1. Project Management: Planning and Control How can we make money? (or at least avoid losing it) Dr. David R. Doucette, PE Senior Vice President KLD Engineering

2. Why do we fail? Most projects and companies don’t fail for technical reasons Most projects and companies don’t fail for technical reasons Business reasons Business reasons Cost overruns Cost overruns Schedule slippage Schedule slippage Marketing (not addressed here) Marketing (not addressed here) We don’t want to die! We don’t want to die!

3. Comments “We had the seeds of our own destruction from the very beginning” “We had the seeds of our own destruction from the very beginning” Typically, something unexpected happened Typically, something unexpected happened Translation: there were risks that were not recognized and could not be recovered from Translation: there were risks that were not recognized and could not be recovered from Risk is unavoidable, but can be accomodated Risk is unavoidable, but can be accomodated

4. How do we succeed? Need to plan properly Need to plan properly Need to execute properly Need to execute properly Need to know when you’re in trouble Need to know when you’re in trouble Need to know how to recover Need to know how to recover Frequently none of the above happen Frequently none of the above happen

5. How do we plan? First step: Project schedule First step: Project schedule You know how to do this You know how to do this First signs of trouble – not enough time First signs of trouble – not enough time Start tweaking schedule to fit Start tweaking schedule to fit You can’t create time, you’ve got to fit You can’t create time, you’ve got to fit You balance the risks of compressing selected tasks to meet schedule You balance the risks of compressing selected tasks to meet schedule

6. Planning: The Next Step Review the plan with different views Review the plan with different views Look for risks Look for risks Standard Gantt Chart is OK Standard Gantt Chart is OK “Critical Path Gantt Chart” is better “Critical Path Gantt Chart” is better Called a “Tracking Gantt” by MS Project Called a “Tracking Gantt” by MS Project Every project has a critical path Every project has a critical path Identified in red on chart Identified in red on chart

7. Case Study: EG1003 Doghouse Need to build a computer-controlled doghouse Need to build a computer-controlled doghouse Prototype unit, to be put into production Prototype unit, to be put into production Hardware and software tasks Hardware and software tasks A variety of people available A variety of people available $11,000 budget $11,000 budget

8. Doghouse Critical Path Gantt Chart Critical Path Not critical

9. Planning: What now? You now have a schedule (time) You now have a schedule (time) Address budget (money) Address budget (money) Assign “resources” (people) to tasks Assign “resources” (people) to tasks You know how to do this You know how to do this Look at “Resource Sheet” Look at “Resource Sheet” If anything is red, ask why If anything is red, ask why Could be OK (level loading) Could be OK (level loading)

10. Planning: Resource Sheet (OK) Note: Some fields are missing to allow to expand to larger size Al, Diane, and Ed are red because their load fluctuates (sometimes full time, sometimes unassigned)

11. Project Labor and Rates (3 Kinds) Direct Labor Direct Labor Also called “touch labor” Also called “touch labor” Directly contribute to product Directly contribute to product Project indirect Project indirect Don’t directly contribute, but needed Don’t directly contribute, but needed Project manager, clerical help Project manager, clerical help Overall indirect Overall indirect Also called “General and Administrative” (G&A) Also called “General and Administrative” (G&A) Corporate management, facilities, etc. Corporate management, facilities, etc.

12. Labor Rates Three different labor rates Three different labor rates Just direct (lowest rate) Just direct (lowest rate) Also called “unburdened” Also called “unburdened” Direct plus project indirect (not used much) Direct plus project indirect (not used much) Everything (highest rate) Everything (highest rate) Also called “fully burdened” Also called “fully burdened” As business people, we usually use fully burdened As business people, we usually use fully burdened

13. Resource Sheet: Revisited For planning, work year is about 2000 hours So Betty is making $200K??? No, she makes much less – these are all fully burdened labor rates, typically 2 to 3 times the unburdened rate

14. Show me the money! Assign the proper rate to each “resource” Assign the proper rate to each “resource” What’s the budget? What’s the budget? Click Project/Project Information/Statistics Click Project/Project Information/Statistics Look at bottom right corner Look at bottom right corner It’s probably too high It’s probably too high What now? What now?

15. Doghouse Project Estimated budget is $11,280.00 Estimated budget is $11,280.00 Specification is $11,000 Specification is $11,000 What now? What now? Change resources – use cheaper stuff Change resources – use cheaper stuff Ed is expensive, Fran is cheaper Ed is expensive, Fran is cheaper Give Fran some of Ed’s work (floor) Give Fran some of Ed’s work (floor)

16. Not There Yet Cost is now $11,120, still over budget Cost is now $11,120, still over budget Give Fran the roof too Give Fran the roof too Cost is now $10,960 Cost is now $10,960 We’re within budget We’re within budget Reserve of $40 (not much!) Reserve of $40 (not much!) We met the budget, but it’s risky We met the budget, but it’s risky In real world, get a bigger reserve, but OK for here to fit in the hour I have In real world, get a bigger reserve, but OK for here to fit in the hour I have

17. Planning is done Project starts

18. Now We Need to Execute Stay on schedule Stay on schedule Stay on budget Stay on budget Find problems early Find problems early Start fixing them Start fixing them

19. Earned Value Analysis Attacks both problems at once Attacks both problems at once Two-dimensional way of looking at project Two-dimensional way of looking at project X Axis is time (project duration) X Axis is time (project duration) Y Axis is money (project budget) Y Axis is money (project budget)

20. Typical Project - Plan Start DateEnd Date Project Budget 0 Time Money Initial Design, few People Involved Implementation, maximum staff Final testing, project winding down

21. Typical Project - Actual Start DateEnd Date Project Budget 0 Time Money Today Spent Progress We’re on time We’re on budget Life is good (We’re probably lying)

22. Typical Project - Actual Start DateEnd Date Project Budget 0 Time Money Spent Progress We’re ahead of schedule We’re on budget Life is great! Now we’re really lying! Today

23. Typical Project - Actual Start DateEnd Date Project Budget 0 Time Money Spent Progress We’re behind schedule We’re on budget We’re concerned Are there liquated damages? Today

24. Typical Project - Actual Start DateEnd Date Project Budget 0 Time Money Spent Progress We’re on time We’re over budget We’re worried This is typical Today

25. Typical Project - Actual Start DateEnd Date Project Budget 0 Time Money Spent Progress We’re ahead of schedule We’re over budget We’re too aggressive Technical machismo Today

26. Typical Project - Actual Start DateEnd Date Project Budget 0 Time Money Spent Progress We’re behind schedule We’re over budget We’re scared! This happens all the time Today

27. The Prime Directive - Financial Start DateEnd Date Project Budget 0 Time Money GOOD BAD

28. How do I know the numbers? Labor rates were part of planning Labor rates were part of planning We can calculate costs via progress bars on the schedule We can calculate costs via progress bars on the schedule Example: Example: Schedule shows 2 days (16 hours) for task Schedule shows 2 days (16 hours) for task Labor rate is $50/hour Labor rate is $50/hour Task costs 16*$50=$800 Task costs 16*$50=$800 It’s half done, therefore we “earned” $400 It’s half done, therefore we “earned” $400

29. A More Accurate Cost Preceding is called “Budgeted cost of work performed” Preceding is called “Budgeted cost of work performed” Based on estimates Based on estimates Better: Actually track the money spent and use that instead Better: Actually track the money spent and use that instead Called “Actual cost of work performed” Called “Actual cost of work performed” More accurate gauge of progress More accurate gauge of progress

30. Actual Cost of Work Performed Usually tracked through financial systems Usually tracked through financial systems Track how many who worked on what tasks Track how many who worked on what tasks Multiply by their actual labor rate Multiply by their actual labor rate Takes care of additional resources being added without replanning Takes care of additional resources being added without replanning Takes care of bad estimates Takes care of bad estimates

31. How do we track progress? Fill in progress on the task bars, like the EG1003 project Fill in progress on the task bars, like the EG1003 project Click on Project/Project Information/Statistics Click on Project/Project Information/Statistics Lower left corner will show Percent Complete in terms of duration and work hours Lower left corner will show Percent Complete in terms of duration and work hours Duration is offset along the X Axis (progress) Duration is offset along the X Axis (progress)

32. Tracking Progress X Axis Progress Y Axis Progress (Budgeted Cost of Work Performed)

33. Put It All Together The baseline plan is a plot of the budgeted cost of work scheduled versus time The baseline plan is a plot of the budgeted cost of work scheduled versus time The “S” curve on the examples The “S” curve on the examples We know what day it is We know what day it is We got progress from preceding slide We got progress from preceding slide We know actual cost of work performed We know actual cost of work performed If we don’t, we’ll use budgeted cost of work performed If we don’t, we’ll use budgeted cost of work performed

34. The Finishing Touches Make a vertical line for today - green line Make a vertical line for today - green line The curve intersection is your baseline budgeted cost of work scheduled for today The curve intersection is your baseline budgeted cost of work scheduled for today Make a vertical line for progress (if not today) – white line Make a vertical line for progress (if not today) – white line You now know if you’re early or late You now know if you’re early or late The curve intersection is budgeted cost of work performed The curve intersection is budgeted cost of work performed

35. Finishing the Finishing Touches For the progress, mark the actual cost of work performed For the progress, mark the actual cost of work performed Will be above or below the budgeted cost of work performed Will be above or below the budgeted cost of work performed If you’re above, you’re in budget trouble! If you’re above, you’re in budget trouble!

36. What are the keys? Good planning and estimating Good planning and estimating Good risk assessment – knowing what can go wrong Good risk assessment – knowing what can go wrong Good execution – watching progress versus budget carefully Good execution – watching progress versus budget carefully

37. What’s next? This is only the prototype This is only the prototype What about production? What about production? Some jobs (software, custom system integration) are nothing more than “one of a kind” Some jobs (software, custom system integration) are nothing more than “one of a kind” Others need to make lots of these things Others need to make lots of these things

38. The bigger picture We need to consider two kinds of cost We need to consider two kinds of cost “One time” development costs to make the prototype (probably high) “One time” development costs to make the prototype (probably high) Includes Research and Development (R&D) expenses Includes Research and Development (R&D) expenses Includes initial tooling to make the first item Includes initial tooling to make the first item Recurring costs to make each additional unit (probably low), also known as “marginal cost” Recurring costs to make each additional unit (probably low), also known as “marginal cost” Labor to make each unit (discussed earlier) Labor to make each unit (discussed earlier) Materials Materials

39. What do I do? First, estimate the production run First, estimate the production run Need to know the market so you can make an intelligent guess Need to know the market so you can make an intelligent guess Divide the “one time” cost by the number of expected units Divide the “one time” cost by the number of expected units Add the recurring (marginal) cost Add the recurring (marginal) cost Use fully burdened numbers in all cases Use fully burdened numbers in all cases This gives you a “per unit” cost This gives you a “per unit” cost

40. What next? This cost has no margin for error This cost has no margin for error Add a reserve Add a reserve Add profit margin (sometimes additional reserve in case you guess wrong) Add profit margin (sometimes additional reserve in case you guess wrong) Consider risk factors Consider risk factors What can cause you to run late What can cause you to run late What unexpected expenses can cause you to lose money What unexpected expenses can cause you to lose money

41. Rejoice! The end is near! Consider “cash flow” Consider “cash flow” You’ll be paying for labor and materials before you make sales You’ll be paying for labor and materials before you make sales You’ll need money to tide you over You’ll need money to tide you over Profits from earlier projects Profits from earlier projects Loans Loans Venture capital Venture capital Try to minimize cash flow Try to minimize cash flow

42. How? Try to spread out production run Try to spread out production run Order materials only when needed Order materials only when needed “Just in time” manufacturing “Just in time” manufacturing Turns cost into revenue quickly Turns cost into revenue quickly Minimize use of labor Minimize use of labor High production rates need lots of people High production rates need lots of people And lots of cash And lots of cash Spread out and save money on cash flow Spread out and save money on cash flow

43. Conclusion Many engineers do not practice what’s shown here Many engineers do not practice what’s shown here Results are frequently catastrophic Results are frequently catastrophic This is why 90-95% of companies fail This is why 90-95% of companies fail Failures due to financial and planning, not technical reasons Failures due to financial and planning, not technical reasons Technical skill alone is not enough Technical skill alone is not enough