Project Management:Project Management:Planning and ControlPlanning and Control

How can we make money?How can we make money?(or at least avoid losing it)(or at least avoid losing it)

Dr. David R. Doucette, PEDr. David R. Doucette, PE

Senior Vice PresidentSenior Vice President

KLD EngineeringKLD Engineering

Why do we fail?Why do we fail?

Most projects and companies don’t Most projects and companies don’t fail for technical reasonsfail for technical reasons

Business reasonsBusiness reasonsCost overrunsCost overrunsSchedule slippageSchedule slippageMarketing (not addressed here)Marketing (not addressed here)

We don’t want to die!We don’t want to die!

CommentsComments

““We had the seeds of our own We had the seeds of our own destruction from the very beginning”destruction from the very beginning”

Typically, something unexpected Typically, something unexpected happenedhappened

Translation: there were Translation: there were risksrisks that that were not recognized and could not be were not recognized and could not be recovered fromrecovered from

Risk is unavoidable, but can be Risk is unavoidable, but can be accomodatedaccomodated

How do we succeed?How do we succeed?

Need to plan properlyNeed to plan properlyNeed to execute properlyNeed to execute properly

Need to know when you’re in troubleNeed to know when you’re in troubleNeed to know how to recoverNeed to know how to recover

Frequently none of the above happenFrequently none of the above happen

How do we plan?How do we plan?

First step: Project scheduleFirst step: Project scheduleYou know how to do thisYou know how to do this

First signs of trouble – not enough First signs of trouble – not enough timetime

Start tweaking schedule to fitStart tweaking schedule to fitYou can’t create time, you’ve got to fitYou can’t create time, you’ve got to fit

You balance the risks of compressing You balance the risks of compressing selected tasks to meet scheduleselected tasks to meet schedule

Planning: The Next StepPlanning: The Next Step

Review the plan with different viewsReview the plan with different viewsLook for risksLook for risks

Standard Gantt Chart is OKStandard Gantt Chart is OK““Critical Path Gantt Chart” is betterCritical Path Gantt Chart” is better

Called a “Tracking Gantt” by MS ProjectCalled a “Tracking Gantt” by MS ProjectEvery project has a critical pathEvery project has a critical path

Identified in red on chartIdentified in red on chart

Case Study: EG1003 Case Study: EG1003 DoghouseDoghouse

Need to build a computer-controlled Need to build a computer-controlled doghousedoghousePrototype unit, to be put into productionPrototype unit, to be put into production

Hardware and software tasksHardware and software tasksA variety of people availableA variety of people available$11,000 budget$11,000 budget

Doghouse Critical Path Gantt Doghouse Critical Path Gantt ChartChart

Critical Path

Not critical

Planning: What now?Planning: What now?

You now have a schedule (time)You now have a schedule (time)Address budget (money)Address budget (money)

Assign “resources” (people) to tasksAssign “resources” (people) to tasksYou know how to do thisYou know how to do this

Look at “Resource Sheet”Look at “Resource Sheet” If anything is red, ask whyIf anything is red, ask whyCould be OK (level loading)Could be OK (level loading)

Planning: Resource Sheet Planning: Resource Sheet (OK)(OK)

Note: Some fields are missing to allow to expand to larger size

Al, Diane, and Ed are red because their load fluctuates

(sometimes full time, sometimes unassigned)

Project Labor and Rates (3 Project Labor and Rates (3 Kinds)Kinds)

Direct LaborDirect LaborAlso called “touch labor”Also called “touch labor”Directly contribute to productDirectly contribute to product

Project indirectProject indirectDon’t directly contribute, but neededDon’t directly contribute, but neededProject manager, clerical helpProject manager, clerical help

Overall indirectOverall indirectAlso called “General and Administrative” Also called “General and Administrative”

(G&A)(G&A)Corporate management, facilities, etc.Corporate management, facilities, etc.

Labor RatesLabor Rates

Three different labor ratesThree different labor ratesJust direct (lowest rate)Just direct (lowest rate)

Also called “unburdened”Also called “unburdened”Direct plus project indirect (not used Direct plus project indirect (not used

much)much)Everything (highest rate)Everything (highest rate)

Also called “fully burdened”Also called “fully burdened”

As business people, we usually use As business people, we usually use fully burdenedfully burdened

Resource Sheet: RevisitedResource Sheet: Revisited

For planning, work year is about 2000 hours

So Betty is making $200K???

No, she makes much less – these are all fully burdened labor rates, typically 2 to 3 times the unburdened rate

Show me the money!Show me the money!

Assign the proper rate to each Assign the proper rate to each “resource”“resource”

What’s the budget?What’s the budget?Click Project/Project Click Project/Project

Information/StatisticsInformation/StatisticsLook at bottom right cornerLook at bottom right corner It’s probably too highIt’s probably too highWhat now?What now?

Doghouse ProjectDoghouse Project

Estimated budget is $11,280.00Estimated budget is $11,280.00Specification is $11,000Specification is $11,000What now?What now?

Change resources – use cheaper stuffChange resources – use cheaper stuffEd is expensive, Fran is cheaperEd is expensive, Fran is cheaperGive Fran some of Ed’s work (floor)Give Fran some of Ed’s work (floor)

Not There YetNot There Yet

Cost is now $11,120, still over budgetCost is now $11,120, still over budgetGive Fran the roof tooGive Fran the roof tooCost is now $10,960Cost is now $10,960We’re within budgetWe’re within budgetReserve of $40 (not much!)Reserve of $40 (not much!)

We met the budget, but it’s riskyWe met the budget, but it’s riskyIn real world, get a bigger reserve, but In real world, get a bigger reserve, but

OK for here to fit in the hour I haveOK for here to fit in the hour I have

Planning is donePlanning is doneProject startsProject starts

Now We Need to ExecuteNow We Need to Execute

Stay on scheduleStay on scheduleStay on budgetStay on budget

Find problems earlyFind problems earlyStart fixing themStart fixing them

Earned Value AnalysisEarned Value Analysis

Attacks both problems at onceAttacks both problems at onceTwo-dimensional way of looking at Two-dimensional way of looking at

projectprojectX Axis is time (project duration)X Axis is time (project duration)Y Axis is money (project budget)Y Axis is money (project budget)

Typical Project - PlanTypical Project - Plan

Start Date End Date

Project

Budget

0

Time

Mon

ey

Initial Design, few People Involved

Implementation, maximum staff

Final testing,project winding down

Typical Project - ActualTypical Project - Actual

Start Date End Date

Project

Budget

0

Time

Mon

ey

Today

Spent

Progress

We’re on time

We’re on budget

Life is good

(We’re probably lying)

Typical Project - ActualTypical Project - Actual

Start Date End Date

Project

Budget

0

Time

Mon

ey

Spent

Progress

We’re ahead of schedule

We’re on budget

Life is great!

Now we’re really lying!

Today

Typical Project - ActualTypical Project - Actual

Start Date End Date

Project

Budget

0

Time

Mon

ey

Spent

Progress

We’re behind schedule

We’re on budget

We’re concerned

Are there liquated damages?

Today

Typical Project - ActualTypical Project - Actual

Start Date End Date

Project

Budget

0

Time

Mon

ey Spent

Progress

We’re on time

We’re over budget

We’re worried

This is typical

Today

Typical Project - ActualTypical Project - Actual

Start Date End Date

Project

Budget

0

Time

Mon

ey Spent

Progress

We’re ahead of schedule

We’re over budget

We’re too aggressive

Technical machismo

Today

Typical Project - ActualTypical Project - Actual

Start Date End Date

Project

Budget

0

Time

Mon

ey

Spent

Progress

We’re behind schedule

We’re over budget

We’re scared!

This happens all the time

Today

The Prime Directive - The Prime Directive - FinancialFinancial

Start Date End Date

Project

Budget

0

Time

Mon

ey

GOOD

BAD

How do I know the numbers?How do I know the numbers?

Labor rates were part of planningLabor rates were part of planningWe can calculate costs via progress We can calculate costs via progress

bars on the schedulebars on the scheduleExample:Example:Schedule shows 2 days (16 hours) for Schedule shows 2 days (16 hours) for

tasktaskLabor rate is $50/hourLabor rate is $50/hourTask costs 16*$50=$800Task costs 16*$50=$800 It’s half done, therefore we “earned” It’s half done, therefore we “earned”

$400$400

A More Accurate CostA More Accurate Cost

Preceding is called “Budgeted cost of Preceding is called “Budgeted cost of work performed”work performed”Based on estimatesBased on estimates

Better: Actually track the money Better: Actually track the money spent and use that insteadspent and use that insteadCalled “Actual cost of work performed”Called “Actual cost of work performed”More accurate gauge of progressMore accurate gauge of progress

Actual Cost of Work Actual Cost of Work PerformedPerformed

Usually tracked through financial Usually tracked through financial systemssystems

Track how many who worked on Track how many who worked on what taskswhat tasks

Multiply by their actual labor rateMultiply by their actual labor rateTakes care of additional resources Takes care of additional resources

being added without replanningbeing added without replanningTakes care of bad estimatesTakes care of bad estimates

How do we track progress?How do we track progress?

Fill in progress on the task bars, like Fill in progress on the task bars, like the EG1003 projectthe EG1003 project

Click on Project/Project Click on Project/Project Information/StatisticsInformation/Statistics

Lower left corner will show Percent Lower left corner will show Percent Complete in terms of duration and Complete in terms of duration and work hourswork hours

Duration is offset along the X Axis Duration is offset along the X Axis (progress)(progress)

Tracking ProgressTracking Progress

X Axis Progress

Y Axis Progress(Budgeted Cost of Work Performed)

Put It All TogetherPut It All Together

The baseline plan is a plot of the The baseline plan is a plot of the budgeted cost of work scheduled budgeted cost of work scheduled versus timeversus timeThe “S” curve on the examplesThe “S” curve on the examples

We know what day it isWe know what day it isWe got progress from preceding slideWe got progress from preceding slideWe know actual cost of work performedWe know actual cost of work performed

If we don’t, we’ll use budgeted cost of work If we don’t, we’ll use budgeted cost of work performedperformed

The Finishing TouchesThe Finishing Touches

Make a vertical line for today - green lineMake a vertical line for today - green lineThe curve intersection is your baseline The curve intersection is your baseline

budgeted cost of work scheduled for budgeted cost of work scheduled for todaytoday

Make a vertical line for progress (if not Make a vertical line for progress (if not today) – white linetoday) – white line

You now know if you’re early or lateYou now know if you’re early or lateThe curve intersection is budgeted cost The curve intersection is budgeted cost

of work performedof work performed

Finishing the Finishing Finishing the Finishing TouchesTouches

For the progress, mark the actual For the progress, mark the actual cost of work performedcost of work performed

Will be above or below the budgeted Will be above or below the budgeted cost of work performedcost of work performed

If you’re above, you’re in budget If you’re above, you’re in budget trouble!trouble!

What are the keys?What are the keys?

Good planning and estimatingGood planning and estimatingGood risk assessment – knowing Good risk assessment – knowing

what can go wrongwhat can go wrongGood execution – watching progress Good execution – watching progress

versus budget carefullyversus budget carefully

What’s next?What’s next?

This is only the prototypeThis is only the prototypeWhat about production?What about production?Some jobs (software, custom system Some jobs (software, custom system

integration) are nothing more than integration) are nothing more than “one of a kind”“one of a kind”

Others need to make lots of these Others need to make lots of these thingsthings

The bigger pictureThe bigger picture

We need to consider two kinds of costWe need to consider two kinds of cost““One time” development costs to make One time” development costs to make

the prototype (probably high)the prototype (probably high)Includes Research and Development (R&D) Includes Research and Development (R&D)

expensesexpensesIncludes initial tooling to make the first itemIncludes initial tooling to make the first item

Recurring costs to make each additional Recurring costs to make each additional unit (probably low), also known as unit (probably low), also known as “marginal cost”“marginal cost”Labor to make each unit (discussed earlier)Labor to make each unit (discussed earlier)MaterialsMaterials

What do I do?What do I do?

First, estimate the production runFirst, estimate the production runNeed to know the market so you can Need to know the market so you can

make an intelligent guessmake an intelligent guessDivide the “one time” cost by the Divide the “one time” cost by the

number of expected unitsnumber of expected unitsAdd the recurring (marginal) costAdd the recurring (marginal) costUse fully burdened numbers in all casesUse fully burdened numbers in all casesThis gives you a “per unit” costThis gives you a “per unit” cost

What next?What next?

This cost has no margin for errorThis cost has no margin for errorAdd a reserveAdd a reserveAdd profit margin (sometimes Add profit margin (sometimes

additional reserve in case you guess additional reserve in case you guess wrong)wrong)

Consider risk factorsConsider risk factorsWhat can cause you to run lateWhat can cause you to run lateWhat unexpected expenses can cause What unexpected expenses can cause

you to lose moneyyou to lose money

Rejoice! The end is near!Rejoice! The end is near!

Consider “cash flow”Consider “cash flow”You’ll be paying for labor and You’ll be paying for labor and

materials before you make salesmaterials before you make salesYou’ll need money to tide you overYou’ll need money to tide you over

Profits from earlier projectsProfits from earlier projectsLoansLoansVenture capitalVenture capital

Try to minimize cash flowTry to minimize cash flow

How?How?

Try to spread out production runTry to spread out production runOrder materials only when neededOrder materials only when needed

““Just in time” manufacturingJust in time” manufacturingTurns cost into revenue quicklyTurns cost into revenue quickly

Minimize use of laborMinimize use of laborHigh production rates need lots of High production rates need lots of

peoplepeopleAnd lots of cashAnd lots of cashSpread out and save money on cash flowSpread out and save money on cash flow

ConclusionConclusion

Many engineers do not practice Many engineers do not practice what’s shown herewhat’s shown here

Results are frequently catastrophicResults are frequently catastrophicThis is why 90-95% of companies failThis is why 90-95% of companies failFailures due to financial and Failures due to financial and

planning, not technical reasonsplanning, not technical reasonsTechnical skill alone is not enoughTechnical skill alone is not enough