Dr. Atif Shahzad's Engineering Management Course Objectives (39

Dr.AtifShahzad
_____________________Dr. Atif Shahzad
BE, MECHANICAL ENGINEERING
UNIVERSITY OF ENGINEERING & TECHNOLOGY, TAXILA, PAKISTAN, 2000
MCS, SOFTWARE ENGINEERING
SZABIST, ISLAMABAD, PAKISTAN, 2003
MS, AUTOMATION & PRODUCTION SYSTEMS
ECOLE CENTRALE DE NANTES, NANTES, FRANCE, 2007
PhD, AUTOMATION & APPLIED INFORMATICS
UNIVERSITE DE NANTES, NANTES, FRANCE, 2011
EMAIL: atifshahzad@Gmail.com
TEL: +92-333-5219846, +92-51-5179755
LINKEDIN: pk.linkedin.com/in/dratifshahzad
19-10-2017Dr. Atif Shahzad1

ENGINEERING
MANAGEMENT
COURSE OBJECTIVES
19-10-2017
Dr. Atif Shahzad 2

Dr.AtifShahzad
COURSE OBJECTIVES
 Learn what project management is and the qualities of an effective
project manager.
 Understand the nine knowledge areas of project management and
how they can be applied to your project.
 Discover the phases of a project and what deliverables are expected
when.
 Identify a project’s key stakeholders.
 Understand the different types of business cases and how to create a
Statement of Work.
 Learn to be prepared for the unexpected by utilizing risk
management and change control.
 Learn how to organize project activities by creating a Work
Breakdown Structure.
 Create a network diagram to track your project’s progress.
 Learn budgeting and estimating techniques.
3

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Cost Management
10–4
Dr.AtifShahzad19-10-2017

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all of the
estimates
are added
up and
Baselined.
tracking the
actual work
according
to the
budget.
Cost Management Processes
Estimate Budget Control
So each activity is
estimated for its
time and materials
cost, and any other
known factors that
can be figured in.
figuring out
exactly how
much you
expect
to cost.
Once you have
figured out the
baseline,
that’s what all future
expenditures are
compared to.
To see if any
adjustments
need to be made
10–5

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tools and techniques in the
Estimate Costs process
Bottom-Up
Estimating
Analogous
Estimating
Expert
Judgment
Parametric
Estimating
Three-Point
Estimates
Analogous Estimating is sometimes called “Top-Down Estimating”

Dr.AtifShahzad
Question 1
 The Starbuzz across the street opened just a few months ago. Alice sits
down with the contractor who did the work there and asks him to help her
figure out how much it will cost. He takes a look at the equipment Charles
and Jeff want to buy and the specs for the cabinets and seating and tells
her what she can afford to do with the budget she has.
10–8
Bottom-Up
Estimating
Analogous
Estimating
Expert
Judgment
Parametric
Estimating
Three-Point
Estimates
Try to figure out which one of them
Alice is using when she estimates costs.

Dr.AtifShahzad
Question 2
 Alice creates a spreadsheet with all of the historical information from
similar remodeling projects that have happened on her block. She sits down
and types in the guys’ desired furnishings and the square footage of the
room to generate an estimated cost.
10–9
Bottom-Up
Estimating
Analogous
Estimating
Expert
Judgment
Parametric
Estimating
Three-Point
Estimates

Dr.AtifShahzad
Question 3
 Before Alice finishes her schedule, she gathers all of the information she has
about previous projects’ costs (like how much labor and materials cost). She
also talks to a contractor, who gives valuable input.
10–10
Bottom-Up
Estimating
Analogous
Estimating
Expert
Judgment
Parametric
Estimating
Three-Point
Estimates

Dr.AtifShahzad
Question 4
 Alice sits down and estimates each and every activity and resource that she
is going to need. Then she adds up all of the estimates into “rolled-up”
categories. From there she adds up the categories into an overall budget
number.
10–11
Bottom-Up
Estimating
Analogous
Estimating
Expert
Judgment
Parametric
Estimating
Three-Point
Estimates

Dr.AtifShahzad
Question 5
 Jeff sets up an appointment with the same contractor his friend used for
some remodeling work. The contractor comes to the house, takes a look at
the room, and then gives an estimate for the work.
10–12
Bottom-Up
Estimating
Analogous
Estimating
Expert
Judgment
Parametric
Estimating
Three-Point
Estimates

Dr.AtifShahzad
Question 6
 Alice figures out a best case scenario, a likely scenerio and a worst case
scenario. Then she used a formula to come up with an expected cost for the
project.
10–13
Bottom-Up
Estimating
Analogous
Estimating
Expert
Judgment
Parametric
Estimating
Three-Point
Estimates

Dr.AtifShahzad
Rough Order of Magnitude (ROM)
10–14

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When you make an estimate really
early in the project and
you don’t know much about it, that
estimate is called a
estimate, or a
ballpark estimate.
10–15

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Benefit cost ratio (BCR)
Amount of money a project is
going to make versus how much
it will cost to build it.
Generally, if the benefit is higher than the
cost, the project is a good investment.
10–16

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Net present value (NPV)
 Actual value at a given time of the
project minus all of the costs associated
with it.
This includes the time it takes to build it and
labor as well as materials.
People calculate this number to see if it’s
worth doing a project.
10–17

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Opportunity Cost
It’s the money you don’t get
because you chose not to do a
project.
When an organization has to choose between two
projects, they are always giving up the money they
would have made on the one they don’t do.
That’s called opportunity cost.
10–18

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Internal rate of return (IRR)
Amount of money the project will
return to the company that is funding
it.
It’s how much money a project is making.
 It’s usually expressed as a percentage of
the funding that has been allocated to it.
10–19

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Depreciation
 Rate at which your project loses value
over time.
So, if you are building a project that will only be
marketable at a high price for a short period of
time, the product loses value as time goes on.
10–20

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Lifecycle Costing
Before you get started on a project,
it’s really useful to figure out how much
you expect it to cost—not just to
develop, but to support the product
once it’s in place and being used by
the customer.
10–21

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Remember
Rough Order
of Magnitude
(ROM)
Benefit cost
ratio (BCR)
Net present
value (NPV)
Opportunity
Cost
Internal rate
of return
(IRR)
Depreciation
Lifecycle
Costing
10–22

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Here’s where you measure how
your project is doing compared
to the plan.This involves using
theearned value formulas to
assess your project.

Dr.AtifShahzad
Budget at completion (BAC)
 Total budget that you have for your
project—how much you plan to spend on
your project.
Once you add up all of the costs for every
activity and resource, you’ll get a final number...
and that’s the total project budget.
If you only have a certain amount of money to
spend, you’d better make sure that you haven’t
gone over!
10–25

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Planned % Complete
If the schedule says that your team should
have done 300 hours of work so far, and
they will work a total of 1,000 hours on the
project, then your Planned % Complete is
30%.
10–26

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Planned value (PV)
 How much of your budget you planned
on using so far.
If you look at your schedule and see
that you’re supposed to have done a
certain percentage of the work, then
that’s the percent of the total budget
that you’ve “earned” so far.
10–27
PV=BAC x Planned % Complete

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Planned value (PV)
 How much of your budget you planned
on using so far.
 If the BAC is $200,000, and the schedule says your Planned % Complete is
30%, then the Planned Value is $200,000 × 30% = $60,000.
10–28
PV=BAC x Planned % Complete

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Net present value (NPV)
 Dollar value at a given time of the project
minus all of the costs associated with it(as
per schedule).
This includes the time it takes to build it and
labor as well as materials.
People calculate this number to see if it’s
worth doing a project.
BAC x Planned % Complete = NPV
10–29

Dr.AtifShahzad
Earned Value (EV)
 How much of your project’s value has
been delivered to the customer so far.
You can do this by comparing the value of
what your schedule says you should have
delivered against the value of what you
actually delivered.
10–30

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Actual % Complete
 Say the schedule says that your team should
have done 300 hours of work so far, out of
a total of 1,000.
 But you talk to your team and find out they
actually completed 35% of the work.
 That means the actual % complete is 35%.
10–32

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Earned Value
EV = BAC x Actual % Complete
10–33

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Earned Value
Think about your project the way your
sponsor thinks about it. If you put yourself
into the sponsor’s shoes, you’ll see that this
stuff actually makes sense!
10–34

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Is your project
behind or ahead
of schedule?
10–35

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Schedule Performance Index (SPI)
 If you want to know whether you’re ahead of
or behind schedule, use SPIs.
 The key to using this is that when you’re ahead
of schedule, you’ve earned more value than
planned! So EV will be bigger than PV.
𝑆𝑆𝑆𝑆𝑆𝑆 =
𝐸𝐸𝐸𝐸
𝑃𝑃𝑃𝑃
10–36

Dr.AtifShahzad
Schedule Performance Index (SPI)
 If SPI is less than one, then
you’re behind schedule
because the amount you’ve actually worked (EV)
is less than what you’d planned (PV).
10–37

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10–38

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Schedule Variance (SV)
How much ahead or
behind?
10–39

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Schedule Variance (SV)
 The bigger the difference between
¤what you planned and
¤what you actually earned,
 the bigger the variance.
𝑆𝑆𝑆𝑆 = 𝐸𝐸𝐸𝐸 − 𝑃𝑃𝑃𝑃
10–40

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Actual Cost (AC)
Amount of money that you’ve spent
so far on the project
10–42

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Cost Performance Index (CPI)
 If you want to know whether you’re over
or under budget, use CPI.
𝐶𝐶𝐶𝐶𝐶𝐶 =
𝐸𝐸𝐸𝐸
𝐴𝐴𝐴𝐴
10–43

Dr.AtifShahzad
Cost Variance (CV)
 If you want to know how much under or
over budget you are, just take AC away
from EV.
This tells you the difference between what you
planned on spending and what you actually
spent.
𝐶𝐶𝐶𝐶 = 𝐸𝐸𝐸𝐸 − 𝐴𝐴𝐴𝐴
10–44

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To-Complete Performance Index
(BAC based TCPI)
 How well your project will need to
perform to stay on your original budget.
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 =
𝐵𝐵𝐵𝐵𝐵𝐵−𝐸𝐸𝐸𝐸
𝐵𝐵𝐵𝐵𝐵𝐵−𝐴𝐴𝐴𝐴
10–47
A high TCPI means a tight budget

Dr.AtifShahzad
To-Complete Performance Index
(EAC based TCPI)
 How well your project will need to
perform to stay on estimated at
completion budget.
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 =
𝐵𝐵𝐵𝐵𝐵𝐵−𝐸𝐸𝐸𝐸
𝐸𝐸𝐸𝐸𝐸𝐸−𝐴𝐴𝐴𝐴
10–48

Dr.AtifShahzad
You’re within your budget if...
CPI is greater than or equal to 1
and CV is positive.
 When this happens, your actual costs are less than Earned
Value, which means the project is delivering more value
than it costs.
10–49

Dr.AtifShahzad
You’ve blown your budget if...
CPI is less than 1 and CV is
negative.
When your actual costs are more than
earned value, that means that your
sponsor is not getting his money’s
worth of value from the project.
10–50

Dr.AtifShahzad
Remember:
Lower = Loser
 If CPI or SPI is below 1, or
 if CV or SV is negative,
then you’ve got trouble!
10–51

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Dr.AtifShahzad
Estimate at Completion (EAC).
 If you know your CPI now, you can use it to predict
what your project will actually cost when it’s complete.
 Let’s say that you’re managing a project with a CPI of 0.8
today. If you assume that the CPI will be 0.8 for the rest of the
project—and that’s not an unreasonable assumption when
you’re far along in the project work—then you can predict
your total costs when the project is complete.
𝑬𝑬𝑬𝑬𝑬𝑬 =
𝑩𝑩𝑩𝑩𝑩𝑩
𝑪𝑪𝑪𝑪𝑪𝑪
10–54

Dr.AtifShahzad
Estimate to Complete (ETC)
 Since EAC predicts how much money
you’ll probably spend,
 if you subtract the AC, you’ll find out
how much money the rest of the
project will end up costing.
𝐸𝐸𝐸𝐸𝐸𝐸 = 𝐸𝐸𝐸𝐸𝐸𝐸 – 𝐴𝐴𝐴𝐴
10–55

Dr.AtifShahzad
Variance at Completion (VAC)
 If you end up spending more than
your budget, the VAC will be
negative… just like CV and SV!
𝑉𝑉𝑉𝑉𝑉𝑉 = 𝐵𝐵𝐵𝐵𝐵𝐵 – 𝐸𝐸𝐸𝐸𝐸𝐸
10–56

Dr.AtifShahzad
Predict NOW
“the EV at completion”
You can use
 EAC,
 ETC, and
 VAC
to predict what your Earned Value
numbers will look like when your project
is complete.
10–57

Dr.AtifShahzad
QUESTION 1
 You are the project manager at an industrial design firm. You expect
to spend a total of $55,000 on your current project. Your plan calls
for six people working on the project eight hours a day, five days a
week for four weeks. According to the schedule, your team should
have just finished the third week of the project.
 When you review what the team has done so far, you find that they
have completed 50% of the work, at a cost of $25,000. Based on
this information, calculate the Earned Value numbers:
BAC,AC,SV,SPI
PV,EV,CV,CPI
10–58

Dr.AtifShahzad
QUESTION 2
 Your current project is an $800,000 software development
effort, with two teams of programmers that will work for six
months, at a total of 10,000 hours. According to the project
schedule, your team should be done with 38% of the work.
You find that the project is currently 40% complete. You’ve
spent 50% of the budget so far. Calculate these numbers:
BAC,AC,SV,SPI
PV,EV,CV,CPI
10–59

QUESTIONS
19-10-2017
Dr. Atif Shahzad 60

THANK YOU FOR YOUR INTEREST
19-10-2017

Dr. Atif Shahzad's Engineering Management Course Objectives (39

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