Project Management Tools

There are various methods that can be used to control the schedule and cost of a project. The inflation of a project based on PERT estimating and incorporating risk has several pros and cons. In this discussion, we are going to discuss PERT estimating, risk analysis, and building a management reserve to help control the cost and progress of a project.

Program evaluation and review technique (PERT) is an estimating method which allows the incorporation of risk variables into the work effort, and uses a weighted average to estimate task effort. With the use of PERT, extensive planning is required to determine the critical path analysis. Some of the advantages of using PERT include the following: were the greatest effort should be made to keep the project on schedule, probability of meeting deadlines be the development of alternative plans, the ability to determine the effect of changes to the project, and accurate data is provided so critical decisions can be made by team members. Some of the disadvantages of PERT include high cost of capital, time and labor intensive, ability to make decisions is reduced, limited historical data for time-cost estimates, lacks functional ownership in estimates, assumes unlimited resources, and requires too much detail. PERT is very useful on many projects and is calculated using the following formula: “Te = to + 4tm + tp / 6, where to = most optimistic, tm = most likely, tp = most pessimistic.

Risk is a measure of the probability and the consequence of not achieving a defined project goal. All projects have a certain degree of risk associated with the ability to complete the proposed task on time and within budget. When you consider the various risk associated with different projects, the possible consequences of the damage caused by the risk should by considered. The two primary components of risk for most events are the probability of the event and the impact of the event if it occurs. The two ways that risk can by measured for project management are through Quantitative and Qualitative Risk Analysis.

Qualitative Risk Analysis includes methods for prioritizing the identified risk for further action and assesses the priority of identified risk using their probability of occurring, the corresponding impact on the objectives if the risks do occur, as well as other factors such as the time frame and risk tolerance of the project constraints of cost, schedule, scope, and quality. Qualitative Risk Analysis is a quick method with little expense that is used to help identify the priorities of the various risk associated with a project, to aid in the development of Risk Response Planning, and establishes the foundation for Quantitative Risk Analysis.

Quantitative Risk Analysis is performed on risks that have been prioritized by the Qualitative Risk Analysis process as potentially and substantially impacting the project’s competing demands. The Quantitative Risk Analysis process analyzes the effect of those risk events and assigns a numerical rating to those risks and presents a quantitative approach to making decisions. Quantitative Risk Analysis is usually completed after the Qualitative Risk Analysis and some projects do not require this type of risk analysis to develop an effective risk management plan, depending on the time requirements, budget concerns, and the type of project.

Management reserves are the contingency funds established by the program manager to counteract unavoidable delays that can affect the project’s critical path. Management reserves cover unforeseen events within a defined project scope, but are not used for unlikely major events or changes in scope. Management reserves are funds that are built into the project budget. If a major change in scope is required to complete a project, the funding comes from contingency funds, which are created by the management team and come from external sources. The advantage of having management reserves and contingency funds is to cover unforeseen expenses as the project progresses such as increase cost, delays, inflation, escalation, and change of scope. The disadvantages of management reserves include the following: the work at hand expands to fill the time available and expenditures rise to meet budget.

Earned Value is a method for measuring project performance. It compares the amount of work that was planned with what was actually accomplished to determine if cost and schedule performance is as planned. Many project managers use earned value to determine if costs and schedules are not being achieved as planned so they may address the problems as soon as possible to make appropriate corrective action. The Earned Value concept works with three parameters:

1. Planned costs or Budgeted Cost of Work Scheduled (BCWS)
2. Actual Costs or Actual Cost of Work Performed (ACWP)
3. Value of work performed or Budgeted Cost of Work Performed (BCWP).

These metrics are converted into cost and schedule performance indices (CPI and SPI) to assist in forecasting the expected completion date and the total cost for the project. The proper use of PERT estimating, Qualitative Risk Analysis, Quantitative Risk Analysis, management reserves, and earned value help projects run as planned, on time, and within budget. Taylor and Associates will be glad to provide Project Management Services which are unique to your organization which will ensure projects are completed successful, on time, and within your budget.

J. Taylor