Project Planning and Control Project Planning and Control Fourth Edition Eur Ing Albert Lester, CEng, FICE, FIMechE, FIStructE, FAPM AMSTERDAM BOSTON HEIDELBERG LONDON NEW YORK OXFORD PARIS SAN DIEGO SAN FRANCISCO SINGAPORE SYDNEY TOKYO Elsevier Butterworth-Heinemann Linacre House, Jordan Hill, Oxford OX2 8DP 200 Wheeler Road, Burlington MA 01803 First published by Butterworth & Co (Publishers) Ltd 1982 Second edition published by Butterworth-Heinemann 1991 Third edition 2000 Fourth edition 2003 Copyright © 1982, 1991, 2000, 2003, Elsevier Ltd. All rights reserved No part of this publication may be reproduced in any material form (including photocopying or storing in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication) without the written permission of the copyright holder except in accordance with the provisions of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London, England W1T 4LP. Applications for the copyright holder’s written permission to reproduce any part of this publication should be addressed to the publisher Permissions may be sought directly from Elsevier’s Science and Technology Rights Department in Oxford, UK: phone: (+44) (0) 1865 843830; fax: (+44) (0) 1865 853333; e-mail: permissions@elsevier.co.uk. You may also complete your request on-line via the Elsevier homepage (http://www.elsevier.com), by selecting ‘Customer Support’ and then ‘Obtaining Permissions’ British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data A catalogue record for this book is available from the Library of Congress ISBN 0 7506 5843 6 For information on all Butterworth-Heinemann publications visit our website at www.bh.com Composition by Genesis Typesetting, Rochester, Kent Printed and bound in Great Britain by Biddles Ltd, Guildford and King’s Lynn Contents Preface to the fourth edition vii Preface to the third edition xi Preface to the second edition xv Preface to the first edition xvii Foreword to the first edition xix Acknowledgements xxi 1 Project definition 1 2 Business case 5 3 Organization structures 16 4 Project life cycles 20 5 Work breakdown structures (WBS) 25 6 Estimating 38 7 Project management plan 42 8 Risk management 46 9 Quality management 56 10 Change and configuration management 58 11 Basic network principles 65 12 Precedence or activity on node (AoN) diagrams 81 13 Lester diagram 88 14 Float 96 15 Arithmetical analysis 104 16 Graphical analysis, milestones and LoB 112 17 Computer analysis 127 18 Simple examples 135 19 Progress reporting 147 20 The case for manual analysis 156 21 Subdivision of blocks 165 22 Project management and planning 172 23 Network applications outside the construction industry 181 24 Networks and claims 196 25 Resource loading 203 26 Cash flow forecasting 211 27 Cost control and EVA 220 28 Worked examples 256 29 Example of integration of tools and techniques 289 30 Hornet Windmill 312 31 MS Project 98 339 32 Project close-out 351 33 Stages and sequence 353 34 Abbreviations and acronyms used in project management 359 Glossary 363 Bibliography 371 Index 377 vi Contents Preface to the fourth edition About a year ago I was asked by a firm of insurance loss adjusters to investigate the possibility of reducing the anticipated overrun caused by an explosion at a power station. Based on previous experience of similar problems, I asked the contractors (a firm of international design and build constructors) to let me examine the critical path network which formed the basis of the computer-generated bar charts previously sent to the loss adjusters. My objective was to see whether the original sequence of construction activities could be rescheduled to mitigate the inevitable delays caused by long lead times of replacements and in some cases redesign of the damaged components. To my dismay, I discovered that there was no network. The planners inputted the data straight into the computer, based on very detailed established modular packages. These packages contained the sequences, interrelationships and durations of the constituent activities. It is a fact that most commercial computer programs recommend such a procedure. The planner can then see the program on the screen in bar chart form as he/she proceeds, but will only obtain a network printout (in precedence format) after the data has been processed. In other words the network has become virtually redundant as it has not been used to develop the structure of the project before the data was inputted. This procedure turns network analysis on its head and does not give a project team the ability to discuss and refine the interrelationships to give the optimum results in terms of time and cost. The very act of communally drafting and developing the network generates not only an understanding and appreciation of the problems, but also enables the overall time to be reduced to an acceptable level by maximizing parallel working without necessarily Preface to the fourth edition increasing resources and costs. It is for this reason that I have retained the chapter setting out the case for manual analysis. Even in this age of the universal use of the PC for just about every management and operational function of an organization, the thinking process, i.e. the basic planning and sequencing of a project cannot be left to a machine. One of the by-products of computerization was the introduction of precedence or AoN (activity on node) networks. These types of networks seem to militate against manual drafting for large projects, because drawing and filling in of the many node boxes is very time consuming, when compared to the drafting of arrow or AoA (activity on arrow) diagrams. However, the big advantage of the AoN diagram is the substitution of node numbers by activity numbers. This clearly simplifies the numbering system and enables activities to be added or changed without affecting the numbers of the other activities. Indeed most computer programs add the activity numbers automatically as the data is entered. There is no reason therefore why a simplified form of AoN network cannot be used in the manual drafting process to give the same benefit as an arrow diagram. A selected number of the arrow (AoA) diagram examples given in Chapters 12 and 18 have therefore been augmented by these simplified precedence diagrams, in the hope that the important part of network analysis, the initial drafting, will be carried out. Unfortunately the description of the activities will have to be written into the nodes, which will usually reduce the number of activities that can be accommodated on a sheet of paper when compared with an arrow diagram. A ‘marriage’ of the two methods, called the ‘Lester’ diagram is given in Chapter 13. At the time of writing, Earned Value Analysis (EVA) has still not been fully embraced by certain sections of industry. One reason for this may be the jargon associated with this technique. When we developed our own EVA system at Foster Wheeler as far back as 1978 we used the simple terms of Actual Cost, Planned Cost and Earned Value. Unfortunately the American CSCSC system introduced such terms as ACWP, BCWS and BCWP which often generated groans from students and rejection from practitioners. It is gratifying to note therefore that the campaign to eradicate these abbreviations has prompted the British Standards Institution and the Association for Project Management to give prominence to the original English words. To encourage this welcome trend, the terms used in EVA methods in this book are in English instead of jargon. Since publication of the third edition, the APMP examination has undergone a number of changes. In order to meet the new requirements for viii Preface to the fourth edition ix paper 2 of the examination, some new topics have been included in this edition and a number of topics have been enhanced. However, no attempt has been made to include the ‘soft’ topics such as team building and motivation, which, while important, are really part of good general management and are certainly not exclusive to project management. A number of chapters have been rewritten and their order rearranged to reflect as far as possible the sequence in which the various techniques are carried out when managing a project. A. Lester [...]... 0 .16 8 0 .14 5 0 .12 5 0 .10 8 0. 410 0.354 0.305 0.263 0.227 0.862 0.743 0.6 41 0.552 0.476 16 % 0.0 01 0. 014 0. 011 0. 010 0.008 0.007 0.0 31 0.026 0.022 0. 019 0. 016 0.0 71 0.060 0.0 51 0.043 0.037 0 .16 2 0 .13 7 0 .11 6 0.099 0.084 0.370 0. 314 0.266 0.225 0 .19 1 0.847 0. 718 0.609 0. 516 0.437 18 % 0.0 01 0.009 0.007 0.006 0.005 0.004 0.022 0. 018 0. 015 0. 013 0. 010 0.054 0.045 0.038 0.0 31 0.026 0 .13 5 0 .11 2 0.093 0.078 0.065... finding the present value (PV) of 11 5.76 is to divide it by 1. 05 × 1. 05 × 1. 05 or 1. 157, for 11 5.76 1. 05 × 1. 05 × 1. 05 = 11 5.76 1. 157 = 10 0 If instead of dividing the 11 5.76 by 1. 157, it is multiplied by the inverse of 1. 157, one obtains the same answer, since 11 5.76 × 1 1 .15 7 = 11 5.76 × 0.8638 = 10 0 The 0.8638 is called the discount factor or Present Value Factor and can be quickly found from discount... 0 .18 2 0 .16 0 0 .14 0 0.456 0.400 0.3 51 0.308 0.270 0.877 0.769 0.675 0.592 0. 519 14 % 0.0 01 0.004 0.026 0.023 0.020 0. 017 0. 015 0.053 0.046 0.040 0.035 0.030 0 .10 7 0.093 0.0 81 0.070 0.0 61 0. 215 0 .18 7 0 .16 3 0 .14 1 0 .12 3 0.432 0.376 0.327 0.284 0.247 0.870 0.756 0.658 0.572 0.497 15 % 0.0 01 0.003 0.0 21 0. 018 0. 016 0. 014 0 012 0.044 0.038 0.035 0.028 0.024 0.093 0.080 0.069 0.060 0.0 51 0 .19 5 0 .16 8 0 .14 5 0 .12 5... 0.002 0.037 0.027 0.020 0. 015 0. 011 0 .16 5 0 .12 2 0.0 91 0.067 0.050 0.7 41 0.549 0.406 0.3 01 0.223 35% 0.0 01 0.0 01 0.005 0.003 0.002 0.002 0.0 01 0.025 0. 018 0. 013 0.009 0.005 0 .13 3 0.095 0.068 0.048 0.035 0. 714 0. 510 0.364 0.260 0 .18 6 40% 0.003 0.002 0.0 01 0.0 01 0.0 01 0. 017 0. 012 0.008 0.006 0.004 0 .10 8 0.074 0.0 51 0.035 0.024 0.690 0.476 0.328 0.226 0 .13 6 45% 0.002 0.0 01 0.0 01 0. 012 0.008 0.005 0.003 0.002... 0.002 0.0 01 0.0 01 0.0 01 0.0 01 0.006 0.004 0.005 0.003 0.002 0. 019 0. 015 0. 012 0.009 0.007 0.066 0.052 0.040 0.032 0.025 0.227 0 .17 8 0 .13 9 0 .10 8 0.085 0.7 81 0. 610 0.477 0.373 0.2 91 28% 0.0 01 0.0 01 0.0 01 0.0 01 0.004 0.003 0.002 0.002 0.0 01 0. 015 0. 012 0.009 0.007 0.005 0.056 0.043 0.033 0.025 0.020 0.207 0 .15 9 0 .12 3 0.094 0.073 0.769 0.592 0.455 0.350 0.269 30% 0.002 0.0 01 0.0 01 0.0 01 0.0 01 0.008 0.006... 0.3 71 0.350 0.3 31 0. 312 0.527 0.497 0.469 0.442 0.437 0.705 0.665 0.627 0.592 0.558 0.943 0.890 0.840 0.792 0.747 6% 0.0 21 0.046 0 .13 5 0 .12 5 0 .11 6 0 .10 7 0.099 0 .19 9 0 .18 4 0 .17 0 0 .15 8 0 .14 6 0.292 0.270 0.250 0.232 0. 215 0.429 0.397 0.368 0.340 0.345 0.630 0.583 0.540 0.500 0.463 0.926 0.857 0.794 0.735 0.6 81 8% 0.009 0.022 0.084 0.076 0.069 0.063 0.057 0 .13 5 0 .12 3 0 .11 2 0 .10 2 0.092 0. 218 0 .19 8 0 .18 0 0 .16 4... tables, a sample of which is given in Figure 2 .1 7 0.772 0.764 0.757 0.749 0.742 0.672 0.608 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 40 50 Figure 2 .1 0. 811 0.803 0.795 0.788 0.780 0.853 0.844 0.836 0.828 0.820 0.896 0.887 0.879 0.870 0.8 61 0.942 0.933 0.923 0. 914 0.905 6 7 8 9 10 0.990 0.980 0.9 71 0.9 61 0.9 51 1% 1 2 3 4 5 Years Hence 0.372 0.453 0.598 0.586... 0 .11 6 0.806 0.650 0.524 0.423 0.3 41 24% 0.003 0.002 0.002 0.002 0.0 01 0.009 0.007 0.006 0.005 0.004 0.028 0.023 0. 018 0. 014 0. 012 0.086 0.069 0.055 0.044 0.035 0.262 0. 210 0 .16 8 0 .13 4 0 .10 7 0.800 0.640 0. 512 0. 410 0.328 25% 0.002 0.002 0.002 0.0 01 0.0 01 0.008 0.006 0.005 0.004 0.003 0.025 0.020 0. 016 0. 012 0. 010 0.079 0.062 0.050 0.039 0.0 31 0.250 0 .19 8 0 .15 7 0 .12 5 0.099 0.794 0.630 0.500 0.397 0. 315 ... 0 .19 4 0 .16 2 0.833 0.694 0.579 0.482 0.402 20% 0.006 0.005 0.004 0.003 0.003 0. 015 0. 013 0. 010 0.008 0.007 0.042 0.034 0.028 0.023 0. 019 0 .11 2 0.092 0.075 0.062 0.0 51 0.303 0.249 0.204 0 .16 7 0 .13 7 0.820 0.672 0.5 51 0.4 51 0.370 22% Table A Present value of 1 0.004 0.003 0.002 0.002 0.002 0. 011 0.009 0.007 0.006 0.005 0.032 0.026 0.0 21 0. 017 0. 014 0.094 0.076 0,0 61 0.049 0.040 0.275 0.222 0 .17 9 0 .14 4... the investment If 10 0 were invested in a bank earning an interest of 5% The value in 1 year would be 10 0 × 1. 05 = 10 5 The value in 2 years would be 10 0 × 1. 05 × 1. 05 = 11 0.25 The value in 3 years would be 10 0 × 1. 05 × 1. 05 × 1. 05 = 11 5.76 It can be seen therefore that, today, to obtain 11 5.76 in 3 years it would cost 10 0 In other words, the present value of 11 5.76 is 10 0 Another way of finding . 96 15 Arithmetical analysis 10 4 16 Graphical analysis, milestones and LoB 11 2 17 Computer analysis 12 7 18 Simple examples 13 5 19 Progress reporting 14 7 20. analysis 15 6 21 Subdivision of blocks 16 5 22 Project management and planning 17 2 23 Network applications outside the construction industry 18 1 24 Networks and