Session 04 - Project Planning II

Classification: Restricted
PMP Certification Training
Project Planning Continued

Agenda
• Project Planning - Project Cost Management
• Project Planning - Estimate Cost
• Project Planning - Determine Budget
• Project Planning - Plan Quality Management
• Project Planning - Plan HR Management
• Project Planning - Plan Communications Management
• Project Planning - Plan Risk Management
• Project Planning - Identify Risks
• Project Planning - Perform Quantitative Risk Analysis
• Project Planning - Plan Risk Responses
• Project Planning - Plan Stakeholders Management

Project Cost Management

Project Cost Management
• On smaller projects, cost estimating and cost budgeting are so tightly
linked that they can be done together and by one person.
• The work done in cost management is preceded by a cost planning
effort by the project management team.
• Techniques such as Life-Cycle Costing & Value Engineering can improve
decision making and reduce cost while improving quality and
performance of project deliverables.

Life-Cycle Costing
• A decision making tool that involves tradeoffs between short term
project costs and long term product or service operational costs.
• It examines the effects of project decisions not only on project activities,
but also on the cost of maintaining, using and supporting of the product,
service, or result of the project.

Plan Cost Management

Plan Cost Management
• The process of establishing policies, procedures, and documentation for
planning, managing, expending, and controlling project costs.
• The key benefit of the process is that it provides guidance and
direction on how the project schedule will be managed throughout
the project.

Estimate Cost

Estimate Costs

Cost Management Plan
• Part of Develop Project Management Plan
• The outcome of a planning effort that precedes performing the
processes of project cost management
• Sets out the format and establishes the criteria for planning,
structuring, estimating, budgeting, and controlling project costs.
• Documents cost management processes and their associated tools
and techniques

Cost Management PlanEstimates
• Level of accuracy
• Level of precision
• Units of measure
• Organizational procedures links
• Control thresholds
• Rules of performance
measurement
• Reporting formats
• Process descriptions
• Additional details

Estimate Cost

Cost Estimating Vs. Cost Budgeting
• Cost Estimating: Developing an approximation of the costs of the
resources needed to complete project activities
• Cost Budgeting: Aggregating the estimated costs of individual
activities of work packages to establish a cost baseline

Analogous Estimating
• Using cost of previous similar projects as basis for estimating.
• Less Costly BUT less accurate.
• Used when information is limited (early phases).
• Reliable when previous projects are similar in fact, not just in
appearance.

Estimating Techniques
• Parametric Estimating
 Uses relationship between historical data and certain parameters
(cost per square meter, cost per meter, etc).
• Bottom-Up Estimating
 A method for estimating a component of work.
 The cost is estimated for individual work packages or activities, and
they are then summarized or “rolled-up” to higher levels.
 Cost and accuracy are influenced by the size and complexity of the
individual package or activity.

Estimating Techniques
• Vendor Bid analysis
 Includes analysis of what the project should cost, based on
responsive bids from qualified vendors.
• Activity Cost Estimates
 A quantitative assessment of the likely costs of the resources
required to
complete project activities.

Basis of Estimates
• Documentation of basis of estimates (how it was developed).
• Documentation of assumptions made.
• Documentation of any known constraints.
• Indication of range of estimates.
• Indication of confidence level of the final estimate.

Cost Elements
• Human Resources –Labor
 Hour rate, fringe benefits, overtime, overhead, per
diem
• Equipment & Software
 Depreciation, purchase cost, support &
Maintenance
• Facilities
 Rent, depreciation, utilities, admin overhead
• Supplies
 Stationary, food, leisure, gas for cars, tickets
• Special expenses

Types of Cost
• Variable Costs
–Change with the amount of
production/work
–e.g. material, supplies, wages
• Fixed Costs
–Do not change as production change
–e.g. set-up, rental
• Direct Costs
–Directly attributable to the work of
project
–e.g. team travel, recognition, team
wages
• Indirect Costs
–overhead or cost incurred for benefit of
more than one project
–e.g. taxes, fringe benefit, janitorial
services

Determine Budget

Determine Budget
• The process of aggregating the estimated costs to individual activities or
work packages to establish an authorized cost baseline.

Funding Limit Reconciliation
• The expenditure of funds should be reconciled with any funding limits on
the commitment of funds for the project.
• Variance between the funding limits and the planned expenditures
sometimes necessitate the rescheduling of work to level out the rate of
expenditures.
• Can be accomplished by placing imposed date constraints for work
into the project schedule.

Cost Performance Baseline
• Time-phased budget at
completion (BAC) used as basis
against which to measure,
monitor, and control overall cost
performance.

Cost Aggregation
• Reserves & risk management are
important while estimating!
–Contingency reserves: Cost
Baseline the cost impacts of
the remaining risk
–Management reserves: Cost
Budget extra fund to cover
unforeseen risk or changes to
the project

Contingency Reserves
• Contingency reserves is usually percentage of total estimate or based on
risk analysis, to account for the risks that are “known unknowns” of the
project.
• Under the control of the project manager.

Management Reserves
• Budgets reserved for unplanned, but potentially required changes to
project scope. These are the risks that are “unknown unknowns”.
• Under the control of organization’s management.

Project Selection Methods

Benefit Measurement Models (Economic Models)

Present Value (PV) and (NPV)
• Present Value (PV) –Present Value of future Cash flows. Higher the
better.
• NOTE: present value and NPV are only mention once or twice on the
exam
• You will not have to calculate it, nor know formula, just understand the
concept
• Amount of money is always more valuable sooner than later, as
this enables to take advantage of investment opportunities.
• Higher PV more preferable project. A potential investment project is
selected, if value of NPV is >= ZERO
• PV = FV / (1 + i) n

Example
• Example:
• Project X is expected to make $50,000 in two years. Project Y is
expected to make to$80,000inthree years. If the cost of capital is5
percent, which project to choose?
• Using PV formula, PV = FV / (1 + i)^ n, PV for Project X is $69,107 and
Project Y is $45,351.
• Project Y will return the highest investment to the company and
should be chosen over Project X.

NPV
• The present value of total benefits (income or revenue) minus the cost
over
many time periods.
• Allows for comparison of many projects, to select the best to initiate.
• If NPV is +ve: the investment is a good choice.
• The project with highest NPV is the best.
• NPV= (FV/ (1+i)^n)
• Where FV= Future Value
• i= Interest Rate
• n= Number of period intervals

Internal Rate of Return (IRR)
• This is just another way of interpreting the benefit from the project.
• It looks at the cost of the project as the capital investment and translates
the profit into
the interest rate over the life of that investment.
• Calculations for IRR are not part of this certification. It is enough if you
understand that
the greater the value for IRR, the more beneficial it will be.
• Is the interest rate at which the costs of the investment lead to the
benefits of the
investment.
• The project with highest IRR is the best.
• Example:
• You have two projects to choose from: Project A with an IRR of 21%, or
project B with an IRR of 15%, which once you prefer?
• Answer: Project A.

Payback Period
• The period of time required for the return on an investment to "repay"
the sum of the original investment.
• For example, a $1000 investment which returned $500 per year would
have a two year payback period.
• The project with lowest payback period is the best
• The payback period is the length of time required to recover the initial
cash outlay on the project.
• For example, if a project involves a cash outlay of 600,000$ and
generates cash inflows of. 100000$, 150000$, 150000$ and 200000$ in
the first, second, third and fourth years respectively, its pay back period
is 4 years because the sum of cash flows during the four years is equal to
the initial outlay. According to the payback criterion, the shorter the
payback period, the more desirable the project.
• Payback period = cost of period or investment / Annual cash flow
• Example:
• You have two projects to choose from , Project A with payback period of 6
months or project B with payback
period of 18 months, which one would you prefer?
• Answer : Project A

Payback Charting

Benefit Cost Ratio
• This is the value obtained by dividing the benefit by the cost.
• The greater the value, the more attractive the project
• A benefit cost ration >1 means the benefit are grater than the cost
• A benefit cost ration <1 means the cost are grater than the benefit
• A benefit cost ration =1 means the benefit are equal the cost
• For example, if the projected cost of producing a product is 10,000$, and
you expect to sell it for 40,000$, then the BCR is equal to
40,000$/10,000$, which is equal to 4. For the benefit to exceed cost, the
BCR must be greater than 1.
Example:
• If BCR of project A is 2.3, and the BCR of project B is 1.7, which project
would you select?
• Answer : Project A

Opportunity cost
• Opportunity cost (opportunity lost) is the NPV of the next best project,
you
are not doing, because you have decided to invest in a project.
• Let us assume that you have 100,000 rupees and you are investing this
money in project ‘A’,whose NPV=200,000 and because of this you are
unable to do project ‘B’, whose NPV=150,000 or project ‘C’, whose NPV
=
120,000, then the opportunity cost is 150,000, which is the NPV of
project ‘B’, which is the next best option after ‘A’.
• Example:
• You have two projects to choose from: Project A with an NPV of
45,000$, or project B with an NPV of 85,000$, what Is the opportunity
cost of selecting project B ?
• Answer : 45,000$

Sunk Cost
• Sunk Cost –Cost already incurred. This should not be taken into
account while taking decision.
• Are expended costs; accounting standards that sunk costs should not be
considered when deciding whether to continue with a troubled project.
• Example :
• You have project with an initial budget of 1,000,000 $ , you are halfway
through the project and have spend 2,000,000 $, do you consider the
1,000,000 $ over budget when determining whether to continue with
the project.
• Answer: NO, the money spent is gone

Law of Diminishing return
• Law of Diminishing return –After a point, adding more resources will
not have proportional benefit.
• Example:
• A single programmer may produce at 1 module per hour. With second a
programmer the two may produce 1.75 module/ hour. With third
programmer, the group may produce 2.25 modules/ hour

Law of Diminishing return
• Working Capital –Current assets minus current liabilities.
• The amount of money the company has available to invest, including
investment in project.
• Depreciation –Assets loose value over useful life.
• Depreciation methods based on time
Straight line method
Declining balance method
Sum-of-the-years'-digits method
• Depreciation based on use (activity)

Straight line depreciation
• Depreciation = (Cost -Residual value) / Useful life
• [Example, Straight line depreciation]
• On April 1, 2011, Company A purchased an equipment at the cost of
$140,000. This equipment is estimated to have 5 year useful life. At the
end of the 5th year, the salvage value (residual value) will be $20,000.
Company A recognizes depreciation to the nearest whole month.
Calculate the depreciation expenses for 2011,2012 and 2013 using
straight line depreciation method.
 Depreciation for 2011= ($140,000 -$20,000) x 1/5 x 9/12 = $18,000

Double declining balance depreciation
• (*1) $140,000 x 40% x 9/12 = $42,000
• (*2) $98,000 x 40% x 12/12 = $39,200
• (*3) $58,800 x 40% x 12/12 = $23,520
• (*4) $35,280 x 40% x 12/12 = $14,112
• (*5) $21,168 x 40% x 12/12 = $8,467
• Depreciation for 2015 is $1,168 to
keep book value same as salvage
value.
• $21,168 -$20,000 = $1,168 (At this
point,
depreciation stops.)

Double declining balance depreciation

Sum-of-the-years-digits method
• Depreciation expense = (Cost -Salvage value) x Fraction
• Fraction for the first year = n / (1+2+3+...+ n)
• Fraction for the second year = (n-1) / (1+2+3+...+ n)
• Fraction for the third year = (n-2) / (1+2+3+...+ n)...
• Fraction for the last year = 1 / (1+2+3+...+ n)
• n represents the number of years for useful life.

Example, Sum-of-the-years-digits method
• Company A purchased the following asset on January 1, 2011. What is the amount of
depreciation expense for the year ended December 31, 2011?
 Acquisition cost of the asset --> $100,000
 Useful life of the asset --> 5 years
 Residual value (or salvage value) at the end of useful life --> $10,000
 Depreciation method --> sum-of-the-years'-digits method
• Calculation of depreciation expense
• Sum of the years' digits = 1+2+3+4+5 = 15
• Depreciation for 2011 = ($100,000 -$10,000) x 5/15 = $30,000
• Sum of the years' digits for n years = 1 + 2 + 3 + ...... + (n-1) + n = (n+1) x (n / 2)
• Sum of the years' digits for 500 years = 1 + 2 + 3 + ...... + 499 + 500 = (500 + 1) x (500 /
2) = (501 x 500) / 2 = 125,250

Phase #2: PROJECT PLANNING
Chapter 8: Quality / 8.1 Plan Quality Management

Quality Management & Project Management
• Both disciplines recognize the importance of :
 Customer Satisfaction
 Prevention over inspection
 Management Responsibility
 Continuous Improvement

Quality Concepts
• Quality vs. Grade
• Precision vs. Accuracy
• Quality Assurance vs. Quality Control

Quality Vs. Grade
• Quality is the “Degree to which a set of inherent characteristics fulfill
requirements”
• Grade is “ Category assigned to products or services having the same
functional use but different technical characteristics”.
• Low grade does not necessarily cause a problem, but low quality
does.

Precision vs. Accuracy
• Precision is consistency that the
value of repeated measurements
are clustered and have little
scatter.
• Accuracy means that the
measured value is very close to
the true value.
• Precise measurements are not
necessarily accurate. A very
accurate measurement is not
necessarily precise.

Quality Assurance vs. Quality Control
• Quality Assurance is applying the planned, systematic quality activities
to ensure that the project employs all processes needed to meet
requirements.
• Quality Control is the action of monitoring specific project results to
determine whether they comply with relevant quality standards and
identifying ways to eliminate causes of unsatisfactory performance.

Plan Quality Management
• Identifying which quality Standards are relevant to the project and
determining how to satisfy them
• Scope statement
• Quality policies
• Quality standards & regulations in the company, industry.
• Quality is planned, designed and built in-not inspected in.

Plan Quality

Seven Basic Quality Tools
• Cause & Effect Diagram
• Flowcharts
• Checksheets
• Pareto Diagrams
• Histograms
• Control Charts
• Scatter Diagrams

Cause & EffectDiagram
• Also known as “Fish-Bone
Analysis” or “Ishikawa Analysis”
• Used to identify the problem,
discover the underlying causes
leading to it, and develop
solutions and preventive actions.

Flowcharting
• Diagram that shows the
relationship between different
elements in a system of
processes
• Used to assist team efforts in
identifying potential quality
problems and the possible
affects of those problems.
• Cause & Affect Diagram
• Process flowcharts

Control Charts
• Graphic display of results, over
time, of a process.
• Used to determine if the process
is “in control”. When a process is
“in control” it should not be
adjusted.
• “Rule of Seven”

Histogram

Pareto Diagrams
• Histogram, ordered by frequency
of occurrence, that shows how
many results were generated by
type or categories of identified
cause.
• Rank ordering is used to guide
corrective actions –fix the
problems that are causing the
greatest number of defects first.
• Relates to Pareto’s Law &
Principle of 80/20

Scatter Diagram
• A Scatter diagram shows the
relationship between two
variables.
• Allows to study and identify the
possible relationship between
changes observed in two
variables.

BENCHMARKING
• The evaluation of a groups’ business or project practices in
comparison to those of other groups or projects.
• Includes a number of quantitative or qualitative attributes that can be
assessed in both the benchmark and the subject.

Cost of Quality
• Prevention costs –up front costs to design and plan for quality.
• Appraisal costs –associated with evaluation of results to make sure that
they conform to quality.
• Internal Failure costs –Cost of re-work associated with items that did not
pass the appraisal.
• External Failure costs –Cost of failures found by the customer.
• Conformance:
 Training.
 Research.
 Surveys.
• Non-conformance:
 Scrap.
 Rework.
 Warranty.
 Inventory.

Quality Management Plan & Content
• Describes how the project team will implement the performing
organization’s quality policy
• Content:-
 Purpose
 Quality Policy/ Standards
 Quality Assurance Procedures & Test
 Quality Control Procedures & Tests
 Roles & Responsibilities

Plan HR Management

Plan Human ResourceManagement
• Identifying, documenting, and assigning project roles, responsibilities,
required skills and reporting relationships, as well as creating the staffing
management plan.
• Identifying who we want, at which skill level, when, and for how long.
Specifying their roles, and responsibilities and interactions.

Develop Human ResourcePlan

Organizational Charts & Position Descriptions
• Hierarchical-type Charts
• Matrix-based Charts
• Text-Oriented Formats

Responsibility Assignment Matrix (RAM)
R= Responsible A=Accountable C=Consult I=Inform

Responsibility Assignment Matrix (RAM)
• Organizational Theory
• Provides information regarding the ways that people,
teams and organizational units behave.
• Halo Effect
• The tendency to rate high or low on all factors due to the impression
of a high
or low rating on some specific factor.

Team Building Activities
• Tuckman’s stage of team formation and development:
1.FORMING
–The team meets and learns about the project and what their roles and
responsibilities.
2.STORMING
–Address the project work, technical decisions and the project management
approach.
Conflict/disagreement may occurs.
3.NORMING
–Work together and adjust work habits and behaviour that support the team.
4.PERFORMING
–Being a well-organized unit
5.ADJOURNING
–Team completes the work and move on from the project.

Motivation Theory: Maslow’s Hierarchy of Needs
From Basic Need to Higher Level of Needs

Motivation Theory: Two Factors Theory
• Herzberg’s Theory
–Job dissatisfaction due to lack of hygiene factors
–Job satisfaction due to motivation factors

Human Resource Plan &Contents
• Provides guidance on how project human resources should be
defined, staffed, managed, controlled, and eventually released.
• Contents:-
 Roles and Responsibilities
 Project Organization Charts
 Staffing Management Plan

Staffing Management Plan
• Staff acquisition
• Resource Calendars
• Staff Release Plan
• Training needs
• Recognition & Rewards
• Compliance
• Safety

Plan Communications Management

Consequences of Miscommunication

Plan Communication
• The process of determining the project stakeholder information
needs and defining a communication approach.
 Who needs what information,
 When will they need it,
 In which format,
 How will it be given to them,
 How frequently.

Communication Body of Knowledge
• Communication Process
• Choice of Media
• Documentation Skills
• Presentation Skills
• Meeting Management
• Clutter, Noise, & Barriers

Effective Communication & Listening
• Effective Communication
Non Verbal
Para lingual
Feedback
• Effective Listening
Feedback
Active Listening
Para lingual

Communication Methods

Plan Communication Management

Communication Requirements Analysis
• Determining the communication requirements of the project
stakeholders.
• Defined by combining the type and format of information needed
with an analysis of the value of that information.
• Project resources are expended only on communicating information
that contribute to success, or where a lack of communication can lead
to failure.
• Formula for determining Number of Communication
Channels:- N (N-1)/2

Communication Technology
• Factors that affect the project communication technology:
• Urgency of the need for information.
• Availability of technology
• Expected project staffing
• Duration of the project
• Project Environment

Communication Models
• Interactive
• Push
• Pull

Communication Management Plan
• Stakeholder communication requirements
• Information to be communicated
• Reason for distribution
• Responsibility
• Recipients
• Methods and technologies used
• Frequency
• Resources allocated for communication (including time and budget)
• Escalation process
• Method for updating
• Glossary of terminology
• Information flow in the project (flow chart)
• Communication constraints

Communication Matrix

Plan Risk Management

Risk
• An uncertain event that, if it occurs, has a positive or negative effect on
a project’s deliverables.
• Project Risk Management
• The systematic process of identifying, analyzing, and responding,
monitoring,
and controlling project risks

Project Risk Planning

Deciding how to conduct risk management activities for a project.

• Describes how risk management will be structured and performed
on the project.
• A subset of the project management plan.

Risk Management Plan
• Methodology.
• Roles and responsibilities.
• Budgeting.
• Timing.
• Risk categories.
• Definitions of risk probability and
impact.
• Probability and impact matrix.
• Revised stakeholders’ tolerances.
• Reporting formats.
• Tracking.

Risk Categories

Definition of Risk Probability &Impact

Impact Scale
• Cardinal Linear (0.1, 0.3, 0.7, 0.9)
• Cardinal Non-Linear (.05, .1, .2, .4, .8).
• Cardinal Non-Linear is used to reflect focus on high risks.
• Ordinal (Very Low, Low, Medium, High, Very High)

Probability Scale & Probability-ImpactMatrix
• Cardinal Linear (0.05, 0.1,0.2…etc.)
• Ordinal (Very unlikely, unlikely, moderate, likely, very likely, almost
certain)
• Probability-Impact Matrix
• Each risk is rated on its probability of occurring and impact on an
objective if it does occur.
• The matrix shows low, moderate or high risks.
• Risk Score= risk probability x risk impact

Probability-Impact Matrix (Cardinal)

Probability-Impact Matrix (Ordinal)

Identify Risks

Identify Risks
Determining which risks may affect the project and documenting their characteristics.

Identify Risks

Documentation Review
• Structured review of project documentation, including plans,
assumptions, previous project files, contracts and other information at
project level and detailed scope levels.

Information Gathering Techniques
• Brainstorming
• Delphi Technique
• Interviewing
• Root cause analysis

Techniques
• Brainstorming
• A group creativity technique designed to generate a large number
of ideas for the
solution of a problem.
• Everyone is allowed to express ideas freely and without criticism.
• Interviewing
• Interviewing experienced project participants, stakeholders, and
subject matter experts to identify risks.
• Root Cause Analysis
• Also known as “Fish-Bone Analysis” or “Ishikawa Analysis”
• Used to identify the problem, discover the underlying causes
leading to it, and develop solutions and preventive actions.

Root Cause Analysis

Techniques
• Delphi Technique
• A way to reach a consensus of experts who participate anonymously.
• A facilitator uses a questionnaire to solicit ideas about the important
risks.
• Eliminates biasness and influence of individuals.
• Checklist Analysis
• Based on historical and project information.
• Must be exhaustive (very difficult).
• Important to review at project closure to improve on the checklist for
future projects.
• One of the easier more common first steps.
• Can be grouped into categories.

Techniques
• Assumptions Analysis
• Review project assumptions.
• Explores the validity of assumptions as they apply to the project.
• Identifies risks to the project from inaccuracy, inconsistency, or
incompleteness of assumptions.
• SWOT Analysis
• Internal Factors
Strengths.
Weaknesses.
• External Factors
Opportunities.
Threats.

Perform Qualitative Risk Analysis

Risk Register
• A document that contains the outcomes of risk planning.
• At this stage includes:
• List of identified risks.
• List of potential scenarios.
• Risk triggers

• Prioritizing risks for further analysis or action by assessing and
combining their probability of occurrence and impact.
• Assesses the priority of identified risks using their relative probability
or likelihood of occurrence.

Risk register Updates
• Relative ranking or priority list of project risks.
• Risks grouped by categories.
• Causes of risk or project areas requiring particular attention.
• List of risks requiring responses in the near-term.
• List of risks for additional analysis and responses.
• Watch lists of low-priority risks.
• Trends in qualitative risk analysis results.

Perform Quantitative Risk Analysis

Perform Quantitative RiskAnalysis
• The process of numerically analyzing the effect of identified risks on
overall project objectives.
• Performed on risks that have been prioritized by the qualitative
analysis.

Outcomes of Quantitative Risk Analysis
• Quantify possible outcomes and their probability.
• Assess probability of achieving a specific objective.
• Identify risks requiring most attention.
• Identify realistic and achievable targets.
• Determine best decision under uncertainty.

Data Gathering and RepresentationTechniques
• Interviewing.
• Probability distributions.

Quantitative Risk Analysis andModeling Techniques
• Sensitivity Analysis
• Expected Monetary Value Analysis
• Modeling and Simulation

Sensitivity Analysis
• Helps to determine which risks have the most potential impact on the
project.
• It examines the extent to which the uncertainty of each project
element affects the objectives being examined when all other
uncertain elements are held at their baseline value.

Expected Monetary Value(EMV)
• Statistical concept that calculates the average outcomes when the
future includes scenarios that may or may not happen (i.e. analysis
under uncertainty).
• The EMV of opportunities will generally be expressed in positive
values while those of threats in negative values.
• Calculated by multiplying the value of each possible outcome by its
probability of occurrence, and adding them together.

Expected Monetary Value (EMV)
• Statistical concept that calculates the average outcomes when the
future includes scenarios that may or may not happen (i.e. analysis
under uncertainty).
• The EMV of opportunities will generally be expressed in positive
values while those of threats in negative values.
• Calculated by multiplying the value of each possible outcome by its
probability of occurrence, and adding them together.

Expected Monetary Value(EMV)
EMV = Σ Probability X Impact of all possible outcomes of a decision

Decision TreeAnalysis
• Graphical means of displaying all available options, their probability,
and their impact, to reach the final project objective.

EMV to take Decision Tree Analysis

Modeling & Simulation
• Uses Monte Carlo Technique
• A computerized technique that uses sampling from a random number
sequence to simulate characteristics or events or outcomes with
multiple possible values.
• Used to generate probable outcomes based on estimates processed /
iterated thousands of times.
• Provides probable project results and information for project
decision- making.
For Cost Risk Analysis, use cost estimates.
For Schedule Risk Analysis, use the schedule network diagram
and duration estimates.
• Illustrates the likelihood of achieving specific cost / schedule targets.

Monte Carlo Simulations

Plan Risk Responses

Plan Risk Responses
The process of developing options and actions to enhance opportunities an to reduce threats
to project objectives.

Plan Risk Responses

Responses for Negative Risks (Threats)
• Avoidance.
• Transference.
• Mitigation.
• Acceptance.

Threats Response
• Avoidance
• Changing project plan to eliminate the risk or condition or to
protect the project
objectives from its impact.
• Transference
• Shifting some or all of the negative impact, along with ownership of
the
response to a third party.
• Examples of transference:
 Insurance
 Warranties
 Guaranties
• Performance bonds
• Transfers risk, but does not eliminate it.

Threats Response
• Mitigation
• Reducing probability and/ or impact of risk to an acceptable level.
• Does not eliminate risk completely.
• Mitigates probability and/ or impact.
• Acceptance
• Deciding not to change the project plan, to deal with a risk, or being
unable to identify suitable response strategy.
• Includes active and passive acceptance:
Active acceptance: developing a contingency plan if risk occurs.
Passive acceptance: no action is taken until risk happens.

Responses for positive risks (Opportunities)
• Exploit (vs. Avoid).
• Share (vs. Transfer).
• Enhance (vs. Mitigate).
• Accept. (The same)

Outcomes From Risk ResponsePlanning
• Residual Risk: Those that remain after avoidance, transfer or
mitigation responses have been taken.
• Secondary Risk: That arise as a direct result of implementing a risk
response.
• Contingency reserve needed: The amount of buffer needed to reduce
the risk of over runs.

Phase #2: PROJECT PLANNING
Chapter 12: Procurement / 12.1 Plan Procurement
Management

Project Procurement Management
• The processes necessary to purchase or acquire products, services or
results from outside the project team.
• Includes the contract management and change control processes
required to develop and administer contracts.
• Includes also administering any contracts issued by an outside
organization (the buyer) that is acquiring the project from the
performing organization (the seller).

• The organization, can be the buyer or seller of the product, service or
result under a contract.
• Contract can be called:
Agreement.
Subcontract.
Purchase order.
• Seller can be called:
Contractor
Subcontractor
Vendor
Service provider
Supplier
• Buyer can be called:
Client
Customer
Service requester
Purchaser

Plan Procurement Management

Plan Procurements
• The process of documenting project purchasing decisions, specifying
the approach, and identifying potential sellers.
• Should be accomplished during the scope definition effort to specify:
 Whether to procure or not?
 How to procure?
 What to procure?
 How much to procure?
 When to procure?

Project Manager’s Authority in Procurement
• It depends on the type of the contracting environment:
• Centralized Contracting Environment
 There is a procurement department & a procurement manager who
handle
all procurements
 The project Manager contacts the procurement manager when
he/she needs help regarding procurement
• Decentralized Contracting Environment
 There’s no procurement department
 The project manager hires a procurement manager to work full
time on procurement & he will be reporting directly to the
Project Manager

Centralized Contracting Environment

De-Centralized Contracting Environment

Plan Procurements

Make-or-Buy Analysis
• A technique used to determine whether particular work can best be
accomplished by the project team or must be purchased from outside
sources.
• If buy: Purchase or lease?
• Should consider all related costs; direct and indirect.

Contract Types
• Fixed price
• Cost reimbursable
• Time and material

Fixed Price Contracts
• The most common type.
• A total lump sum price against a well-defined product.
• Three types:
 Firm Fixed Price Contracts (FFP)
 Fixed Price Incentive Fee Contracts (FPIF)
 Fixed Price with Economic Price Adjustment Contracts
(FP-EPA)

Fixed Price Contracts
• Advantage
 The most common type.
 The buyer knows the price from the beginning.
 Risk is on the seller
• Disadvantage
 The buyer must prepare a detailed SOW ( more work on the buyer)
 The seller might try not to do everything according to the SOW if he started
loosing money
 More cost on the buyer

Cost reimbursable Contracts
• Paying the seller the actual cost, plus a fee.
• Three types:
 Cost-plus-fixed-fee (CPFF)
 Cost plus incentive fee (CPIF)
 Cost plus award fee (CPAF).
• Advantage
 No detailed SOW.
 Less cost on the buyer than the FPC
• Disadvantage
 Total cost is unknown
 Risk is on the buyer
 More work on the buyer ( since he has to audit the
seller’s invoices )

Time & Material Contracts
• Hybrid type of contractual agreement.
• Contain aspects of both cost-reimbursable and fixed-price types.
• They are open ended, but on certain rates.
• Advantage
 Quick to create
 Duration brief
 Used when expat acquisition & staff augmentation
• Disadvantage
 Only good in small projects
 Needs daily oversight & reports from the buyer ( more work)

Contract Types vs. Risk
Effect of contract type on buyer & seller risk

Which Type is Better?
• Depends on:
 How well defined the contract statement of work is.
 The amount and frequency of change expected.
 The level of effort and expertise the buyer can devote to managing the seller.
 Industry standards for the types of contract used.
 Amount of market competition.
 Amount of risk.

Procurement Documents
• A buyer-prepared formal request sent to each Seller.
• The Basis upon which a seller prepares a bid for the requested
products.
• RFP/ RFQ/RFI/IFB are used to solicit proposals to meet procurement
needs.
 Statement of Work (SOW): procurement item in sufficient detail to
allow prospective sellers to determine if they are capable of
providing the item(s).
 Statement of Objective (SOO): term used for a procurement item
that is
presented as a problem to be solved.

Procurement Documents (RFP/ RFQ/RFI/IFB )
• Once the contract type is selected & the procurement SOW has been
created, the buyer
can put together the procurement documents that describe their needs
• Request for proposal (RFP): sometimes it’s called request for Tender, it
requests a detailed proposal on how the work will be accomplished, who
will do it, company experience, price, Technical requirements, etc & it
allows the company to detect benefits & risks at early stage.. ( usually
used with CR contracts)
• Invitation for Bid ( IFB, or request for bid RFB): just to request a total
price to do all the work. (usually used with FP contracts)
• Request for Quotation (RFQ): request a price quote per item, hour,
meter, or other unit of measure, used when price is the main factor (
usually used with T&M)
• Request for Information (RFI): is simply looking for information , it might
be used before procurement documents are created, the received
information could help the company to identify the required in order to
send RFQ, RFP or IFB

Steps to Prepare RFP

How to write RFP?

Plan Stakeholders Management

Project Stakeholder Management

Plan Stakeholder Management

Plan Stakeholder Management
• The process of developing appropriate management strategies to
effectively engage stakeholders through the project life cycle, based
on the analysis of their needs, interests, and potential impact on
project success.
• It provides a clear, actionable plan to interact with project
stakeholders to support the project’s interests.

Analytical Techniques
• The engagement level of stakeholders can be classified as follows:
• Unaware-Unaware of project and potential impacts
• Resistant-Aware of project and potential impacts and resistant to
change
• Neutral-Aware of project yet neither supportive nor resistant
• Supportive-Aware of project impacts and supportive for change
• Leading-Aware of project impacts and actively engaged in ensuring
the project is a success

Topics to be covered in next session
• Project Execution Process
• Project Execution - Acquire Project Team
• Project Execution - Develop Project Team
• Project Execution - Manage Project Team
• Communications Manage Communications
• Procurement Conduct Procurement
• Stakeholder Manage Stakeholders Engagement

Thank You

Session 04 - Project Planning II

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Session 04 - Project Planning II