2. Project Management x470 The Planning Processes UC Berkeley Extension, Business and Management Week 3, 07 May 2011 Jennifer Russell 415.385.1749jr@mastodonconsulting.com Ray Ju 415.845.8880rayju@sbcglobal.net

3. Agenda Cost Management Procurement Management Communication Management Risk Management 2

4. The Cost Baseline 3

5. Project Cost Management Process Group Process Name Process Major Deliverable/s Initiating Planning Estimate Cost Activity Cost Estimates Budget Cost Cost Baseline Executing Monitoring & Controlling Control Cost Updates to Cost Baseline and other documents Closing 4 Think TEAM 4

6. Analogous Estimating Use actual cost of a previous similar project to estimate cost of current project Approximate estimate Accuracy +- 15% 5 Think TEAM 5 Parametric Modeling Use project parameter in a mathematical model to predict project cost Accuracy +- 35% within the scope of the project Example: construction cost per square foot

7. Bottom-Up Estimating Cost estimate of WBS work packages rolled up to a project total Definitive/detailed estimate Prepared from well-defined engineering data, vendor quotes, unit prices, etc. Accuracy +- 5% 6 Think TEAM 6

8. 7 Caution!!!! SWAG = Scientific Wild A__ Guess Rough Order of Magnitude – Almost as bad as SWAG – High level off the Top of Head – Sticks in the mind of the sponsor – Accuracy +- 50% Think TEAM 7

9. Cost Baseline Time-phased budget for measuring, monitoring and controlling overall project cost performance 8 Think TEAM 8 Cumulative Amount Time

10. Best Practices Develop a cost baseline Partner with line managers to get agreement on scope, time and cost baselines Change control process should be in place as soon as possible Validate progressive elaboration outputs 9

11. Procurement Management

12. Project Procurement Management Process Group Process NameProcess Major Deliverable/s Initiating Planning Plan Purchases and Acquisitions Procurement Management Plan Contract Statement of Work (SOW) Make or Buy Decisions Plan ContractingProcurement documents – Bid, RFP, RFQ Evaluation Criteria Executing Request Seller Response Qualified Sellers List Proposals Select SellersSelected sellers Contracts Monitoring & Controlling Contract Administration Contract documentation Requested changes Closing Contract ClosureClosed contracts 11

13. Plan Purchases and Acquisition Identifies which project needs can be best met by procuring products or services outside the organization Be aware of milestones and timing / schedule Make or Buy Decision Contract type Procurement Plan Statement of Work 12

14. Contracts Major Types – Fixed Price or Lump Sum – Cost-Reimbursable – Time and Material (T&M) Risk and reward relationship Using wrong contract type can be devastating 13

15. Principles of Incentive Contracts 14 TARGET COST: $20,000 TARGET FEE: $1500 SHARING RATIO: 80/20 % CUSTOMER PAYS 80% OF OVERRUN CONTRACTOR PAY 20% OF OVERRUN PROFIT IS $1500 LESS CONTRACTOR’S 20% CUSTOMER KEEPS 80% OF UNDERRUN CONTRACTOR KEEPS 20% OF UNDERRUN PROFIT IS $1500 PLUS CONTRACTOR’S 20% NOTE: LIMITATIONS MAY BE IMPOSED ON PRICE OR PROFIT EXAMPLE

16. Contract Variations 15 FFPFirm-Fixed- Price High likelihood of scope change Profit margin can be high FPE Firm-Fixed-Price with Economic Price adjustment Adjustments for escalation factors and inflation Negotiated adjustment cycle FPIFFixed-Price- Incentive -Fee Contractor can earn add’l profits Ceiling on contract price CPIFCost-Plus- Incentive-Fee Contractor can earn add’l profits Floor and ceiling exists on profits CPAFCost-Plus- Award-Fee Negotiated profit range Customer decides on profit at the end

17. Contract Variations 16 CPFFCost-Plus- Fixed-Fee Fee is fixed (in $$ not %) Contractor motivated to complete early CSCost-Sharing No profits allowed Customer and contractor share costs Contractor may retain control of propriety knowledge CCost No profits allowed Contractor usually a non-profit Cost limitation may be imposed CPPCCost-Plus- Percentage-Of- Cost Cost incurred may be unlimited Contractor can maximize profit Scope changes may be frequent and unlimited

18. Relative Contract Risk 17 RISK LOCATION FFP FFE FPIF CPIF CPAF CPFF CS C CPPC 0 % 100 % CONTRACTOR’S RISK 0 % 100 % CUSTOMER’S RISK RISK SHARING METER

19. Plan Contracting Process Preparation of the documents needed to support solicitation and vendor selection – Procurement documents Bids, Quotations RFI, RFQ, RFP Others – Evaluation criteria 18

20. Request Seller Responses Obtaining responses (bids and proposals) from prospective sellers on how project needs can be met Input to cost and schedule baselines! 19

21. Communication Plan Perhaps as much as 90 percent or more of the time the project manager spends in providing project direction involves some form of communications

22. Project Communication Management Process GroupProcess NameProcess Major Deliverable/s Initiating Planning Communications Planning Communications Management Plan Executing Information Distribution 1.Organizational Process Assets  Lessons Learned docs  Project records  Project reports 2.Requested process change Monitoring & Controlling Performance Reporting 1.Performance Reports  Comparison to baseline  Bar chart, S-curves, histograms, tables, traffic light  Earned Value Management 2.Forecasts Manage StakeholdersResolve issues Closing 21

23. Communications Management Plan Collection and filing structure that details methods for gathering and storing various types of info Distribution structure of the info – what info goes to who, via what method, frequency Description of info to be provided – format, content, level of detail, owner Methods for accessing info between schedules Methods for updating and refining communications management plan as the project moves on Escalation process 22 Stakeholder communication needs

24. Communication Plan Matrix Communication Activity AudienceKey MessagesDelivery Method WhenWho Develop Communication Plan Barbara MChanges to PMO organization 1:1 MeetingsWeek of 03/17Ben Vetting with approvers Exec Managers Orientation and get comments Power PointMonthly Mgrs Meeting 03/21 Jolie Email Announcement US Project Managers Official Intro of PMO Pogram Email to PMO Alias Week of 03/22Jen Web Site Splash Page Corporate Wide Placement of products and services Hyperlink bullet points to PMO Web site 03/23Brad 23

25. Total Communication Process 24 SOURCERECEIVERENCODER DECODER MESSAGE PERSONALITY SCREEN PERCEPTION FEEDBACK PERSONALITYSCREENPERCEPTIONSCREEN SOURCE MENTAL MODELS RECEIVER MENTAL MODELS

26. Mental Models 25

27. Mental Models 26 Personal views of reality PerceptionsPerceptions AssumptionsAssumptions Mental chattersMental chatters ExperienceExperience “What gets us into trouble is not what we don’t know. It’s what we know for sure that just ain’t so.” Mark Twain Mark Twain Voice of judgmentVoice of judgment Personal scenarios Personal scenarios Views of systems Views of systems Internalize experience Internalize experience Projections Projections

28. Communication Barriers Listening skills Mental Models – Culture – Intelligence – Knowledge base Context Dependence – Primacy effect – Recency effect – Contrast effect – Halo effect Situational consideration Emotional status Authority or position Common sense Cognitive dissonance 27

29. Communication Styles StyleDescription AuthoritarianGives expectations and specific guidance PromotionalCultivates team spirit FacilitatingGives guidance as required, but not interfering ConciliatoryFriendly and agreeable while building a compatible team JudicialUses sound judgment EthicalHonest, fair and by the book SecretiveNot open or outgoing DisruptiveBreaks apart unity of group Intimidating“Tough guy,” and can lower morale CombativeEager to fight or be disagreeable 28

30. Communication Signals Receptiveness RelayDescription VocalWords and content VocallyVoice tone and sounds VisuallyEye contact, posture, facial expressions, appearance, stance 29 % 7 38 55 I cannot hear your words, your actions speak too loudly!

31. Peter Drucker Functioning Communications 30

32. Communication… 31 … is Perception It is the recipient who communicates. One has to talk to people in terms of their own experience. Know what the recipient can see and why. … is Expectation As a rule, we perceive what we expect to perceive. The unexpected is usually not received at all. It is not seen or heard, but ignored or worst, misunderstood. What the recipient expects must be known before we communicate. “Shock of alienation” needed if message is unexpected. … Makes Demands Demands that the recipient become somebody, do something, believe something. Communication appeals to motivation. If it fits within the values and purposes of the recipient, it is powerful. Else, it is likely not be received at all or, at best, resisted.

33. Communication and Information 1.Communication is perception, information is logic. 2.Information is always encoded. To be received, the code must be known and understood by the recipient. 3.Information presupposes communication. 4.Information is purely formal and impersonal. The more it can be freed of human component (emotions, values, expectations, perceptions), the more valid and reliable it becomes. 32 Does communication need information?

34. Evolution of Communication 33 Data Information Knowledge Wisdom

35. Six Steps to Effective Communications 1.Think through what you wish to accomplish 2.Determine the way you will communicate 3.Appeal to the interest of those affected 4.Give playback on ways others communicate to you 5.Get playback on what you communicate 6.Test effectiveness through reliance on others to carry out your interactions 34

36. PALM Principle Plan project activities Analyze the situation and ask questions Lead the project activities Monitor and control time and resources 35 Sandra Rowe pp 41-42

37. Communication Conclusions Don’t assume that the message you sent will be received in the form you sent it. Be aware of recipients' mental models. The swiftest and most effective communications take place among people with common points of view (shared experiences). The manager who fosters good relationships with his associates will have little difficulty in communicating with them. Communications must be established early in the project. 36

38. Project Team Assembly

39. Project Human Resource Management Process GroupProcess NameProcess Major Deliverable/s Initiating Planning Human Resource Planning Roles and Responsibilities Project Organization Chart Staffing Management Plan Executing Acquire Project Team Project Staff Assignments Resource Availability Develop Project Team Team Performance Assessment Monitoring & Controlling Manage Project Team Requested Changes Recommended Corrective and Preventive Actions Closing 38

40. Responsibility Assignment Matrix 39 Resource Deliverable SponsorProject Manager Functional Manager 1 Functional Manager 2 Project CharterApprovesCreatesReviews Scope Statement CreatesApprovesReviews AcceptanceApprovesOwnerInformsInput RACI Chart: R = Reviews A = Approves C = Creates I =Informs Role: who does what Responsibility: who decides what Rowe pp 80-81

41. Staffing Management Plan 40 When and how staff resource requirements are met Staff acquisitionStaff acquisition TimetableTimetable Release criteriaRelease criteria TrainingTraining Recognition and rewardsRecognition and rewards ComplianceCompliance SafetySafety

42. Project Risks

43. Project Risk Management Process GroupProcess NameProcess Major Deliverable/s Initiating Planning Risk Management Planning Risk Management Plan Risk IdentificationRisk Register Qualitative Risk AnalysisRisk Register prioritized qualitatively Quantitative Risk Analysis Risk Register prioritized quantitatively Risk Response PlanningRisk Register updates (Risk Response Plan) Executing Monitoring & Controlling Risk Monitoring and Control Risk Register updates Closing 42

44. Risk Management Systematic process of identifying, analyzing, and responding to project risks. Maximizes probability and consequence of positive events and minimizes probability and consequence of adverse events Risk and information are inversely related Historical focus were on schedule and cost. Today, more emphasis on technological risk management: – Can we design and build it? – What is the risk of obsolescence? 43

45. Risk Management Risk: an uncertain event that, if it occurs could impact the project in either a negative or positive fashion Processes: – Plan Risk Management – Identify Risks – Perform Qualitative Risk Analysis – Perform Quantitative Risk Analysis – Plan Risk Responses – Monitor and Control Risks 44

46. Tolerance For Risk Risk avoider Risk neutral Risk lover 45

47. Risk Management Planning Process of deciding how to approach and plan the risk management activities for the project Risk Mgmt Plan – risk management structure and performance for the project 46  Methodology  Roles and Responsibilities  Budgeting  Timing  Risk Categories  Risk probability and impact definitions  Probability and impact matrix  Reporting format  Tracking

48. Risk Identification Process of determining risks that might affect the project and documenting their characteristics Iterative process Outputs – Risks (Risk Register, Rowe pp 75-76) – Triggers, when to invoke contingency 47 “The starting point for best practices in risk management is the development of a classification systems for the types of risks.” Harold Kerzner

49. Risk Categories Technical, quality or market Project Management Organizational External – Legal / regulatory – Labor – Weather – Force Majeure: earthquake, floods, etc.. 48

50. Qualitative Risk Analysis Assessment of risk impact and likelihood / probability Risk prioritization based on project impact 49

51. Qualitative Risk Assessment Ordinal Scales (rank-ordered values) – High, Medium, Low – Red, Yellow, Green – A, B, C Cardinal Scales (assigns values) – 0 to 100% for likelihood of occurrence – 0 to 10 for impact of occurrence 50

52. Risk Prioritization - Ordinal Model Roads closed from storm Hotels over booked Forgot gloves 51 Probability Impact High Medium Low MediumHighLow

53. Risk Prioritization – Cardinal Model 52 Probability Impact 2 4 6 8 86428642

54. Risk Assessment Metric 53 AssessmentProbabilityImpact High > 50% Significant disruption of project requirements (schedule, cost, scope) even with close monitoring Medium 25% - 50% Potential disruption of project requirements; close monitoring may overcome difficulties Low < 25% Little potential to disrupt project constraints; normal monitoring should overcome difficulties

55. Risk Assessment Metric 2 54 SymbolProbabilityImpact CertaintyThreat to total project success HighWill impact constraints/results MediumMay impact constraints/results LowWith effort can be managed UnlikelyLittle impact

56. Risk Response Planning Developing options and determining actions to enhance opportunities and reduce threat to the project’s objectives Assigns ownership to risk response 55

57. Strategies for Threats Avoidance – changing plan to eliminate the risk Transference – shifts consequence of a risk to a third party, including ownership Mitigation – reduces probability and/or consequences of an adverse risk to acceptable level Acceptance – risk is assumed. Contingency plan may be developed or team may deal with the risk only at the time of occurrence 56

58. Strategies for Opportunities Exploit – ensuring that the opportunity is realized Share – allocating ownership to a third party best able to realize benefit / opportunity Enhance – modifies size of the opportunity by increasing probability and/or positive impacts and by identifying and maximizing key drivers of the opportunities Acceptance – risk is assumed, Contingency Plan may be developed or team may deal with the risk only at the time of occurrence 57

59. Risk Conclusions Identify and Analyze risks Prioritize based on Likelihood/Probability, Time Horizon and Impact Build highest risks into Project Plan to track Be proactive and develop Risk Mitigation strategies Be prepared with Risk Assessment Matrix Know when your Trigger Points are set off Develop Contingency Plans to minimize impact and speed to recovery 58