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Projects
1. What is a Project?
a. Specific objective
b. Unique—not been done before
c. Specific start and stop time
d. Multiple and specific resources (department specialization)
e. 3 criteria for Success
i. On Time (schedule)
ii. On Budget (cost)
iii. Quality (Performance requirements, expectations).
2. Project Examples?
a. Increasing seating capacity in sports stadium.
b. Manufacturing cell phones in China.
c. Planning/building regional distribution center.
d. Preparing a $10M business contract.
3. Project Life cycle
a. Defining project
i. Most influence, least cost to change
b. Planning project: Before any work is performed.
i. Conceptualizing and designing the project idea.
ii. Work breakdown of project into tasks.
iii. Scheduling tasks.
iv. Assigning resources.
v. During Planning: High influence/low cost to change.
c. Executing the project
i. Increasingly lower influence, higher cost to change.
ii. Doing the actual work
iii. Monitoring the project with progress indicators
1. Cost
2. Time
3. Quality
d. Delivering to Customer
i. Lowest influence to change, highest cost to change.
ii. Handing over including training is expected
iii. Releasing resources
iv. Closing out project files.
4. Importance of Project Management:
a. Results from increased business pressures.
b. Accelerated pace of business life.
c. Strategy initiatives are conceptualized, planned, and initiated as projects.
d. Work assignments in an organization can be viewed as a task or an activity in a company.
e. Project management means managing (organizing, scheduling) these tasks and activities.
f. Need for controlling business costs.
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Which of the following would you say are not a project?
On what characteristic did the item FAIL?
5. Are these Projects?
a. Manufacturing vehicles (automobiles)
b. Planning and conducting an advertising campaign for new product.
c. New building construction.
d. DHL or FEDEX package deliveries
Other Examples • Designing/Testing new Cell Phone Prototype
–Design, Marketing, Production, Software, Testing, Feedback, Performance evaluations, …
• Advertising Strategy
–Market Analysis, Target Objective, Media Selection, Message Format, film crew, actors,
script
• National Conventions
–Location, Events, Lodging, Transportation, Media Coverage, Food, …
• Olympic Games
–Venue Objectives, New Facilities, Transportation, Communication Technology, Security, etc.
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BUSINESS STRATEGY AND PROJECT MANAGEMENT
Implementing Strategies Through Projects
Selecting and Assessing Appropriate Projects
1. Why is it Important to view strategies as projects?
a. Business managers need business strategies to compete?
• Low cost.
• Product differentiation (BMW vs. Volkswagen Beetle)
b. Strategies need to be translated into something concrete and functional: Projects.
• Example #1: Wal-Mart. Low cost strategy.
o Creative supply-chain ideas translate into projects.
o Regional distribution warehouses. Great strategy idea.
§ Somebody needs to plan, simulate operations, construction, bids,
design/test sortation system, research vendors and contracts, etc.
§ But, also, somebody has to do work effort to actually turn your creative
idea into a strategic reality (the supply-chain operations).
o Negotiated low-cost contracts with suppliers.
§ Again, all of the concepts of researching, contacting, negotiating, creating
business procedures, etc. need somebody to do the work effort to turn
these ideas into a strategic reality.
•
Example #2: Premiere entertainment company. Differentiation strategy.
o Produce films that support the company mission.
o Films will be seen as projects
o Film project consists of actors, video equipment, film sets, video taping, location
analysis, story boarding, scripting, directing, etc.
Assumption: Strategy is about competing against other competitors in the industry.
• Strategy is implemented by doing all kinds of activities and tasks. Somebody has to do some work.
• Projects and project management are about organizing the work effort of tasks and activities.
• People do work effort.
2. Linking Strategy to Projects: Specific Considerations
Work effort is how things get accomplished in an organization. When somebody has an idea (strategic,
operational, or even just a compliance) somebody has to put in some work effort to implement the idea. Project
management is about organizing and scheduling work.
1. Strategy is linked to projects by assessing the extent that project ideas support the mission and strategy
intentions of the company.
a. Understand the Mission
b. Projects are proposed and suggested by multiple sources in a company.
i. Executive management
ii. Departments
iii. Planning groups
2. Problem: Generally much variance in the degree to which proposed projects support strategies.
3. Need a way to assess the strategic value of a proposed project.
a. Does it support the company mission?
b. Does it support one or more strategies to accomplish the mission?
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4. Three Techniques to assess and select projects.
a. Financial Assessment:
A.
NPV feasibility approach.
1. Break even
2. Payback
3. Net present value to make comparisons equitable.
4. Cash flows are necessary for financial calculations
b. Project classification
A.
Three categories of project importance:
1. Compliance
2. Operational
3. Strategic
B.
Non-financial
C.
Judgment is used, but classifying is the key decision activity.
D.
A function of mandatory obligation vs. competitive advantage of some kind.
c. Project Screening Matrix (weighted criteria)
A.
Film prioritization is an example.
B.
Uses weighted scores (importance x weight)
1. Weights are judgment by a separate group
2. Objectives or Criteria Importance are also judgments
i. Assessing and prioritizing proposed projects.
1. Establish Objectives for evaluating proposed projects
2. Specify a relative importance (weights) for each objective, i.e., prioritize the
objectives.
3. Define a desirability or impact of objective
5. Establish a priority team to assess project proposals with the following criteria: a. Strategy/alignment: What strategy does this project align with? b. Risk: How does this project fit in our profile? What’s the risk?
c.
d.
e.
f.
g.
Risk: Schedule: ROI Benefits: ROI Benefits: Culture: i. Financial ii. Reputation iii. Conflicts with other strategies or business initiatives? What is the impact of not doing this project? How long will this project take? $ Value of the project to the organization? When will project show results? Is this project “right” for our organizational culture? Project Management
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3. Financial: PV and Pay Back Examples from Chapter Exercises a. Two new software projects are proposed to a young, start-up company. The Alpha project will
cost $150,000 to develop and is expected to have annual net cash flows of $40,000. The Beta
project will cost $200,000 to develop and is expected to have annual net cash flow of $50,000. The
company is very concerned about their cash flow. Using the payback period, which project is
better from a cash flow standpoint? Why?
Payback = Investment/annual savings
Project A: $150,000/$40,000 = 3.75 years
Project B: $200,000/$50,000 = 4.0 years.
*** Project A is the better pay back because it returns the investment in less time.
b. A five-year project has a projected net cash flow of $15,000, $25,000, $30,000, $20,000, and
$15,000 in the next five years. It will cost $50,000 to implement the project. If the required rate of
return is 20%, conduct a discounted cash flow calculation to determine the NPV.
A
1
2
3
4 Project 2-3
5 Investment
6 Required Rate of
Return
7
8 Cash Inflows
9 NPV
B
C
D
E
F
G
H
Exercise 2-3
Net Present Value Example
Year 0 Year 1 Year 2 Year 3 Year 4
-$50,000
I
Year 5
20%
$15,000 $25,000 $30,000 $20,000 $15,000
$12,895
Formula: = D5+NPV(C6,E8:I8)
***** Since the NPV is positive, accept the project.
J
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4. Project Classification Example
You manage a hotel resort located on the South Beach on the Island of Kauai in Hawaii. You
are shifting the focus of your resort from a traditional fun-in-the-sun destination to ecotourism. (Eco-tourism focuses on environmental awareness and education.)
Project Categories
By classifying the projects, prioritizing is more easily done. Different selection criteria can
be used for selecting strategic versus operational projects. Financially, senior management
would have more information to divide the total money pie allocated to projects.
a. Compliance
b. strategic
c. operational
How would you classify the following projects?
a. Convert the pool heating system from electrical to solar power.
b. Build a 4-mile nature hiking trail.
c. Renovate the horse barn.
d. Replace the golf shop that accidentally burned down after being struck by lightning.
e. Launch a new promotional campaign with Hawaii Airlines.
f. Convert 12 adjacent acres into a wildlife preserve.
g. Update all the bathrooms in condos that are 10 years or older.
h. Change hotel brochures to reflect eco-tourism image.
i. Test and revise disaster response plan.
j. Introduce wireless Internet service in café and lounge areas.
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5. Weighted Matrix Assessment and Selection Method
This method uses weighted values to represent how important certain objectives are to a company
or stakeholder. It includes a stakeholder input and the input from a priority assessment team (or
person)
Generally, upper management sets the criteria (objectives) and weights (relative importance) for
the company or business. Weights could range from 1-10 or 1-100. However, for job searching
and selection or if you are running a small business, you will be the major stakeholder in the
project. So, you decide the criteria and/or the want objectives in the selection matrix. You also
decide the weight to assign to each objective, which you will see is the same as the relative
importance in the job selection problem or the film case.
A priority assessment team will be established to use its judgment on assigning an outcome or
impact score or value for an objective for each project being considered. The score or value will
typically be based on a 1-2-3 range representing low, medium, or high impact or outcome. Think
of this as an exercise in evaluating how well you think that the project will yield a low, medium, or
high outcome on this particular objective.
In summary, upper management or some team at a higher level with a lot of experience will
establish the objectives or criteria and the weight or relative importance. A lower level priority
assessment team will use its judgment to decide the outcome or impact that the project will have
on the objective or criterion being considered.
The weighted matrix allows you to set up your objectives and assign a score to how important they
are to you (management), but also allows you to include the possibilities of the objective happening
(or its potential impact or outcome—film case that follows) for this particular project. By
multiplying the importance (weight) by the possibility or impact, you can calculate a score that will
allow you to determine your highest and lowest priority ranking of the decision alternatives
(company to work for, project, etc.).
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Simple Example:
An interesting and fun example to learn the usefulness of a priority-ranking matrix would be
selecting which job opportunity you would be inclined to accept after graduation this year.
You have set up a priority matrix and created columns for the following:
• Objectives you want to satisfy with the new company job. You would like a good salary,
nice friendly work environment, etc.
•
The relative importance of these objectives (weighted values) You are the major
stakeholder, so you have set these weights according to how much they are important to
you. I.e., your have weighted having a good salary at 80 as more important to you than job
benefits at 30.
•
The outcome or impact of the objective for your company selection. This column is your
estimation about the possibility of realizing (or achieving) the want objective, i.e., for the
government job, you estimate a medium (average) chance of getting a good salary.
o Low:
Not much chance or possibility of happening. . . (bummer on this)
o Medium:
Average chance
o High:
Real good chance . . . . . . . . . . . . . . . . . . . . . . . . (great on this)
Want
Objectives
Relative
Importance
Good Salary
80
Friendly Work
Environment
50
Benefits
30
Travel
Opportunities
20
Advancement
Opportunities
60
Meaningful
Work
75
Outcome,
Impact or
Possibility
1 = Low
2 = Medium
3 = High
1 = Low
2 = Medium
3 = High
1 = Low
2 = Medium
3 = High
1 = Low
2 = Medium
3 = High
1 = Low
2 = Medium
3 = High
1 = Low
2 = Medium
3 = High
Government
Company A
High
Pressure
Company B
Relaxed
Company
Company C
2
160
3
240
1
80
2
100
1
50
3
150
2
60
3
90
2
60
1
20
1
20
2
40
2
120
2
120
1
60
2
150
3
225
2
150
610
745
540
It looks like you would select the high pressure job because the total score from your weighted matrix
is the highest of the three scores.
Questions:
• How do you decide the want objectives?
•
How do you decide the relative importance?
•
How do you decide the impact or possibility?
•
Why is there such a difference among your three job opportunities (projects)?
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The Custom Bike Company has set up a weighted scoring matrix for evaluation of potential
projects. Below are five projects under consideration.
A.
Using the scoring matrix below, which project would you rate highest? Lowest?
B.
If the weight for " Strong Sponsor" is changed from 2.0 to 5.0, will the project selection
change? What are the three highest weighted project scores with this new weight?
C.
Why is it important that the weights mirror critical strategic factors?
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ANSWERS
Project Classification Example
You manage a hotel resort located on the South Beach on the Island of Kauai in Hawaii. You
are shifting the focus of your resort from a traditional fun-in-the-sun destination to ecotourism. (Eco-tourism focuses on environmental awareness and education.) How would you
classify the following projects?
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
Convert the pool heating system from electrical to solar power.
Build a 4-mile nature hiking trail.
Renovate the horse barn.
Replace the golf shop that accidentally burned down after being struck by lightning.
Launch a new promotional campaign with Hawaii Airlines.
Convert 12 adjacent acres into a wildlife preserve.
Update all the bathrooms in condos that are 10 years or older.
Change hotel brochures to reflect eco-tourism image.
Test and revise disaster response plan.
Introduce wireless Internet service in café and lounge areas.
Possible Answers to Eco-Tourism Exercise #1 (Chpt 2)
a. Convert the pool heating system from electrical to solar power.
• Operational—increases the energy efficiency.
b. Build a 4-mile nature hiking trail.
• Strategic—could be part of a strategy to promote eco-tours or an eco-friendly location.
c. Renovate the horse barn.
• Operational—most likely upgrading or improving something about using the barn.
d. Replace the golf shop that accidentally burned down after being struck by lightning.
• Compliance—we must have a golf shop at the resort.
e. Launch a new promotional campaign with Hawaii Airlines.
• Strategic—if assuming non-Hawaiian airline and wanting to promote eco-tourism.
• Operational if it were to simply haul passengers to the island or island-hop.
f. Convert 12 adjacent acres into a wildlife preserve.
• Strategic—supports the mission of promoting eco-tourism.
g. Update all the bathrooms in condos that are 10 years or older.
• Operational—at some point, anything will need updating to increase efficiency or convenience.
h. Change hotel brochures to reflect eco-tourism image.
• Strategic—supports new mission of eco-tourism.
i. Test and revise disaster response plan.
• Compliance—this is a must for the safety of the guest and employees.
j. Introduce wireless Internet service in café and lounge areas.
• Operational—no urgent need and not related to eco-tourism, but more efficient than using
wires.
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Project Strategy, WBS-OBS
The Custom Bike Company has set up a weighted scoring matrix for evaluation of potential projects.
Below are three projects under consideration.
A.
Using the scoring matrix below, which project would you rate highest? Lowest?
Rate Project 5 the highest (107) and project 2 (66) the lowest.
B.
If the weight for " Strong Sponsor" is changed from 2.0 to 5.0, will the project selection
change? What are the three highest weighted project scores with this new weight?
Yes. Three highest are Projects 3, 5, and 1.
Given the new strong sponsor weight, Project 3 becomes the first choice. However, note
that Project 5 is still the near equivalent of Project 3 by the weighting scheme.
C.
Why is it important that the weights mirror critical strategic factors?
§
§
§
The weights represent the decision maker’s perspective on what is important about each project. Ideally, the weights reflect the importance of the criteria (we want this) to supporting strategic goals. If weights are not well thought out, it would be possible that projects would be selected that DO NOT contribute or align very well with the strategic plan. 25
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CASE STUDY
The following pages present the film case and questions that refer back to the concepts on the
previous pages.
Film Prioritization Case
1. Objective of Case: To see how a simple quantitative priority system can be used to select and prioritize
projects according to an organization’s objectives and strategic plan. In this case the priority system is the
weighted matrix selection method.
2. Implement strategy through projects
a. Mission: World’s premiere entertainment company with high shareholder value.
b. Measurable Objectives for Film Line of Business (these are set by upper management):
i. Best Picture Nomination
ii. Additional Merchandise
iii. New Major Animated Character
iv. Raise Environmental Concerns
v. Generate Profit > 18%
vi. Advance State of Film Animation
vii. Provide Basis for New Theme Ride
c. Strategy: Produce 3-4 new films each year.
d. Projects: Each film will be a major project undertaking to plan, cast, locate, shoot, edit, etc.
3. Objectives
a. Must Objectives (all 3 must be satisfied or the proposed film project is N/A and ranked ZERO):
i. Legal, safety, environment compliance.
ii. PG or lower advisory rating (family image).
iii. No adverse effect on current or future planned operations within the larger company.
• Poor understanding of current political, economic, geo-cultural, religious, etc. issues
b. Want Objectives: Defined in list above (2.b), such as Best Picture,… New Theme Ride.
Note on ROI want objective: The company places a high premium on films that have shown the
likelihood of returning a higher ROI.
• Escape from Rio Japuni would rate much higher than the others with its 15%. ROI (p = .80).
• Heidi would rate very low at the p = .80 level (2% ROI).
4. The objectives and proposed films for this year’s strategy implementation are formed into a priority
evaluation form, partially illustrated below.
a. A company managerial team has assigned a Relative Importance score for each Want Objective, e.g.,
60.
b. You are part of a priority assessment team, which must decide the Potential Impact that the project
will have on the Want Objective, i.e., 2—high potential for Best Picture (example below).
c. You calculate the total weighted score for each film by summing the weighted scores for each
objective.
d. You record the total weighted score at bottom of form.
e. You rank the films based upon their rankings: 7= highest , 6 = next highest, ..… 1 = lowest.
Must Objectives Must meet if Impacts 1 2 3 4 etc. Meets all safety and environmental
standards
Want
Objectives
Nominated for
Best Picture of
the Year
Relative Importance Y = yes
N = no
N/A = not applicable
Single Project
Impact Definitions
Weighted Scores
1=lowest, 100=highest
60
0 = No Potential
Impact
1 = Low potential
2 = High potential
120
Assume that film #1
was evaluated by the
priority team as a “2,”
i.e., having High
Potential for Best
Picture.
Score of 120 = 60 * 2
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Rio Japuni appears to have about a 60% chance of achieving the desired profit at18%.
Nadia appears to have only about a 30-35% chance of achieving the desired profit at18%.
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Questions.
Rank the film projects according to the following:
b. Establish a priority team to assess project proposals with the following criteria:
A.
Strategy/alignment: What strategy does this project align with?
B.
Risk:
How does this project fit in our profile?
What’s the risk?
• Financial
• Reputation
• Conflicts with other strategies or business
initiatives?
C.
Risk:
What is the impact of not doing this project?
D.
Schedule:
How long will this project take?
E.
ROI Benefits:
When will project show results?
F.
Culture:
Is this project “right” for our organizational culture?
1. What is the rationale behind some of the differences in scoring?
2. Does the "Dalai Lama" film violate a "MUST" objective?
3. What would you say is the value in using this kind of approach to select and prioritize
projects?
Relative importance score:
Weighting value (impact likelihood)
4. Do you think it is possible to reduce the role of organizational politics in project selection
Can a system like this assist in aligning projects with the strategy and objectives of the firm?
Interferes with Disney objective to set up a theme park in China. Tibet would like
independence from China. It is a sensitive topic for the Chinese leadership. So,
producing such a film would appear to be supportive of the Tibetan cause, and thus
could most likely be interpreted as a slap in the face to the Chinese.
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WBS -- OBS
Work Breakdown Structure (WBS)
Organizational Breakdown Structure
(OBS)
1. Objective: What can you tell me about the structure of the project?
What are the objectives and sub-deliverables for this project?
What are the tasks required to produce sub-deliverable for the overall
project? What roles do the various departments play in producing the
project?
2. Why is this topic Important to the project manager?
The project manager needs to know the scope of the project.
How many sub-deliverables are in the
project? How many tasks are expected to be
dealt with? What departments will be doing
the work (tasks)?
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Why is Work Break Down Important to Understand?
1. How do any kind of results get accomplished in a company or an organization?
a. All Non-routine work is a project.
b. All projects require planning, decisions, and work
i. Planning:
1. Setting objectives
2. Preparing schedules for work to be done.
ii. Decisions
1. Who will work and when
2. Adjusting project schedules
iii. Work
1. Defining the work activities (tasks)
2. Assigning resources to the activities (labor, machines,…)
2. People do work to produce results
• Examples:
• Plan a product promotion
o contact media company
o discuss promotion objectives
o hire actors
o set up staging for video taping
• Provide on-site customer support for teleconference.
o Install satellite dish and electronics.
o Install computer and cable connections
o Adjust and set up equipment for viewing
Two Kinds of Work in a Company
• Standardized and Routine Work: payroll, inventory reordering, delivery scheduling, shift
scheduling.
• Non-Routine Work: One-time jobs or business objectives: Produce promotion, customer support,
building construction.
This course is NOT about standardized work.
Non-routine work will be referred to as a JOB or a PROJECT.
• The project consists of producing a very large single deliverable.
• WBS (Work Breakdown Structure)
o A break down of the work required to produce a deliverable.
o Sub-deliverables
o Numerous tasks or work activities (usually referred to as Work Packages)
• Combining the deliverables results in the Project being completed.
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Projects: WBS, Costs, and Network Schedule
WBS: The WBS shows a hierarchical breakdown of the project deliverable into major and then
minor sub-parts or sub-deliverables. In addition, it shows how the project deliverable breaks down into the final
work tasks necessary to complete the project. This allows management to understand the composition of the
product and to know what parts need to be ordered and/or what tasks and activities need to be performed
for each sub-deliverable. The WBS sub- deliverables and tasks are NOT organized along any time line;
rather, they are organized according to how they would assemble back together to produce the overall
product.
Project
Deliverable
Lowest
Sub-deliverable
Cost Account
Work Package
Completed Project
Major deliverables
(components of project
Lowest management
responsibility level
Lowest level component or part that can
function on its own (brake assembly,
disk drive, speaker, software module, etc.)
A group of work packages assigned to produce a particular sub-deliverable.
Cost account is what connects work package activity to sub-deliverable results.
• People doing (specialized) work to produce a (particular) sub-deliverable.
• Assigning people (their work) to a particular sub-deliverable objective (results)
Single focus, identifiable
work activities or tasks
Deliverables and sub-deliverables: The results that people produce.
Work packages (tasks): The work details that people will perform.
• Work description and focus:
What am I supposed to work on?
• Estimated hours of work:
How long will it take to accomplish this particular task?
• Estimated cost per hour.
What will be the cost/hour for the worker?
Work packages: characterized by the following:
• Identifies the single deliverable (kind of work) that can be produced.
• Identifies the time (days or weeks, etc.) to complete the work package.
• Identifies a time-phased budget to complete the work (cost).
• Identifies a single person responsible for the work package.
• Identifies monitoring points if a long period of time required.
The WBS represents a DECOMPOSITION into ALL the
• Various “parts” (tasks and activities) that can be worked on and produced by people
• from various organizational units or departments.
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WBS for Bicycle
Bicycle
Frame
Handle
Bars
Body Seat
Gears
Sprocket
Shifter
Wheel
Tires
Rim
Brakes
Spokes
Front
Back
Detailed WBS
The following example illustrates the hierarchical organization of a WBS chart and its natural
outline codes to keep track of various levels of sub-deliverables and tasks.
WBS for Remodeling Computer Lab
1
Remodeling for Computer Lab
1.1
Room
1.1.1
Construction
1.1.1.1
Electrical
1.1.1.1.1
Planning
1.1.1.1.2
Purchase
Supplies
1.1.1.1.3
Install Wiring
Sub-Deliverables
1.1.1.2
Drywall
1.1.1.2.1
1.1.1.2.2
1.2
Computers
1.2.1
1.2.2
Work Packages or
tasks or activities
Take out old
drywall
Install new
drywall
Model
Purchase
Order
Verbs: Work means exerting effort,
i.e., some kind of action, hence, verbs.
(underlined verbs)
Nouns
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Project Strategy, WBS-OBS
Cost Account: The intersection of the WBS and the OBS results in the cost account, which provides
complete information to management about the work to be performed and the reason for performing that
work. We know the exact quantity of specialists and resources required to complete the work. We know the
cost/hour of the specialists and the material costs; hence we know the cost to complete the work package.
And the time-phasing of the budgeted costs will allow us to know when to anticipate making payments for the
work. The concept of cash flow in a project stems directly from the time-phased budgets. When the timephased budgets are linked together in the network schedule, the company receives a clear picture of the date
and amount of cash flow needs that will
occur during the life of the project.
Summary of Cost Account:
• Intersection of WBS sub-deliverables and OBS responsible units.
• One or more work packages assigned to an organizational unit responsible for their work effort.
• Cost Account Value = sum of work package budgets for a particular sub-deliverable.
Integrated WBS/OBS
The graphic on the next page shows the work break down for producing a prototype personal
computer (PC). Specifically, it shows the break down for the hard drive within the disk storage unit offering
for this PC. Notice the following in the figure:
• The PC prototype has been broken down into sub-deliverables which require work packages
(tasks) at the lowest level.
• The organizational resource specialized areas have been identified who will work on various work
packages to produce the eventual lowest level sub-deliverable (motor, circuit board, chassis
frame, and read/write head).
• The intersection of the WBS and the OBS represents the cost account, which is the combination
of work packages that contribute to the sub-deliverable, but are identified with the specialized
department that will charge for the work/materials.
• Costs can be rolled up (accumulated) vertically by project deliverable or horizontally by
organizational responsibility.
• The work package cost estimates are derived from the organizational specialists estimating the
amount of effort (labor) and materials/machines required to produce various components that will
be assembled into the lowest level sub-deliverable. Example: the R/W head requires one work
package ($300) for its design, three work packages ($130, $140, and $130) to produce the
RW/head, and one work package ($100) for testing the R/W head. These three steps (design,
production, and testing) are necessary to product the R/W head and the cost will be billed back
to each of the specialty departments who have to justify paying their workers (resources) for
working on the work packages for the Read/write head.
• The work package costs are rolled up into the sub-deliverable cost ($800), which will be
combined with the other sub- deliverable to produce a higher level summary cost of $1,860),
which will again be rolled up with floppy ($500) and optical ($3,000) costs to produce an even
higher level management cost perspective of $5,360 for all storage units.
37
Project Management
Project Strategy, WBS-OBS
38
INTEGRATED WBS/OBS: This view combines the WBS with the OBS, a breakdown of the
organizational specialty departments (see diagram below). It shows the various kinds of specialty tasks that need to
be accomplished to contribute to the final completion of the WBS sub-deliverable.
The OBS is an organizational breakdown structural view of the project. It results from assigning various
departmental specialists in the company to work on specific tasks (work packages). Work packages (tasks)
represent the particular work effort (assigned to departmental specialists) that must be accomplished to complete a
particular sub-deliverable in the project. The OBS allows a project manager to know which departm ent
specialists are w orking on sub-deliverable objectives.
Summary Points of OBS:
• Organizational breakdown of specialists (engineers, assembly labor, computer programmers, purchasing)
• Specialist departments assigned to work packages.
• Project manager knows which department i s responsible for performing work on the project.
Note: The dollar sign notation signifies the following:
• “$” represents the Task Budgets for various work activities (tasks) performed. •
“$$” represents Cost Account budget (sum of task budgets at the intersection of OBS and WBS) •
Project Management
Project Strategy, WBS-OBS
39
Table Representation for the WBS and OBS: (summary view of both tables)
Notice how the WBS for the PC Prototype follows directly from the breakdown into sub-deliverables
according to the WBS breakdown from the diagram on the preceding page.
WBS Budget Breakdown
Total
1.1.3
1860
Hard Drive
1.1.3.1
Motor
1.1.3.1.4
1.1.3.2
1.1.3.2.1
Purchasing
Circuit Board
Design
Task 1
1.1.3.2.2
1.1.3.2.3
1.1.3.2.5
1.1.3.3
1.1.3.3.2
Task 2
Production
Testing
Software
Chassis Frame
Production
1.1.3.4
1.1.3.4.1
1.1.3.4.2
1.1.3.4.3
Read/Write Head
Design
Production
Testing
NOTE: Converting
Cost
10
between OBS and WBS
tables shows up on the
exam.
10
1000
300
$
$
400
120
180
Is the WBS showing: • cost accounts or • work packages? Where are or the tasks work packages this WBS 50
50
800
300
400
100
Notice how Design shows up in circuit board and in Read/Write Head above.
•
•
•
Design is one of the organizational departments (units)
Production is one of the organizational departments (units)
Etc.
OBS Budget Breakdown
Total
1860
Design
Cost
How many cost accounts does
Production have?
600
1.1.3.2.1
1.1.3.4.1
Production
1.1.3.2.2
Circuit Board
Read/Write
Head
Circuit Board
300
300
850
400
What are the cost account
identifiers for the Production
Dept?
____________
1.1.3.3.2
1.1.3.4.2
Chassis Frame
Read/Write
Head
Testing
50
400
220
1.1.3.2.3
1.1.3.4.3
Purchasing
1.1.3.1.4
Software
1.1.3.2.5
Circuit Board
Read/Write
Head
120
100
10
Motor
10
180
Circuit Board
180
____________
____________
Project Management
Project Strategy, WBS-OBS
40
Table Representation for the WBS and OBS
1. Fill in the task ID numbers for the shaded boxes in the table above. 2. Use any method you want to mark up the diagram below to illustrate the two different ways a person could use to show a cost account. 3. Why does Circuit Board not show an identifier = 1.1.3.2.4? Project Management
Project Strategy, WBS-OBS
41
Exercise: Explain the work that is required to produce the read-write head (1.1.3.4.) and who will
be doing this work (refer back to the integrated WBS-OBS diagram)
What (5 tasks): write in their task IDs, task dollar values and which department (who?) is doing
the work.
Task ID
(Which Task)
1.1.3.4.1.1
Cost
Who
Departments
Project Management
Project Strategy, WBS-OBS
42
OBS TABLE: This table represents the same work and budget for the Hard drive, but from the
viewpoint of the organization, i.e., the specialty departments.
1.
What is the major difference between the two table views of the project? a. The OBS and WBS rollup budgets are different. b. The departments are different. c. Tables are organized differently. d. The work tasks are the same. Project Management
Project Strategy, WBS-OBS
43
Roll-up View: The cost analysis allows management to view costs at different levels. The costs for
various work packages can be summarized as cost accounts (serving as cost control points), which convey the
information about how much it will cost for a particular organizational department or specialty area to produce
that group of work packages. These cost accounts can be summarized or “rolled up” into higher levels of cost to
provide a higher-level summary of project costs. Rollup means to summarize lower level cost values into higherlevel summary cost figures. The highest level of rollup will be the cost to produce the intended product, i.e., to
complete the project.
Roll-Up Example: In the example below, the $49,880 is the total project cost, which was rolled up from
(summed upward) the accumulation of Room ($16,880) and Computers ($33,000) costs. The Computers cost of
$33,000 was rolled up from the purchase ($30,000) and Install ($3,000) cost.
Table 1: WBS for Remodeling Computer Lab
Project Management
44
Project Strategy, WBS-OBS
Resources:
People and machines do work. The WBS also allows actual and specific resources to be assigned to
the task activities (or work packages) to accomplish two objectives, assignments and cost analysis. Assigning
resources to tasks is necessary because the organization will need to eventually decide the quantity of specialists
who will be working on various work packages (tasks) to get the work done and produce the sub-deliverables.
Resources also have an associated cost, such as $10/hour of labor, or a salary for one year, or a one-time usage fee,
such as a $1,000 contracted price for renting a truck for one week.
Summary of Resources:
• Assignment of specialists or materials to a task.
• Resources have a cost
Work Effort and Cost of Specialists: The initial determination and assignment of costs does not require
detailed analysis of actual resources to be assigned. It is sufficient to only estimate the quantity of resources and
labor (effort) required to perform the work. It is sufficient to know that it will require 100 hours to complete a
particular task. In the WBS phase of planning, we do not need to know exactly or specifically who will perform the
work or how many actual workers we will need. We only need to estimate the total effort required to completely
finish the task. But we do need to know what kind of specialist will be needed to complete the task (or multiple
specialists, if necessary). And we will know the cost for these specialists and/or the cost of the materials that will
be necessary to complete the work package (task). For example, it may require 200 hours to paint five rooms. We
do not need to know who will paint the rooms. But we know it will require painter specialists, not electricians or
plumbers, or carpenters. And these painters may cost us $25/hour and require ten gallons of paint at a cost of $25
per gallon.
Summary of Work Effort and Cost of Specialists:
• Work requires specialist labor and materials
• Work effort: hours of labor must be estimated (i.e., 5 or 10 days for a task)
The following table shows an example of the cost of resource specialists. For example, one purchasing unit
of labor costs $40/hr. One R&D Design team from Research and Development costs $50/hr for the team or $100/hr
for two teams.
Organization Resource (specialization areas)
Name
Research and Development
Design
Development
Documentation
Assembly/test
Purchasing
Cost
($/hr)
Specialization Group
R&D
R&D
R&D
R&D
$100
$70
$60
$70
$40
The following shows the result of combining the cost rate of a resource from the OBS with the task
breakdown from the WBS.
1.1.1.1
Duration
(days)
Resource
Rate/day
Cost
1.1.1.1.1
Planning
6
Electrician
$200
$1200
1.1.1.1.2
Purchase
Supplies
1
Purchasing
$320
$320
1.1.1.1.3
Install Wiring
3
Electrician
$200
$600
Electrical
These resource costs are included in the WBS and rolled-up (summarized) to show the total project cost.
What is the sub-deliverable above? ____________________
What is one of the work packages? _____________________
Cost? ________________
What is one of the OBS specialty departments? ____________________
What is the Cost Account Budget for the Electrician to do work for the Electrical sub-deliverable? ____________.
(This total cost is defined as the value of the Electrician/Electrical cost account.)
Project Management
45
Project Strategy, WBS-OBS
Summary of the Cost Account Concept
Cost Account OBJECTIVE: Contribute to a sub-deliverable for the Circuit Board (1.1.3.2)
(somebody has to do work to accomplish this objective)
What? Define the DESIGN work packages necessary to complete the sub-deliverable.
• Work packages are the WORK that produces the sub-deliverable.
• Different work packages represent the different specialty work required for the sub-deliverable.
o Design department contributes work to design the specifications for the circuit board.
Who? Which departments will do the work?
Design team determines that 2 work packages are needed to produce a Circuit Board.
o 1.1.3.2.1.1
$150 to plan the circuit board design
o 1.1.3.2.1.2
$150 to create the plans for the circuit board design.
• Exercise: What would be the TASK IDs that represent the Production team work effort on the
Circuit Board?
Task ID?
Task ID?
• Organizational units are assigned responsibility for work packages (doing work).
Different department specialists will be responsible for working on various work packages.
Ex: Design Department will work on WP-1 CB
WP: Work Package
1: represents first work package in the cost account
CB: refers to the Circuit Board
WP-1 CB
WP-2 CB
1.1.3.2.1.1
1.1.3.2.1.2
Circuit board design, layout, and materials.
Performance requirements.
Software Department will work on:
WP-6 CB
1.1.3.2.5.1
Designing the logic of the circuit board.
WP-7 CB
1.1.3.2.5.2
Producing software and documentation for the circuit board.
Sub-Deliverable
•
Circuit Board
for Hard Drive
2 Work Packages in this
Cost Account:
•
•
Organizational Unit
•
•
Specialized labor
Specialized department
Ex: Software Dept
Cost Account:
• WP-6 CB. Software Logic Design
• WP-7 CB. Software production
Logic Design
Software Production
Project Management
46
Project Strategy, WBS-OBS
Time-Phased Budgets: The work packages that comprise the WBS contain small time phases or work
periods. Resources (material, human, and equipment) are estimated for each work period. The costs associated
with each of the kinds of resources are estimated also. The final work package contains estimates for quantity of
resources and the cost for these resources for each time period. These time period costs are known as a time-phased
budget, which indicates the costs that may be expected to complete the work package. Later, the work package
tasks will be assigned start and finish dates on a calendar to produce a schedule for completing the work and
eventually producing the final deliverable. The schedule will allow us to analyze the costs over time as they will be
incurred in completing the work. This accumulation of the time-phased budgets over the life of the project is what
allows the finance officer of the company to anticipate and plan for the expenses, and hence, have the money
available to pay the vendors and suppliers for the project.
Determining Work Package (WP) Time-Phased Budget
• Specialized departments propose details of Work Package
i. Work periods to accomplish all the work.
ii. Pieces of the WP, such as programming code.
iii. Duration for each piece over specified work periods.
iv. Cost is known by department
Ex: 3 phases
Ex: Code
Wk Period 1 = 5 hrs
Wk Period 2 = 3 hrs
Ex: $10/hr
• Calculation of WP time-phased budget, by period and total amount.
i. Determine budget for each work period
Example: WP period #1 requires 30 hours at $10/hr = $300 (period #1)
ii. Assume Period #2 = $500 and period #3 = $450
iii. Accumulate budget for each work period
We can see how the task budget ($1,250) is phased over time to pay for the task effort (work).
Description
Module #4 Coding
Period #1
$300
Period #2
$500
Period #3
$450
Summary Points of Time-Phased Budgets:
• Created/defined in work packages.
• Work package has time periods.
• Each period requires resources (labor, materials, etc…)
• Time period costs are time-phased budgets for a work package.
• Allows finance officer to plan for expenses.
Total Cost
$1,250
Project Management
47
Project Strategy, WBS-OBS
In Class Exercise
Work Package Estimates
The software group (5th row in previous integrated WBS/OBS figure, p. 12) has provided cost
estimates for the single work package to produce software for the hard drive circuit board (1.1.3.2.5.2).
This work package contains three parts, e.g., coding, documenting, and publishing the software drivers for
the hard drive circuit board. They estimate it will require three weeks to complete the coding,
documenting and publishing of the manual.
• The first week will only require coding at $50.
• The second week will include coding at $30, creation of the document at $10.
• The third week will require some finishing coding at $20, finishing the document at $15, and
publishing the document at $5.
Assume that you have requested cost and time estimates from the software department to provide the
software drivers for the hard drive circuit board as a sub-deliverable for the PC prototype that your
company has been contracted to produce.
Complete the work package estimate below using the data provided above from the software department.
For a X-Check, you should get $130 for your Total Labor cost (see Integrated WBS-OBS).
Filling in Top Information:
• W P-ID comes from Integrated WBS-OBS.
• Deliverable is name of software module.
• Organizational Unit you get from the OBS.
• WP duration is total weeks.
• Total Budget is your calculation.
Work Package Estimate
WP Name:
WP ID
Final Version
1.1.3.2.5.2
Project:
PC Prototype
See Integrated WBS/OBS for this ID
Deliverable:
Circuit Board software module
Date:
Organizational Unit:
Estimator Name:
Software
WP Duration:
3 wks
(days, weeks, etc.)
Today's Date
(Your Name)
Total Budget: $
$130
Time-Phased Budget ($)
Work Periods (weeks)
Direct costs
Code
Rate
$XX/hr
Document
$XX/hr
Publish
Labor Total
$XX/hr
1
$50
2
3
4
5
Total
$130
Project Management
48
Project Strategy, WBS-OBS
Cost Account Budgets: Accumulating Work Package Time Phased Budgets
Refer to the Integrated WBS/OBS diagram (Previous Pages) under the Read/Write Heads sub-deliverable.
Complete the work package estimates and the graph for the time-phased budget for the cost account associated
with production and Read/Write head. Arrows indicate where data is incomplete.
Work Package Estimate
WP Description
Deliverable:
WP Duration:
Final Version of R/W Head
WP ID
Read/write Head
3
1.1.3.4.2.1
Organizational Unit:
work weeks
Production
Labor cost:
1
Prepare Tool & Die Machines
Work Weeks
2
3
$30
$50
Total
Work Package Time-Phased Budget
Work Package Estimate
WP Description
Deliverable:
Final Version of R/W Head
WP ID
Read/write Head
WP Duration:
1.1.3.
Organizational Unit:
work weeks
?
Production
Labor cost:
2
Work Weeks
3
4
Cutting and Shaping Components
Total
$140
Work Package Time-Phased Budget
Work Package Estimate
WP Description
Deliverable:
Final Version of R/W Head
Read/write Head
WP Duration:
work weeks
1
50
?
Labor cost:
3
WP ID
1.1.3.4.2.1
1.1.3.4.2.2
1.1.3.4.2.3
1.1.3.4.2
Organizational Unit:
Assembling Components
$100
$90
$80
$70
$60
$50
$40
$30
$20
$10
WP ID
2
30
60
Work Weeks
4
5
$40
Weeks
3
4
Total
$130
Work Package Time-Phased Budget
5
50
70
Time Phased Budget
for Cost Account:
Fill in the $-values as
determined by the work
package estimates
$50
Complete the graph
for the Cost Account
time-phased budget.
Questions:
1. How would you explain that a cost account budget is related to work package budgets?
2. What would you expect to be the relationship between the project final cost and cost account budgets?
Project Management
Project Strategy, WBS-OBS
ANSWERS FOR QUESTIONS
49
Project Management
50
Project Strategy, WBS-OBS
Table Representation for the WBS and OBS: (summary view of both tables)
Notice how the WBS for the PC Prototype follows directly from the breakdown into sub-deliverables
according to the WBS breakdown from the diagram on the preceding page.
WBS Budget Breakdown
Total
1.1.3
1860
Hard Drive
1.1.3.1
Motor
1.1.3.1.4
1.1.3.2
1.1.3.2.1
Purchasing
Circuit Board
Design
Task 1
1.1.3.2.2
1.1.3.2.3
1.1.3.2.5
1.1.3.3
1.1.3.3.2
Task 2
Production
Testing
Software
Chassis Frame
Production
1.1.3.4
1.1.3.4.1
1.1.3.4.2
1.1.3.4.3
Read/Write Head
Design
Production
Testing
Cost
10
NOTE: Converting between
OBS and WBS tables shows
up on the exam.
10
1000
300
$
$
400
120
180
Is the WBS showing: • cost accounts or • work packages? Where are or the tasks •
50
50
•
800
300
400
100
work packages this WBS They are implied in the table. See Circuit Board and Design (task 1 and task 2) Notice how Design shows up in circuit board and in Read/Write Head above.
•
•
•
Design is one of the organizational departments (units)
Production is one of the organizational departments (units)
Etc.
OBS Budget Breakdown
Total
1860
Design
Cost
600
1.1.3.2.1
1.1.3.4.1
Production
1.1.3.2.2
Circuit Board
Read/Write
Head
Circuit Board
300
300
850
400
How many cost accounts does
Production have?
Three
What are the cost account
identifiers for the Production
Dept?
___1.1.3.2.2_________
1.1.3.3.2
1.1.3.4.2
Chassis Frame
Read/Write
Head
Testing
50
400
220
1.1.3.2.3
1.1.3.4.3
Purchasing
1.1.3.1.4
Software
1.1.3.2.5
Circuit Board
Read/Write
Head
120
100
10
Motor
10
180
Circuit Board
180
___1.1.3.3.2_________
___1.1.3.4.2_________
Project Management
51
Project Strategy, WBS-OBS
Exercise: Explain the work that is required to produce the read-write head (1.1.3.4.) and who will be
doing this work (refer back to the integrated WBS-OBS diagram)
What (5 tasks): write in their task IDs, task dollar values and which department (who?) is doing
the work.
Task ID
(Which Task)
1.1.3.4.1.1
1.1.3.4.2.1
1.1.3.4.2.2
1.1.3.4.2.3
1.1.3.4.3.1
$130
$140
$130
$100
Production
Production
Production
Test
Cost
$300
Who
Departments
Design
The following shows the result of combining the cost rate of a resource from the OBS with the task
breakdown from the WBS.
1.1.1.1
Electrical
1.1.1.1.1
1.1.1.1.2
Planning
Purchase
Supplies
1.1.1.1.3
Install Wiring
Duration
Days)
Resource
Rate/day
Cost
6
Electrician
$200
$1200
1
Purchasing
3
Electrician
$320
$320
$200
$600
These resource costs are included in the WBS and rolled-up (summarized) to show the total project cost.
What is the sub-deliverable above?
_____Electrical______
What is one of the work packages?
____Planning (1.1.1.1.1)
Cost: ____$1,200____
What is one of the OBS specialty departments? ______Purchasing______
The electrician cost account contains which work packages for Electrical?
Planning
Install
Project Management
Project Strategy, WBS-OBS
52
Table Representation for the WBS and OBS
4.
5.
6.
1.
Fill in the task ID numbers for the shaded boxes in the table above. 1.1.3.2.1.1 Analyze Specs 1.1.3.2.2.2 Set Up/Produce Brd 1.1.3.3.2.3 Make Ready to Use 1.1.3.4.2.1 Develop Process Use any method you want to mark up the diagram below to illustrate the two different ways a person could use to show a cost account. a.
Circle Circuit Board and Production. This intersection is the cost account: CB is the sub-­‐deliverable and Production is the OBS. b.
Circle Design/Analyze Steps and Set Up/Produce Brd. These two work packages are the cost account at the intersection of CB and Production. Why does Circuit Board not show an identifier = 1.1.3.2.4? Purchasing dept does not contribute any work effort for that sub-­‐deliverable. What is the major difference between the two table views of the project? a.
The budgets are different. False. Each table has a budget = $1,860 b.
The departments are different. False, they are the same departments. c.
Tables are organized differently. TRUE. i.
WBS table is structured according to sub-­‐deliverables. ii.
OBS table shows the breakdown of each department, i.e., it is structured according to department specialties, not the objectives in the WBS. d.
The work tasks are the same.
False. True, but not the correct understanding of why the tables are different.
Project Management
53
Project Strategy, WBS-OBS
How would you explain that a cost account budget is related to work package budgets? The cost account budget is the of the work package budgets for a particular OBS department and the particular WBS sub-­‐
deliverable they are working What would you expect to be the relationship between the project final cost and cost account budgets? The project final cost is the accumulated sum of the cost account budgets.
Work Package Estimate
WP Name:
Final Version
th
WP ID
1.1.3.2.5.2
(5 row, 2
See Integrated WBS/OBS for this ID
Deliverable:
nd
WP)
Project:_
HD Circuit Bd Module
Organizational Unit:
PC Prototype
Date:
Software Group
Today's Date
Estimator Name:
Franz
130
Total Budget: $
WP Duration:
3 Wks
(days, weeks, etc.)
(Your Name)
Time-Phased Budget ($)
Work Periods (weeks)
Direct costs
Code
Document
Rate
$XX/hr
$XX/hr
Publish
$XX/hr
Labor Total
4
5
Total
$100
$25
1
$50
2
$30
$10
3
$20
$15
$5
$5
$50
$40
$40
$130
Project Management
54
Project Strategy, WBS-OBS
SOLUTION: Cost Account Budgets: Accumulating Work Package Time Phased Budgets
Work Package Estimate
WP Description
Deliverable:
WP Duration:
Final Version of R/W Head
WP ID
Read/write Head
3
Organizational Unit:
work weeks
Labor cost:
1
$50
Prepare Tools & Dies
1.1.3.4.2.1
Work Weeks
2
3
$30
$50
Production
$130
$130
Work Package Estimate
WP Description
Deliverable:
Final Version of R/W Head
WP ID
Read/write Head
Organizational Unit:
WP Duration: _______________ work weeks
Cutting and Shaping Components
1.1.3.4.2.2
2
$60
?
Production
Labor cost: __________________
Work Week
3
4
$30
$50
Total
$140
Work Package Estimate
WP Description
Deliverable:
WP Duration:
Final Version of R/W Head
Read/write Head
3
Assembling Components
WP ID
1.1.3.4.2.3
Organizational Unit:
work weeks
Labor cost:
3
$20
Work Weeks
4
5
$40
$70
Production
$130
$130
How would you explain that a cost account budget is related to work package budgets? The cost account budget is the of the work package budgets for a particular OBS department and the particular WBS sub-­‐
deliverable they are working What would you expect to be the relationship between the project final cost and cost account budgets? The project final cost is the accumulated sum of the cost account budgets.
Project Management
Project Strategy, WBS-OBS
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Project Management
Italy, Summer 2013
WBS, OBS, and Cost Accounts
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