Business Project Management - Essay Example

Business Project Management Introduction A project is a group activity which tends to be only for a temporary period. It is undertaken to produce any product, service and result that is unique in its own way (Box & Draper, 1986). Project management is all about carrying out the projects with the necessary skills, knowledge and technique in an effective and efficient way (Hodgson and Cicmil, 2006). The concept of project management is mainly connected with the three most important things. They are time, cost and quality. These three factors cannot be achieved at the same time. The achievement of one factor must come at the cost of another factor. That is if the project needs to be completed with the highest quality available and at the quickest time possible, then the cost can be enormous. The same project can be completed at a moderately good quality in considerably early period but at a much a lower cost. So project management is all about choosing the optimum path between quality, time and cost. Any projects irrespective of the nature of the work go through four important phases that are define, design, develop and deliver. The first stage defines the goals and objectives, the target audience or for whom the project is carried out and who are the actual audience (Brown and Eisenhardt, 1997). The second stage sets the initial structure of the project, or the initial outline. The initial outline is developed after a thorough research is carried out. The necessary protocols are also put this phase, that provides the room for adjustments in the latter phase of the project. The third step or the develop stage is the implementation stage. The real application takes place in this phase. The blockers or impediments that could not be found in the initial phase of the projects are identified in this phase (Brown and Eisenhardt, 1997). The last and the fourth stage is the deliver stage. The deliver stage involves the field testing stage. The blockers identified in the initial stage are removed and the system is provided with the necessary tweaks to overcome the barriers. Then the system is again re evaluated to find out if the blockers are removed effectively. The study aims to point out the relationship between time, cost and quality and the critically evaluate the techniques used to demonstrate the balance of time, cost and quality using critical path method, calculation of the return on investment and the quality management. Advantages and disadvantages of NPV Advantages It is one of the quickest methods to determine net payoff from a project. The use of discounting factor presents a more realistic picture compared to other non discounted methods. Use of NPV also helps in the maximization of the firm’s value (Shenhar and Dvir, 1996). Another important aspect is that, NPV also makes sure that the risks as well as profitability of the projects are given high value. Dis-advantages The complexity of this method increases, when the number of years increases and the projects are not mutually exclusive. This is one of the disadvantages of this technique. The estimation of the discounting rate is another problem. With wrong discounting factor, the net payoffs can either become overestimated or underestimated (Whittaker, 1999. The use of discounting factor is kept constant for subsequent years, although the inflation rate is not. With changing inflation rate, the discounting factors need to be changed likewise. Critical evaluation of the relationship between time, cost and quality It is not possible theoretically to achieve equally high standards across all 3 factors at the same time. Since none of the three factors share a positive correlation between each other. That means that if high quality is achievement is the target then the cost associated with it is also high. The following example explains the nature and the importance of the relationships between the three factors. Suppose the project is building an over bridge. The allocated budget is £ 4 million, the time period is 6 months and the quality set to be achieved is no less than B+ category (Crawford et al. 2005). The project managers have the option to trade of between time, cost and quality. The ideal case is to make tradeoffs between time and cost leaving quality constant. The importance of the quality is dependent upon the type of project undertaken. In this case the quality cannot be compromised. So the trade off is between cost and the time. Estimated scheduled time cannot be less than 3 months and the budgeted cost cannot exceed £ 8 millions million. Trade-offs between cost and the time: Cost Time 4 million 6 months 4.5 million 5.5 months 5 5 5.5 4.5 6 4 6.5 3.5 7 3 Source: (Söderlund, 2004) Source: (Whittaker, 1999) The above diagram gives an indication of the inverse relationship between the cost and time. The diagram indicates that if the project needs to be completed within very short time then the cost incurred is very high. As time is prolonged, the cost of the project is decreased. Even if the time period is elongated, the cost of the project does not decrease so much (Shenhar and Dvir, 1996). This is because of the reason that even if the variable costs decrease almost nil, the fixed costs never decrease. Critical discussion on the usefulness of the techniques used to demonstrate the balance of time, cost and quality in ensuring the success of the project Evaluation of the Critical Path Management The critical path management is the schematic diagram of the project schedule and the project time line. The various jobs or activities are arranged in order of the occurrence and then the critical path is identified. The critical path is identified by help of the longest time schedule needed for the completion of the project. The critical path management involves the calculation of the earliest start and earliest finish time as well as the latest start and the latest finish time. The calculation of the earliest and the latest time gives an indication of the slack (Box & Draper, 1986). The slack denotes the unproductive time. Critical path management proved to be very effective only if the project work is less complex in nature. When the number of activities occurring concurrently increases, the project becomes complex in natures. The estimation of the critical path depends on the more or less correct assumption about each activity time. The assumptions are based on the probability of occurrence. Critical evaluation of the use of net present value to estimate the return from the project The net present value is the amount that a project can generate after deducting the costs involved in setting up the project (Box, Draper, N, 1986. The net present value is a discounted method. Any project is evaluated on the basis of cost, quality and the time. The cost aspects not only include the calculation of the projected costs but also the ability of the project to generate returns which can cover for the costs. The acceptance or rejection of any project can be based on analysis of the net present value (Styhre, 2006). If the project is able to generate returns in excess of the initial investment then the project is accepted or else the project is rejected. The application of the net present value to find out the viability of the project is applicable as long as the project is not cluttered with huge number of activities running concurrently. The simple calculation of net present value to estimate the cost and benefit thus becomes insufficient if the number of activities increases. When the number of activities increases the process of net present value calculation becomes complex since a lot of uncertainties are involved. So instead a probabilistic net present value is computed then depending upon the probability of the yearly cash flow. The process of calculation then becomes quite complex (Morris et al. 2000). The discounting rate used for the current year may not be right for the next year or the year later. Since the inflation rate does not tend to remain same year after year. If there are minor changes in the inflation rate, then the same discounting rate can be used. If the changes in the inflation rate are significant then the discounting rate has to factor in the changes in the inflation rate (Bredillet, 2007). Else the value of the net present value will indicate erroneous results. So the discounting rate used does not reflect the risk involved. The calculations of the net present value are more complex in complex projects. This is because of the reason that the cash inflow from any one project is used to as the cash outflow for another project. If the probabilities of occurrence of the cash outflow and cash inflow are factored in then the net present value calculation becomes even more complex. Critical evaluation of the total quality management The total quality management is a holistic approach to reach a level of quality. There are several methods or Total Quality Frameworks to reach a definite level of quality. The nature of the project determines the applicability of the TQM framework. This poses a kind of a problem. Since there are no definite rule which states exactly what kind of framework is the most appropriate. The adoption of the right kind of framework determines the cost and as well as the time spent to reach that level of quality. The adoption of any framework of the total quality management does not ensure that the project will be executed at the highest quality possible (Cicmil et al. 2006). Since there are various factors like the commitment of the top management, training, supplier management, strategic planning, process control, benchmark process. There are various other factors other this, but these factors are the most important ones. Without the support, encouragement and commitment of the top management, organizations can never really utilize the full potential of the total quality management. The half hearted attitude of the top management is the primary reason that the projects get delayed and exceed the budgeted costs (Turner, 2000). The lack of the commitment of the top management is the same reason that the staff and employees are not trained properly. Such lack of training leads to degradation of the work, subsequently the total quality management fails to reach the targeted standard. Uses of total quality management Total quality management is used to reach a definite level of quality through various phases of the project (Turner, 2000). Total quality management also ensures that the project is able to reach its defined quality level without running very high costs or without running into prolonged duration phase. Critical appraisal of the advantage and disadvantage of each technique Critical Path management If the number of activities in a project is less, critical path management can be used be used very effectively to find the project completion time as well as the slack for the respective jobs. If the number of activities increases, the technique fails to give an accurate project completion time. If the numbers of activities are low, then this technique displays the dependencies in the activities to help prepare a proper schedule. It also helps to know which activities can run together (Cicmil et al. 2006). If the numbers of activities are too many, then too assumption in the activities finish time increases the chance of encountering more deviations from the actual start and finish time. This kind of technique also does not take into account the allocation of the resources like labour and raw materials. Another shortcoming of the critical path management is the inability to handle the scheduling of personnel as well as the allocation of the resources. The critical path management technique does not indicate the number of personnel involved or the way the resources are allocated for each type of activity (Hodgson and Cicmil, 2006). The absence of these two indicators limits the ability of the project manager to know the costs involved in each and every activity. So estimation of the costs cannot be done accurately. This also makes the assumption of the project cost inaccurate. Thus the project manager has to make a lot of projections about the probable cost and the time for each kind of scenarios. It makes the preparation of the project schedule even harder. The use of critical path management is plagued with another shortcoming that the technique cannot factor in the probabilities of start and finish time for each and every project. As the number of activities increases, the probability of the start and finish time begins to take a larger continuum. For example when the numbers of activities in the project are less, the probability of the start and the finish time can remain range bound between 70 percentages to 80 percentages. As the number of activities increases, the assumptions with respect also increase. This automatically increases the continuum of the probability from 50 percentage to 80 percentages (Cicmil et al. 2006). So with the increase in the number of activities, the project manager has to prepare multiple probability scenarios. The preparation of the multiple probability scenarios also makes the projection of the budgeted cost very hard. This presents a dilemma for the project finance department to gain access to the loan and the borrowings. The finance department is always in doubt if the loan sanctioned will fall short of the actual project cost or will surpass it. In either case, there is cost involved. The usefulness of CPM CPM enable the project manager to make a brief idea about the possible time required for each kind of activities, it also indicates the interdependence and sequence of the projects so that the project manager can plan ahead. It also helps to indicate the approximate finish time for the project, so that the project manager can make an estimation of the budget required for the completion of the project. Net present value Total quality management Total quality management can lower the costs of the project. This kind of technique helps organisations to communicate about the problems, needs and desires to each other more effectively. This helps organisations to develop a workable solution that ultimately leads to cost cutting throughout the distribution chain, supply chain, accounting and management departments and shipping and supply chain. This cost cutting is achieved without losing the productivity or the ability to operate at a fast pace (Brown & Eisenhardt, 1997). The disadvantages include the resistance to change. Employees fear that improvisation involves learning of new techniques. In order to achieve the target quality level, the project starts to take more time and this involves consumption of raw materials. Thus on one hand there is unnecessary wastage of time and on other hand the project fund is utilised to finance extra resources for elongated period. Conclusion A project management goes through phases namely define, design, develop and deliver. The third and the last phase involve considerable cost and time. So it is imperative that the project manager apply the right tool which helps to determine the time, cost/benefit and the quality. The applications of the different techniques like the CPM, TQM and others like NPV are only meant to provide a rough guidance for managing a project. The actual application of any project is dependent upon the experience and intuition of the project manager. Actual project management utilises more efficient techniques, which are more complex and takes considerable time to master. Reflection Report The techniques applied to determine the time schedule of the project is the critical path management. The technique applied to determine the cost/benefit or the returns generated from the project are NPV, or IRR, or payback period. While Total quality management ensures that the project is developed keeping in mind the need to maintain highest quality. These techniques are able to guide any project in its goal as long as it is a short term project. The uses of these techniques for long term projects are bound to create erroneous results. So the project manager must evaluate the technique used to determine the 3 factors depending upon the type as well as duration of the project. Reference Box, G. & Draper, N, 1986. Empirical model-building and response surface. New York, Wiley. Bredillet, C. S., 2007. One best (no) way! project & programme management for enterprise innovation (p2m): toward a new paradigm? Proceedings of VIII IRNOP: Projects in Innovations, Innovations in Projects, Brighton, UK. Brown, S. L., & Eisenhardt, K. M., 1997. The art of continuous change: Linking complexity theory and time-paced evolution in relentlessly shifting organizations. Administrative Science Quarterly, 42(1):1-34. Cicmil, S., et.al. 2006. Rethinking project management: researching the actuality of projects. 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