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Project Management

3.  The Project Planning

a.  Project Plan Techniques a.  Time planning b.  Resource planning c.  Economic planning

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Resource Planning •  Up to now we have been planning without any doubt about

the resource availability. That means we have planned with an unlimited capacity.

•  Yet, resources are never limitless, that is why we have to create a logical connecIon between acIvity execuIon and resources allocated for it. This means working with a limited capacity.

•  We will see how to integrate Ime planning with resource planning, how to define resource availability, how to balance resource allocaIon, how to react when resources are not enough.

•  Resources are not only HR, but also machinery, ICT, structures, etc.

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Resource Planning •  Unit of measurement – once we have allocated resources, the

first problem we have is how to measure their use. We need to choose the unit of measurement. How we will allocate costs depends on this choice. Typical units are:

–  Hours/man, days/man –  Hours machinery –  Design hours –  ICT or Data Processing hours –  ….

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Resource Planning •  CreaIng an integraIon between .me and resources is a

criIcal operaIon. In order to understand which of the two variables is prevailing, we need to understand in what planning situaIon we are working in.

–  Time Limited situa.on – the project must be completed within a defined Ime and cannot be delayed. The criIcal variable is TIME. Every over allocaIon must be saIsfied by adding resources. Es: projects with delay fees.

–  Resource Limited situa.on – the project must be completed in the shortest Ime possible, but we have a limited number of resources and we cannot increase it. The criIcal variable is RESOURCES. Every over allocaIon will not be solved adding resources, but adding Ime (which means a delay).

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Resource Planning

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Resource Planning •  Once we have esImated the resource quanIty we

need to complete the task within the requested Ime, we need to evaluate the total resource investment (resource charge).

•  InformaIon we need to evaluate resources charges are: –  Resource descrip,on – –  Resource use quan,ty– tell how the resource’s Ime is

employed, i.e. what is forecasted from the resource calendar

–  Resource use dura,on – how long a resource is busy in a specific task for.

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Resource Planning •  Recall the example:

•  The unit of measurement is the standard working day, 8 hours. All the resources are on duty at 100%. No lead Ime.

Code Description Duration Att. Prec. Resource Quantity (h) Duty (days)1 Start 0 - -2 A 7 1 Riffoni 8 73 B 5 2 Cerami 8 54 C 2 1 Massi 8 25 D 17 4 Massi 8 176 E 12 2,4 Cerami 8 127 End 0 3,5,6 FS

S A

C

B

E

D

F

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Resource Planning

•  Recall the example: S A

C

B

E

D

F

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Resource Planning •  Riffoni Charge Diagram will be:

•  Riffoni is allocated 8 hours a day for the first 7 project days.

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Resource Planning •  Cerami Load Diagram is:

•  Cerami is over charged for a 200% of his availability..

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Resource Planning •  In this case Mr Cerami sums up the work on the acIvity B and

E. B and E are parallel for a part of their duraIon. •  If we consider Massi, we have no overload because the two

acIviIes he is involved in have no overlap.

•  Mr Cerami cannot work for 16 hours a day for 5 days, so we have a problem. What can we do to allow the project to proceed?

•  This kind of problem is solved through resource levelling techniques.

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Resource Planning RESOURCE LEVELLING TECHNIQUES

•  When we allocate resources we have to consider possible constraints in the resource uIlizaIon.

•  Once a resource is charged, we can have two cases:

–  Resource overload – requested resources are more than we have. This situaIon needs to be fixed otherwise we will surely have a delay.

–  Resource underload – requested resources are less than we have. In this case we could have a resource under use that increases costs.

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Resource Planning RESOURCE LEVELLING TECHNIQUES •  The LEVELLING TECHNIQUE consists in moving one or more acIviIes

through the Imeline in order to keep the resource Load Diagram under the 100% level.

•  Op.miza.on – we can level resources with algorithms from the OperaIonal Research, in this way ,we will have the best mathemaIcal soluIon by opImizing all the declared targeted variables (ex.: less use of expensive resources, the shortest project Ime, best sequence of criIcal acIviIes…)

•  Heuris.c– this method consists in re-‐allocaIng acIviIes through the Imeline in order not to have the resource 100% busy. It has not the mathemaIcal rigorousness but it is the most adopted.

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•  StarIng from the plan, we analyze every resource verifying the charge level.

•  When we find an overloaded resource, the heurisIc model verifies the acIviIes in that period and moves the acIvity where the specific resource is involved in, unIl we get to a situaIon where resources are not overloaded any more. We can follow defined prioriIes.

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•  Mr Cerami was overloaded having to work 16 hours/day for 5 days. Try to level the resource!

•  Mr Cerami is involved in two acIviIes: B and E: First I define which is the priority task and then I chose what acIvity is moving first;

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•  If we assume that the acIvity B takes priority over E, we can then move E 5 days forward and we’ll have levelled the load on Cerami calendar.

•  Yet, the project will delay and end on day 24! •  The criIcal paths is modified too: in fact acIviIes C and D

gain scrolling Ime!

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•  If we check the Cerami Load Diagram, we will see that is levelled, non overloaded!

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•  If we define that E takes the priority, we’ll try to move B:

•  The project will finish on day 24 and A and B will be criIcal acIviIes.

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Resource Planning RESOURCE LEVELLING TECHNIQUES •  If more than one resource is overloaded, in case of manual levelling, we

need to define a levelling order and then level one resource at the Ime.

•  Criteria to order: –  First, the shortest acIviIes –  First, acIviIes with minor impact on the project duraIon –  First, acIviIes with minor end date –  First, acIviIes that use the same resource –  First, acIviIes with the highest resource requirement –  First, acIviIes with minor scrolling Ime –  First, acIviIes with the highest criIcal acIviIes –  First, acIviIes with the highest number of acIviIes following –  First, acIviIes with the highest maximum end date

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•  The choice between two different levelling methods can lead to different outcomes in terms of project lengthening or increase/decrease of criIcal acIviIes.

•  In pracIce, we can noIce that in case of projects with a significant number of acIviIes it is not possible to esImate all conflicts manually.

•  You then have to use a special somware with a scheduling tool that automaIcally performs the levelling once the work parameters have been set.

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•  A secondary target of levelling techniques is to regularize the resource use within the project

•  In fact, the best project situaIon is to have regularity in the resource load. Irregular loads requires highest management effort

•  Pay anenIon! Very omen we don’t need the levelling phase in case of Ime limited overloaded situaIons. In these cases before levelling (and causing a possible delay), we can take the following acIons:

•  Over,me, •  Resources increase, •  Outsourcing

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•  OverIme –  We modify the resouce calendar (we define a resource calendar instead of a

project calendar)

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•  Adding more resources –  In this case the variable becomes the number of resources I can

allocate on the task. By doubling resources, Cerami goes back to a normal load.

ID Nome risorsa Tipo Iniziali Unità max Tariffa std. Tariffa str. Costo/Uso Attribuiti Calendario di base Codice1 Riffoni Lavoro R 1 € 0,00/h € 0,00/h € 0,00 In quote Standard2 Cerami Lavoro C 2 € 0,00/h € 0,00/h € 0,00 In quote Standard3 Massi Lavoro M 1 € 0,00/h € 0,00/h € 0,00 In quote Standard

•  Outsourcing –  The task is allocated to an external resource.

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Project Management

3.  The Project Planning

a.  Project Plan Techniques a.  Time planning b.  Resource planning c.  Economic planning

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Economic Planning •  When we plan a project, every single choice on resource

allocaIon concerning HR, instrumental or economic resources has a direct impact on project costs.

•  Therefore, it is necessary to define an economical/financial plan together with the Ime and resource plan. This is called Project Budget.

•  In the Project Budget we can find all the forecasted costs necessary to perform each acIvity and the performance measures

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Economic Planning •  The project economic evaluaIon can be read through two

different criteria:

–  Effec.veness/Efficiency – the ability to achieve project targets (effecIveness) in economic balanced condiIons and with less resource consumpIon as possible (efficiency). EffecIveness and efficiency are defined in costs, ,me and quality.

–  Project target – that is the target, the result, it defines the success or failure of an entrepreneur, an idea, in terms of compeIIon, market success, economics. If refers to ROI criteria.

•  We will mainly consider the cost measurement (Efficiency/EffecIveness).

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Economic Planning •  However, evaluaIng the project costs, i.e. the economical/

financial requirements of a project, is very hard: –  Projects are a whole of complex and non-‐repeIIve acIviIes, with a

great amount of logical and Ime connecIons; –  Projects duraIon goes from medium to long; –  Projects have non-‐repeIIve outputs.

•  Those features make the correlaIon between targets and results very hard to anIcipate. RepeIIve processes are referred to standard processes (predicIve), but projects are very different.

•  So we need to analyze projects WHILE they are happening, with a low arranged output standardizaIon.

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Economic Planning

•  This means that TIME variable is taken into consideraIon within all economical comparisons :

–  During the forecast phase – through Budget Review techniques, economical simulaIons,…

–  During the final closing phase – through a combined evaluaIon of costs and acIvity progress performance -‐ Earned Value technique.

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Economic Planning BUDGET REVIEW •  Projects acIviIes have non linear intensity throughout the Ime so the

economic consumpIon is not linear either. We need to plan in advance WHEN we will have costs. 1.  Analysis of forecasted costs for each acIvity 2.  DefiniIon for each acIvity of the medium cost for Ime unit Cost Slope = ac=vity cost / ac=vity dura=on 3.  We will define a period and we will evaluate, for each period, the costs we

forecast to have. By this easy way, we can build a sheet called Project Cost Schedule. Through the Project Cost Schedule, we can build the Gann Cost Schedule.

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Economic Planning BUDGET REVIEW

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Economic Planning BUDGET REVIEW

We assume a period of 3 weeks

Activity Cost Duration Cost slopeeur week eur/week

Facility flow definition 3000 2 1.500 Volumes definition 1600 2 800 Layout 6000 2 3.000 Preliminary design 22000 4 5.500 Price list 20000 3 6.667 Contracts 8000 2 4.000 Executive design 18000 5 3.600 Area research 5000 2 2.500

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Economic Planning BUDGET REVIEW– Project Cost Schedule

Slot Activity Duration Cost slope TOTALweek eur/week eur/period

1-3 Fac flow def 2 1.500 3.000 Volumes def 1 800 800

3.800 4-6 Volume def 1 800 800

Layout 2 3.000 6.000 6.800

7-9 Preliminary design 3 5.500 16.500 16.500

10-12 Preliminary design 1 5.500 5.500 Price list 2 6.667 13.334

18.834 13-15 Price list 1 6.667 6.667

Contracts 2 4.000 8.000 14.667

16-18 Executive design 3 3.600 10.800 10.800

19-21 Executive design 2 3.600 7.200 Area research 1 2.500 2.500

9.700 22-24 Area research 1 2.500 2.500

2.500 TOTAL PROJECT COST 83.601

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Economic Planning BUDGET REVIEW– Gan? Cost Schedule

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Economic Planning BUDGET REVIEW – Bar Chart Cost Schedule

4.  Then we build the Bar Chart Cost Schedule, where we will see the financial commitment for each period.

5.  Through the Gann analysis we can define acIviIes with a big cost slope that may be reallocated to have a bener cost distribuIon (even respecIng targets).

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

1-3 4-6 7-9 10-12 13-15 16-18 19-21 22-24

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Economic Planning ECONOMICAL ADVANTAGE EVALUATION – Cost slope vs Crash ,ming

•  A project may require extra ac.vi.es to accelerate Ime and reach results early (like overIme, adding resources, fast supplies).

•  Very omen those acIviIes increase project costs •  We have then to define if we have an advantage between

normal project Ime (normal Iming) or accelerated Ime (crash Iming)

•  In this way even the project Ime reducIon will be evaluated in terms of economical advantage

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Economic Planning ECONOMICAL ADVANTAGE EVALUATION – Cost slope vs Crash ,ming •  If we consider just one acIvity, the correlaIon between cost increase and

Ime reducIon is expressed by a new cost slope:

Cost slope = (crash cost – normal cost) / (normal =ming – crash =ming)

•  We have to consider that: –  The duraIon decrease is possible by operaIng only on the acIviIes on the

criIcal path (otherwise we will have only cost increase and no benefit) –  Not always Ime reducIon allows more cost savings –  Very omen indirect costs (overheads) are allocated according to the project

duraIon, so if we reduce its duraIon, we will have an overhead cost reducIon!

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Economic Planning

Cost slope = (crash cost – normal cost) / (normal =ming – crash =ming) = (10.000-‐6.000) / 8-‐6 = 2.000

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Economic Planning ECONOMICAL ADVANTAGE EVALUATION – Cost slope vs Crash ,ming •  We need to find a balance between cost saving given by Ime reducIon

and cost increase due to crash acIviIes •  In this way, we will have advantages if we start cuKng =me from

ac=vi=es with the lowest cost slope which are part of the cri.cal path •  However, we must be careful because the overhead cost reducIon has a

linear trend, but the direct cost increase is more than linear because we decided to start first from the lowest cost slope acIvity. We will get to a balance point beyond which overhead cost reduc=on doesn’t compensate direct cost increase any more.

•  If we define a daily cost coefficient of the project overhead, we can say that the total project cost starts to decrease when we reduce ac.vi.es having cost slope lower than the unitary overhead cost coefficient, and they increase when the cost slope is higher.

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Economic Planning ECONOMICAL ADVANTAGE EVALUATION – Cost slope vs Crash ,ming Example

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Economic Planning If we haven’t a budget big enough, or if the advantage connected to the crash Ime is not enough to jusIfy the cost increase, it is clever looking for crash values only for some criIcal acIviIes with a linle cost slope. We can think a series of acIons with a decreasing marginal improvement connected to a Ime reducing. We can define the stop point related to our budget possibility. For example: our available budget is 4.000€.

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Economic Planning If we add to the model also the indirect costs, we can see that the two trends (decrease of indirect costs and increase of direct costs) can cross in a point. In parIcular, the total project cost will decrease when each cost slope related to direct costs will have a value smaller than the unit coefficient of the indirect costs. The total project cost will increase when the costs slope will be bigger than the unit coefficient of the indirect costs. This means that beyond some values reducing Ime is too expensive!

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Economic Planning EARNED VALUE •  When we evaluate a project under an economical point of view, we

cannot ignore the .me variable.

•  Earned Value expresses the project progress by measuring the value of the completed project part.

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Economic Planning EARNED VALUE First, we need to define the following values:

–  Scheduled costs of planned ac,vi,es BCWS (Budget Cost of Work Scheduled) –  Scheduled costs of completed ac,vi,es BCWP (Budget Cost of Work

Performed) –  Real cost of completed ac,vi,es ACWP (Actual Cost of Work Performed)

•  The project progress state (earned value) is the BCWP, that is the economical evaluaIon of performed work, expressed with the same criteria used in the budget

Earned Value = BCWP = budget cost of completed acIviIes

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Economic Planning EARNED VALUE We can calculate :

–  Cost variance Cost variance = BCWP – ACWP –  Cost Performance Index CPI = BCWP / ACWP –  Schedule variance Schedule variance = BCWP – BCWS –  Schedule Performance Index SPI = BCWP / BCWS

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Economic Planning EARNED VALUE – Graphic meaning The BCWS curve shows scheduled Ime/costs; the BCWP represents actual Ime/costs with

budgeted costs, the ACWP represents actual Ime/costs with actual costs

Costs

Time

A B

BCWS

ACWP

BCWP

SV schedule variance

CV cost variance

Delay

Cost level reached at that date based on the work really performed

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Economic Planning EARNED VALUE – Matrix SPI/CPI •  Within the performance evaluaIon, the correlaIon CPI/SPI analysis allow us to

understand the state of the project under a cost/Ime profile

UNCERTAIN PERFORMANCE

NEGATIVE PERFORMANCE UNCERTAIN PERFORMANCE

POSITIVE PERFORMANCE

SPI

CPI

1

1

+

-‐

+ -‐

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Economic Planning EARNED VALUE The Earned value technique requires cost esImate of acIviIes

completed at a specific date. •  The main methods to measure Earned Value are:

–  Milestone – each milestone is correlated with a budget value; making a raIo with the total budget, we can evaluate the completed work;

–  Formula – we can define fixed score to evaluate acIvity compleIon (example: we have an acIvity split into two periods. We consider 0 score when the acIvity hasn’t started yet; 50/100 when it has started and 100/100 at the end)

–  Percentage of compleIon – we set a percentage that represents the acIvity compleIon;

–  Mixed – compleIon percentage with milestone.

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Economic Planning EARNED VALUE The Earned Value can get forecasIng informaIon concerning the future project

trend: that is the total esImated cost at project compleIon EAC (Es.mated Costs at Comple.on).

•  Among various methods we have the Cumula.ve CPI Es.mate at Comple.on. This method says that total costs are es,mated on the basis of actual costs plus budgeted costs at comple,on, adjusted to consider the performance level shown up to that date. (compounded CPI)

EAC = (total bgt – earned value) / CPI (cumula=ve) + Real effec=ve costs (actual costs) EAC = (total bgt – BCWP)/CPI + ACWP

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Economic Planning EARNED VALUE -‐ example The Earned value, BCWP, at a defined date could be calculated by: 1.  We sum all the budget cost of completed acIviIes at the date 2.  For WIP acIviIes, we molIply the budget cost for the compleIIon

percentage for each acIvity 3.  We sum values from point 1 and 2.

4.  We compare the BCWP and BCWS and ACWP

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