Project Management Fundamentals

Introduction to Project Management

• Investment, rather than budget, should be the focus
• Investment implies a return
• A budget hints at not making a return
• Pitching with capital should aim to run the business

Overview of Project Management

• A project constitutes a temporary effort to deliver a unique product, service, or result
• Trade-offs between scope, quality, costs, and schedule are unavoidable
• Project importance includes ensuring the project results meet requirements, and a more controlled and systematic implementation

Project Fundamentals

• Projects have a start and end date
• Projects should have a scope to accomplish something
• Projects have financial/non-financial benefits which meet expectations

Components of a Project Plan

• A project plan outlines the work needed to provide a product, service, or result with specific features and functions
• Key elements outlined in project plans include project team structure, roles, deliverables, work breakdown structure, implementation timeline with acceptance criteria, estimated project costs and benefits, resource estimates, quality management approach, and risk management plan

Scheduling a Project: Developing an Implementation Timeline - Defining Activities

• Project scope should be established first by detailed description of projects and aims
• Scope sets the project's boundaries
• Scope management prevents scope creep, which requires aligning benefits with a clearly defined scope

Project Steps

• List deliverables, and acceptance criteria
• Establish project boundaries including exclusions, constraints, and assumptions
• Integrate these boundaries into a project scope statement

Work Breakdown Structure (WBS)

• Project scope statements can be broad
• Work Breakdown Structure helps teams divide large deliverables into smaller, manageable pieces
• Follow steps to build a WBS, you must take major deliverables, divide into smaller, and more granular deliverables until you reach the correct degree of detail and then review

Activity Sequencing

• Activity sequencing involves determining dependencies between activities
• Mandatory dependencies are inherent, like not opening a food outlet before sorting supplies
• Discretionary dependencies are team-defined, such as finding distributors before starting an arts center
• External dependencies relate to external entities, such as securing funding to start a project
• Once dependencies are identified, create a Project Network Diagram to display the logical activity sequence

Activity Duration Estimating

• Activity duration can be estimated using past experience, expert opinion, or mathematical derivation
• The formula to find activity duration is TE= (a+4m+b)/6
• Estimates should be logical

Scheduling Activities

• Critical Path Analysis (CPA) helps prevent schedule overruns
• Critical path is the longest path, with the least slack on the network diagram
• Use activities, duration, and early/late start dates to create a Gantt Chart

Slack (float)

• Activities should be identified to make trade offs, using various types of slack
• Free slack is how long an activity can be delayed without affecting the early start of the next activity
• Total slack is how long an activity can be delayed without delaying the project end date

Costing a Project: Creating a Project Budget

• Successful projects stay within budget
• Principles of reasonable budget include avoiding low or excessive costs

Cost Estimations

• Cost estimates draw on labour, materials, subcontractors, equipment, facilities, and travel
• Direct costs are clearly linked to aspects that generate a cost
• Indirect costs, which cover overhead and administration
• Overhead includes indirect materials, utilities, taxes, insurance, property/repairs, depreciation, and benefits
• Selling and general administration includes advertising, shipping, salaries, and secretarial support

Recurring vs Non-Recurring costs

• Recurring expenses happen regularly over a project's lifecycle
• Nonrecurring costs are one-time at the beginning/end of the project

Fixed vs Variable Costs

• Fixed costs are consistent regardless of usage
• Variable costs increase with usage

Normal vs Expedited Costs

• Normal costs cover planned activities
• Expedited costs are unplanned actions that speed up a project

Cost Estimation Methods

• Ballpark estimates (accuracy +- 30%) are used when time or data are lacking
• Comparative estimates (accuracy +- 15%) use historical data; parametric estimation adjusts for inflation/cost increases
• Feasibility estimates (accuracy +- 10%) use supplier/subcontractor quotes after preliminary design
• Definitive estimates (accuracy +- 5%) are finalized after project design and major purchase orders are completed

Challenges in Cost Estimation

• Low Initial Estimates: a failure to grasp the project's scope
• Unexpected Technical Difficulties: assuming minimal technical problems can affect cost
• Lack of Definition: poor definition can be averted with a clear project scope
• Specification Changes: revisions to deliverables affecting cost
• External Factors: such as inflation, that are outside your control

Methods for Creating a Project Budget

• The budget is a plan that identifies/costs resources and activities to achieve goals
• Creating a budget requires top-down, bottom-up, and Activity Based Costing

Top-Down Budgeting

• Top management provides initial estimates from past experience
• Top-management passes the estimates down the hierarchy
• Although this method is fairly accurate, it can create friction between different functional departments

Bottom-Up Budgeting

• The project team initiates costing for all tasks using activity-based costing
• Business departments use estimates to create budgets
• Top management merges department budgets and eliminates overlaps
• This method encourages coordination but top management may not approve the costs

Activity-Based Costing

• Identify activities using resources, and cost drivers
• Find cost rate per unit, then multiply by volume of cost driver units

Budget Contingencies for Risk Management

• Budget contingencies allocate funds for uncertainties to improve finishing time, this is due to changing projects scopes, Murphy's Law, and unanticipated interaction costs

Demonstrating a Business Case: Net Present Value (NPV) Analysis

• Net Present Value projects a firm's value change if a project is actioned
• Positive NPV increases value
• Higher NPV indicates a attractive solution
• NPV analyzes discounted cash flow (accounts for inflation) to determine present value

Net Present Value Formula (NPV)

• NPV is expressed with the equation as NPV = I + Σ (F / (1+r+p)^t
• F = net cash flow for period t, r = required rate of return, I = initial cash investment
• p = inflation rate during period t