Engineering Management • Project and Project Management Definitions • Project Management Knowledge areas • Project Phases.
ENGR 301 Lecture 24
Inception - Planning & definition – Design – Procurement & execution – Start-up & commissioning
• Project Delivery Types or Methods Traditional – Phased – Fast track
Review & Examples
• Project Stakeholders • Organization Structure – Functional – Projectized - Matrix
• Types of Contracts S. El-Omari
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• Project Delivery Systems Traditional Turnkey Owner Builder Professional Construction Manager
• Planning & Scheduling – WBS “Work Breakdown Structure” – CPM & PDM – Bar Chart
• Cost Control
Early start time of first event = 0 (forward pass) E(0) = 0
Lag and Lead times In activity relation are Not part of the exam
2.
• BCWP, BCWS, ACWP, BAC, CV, SV, CPI, SPI, EAC ENGR 301 Lecture 24
Continue the following events as follows E (j) = maximum [E (i) + Dij ] from all routes leading to event (j) Dij = duration of activity ij J = 1, 2, 3, …n n = last event
3. Resource histogram Is also not part of the exam
– Earned value analysis
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After reaching last event start backward pass L (n) = E (n) L (j) minimum [L (i) – Dij ]
4.
After finishing the backward pass, calculate float The float is the time the activity can be delayed without delaying the project duration. E L i Total float TF (i,j) = L (j) – E (i) – Dij Backward
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Earned Value
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ENGR 301 Lecture 24
E L
Forward
i
E L j
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Earned Value Example: For a project that has a total cost of $ 2,350,000 and has actual cost at month 5 of $ 710,000, a schedule of 650,000, if the % complete for that project at month 5 is 29 %, project duration is 13 months, Find: 1. The earned value 2. Cost and schedule variances (CV, SV) 3. Total variance 4. CPI & SPI 5. Estimate at completion (EAC) and the estimated finishing date
Cost Variance = ACWP – BCWP Schedule Variance = BCWP – BCWS Total Variance = ACWP – BCWS Cost Performance Index (CPI) = BCWP / ACWP Schedule performance index (SPI) = BCWP / BCWS EAC = BAC / CPI S. El-Omari
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CPM & PDM Calculations
Engineering Management – – – –
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Earned Value
Earned Value
Solution: EV =
Total Variance = ACWP – BCWS
BCWP = % complete x total cost
= 710,000 – 650,000 = 60,000 (accounting variance)
29 % x 2,350,000 = $ 681,500
CPI = BCWP / ACWP
ACWP = $ 710,000 BCWS = $ 650,000 Cost Variance (CV)= ACWP – BCWP (cost overrun) = 710,000 - 681,500 = $ 28,500 Schedule Variance (SV) = BCWP – BCWS = 681,500 – 650,000 = 31,500 S. El-Omari
(ahead of schedule)
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681,500 / 710,000 = 0.96 SPI = BCWP / BCWS 681,500 / 650,000 = 1.05 EAC = BAC / CPI = 2,350,000 / 0.96 = 2,447,917 Duration= 13 / SPI = 13 / 1.05 = 12.38 ~ 12.5 months S. El-Omari
Scope of Economics 1. 2. 3. 4. 5. 6. 7.
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Types of cash flows
Interest rate. Types of interest rates. Project evaluation. Comparison between alternatives. Inflation. Depreciation. Taxation.
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1. 2. 3. 4. 5.
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Single cash flow Equal (uniform) series Linear gradient series Geometric gradient series Irregular series
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Not part of Exam
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Nominal & Effective Interest Rates
Linear Gradient Series
Nominal Interest Rate: An interest rate per year but not the amount of rate that will accumulate per year. Effective Interest Rate: is the rate that truly represents the interest earned in a year or some other time.
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Effective rates per payment period i
C
=
(1+r/M) i
-1 C
= (1+r/CK)
Evaluation of Projects 1. 2. 3. 4. 5. 6.
For M = C -1
M = the number of compounding periods per year C = the number of compounding periods per payment period K = the number of payment periods per year S. El-Omari
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Pay Back Period Not part of Exam Net Present Worth (NPW) Future Worth (FW) Annual Worth (AW) Rate of Return (ROR) Internal Rate of Return (IRR)
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Important Note
Analysis Period The time span over which the economic effects of an investments will be evaluated.
To select between two or more projects using IIR approach NEVER calculate IRR for each then compare like in PE, AE or FE. You must
¾Analysis period differs from project lives Project life > Analysis period
use the incremental analysis to select the best alternative, provided all projects are acceptable.
Project life < Analysis period Analysis period = Longest project life ¾Analysis period is not specified Lowest common multiple of project lives AE analysis for unequal project lives S. El-Omari
ENGR 301 Lecture 24 project lives IRR analysis for unequal
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Approaches for comparing defender and challenger. 1. Cash flow approach – –
Applied for replacement alternatives with equal analysis periods. Comparison based on PE or AE.
2. Opportunity cost approach. –
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Considering the current market value of the defender as a cash out flow. (or investment required to keep the defender) ENGR 301 Lecture 24
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Example: IRR on Incremental Investment B2 Period B1 -12’000 -3’000 0 4’200 1’350 1 6’225 1’800 2 6’330 1’500 3 IRR 25% 17.43% PE (10%) $841 $1718 AE (10%) $338 $691 FE (10%) $1120 $2287
B2 – B1 MARR = 10% -9’000 2’850 IRR B2-B1 > MARR 4’425 Select B2 4’830 IRRB2-B1= IRRB2- IRRB1 15% $877 PEB2-B1= PEB2- PEB1 $353 AEB2-B1= AEB2- AEB1 $1167 FEB2-B1= PEB2- FEB1
PE(i)= -9000 + 2850 (P/F, i, 1) + 4425 (P/F, i, 2) + 4830 (P/F, i , 3) =
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PEB2-B1(10%)= -9000 + 2850 (P/F, i, 1) + ENGR 4425 (P/F, i, 2) + 4830 (P/F, i , 3)18 S. El-Omari 301 Lecture 24 = $877
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Linear Interpolation
Finding IRR
(i1-i2) = Y =0.12-0.18=0.06
PE(i)= -9000 + 2850 (P/F, i, 1) + 4425 (P/F, i, 2) + 4830 (P/F, i , 3) = 0 For 10% PE(10%) = - 9000+2850*0.9091+4425*0.8264 +4830*0.7513= 876.534 For 12% PE(12%) = - 9000+2850*0.8929+4425*0.7972 +4830*0.7118= 510.34 For 18% PE(18%) = - 9000+2850*0.8475+4425*0.7182 + 4830* 0.6086= - 467.05 S. El-Omari
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i2 i1 12%
PE ( + ) PE ( − ) = Y− X X 510.34 467.05 = X 0.06 − X 19
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Book Depreciation
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Introduced to limit the maximum CCA of property acquired during the year to 50%. Introduced in 1981 Applied for property purchased near the end of the year. Most, but not all, depreciable property is subject to the 50% rule. For this course always apply 50% rule on new purchased assets in the first year ENGR 301 Lecture 24
X
467.05
X * PE ( + ) = PE ( − ) * (Y − X )
510.34 X = 28.02 – 467.05 X 977.39 X = 28.02 X = 0.0268 ENGR 301 Lecture 24
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Tax depreciation term
Asset
Property
Depreciation
Capital cost allowance (CCA)
Cost basis
Capital cost
Book value
Undercoated capital cost
Salvage value
Proceeds of disposition
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Taxable Income & Income Taxes
The 50% Rule
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PE (-)
0.06 - X Y-X
Book depreciation term
1. Double Declining balance method. 2. Sum-of-year’s-digits method.
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Capital Cost Allowance
Three deferent methods for book depreciation • Straight line method. • Accelerated method.
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i = 0.18 - 0.0268 = 15.1%
510.34 PE (+)
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Taxable Income = Gross Income – Expenses Income Taxes = Tax Rate x Taxable Income Net Income = Taxable Income – Income Taxes • Gross income = revenues • Expenses – – – –
Cost of goods sold Capital cost allowance (CCA) Operating expenses Note: After tax cash flow Interest Is not part of the exam. • Taxable Income
• Income Taxes • Net Income S. El-Omari
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