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CHAPTER 16

MANAGEMENT CONTROLS OFPROJECT

Zuni Barokah, Ph.D.Magister Manajemen

Fakultas Ekonomika dan Bisnis UGM2014

NATURE OF PROJECTS

Definition: set of activities intended to accomplish a specified end result of

sufficient importance to be of interest to management

Begins when management has approved the general natureof project and approximate amount of resources spent in thefirst phase of the work

Ends when objective has been accompl ished or when it hasbeen canceled

Varies greatly.

PROJECTS, IN CONTRAST WITHONGOING OPERATIONS

Single Objective

Ongoing operations: multiple objections

Organization Structure

Superimposed on an ongoing organizations.

Focus on the Project


Need for Trade-Offs

Between scope, schedule, and costs.

Not typical in ongoing organizations

Less-Reliable Standards

Project design is used only once.

Repetitive projects tend to have more developed standard.

Frequent Changes in Plans

Lead by unforeseen environmental conditions


Different Rhythm

Greater Environmental Influence

Exceptions

THE CONTROL ENVIRONMENT:PROJECT ORGANIZATION STRUCTURE

Temporary organization (disbanded after the project hasbeen completed or canceled)

Matrix Organization

Members of the project team are employees of the sponsoring

organization.

Project manager and manager of the functional department are

members bosses that permanently assigned. (Their basic loyaltyis to their functional department)

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THE CONTROL ENVIRONMENT:PROJECT ORGANIZATION STRUCTURE

Evolution of Organization Structure

Architects, engineer, schedulers, and cost analysts are

predominate in the planning phase of a construction project

The managers are production managers in the execution ofproject

In the final stages, the work tapers off, and principal task may

obtain the sponsors acceptance with marketing skills being aprincipal requirement

THE CONTROL ENVIRONMENT:CONTRACTUAL RELATIONSHIP

Appears when project is conducted by an outside contractor.

Two general types of contract : Fixed Price Contracts

Contractor agrees to complete the specified work by a specified date atspecified price.

There will be penalty if contractor fails to complete the work at specifieddate.

Sponsor is responsible for auditing the quality and quantity of the work toensure that it is done as specified

Cost-Reimbursement Contracts

Sponsor agrees to pay reasonable costs plus a profit.

Sponsor has considerable responsibility for the control of costs.

Comparable system and personnel used by contractor needed.


Contrast in Contract Types

Fixed-price contract is appropriate to be used when the scope of

the project can be closely specified in advance and whenuncertainties are low

Profit component or fee in cost-reimbursement usually should be

fixed monetary amount. Fixed fee normally is adjusted if the scope

or schedule of the project is significantly changed


Variations

For both type of contract, in an incentive contract, completion

dates or cost targets are defined in advance and contractorrewarded for completing the project earlier than target date or for

incurring less than the target cost

Different contract types may be used for different activities on the

project

INFORMATION STRUCTURE

Work Packages Smallest element of Information in project control system.

An aggregated work package is called the work breakdown

structure

Indirect Cost Accounts

Established for administrative and support activities in addition to

work packages for direct project work

PROJECT PLANNING

Starting point:

rough estimations that was used as the basis of the decision to take

the project

Refining the estimations into detailed spesifications.

Developing a management control system, underlying task

control system, and organization chart.

Plan for planning

For a project with moderate complexity

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PROJECT PLANNING:NATURE OF THE PROJECT PLAN

Three related parts of final plan:

Scope

Specifications of each work package and the name of the person orunit responsible

Schedule

Estimated time required to complete each work package

Cost

Stated in project budget, usually under control budget

PROJECT PLANNING:NETWORK ANALYSIS

Two commonly used techniques to construct the time

schedule:

PERT (program evaluation and review technique) CPM (critical path method)

Three basic steps:

Estimating the time required for each work package

Indentifying the interdependencies among work packages

Calculating the critical path


Two commonly used techniques to construct the time

schedule:

PERT (program evaluation and review technique)

CPM (critical path method)

Three basic steps:

Estimating the time required for each work package

Indentifying the interdependencies among work packages

Calculating the critical path


Probabilistic PERT

Estimated times arrived on a probabilistic basis:

A most likely time

An optimistic time

An pessimistic time

PROJECT PLANNING:ESTIMATING COSTS

Made at a level of aggregation that incorporates severalwork packages.

At individual work package level, resources are controlled in

terms of physical quantities.

Less standardized, less accurate.

Types of unknown (have to be taken into account)

Known unknowns

Unknown unknowns

PROJECT PLANNING:PREPARING THE CONTROL BUDGET

Prepared close to the inception of the work.

Delaying preparation of the control budget ensures that

the control budget incorporates current information.

Control budget is an important link between planning and

the control of performance

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PROJECT PLANNING:OTHER PLANNING ACTIVITIES

Other activities are performed during the planning phase

Ex: ordering materials, obtaining permits, selecting personals, etc.

These activities must be controlled and integrated into

the overall effort

PROJECT EXECUTION

Both the sponsor and the project management are

concerned with:

Project time schedule realization

Projects output specifications realization

Projects input realization (costs)

PROJECT EXECUTION:NATURE OF REPORTS

Types of reports managers need:

Trouble reports

Report happened troubles and future troubles.

Progress reports

Compare actual schedule and costs with planned schedule and costs

for the work done (including indirectly related overheads)

Financial reports

Less important.

The process takes time.


Quantity of reports Paperwork problem/information overload (reports with too many

details) could cause some problem. But not necessarily serious.

A review of the set of reports is needed.

Percent complete In cases where work packages are partially completed at reporting

date, percentage of completion measurement is necessary

If accomplishment measured in physical terms: percentage of completion can be measured easily

If no quantitative measure is available: percentage of completion is subjective


Summarizing progress Aggregating individual work packages, thus providing an overallmeasure of accomplishment

Punch list

A list of items yet to be accomplished (including defects that need

to be corrected)

PROJECT EXECUTION:USE OF REPORTS

Trouble reports Managers tasks: decide which troubles have the highest priority

Progress reports

Managers tasks: carefully analyze progress report, identify

problems that might be not apparent in the trouble report, and

plan on how to solve them.

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PROJECT EXECUTION:USE OF REPORTS

Cost to complete

Type of comparison

Actual cost to date VS budgeted cost of the work done to date

Current estimate of total costs for the project VS budgeted cost for the

project

Current estimate = actual cost to date + estimated cost to complete

A useful way (if calculated properly) to show how the project is expected to

come out.

PROJECT EXECUTION:INFORMAL SOURCES OF INFORMATION

Practically, these written reports usually are less

important than information manager gathers from talking

with people

A formal report should contain no surprises, but still is

essential

PROJECT EXECUTION:REVISIONS

Lengthy or complex project is more likely to have its plan

revised.

Usually because of the actual cost exceeds the budgeted cost.

Regarding comparison with future progress:

Revised plan VS Original plan

Solution: compare to both plan

PROJECT EXECUTION:PROJECT AUDITING

Quality audit must be held as a work is progressing.

The defects could be hidden otherwise

Generally, auditing as the work progresses is preferable

Operational auditing: examining costs incurred, paying

attention to management actions

PROJECT EVALUATION:ASPECTS

1. An evaluation of performance in executing the project1. Carried out shortly after the project completed

2. An evaluation of the results obtained from the project

1. Not feasible until several years later

PROJECT EVALUATION:EVALUATION OF PERFORMANCE

evaluation of the project management To assist in decisions regarding project managers

evaluation of the process of managing the project

Discover better ways of conducting future projects

Evaluating a project tends to be subjective.

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EVALUATION OF PERFORMANCECOST OVERRUNS

actual costs exceed budgeted costs

Possibilities:

Budgeted costs are too low

Excessive actual costs

Budget does not represent what the costs should have

been.

EVALUATION OF PERFORMANCEHINDSIGHT

Even though a decision seems unreasonable when it is

being evaluated, the decision might be entirely

reasonable at the time of decision making.

Indications like personal use of projects assets and

poor control system can still be used.

Evaluations may lead to changes of rules or

procedures.

PROJECT EVALUATION:EVALUATION OF RESULTS

There is no point in attempting to evaluate a project

unless some action can be taken based on the

evaluation.

In many projects, expected benefits are not stated in

objective, measurable terms, making evaluation of

results complicated.

In these cases, benefit-cost analysis is not feasible

Must rely on judgment

Comparison should be a part of evaluation

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