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Chapter 4 - Control

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Chapter 4 - Control

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Arian
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EA302/EM416

Engineering Management & Economics

Chapter 4 - Control
Learning Outcomes
After reading this chapter, you will be able to:
1. Define control.
2. Describe three approaches to control.
3. Explain why control is important.
4. Describe the control process.
5. Identify the ethical dilemmas in employee
monitoring.
6. Calculate Project Control
What Is Control?

 The process of monitoring activities to ensure that


they are being accomplished as planned and of
correcting any significant deviations

 An effective control system ensures that activities are


completed in ways that lead to the attainment of the
organization’s goals.
Characteristics of Three Approaches
to Control Systems
• Market
 Uses external market mechanisms, such as price competition and
relative market share, to establish standards used in system to
gain competitive advantage.

• Bureaucratic
 Emphasizes organizational authority of administrative and
hierarchical mechanisms to ensure appropriate employee
behaviors and to meet performance standards.

• Clan
 Regulates employee behavior by the shared values, norms,
traditions, rituals, beliefs, and other aspects of the organization’s
culture.
The Control
Process
Steps in the Control Process
• Measuring actual performance

 Personal observation, statistical reports, oral reports,


and written reports

 Management by walking around (MBWA)


 A phraseused to describe when a manager is out in the
work area interacting with employees
Steps in the Control Process (cont’d)
• Comparing actual performance against a
standard

 Comparison to objective measures: budgets,


standards, goals

 Range of variation
 The acceptable parameters of variance between actual
performance and the standard
Defining an Acceptable Range of Variation
Steps in the Control Process (cont’d)
• Taking managerial action to correct deviations or
inadequate standards
 Immediate corrective action
 Correcting a problem at once to get performance back on
track

 Basic corrective action


 Determining how and why performance has deviated and
then correcting the source of deviation

 Revising the standard


 Adjustingthe performance standard to reflect current and
predicted future performance capabilities
Project Control

How can we tell


when Project Control is
needed?
How is project health measured?

• Project Manager evaluates project’s triple


constraint of scope, time and cost

• Key Questions
 Is the project performing to budget?
 Is the project on schedule to deliver the agreed scope?

• Typically Summarize Project Health using Green,


Yellow, Red Status (Traffic Light Reporting)
Apply Earned Value Analysis
(EVA)
• Earned Value Analysis (EVA)
 Earned Value Analysis is an objective method to
measure project performance in terms of scope, time
and cost

 Use EVA metrics are used to measure project health


and project performance
Earned Value Characteristics

• How much work did you PLAN to complete?


-Planned Value (PV)

• How much work did you ACTUALLY complete?


- Earned Value (EV)

• How much did you spend to complete the work?


-Actual Cost (AC)
Earned Value Analysis Definitions

Terms Definitions
Earned Value (EV) It is the work is “Earned” or “credited” as it is completed.
In another word, how much work did you ACTUALLY
complete?
Planned Value (PV) It is the portion of the approved cost estimate planned
to be spent on an activity during a given period. In
another word, how much work did you PLAN to
complete?

Actual Cost (AC) It is the total costs (direct and indirect) incurred in
completing work on an activity during a given period. In
another word, how much did you SPEND to complete
the work?
Budget at It is the TOTAL BUDGET you plan to spend for 100%
Completion (BAC) complete the project
Some Derived Metrics
SV: Schedule Variance (EV-PV)
A comparison of amount of work performed during a
given period of time to what was scheduled to be
performed.

A negative variance means the project is behind


schedule

CV: Cost Variance (EV-AC)


A comparison of the budgeted cost of work performed
with actual cost.

A negative variance means the project is over budget.


S-Curve
Example
A $10,000 software project is scheduled for 4 weeks.
At the end of the third week, the project is 50% complete and the actual
costs to date is $9,000

Planned Value (PV) = $7,500


Earned Value (EV) = $5,000
Actual Cost (AC) = $9,000

2500 2500 2500 2500

4
0
1 2 3

PV at week 3 = (3/4) X 10000 = 7,500

EV at Week 3 = 50% X 10000 = 5,000

SV = EV – PV = 5000-7500 = - 2500 = (2,500) – behind schedule/delay 50% completed

CV = EV – AC = 5000 – 9000 = - 4,000 = (4,000) – Over-budget AC = 9,000


What is the project health?

Schedule Variance (SV)


= EV – PV = $5,000 – $7,500
= - $2,500 (behind schedule)

Schedule Performance Index (SPI=EV/PV)


= EV/PV = $5,000 / $7,500 = .66

SPI<1 means project is behind schedule


What is the project health?
• 
Forecasting Costs

• If the project continues at the current


performance, what is the true cost of the
project?

• Estimate At Complete
= Budget At Complete (BAC) / CPI
= $10,000 / .55 = $18,181

At the end of the project, the total project costs will be


$18,181
• Time to Complete
= Project Duration/ SPI
= 4 / .66 = 6.01 weeks

The project will require 6.01 weeks to COMPLETE !!!


Establish Ranges to Guide
Traffic Light Status
• Traffic Light status is useful in conveying
overall project with one color

• Establish objective SPI and CPI ranges to


determine the true project color.
Green [1.0 - 0.95]
Yellow [0.94- 0.85]
Red [0.84 - 0]

MARR = Minimum Attractive Rate of Return


= 15%
Exercise
• Suppose you have a budgeted cost of a project at
$900,000. The project is to be completed in 9 months.
After a month, you have completed 10 percent of the
project at a total expense of $100,000. The planned
completion should have been 15 percent.

Estimate the project is on time and on budget?


Estimate the estimated future cost and anticipated time
to complete the project as this pace.
Exercise 2
• Sam is a manager for a company that produces two types of
products each year. The project requires 300 gadgets to be
produced per month for Product X with a cost of RM 75 each, and
150 gadgets to be produced per month for Product Y with a cost of
RM 125 each. Sam receives an order for 12 months to produce both
products. After Sam’s project team into six months of the project,
they have produced 1600 Product X with actual cost of RM 130,000
and 800 Gadget B with actual cost of RM 120,000.

 Estimate the project is on time and on budget?

 Estimate the estimated future cost and anticipated time to complete


the project as this pace.

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 13–24

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