CU-MBA-SEM-IV-Project Management

["\uf0b7 Identify the hazards: During risk assessment project managers should be able to distinguish a risk and hazard. Something with a potential to cause harm is referred to as hazard whereas a risk is the likelihood of that potential harm being realized. Hazards are identified using techniques such as walking round working place or asking your employees. \uf0b7 Decide who might be harmed and how: These include the team members working in a warehouse or any other construction site. \uf0b7 Evaluate the risk and decide on the control measures: This is done sequentially after the above two steps and its aimed at protecting the people from the harm. The hazards can be removed completely or the risk controlled so that the injury is unlikely. \uf0b7 Record your findings: This is the process of listing or putting down in writing and it\u2019s a legal requirement. This is done immediately after the know-how of the hazard and how they might be harmed. \uf0b7 Review your assessment and update as and when necessary: This is actually the reviewing of the risk assessment since work places stay the same. 3. Evaluate or Risk Ranki Evaluating the risk is done by determining the risk magnitude (size) which is a combination of likelihood and the consequence of a risk occurring. This is where the project manager identifies the consequence and the probability of the risk to occur at a specific condition. A risk is about uncertainty and therefore not predictable but can be controlled. 4. Treat the Risk This is also known as risk response planning. In this step of risk management, the project manager is required to assess the highest ranked risks and set out a plan to treat or modify these risks to achieve acceptable risk levels. There are 5 ways of treating a risk as follows: 201 CU IDOL SELF LEARNING MATERIAL (SLM)","\uf0b7 Avoidance: This is where one decides to abstain from the areas, places or actions prone to risk. For Example, if you feel carrying out a certain task or project such as construction is too dangerous you can avoid the risk by doing something else. \uf0b7 Reduction: This practice includes mitigation actions that reduce the risk. For Example, putting on helmet when cycling to protect your head from injury. \uf0b7 Transfer: This is where all the risk is left for the third party. There are two major types of transfer that is, taking insurance cover and outsourcing. For example, a company may decide to transfer a collection of transfer risks by taking an insurance policy. \uf0b7 Acceptance: This also known as risk retention. This is where one chooses to face the risk and being ready of any consequence that may arise from his\/her decision. In other words, it is referred as risk taking in Business and Entrepreneurship. For example, an investor may decide to invest an infant company anticipating good returns in near future which is not assured. \uf0b7 Sharing: This is where the risk is spread among multiple organizations or parties and individuals. This majorly reduces the burden effect. There are variety of reasons for that including insurance products and self-insurance strategies. 5. Monitor and Review the Risk Risk monitoring and reviewing is the final step in risk management. It is the process which evaluates and tracks the levels of risk in an organization This is the step that you project risk, register and use it to monitor, track and review risks. Risk monitoring purpose is to evaluate and keep track of the risks that occur and the effectiveness of the responses which are implemented by a project manager or organization. Risk monitoring is a continuous process in the life of a project. This is because the list of project risks changes as the project matures, new risks develop or anticipated risks disappear. Risk rating and priotizations can also change during the project life cycle. Risk monitoring determines whether the risk management policies and procedures are being followed and the remaining contingency reserves for cost and schedule are adequate. There are Four MAIN risks monitoring types: 202 CU IDOL SELF LEARNING MATERIAL (SLM)","\uf0b7 Voluntary: The risk monitoring as the name suggest, it is not required by the law but companies and project managers carry out them to from the events which have occurred in the past. \uf0b7 Obligatory: This is a risk monitoring strategy that is required by the law for some organizations for proper risk monitoring and management. \uf0b7 Reassessment: this refers to secondary and tertiary assessment of risk and risk management tools. \uf0b7 Continual: This is a risk monitoring strategy which is continuous. 10.7 CASE STUDY The Context \u2013 Risk in Oil & Gas \/ Complex Programs The design and construction of a refinery is inherently complex. The FEED (front end engineering and design) is the most critical stage where it's easy to influence the design at a relatively low cost (Whiteside, 2010). However, risk can occur at any project stage. One refinery in India, for example, experienced financing problems, design issues, was partially destroyed during construction, and was underinsured. Eventually it was completed in 13 years. The original schedule was 4 years (Hydrocarbons, 2009). This case study views risk from the owner's rather than the contractor's perspective. Oil Refinery Program Background Developed by Wilbur L. Nelson in 1960, the Nelson complexity index (NCI) describes a measure of the secondary conversion capacity of a petroleum refinery relative to the primary distillation capacity (Nelson Complexity Index, 2012, \u00b61). The index indicates the investment intensity of the refinery and its potential value addition; the higher the number, the greater the cost of the refinery and the higher the value of its products. The refinery in this case study has a Nelson complexity Index of 10.6. As a comparison, the average NCI of the United States refining industry is 10.9 (Satorp, 2011). Europe refineries have an average rating of 6.5. (Nelson Complexity Index, 2012, \u00b64). So while the Refinery can be considered complex, it is comparable with the average US refinery. 203 CU IDOL SELF LEARNING MATERIAL (SLM)","The refinery will process low cost Arabian heavy crude oil to produce high value refined products, Liquefied Petroleum Gas (LPG), petroleum coke, liquid sulfur and petrochemical products (paraxylene, benzene and propylene) that meet the global market's most stringent product specification s. It will benefit from close proximity to the Arabian heavy crude supply system in the Arabian Gulf and from the facilities of the Jubail Industrial City, including water, power, other utilities, infrastructure and a residential section. It will also benefit from the facilities at the King Fahad Industrial Port. \u201cThe Refinery will be located on a 480 hectare site in the industrial area of Al-Jubail known as Jubail 2 in the Kingdom of Saudi Arabia (KSA). This is a newly developed area of Jubail that will be equal in size to the presently developed industrial city (now termed Jubail 1). Jubail 2 lies inland from Jubail 1 on the opposite side of the main E-W highway and pipeline. The Project will be the major new project on the Jubail 2 site, and is the first expansion of the industrial city since it was originally laid out in the early 1980s.. In addition to the site in Jubail 2, SATORP has been allocated 17 hectare of land in the King Fahd Industrial Port for storage as well as access to 5 berths at the port for the shipment of its products, including petroleum coke. (Satorp, 2011, p.392) Project Objective \u201cThe competitive advantages of the Project from a technical perspective are: \uf0b7 Large-scale capacity (400,000 barrel per day capacity) \uf0b7 Access to low cost utilities and infrastructure in the Jubail Industrial City \uf0b7 Strategic location with reach to the European and other markets \uf0b7 Full conversion of fuel oil into high value distillates with rejection of carbon as coke) \uf0b7 Use of lower-cost heavy crude feedstock (Arabian Heavy crude) \uf0b7 High value petrochemical production (equivalent to 5 wt% of crude oil feedstock) \uf0b7 Competitive modern process technology, with proven plant design, supplied by the leading licensors \uf0b7 Secure long-term supply of a single crude oil from Saudi Aramco\u201d (p.395). 204 CU IDOL SELF LEARNING MATERIAL (SLM)","\u201cProcess technology has been licensed from reputable licensors and all technology is commercially proven in operation of a similar scale and duty in other operating plants. The key licensors are: \uf0b7 Axens\u2014NHT\/CCR (Naphtha Hydrotreater\/ Continuous Catalytic Regeneration), Aromatics, FCC (fluid catalytic cracking) \uf0b7 Chevron-Lummus Global\u2014Hydrocrackers \uf0b7 DuPont \u2014Sulphuric Acid Alkylation \uf0b7 Foster Wheeler\u2014Delayed Coker \uf0b7 UOP\u2014Middle Distillate Hydrotreaters\u201d (p. 392) Joint Venture Partners The refinery is owned 62.5% by Saudi Arabian Oil Company (Saudi Aramco) and 37.5% by TOTAL Refining Saudi Arabia SAS Limited (TOTAL) registered in France, a wholly owned subsidiary of TOTAL S.A. Key Stakeholders The Saudi Royal family is a key stakeholder as the refinery is to be constructed on land leased under a 30 year operating lease agreement with the Royal Commission. The lease is renewable by the Company for similar periods under mutually agreed terms and conditions for the benefit of the Company. Other stakeholders include the executives of the two joint venture partners and team members including internal contractor staff. Commercial tenants in the Jubail Industrial City will be stakeholders as well. Cost and Financing The refinery is estimated to cost about $12 billion. Refinery Management plans to use commitments from Export Credit Agencies and certain international and commercial banks to provide the company with senior secured term loan facilities at favorable pricing and loan guarantees. These include the Public Investment Fund of Saudi Arabia and the Export Credit Agencies: \uf0b7 SACE - S.p.A. Servizi Assicurativi del Commercio Estero - Italy 205 CU IDOL SELF LEARNING MATERIAL (SLM)","\uf0b7 JBIC - Japan Bank for International Cooperation \uf0b7 NEXI - Nippon Export and Investment Insurance - Japan \uf0b7 KEXIM - Export-Import Bank of Korea \uf0b7 KEIC - Korea Export Insurance Corporation The refinery will be funded in the early stages through shareholder loans. Expenses to date are about US$100 million, which include FEED costs. Market and economic context Oil demand has been relatively soft since the global economy went into recession in 2009. The Project refinery is an export oriented facility, processing Arab Heavy crude oil to produce gasoline and diesel. \u201cThere is ample feedstock available for the Project from Saudi Aramco, one of the two joint venture partners. The future sustainable capacity for Arab Heavy production is estimated to be at least 2.4 million barrels per day (b\/d), whereas domestic demand (including the Project) is not expected to exceed 1.3 million b\/d\u201d (Satorp, 2011, p. 422). Wood MacKenzie performed an analysis of the Project using a Net Cash Margin (NCM) approach and found it placed very competitively when compared with other refineries. NCM captures most of the critical elements of a refinery's performance that define its competitive position in the short \/ medium term; NCM is defined as: \u201cNCM ($\/bbl) = Product Worth ($\/bbl) - Cost of Crude ($\/bbl) - Cash Operating Expenses ($\/bbl) NCM multiplied by annual crude refinery throughput is effectively equivalent to EBITDA (Earnings before Income Taxes, Depreciation and Amortization). EBITDA is a metric used by loan covenants and investors.\u201d (p.410) Exhibit 1 Future Competitive Position of the Project vs other Global Conventional Fuels Refineries (Satorp 2011, p. 411) Your role You are a contractor who has been brought into the project as the Program Risk Engineer. The Joint Venture does not have specific Risk Management procedures in place, but wants to follow good practices for project risk management. 206 CU IDOL SELF LEARNING MATERIAL (SLM)","Project Timeline Overview Exhibit 2 - Project Timeline Overview (Satorp 2011, p. 391) Key Milestones June, Year 1, Award of contracts January, Year 2, Start Construction March 1, Year 3 15% Equipment on site July, Year 3 60% equipment and 30% piping | Spools October 1, Year 3 1st commissioning December, Year 3 90% equipment 50% piping Spools May 31, Year 4 Final Commissioning October 31, Year 4, Final Startup Current Phase \u2013 Procurement and Tender Timing The project has completed the FEED phase, and the procurement stage is almost complete. The FEED divided the work into 15 packages, and all have been put out to tender. However, there are two major concerns: price and number of contractors. Negotiations are underway with the contractors for their best and final offers. But preliminary results show the refinery costs are likely to slightly over US $12 billion. Management wants the cost reduced. The current engineering, procurement and construction (EPC) market is relatively soft due to the global recession. Management is asking whether any positive opportunities exist because of the global recession, and whether retendering should be done. Some analysts say cost savings from retendering may not be as dramatic as executives would like. Matthew Nathan, a Middle East associate director of project finance at UK bank HSBC, argues that the savings on project costs may not be as dramatic as clients would have hoped for. \u201cI would question whether people truly believe contract prices for lump-sum turnkey contracts have come down,\u201d he says. \u201cOur view is that the EPC contractor market has softened, but the prices have not really come down.\u201d (Oil and Gas News, 2009, \u00b611) The second management concern is number of contractors. The FEED divided the work into 15 packages. However, management realizes this is a large number of separate packages, and 207 CU IDOL SELF LEARNING MATERIAL (SLM)","coordination among the different contractors could create problems. When tendering was done, all 15 packages were separate and no prime contractor role was designated. Two options that have been discussed were arranging a tender for a prime contractor to manage the work or use an EPCM (Engineering Procurement Construction Management) contract. Another option would be to consider how management of packages can be simplified. A third would be reorganizing and reducing the number of packages and retendering. Exhibit 3 \u2013 List of Packages A third concern is the completeness of the FEED. The leading practice is to conduct structured technical reviews to gauge the quality and completeness of the design work done during the FEED. These structured technical reviews may be based on the Project Definition Rating Index, peer reviews, or a mix of methods (Gumz, 2008). Performance to Date Retendering may take 10 to 12 months. But even if only 5% could be saved, it would result in reduced Capital expenditures (CAPEX). On a 10 to 11B project, 5% savings would be US$500 million. Challenges The project schedule can be an area of contention. Contractors frequently complain of clients who demand under budgeted timeframes by as much as 25%. The number of qualified EPC contractors has been reduced in the last decade through mergers. Even though the recession has decreased global demand for EPC services, the Saudi Arabian market has many on-going projects that last multiple years. These projects can peak at the same time in construction, resulting in bottleneck. As one European contractor said, \u201cVisas, general bureaucracy, logistics, supplies, a lot of us are going to be fighting for the same limited resources\u201d (Goliath, 2005). Contractors and subcontractors can't always find experienced engineers, especially when relocation to Saudi Arabia for months or years is required. Decisions Procurement Strategy and Objectives 208 CU IDOL SELF LEARNING MATERIAL (SLM)","The owner's priorities are to reduce capital expenditures to the greatest extent possible, while still building a highly complex full-conversion refinery. They also wish to put the onus on the contractor \/ EPC to the greatest extent possible, and prefer using lump sum, turn key contracts whenever possible. The Saudi government wants to build capabilities of local firms. The joint venture also wants to encourage local firms to compete for the EPC contracts in line with the JV's policies and objectives. Organizational Structure of Program The Project Director has full responsibility for Engineering, Procurement, Construction and Commissioning (EPCC) execution of the Project reporting to the CEO of the JV and supported by a temporary Project Management Team (PMT) for the period of EPCC execution. The PMT is estimated to peak at 300 plus personnel during the engineering phase and to be approximately 400 plus personnel at the peak of construction phase. Staffing of the PMT will be by secondees from the JV partners supplemented by temporary personnel from staffing agencies. Risk Management Strategy and Tactics The following risks have been observed: 1. Lack of a prime contractor may lead to poor coordination and ultimately a longer schedule. 2. The number of packages, 15, may lead to more efforts in coordination and communication. 3. The standard EPC contract has no requirement for the contractor to perform risk management. 4. The joint venture has policies and procedures, but does not have risk management procedures yet in place. 5. Retendering could produce lower contract offers, which would be a positive risk. It would also delay the project by several months however. 209 CU IDOL SELF LEARNING MATERIAL (SLM)","Do you see any other risks not in the list above? When considering risks, use a 5 by 5 matrix for liklihood and impact, where 5 is high and 1 is low, as shown in Exhibits 4 and 5 below. Exhibit 5 quantifies the risk in terms of effect on cost, schedule, scope, quality and safety. Exhibit 4 \u2013Simple Risk Matrix Exhibit 4\u2013 Risk Quantification Matrix What mitigation(s) would you recommend for each risk? Potential Unintended Consequences Are there any potential consequences that need to be addressed as a result of the mitigation strategy taken? For example, retendering could be viewed negatively by an EPC firm, causing them not to bid again. What efforts would you recommend considering in this case? 10.8 SUMMARY \uf0b7 Project risk management is the process that project managers use to manage potential risks that may affect a project in any way, both positively and negatively. The goal is to minimise the impact of these risks. 210 CU IDOL SELF LEARNING MATERIAL (SLM)","\uf0b7 Risk management is an on-going process that continues through the life of a project. It includes processes for risk management planning, identification, analysis, monitoring and control. \uf0b7 Managing of project risk is an integral part of quality project management system, and fundamental to achieving good project outcomes. That is, systematic identification and assessment of risk and effectively dealing with the results is significant to the success of the project. \uf0b7 Risk management in projects is one of the major areas of interest in the area of project management. Risk management is designated as one of the main project management knowledge areas in the project management body of knowledge (PMBOK) by the Project Management Institute. \uf0b7 Project risk management is a continuous process that begins during the planning phase and ends once the project is successfully commissioned and turned over to operations. \uf0b7 A well-defined risk management process can help to greatly increase project and programme success. \uf0b7 Risk Management Standards set out a specific set of strategic processes which start with the overall aspirations and objectives of an organisation, and intend to help to identify risks and promote the mitigation of risks through best practice. \uf0b7 Risk monitoring and reviewing is the final step in risk management. It is the process which evaluates and tracks the levels of risk in an organization This is the step that you project risk, register and use it to monitor, track and review risks. Risk monitoring purpose is to evaluate and keep track of the risks that occur and the effectiveness of the responses which are implemented by a project manager or organization. 10.9 KEYWORDS \uf0b7 Project- A temporary, goal-driven effort to create a unique output. A project has clearly defined phases, and its success is measured by whether it meets its stated objectives. 211 CU IDOL SELF LEARNING MATERIAL (SLM)","\uf0b7 Risk- The probability of occurrence of a specific event that affects the pursuit of objectives. Risks are not negative by definition. In project management, opportunities are also considered risks. \uf0b7 Risk Management- A subset of management strategies that deals with identifying and assessing risks and acting to reduce the likelihood or impact of negative risks. Risk managers seek to ensure that negative risks do not affect organizational or project objectives. \uf0b7 Project Risk Management- In project management, risk management is the practice of identifying, evaluating, and preventing or mitigating risks to a project that have the potential to impact the desired outcomes. \uf0b7 Risk Analysis- Risk analysis is a technique used to identify and assess factors that may jeopardize the success of a project or achieving a goal. \uf0b7 Risk Assessment- An activity that involves identifying possible risks to a project and examining how these risks, if they occur, would affect objectives. \uf0b7 Risk Identification- The process of identifying and examining risks and their effects on project objectives. \uf0b7 Risk Management Guidelines- Risk Management Standards set out a specific set of strategic processes which start with the overall aspirations and objectives of an organisation, and intend to help to identify risks and promote the mitigation of risks through best practice. \uf0b7 Best practices- Best practice refers to a consistent way of doing something, for example, developing the project schedule. 10.10 LEARNING ACTIVITY 1. Define Project Risk Management process. ___________________________________________________________________________ ___________________________________________________________________________ 212 CU IDOL SELF LEARNING MATERIAL (SLM)","2. Which questions does a project team need to ask in case of project monitoring? ___________________________________________________________________________ ___________________________________________________________________________ 10.11 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Which are some best practices in project management? 2. How do you analyze risk in Project Management? 3. Discuss few guidelines for Project Risk Management. 4. Describe the standards & practices for project risk management 5. Note on project risk management Long Questions 1. What do you understand by Project Risk Management 2. How does one identify Project Risk? 3. What are the guidelines for Project Risk Management? 4. What are the types of Risk Monitoring? 5. Explain the parameters for assessing & identifying project risk B. Multiple Choice Questions 1. Which risk is connected to the circumstance outside the project that may influence the scope of work and the performance of the organization? a. Contextual Risk b. Operational Risk c. Financial Risk d. Strategic Risk 2. Which of the following is not the part of Risk Control? 213 a. Not watching for new risks b. Execution of the risk response strategy CU IDOL SELF LEARNING MATERIAL (SLM)","c. Monitoring of triggering events d. Initiating contingency plans 3. The first sub process in the Risk Management Process is: a. Risk Management Planning b. Risk Identification c. Risk Response d. Risk monitoring and controlling 4. Which of the following shows roles and responsibilities on your project? a. RACI matrix b. Bar chart c. Resource histogram d. Human Resource Management Plan 5. A document you use to capture all known risks is called: a. Risk Register b. Risk Log c. Risk List d. Risk Diary Answers 1 \u2013 a, 2 \u2013 a, 3 \u2013 a, 4 \u2013 a, 5 \u2013 a 214 CU IDOL SELF LEARNING MATERIAL (SLM)","10.12 REFERENCES \uf0b7 Adam s, J.R. an d Barn dt, S.E. (1988) Behavioral implication s of the project life cycle, Chapter 10 in Cleland, D.I. an d Kin g, W.R. (eds), Project Management Handbook. Secon d edition. New York: Von Nostrand Reinhold \uf0b7 AIRMIC Integrated Risk Management Special Interest Group (1999) A guide to integrated risk management. Lon don: The Association of Insurance and Risk Managers in Commerce \uf0b7 Augustine, S. (2005) Managing Agile Projects. Prentice Hall: New Jersey. \uf0b7 Chapman, C.B. an d Ward, S.C. (1997) Project Risk Management: Processes, Techniques an d In sights. Chichester: Joh n Wiley & Son s Ltd. \uf0b7 Forrester, J. (1958) Industrial dynamics: a major breakthrough for decision m akin g. Harvard Business Review, 36(4), 37\u201366. 215 CU IDOL SELF LEARNING MATERIAL (SLM)","UNIT 11 - PROJECT CONTROL STRUCTURE 11.0. Learning Objective 11.1. Introduction 11.2. Internal & External Project Control 11.3. Project Cost Control 11.4. Cost Control Process 11.5. Project Cost Management System 11.6. Project Budget Management System & Resource Requirements 11.7. Case Study 11.8. Summary 11.9. Keywords 11.10. Learning Activity 11.11. Unit End Questions 11.12. References 11.0 LEARNING OBJECTIVES: After studying this unit, you will be able to: \uf0b7 Understand the concept of Project Control and its need. \uf0b7 Understand the objectives and scope of project control. \uf0b7 Understand in detail, internal and external project management. \uf0b7 Understand project cost control and its techniques \uf0b7 Understand about Project Cost Management System \uf0b7 Understand about Budget, Budgeting Techniques and Resource Requirements. 216 CU IDOL SELF LEARNING MATERIAL (SLM)","11.1 INTRODUCTION Even the simplest human endeavours require control. Consider, for example, a cycle trip. A cycle trip, however simple, is a unique, transient endeavour; even if you\u2019ve done similar trips many times before, one of a host of factors may have changed \u2013 the weather, the road conditions, the traffic, etc. This time, the weather forecast is for torrential rain, but even so, a loved one needs you to make the trip faster than ever before to bring back some chocolates before a particularly good film starts on TV at 8 o\u2019clock. The core work of this \u2018project\u2019 is pedalling the bike, but a bike is unstable; just riding it requires constant attention to both balance and steering, but you also have to avoid obstacles and navigate. Projects are like cycle trips. They\u2019ll take you to your objectives, but only if you stay in control, and it\u2019s necessary to stay in control in order to avoid a nasty crash. In the project life cycle, the project monitoring and control phase happens in tandem with the execution phase. Project management monitoring and controlling involves actively reviewing the status of your project as it proceeds, evaluating potential obstacles, and implementing necessary changes. The purpose of Project Monitoring and Control (PMC) is to provide an understanding of the project's progress so that appropriate corrective actions can be taken when the project's performance deviates significantly from the plan. The project management monitoring and controlling starts as soon as a project begins. Monitoring and controlling project work is the process of tracking, reviewing, and regulating the progress in order to meet the performance objectives. It is the fourth process group in Project Management. From the perspective of Knowledge Management Area, this involves the management tasks, such as tracking, reviewing, and reporting the progress of a project. Moreover, this process is majorly concerned with: \uf0b7 Measuring the actual performance against the planned performance \uf0b7 Assessing performance to determine whether or not any corrective or preventive actions are indicated, the status is reported and\/or appropriate risk response plans are being executed. 217 CU IDOL SELF LEARNING MATERIAL (SLM)","\uf0b7 Maintaining an accurate, timely information base concerned with the project output and its associated documentation till project completion \uf0b7 Providing information to support status reporting, progress measurement and forecasting \uf0b7 Providing forecasts to update current cost and current schedule information \uf0b7 Monitoring implementation of approved changes as they occur Project managers must ensure they control their unique, transient and unstable projects in order to achieve their objectives. Most of what a project manager does during the life of a project has a \u2018control\u2019 element to it: leading the project team, running meetings, managing stakeholders, etc. A lot of these activities rely on leadership skills such as effective communication, influencing, negotiation and conflict resolution (such skills are generally described as \u2018soft\u2019, but they certainly aren\u2019t easy.) The project manager also needs to employ \u2018hard\u2019, quantitative control processes and it is these that are the main focus of this publication. These processes address all three project dimensions \u2013 quality, time and cost, and therefore include all of the following: \uf0b7 Controlling the scope of the project \u2013 controlling change. \uf0b7 Ensuring that the project\u2019s products\/deliverables fulfil their requirementscontrolling quality. \uf0b7 Ensuring that activities happen on time \u2013 scheduling. \uf0b7 Ensuring that work is performed within budget \u2013 cost control. \uf0b7 Managing risks. \uf0b7 Managing problems and identifying issues (and obtaining external help to \uf0b7 resolve them). \uf0b7 Making sure that the project leads to benefits for the organisation. The control processes involve the collection and analysis of data, the identification of trends and variances, forecasting and the reporting of progress. It is also essential that the information gathered is acted on \u2013 without effectiveresponses to actual and potential problems, the project is merely monitored. Processes require feedback via balance, sight and sound; some are routine and have become instinctive through experience (like balance); others require conscious attention (like navigation). There is a spectrum of control processes in operation, within which are processes that can be characterised as inner loop or outer loop. 218 CU IDOL SELF LEARNING MATERIAL (SLM)","11.2 INTERNAL AND EXTERNAL PROJECT CONTROL The outer loop control processes wrap around all projects and operate for as long as an organisation is undertaking projects. The inner loop control processes reside within individual projects but apply selectively in different phases of the project life cycle. Project control is fully applied during the implementation phase, which is usually the longest and most costly phase of a project. The initiation phase is pre-project, so there\u2019s no inner loop control; the outer loop life cycle management and portfolio\/programme management processes control the initiation phase. Inner loop control is necessary during the other life cycle phases, in full during implementation and with appropriately reduced application during the other phases, as shown in the figure below: Internal project management (IPM) and external project management (EPM) are two different sides of the same coin, so to speak. Both help a company get things done within a set timeframe, budget, and specifications. There are some who believe that an IPM is better than an EPM, and there are also others who would rather go for an EPM over an IPM. Which 219 CU IDOL SELF LEARNING MATERIAL (SLM)","of these two should you trust with the work that needs to get done? Is an IPM better than an EPM, or vice versa? Let us first understand what the difference is between the two, and what advantages you can get from either. In-house or internal project management is when you get people from within the company to handle the monitoring of the projects of your business. These people come from your existing manpower pool and are handpicked to handle the management of projects due to the skill sets and capabilities that they have. External project management, on the other hand, is when you hire people from the outside to do the same thing, but on a project basis. They are often experts at managing projects because technically, that is what they are marketing themselves as. Now, when it comes to figuring out which is better for your business, you first need to find out what the strengths and weaknesses of each are. You need to weigh the pros and cons of each to determine which type of project manager is ideal for your upcoming projects. It has been noted that IPM know the culture of the company, so there is a lower chance of conflicts between staff member occurring, as opposed to having an EPM working on some of the company\u2019s projects. This is just one thing though, so to get to the nitty-gritty, let us enumerate the benefits of each. Internal Project Management IPMs already know what the company\u2019s goals and objectives are, which may make them try harder to get things done. They also have ample knowledge about the company\u2019s operations, making it easier for them to manage and execute the projects that are given to them to handle. IPMs don\u2019t present the company with the possibility of data leaks as much since they are aware of the company\u2019s policies and processes regarding these security issues. They take care not to create situations that will jeopardize the company that they are working in therefore they try their best to ensure that things are done without jeopardizing the company\u2019s bottom line. External Project Management 220 CU IDOL SELF LEARNING MATERIAL (SLM)","EPMs are usually more experienced and have the kind of skill set that companies look for in project managers. This is because this is their specialization and they sell themselves to those who need them by highlighting these particular skills and expertise. They are more objective than IPMs, and when decisions need to be made for the sake of the project, they would not have any qualms about such decisions as long as the objectives of the project are met. EPMs are more focused on what they need to do since they do not have to worry about issues that occur internally. They are not exposed to and affected by company politics, making them more capable of getting these projects done according to defined guidelines and expectations. It has also been said that IPMs are more reactive in how they handle projects, while EPMs are more proactive. The decision to go with one or the other is basically dependent on what the company expects, and other factors like cash flow, lack of qualified personnel within, and the general lack of manpower. Either way, both types do have their pros and cons and it is up to you to decide which one you feel will work best for your company. 11.3 PROJECT COST CONTROL Cost control is the process of collecting actual costs and collating them in a format to allow comparison with project budgets. Cost control is necessary to keep a record of monetary expenditure for purposes such as: \uf0b7 minimising cost where possible; \uf0b7 revealing areas of cost overspend. Project Cost Management is a method that uses technology to measure cost and productivity through the full life-cycle of enterprise level projects. PCM encompasses several specific functions of project management including estimating, job controls, field data collection, scheduling, accounting and design. Cost control information is fundamental to the lessons learned process, as it can provide a database of actual costs. Cost control is the task of overseeing and managing project expenses and preparing for potential financial risks. This is typically the project manager's 221 CU IDOL SELF LEARNING MATERIAL (SLM)","responsibility. Cost control involves managing the budget, as well as planning, and preparing for potential risks. Risks can set projects back and sometimes even require unexpected expenses. Preparation for these setbacks can save your team time and potentially, money. 11.4 COST CONTROL PROCESS Following are some of the valuable and essential techniques used for efficient project cost control: 1 - Planning the Project Budget You would need to ideally make a budget at the beginning of the planning session with regard to the project at hand. It is this budget that you would have to help you for all payments that need to be made and costs that you will incur during the project life cycle. The making of this budget therefore entails a lot of research and critical thinking. Like any other budget, you would always have to leave room for adjustments as the costs may not remain the same right through the period of the project. Adhering to the project budget at all times is key to the profit from project. 2 - Keeping a Track of Costs Keeping track of all actual costs is also equally important as any other technique. Here, it is best to prepare a budget that is time-based. This will help you keep track of the budget of a project in each of its phases. The actual costs will have to be tracked against the periodic targets that have been set out in the budget. These targets could be on a monthly or weekly basis or even yearly if the project will go on for long. This is much easier to work with rather than having one complete budget for the entire period of the project. If any new work is required to be carried out, you would need to make estimations for this and see if it can be accommodated with the final amount in the budget. If not, you may have to work on necessary arrangements for 'Change Requests', where the client will pay for the new work or the changes. 3 - Effective Time Management Another effective technique would be effective time management. Although this technique does apply to various management areas, it is very important with regard to project cost control. 222 CU IDOL SELF LEARNING MATERIAL (SLM)","The reason for this is that the cost of your project could keep rising if you are unable to meet the project deadlines; the longer the project is dragged on for, the higher the costs incurred which effectively means that the budget will be exceeded. The project manager would need to constantly remind his\/her team of the important deadlines of the project in order to ensure that work is completed on time. 4 - Project Change Control Project change control is yet another vital technique. Change control systems are essential to take into account any potential changes that could occur during the course of the project. This is due to the fact that each change to the scope of the project will have an impact on the deadlines of the deliverables, so the changes may increase project cost by increasing the effort needed for the project. 5 - Use of Earned Value Similarly, in order to identify the value of the work that has been carried out thus far, it is very helpful to use the accounting technique commonly known as 'Earned Value'. This is particularly helpful for large projects and will help you make any quick changes that are absolutely essential for the success of the project. 11.5 PROJECT COST MANAGEMENT SYSTEM Cost management is the process of estimating, allocating, and controlling project costs. The cost management process allows a business to predict future expenses to reduce the chances of budget overrun. Projected costs are calculated during the planning phase of a project and must be approved before work begins. With a project cost management system in place, integrating project schedules and cost estimates to develop time-phased budgets and forecasts, and measuring project performance and productivity using cost, hour, and quantity control elements is very easy. A project Cost Management System module supports all required processes including: budgeting, resource planning, time-phasing, progress and performance measurement, earned value management, cost and schedule analysis, change management, risk tracking, funds allocation, forecasting and reporting. Activity-based cost-management systems trace indirect and support expenses accurately to individual products, services and customers. ABC 223 CU IDOL SELF LEARNING MATERIAL (SLM)","systems use a simple two-stage approach similar to traditional cost systems. However, instead of using cost centers for accumulating costs, it uses activities. Implementing a cost management structure for projects can help a business keep its over-all budget under control. The first step in this is resource planning. This includes assessing resource requirements for future projects, the work that will go into them, and who or what is going into that work as well as time durations. With this information, a business can begin estimating the costs of the required resources. The business can then allocate resources. Cost performance should be able to be measured and assessed. Variances from cost baselines should be measured. If there are any differences between what is expected and what is measured, then corrective measures can be enacted to avoid going over budget. Changes to the process should also be measured. 11.6 PROJECT BUDGET MANAGEMENT SYSTEM AND RESOURCE REQUIREMENTS A project budget is the total sum of money allocated for the particular purpose of the project for a specific period of time. The goal of budget management is to control project costs within the approved budget and deliver the expected project goals. Our definition of a successful project is one that meets four success criteria: that the project\u2019s scope is delivered on schedule, it is delivered within budget and, once delivered, it meets the quality expectations of the donor and the beneficiaries. For project managers to be truly successful they must concentrate on meeting all of those criteria. The reality is that most project managers spend most of their efforts on completing the project on schedule. They spend most of their time on managing and controlling the schedule and tend to forget about monitoring and controlling the budget. The focus of this chapter is on managing and controlling the project budget throughout the entire project life cycle while relating budget control to the other success criteria. 224 CU IDOL SELF LEARNING MATERIAL (SLM)","Budget management consists of a series of tasks and steps designed to help manage the costs of the project, the steps are: \uf0b7 Defining the Budget \uf0b7 Executing the Budget \uf0b7 Controlling the Budget \uf0b7 Updating the Budget Inputs: Inputs for the project budget management include the following documents or sources of information: \uf0b7 WBS \uf0b7 Project contract or initial budget \uf0b7 Resource requirements \uf0b7 Resource cost estimates \uf0b7 Activity duration estimates \uf0b7 Historical information \uf0b7 Market conditions \uf0b7 Donor and organization policies Chart of accounts structure (COA) Outputs: The project team will use the above information to develop three important documents for the project: \uf0b7 Cost estimates by activity \uf0b7 The Project Budget \uf0b7 The Budget Variance Report 225 CU IDOL SELF LEARNING MATERIAL (SLM)","Project Budgeting is performed on the initial stages of project planning and usually in parallel with the development of the project schedule. The steps associated with budgeting are highly dependent to both the estimated lengths of tasks and the resources assigned to the project. Budgeting serves as a control mechanism where actual costs can be compared with and measured against the budget. The budget is often a fairly set parameter in the execution of the project. When a schedule begins to slip, cost is proportionally affected. When project costs begin to escalate, the project manager should revisit the Project Plan to determine whether the scope, budget, or schedule needs adjusting. To develop the budget, the applicable cost factors associated with project tasks are identified. The development of costs for each task should be simple and direct and consist of labor, material, and other direct costs. The cost of performing a task is directly related to the personnel assigned to the task, the duration of the task, and the cost of any non-labor items required by the task. Defining the Budget The project manager is responsible to estimate the budget required to complete project activities. The Project Manager should allocate all costs to project activities, and all aspects of the project, including the cost of internal and external human resources, equipment, travel, materials and supplies, should be incorporated. The budget should be much more detailed and more accurate than it was on the project proposal. In the case the project manager starts her job with a contracted budget, the project manager needs to review the assumptions made during the project proposal stage and verify that the agreed on the scope can be accomplished in the contract budget. The Project Manager can use manual or automated tools to generate the budget estimate. The budgeting tools may be simple spread sheets or complex budget estimating tool. For historical purposes, and to enable the budget to be refined, the Project Manager should always maintain notes on how this budget was derived. Cost estimating checklists help to ensure that all preliminary budgeting information is known and all bases are covered. The Project Manager must also include in the budget the cost of both the human resources and the equipment and materials required to perform the work. The method by which staff and products will be acquired for the project will directly affect the budgeting process. 226 CU IDOL SELF LEARNING MATERIAL (SLM)","A number of constraints, financial, political, and organizational, may dictate the methods by which resources such as personnel, equipment, services and materials are acquired. The Project Manager needs to be aware of existing resources acquisition policies, guidelines, and procedures. In addition, the preferences of the beneficiaries and\/or the donor representatives may influence acquisition decisions. Information from similar past projects can be used to gain an understanding of budgeting strategies; those that were successful and applicable may be considered for implementation for the current project. As the budget estimate is being developed, additional tasks may be identified because the work is being further defined. It may be necessary to update the WBS and the project schedule to include the activities identified during the budget estimating, such as equipment, materials, and other non-human resources. The budget management plan is a description of the method for how expenses will be managed, including a preliminary disbursement. Resource Requirements Resource requirements involve determining what resources (people, equipment, services, and material) and the quantities of those resources are required to complete the project. The projects\u2019 WBS, scope statement, historical information, resource information, and policies are inputs used to determine the resources for the project. The main output is a list of resource requirements that provide the basis for budget estimating and budget controls, and provide valuable information to the project resource management process. There are four typical types of resources under which all requirements can be grouped: \uf0b7 Human or Labor resources; including consulting services, consist of the right people with the expertise and skills needed to complete the activities on the project schedule. People may come from the organization, or hired for the duration of the project. People skills also include consultants who bring a high level technical expertise that is not found in the organization or in the local labor market. The project will develop a list of the human resource requirements detailing the expertise level, areas of experience, education and language requirements. This information will be used in the Resource management process to acquire or contract the right people. For example the following list the human resources needed by a project: 227 CU IDOL SELF LEARNING MATERIAL (SLM)","As a final output of this exercise the project will have a complete list of all the requirements needed for the project, this can be in the form of a spread sheet organized by either the order that came from the WBS or by the organization\u2019s or donor\u2019s chart of accounts. 11.7 CASE STUDY Here we present a case study that takes place in the IT division of French Bank that has developed an ABC method since several years. We describe how the ABC model has evolved toward a process that enables to compare the performances of different customers. Finally, we will explain the underlying reasons of this evolution, explaining how the teams that develop computing solutions are more and more under pressure; in this context, the Activity- based costing model described is a manner for the managers to benchmark different computing proposals and to retain only the most profitable one. With this case study, we will conclude about the new forms of management controls and controllers that emerge. 11.8 SUMMARY \uf0b7 Project managers must ensure they control their unique, transient and unstable projects in order to achieve their objectives. Most of what a project manager does during the life of a project has a \u2018control\u2019 element to it: leading the project team, running meetings, managing stakeholders, etc. \uf0b7 The outer loop control processes wrap around all projects and operate for as long as an organisation is undertaking projects. The inner loop control processes reside within individual projects but apply selectively in different phases of the project life cycle. \uf0b7 Internal project management (IPM) and external project management (EPM) are two different sides of the same coin, so to speak. Both help a company get things done within a set timeframe, budget, and specifications. 228 CU IDOL SELF LEARNING MATERIAL (SLM)","\uf0b7 Cost control is the process of collecting actual costs and collating them in a format to allow comparison with project budgets. Cost control is necessary to keep a record of monetary expenditure. \uf0b7 Cost management is the process of estimating, allocating, and controlling project costs. The cost management process allows a business to predict future expenses to reduce the chances of budget overrun. \uf0b7 A project Cost Management System module supports all required processes including: budgeting, resource planning, time-phasing, progress and performance measurement, earned value management, cost and schedule analysis, change management, risk tracking, funds allocation, forecasting and reporting.. \uf0b7 Implementing a cost management structure for projects can help a business keep its over-all budget under control. \uf0b7 A project budget is the total sum of money allocated for the particular purpose of the project for a specific period of time. The goal of budget management is to control project costs within the approved budget and deliver the expected project goals. \uf0b7 Variances from cost baselines should be measured. If there are any differences between what is expected and what is measured, then corrective measures can be enacted to avoid going over budget. Changes to the process should also be measured. \uf0b7 A project budget is the total sum of money allocated for the particular purpose of the project for a specific period of time. The goal of budget management is to control project costs within the approved budget and deliver the expected project goals. \uf0b7 Our definition of a successful project is one that meets four success criteria: that the project\u2019s scope is delivered on schedule, it is delivered within budget and, once delivered, it meets the quality expectations of the donor and the beneficiaries. \uf0b7 Resource requirements involve determining what resources (people, equipment, services, and material) and the quantities of those resources are required to complete the project. 11.9 KEYWORDS \uf0b7 Project Cost Management- The use of an information system to estimate, measure, and control costs through the project life cycle. It aims at completing projects within budgets. 229 CU IDOL SELF LEARNING MATERIAL (SLM)","\uf0b7 Project Budgeting System- The process of determining budget for a project is an activity of aggregating the cost estimates of individual activities, or a work package, to develop the total cost estimate that allows setting a formal cost baseline \uf0b7 Project Cost Control- Cost control is the task of overseeing and managing project expenses and preparing for potential financial risks. This is typically the project manager's responsibility. Cost control involves managing the budget, as well as planning, and preparing for potential risks. \uf0b7 External Cost Control- An external cost is the cost incurred by an individual, firm or community as a result of an economic transaction which they are not directly involved in. External costs, also called 'spillovers' and 'third party costs' can arise from both production and consumption. \uf0b7 Internal Cost Control- The internal cost refers to the cost required by manufacturing or purchasing an item and it includes material cost, labor cost, expenses, subcontract processing cost, and overhead cost. \uf0b7 Project cost management systems- Cost management systems are simply the methods used to evaluate the results of decisions made as a result of cost management strategies. \uf0b7 Activity based costing- Activity-based costing is a costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each. 11.10 LEARNING ACTIVITY 1. What is cost management in project management? ___________________________________________________________________________ ___________________________________________________________________________ 2. What are the functions of project cost management? ___________________________________________________________________________ ___________________________________________________________________________ 11.11 UNIT END QUESTIONS A. Descriptive Questions 230 CU IDOL SELF LEARNING MATERIAL (SLM)","Short Questions 1. How do you monitor and control project costs? 2. What are the steps for external project control? 3. Discuss some components for internal project control. 4. Discuss the external project control 5. Note on project cost control Long Questions 1. Define Project Control and discuss its components. 2. Discuss the difference between external and internal project control. 3. What are the techniques for cost control? 4. What is a Project Cost Management System? 5. How do your account for resource requirements in a budget? B. Multiple Choice Questions 1. A project budget estimate that is developed with the least amount of knowledge is known as which of the following? a. Conceptual estimate b. Rough order of magnitude (ROM) estimate c. Scope of work estimate d. Milestone schedule estimate 2. According to the PMBOK guide, which of the following statements is right in terms of using reserve analysis to determine a project budget? a. Reserve analysis always plans contingency reserves for unexpected project scope and project costs, which are part of your project budget b. Reserves should not be included in the project budget. c. If you only have limited resources, you may completely ignore reserve analysis when you try to determine your project budget. d. Planning contingency reserves for a project is not practical. 3. Fill in the blank. The _____ is the difference between the additional money spent on prevention and the corresponding reduction in the cost of failure a. cost of quality b. cost-benefit analysis 231 CU IDOL SELF LEARNING MATERIAL (SLM)","c. implicit cost d. variable cost 4. Which of the following project baselines provides the basis for measurement of the expected cash flow against requirements over time and is often displayed as an S curve? a. Cost performance baseline b. Scope baseline c. Plan baseline d. Initiation baseline 5. The conceptual estimate is developed with the least amount of knowledge. When more information is known, the project team can develop a: a. rough order of magnitude (ROM) estimate b. work breakdown structure c. critical estimate d. scope of work Answer 1 \u2013 a, 2 \u2013 a, 3 \u2013 a, 4 \u2013 a, 5 \u2013 a 11.12 REFERENCES \uf0b7 College, Kathy Schwalbe, Ph.D., PMP, Augsburg (2012). Information technology project management (Seventh ed.). Boston, MA: Course Technology. ISBN 9781133526858. \uf0b7 Rad, P.F. (2002). Project Estimating and Cost Management. Management Concepts. ISBN 9781567261448. Retrieved 2015-09-14. \uf0b7 Broadleaf. 2016. \u201cComplexity and project risk.\u201d Broadleaf. January. http:\/\/broadleaf.com.au\/resource-material\/complexity-and-project-risk\/. \uf0b7 Burger, Rachel. 2017. \u201cBusiness Agile and the Future of Project Management.\u201d Capterra Project Management Blog. August 14. https:\/\/blog.capterra.com\/business-agile-and-the-future-of-project-management\/. 232 CU IDOL SELF LEARNING MATERIAL (SLM)","\uf0b7 Cook, Matthew, and John P.T. Mo. 2018. \u201cA Systems Approach to Life Cycle Risk Prediction for Complex Engineering Projects.\u201d Cogent Engineering. March 26. 233 CU IDOL SELF LEARNING MATERIAL (SLM)","UNIT 12 - PROJECT CONTROL STRUCTURE 12.0 Learning Objective 12.1 Introduction 12.2 Internal & External Project Control 12.3 Project Cost Control 12.4 Cost Control Techniques 12.5 Project Cost Management System 12.6 Project Budget Management System & Resource Requirements 12.7 Case Study 12.8 Summary 12.9 Keywords 12.10 Learning Activity 12.11 Unit End Questions 12.12 References 12.0 LEARNING OBJECTIVES: After studying this unit, you will be able to: \uf0b7 Understand the concept of Project Control and its need. \uf0b7 Understand the objectives and scope of project control. \uf0b7 Understand in detail, internal and external project management. \uf0b7 Understand project cost control and its techniques \uf0b7 Understand about Project Cost Management System \uf0b7 Understand about Budget, Budgeting Techniques and Resource Requirements. 234 CU IDOL SELF LEARNING MATERIAL (SLM)","12.1 INTRODUCTION Even the simplest human endeavours require control. Consider, for example, a cycle trip. A cycle trip, however simple, is a unique, transient endeavour; even if you\u2019ve done similar trips many times before, one of a host of factors may have changed \u2013 the weather, the road conditions, the traffic, etc. This time, the weather forecast is for torrential rain, but even so, a loved one needs you to make the trip faster than ever before to bring back some chocolates before a particularly good film starts on TV at 8 o\u2019clock. The core work of this \u2018project\u2019 is pedalling the bike, but a bike is unstable; just riding it requires constant attention to both balance and steering, but you also have to avoid obstacles and navigate. Projects are like cycle trips. They\u2019ll take you to your objectives, but only if you stay in control, and it\u2019s necessary to stay in control in order to avoid a nasty crash. In the project life cycle, the project monitoring and control phase happens in tandem with the execution phase. Project management monitoring and controlling involves actively reviewing the status of your project as it proceeds, evaluating potential obstacles, and implementing necessary changes. The purpose of Project Monitoring and Control (PMC) is to provide an understanding of the project's progress so that appropriate corrective actions can be taken when the project's performance deviates significantly from the plan. The project management monitoring and controlling starts as soon as a project begins. Monitoring and controlling project work is the process of tracking, reviewing, and regulating the progress in order to meet the performance objectives. It is the fourth process group in Project Management. From the perspective of Knowledge Management Area, this involves the management tasks, such as tracking, reviewing, and reporting the progress of a project. Moreover, this process is majorly concerned with: \uf0b7 Measuring the actual performance against the planned performance \uf0b7 Assessing performance to determine whether or not any corrective or preventive actions are indicated, the status is reported and\/or appropriate risk response plans are being executed. 235 CU IDOL SELF LEARNING MATERIAL (SLM)","\uf0b7 Maintaining an accurate, timely information base concerned with the project output and its associated documentation till project completion \uf0b7 Providing information to support status reporting, progress measurement and forecasting \uf0b7 Providing forecasts to update current cost and current schedule information \uf0b7 Monitoring implementation of approved changes as they occur Project managers must ensure they control their unique, transient and unstable projects in order to achieve their objectives. Most of what a project manager does during the life of a project has a \u2018control\u2019 element to it: leading the project team, running meetings, managing stakeholders, etc. A lot of these activities rely on leadership skills such as effective communication, influencing, negotiation and conflict resolution (such skills are generally described as \u2018soft\u2019, but they certainly aren\u2019t easy.) The project manager also needs to employ \u2018hard\u2019, quantitative control processes and it is these that are the main focus of this publication. These processes address all three project dimensions \u2013 quality, time and cost, and therefore include all of the following: \uf0b7 Controlling the scope of the project \u2013 controlling change. \uf0b7 Ensuring that the project\u2019s products\/deliverables fulfil their requirements controlling quality. \uf0b7 Ensuring that activities happen on time \u2013 scheduling. \uf0b7 Ensuring that work is performed within budget \u2013 cost control. \uf0b7 Managing risks. \uf0b7 Managing problems and identifying issues (and obtaining external help to \uf0b7 resolve them). \uf0b7 Making sure that the project leads to benefits for the organisation. The control processes involve the collection and analysis of data, the identification of trends and variances, forecasting and the reporting of progress. It is also essential that the information gathered is acted on \u2013 without effective responses to actual and potential problems, the project is merely monitored. Processes require feedback via balance, sight and sound; some are routine and have become instinctive through experience (like balance); others require conscious attention (like navigation). There is a spectrum of control processes in operation, within which are processes that can be characterised as inner loop or outer loop. 236 CU IDOL SELF LEARNING MATERIAL (SLM)","12.2 INTERNAL AND EXTERNAL PROJECT CONTROL The outer loop control processes wrap around all projects and operate for as long as an organisation is undertaking projects. The inner loop control processes reside within individual projects but apply selectively in different phases of the project life cycle. Project control is fully applied during the implementation phase, which is usually the longest and most costly phase of a project. The initiation phase is pre-project, so there\u2019s no inner loop control; the outer loop life cycle management and portfolio\/programme management processes control the initiation phase. Inner loop control is necessary during the other life cycle phases, in full during implementation and with appropriately reduced application during the other phases, as shown in the figure below: Internal project management (IPM) and external project management (EPM) are two different sides of the same coin, so to speak. Both help a company get things done within a set timeframe, budget, and specifications. There are some who believe that an IPM is better than an EPM, and there are also others who would rather go for an EPM over an IPM. Which 237 CU IDOL SELF LEARNING MATERIAL (SLM)","of these two should you trust with the work that needs to get done? Is an IPM better than an EPM, or vice versa? Let us first understand what the difference is between the two, and what advantages you can get from either. In-house or internal project management is when you get people from within the company to handle the monitoring of the projects of your business. These people come from your existing manpower pool and are handpicked to handle the management of projects due to the skill sets and capabilities that they have. External project management, on the other hand, is when you hire people from the outside to do the same thing, but on a project basis. They are often experts at managing projects because technically, that is what they are marketing themselves as. Now, when it comes to figuring out which is better for your business, you first need to find out what the strengths and weaknesses of each are. You need to weigh the pros and cons of each to determine which type of project manager is ideal for your upcoming projects. It has been noted that IPM know the culture of the company, so there is a lower chance of conflicts between staff member occurring, as opposed to having an EPM working on some of the company\u2019s projects. This is just one thing though, so to get to the nitty-gritty, let us enumerate the benefits of each. Internal Project Management IPMs already know what the company\u2019s goals and objectives are, which may make them try harder to get things done. They also have ample knowledge about the company\u2019s operations, making it easier for them to manage and execute the projects that are given to them to handle. IPMs don\u2019t present the company with the possibility of data leaks as much since they are aware of the company\u2019s policies and processes regarding these security issues. They take care not to create situations that will jeopardize the company that they are working in therefore they try their best to ensure that things are done without jeopardizing the company\u2019s bottom line. External Project Management 238 CU IDOL SELF LEARNING MATERIAL (SLM)","EPMs are usually more experienced and have the kind of skill set that companies look for in project managers. This is because this is their specialization and they sell themselves to those who need them by highlighting these particular skills and expertise. They are more objective than IPMs, and when decisions need to be made for the sake of the project, they would not have any qualms about such decisions as long as the objectives of the project are met. EPMs are more focused on what they need to do since they do not have to worry about issues that occur internally. They are not exposed to and affected by company politics, making them more capable of getting these projects done according to defined guidelines and expectations. It has also been said that IPMs are more reactive in how they handle projects, while EPMs are more proactive. The decision to go with one or the other is basically dependent on what the company expects, and other factors like cash flow, lack of qualified personnel within, and the general lack of manpower. Either way, both types do have their pros and cons and it is up to you to decide which one you feel will work best for your company. 12.3 PROJECT COST CONTROL Cost control is the process of collecting actual costs and collating them in a format to allow comparison with project budgets. Cost control is necessary to keep a record of monetary expenditure for purposes such as: \uf0b7 minimising cost where possible; \uf0b7 revealing areas of cost overspend. Project Cost Management is a method that uses technology to measure cost and productivity through the full life-cycle of enterprise level projects. PCM encompasses several specific functions of project management including estimating, job controls, field data collection, scheduling, accounting and design. Cost control information is fundamental to the lessons learned process, as it can provide a database of actual costs. Cost control is the task of overseeing and managing project expenses and preparing for potential financial risks. This is typically the project manager's 239 CU IDOL SELF LEARNING MATERIAL (SLM)","responsibility. Cost control involves managing the budget, as well as planning, and preparing for potential risks. Risks can set projects back and sometimes even require unexpected expenses. Preparation for these setbacks can save your team time and potentially, money. 12.4 COST CONTROL TECHNIQUES Following are some of the valuable and essential techniques used for efficient project cost control: 1 - Planning the Project Budget You would need to ideally make a budget at the beginning of the planning session with regard to the project at hand. It is this budget that you would have to help you for all payments that need to be made and costs that you will incur during the project life cycle. The making of this budget therefore entails a lot of research and critical thinking. Like any other budget, you would always have to leave room for adjustments as the costs may not remain the same right through the period of the project. Adhering to the project budget at all times is key to the profit from project. 2 - Keeping a Track of Costs Keeping track of all actual costs is also equally important as any other technique. Here, it is best to prepare a budget that is time-based. This will help you keep track of the budget of a project in each of its phases. The actual costs will have to be tracked against the periodic targets that have been set out in the budget. These targets could be on a monthly or weekly basis or even yearly if the project will go on for long. This is much easier to work with rather than having one complete budget for the entire period of the project. If any new work is required to be carried out, you would need to make estimations for this and see if it can be accommodated with the final amount in the budget. If not, you may have to work on necessary arrangements for 'Change Requests', where the client will pay for the new work or the changes. 3 - Effective Time Management Another effective technique would be effective time management. Although this technique does apply to various management areas, it is very important with regard to project cost control. 240 CU IDOL SELF LEARNING MATERIAL (SLM)","The reason for this is that the cost of your project could keep rising if you are unable to meet the project deadlines; the longer the project is dragged on for, the higher the costs incurred which effectively means that the budget will be exceeded. The project manager would need to constantly remind his\/her team of the important deadlines of the project in order to ensure that work is completed on time. 4 - Project Change Control Project change control is yet another vital technique. Change control systems are essential to take into account any potential changes that could occur during the course of the project. This is due to the fact that each change to the scope of the project will have an impact on the deadlines of the deliverables, so the changes may increase project cost by increasing the effort needed for the project. 5 - Use of Earned Value Similarly, in order to identify the value of the work that has been carried out thus far, it is very helpful to use the accounting technique commonly known as 'Earned Value'. This is particularly helpful for large projects and will help you make any quick changes that are absolutely essential for the success of the project. 12.5 PROJECT COST MANAGEMENT SYSTEM Cost management is the process of estimating, allocating, and controlling project costs. The cost management process allows a business to predict future expenses to reduce the chances of budget overrun. Projected costs are calculated during the planning phase of a project and must be approved before work begins. With a project cost management system in place, integrating project schedules and cost estimates to develop time-phased budgets and forecasts, and measuring project performance and productivity using cost, hour, and quantity control elements is very easy. A project Cost Management System module supports all required processes including: budgeting, resource planning, time-phasing, progress and performance measurement, earned value management, cost and schedule analysis, change management, risk tracking, funds allocation, forecasting and reporting. Activity-based cost-management systems trace indirect and support expenses accurately to individual products, services and customers. ABC 241 CU IDOL SELF LEARNING MATERIAL (SLM)","systems use a simple two-stage approach similar to traditional cost systems. However, instead of using cost centers for accumulating costs, it uses activities. Implementing a cost management structure for projects can help a business keep its over-all budget under control. The first step in this is resource planning. This includes assessing resource requirements for future projects, the work that will go into them, and who or what is going into that work as well as time durations. With this information, a business can begin estimating the costs of the required resources. The business can then allocate resources. Cost performance should be able to be measured and assessed. Variances from cost baselines should be measured. If there are any differences between what is expected and what is measured, then corrective measures can be enacted to avoid going over budget. Changes to the process should also be measured. 12.6 PROJECT BUDGET MANAGEMENT SYSTEM AND RESOURCE REQUIREMENTS A project budget is the total sum of money allocated for the particular purpose of the project for a specific period of time. The goal of budget management is to control project costs within the approved budget and deliver the expected project goals. Our definition of a successful project is one that meets four success criteria: that the project\u2019s scope is delivered on schedule, it is delivered within budget and, once delivered, it meets the quality expectations of the donor and the beneficiaries. For project managers to be truly successful they must concentrate on meeting all of those criteria. The reality is that most project managers spend most of their efforts on completing the project on schedule. They spend most of their time on managing and controlling the schedule and tend to forget about monitoring and controlling the budget. The focus of this chapter is on managing and controlling the project budget throughout the entire project life cycle while relating budget control to the other success criteria. 242 CU IDOL SELF LEARNING MATERIAL (SLM)","Budget management consists of a series of tasks and steps designed to help manage the costs of the project, the steps are: \uf0b7 Defining the Budget \uf0b7 Executing the Budget \uf0b7 Controlling the Budget \uf0b7 Updating the Budget Inputs: Inputs for the project budget management include the following documents or sources of information: \uf0b7 WBS \uf0b7 Project contract or initial budget \uf0b7 Resource requirements \uf0b7 Resource cost estimates \uf0b7 Activity duration estimates \uf0b7 Historical information \uf0b7 Market conditions \uf0b7 Donor and organization policies Chart of accounts structure (COA) Outputs: The project team will use the above information to develop three important documents for the project: \uf0b7 Cost estimates by activity \uf0b7 The Project Budget \uf0b7 The Budget Variance Report 243 CU IDOL SELF LEARNING MATERIAL (SLM)","Project Budgeting is performed on the initial stages of project planning and usually in parallel with the development of the project schedule. The steps associated with budgeting are highly dependent to both the estimated lengths of tasks and the resources assigned to the project. Budgeting serves as a control mechanism where actual costs can be compared with and measured against the budget. The budget is often a fairly set parameter in the execution of the project. When a schedule begins to slip, cost is proportionally affected. When project costs begin to escalate, the project manager should revisit the Project Plan to determine whether the scope, budget, or schedule needs adjusting. To develop the budget, the applicable cost factors associated with project tasks are identified. The development of costs for each task should be simple and direct and consist of labor, material, and other direct costs. The cost of performing a task is directly related to the personnel assigned to the task, the duration of the task, and the cost of any non-labor items required by the task. Defining the Budget The project manager is responsible to estimate the budget required to complete project activities. The Project Manager should allocate all costs to project activities, and all aspects of the project, including the cost of internal and external human resources, equipment, travel, materials and supplies, should be incorporated. The budget should be much more detailed and more accurate than it was on the project proposal. In the case the project manager starts her job with a contracted budget, the project manager needs to review the assumptions made during the project proposal stage and verify that the agreed on the scope can be accomplished in the contract budget. The Project Manager can use manual or automated tools to generate the budget estimate. The budgeting tools may be simple spread sheets or complex budget estimating tool. For historical purposes, and to enable the budget to be refined, the Project Manager should always maintain notes on how this budget was derived. Cost estimating checklists help to ensure that all preliminary budgeting information is known and all bases are covered. The Project Manager must also include in the budget the cost of both the human resources and the equipment and materials required to perform the work. The method by which staff and products will be acquired for the project will directly affect the budgeting process. 244 CU IDOL SELF LEARNING MATERIAL (SLM)","A number of constraints, financial, political, and organizational, may dictate the methods by which resources such as personnel, equipment, services and materials are acquired. The Project Manager needs to be aware of existing resources acquisition policies, guidelines, and procedures. In addition, the preferences of the beneficiaries and\/or the donor representatives may influence acquisition decisions. Information from similar past projects can be used to gain an understanding of budgeting strategies; those that were successful and applicable may be considered for implementation for the current project. As the budget estimate is being developed, additional tasks may be identified because the work is being further defined. It may be necessary to update the WBS and the project schedule to include the activities identified during the budget estimating, such as equipment, materials, and other non-human resources. The budget management plan is a description of the method for how expenses will be managed, including a preliminary disbursement. Resource Requirements Resource requirements involve determining what resources (people, equipment, services, and material) and the quantities of those resources are required to complete the project. The projects\u2019 WBS, scope statement, historical information, resource information, and policies are inputs used to determine the resources for the project. The main output is a list of resource requirements that provide the basis for budget estimating and budget controls, and provide valuable information to the project resource management process. There are four typical types of resources under which all requirements can be grouped: \uf0b7 Human or Labor resources; including consulting services, consist of the right people with the expertise and skills needed to complete the activities on the project schedule. People may come from the organization, or hired for the duration of the project. People skills also include consultants who bring a high level technical expertise that is not found in the organization or in the local labor market. The project will develop a list of the human resource requirements detailing the expertise level, areas of experience, education and language requirements. This information will be used in the Resource management process to acquire or contract the right people. For example the following list the human resources needed by a project: 245 CU IDOL SELF LEARNING MATERIAL (SLM)","As a final output of this exercise the project will have a complete list of all the requirements needed for the project, this can be in the form of a spread sheet organized by either the order that came from the WBS or by the organization\u2019s or donor\u2019s chart of accounts. 12.7 CASE STUDY Here we present a case study that takes place in the IT division of French Bank that has developed an ABC method since several years. We describe how the ABC model has evolved toward a process that enables to compare the performances of different customers. Finally, we will explain the underlying reasons of this evolution, explaining how the teams that develop computing solutions are more and more under pressure; in this context, the Activity- based costing model described is a manner for the managers to benchmark different computing proposals and to retain only the most profitable one. With this case study, we will conclude about the new forms of management controls and controllers that emerge. 12.8 SUMMARY \uf0b7 Project managers must ensure they control their unique, transient and unstable projects in order to achieve their objectives. Most of what a project manager does during the life of a project has a \u2018control\u2019 element to it: leading the project team, running meetings, managing stakeholders, etc. \uf0b7 The outer loop control processes wrap around all projects and operate for as long as an organisation is undertaking projects. The inner loop control processes reside within individual projects but apply selectively in different phases of the project life cycle. \uf0b7 Internal project management (IPM) and external project management (EPM) are two different sides of the same coin, so to speak. Both help a company get things done within a set timeframe, budget, and specifications. 246 CU IDOL SELF LEARNING MATERIAL (SLM)","\uf0b7 Cost control is the process of collecting actual costs and collating them in a format to allow comparison with project budgets. Cost control is necessary to keep a record of monetary expenditure. \uf0b7 Cost management is the process of estimating, allocating, and controlling project costs. The cost management process allows a business to predict future expenses to reduce the chances of budget overrun. \uf0b7 A project Cost Management System module supports all required processes including: budgeting, resource planning, time-phasing, progress and performance measurement, earned value management, cost and schedule analysis, change management, risk tracking, funds allocation, forecasting and reporting.. \uf0b7 Implementing a cost management structure for projects can help a business keep its over-all budget under control. \uf0b7 A project budget is the total sum of money allocated for the particular purpose of the project for a specific period of time. The goal of budget management is to control project costs within the approved budget and deliver the expected project goals. \uf0b7 Variances from cost baselines should be measured. If there are any differences between what is expected and what is measured, then corrective measures can be enacted to avoid going over budget. Changes to the process should also be measured. \uf0b7 A project budget is the total sum of money allocated for the particular purpose of the project for a specific period of time. The goal of budget management is to control project costs within the approved budget and deliver the expected project goals. \uf0b7 Our definition of a successful project is one that meets four success criteria: that the project\u2019s scope is delivered on schedule, it is delivered within budget and, once delivered, it meets the quality expectations of the donor and the beneficiaries. \uf0b7 Resource requirements involve determining what resources (people, equipment, services, and material) and the quantities of those resources are required to complete the project. 12.9 KEYWORDS \uf0b7 Project Cost Management- The use of an information system to estimate, measure, and control costs through the project life cycle. It aims at completing projects within budgets. 247 CU IDOL SELF LEARNING MATERIAL (SLM)","\uf0b7 Project Budgeting System- The process of determining budget for a project is an activity of aggregating the cost estimates of individual activities, or a work package, to develop the total cost estimate that allows setting a formal cost baseline \uf0b7 Project Cost Control- Cost control is the task of overseeing and managing project expenses and preparing for potential financial risks. This is typically the project manager's responsibility. Cost control involves managing the budget, as well as planning, and preparing for potential risks. \uf0b7 External Cost Control- An external cost is the cost incurred by an individual, firm or community as a result of an economic transaction which they are not directly involved in. External costs, also called 'spillovers' and 'third party costs' can arise from both production and consumption. \uf0b7 Internal Cost Control- The internal cost refers to the cost required by manufacturing or purchasing an item and it includes material cost, labor cost, expenses, subcontract processing cost, and overhead cost. \uf0b7 project cost management systems- Cost management systems are simply the methods used to evaluate the results of decisions made as a result of cost management strategies. \uf0b7 Activity based costing- Activity-based costing is a costing method that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each. 12.10 LEARNING ACTIVITY 1. What is cost management in project management? ___________________________________________________________________________ ___________________________________________________________________________ 2. What are the functions of project cost management? ___________________________________________________________________________ ___________________________________________________________________________ 12.11 UNIT END QUESTIONS A. Descriptive Questions 248 CU IDOL SELF LEARNING MATERIAL (SLM)","Short Questions 1. How do you monitor and control project costs? 2. What are the steps for external project control? 3. Discuss some components for internal project control. 4. Discuss the external project control 5. Note on project cost control Long Questions 1. Define Project Control and discuss its components. 2. Discuss the difference between external and internal project control. 3. What are the techniques for cost control? 4. What is a Project Cost Management System? 5. How do your account for resource requirements in a budget? B. Multiple Choice Questions 1. A project budget estimate that is developed with the least amount of knowledge is known as which of the following? a. Conceptual estimate b. Rough order of magnitude (ROM) estimate c. Scope of work estimate d. Milestone schedule estimate 2. According to the PMBOK guide, which of the following statements is right in terms of using reserve analysis to determine a project budget? a. Reserve analysis always plans contingency reserves for unexpected project scope and project costs, which are part of your project budget b. Reserves should not be included in the project budget. c. If you only have limited resources, you may completely ignore reserve analysis when you try to determine your project budget. d. Planning contingency reserves for a project is not practical. 3. The _____ is the difference between the additional money spent on prevention and the corresponding reduction in the cost of failure a. cost of quality b. cost-benefit analysis 249 CU IDOL SELF LEARNING MATERIAL (SLM)","c. implicit cost d. variable cost 4. Which of the following project baselines provides the basis for measurement of the expected cash flow against requirements over time and is often displayed as an S curve? a. Cost performance baseline b. Scope baseline c. Plan baseline d. Initiation baseline 5. The conceptual estimate is developed with the least amount of knowledge. When more information is known, the project team can develop a: a. rough order of magnitude (ROM) estimate b. work breakdown structure c. critical estimate d. scope of work Answer 1\u2013 a, 2 \u2013 a , 3 \u2013 a, 4 \u2013 a, 5 \u2013 a 12.12 REFERENCES \uf0b7 College, Kathy Schwalbe, Ph.D., PMP, Augsburg (2012). Information technology project management (Seventh ed.). Boston, MA: Course Technology. ISBN 9781133526858. \uf0b7 Rad, P.F. (2002). Project Estimating and Cost Management. Management Concepts. ISBN 9781567261448. Retrieved 2015-09-14. \uf0b7 Broadleaf. 2016. \u201cComplexity and project risk.\u201d Broadleaf. January. http:\/\/broadleaf.com.au\/resource-material\/complexity-and-project-risk\/. \uf0b7 Burger, Rachel. 2017. \u201cBusiness Agile and the Future of Project Management.\u201d Capterra Project Management Blog. August 14. https:\/\/blog.capterra.com\/business-agile-and-the-future-of-project-management\/. 250 CU IDOL SELF LEARNING MATERIAL (SLM)"]