instructional fs ipi curriculum development reportpkatia/fouryeararchives/_overview/final... ·...

i

Instructional FS‐IPI Curriculum Development Report (March 31, 2008)

© 2008 Dr. Katia Passerini, Dr. Asokan Anandarajan New Jersey Institute of Technology

ii

TABLE OF CONTENTS I. OVERVIEW..........................................................................................................................................................1

II. PROJECT BACKGROUND ..........................................................................................................................1

III. REQUIREMENTS DEFINITION ...................................................................................................................2 “SETTING THE STAGE”...............................................................................................................................................3 “REQUIREMENTS” ......................................................................................................................................................3

IV. APPROACH TO CURRICULUM DEVELOPMENT (4-YEAR COLLEGES) .........................................4

V. INSTRUCTIONS ON HOW TO USE THE MODULES..............................................................................6

VI. EVALUATION RESULTS..............................................................................................................................7

VII. CONCLUSIONS............................................................................................................................................16

VIII. PROJECT TEAM ..........................................................................................................................................16

IX. APPENDICES ...............................................................................................................................................17 APPENDIX A: NJ FINANCE CURRICULA BENCHMARK .............................................................................................17 APPENDIX B: SURVEY RESULTS AND CURRICULUM APPROACH............................................................................17 APPENDIX C: TEAM LEARNING MODULE AND ACTIVITIES ......................................................................................17 APPENDIX D: PROJECT MANAGEMENT MODULE AND ACTIVITIES..........................................................................17 APPENDIX E: FINANCIAL CONTROLS IN PROJECT MANAGEMENT MODULE AND ACTIVITIES ...................................17 APPENDIX F: BUSINESS ETHICS IN FINANCE MODULE AND ACTIVITIES ..................................................................17

1

I. Overview

Our team developed an integrated set of multidisciplinary learning modules for

teaching undergraduate students fundamental skills that are required for easing

an entry in financial industry job positions in New Jersey. Benefits of these

learning modules include:

Brief overview materials that can be easily integrated within existing courses

and curricula;

Enhancement of learning through simultaneous use of various media, within

a self-paced learning environment;

Easy replication and customization of the modules in various courses.

II. Project background

Governor Corzine announced an Economic Growth Strategy for New Jersey in

2007. The governor announced six key priority areas. Of the six, the area of

interest to this proposal relates to the governor’s initiative to improve the training

received by students in four year colleges in New Jersey. A Notice of Grant

Opportunity was issued by the New Jersey Commission on Higher Education

with funding from the state’s Department of Education and the Department of

Labor and Workforce Development to implement a strategy to (1) make NJ

colleges understand what is required of them, and (2) increase the soft and

creative thinking skills of students. Within the financial industry sector, a

curriculum development grant was awarded to a coalition including the New

Jersey Institute of Technology with the objective to develop new curricula that

offer students ways to improve vital skills of today’s job market.

This project is considered important because, currently, the chasm between

developments and innovation in the finance industry and the curriculum taught at

educational institutions in New Jersey is perceived to be gradually widening. For

this project, educational institutions are defined as high schools, community

2

colleges and four year colleges in this state. The finance industry is defined as

those companies involved in the creation, liquidation and protection of financial

assets. Based on this definition, the finance industry is assumed to comprise the

banking, insurance and commodities sectors. Developments in the finance

industry are characterized by continuously evolving technology, increasingly

complex laws and increased competition in the form of globalization. To meet

these changes, employers are now looking for personnel with high levels of

computerized technical skill, greater knowledge of the complex laws that govern

their activities and an ability to attract and enhance the customer base.

The purpose of this grant is to develop curricula at the high school, community

college, and four year college level that meets the increased skill demands of

industrialists. To attain this objective, we adopted a three step strategy:

• Study the current curricula offered by selected high schools, community

colleges and colleges offering four year programs with respect to finance and

finance related courses.

• Speak to industrialists and critically assess their specific needs and

requirements of potential new recruits.

• Develop curricula at the high school, community college and college level that

meets the heightened skill requirements of industry.

These steps are discussed in more detail in the next section.

III. Requirements Definition

The development of this project required a phased approach to curriculum

development. This approach started with some preliminary background research

(“setting the stage”) and continued through various phases of requirements

definition, refinement, curriculum design, feedback and testing.

3

“Setting the Stage”

During this initial phase, we conducted some background research to better

understand finance curricula across New Jersey 4-year institutions, and thus

identify potential gaps.

In summary, during this initial stage, our group

Identified a group of colleges offering financial programs to insert in a

quick benchmark.

Developed a preliminary list of the types of courses currently taught

(and the frequency by which they are taught) in NJ colleges.

The findings listed in Appendix A show that while many fundamental courses

are offered by multiple institutions; only a few colleges offered novel international

and financial ethics specialty courses.

“Requirements”

Several meetings were held with key partners in the financial sector in New

Jersey to identify recurrent needs that should be addressed by new curricula. At

least three focus groups were held to gather requirements and to obtain

feedback on proposed activities. In addition, a survey was developed to also

obtain information about curriculum needs by a larger audience. Appendix B

provides a list of the findings from the survey and focus groups activities. The

results of the survey mostly matched the information obtained in the focus

groups, and more specifically:

Key skills needed: The various financial services (FS) stakeholders

have provided feedback that specialized financial skills while vital, are

not as crucial, since such technical skills can be provided to new

recruits in the form of “on the job” training. However, “soft” skills are

more difficult to absorb in a “on the job rapid crash course”. Such soft

skills have to be nurtured over a period of time. Four year colleges in

New Jersey are in the best position to enhance the vital soft skills and

4

creative thinking ability required of new graduates. Currently

discussions with FS representatives reveal that there is an

“expectations gap” between what they, as potential employers expect

from new graduates, and the skills New Jersey colleges think they

should provide. The expectations of four year colleges with respect to

skill development do not come close to the expectations of employers

and this program is a preliminary milestone to achieve alignment. In

particular, FS spokespersons identified a set of crucial skills that they

would like be nurtured by academic institutions. These skills include:

(a) Communication skills, both oral and writing,

(b) Skills relating to conduct (including mode of dress and proper

business etiquette);

(c) Ability to deal with peers, superiors and subordinates;

(d) Ability to understand different cultures when dealing with people

of different international backgrounds;

(e) Ability to engage in critical thinking;

(f) Lateral thinking in problem solving;

(g) Knowing how to work effectively in a team; and

(h) Overall integrity in the work place environment

Reusability Of The Program. Another critical need established by the

grant was to prepare instructional materials that were generic enough

to be accessible and reusable by various institutions in NJ. Portability Of The Program. Accessibility and re-usability also

required that the program was accessible in multiple formats.

IV. Approach to Curriculum Development (4-year colleges)

To address the requirements, we developed four (4) short instructional modules

that could be easily integrated into existing curricula. The modules included:

5

1) Team learning (Appendix C) to address skills (a), (c), (d) and (g) 2) Project management (Appendix D) to address skills (a), (e), and (f) 3) Financial controls in project management (Appendix E) to address (e), and (f) 4) Business ethics in finance (Appendix F) to address skills (b) and (h)

In developing these modules, we followed curriculum design principles, and

focused in particular on:

Learning Theory Mapping. We decided that based on the

requirements, an instructional program premised on Gagne’s

instructional events through short content modules was most

appropriate. The table below shows how external instructional events

coupled with the internal learning process are mapped by the various

modules of instruction.

Gagne’s Nine Instructional Events External Instructional

Event Internal Learning Process Instructional Media

Used 1. Gaining attention Reception: To ensure reception of

coming instruction we give the learner a stimulus.

Text, graphics, questions & vignettes

2. Informing learners of the objective

Expectancy: Tell the learner what they will be able to do because of the instruction.

Lessons objectives and relevant skills mapped to modules

3. Stimulating recall of prior learning

Retrieval: Ask for recall of existing relevant knowledge.

Links to related modules

4. Presenting the stimulus

Selective Perception: Display the content.

Text, narration, and graphics

5. Providing learning guidance

Semantic Encoding: Help understanding by providing organization and relevance.

Outline and facers in the modules provide navigational aids

6. Eliciting performance

Responding: Ask learner to respond to demonstrate learning

Questions and suggested activities (exercises and activities)

6

7. Providing Feedback Reinforcement: Give informative feedback on the learner’s performance.

Answers included in narrations; guidance to grading for instructors

8. Assessing Performance

Retrieval: Require more learner performance, and give feedback, to reinforce learning.

Activities and exercises supplement the modules

9. Enhancing Retention and Transfer

Generalization: Provide varied practice to generalize the capability.

Focus on application of learned skills

Learning Strategy. By using various delivery media and multiple

presentation formats (audio, text and graphics) in the production of our

materials, we attempted to stimulate the learner‘s attention. It is

important that the learner acquire needed skills, practice these skills so

that retention can occur, experience instruction so recall can be

stimulated and learn to generalize the acquired knowledge to similar

situations and areas of instruction.

The modules provide an opportunity for learners to walk through

various concepts. The performance aspect of this instruction is

accomplished using Gagne’s theory above. In specific cases,

feedback was provided to the learners through practice exercises.

User Interfaces. We used a familiar MS PowerPoint format commonly

used in college instruction. Since the format is familiar to students, it

should reduce the user’s cognitive load.

V. Instructions on how to use the modules

The teaching and learning materials are designed to be offered as part of the

curriculum of 4-year business/management undergraduate programs in NJ.

7

The short (elective) study modules can be integrated within existing courses to

increase access to concepts that are fundamental pre-requisites to a smooth

entry in the financial industry job market.

Each module consists of a ‘narrated lecture’ supported by a MS PowerPoint

presentation on the specific topic area. The narrations are roughly 30-minute

long and can be accessed on-line or can be downloaded and played off-line.

Multiple file formats allow interoperability across various platforms (i-tunes, MP3

and MP4-video and Windows Media Files .WMV)

The modules include supplementary materials such as case studies, exercises,

vignettes, and other activities. These activities are separate from the lecture

materials and instructors have the flexibility to select which activities are more

relevant to their courses.

Copies of the narrations, PowerPoint presentations and exercises are accessible

at http://web.njit.edu/~pkatia/FourYearArchives/ (3/31/2008)

VI. Evaluation Results

We conducted two formal evaluations with our stakeholders (financial industry

representatives and prospective students).

1 ModuleBusiness

Ethics & SoX

1 ModuleTeam

process

2 ModulesPrj Mgt,

Fina Prj Mgt

Focus: Financial Industry Sector

8

1. Formative Evaluation. Feedback from the FS stakeholders

A meeting about curriculum proposals was held with FS stakeholders during Fall

2007. The participants expressed satisfaction with the progress of the project.

However, they also expressed concern whether, given the resources available

the project could be completed to the satisfaction of all parties. Gale Spak of the

New Jersey Institute of Technology stated that she would be applying for an

extension. In essence, the FS stakeholders noted that ethics was important and

using SoX, which, in their opinion, is one of the landmark legislation of our time,

was a good idea. This would provide students with an initial exposure to ethical

standards of behavior required by SoX and highlight the importance of this

legislation. It was also noted that some aspects of inter-cultural sensitivity should

be addressed as this was lacking in the presentation. FS stakeholders also

expressed satisfaction with the project management modules stating that it was

well developed, lucid and cogently worded.

In a follow up meeting that presented an almost final draft of the curriculum

(March 17, 2008), the FS stakeholders reviewed the curriculum and requested

minor changes to the materials presented. These changes have been included in

the final version of the instructional resources.

2. Summative Evaluation. Pilot tests outcomes (for three modules)

To test the impact of the instructional experience, the modules were presented to

students attending courses in the School of Management during Spring 2008. In

general, students reviewed the lectures, downloaded the instructional materials

(a copy of the MS PowerPoint) to support their review of the narrations, and

completed specific activities.

With regard to the Team Learning module, students identified their preferred

team-roles (through a sample Belbin profile activity) and discussed the results

with the instructor. The teams were highly engaged with the activities and an

additional class section was spent assessing the implications of the team-profiles

9

(see for example Figure 1 for results) by inviting a guest speaker in a follow up

lecture. In addition, skills acquisition was tested through a short-quiz in which five

questions (out of a total of 32) focused on content presented in the team learning

module. The results of the quiz are presented in Table 1.

Figure 1: Team Roles based on Belbin’s Model- Spring 2008

Team 1 - Belbin

CW, 15.8

CH, 7.5

SH, 3.3

PL, 9.0RI, 9.0

ME, 7.5

TW, 7.0

CF, 11.0

Team 2 - Belbin

CW, 12.5

CH, 11.3

SH, 11.5PL, 3.5

RI, 7.3

ME, 10.3

TW, 7.0

CF, 7.3

Team 3 - Belbin

CW, 11.4

CH, 10.2

SH, 7.4

PL, 8.2

RI, 6.8

ME, 5.8

TW, 10.0

CF, 7.8

Team 4 - Belbin

CW, 13.4

CH, 8.2

SH, 9.8

PL, 4.0RI, 4.6

ME, 8.8

TW, 10.6

CF, 10.6

10

Team 5 - Belbin

CW, 13.2

CH, 9.0

SH, 5.4

PL, 4.8RI, 6.2

ME, 7.4

TW, 10.2

CF, 11.6

Team 6- Belbin

CW, 12.8

CH, 12.0

SH, 6.3PL, 8.3

RI, 3.8

ME, 8.0

TW, 13.0

CF, 6.0

Team 7 - Belbin

CW, 12.8

CH, 8.2

SH, 5.8

PL, 13.0RI, 9.0

ME, 6.2

TW, 9.4

CF, 10.3

Team 8 - Belbin

CW, 11.3

CH, 9.3

SH, 11.0

PL, 10.7

RI, 8.0

ME, 6.3

TW, 7.7

CF, 5.7

Team 9 - Belbin

CW, 16.3

CH, 7.5

SH, 7.3

PL, 6.8RI, 7.5

ME, 7.3

TW, 9.5

CF, 8.0

Team 10 - Belbin

CW, 16.0

CH, 8.3

SH, 12.0PL, 7.5

RI, 9.8

ME, 6.3

TW, 5.3

CF, 6.0

LEGEND: CW= Company Worker ME = Monitor Evaluator SH= Shaper PL= Plant RI= Resource Investigator CH= Chairperson TW = Team Worker CF=Completer- Finisher

11

For the Project Management module, students reviewed the materials and their

learning was assessed with a 10-item quiz, whose results are also presented in

Table 1. Table 1: Team Learning and Prj Mgt Quiz Results - Spring 2008

Q1 ‐ 5 Team Learning Qs (out of 32 Qs) N%

Correcttop 25

lowest 25

Stand Dev

Type of Quest.

q1 A typical team life‐cycle includes forming, storming, norming, performing, adjourning 46 86 100 83 34.1 T/F

q2 Masculinity is a dimension that is used to classify countries' cultural characteristics 46 60 84 50 49.3 T/F

q3 A common critique to Tuckman's Stage theory is that the stages of the team lifecycle are not linear 46 65 92 41 48.2 T/F

q4 Which of the following is not among the team roles and types identified by Belbin? 46 82 100 50 38.3 MC

q5 Teams define a "contract" and schedule of work during the following stage of the team lifecycle 46 32 46 8 47.4 MC

Quiz Average Score 65.00%

Q2 Project management N%

Correcttop 25

lowest 25

Stand Dev

Type of Quest.

q1 The typical project monitoring and control activities include 44 63 100 15 48.7 MC

q2 Compared to Program Management, Project Management provides a more holistic view of groups of related projects 44 65 100 30 47.9 T/F

q3 The critical path is the path with the shortest duration 44 72 100 53 45.1 T/F

q4 Understanding "variance" from the baseline is a critical activity within project control 44 93 100 84 25.5 T/F

q5 All of the following are characteristics of projects, except 44 81 100 69 39 MC q6 Scope Management is achieved using 44 68 100 38 47.1 MC

q7 The higher the probability of risk (the possibility that a problem will occur) the lower its manageability (ability to mitigate the problem). 44 31 27 23 47.1 T/F

q8 The duration of each stage of the project life‐cycle will approximately be the same for short‐term projects compared to longer‐term projects 44 79 100 53 40.8 T/F

q9 Which one of the following is primarily a Project Execution tool 44 65 100 46 47.9 MC q10 The PMP Certification qualifies recipients as 44 93 100 92 25.5 MC

Quiz Average Score 71.60% MC= Multiple Choice Question T/F= True or False Question

One word of caution must be used when interpreting the results of the quizzes.

Due to the limited timeframe for the pilot testing, the quizzes can only short-term

retention of the instructional materials. Additional hands-on exercises and end-of-

semester 360-degree assessments are necessary to identify the broader learning

impacts. Nevertheless, the fact that the average percent of correct questions is

12

about 65 percent (for the team learning module) and 72 percent (for the project

management module) shows that the materials presented in these modules are a

necessary addition to the curriculum (as a few students continue to lack skills in

the area) and additional follow up and in-class discussion is needed to foster

long-term retention.

In the module Fundamentals of Business Ethics, students practiced with a

series of case studies in a classroom situation. The students who had

accounting classes previously were asked to respond and provide their answers

to the mini case studies in the module. The purpose was to examine if existing

accounting courses had provided the students with a basic understanding of

business ethics as espoused by the Sarbanes Oxley Act. The accounting

courses follow the same syllabi as courses conducted in other four year colleges.

So, the assumption is that the knowledge of the students who participated in this

survey is representative of the four year college population in general. The

results were as follows: Mini Case Study 1: A partner of the firm conducting an audit was provided a gift of

season tickets by the managers of the company he was auditing. Question: Does this

meet ethical standards?

Virtually all of the respondents (91%) answered correctly that this was not ethical

as it would create the impression that decisions could be improperly influenced.

Mini Case Study 2: A partner of the firm conducting an audit was paid in stock rather

than cash. Question: Does this meet ethical standards?

The respondents were split. However 54% said they did not see anything wrong

with this and hence, was not a violation of ethical standards. The rationale was

that the partner would now be very concerned with the company performance.

The answer was that this is now not allowed under SOX (section 206). The

partner would now be vulnerable to pressure from the client company since both

parties benefit if stock price increases.

Mini Case Study 3: In this case siblings of the partner of an audit firm had stock in the

company that their brother was auditing. Question: Does this meet ethical standards?

About 52% answered that they did not see anything wrong with this. Hence, the

class was split almost equally. The correct answer is that this is defined as

13

related third party transactions, which, under SOX, is not considered ethical and

not allowed.

Mini Case Study 4: An employee borrows a computer, uses it and returns it in extremely

good condition. Question: Does this meet ethical standards?

About 71% answered correctly that this was not ethical since she did not get

permission for using it. This comes under misuse of company assets by its

custodians. Use by an employee of physical assets for which the employee

might benefit is forbidden under SOX.

Mini Case Study 5: Same as before except that students were told that the employee

borrowed a computer with the permission of her immediate superior.

Question: Does this meet ethical standards?

About 98% of the respondents answered that this was now appropriate and

ethical since permission had been obtained. This was the question most

students answered incorrectly. Under SOX the use of assets for which an

employee is custodian, must be justified and approved by two levels of

management above the employee concerned. This is because the employee

may be friendly with the boss directly in charge of that person which could result

in “collusion”. This is more difficult when another level is involved.

Mini Case Study 6: A manager of a company tells friends who have stock in the

company about potential bad news regarding the company. The friends immediately sell

their stock. Question: Does this meet ethical standards?

The majority of students (78%) got this correct saying it was not ethical; 22%

thought it was still acceptable because the manager did not benefit personally.

SOX characterizes this as insider trading. Even though the manager did not

personally profit from disclosing information and hence, did not violate the law,

his action is still a violation of business ethic according to SOX.

Mini Case Study 7: The manager tells students who do not have stock in the company

about the potential bad news. Nobody profited from the information


Approximately 42% of the students got this correct and said this was

inappropriate while 58% said it was not a violation since nobody benefited. Even

though nobody profited from the manager releasing this information, it is still a

violation of ethics according to SOX since an over-riding principle in SOX is that

14

no employee in the organization should communicate externally with respect to

company performance or policy.

Mini Case Study 8: The CEO of a company contributes a donation to a political party.

The shareholders had no objections. Question: Does this meet ethical standards?

The overwhelming majority of students (88%) said that they saw nothing wrong

with this. They are correct; SOX mentions the US Foreign Practices Act which

allows contributions provided shareholder approval is obtained.

Mini Case Study 9: The manager, in addition to contributing to a political party also

requested his employees to contribute to a fund that will be donated to a political party.


The majority of students thought that was not ethical (69%) while 31% said they

saw nothing wrong with it. In this instance the majority of students were incorrect.

SOX cites the Federal Election Campaign Act which allows requesting of

donations provided there is no coercion.

Mini Case Study 10: An employee knows about potential good news and buys stock in

the company. Question: Does this meet ethical standards?

About 78% of the students said this was not ethical. They were correct.

According to SOX, no employee can deal in stock of the company if he or she is

in possession of unpublished price sensitive information

Mini Case Study 11: Audit partners have compensation structures where they are

rewarded for retaining the client. Question: Does this meet ethical standards?

About 71% of the students said they saw nothing wrong with this. They were

correct. This cannot be considered unethical as long as the partner acts

judiciously and honestly.

Mini Case Study 12: The auditors, in addition to the audit, also provide consulting

services to the client in areas relating to setting up accounting systems. Question: Does

this meet ethical standards?

About 80% said they saw nothing wrong with this. The justification was that if an

auditor was responsible for setting up accounting system, then they would be

able to do a better audit. These students were incorrect. SOX (section 206) now

prohibits certain kinds of consulting services if an auditor also conducts the audit.

This arose as a result of the Enron fiasco. Arthur Andersen, the audit partner

generated three times as much revenue from providing consulting services

relative to the audit. This made them susceptible to pressure from the client.

15

Mini Case Study 13: Same as above except that the auditor, in addition to the audit

provided tax services. Question: Does this meet ethical standards?

About 80% of the respondents said they saw nothing wrong with this. They were

correct. While SOX prohibits certain types of services, providing tax consulting is

not considered to be a violation of ethics.

Mini Case Study 14: Managers of a company are responsible for hiring and firing the

auditor. Question: Does this meet ethical standards?

About 70% of the students said they was nothing wrong with this and hence,

there was no violation of ethics. However, under SOX managers cannot now be

responsible for hiring and firing the auditors. Since managers work directly with

the auditor they should not be put in a position of “strength”. Hiring and firing of

the auditor is now under the purview of the owners.

Mini Case Study 15: The fees of the audit firm are determined and negotiated by the

managers. Question: Does this meet ethical standards?

About 70% said there was nothing wrong with this. However, this does not meet

ethical standards for the same reasons noted above.

Mini Case Study 16: The partner of an audit firm has been responsible for supervising

the audit of a company for ten years. Question: Does this meet ethical standards?

Almost 90% of the students said there was nothing wrong with this. The

justification was that a partner who had a long experience of the client and the

industry would be in a better position to conduct the audit effectively. However,

according to SOX, (section 406) partners must be rotated and should not be in a

position to become too familiar with the client.

In general, students gave correct answers to 7 of the 16 case studies. They were

correct in situations which involved topics that are current news. For example, most

students showed an awareness of insider trading activities. However, the students used

“common sense” to answer case studies which, in 9 of the 16 cases, was not adequate.

For example, it makes sense to assume that a partner with many years experience of

the client would do a better job conducting the audit. However, this is a violation of

ethical standards under SOX because of the concept of “familiarity”. Partners are now

required to be rotated every five years. The survey shows that students are unfamiliar

with a lot of the concepts (ethical standards) introduced in SOX.

16

VII. Conclusions

This project started entailed an important and new challenge: enhance

educational curricula in the finance-related disciplines in New Jersey. To

accomplish this task, we started a review of finance programs in northern New

Jersey, intending to address emerging gaps in the curriculum. However, when

meeting with the finance industry stakeholders, we found that most of their

educational needs rotated around the development of ethical, interpersonal and

communication skills more than technical financial concepts. Based on this

findings, we developed modules that engaged students in communication,

working in teams, analytical and ethical reasoning while learning specific

concepts (such as project management, cost control, etc.). An analysis of the

preliminary results from the pilot tests shows that this approach is right on target:

total test scores were below standards or students asked more exposure to team

experiences as shown by their interest for the team-learning modules. Students

are not acquiring these skills within their programs, and hence need more

exposure to content and activities in these areas.

We designed these modules for easy and manageable replication by other

educational institutions. The length of the modules is appropriate for “ease of re-

use” and integration as lectures within existing courses. However, the materials

can be extended over various weeks through the use of sample exercises that

complement the lecture notes. The project team remains available for questions

or to provide guidance for replication at the email addresses listed in the next

section.

VIII. Project Team

The project team was composed of two lead curriculum developers from the

School of Management at NJIT. Since the spirit of the grant is to facilitate New

Jersey residents’ entry in the financial industry, we also funded two graduate

17

assistants who participated in selected activities (such as stakeholders’ needs

analysis and survey administration) and gained significant experiences. One of

such assistants, Marialisa Cisternino, was able to leverage her participation in

the grant and landed a position with Citi Smith Barney in NJ.

Asokan Anandarajan is a Professor of Accounting at the School of Management of the New Jersey Institute of Technology (NJIT) where he teaches courses in Accounting information systems, Financial accounting, Managerial accounting, Concepts of Finance, Business Valuation, and Insurance and Risk Management. He has published fifty five papers in refereed research journals including the top journals in accounting such as Auditing: A Journal of Practice and Theory, Accounting and Finance, Accounting Horizons, Behavioral Research in Accounting. International Journal of Intelligent Systems in Accounting, Finance and Management among others. Dr Anandarajan earned a double Master’s degree from Crainfield University in England and a Ph.D degree from Drexel University in Philadelphia. Email: [email protected]

Katia Passerini is an Assistant Professor and the Hurlburt Chair of Management Information Systems at the School of Management of the New Jersey Institute of Technology (NJIT) where she teaches courses in MIS, Knowledge Management and IT Strategy. She has published in refereed journals and proceedings (Communications of the ACM, CAIS, Society and Business Review, Journal of Knowledge Management, Computers & Education, Journal of Educational Hypermedia and Multimedia, IEEE Internet Computing) and professional journals (Project Management Network, Cutter IT Journal, Cutter Benchmark Review), particularly in the area of computer-mediated learning, IT productivity and knowledge management. Her professional experience includes multi-industry projects at Booz Allen Hamilton and the World Bank where she worked on information technology projects in Europe, North America and the South Pacific. Dr. Passerini earned both a MBA and a Ph.D. degree in Information & Decision Systems from the George Washington University, USA. Email: [email protected]

IX. Appendices Appendix A: NJ Finance Curricula Benchmark Appendix B: Survey Results and Curriculum Approach Appendix C: Team Learning Module and Activities Appendix D: Project Management Module and Activities Appendix E: Financial controls in project management module and Activities Appendix F: Business Ethics in finance module and Activities

Appendix A: NJ Finance Curricula Benchmark

Appendix A

BENCHMARK OF FINANCE COURSES OFFERED IN SELECTED NJ COLLEGES

We studied the Finance course curriculums of seven selected colleges offering BA\BS programs in the Newark area of New Jersey. All colleges offered a basic course in Finance covering the main elements of corporate finance. We observed that there were certain “core” courses that were offered by all of our selected colleges excluding Stevens Institute. These core courses, listed below, comprised a second course in Fundamentals of Finance, an Introduction to Investments course, Capital Budgeting and International Finance. In summary these courses covered the following topics:

Course Name General Topics

Introduction to Finance (Fina I) Capital Budgeting Fundamentals of Finance (Fina II) International Finance Introduction to Investments

Cor

e

Mgt Financial Institutions Business Valuation Portfolio Mgt & Derivatives Working Capital Management Personal Finance Real Estate Investments Ethics in Finance Intl. Financial Policy

Spe

cial

ty

Seminar of Fina Innovations

• The function of time value of money in project analysis

• Measurement of risk and risk management • Valuation of stocks and bonds and assets • Estimating Cost of Capital in project analysis • Fundamentals of investing in stocks, bonds, mutual

funds and marketable securities • Management of long term assets under conditions

of uncertainty • Managing exchange rate risk and hedging in the

international markets • International arbitrage

Elective courses in Finance covering topics such as Management of Financial Institutions, Portfolio Management and Derivatives, Business Valuation and Analysis of Financial Statements were offered by three of the seven selected colleges. In essence these topics covered areas including, but not limited to:

• Analysis of financial institutions and the banking industry • Construction and valuation of bond portfolios • Understanding of options, commodity and financial futures • Valuation of all types of corporations using discounted cash flow techniques. • Understanding ratios that can be used to determine the financial health of industrial and

commercial enterprises with emphasis on profitability, liquidity and solvency. However, the last mentioned issue (i.e., use and understanding of financial ratios) covered in Financial Statement Analysis is a topic popular in Accounting programs. We note that this topic may be included under the Accounting courses for the colleges which appear to not be offering this as an elective course in Finance. Finally, topics such as Personal Finance and Real Estate Investment are clearly in the minority being offered by only two of the colleges in our sample. In our sample, Rutgers University stood out in that they offered certain topics which appear to be unique. These courses include International Financial Policy, Seminar in Financial Innovations and Ethics in Finance. In conclusion, there appear to be five core courses unique to all the colleges. One college (Stevens Institute) appears to give low credence to Finance as evidenced by a sole course offering. Rutgers appears to offer the most courses and distinguishes itself by offering unique courses not offered by the others.

Table 1 - FINANCE COURSES OFFERED IN BS/BA PROGRAMS

Colleges Total % total College of Kean Montclair NJIT Rowan Rutgers Stevens

New Jersey University college Institute

Programs Introduction to Finance X X X X X X X 7 100%Fundamentals of Finance Corporate Finance 1 Fundamental financial methods X X X X X X 6 86%Corporate Finance 2 Introduction to Investments X X X X X X 6 86% Working capital management X X X 3 43% Capital Budgeting X X X X X X 6 86% International Finance X X X X X X 6 86%International Financial Management Management of Financial Institutions X X X X 4 57% Portfolio Management and Derivative Studies X X X 3 43% Business Valuation X X X 3 43% Personal Finance X X 2 29% Preparation and Analysis of Financial Statements X X X 3 43%

Real Estate Investment X X 2 29% International Financial Policy X 1 14% Seminar in Financial Innovations X 1 14% Ethics in Finance X 1 14%

Course Title Frequency Introduction to Finance (Fina I) 100% Capital Budgeting 86% Fundamentals of Finance (Fina II) 86% International Finance 86% Introduction to Investments 86% Mgt Financial Institutions 57%

Cor

e

Business Valuation 43% Portfolio Mgt & Derivatives 43% Working Capital Management 43% Personal Finance 29% Real Estate Investments 29% Ethics in Finance 14% Intl. Financial Policy 14% Seminar of Financial Innovations 14%

Spe

cial

ty

Appendix B: Survey Results and Curriculum Approach

1

1/16

Financial Industry Hiring Needs (2007)

Contact Katia Passerini - [email protected] Cisternino – [email protected] Anandarajan – [email protected]

http://www.surveymonkey.com/s.aspx?sm=I8wqAOX9WsEV2Z_2be5b1mQQ_3d_3d

2/16

Outline

Background: FS-IPIBackground: Feedback from IndustryKey Drivers & NeedsPreliminary Survey ResultsAction Areas

2

3/16

Financial Services Innovation Partnership Institute (FS-IPI)FS-IPI is a consortium of New Jersey’s education and workforce organizations created by Governor John Corzine as part of his Economic Growth Strategy.

• The Innovation Partnership Institute programs are administered as a collaboration among the NJ Commission on Higher Education, the Department of Labor and Workforce Development and the Department of Education.

The objective is to develop new study programs that better prepare students for occupations within the Financial Services SectorTo better reach our goal, we are seeking input from the FS industry

4/16

BackgroundThe FS-IPI member met with industry stakeholders to collect information about curriculum needs through• 2 co-located focus

groups • Ad hoc meetings @

company headquarters (Goldman Sachs recruiting meeting)

• 1 workforce needs survey (ongoing)

Survey URL:• http://www.surveymonkey.com/s.aspx?sm=I8

wqAOX9WsEV2Z_2be5b1mQQ_3d_3d

3

5/16

Focus Groups Summary Key Drivers – Knowledge Needs

The meetings showed that in addition to in-depth vertical knowledge (industry-specific), employers are interested in hiring talents that can quickly shift positions and be retrained (horizontal knowledge)

• This is in line with IBM findings on T-shaped employees and Gartner findings on the need for more ‘versatile’ workers’

6/16

Focus Groups Summary Key Drivers – Skills Needs

In terms of skills, while ‘hard’ analytical and critical thinking are fundamental to any position in the financial sector, there is also an increasing need for nurturing ‘soft’ or interpersonal skills

In particular, employers mentioned

(a) Communication skills, both oral and written,(b) Skills relating to conduct (including mode of dress and proper business etiquette);(c) Ability to deal with peers, superiors and subordinates;(d) Ability to understand different cultures when dealing with people of different international backgrounds; (e) Ability to engage in critical thinking;(f) Lateral thinking in problem solving;(g) Knowing how to work effectively in a team; and (h) Overall integrity in the work place environment

4

7/16

Financial Services Areas

Commercial and Savings Banks

42%

Credit and Charge Card Companies

0%

Credit Bureau0%

Mortgage Company4%

Real Estate Agency0%

Brokerage and trading firms38%

Investment Firms8%

Insurance8%

Leasing0%

Other0%

Survey Results (preliminary)

N= 26 on-line

8/16

Functional / Business Lines

0 1 2 3 4 5 6 7

Accounting/Finance

Actuarial

Administration

Customer Service

Human Resources

Information Technology

Sales

Investment

Legal/Compliance

M arketing/Advertising/Public relations

Operations

Products

Real Estate&Relocation

Underwriting

Others

Functional Area

In general respondents

occupied leading roles within their functional

areas (VPs, Managing Directors Levels,

project mgrs, divisions directors)

N= 26 on-line

5

9/16

Frequently Cited Hiring Needs(Q3)

1st most cited• Analyst (credit;

business)• Tellers• Loan officers

2nd most cited• Client services • Financial Analyst• Business

development

3rd most cited• Project managers• Product development• Weekend tellers

10/16

RecruitingMostly Residents of NJ educated in NJ or other States

About 20% recruited internationally

MajorsOther

11.43%Computer Science/Info

Sys7.14%

Engineering,7.14%

Other Management disciplines

15.71%

Marketing & Sales

8.57%

Finance,25.72%

Accounting,24.28%

6

11/16

Skills Needed

0

2

4

6

8

10

12

14

16

18

Communic

ation

skills

(verb

al)

Presen

tation

Skills

(verba

l)

Interp

erson

al sk

ills

Lead

ership

skills

Readin

g com

prehe

nsion

Writing

Skill

s

Teamwork

skills

Employm

ent re

adine

ss

Social p

ercepti

vene

ss

Later

al thi

nking (

ability

look

at m

ultiple

...

Positiv

e think

ing (s

elf-ef

ficac

y and

risk..

.

Analyt

ical s

kills (

logic,

synthe

sis, e

val...

Mathem

atica

l skill

s

Problem

solvin

g

Critica

l think

ing

Techno

logica

l skill

s (co

mfort in t

echn

o...

Reliab

ility

Integ

rity

Inform

ation

litera

cy (v

alida

ting d

ata s.

. .

Projec

t man

agem

ent a

nd or

ganiz

ation

s...Not M issin g Somewhat M issin g Highly M issin g

Not Missing Somewhat Missing Highly Missing

12/16

IT Skills Required

Software proficency required for new hires

0 5 10 15 20 25

Word ProcessingSpreadsheet

Database Presentation

Enterprise applications Statistical software

Mathematic packagesBusiness intelligence

Decision Support Project Management

No Proficiency Somewhat Proficient Highly Proficient

General Office Applications

7

13/16

Satisfaction with Current Knowledge

0

5

10

15

20

Satisfaction with New Hires

Not satisfied Somewhat satisfied Highly satisfied

Hiring mostly from top 50 schools, New York, Pennsylvania. In NJ

area (Rutgers, Montclair)

14/16

Critical Knowledge areas for your division

02468

101214161820

Laws &

amp; regula

tions

Business

ethics

Current b

usiness

events

Risk m

anage

ment

Informatio

n tech

nology

Data m

ining (fr

aud profilin

g, ris

k ana

...

Sales and m

arketin

g

Business

Operat

ions

Project Man

agement

Not Critical Somewhat critical Highly critical

Business Ethics, Prj Mgt

Business Ethics, Prj Mgt

8

15/16

To address key needs, we will develop 3 educational modules• The modules will focus on financial &

technical aspects, but will engage students in interpersonal and teams activities

Action Areas (2 & 4 years colleges)

Mod 1Ethics &

SoX

Mod 3Team

Process

Mod 2Prj Mgt, I/T w/t Finance

Rules of Conduct, Team Work, Intl. Teams, Communication

Business Cases Vignettes Problem-based learning

16/16

Action Areas (High Schools)

Being developedTo address key needs, course content will be aligned with the National Financial Academy (NAF)

• Fed Challenge• Finance Fundamentals

1. Survey Purpose

To Financial Services Industry Professionals! We need your help! The FS-IPI* is conducting a survey to collect information on critical skills and knowledge gaps in the financial services industry in Northern New Jersey. The objective is to capture and aggregate responses from key financial industry players in order to develop new study programs that better prepare students for occupations within the Financial Services Sector. *The Financial Services Innovation Partnership Institute (FS-IPI) is a consortium of New Jersey’s education and workforce organizations created by Governor John Corzine as part of his Economic Growth Strategy. The Innovation Partnership Institute programs are administered as a collaboration among the NJ Commission on Higher Education, the Department of Labor and Workforce Development and the Department of Education. Results will be announced and made available on the FS-IPI web site in 2008. Aggregate results can also be mailed out earlier to all those that complete the survey and answer Question 20. By submitting this survey you confirm that you are over 18 years of age, you are volunteering your responses and will not be compensated. You have the right to withdraw your participation, if you wish to do so, by not completing the survey. The survey should take 5-10 minutes to complete and there are no required answers or comments.

1. Please click the next buttons to the industry you specifically represent:

Financial Service Business Functional area

.

Other (please specify)

2. What is your title / position in your company?

3. Please list your top three hiring needs / positions your division is looking for:

1st

2nd

3rd

4. Of the following list of occupations, please check which ones represent your hiring needs AND shortages in your division:

Not hiring

currentlyCurrently hiring

Will Hire (2-3

yrs)No shortage Some shortage High shortage

Bank Tellers gfedc gfedc gfedc gfedc gfedc gfedc

Customer service (from entry

level to management)gfedc gfedc gfedc gfedc gfedc gfedc

Call Center (from entry level

to management)gfedc gfedc gfedc gfedc gfedc gfedc

Insurance Claims and Policy

Processing Clerksgfedc gfedc gfedc gfedc gfedc gfedc

Senior Level Insurance

Managersgfedc gfedc gfedc gfedc gfedc gfedc

Accounting and compliance

specialistsgfedc gfedc gfedc gfedc gfedc gfedc

Security, Commodities and

Financial Services Sales

Agents

gfedc gfedc gfedc gfedc gfedc gfedc

Personal financial advisers gfedc gfedc gfedc gfedc gfedc gfedc

Sales and Marketing positions

(all levels)gfedc gfedc gfedc gfedc gfedc gfedc

Business services sales agents gfedc gfedc gfedc gfedc gfedc gfedc

Credit Analysts and Lenders gfedc gfedc gfedc gfedc gfedc gfedc

Financial Analysts gfedc gfedc gfedc gfedc gfedc gfedc

Senior Level financial

managersgfedc gfedc gfedc gfedc gfedc gfedc

Computer systems analysts gfedc gfedc gfedc gfedc gfedc gfedc

IT Project Managers gfedc gfedc gfedc gfedc gfedc gfedc

IT Networks Specialists gfedc gfedc gfedc gfedc gfedc gfedc

Others gfedc gfedc gfedc gfedc gfedc gfedc


5. Approximately, what percent of your hires in your division are:

1-20 21-40 41-60 61-80 81-100

Hired globally (i.e. international) nmlkj nmlkj nmlkj nmlkj nmlkj

Hired regionally (i.e. New York, PA) nmlkj nmlkj nmlkj nmlkj nmlkj

Residents of New Jersey, educated in NJ nmlkj nmlkj nmlkj nmlkj nmlkj

Residents and educated in other US States nmlkj nmlkj nmlkj nmlkj nmlkj


6. In general, what type of majors do you hire?

gfedc Accounting

gfedc Finance

gfedc Marketing & Sales

gfedc Other Management disciplines

gfedc Engineering

gfedc Computer Science/Info Sys

gfedc Other (please specify)

7. On average, what type of skills and qualities listed below do you perceive are missing in your current and prospective hires in your division?

Not Missing Somewhat Missing Highly Missing

Communication skills (verbal) gfedc gfedc gfedc

Presentation Skills (verbal) gfedc gfedc gfedc

Interpersonal skills gfedc gfedc gfedc

Leadership skills gfedc gfedc gfedc

Reading comprehension gfedc gfedc gfedc

Writing Skills gfedc gfedc gfedc

Teamwork skills gfedc gfedc gfedc

Employment readiness gfedc gfedc gfedc

Social perceptiveness gfedc gfedc gfedc

Lateral thinking (ability look at multiple solutions) gfedc gfedc gfedc

Positive thinking (self-efficacy and risk taking) gfedc gfedc gfedc

Analytical skills (logic, synthesis, evaluation) gfedc gfedc gfedc

Mathematical skills gfedc gfedc gfedc

Problem solving gfedc gfedc gfedc

Critical thinking gfedc gfedc gfedc

Technological skills (comfort in technology use) gfedc gfedc gfedc

Reliability gfedc gfedc gfedc

Integrity gfedc gfedc gfedc

Information literacy (validating data sources) gfedc gfedc gfedc

Project management and organization skills gfedc gfedc gfedc

Other gfedc gfedc gfedc


8. What type of software applications are you expecting prospective hires to be proficient in before joining your division?

No Proficiency Somewhat Proficient Highly Proficient

Word Processing (i.e. Microsoft Word) gfedc gfedc gfedc

Spreadsheet (i.e. Microsoft Excel) gfedc gfedc gfedc

Database (i.e. MS Access, Oracle, SQL…) gfedc gfedc gfedc

Presentation (i.e. MS PowerPoint, KeyNote..) gfedc gfedc gfedc

Enterprise applications (SAP, Baan…) gfedc gfedc gfedc

Statistical software (SAS, SPSS, Statistica…) gfedc gfedc gfedc

Mathematic packages (MathLab…) gfedc gfedc gfedc

Business intelligence (Cognos, Hyperion…) gfedc gfedc gfedc

Decision Support (ExpertChoice, …) gfedc gfedc gfedc

Prj. Mgt (MS Project, Open Workbench, Clarity) gfedc gfedc gfedc


9. In your hiring decisions, what importance do you give to the following:

Not Important Somewhat Important Highly Important

High School / College reputation gfedc gfedc gfedc

International experiences gfedc gfedc gfedc

Internships / Coop Programs gfedc gfedc gfedc

Prior work experience gfedc gfedc gfedc


10. What type of training and educational development opportunities does your firm use?

Not used Used sometimes Used all the times

On-line courses with tutor gfedc gfedc gfedc

Self-paced multimedia gfedc gfedc gfedc

Professional training firms gfedc gfedc gfedc

Internal employees-led course gfedc gfedc gfedc

Sponsored college programs gfedc gfedc gfedc

Sponsored community college programs gfedc gfedc gfedc

Internal Training gfedc gfedc gfedc



11. How many hours of training / month does your division usually provide to?

New hires

Employees with 1-3 yrs

at the firm

Employees with 4-6 yrs

at the firm

Employees > 6yrs at the

firm

12. Are you satisfied with the knowledge of your new hires in your division?

Not satisfied Somewhat satisfied Highly satisfied

Generic business knowledge gfedc gfedc gfedc

Technical knowledge gfedc gfedc gfedc

Specialist financial knowledge gfedc gfedc gfedc

Industry-level knowledge gfedc gfedc gfedc


13. What are the most critical areas (other than finance) that a college-graduate should be proficient in to be successful in your division?

Not Critical Somewhat critical Highly critical

Laws & regulations gfedc gfedc gfedc

Business ethics gfedc gfedc gfedc

Current business events gfedc gfedc gfedc

Risk management gfedc gfedc gfedc

Information technology gfedc gfedc gfedc

Data mining (fraud profiling, risk analysis) gfedc gfedc gfedc

Sales and marketing gfedc gfedc gfedc

Business Operations gfedc gfedc gfedc

Project Management gfedc gfedc gfedc



14. Please rate the level of proficiency in the following concepts that a college-graduate should demonstrate to be successful in your division?

No proficiency

12 3 4

High

proficiency 5

Measurement of risk and return nmlkj nmlkj nmlkj nmlkj nmlkj

Cost of capital and capital budgeting nmlkj nmlkj nmlkj nmlkj nmlkj

Knowledge of stocks and bonds nmlkj nmlkj nmlkj nmlkj nmlkj

Knowledge of mutual funds & securities nmlkj nmlkj nmlkj nmlkj nmlkj

Valuation of assets and business nmlkj nmlkj nmlkj nmlkj nmlkj

Financial statements analysis nmlkj nmlkj nmlkj nmlkj nmlkj

Financial products and services nmlkj nmlkj nmlkj nmlkj nmlkj

Mgt of short-term assets and liabilities nmlkj nmlkj nmlkj nmlkj nmlkj

Functioning of global markets nmlkj nmlkj nmlkj nmlkj nmlkj

Exchange rate and hedging nmlkj nmlkj nmlkj nmlkj nmlkj

Intl. capital budgeting nmlkj nmlkj nmlkj nmlkj nmlkj

International arbitrage nmlkj nmlkj nmlkj nmlkj nmlkj

Liquidity mgt & capital adequacy nmlkj nmlkj nmlkj nmlkj nmlkj

Portfolio construction and valuation nmlkj nmlkj nmlkj nmlkj nmlkj

Knowledge of derivative markets nmlkj nmlkj nmlkj nmlkj nmlkj


15. Please list other relevant knowledge and concepts that you are seeking from potential new hires and the positions you will be hiring them for:

4-yr

college-

level

2-yr

college-

level

High school

16. What are some of the strengths and weaknesses of New Jersey recruits relative to recruits from other locations?

Strengths

Weaknesses

17. From which School does your Company typically recruit new hires and why do you think this is the case?

18. If you have comments or observations that can help us improve financial industry curricula in New Jersey, please write your suggestions below. Please specify level (high-school, 2-yr college, 4-yr college).

19. What is the size of your company with respect to the following indicators?

Number of Employees

Sales Revenue/ year

Assets

Net Profit

20. If you would like to receive a copy of the survey results, please provide your name and mailing address. (optional)

Name

Company Name

Address

City, State, Zip

e-Mail address

Appendix C: Team Learning Module and Activities

1

Working (and Learning) in Teams

© Dr. Katia Passerini , Dr. Asokan AnandarajanNew Jersey Institute of Technology

Outline

• Team Basics• The Life of A Team

• Forming, Storming, Norming, Performing, Adjourning

• Team Roles• Working in International Teams• Why Teams Fail• Reading List

Disclaimer: This is an overview module. We encourage learners to enroll in semester-long human resources management and organizational behavior

courses for a complete treatment of this topic.

2

Learning Objectives & Skills

• Be able to recognize key aspects of the team lifecycle

• Familiarize yourself with different roles in a team

• Understand the complexities of teamwork in international environments

• Recognize why teams fail

• Be introduced to specific software apps

Content-specific skills

Critical Thinking & Analytic skills

Skills developedStudents will

Teamwork skills

Communication skills

Technology skills

Outline




3

Team Basics

• Definition of a team– “People working

together to achieve a common goal. The work is interdependent and team members share responsibility and accountability for the outcomes.”

» (Brian McDonald, of MOR Associates, Inc.)

• A team must have:– Clear mission / purpose– Specific and measurable

goals– Agreed upon ground

rules, which include respect for each individual

– Processes and routines– Defined roles and

responsibilities– Feedback mechanisms to

guarantee continuous improvement

Types of teams

• Functional teams • Perform specific organizational functions within a

hierarchical structure

• Cross-functional teams• Made up of experts in various specialty working

together on specific organizational tasks

• Self-directed teams (ego-less)• Operate without managers and are responsible of

complete work processes, maintaining ownership of the entire effort

CliffsNotes.com. Types of Teams. 17 Jan 2008<http://www.cliffsnotes.com/WileyCDA/CliffsReviewTopic/topicArticleId-8944,articleId-8901.html>.

4

The importance of understanding the “team process”

Outline




5

The Life of A Team

• The Team-Development Model (Forming, Storming, Norming, Performing, Adjourning)– Defined by Bruce Tuckman in 1965 (and then again in 1977 with

M.A Jensen)– Essentially explains how small teams evolve and behave (stage-

model)• The model has been used and adapted in many venues

– The Center for Team Learning, Boston University, adapted Tuckman’s model by building an interactive software (the Team Learning Assistant, TLA 3.0) to help manage the team development lifecycle

• (see reading list for more information)

First StepsTeam

contracts

Team & meeting

mgtPeer

Feedback

After action review

Evaluation

& closing

1 2 3 4 5 6

Forming Storming Norming Performing Adjourning

Stage 1: Forming•This is the beginningof team interactions which entail understanding/ orienting the team

•People are busy with routines related to organizing the team, gathering information and impressions

First Steps

1

• This is generally a comfortable stage where conflict is avoided, but it usually means that only basic operational tasks are initiated

• As team roles and responsibilities are still unclear, those who provide guidance and direction may emerge as leaders, and the team may rely on them for guidance

6

Stage 2: Storming• This stage is called “storming’ as it

may entail conflict:– Individuals step out from their comfort

zones as real issues start being addressed

– Assigning responsibilities and roles may be a controversial issue

• Some may wish to remain in the comfort zone of stage 1

• The team needs to focus on the goals, but uncertainty about the means abounds (how are we going to complete the tasks?)

• Formally articulating expectationsand team roles enables dealing with conflict– In particular, individuals may

formalize team roles, expectations and activities by defining structured “contracts”

Team contracts

2

Team Members ‘define’ a contractagreeing on• Statement of Goals and expectations• Policies & procedures• Preliminary Project Plan• Roles

Example

only

7

Stage 3: NormingTeam &

meeting mgt

3

• In this stage, cohesiveness is developed around the goal and team members feel comfortable to express their opinions.

• “Rules of Engagement”evolve and new roles may be adopted.

• Nevertheless some resistancemay resurface as team members have to work hard to attain the goals

• Conflict can be reduced by clarity of communication

• It is important to update and check communication and reporting strategies

• Using meeting minutes; tracking meeting objectives

• Completing and updating the project plan based on check points and milestones

• Checking and evaluating general team status

Norming (ctd)

Teamwork surveybased on Tuckman

http://www.nwlink.com/~donclark/leader/teamsuv.html

Enables understanding where your team is in terms of the stage process

– Are your meetings of appropriate length? Are meeting objectives attained?

– Is the approach concrete, clear and agreed?

– Can you measure progress? Do all members feel equally responsible for the project outcomes?

– Is there a belief that “only the team can fail?” Can differences be reconciled?

8

Stage 4: Performing

• This is a high performance stage where issues have been resolved and the team is focused on tasks and activities.

• Trust on each others’ capability to deliver has been established

• Group identity, loyalty and morale are high

• Not all groups may reach this stage of both independence and interdependence

• Team may establish mechanisms for assessing performance to speed reaching the performing stage

Team Feedback

4

Peer Evaluation• Task-related questions

– Question 1: Shows initiative by doing research and analysis, takes on tasks.

– Question 2: Prepares for and attends scheduled meetings.

– Question 3: Makes positive contributions to meetings and helps team achieve objectives.

– Question 4: Reliably fulfills assignments and work is of high quality.

– Question 5: Contributes ideas to team's analysis and to my learning of course concepts.

• Leadership-related questions– Question 6: Keeps team

focused on priorities.– Question 7:

Supports/coaches/encourages team members.

– Question 8: Listens carefully to contributions of others.

– Question 9: Manages conflict effectively.

– Question 10: Demonstrates effective leadership on the team.

© Center for Team Learning Boston University School of Management

After action review

5

9

Stage 5: Adjourning • In this stage, the work of

the team is completed and the group disengages from the activities

• Individuals need to recognize pros and cons of the work in the group and plan to move on

• Sometimes, moving on is perceived as a loss (mourning)

Evaluation

& closing

6

Putting it all together: TLA 3.0

• The Team Learning Assistant (TLA 3.0) is an on-line system has been successfully tested in business and engineering courses.

• Developed by the Center for Team Learning Boston University School of Management (© 2001)

• Cost per student $20 (includes booklet and web site access)

– Responds to the need to enhance soft-skills(interpersonal and teamwork)

– Enables automating some of the aspects presented of the team-development process and facilitates the evaluation of learning outcomes trough peer review

10

Stage-theory critique• Stages are not clear cut,

but often overlap• Stage process is not

linear– Rather teams move back

and forth from norming to performing in a strive to balance task needs and interpersonal relations (Bales, 1965)

• Simplistic models that over-clusters and reduces nuances

Smith, M. K. (2005) 'Bruce W. Tuckman - forming, storming, normingand performing in groups, the encyclopaedia of informal education, www.infed.org/thinkers/tuckman.htm

Outline




11

Team Roles• “A tendency to behave, contribute and interrelate with others

in a particular way”– Introduced by Meredith Belbin (1981; 2003 2nd edition)

• Studied the behavior of managers from all over the world

– Managers took psychometric tests and were put into various teams solving complex tasks

– Personality traits, intellectual styles and behaviors emerged overtime and clustered into nine (9) team roles, and specifically:

Action-oriented roles : Shaper, Implementer, and Completer/Finisher People-oriented roles : Coordinator, Team worker and Resource Investigator Cerebral roles : Plant, Monitor Evaluator and Specialist

TEAM-ROLE CONTRIBUTION ALLOWABLE WEAKNESSES

MONITOR EVALUATOR: Discerning, strategic and Objective; sees all options, judges accurately

Uninspiring, Slow-moving, overly critical, lacks ability to inspire

COORDINATOR: Mature, confident, good chair; clarifies goals, promotes decision making, delegates

Manipulative, delegates personal work

IMPLEMENTER: Disciplined, Efficient, reliable, conservative; turns ideas into practical actions

Slow to see new possibilities, somewhat inflexible

COMPLETER / FINISHER: Delivers, searches errors and omissions; painstaking, conscientious.

Anxious, Reluctant to delegate, can be a nit-picker

RESOURCE INVESTIGATOR: Extrovert, develops contacts, communicates, enthusiast, explores opps

Overoptimistic, loosed interest after initial spur; lack of follow up

SHAPER: Challenging, dynamic, thrives or pressure; has drive and courage to overcome obstacles

Provocative, Aggressive, can hurt people’s feelings

TEAMWORKER: Cooperative, mild, perceptive and diplomatic; listens, builds, averts friction, calms water

Indecisive in crunch situations, can be easily influenced

Limited in Interests, dwells on technicalities, narrow-front

SPECIALIST: Single-minded, self-starter, dedicated; provides knowledge & skills in rare supply

PLANT: Creative, Unorthodox, Enterprising, Quick to identify opportunities, Solves difficult problems

Ignores details, Weak in follow through

12

TEAM-ROLE Defining statements

MONITOR EVALUATOR Have we considered all the options? Let’s weight all the alternatives, decisions should not be based on enthusiasm…

COORDINATOR Has anyone anything to add? We should give someone else a chance, let’s keep the main objective in sight…

IMPLEMENTER If it can be done, we will do it, an ounce of action is worth a pound of theory, let’s stop talking about it and do something…

COMPLETER / FINISHER Murphy was an optimist, has it been checked? Read the small print…

RESOURCE INVESTIGATOR Never reinvent the wheel, opportunities arise from mistakes, we could make a fortune out of that, you can always call to find out..

SHAPER I am not satisfied we are doing the best we can, I will get things moving, I might be rude but I am to the point, just do it!...

TEAMWORKER Courtesy costs nothing, I am very interested in your point of view, I try to be versatile…

I know how to redesign the solutions from scratch, we can start with identifying the formula explaining the phenomenon…

SPECIALIST

PLANT Where there is a problem, there is a solution; do not disturb: genius at work, think laterally, ideas start with dreaming…

Key Aspects• Individuals may play

different roles in a project; roles may vary during a career

• Belbin focuses on balance in teams

– Balancing the types of roles in a team to avoid surpluses or deficiencies

– In general, balanced teams performed better

• Team roles are assessed through observations and self-reporting– Belbin developed a

testing & certification program (for observers / test administrators)

Needs

Ideas

Plans

Contacts

Organisation

Follow-Through

COSH

RI TW

ME SP

CF IMP

IMP CO

PL RI

COSH COCOSHSH

RI TWRIRI TWTW

ME SPMEME SPSP

CF IMPCFCF IMPIMP

IMP COIMPIMP COCO

PL RIPLPL RIRI

Mapping Roles & Needs

13

Team-Roles Activities• Role-Playing

• A situational exercise where individuals step into different roles to better understand when they are needed

» Belbin encourages to play your preferred team-roles rather than forcing other roles (i.e. an implementer trying to be creative is unorthodox), although role play emphasizes empathy

• Coherence• Define elements of your coherence, that is the degree to which you

see yourself as others see you; understand which characteristics are constantly defining your behavior by maximizing strengths

• Allowable weaknesses• Identify the context and levels where the allowable weaknesses

may be accepted or should be mitigated (i.e. continuing to be a plant when there is no implementer in a group)

Outline




14

Working in International Teams

• Working in international teams means different:– Cultural norms– Languages– Individual and leadership

styles– Status in the company and

group– Times and distances– Many models include

• High / low context; mono-polychronic; individualist/collectivist; neutral/affective….

• “Culture is the collective programming of the mind which distinguishes the members of one group or category of people from another.” Hofstede

• Culture is learned and is based on values

Hofstede Cultural DimensionsPDI Power Distance

extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally.

IDV Individualismthat is the degree to which individuals are

integrated into groups (opposed to collectivism).

MAS MasculinityOpposite to femininity, refers to the

distribution of roles between the genders – women play more competitive vs caring roles depending on the dominating values in the country

UAI Uncertainty Avoidancedeals with a society's tolerance for

uncertainty and ambiguity; It indicates to what extent a culture programs its members to feel either uncomfortable or comfortable in unstructured situations.

LTO Long-Term OrientationValues associated with Long Term

Orientation are thrift and perseverance; values associated with Short Term Orientation are respect for tradition, fulfilling social obligations, and protecting one's 'face'.

15

2-dimensions map

© Enemark, S. Integrated Land-Use Management for Sustainable Development - www.fig.net/.../april_2007_enemark.html

Different ideas of a team

• “A collection of specialists under a clearly defined leader” (France)

• “A specialist structure with very clear roles and an emphasis on expertise” (Germany)

• “A committee with no personal responsibility”(UK)

• “A set of relationships and networks” (Italy)• “A mix of individual responsibility and group

effort” (Holland)

© Simon Reed, IOCAP Consulting, www.iocap.com

16

Outline




Why Teams FailPotential Pitfalls in Start-up

• Team leader or sponsor fails to explain the purpose

• No awareness of stakeholders • Team fails to establish or agree on

a mission – To capture the essence of why

they exist as a team • Goals and measurements not

established • Roles and responsibilities not well

defined • Expectations not clear• All the above my lead to

“scope creeps”» (Brian McDonald, of

MOR Associates, Inc.)

• Operational Pitfalls

• Lack of agendas in advance of meetings

• Lack of ground rules– Define how to deal with issues

• Limited use of templates to report progress and program status (what/who/by when?)

• Lack of delegation– Alienating team members

• Focusing on task without awareness of the process

• Assuming that the work is completed with a recommendations (and then ‘we are out of here’)

» (Brian McDonald, of MOR Associates, Inc.)

17

Why Teams FailOther Pitfalls (Belbin)• Low morale• Negative selection• Inability to execute the task (team

composition / skills)• Personality (behavioral conflicts

rather than task-related conflicts)• Lack of prediction / vision (lack of

‘plants’ in the team)• Hidden agendas• Mismatch between roles and

abilities• Mismatched reward system• Psychodramas (stuck on

conflicts)

• Ken Blanchard’s Companies –– Top 10 reasons why team fail

1. Lack of a sufficient charter2. Unsure of what requires team

effort 3. Lack of mutual accountability4. Lack of resources5. Lack of effective and/or shared

leadership6. Lack of planning7. Lack of management support8. Inability to deal with conflict9. Lack of focus on creativity

and excellence 10. Lack of training

http://www.kenblanchard.com/img/pub/ignite_volume11_2006.pdf

Approaches to deal with conflict

• Competing – open fighting• Accommodating – pacifism• Avoiding – covering up the conflict• Compromising – meeting halfway• Collaborating – working together to find a

solution • Only collaborating is a “team” solution rather than

an “individual solution”

© Simon Reed, IOCAP Consulting, www.iocap.com

18

Outline




Reading List• Smith, M. K. (2005) 'Bruce W. Tuckman - forming, storming, norming and

performing in groups, the encyclopaedia of informal education, www.infed.org/thinkers/tuckman.htm

• Center for Team Learning Boston University School of Management • Tuckman, Bruce W. (1965) 'Developmental sequence in small

groups', Psychological Bulletin, 63, 384-399. The article was reprinted in Group Facilitation: A Research and Applications Journal - Number 3, Spring 2001 and is available as a Word document: http://dennislearningcenter.osu.edu/references/GROUP%20DEV%20ARTICLE.doc . Accessed January 16, 2008.

• Tuckman, Bruce W., & Jensen, Mary Ann C. (1977). 'Stages of small groupdevelopment revisited', Group and Organizational Studies, 2, 419- 427.

• Belbin, M. (2003) Management Teams – Why They Succeed or Fail, wndedition, Butterworth Heinemann

19

Useful Web Sites(available as of 1/31/2008)

• http://www.teambuildinginc.com/tps/index.html– A Portal on team process with several links to resources and

activities• http://web.mit.edu/is/competency/guide/index.html

– MIT guide to teamwork in the deployment of IS / IT services developed by Brian McDonald, of MOR Associates, Inc.

• http://www.belbin.com/index.htm– Belbin Web site – with links to tools and readings

• http://www.geert-hofstede.com/– Hofstede resource web site – compares countries on cultural

dimensions

1

Team Learning Module Activities

Objective (Team life-cycle activities) Ask students to practice what they learnt about the team life-cycle by completing specific activities related to each stage of the team process. More specifically:

Stage 1 – Forming Activity

Activity: Structured self-introductions. Students will write a 1-page bio for their teammates to introduce themselves and summarize individual experiences with teamwork (1 positive; 1 negative): they will elicit their strengths and weaknesses as they apply to working in teams and contributing to final deliverables. Assessment: Self-Introduction Evaluation Rubric (this sample rubric can be adapted in all the remaining assignments) Objective / Criteria Performance Indicators Need Improvement Meet Expectations Exceptional Spelling & Grammar some errors appear in

the narrative well written, accurate

and to the point well written, the editing efforts are evident

Max 0.25 Max 0.30 Max 0.40 Completeness the introduction only

answers some questions/tasks completely; or answers all questions very quickly

the introduction answers all the questions satisfactorily

the introduction answers all the questions; the PPT is complete

Max 0.5 Max 0.75 Max 1.0 Style & Creativity the introduction shows

little new information to contribute to the learning of others

the introduction introduces relevant information that contribute to the learning of others

the information is presented in an innovative and engaging way

Of 0.35 Max 0.50 Max 0.60

Total Max 2.0

2

Stage 2 – Storming Activity

Activity: Elaborate a formal (or informal) team contract

Student teams will discuss questions such as

• Do we have the same goals and expectations?

• What are the key steps / activities needed to reach our goal?

• Which tools and processes do we use to communicate?

• What is a reasonable response time?

• How does a preliminary project plan look like?

• Who is responsible for what?

• What to do if no response? Or low-quality response?

Based on the discussion results, students will draft a team contract agreeing on:

• Statement of Goals and Expectations

• Policies & Procedures

• Preliminary Project Plan

• Project Roles

Assessment: Evaluation Rubric Adapted from Stage 1

3

Stage 3 – Norming Activity

Activity: 1) Report (team meetings management) For each team meeting, define and submit meeting minutes, which include:

• List of attendees • Duration & location (or collaborative interface) of the meeting • Meeting agenda • Discussion of status of milestones from last meeting • New Items discussed • New list of action items to review during the following meeting • Include task type, description, task owner, deadline • List date and time of next meeting • Store the minutes in an agreed location – easily accessible by team members

Activity: 2) Review Review team activities and outcomes and discuss them as a team:

• Are your meetings of appropriate length? Are meeting objectives attained? • Is the approach concrete, clear and agreed? • Can you measure progress? • Do all members feel equally responsible for the project outcomes? • Is there a belief that “only the team can fail?” Can differences be reconciled?

Activity: 3) Evaluate Evaluate team activities assigning a 1 to 7 score (1=low 7 = high) to each item listed below:

• Goal Clarity / Agreement • Listening / empathy • Trust • Feedback • Conflict Management

4

• Decision Making • Leadership • Team Learning

Activity: 4) Remedy List a series of remedies for issues that you identified are affecting your team performance. Assessment: Evaluation Rubric Adapted from Stage 1

Stage 4 – Performing Activity

Activity: 1) Peer evaluations Each student submits a confidential peer evaluation form to evaluate task performance and leadership of each team member, including you.

PEER EVALUATION FORMS DIRECTIONS Once upon a time… A team of students had four members named Everybody, Somebody, Anybody and Nobody. There was an important job to be done. Everybody was sure that Somebody would do it. Anybody could have done it, but Nobody did it. Somebody got angry about that because it was Everybody’s job. Everybody thought Anybody could do it, but Nobody realized that Everybody wouldn’t do it. It ended up that Everybody blamed Somebody when Nobody did what Anybody could have done. - Graham Gibbs

5

Name of Evaluator____________________________ Group Name/Number_______________ Please read the instruction for filling out this form before you evaluate your group members. Assign point totals using the following scale:

Almost Never Seldom Sometimes Often Almost Always 1 2 3 4 5

Use the last column to rate yourself

Name1 Name2 Name3 Name4 Self

Contribution to TASK ACCOMPLISHMENT T1. Shows initiative by doing research, analysis, fulfilling tasks

T2. Prepares for and attends scheduled face-to-face or virtual meetings

T3. Makes positive contributions to meetings that help achieve objectives

T4. Reliably fulfills assignments with high quality work

T5. Contributes ideas to team analysis that support my learning

Contribution to LEADERSHIP

L6. Keeps team focused on priorities

L7. Support/coaches/encourages team members

L8. Listens carefully to contributions of others

L9. Manages conflict effectively

L10. Demonstrates effective leadership on the team

Total points (out of 50) (Source for Questions: Adapted from Boston University, Center for Team Learning and Team Learning Assistant Web Site) Open-ended Evaluation Questions 1. Explain your scoring, particularly when you gave low / or always-the-same ratings. 2. Indicate who excelled in contributing or who, in your opinion, negatively affected the performance and learning in your group?

6

Stage 5 – Adjourning Activity

Activity: 1) Journal

Submit a journal discussing

• What task-related materials have we learned?

• What did we learn about working as a team?

Activity: 2) Evaluation and Synthesis

Discuss how to close activities in a positive way. Answer:

• What next?

• How do we leverage what we learnt?

• Self-evaluation

7

Objective (Team Roles activities) Ask the student to practice what they learnt about team roles by completing specific activities related to Belbin’s team role theories.

Activity: 1) Identify your preferred team role Students will take an on-line assessment based on the Belbin self-perception inventory and will identify their preferred team roles and discuss them with their teammates. http://www.hull.ac.uk/foundationaward/FE_pages/documents/BelbinSelfPerceptionInventory.doc (3/1/08) Activity: 2) Role-Playing Students will participate in a situational exercise where individuals step into different roles to better understand when they are needed. Belbin encourages playing only the preferred team-roles rather than forcing other roles (i.e. an implementer trying to be creative is unorthodox). However, role play emphasizes empathy and understanding of other people strengths and weaknesses. Activity: 3) Coherence Students will compare their own Belbin’s self-assessment with that of others (and how others see them) to understand the gap between self and group perception. Assessment: Instructor reviews and compares team roles profiles.

Appendix D: Project Management Module and Activities

1

Project Management Overview

© Dr. Katia Passerini, Dr. Asokan AnandarajanNew Jersey Institute of Technology

Outline

• Project Management Basics• The Life of A Project

• Initiating• Planning• Executing• Controlling• Closing

• Tools and Templates • Technologies• Readings & Web References

Disclaimer: This is an overview module.We encourage learners to enroll in semester-long project management


2


Learning Objectives and Skills

• Be able to explain the Fundamentals of Project Mgt – Project budgets, timelines, specifications– Project lifecycle

• Recognize and use Project Scheduling techniques– Milestones, Gantt, Precedence Diagrams, PERT

and Critical Path

• Familiarize with Project Control mechanisms– Examining variances, project plan and human

resource controls

– Financial Controls, cumulative project variance, earned value approach

• Calculating estimates to complete (ETC)– Financial considerations

• Top-down and bottom up cost estimating, opportunity costs, TVM, DCF, IRR, capital budgeting techniques




Covered in a separate module


• Understand team management– Types of teams and team lifecycle

• Recognize the importance of Project documentation and evaluation– Mechanisms and tools for document management and

project evaluation

• Recognize available software for Team and Project Management– Sample PM software (Excel; MS Project; other open-

source software)

Teamwork skills

Communication skills

Technology skills


Covered in a separate module

3

Project Management Key Resources

• The Project Management Institute (PMI.org)– Certifications

• Project Management Professional (PMP)

• Certified Associate in PM (CAPM)

• Program Management Professional (PgMP)

• The Project Management Book of Knowledge 3.0

• Frame, D. Managing Projects in Organizations Books & Materials (including CD-ROM)

Projects & Project Management

• “A project is a temporary endeavor undertaken to create a unique product, service, or result”(PMBOK)– Characteristics:

• It is directed at a specific result

• It involves the coordinated undertaking of interrelated activities

• It has a limited time duration

• It is unique– (Frame)

• Project Management– “Is the process of

bringing a project to fruition in an effective manner”(Frame)

• Generally means

On time

On budget Specifications/SCOPE

4

Program Management

• “A program is a group of related projects managed in a coordinated way to obtain benefits and control not available from managing them individually.” (PMBOK)

• It supported by the Program Office (PO or Project Management Office - PMO)

• Prioritisation• Classification• Selection

INFORMATION FLOW

PROGRAM

PROJECTS

The Project Life Cycle

Source: Department of Veterans Affairs, Project Management Guide

5

Different Life Cycles • Gradual buildup• Slow wind-down

• Hardware vs. software; L-T S-T; incremental progress major breakthrough; low high risk; small large; simple complex; single multiple; low tech state of the art

Sou

rce:

GN

SE

Gro

up

Project Management Knowledge Areas


6

Project Initiation

1. Involves starting up the project

2. Defining its purpose and scope– Entails clearly understanding

needs• The needs will drive the

definition of functional and technical requirements

3. Justifying the project (biz case & feasibility study)

4. Forming the team5. Setting up project office

• Critical errors may occur in needs identification because:– Needs are dynamic– Customers do not know what they

want • Until after they see it!

– Multiple customers within an organization have conflicting needs


Project Planning

Source: Adapted from Department of Veterans Affairs, Project Management Guide

Scheduling

Risk

CostCost

• This entails entering into a detailed project planning phase by focusing on multiple tasks and deliverables

7

Planning tools and techniques• Several planning tools and

techniques are available• They are not always

appropriate as you need to consider– Level of project risk– User-friendliness of the

planning tool– Costs associated with

planning tools

• Some tools / products offer integrated templates and solutions (see Method 123 consulting)

• In some cases, some tools are made easy to use by software vendors who develop templates for the general public (see Microsoft templates)

Planning and control consume resources, so you must estimate your tolerance level. “For a project to succeed you must have good planning and control.

However, good planning and control will not ensure the success of a project (Frame)”

Total project costs

Task perfor-mance costs

Administra-tion costs= +

Example of Planning Tools

8

Scheduling ToolsScheduling Tools

• Work Breakdown structure (WBS)– Includes a list of related

project-tasks • Gannt charts

– Representation of project steps against a timeline

• Milestones charts– Articulation of key project

deliverables• Network diagrams

– PERT (Program Evaluation and Review Technique)

– CPM (Critical Path Method)– Etc.

(a simple process chart?)

Simon Shutter, February 13, 2004 – post form Edward Tufte Websitehttp://www.edwardtufte.com/tufte/index

1.0Automated

Software System

1.1Prime Mission

Product

1.2Platform

Integration

1.3Systems Eng/

Program Mgt

1.4System Test

& Evaluation

1.5Training

1.6Data

1.7Peculiar

Support Equip

1.8Common

Support Equip

1.5.1Equipment

1.5.2Services

1.5.3Facilities

1.8.1Test &

Measure Equip

1.8.2Support & Handling

Equip

1.1.1Subsystem 1…

(Specify Names)

1.1.2PMP Application

Software

1.1.3PMP System

Software

Source: MS Office templates

Tabular Work Breakdown

Work Breakdown Chart

9

GANNT Charts

Source: Richard Steinnon, ZDNet (why Windows is less secure than Linux) post form Edward Tufte Website

LINUX

WINDOWS

Network Diagrams: PERT ChartsPERT stands for Program Evaluation Review Technique, a methodology developed by the U.S. Navy in the 1950s

10

Network Diagrams: CPM MethodThe CPM was developed in the

1950s by DuPont, and was first used in missile-defense construction projects (biz equivalent of the PERT).

• Step-by-step technique for process planning that defines critical and non-critical tasks with the goal of preventing time-frame problems and process bottlenecks (whatis.com)

Source: http://press.teleinteractive.net/yackity?cat=82

Similar to Activity on

Arrow

Cost Control ToolsCost Control Tools

• Cost Identification & Management (planned vsactual)

• Resources Identification & Management

• Schedule Control Resource Load Profile

0

2

4

6

8

10

12

14

16

18

Month 1 Month 2 Month 3 Month 4

Project Life Cycle

Reso

urce

s

Project Manager Trainer ProgrammerAnalyst Consultant Total

COST (Euro)

Cost Type Cost Element Baseline Actual Forecast

Development & Implementation 18,550 2,434 18,550

External Resources 0 0 0

Operational/Applicational Mngt 3,783 3,783 3,783

Total System Development 22,333 6,217 22,333

HW/SW Design & Consultancy 1,572 1,572 1,572

HW/SW Acquisition 6,500 6,500 6,500

SW Licences 3,145 3,145 3,145

Total HW/SW Mgnt 11,217 11,217 11,217

Total External Costs 33,550 17,434 33,550

Total Internal Resources 4,564 1,674 4,564

Partial Project Total 38,114 19,108 38,114

Contingency 2,835 100 375

Overall Project Total 40,949 19,208 38,489

HW

/SW

M

anag

emen

tS

yste

mD

evel

opm

ent

Source: Microsoft Templates

11

Variance Control

Variance Analysis

($450)

($400)

($350)($300)

($250)

($200)

($150)

($100)($50)

$0

$50

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Period

$ (0

00)

Cost Variance (CV) Schedule Variance (SV) Variance at Completion (VAC)

Jan Feb Mar Apr May Jun JulBudget at Completion (BAC) $1,230 $1,230 $1,230 $1,230 $1,400 $1,400 $1,400Earned Value (EV) $100 $200 $300 $450 $750 $800 $1,125Actual Cost (AC) $100 $205 $315 $600 $800 $1,000 $1,200Planned Value (PV) $100 $220 $325 $550 $725 $925 $1,175Cost Variance (CV) $0 ($5) ($15) ($150) ($50) ($200) ($75)Schedule Variance (SV) $0 ($20) ($25) ($100) $25 ($125) ($50)Cost Performance Index (CPI) 1.00 0.98 0.95 0.75 0.94 0.80 0.94Schedule Performance Index (SPI) 1.00 0.91 0.92 0.82 1.03 0.86 0.96Estimate to Completion (ETC) $1,130 $1,056 $977 $1,040 $693 $750 $293Estimate at Completion (EAC) $1,230 $1,261 $1,292 $1,640 $1,493 $1,750 $1,493Variance at Completion (VAC) $0 ($31) ($62) ($410) ($93) ($350) ($93)Status based on Average Performance Index GREEN YELLOW YELLOW RED YELLOW RED YELLOW

Comments New baseline set

Earned Value Analysis

$0

$200

$400

$600

$800$1,000

$1,200

$1,400

$1,600

$1,800


Period

$ (0

00)

Budget at Completion (BAC) Actual Cost (AC)Earned Value (EV) Planned Value (PV)

Financial Module


Risk Control ToolsRisk Control Tools

• Risk could be mapped into dimensions such as: Value & Manageability – Allows defining the priority of intervention if

mitigation tasks are required. RISK ANALYSIS DETAIL

Risk Area & ElementImpact

(I)Probability

(P)Value of Risk

(V.R. = I*P)Manageability of Risk (M.R.)

Mitigation Process - Actions Responsible Due Date

Data Migration & Go Live 2.00 2.50 5.00 3.00

The System Activation Procedure is not yet well defined

2.00 3.00 6.00 3.00System Integrator define a Go Live Procedure and tests the duration of the activities

System Integrator

31-Jul-02

The "big bang" start does not guarantee system availability for all users in case of failure

2.00 2.00 4.00 3.00Project Manager with SI and QA prepare atasck force to be ready for any intervention 24/24 hours

Project Manager ,Q.A, System Integrator, IT

Program Office

31-Jul-02

Resources 2.50 2.50 6.25 1.50

The System Integrator has not access to Key Users 3.00 3.00 9.00 2.00

SI Change Management Leader prepares a schedule for key users and Project Manager require key user availability with maximum priority to their Responsibles

S.I Change Management

Leader, Project Manager

30-Apr-01

Key user do not participate to prototyping sessions 2.00 2.00 4.00 1.00Project Manager requires availability of key users for prototyping sessions and SI check their participation

Project Manager, SI Project manager

30-Apr-01

Source: Booz Allen

12

Variables (example)• Value of Risk (V. R.) The Value of Risk is the result of the product of Impact and Probability (V.R.=I*P)

– Value of Risk (V. R.) Value Description– Low (L) 1 - 3 The level is not critical– Medium (M) 4 - 5 Specific monitoring and actions are required– High (A) 6 - 9 The risk requires maximum priority

– Impact of Risk (I) The Impact of the Risk indicates the relationship between the Risk and the Project Activities – Impact of Risk (I) Value Description– Low (L) 1 Impact in only one activity– Medium (M) 2 Impact on more activities– High (A) 3 Impact on activities of the Critical Path

– Probability of Risk (P) The Probability of Risk indicates the possibility that the problem effectively takes place – Probability of Risk (P) Value Description– Low (L) 1 Low Probability– Medium (M) 2 Medium Probability– High (A) 3 High Probability

• Manageability of Risk (M.R.) The Manageability of the Risk indicates the possibility of monitoring the possible problem and of effectively operate with the defined mitigation actions.

– Manageability of Risk (M.R.)Value Description– Low (L) 3 It is not possible to guarantee the problem monitoring– Medium (M) 2 The risk is partially under control and actions are partially

applicable– High (A) 1 The risk is under control and the actions are totally

applicable

Source: Booz Allen

Project Execution

Includes i.e.• Develop Team• Select Sellers• Perform Quality

Assurance• Contract

administration


13

Project Control


• Involves the regular review of metrics &report status to identify variances from the baseline.

• Project Reporting and Control Tools– Driving Board: to present periodically the status of the project to the

management, including the main performance indicators (status, tendency, times, costs and the main issues)

Project Status

Project Tendency (previous)

Project Tendency

(actual)TIMES COSTS (M£)

ProjectProgram

Office Responsible

PjType

IT/BusinessImpact

(11-10-99)

Baseline Start Baseline End Forecast End Budget Forecast Actual

Project 1 X A A - 26-Nov-99 14-Dec-99 - - n/a

Project 2 X A A Closed 30/10/99

n/a - 22-Nov-99 22-Oct-99 - - n/a

Project 3 X I A - 30-Oct-99 - - n/a

Project 4 X I A - 30-Oct-99 - - n/a

Project 5 X I - A A Closed 30/10/99

n/a - 30-Jul-99 30-Oct-99 - - n/a

Project 6 X I - A A n/a 15-Oct-99 20-Dec-99 - - n/a

Total - -

Source: Booz Allen

Project Control Tools: Driving Board

14

Document Management Tools• The ' Project Documentation Management ' is a procedure that

defines how to describe/code and store the documentation and a series of examples of forms/documents typical for every project (Meeting Minute, Team Schedule, Detail and Functional Specification, User Requirement, Communication).

user requirements

annexes

user manuals

User Documentation Test Plan(TP)

minutes

communications

agenda

presentations

Module Control

functional specs.

technical specs.

annexes

Technical Documentation

Module MH(Material Handling)

Source: Booz Allen

Meetings Management– Progress Meeting with specific actions to be performed

• Defines date, participants and arguments and writing the minutes. • The Project Manager checks if the agreed actions are performed on time and with

the expected result.

F.G .P. M eeting M inutes ProjectDate:

A ttendees:A uthor:

Distribution: A ttendees - C C:

Subjects: 1. Project Status2. K ick off m eeting3. A O B

A ttachm ents: Title File Directory

Ref. Previous Tasks Resp. D ue date O K1

2

3

Ref. N ew agreed Tasks Resp. D ue D ate O K1

2

C ontents

1 – Project Status

Source: Booz Allen

15

Change Management• An aspect of project control

involves managing change• This can be accomplished, for

example, by defining clear procedures to keep track of change requests– (see the change request template

in the next slide)

• If the requested change exceeds certain budget limits or has major implications on time and resources required to manage the project, a formal group of reviewers may be called upon to prioritize change– This group is called the change

control board (CCB)

• The CCB takes the responsibility for denying change requests, which is particularly useful in case of “pushy” clients who may influence the project manager.

Change Requests Tools• The 'Change Request Management' consists in a procedure that

defines how to manage issues and scope change requests

PROJECT PRGTnnnn Implementation Date:SCOPE CHANGE REQUEST LIST

Code Role Name Team Title StatusReason of Closure Budget Actual Total Cost Role Name Team Start Insertion Study

Study Payment

Implementation

Implementation Payment

4/5/01

Applicant ResponsibleScope Change Request Dates

Documents Tasks Consequences Cost Analysis

Solution



Study Payment

Implementation


4/5/01



Solution



Study Payment

Implementation


4/5/01



Solution

PROJECT PRGTnnnn Implementation Date:ISSUE LIST

Code Role Name Team Title Type Area Status Role Name Team Start Due DateActual

EndPriority Date % Documents Actions

Progress Tasks

4/5/01

Applicant Issue Responsible Dates

Source: Booz Allen

16

Project Closing

• Completion and closeout of any contractual agreements with suppliers or providers

• Formalizing customer acceptance

• Closeout of any financial matters

• Preparation of the project’s final performance report

• Conducting a project review• Documenting lessons learned• Completing, collecting and

archiving project records• Celebrating project success.


Project Management Software• Proprietary

– MS Project• http://office.microsoft.com/en-us/project

– Primavera• http://www.primavera.com/

– Omni Group – OmniPlan(for Mac)

• http://www.omnigroup.com/

– Planning force• http://www.planningforce.com/

– Artemis• http://www.aisc.com/Product/1#Progr

am%20and%20Project%20Management

• Open Source– GanttProject

• Gantt chart based project scheduling & mgt tool

• http://ganttproject.biz/

– Open Workbench• http://www.openworkbench.org/

– Achievo• http://www.achievo.org/

• Web-based (hosted)– Ace PM

• http://www.aceproject.com/

– Inventix• http://www.inventx.com/

17

Readings & Web References

• Frame, D. (1996) Managing Projects in Organizations

• PMI, PMBOK 3.0• Critical Path Method tutor

– http://www.cpmtutor.com/index.html

• Review of PM Software– http://www.klambauer.info/pms.pdf

• Other hyperlinks listed in the slides

1

Project Management Module Activities

Objective (Project Management Process Activities) Ask students to practice what they learnt about the project management process steps by completing specific activities related to each of the main stages of project management. More specifically:

Project Initiation

Project Initiation

1. Involves starting up the project

2. Defining its purpose and scope– Entails clearly understanding

needs• The needs will drive the

definition of functional and technical requirements

3. Justifying the project (biz case & feasibility study)

4. Forming the team5. Setting up project office

• Critical errors may occur in needs identification because:– Needs are dynamic– Customers do not know what they

want • Until after they see it!

– Multiple customers within an organization have conflicting needs


Activity: 1) Define purpose and scope of a project

Ask students to define the purpose, objectives and scope of a new distance learning

training program for office workers to learn emergency procedures (evacuate a building

in case of fire, etc.).

Activity: 2) Needs specification

In groups of two, ask students to clearly articulate needs and wants of a project that

involves remodeling of their own bedroom, kitchen and bathroom. The remodeling

should include a specification of colors, furniture, structural or other changes.

Outcomes Assessment for 2) Needs specification

Ask another group of two students to evaluate the clarity of needs specified in the

assignment above.

2

Project Planning

Project Planning

Source: Adapted from Department of Veterans Affairs, Project Management Guide

Scheduling

Risk

CostCost

• This entails entering into a detailed project planning phase by focusing on multiple tasks and deliverables

Activity: 1) Work Breakdown Structure – Purchase a home project

Students will put together a work breakdown structure (WBS) plan for purchasing a

home in a table format by listing in each column:

• Tasks and subtasks

• Responsible Individual/s

• Duration of the Tasks

• Activity Cost Estimates

Activity: 2) Network Diagrams – Purchase a home project

• Based on the WBS created above (purchasing a home) create a network

diagram (activities-on-arrows) specifying which tasks are related and their

duration.

3

Project Execution

Project Execution

Includes i.e.• Develop Team• Select Sellers• Perform Quality

Assurance• Contract

administration


Activity: 1) Implementation of the “Purchase a home” project

Student teams will be asked to implement one aspect of the “purchase a home”

project plan. In particular, they will define requirements and cost constraints and

will search various prospective purchases using different real estate websites (i.e.

New York Times / Real Estate section). They will review multiple options and

define a short-list of three possible finalist homes. The will articulate the criteria

used for their selection.

Activity: 2) Project Performance Quality Assurance

• Teams will define the quality assurance metrics that will be used in the “purchase

a home project.” In particular they will identify quality controls that will ensure the

most successful project outcomes.

4

Project Control

Project Control


• Involves the regular review of metrics &report status to identify variances from the baseline.

Activity: 1) (see exercises in the financial controls in project management activities)

Project Closing

Project Closing

• Completion and closeout of any contractual agreements with suppliers or providers

• Formalizing customer acceptance

• Closeout of any financial matters

• Preparation of the project’s final performance report

• Conducting a project review• Documenting lessons learned• Completing, collecting and

archiving project records• Celebrating project success.


Activity: 1) “Purchase a home” project lessons learned Submit project documentation that includes:

• Project performance reports • Project documentation • Project and team closure • Next steps (“move in plan”)

5

Project Management Module Sample Quiz

1. The typical project monitoring and control activities include A) No answer is correct B) Cost planning C) Schedule planning D) Risk planning

2. Compared to Program Management, Project Management provides a more holistic view of groups of related projects A) True B) False

3. The critical path is the path with the shortest duration A) True B) False

4. Understanding "variance" from the baseline is a critical activity within project control A) True B) False

5. All of the following are characteristics of projects, except A) Directed at specific results B) Coordination of interrelated activities C) Uniqueness D) Spanning multiple years

6. Scope Management is achieved using A) The driving board B) Documentation management processes C) Change Request management tools D) Meetings management tools

6

7. The higher the probability of risk (the possibility that a problem will occur) the lower its manageability (ability to mitigate the problem). A) True B) False

8. The duration of each stage of the project life-cycle will approximately be the same for short-term projects compared to longer-term projects A) True B) False

9. Which one of the following is primarily a Project Execution tool A) WBS B) CPM C) PERT D) No answer is correct

10. The PMP Certification qualifies recipients as A) Program Management Professionals B) Project Management Professionals C) Certified Associates in Project Management

Appendix E: Financial controls in project management module & Activities

1

Financial Controls in Project Management

Dr. Katia Passerini , Dr. Asokan AnandarajanNew Jersey Institute of Technology

Outline• Cost in Project Management• Cost Management

-- cost estimating-- cost budgeting-- cost control

• Sample Software• Readings & web reference

Disclaimer: This is an overview module.We encourage learners to enroll in semester-long project management


2


• Be able to explain the Fundamentals of Project Costing

• Recognize and use Project Costing techniques

• Familiarize with Project Control mechanisms– Examining variances, project plan and human

resource controls

– Financial Controls, cumulative project variance, earned value approach

• Calculating estimates to complete (ETC)– Financial considerations

• Top-down and bottom up cost estimating, opportunity costs, TVM, DCF, IRR, capital budgeting techniques




Project Cost Management Key Resources

• The Project Management Institute (PMI. org)

• The Project Management Body of Knowledge 3rd edition

(All concepts in this module were based on discussions in Kerzner2005.)

• Kerzner, H. (2005) Project Management: A Systems Approach to Planning, Scheduling, and Controlling

3

Project Management

Project management is a process designed to manage or control company resources on a given activity, within time, within cost,and within scope. Time, cost, and scope are the constrains on the project.

Time

Budget

ScopeSource: Project Management Planning & Control Techniques P131

Resources

Project Cost Management

Definition:Project cost management includes the processes involved in planning, estimating, budgeting, and controlling costs so that the project can be completed within the approved budget.

----PMBOK

Source: Project Management Planning & Control Techniques P80

4

Cost Management Plan

• The cost management planning efforts occur early in project planning and set the framework for each of the cost management processes, so that performance of the processes will be efficient and coordinated.

• Cost management plan can establish, for example, the units of measure for a project; organizational procedures and processes; control thresholds; reporting formats, etc.

• The key cost management activities include:

1. Cost Estimating 2. Cost Budgeting 3. Cost Control

Cost Estimating Process OverviewCost Estimating - developing an approximation of the costs of the resources needed

to complete project activities.

Source: Adapted from The Project Management Body of Knowledge P162 and Kerzner, H. (2004)

Inputs1. Enterprise environment

factors

2. Organizational process assets

3. Project scope statement

4. Work breakdown structure

5. WBS dictionary

6. Project management plan

-- Schedule management plan

-- Staffing management plan

-- Risk register

Tools & Techniques Outputs1. Types of estimates

2. Estimating methods

3. Project management software

6. Vendor bid analysis

7. Reserve analysis

8. Cost of quality

1. Activity cost estimates

2. Activity cost estimate supporting detail

3. Requested change

4. Cost management plan

1. Cost Estimating

5

Techniques for Estimating CostsThe following techniques can be used for estimating costs:

High Low Method: Regression method: Scatter graph method: Engineering method

Illustration

The Kent Company provides you with the following activity levels and monthly costs for the first six months of 200X:

( in thousands)

Month Units Product Cost

January 30 $370

February 35 $420

March 40 $460

April 45 $520

May 54 $620

June 60 $670

Required

1. Compute the fixed cost per month and the variable cost per unit using high low method and regression.

2. Compute the estimated costs for August if the company is expected to produce 38,000 unitsSource: Project Management: A Systems Approach to Planning, Scheduling, and Controlling P542

1. Cost Estimating

Life-Cycle Costing (LLC)

LLC requires that decisions made during the R&D process be evaluated against the total life-cycle cost of the system.

Life-cycle costs are the total cost to the organization for the ownership and acquisition of the product over its full life.

This includes the cost of:

• R&D cost

• Production cost

• Construction cost

• Operation and maintenance cost

• Product retirement and phase-out cost (also called disposal cost)

Department of Defense life-cycle phases

“At the end of the validation phase 85% of the decision affecting the total life-cycle cost will have been made, and the cost reduction opportunity is limited to a maximum 22%.”

Source: Project Management: A Systems Approach to Planning, Scheduling, and Controlling P579

1. Cost Estimating

6

Project costs

A project estimate can be sub-divided into a number of different costs, consider the following:-- Direct product costs-- Indirect product costs-- Period costs-- Variable costs-- Fixed costs-- Semi variable costs-- Relevant (incremental costs)-- Sunk costs-- Opportunity costs

1. Cost Estimating

Cost Budgeting Process OverviewCost Budgeting - aggregating the estimated costs of individual activities or work packages to establish a cost baseline.

Source: The Project Management Body of Knowledge P167

Inputs1. Project scope statement


3. WBS dictionary



6. Project schedule

7. Resource calendars

8. Contract


Tools & Techniques Outputs1. Cost aggregation

2. Reserve analysis

3. Parametric estimating

4. Funding limit reconciliation

5. Capital budgeting

1. Cost baseline

2. Project funding requirements


4. Requested changes

2. Cost Budgeting

7

Cost budget

A COST BUDGET is a financial plan that sets forth the resources necessary to carry out activities and meet financial goals for a future period of time.

A MASTER BUDGET presents a company’s overall financial plan for the coming year or other planning period.

The OPERATING BUDGET summarizes the firm’s operating plans for the period.

The CASH BUDGET is a summary of projected cash balances based onexpected cash receipts from operations and cash payments for operations, and cash receipts and payments from financing and investing activities.

A CAPITAL BUDGET details plans for the acquisition and replacement of major portions of property, plant and equipment.

2. Cost Budgeting

Case Study

The QQQ Manufacturing Company prepared a budget for manufacturing overhead for the month of January 200X. The budget is shown right:

At the end of the month it was determined that only 80,000 units were produced.

Required:Question 1Prepare a static budget showing

the variances between actual and budgeted numbers.

$8,00010,0003,0005,000

12,0004,000

42,000$121,200

Fixed OverheadSuperintendenceFactory rentMaintenanceIndirect laborDepreciation of equipmentMiscellaneous

Total Fixed OverheadTOTAL OVERHEAD

$2,7004,500

63,0009,000

79,200

Variable Overhead:PowerRepairsPayrollMiscellaneous

Total Variable Overhead

90,000 Production in units

2. Cost Budgeting

8

Selecting Projects

• Economic project selection criteria

Project manager are often called upon to be active participants during the cost-benefit analysis of project selection. It is highly unlikely that companies will approve a project where the costs exceed the benefits.

The process of identifying the financial benefits is called capital budgeting, which maybe defined as the decision making process.

Sophisticated capital budgeting techniques take into consideration depreciation schedules, tax information, and cash flow. Now we only discuss four basic principles:

-- Payback Period: is the exact length of time needed for a firm to recover its initial investment as calculated from cash inflows. It is the least precious of all capital budgeting methods because the calculations are not adjusted for the time value of money. So it is often used as a supplemental tool accompany other methods.

-- Discounted Cash Flow (DCF)

-- Net Present Value (NPV) -- Internal Rate of Return (IRR)

2. Cost Budgeting

The time value of moneyEveryone knows that a dollar today is worth more than a dollar a

year from now. The reason for this is because of the time value of money.

Let us look at the equation:

FV = PV (1+k)n

where FV = Future value of an investmentPV = Present value

k = Investment interest rate (or cost of capital)n = Number of years

Example: You have a choice between two investment . A will generate $100,000 two years from now and B will generate $110,000 three years from now. If the cost of capital is 15%, which investment will better?

Using the formula for discounted cash flowPVA = $75,614PVB = $72,327

The answer is : the return of A is worth more than the return of B.

2. Cost Budgeting

9

Net Present Value (NPV)The Net Present Value (NPV) equates the discounted cash flows against the initial investment. Mathematically,

where FV is the future value of the cash inflows, ∏ represents the initial investment, and k is the discount rate equal to the firm’s cost of capital.

example:

NPV calculation of Project A (10%) This indicate that the cash inflowsyear Cash Inflows Present Value discounted to the present will not

1 $ 1000 $ 909 recover the initial investment. 2 2000 1653 This is a bad investment.3 2000 1503 The decision-making criteria are as follow:4 5000 3415 -- If NPV≥0, accept the project5 2000 1242 -- If NPV＜0, reject the project

PV of cash A positive value of NPV indicates that the inflows 8722 firm will earn a return ≥ its cost of capital.

less investment 10000PV (1278)

( )∏−⎥

⎦

⎤⎢⎣

⎡

+=∑

=

n

tt

t

kFVNPV

1 1


2. Cost Budgeting

Internal Rate of ReturnThe Internal Rate of Return (IRR) is the discount rate where the present

value of cash inflows exact equals the initial investment. In other words, IRR is the discount rate when NPV = 0. Mathematically

The solution to problems involving IRR is basically a trial-and-error solution. The table below shows that with the cash inflows provided and with a $5000 initial investment, an IRR of 10% yielded a value of $3722 for NPV. It implies that the cash inflows are equivalent to a 31% return on investment. Therefore, if the cost of capital were 10%, this would be an excellent investment. Also, this project is probably superior to other projects with a lower value of IRR.

( )0

11=∏−⎥

⎦

⎤⎢⎣

⎡

+∑=

n

tt

t

IRRFV


2. Cost Budgeting

10

Case StudyQuestion

Robots R Us estimates to invest the following in a project to make sophisticated robotic toys for childrenDesign $90 millionEngineering $110 millionTOTAL $200 million

The total cost of the project is $200 million of which $40 million is invested by the company in cash and the balance $160 million is obtained through a bank loan. It is agreed that the loan principal will be repaid by 5 equal end of year payments of $32 million. The interest on the loan is 10 percent per annum and will be paid at the end of the year based on the remaining balance of the loan.

The company estimates that its sales will be 100,000 robotic toys per year. The anticipated selling price is $700 per robotic toy and sales are expected to grow at 20,000 robots per year. The anticipated operating and maintenance costs are $50 million the first year and, due to production efficiencies, it is expected t decrease by $3 million per year. The effective tax rate is 40.%. The design and engineering costs are capitalized and the depreciation of the equipment manufactured to produce the robotic toys is based on MACRS.

For tax purposes, under MACRS, the equipment is depreciated over six calendar years and the percentages are as follows:•Year Percent•1 20.00•2 32.00•3 19.20•4 11.52•5 11.52•6 5.76

2. Cost Budgeting

Required:1. Prepare a statement showing the cash flows for the business

2. Compute the net present value and determine if the project is feasible

3. Compute the internal rate of return (IRR) of the project

4. What additional factors may have to be taken into account in deciding whether to go ahead with the project?

Cost Control Process OverviewCost Control - influencing the factors that create additional costs and controlling changes to the project budget.


Inputs1. Cost baseline


3. Performance reports

4. Work performance information

5. Approved change requests


Tools & Techniques Outputs1. Cost change control

system

2. Performance measurement analysis

3. Forecasting

4. Project performance reviews

5. Project management software

6. Variance management

1. Cost estimate

2. Cost baseline

3. Performance measurements

4. Forecasted completion


6. Recommended corrective actions

7. Organizational process assets


3. Cost Control

11

3. Cost control achieving project success

Project success depends to a great extent upon management’s abilities to cost control. Maintaining cost control requires a well-designed and implemented project cost control system. A sound project cost control system performs four basic functions:1. Establishes baseline cost. 2. Collects actual cost data.3. Reports and evaluates (including earned value).4. Takes corrective action.

This figure provides an illustration of the elements involved in a project cost control system and theirInterrelationship.

Detailed CostEstimate

Cost ControlBudget

Cost ControlStatus Report

Corrective Action by

Management

Earned ValueDetermination

Actual Cost Data

During Project WorkPrior to Project Work

Source: The AMA Handbook of Project Management P67

3. Cost Control

Performance Measurement AnalysisPerformance measurement techniques help to assess the magnitude of any

variances that will invariably occur.An important part of cost control is to determine the cause and magnitude of a

variance and to decide if the variance requires corrective action.

Earned value analysis (EVM) compares the value of the budgeted cost of work earned at the original allocated budget amount to both the budgeted cost of work planned and to the actual cost for completed work. It involves developing these key values for each activity:

1. Planned Value (PV) is the budgeted cost for the work scheduled to be completed on an activity or WBS component .

2. Actual Cost (AC) is the total cost incurred in accomplishing work on the schedule activity or WBS component. AC must correspond in definition and coverage to whatever was budgeted for the PV and the EV.

3. Earned Value (EV) is the budgeted amount for the work actually completed on the schedule activity or WBS component.

4. Estimate to Complete (ETC) is the cost estimate for work remaining and is used in forecasting the project cost at completion.

ETC = (total PV - EV to date)ETC = (remaining PV x CPI)

3. Cost Control

12

Variance The PV, EV and AC values are used in combination to provide performance measures

of whether or not work is being accomplished as planned at any given point in time. The most common used measures are cost variance (CV) and schedule variance (SV). The amount of variance of the CV and SV values tend to decrease as the project reaches completion due to the compensating effect of more work being accomplished.

-- Cost Variance (CV)= EV-AC, CV at the end of the project will be the difference between the budget at completion and the actual amount spend.

-- Schedule Variance (SV) = EV-PV, SV will ultimately equal 0 when the project is completed because all of the planned values will have been earned.

CV and SV can be converted to efficiency indicators to reflect the cost and schedule performance.

-- Cost Performance Index (CPI), CPI = EV/AC, CIP＜1 means costs overrun the estimates, CPI＞1 means costs underrun the estimates.

-- Schedule Performance Index(SPI), SPI = EV/PV, SIP is used to predict the completion data and Is sometimes used in conjunction with the CPI to forecast theproject completion estimates.


3. Cost Control

Variance Control

Variance Analysis

($450)

($400)

($350)($300)

($250)

($200)

($150)

($100)($50)

$0

$50


Period

$ (0

00)

Cost Variance (CV) Schedule Variance (SV) Variance at Completion (VAC)

Jan Feb Mar Apr May Jun JulBudget at Completion (BAC) $1,230 $1,230 $1,230 $1,230 $1,400 $1,400 $1,400Earned Value (EV) $100 $200 $300 $450 $750 $800 $1,125Actual Cost (AC) $100 $205 $315 $600 $800 $1,000 $1,200Planned Value (PV) $100 $220 $325 $550 $725 $925 $1,175Cost Variance (CV) $0 ($5) ($15) ($150) ($50) ($200) ($75)Schedule Variance (SV) $0 ($20) ($25) ($100) $25 ($125) ($50)Cost Performance Index (CPI) 1.00 0.98 0.95 0.75 0.94 0.80 0.94Schedule Performance Index (SPI) 1.00 0.91 0.92 0.82 1.03 0.86 0.96Estimate to Completion (ETC) $1,130 $1,056 $977 $1,040 $693 $750 $293Estimate at Completion (EAC) $1,230 $1,261 $1,292 $1,640 $1,493 $1,750 $1,493Variance at Completion (VAC) $0 ($31) ($62) ($410) ($93) ($350) ($93)Status based on Average Performance Index GREEN YELLOW YELLOW RED YELLOW RED YELLOW

Comments New baseline set

Earned Value Analysis

$0

$200

$400

$600

$800$1,000

$1,200

$1,400

$1,600

$1,800


Period

$ (0

00)

Budget at Completion (BAC) Actual Cost (AC)Earned Value (EV) Planned Value (PV)

Financial Module


3. Cost Control

13

Case Study on Variance Analysis

The Mercer Company manufactures redwood window boxes. Each box requires the following direct materials and direct labor.

StandardPrice StandardQuantity (rate) Cost

1” clear redwood 5 feet $1.50 per foot $6.0Direct labor 0.5 hr $9.0 per hour $4.5During March 200X, the following was determined:1. Purchases of lumber amounted to $37,700. The price paid was $1.45

per foot.2. The direct labor cost was $21,840. The hourly rate of pay was $9.10.3. 5,000 boxes were manufactured.RequiredCompute the total cost variance. Breakdown the cost variance into different

components and explain who you would hold responsible and how you would conduct the investigation.

ForecastingForecasts are generated, updated, and reissued based on work performance and any information that could impact the project in the future.

The earned value technique parameters of Budget At Completion (BAC), AC to date, and the CPI efficiency indicator are used to calculate ETC and EAC. BAC = total PV at completion.

Forecasting techniques help to assess the cost or amount of work to completes schedule activities, called EAC. They also help to determine the ETC, which is the estimate for completing the remaining work for a schedule activities.

ETC forecasting technique based upon the performing organization providing the Estimate To Complete is:

-- ETC based on new estimate.Alternatively, following tow formulas is used to calculate ETC using earned value

data:-- ETC based on atypical variances. ETC = (BAC-EV)-- ETC based on typical variances. ETC = (BAC-EV)/ CPIETC forecasting technique based upon the performing organization providing the

Estimate At Complete is:-- EAC using a new estimate. EAC = AC+ETCAlternatively, following tow formulas is used to calculate EAC using earned value

data:-- EAC using remaining budget. EAC = AC+BAC-EV-- EAC using CPI. EAC = AC+ 〔(BAC- EV)/CPI〕

3. Cost Control

14

Cost Baseline & Justifying Cost

Once the project is initiated, the cost or financial baseline need to be established against which status will be reported and variances will be measured. Figure below represents a cost baseline. Each block represents a cost account or work package element. The summation of all the work packages would equal the time-phased budget.

Project pricing is often based upon best guesses rather than concrete estimates.

Every company has its own evaluation criteria cost summery approval process. Typical elements that must be justified or supported by hard data include:

-- Labor Rates-- Overtime-- Scrap Factors-- Risks-- Hidden Cost

Other often hidden costSource: Project Management: A Systems Approach to Planning, Scheduling, and Controlling P634 Source: Project Management: A Systems Approach to

Planning, Scheduling, and Controlling P637

3. Cost Control

Sample Software: Construction Estimating Software--Corecon

http://www.corecon.com/Features/Estimating.aspx?gclid=COSkhvq82JECFSGWGgodR1vDZg

15

Sample Software: Construction Estimating Software—SuccessEstimator

http://www.uscost.com/successestimator.asp

Readings & References

• PMI, PMBOK (3th Edition, 2004)• Harold Kerzner (9th Edition, 2005) Project Management: A Systems

Approach to Planning, Scheduling, and Controlling • Paul C. Dinsmore (2nd Edition, 2006) The AMA Handbook of Project

Management• Rory Burke 3rd Edition (3rd Edition, 1999) Project Management Planning &

Control Techniques• Samuel J. Mantel, JR. (2001) Core Concepts of Project Management• Construction Estimating Software

Coreconhttp://www.corecon.com/Features/Estimating.aspx?gclid=COSkhvq82JECFSGWGgodR1vDZg

SuccessEstimatorhttp://www.uscost.com/successestimator.asp

1

Financial Controls in Project Management Activities

Objective Complete hands-on exercises to apply cost control techniques

Cost Budgeting

Cost Budgeting Process OverviewCost Budgeting - aggregating the estimated costs of individual activities or work packages to establish a cost baseline.


Inputs



3. WBS dictionary



6. Project schedule


8. Contract




3. WBS dictionary



6. Project schedule


8. Contract


Tools & Techniques Outputs

1. Cost aggregation

2. Reserve analysis




1. Cost aggregation

2. Reserve analysis




1. Cost baseline




1. Cost baseline




2. Cost Budgeting

Activity (1)

Robots R Us estimates to invest the following in a project to make sophisticated robotic toys for children. Design $90 million Engineering $110 million TOTAL $200 million The total cost of the project is $200 million of which $40 million is invested by the company in cash and the balance $160 million is obtained through a bank loan. It is agreed that the loan principal will be repaid by 5 equal end of year payments of $32 million. The interest on the loan is 10 percent per annum and will be paid at the end of the year based on the remaining balance of the loan. The company estimates that its sales will be 100,000 robotic toys per year. The anticipated selling price is $700 per robotic toy and sales are expected to grow at 20,000 robots per year. The anticipated operating and maintenance costs are $50 million the first year and, due to production efficiencies, it is expected t decrease by $3 million per year. The effective tax rate is 40.%. The design and engineering costs are

2

capitalized and the depreciation of the equipment manufactured to produce the robotic toys is based on MACRS. For tax purposes, under MACRS, the equipment is depreciated over six calendar years and the percentages are as follows: Year Percent 1 20.00 2 32.00 3 19.20 4 11.52 5 11.52 6 5.76 Required

1. Prepare a statement showing the cash flows for the business. 2. Compute the net present value (NPV) and determine if the project is feasible.

3. Compute the internal rate of return (IRR) of the project.

4. What additional factors may have to be taken into account in deciding

whether to go ahead with the project?

5. Would you recommend the project? Why or why not?

3

Solution to parts (1) and (2) All numbers in 000’s

Outflow* Additional Outflow**

After tax Net inflow***

Depreciation Cash savings****

Salvage Value of Equipment *****

Net Cash Discount @15%

Present worth

Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6

(40,000) (32,000)** (32,000) (32,000) (32,000) (32,000)

2,400 14,520 26,640 38,760 50,880

16,000 25,600 15,360 9,216 9,216 4,608

34,680

(40,000) (13,600) 8,120 10,000 17,976 62,776 4,608

1.0 .87 .756 .658 .572 .497 .432

(40,000) (11,832) 6,138 6,580 17,976 31,200 1,990

Net present value 12,052 WORKINGS FOR PARTS (1) AND (2)

* Note 1

Cash paid for equipment = (200,000)

Loan obtained = 160,000

Net cash outflow = 40,000

** Note 2

Additional outflow is the principal repayment on the loan $32,000 per year. (You do not

get a tax saving on this)

***Note 3

Please see workings below

4

(All numbers in 000s) Inflow

(Sales) Outflow (Operating costs)

Outflow (Interest on loan)

Net inflow After tax inflow Tax @ 40%

Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6

70,000 84,000 98,000 112,000 126,000

(50,000) (47,000) (44,000) (41,000) (38,000)

(16,000) (12,800) (9,600) (6,400) (3,200)

4,000 24,200 44,400 64,600 84,800

2,400 14,520 26,640 38,760 50,880

**** Note 4 To get cash savings from MACRS depreciation you multiply the depreciation by the tax rate. Depreciation Tax @40% Cash savings due to tax Yr 1 40,000 0.4 16,000 Yr 2 64,000 0.4 25,600 Yr 3 38,400 0.4 15,360 Yr 4 23,040 0.4 9,216 Yr 5 23,040 0.4 9,216 Yr 6 11,520 0.4 4,608 *****Note 5 First you have to compute profit from sale of equipment Market value $50,000 Book value $11,520 Profit on sale $38,480 Tax on profit @40% $15,392

5

Second you now have to compute net cash inflow from sale Salvage value $50,000 Less tax $15,392 Net cash collected $34,680 Solution to part (3) Outflow* Additional

Outflow** After tax Net inflow***

Depreciation Cash savings****

Salvage Value of Equipment *****

Net Cash Discount @32%

Present worth

Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6

(40,000) (32,000)** (32,000) (32,000) (32,000) (32,000)

2,400 14,520 26,640 38,760 50,880

16,000 25,600 15,360 9,216 9,216 4,608

34,680

(40,000) (13,600) 8,120 10,000 17,976 62,776 4,608

1.0 .757 .573 .434 .329 .249 .189

(40,000) (10,303) 4,660 4,348 5,921 15,662 870

Net present value (18,842) To compute IRR you have to find a discount rate that generates a negative net present value. Now, we have a positive net present value at 15% i.e., 12,052 and a negative net present value, i.e., (18,842) at 32%. If you see the graph below, for a change of 17% the net present value changes by a total of 30,894. If we take the distance from 15% to the point at which NPV is 0 as X, then X / 17 = ( 12,052 \ 30,894) times 17 X = 6.63 Hence the rate of return where NPV is 0 is 15 plus 6.63. The IIRR is 21.63%. This is the exact rate of return of the project.

6

Solution to part (4) The additional factors that have to be taken into account to decide whether to go ahead with the project are: Financial How accurate are the projected numbers? How sensitive is the project to even a 5 percent decrease in anticipated revenue or increase in projected costs? Technological Is there any possibility of new technology that could make our system and products obsolete? Economic Is there a chance of a recession that could adversely affect the projected numbers? This include the possibility of inflation and interest rate hikes Legislative Does this project create waste that is difficult to dispose of in the traditional way? Is there a chance of environmental legislation that could adversely affect waste disposal? Are there any other legislation that the company should be concerned about? Competitors Who are the key competitors? What are the competitors doing that could adversely affect this business? Ethical Is there any possibility that existing work force and personnel could be laid off as a result of this project? What are the social costs to the community in such a case?

7

Activity (2)

The QQQ Manufacturing Company prepared a budget for manufacturing overhead for the month of January 200X. The budget is shown below:

QQQ Manufacturing Company Manufacturing overhead static budget

January 200X

Production in units 90,000 Variable Overhead: Power Repairs Payroll Miscellaneous Total Variable Overhead

$2,7004,500

63,0009,000

79,200

Fixed Overhead Superintendence Factory rent Maintenance Indirect labor Depreciation of equipment Miscellaneous Total Fixed Overhead TOTAL OVERHEAD

$8,00010,0003,0005,000

12,0004,000

42,000

$121,200

At the end of the month it was determined that only 80,000 units were produced. Required: Question 1 Prepare a static budget showing the variances between actual and budgeted numbers.

8

QQQ Manufacturing Company Manufacturing Overhead Performance Report

January 200X

Budget Actual Variance Units 90,000 80,000 10,000

Variable Overhead

Power Repairs Payroll

Miscellaneous

$2,7004,500

63,0009,000

$2,5004,200

56,8008,500

$ 200 F

300 F6,200 F 500 F

Total Variable Overhead

79,200 72,000 7,200 F

Fixed Overhead Superintendence

Factory rent Maintenance Indirect labor Depreciation

Miscellaneous

8,00010,0003,0005,000

12,0004,000

8,50010,0002,5005,200

12,0004,300

500 U

0500 F200 U

0300 U

Total Fixed Overhead

42,000 42,500 500 U

TOTAL OVERHEAD

$121,200 $114,500 $6,700 F

Solution The chart above is called a static budget performance report. Here, you compare actual performance with the static budget. In evaluating this performance report, managers would first compare the actual production to the budgeted production to determine if there is a difference, and, if so, why the difference occurred. The results show that, during January, the company produced 10,000 fewer units than anticipated. This might have been a planned reduction due to an unexpected reduction in sales, or it might have been a production shortfall due to problems in the factory. If the former is the case, no management action is necessary. If the latter occurred, management should take action because of the failure in effectiveness. Required Question 2 What is your opinion of this report? Is this report meaningful, why or why not? Solution The report is not meaningful. It is highly unlikely that, for any given period, actual production will coincide exactly with budgeted production. Thus, a single static budget

9

is usually useful only for planning but not for controlling. To be meaningful, the company has to “flex” the static budget and prepare a flexed budget. Required Question 3 Prepare a flexed budget, compute the variances and comment. Solution

QQQ Manufacturing Company Manufacturing Overhead Performance Report

January 200X

Budget Actual Variance Units 80,000 80,000 0

Variable Overhead Power @ .03

Repairs @ .05 Payroll @ 0.70

Miscellaneous @ 0.10

$2,4004,000

56,0008,000

$2,5004,200

56,8008,500

$ 100 U

200 U800 U

500 UTotal Variable

Overhead 70,400 72,000 1,600 U

Fixed Overhead Superintendence

Factory rent Maintenance Indirect labor Depreciation

Miscellaneous

8,00010,0003,0005,000

12,0004,000

8,50010,0002,5005,200

12,0004,300

500 U

0500 F200 U

0300 U

Total Fixed Overhead

42,000 42,500 500 U

TOTAL OVERHEAD $121,200 $114,500 $2,100U The flexed budget shows that the performance, overall is actually unfavorable. Managers use a technique called variance analysis to determine who is responsible. For the variable overhead the variances can be broken down into (a) spending variance and (b) efficiency variance. Generally, the department supervisors will be responsible for spending variance and the factory manager will be responsible for efficiency variance. However, an unfavorable spending variance is not necessarily the fault of the supervisor. States may have increased electricity charges etc hence increasing the total spending of the departmental managers.. Similarly, efficiency variances may not always be attributable to the production manager. It could be due to no fault of the manager. Hence, both variances are broken down into (a) controllable and (b) uncontrollable. Managers are held responsible for the controllable components only.

Appendix F: Business Ethics in finance module and Activities

1

BUSINESS ETHICS and Sarbanes Oxley (SoX)

© Dr. Katia Passerini, Dr. Asokan AnandarajanNew Jersey Institute of Technology

Outline

• OVERVIEW• This model will briefly cover:• Fundamentals of Business ethics as espoused by SOX

(2002)– What is ethics?– What are ethical considerations managers, stockholders,

auditors and other related parties should be aware of?

Vignettes (mini case studies) to emphasize key “ethical” considerations in SOX.

2


• Be able to explain the Fundamentals of Business Ethics

• To provide students with an understanding of the basic code of ethics– with special emphasis on the principles

laid down by the Sarbanes Oxley Act

• To help students understand what is proper ethical behavior in a business environment

• To learn about intercultural sensitivity when working in a multicultural environment.

Ethics and Integrity

Working in cross-cultural teams and environments


Ethics and Conduct

SOX and business ethics

BACKGROUNDFollowing a number of corporate accounting

scandals in the USA, the Congress passed the Sarbanes Oxley Act of 2002. The Sarbanes Oxley Act established new and enhanced standards for corporate accountability.

Section 406 of the Sarbanes Oxley Act “Code of Ethics for Senior Financial Officers” requires companies to have ethical standards.

3


Standard 406 of SOX 2002 defines code of ethics as follows:

Standards that are reasonably necessary to promote:

• Honest conduct including the honest handling of actual or apparent conflicts of interest between personal and professional relationships

• Compliance with applicable laws and regulations

SOX and Business Ethics

• Objective

• The Sarbanes Oxley Act (2002) provides many examples that can be used to enhance awareness of ethical considerations.

• The objective of this module is to use guidelines provided by SOX (Section 406) to enhance awareness of proper ethical behavior. – This will be taught by means of

mini cases that create situations which enable students to engage in “role playing” to enhance their awareness and understanding of accepted codes of behavior.

4


Case 1

Jerry is a partner in an audit firm. Jack is the accountant of Widgets R Us, a company producing widgets. Jack and his managers provide Jerry with season tickets to watch the New York Tigers, his favorite base ball team.

Key issues:1. Is there a violation of ethics in this situation?2. If your answer is yes, to (1) above, why?


An acceptance of a gift can be perceived by others as influencing the business judgment of the recipient.

The same applies to employees of a company. One cannot accept gifts as it would cause a perception that their decisions (discounts to customers etc) are improperly influenced.

5

Case 2Widgets R Us informs Jerry, that, due to a cash

flow problem, they do not have money to pay the audit fees. However, they pay the equivalent amount by giving Jerry stock in their company.

Issues1. Is there a violation of ethics in this situation?2. If your answer is yes, to (1) above, why?•


1. There is a violation of ethics.

2. The reason is that there is a matter referred to as conflict of interest(conflict of interest is covered in section 206 of SOX). Now Jerry will benefit if the stock price of Widgets R Us increase. Jerry is vulnerable to pressure from Jack to authorize “adjustments”to the accounts that improve earnings.

6

Case 3Joanne and Betty, sisters of Jerry, the partner of

the audit firm auditing Widgets R Us, buys stock in Widgets R Us. They argue that there is no conflict of interest since Jerry does not benefit financially from their transactions.

Issues1. Is there a violation of ethics?2. If so, what (if any)?


1. There is still a violation of ethics if the amount held by Jerry’s family is “substantial”.

2. Even though Jerry is not directly involved, this comes under the category of related third party transactions. Jerry is still vulnerable to pressure because his direct family will benefit from “adjustments” to the accounts that improve perceived performance and stock price.

This applies to employees of a company too. The holding by an employee or any member of his or her family of any substantial financial interest in any enterprise (customer or supplier) is not allowed.

7


Case 4Jill is an employee of Widgets R Us. She is in

charge of the computer store room. She borrows a computer, takes it home, and returns it when she is done using it. She is very careful and the computer is till in extremely good condition.

Issues.1. Is there a violation of ethics?2. Why?


1. There is a violation of ethics even though the computer is returned.

2. This comes under the category of misuse of company assets by its custodians.Employees are responsible for the security, authorized access to and the proper use of physical and nonphysical assets. Physical assets include equipment, inventory, money, documents and office supplies. Use by an employee of physical assets for which the employee might benefit is forbidden.

8


Case 5Take the same example as before. Jill borrows a

computer but gets the permission of her immediate superior.

Issues1. Has the situation changed. Is it now ethical?2. If not, why?

SOX and Business ethics

• It is still not ethical. Jill may be friendly with the boss directly in charge of her. In general use of assets for which an employee is custodian, must be justified and approved by two levels of management above the employee concerned.

9


• Case 6Jack realizes that a major product line of Widgets

R Us is going to become obsolete. He tells some friends who have stock in Widgets R Us. The friends, fearing that the stock price will decline, immediately sell their stock.

Issues1. Is this ethical?2. If not, why?


• This is characterized under insider tradingwhich prevents employees from profiting from inside information of the company. Even though Jack did not personally profit from disclosing the information and hence, did not violate the law, his action is still a violation of business ethics.

10


Case 7Take the same example as before. Assume that this time

Jack tells friends who do not have stock in the company about the potential bad news. Neither Jack nor his friends profit in anyway from this information.

Issues1. Has Jack violated business ethics given that nobody

profited from the information?2. If so, why?


Even though nobody profited from Jack releasing this information, it is still considered a violation of business ethics. An over-riding principle is that no employees in the organization should communicate externally about the company’s prospects with respect to performance and company policies nor disclose unpublished price sensitive information without authorization.

11


Case 8Jerry, the CEO of Widgets R Us contributes $100,000 to

the Republican party from company funds since he believes in all the policies of the party. He also believes that if the Republican party wins Congress and the Presidency, their economic policies will greatly benefit his company. Jerry finds nothing in state laws that prevent him from making contributions. He also spoke to the shareholders who had no objections.

Issues1. Is his action ethical?2. If not, why not?


• In this case, Jerry’s action cannot be considered unethical. With respect to the law, the US foreign Corrupt Practices Act allows contributions provided shareholder approval is obtained. Contributions to congressmen are in accordance with the law if state laws permit corporate contributions. The contribution must be made adhering to applicable state and local laws. The US Pharmaceutical Operating Committeeis responsible for oversight and assuming that such contributions are in compliance with all applicable laws.

12


• Case 9• Jerry is a very devoted Republican. During the

election campaign, in addition to contributing, he requests his employees to contribute to a fund that will be donated to the Republican party.

• Issues• 1. Is the action by Jerry ethical?• 2. If not, why?


• The action by Jerry is not unethical. It does not violate any code of ethics. In addition, it does not violate any laws. The Federal Election Campaign Act allows requesting of donations provided there is no coercion in any form in respect to participation in the fund (called the Political Action Committee Fund).

13


Case 10Joe has worked for many years at Widgets R Us. He is

loyal to the company. He is in charge of developing a new product line of widgets which, when brought to market will definitely increase the earnings of the company. He now realizes that stocks in Widgets R Us are a good investment and buys a number of shares.

Issues1. Is this ethical?2. If not, why not?


This action is not ethical. No employee can deal in stock of the company if he or she is in possession of unpublished price sensitive information.

14


Let us now consider some issues from the audit firm’s point of view. Consider the following cases and give your opinion.

Case 11Jack is the audit partner for Widgets R Us. Jack’s boss, the chief

partner feels that Widgets R Us is an important client. He has a compensation structure where Jack is rewarded for retaining the client (i.e., client deciding to stay with the audit firm).

Issues1. Is this form of compensation structure meet ethical standards?2. If not, why?


• Prior to the Sarbanes Oxley Act of 2002, there was no legislation which said this was unethical as long as the partner acted judiciously and honestly.

• The issue of compensation structure has long been a bone of contention.

• However, the ethical standards under SOX do not address this. Hence, despite the contention, this compensation structure cannot be considered to be unethical.

15


• Case 12Jerry the owner of Widgets R Us, with his top managers

ask the audit firm to provide consulting services in areas relating to book keeping, designing and setting up accounting systems, tax and management consulting. This is in addition to the auditing services.

Issues1. Is this ethical based on the new standards?2. If not, why?


This was a big issue especially after the Enron scandal. Arthur Andersen (AA) the auditor, provided consulting services to Enron for which they received $75 million and then conducted the audit (fees $25 million).

Prior to the Enron scandal, there was nothing in any guidelines regarding the provision of consulting service. However, now certain kinds of consulting services cannot be provided. These are the services described in case 12.

16


• Case 13Jack the owner of Widgets R Us, with his top

managers ask the audit firm to provide tax consulting services This is in addition to the auditing services. Jack feels that there is no association between tax and auditing and hence should not violate any standards.

Issues1.Is this ethical based on the new standards?2.If not, why?


In Section 206 SOX specifically prohibits the type of services Arthur Anderson the audit firm provided to Enron. These include the services discussed earlier. However, tax consulting is not prohibited. Hence, by default, this cannot be considered violation of ethical standards under SOX.

17


Case 13The Jack and the other managers of Widgets R Us

are responsible for hiring and firing the auditor.

Issues1. Is this considered ethical? In other words, do

you see anything wrong with this?2. If so, what is the violation (if any)?


Under the new ethical guidelines provided under section 406 of SOX, managers cannot be responsible for hiring and firing of auditors. It is the owners (stockholders) who should be responsible. Managers work directly with the auditor during the conduct of an audit. If managers are allowed to fire auditors, then a scenario is created where the auditor may be “beholden” to the managers and may be more vulnerable to pressure.

18


Case 14The audit firm of Jack are paid by the managers

of Widgets R Us. Their fees are determined by and negotiated with the managers.

Issues1. Do you see any ethical problems here?2. If so, what (if any)?


The same issues apply here as in the previous case. If managers are allowed to negotiate and determine audit fees, then they can put pressure on partners to “pass”accounting entries that increase earnings to enable them to increase their bonuses. SOX does not allow this under the new standard of ethics. Rather, stockholders have to determine audit fees and approve the audit fees in their general meetings. Since auditors do not work with stockholders, this reduces the perceived threat to them.

19


Case 15Jerry the partner of the audit firm has been

responsible for supervising the audit of Widgets R Us for the last ten years.

Issues1. Is there any form of ethical violation here?2. If so, what is the violation?


Prior to the ethical standards issued by SOX with regard to section 406 in particular, this was not an issue. In fact, it was considered to be beneficial since the partner could be considered an expert on the company and its industry.

After the ethical standards issued by SOX, this is now considered a violation of ethical standards. Section 203 in particular requires partners to “rotate” every five years. This reduces the chances of “familiarity” with managers. Section 203 even goes so far as to recommend that the audit firm itself should be rotated though this is still under discussion.

20


ConclusionIn summary, the SOX act provides a code of ethics. In the previous

slides we discuss key violations of ethics in the USA. In America violation of the ethical standards discussed may result in penalties but not necessarily jail time. However, it is important to note that in some European countries “ethical standards” are in fact the law (e.g., Germany) and violation of the same ethical codes could result in prison time. It also has to be noted that violating ethical standards such as accepting bribes could, under SOX, result in imprisonment. However, in many Asian and African countries (while in theory it is illegal) bribes are the norm and accepted way of doing business when parties are not known to each other. These differences have to be borne in mind. In the next section of this module we focus on intercultural sensitivities.


• Cross cultural sensitivity: Why is it important?Cross cultural sensitivity is important because proper ethical conduct

involves understanding the cultural sensitivities of people fromother countries and acting in a manner that does not hurt or offend others.

• Cross cultural sensitivity: What does it mean?Culture is the acceptable way of thinking and doing things in that part

of the world where you were born. Cross cultural sensitivity involves understanding the differences between cultures and adjusting behavior to show respect to foreign cultures.

21

SOX and Business Ethics (continued)

• Case oneMary and Barbara are close friends at High School.

While they are walking together through a shopping mall, they see a group of visitors from India all dressed in Indian attire. Mary laughs and jokes how odd they look to Barbara. Barbara thinks it is funny too.

Comment


• Cross cultural sensitivity involves understanding that people from other cultures dress differently. The point to be made here to Mary and Barbara is that to the “foreigners” perhaps they look funny too.

22


• Case 2After high school, Mary and Barbara go the same

college and then decide to spend a semester studying in Munich, Germany. Mary and Barbara live in a type of student hostel where mostly students from abroad are housed. They spend most of their time hanging out with other American students with whom they feel more comfortable.

Comment


This is a “trap” most people fall into. People feel comfortable mixing with their “own kind” due to similarity in language and culture. Unfortunately, foreigners see this as arrogance. This creates asubconscious prejudice. This prejudice affects relationships including business relationships. Foreign people appear to be “less friendly” and more difficult to negotiate with. When Mary and Barbara are living in Germany, they should read about Germany and the Germans, and perhaps take a beginner’s course in German. Living with German friends and spending more of their free time with new German friends would foster goodwill and affect both personal and future business relationships. For example, when dealing with China, having even a rudimentary understanding of Mandarin would “open doors” due to their respect that you have made an attempt to learn their language (and culture). This applies universally.

23


• Case 3When they graduate from university, Mary and

Barbara get their first job with an American firm based in Germany. The people in their department are extremely diverse. Over lunch breaks, they spend most of their time explaining the American way of doing things and what a wonderful place America is.

Comment


This type of behavior accentuates foreigners’perception of arrogance. Mary and Barbara should view this as a wonderful opportunity to go deeper into German cultural attitudes and ways. Help colleagues with their English speaking skills, but rather than talk about their home country, listen more to learn more. Listening actually increases goodwill because it is another form of showing respect to foreign cultures.

24


Case 4Mary and Barbara get transferred to an overseas

office in Asia. They notice that, for them, it is easier to get important orders if they “grease”hands (even though giving bribes is against the law in the U.S.A; refer Section 402 SOX Act). They feel that this is acceptable and ethical in foreign climes and will also enable them to perform more effectively and get promotions more quickly.


While accepting and giving bribes in certain countries can occur, we should not labor under the misapprehension that this form of behavior produces the best results. Mary and Barbara should take a different approach; never give or take bribes, but try to build up a long term relationship of trust and reliability with their Asian partners. “Foreigners” request bribes simply because they do not respect people from the West. It is surprising the positive results that can be obtained by working hard to build a relationship of trust.