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Program Evaluation and Review Technique (PERT)

Program Evaluation and Review Technique (PERT)

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Program Evaluation and Review Technique (PERT)

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  1. Program Evaluation and Review Technique (PERT) • PERT is a network analysis technique used to estimate project duration when there is a high degree of uncertainty about the individual activity duration estimates • PERT uses probabilistic time estimates based on using optimistic, most likely, and pessimistic estimates of activity durations

  2. Project Evaluation and Review Technique (PERT) reflects PROBABILISTIC nature of durations • assumes BETA distribution Activity durations are random • Optimistic time (a) • Most likely time (m) • Pessimistic time (b) • Expected time = (a+4*m+b)/6 • Critical path computation • Confidence intervals for projectcompletion time

  3. Expected Time & Variance for Activities

  4. The Statistical Distribution of Completion Times


  6. Practice Problem

  7. Working with People Issues • Strong leadership helps projects succeed more than good PERT charts • Project managers should use • empowerment • incentives • discipline • negotiation

  8. Using Software to Assist in Time Management • Software for facilitating communications helps people exchange schedule-related information • Decision support models help analyze trade-offs that can be made • Project management software can help in various time management areas

  9. Estimation Pitfalls • INTANGIBLES • nebulous benefits • better decision making • HIDDEN OUTCOMES • time, budget subject to great error • CHANGE • technology changes rapidly • outdating many good project ideas

  10. Evaluation Techniques • Economic & Financial • payback 68% • cost-benefit 63% • npv/irr 40% • Multifactor • checklist 38% • project profile 26% • scoring/rating models 26% • multicriteria 11% • Mathematical Programming 18% • Expert Systems 6%

  11. Criteria • Financial • net present value/internal rate of return • payback • profitability index/budgetary constraint • Management • support business objectives • respond to competition • better decision making • satisfy legal requirements • Development

  12. SCREENING • Eliminate proposals not meeting minimum requirements • GOOD: quick • BAD: tradeoffs disregarded CHECKLIST • Factors Minimum Standards • a way to implement screening • assure implementation of policy limits

  13. Cost-Benefit Analysis • Accurately estimate all benefits • identify overall profit impact • in net present terms • Accurately estimate all costs • overall profit impact, in net present terms • RATIO: benefits/costs <=1, don’t adopt >1, profitable can adopt by highest ratio

  14. Summary • Initial evaluation of projects is where most are eliminated • Companies need to avoid non-profitable projects • if budget scarce, select most profitable • Many risks need to be considered • ideally identify net present costs, benefits • practically need to consider intangibles

  15. What is Risk? • A dictionary definition of risk is “the possibility of loss or injury” • Project risk involves understanding potential problems that might occur on the project and how they might impede project success • Risk management is like a form of insurance; it is an investment

  16. The Importance of Project Risk Management • Project risk management is the art and science of identifying, assigning, and responding to risk throughout the life of a project and in the best interests of meeting project objectives • Risk management is often overlooked on projects, but it can help improve project success by helping select good projects, determining project scope, and developing realistic estimates • Study by Ibbs and Kwak show how risk management is neglected, especially on IT projects • KPMG study found that 55 percent of runaway projects did no risk management at all

  17. Some Risk Categories • Market risk: Will the new product be useful to the organization or marketable to others? Will users accept and use the product or service? • Financial risk: Can the organization afford to undertake the project? Is this project the best way to use the company’s financial resources? • Technology risk: Is the project technically feasible? Could the technology be obsolete before a useful product can be produced?

  18. Initial Risk Evaluation • Project manager’s ability • experience with project type, environment, language • familiarity with modern programming practice • availability of critical equipment, software • completeness of project team • personnel turnover • project team size • relative control of project manager over project team

  19. What is Project Risk Management? The goal of project risk management is to minimize potential risks while maximizing potential opportunities. Major processes include • Risk management planning: deciding how to approach and plan the risk management activities for the project • Risk identification: determining which risks are likely to affect a project and documenting their characteristics • Qualitative risk analysis: characterizing and analyzing risks and prioritizing their effects on project objectives • Quantitative risk analysis: measuring the probability and consequences of risks • Risk response planning: taking steps to enhance opportunities and reduce threats to meeting project objectives • Risk monitoring and control: monitoring known risks, identifying new risks, reducing risks, and evaluating the effectiveness of risk reduction

  20. Risk Management Planning • The main output of risk management planning is a risk management plan • The project team should review project documents and understand the organization’s and the sponsor’s approach to risk • The level of detail will vary with the needs of the project

  21. Potential Risk Conditions Associated With Each Knowledge Area

  22. Chart Showing High-, Medium-, and Low-Risk Technologies

  23. Quantitative Risk Analysis • Often follows qualitative risk analysis, but both can be done together or separately • Large, complex project involving leading edge technologies often require extensive quantitative risk analysis • Main techniques include • Decision tree analysis • simulation

  24. Decision Trees and Expected Monetary Value (EMV) • A decision tree is a diagramming method used to help you select the best course of action in situations in which future outcomes are uncertain • EMV is a type of decision tree where you calculate the expected monetary value of a decision based on its risk event probability and monetary value

  25. Figure 10-3. Expected Monetary Value (EMV) Example

  26. Risk Response Planning • After identifying and quantifying risk, you must decide how to respond to them • Four main strategies: • Risk avoidance: eliminating a specific threat or risk, usually by eliminating its causes • Risk acceptance: accepting the consequences should a risk occur • Risk transference: shifting the consequence of a risk and responsibility for its management to a third party • Risk mitigation: reducing the impact of a risk event by reducing the probability of its occurrence

  27. Table 10-8. General Risk Mitigation Strategies for Technical, Cost, and Schedule Risks