In this article we will discuss about:- 1. Monitoring of Time and Cost Trade-Off for Project 2. Monitoring of Capital Expenditure for Project 3. Variance and Performance Analysis 4. Monitoring of Network 5. Network Analysis (PERT & CPM) 6. Invisible Walls in Project Estimating 7. Techniques for Project Control.
Contents:
- Monitoring of Time and Cost Trade-Off for Project
- Monitoring of Capital Expenditure for Project
- Monitoring of Variance and Performance Analysis for Project
- Monitoring of Network for Project
- Network Analysis (PERT & CPM) for Project
- Invisible Walls in Project Estimating
- Techniques for Project Control
1. Monitoring of Time and Cost Trade-Off for Project:
The project should be completed within its schedule of implementation and within the estimated cost. Sometimes, it may be necessary to complete the project before the due date, but for the time saving in implementation will result in additional cost. The Project manager should be conversant with the different time savings and the extra cost involved with that.
If money is the constraint, the project would be allowed extra time for completion of it. If the project is to be completed before the scheduled time-frame, the management should be prepared to incur additional project cost.
The following three time-cost options are available:
1. Most Efficient Plan:
It is a network plan that would meet the technical plan requirements of the project through the most efficient views of available resources. This network plan is selected when there is no constraint of funds and time. It involves least amount of technical risk.
2. Scheduled Plan:
Under this plan the scheduled dates for the project implementation are fixed up through a network plan. The technical requirements of the project are met by the scheduled date.
3. Shortest Duration Plan:
Under this plan the technical requirements of the project are met within shortest possible time by modifying the original time-frame of different activities. This plan may sometimes require additional funds to complete the project in a shorter time than the scheduled plan.
One of the above three plans can be adopted depending on time and money constraints.
2. Monitoring of Capital Expenditure for Project:
The accumulation, monitoring and control of capital expenditure of big project consists of the following steps:
1. Budget:
The first step in capital expenditure monitoring process is ascertainment of project cost should be broken into its various components like say construction of shed/building/storage space, item wise list of machinery/equipment/liabilities etc. While finalizing the items of expenditure all proper care and control should be taken what is dictated by normal commercial procedures and practice.
2. Allocation of Job Order No./Capex No.:
As indicated above the items of expenses should be segregated as far as practicable and separate capex number should be allocated to each such item. For example, each machinery to be procured should be given a separate number and cost of installing the same might be given a buy number under the same head. This can be further classified by location.
3. Collection of Cost against Each Capex No:
This can be done in the normal manner within the account system by booking relevant expenses against the correct capex number and thereafter accumulating the same. What is important here is to ensure that proper capex numbers are shown in the purchase orders, vouchers, job order cards, requisitions etc. from which the expenses will be accumulated through the accounting system.
4. Control of Costs:
The cost so accumulated against each capex number is to be progressively compared with the budget expenditure. In this context it is important to also take note of the capital commitments, so that there is no overrun ultimately.
5. Proper Reporting:
Proper reporting of the collected information at monthly interval might be considered reasonable.
While considering control over capital expenditure for the project, it is to keep control over the progress of the project through the technique of PERT/CPM so that there is no time overrun, which in turn might result additional project cost.
3. Monitoring of Variance and Performance Analysis for Project:
1. Variance Analysis:
The traditional analysis involves comparison of actual costs with budgeted costs to determine the variance. This approach is inadequate for project control, because it tells only what happened in the past and does not answer what will happen in future and does not give any indications about the rate of work. The traditional analysis also does not indicate the value of work done.
2. Performance Analysis:
This is a modern approach where analysis is done for the project as a whole (and individual parts) projects on schedule, behind and ahead of schedule. It also indicates whether cost of a project as a whole (and its individual parts) is as per budget. The trend of performance and the likely final cost and completion date of project as a whole and its individual parts would also emerge from the analysis.
Problem:
The following information has been gathered on an on-going as on 31st December, 2016:
Determine:
(a) Performance variance,
(b) Efficiency variance,
(c) Performance index,
(d) Efficiency index, and
(e) Estimated cost performance index.
Solution:
Variance Analysis:
4. Monitoring of Network for Project:
A network constitutes the heart of such a planning, scheduling and monitoring system. Structurally, a network is a graphical model depicting the inter-relationship between the various elements of the project work system. Through its graphical form, the network provides visibility to all concerned not only about their inter-dependence but also what is ahead of them and what may happen should there be a change in the desired relationship.
Philosophically a network propagates the holistic approach. It explains that individually nothing can be achieved and only when all of us work together, we can hope to achieve something great such as completion of the project on hand in time.
Arithmetically, a network computes the time, cost and resources requirement for the project and in the process highlights the contribution and importance of each element in the scheme of things. This knowledge affords both self-regulation, and where self-regulation is not taking place, the arithmetics of network enable management by exception.
5. Network Analysis (PERT & CPM) for Project:
Network analysis is a technique used for administration of a project which consists of several activities having a definite interrelationship among them. Each activity is identified by means of a starting event and a finishing event so that normal duration of the activity can be determined.
Network analysis is a technique for planning and controlling large projects, such as construction work, research and development projects or the computerization of systems.
When a project involves carrying out a large number of different tasks, the project planner has to decide the following:
1. Which tasks must be done first before others can be started?
2. Which tasks could be done at the same time?
3. Which tasks must be started as soon as possible and completed on schedule if the planned completion date for the entire project is to be achieved?
Network analysis helps managers to plan when to start various tasks, to allocate resources so that the tasks can be carried out within schedule, to monitor actual progress and to find out when control action is needed to prevent a delay in completion of the project. The events and activities making up the whole project are represented in the form of a diagram or chart.
Objectives:
The objectives of the network analysis are:
1. To ascertain the normal duration for completion of all the activities comprised in the project.
2. To minimize the cost of the project by proper marshaling of the resources, and
3. To obtain the ‘cost time trade off that is to say to evaluate the cost of the project for different specified duration and to select an optimal project duration and to find out the associated cost.
There are two basic planning and control techniques that utilize a network to complete a predetermined project in time. These are PERT (program evaluation and review technique) and CPM (critical path method). The techniques of network analysis enable us to analyze a project which involves a large number of interrelated activities.
We can determine how long the work is likely to take, how much it will cost, where savings might be made in either time or money and which activities cannot be delayed without delaying the entire project. The availability of resources is also an important question. The network analysis maybe used to help us determine how the activities should be scheduled in order to satisfy constraints on resources.
6. Invisible Walls in Project Estimating:
The project estimating is an important aspect in preparation of project report and its implementation. While estimating, it is not possible to achieve 100% accuracy in estimating, and the fact should be recognized that there are certain invisible walls which makes the estimates to be inaccurate.
Some of the invisible walls are as follows:
1. Delays in governmental clearances
2. Delays in obtaining sanction of loans from FIs
3. Reliability of contractors
4. Hurdles from the local people near project site
5. Political disturbances
6. Foreign exchange rate variations
7. Unable to quantify the risk properly
8. Locational disadvantages
9. Change in consumer preferences
10. Lack of reliable technology
11. Lack of flexibility
12. Financial soundness of participating investors
13. Unforeseen competition etc.
7. Techniques for Project Control:
Several techniques and approaches are available to exercise project control.
Basically all techniques go to breakdown the project into numerous short-term measurable targets built on logical base-lines like:
1. Watch and measure the achievements at short intervals
2. Ascertain current variances and predict future variances
3. Ascertain root causes of variances
4. Take actions to offset the ill-effects of past variances
5. Prevent future potential variances
6. Track and measure the quantitative output and cost inputs
7. Evaluate targets, output and input in financial terms
8. Special monitoring of essential tasks by using techniques like red-lists, hotline reports to draw top management’s attention
9. Introduction of incentives for good performance
10. Doing away with red-tapism and bureaucratic procedures
11. Periodic review meetings and taking appropriate actions.