Total project management
a new outlook
RONALD C. STINSON
ROBERT S. BELL
Management Analysis Company
Several significant trends are occurring in the utility industry which reflect its response to such severe pressures as unfavorable economic factors, the inflationary spiral, the large magnitude and long duration of construction projects, increased and unpredictable regulatory and environmental requirements, and the too-often mediocre performance of the organizations utilities have historically looked to for management of their major projects. One of the more identifiable trends emerging today is the swing toward strong formalized Project Management, including either self-performed construction or construction management. Project Management, especially in a fully operational mode, provides a new way of thinking for most utilities. Its adoption provides the managerial unity required to achieve specific project goals within a functional type of organizational structure and with minimal disturbance to the utility’s on-going business.
Project Management Structure
Briefly, the Project Management orlanization may be defined as comprising those individuals who are appointed to accomplish the task of integrating internal as well as external organizational and functional elements in order to complete a project on time, within budget, and to complete owner satisfaction. The concept of Project Management, requires a re-examination of certain “traditional” management theories, notably that:
- Organizations function as an integrated entity on a vertical basis.
- A strong superior-subordinate relationship is required to preserve unity of command and to ensure unanimity of objective.
- Individual functional managers are parochial — and rightly so.
- Functional managers maintain lateral staff coordination to obtain integrated action.
- Organizational groups have a basic dichotomy, viz., the line and the staff.
- A chain of authority relationships exists within the organization ranging from the ultimate authority to the lowest rank, with the line of authority following every link in the chain.
- An employee should receive orders from one superior only.
- Work progresses among relatively autonomous functional units of an organization.
Today’s Project Manager is confronted with the coordination and integration of large aggregates of human and non-human resources. The greater part of such resources can be outside the traditional patterns of organizational theory. Existing management theory was found lacking when it was realized that certain management relationships were evolving in the fulfillment of large single purpose projects whose operations cut across interior organizational flows of authority and responsibility and radiated outside to autonomous organizations. For example, the construction of a nuclear power plant involves the commitment and expenditure of approximately $2 billion per two unit station which is frequently equal to, or greater than, the utility’s prior power plant .investment. The traditional management with its functional type of organization cannot realistically be counted upon to provide the management required. On the other hand, Project Management as a management philosophy per se has no organizational or functional constraints and provides a refreshing way of thinking that allows for the necessary changes in an organization’s structure and in the management of complex activities — such as power plant construction. Each individual utility can mold and develop its own individual Project Management organization to satisfy their unique existing functional organization capabilities and constraints. However, there are a number of requirements that are fundamental to the success and effectiveness of whatever organizational approach is adopted. These include:
- The Project Manager must have necessary managerial authority to insure responsiveness to his requirements within the parent organization and be accepted as the authoritative agent of the parent organization in dealing with outside organizations.
- There must be a demonstrated senior management support for the concept.
- The project team must be adequately staffed with competent personnel.
- No major technical, cost, schedule, or performance decisions should be made without the Project Manager’s participation.
- The Project Manager should have sufficient authority and capability to control the allocation and expenditure of funds, and should actively lead budget and schedule deliberations. The Project Manager is the responsible and single contact with the various outside agencies for the project.
- The dollar magnitude, scope and inherent complexities of today’s major projects dictate the need for utilizing the indispensable tool of Project Management, i.e., a formally structured project management system.
The Project Management organization is basically an integrator of widely diverse disciplines, it is interested in balancing relative factors of engineering, construction, schedule, cost and human resources. The supporting functional organizations provide the basic foundation on which to carry out project-oriented activities. The project performs all of the management functions with heavy emphasis placed on functional coordination, or the synchronizing of activities with respect to time, cost, and place. Certain features set apart the Project Management organization from the traditional, or function-oriented, organizations. These are:
- One central point for decision making involving diverse interests in the organization is established. This results in timely and considered decisions for the project.
- The project is directly, and by charter, involved in managing participation by organizations and agencies normally outside of its direct control. It pulls together diverse activities such as site feasibility studies and acquisitions, the obtaining of licenses and permits, engineering, construction management, construction, and plant startup and operation — all time-phased over the life of the project, and all requiring coordinated planning, scheduling and control.
- The project organization’s authority and responsibility cuts across functional and organizational lines. Natural organizational conflicts are brought into the open by a Project Management organization, where they must and, importantly can be dealt with.
- The project organization determines the when and what of the project, thus providing a focal point for project activities. The functional managers, in supporting many projects, determine how and where the support will be given.
- The project organization’s task is finite in duration. After the project is complete, the personnel directly supporting it can be assigned to other activities.
- Since the project organization contains a high proportion of professional personnel, managerial techniques different from the simple superior-subordinate relationship must be developed. The work situation for project personnel is fluid. They may tend to feel uncomfortable and insecure since they have little direct authority. The project organization’s management require the normal functions of management. In addition, these must be augmented by increased factors of motivation, persuasion, and human relations since they must have the support of people that, more often than not, are paid and promoted by someone in the functional element, and whose employment is directly related to the company’s project activities.
There are many examples in the utility industry where two other possible alternatives have been attempted (with very poor success). These alternatives are:
- The project activities remain functionally separated. This choice is not acceptable since by nature the functional managers are provincial and the overall support of the project, as well as the responsibility for long-range planning has characteristically been inadequately coordinated.
- A senior executive of the organization performs the project integration. This has not worked either since the senior executive’s time is usually diluted by the necessity for providing support to all projects and importantly has the responsibility for the long-range planning of future projects.
A Total Project Management System
The formally structured project management system referred to previously implies a measure of totality, i.e., the entire collection of organization, planning and control tools and associated management and information systems needed to manage a complex, one-time task. The task should either be definable in terms of a specific end result, or constitute a project more technically complex, more costly than one previously undertaken successfully. It must, by definition, end at an objective point in time, and it must also be a unique or infrequent effort undertaken by the owner’s existing management. The question of project size is not as easily defined. But if substantially more dollars, more time, more people and more organizations will be involved, the project, even though its components may be familiar, can overtax the capabilities of the best of corporate managements. However, the adoption of an effective Project Management organizational structure and its use of the Total Project Management System tools described herein forces a logical approach to the undertaking, facilitates decision making, and thus enables management to readily handle its increased responsibilities.
The need for a Project Management System is also dictated by uncertainties which arise as a consequence of a lack of familiarity or precedent as to how the project should be managed in order to successfully achieve its objectives. This is especially true in the areas of cost and schedules. Without precise guidance and direction as to what is specifically expected, personnel at the lower and middle echelons will continually make value judgments beyond their expertise. Top-level management executives are justifiably troubled by greater-than-usual feelings of uncertainty and, therefore, concern as to the realism of initial as well as interim cost estimates, cash flow projections, time commitments, schedules, etc.
The sheer complexity of a project may dictate the need for a project management approach especially if its success depends upon the interdependence of many functional areas and organizations. Its need can also be prompted by the necessity for freeing project-assigned key personnel from the often demanding concerns and problems of the firm’s day-by-day business affairs. Consider the construction of a large fossil-fueled or nuclear power plant. Construction cannot commence until environmental and nuclear regulatory requirements are satisfied. Construction progress in turn is not only dependent upon the timely and satisfactory outpourings of whatever technical organization is utilized, but also upon the skills and abilities of the constructor firm itself. The predominant use of cost plus fee type contracts for A/E and construction alike provides little financial incentive for minimizing project costs as the utility industry has expensively discovered in recent years.
Training of personnel for the startup and operation of the plant must proceed closly integrated with both the engineering and construction efforts and in accordance with a rigidly adhered to schedule. All of the project effort is necessarily governed by the constraints of time and cost resource availability.
A final criterion that in itself can justify the need for a total Project Management System is the company’s stake in its outcome. Would failure to complete the project on schedule and within the budget entail serious consequences for the company? If so, a capable well-structured project management organization using an effective project management system is absolutely essential to the financial well-being of the corporation.
PROMIS-2: A Total Project Management and Information System
In a successful effort to meet the project management system needs of the utility industry, Management Analysis Company (MAC) made a detailed survey of available systems analyzing the features of each in as much detail as possible. Based upon these findings and the proven application of certain system principles developed for the aerospace industry and currently set forth in ERDA’s “System Description of the RRD Performance Measurement System,” the concept of PROMIS-2, a Total Project Management System was developed — a system that embraces all aspects of project managment. Its overall objective is to have each major participating organization provide the owner’s Project Management organization with valid, timely, auditable project cost and schedule performance measurement information on which to base sound decisions. Its specific objectives are basically those set forth by ERDA, namely:
- Effective integration of work description, schedule, budget and actual costs
- Objective measurement of work accomplished against budgeted cost and schedule; i.e., “earned value”
- Accurate, timely reporting of work accomplished against budgeted cost and schedule
- Basis for continuously updated estimates of project cost at completion and projected cash flows
- Continuous visibility of project status
- Ready access to supporting detail through a well-defined, task-oriented work breakdown structure.
Although the system could utilize a software program specifically designed for the input/output data it currently utilizes any one of a number of commercially available computer programs to process cost, schedule and performance data.
Based upon previous project experience, two integral computerized supporting systems were developed having the following objectives:
- Provide means whereby each deliverable item in the scope of supply can be defined and its procurement progress tracked
- Allow an evaluation of each item’s status to determine any potential impact on overall project schedule
- Provide information for purchasing, warehousing allocation, construction maintenance, QA/QC, inventory (value) control, such that appropriate planning and work execution can occur prior to turnover of plant to Operations.
- Document organization and responsibility for each deliverable item throughout its procurement and construction phases
- Provide a convenient historical depository for procurement performance information
- Provide an equipment data base that can be utilized in the Owner’s subsequent development of a computerized plant preventive maintenance program
Although the success (or failure) of any major undertaking is a function of the competence and dedication os all of its participants, the inherent composition of a Total Project Management System greatly facilitates:
1) The attainment of willing commitment of people to assigned tasks
2) The achievement of coordination and collaboration among different work groups, responsibility centers, and entire organizations.
3) The achievement of true visibility, i.e., the placement of a high premium on information reliability and timeliness and a high cost on the unnecessary or irrelevant.
4) The perpetuation and further development of the personal and professional skills and potentialities of project participants.
5) The achievement of an orderly transition of the system through each of its phases including its timely termination.
The success of a project can be measured during its execution by the effectiveness of the time, cost and performance controls applied. Is the project behind schedule, within the estimate and budget, or is it characterized by the continual encountering of bottlenecks, overruns and unexpected crises? Is management able to predict its schedule and cost performance, cash flow demands, and technical decision points or are the year-sticks of performance used basically after-the-fact in nature and, therefore, lacking in control? The real worth of a Total Project Management System requires that its primary focus be placed on the effective use of the constrained resources of time and money during the entire lifetime of the project.
Basic Features of a Total Project Management System
In the authors’ opinion such a system utilizes the Work Breakdown Structure and Work Package concept so successfully used in the aerospace industry. It is a technique for progressively subdividing a project into component parts, assigining costs and schedules to those parts and monitoring the work progress. The lowest level task tracked by the system is the “Work Package” which provides the vehicle for cost schedule and performance integration. Integrated cost schedule and performance data can be summarized from the Work Package level to satisfy the needs of management at every level of the organization.
A Work Breakdown Structure (WBS) is a task-oriented family tree division of hardware, software, services and other work tasks which organizes, defines and graphically displays the work to be accomplished to achieve the contractual commitments and end objectives of the project. A WBS must:
- Set forth the complete, continually updated plan outlining a step-by-step approach for attaining the objectives of the project
- Break down the project into sequential and parallel activities and events which are assigned to each organization and which will schedule, measure and control the progress of its work
- Provide a meaningful cost and schedule reporting structure for the Owner’s Project Management organization
- Serve as an effective means of communication to integrate the objectives and activities of all of the internal and external organizations involved in the project.
Each participating organization has flexibility in extending its portion of the WBS to reflect how the work is to be accomplished. Lower level elements should be meaningful subdivisions of a higher level element. All elements of the WBS need not be extended to the same level since a basic objective is to subdivide the total contractual effort into manageable units of work. Large or complex tasks may require various subdivisions. Other tasks of lesser complexity or size may require substantially fewer levels.
A Work Package (WP) constitutes the basic building block PROMIS-2 uses to monitor and control the work. It is the lowest level of the WBS and as such describes the work to be performed by a specified organizational element responsible for its accomplishment and serves as a vehicle for monitoring and reporting cost and schedule progress of work. In order to be effective for planning and controlling work, a Work Package should have the following characteristics:
- It represents a unit of work at a level where work is performed, i.e., where possible it should be identifiable to a system work location (bldg. and elevation) and organizational element.
- It is clearly distinguishable from all other Work Packages.
- It has scheduled start and complettion dates.
- It has a budget or assigned value in terms of dollars.
- Its size and duration are limited to relatively short spans of time to minimize the work in-process evaluation effort.
- It is integratable with other schedules.
- It represents a level where actual costs can be collected or assigned.
Types of Work Packages
Since all contractual work is eventually planned and controlled through Work Packages, it is necessary to identify different types of WP’s and their characteristics. All WP’s can be categorized into one of three different types of effort:
a) Discrete tasks which have a specific end result or objective; these normally comprise 60-75% of the project work.
b) Level of effort (LOE) tasks which do not have specific end results. These are comprised mainly of the overhead accounts, maintenance, liaison, coordination, etc. These are characterized by relatively level, time-phased budgets and are not time-limited as in the case of discrete tasks.
c) Apportioned effort tasks which can be directly related and apportioned to discrete tasks, e.g., quality control or inspection. These tasks are in support of the discrete tasks and thus their schedule and budget can be related to the discrete tasks.
Work Packages are also categorized based upon the maturity of work definition:
a) Conceptual Work Packages are based upon preliminary engineering and thus the estimates of time and cost are usually based upon historical data rather than grassroots detailed estimates. The durations of these Work Packages are relatively long and scope of work may be large.
b) Planning Work Packages may be based upon prerelease engineering, but the engineering is more firm and detailed than in the Conceptual Work Package. The estimate, however, is done by the organization responsible for the work.
c) Preliminary Work Packages are based upon the final scope of work to be defined in a Work Package, but the estimate may still be based upon pre-released design and the schedule may not be firm.
d) Firm Work Packages meet the requirements of being based upon firm design, firm budgets, and a firm schedule. These Work Packages should be identified 2-6 months prior to performing the work, and can only be revised with the approval of the Project Manager and normally as a consequence of an engineering change order.
Material vs. Labor Work Packages
Material Work Packages are distinguished from Labor Work Packages. Material is normally invoiced at point of delivery, not at point of use as is the case for labor expenditures. Therefore, to achieve a realistic cash flow profile, Material WP’s are separated from Labor WP’s.
Scheduling (Time) Control
An integrated network drawn to the Work Package level of detail is used to monitor and forecast progress. Since the contractors are responsible for providing schedule status and logic for their respective Wtrk Packages, it is not necessary for the project management organization to incorporate detail schedule information below the WP level into the network. Instead, contractors’ progress is monitored at this level and variances can be investigated through reports generated by the contractors’ internal systems. These systems are used as detail support and backup for the WP’s.
For work internal to the Owner, the integrated network is used for planning and scheduling to the WP level and to the detailed activity level. To ensure proper integration and to maintain realistic cash flow profiles especially for material WP’s, it may be necessary to schedule detailed activities within a Work Package. For example, a single Purchase Order (normally defined as a purchase $25,000) may be comprised of more than one deliverable item, each with a different delivery date. In such cases, the activities are given the same Work Package number, but actuals are allocated at the activity level. A WP may also be divided into component activities, wherein the component activities are not assigned the Work Package number and the actuals are collected at the WP level. This method is useful where detail scheduling is required below the WP level to establish logic, provide a realistic cash flow profile, or monitor the schedule in more detail and where the accounting system precludes collecting actual costs at the activity level.
Target scheduling refers to the Owner freezing schedule milestones at given points in time. Progress is then measured against that target. The target schedule i^ not changed unless:
- A formal reprogramming of the entire project or portions thereof occurs.
- The target schedule and the current schedule become so far apart that recovery is impossible and target objectives become meaningless.
Target schedules are not revised without appropriate managerial approval.
Integration of costs, schedules and performance occurs at the Work Package level and is the major thrust of a total Project Management System. Since each WP is estimated and budgeted, and since each WP is also scheduled, the time boundaries of the Work Package expenditures are fixed. Summarization of all Work Packages provides a cash flow profile. Since most computer codes used produce a linear cash flow profile for each WP budget, short WP’s tend to produce a more accurate profile when summed that long WP’s.
Since costs are tied to schedules, expenditure profiles relative to early start and late start are obtainable. Cash flow can also be manipulated by adjusting float of the individual Work Packages. Actual expenditures to date and estimates to complete are inputs for each WP, thus allowing “to date” and “at completion” cost variance analyses.
“Earned Value” provides an objective measurement of the time-cost status of all work performed at each reporting period. It establishes the value in budget dollars that the responsible organization has earned for the work actually accomplished in its assigned Work Package, i.e.:
% Work Physically Completed x Budget S = Earned Value S
A comparison of Earned Value $ to Actual $ Spent therefore relates cost to the budget for work performed while the relationship of Earned Value $ to Budget $ shows the relationship of work accomplished to the schedule.
Project Cost Estimate Consideration
The classification of Work Packages on a continually upgraded basis commensurate with the level of engineering and design data available into the four catagories, Conceptual, Planning, Preliminary and Firm provides an extremely useful cost estimate weighting system that can be effectively used to provide a basis for making an assessment of the Owner’s risk exposure from the project. Basically, this involves grading the WP’s in accordance with a preliminary, but nonetheless useful, probabilistic analysis of the validity of the cost estimates assigned to each WP by the responsible organization. These probabilistic analyses can then be summarized to produce a measure of the overall risk that can be attached to the project estimate.