Financial Constraints and Impact Analysis - Term Paper Example

? FINANCIAL CONSTRAINTS AND IMPACT ANALYSIS Introduction The challenge of any project is to make it a success within the triple constraint. This involves the quality (scope), cost (resources), and schedule (time). These elements of a project are known to work in conjunction with one another. If one of these elements is restricted or extended, the other elements will also have to be restricted or extended in some way. If a project manager is able to balance between these constraints, there can be successful planning, resourcing and execution of a project (Wysocki, 2011). After all, there are characteristics of a successful project that will determine whether the project is successful or not. The triple constraints are as listed below: Scope/quality of a project is a clear statement of what is intended to be achieved in a particular project. It defines the functions, features and information content that will be included in the project at hand. It also defines the desired final result of the project. Resource cost/ resources are also one of the triple content of a project constraint. Resources cost money and the two descriptions are interchangeable in a number of ways. The cost of a project involves what needs to be applied or assigned to the project such as money and effort in order to make things happen (Kendrick, 2009). This includes resources such as manpower, or material requirements for the job, resources for risk management and evaluation of any other resources that facilitate the success of the project. The other constraint is the time constraint. This involves analyzing the time required for completion of each component of the project. After carrying out this analysis, the components are broken down to find the time for completion of each task. This allows for determination of the duration of the project as well as the quantity of resources needed to be dedicated to particular projects. This article tries to explain some of the ways in which these constraints can be managed for successful completion of the project. Methods for managing various constraints During control of a project constraint, it should be understood that it is only possible to define two constraints and the third will be determined by the other two. It is also advisable to determine which of the three is the controlling constraint as well as the one that needs to be changed (Dobson, 2004). For instance, if scope is the least important, determine the methods for achieving the most for the client while using the least amount of resources, reduce priority on resources and suggest solutions for the problem being addressed. Look for alternatives for the projects. In case of resource constraint, look at cross-training staff or recruiting new people as well as outsourcing. In case of schedule constraint, it is recommended to use a schedule float. Also, analyze the schedule for tasks that overlap 1. Use of spread sheet to mange constraints The triple constraints can be utilized in projects by increasing the chances of prioritizing. Despite the projects being constrained, not all constraints are equal between projects. For instance, project A may have a specific time that is critical for the completion of the project (Kendrick, 2009). However, the budget for project A could have some flexibility. Project B on the other hand may require certain resources but the deadline is within the time frame for project completion. Using spreadsheet to manage project constraints, three basic classifications are used when prioritizing constraints i.e. ‘Inflexible’, ‘Adaptable’, and ‘May concede’. Inflexible means that this is the most crucial project and has to be constrained for the successful completion of the project. Adaptable means the project is negotiable but should be optimized to a certain extent. May concede means that it is an area where trade offs is possible to take place in order to manage the inflexible constraint or optimize the adaptable one. Constraints/classification Inflexible Adaptable May concede Time Cost Scope The spreadsheet for constraint management Thus the project manager will develop a spreadsheet as shown above to enable him clearly identify the priority of the triple constraints. This is accomplished as follows: A spreadsheet with rows and columns is drawn as shown above. The triple constraints are listed on the left hand column of the spreadsheet i.e time, cost and scope. On the top row, a list of the three classifications is made i.e. inflexible, adaptable and may concede (Heldman, 2011). The project manager then looks at each constraint to determine its characteristics and puts a check mark in the appropriate classification column. In this process, each constraint can only have one type of classification. This exercise is recommended at the beginning of any project to enable the project manager do a better job of planning, executing and managing a project. 2. Using Pay Back period to manage resource constraints Payback period is the time after which the resources spent on a project are returned to the investor. This is important for investors to know how long their savings from the investments will be equal to the resources and finance spent on the project development (Wysocki, 2011). The computation of this period is one of the criterions used for selecting alternative courses of investment. The formula below is used for calculating the payback period: Pay Back Period = Cost of Project Annual Cash Inflows For instance, if a project is estimated to cost $ 20000 and the rate of annual cash inflow is $ 4000, the pay back period is calculated by dividing $20000/$4000 which is five years. It is recommended that a project has a shorter payback period. If the project manager finds that the project has a longer payback period, he should come up with ways of either reducing the cost of the project or advising the client on how to increase annual cash inflows (Ambriz, 2009). The problem with this technique is that it ignores benefits that may occur after the payback period; hence it does not measure profitability. It also ignores time value of money. Consequently, it is not considered one of the best methods of project management. Conclusion The project manager is expected to determine the best method for analyzing the constraints to ensure the project is successful. Improper use of any of these constraints can result into project failure. For instance if the project is not completed within a certain time period, the manager will not be successful even if the project is high quality because the manager did not finish in time frame specified by the client. Failing to give the correct cost of the project can result into inferior project while failing to give the correct scope of the project can result into the manager paying attention to irrelevant objectives. References Dobson, S. (2004). Triple Constraint in Project Management. Management Concepts: Tom, K. (2009). Identifying and Managing Project Risk: Essential Tools for Failure Proofing Your Project. AMACOM Div American Management Association. Heldman, K. (2011). Project Management Jump-start. John Wiley & Sons. U.S.A. Read More