Lesson 14 - Project and Program Management Flashcards
Cost-benefit analysis
estimates the total monetary value of the benefits and costs to the community of a project(s) to determine whether they should be undertaken. Typically, this is used for public projects such as highways and other public facilities.
This analysis was originated by the French engineer Jules Dupuit in 1848. In the United States, cost-benefit analysis became common as a result of the Federal Navigation Act of 1936. This act required that the U.S. Army Corps of Engineers undertake waterway system projects when the total benefits exceed the costs of the project.
Cost-benefit analysis requires that all costs and benefits be converted to a monetary value. This means that social and environmental benefits, such as the preservation of open space, have a monetary value. This is one of the biggest challenges in conducting cost-benefit analyses.
The costs and benefits must be set for a particular time and for a specified location.
In order to determine the cost-benefit, the proposed project is compared against the current situation without the project.
If the ratio of benefits over costs is greater than one, then the monetary benefits of the project outweigh its monetary costs. In comparing multiple project alternatives, the largest ratio creates the highest net monetary value.
Cost-effectiveness analysis
a method for selecting among competing projects when resources are limited, was developed by the military. For example, if a community has $50,000 to spend on park improvements then several different projects can be prepared, such as adding playground equipment or purchasing a new lawn mower.
The cost-effectiveness ratio is CE Ratio = (cost new strategy - cost current practice)/(effect new strategy - effect current practice).
Net Present Value
shows the net monetary value of a project, discounted to today’s present value. For example, if the net present value of a proposed hockey arena is greater than zero then one can conclude that the monetary benefit of the hockey arena outweighs its monetary costs. To calculate net present value you need to know the years in the project’s life span, the quantified monetary benefits, the monetary costs and the interest rate for discounting purposes. An alternative is to calculate an internal rate of return. In this case the project’s net present value is at zero and the interest rate is blank. If the calculation results in an interest rate that is greater than the available market interest rate then the project would be financially beneficial.
Goals Achievement Matrix
is a project evaluation matrix that includes competing projects in rows and the evaluation criterion columns. The evaluation criteria are based on the various stakeholder groups that be impacted by the costs or receive benefits.
Goals Achievement Matrix (GAM) - Project mgmt techniques
is a comprehensive way to evaluate a project. The GAM is a table that shows the anticipated attainment of a project’s goals and the assignment of accomplishing a goal to a group.
Gantt Chart
was developed in 1917 by Charles Gantt. This chart focuses on the sequence of tasks necessary for project completion. Each task is represented as a single horizontal bar on an X-Y chart. The X-axis is the time scale over which the project will endure. The length of each task bar corresponds to the duration of each task. The relationship usually shows dependency, where one task cannot begin until another is completed.
Linear programming
is a project management method that attempts to find the optimum design solution for a project. This system takes a set of decision variables within constraints and comes up with an optimum design solution.
Program Evaluation and Review Technique (PERT)
is a scheduling method that graphically illustrates the interrelationships of project tasks. PERT is a good choice when precise time estimates are not available for project tasks. The U.S. Navy developed this method in the 1950s and it is now used widely in the defense industry.
The PERT planning process involves the following steps:
• Identify the specific activities and milestones;
• Determine the proper sequence of the activities;
• Construct a network diagram;
• Determine the critical path;
• Update the PERT chart as the project progresses.
Critical Path Method (CPM)
is a tool to analyze a project. The analysis results in a “critical path” through the project tasks. Each project task has a known amount of time to complete and cannot be completed before the previous one is completed. The longest pathway is the critical pathway.
PERT and CPM work when a project is of a large-scale. Typically, project management software is used to perform this kind of analysis. Over time these two methods evolved and are now considered one method, PERT/CPM.
