C23 Notes.docx

1.

Dummy Activities: A Dummy activity is an imaginary activity. It does not exist in the

Project activities. It is used in the network diagram to show dependency relationship or connectivity between two or more activities. It is represented by a dotted arrow. Need of Dummy Activities arise, when the project contains groups of two or more jobs which have common predecessors. The time taken for dummy activities is zero. A dummy activity is a simulated activity of sorts, one that is of zero duration and is created for the sole purpose of demonstrating a specific relationship and path of action on the arrow diagramming method. Dummy activities are a useful tool to implement when the specific logical relationship between two particular activities on the arrow diagramming method cannot specifically be linked or conceptualized through simple use of arrows going from one activity to another. In this case, the creation of a dummy activity, which serves essentially as a form of a placeholder, can provide exceedingly valuable. Dummy activities should in no cases be allocated any duration of time in the planning and/or scheduling or project activities and components.

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Complementary Slackness Conditions on Dummy Paths:

3.

Project Inventory: Living in a world of projects may feel like living in a WHIRL of projects. Small projects, large projects. Some projects using external resources. Projects for revenue, and others for cost saving. As projects come and go, how do we keep track of them? And what do we keep track of? A project inventory is a list of active projects with information that can include planned start and finish dates, the name of the project leader, project priorities, budget totals, project ID numbers and other key project characteristics.

Objective of Project Inventory Constructing a Project Inventory is a way for any Project Management Office (PMO) to quickly add value, especially where an organisation has not had a PMO before. Instead of having to speak to many different functions, etc to understand all of the change, senior management can simply ask the PMO – a huge time saving. While Project Inventory makes it sound like a complex process, it is simply a list of all active and planned projects for an organisation. So for Project Inventory you can think “list of projects”. So the simple objective of the Project Inventory is to capture all of the active and planned projects in a single list.

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Constructing the Project Inventory The PMO should take the lead on constructing the project inventory. The approach can be: 

Pull – ask all of the project teams to submit details of change projects

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Push – create a central list and then send to project teams to review and validate If possible I would lean towards the “Push” approach as it demonstrates that the PMO is trying to add value by taking on what work it can and then, only asking projects teams where they cannot complete the task. This will create a positive reaction as opposed to the PMO being seen as simply making requests of the project teams and offering no support. The reason this is important is that the project teams should be busy focusing on delivering the projects. Therefore, a smart PMO will try to avoid making any requests that they can perform themselves without diverting the attention of the project teams.

The template should include 

Project Name – recognised name used to identify project

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Project Description – short description to allow easy understanding of project purpose

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Project ID – used if there is an internal numbering system such as Clarity

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Business / Function – used to indicate who the project is for

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Location – used by global organisation to indicate regional or global

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Investment Type – mandatory or discretionary

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Budget – indication of approx. budget spend

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Benefit – indication of project benefit in monetary terms

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Comments – allows for any additional information Collecting the above information should provide all of the information to give a high level understanding of the project. With this information, senior management are able to make decisions on the change portfolio. Having the information in a spreadsheet, it is possible to total the budget column, sort by Investment Type, allowing for the cost of mandatory projects to be calculated and compared against available budget. This then will provide how much budget is available for discretionary projects.

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4.

Project Overrun: Project overrun consists of two elements; Cost Overrun and Time Overrun A cost overrun, also known as a cost increase or budget overrun, involves unexpected incurred costs. When these costs in are in excess of budgeted amounts due to an underestimation of the actual cost during budgeting, they are known by these terms. This may occur due to:     

Unplanned Costs: Some costs may occur suddenly, e.g. cost due to an accidental damage Changes in Project Scope: Chang (increase) in scope will warrant extra cost Unrealistic Cost Estimates: Too little estimates will automatically be overrun. Inadequate Financing: if financing dries up in the middle of a project, the project may get delayed and cost may escalate Lack of Leadership Experience: Ineffective leadership may result in loss of resources, causing cost escalation. A Time Overrun is nothing but the time delay in completion of a project.

    

5.

Lack of funding: Due to unavailability of funds, works may stop and project may get delayed. Calamities: Due to natural/other calamities, the duration of project may get lengthened. Legal compliance: Due to increased legal requirements, project may get delayed. Shortage of resources: Due to short supply/unavailability of resources (manpower, raw material, power) project work may get delayed. Lack of coordination among team members of a project may also lead to delay in completion. Difference between PERT & CPM

PERT is an acronym for Program (Project) Evaluation and Review Technique, in which planning, scheduling, organizing, coordinating and controlling uncertain activities take place. The technique studies and represents the tasks undertaken to complete a project, to identify the least time for completing a task and the minimum time required to complete the whole project. It was developed in the late 1950s. It is aimed to reduce the time and cost of the project. PERT uses time as a variable which represents the planned resource application along with performance specification. In this technique, first of all, the project is divided into activities and events. After that proper sequence is ascertained, and a network is constructed. After that time needed in each activity is calculated and the critical path (longest path connecting all the events) is determined. Definition of CPM Developed in the late 1950s, Critical Path Method or CPM is an algorithm used for planning, scheduling, coordination and control of activities in a project. Here, it is assumed that the Page 3 of 5

activity duration is fixed and certain. CPM is used to compute the earliest and latest possible start time for each activity. The process differentiates the critical and non-critical activities to reduce the time and avoid the queue generation in the process. The reason for the identification of critical activities is that, if any activity is delayed, it will cause the whole process to suffer. That is why it is named as Critical Path Method. In this method, first of all, a list is prepared consisting of all the activities needed to complete a project, followed by the computation of time required to complete each activity. After that, the dependency between the activities is determined. Here, ‘path’ is defined as a sequence of activities in a network. The critical path is the path with the highest length.

1. PERT is a project management technique, whereby planning, scheduling, organising, coordinating and controlling uncertain activities are done. CPM is a statistical technique of project management in which planning, scheduling, organising, coordination and control of well-defined activities take place. 2. PERT is a technique of planning and control of time. Unlike CPM, which is a method to control costs and time. 3. While PERT is evolved as a research and development project, CPM evolved as a construction project. 4. PERT is set according to events while CPM is aligned towards activities. 5. A deterministic model is used in CPM. Conversely, PERT uses a probabilistic model. 6. There are three times estimates in PERT, i.e. optimistic time (to), most likely time ™, pessimistic time (tp). On the other hand, there is only one estimate in CPM. 7. PERT technique is best suited for a high precision time estimate, whereas CPM is appropriate for a reasonable time estimate. 8. PERT deals with unpredictable activities, but CPM deals with predictable activities. 9. PERT is used where the nature of the job is non-repetitive. In contrast to, CPM involves the job of repetitive nature. 10. There is a demarcation between critical and non-critical activities in CPM, which is not in the case of PERT. 11. PERT is best for research and development projects, but CPM is for non-research projects like construction projects. 12. Crashing is a compression technique applied to CPM, to shorten the project duration, along with the least additional cost. The crashing concept is not applicable to PERT.

6.

Difference between Accounting & Financial Break Even Point

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Accounting Break-even Point vs. Financial Break-even Point There are several differences between accounting break-even point and financial break-even point. Accounting break-even point, on the one hand, is the easiest and most common method of analyzing profits. It is easily calculated by taking the total expenses on a particular production and computing how many units of the product need to be sold in order to cover the expenses. Financial break-even point, on the other hand, is more complicated to measure because it uses different measurements, even though it is the same concept. It doesn’t address a product or units but a company’s earnings, specifically about how much it needs to earn in order that its earnings per share are equal to zero. Earnings mean the gross amount of money earned by the company before taxes and expenses are taken out. Formula: Financial breakeven point attempts to find EBIT that results in zero net income. The relationship between EBIT and net income can be expressed as follows: Net Income = EBIT × (1 − Interest Expense) × (1 − Tax Rate) − Preferred Dividends Financial breakeven point attempts to find EBIT that results in zero net income. 0 = EBIT × (1 − Interest Expense) × (1 − Tax Rate) − Preferred Dividends Rearranging the above equation, we get the following formula to find the financial breakeven (i.e. EBIT level that results in zero net income)

Financial Breakeven (EBIT) = (Preferred Dividends /1−Tax Rate) + Interest Expense Example You company has $100 million preferred stock issue paying 5% per annum, total interest expense of $10 million, interest income of $1 million and tax rate of 33%. Calculate your company’s financial breakeven point. We need to find the earnings before taxes needed to cover the preferred dividend payments taxes and interest expense. Preferred dividends will amount to $5 million (=$100 million × 5%). Net interest expense is $9 million ($10 million - $1 million). Plugging the above values in the equation for financial breakeven point, we get the following: (5/1-.33) +9 = 16.58

ABC & VED Analysis; Budget & Budgetary Control

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