Project Management

A project is a temporary, one-time endeavour undertaken to create a unique product, service or result. It has a defined start and end, specific objectives, a limited budget and resources, and involves a set of interrelated activities performed by a team. Examples include constructing a hydropower plant or launching a new software system.

The stages of a project life cycle are:

1. Conceptualization (initiation) – the idea is identified, goals and feasibility are assessed.
2. Planning – scope, schedule, budget, resources, risks and team are planned in detail.
3. Execution (production) – the actual work is performed and the deliverables are created.
4. Termination (closeout) – the project is completed, handed over, evaluated and resources are released.

Some models also add a separate monitoring and control phase running alongside planning and execution.

A specimen project organizational structure (project/matrix type) is shown below.

                 Top Management
                       |
                 Project Manager
        ---------------------------------
        |        |         |            |
   Engineering  Finance   Marketing   Procurement
   Specialists  Staff      Staff        Staff
   (Task A)    (Task B)   (Task C)     (Task D)

The project manager heads the project and coordinates specialists drawn from the functional departments. In a pure project structure these members report only to the project manager. In a matrix structure they report both to the functional head (for technical matters) and to the project manager (for project tasks).

A matrix organizational structure is useful when:

1. Several projects compete for scarce specialist resources. The organization runs multiple projects at once and cannot afford a full dedicated team for each, so experts are shared across projects.
2. Projects require both strong technical depth and tight coordination. Functional departments maintain expertise while the project manager integrates work across departments, as in complex, multi-disciplinary projects.

Major limitations of scoring models of project selection:

• Subjectivity: criteria, weights and scores depend on the judgement of the evaluators and can be biased.
• Assumed linearity: a higher score is assumed to mean a proportionally better project, which may not hold.
• No absolute measure of value: scores are relative and do not show actual profit or return.
• Weights are difficult to set and can be manipulated to favour a preferred project.
• Ignores cost-benefit trade-offs and interdependence: costs are often treated as just another criterion, and interactions among criteria are overlooked.
• False precision: numerical totals give an impression of accuracy that the inputs do not justify.

Project risk is an uncertain event or condition which, if it occurs, has a positive or negative effect on one or more project objectives such as scope, schedule, cost or quality. It combines the probability that an event will happen with the impact it would have:

$\text{Risk exposure} = \text{Probability of event} \times \text{Impact}$

Examples are cost overruns, delays, technical failure, and changes in regulations. Risk arises from uncertainty, so it must be identified, assessed and managed throughout the project life cycle.

Four common methods of project cost estimation:

1. Analogous (top-down) estimation – using the actual cost of similar past projects.
2. Parametric estimation – applying a statistical relationship between historical data and variables (e.g. cost per square metre).
3. Bottom-up estimation – estimating each work package and summing up to get the project total.
4. Three-point (PERT) estimation – using optimistic, most likely and pessimistic estimates: $E=\dfrac{O+4M+P}{6}$.

(Expert judgement and learning-curve methods are also used.)

The critical path is the longest-duration sequence of connected activities from the start to the end of a project network. It determines the shortest possible time in which the project can be completed. Activities on it have zero slack (float), so any delay in them delays the whole project. Management therefore watches critical activities closely and may crash them to shorten the project.

Common pitfalls in a project team:

• Groupthink – the desire for harmony suppresses critical thinking and dissent.
• Social loafing – some members contribute less because individual effort is not visible.
• Unclear goals and roles – members are confused about responsibilities.
• Conflict and poor communication – unresolved personal or task conflicts.
• Lack of trust and commitment among members.
• Poor leadership and weak decision making.
• Dominance by a few members, ignoring others' views.
• Loss of motivation due to unrealistic deadlines or lack of rewards.

Important decision rules for terminating an ongoing project:

1. Strategic fit: terminate if the project no longer supports the organization's strategy or priorities.
2. Financial/economic criteria: terminate if the expected benefits no longer exceed the remaining cost (negative NPV on remaining investment), regardless of sunk cost.
3. Technical feasibility: terminate if the technical objectives cannot be achieved.
4. Schedule and cost performance: terminate if serious, uncorrectable overruns occur (e.g. by earned value indicators).
5. Risk and external changes: terminate if risks become unacceptable or the market, law or technology changes.
6. Better alternatives: terminate if resources can be used in a higher-value project.

(a) Socio-technical approach

Project management is not only technical (tools, scheduling, budgeting, planning) but also social (people, culture, politics). The socio-technical approach says both sides must be balanced.

• The technical side covers the work breakdown structure, networks, scheduling, cost estimating, risk analysis and control systems.
• The social side covers leadership, team building, conflict handling, stakeholder management, organizational culture and communication.

Technical tools fail when the human and organizational environment is ignored, and good relationships fail without planning and control. Effective project managers therefore apply both.

(b) Contribution to strategic objectives

Projects are the means by which strategy is put into action. Effective project management helps because it:

• links project selection and priorities to strategic goals, so resources go to the right work;
• delivers outputs on time, within budget and to the required quality, which supports competitive advantage;
• allows faster response to market change and quicker product launches;
• improves the use of scarce resources and reduces waste;
• gives top management visibility and control through reporting and portfolio review;
• builds learning and capability that can be reused.

(c) Four stages of risk management

1. Risk identification: find possible risks using brainstorming, checklists, past projects and expert opinion.
2. Risk assessment/analysis: estimate the probability and impact of each risk, rank them (risk matrix) and decide which matter most.
3. Risk response development: choose a response of mitigation, avoidance, transfer (insurance, contracts) or acceptance, with contingency plans.
4. Risk response control: put the plans into effect, monitor the risks, watch for new ones, update the risk register and report.

(d) Contingency funding

Contingency funds are needed because estimates are made under uncertainty. Unforeseen events, scope changes, price changes, estimation errors and risks that occur can raise costs. A contingency reserve:

• stops the project from stalling or overrunning its approved budget;
• gives realistic budgets and protects the project manager's credibility;
• allows risks to be handled at once without a new approval process;
• shows stakeholders openly that uncertainty exists.

It is normally set as a percentage of the estimate, according to the level of risk, and is controlled by the manager or sponsor.

(e) Five-stage model of team development (Tuckman)

1. Forming: members meet, are polite and uncertain, depend on the leader, and roles are unclear.
2. Storming: conflict over roles, leadership and methods; resistance to authority.
3. Norming: rules, roles and norms are agreed; cohesion and trust grow.
4. Performing: the team works efficiently with high commitment, autonomy and problem-solving.
5. Adjourning: the project ends and the team disbands, with a review of achievements and recognition.

(f) Strategies for a high-performance team

• Set a clear, shared vision and measurable goals.
• Select members with the right skills and a good mix of roles.
• Build trust and open communication, and hold regular meetings.
• Define roles and responsibilities and give authority with accountability.
• Provide training and development.
• Reward team results and recognize contributions.
• Manage conflict constructively and keep team spirit high.
• Show leadership that is supportive and empowers members.

(g) Four main forms of project termination

1. Termination by extinction: the project ends because it succeeded (completed, accepted) or because it failed or was stopped.
2. Termination by addition: the project becomes a formal part of the parent organization, as a new department or division, with its staff and equipment.
3. Termination by integration: resources, people and functions are absorbed into existing departments and the project disappears as a separate unit. This is the most common and difficult form.
4. Termination by starvation: resources are cut gradually, so the project fades away without a formal decision to end it.

Project portfolio selection is the process of choosing the set of projects that best supports organizational strategy within limited resources. Its elements and their logical sequence are:

1. Establish a strategic direction: top management sets mission, goals and strategy, which become the basis for choosing projects.
2. Define project categories and criteria: projects are grouped (for example compliance, growth, cost reduction, R&D) and each category gets target proportions of the budget.
3. Identify and gather proposals: a pool of candidate projects is collected with data on cost, benefits, risk and resource need.
4. Screen and evaluate: proposals are checked with financial models (NPV, payback, IRR) and non-financial or scoring models for strategic fit, risk and feasibility.
5. Balance the portfolio: the mix is balanced across risk, return, time horizon, technology and market, and checked against the strategy.
6. Allocate resources and approve: funds and people are committed to the chosen projects and priorities are set.
7. Monitor, review and adjust: the portfolio is reviewed regularly; projects are accelerated, changed or terminated as conditions change.

The steps work in sequence. Strategy sets the direction, the categories and criteria turn it into rules, screening picks the best candidates, balancing makes the whole set coherent, and review keeps it aligned. Together they maximize the strategic value and return of the portfolio rather than of each project alone.

Main types of project costs:

1. Direct costs: costs that can be traced to a specific work package or activity, such as labour, materials, equipment and subcontractors.
2. Indirect (overhead) costs: costs of general support shared by several projects, such as rent, utilities, administration and supervision. They are allocated, not traced.
3. Fixed costs: costs that do not change with the level of activity, such as equipment rent, licences and salaries of permanent staff.
4. Variable costs: costs that change with output, such as materials and hourly labour.
5. Recurring and non-recurring costs: recurring costs repeat in each unit or period (for example operating costs); non-recurring costs occur once (for example design, set-up).
6. Sunk costs: costs already spent that cannot be recovered; they should not influence future decisions.
7. Opportunity costs: the benefit lost by using resources on this project instead of the next best use.
8. Contingency or reserve costs: funds set aside for uncertainty and unexpected events.

Key differences: direct costs are traceable while indirect ones are allocated; fixed costs are constant while variable costs move with activity; recurring costs repeat while non-recurring ones occur once; sunk costs are in the past and irrelevant to decisions, while opportunity costs are future and relevant.

AON network: A -> B -> (C and D in parallel) -> E.

Forward pass (ES, EF)

• A: ES 0, EF 2
• B: ES 2, EF 6
• C: ES 6, EF 9
• D: ES 6, EF 11
• E: ES = max(9, 11) = 11, EF 14

Backward pass (LF, LS)

• E: LF 14, LS 11
• D: LF 11, LS 6
• C: LF 11, LS 8
• B: LF = min(8, 6) = 6, LS 2
• A: LF 2, LS 0

Slack (LS - ES)

Critical path: A - B - D - E (zero slack). Path length is $2+4+5+3 = 14$.

The project will take 14 days. Activity C has 2 days of slack.

Earned value management (EVM) integrates scope, schedule and cost to measure project performance objectively. It uses three basic values:

• PV (planned value): budgeted cost of work scheduled.
• EV (earned value): budgeted cost of work actually completed.
• AC (actual cost): actual cost of work completed.

Use in evaluation and control

• Schedule variance $SV = EV - PV$ and schedule performance index $SPI = EV/PV$ show whether the project is ahead or behind schedule.
• Cost variance $CV = EV - AC$ and cost performance index $CPI = EV/AC$ show whether it is under or over budget.
• Forecasts such as $EAC = BAC/CPI$ and $ETC = EAC - AC$ predict the final cost and the cost still to be spent.
• Trends in the indices give early warning, so corrective action can be taken before the problems grow.
• Results can be reported to management and clients in a common, comparable form across projects, and used to decide on re-planning or termination.

Key issues in using EVM

• It needs a detailed WBS, a baseline budget and schedule, and a reliable cost-accounting system.
• Measuring percent complete is often subjective (for example 50-50 rules, or progress claimed too early).
• It measures cost and schedule only, not quality or scope satisfaction.
• SPI in money terms is unreliable late in a project, and it does not show whether the delayed work is on the critical path.
• It is costly and complex to set up and maintain, and needs training and top management support.
• Poor data entry (late or inaccurate actual costs) distorts the results.

1. Principal stakeholders and strategies

Principal stakeholders:

• Airframe manufacturers (Airbus, Boeing) – the customers; they decide which engine powers their aircraft.
• Airlines (including those in developing countries) – end buyers who want efficient, reliable engines and flexible financing.
• Defense contractors and governments – defense customers and regulators.
• Shareholders and investors – concerned with returns on a $1 billion plus investment.
• Competitors (GE, Pratt & Whitney) – influence market share and pricing.
• Suppliers and partners, employees and engineers, regulators/aviation authorities and local communities.

Stakeholder management strategies: first identify stakeholders, then analyse their power, interest and expectations (power/interest grid), and manage each group accordingly.

• Airbus/Boeing (high power, high interest): manage closely through joint design teams (as with the A350 XWB since 2005), long-term contracts, and regular progress reviews.
• Airlines: offer creative financing, long-term service contracts, asset-based trading deals, and strong after-sales support.
• Shareholders: transparent reporting, risk-sharing arrangements and clear strategic justification for large investments.
• Regulators: early engagement on certification and safety.
• Suppliers/employees: clear contracts, communication and incentives.
• Keep a communication plan and review stakeholder positions throughout the project.

2. Strategic partnerships (argument in favour)

I argue for partnerships, because engine development costs over $1 billion in non-recoverable costs and outcomes depend on uncertain aircraft sales (as the A380 shows).

Benefits:

• Shared financial risk and investment.
• Pooled technical expertise and faster development.
• Access to wider markets and customers.
• Economies of scale in manufacturing and supply.
• Stronger bargaining position with airframers.

Drawbacks:

• Reduced control over decisions and design.
• Sharing profits and intellectual property, with risk of leaking know-how.
• Conflicts of culture, goals and management among partners.
• Slower decision making and coordination costs.
• Dependence on partners and reduced competitive independence.

Overall, the benefits of risk sharing outweigh the drawbacks if the agreement clearly defines roles, IP rights and governance.