Management Control of Projects Management Control Systems Chapter 16 September 2014Iwan Pudjanegara SE., MM.1

Nature of Projects  A Project is a set of activities intended to accomplish a specified end result of sufficient importance to be of interest to management.  Projects incl. Construction projects, acquisitions & divestitures, rearranging a plant, developing & marketing a new product, financial restructuring, etc. September 2014Iwan Pudjanegara SE., MM.2

Nature of Projects  A project begins when mgt has approved the general nature of what is to be done and has authorized the approximate amount of resources that are to be spent in doing this work.  The project ends when its objective has been accomplished, or when it has been canceled. September 2014Iwan Pudjanegara SE., MM.3

Contrast with Ongoing Operations  Single Objective  Organization Structure  Focus on the Project  Need for Trade-Offs  Less-Reliable Standards  Frequent Changes in Plans  Different Rhythm  Greater Environmental Influence  Exceptions September 2014Iwan Pudjanegara SE., MM.4

The Control Environment Project Organization Structure  A project organization is a temporary organization, because a team is assembled for conducting the project, and is disbanded when the project has been completed. September 2014Iwan Pudjanegara SE., MM.5

The Control Environment  A Matrix Organization: if members of the project team are employees of the sponsoring organization, they have two “bosses” (the project manager & the manager of the functional department) to which they are permanently assigned. September 2014Iwan Pudjanegara SE., MM.6

Contractual Relationship  Fixed-Price Contracts  Cost-Reimbursement Contracts  Contrasts in Contract Types  Variations September 2014Iwan Pudjanegara SE., MM.7

Information Structure  Work Packages : the smallest element in which information is structured in a project control system. o The way in which these work packages are aggregated is The Work Breakdown Structure. o A work package is a measurable increment of work, usually of fairly short duration (1 month or so), should have an unambiguous and identifiable completion point (= a milestone) September 2014Iwan Pudjanegara SE., MM.8

Information Structure  Indirect Cost Accounts  Cost accounts are established for administrative and support activities.  Estimated costs usually are stated as per unit of time (e.g. a month).  Revising the information structure in midstream is difficult, time-consuming, and frustration task. September 2014Iwan Pudjanegara SE., MM.9

Nature of the Project Plan 1)Scope : states the specifications of each work package and the name of the person or organization unit responsible. 2)Schedule : states the estimated time required to complete each work package and the interrelationship among work packages. 3)Cost : stated in the project budget (= control budget) September 2014Iwan Pudjanegara SE., MM.10

Network Analysis  Network Analysis Techniques (Tools available for constructing the time schedule for the project) :  PERT = Program Evaluation and Review Technique  CPM = Critical Path Method September 2014Iwan Pudjanegara SE., MM.11

Network Analysis  PERT & CPM has 3 basic steps : 1.Estimating the time required for each work package 2.Identifying the interdependencies among work packages 3.Calculating the critical path September 2014Iwan Pudjanegara SE., MM.12

September 2014Iwan Pudjanegara SE., MM.13

Project Execution Basically, both the sponsor and the project manager are concerned with...: 1.Is the project going to be finished by the scheduled completion date? 2.Is the completed work going to meet the stated specifications? 3.Is the work going to be done within the estimated cost? September 2014Iwan Pudjanegara SE., MM.14

Project Execution (Nature of Reports)  Trouble Reports  Progress Reports  Financial Reports  Quantity of Reports  Percent Complete  Summarizing Progress  Punch List September 2014Iwan Pudjanegara SE., MM.15

Project Execution (Use of Reports)  Trouble Reports  Progress Reports  Cost to Complete : the additional costs required to complete the project September 2014Iwan Pudjanegara SE., MM.16

Project Evaluation The evaluation of projects has 2 separate aspects : 1)An evaluation of performance in executing the project  carried out shortly after the project has been completed. 2)An evaluation of the results obtained from the project  may not be feasible until several years later. September 2014Iwan Pudjanegara SE., MM.17

Project Evaluation (Evaluation of Performance) The evaluation of performance in executing the project has 2 aspects: 1)An evaluation of project mgt  to assist in decisions regarding project managers, including rewards, promotions, constructive criticism, or reassignment. 2)An evaluation of the process of managing the project  to discover better waysof conducting future projects. September 2014Iwan Pudjanegara SE., MM.18

Project Evaluation (Evaluation of Performance)  Cost Overruns: when actual costs exceed budgeted costs.  Actual costs were too high or budgeted costs were too low.  At best, the budget estimates what the cost should have been based on the information that was available at the time it was prepared. September 2014Iwan Pudjanegara SE., MM.19

Project Evaluation (Evaluation of Results) The project should be important enough to warrant the considerable expenditure of effort that is involved in a formal evaluation. The results usually should be quantifiable (measurable). September 2014Iwan Pudjanegara SE., MM.20

Project Evaluation (Evaluation of Results) The effects of unanticipated variables should be known, and they should not swamp the effect of changes in the assumptions on which the project was approved. Results of the evaluation should have a good chance of leading to action. September 2014Iwan Pudjanegara SE., MM.21