construct a building. You build the schedule based on the critical
path method, and start working on it.
However, during the execution of this project, you happen to know that:
There is a shortage of cement, or
Some of the equipment needed by you is assigned to some other projects, or
One of your key team members is pulled out for some other important tasks by management.
What will happen now?
Of course this will cause a delay in your project.
So, where was the problem?
Did the critical path not identify the resources required by your project?
No, the critical path had identified the resources for your activities.
So, where was the problem?

What did it go wrong?

The problem was with the resource allocation. Although the critical path had identified the
resources, it did not account for the limited availability of resources into the schedule. The project
schedule was developed optimistically, assuming that all resources would be available whenever
they were needed. Unfortunately this could not happen in this case, putting the project in trouble.
Therefore, to solve these issues, you made some modifications to the critical path, considering
limited resource availability. Now this critical path has been converted to the critical chain, and it
is more realistic.
And now you can complete your project with more confidence.
Before this blog post ends, lets revisit some key features of critical chain management:

It is a deterministic model
It avoids mismanagement of slack or float
It optimizes the utilization of resources
The project based on the critical chain method completes 10% to 30% faster than that based
on the critical path method
It is a more practical approach
It encourages team members to perform efficiently, and
It improves the productivity

There is no doubt that the critical chain method is one of the most important developments in
project management made recently. This method answers many shortcomings of the critical path
method, provides a realistic schedule, encourages team members to perform efficiently, and
improves productivity.

Resource Optimization Techniques (Finding the ways to adjust the use of resources).

Resource Leveling: Schedule network analysis where scheduling decisions driven by

resource constraints, resulting in a more stable level of resources and a longer project
duration.
Addresses:

Staff availability limitations

Leveling of resource usage over time
Over-allocated and under-allocated resources
Watch for changes in critical path!
Figure 6-17. Example of Resource Levelling

Resource Smoothing: Modified form of resource levelling, where resource are

levelled only with in the limit of float of their activities, so the completion dates of
activities are not delayed.

Modeling Techniques:

What-if scenario analysis:

What if this happens?
Evaluate scenarios to predict the effect each scenario has on project objectives
Simulation:
Project simulations use computer models and estimates of risks
Usually expressed as a probability distribution of possible costs or durations at a
detailed work level

Lag and Lead:

LAG (A mandatory wait in days between two activities is called LAG)
2 DAY WAIT

ACTIVITY A

ACTIVITY B

5 DAYS

(It is positive)

3 DAYS

LEAD (Negative lag is called Lead)

Activity A

1 Day

2 Day

3 Day

4 Day

5 Day

Two Days early start

1 Day

2 Day

3 Day

Activity B

(It is -2 Lag)
4 Day

5 Day

Schedule Compression: Techniques used to shorten the schedule duration without reducing
the project scope

Crashing: Seek to shorten schedule duration for least incremental cost by adding
resources. (Risk and/or costs may rise)

Figure 6-18. Example of Crashing

Crashing
Jan 5

Jan 25

Activity A
Jan 14

Activity A

Figure 6-19. Example of Crashing

Formula: Crash Cost/Period

(Crash Cost Normal Cost)
(Normal Time Crash Time)

Normal Crash
Time
Time Normal
Activity
(days) (days) Cost ($)
A
12
9
30,000
B
8
7
9,600
C
5
3
4,000
D
17
14
55,250
E
15
13
9,000
F
6
5
12,000
G
20
14
29,000
H
18
15
48,780
Total:
101
80 197,630
Crash All:

Crash
Crash Cost / Day
Cost ($)
($)
33,750
1,250
10,150
550
4,275
138
57,050
600
12,350
1,675
14,500
2,500
48,300
3,217
51,000
740
231,375
33,745

Figure 6-20. Example of Crashing Solution

Normal Crash
Time
Time
Normal
Crash
Crash
(total
(total
Cost
Cost
Cost /
Activity days)
days) (total $) (total $) Day ($)
A
12
9
30,000
33,750
1,250
B
8
7
9,600
10,150
550
C
5
3
4,000
4,275
138
D
17
14
55,250
57,050
600
E
15
13
9,000
12,350
1,675
F
6
5
12,000
14,500
2,500
G
20
14
29,000
48,300
3,217
H
18
15
48,780
51,000
740
Total:
101
80 197,630 231,375
Extra Cost to Crash All Activities:
33,745

Number
of Days Order for
to Crash Crashing
Activity Activities
3
3
1
1
0
-* Will not shorten total project duration
0
-* Will not shorten total project duration
2
4
1
5
6
6
3
2

Critical path before crashing: 86 days

Critical path after crashing as indicated above: 70 days (including 7-day lag)
Fast tracking: Project stages or activities carried out in parallel, for part of their
duration, rather than finish to start
Can cause rework
Can the stage or activities be completed in parallel?
Figure 6-21. Example of Fast tracking
Fast tracking
Jan 5

Feb 8

Activity A
Feb 9

Feb 26

Activity B
Jan 5

Feb 8

Activity A
Feb 7

Feb 14

Activity B

Project Schedule:
(Main presentation formats for a schedule):

Milestone Charts
Bar Charts
Schedule Network Diagrams

Performance Reviews:

Trend Analysis
Critical Path Method
Critical Chain Method
Earned Value Management

Scheduling Tool:

Critical Path
Critical Chain
Resource Levelling and Smoothing
Duration compression

ATTENTION:
Analogous estimating is gross value estimating technique.
Activity duration estimates should not include any lag or lead information.
While sequencing activities for a project, the project management team applied certain
discretionary dependencies. This was based on their knowledge of best practices within the
project application area. What is the potential risk involved in using such dependencies?
Discretionary dependencies are established based on the knowledge of best practices within
a specific application area. This is done to achieve a specific sequence even though there
are other options. The risk is that they may create arbitrary float values and later limit
scheduling options because of the specific sequencing chosen.
More interdependencies on project increase the need for communication.
Schedule model: (All the project data will be used to calculate project schedule such as
the activities, dependencies, leads and lags, etc.)
Project Schedule: (Uses project model to develop a project schedule. It is the output of
schedule model. This refers to the final, printed dates that make up the schedule that
becomes the baseline and part of the project management plan)
Monte Carlo analysis: (Schedule network analysis techniques used to stimulate the
project to determine the project like hood that the project will be completed by a specific
date for a specific cost). It is also used in perform quantitative risk analysis to determine
the overall level of risk on the project). It is form of what if analysis and it provides the
ability to compute the probability to completing the project on a specific day. We can
perform multiple simulation based of three point estimates by using Monte Carlo analysis.
GERT: Network diagraming technique that allows loops.
Scope change must impact the schedule change.
Discretionary dependency is one that of experience.
A schedule control system can include the paper work, processes and approval
requirements for authorizing changes.
Schedule base line created at the beginning of the project and used during project to
measure performance.
Time estimated for the activities should be created by the team and should not be added
together to create project estimate because some activities may takes place concurrently;
these would be identified in a network diagram.
Resource requirements are determined before project schedule and after network
diagram.
Crashing is a cost/schedule trade off and is less risky than fast tracking.
Benefits of Analogous Project Estimate gives the project team an understanding of
management expectations.
Three point estimating gives an indication of the risk of not meeting your date

CHAPTER 7: PROJECT COST MANAGEMENT

Project Cost Management:

Cost Management includes the processes involved in estimating, budgeting, and

controlling costs so that the project can be completed within the approved budget.
Project managers must make sure their projects are well defined, have accurate time and
cost estimates and have a realistic budget that they were involved in approving
Costs are usually measured in monetary units like dollars

Figure 7-1. Project Cost Management Overview

Tools to estimate cost:

1.
2.
3.
4.

1.

Analogous estimating
Parametric Estimating
Bottom up Estimating
Three point Estimating

Analogous Estimating:

This technique is used to estimate the project cost when very little detail about the project is
available. Therefore, this technique does not provide a very reliable estimation. The primary
benefits of this technique are: it is very fast, less costly, and provides a quick result.
In Analogous Estimation, the cost of the project is guessed by comparing it with any similar project
previously completed by your organization. Here you will look into your organizations historical
records (i.e. in Organizational Process Assets) for previously completed projects. You will select
the project which is closest to your project. Once you get it, by using your expert judgment you
will determine the cost estimate of your current project.
The Analogous Estimating is also known as The Top-Down Estimating.

2.

Parametric Estimating:

This technique also uses historical information to calculate the cost estimates. However, there is a
difference between this technique and the analogous estimation technique.
Parametric Estimation technique uses historical information along with statistical data. It takes
variables from the similar project and applies them to the current project. For example, in the
previous project, you will see that what the cost of concreting per cubic meter was. Then you will
calculate the concrete requirement for your project and multiply it with the cost obtained from the
previous project to get the total cost of concreting for your current project. In the same way you
can calculate the cost of other parameters (men, materials, and equipment) as well.
The accuracy of this process is better than the analogous estimation.

3.

Three-Point Estimating:

This technique is used to reduce the biases and uncertainties in estimating assumptions. Instead of
finding one estimate, three estimates are determined and then their average is taken to reduce the
uncertainties, risks, and biases.
PERT (Program Evaluation and Review Technique) is the most commonly used method in three
point estimation technique.
Three PEART estimates are as follows:
Most Likely Cost (Cm): This cost estimate considers everything goes as normal.
Pessimistic Cost (Cp): This considers the worst case and it assumes that almost everything
goes wrong.
Optimistic Cost (Co): This estimate considers the best case and assumes that everything
goes better than planned.
PERT Estimate formula is:
Ce = (Co + 4Cm + Cp)/6
Where, Ce = Expected Cost
Estimates derived from this technique are better than the two techniques discussed above and
provide a more accurate estimate.

4.

Bottom-up Estimating:

The Bottom-Up Estimating technique is also known as the definitive technique. This estimation
technique is the most accurate, time-consuming, and costly technique to estimate the cost. In this
technique, the cost of each single activity is determined with the greatest level of detail at the
bottom level and then rolls up to calculate the total project cost.
In other words:
Here, the total project work is broken down into the smallest work components. Its cost is
estimated and then finally, it is aggregated to get the cost estimate of the project.

Summary:

Analogous Estimation

It is the fastest technique to estimate cost but less accurate.

This technique can be used with limited information available about the project.

Parametric Estimation

This technique uses the statistical relationship between historical data and variables; e.g.
cost of painting of wall per square foot.
It is more accurate than the analogous estimation.

Three-point Estimation

This technique uses three estimates to calculate the average estimate. The three estimates
are the most likely cost, the pessimistic cost and the optimistic cost.
It reduces the biases, risks, and uncertainties from the estimation.
It is more accurate than the Analogous and Parametric estimating techniques.

Bottom-up Estimation

This technique is the most accurate technique of all the techniques discussed above.
This technique can only be used when every detail about the project is available.
This is very time-consuming and costly technique, but gives reliable and most accurate
result.

Contingency Reserves:
Contingency Reserve is the cost or time reserve that is used to manage the identified risks or
known-unknowns (known=identified, unknowns=risks). Contingency Reserve is not a random
reserve, it is a properly estimated reserve based on the Expected Monitory Value (EMV), or the
Decision Tree Method.
Contingency Reserve is controlled by the project manager. He has authority to use it when any
identified risk occurs, or he can delegate this authority to the risk owner, who will use it at an
appropriate time and informs the project manager at a later stage.

Management Reserve:
Management Reserve is the cost or time reserve that is used to manage unidentified risks or
unknown-unknowns (unknown=unknown, unknowns=risks). Management Reserve is not an
estimated reserve; it is defined as per the organizations policy. For some organizations, it is 5%
of the total cost or time of the project, and for others it is 10%.
Management Reserve is controlled by someone outside the project team, usually from the
management. Every time an unidentified risk occurs, the project manager has to get approval from
the management to use this reserve.
Here the discussion about the contingency reserve and management reserve finishes, but before
we leave lets summarize all the key points once again:

Summary:
Contingency Reserve:

It used to manage identified risks

It is estimated based on Expected Monitory Value (EMV), or decision tree method
The project manager has authority to use this reserve

Management Reserve:

It is used to manage unidentified risks

It is calculated as a percentage of the cost, or time of project
Management approval is required to use management reserve

Types of Cost: A cost can be either variable or fixed:

Variable Costs: These costs change with the amount of production or the amount of work.
Examples include the cost of material, supplies and wages
Fixed Costs: These costs do not change as production changes, Examples include the cost of setup, rent and utilities, etc.
A cost can either direct or indirect:
Direct Costs: These costs are directly attributable to the work on the project. Examples are team
travel, team wages, recognition, and costs of material used on the project.
Indirect Costs: These costs are overhead items or costs incurred for the benefit of more than one
project. Examples include taxes, fringe (marginal, extreme, unconventional or peripheral)
benefits, and janitorial service.

Definitions:

Profit = Revenue Costs

Profit Margin = Profit / Revenue
Cash flow refers to the movement of cash into or out of the project.
Net present value: the total present value (PV) of a time series of cash flows. It is a
standard method for using the time value of money to appraise long-term projects
Internal Rate of Return: interest rate received for an investment consisting of payments
and income that occur at regular periods

Some Important Terms:

Life cycle costing: (Looking at the cost of whole life of product, not just the cost of project.
Value analysis: (It is just like value engineering. Its focus is to find a way less costly way to do
the same work).
Cost of Risk: Concept of cost risk involves risk, procurement and cost management. (Cost
related risks)
Who has the cost risk in a fixed price contract?
A. Seller
B. buyer
Answer is seller.
ROM Estimate (Rough Order Magnitude): Made usually during initiating
(-25 to +75 percent from actual)
Budget Estimate (Usually made during planning)
(-10 to +25 percent from the actual)
Definite Estimate:
(Some uses +/-10 percent from actual)
(Others uses -5 to +10 percent from the actual)
Difference between cost budget and cost baseline:
The cost budget adds management reserves to cost baseline.

Earned Value Management (EVM):

The concept of Earned Value Management came into the limelight in the sixties when the US Air
Force made it mandatory to use EVM in their programs. And since 2005, it has become a part of
general federal project risk management.
Earned Value Management is an enhancement over traditional project management. The
traditional method focuses on planned vs. actual expenditure, while the EVM method also makes
you aware of actual accomplishment, which gives project managers a clearer picture of the
projects insight.
In Earned Value Management you can analyze the project schedule performance, cost performance
and other milestones. Afterwards you can find variances by comparing work performed and work
planned.
Nowadays, Earned Value Management is a mandatory requirement for US government contracts.
The concept of Earned Value Management has also been adopted by the PMI, and in the PMBOK
Guide, PMI discusses this topic great detail.
As per the PMBOK Guide,
Earned Value Management (EVM) in its various forms is a commonly used method of
performance measurements. It integrates project scope, cost, and schedule measures to help the
project management team assess and measure the project performance and progress.

Earned Value Management (EVM) has three primary elements:

1.

Planned Value (PV): Scheduled cost of work planned in a given time. This term is also
known as Budgeted Cost of Work Scheduled (BCWS).

2.

Earned Value (EV): The Amount of money earned from completed work in a given
time. This term is also known as Budgeted Cost of Work Performed (BCWP).

3.

Actual Cost (AC): Actual amount of money spent to date. This term is also known as
Actual Cost of Work Performed (ACWP).

With these EVM primary data sources you can develop many other derived data elements,
such as:
1. Budget at Completion (BAC): Total budget for the project.
2. Schedule Variance (SV): The difference between Earned Value (EV) and Planned Value
(PV).
3. Cost Variance (CV): The difference between Earned Value (EV) and Actual Cost (AC).
4. Schedule Performance Index (SPI): The ratio between Earned Value (EV) and Planned
Value (PV).
5. Cost Performance Index (CPI): The ratio between Earned Value (EV) and Actual Cost
(AC).
6. Estimate at Completion (EAC): Expected total budget for the project.
7. Estimate to Complete (ETC): From a given point, how much it will cost to complete the
project.
8. Variance at Completion (VAC): How much expected under or over budget.
9. To Complete Performance Index (TCPI): The estimate of the cost performance required
by the project to meet the projects budget goal.

Now the project managers were in a very comfortable position in analyzing the project
performance and forecasting the future performance.
(If youre not aware of these terms, dont worry, I am going to explain them my next posts.)

Benefits of Earned Value Management (EVM)

There are immense benefits of EVM for the project manager and the sponsors.
EVM gives project managers better control over the project constraints such as scope, cost and
schedule. They can identify the problems in the early stages of the project and manage them
proactively.
And for the client, they will have a better view on the project and they will be confident about the
success of the project.

The following are a few benefits of Earned Value Management (EVM):

Improves the planning process.

Relates time-phased budget to the project tasks.
Shows you the projects status and progress objectively.
Helps you in measuring the projects cost and schedule performance objectively.
Improves communication and project visibility.
Prevents scope creep.
Helps you in forecasting.
Informs you if youre deviating from any performance measurement baseline (scope, cost
and schedule baseline).
Helps you identify the potential risk areas.
Helps in forecasting (most likely future performance).

Earned Value Management is one of the few techniques in the PMBOK Guide that involves
mathematical calculations. Therefore, many people find it difficult and ignore it.
However, if you understand the concept of EVM, these calculations are not really as difficult as
they appear to be.
Before I conclude this blog post, lets revise some key points.
Earned Value Management (EVM) analysis is a technique in Project Cost Management that
determines the current status of the project, and tracks the progress.
It shows you the current status of the project, such as:

How much work has been completed and how much is remaining?
How much budget has been spent and how much is left?

Tracks actual progress vs planned progress, such as:

Work completed vs planned work for a given time.

Work completed vs planned work for a given cost.

It answers various performance related queries such as:

Is the project over budget or under budget?

Is the project behind schedule or ahead of schedule?
How much work (scope) is completed.

Planned Value (PV):

As per the PMBOK Guide Planned Value (PV) is the authorized budget assigned to work to be
accomplished for an activity or WBS component.
Total planned value for the project is also known as Budget at Completion (BAC).
The Planned Value is the approved value of the work to be completed in a given time period; in
other words, it is the money that you should have spent as per the schedule.
Planned Value is also referred to as the Budgeted Cost of Work Scheduled (BCWS).
Formula to calculate the Planned Value (PV)
Planned Value = (Planned % Complete) X (BAC)
A mathematical example of Planned Value (PV)
You have a project to be completed in 12 months and the total cost of the project is $100,000 USD.
Six months have passed and the schedule says that 50% of the work should be completed.
What is the Planned Value (PV)?
Let us see what we have been given in this question.
Project duration: 12 months
Project Cost (BAC): $100,000 USD
Time elapsed: 6 months
Percent complete: 50% (as per the schedule)
The definition of Planned Value says that the Planned Value is the value of the work that should
have been completed so far (as per the schedule).
Therefore, in this case we should have completed 50% of the total work.
Hence,
Planned Value = 50% of value of the total work
= 50% of BAC
= 50% of $100,000
= (50/100) X $100,000
= $50,000

Therefore, the Planned Value (PV) is $50,000 USD.

Application of Planned Value
Planned Value is used to calculate Schedule Variance (SV), and Schedule Performance Index
(SPI).

Earned Value (EV):

Although, all three elements have their own significance, Earned Value has more respect among
them, as it is the most important element of all.
As per the PMBOK Guide Earned Value (EV) is the value of work performed expressed in terms
of the approved budget assigned to that work for an activity or WBS Component.
In other words, the Earned Value is the value of the work actually completed to date, or you can
say that if the project is terminated today, the Earned Value will show you the value that it has
produced.
Earned Value is also known as the Budgeted Cost of Work Performed (BCWP).
Formula to calculate the Earned Value (EV)
Earned Value = % of completed work X BAC
A mathematical example of Earned Value (EV)
You have a project to be completed in 12 months and the total cost of the project is $100,000 USD.
Six months have passed and $60,000 USD has been spent, but on closer review you find that only
40% of the work is completed so far.
What is the Earned Value (EV)?
In the above question, you can clearly see that only 40% of the work is actually completed, and
the definition of Earned Value says that it is the value of the project that has been earned.
Hence,
Earned Value = 40% of value of total work
= 40% of BAC
= 40% of $100,000
= 0.4 X $100,000
= $40,000
Therefore, the Earned Value (EV) is $40,000 USD.

Schedule Variance (SV):

Keeping your project on schedule is very important. Not only does it help you complete your
project on time, but it also helps you avoid the unnecessary cost overrun due to slippage of
schedule. Because as you cross the stipulated time, your costs start rising exponentially.
For example, you have rented some equipment for a certain period. However, if you need this
equipment for some extra days, you may have end up paying more because the equipment may not
be available at the previously negotiated price.
That is why Schedule Variance is a very important analytical tool for you. This tool gives you
information about how far behind or ahead of schedule you are.
The Schedule Variance is a measure of the schedule performance of a project.
Formula to calculate the Schedule Variance
Schedule Variance = Earned Value Planned Value
Or,
SV = EV PV
Please note:

If the Schedule Variance is positive, you are ahead of schedule.

If the Schedule Variance is negative, you are behind schedule.
When the project is completed, Schedule Variance becomes zero because at the end of the
project, all the Planned Value has been earned.

A mathematical example of Schedule Variance

You have a project to be completed in 12 months and the total cost of the project is $100,000 USD.
Six months have passed and $60,000 USD has been spent, but on closer review you find that only
40% of the work is completed so far.
Find the Schedule Variance (SV) for this project, and deduce whether you are ahead of schedule
or behind schedule.

Given in the question:

Actual Cost (AC) = $60,000
Planned Value (PV) = 50% of $100,000
= $50,000
Earned Value (EV) = 40% of $100,000
= $40,000
Now,
Schedule Variance (SV) = Schedule Variance (EV) Planned Value (PV)
= $40,000 $50,000
= $10,000
Hence,
The Schedule Variance is -$10,000 USD, and since the Schedule Variance is negative, you are
behind schedule.

Cost Variance (CV):

Of course, Cost Variance is equally as important as Schedule Variance. You must complete your
project within the approved budget. It is bad for you and your client if the project cost crosses its
boundary.
Cost Variance deals with the cost baseline of the project. It gives you information about whether
youre over spending or under budget.
The Cost Variance is a measure of cost performance of a project.
Formula to calculate the Cost Variance
Cost Variance = Earned Value Actual Cost
Or,
CV = EV AC

Please note:

If the Cost Variance is positive, you are under budget.

If the Cost Variance is negative, you are over budget.

A mathematical example of Cost Variance:

You have a project to be completed in 12 months and the total cost of the project is $100,000
USD. Six months have passed and $60,000 USD has been spent, but on closer review you find
that only 40% of the work is completed so far.
Find the Cost Variance (CV) for this project, and deduce whether you are under budget or over
budget.
Given in the question:
Actual Cost (AC) = $60,000
Earned Value (EV) = 40% of $100,000
= $40,000
Now,
Cost Variance (CV) = Earned Value (EV) Actual Cost (AC)
CV = EV AC
= $40,000 $60,000
= $20,000
Hence,
The Cost Variance is -$20,000 USD, and since the Cost Variance is negative, you are over
budget.

Schedule Performance Index (SPI):

Schedule Performance Index gives you information about the schedule performance of the project.
In simple words, the Schedule Performance Index tells you how efficiently you are actually
progressing compared to the planned progress.
Formula to calculate Schedule Performance Index (SPI)
Below is the formula to calculate SPI:
Schedule Performance Index = (Earned Value)/ (Planned Value)
SPI = EV/PV
With the above formula you can conclude that:

If the SPI is greater than one, this means more work has been completed than the planned
work. In other words, you are ahead of schedule.
If the SPI is less than one, this means less work is completed than the planned work. In
other words, you are behind schedule.
If the SPI is equal to one, this means all work is completed.

While calculating the Schedule Performance Index, make sure that you consider all tasks.
Sometimes you may only consider the tasks on the critical path and ignore the rest, which causes
the wrong result.
Therefore, ensure that non-critical activities are not ignored.
A mathematical example of Schedule Performance Index
You have a project to be completed in 12 months and the total cost of the project is $100,000 USD.
Six months have passed and $60,000 USD has been spent, but on closer review you find that only
40% of the work is completed so far.
Find the Schedule Performance Index (SPI) and deduce whether the project is ahead or behind
schedule.
Given in question:
Actual Cost (AC) = $60,000
Planned Value (PV) = 50% of $100,000
= $50,000
Earned Value (EV) = 40% of $100,000
= $40,000

Now,
Schedule Performance Index (SPI) = EV / PV
= $40,000 / $50,000
= 0.8
Hence,
Schedule Performance Index is 0.8
Since the Schedule Performance Index is less than one, you are behind the planned schedule.

Cost Performance Index (CPI):

The Cost Performance Index in an indication of the cost performance of the project.
The Cost Performance Index helps you analyze the efficiency of the cost utilized by the project. It
measures the value of the work completed compared to the actual cost spent on the project.
In simple words, the Cost Performance Index informs you of how much you are earning for each
dollar spent on the project.
Formula to calculate the Cost Performance Index
Below is the formula to calculate the CPI:
Cost Performance Index = (Earned Value)/ (Actual Cost)
CPI = EV/AC
With the above formula you can conclude that:

If the CPI is less than one, you are earning less than the spending. In other words, youre
over budget.
If the CPI is greater than one, you are earning more than the spending. In other words, you
are under budget.
If the CPI is equal to one, this means earning and spending are equal. Or you can say that
you are proceeding exactly as per the planned budget spending, although this rarely
happens.

A mathematical example of Cost Performance Index

You have a project to be completed in 12 months and the total cost of the project is $100,000 USD.
Six months have passed and $60,000 USD has been spent, but on closer review you find that only
40% of the work is completed so far.

Find the Cost Performance Index (CPI) for this project and deduce whether you are under budget
or over budget.
Given in question:
Actual Cost (AC) = $60,000
Planned Value (PV) = 50% of $100,000
= $50,000
Earned Value (EV) = 40% of $100,000
= $40,000
Now,
Cost Performance Index (CPI) = EV / AC
= $40,000 / $60,000
= 0.67
Hence,
Cost Performance Index is 0.67
Since the Cost Performance Index is less than one, this means you are earning $0.67 USD for every
$1 USD spending. In other words, you are over budget.
A consistently high or low value of SPI or CPI is an indication that something is wrong with either
youre planning and/or cost estimates.

Forecasting provides us with the visibility of future progress of the project and
gives project sponsors an early idea of what may go wrong.
In project management, three techniques are most commonly used for forecasting. These
techniques are as follows:
1.

Estimate at Completion (EAC)

2.

Estimate to Complete (ETC)

3.

To Complete Performance Index (TCPI)

In this blog post, I am going to discuss the Estimate at Completion.

For the other two techniques, you can refer my blog posts on ETC and TCPI.

Okay lets get started.

1.

Estimate at Completion (EAC)

Projects are executed in the real world, and in the real world activities do not always go as planned.
There are many circumstances beyond your control that may deviate your project from its planned
path, which might lead to a change in your project.
As a project manager you must keep track of these changes and evaluate their impact on the project
parameters.
Now, the question is: how will you evaluate the impact of these changes?
You will do this with the help of project forecasting tools, such as the Estimate at Completion.
The Estimate at Completion gives you the forecasted value of the project when it is complete. It
tells you how much you may have to spend to complete the project.
In other words, you can say that it is the amount of the money that the project will cost you at the
end.

The Estimate at Completion can be determined by four methods depending on the way the project
is performing.
However, from a PMP Certification exam point of view, the first method is more important
than the rest.
Case-I: EAC = BAC/CPI:
In this scenario you assume that the project will continue to perform to the end as it was performing
up until now.
Simply put, your future performance will be same as the past performance; i.e. the CPI will remain
the same for the rest of the project.
Formula to Calculate the Estimate at Completion
Estimate at Completion = (Budget at Completion) / (Cost Performance Index)
Or,
EAC = BAC/CPI
Please note that:

If the CPI = 1, then EAC = BAC. This means you can complete your project with your
approved budget (BAC), and there is no need to use forecasting analysis.
At the start of the project, the Estimate at Completion will be equal to the Budget at
Completion, i.e. EAC = BAC.

In this blog post I am going to explain to you the four most commonly used formulas to calculate
the EAC.
However, for the PMP exam, Case-I is the most important of all, and there is less chance that you
will see questions based on the other cases.
Anyway, Im going to explain all formulas mentioned in the PMBOK Guide, so no worries for
you.
A mathematical example of Estimate at Completion (Case-I)
You have a project to be completed in 12 months, and the total cost of the project is $100,000
USD. Six months have passed and $60,000 USD has been spent, but on closer review you find that
only 40% of the work is completed so far.

Find the Estimate at Completion (EAC) for this project.

Given in the question:
Budget at Completion (BAC) = $100,000
Actual Cost (AC) = $60,000
Planned Value (PV) = 50% of $100,000
= $50,000
Earned Value (EV) = 40% of $100,000
= $40,000

To calculate the EAC, first you have to calculate the Cost Performance Index
Cost Performance Index (CPI) = EV / AC
= $40,000 / $60,000
= 0.67
=>Cost Performance Index (CPI) = 0.67
Now,
Estimate at Completion (EAC) = BAC/CPI
= $100,000/0.67
= $149,253.73
Hence, the Estimate at Completion (EAC) is $149,253.73 USD.
It means if the project continues to progress with CPI = 0.67 until the end, you will have to spend
$149,253.73 USD to complete the project.

Case-II: EAC = AC + (BAC EV):

Here, you say that until now you have deviated from your budget estimate; however, from now
onwards you can complete the remaining work as planned.
Usually this happens when due to some unforeseen conditions, any incident happens and your cost
elevates; however you are sure that this will not happen again and you can continue with the
planned cost estimate.

That is why in this formula, to calculate the EAC you will simply add money spent to date (i.e.
AC) to the budgeted cost for remaining work.
A mathematical example of Estimate at Completion (Case-II)
You have a project with a budget of $500,000 USD. During execution phase, an incident happens
which costs you a lot of money. However, you are sure that this will not happen again, and you
can continue with your calculated performance for the rest of the project.
To date you have spent $200,000 USD, and the value of the completed work is $175,000 USD.
Calculate the Estimate at Completion (EAC).
Since the cost elevation is temporary in nature and the rest of the project can be completed as
planned, in this case you will use the formula:
EAC = AC + (BAC EV)
Given in the question,
Actual Cost (AC) = $200,000
Budget at Completion (BAC) = $500,000
Earned Value (EV) = $175,000
Hence,
EAC = 200,000 + (500,000 175,000)
= 200,000 + 325,000
= 525,000
Hence, the Estimate at Completion is $525,000 USD.

Case-III: EAC = AC + (BAC EV)/ (CPI*SPI):

You are over budget, behind schedule, and client is insisting you to complete the project on
time.
In this case, not only the cost but the schedule also has to be taken into consideration.
In other words, you can say that if your cost performance is poor, you are also behind schedule
and you must complete your project on time, so you will use the formula for Case-III.
A mathematical example of Estimate at Completion (Case-III)
You have a fixed deadline project with a budgeted cost of $500,000 USD. So far you have spent
$200,000 USD and the value of the completed work is $175,000 USD. However, as per the
schedule you should have earned $225,000 USD to date.
Calculate the Estimate at Completion (EAC).
Given in the question:
Budget at Completion (BAC) = $500,000
Actual Cost (AC) = $200,000
Earned Value (EV) = $175,000
Planned Value (PV) = $225,000
To calculate the EAC, first you have to calculate the CPI and SPI.
SPI = EV/PV
= 175,000/225,000
= 0.78
CPI = EV/AC
= 175,000/200,000
= 0.88
Now, you can use the formula
EAC = AC + (BAC EV)/ (CPI*SPI)
= 200,000 + (500,000 175,000)/ (0.88*0.78)
= 200,000 + 325,000/0.69
= 200,000 + 471,000
= 671,000. Hence, the Estimate at Completion is $671,000 USD.

Case-IV: EAC = AC + Bottom up Estimate to Complete:

This is the case when you find out that your cost estimate was flawed, and you need to calculate
the new cost estimate for the remaining work for the project.
Here you will go to the activity level, find the cost of each activity and sum them up to get the total
cost of the remaining work.
A mathematical example of Estimate at Completion (Case-IV)
You have a project to build a governments department building with a worth of $500,000 USD.
To date you have spent $200,000 USD and the value of the completed work is $175,000 USD.
However, during your project execution you noticed that your cost estimation was flawed and you
need to calculate your budget again for the remaining part of the project.
You sit down with your team members and re-estimate the cost of the remaining work. Your new
estimate says that it will take $400,000 USD to complete the remaining part of the project.
Calculate the Estimate at Completion (EAC).
Given in the question:
Budget at Completion (BAC) = $500,000
Actual Cost (AC) = $200,000
Earned Value (EV) = $175,000
Bottom Up Estimate to Complete = $400,000
In this case you will use the formula:
EAC = AC + Bottom up Estimate to Complete
= 200,000 + 400,000
= 600,000
Hence, the Estimate at Completion is $600,000 USD.

2.

Estimate to Complete (ETC):

Estimate to Complete is the amount of money to complete the remaining work (the work that is
left after a certain period).
Visit: Estimate to Complete
To Complete Performance Index (TCPI)
In simple words, the To Complete Performance Index tells you how fast you have to move to
achieve the target.
It is the estimate of the future cost performance that you may need to complete the project within
the approved budget.
This budget may be your initial approved budget (BAC), or a new approved budget, i.e. the
Estimate at Completion (EAC).
There are many professionals who often confuse ETC with EAC. Estimate at Completion (EAC)
is different from the Estimate to Complete (ETC).
EAC is the expected amount of money to complete the project. It tells you that how much the
project will cost in the end.
In other words, you can say that the EAC is the expected amount of money to be spent to complete
the project.
Note that, when the project starts, EAC is equal to the ETC. As the project progresses, the ETC
starts decreasing and at the end of the project, it becomes zero.
Estimate at Completion is equal to the Actual Cost spent on the project plus the expected cost to
be spent to complete the balance of the work.
i.e.
Estimate at Completion = Actual Cost already spent + cost spent to complete the balance
work
Estimate at Completion (EAC) = Actual Cost already spent (AC) + Estimate to Complete
(ETC)
EAC = AC + ETC
ETC = EAC AC
This means that you can find the value of ETC by subtracting the value of Actual Cost (AC) from
the value of the Estimate at Completion (EAC).

Example:
You have a project to be completed in 12 months and the total cost of project is $100,000. Six
months have passed and $60,000 is spent but on closer review you find that only 40% of the work
is completed so far.
Find the Estimate to Complete (ETC) for this project.
Given in question:
Budget at Completion = $100,000
Actual Cost (AC) = $60,000
Planned Value (PV) = 50% of $100,000
= $50,000
Earned Value (EV) = 40% of $100,000
= $40,000
Cost Performance Index (CPI) = EV / AC
= $40,000 / $60,000
= 0.67
Hence,
Cost Performance Index (CPI) = 0.67
Now,
Estimate at Completion (EAC) = BAC/CPI
= $100,000/0.67
= $149,253.73
Estimate at Completion (EAC) = $149,253.73
Therefore,
Estimate To Complete (ETC) = EAC AC
$149,253.73 $60,000
= $89,253.73
Estimate To Complete = $89,253.73

3.

TCPI is the calculated cost performance index that is achieved on the

remaining work to meet the specified management goal, such as the BAC
or the EAC.

In other words, the To Complete Performance Index (TCPI) is the estimate of the future cost
performance that you may need to complete the project within the approved budget. This budget
may be your initial approved budget (BAC), or a new approved budget; i.e. Estimate at Completion
(EAC).
You can calculate the TCPI by dividing Remaining Work by the Remaining Funds; i.e.
TCPI = (Remaining Work)/ (Remaining Funds)
Remaining work can be calculated by subtracting Earned Value (EV) from the total budget (BAC);
i.e. (BACEV).
However, there are two cases to determine the Remaining Funds on hand.
Initially, your emphasis will be on completing the work with the initial budget (BAC).
However, if you see that you cannot complete your remaining work with this budget, you will
calculate how much more money you will require to complete the project. Once you get this figure,
you will ask management to approve the new budget (EAC).
So there are two cases, and the To Complete Performance Index (TCPI) formula will be different
for each case.
Lets see the TCPI formula in both cases.
Case-I: If youre under budget:
In this case, remaining funds will be calculated by subtracting Actual Cost (AC) incurred to date
from the initial budget; i.e. (BACAC).
Here, the TCPI formula will be:
TCPI = (BACEV)/ (BACAC)
Case-II: If youre over budget:
You will update the cost baseline, and raise the change request and get it approved. In this case,
remaining funds will be calculated by subtracting Actual Cost (AC) incurred to date from this new
approved budget (EAC); i.e. (EACAC).
Here, the TCPI will you show the required cost performance to complete the project with the new
approved budget. TCPI = (BACEV)/ (EACAC)

Keep in mind that if you have calculated the EAC using Earned Value Management formula
(EAC=BAC/CPI), the TCPI will be equal to the CPI at the moment when you calculate the TCPI
the first time.
This is because while calculating EAC you have already assumed that the future cost performance
of the project will be the same as the past cost performance of the project.
Here is where the technical details of the To Complete Performance Index (TCPI) completes, now
lets see it in a real world example.
Suppose you have taken a contract to paint 10,000 square feet of area in 10 days. This means you
have to paint 1,000 square feet of area per day to complete the project on time.
However, when you review your progress after 5 days, you find that only 3,000 square feet of area
is painted.
Now you have 5 days left and 7,000 square feet of area is yet to be painted. You calculate and
deduce that if you want to complete your task within 10 days, you will have to paint 1,400 square
feet of area per day.
This will be your future performance to complete the task on time, and this future performance is
known as the To Complete Performance Index (TCPI).
Please note that Cost Performance Index (CPI) is your past performance and TCPI is your future
performance which you must meet to complete the project within the approved budget.
You may also consider what will happen if you perform better; i.e. you painted 7,000 square feet
of area in 5 days.
In this case, you can paint 600 square feet of area per day to complete the task. In other words, you
are comfortable to complete the task.
(The above example may not be a technically perfect example for the TCPI; however, I believe
that it will help you understand the concept easily.)
A mathematical example of TCPI
You have a project to be completed in 12 months and the total cost of the project is $100,000 USD.
Six months have passed and $60,000 USD has been spent, but on closer examination you find that
only 40% of the work is completed so far.

Find the To Complete Performance Index (TCPI) for this project.

Solution:
Given in question:
Budget at Completion (BAC) = $100,000 USD
Actual Cost (AC) = $60,000 USD
Planned Value (PV) = 50% of $100,000
= $50,000 USD
Earned Value (EV) = 40% of $100,000
= $40,000 USD
Cost Performance Index (CPI) = EV / AC
= $40,000 / $60,000
= 0.67
Hence,
Cost Performance Index (CPI) = 0.67
Now,
Estimate at Completion (EAC) = BAC/CPI
= $100,000/0.67
= $149,253.73 USD
Hence,
Estimate at Completion (EAC) = $149,253.73 USD
From the calculation, we can see that since the CPI is less than one, youre over budget. Therefore,
to calculate the To Complete Performance Index (TCPI), you will use the formula based on EAC.
TCPI = (BACEV)/ (EACAC)
= (100,00040,000)/ (149,253.7360,000)
=60,000/89,253.73
=0.67
TCPI = 0.67
This means that you can continue with a Cost Performance Index of 0.67 to complete the project.

Before I conclude this blog post, lets revise some key points regarding the To Complete
Performance Index (TCPI):
Cost Performance Index (CPI) is the past performance of the project; on the other hand TCPI is
the future performance of the project.

If you are under budget, you will calculate the TCPI based on the BAC.
If you are over budget, you will calculate the TCPI based on the EAC.
If the To Complete Performance Index in less than one, you are in a comfortable position.
If the To Complete Performance Index is greater than one, you have to perform with better
cost performance than the past cost performance.

And finally, if the To Complete Performance Index is equal to one, you can continue with the same
cost performance.
Here Im completing this series of seven articles on Earned Value Analysis, Forecasting and ToComplete Performance Index.
I tried my best to make these concepts and calculations easy for you; however, if you still have
some doubt, you can contact me through the comment section.
Okay, lets we get started
Earned Value Management (EVM)
The Earned Value Management (EVM) is a technique which helps the project management team
to assess and measure the project performance and progress.
The Earned Value Management has three basic elements: Earned Value (EV), Planned Value (PV),
and Actual Cost (AC).
Earned Value (EV), Planned Value (PV) and Actual Cost (AC)
These are the three basic elements of Earned Value Management.
Earned Value (EV)
It is the value of work completed till date.

Brief:
Planned Value (PV)
It is the authorized value of work that has to be completed in a given time period, as per the
schedule.
Actual Cost (AC)
It is the amount of money that you have spent till date.
Schedule Variance (SV) and Cost Variance (SV)
Schedule Variance (SV)
It is the difference between the Earned Value and the Planned Value.
SV = EV PV

If SV is negative, youre behind schedule.

If SV is positive, youre ahead of schedule.

Cost Variance (CV)

It is the difference between the Earned Value, and the Actual Cost.
CV = EV AC

If CV is negative, youre over budget.

If CV is positive, youre under budget.

Schedule Performance Index (SPI) and Cost Performance Index (CPI)

Schedule Performance Index (SPI)
It is the ratio between the Earned Value and the Planned Value.
SPI = EV/PV

If SPI is greater than one; youve completed more work than the planned work.
If SPI is less than one; youve completed less work than the planned work.

Cost Performance Index (CPI)

It is the ratio between the Earned Value and the Actual Cost.
CPI = EV/AC

If CPI is less than one; youre earning less than youre spending.
If CPI is greater than one; youre earning more than youre spending.

Estimate at Completion (EAC)

Estimate at Completion is the total amount of money that the project will cost you in the end.
EAC = BAC/CPI
Estimate To Complete (ETC)
Estimate to Complete is the expected amount of money that you will have to spend to complete
the remaining work.
ETC = EAC AC
To-Complete Performance Index (TCPI)
To-Complete Performance Index is the estimate of cost performance for the project to meet the
projects budget goal.
Once the project is chosen, they start the process of developing the project charter.

Cost benefit or benefit cost analysis is a benefit measurement method, and it is a systematic
approach to calculate the cost to produce the product, service, or result and then compare it
with the cost of the benefits to be received. It also provides us current worth of future
earnings and helps to compare the different projects.
Cost benefit analysis provides valuable information about:

Profit to be earned
Time value of the profit
Basis to compare the projects.
Profit to Be Earned

Cost benefit analysis adds all costs to be invested, and then it identifies all benefits, and converts
them into monetary form. Afterwards, all invested costs are subtracted from the monetary value of
all benefits to get the result.
If the result is positive, then you may proceed further; otherwise, you will simply abandon the idea.
For example, lets say you work in a very big publishing house where book binding work is
performed by manual operations. Therefore, you decide to propose your management to purchase
a book binding machine to increase the output and improve the efficiency of the bookbinding
department.
However, before submitting your proposal to the management, you will go for a fact finding
mission. You will list the cost of the investment and the benefits received by this investment and
monetize them, such as:

Cost of the machines.

Cost of Maintenance.
Cost of electricity used by these machines.
How many bindings you can perform with the machine vs how many you were performing
with manual binding per day?
How much will manpower be reduced?
Cost of better quality product.

Now, you will add the cost of machines, maintenance and electricity etc. Once you are done, you
add the cost of benefits; e.g. how much extra bookbinding can be done with these machines, and
cost of reduced manpower, etc.
Then you will perform the cost benefit analysis. You will subtract the cost of investment from the
cost of benefits and show this figure to the management to convince them about your proposal.
Time Value of the Profit:
In cost benefit analysis, you calculate how much money you are going to spend on it, and how
much profit you will earn from this investment. Not only this, but also you have to find the current
value of the profit that you will earn after a certain period of time because inflation erodes the
value of money. Profit earned after several years will not have the same value as today. Therefore,
an inflation factor must be taken into the consideration while doing the calculation.
For example, let us say if the inflation rate is 5% yearly then the thing you buy today for $100, you
will be able to get the same thing after one year for $105.
Calculating the Current Worth
Lets say that you are going to invest $100,000 on a project, and after one year you earn a $10,000
profit.
Then considering a yearly inflation of 5%, what will be the current value of this money?
Formula to find the Current Value is
FV = CV (1+r/100) ^n
Where,
FV= Future Value
CV=Current Value
r= Inflation
n=time period.
Here,

FV=$10,000
r= 5
n=1
Putting all these values in the formula,
10,000 = CV (1+0.05) ^1
CV =10000/1.05
CV = 9,523.80
Therefore, the Current Value of your profit is $9,523.80
Basis to Compare the Projects
If you have multiple projects and you have to select any one project then you can perform cost
benefit analysis on all projects and compare the profit in its current value. You will choose the
project, which will give you the highest profit.
Cost Benefit analysis helps especially when the projects are very costly and the duration are very
long. In this case, on first look, the profit may appear to be high; however, applying the cost benefit
analysis can bring a shocking result.
Cost benefit analysis help you to decide which project should be selected from all the available
options.

Summary:

Cost benefit analysis compares the cost invested to the benefits.

It also compares the future earnings with todays dollar value.
It helps in selecting the most profitable project.
Usually top management is involved in cost benefit analysis.
Cost benefit analysis is performed before the project charter is developed.

ATTENTION:
Manual forecasting of costs for remaining work is generally the best means of generating
an accurate furcate.
Known unknown (anticipated not certain events)
In the earned value management technique, the cost performance baseline is referred to
as: PMB (Performance Measurement Baseline)
Indirect cost should be included at the activity level or higher level.
Analogous estimate is a form of expert judgement.
Direct and variable cost (it is better to look at decreasing these costs in the project to
decrease the cost on project).
EMV is the probability of times impact of an opportunity, and net present value is the
benefit of over many times periods.
The final funding reconciliation would have been done after the fast tracking.
Funding limit reconciliation likely will affect the project schedule.
Cost management processes and their associated tools and techniques are documented in
the cost management plan. These include parameters such as the level of accuracy (how
much rounding), units of measure (staff hours, weeks etc.), and control thresholds
(percentage deviation from baseline plan)
The EAC forecast based on the Bottom-up estimate to complete (ETC) requires a new
estimate. There is no best method for EAC calculation as it varies from situation to
situation.
Computers needed to complete the project are known as fixed cost.
Training cost is a direct cost
The cost of running a project management office is an example of in direct cost
Salaries of corporate executives and overhead costs is an example of in direct cost
Indirect costs are overhead costs and costs distributed to projects run by an organization.
For example the cost of electricity, taxes, etc

 You are working for the Falcon highway construction agency as a project cost estimator.
The agency began is highway construction project which is currently in its planning phase.
The rough order of magnitude (ROM) cost estimate for the project is expected to be
between 3 and 5 million dollars in the planning phase with a range of -25% to +25%. What
will be the ROM estimate in the execution phase if the range changes to -10% to +10%?
A.
B.
C.
D.

Between 3.1 and 4.1 million dollars

Between 3.6 and 4.4 million dollars
Between 3.9 and 4.1 million dollars
Between 3.4 and 4.4 million dollars

Since the Rough Order of Magnitude (ROM) in the planning phase is -25% to +25%, the
estimated mean value is 4 million dollars. If the estimates narrows down to -10% to +10% it
becomes 3.6 to 4.4 million dollars. [PMBOK 5th edition, Page 201] [Project Cost
Management]

CHAPTER 8: PROJECT QUALITY MANAGEMENT

Quality:
Quality is the degree to which the project fulfills requirements. Quality is conformance to the
requirements. It includes the product and the customers requirements.
PMI defines the Quality as the degree to which a set of inherent characteristics fulfills the
requirements.

Grade:
Grade can be defined as the category assigned to products or services having the same functional
use but different technical characteristics.
Many people get confused with these two terms and assume that they are similar; however, they
are not the same.
There is a big difference between the Quality and the Grade. A product can be a high grade (highend) or a low grade (low-end). It is perfectly acceptable for a product to be a low grade as long as
it fulfills its stated requirements.
On the other hand, a low quality product is always a problem. Every product must be of high
quality regardless of its grade. A low quality product is never desired.
For example: Let us say you buy a cheap, simple (basic model) low grade cell phone for your
normal usage. It doesnt have any advanced features, but it works. It never gives you any trouble,
always works flawlessly and it is defect free No problem at all.
In other words, you can say that the quality of this cell phone is very high. Although, it is a low
grade product, it keeps you happy and satisfied.
Now lets say again that you buy another costly (premium model) high grade cell phone. This cell
phone has all advanced features; e.g. touch display, WI-FI, blue-tooth, photo camera, video
camera, voice recognition and face recognition etc.
But what will happen when it doesnt perform well? I mean,

Touch screen sticks while navigating

Photo and video quality is very poor
Voice and face recognition software doesnt recognize you!

Obviously, you will be frustrated because; although, you bought a high grade (high-end) product,
it does not perform as it should be. It means the quality of this cell phone is very poor and that is
not acceptable.
A low grade is never a problem because when you buy a service or product, because you know
that you are paying for a low-grade product or service and expect the performance as per its
category. You never buy a low grade product and expect it to perform like a high grade.
However, a low quality is always a problem because it does not fulfill your expectation.

Please note that:

Low quality does not equal to low grade

Low quality is not acceptable
Low grade is never a problem and it is acceptable
A product or service, regardless of its grade must be of high quality.
Figure 8-1. Project Quality Management Overview

Quality Management:
Quality Management includes creating and following policies and procedures in order to ensure
that a project meets the defined needs it was intended to meet.

Quality theorists:
1. Joseph Juran: 80/20 principle, top management involvement. Quality is fitness for use.
2. W. Edwards Deming: 14 steps of total Quality Management, Plan-Do-Check-Act cycle.
3. Philip Crosby: Cost of poor quality, prevention over inspection and zero defects. Quality
is conformance to requirements

Total quality management:

Customer, employees, process, society and stakeholder orientated. (A philosophy that
encourages companies and their employees to focus of finding ways to continuously improve the
quality of their business practices and products).

Six sigma:
It is overall methodology that drives business improvement.

DFSS: Design for Six Sigma (DFSS) is a business-process management "methodology" related
to traditional Six Sigma. There are different options for the implementation of DFSS. Unlike Six
Sigma, which is commonly driven via DMAIC (Define - Measure - Analyze - Improve - Control)
projects, DFSS has spawned a number of stepwise processes, all in the style of the DMAIC
procedure.
TQM and PDCA are process improvement methodologies but do not six sigma. DMAIC is used
for projects aimed at improving and existing business process, while DMADV (Define, Measure,
analyze, design and verify) is used for project aimed at creating new product or process designs}.
PDCA (plandocheckact or plandocheckadjust) is an iterative four-step management
method used in business for the control and continuous improvement of processes and products. It
is also known as the Deming circle/cycle/wheel, Shewhart cycle, control circle/cycle, or plan
dostudyact (PDSA). Another version of this PDCA cycle is OPDCA. The added "O" stands
for observation or as some versions say "Grasp the current condition. The "act" component of the
plan-do-check-act cycle relates to the Monitoring and Controlling process group. The plan-docheck-act cycle was created by Shewhart and modified by Deming to illustrate how different
results from one cycle become an input to another cycle.
(Six sigma process is one in which 99.99966%. 3 sigma (689599.7) rule).
Sigma or standard deviation: Quality standards {(3sigme (+/-3) and 6 sigma (+/-6) and 6
sigma is a higher standard}

ISO: (International Organization for Standardization Quality Standards)

Compatibility:

Customer Satisfaction
Prevention over inspection
Continuous improvement
Management Responsibility
Cost of Quality (COQ)

Gold platting: Adding extra items and services to customer deliverables that do not
necessarily contribute added value or quality.

Marginal analysis: An analysis to determine when optimal quality is reachedto determine

the point where incremental benefits or revenue from improving quality equals the incremental
cost to secure it.

Quality metric: specific measure of quality to be used on the project in the perform quality
assurance and control quality processes.

Normal distribution curve: Bell shape frequency distribution curve.

Cost benefit analysis: Comparing the benefit of an activity to the benefit of that activity.
Bench marking:

Benchmarking involves comparing actual or planned project practices to those of other

projects in order to generate ideas for improvement and to provide a standard by which
to measure performance.
These other projects may be within the performing organization or outside of it, and
may be within the same or in another application area.

Design of experiments:

Design of experiments is a statistical method that helps identify which factors might
influence specific variables. It also plays a role in the optimization of products or
processes. Design of experiment attempts to combine variables to determine which
combination of variables produces the best quality and it identifies which variables will
have the most influence on a quality outcome. The design of experiments is a quality
planning tool to identify the factors that may influence specific variables of a product
under development. This tool is used to determine the number of quality tests in a
project.

Statistical sampling:

Statistical sampling involves choosing part of a population of interest for inspection

(e.g., selecting 10 samples of 75 electronic components).
Appropriate sampling can often reduce the cost of quality control.
There is a substantial body of knowledge on statistical sampling; in some application
areas, it is necessary for the project management team to be familiar with a variety of
sampling techniques.

Statistical Independence: The probability of event B occurring does not depend on event
A occurring (For example, the outcome of a second roll of a die is not dependent on the outcome
of the first roll).

Cost of Quality:

Figure 8-2. Cost of Quality

Examples of cost of Conformance:

Quality training
Studies
Surveys
Efforts to ensure everyone knows
the process to use to complete
their work

Examples of cost of non-conformance

Rework
Scrap
Inventory costs
Warranty costs
Lost business

Seven basic quality tools:

1.

Cause-and-Effect Diagram (Decomposition technique that helps trace an undesirable effect

back to its root cause. Ishikawa is another name for the cause and effect diagram. The effect
being studied is normally states at the head of the diagram. The cause and effect diagram is
one tool that can be used for problem solving).
Figure 8-3.

2.

Flowcharts {Depiction (Representation) in a diagram format of the inputs, process actions,

and outputs of one or more processes within a system}
Figure 8-4.

3.

Check-sheet (A tally sheet that can be used as check lists when gathering data)

(Figure 8-5)

Quality cheek lists (A structured tools used to verify that a set of required steps has been
performed)

Difference between Check list and Check sheet: The quality checklist is intended to
help verify a required action has taken place or item has been included. Although a check sheet is
a type of check list, its primary purpose is to gather data.

4.

Histograms (A special form of chart used to describe the central tendency, dispersion, and
shape of a statistical distribution. Histograms are bar charts and are also used to show the
frequency distributions of different variables. A histogram, ordered by frequency of
occurrence, that shows how many results were generated by each identified cause).
Figure 8-6.

5.

Pareto Diagram (A Pareto diagram is a style of histogram used as a tool within the Control
Quality process. They display how many defects were produced by type or category of cause
and ordered by their frequency. A Pareto chart identifies the vital few sources that are
responsible for causing most of a problem's effects.
Figure 8-7.

6.

Control Charts (A graphic display of process data over time and against established control
limits, which has a centerline that assists in detecting a trend of plotted values toward either
control limit) Control charts graphically display the interaction of process variables on a
process. Control charts have three lines: a center line which gives the average of the process,
an upper line designating the upper control limit (UCL) and showing the upper range of
acceptable values, and a lower line designating the lower control limit (LCL) and showing
the lower range of acceptable values. Points that fall outside of the UCL or LCL are evidence
that the process is out of control. The process is out of control if seven consecutive points
are either above or below the mean, or any single point is outside of the control limits. Seven
non-random data points that are still within upper or lower control limit of a control chart
are out of control. The control limits of a control chart are set at plus/minus 3 sigma. Hence
the range is 6 sigma.

Figure 8-8.

7.

Scatter Diagram (A correlation chart that uses a regression line to explain or to predict how
the change in an independent variable will change a dependent variable) Scatter diagrams
are used to determine if a correlation exists between two variables. A scatter diagram shows
the pattern of relationship between two variables. The closer the points are to a diagonal line,
the more closely they are related.
Figure 8-9.

Additional quality planning tools:

Brainstorming
Force field analysis (These are diagrams of the forces for and against change)
Nominal group technique
Quality management and control tools

Quality Management and Control Tools:

Affinity Diagrams Figure 8-10.

The affinity diagram is similar to mind mapping techniques in that they are used to generate idea
that can be linked to form organized patterns of thought about a problem. In project management,
the creation of the WBS may be enhanced by using the affinity diagram to give structure to the
decomposition.

Process Decision Program Charts Figure 8-11.

PDPC are used to understand a goal in relation to the steps for getting to the goal. The PDPC is
useful as a method for contingency planning because it aids teams in anticipating intermediate
steps that could derail achievement of the goal. Process decision program charts (PDPC) are used
to understand a project goal in relation to the steps for getting to that goal. It is a useful method for
contingency planning that aids a team in anticipating intermediate steps that could derail
achievement of a project goal.

Interrelationship Digraphs Figure 8-12.

It is an adaptation of relationship diagram. It provides a process for creative problem solving in

moderately complex scenarios that possess intertwined logical relationships for up to 50 relevant
items. It may be developed from data generated in other tools such as the affinity diagram, the
tree diagram, or the fishbone diagram.

Tree Diagrams Figure 8-13.

It also known as systematic diagrams and may be used to represent decomposition hierarchies such
as the WBS, RBS and OBS. Tree diagrams are useful as decision trees for establishing an expected
value for a limited number of dependent relationships that have been diagramed systematically.

Prioritization Matrices (Identify the key issues and the suitable alternatives to be
prioritizes as a set of alternatives to obtain a mathematical score that ranks the option)
Prioritization matrices provide a way of ranking a set of problems and/or issues that are
usually generated through brainstorming Prioritization matrices provide a way of ranking
a set of problems and/or issues that are usually generated through brainstorming. The rest
of the choices are not valid techniques for the development of a priority matrix.
Activity Network Diagram (Previously known as arrow diagram. Used with project
scheduling methodologies such as program evaluation and review technique (PERT),
critical path method (CPM), and precedence diagraming method (PDM).
Matrix Diagrams (A quality management and control tool used to perform data analysis
within the organizational structure created in the matrix. The matrix diagram seeks to show
the strength of relationships between factors, causes, and objectives that exist between the
rows and columns that form matrix.)

Figure 8-14.

Process improvement plan:

Process Boundaries
Process Configuration
Process Metrics
Targets for Improved Performance

Quality metrics (Description of a project or product attribute and how to measure it. Examples,
on time performance, cost control, defect frequency, failure rate, availability, reliability and test
coverage)

Quality Assurance and Quality Control:

In Quality Assurance, processes are planned to avoid the defects and assure quality.
Quality Control deals with finding the defects and correcting them while making the
product.
Quality Assurance is a Proactive approach.
Quality Control is a reactive approach.
Quality Assurance is a process based approach.
Quality Control is a product based approach.

For example, if the project team finds any defects while executing the project, it will correct the
error by work around, and this feedback is sent to Quality Assurance for further investigation to
take corrective actions in the process so that this error should never happen again in future. In the
same way the Quality Control people will follow the process defined by Quality Assurance so that
these defects do not recur.

Quality Control vs Verify Scope:

Quality Control processes are performed internally while working on the project to make sure that
the deliverables are defect-free.
In contrast, Verify Scope is performed with the client or customer at the end of the project to verify
that the product is complete, all requirements are met and that the product is ready to be delivered.
The sole purpose of the Verify Scope Process is to get formal acceptance from the client that the
deliverables are acceptable to them.
Usually, Verify Scope is performed by the project manager with the client at the end of the project,
whereas Quality Control is performed by the Quality Control person at the time of making the
product.
Let me explain it to you with an example.
Lets say that the Government has given a contract to a company to build a 1,000.00 km road.
When the construction work starts, the company will appoint a Quality Control personnel to
continuously monitor the site work. This person will be available all the time at the site to
continuously check the quality at each level; e.g. he will make sure that coal-tar received from the
supplier is as per the correct quality requirement, stones are properly crushed, bulldozers are
properly leveling the ground, the footpaths are properly made and aligned, etc. These are examples
of Quality Control activities.
Now lets say 100 km of road has been built and is ready to be handed over. The Company will
invite the government authorities to come and inspect the completed part to formally accept it. The
government representatives will come and verify whether all the requirements have been met or
not; e.g. whether the width of road is correct, is the level okay, is the footpath aligned properly,
and whether the length of the road is 100 km or not. Once these representatives are satisfied, they
sign the acceptance paper, the road is handed over to the government, and the company gets the
money for the work it has completed. This process is called the Verify Scope.
One more point to be noted here is that it is not necessary that Verify Scope process should always
be performed at the end of the project; it can happen far before the project ends and can happen
concurrently with the Quality Control Process.
As we can see from the example here, the government is verifying the scope for first 100 km of
road while the company is working to build the rest of the road

Accuracy and Precision:

Accuracy: Accuracy is how close a measured value is to the actual (true) value.
Precision: Precision is how close the measured values are to each other.
Examples of Accuracy and Precision:

Low Accuracy
High Precision

High Accuracy
Low precision

High Accuracy
High precision

So, if you are playing soccer and you always hit the left goal post instead of scoring, then
you are not accurate, but you are precise!

MAIN POINTS ABOUT QUALITY:

One purpose of a quality audit is to identify inefficient and ineffective policies.
The quality management plan may be formal or informal, highly detailed or broadly
framed. The style and detail is determined by the requirements of the project as defined by
the project management team.
Prevention is about keeping errors out of the process whereas inspection is about keeping
errors out of the hands of the customer
Sample frequency and sizes are determined during the Plan Quality Management process
so that the cost of quality includes the number of tests, expected scrap etc.
The activities such as measuring examining and verifying to determine whether work and
deliverables met requirements and product acceptance criteria are variously referred to as
inspections, audits, reviews, product reviews, and walkthroughs.
Making sure that the project team comply with organizational quality policies and
procedures is done in the Perform Quality Assurance process. Quality audits are one of
such techniques in which a structured review is performed by independent consultants or
contractors to identify all shortcomings in carrying out quality policies and procedures.
These efforts should be used later to improve the product quality and reduce the cost of
quality.
Accuracy and Precision are not the same. Precision means the values of repeated
measurements are clustered and Accuracy means the measured value is close to the actual
value.
The words, satisfies the needs are your clue that the answers relates to quality.
Determining what processes should be used describes Plan Quality Management.
Evaluating quality describes Control Quality. In the Perform Quality Assurance process,
quality audits are performed to make sure the correct processes are being used and that are
effective.
In a just in time environment, supplies are delivered when you need them and not before.
Therefore, you have little or no inventory.
Trend analysis examines project results over time to evaluate performance.
Two events that are mutually exclusive cannot happen on the same trail.
Two events occurring in the same trial are true events.
The process analysis includes root cause analysis.
Failure mode and effect analysis (FMEA): Each potential failure mode in every component
of a product is analyzed to determine its effect on the reliability of that component and, by
itself or in combination with other possible failure modes, on the reliability of the product
or system. For each potential failure, an estimate is made of its effect on the total system
and of its impact. In addition, a review is undertaken of the action planned to minimize the
probability of failure and to minimize its effects.
Earned value analysis is used as a trend analysis technique for monitoring overall project
performance

CHAPTER 9: PROJECT HUMAN RESOURCE MANAGEMENT

Figure 9-1. Project Human Resource Management Overview

Project human resource management: It describes how the role and responsibilities,
reporting relationship and staff management will be addressed and structured.

Staffing management plan: A component of the Human resources plan that describes
when and how project team members will be acquired and how long they will be needed.

Organizational theory: Organizational theory provides information regarding the way in

which people, teams and organizational units behave.

Multi criteria decision analysis: Selection criteria for acquiring the project team. Some
examples of selection criteria that can be used to score team members are shown as follows:

Availability
Cost
Experience
Ability
Knowledge
Skills
Attitude
International factors

Ground rule: Ground rules establish clear expectations regarding acceptable behavior by
project team members. Early commitment to clear guidelines decreases misunderstandings and
increases productivity. Discussing ground rules in areas such as code of conduct, communication,
working together, or meeting etiquette allows team members to discover values that are important
to one another. All project team members share responsibility for enforcing the rules once they are
established.

Colocation: Colocation, also referred to as tight matrix, involves placing many or all of the
most active project team members in the same physical location to enhance their ability to perform
as a team.

Halo effect: The halo effect is a type of cognitive bias in which our overall impression of a
person influences how we feel and think about his or her character. Essentially, your overall
impression of a person ("He is nice!") impacts your evaluations of that person's specific traits ("He
is also smart!").
One great example of the halo effect in action is our overall impression of celebrities. Since we
perceive them as attractive, successful, and often likeable, we also tend to see them as intelligent,
kind, and funny.

Team Development Stages:

1.
2.
3.
4.
5.

Forming
Storming
Norming
Performing
Adjourning
Five Team Development Stages: Figure 9-2.

Team Building Activities: Team building activities can play a major role in team
development. Team building activities can include:

Taking classes together

Milestone parties
Holiday and birthday celebrations
Outside-of-work trips
Creating the WBS
Getting everyone involved in some way in planning the project

Types of team:

Dedicated or Full time

Part time
Partnership
Virtual

Sources of Conflict: Figure 9-3.

A bunch of interpersonal skills, in full costume, are playing a party game

called Who am I? These are interpersonal skills.
1. Leadership (I get everybody on the team to understand the goals of the project so that
they can get behind them)
2. Political and cultural awareness
3. Motivation (I try to figure out what each team member wants out of the project and them
I help him or her get it).
4. Influencing (I share power with other people to get some shared benefits)
5. Coaching (I help team members get better at doing project work).
6. Conflicting resolution
7. Team building
8. Trust building

Motivational Theory:
1. McGregors Theory: X and Y
Theory X: Workers need to be watched, hate work and responsibility. Managers must use
coercion, threats & various control schemes to get workers to meet objectives.
Theory Y: Workers can work without supervision, they want to achieve, and can make their
own decisions. Workers enjoy the satisfaction of esteem and self- actualization needs.
Ouchis Theory Z: Based on the participative management style of the Japanese. Workers are
motivated by a sense of commitment, opportunity & advancement.
Figure 9-4: Explanation of X and Y Theory

2. Maslows Hierarchy of Needs

He created a pyramid to show how people are motivated and said one cannot ascend to
the nest level until the levels below are fulfilled.
Figure 9-5.

Food, Shelter, and Clothing (physiological)

Recognition (Esteem)

3. Hygiene Theory or Herzbergs Theory:

There are two factors that contribute to motivation:

Hygiene factors: Factors deal with work environment issues. Those factors
prevent dissatisfaction but do not necessarily bring satisfaction.
Motivational factors: Factors produce job satisfaction
Figure 9-6.

Motivating Agents:
1.
2.
3.
4.

Responsibility
Self-actualization
Professional growth
Recognition

4. David McClellands Theory of Needs (or Acquired Needs Theory):

This theory states that people are most motivated by one of the three needs listed in the
following table. A person falling into one category would be managed differently than a
person falling into another category. (Table 9-1.)
Primary Need
Achievement

Affiliation

Power

Behavioral Style
These people should be given
projects that are challenging but are
reachable.
They like recognition
These people work best when
cooperating with others.
They seek approval rather than
recognition.
People whose need for power is
socially oriented, rather than
personally oriented, are effective
leaders and should be allowed to
manage others.
These people like to organize and
influence others.

5. Expectancy Theory:
The expectation of a positive outcome drives motivation. People will behave in certain
ways if they think there will be good rewards for doing so. This theory also says that people
become what you expect of them.

6. Achievement Theory:
Achievement Theory says that people are motivated by the need for three things:
achievement, power, and affiliation.

The achievement motivation is obviously the need to achieve or succeed.

The power motivation involves a desire for influencing the behavior of others.
The need for affiliation is relationship oriented. Workers want to have friendships
with their coworkers and a sense of camaraderie with their fellow team members.
The strength of your team members desire for each of these will drive their
performance on various activities.

Powers of the Project Manager:

Power is the potential ability to influence behavior to get people to do things they would not
otherwise do.

Types of power include:

1.
2.
3.
4.
5.

Legitimate power (Formal)

Coercive power (Penalty)
Reward power
Expert power
Referent power

Different types of leadership and management styles:

Directing
Facilitation
Coaching
Supporting
Autocratic
Consultative
Consultative Autocratic
Consensus

Delegating
Bureaucratic
Charismatic
Democratic (participative)
Laissez-faire
Analytical
Driver
Influencing

Laissez-faire: The French term meaning allow to act, allow to do, or leave alone. A
Laissez-faire manager is not directly involved in the work of the team, but manages and consults
as necessary. This style can be appropriate with a highly skilled team.

RAM: (Responsibility Assignment Matrix). A responsibility assignment matrix is a correlation

between activities and resources. The matrix shows all the activities and resources for a project.
(Table 9-2.)
Activity
Jeri
P

A
B
Primary and secondary (P, S)

Team Members
Marry
Erica
S
S

Jones
P

RACI: (Responsible, Accountable, Consult, and Inform). RACI stands for responsible,
accountable, consult, and inform. This is a type of responsibility assignment matrix that is used to
illustrate the relationship between work that needs to be completed and team members. In a RACI
chart, a matrix is created with work packages making up the rows, and team member roles in the
columns. Typically, a RACI chart assumes that one person will be accountable for a work package
and more than one person may be responsible for completing the work package.

(Table 9-3.)

Work
package

RACI Matrix

People
Mike
Amy
Brian Zaman
Project Management
R
I
I
I
Design
C
R
C
I
Construction
C
C
R
I
Testing
C
C
R
I
R= Responsible A= Accountable C= Consulted I= Informed

ATTENTION:
A chart representing hours and the time the position, department, company will be working
on the project is an example of a resource histogram. The Resource Histogram is a tool for
charting human resources and illustrates the number of hours that a person, department or
entire project team will be needed each week or month over the course of the project. The
chart can include a horizontal line that represents the maximum number of hours from a
particular resource. This can be used for a resource leveling strategy.
Interpersonal skills, sometimes known as "soft skills" are particularly important to team
development. By understanding the sentiments of project team members, anticipating their
actions, acknowledging their concerns, and following up on their issues, the project
management team can greatly reduce problems and increase cooperation.
Project Performance Appraisal is a technique of the Manage Project Team process. In a
Project Performance Appraisal, team members get feedback from project work supervisors.
The supervisors can gather information from those who interact with the team member
using 360-degree feedback principles. The term 360 feedback principles, simply means
that information is gathered from multiple sources such as the workers supervisors, peers,
and subordinates.
Smoothing is the method that was most likely used to resolve the conflict that arose at the
status meeting. Smoothing is a temporary way to resolve conflict.
Negotiation is a strategy used to bring compromise between two parties with opposing
interests. Analyzing the situation, differentiating between wants and needs, focusing on
interests and issues rather than on positions, asking high and offering low, and listening are
very important skills in negotiation.
In a six-phase decision making model, the project manager must define the problem first.
After defining, he/she must generate problem solution, generate ideas to action, plan
solution action and plan solution evaluation. Once the solution is implemented, he must
evaluate the outcome and process.
Intelligence quotient (IQ) is an assessment of an individual's intelligence. This is not a soft
skill. Soft skills are an individual's interpersonal skills and they include emotional
intelligence, negotiation and group facilitation etc
Resource calendars are used to know the availability of team members for team
development activities. The responsibility assignment matrix gives the responsibilities
assigned to various team members. Project staff assignments give details of individual
assignments and project organization charts display team members and their reporting
relationships. The project charter does not give any of that information. Hence, Lesley must
use resource calendars to know that information.
A project organizational chart shows resources and their responsibilities.

 Team performance assessments evaluate the project teams effectiveness as a whole.

Project performance appraisals deal with how each team member is performing of the
project.
McClelland identified three behavior styles, and the primary need, or motivator, or
motivator for the individuals corresponding to each behavior style.

CHAPTER 10: PROJECT COMMUNICATION MANAGEMENT

Project Communication Management: Describes how, whom, and by whom
information about the project will be administered and disseminated.

Figure 10-1. Project Communication Management Overview

Figure 10-2. Basic Communication Model

The basic communication model comprises three main parts: the sender, the message, and the
receiver. Each message is encoded by the sender and decoded by the receiver. Factors like the
receivers environment, experience, language and culture affect the way the receiver decodes a
message. Communication models often call these types of factors noise, because they may
interfere with the receivers ability to understand the message.
Figure 10-3. Basic Communication

Communication Methods:
1. Interactive: The sender provides the information and recipients receive and respond to it.
(Meetings, phone calls, video conferences, etc.)
2. Push Communications: The sender provides the information but does not expect feedback
on that information. (Letters, memos, reports, emails, faxes, etc.)
3. Pull communications: the sender places the information in a central location and recipients
are responsible for retrieving it. (Intranet, knowledge repositories, etc.)

Figure 10-4. Communication Channels calculation formula

Types of Communication:
1. Non- verbal Communication: 55% of conveying the message, composed of behavior &
Physical
Mannerisms.
2. Verbal Communication
a) Formal (Presentations- Speeches)
b) Informal (Meetings Conversations)
c) Para-lingual: Pitch & Tone of Voice
d) Active Listening
e) Effective
Listening:
Watching

physical

gestures

of

the

speaker

3. Written
a) Formal (Reports and briefing, In project plan, charter, long distances & complex
problems)
b) Informal (Memos, emails, notes)

Communication skills allow information to flow:

1.
2.
3.
4.

Internally
Externally
Vertically (up and down hierarchies)
Horizontally (along peers)

Communication Barriers:
Communication Barriers (1)
1.
2.
3.
4.
5.
6.
7.

Noise
Distance
Hostility
Language
Culture
Evaluative tendency
Improper Decoding

Communication Barriers
1.
2.
3.
4.
5.
6.

(2)

Personality and interest

Position and status
Lack of responsive feedback
Withholding information
Mixed messages
Stereotyping

Components of Effective Communication:

Nonverbal communication
Para-lingual communication
Words
Components of Effective Listening:
Active Listening
Giving feedback

Different types of performance reports:

Status report
Progress report
Trend report
Forecasting report
Variance report
Earned value report
Lessons learned documentation

ATTENTION:
As a project manager where would you document the escalation process to resolve issues
that cannot be resolved at a lower staff level? The correct response is the Communications
Management plan. The Communications Management Plan documents the escalation
process. The issue escalation process must be documented during the planning phase of a
project. The issues that cannot be resolved at a lower level can be escalated using a chain
of command within a stipulated time frame. This information is part of the communication
management plan.
An issue log should at a minimum contain the owner name and a target resolution date. An
issues should be clarified in a way that it can be resolved. Unresolved issues can be a major
source of conflict and project delays. Having just the owner name or target resolution date
leaves the issue log incomplete. Providing additional details such as financial impact on
the project, impact on schedule, number of days the issue is unresolved etc. are 'nice-tohave's beyond the minimum requirement of just the owner name and target resolution date.
Anytime contracts are involved in a project, the project manager/team should use formal
written communication methods.
A forecasting report looks only to future. A status report is generally static (relating to a
moment in time.). A variance report looks at specific project items or activities compared
to the plan. Performance over time is a trend report.
Reciprocal communication may be formal or informal, or written, external or internal to
the organization. By definition, reciprocal conversation is interactive.

CHAPTER 11: PROJECT RISK MANAGEMENT

Figure 11-1. Project Risk Management Overview

Risk:
Risk is an uncertain event or condition that, if occurs, has an effect on at least one project
objective. Risks are the recognition that uncertain events may occur and by recognizing it, the
Project Manager can equip himself to handle it. It is not necessary that the risks are always
problematic, as sometimes they can also bring benefits to the organisation as well. A Risk can be
either a Threat, or an Opportunity.

Opportunity (Positive Risk):

A condition or situation favorable to the project, a positive set of circumstances, a positive set of
events, a risk that will have a positive impact on project objectives, or possibility of positive
changes.
A Positive Risk or an Opportunity may bring some benefits to the organisation.
For example, you are running a project and there is a chance that if you finish your project few
days earlier, you might get another project.

Threat (Negative Risk):

A condition or situation unfavorable to the project, a negative set of circumstances, a negative set
of events, a risk that will have a negative impact on project objectives, or possibility of negative
changes.
A Negative Risk always brings loss to the organization; therefore, it is necessary to tackle them
appropriately. For example, your project is under a heavy work load, and due to this some of your
equipment may break-down or start malfunctioning; therefore, in this case you have to be prepared
to handle these kinds of risks.

Risk Category: A group of potential causes of risks

Risk Categorization:

Risk Breakdown Structure

The Categories are:
a)
b)
c)
d)

Technical
External
Organizational
Project Management

Risk Breakdown Structure (RBS): A hierarchical representation of risks according to their

risk categories.

Figure 11-2. Risk Breakdown Structure and Category

Risk Register: A document in which the results of risk analysis and risk response planning are
recorded
Figure 11-3. Risk Register

RISK REGISTER

Risk Triggers:
Risk Triggers are indications that a risk has occurred or is about to occur. Triggers are sometimes
called warning signs or risks symptoms.

Risk Owner:
The responsibility of a Risk Owner is to ensure that risk response is effective, and to plan additional
risk responses if required. In mitigation risk response strategy, you plan to mitigate it and assign it
to a risk owner.

Risk Action Owner:

The responsibility of a Risk Action Owner is to ensure that the agreed-upon risk responses are
carried out as planned and in timely manner.

Issue:
A project risk that has occurred can be considered an issue.

Known Risks:
Known Risks are risks those have been identified and analyzed, making it possible to plan
responses for them. For example, you know that one of your employee will go for leave during
your project execution; therefore, you already plan to replace him with someone.

Unknown Risks:
Unknown Risks are those risks that cannot be managed proactively, which suggests that the project
team should create a contingency plan. For example, you dont know if any of your employees
may go for leave, but you made a contingency plan in case if anyone leaves.

Risk Appetite:
If you look in the dictionary, you will find that the meaning of appetite is hunger.
So risk appetite means risk hungry. In general high level description of the acceptable level
of risk.
As per the 5th edition of the PMBOK Guide, risk appetite is the degree of uncertainty an entity is
willing to take on in anticipation of a reward.
The risk appetite of an organization shows how much an organization is willing to take a risk in
order to grow itself. It is the amount of risk that an organization is willing to accept to attain its
business objective.
Some organizations might be willing to take a high risk if the reward is high; others may want to
play safe or go conservatively.
If the organization is willing to take a risk, you will say that its risk appetite is high, and the
organization that plays conservatively has a low risk appetite.

Risks Tolerance:
Risk Tolerance tells you that how sensitive the organization or people are to the risk. High
tolerance mean people are willing to take a high risk, and less tolerance mean people are not willing
to take a high risk. It is a measureable amount of acceptable risk.

Risk Threshold:
Risk Threshold is an amount of risk that an organisation or individual is willing to accept. For
example, for an organisation a 5% cost overrun is acceptable, but anything more than that is not
acceptable. It is a specific point at which risk becomes unacceptable.

Residual Risks:
Residual Risks are those risks that are expected to remain after planned responses of risks have
been taken, as well as those that have been deliberately accepted.
For example, lets say you are constructing a building in an earthquake prone zone. You
constructed the building by assuming that the highest degree of earth quake that can happen is 6
on Richter Magnitude Scale. But what if an earth quake happens at 7 on the Richter Magnitude
Scale? The Building might collapse.

Secondary Risks:
Secondary Risks are those risks that arise as a direct outcome of implementing a risk response.
For example, lets say that you are constructing a building, and as a security measure you installed
electrical wire at the top of the boundary wall. But what will happen if someone accidentally
touches the electrical wire, or during rain the electricity passes through the wet wall?

Four keys factors to determine each risk:

1.
2.
3.
4.

Probability
Impact
Timing
Frequency

Risk averse: It is unwilling to take risks.

Tools and Techniques for Identify Risks:

1. Documentation reviews
2. Information gathering techniques
Brainstorming
Delphi technique: It is used as a way to reach a consensus of experts on a subject.
Experts on the subject participate in this technique anonymously. A facilitator uses
a questionnaire to solicit ideas about the important project points related to the
subject. The responses are summarized and are then recirculated to the experts for
further comment. Consensus may be reached in a few rounds of this process. The
Delphi technique helps reduce bias in the data and keeps any one person form
having undue influence on the outcome
Interviewing
Root cause analysis
3. Checklists analysis
4. Assumption analysis
5. Diagraming techniques
Cause and effect diagrams: The fishbone diagram is also known as the Ishikawa
diagram, cause and effect diagram, fishikawa diagram, and herringbone diagram. It
got the name fishikawa because it was developed by Japanese professor Kaoru
Ishikawa in 1960. They are useful for identifying causes or risks.
System or process flow charts: These show how various element s of a system
interrelate and the mechanism of causation.
Influence diagrams: These are graphical representations of situations showing
causal influences, time ordering of events, and other relationships among variables
and outcomes.
6. SWOT analysis
Figure 11-4. SWOT analysis

7. Expert judgement

Tools and Techniques for Perform Qualitative Risk Analysis:

1. Risk probability and impact assessment
2. Probability impact matrix
Figure 11-5. Probability impact matrix

3.
4.
5.
6.

Risk data quality assessment

Risk categorization
Risk urgency assessment
Expert judgement

Tools and Techniques for Perform Quantitative Risk Analysis:

1. Data gathering and representation techniques
a) Interviewing
b) Probability distributions
Figure 11-6. Beta and Triangular Distribution

2. Quantitative risk analysis and modeling techniques

a) Sensitivity analysis: A technique to analyze and compare the potential impacts of
identified risks.
Figure 11-7. Sensitivity analysis

b) Expected monetary value analysis

Figure 11-8. EMV analysis

EMV= PI (Probability Impact)

Decision Tree: A model of a decision to be made that includes the probabilities and impacts of
future events.

c) Modeling and simulation

Figure 11-9. Modeling and Simulation

3. Expert judgement

Tools and Techniques for Risk Responses:

1. Strategies for negative risks or threats
a) Avoid
b) Transfer
c) Mitigate
d) Accept
2. Strategies for positive risk or opportunities
a) Exploit
b) Enhance
c) Share
d) Accept
3. Contingent response strategies
4. Expert judgement

Tools and Techniques for Control Risk:

1.
2.
3.
4.
5.
6.

Risk assessment
Risk audits
Variance and trend analysis
Technical performance measurement
Reserve analysis
Meetings

Enhance Risk Response vs Exploit Risk Response Strategies:

Today, Im going to dive into two positive types of risk response strategies; i.e. exploit and
Enhance Risk Response Strategies.
These risk response strategies look similar to many people, but there is a difference in the way
they are implemented. The Enhance risk response technique tackles the situation leniently, while
on the other hand, Exploit tackles it very aggressively.
Enhancing is about increasing the probability of the occurrence of the event. Here, though
measures will be taken to increase the chance of the event happening, but there is no surety to
realize it.
In the Enhance Response Strategy, the opportunity may or may not be realized.
Exploiting is about doing everything to make the event happen; i.e. to make sure that the
opportunity is realized. The Exploit Risk Response strategy takes the opportunity very seriously
and develops an approach to increase the chance of happening to 100% in order to realize it.
For example, youre constructing a school building, and suddenly the client comes to you and tells
you that if you complete the school building before two months from the actual date, he will give
you an extra amount of money.
You have an opportunity and now Im going to describe that how you should approach it under
both risk response strategies:

Enhance Risk Response Strategy:

Here, you will try to finish the project by increasing overtime, fast-tracking (fast-tracking
multiple activities are performed parallel or simultaneously to reduce the time to finish the project),
or you try to get some resources from other projects, etc.
As you can see that in the Enhancing Risk Response Strategy, youre only trying to finish the
project early to gain the opportunity; i.e. you are only increasing the probability (chance) of
finishing the project early; there is no guarantee that you will realize the opportunity.

Exploit Risk Response Strategy:

In Exploiting, you will finish the project by increasing manpower, overtime, fast-tracking, crashing
(crashing additional resources are assigned to activities to finish it earlier than planned. Crashing
increases the cost), motivate team members by announcing rewards if they finish the project early,
etc.
Obviously, you can see that in the Exploiting Risk Response Strategy, you will do whatever it
takes to make sure that the opportunity is realized. You do not try to get this opportunity; you work
and ensure you get it.
Table 11-1. Key Points
Enhance
Exploit
Try to realize the opportunity
Ensure to realize the opportunity
Try to increase the probability
Try to increase the probability to 100%
It can be assumed as the opposite of mitigation It can be assumed as the opposite of Avoid

ATTENTION:
The risk identification checklist is a useful tool, it should be used in combination with the
other tools, since it is impossible to cover all scenarios on one checklist. They are not
exhaustive (comprehensive).
You would use a Decision Tree when uncertainty and unknowns exist regarding future
scenarios and their outcomes; not when future scenarios are known. The decision points
are known as Decision nodes. The decision tree incorporates the cost of each available
choice, the possibilities of each of the available choices and possible scenarios. It shows
how to make a decision between alternative capital strategies (decision node) when the
environment is not known with certainty.
A Cost reimbursable contract does not transfer risk to the seller, rather, the risk is with the
buyer. Risk Transference involves shifting the negative impact of a risk, along with the
ownership of the response, to a third party. Risk transference nearly always involves
payment of a premium to the party taking on the risk. Examples are use of performance
bonds, warranties, and fixed price contracts.
The Risk Register contains the results of the Perform Qualitative Risk Analysis, Perform
Quantitative Risk Analysis, and Plan Risk Responses. It details all identified risks,
including description, category, and cause, probability of occurring, and impact on
objectives, proposed responses, owners, and current status.
A tornado diagram is useful for comparing the relative importance of variables that have a
high degree of uncertainty to those that are more stable.
You are analyzing the risk in a project. A probability and impact matrix contains risk
prioritized according to their potential implications for meeting the projects objectives.
The typical approach is: To use look up table or probability and impact matrix with specific
combinations of probability and impact that lead to a risk being rated as high, moderate
or low importance. The importance for planning responses to the risks are usually set by
the organization.
A tornado diagram is a sensitivity analysis tool. This technique is used during the
Perform Quantitative Risk Analysis process.
Recognizing the risk and not changing the plan, but making some contingencies in the
event the risk is triggered is an example of active acceptance. Passive acceptance would be
if no contingencies were put in place and avoidance would be correct if the project plan
were modified. Avoidance involves changing the project management plan to eliminate the
threat posed by an adverse risk, isolating the project objectives from the risk's impacts or
to relax the objective that is in jeopardy, such as extending the schedule or reducing scope.
Transference involves shifting the negative impact of a threat along with the ownership of
the response. Mitigation implies a reduction in the probability and/or impact of an adverse
risk. Postponement is not a valid strategy since it does not address the risk.

 The response 'Sigma distribution' is not a valid distribution. Continuous probability

distributions represent the uncertainty in values, such as durations of schedule activities
and costs of project components. Triangular, Beta, Logarithmic, Normal and Uniform
distributions are other examples of commonly used distributions.
Qualitative analysis examines risks from the risk register and analyzes its probability of
occurrence and the impact it would have on the project deliverables if it did occur. It ranks
risks for future action or analysis by evaluating their probability of occurrence and impact.
Expected monetary value (EMV) analysis is a statistical concept that calculates the average
outcome when the future includes scenarios that may or may not happen. The EMV of
opportunities will generally be positive values, while risks will result in negative values.
A Diagramming technique that is a graphical representation of situations showing causal
influences, time-ordering of events and other relationships among variables and outcomes
is known as an Influence Diagram. The Cause-and-effect diagram also identifies the causes
of risk, but does not have the time-ordering of events.
Failure Mode and Effect Analysis is an analytical procedure in which each potential failure
mode in every component of a product is analyzed to determine its effect on the reliability
of that component and the reliability of the product or system as a whole.
A risk re-assessment is a technique that involves re-evaluating project risks and identifying
new risks that arise as the project moves forward. These risks are evaluated and placed in
the risk register.
Series of interviews with various stakeholders to gather some experiential and historical
information on risks. This is an example of obtaining Expert Judgment during the Perform
Qualitative Risk Analysis process. The Perform Quantitative Risk analysis process
numerically analyzes the prioritized project risks obtained through the Perform Qualitative
Risks Analysis process.
A Risk Breakdown Structure (RBS) lists identified project risks hierarchically by risk
category and subcategory that identifies the various areas and causes of potential risks. The
lowest level in the RBS can be used as a basic risk checklist to cover all identified risks.
The other statements are all true. The lowest level of the risk breakdown structure. The
lowest level of the RBS can be used as a risk checklist. These statements are true about risk
checklist:
It is impossible to build an exhaustive checklist
Quick and simple risk checklist are the least effective ones
Risk checklists should be reviewed during project closure

 The impact scale will contain the probabilities of certain risks occurring, and will contain
values from 0 to 1. A value of 0 indicates non-occurrence of the risk while 1 is a
certainty.
The Risk Breakdown Structure (RBS) is a hierarchically organized depiction of identified
project risks arranged by risk category and subcategory. This may be based on a previously
prepared categorization framework The RBS serves to remind participants in the risk
identification exercise of the different sources from which risk may project arise.
A project manager has decided to use data decision tree to do a build or upgrade analysis.
The build requires an investment of $200M (where M represents million). On the build
decision branch, there is a 60% probability of strong demand (yielding a revenue of
$400M) and a 40% probability of weak demand (yielding a revenue of $150M). What is
the expected monetary value (EMV) of the build? The payoff for the strong demand
scenario is: $ 400 M - $ 200 M = $ 200 M (since the initial investment is $ 200 M). The
payoff for the weak demand scenario is: $ 150 M - $ 200 M = - $ 50 M. Hence the EMV
is computed as: (0.6 200) + (0.4 -50) where 0.6 represents the 60% probability of the
strong demand and 0.4 represents the 40% probability of the weak demand scenario. = 120
- 20 = $ 100 M. Hence the expected monetary value is $ 100 M.
If a project has a 60% chance of a US$100,000 profit and a 40% chance of a US$100,000
loss, the expected monetary value of the project is:
EMV=Probability Impact .6 $100,000=$60,000 .4 ($100,000) =
($40,000) $60,000-$40,000=$20,000 profit.
Decision tree analysis is used to calculate the average outcome when the future includes
scenarios that may or may not happen. In a decision node, the input is the cost of each
decision while the output is a decision made.
Out puts of the Plan Risk Responses processes include: Residual Risks, fallback plans, and
contingency reserves.
A watch list is an output of which risk management process: Perform qualitative risk
analysis
Plan Risk Responses process most affects the project management plan.
Residual risks, fallback plans, and contingency reserves are the outputs of the Plan Risk
Responses process.
In mitigation risk response strategy, you plan to mitigate it and assign it to a risk owner.
A risk may have one or more causes and, if it occurs, may have one or more impacts
What are a decision nodes inputs and outputs? Input: cost of decision Output: decision
made
Workaround are determined during which risk management process? Control risks.

CHAPTER 12: PROJECT PROCUREMENT MANAGEMENT

Figure 12-1. Project Procurement Management Overview

Project Procurement Management:

Includes the processes required to acquire goods or services from outside the project team.
It also includes Contract Management and Change Control Processes
Includes controlling an contract issues by an outside organization

Procurement Statement of Work:

Describes the procurement item in sufficient detail to allow prospective sellers to determine if they
are capable of providing the product, services, or results.

Types of Procurement Statement of Work:

1. Performance
2. Functional
3. Design

Procurement document:
1.
2.
3.
4.

RFP (Request for proposal)

IFB (Invitation for bid)
RFQ (Request for quotation)
RFI (Request for information), some considered a procurement document, though
it does not really belonging to procurement document.

Agreement: A document or communication that outlines internal and external

relationship, and their intentions.

Contract: A type of written or verbal agreement, typically created with an external entity,
when there is some exchange of goods or services for some type of compensation. The
contract forms legal relationship between the entities.

Centralized contracting: One procurement department and the procurement manager

handles procurement for many projects.

Decentralized contracting: A procurement manager is assigned to one project full time

and report directly to the project manager.

Contract administrator and project manager:

The contract administrator is the only one with the power to change the contract.

Ceiling price: The higher price the buyer will pay.

Point of total assumption: For fixed price incentive fee contract, the amount above
which the seller bears all the loss of a cost overrun.

Letter of intent: A letter from the buyer, without legal binding, say the buyer intend to
hire the seller.

Privity: A contracted relationship between two or more companies.

Source selection criteria: Factor, the buyer will use to evaluate (weight or score)
response from the seller.

Contract Change Control System: It should include Paperwork, tracking system,

dispute resolution procedures, and approval levels necessary for authorizing
changes.

Standard contract terms:

Terms and conditions that are used for all contracts within the company.

Special provisions:
Terms and conditions created for the unique needs of the project.

Requirements for legal contract:

1.
2.
3.
4.
5.

Offer
Acceptance
Consideration
Legal capacity
Legal purpose

What is included in the contract?

1.
2.
3.
4.
5.
6.

Legal term
Business term regarding payments
Reporting requirements
Marketing literature
Proposal
Procurement statement of work

Procurement contracts can be broadly divided into three categories:

1. Fixed Price Contract
2. Cost Reimbursable Contract, and
3. Time and Materials

1. Fixed Price Contract:

A Fixed Price Contract is also known as a lump-sum contract. This type of contract is used when
there is no uncertainty in the scope of work. Once the contract is signed, the seller is legally bound
to complete the task within the agreed amount of money or time. Since the seller has to complete
the task within a fixed amount, he bears the risks.
A Fixed Price Contract can be further divided into three categories:
A.
B.
C.
D.

Firm Fixed Price Contract (FFP)

Fixed Price Incentive Fee Contract (FPIF)
Fixed Price with Economic Price Adjustment Contracts (FP-EPA)
Purchase order

The main advantage of Fixed Price Contract is that both parties know the scope of the work, and
the total cost of the task before the work is started.
Generally, outsourcing and turnkey procurement contracts are signed under a fixed price contract
on a deliverables basis.
This type of contract is very useful if the scope of work is defined accurately. Fixed price contracts
are good for controlling the cost. However, changes in scope must be carefully observed, otherwise
the cost of the project may be elevated significantly because it is seen that the contractors get the
contract by bidding the lower price and then try to cover the cost with any opportunity, such as
added scope.

A.

Firm Fixed Price Contract (FFP)

This is the simplest type of procurement contract. In this type of contract, the fee is fixed. The
seller has to complete the job within an agreed amount of money and time. Any cost increase due
to bad performance of the seller will be the responsibility of the seller, who is legally bound to
complete the job within the agreed amount.
A Firm Fixed Price Contract is mostly used in government or semi-government contracts where
the scope of work is specified with every possible detail.
This type of contract is easy to float on the market, receive bids, and evaluate the bids primarily
on a cost basis.
Since the risk is borne by the seller, the cost tends to be higher. Another drawback of a Firm Fixed
Price Contract is that, if the scope is not clear, there can be disputes between the buyer and the
seller. Moreover, any deviation from the original scope can cost you a lot. Example: The seller has
to complete the job for $100,000 USD within 18 months.
B.

Fixed Price Incentive Fee Contract (FPIF)

In this type of contract, although the price is fixed, the seller is given an additional incentive based
on his performance. This incentive lowers the risk borne by the seller.
The incentive can be tied to any project metrics such as cost, time, or technical performance.
Example: 10,000 USD will be paid to contractor as an incentive if he completes the work before
two months.
C.

Fixed Price with Economic Price Adjustment Contracts (FP-EPA)

If the contract is multi-year long, a Fixed Price with Economic Price Adjustment Contract is used.
Here you include a special provision in a clause which protects the seller from inflation.
Example: About 3% of the cost of the project will be increased after a certain time duration based
on the Consumer Price Index.
This type of contract is used to buy commodities.
Example: Buy 10,000 bolts at the cost of $1.00 USD.

D.

Purchase Order

Purchase order is the simplest type of fixed price contract. It is normally unilateral (signed by one
party).
2. Cost Reimbursable Contract:
This contract is also known as a Cost Disbursable Contract. In this type of contract, the seller is
reimbursed for completed work plus a fee representing his profit. Sometimes this fee will be paid
if the seller meets or exceeds the selected project objectives; for example, completing the task
before time or completing the task with less cost, etc.
A Cost Reimbursable Contract is used when there is uncertainty in the scope, or the risk is higher.
In this contract, since the buyer pays for all cost, he bears the risk.
Scope Creep is an inherent drawback of a Cost Reimbursement Contract, especially when there is
no clarity in the requirements. The seller will always try to elevate the cost because it will be tied
to some sort of fee.
However, this difficulty can be minimized with proper management of the contract and capping
the sellers profit; e.g. 10% of the total cost.
Cost Reimbursable Contracts can be further divided into four categories:
A.
B.
C.
D.
E.

Cost Contract
Cost Plus Fixed Fee Contract (CPFF)
Cost Plus Incentive Fee Contract (CPIF)
Cost Plus Award Fee (CPAF)
Cost Plus Percentage of Cost (CPPC)

A Cost Reimbursable Contract provides you with better cost control when you dont have a welldefined scope.
A.

Cost Contract

A cost contract is one in which the seller receives no fee (profit). It is appropriate for work
performed by non-profit organization. For example, cost for work and material, there is no profit.

B.

Cost Plus Fixed Fee Contract (CPFF)

In this type of contract, the seller is paid for all his cost incurred plus a fixed fee (which will not
change), regardless of his performance. Here, the buyer bears the risk.
This type of contract is used in projects where risk is high, and no one is interested in bidding.
Therefore, this type of contract is selected to keep the seller safe from risks.
Example: Total cost plus $25,000 USD as a fee.

C.

Cost Plus Incentive Fee Contract (CPIF)

In a Cost plus Incentive Fee Contract, the seller will be reimbursed for all costs plus an incentive
fee based upon achieving certain performance objectives mentioned in the contract. This incentive
will be calculated by using an agreed predetermined formula.
Here the risk also lies with the buyer; however, this risk is lower than the Cost plus Fixed Fee
where the buyer has to pay a fixed fee along with the cost incurred.
In a Cost plus Incentive Fee Contract, the incentive is a motivating factor for the seller. If the seller
is able to complete the work with less cost or able to complete it before time, he may get some
incentive.
Most of the time incentive is a percentage of the savings, which is shared by the buyer and the
seller.
Example: If the project is completed with lesser cost, 25% of remaining fund will be given to the
seller.

D.

Cost Plus Award Fee (CPAF)

Here, the seller is paid for all his legitimate costs plus some award fee. This award fee will be
based on achieving satisfaction on the certain performance objectives described in the contract.
The evaluation of performance is a subjective matter, and you cannot appeal it.
There is a difference between the incentive fee and the award fee. An incentive fee is calculated
based on a formula defined in the contract, and is an objective evaluation. An award fee is
dependent on the satisfaction of the client and is evaluated subjectively. Award fee is not subjected
to an appeal.
Example: If the seller completes the task meeting or exceeding all quality standards, based on his
performance he may be given an award of up to $10,000 USD.

E.

Cost Plus Percentage of Cost (CPPC)

Here the seller is paid for all costs incurred plus a percentage of these costs. This type of contract
is not preferred, because the seller might artificially increase the cost to earn a higher profit.
Example: Total cost plus 15% of cost as a fee to contractor.

Figure 12-2. Fixed Price vs. Cost Reimbursable

Figure 12-3. Contract Type Selection

HIGH

LOW
BUYERS RISK

CPPC
Cost Plus
Percentage
of Cost

CPFP
Cost
Plus
Fixed
Price

CPAF
Cost
Plus
Award
Fee

CPIF
T&M
FPEPA
FPIF
Cost
Time
Fixed Price
Fixed
Plus
and
Economic
Price
Incentive Material
Price
Incentive
Fee
Adjustment
Fee

FFP
Firm
Fixed
Price

LOW

SELLERS RISK
HIGH

3.

Time and Materials Contract:

This is a hybrid contract of Fixed Price and Cost Reimbursable Contracts. Here the risk is
distributed to both parties.
A Time and Materials type of contract is generally used when the deliverable is labor hours. In
this type of contract, the project manager or the organization will provide the qualification or
experience to the contractor to provide the staff.
This type of contract is used to hire some experts or any outside support.
Here the buyer can specify the hourly rate for the labor with a not-to-exceed limit.
Example: Technician will be paid $20 USD per hour.

Summary:
Selecting the contract type is a very important decision for a project manager. It determines your
relationship with the seller and mitigates the risks.
You should always select a contract which provides the optimum value for your time and money,
and protects your project from any risks.
If the scope of work is definite and fixed, you should go for the Fixed Price Contract.
However, if the project scope is not fixed and is exploratory, you should choose the Cost
Reimbursable Contract.

Close Procurement:
Close Procurement is the process of completing each project procurement. It supports the Close
Project or Phase Process. If you notice this definition, you will see that the definition itself is
trying to clarify that the Close procurement is different than the Close Project, and in fact Close
Procurements supports the Close Project.
Close Procurement is also known as Contract Closure. A procurement is said to be closed when
the contract reaches its deadline and it ends. A project can have multiple procurement contracts,
or a single contract. If the project has multiple contracts, then the Close Procurement Process will
be performed multiple times with each procurement contract, and if the project has no contract
then there will be no Close Procurement Process.

Close Project:
Close Project or Phase is the process of finalizing all activities across all of the project
management process groups to formally complete the project or phase. Close Project or Phase
Process is performed when the project or phase is finally completed and deliverables are accepted.
To complete the close project or phase, the close procurement process must have been finished,
otherwise the project closure cannot happen; however, this is not the case for Close Procurement
where Project Closure is not required in order to complete the Close Procurement.
Time to see how this applies to our trademark school building example
You have identified that to construct the school building, some works are going to be performed
by procurement, and you prepare the list as follows:

Earth excavation work

Electrical work
Carpentry work, and
Painting

Before starting the construction work you need a little excavation work completed, and you
contract it to any contractor. He comes and finishes the work, and you give him the agreed amount
of money and closed this procurement contract. Afterwards, you start your work and build the
structure.
Now you need to do electrical work that is also to be performed by procurement. The contractor
comes, does his part, and you released him by paying the agreed amount of money, and the contract
is closed.
After, you need carpentry and painting works, and these works were already procured; therefore,
contractors come and after finishing their job, they take their payment and left the site. This
contract are also closed.

The building is ready, so you call the client to come inspect it. The client comes and verifies the
scope with you, and once he is satisfied, he accepts the building, signs the acceptance letter and all
pending payments are released. Once you get the payment, you update the lessons learned, release
the team and resources, and finally you close the Project.
Key Points:
Close Procurement must happen before Close Project or Phase.
Close Procurement can occur many times in life-cycle of the project, but the Project
Closure will be performed once; i.e. at the end.
Deliverables are accepted in Close Project.
Every project must be gone through the Close Project process, even it is terminated.

ATTENTION:
As part of the close procurements process, the project manager prepared a complete set of
indexed contract documentation including the closed contract, to include with the final
project files. This is called a: Procurement file.
Performance requirements describes the performance required by the customer, not the
functionally. They do not precisely describe everything that needs to be done.
Contracts are risk mitigation tools.
The time and material contract is the easiest to negotiate and allows for rapid turnaround.
If you didnt have the time constraint, you would select a fixed price contract.
Both systems (Change Control System and Contract Change control System) includes
procedures. A trend analysis is not usually part of either system. A contract change control
system requires more, not less, documentation than a project change control system.
Contracts are legal documents and, therefore, generally require more sign-offs.
A procurement audit is a structured review that flushes out issues and identifies lessons
learned.
What type of contract do you not want to use if you do not have enough labor to audit
invoices? CPFF (Cost plus fixed fee)

 A project is contracted as a cost plus incentive fee (CPIF) type of contract. The project was
negotiated such that if the final costs are less than the expected costs, the sharing formula
for cost savings is 75:25. The targeted cost is US$100,000 with an 8% incentive fee on the
targeted cost. If the project comes in at US$80,000, what would be the cost of the total
contract? The correct answer is US$ 93,000. The calculation is as follows: Incentive fee
based on budgeted costs = 8% of 100,000 = 8,000 Actual costs = 80,000 Share of cost
savings = 25% of 20,000 = 5,000 (since the cost savings is 100,000 - 80,000) Hence the
payout = 80,000 + 8,000 + 5,000 = US$ 93,000. [PMBOK 5th edition, Page 364] [Project
Procurement Management]
a)
b)
c)
d)

US$ 108,000
US$ 93,000
US$ 112,000
US$ 91,000

A project is contracted on a cost plus incentive fee (CPIF) basis. The contract states that if
the final costs are less than expected costs, the sharing formula for cost savings is 80:20.
The targeted cost is US$ 5000,000 with a 10% fee. If the project comes in at US$450,000,
what would be the total cost of the contract? In a Cost-Plus-Incentive-Fee (CPIF) type of
contract, the seller is reimbursed for allowable costs for performing the contract work and
receives a predetermined fee. In some cases, if the final costs are less than the expected
costs, then both the buyer and the seller benefit from the cost savings based on a prenegotiated sharing formula. In the current situation, the predetermined fee is 10% of US$
500,000 = US$ 50,000. Since the project came in at US$ 450,000, the savings is 500,000 450,000 = 50,000. The sharing formula is 80:20, hence the additional payout to the seller
= (20/100) * 50,000 = 10,000. Hence the value of the total contract = 450,000 + 50,000 +
10,000 = US$ 510,000. [PMBOK 5th edition, Page 364] [Project Procurement
Management]
a)
b)
c)
d)

US$ 495,000
US$ 510,000
US$ 505,000
US$ 550,000

 A project is contracted as time and materials type of contract. The service provider initially
estimates that the total effort involved would be about 1000 hours of effort. The project is
contracted at a rate of US$75 per hour of effort. If the project ends up with 1200 hours of
effort, what will the contract payout be? The correct answer is US$ 90,000. Since this is a
T&M contract, the contract is open-ended in value. Hence the contract value is the actual
effort multiplied by the agreed rate = US$ 75 1200 = US$ 90,000. [PMBOK 5th edition,
Page 364] [Project Procurement Management]
a)
b)
c)
d)

US$75,000
US$90,000
US$82,000
US$120,000

A project is contracted as a cost plus fixed fee (CPFF) basis. The targeted cost is US $
200,000 with a fee of US $30.000. If the project comes in at US$30,000. If the project
comes in at US $170,000, what would be the total cost of the contract? In a Cost-PlusFixed-Fee (CPFF) type of contract, the seller is reimbursed for allowable costs and receives
a fixed fee payment calculated as a percentage of the estimated project costs. The fixed fee
does not vary with actual costs unless the project scope changes. In the current scenario,
the fixed fee is fixed up as US$ 30,000. Although the actual project comes in at 170,000,
the fixed fee remains the same. Hence the total cost to the project will be 170,000 + 30,000
= 200,000. [PMBOK 5th edition, Page 364] [Project Procurement Management]
a)
b)
c)
d)

US$ 195,500
US$ 230,000
US$ 200,000
US$ 170,000

 A project is contracted on a cost plus fixed fee (CPFF) basis with a fee of 10% of estimated
costs. The estimated cost is US$ 50,000. If the project comes in at US$ 75,000 with no
changes in project scope, what would be the total cost of the contract? In the Cost-PlusFixed-Fee (CPFF) type of contract, the seller is reimbursed for allowable costs for
performing the contract work and receives a fee calculated as an agreed-upon percentage
of the costs. The costs vary depending on the actual cost. The fee is based on estimated
costs unless the scope of the project changes. For the current project, the agree-upon
percentage of costs is 10%. The actual cost is US$ 75,000 even though the initial estimate
was US$ 50,000. However, the fee is calculated as 10% of 50,000 = (10/100) 50,000 =
5,000. The total cost of the contract is 75,000 + 5,000 = US$ 80,000. [PMBOK 5th edition,
Page 364] [Project Procurement Management]
a)
b)
c)
d)

US$ 55,000
US$ 125,000
US$ 75,000
US$ 80,000

You have received a proposal for an RFP that was sent to vendors. One of the vendors has
proposed doing the project for $12,500. The cost for the project is $10.000 and their profit
will be $2,500. Which type of contract is most suitable for this situation? Apparently it
looks like the vendor is asking for a cost plus fixed fee contract. However, the vendor is
actually looking for a fixed price contract when they asked for a fixed $12,500. The cost
and fee are just the components the vendor has estimated to come up with a final price.
[PMBOK 5th edition, Page 362, 363] [Project Procurement Management]
a)
b)
c)
d)

Cost plus fixed fee

Cost plus percentage of cost
Fixed price
Cost plus inventive fee

 You are trying to decide whether to lease or buy an item for your project. The daily lease
cost is $120. To purchase the item, the investment cost is $1000 and the daily maintenance
cost is $20. How long will it take for the lease cost to be the same as the purchase cost?
This calculation helps a project manager decide whether it to buy or lease. The calculation
says that the costs are the same after 10 days. Therefore, if you are planning to use the item
for fewer than 10 days, you should lease. If you are planning to use it more than 10 days,
it would be cheaper to buy the item. These costs are then included in the project cost
estimate.
$120 D= $1,000 + $20D
$120D - $20D = $1,000
$100D = $1,000
D = 10

CHAPTER 13: PROJECT STAKEHOLDER MANAGEMENT

Figure 13-1. Project Stakeholder Management Overview

Stakeholder Management Plan:

Includes the processes required to:

Identify the people, groups, or organizations that could impact or be impacted by the
project.
Analyze stakeholder expectations and their impact on the project
Develop appropriate management strategies for effectively engaging stakeholders in
project decision and execution

A stakeholder can be:

A sponsor
Project team
Higher management
End user of the projects outcome
Someone affected by the project, or the projects outcome
Someone who has any kind of interest in the project, or the projects outcome

Stakeholders can be grouped into two categories:

1. Internal, and
2. External

Internal Stakeholders:
These stakeholders are internal to the organization; e.g.

A sponsor
Internal customer or client (if project arose due to internal need of an organization)
Project team
A program manager
A portfolio manager
Management
Other groups manager internal to the organization; e.g. functional manager, operational
manager, admin manger, etc.

External Stakeholders:
These stakeholders are external to the organization; e.g.
External customer or client (if project arose due to a contract)

End users of projects outcome

Supplier
Sub-contractors
Government
Local communities
Media

Stakeholder Classification:
Stakeholders can be classified based on their power and interest, power and influence,
influence and impact, and power, urgency and legitimacy
Among all, power and interest classification is the most widely used to classify the
stakeholders

Stakeholder Management Strategy:

It is a plan which is developed to keep satisfied all stakeholders by fulfilling their
expectations and requirements
It ensures receiving full cooperation from the stakeholders with minimum obstruction
It should be kept in a secure place because it may contain sensitive information that cannot
be shown to everybody

Tool and techniques of identify the stakeholders:

Stakeholder Analysis: gathering & analyzing information to determine stakeholder in 3
steps:
1. Identify all potential stakeholders & relevant information (roles, departments, interests,
knowledge levels, expectations & influence levels).
2. Identify potential impact or support each stakeholder could generate (power-interest)
3. Assess how key stakeholders are likely to react or respond to various situations.

Stakeholder register:
A project document including the identification, assessment, and classification of the
stakeholders.

Classification of Stakeholder according to Power-Interest Grid:

Figure 13-2. Power-Interest Grid

Classification of Stakeholder according to power, urgency and legitimacy

Model:
The model identifies 8 different stakeholder groups: dormant, latent, demanding, dominant,
dangerous, dependent, and definitive and non-stakeholders.

Figure 13-3. Power Legitimacy Urgency Model or Salience model

Analytical techniques, engagement levels:

1.
2.
3.
4.
5.

Unaware
Resistant
Neutral
Supportive
Leading
Figure 13-3. Stakeholders Engagement Assessment Matrix

Where C indicates the current engagement, and D indicates the desired engagement

ATTENTION:
Culture-centric is not rally a defined term. Egotistical refers to being self centered.
Enlightened self-interest refers to persons who act to further the interests of others (or the
interest of the group or groups to which they belong), ultimately serving their own selfinterest. Since neither egotistical nor enlightened self-relate to culture, neither can be the
best choice. Ethnocentric means tending to look at the world primarily from the perspective
of ones own culture, and is therefore the best choice.
Giving stakeholders extras is known as gold plating. This is not effective stakeholder or
quality management.
The requirement traceability matrix and stakeholder register are project documents, not
parts of the project management plan. Most project documents are created by the project
manager for his or her use during the project, and do not require outside approval for
changes.
A salience model is used in stakeholder analysis to classify stakeholders based on their:
power, urgency, and legitimacy.
By assessing potential problems with stakeholder engagement, the team is able to identify
and address related risks to project success.
When do stakeholders have the most influence on a project? At the beginning of the project
because in order to determine their requirements and expectations. Although stakeholders
have an impact throughout the project.

CHAPTER 14: BLIND LEARNING

In this chapter you have to memorize the following tables.

Project Management Process Group and Knowledge Area Mapping:

Knowledge
Areas

Project Integration
Management

Project Management Process Groups

Initiating
1 Develop Project
Charter

Planning
2 Develop Project
Management Plan

Executing
3 Direct and Manage
Project Work

Monitoring
and
Controlling
4 Monitor and
Control Project
5 Perform Integrated
Change Control

1 Plan Scope
Management
2 Collect
Requirements
3 Define Scope
4 Create WBS
1 Plan Schedule
Management
2 Define Activities
3 Sequence Activities
4 Estimate Activities
Resources
5 Estimate Activities
Durations
6 Develop Schedule

5 Validate Scope
6 Control Scope

Project Cost
Management

1 Plan Cost
Management
2 Estimate Cost
3 Determine Budget

4 Control Cost

Project Quality
Management
Project Human
Resources
Management

1 Plan Quality
Management

2 Perform Quality
Assurance

1 Plan Human
Resources
Management

Project
Communication
Management
Project Risk
Management

1 Plan
Communications
Management

2 Acquire Project
Team
3 Develop Project
Team
4 Manage Project
Team
2 Manage
Communications

Project Procurement
Management

1 Plan Procurement
Management

2 Conduct
Procurement

3 Control
Procurement

2 Plan Stakeholders
Management

3 Manage
Stakeholders
Engagement

4 Control
Stakeholders
Engagement

Project Scope
Management

Project Time
Management

Project Stakeholders
Management

6 Close Project
or Phase

7 Control Schedule

1 Plan Risk
Management
2 Identify Risk
3 Perform Qualitative
Risk Analysis
4 Perform
Quantitative Risk
Analysis
5 Plan Risk
Responses

1 Identify
Stakeholders

Closing

3 Control Quality

3 Control
Communications
6 Control Risk

4 Close
Procurement

Project Integration Management Overview:

1. Develop Project Charter

Inputs

1.
2.
3.
4.
5.

Project Statement of Work

Business Case
Agreements
Enterprise Environmental factors
Organizational Process Assets

Tools and Techniques

1.
2.

Expert judgment
Facilitation techniques

Outputs

1.

Project Charter

4. Monitor and Control Project

Inputs
1. Project management plan
2. Schedule forecasts
3. Cost forecasts
4. Validated changes
5. Work performance information
6. Enterprise Environmental factors
7. Organizational Process Assets

1.
2.
3.
4.

Tools and Techniques

Expert judgment
Analytical techniques
Project management information
system
Meetings

1.
2.
3.
4.

Outputs
Change requests
Work performance reports
Project management plan updates
Project documents updates

2. Develop Project Management Plan

1.
2.
3.

3. Direct and Manage Project Work

1.
2.
3.

4.

Inputs
Project Charter
Outputs from other processes
Enterprise Environmental
factors
Organizational Process Assets

1.
2.

Tools and Techniques

Expert judgment
Facilitation techniques

1.
2.

1.

Outputs
Project management plan

3.

4.

Inputs
Project management plan
Approved change requests
Enterprise Environmental
factors
Organizational Process Assets
Tools and Techniques
Expert judgment
Project management
information system
Meetings

1.
2.
3.
4.

5. Integrated Change Control

1.
2.
3.
4.
5.

Inputs
Project management plan
Work performance reports
Change request
Enterprise Environmental
factors
Organizational Process Assets

1.
2.
3.

Tools and Techniques

Expert judgment
Meetings
Change control tools

1.
2.
3.

Outputs
Approved change requests
Change log
Project management plan
updates
Project documents updates

4.

Outputs
Deliverables
Work performance data
Change request
Project management plan
updates
5. Project documents updates
6. Close Project or Phase

1.
2.
3.

Inputs
Project management plan
Accepted deliverable
Organizational Process Assets

Tools and Techniques

1. Expert judgment
2. Analytical techniques
3. Meetings

1.

Outputs
Final product, service, or
result transition
Organization process assets
updates

2.

Project Scope Management Overview

1. Plan Scope Management
Inputs
1. Project management plan
2. Project charter
3. Enterprise Environmental
factors
4. Organizational Process
Assets

1.
2.

Tools and Techniques

Expert judgment
Meetings

1.
2.

Outputs
Scope management plan
Requirements management
plan

2. Collect Requirements:
Inputs
1. Scope management plan
2. Requirements management
plan
3. Stakeholders management
plan
4. Project charter
5. Stakeholders register

1.
2.
3.
4.
5.

Tools and Techniques

Interviews
Focus groups
Facilitated workshops
Group creative techniques
Group decision making
techniques
6. Questionnaires and surveys
7. Observations
8. Prototypes
9. Benchmarking
10. Context diagrams
11. Documents analysis

1.
2.

4. Create WBS:
Inputs
1. Scope management plan
2. Project scope statement
3. Requirement
documentation
4. Enterprise Environmental
factors
5. Organizational Process
Assets

1.
2.

Tools and Techniques

Decomposition
Expert judgement

1.
2.

Outputs
Scope base line
Project documents updates

1.
2.
3.
4.

1.
2.
3.
4.

Tools and Techniques

Expert judgement
Product analysis
Alternative generation
Facilitated workshops

1.
2.

Outputs
Project scope statement
Project documents updates

Outputs
Requirement
documentation
Requirements traceability
matrix

5. Validate Scope:
Inputs
1. Project management plan
2. Requirement
documentation
3. Requirements traceability
matrix
4. Verified deliverables
5. Work performance data

1.
2.

3. Define Scope:
Inputs
1. Scope management plan
2. Project charter
3. Requirement
documentation
4. Organizational process
assets

Tools and Techniques

Inspection
Group decision making
techniques
Outputs
Accepted deliverables
Change requests
Work performance
information
Project documents updates

6. Control Scope:
Inputs
1. Project management plan
2. Requirement
documentation
3. Requirements traceability
matrix
4. Work performance data
5. Organizational Process
Assets

1.

Tools and Techniques

Variance analysis

1.

Outputs
Work performance
information
Change requests
Project management plan
updates
Project document updates
Organizational Process
Assets

2.
3.
4.
5.

Project Schedule Management Review

1.

1.
2.
3.
4.

1.
2.
3.

1.

Plan Schedule Management

Inputs
Project management plan
Project charter
Enterprise Environmental
factors
Organizational Process
Assets
Tools and Techniques
Expert judgment
Analytical techniques
Meetings
Outputs
Schedule management
plan

4. Estimate Activity Resources

Inputs
1. Schedule management plan
2. Activity list
3. Activity attributes
4. Resources calendars
5. Risk register
6. Activity cost estimate
7. Enterprise Environmental
factors
8. Organizational Process
Assets
Tools and Techniques
1. Expert judgement
2. Alternative analysis
3. Publishing estimating data
4. Bottom up estimate
5. Project management
software
Outputs
1. Activity resource
requirements
2. Resource breakdown
structure
3. Project document updates

2.

Define Activities
Inputs
Schedule management plan
Scope baseline
Enterprise Environmental
factors
Organizational Process
Assets
Tools and Techniques
Decomposition
Rolling Wave Planning
Expert judgment
Outputs
Activity list
Activity attributes
Milestone list

3.

5. Estimate Activity Durations

Inputs
1. Schedule management plan
2. Activity list
3. Activity attributes
4. Activity resource
requirement
5. Resources calendars
6. Project scope statement
7. Risk register
8. Resource breakdown
structure
9. Enterprise Environmental
factors
10. Organizational Process
Assets
Tools and Techniques
1. Expert judgement
2. Analogous estimating
3. Parametric estimating
4. Three point estimating
5. Group decision making
techniques
6. Reserve analysis
Outputs
1. Activity duration estimate
2. Project document updates

6.

1.
2.
3.
4.

1.
2.
3.

1.
2.
3.

1.
2.
3.
4.
5.
6.
7.

1.
2.
3.

1.
2.

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

1.
2.
3.
4.
5.
6.
7.
8.

1.
2.
3.
4.
5.
6.

Sequence activities
Inputs
Schedule management plan
Activity list
Activity attributes
Milestone list
Project Scope Statement
Enterprise Environmental
factors
Organizational Process Assets
Tools and Techniques
Precedence diagraming(PDM)
Dependency determination
Leads and Lags
Outputs
Project schedule diagram
Project document updates
Develop Schedule
Inputs
Schedule management plan
Activity list
Activity attributes
Project schedule diagrams
Activity resource requirement
Resources calendars
Activity duration estimate
Project scope statement
Risk register
Project staff assignments
Resource breakdown structure
Enterprise Environmental
factors
Organizational Process Assets
Tools and Techniques
Schedule network analysis
Critical path method
Critical chain method
Resources optimization
techniques
Modeling techniques
Leads and Lags
Schedule compression
Scheduling tools
Outputs
Schedule baseline
Project schedule
Schedule data
Project calendars
Project management plan
updates
Project document updates

7.

1.
2.
3.
4.
5.
6.

1.
2.
3.
4.
5.
6.
7.

1.
2.
3.
4.
5.

6.

Control Schedule
Inputs
Project management plan
Project schedule
Work performance data
Project calendars
Schedule data
Organizational Process
Assets
Tools and Techniques
Performance reviews
Project management
software
Resources optimization
techniques
Modeling techniques
Lead and lag
Schedule compression
Scheduling tools
Outputs
Work performance
information
Schedule forecasts
Change request
Project management plan
updates
Project document updates
Organizational Process
Assets

Project Cost Management Overview

1.

1.
2.
3.
4.

1.
2.
3.

1.

4.

Plan Cost Management

Inputs
Project management plan
Project charter
Enterprise Environmental factors
Organizational Process Assets
Tools and Techniques
Expert judgment
Analytical techniques
Meetings
Outputs
cost management plan

Control Cost

1.
2.
3.
4.

1.
2.
3.
4.
5.
6.

1.
2.
3.
4.
5.
6.

Inputs
project management plan
Project funding requirements
Work performance data
Organizational Process Assets
Tools and Techniques
Earned value management
Forecasting
To complete performance index
(TCPI)
Performance reviews
Project management software
Reserve analysis
Outputs
Work performance information
Cost forecasts
Change requests
Project management plan updates
Project documents updates
Organizational Process Assets
updates

2.

Estimate Cost
Inputs
Project management plan
Human resource
management plan
3. Scope baseline
4. Project schedule
5. Risk register
6. Enterprise
Environmental factors
7. Organizational Process
Assets
Tools and Techniques
1. Expert judgment
2. Analogous estimating
3. Parametric estimating
4. Bottom-up estimating
5. Three-point estimating
6. Reserve analysis
7. Cost of quality
8. Project management
software
9. Vendor bid analysis
10. Group decision making
techniques
Outputs
1. Activity cost estimate
2. Basis of estimates
3. Project documents
updates

1.
2.

3.

1.
2.
3.
4.
5.
6.
7.
8.
9.

1.
2.
3.
4.
5.

1.
2.
3.

Determine Budget
Inputs
Cost management plan
Scope baseline
Activity cost estimates
Basis of estimates
Project schedule
Resources calendars
Risk register
Agreements
Organizational Process
Assets
Tools and Techniques
Cost aggregation
Reserve analysis
Expert judgment
Historical relationship
Funding limit
reconciliation
Outputs
Cost baseline
Project funding
requirements
Project documents
updates

Project Quality Management Overview

1.

Plan Quality Management

1.
2.
3.
4.
5.
6.

1.
2.
3.
4.
5.
6.
7.

Inputs
Project management plan
Stakeholder register
Risk register
Requirements
documentation
Enterprise Environmental
factors
Organizational Process
Assets

8.

Tools and Techniques

Cost benefit analysis
Cost of quality
Seven basic quality tools
Bench marking
Design of experiments
Statistical sampling
Additional quality planning
tools
Meetings

1.
2.
3.
4.
5.

Outputs
Quality management plan
Process improvement plan
Quality metrics
Quality cheek lists
Project documents updates

2.

Perform Quality Assurance

Inputs
1. Quality management plan
2. Process improvement plan
3. Quality metrics
4. Quality control
measurements
5. Project documents

1.
2.
3.

1.
2.
3.
4.

Tools and Techniques

Quality management and
control tools
Quality audits
Process analysis
Outputs
Change request
Project management plan
updates
Project documents updates
Organizational process
assets updates

3. Quality Control:

1.
2.
3.
4.
5.
6.
7.
8.

Inputs
Project management plan
Quality metrics
Quality checklists
Work performance data
Approved change requests
Deliverables
Project documents
Organizational process
assets

1.
2.
3.
4.

Tools and Techniques

Seven basic quality tools
Statistical sampling
Inspection
Approved change
requests review

1.

Outputs
Quality control
measurements
Validated changes
Verified deliverables
Work performance
information
Change requests
Project management plan
updates
Project documents updates
Organizational process
assets updates

2.
3.
4.
5.
6.
7.
8.

Project Human Resource Management Overview

1. Plan Human Resources Management
Inputs
1. Project management plan
2. Activity resource requirements
3. Enterprise Environmental factors
4. Organizational Process Assets
Tools and Techniques
1. Organization charts and position
descriptions
2. Networking
3. Organizational theory
4. Expert judgement
5. Meetings
Outputs
1. Human resource management plan

2.

1.
2.
3.

1.
2.
3.
4.
5.

1.
2.
3.

4.

1.
2.
3.
4.
5.
6.

1.
2.
3.
4.

1.
2.
3.
4.
5.

Manage Project Team

Inputs
Human Resource management
plan
Project staff assignments
Team performance assessments
Issue log
Work performance reports
Organizational process assets
Tools and Techniques
Observation and conversation
Project performance appraisals
Conflict management
Interpersonal skills
Outputs
Change request
Project management plan updates
Project documents updates
Enterprise environmental factors
updates
Organizational process assets
updates

Acquire Project Team

Inputs
Human Resource
management plan
Enterprise
Environmental factors
Organizational Process
Assets
Tools and Techniques
Pre-assignment
Negotiation
Acquisition
Virtual teams
Multi-criteria decision
analysis
Outputs
Project staff
assignments
Resource calendars
Project management
plan updates

4.

Develop Project Team

1.

Inputs
Human Resource
management plan
Project staff assignments
Resource calendars
Tools and Techniques
Interpersonal skills
Training
Team building activities
Ground rules
Colocation
Recognition and rewards
Personnel assessment
tools
Outputs
Team performance
assessments
Enterprise
environmental factors
updates

2.
3.

1.
2.
3.
4.
5.
6.
7.

1.
2.

Project Communication Management Overview

1. Plan Communication
Management

2. Manage Communication
Management

3. Control Communication
Management

Inputs
1. Project management plan
2. Stakeholder register
3. Enterprise Environmental
factors
4. Organizational Process Assets

1.

1.
2.
3.
4.
5.

1.

Tools and Techniques

1. Communication requirements
analysis
2. Communication technology
3. Communication models
4. Communication methods
5. Meetings
Outputs
1. Communication management
plan
2. Project documents updates

2.
3.
4.

1.
2.
3.
4.
5.

1.
2.
3.
4.

Inputs
Communication management
plan
Work performance reports
Enterprise Environmental
factors
Organizational Process Assets
Tools and Techniques
Communication technology
Communication models
Communication methods
Information management system
Performance reporting
Outputs
Project communications
Project management plan
updates
Project documents updates
Organizational Process Assets
updates

2.
3.

1.
2.
3.
4.
5.

Inputs
Project management plan
Project communications
Issue log
Work performance data
Organizational process assets
Tools and Techniques
Information management
system
Expert judgement
meetings
Outputs
Work performance
information
Change requests
Project management plan
updates
Project document updates
Organizational Process Assets
updates

Project Risk Management Overview

1.

Plan Risk Management

Inputs
1. Project management plan
2. Project charter
3. stakeholder register
4. Enterprise Environmental
factors
5. Organizational Process
Assets

2.

Identify Risks
Inputs
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.

Tools and Techniques

1. Analytical techniques
2. Expert judgement
3. Meetings
Outputs
1. Risk management plan

13.

3.

Risk management plan

Cost management plan
Schedule management plan
Quality management plan
Human resource management
plan
Scope baseline
Activity cost estimates
Activity duration estimates
Stake holder register
Project document
Procurement document
Enterprise Environmental
factors
Organizational Process Assets

Perform Qualitative Risk

Analysis
Inputs
1.
2.
3.
4.
5.

Tools and Techniques

1.

4.
5.
6.

Risk probability and

impact assessment
Probability and impact
matrix
Risk data quality
assessment
Risk urgency assessment
Risk categorization
Expert judgement

Outputs

1.

Project document updates

2.
3.

1.
2.
3.
4.
5.
6.
7.

4.

1.
2.
3.
4.
5.
6.

Perform Quantitative risk

analysis
Inputs
Risk management plan
Cost management plan
Schedule management plan
Risk register
Enterprise environmental
factors
Organizational process
assets
Tools and Techniques

5.

Outputs
1. Risk register
Plan Risk Responses

1.
2.

Inputs
Risk management plan
Risk register

Tools and Techniques

1.

4.

Strategies for negative risks

or threats
Strategies for positive risks or
opportunities
Contingent response
strategies
Expert judgement

Outputs

1.

Project management plan

updates
Project document updates

2.
3.

1.
2.
3.

Data gathering and

representation techniques
Quantitative risk analysis
and modeling techniques
Expert judgement
Outputs

2.
1.

Project document updates

Tools and Techniques

Documentation review
Information gathering
techniques
Checklist analysis
Assumptions analysis
Diagraming techniques
SWOT analysis
Expert judgement

6.

Risk management plan

Scope baseline
Risk register
Enterprise environmental
factors
Organizational process
assets

Control Risks
Inputs
1. Project management plan
2. Risk register
3. Work performance data
4. Work performance
reports
Tools and Techniques
1. Risk assessment
2. Risk audits
3. Variance and trend
analysis
4. Technical performance
measurements
5. Reserve analysis
6. Meetings
Outputs
1. Work performance
information
2. Change requests
3. Project management plan
updates
4. Project document updates
5. Organizational Process
Assets updates

Project Procurement Management Overview

1.

Plan Procurement
Management
Inputs
1. Project management plan
2. Requirement
documentation
3. Risk register
4. Activity resource
requirements
5. Project schedule
6. Activity cost estimates
7. Stakeholder register
8. Enterprise
Environmental factors
9. Organizational Process
Assets
Tools and Techniques
1. Make or buy analysis
2. Expert judgement
3. Market research
4. Meetings
Outputs
1. Procurement
management plan
2. Procurement statement of
work
3. Procurements documents
4. Source selection criteria
5. Make or buy decision
6. Change requests
7. Project documents
updates
4. Close Procurements
Inputs
1. Project management
plan
2. Procurement
documents
Tools and Techniques
1. Procurement audits
2. Procurement
negotiation
3. Record management
system
Outputs
1. Closed procurement
2. Organizational process
assets updates

2.

Conduct Procurement
Inputs
1. Procurement management
plan
2. Procurement documents
3. Source selection criteria
4. Seller proposal
5. Project documents
6. Make or buy decision
7. Procurement statement of
work
8. Organizational Process Assets
Tools and Techniques
1.
Bidder conference
2.
Proposal evaluation
techniques
3.
Independent estimates
4.
Expert judgement
5.
Advertising
6.
Analytical techniques
7.
Procurement negotiations
Outputs
1. Selected seller
2. Agreements
3. Resource calendar
4. Change requests
5. Project management plan
updates
6. Project documents updates

3.

1.
2.
3.
4.
5.
6.

1.

Control Procurements
Inputs
Project management plan
Procurement documents
Approved change requests
Agreement
Work performance reports
Work performance data
Tools and Techniques
Contract change control
system
2. Procurement performance
reviews
3. Inspection and audits
4. Performance reporting
5. Payment systems
6. Claim administration
7. Record management system
Outputs
1. Work performance
information
2. Change requests
3. Project management plan
updates
4. Project documents updates
5. Organizational process
assets updates

Project Stakeholder Management Overview

1.

4.

Identify Stakeholders
Inputs
1. Project charter
2. Procurement documents
3. Enterprise
Environmental factors
4. Organizational Process
Assets
Tools and Techniques
1. Stake holders analysis
2. Expert judgement
3. Meetings
Outputs
1. Stake holder register

Control Stake holders

Engagement
Inputs
1. Project management plan
2. Issue log
3. Work performance data
4. Project documents
Tools and Techniques
1. Information management
system
2. Expert judgement
3. Meetings
Outputs
1. Work performance
information
2. Change requests
3. Project management plan
updates
4. Project document updates
5. Organizational process
assets updates

2.

Plan Stakeholders
Management
Inputs
1. Project management plan
2. Stake holder register
3. Enterprise Environmental
factors
4. Organizational Process
Assets
Tools and Techniques
1. Expert judgement
2. Meetings
3. Analytical techniques
Outputs
1. Stakeholder management
plan
2. Project documents updates

3.

Manage stakeholders
Engagement
Inputs
1. Stakeholder management
plan
2. Communication
management plan
3. Change log
4. Organizational process
assets
Tools and Techniques
1. Communication methods
2. Interpersonal skills
3. Management skills
Outputs
1. Issue log
2. Change requests
3. Project management plan
updates
4. Project documents updates
5. Organizational process
assets updates

Formulas Table for PMP

Abbreviation

Name

Equation

PV

Planned value

(Planned % Complete) BAC

EV
AC
BAC
CV

Earned Value
Actual cost
Budget at completion
Cost Variance

% of completed work BAC

SV

Schedule Variance

SV= EV-PV

VAC

Variance at Completion

VAC= BAC-EAC

CPI

Cost Performance Index

CPI= EV/AC

SPI

Schedule Performance
Index

SPI= EV/PV

EAC

Estimate at Completion

CV= EV-AC

1.
2.
3.
4.

ETC

Estimate to
Complete(Original
estimates are flawed)
ETC (When variance are
typical)

1.

Interpretation of results

Positive= under planned cost

Neutral= on planned cost
Negative= over planned cost
Positive= ahead of schedule
Neutral= on schedule
Negative= Behind schedule
Positive= under planned cost
Neutral= on planned cost
Negative= over planned cost
>1.0= under planned cost
Exactly 1.0= on planned cost
<1.0= over planned cost
>1.0= ahead of schedule
Exactly 1.0= on schedule
<1.0= behind schedule

EAC= BAC/CPI
EAC= AC+BAC-EV
EAC= AC+ Bottom up
ETC
EAC= AC+[(BACEV)/(CPISPI)]
ETC= EAC-AC
ETC= Re-estimate

2.

ETC= (BAC-EV)/CPI

3.

ETC=BAC-EV

ETC (When variances are

atypical

Typical: No variance and no

variance will occur in future.
Or Some variance has
occurred and it expects to
continue in future.
Atypical: Variance has
occurred but will not occur in
future. Or Some variance has
occurred and is not occur in
future.

TCPI

N Channels

To Complete Performance 1.
Index
(Based on BAC)

TCPI= (BAC-EV/(BACAC)

>1.0= harder to complete

Exactly 1.0= same to
complete
<1.0= easier to complete

Based on EAC

TCPI= (BAC-EV)/(EACAC)

>1.0= harder to complete

Exactly 1.0= same to
complete
<1.0= easier to complete

ROI

Numbers of
communication Channels
Return on Investment

PV

Present Value

NPV

Net Present Value

2.

N(N-1)/2
ROI= Net
profit/investment x100
PV= FV/(1+r)n
FV= Future Value
r= interest rate
n= number of time period
NPV= PV0+PV1+PV2+PV-

The higher the better

IRR

Internal Rate of Return

BCR

The Benefit Cost Ratio

PP
LCC
ROM

The pay-back period

The life cycle cost
Rough Order of
Magnitude Estimate
Budget Estimate
Definite Estimate
EV or PERT
1. (Triangular
(Expected Value
Distribution)
or Performance
Evaluation
2. (Beta Distribution)
Review
Technique)

BSDT

Beta Standard Deviation

of a Task

PTA

Point of total assumption

CF0 + CF1 /(1+r)1 + CF2

/(1+r)2 +CF3 /(1+r)3 + CFn
/(1+r)n = 0
CF is Cash flow generated in
the specific period, n is the
last period and r is IRR.
Project A has a BCR of 5:2
Project B has a BCR of 5:4
Project C has a BCR of 3:1
Project D has a BCR of 2:1

-25 to +75 percent

-10 to +25 percent
-/+10 or -5 to +10 percent
(O+M+P)/3 (Average)

(O+4M+P)/6 (PERT or weighted)

O= Optimistic Estimate
M= Most Likely Estimate
P= Pessimistic Estimate
(P-O)/6
P= Pessimistic
O= Optimistic
(Ceiling price-target
price/buyers share ratio)+
target cost

The higher the better

The higher the better (C )

5/2 = 2.5, 5/4 = 1.25, 3/1 = 3,
2/1= 2
The lower the better
The lower the better
Calculates during initiating
Calculates during planning

Profit = Revenue Costs

Profit Margin = Profit / Revenue
ROI: ROI= Net profit/investment x100
Cash flow refers to the movement of cash into or out of the project
Reserves are dollars included in a cost estimate to mitigate cost risk by allowing for future
situations that are difficult to predict
PV= Present Value: The value in todays dollars of a future cash flow.
Net present value: The total present value (PV) of a time series of cash flows. It is a standard
method for using the time value of money to appraise long-term projects
Internal Rate of Return: Interest rate received for an investment consisting of payments and
income that occur at regular periods
Opportunity Cost: The cost given up by selecting one project over another.
Payback Period: The time it takes to recover your investment in the project before you start
accumulating profit.
Planned Value (PV): Scheduled cost of work planned in a given time. This term is also known
as Budgeted Cost of Work Scheduled (BCWS) = (Planned % Complete) X (BAC)
Earned Value (EV): The Amount of money earned from completed work in a given time. This
term is also known as Budgeted Cost of Work Performed (BCWP).
Earned Value = % of completed work X BAC
Actual Cost (AC): Actual amount of money spent to date. This term is also known as Actual
Cost of Work Performed (ACWP).