Effective Project Cost & Scheduling

PROMIS Delegates

WELCOME.... Effective Project Cost & Scheduling 7 – 9 October 2008

Etisalat - Dubai, U.A.E. Dr. Jamal AlBahar, AVS, PMP PROMIS - Dubai, U.A.E.

Project Cash Flow Analysis & Budget

Estimating Cash Flow Profiles & Developing a Project

The Importance of Project Budget  The importance of Project Cost Control was

recognized as early as the 60’s, when DOD and NASA have successfully developed and implemented a guide for incorporating the cost control into PERT/CPM.  The theme is the integration and interrelation of project time and cost functions for the purpose of the planning and control functions.  Cost control cannot be achieved without a baseline budget against which actual cost performance is measured and compared, deviations are detected, causes are investigated, and proper actions are implemented.

The Importance of Project Budget  In addition, the integration of time and cost enables

us to: 



Analyze the cash flow and prepare financial plans for ensuring proper funds throughout the project duration. Detect and estimate financial deficits, and estimate the cost of financing.

 This presentation focuses on integrating time and

cost for cash flow analysis and project planning.  Project cost control and time cost relationship will be the subject of subsequent presentations.

Types of Budgets There are three types of budget that are usually used: 

Strategic.



Tactical.



Operational.

Strategic Budgets  Strategic budget defines the long-term activity of an

organization.  It’s generally updated annually.  Once the projects are underway, actual cost data are

collected and compared to the budget in order to monitor the project performance.  Budget review helps control both goal setting and

resource allocation.

Tactical Budgets  Tactical – midrange - budget details the strategic

budget and usually covers a period ranging from one to two years.  It details the monthly expenditures in labor, materials,

and overhead costs of each activity.  Updates are typically carried on a quarterly basis.

Operational Budgets  Operational budget deals with costs of specific

activities that are being performed.  It usually spans a period of at most one year, and  covers the costs of resources required for the

completion of each activity.

Preparing the Budget  Preparing a budget usually is performed in

one of three ways: a top-down approach,  a bottom-up approach, or  an iterative approach. 

Preparing the Budget The Top-Down Approach  How ? 



The top-down approach starts with the strategic budget as this defines the organization goals developed by top management. It is then passed down to the functional managers to develop both the midrange (tactical) and the short-range (operational) budgets.

 Problems: 



The difficulty in translating the strategic budget into tactical and operational budgets. The reason behind that is that usually top management is not aware of every aspect of these projects when preparing these budgets. Lower-level managers will compete instead of cooperating to secure their share of the budget.

Preparing the Budget The Bottom-Up Approach  How ?  Letting each project manager develop his/her own proposal.  These proposals are then handed to functional managers to prepare the budget for their units, and finally  These are handed over to top management to integrate these budgets into a strategic one.  Problems:  Reduces the top management control over the whole process of budgeting.

Preparing the Budget The Iterative Approach  How ?  This approach tries to alleviate the problems of previous approaches in an iterative way.  It starts at the top management level that sets a budget framework serving as a guideline for project managers as they prepare their budgets.  This process can undergo several iterations in order to fine-tune the process.  It increases the cooperation between different levels of management.  Problems:  its duration, since going through different iterations may take a long time.

 Cost Budgeting:   

Aggregate individual activity estimates. Establish a total cost baseline. Used to measure and control cost over the project time.

 The S-curve: A time phased budget that is used to measure cost performance against.

Cumulative value ($)



Time

Budgeting through Time-Cost Integration  Consider The following project schedule network and the

activities direct costs table below.  Direct cost of each activity is assumed to be uniformly distributed over activity duration.  Indirect cost is estimated at $ 2,000 per week. 4

12 10 B 8

4 0

4

12 7

9

TF = 5 FF = 3

7

12

10

9 TF = 2 12 FF = 0

16 30 F 6

10 20 D 3

19

TF = 0 FF = 0

15 C 3

4 TF = 0 FF = 0

19 25 E 7

12

TF = 0 FF = 0

4

5 A 4

0

12

13

19 TF = 3 FF = 3

19

20 35 G 1

20

19 TF = 0 FF = 0

Name

T (Wk.)

Direct cost ($)

Direct cost $/Week

A

4

36,000

9,000

B

8

48,000

6,000

C

3

30,000

10,000

D

2

24,000

12,000

E

7

56,000

8,000

F

6

60,000

10,000

G

1

6,000

6,000

Total

20

260,000

Early Schedule Cash Flow Diagram

Activity

1

2

3

A

9

9

9

300

Σ Direct $

B

Cost ($ 1,000)

250

Σ Indirect $ Σ Total $

200 150 100 50 0 0

5

10 Time (weeks)

15

20

Late Schedule Cash Flow Diagram

Activity A

1

2

3

9

9

9

300

B

Cost ($ 1,000)

250

Σ Direct $ Σ Indirect $

200

Σ Total $

150 100 50 0 0

5

10 Time (weeks)

15

20

Baseline Schedule Cash Flow Diagram

Activity A

300

B

Cost ($ 1,000)

250

1

2

3

9

9

9

Σ Direct $ Σ Indirect $ Σ Total $

200 150 100 50 0 0

5

10 Time (weeks)

15

20

Cash Flow Diagrams Cumulative total cost ($ 1,000)

300 Baseline 250

Early Schedule Late Schedule

200 150 100 50 0 0

5

10

15

Time (weeks)

Cumulative Cost Vs Time

20

Time/Cost Analysis  It is standard practice in any project to

estimate resource demands and activity duration in the most economical way.  These estimates are usually determined

from the past experience or historical data obtained from similar projects.

Crashing a Project  CPM includes a way of relating the project

schedule to the level of physical resources allocated to the project.

 This allows the project manager to trade time

for cost, or vice versa.

 Two activity times & two costs are specified,

if appropriate, for each activity

Critical Path Method - Crashing a Project/Cont.  The first time/cost combination is called normal,

and the second set is referred to as crash  Normal times are “normal” time required to

accomplish activity within normal conditions.  Crash times result from an attempt to expedite

the activity by the application of additional resources.

Critical Path Method - Crashing a Project/Cont.  Careful planning is critical when attempting to

expedite (crash) a project.  Expediting tends to create problems; and the

solution to one problem often creates several more problems that require solutions.  Some organizations have more than one level of

crashing.

The Time/Cost curve  Describes the reduction effect in the duration of an activity has on

the cost of the activity.

 The method of reducing the duration of an activity (normal point) to

a crashed point is known as crashing.

 Normal Point –The cost & time when the activity is performed in the

normal way without extra resources such as overtime, improved equipment or other materials that could expedite the activity.

 Crash Point - The cost & time when the activity is expedited by the

use of extra resources, manpower, etc. No cost is spared to reduce the duration of the activity as much as possible

Example  A manual painting operation requiring 4 days at $400 per day.  With a special compressed airflow system, however, two workers can

complete the job in 2 days for $1,000 per day. 

The Normal point: the activity can be performed in 4 days for $400 x 4 = $1,600



The Crash point: in 2 days for $1,000 x 2 = $2,000.

 Normal duration is associated with the lowest-cost option for the activity.  It is this value that is used in the preparation of the initial budget.

Time/Cost Curve Cost CC

Crash Point

Minimum time

Normal Point

NC

CT

NT

Cost Slope = CC – NC / NT - CT

Minimum cost

Time

What is Crashing and How?  The process of reducing the project duration

either to comply with contractual requirements, external constraints, and/or to reduce the project cost.  Accomplished by reducing the duration of one

or more critical activities by assigning more resources to the activities or by adopting more productive technique/method for accomplishing the work.

What is Crashing and How?/Cont.  Crashing a critical activity means moving from the

activity normal point towards the crash point. I.e., additional direct cost.  Among all the activities that can be crashed, the activity

or combination of activities having minimum crashing cost are selected for crashing.  As critical activities are crashed, the critical path may

change. None critical activities may become critical. If this takes place, then activities on the new critical path have also to be crashed.

Effect of Crashing a Project on the Project Cost  Project cost consists of Direct & Indirect costs.  Indirect costs are usually periodic costs which

is directly related to project duration. Delay in project completion time will increase the indirect costs.  When project is delayed, liquidated damages may be applied.  Some contracts call for incentives for early completion time.

Effect of Crashing a Project on the Project Cost/Cont.  Crashing or reducing the project duration

increases the direct costs as we move from the normal time towards the crash time of the crashed activities.  The total project cost is thus sensitive to the

project completion time.  There exists a project completion time at which

the total project cost is minimum.

Project Time-Cost Relation

Cost

Total Costs

Indirect Costs Direct Costs

b

Time

Point b is the project time at which the total project cost is minimum

Crashing a Project Case Study (20) Consider the following network of a project consisting of nine activities with a scheduled project duration of 32 weeks.  and the following table of timecost data. 

Activity

tn

tc

Cn

Cc

Allowable Crash

Cc/week

A

7

6

600

750

1

150

B

8

6

750

900

2

75

C

9

7

900

1100

2

100

D

11

8

1100

1400

3

100

E

8

5

850

1200

3

116.67

F

10

7

1000

1300

3

100

G

12

10

1300

1500

2

100

H

13

11

1400

1500

2

50

I

14

10

1500

2000

4

125

ES Num Legend

Crashing cost per week =

Cc − Cn tn − tc

0

which, for activity F means that 1,300 − 1,000 Crashing cost per day = = $100 / week 10 − 7

Crashing a Project Crashing by 1 Wk    

Critical Path = B-F-I Project time = 32 weeks. Direct Cost = $ 9,400 Crashing options =   

B @ $75/wk F @ $100/wk I @ $125/wk

Activity

t

Allowable Crash

Cc/week

A

7

1

150

B

8

2

75

C

9

2

100

D

11

3

100

E

8

3

116.67

F

10

3

100

G

12

2

100

H

13

2

50

I

14

4

125

ES Num Legend

Decision: Crash B by 1 week @ $75/wk

0

Crashing a Project Crashing by Another 1 Wk. Critical Path(s) = B-F-I, A-D-H Project time = 31 weeks. Direct Cost = $ 9,475 Crashing should be of activities on both critical paths.  On each critical path, select the activity of minimum crashing cost.    

0

0 0 0 0

0 St. 0

0 0 0

0

Activity

t

Allowable Crash

Cc/week

A

7

1

150

B

8

1

75

C

9

2

100

D

11

3

100

E

8

3

116.67

F

10

3

100

G

12

2

100

H

13

2

50

I

14

4

125

0 0 0

10 A 7

7 0 7

0 0 0

20 B 7

7 0 7

0

0

0

7 30 3 C 10 9

16 0 19

7 0 7

40 D 11

18 0 18

7 50 3 E 10 8

15 3 18

7 0 6

17 0 18

60 F 10

0

16 3 19

70 28 G 3 12 31

18 1 18

80 31 H 1 13 31

17 0 18

90 31 I 0 14 32

3

0 31 100 31 0 Fin 0 31 0 31

0

3

0

0

ES Num Legend

Decision: Crash B & H by 1 week @ $125/wk

Crashing a Project Crashing B & H by 1 Wk. Critical Path(s) = B-F-I, A-D-H Project time = 30 weeks. Direct Cost = $ 9,600 Crashing should be of activities0 on both critical paths. 0  B cannot be further crashed. 0    

0

0 0 St. 0

0 0 0

0

Activity

t

Allowable Crash

Cc/week

A

7

1

150

B

8

0

75

C

9

2

100

D

11

3

100

E

8

3

116.67

F

10

3

100

G

12

2

100

H

13

1

50

I

14

4

125

0 0 0

10 A 7

7 0 7

0 0 0

20 B 6

6 0 6

0

0

0

7 2 9

30 C 9

16 0 18

7 0 7

40 D 11

18 0 18

6 50 4 E 10 8

14 4 18

6 0 6

16 0 16

60 F 10

0

16 2 18

70 28 G 2 12 30

18 0 18

80 30 H 0 12 30

16 0 16

90 30 I 0 14 30

2

0 30 100 30 0 Fin 0 30 0 30

0

4

0

0

ES Num Legend

Decision: Crash F & H by 1 week @ $150/wk

Crashing a Project Crashing F & H by 1 Wk. Critical Path(s) = B-F-I, A-D-H Project time = 29 weeks. Direct Cost = $ 9,750 Crashing should be of activities0 on both critical paths. 0 0  H & B cannot be further crashed    

0

0 0 St. 0

0 0 0

0

Activity

t

Allowable Crash

Cc/week

A

7

1

150

B

8

0

75

C

9

2

100

D

11

3

100

E

8

3

116.67

F

10

2

100

G

12

2

100

H

13

0

50

I

14

4

125

0 0 0

10 A 7

7 0 7

0 0 0

20 B 6

6 0 6

0

0

0

7 1 8

30 C 9

16 0 17

7 0 7

40 D 11

18 0 18

6 50 4 E 10 8

14 4 18

6 0 6

15 0 15

60 F 9

0

16 1 17

70 28 G 1 12 29

18 0 18

80 29 H 0 11 29

15 0 15

90 29 I 0 14 29

1

0 29 100 29 0 Fin 0 29 0 29

0

4

0

0

ES Num Legend

Decision: Crash D & F by 1 week @ $200/wk

Crashing a Project Crashing D & F by 1 Wk. Critical Path(s) = B-F-I, A-D-H, and A-C-G Project time = 28 weeks. Direct Cost = $ 9,950 Crashing should be of activities on the three critical paths. A is located on 2 critical paths.

    

0

0 0 0 0

0 St. 0

0 0 0

0

Activity

t

Allowable Crash

Cc/week

A

7

1

150

B

8

0

75

C

9

2

100

D

11

2

100

E

8

3

116.67

F

10

1

100

G

12

2

100

H

13

0

50

I

14

4

125

0 0 0

10 A 7

7 0 7

0 0 0

20 B 6

6 0 6

0

0

0

7 0 7

30 C 9

16 0 16

7 0 7

40 D 10

17 0 17

6 3 9

50 E 8

14 3 17

6 0 6

60 F 8

14 0 14

ES

Legend

0

16 0 16

70 28 G 0 12 28

17 0 17

80 28 H 0 11 28

14 0 14

90 28 I 0 14 28

0

0 28 100 28 0 Fin 0 28 0 28

0

3

0

0

Num

Decision: Crash A & F by 1 week @ $250/wk

Crashing a Project Crashing A & F by 1 Wk.     

Critical Path(s) = B-F-I, A-D-H, and A-C-G Project time = 27 weeks. Direct Cost = $ 10,200 Crashing should be of activities on the three critical paths. A & F cannot be further crashed

0

0 0 0 0

0 St. 0

0 0 0

0

Activity

t

Allowable Crash

Cc/week

A

7

0

150

B

8

0

75

C

9

2

100

D

11

2

100

E

8

3

116.67

F

10

0

100

G

12

2

100

H

13

0

50

I

14

4

125

0 0 0

10 A 6

6 0 6

0 0 0

20 B 6

6 0 6

0

0

0

6 0 6

30 C 9

15 0 15

6 0 6

40 D 10

16 0 16

6 2 8

50 E 6 8

14 2 16

6 0 6

60 F 7

13 0 13

ES

Legend

0

15 0 15

70 27 G 0 12 27

16 0 16

80 27 H 0 11 27

13 0 13

90 27 I 0 14 27

0

0 27 100 27 0 Fin 0 27 0 27

0

2

0

0

Num

Decision: Crash I, D, & (C or G) by 1 week @ $325/wk

Example Project Time-Cost Trade-offs  Consider:  Indirect Cost of $200 per week,  Liquidated damages of $500 per week for project duration beyond 30 weeks, and  No incentive plan

18000 16000

Project Cost ($)

14000 12000 10000 8000 6000

Direct Cost ($) Indirect Cost ($) Liquidated Damages ($) Total Cost ($)

4000 2000 0 25

26

27

28

29

30

31

Project Duration (w eeks)

Project Duration (wk)

26

27

Direct Cost ($)

10,525

10,200

9,950

9,750

9,600

9,475

9,400

5,200

5,400

5,600

5,800

6,000

6,200

6,400

Liquidated Damages ($)

0

0

0

0

0

500

1,000

Incentives ($)

0

0

0

0

0

0

0

Total Cost ($)

15,725

15,600

15,550

15,550

15,600

16,175

16,800

Indirect Cost ($)

28

29

30

31

32

32

Earned Value Management (EVM)  EVM is a project performance measurement

technique that integrates scope, time, and cost data.  Given a baseline (original plan plus approved

changes), you can determine how well the project is meeting its goals.  You must enter actual information periodically to use

EVM.  More and more organizations around the world are

using EVM to help control project costs.

The EV System 

To set up the EV system 1.

Establish the WBS to divide the project into manageable portions.

2.

Identify the activities to be scheduled that represent the entire project.

3.

Allocate the costs to be expended on each activity.

4.

Schedule the activities over time.

5.

Tabulate, plot & analyze the data to confirm that the plan is acceptable.

To use the information generated by the EV calculations: 1.

2. 3. 4.

Update the schedule by reporting activity progress. Enter the actual costs on the activities. Execute the Earned Value calculations, print and plot the reports and charts. Analyze the data & write the performance narrative.

Earned Value Technique: Compares reality to what was planned originally (baseline).  Used for cost and schedule control.  Given project status today, report actual progress variances.  Forecast future outcomes (expectations).  Used for ETC and EAC.  Output is performance measurements values. 

Earned Value Management Terms  The planned value (PV), formerly called the budgeted cost

of work scheduled (BCWS), also called the budget, is that portion of the approved total cost estimate planned to be spent on an activity during a given period.  Actual cost (AC), formerly called actual cost of work performed (ACWP), is the total of direct and indirect costs incurred in accomplishing work on an activity during a given period.  The earned value (EV), formerly called the budgeted cost of work performed (BCWP), is an estimate of the value of the physical work actually completed.  EV is based on the original planned costs for the project or activity and the rate at which the team is completing work on the project or activity to date.

Rate of Performance  Rate of performance (RP) is the ratio of actual work

completed to the percentage of work planned to have been completed at any given time during the life of the project or activity.  Brenda Taylor, Senior Project Manager in South Africa,

suggests using this approach for estimating earned value.  For example, suppose the server installation was halfway

completed by the end of week 1. The rate of performance would be 50 percent (50/100) because by the end of week 1, the planned schedule reflects that the task should be 100 percent complete and only 50 percent of that work has been completed.

TRADITIONAL COST ANALYSIS

Back to our S-curve

Cumulative value ($)

Budget At Completion (BAC)

Actual cost (AC)

Planned Value (PV) Earned Value (EV)

Time

Earned Value Performance Measurement EV measurement should enable a:  Clearer measure of the project work accomplished,  Better forecasts of the likely task & project completion dates & associated costs.

Earned Value Principles 

EV also known as the Budgeted Cost of Work Performed (BCWP).



EV is based on assigning a value to the achievement of project work. 



Ideally, achievement is in terms of milestones & deliverables. The value is usually monetary but can be expressed in any appropriate units such as man-hours.

Cost Performance Analysis





Cost Variance (CV) = EV - AC Cost Performance Index (CPI) =

EV AC

Where:  AC is the actual cost of work performed; and  EV = Planned Value to Date * RP

Schedule Performance analysis   

Schedule Variance (cost-based) = EV - PV Schedule Variance (time-based) = OD - ATE Schedule Performance Index (SPI) Cost based SPI =

EV PV

OD Time based SPI = ATE

Where:  PV is the budgeted (planned) cost of work scheduled.  OD is the Original Duration planed for the work to date;  ATE is the Actual Time Expended for the work to date.

Forecasting Cost Based on Earned Value Statistics 

EAC = AC +

BAC - EV CPI

Where:  EAC is the estimated cost at completion  BAC is the budget at completion (total planned cost of work).

Forecasting Time Based on Earned Value Statistics 

Planned Total Project Time

= PTPT



Schedule Variance (time)

= OD - ATE



Planned Time to Complete (PTC) = PTPT - OD Estimated Actual Time to Complete =

PTC SPI

PTC Estimated Total Project Time = ATE + SPI

Time & Cost Forecasting ECTC = Estimated Cost To Complete BAC =

Budget At Completion

BCWP = Budget Cost of Work Performed ACWP = Actual Cost of Work Performed BCWS = Budget Cost of Work Scheduled OD =

Original Duration planned for work to date

ATE =

Actual Time Expended for work to date

PTPT = Planned Total Project Time

Project Portfolio Management 



Many organizations collect and control an entire suite of projects or investments as one set of interrelated activities in a portfolio. Project portfolio management has five levels: 1. 2. 3. 4. 5.

Put all your projects in one database. Prioritize the projects in your database. Divide your projects into two or three budgets based on type of investment. Automate the repository. Apply modern portfolio theory, including risk-return tools that map project risk on a curve.

Benefits of Portfolio Management  Schlumberger saved $3 million in one

year by organizing 120 information technology projects into a portfolio.

Using Software to Assist in Cost Management  Spreadsheets are a common tool for

resource planning, cost estimating, cost budgeting, and cost control.  Many companies use more sophisticated and

centralized financial applications software for cost information.

EV Analysis - Example Budget Actual at end of day10 Activity Cost Start Duration % Complete Cost 1,000 900 A 0 2 100 3,400 2,000 B 2 8 60 C 9,000 6 4 50 3,200 D 5,000 Total = 6,100 E 12,000 1,000 Activity C is expected to start after3 days from F G 1,000 now and is expected to last for5 days at a cost Total = 32,400 of 2,000 $ per day.

2

B 17 TF=FF= 0 0

2

8

11

BC % 1,000 100 3,400 60 9,000 0 5,000 50 12,000 0 1,000 0 1,000 0 32,400

13

19

19

20

A 2

C 3

E 5

G 1

TF=FF=0

TF=FF=2

TF=FF=0

TF=FF=0

4

Activity BT A 2 B 17 C 3 D 5 E 6 F 2 G 1 Totals:

Target Schedule:

19

BCWP BTWP ATWP ACWP ST BCWS 1,000 2 2 900 2 1,000 2,040 10 8 2,000 8 1,600 0 0 0 0 2 6,000 2,500 3 4 3,200 5 5,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5,540 6,100 13,600

9

11

13

D 5

F 2

TF=4, FF=2

TF=FF= 6

Efficiency Variance Time Cost Schedule TV CV SV 100% 111% 100% 0 -100 0 128% 102% 128% -2.2 -40 -440 0% 6000 63% 78% 50% 1.5 700 2500

91%

41%

Table of Efficiencies and Variances of Activities and of the Project .

560

8060

EV Forecast - Example Time to complete the project = 14 Cost to complete the project = = 1,333+10,000+2,000+12,000+1,000+1,000 = 27,333 0

5 B 5

0

0

TF=FF=8 3* 8

8

13

13

14

C 5

E 5

G 1

TF=FF=0

TF=FF=0

TF=FF=0

DD 0 0

4

4

6

D 4

F 2

TF=4, FF=0

TF=FF=7

Performance Analysis Plot A useful way of using earned value data is to plot CPI as a function of SPI (cost based) through time, to: • reveal the direction of the task and of the whole project. • demonstrate the effect of recovery action.

Projects Selection  Remember: PM are not accountants!

But… 

Need to do some cost related duties.



Selection between alternatives techniques are very useful to know.

 Uncertainty makes risk management an

essential and important task from onset of project to finishing date.

Some Project

Selection Methods

1. Net Present Value (NPV) 2. Internal Rate of Return (IROR) 3. Payback Period (PBP) 4. Benefit Cost Ratio (BCR)

Selection Methods  Net Present Value (NPV)   

Considers the time value of money. NPV= PV (income)- PV (cost). Always chose the one with higher NPV.

Formula F P = (1 + r)n where F P r n

=future value of the investment at the end of n periods =amount invested at the beginning, called the principal =periodic interest rate (discount rate) =number of time periods for which the interest compounds

Selection Methods Cont….  Internal Rate of Return  Maths is complex.  i at which PV of inflows = PV of outflows.  Always chose the one with highest IRR EOY

CASH FLOW

PV ( i = 12% )

IR (i)

NPV

0

- 5000

-5000

0

2600

1

800

714.29

5

1368.5

2

900

717.67

8

763.00

3

1500

1067.67

10

404.61

4

1200

762.62

12

77.82

5

3200

1815.77

15

-360.47

NPV = 77.82

18

-745.03

20

975.57

Selection Methods Cont….  Payback Period (PBP)

Simple method.  When do I get my money back?  Ignores the time value of money. Chose the one with shortest PBP. 



Inflows above $2m/month to break even

Selection Methods Cont….  Benefit to Cost Ratio (BCR) 

Usually used for public projects.



Calculate all benefits and costs and work out the ratio between them.



BCR could be =, > or <1



Would like a BCR = 1.3

The Exit Strategy       

Steps in completing the project Controlling costs & schedule late in the project Scope verification Schedule Control Cost Control Contract closeout Administrative closure

Contract Closure  Completing & settling each contract  Resolution of any open items  Closing each project or project phase

contract

Contract Closure  Involves both product verification &

administrative closeout.  During contract closeout, the PM must

perform: Product verification: insuring that all of the work was completed.  Administrative closure: documenting & archiving final results. 

Procurement Audits (tools & Techniques)

 Can provide valuable lessons learned by

identifying successes & failures that warrant transfer to other procurements within the project & other projects.

Contract Administration  Managing the contract & relationships

between the buyer & seller  Reviewing & documenting how a seller is

performing or has performed  Managing contract-related changes  Managing contractual relationship with the

project outside buyers

Contract Change Control System (tools & Techniques)

 Includes:

Supporting paperwork  Tracking systems (such as the change control log)  Dispute resolution procedures (such as when to escalate)  Approval levels required (based on cost of the change, impact, etc.) 

Buyer-Conducted Performance Review (tools & Techniques)  This is a meeting where all the available data is brought

together to see if the seller is performing.  Often the seller is present to review the data and most

importantly talk about what the buyer can do differently to help the work along.  The purpose of this review is to determine &

recommend needed corrective & preventive actions and to request formal changes.

Claims Administration (tools & Techniques)

 A claim is an assertion that the buyer did

something that has hurt the seller and the seller asking for compensation.

 Another way of looking at claims is that they

are a form of seller’s change requests. Claims can get nasty.

 Many claims are not resolved until the work

is completed.

Record Management System (tools & Techniques)

 On many projects, every e-mail, every payment,

every written and oral communication must be recorded, kept and stored.

 On other projects the weather each day & the

number of people on the buyer’s property each day may also be required.

 Whatever is appropriate for the particular industry

and project is kept.

 Helpful to unresolved claims, legal actions, or even

to satisfy insurance needs.

Administrative Closure  Must be done any time a project or phase

ends.  For example, if a project is canceled prior

to completion, the project needs to enter administrative closure.  This is often a good test as to how

committed an organization is to the disciplines of project management.

Administrative Closure Several key things must happen in this process, including: Documenting performance  Assembling all project documentation, memos, communications, etc.  Finalizing all payments  Collecting and documenting lessons learned  Releasing resources 

Administrative Closure Includes:  Project Archives 

Creating a complete set of indexed project records for the project.

 Project Closure 

Verifying that the project has met all or the customer's requirements.

 Lessons Learned

Lessons Learned Include:  Documenting what variances occurred on

the project, and what the underlying causes were.  Documentation should also include 

what was done to correct the project, and



what was learned by the performing organization to avoid the problems that were encountered.

Results from Lessons Learned Include:  Update of the lessons learned knowledge

base

 Input to knowledge management system  Updated corporate policies, procedures, &

processes

 Improved product & service improvements  Update to the risk management plan

Over time, lessons learned are often incorporated into best practices.

THANK YOU ALL …