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CHAPTER 16

MANAGEMENT CONTROLS OF
PROJECT
Zuni Barokah, Ph.D.
Magister Manajemen
Fakultas Ekonomika dan Bisnis UGM
2014
NATURE OF PROJECTS
Definition:
set of activities intended to accomplish a specified end result of
sufficient importance to be of interest to management

Begins when management has approved the general nature
of project and approximate amount of resources spent in the
first phase of the work

Ends when objective has been accomplished or when it has
been canceled

Varies greatly.
PROJECTS, IN CONTRAST WITH
ONGOING OPERATIONS
Single Objective
Ongoing operations: multiple objections

Organization Structure
Superimposed on an ongoing organizations.

Focus on the Project

PROJECTS, IN CONTRAST WITH
ONGOING OPERATIONS
Need for Trade-Offs
Between scope, schedule, and costs.
Not typical in ongoing organizations

Less-Reliable Standards
Project design is used only once.
Repetitive projects tend to have more developed standard.

Frequent Changes in Plans
Lead by unforeseen environmental conditions
PROJECTS, IN CONTRAST WITH
ONGOING OPERATIONS
Different Rhythm

Greater Environmental Influence

Exceptions
THE CONTROL ENVIRONMENT:
PROJECT ORGANIZATION STRUCTURE
Temporary organization (disbanded after the project has
been completed or canceled)

Matrix Organization
Members of the project team are employees of the sponsoring
organization.
Project manager and manager of the functional department are
members bosses that permanently assigned. (Their basic loyalty
is to their functional department)
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THE CONTROL ENVIRONMENT:
PROJECT ORGANIZATION STRUCTURE
Evolution of Organization Structure

Architects, engineer, schedulers, and cost analysts are
predominate in the planning phase of a construction project

The managers are production managers in the execution of
project

In the final stages, the work tapers off, and principal task may
obtain the sponsors acceptance with marketing skills being a
principal requirement
THE CONTROL ENVIRONMENT:
CONTRACTUAL RELATIONSHIP
Appears when project is conducted by an outside contractor.

Two general types of contract :
Fixed Price Contracts
Contractor agrees to complete the specified work by a specified date at
specified price.
There will be penalty if contractor fails to complete the work at specified
date.
Sponsor is responsible for auditing the quality and quantity of the work to
ensure that it is done as specified

Cost-Reimbursement Contracts
Sponsor agrees to pay reasonable costs plus a profit.
Sponsor has considerable responsibility for the control of costs.
Comparable system and personnel used by contractor needed.
THE CONTROL ENVIRONMENT:
CONTRACTUAL RELATIONSHIP
Contrast in Contract Types

Fixed-price contract is appropriate to be used when the scope of
the project can be closely specified in advance and when
uncertainties are low

Profit component or fee in cost-reimbursement usually should be
fixed monetary amount. Fixed fee normally is adjusted if the scope
or schedule of the project is significantly changed
THE CONTROL ENVIRONMENT:
CONTRACTUAL RELATIONSHIP
Variations

For both type of contract, in an incentive contract, completion
dates or cost targets are defined in advance and contractor
rewarded for completing the project earlier than target date or for
incurring less than the target cost

Different contract types may be used for different activities on the
project
INFORMATION STRUCTURE
Work Packages
Smallest element of Information in project control system.
An aggregated work package is called the work breakdown
structure

Indirect Cost Accounts
Established for administrative and support activities in addition to
work packages for direct project work

PROJECT PLANNING
Starting point:
rough estimations that was used as the basis of the decision to take
the project

Refining the estimations into detailed spesifications.

Developing a management control system, underlying task
control system, and organization chart.

Plan for planning
For a project with moderate complexity
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PROJECT PLANNING:
NATURE OF THE PROJECT PLAN
Three related parts of final plan:
Scope
Specifications of each work package and the name of the person or
unit responsible

Schedule
Estimated time required to complete each work package

Cost
Stated in project budget, usually under control budget

PROJECT PLANNING:
NETWORK ANALYSIS
Two commonly used techniques to construct the time
schedule:
PERT (program evaluation and review technique)
CPM (critical path method)

Three basic steps:
Estimating the time required for each work package
Indentifying the interdependencies among work packages
Calculating the critical path

PROJECT PLANNING:
NETWORK ANALYSIS
Two commonly used techniques to construct the time
schedule:
PERT (program evaluation and review technique)
CPM (critical path method)

Three basic steps:
Estimating the time required for each work package
Indentifying the interdependencies among work packages
Calculating the critical path

PROJECT PLANNING:
NETWORK ANALYSIS
Probabilistic PERT

Estimated times arrived on a probabilistic basis:

A most likely time

An optimistic time

An pessimistic time
PROJECT PLANNING:
ESTIMATING COSTS
Made at a level of aggregation that incorporates several
work packages.
At individual work package level, resources are controlled in
terms of physical quantities.

Less standardized, less accurate.

Types of unknown (have to be taken into account)
Known unknowns
Unknown unknowns
PROJECT PLANNING:
PREPARING THE CONTROL BUDGET
Prepared close to the inception of the work.

Delaying preparation of the control budget ensures that
the control budget incorporates current information.

Control budget is an important link between planning and
the control of performance
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PROJECT PLANNING:
OTHER PLANNING ACTIVITIES
Other activities are performed during the planning phase
Ex: ordering materials, obtaining permits, selecting personals, etc.

These activities must be controlled and integrated into
the overall effort
PROJECT EXECUTION
Both the sponsor and the project management are
concerned with:

Project time schedule realization

Projects output specifications realization

Projects input realization (costs)

PROJECT EXECUTION:
NATURE OF REPORTS
Types of reports managers need:
Trouble reports
Report happened troubles and future troubles.

Progress reports
Compare actual schedule and costs with planned schedule and costs
for the work done (including indirectly related overheads)

Financial reports
Less important.
The process takes time.
PROJECT EXECUTION:
NATURE OF REPORTS
Quantity of reports
Paperwork problem/information overload (reports with too many
details) could cause some problem. But not necessarily serious.

A review of the set of reports is needed.

Percent complete
In cases where work packages are partially completed at reporting
date, percentage of completion measurement is necessary

If accomplishment measured in physical terms:
percentage of completion can be measured easily

If no quantitative measure is available:
percentage of completion is subjective

PROJECT EXECUTION:
NATURE OF REPORTS
Summarizing progress
Aggregating individual work packages, thus providing an overall
measure of accomplishment

Punch list
A list of items yet to be accomplished (including defects that need
to be corrected)
PROJECT EXECUTION:
USE OF REPORTS
Trouble reports
Managers tasks: decide which troubles have the highest priority

Progress reports
Managers tasks: carefully analyze progress report, identify
problems that might be not apparent in the trouble report, and
plan on how to solve them.



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PROJECT EXECUTION:
USE OF REPORTS
Cost to complete

Type of comparison

Actual cost to date VS budgeted cost of the work done to date

Current estimate of total costs for the project VS budgeted cost for the
project
Current estimate = actual cost to date + estimated cost to complete
A useful way (if calculated properly) to show how the project is expected to
come out.


PROJECT EXECUTION:
INFORMAL SOURCES OF INFORMATION
Practically, these written reports usually are less
important than information manager gathers from talking
with people

A formal report should contain no surprises, but still is
essential
PROJECT EXECUTION:
REVISIONS
Lengthy or complex project is more likely to have its plan
revised.
Usually because of the actual cost exceeds the budgeted cost.

Regarding comparison with future progress:
Revised plan VS Original plan

Solution: compare to both plan

PROJECT EXECUTION:
PROJECT AUDITING
Quality audit must be held as a work is progressing.
The defects could be hidden otherwise

Generally, auditing as the work progresses is preferable

Operational auditing: examining costs incurred, paying
attention to management actions
PROJECT EVALUATION:
ASPECTS
1. An evaluation of performance in executing the project
1. Carried out shortly after the project completed

2. An evaluation of the results obtained from the project
1. Not feasible until several years later
PROJECT EVALUATION:
EVALUATION OF PERFORMANCE
evaluation of the project management
To assist in decisions regarding project managers

evaluation of the process of managing the project
Discover better ways of conducting future projects

Evaluating a project tends to be subjective.
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EVALUATION OF PERFORMANCE
COST OVERRUNS
actual costs exceed budgeted costs

Possibilities:
Budgeted costs are too low
Excessive actual costs

Budget does not represent what the costs should have
been.


EVALUATION OF PERFORMANCE
HINDSIGHT
Even though a decision seems unreasonable when it is
being evaluated, the decision might be entirely
reasonable at the time of decision making.

Indications like personal use of projects assets and
poor control system can still be used.

Evaluations may lead to changes of rules or
procedures.
PROJECT EVALUATION:
EVALUATION OF RESULTS
There is no point in attempting to evaluate a project
unless some action can be taken based on the
evaluation.

In many projects, expected benefits are not stated in
objective, measurable terms, making evaluation of
results complicated.
In these cases, benefit-cost analysis is not feasible
Must rely on judgment

Comparison should be a part of evaluation