1. Introduction to Project Management
Managing Project Time, Cost,
and Procurements
Welcome to Introduction to Project Management: Managing Project Time, Cost, and Procurements. This is Lecture b.
Lecture b
This material (Comp19_Unit6b) was developed by Johns Hopkins University, funded by the Department of Health and Human Services, Office of the National Coordinator for Health Information Technology under Award Number IU24OC

2. Managing Project Time, Cost, and Procurements Learning Objectives—Lecture b
Define project management time activities.
Define project cost management activities.
Define project procurement activities.
The Objectives for Managing Project Time, Cost and Procurements are to:
Define project management time activities.
Define project cost management activities.
Define project procurement activities.
We will further explore these topics in Lecture b.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

3. Schedule Terminology Duration Effort Project schedule network diagrams
Activity relationships
Schedule
There are several key terms that are important to understand when discussing project scheduling.
Duration—Duration is the total number of periods (work periods; days or workweeks) that are required to complete a scheduled activity
Effort—Effort is the amount of work or labor hours necessary to actually perform a scheduled activity
Project schedule network diagrams—Project schedule network diagrams are the schematic depiction of scheduled activities and dependencies (logical relationships of activities); model of sequenced activities
Activity relationships—diagramming technique to illustrate the activity’s logical relationships
Schedule— activity based timeline or project baseline; documents when the project activities will be completed
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

4. Activity Duration Estimates
The project team can estimate the likely number of work periods required to perform an activity by using any of the following techniques:
Analogous
Expert judgment
Parametric
Three point estimate
PERT (three point estimate with weighted average)
The project team can estimate the likely number of work periods required to perform an activity by using any of the following techniques:
Analogous—determine estimate by using resource duration estimate information from similar past projects; often used in project initiation or early planning when detailed project information is lacking
Expert judgment—Expert judgment acquires estimate information from individuals with historical information (experience) related to similar prior projects
Parametric—statistical approach to develop estimates based on historical data and other variables (square footage, labor hours per unit of work).
Three-point estimate—calculate the expected activity duration estimate by adding an optimistic (o) estimate, pessimistic (p) estimate, and most likely or average (m) estimate together and dividing by three. Formula: t = (o + m + p) / 3
A PERT estimate is a type of three-point estimate that uses a weighted average estimate (4 times the average estimate). While it has advantages, such as more precise scheduling and control, it is a more complex and costly method to estimate durations Formula: t = (o + 4m + p) / 6
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

5. Dependency Determinations
The project team must determine the existence of dependencies between activities when preparing a schedule. There are three types of dependencies or relationships between activities.
Mandatory
Discretionary
External
The project team must determine the existence of dependencies between activities when preparing a schedule. There are three types of dependencies or relationships between activities: mandatory, discretionary, and external.
In mandatory dependencies the activity sequence is inherent in the nature of the work performed. Mandatory dependencies are also known as hard logic. The predecessor (initial) activity must be started or completed before successor (secondary or following) activity can begin.
Example: can’t erect a structure until after the foundation is built; can’t paint a wall until dry wall is complete; can’t test an application until after it has been developed.
In discretionary dependencies the project manager uses a best practices approach in sequencing activities. Discretionary dependencies are also known as soft or preferred logic.
Example: plumbing and electrical work in construction can be performed in either sequence
In external dependencies something is required from “outside the project” that can impact the sequence of activities.
Examples: permits, inspections
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

6. Activity Sequencing—Precedence Diagramming Method (PDM)
In PDM, Boxes are activities and arrows connect the activities and show dependencies.
High-level summary in developing a project schedule:
Activities are sequenced (predecessors and successors are determined).
Activity paths are determined.
Duration of each path is calculated. You can see the duration in each of the boxes as a number in the lower right hand corner.
Critical path is identified (longest path and determines the earliest the project will complete).
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

7. Exercise
Identify other paths through the above network, calculate the duration of the paths, and then determine which path is the critical path.
Take five minutes to identify the other paths through the network, calculate the duration of the paths, and then determine which path is the critical path.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

8. Duration Compression Techniques
Crashing—involves adding additional resources to perform an activity to compress the schedule, but may result in increased cost to the project
Fast tracking—involves overlapping activities that normally are performed in sequence. Compressing the schedule by performing activities at the same time or in parallel may result in increased project risk and rework.
The project team attempts to create a realistic schedule.
The project team will examine alternative approaches to get the project schedule back, “on-track” with the schedule baseline if the schedule exceeds the duration required to complete the project
Two project schedule compression techniques are crashing and fast tracking.
Crashing involves adding additional resources to perform an activity to compress the schedule, but may result in increased cost to the project.
Fast tracking involves overlapping activities that normally are performed in sequence. Compressing the schedule by performing activities at the same time or in parallel may result in increased project risk and rework.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

9. Project Cost Management—Develop Estimates for Project Cost and Budget
The project team aggregates the estimated costs of individual activities or work packages to establish a cost baseline.
A cost management plan is developed by the project team and describes how project costs will be planned, managed and controlled (i.e. cost estimates, cost budgeting, cost baseline, cost variances).
During project execution the project team uses the cost performance baseline to monitor and control project costs.
In the estimate costs process, the project team estimates the costs of activities to develop a monetary estimate of the cost required to complete the project.
Estimates should be:
Based on the WBS and information from past projects
Accurate and realistic
Made by SMEs (people who perform the work)
In the determine budget process, the project team aggregates the estimated costs of work packages and establishes an authorized cost baseline.
In the control cost process, the project team monitors the project budget and manages changes to the cost baseline.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

10. Project Cost Management—Develop Estimates for Project Cost and Budget
Project cost management processes that occur in project planning, execution, and monitor & control:
Estimate costs
Determine budget
Control costs
The project team aggregates the estimated costs of individual activities or work packages to establish a cost baseline. A cost management plan is developed by the project team. This plan describes how project costs will be planned, managed, and controlled, including cost estimates, cost budgeting and cost baselines, and cost variances.
During the project execution the project team will use the cost performance baseline to monitor and control project costs.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

11. Three Project Cost Management Processes and Key Outputs
The key outputs for each of the three project cost processes are indicated on this table.
The key output of estimating costs is the activity cost estimates and the basis of estimates.
The key outputs for the determined budget activities are the cost performance baseline and project funding requirements.
The key outputs for the control costs activity are work performance measurements, budget forecasts and change requests.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

12. Types of Project Costs Direct cost Indirect cost Fixed cost
Variable cost
The project team must ensure that they have identified all project related costs. Costs can be variable or fixed, direct or indirect.
Costs directly related to the work of a project and directly benefitting the project are direct costs.
Examples: equipment, salaries, travel, materials, labor.
Costs related to the project but not restricted to the project are indirect costs and may include costs associated with other projects, such as administrative staff, rent, electricity, or software licensing fees.
Costs paid for one time and that do not fluctuate with the quantity produced or the amount of work are fixed costs.
Example: cost of a computer.
Costs that fluctuate with the quantity produced or the amount of work are variable costs.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

13. How Are Costs Estimated?
Analogous
Parametric
Bottom-up
An analogous estimate is determined from information of similar past projects and often used early in the project life when detailed project information is lacking. This is also known as a “top-down” estimate.
A parametric estimate is determined using a statistical approach or mathematical model to develop estimates based on historical data and other variables (square footage, labor hours per unit of work).
The bottom-up technique involves estimating a component of work and provides more detail than the other cost-estimation techniques.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

14. How Are Costs Controlled?
Cost management plan
Project performance
Change request
The cost management plan provides information on how project cost performance is measured and controlled.
Project performance reviews are used to compare the actual project cost performance to the planned performance.
A change request may result if cost variances are detected.
The change request can involve preventive or corrective actions to the cost performance baseline or project management plan.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

15. Project Procurement Management Processes
Project Procurement Management Processes that occur in project planning, execution, monitor & control, and closing:
Plan procurements
Conduct procurements
Administer procurements
Close procurements
The project team should understand how goods and services make or buy decisions. A Procurement Management Plan is developed in the Plan Procurements Process. This document provides information such as the how project purchasing decisions will be made, selecting contract types, and creating procurement documents.
The conduct procurements process occurs during project execution and involves obtaining seller responses, negotiations, selecting sellers, and awarding contracts.
Reviewing contract performance, making necessary changes or corrections, making payments and performing inspections are some of the activities that occur in the administer procurement process.
The close procurement process occurs at the end of the project and involves activities such as verifying the product, closing contracts, documenting lessons learned, and completing performance audits.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

16. Project Procurement Management Processes and Key Outputs
The major or key outputs for each of the four project procurement processes are indicated on this table.
During the plan procurements process, you should expect to create a procurement management plan, procurement statements of work, make or buy (build vs. buy) decisions, procurement documents, and source selection criteria.
During the conduct procurements process, you should expect to produce selected sellers, procurement contract awards, and resource calendars.
During the administer procurements process, you should expect as a key output your procurement documentation.
During the close procurements process, you should expect your key output to be closed procurements.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

17. Types of Contracts
There are three main types of contracts. The type of contract selected may be based on the good or service to be purchased or level of scope of work definition.
Fixed-price or lump-sum contracts
Cost-reimbursable contracts
Time and material contracts
The project management team will decide which type of contract to use based on many factors such as existing organizational policies, level of risk, and level of scope definition.
There are three main types of contracts:
Fixed-price or lump-sum contracts
Cost-reimbursable contracts
Time and material contracts
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

18. What Are Procurement or Bid Documents?
Invitation for Bid (IFB)
Request for Proposal (RFP)
Request for Quotation (RFQ)
Procurement documents are used to describe the buyers’ needs to sellers and to solicit proposals from sellers for products and services. 
Invitation for Bid (IFB)—document generally equivalent to RFP documents
Request for Proposal (RFP)—document that requests proposals from prospective sellers
Request for Quotation (RFQ)—document that requests price quotes from prospective sellers
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

19. Contracting Environments: Centralized & Decentralized
Processes may be managed by the project manager (decentralized procurement) or by a procurement organization (centralized procurement).
There are advantages and disadvantages to each of the contracting environments indicated in this slide.
In a centralized environment where there is a procurement organization the advantages may be greater contracting expertise and greater economies of scale and efficiency. Disadvantages may be that the centralized group may be working on many projects and they may not prioritize your project the way you would as a project manager.
In a decentralized environment, where the project manager is handling procurement for the project the advantages may be a greater focus on a specific project, the fact that the project manager has the authority to execute and control contracts and they may have greater loyalty to their specific project. Disadvantages in this situation may be duplication of effort and inconsistent contracting processes.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

20. Administer Procurements Process & Close Procurements Process
Administering the procurement process involves monitoring and controlling the contract performance, managing procurement relationships, and making changes and corrections when required.
A procurement audit is performed at the completion of each contract.
Contracts must be closed before the project can be closed.
Someone associated with the project, the project manager or contract administrator, must be responsible to monitor and control the contract. Some of the responsibilities would include, but are not limited to:
Managing the procurement relationships between the buyer and seller
Managing contract changes
Resolving disputes
Monitoring the contractors’ work performance
Conducting procurement performance reviews (verify actual work performed vs. what was stated in the contract); verify work is accurate (correct) and satisfies the contract terms
Authorizing and managing payment to sellers (contractors, vendors)
Performing inspections and audits
Maintaining a record of all procurement information (phone calls, s, payments, invoices, memos, etc) and ensure records are complete and archived at the end of the project
Updating project documentation with any changes
The project manager will perform a procurement audit (i.e. structured review of the procurement processes) at the completion of each contract.
Contracts must be closed before the project can be closed.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

21. Managing Project Time, Cost, and Procurements Summary—Lecture b
Developing a realistic schedule and budget and accurately making procurement decisions is based on having well defined project scope.
The project manager must continually monitor and control the schedule, budget, and procurements to ensure project success.
This concludes Lecture b Managing Project Time, Cost, and Procurements. In summary, developing a realistic schedule and budget and accurately making procurement decisions is based on having well defined project scope.
The project manager must continually monitor and control the schedule, budget, and procurements to ensure project success.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

22. Managing Project Time, Cost, and Procurements References—Lecture b
Fleming Q, Koppelman J. Earned value project management. 3rd ed. PMI; 2006.
Fleming Q. Project procurement management: contracting, subcontracting, teaming. 1st ed. FMC Press; 2003.
Houston S, Bove LA. Project management for healthcare informatics. Springer Science + Business Media, LLC; 2010.
Kerzner H. Project management: a systems approach to planning, scheduling, and controlling. 10th ed. Wiley; 2009.
Project Management Institute, A guide to the project management body of knowledge. 4th ed. Newtown Square, PA: PMI; 2008.
Schwalbe K. Information technology project management (with Microsoft Project 2007 CD-ROM). 6th ed.; 2009.
Stackpole C. A project manager’s book of forms: a companion to the PMBOK guide. Wiley; 2009.
Whitten N. Neal Whitten's let's talk! more no-nonsense advice for project success. Management concepts; 2007.
Wysocki, RK . Effective project management: traditional, agile, extreme. 5th Edition. New York: Wiley; 2009.
No audio.
Charts, Tables, Figures
Table 6.3. Student Exercise. Courtesy of Theron Feist.
Table 6.4 Three Project Cost Management Processes. Courtesy of Theron Feist.
Table 6.5 Project Management Procurement Processes. Courtesy of Theron Feist.
Table 6.6 Centralized Versus Uncentralized Contracting Environments. Courtesy of Theron Feist.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b

23. Managing Project Time, Cost, and Procurements References—Lecture b
Image
Slide 6: Precedence Diagramming Method. Courtesy of Theron Feist.
No audio.
Health IT Workforce Curriculum Version 3.0/Spring 2012
Introduction to Project Management Managing Project Time, Cost, and Procurements Lecture b