PM592 Final Exam Study Guide

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The final is an open book/open notes examination. The final includes ten questions, and is
worth a total of 300 points. The sample problems here represent the types of problems that may
appear on the final. There are solutions to the problems at the end. There will also be
discussion problems. have provided a list of the topics from which the discussion questions will
be taken.
On problems, please show all calculations when you complete the final.

ProbIems:
TCO B) Three-point estimate: Problem
TCO B) Contingency Pricing: Problem
TCO G) Crashing: Problem
TCO C) WBS: Problem
TCO E) Resource Allocation/Leveling: Problem
TCO F, G) Earned Value/PMS: Problem
TCO C) General Budget development, sensitivity: Problem

Discussion topics:

TCO D) Accounting, PMS, and Project Control
TCO A) Budgeting processes and techniques
TCO E) Resource Allocation Matrix
TCO F) Project Control Process
TCO F, G) EVM and EAC: Discussion:



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TerminaI Course Objectives
A
Given the WBS and work packages develop an understanding oI budgeting processes using top-down and
bottom-up techniques.
B
Given the WBS and work packages, analyze the various cost estimating processes and investigate
approaches used to justiIy and allocate contingency Iunds.
C
Given the project plan, develop budget estimates in appropriate categories including but not limited to
labor, non-labor, overhead, and general administrative, and determine the costs to which the total project
budget is most sensitive.
D
Given the project budget, develop a project cost accounting and management inIormation system Ior
monitoring and controlling the project.
E
Given the WBS and work packages together with resources available and required, develop a
Responsibility Assignment Matrix (RAM) and utilize resource leveling techniques to achieve optimum
use oI human resources and uniIorm cash Ilow.
F
Given a project in progress, use earned value techniques to determine whether control actions are to be
taken, develop recommendations to achieve a satisIactory outcome, and describe a reporting plan.
G
Given a project in progress, establish Estimates To Completion (ETC) and Estimates At Completion
(EAC) using alternative assumptions, and recommend a course oI action based on your Iindings.


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(TCO B) Estimating Procedures:

(a) A project requires the use of material A in several tasks over the 12 month period
expected to complete the work. Based on recent experience the most likely price for the
material is $29.00/lb. There are, however, price fluctuations over time based on suppliers used
and material availability. The most optimistic price estimate is $22.00/lb., and the most
pessimistic estimate is $51.00/lb.

What is the expected price of the materiaI?

(b) n addition to price fluctuations, it is also uncertain how much of material A will be
required for the project. Design uncertainties, and waste at the project site, will affect the
amount of material actually needed. The most likely amount required is 720 lbs. However, as
little as 600 lbs. and as much as 980 lbs. might be required.

What is the expected amount of materiaI A needed for the project?

(c) Using the estimates from & 2, what is the expected cost for materiaI A over the
Iife of the project using the simpIe and compIex formuIas?


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2 (TCO B) Contingency AIIowance:

ou are a project manager for Dinty Moore, the prepared food manufacturer, and have been
asked to manage the introduction of a new canned buffalo stew. Listed below are the initial cost
estimates for the ingredients and labor for 1000 cans of the product:

PRODUCT COMPONENT COST
ESTIMATE
TYPE OF ESTIMATE
BuffaIo $8000 Order of Magnitude (market price)
Potatoes $00 Definitive (own farms)
Carrots $200 Definitive (own farms)
Turnips $700 Budget (existing suppIier)
Corn Starch $0 Budget (existing suppIier)
FIavoring/preservatives $370 Definitive (in stock item)
BuffaIo Extract $300 Order of Magnitude (new product)
Aromatic Herbs $60 Budget (existing suppIier)
Disodium Inosinate $0 Definitive (in stock item)
Labor $600 Order of Magnitude (BuffaIo preparers an
unknown quantity)
Packing and shipping $800 Definitive (same as current product)
TotaI cost $820 NA

The target retail price for the new stew is $0.99 per can. The average discount to resellers is
150%. New products are targeted for 100% markup on introduction, so that price and cost
reductions can be taken as required by competitive pressure and still keep the product
profitable.

Dinty Moore's estimating department currently defines estimate accuracy as follows:
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Order of Magnitude -25%, +50%

Budget -10%, +20%
Definitive -5%, +5%

(a) What cost contingency budget do you recommend for the product?
(b) WiII the project be approved?
(c) What wouId you recommend to reduce or eIiminate any contingency from the
budget?
(d) What are the probIems with using this process to make the finaI decision on a
project?

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3 Compressing Project ScheduIes, Crashing:

Using the network below and the additional information provided, find:
a) The crash cost per day per activity.
b) Which activities should be crashed to meet a project deadline of 12 days at
minimum cost?
c) What is the additional cost as a result of crashing the project?
d) n general when should crashing be used and what are the considerations when making
the decision?

Answer:
Normal
Time
Normal
cost
Crash
Time
Crash
Cost
Crash Cost /
Day
Actual
Days
Actual Crash
$
a)
Activity days) total) days) total) total) total)
A 6 $300 2 $400
B 3 250 2 280
C 6 400 4 550
D 5 150 2 270


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WBS DeveIopment:

A company intends to establish a manufacturing facility by buying an existing factory from a
company in the same industry. A state-of-the art manufacturing line with supporting utilities will
be established in the refurbished factory.

Securing the building will involve negotiating the purchase and refurbishing and upgrading the
building structure.

Utilities that have to be upgraded or new systems installed include: upgrade of the electrical
system, installation of a new compressed air system, and increase in the capacity of the plant
wastewater treatment system.

Establishing the manufacturing line will require development of production equipment
specifications, procurement, and installation of machines and materials handling systems. A
systems test plan will be developed concurrently with preparation of the equipment
specifications. To check out the manufacturing line, a systems test of the complete line will be
performed by operating it to produce product. A separate project team is handling procurement
and stocking of components and materials that will be needed for the systems test of the new
line as well as when it becomes fully operational.

Prepare a work breakdown structure listing for this project with activities corresponding to a two-
level task and sub-task hierarchy. Format the WBS listing with activity item indents and WBS
codes such as a numbering scheme) that will clearly identify the level of each activity. Provide
columns showing the WBS code and activities.

A work breakdown structure listing for this project is:

WBS Code Activity

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Resource AIIocation/LeveIing:

The following information is extracted from a project to design an office complex:

Activity Duration Predecessors Resources

A 4 days -- 1 Real Estate Consultant
B 3 days A 1 Legal Advisor
C 5 days A 1 Architect
D 3 days A 1 Architect
E 3 days B 1 Real Estate Consultant
F 2 days D 1 Legal Advisor

The Owner has stipulated that in order to provide continuity throughout the project, the same
individual must handle all activities under his or her discipline. He understands that schedule
and cost are tradeoffs but has stated that cost and quality are more important than schedule.
Activities on this project cannot be split.

a. dentify any resource conflicts in the above project. State the activities involved,
the time frame of the conflicts), and which individuals) are involved.

b. Given the owner's stipulation regarding project continuity, and the need to
minimize project duration, how can this conflict be resolved? What will be the effect on the
project? Be sure to explain your logic in making your changes.
(This part is as important as the calculations as this is the type decision a project manager gets
paid to do.)


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6: (TCOs F & G) Earned VaIue and EAC

The following data were obtained from a project to build a pressure vessel:

Activity Duration Predecessors Budgeted Cost
A 4 weeks --- $18,650
B 3 weeks --- $6,430
C 6 weeks B $24,600
D 2 weeks A, C $12,000
E 3 weeks B $15,500
F 5 weeks D, E $26,000

At the end of week 4, the status of the project is as follows:
Activity % CompIete ActuaI Cost
A 90% $17,200
B 100% $5,370
C 0% $0
D 0% $0
E 25% $4,800
F 0% $0
a). Calculate the Cost and Schedule Variances for tasks A, B, C, D, E and F.
b). Calculate the EAC for the Project.
c). Write a brief analysis of the status of the project at this time. Use the results of your
analysis to help explain why you arrived at your conclusions.



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7 (TCO C) GeneraI Budget deveIopment, sensitivity:

a) Given the following information, develop a base cost estimate by grouping
costs by Equipment / Material), nstallation / Labor), and Overhead).
1. equipment costing $ 10,000
2. Material required for electrical hook-up is 100 feet at $ 25 per foot
3. Controls for each piece of equipment are estimated at $ 400 each
4. Company labor for installation requires 5 technicians for 10 days at eight hours per day
and $ 40 per hour
5. Engineering is estimated to be 15% of equipment / material) cost based on past
experience
6. nspection is estimated to be 3% of labor) cost based on past experience
7. General and Administrative expenses are estimated to be 5% of the total of all expenses
based on past experience.
Note: only item 4 is considered labor.
b) Looking at the results of the calculation, what is the element of the budget
that the outcome is most sensitive to? Why?







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Discussion topics:

The discussion questions will require the student to demonstrate an understanding of the
concepts and why they are important. A list as an answer will not receive a satisfactory grade.
Generalizations are also not complete answers. Just like reporting project management a
factual response will receive the best reception. See the text and the lectures to review these
topics
(TCO F, G) EVM and EAC: Discussion:

The earned value process is very important to project control. Understand and be able to
discuss what it is and why it is of value.

(TCO D) Accounting, PMIS, and Project ControI:

The when monitoring and controlling a project we must have data. Understand why, how this
data is created, how it is communicated, and what is important about the systems involved.

(TCO A) Budgeting processes and techniques:

This will be a discussion question that will ask you to discuss the budgeting processes and
techniques that we have coved and explain how and why they are used, what the benefits and
drawbacks are.

(TCO E ) Resource AIIocation Matrix:
One of the important tools in project management is the resource allocation matrix RAM).
Understand what it is, what good ways to create it are, what it is used for, and why it is valuable.

(TCO F) Project Monitoring and ControI:

This will be a discussion question relative to project monitoring and control, what it is, what are
the requirements to make it happen, and why all this is important.
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Answer Key for sampIe probIems:

Three-point estimate:

(a) Using the estimator P
exp
= (P
opt
+ P
most Iike
+ P
pess
)/6, the expected price is (22+
{29} + )/6 = $30/Ib

(b) Using the same estimator, the expected amount= (600+ {720} + 980)/6 = 7333
Ibs

(c) Estimate of the most likely cost is the product of the most likely price and most likely
amount that will be used. Use a similar estimating procedure for the most optimistic and most
pessimistic costs

Most IikeIy cost: $30/Ib 7333 Ibs = $23,

ou can stop here or continue to the more complex solution. Ask yourself, if am so unsure of
my estimates that am doing this process why do believe that a double application of the
process will make the numbers better?

Most optimistic cost: $22 600 Ibs = $3,200

Most pessimistic cost: $ 980 Ibs = $9,980

The expected cost for materiaI A is: ($3,200 + { $23,} + $9,980)/6 = $26,0


2 Contingency Pricing:

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(a) Contingency budget = 0(80 + 3 + 6) = 330

20(7 + 0 + 60) = 2280
0( + 2 + 370 + 0 + 8) = 27
$2090
(b) RetaiI price = 2090c X 200% = 80c X 2 = $0/can
As this is above the target retaiI price of 99c/can, the project wiII not be approved

(d) Firm up estimates, especiaIIy for buffaIo and Iabor

3 Crashing

Answer:
Normal
Time
Normal
cost
Crash
Time
Crash
Cost
Crash Cost /
Day
Actual
Days
Actual Crash
$
a)
Activity days) total) days) total) total) total)
A 6 $300 2 $400 $25.00 $0.00
B 3 250 2 280 $30.00 1 $30.00
C 6 400 4 550 $75.00 $0.00
D 5 150 2 270 $40.00 1 $40.00
$70.00

a) See table.

b) CP = B, C, D = 14 days

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B for 1 day @ cost of $30.00

D for 1 day @ cost of 40.00

Total crash cost of $70

c) Discussion
When the schedule reduction is more important than maintaining the cost.


WBS: A work breakdown structure listing for this project is:

WBS Code Activity
1. Secure the factory building
1.1 Negotiate and close the building purchase
1.2 Refurbish and upgrade the building structure

2. Upgrade and install new utility systems
2.1 Upgrade electrical system
2.2 nstall new compressed air system
2.3 ncrease capacity of plant wastewater treatment system

3. Establish the manufacturing line
3.1 Prepare equipment specifications
3.2 Prepare systems test plan for the complete line
3.3 Procure equipment
3.4 nstall equipment

4. Perform systems test of the complete manufacturing line
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4.1 Receive components and materials needed for the test

4.2 Run manufacturing systems test according to the test plan

Resource AIIocation/LeveIing:

a. Conflict exists during days, 5, 6, & 7. Activities C & D require the Architect during this
period.

b. Delay Activity C to start on day 8, extending the duration of the project from 10 to 12
days. Note that the alternative, delaying D to start after C, will add an additional 2 days as the
initial critical path is A-B-E
6 Earned VaIue and EAC:


Activity ScheduIed
CompIetion
BCWP BCWS ACWP CV SV
A 00% $6,78 $8,60 $7,200 ($) ($,86)
B 00% $6,30 $6,30 $,370 $,060 $0
C 7% $0 $,82 $0 $0 ($,82)
D 0% $0 $0 $0 $0 $0
E 33% $3,87 $, $,800 ($92) ($,20)
F 0% $0 $0 $0 $0 $0

(b): EAC: $9, + $,370 + $2,600 + $2,000 + $9,200 + $26,000 = $06,28

(c): ScheduIe: Tasks A and E are behind schedule, however neither is on the critical path and
both have 5 weeks of slack time. These tasks need to be investigated. Of more concern is CP
task C, which should be 17% complete but has not yet started; this task should be investigated
urgently.
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Budget: The project shows an overall negative cost variance of $280, which is insignificant. The
EAC of $106,281 compares to an original budget of $103,180, and indicates the project will
complete approximately 3% over budget if no action is taken.

7 (TCO C) GeneraI Budget deveIopment, sensitivity
Material Cost
tem Qty Amt @ Extended Cost
Equipment 1 $10,000 $10,000
Material 100 $25 $2,500
Controls 1 $400 $400
Material $12,900
Labor Cost
tem Qty $/ Hr Hours Extended Cost
Technicians 5 $40 80 $16,000
Labor $16,000

Overhead Cost
tem Rate Base Cost Extended Cost
Engineering 15% $12,900 $1,935
nspection 3% $16,000 $480
Overhead Subtotal $2,415
G and A 5% $ 31,315 $1,566
Overhead Total $3,981

Grand total $32,880
Sensitivity: The labor cost are the greatest and is sensitive to the number of techs required and
the amount of time.