Project Management Under Internet Era: How to Respond to Challenging Changes in the Digital Era 9811527989, 9789811527982

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Shaopei Lin Dan Huang

Project Management Under Internet Era How to Respond to Challenging Changes in the Digital Era

Project Management Under Internet Era

Shaopei Lin Dan Huang •

Project Management Under Internet Era How to Respond to Challenging Changes in the Digital Era

123

Shaopei Lin Shanghai Jiao Tong University Shanghai, China

Dan Huang Shanghai Jiao Tong University Shanghai, China

ISBN 978-981-15-2798-2 ISBN 978-981-15-2799-9 https://doi.org/10.1007/978-981-15-2799-9

(eBook)

Jointly published with Shanghai Jiao Tong University Press The print edition is not for sale in China Mainland. Customers from China Mainland please order the print book from: Shanghai Jiao Tong University Press. © Shanghai Jiao Tong University Press and Springer Nature Singapore Pte Ltd. 2020 This work is subject to copyright. All rights are reserved by the Publishers, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publishers, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publishers nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publishers remain neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Preface

Why a monograph of Project Management Under Internet Era is needed? The reason is quite obvious: the emergence of Internet has brought a new scenario of project management (PM) professional ecology; moreover, both the operational platform and accessing objects of PM have sequentially changed from “real” to “virtual”; its theorem, methodologies, procedures and tools are subjected to change. We are facing an era of knowledge economy and digital world, and PM environment is facing subversive challenges! Everybody understands that economic development depends on the success of projects. We expect the best practice of each project, and consequently, we certainly need qualified talent who can achieve the project goals with updated PM philosophy, especially under the digital Internet era nowadays. It is clearer that we are in the transition stage from industrial economy to knowledge economy. The assets in industrial economy are solid ones represented by fixed and live capitals, in contrast, the assets in knowledge economy are virtual ones represented by the knowledge as the potential assets. Due to this reason, the fundamental mission of an enterprise under industrial economy is entirely different from that of an enterprise under knowledge economy. The previous one is using capital to mobilize material, machine and manpower for achieving good products sold in the market and then making profits. Nevertheless, for the latter case, the profits from the market are realized through the competitiveness of products (or services) with innovative ideas initiated by the realization of knowledge assets. Then one may imagine that the essentials and procedures of PM are going to change compared with the past time. What are the processes of project management? It can be understood as “to make a series of decisions under uncertainties” in order “to do the right things”; “to get its right man-machine and man-man relation” as well as “to do the things right”. The first one needs to go through system analysis; the second one should be well treated with technologies and stakeholders management; and the third one is guaranteed by managerial rules and regulations. As everyone knows that the second one is more difficult especially in large-scaled complex projects, where the “man-man” relation is far complex than that of “man-machine” relation. v

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How can the project management education respond? How to reform the project management education for accommodating to the new challenges? This is what and why we should make corresponding changes in this monograph as our textbook, and make our PM talent education accommodate to the new digital Internet era. “Talent! Innovation! Strategy!” that is the only way to respond to the challenges, so we need to cultivate our talent with updated knowledge for maneuvering the changes. We also need from a long-term strategic viewpoint, to cultivate our talent accommodating to the digital era and on the “Internet + AI” platform; as well as with the commercial analysis capabilities in project economics aspect. This is why the renewable project management textbook under Internet era and knowledge economy is initiated. Shanghai, China

Shaopei Lin Dan Huang

Contents

1 Introduction of Project Management . . . . . . . . . . . . . . . . . . 1.1 Knowledge Economy—Subversive Impacts on Project Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Project Management Under Knowledge Economy and Digital Internet Era . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Talent, Innovation and Strategy in Project Management Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3.1 Talent and PM Educational Reform . . . . . . . . . . . 1.3.2 Strategy of Project Management Internet Era . . . . . 1.3.3 The Characteristics of Digital Economy . . . . . . . . 1.3.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Overall Accommodation to Updated Project Management . 1.5 Conventional Project Management . . . . . . . . . . . . . . . . . . 1.5.1 Project Life Cycle . . . . . . . . . . . . . . . . . . . . . . . . 1.5.2 Scope, WBS, and SMART Principle . . . . . . . . . . . 1.5.3 Project Personnel and Organization . . . . . . . . . . . . 1.5.4 Project Execution (Scheduling and Control) . . . . . 1.6 Program Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6.1 Definition of Program Management . . . . . . . . . . . 1.6.2 Research Background of Program Management . . . 1.6.3 The Essence of Program Management . . . . . . . . . 1.7 Portfolio Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 Challenges of Project Management in the Future . . . . . . . 1.9 System Analysis and Structured Approach . . . . . . . . . . . . Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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2 Project Life Cycle Management . . . . . . . . . . . . . . . . . . . . . . 2.1 The Theory and Modeling of Project Overall Management 2.2 Project Initiation Phase . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1 Project Establishment and Planning . . . . . . . . . . . 2.2.2 Overall Consideration of Project Establishment . . . 2.2.3 Project Feasibility Analysis . . . . . . . . . . . . . . . . . 2.2.4 Project Decision-Making Trap . . . . . . . . . . . . . . . 2.2.5 Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Project Solution Phase . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.1 Project Bidding . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.2 Project Tendering . . . . . . . . . . . . . . . . . . . . . . . . 2.3.3 Award of Bid . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.4 Product Project Solution . . . . . . . . . . . . . . . . . . . . 2.3.5 Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Project Implementation Phase . . . . . . . . . . . . . . . . . . . . . 2.4.1 Project Organization and Leadership . . . . . . . . . . . 2.4.2 Project Management Regulation and Process . . . . . 2.4.3 Management of Quality Standards and Other Technical Specifications . . . . . . . . . . . . . . . . . . . . 2.4.4 Project Plan and Control Management . . . . . . . . . 2.4.5 Project Risk Management . . . . . . . . . . . . . . . . . . . 2.5 Project Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5.1 The “Tailless” Finishing Process . . . . . . . . . . . . . . 2.5.2 Project Self-checking . . . . . . . . . . . . . . . . . . . . . . 2.5.3 Project Commissioning . . . . . . . . . . . . . . . . . . . . 2.5.4 Project Transferring . . . . . . . . . . . . . . . . . . . . . . . 2.5.5 Project Documentation Transfer . . . . . . . . . . . . . . 2.5.6 Project Financial Audit and Cleaning . . . . . . . . . . 2.5.7 Summarize Project Experience and Lessons . . . . . 2.5.8 Dissolution of the Project Team . . . . . . . . . . . . . . 2.5.9 Post-project Evaluation . . . . . . . . . . . . . . . . . . . . 2.6 Life Cycle Management Under Internet . . . . . . . . . . . . . . Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Personnel and Organizations . . . . . . . . . . . . . . . . . . . . 3.1 Project Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.1 Project Manager’s Responsibilities . . . . . . . . 3.1.2 Personal Ability and Qualification of Project Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.3 Working Methods of Project Manager . . . . . 3.1.4 Project Manager Communication Skills . . . . . 3.1.5 Case Study . . . . . . . . . . . . . . . . . . . . . . . . .

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3.2 Project Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.1 The Construction of Project Team . . . . . . . . . . . . . . 3.2.2 Four Phases of Project Team Building . . . . . . . . . . . 3.2.3 The Characteristics of an Efficient Team . . . . . . . . . . 3.2.4 Conflict and Resolution of Project Team Work . . . . . 3.2.5 Become a Member of a Successful Team . . . . . . . . . 3.3 Project Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.1 Project Management Patterns . . . . . . . . . . . . . . . . . . 3.3.2 Project Management Organization . . . . . . . . . . . . . . . 3.3.3 Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Project Human Resource Management . . . . . . . . . . . . . . . . . 3.4.1 Human Resource Management and Personnel Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.2 HR Management Is an Organizational Behavior of the Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.3 Project Human Resource Management . . . . . . . . . . . 3.4.4 Project Cultural Management . . . . . . . . . . . . . . . . . . 3.4.5 Project Team Management . . . . . . . . . . . . . . . . . . . . 3.4.6 Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 Personnel and Organization Management Under Internet Era Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Project Planning and Control . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Project Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1.1 Work Breakdown Structure . . . . . . . . . . . . . . . . . 4.1.2 Critical Path Method . . . . . . . . . . . . . . . . . . . . . . 4.1.3 Program Evaluation and Review Technique . . . . . 4.2 Project Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.1 General Description . . . . . . . . . . . . . . . . . . . . . . . 4.2.2 Basic Content of Project Control . . . . . . . . . . . . . 4.2.3 Progress Control . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.4 Cost Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.5 Quality Control . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Project Resource Management . . . . . . . . . . . . . . . . . . . . . 4.3.1 Introduction to Project Resource Management . . . . 4.3.2 Targets and Requirements . . . . . . . . . . . . . . . . . . 4.3.3 Contents of Resource Management . . . . . . . . . . . . 4.3.4 Primary Criteria in Resource Management . . . . . . 4.3.5 Typical Method of Project Resource Management . 4.3.6 Multi-project Resource Management . . . . . . . . . . . 4.4 Case Study Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 Project Scheduling and Control Under Internet Era . . . . . . 4.5.1 New Features of Process Control Based on the “Internet+” . . . . . . . . . . . . . . . . . . . . . . . .

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4.5.2 New Features of Resource Management Based on the “Internet+” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 4.5.3 Strategies for Constructing New Paradigms . . . . . . . . . . . . 149 Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 5 Economic Analysis in Project Management . . . . . . . . . . . . . 5.1 Basic Concepts of Project Economics . . . . . . . . . . . . . . . 5.1.1 Investment and Profit . . . . . . . . . . . . . . . . . . . . . . 5.1.2 The Cost of Capital . . . . . . . . . . . . . . . . . . . . . . . 5.1.3 Time Value of Money . . . . . . . . . . . . . . . . . . . . . 5.1.4 Interest and Compound Interest . . . . . . . . . . . . . . 5.1.5 Net Present Value (NPV) . . . . . . . . . . . . . . . . . . . 5.1.6 Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Discounted Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.1 Concept of Cash Flow . . . . . . . . . . . . . . . . . . . . . 5.2.2 The Basic Elements of Cash Flow . . . . . . . . . . . . 5.2.3 Cash Flow of Project Revenue and Expenditure . . 5.2.4 Accumulated Cash Flow Chart . . . . . . . . . . . . . . . 5.2.5 Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 Profit of Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.1 Profit Introduction . . . . . . . . . . . . . . . . . . . . . . . . 5.3.2 Payment Period and Payback Period of the Project 5.3.3 Net Present Value Profit—Investment Ratio . . . . . 5.3.4 Discounted Cash Flow Rate of Return . . . . . . . . . 5.3.5 Project Installment Repayment . . . . . . . . . . . . . . . 5.3.6 Tax on Projects . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.7 Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 Project Economic Analysis . . . . . . . . . . . . . . . . . . . . . . . 5.4.1 Project Manager’s Business Philosophy . . . . . . . . 5.4.2 Investment Decision Cases for Large Projects . . . . 5.5 Project Cost Management . . . . . . . . . . . . . . . . . . . . . . . . 5.5.1 Introduction to Project Cost Management . . . . . . . 5.5.2 Resource Plan of Project . . . . . . . . . . . . . . . . . . . 5.5.3 Project Cost Estimation . . . . . . . . . . . . . . . . . . . . 5.5.4 Project Cost Budget . . . . . . . . . . . . . . . . . . . . . . . 5.5.5 Project Cost Control . . . . . . . . . . . . . . . . . . . . . . 5.6 Earned Value Method (EVM) Analysis and Applications . 5.6.1 Earned Value Method . . . . . . . . . . . . . . . . . . . . . 5.6.2 Relation Between Cost and Schedule . . . . . . . . . . 5.6.3 Graphic Analysis of Project Earned Value Method

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5.7 Cost Management for Multiple Investment Projects . . . . . 5.7.1 Establishment of Multi-project Optimum Capital Allocation Model . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.2 Establishment of Mathematical Model . . . . . . . . . . 5.7.3 The Realization of Mathematical Model by Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.4 Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8 Project Financial Management Under Internet Era . . . . . . 5.8.1 Project Financial and Cost Management Under Internet Era . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8.2 The Existing Difficulties for Digital Cost Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8.3 Some Considerations in Digital Cost Management . 5.8.4 The Implementation of Digital Cost Management . Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Project Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Introduction to Risk Management . . . . . . . . . . . . . . . . . 6.1.1 Definition of Risk . . . . . . . . . . . . . . . . . . . . . . . 6.1.2 Characteristics of Risk . . . . . . . . . . . . . . . . . . . . 6.1.3 Risk Management . . . . . . . . . . . . . . . . . . . . . . . 6.2 Risk Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2.1 Qualitative Assessment of Risk . . . . . . . . . . . . . 6.2.2 Quantitative Assessment of Risk . . . . . . . . . . . . . 6.3 Risk Countermeasures . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 Qualitative Analysis of Risk . . . . . . . . . . . . . . . . . . . . . 6.4.1 On Qualitative Risk . . . . . . . . . . . . . . . . . . . . . . 6.4.2 Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4.3 Project Decision and Trap . . . . . . . . . . . . . . . . . 6.5 Apply Probability Theory to Quantitative Risk Decision Making . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5.1 Apply Probability Theory to Risk Management . . 6.5.2 Weighted Sensitivity Venture Capital Decision . . 6.5.3 Decision Tree Method . . . . . . . . . . . . . . . . . . . . 6.5.4 Risk and Uncertainty—Monte Carlo Simulation . 6.6 Use Fuzzy Set Theory to Make Risk Analysis Decisions 6.6.1 Summary of Fuzzy Set Theory . . . . . . . . . . . . . . 6.6.2 Fuzzy Set Project Risk Assessment . . . . . . . . . . . 6.6.3 Fuzzy Set Project Risk Decision . . . . . . . . . . . . . 6.6.4 Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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7 Project Management Under Internet + AI Era and Knowledge Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 Two Types of Economy and Their Characteristics . . . . . . . . 7.2 Business Mode Internet Era and Knowledge Economy . . . . . 7.3 Sustainable Development of Successful Enterprise Under Knowledge Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4 Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 Program of Studies on Project Management Under Digital Era and Knowledge Economy . . . . . . . . . . . . . . . . . . . . . . . 7.6 Expert System for Airplane Structural Design . . . . . . . . . . . 7.6.1 On AI and Expert System for Structural Design . . . . 7.6.2 Production System and Inference Network . . . . . . . . 7.6.3 The Building of Expert System for Airplane Structural Design . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7 Internet + AI Based Engineering Application Systems . . . . . 7.7.1 Background Information . . . . . . . . . . . . . . . . . . . . . . 7.7.2 The AI Exploration for Application Systems . . . . . . . 7.8 PMO Under Internet Era . . . . . . . . . . . . . . . . . . . . . . . . . . . Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Appendix: Conclusive Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281

Chapter 1

Introduction of Project Management

Reading Guide (1) Understand the basic information about project management (PM) and its theorem, concepts and characteristics. (2) Understand the conventional project management is based on the industrial economy and the project management nowadays is based on knowledge economy under digital Internet era; its concepts, procedures, tools and operating platforms are subjected to great changes; and the Internet environment plays a subversive impact on conventional project management. (3) Understand the necessity of project management reform for accommodating the subversive impact from Internet era. Besides, the project management education must be rectified for the purpose to cultivate project management talents accommodating to the future. Facing Digitization of Project Management We are now facing a digital world, how can the project management be totally digitized? Though we need to maintain the basic principles of project management, due to the subversive impacts of digital Internet to project practice, the concepts, platform, procedures, objects and tools of traditional project management are facing entire changes. This is an epoch-making and fundamental revolution of project management, and its outcomes of chronologic transition are the totally “digitization transformation” processes of project management directly linking to down-stream project groups. Initiated by project management office (PMO), the “digitization transformation” processes need firstly to develop a series of platform and software as the “infrastructure building”, which will form the basic framework interfacing to corresponding down-stream project groups. The second step is to carry out a series of “researches and development”, targeting to the sophistications of those specific problems raised by the complexity of problems from the individual project group. For under volatility, uncertainty, complexity and ambiguity (VUCA) environment, project management is facing a severe and subversive challenges and it is impossible to smoothly interface the general framework to a variety of down-stream project group. Moreover, the © Shanghai Jiao Tong University Press and Springer Nature Singapore Pte Ltd. 2020 S. Lin and D. Huang, Project Management Under Internet Era, https://doi.org/10.1007/978-981-15-2799-9_1

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third step is the “smooth delivery” of the digitized product to the end users or clients. Due to the complexity of the problem, after completion of “digitization transformation” processes, one needs to further provide life-time service to the end users for guaranteeing effectiveness of such “digitization transformation” of the projects and achieving its predetermined life-cycle benefits from the digitization scenario. Certainly, we need to clarify the real situation in project management practice that under VUCA environment. It is better to apply “project governance (PG)” concept replaced the concept of “project management (PM)”, where, the project manager should fully take advantages of his/her “soft skills” to maneuver the project uncertainties. Under such case, the pure applying “digitization” management for the project is no longer workable. Under any case, the real functions of human soft skills are needed, but for increasing the working efficiency, the harmonic combination of “digitization” and human soft skill maneuvering is the most prospective one. Case Guide Mr. Zhang had been a qualified engineer. With the development of his real estate company A, he was promoted as the project manager and responsible to a project located at the center of city B with a lot of migrations. The project was characteristic of tensive schedule and roll-off budget in each item of work of the project respectively, which raised high requirements in scheduling and budgeting cost control. Manager Zhang devoted himself to work with passion and treating every job personally, moreover, he used to replace his subordinates to make decision once he was not satisfied the decision made by his subordinate. As his understanding, he must well coordinate to each project stakeholder including company director, owner, government agency, design institute, general contractor, sub-contractors, supervising company, material and facility suppliers etc. He not only was turning around all these stakeholders, but also had to treat a fund of project issues, which made him born tired every day and night! He desired that “it will be perfect, if I will have 48 h a day and 14 days a week!” Unfortunately, he still could not maneuver his project from disordering. The cost was exceeded in 12% and the schedule delays for about one and half month. The reason for his failure was that he couldn’t well follow out project management principles, for he needed to master project objectives, to plan the works according to the objectives and to implement the works by defining the working task, preparing enough resources of people, funds and materials on time, executing the project plan according to the schedule, and supervising and controlling the works during its implementation. He needed to organize people to do the jobs rather than by himself. For project management essentially was the processing of implementing a series of decision under uncertainty over different sections of project organization by transferring information. In order to raise the efficiency of project management work under digital Internet era, Mr. Zhang also needed to take the advantages of real time access of project information and realizing seamless interfacing of project procedures through operation of the management works on Internet platform.

1.1 Knowledge Economy—Subversive Impacts on Project Management

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1.1 Knowledge Economy—Subversive Impacts on Project Management The fact shows that the income from the tertiary industry has consisted more than 75% of total Gross Domestic Product (GDP) incomes in several major countries. It means that the summation of total incomes of both the agricultural and manufacturing productions of the society will be less than that of the incomes from service industry. It thus proves that our society is now entering the knowledge economy era. Steven Jobs created the service mode of Apple Company and established a common platform that can be accessed by everybody and then reformed “Apple” to be an enterprise not only a second industry of electronic products manufacturing, but also an enterprise of third industry mainly depends on the incomes from service on the common platform accessed by means of iTunes + iPod etc. to form an integrity of commercial mode by software, hardware and service. Actually, Apple Company is an enterprise characterized neither second nor third industry, but a “mixture” of both the second and third, appeared firstly in the world. It is essentially a “soft” manufacturing enterprise, for it maintains in producing and selling hard products, yet obtains majority of profits through providing successive after sell services. Human being is go through from IT (Information Technology) era and entering into DT (Data Technology) era. It is understood that in IT stage, one is characterized in self-control and self-management; nevertheless, in DT stage, it is characterized in serving to public and stimulating the productivity. Indeed, it is no longer a difference in technical sense, but a difference in ideological sense. In DT era, satisfaction with the customer becomes main concerns for all social activities. Let’s look at the following Table 1.1 for clarifying the resource priority i.e., the strategic resource and competitive advantages in different economic stages, while, since knowledge economy stage, the effective exploration and management of knowledge resource is doubtlessly associated with digital revolution. The professional characters of project management in traditional industrial economy (capital-manufacture-market) era and digital knowledge economy(Internet + AI) era can be illustrated by Table 1.2. Table 1.1 The strategic resource and competitive advantages Resource priority

Strategic resource

Competitive advantages

Industrial economy

Fixed assets Liquid assets

Asset operation Market operation

Knowledge economy

Knowledge resource

Effective exploration and management of knowledge resource

Sensory economy

Sensory resource and circumstance

Sensory satisfaction

Economic stage

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Table 1.2 The professional characters of project management of two economic eras different stage Different stage

Traditional industrial economy (Capital-manufacture-market) era

Digital knowledge economy (Internet plus AI) era

Production materials

Real capital

Big data

Productivity

Machine, labor, and techniques

Cloud calculation capability, sharing infrastructure of information and knowledge (Internet, Internet of Things etc.)

Production relation

Hire relationship between employer and employee

Data and Knowledge Sharing on Internet

Missions and functions of enterprises

Repeated circulation of “Capital-Manufacture-Market-Profits”

Repeated circulation of “Implicit Knowledge Assets–creative Ideas–enterprise Core Competitiveness-Competitive Products- Market-Profits”

Concepts on information and data resources

Information Technology IT as the Monopolized Technique of the Enterprise

Data technology DT as the information shared among enterprises

Project management platform

Social platform under real economy

Virtual platform under Internet economy

Project management dealing objects

Real production materials, real productivity, and real production relationship

Virtual objects under Internet (virtual production materials, virtual productivity and virtual production relationship)

Character changes

“Industry 4.0” is based on “Internet of things” and other intelligent techniques for promoting the transformation of conventional manufacturing to the intelligent one, and realizing real-time production management through network technique. What is the commercial mode of manufacturing in “Industry 4.0” era? The answer is definite that one needs to pay attention to the individual customer’s needs. The system products with “information” function will become the core of hard products of the new era, which means the mass production accommodating to individual needs that will be the main tendency of manufacturing, characterized of soft production under individual ordering. Under digital revolution era, there are some characters as shown below. (1) “Softening of theory” and “hardening of experience”. (2) “Computer can work 24 h a day and 7 days a week without complain” “Human being can consciously and logically infer most complicated events without any losing”. (3) “Computer is afraid of disordering, yet human being is afraid of redundancy”. (4) “Taking advantages and disadvantages of both computer and human being, one may boundlessly increase our working efficiency”.

1.1 Knowledge Economy—Subversive Impacts on Project Management

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(5) Learning from the shortcomings of computers and human beings, people will be able to improve their working efficiency infinitely. As a matter of fact, management can be understood as “to make a serious of decisions based on information and under uncertainties”. Under digital era, information is in digital form and spread over internet, to access information through internet for the decision making which will be in entirely different forms from the conventional one. Thus the environment of project management in accessing information for the management under industrial economy and knowledge economy will be entirely different, it will cause subverted impacts on project management both in its procedures, tools and forms of operation.

1.2 Project Management Under Knowledge Economy and Digital Internet Era It is an irreversible trend that Internet will be used as a fundamental tool of project management, or the digitized project management (DPM) practice is happening in many fields, widely spreading all over the world. For instance, the DPM is successfully being applied in China for the Bank to review millions of small credit loan projects within limited period of time, which is impossible to fulfill in the past by using conventional methods or tools of project management. What should we do for pushing project management profession forward under digital Internet era? If a nationwide government Internet platform can be built, all the industries should be subordinate and accessible to this platform for their normal business operation, and it also inter-connects to government agencies and other business partners. Thus, the operation mode of digital project management will be inevitably blossom. The business modes as well as the organizational governance, either in project, program level or in portfolio level will be consequently changed. One cannot underestimate the impact and challenges from digital era to the traditional project management. We have to take measures correspondingly against the challenges. The changes of individual under digital and Internet era is quite obvious, and the career will be developed along the path of “knowledge-innovation-independencepersonality and vision”. For the basic social structure will be changed from “company-staff” to “platformindividual”, people may extend one’s ability to the extreme on the common social internet platform and transform one’s working rule from fixing in definite organization to face the whole society for one’s contribution, or from “passive” to “active”. People may rely on one’s social creditability, which is derived by social big data through internet, following to the path of “behavior-competence-creditabilitypersonality-wealth” for obtaining personal wealth and benefits. Under digital and Internet era, the relationship between people will be no longer through “networking”, but through definite “rules”. The business rules are diversified along the path of “creativity-representation-displaying-ordering-production-clients”.

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Under digital and Internet era social believing will be evolved along the path of “rule-order-morality-believing”, then the thinking philosophy and action of people will be greatly restrained by the Internet platform and Internet environment. Industrial structure under digital and Internet era is going to change from traditional one to Internet-based one. Moreover, the involvement of AI technology will further heavily destroy existing business mode. The future tendency must be that, lower class enterprise involves in service, middle class in internet digital products and the highest enterprises are building internet platforms and setting rules and standards for the others. The social ecology will be the global platform involving each subordinate platform from companies, enterprises and organizations connecting to the government platform. Another characteristic of social business ecology will be the “co-existence of diversifying”. Despite of transverse development in the past, the enterprise will pursue vertical development in their business pursuing preciseness and deepness. The enterprises are searching their ways on individuality of their products through science and technology and on the connectivity to their specified clients through Internet. Under digital and Internet era, employment phenomena will be gradually weakening and partnership phenomena will be strengthening. The evolution of business and e-commerce are taking the route of business to business (B2B); business to customer (B2C); customer to customer (C2C); customer to business (C2B); and customer to fabrication (C2F) etc. The business is entering to the era of individualism and globalization. Furthermore there will be the evolution of “Internet”—“movable Internet” and “Internet of things” to form a comprehensive platform of Internet ecology for promoting the productivity of the society. Certainly, it will deeply have influence on the managerial philosophy and managerial methods to the traditional project management. Consequently, the subversion of professional chain seems to be happened from the chain of “producer-agent-consumer” to the chain of “consumer-designerproducer”. Agent in the past business chain will be replaced by designer for satisfying numerous customized expectations and requirements from the consumers. Above-mentioned changes of business and social ecology show the subversion to the project, program and portfolio management nowadays. (1) For project management, all the operation procedures will be implemented through Internet, and the database (including cloud base) will be built to be accessible to all procedures during the life cycle of the project. The real time transferring of information between different departments makes it possible to accelerate the processes and thus rise it’s efficiency. (2) For program management, it is possible to access millions of transactions (projects) in parallel with the strictness of reviewing, monitoring, controlling and updating; rather than to handle at most some dozens of projects nowadays. The management philosophy and the methods of maneuvering in program management have changed.

1.2 Project Management Under Knowledge Economy …

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(3) For “portfolio management”, it is also possible to access and to compare infinitive initiatives under strict criteria of selection, which is impossible to realize without a global Internet platform as its basis. All above mentioned statements show us that the emergence of Internet provides us the possibility to carry out comprehensive and highly efficient best practice of project management. Nevertheless, the modes and contents of PM under digital and Internet era have been subverted the corresponding theoretical framework of project management, which is subjected to big challenges and needs to be rectified. What shall we do? The management philosophies, concepts, procedures and tools are subjected to change. Certainly, it needs to be updated, rectified and modified all the time in its contents accordingly. Digital and Internet era is inevitably approaching to our real life and causing dramatic changes in project management, based on successful best practice of numerous projects, therefore we need to search and conclude the essentials of new tendency of PM development under digital and Internet era and try to develop a new standard or a new practice guide for accommodating the tendency of development of our digital era. It is proposed for the next step that the observation of some successful Internetbased enterprises, by examining their managerial practices, we can further prove the necessity of promoting the new approach of project management with its new ecology of digital Internet era. As the advanced PM workers, we are obligated to involve and take measures to promote this great change. Followings are some suggestions for next steps: (1) Selecting some of the best practice of Internet-based enterprises for further investigation and examination. (2) Establishing corresponding task force teams from related enterprises and institutions for deepening the studies of the problem. (3) Finding corresponding frontier practicing workers from related Internet-based enterprises for summating and sorting out their practical experiences, then developing the “guide” of project management under digital Internet era if verification is made. The frontier practicing workers based on their present work should rectify their understanding from the subversive changes and answer the following questions to form the tracking map of future “guide” of project management under digital and Internet era as below: (1) (2) (3) (4) (5)

Why the renovation of business system under knowledge economy is needed? Your understanding of knowledge economy—Why it is a subversive impact on conventional project management? What are the characteristics of project management under knowledge economy and under the digital Internet era? What are the competences and knowledge structures of a project manager needed for the digital Internet era? What are the thinking philosophies (strategic and tactic) for a project management talent nowadays and in the future?

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(6)

Concrete and detail classifying e-commerce of your business, point out oneby-one the differences from real business platform to virtual platform and from real-dealing objects to virtual-dealing objects. (7) What are the differences of project management rules defined in PM guide initiated from industrial economy and the rules of PM in knowledge economy? Can you specify the differences one by one from its “operation platform” and “dealing objects” from real to virtual? (8) Develop the project management procedures of e-commerce under digital Internet era and indicate the differences in managerial concepts, theorems, procedures, tools and operation with the former project management procedures. (9) Extending of your understanding from (8) to the projects in e-commerce for program and portfolio management fields under digital Internet era. (10) Identifying the knowledge structure and competence of a project management talent are required under digital and Internet + AI era. (11) Find out the differences of traditional projects with Internet-based projects in: (a) (b) (c) (d) (e) (f)

Project lifecycle. Scope analysis, work breakdown structure (WBS). Project personnel and organization. Project planning, scheduling and control. Program management. Portfolio management.

(12) Conclusive remarks: What project management innovative measures should be taken under digital Internet + AI era.

1.3 Talent, Innovation and Strategy in Project Management Future 1.3.1 Talent and PM Educational Reform As regard to project management education, how can we keep silence under such subversive changes yet without any response? How can we cultivate our young generation of project management talents just using available PM guide based on real platform, real objects of industrial economy era? From strategic points of view, we can’t help using innovative and strategic approach for cultivating our future talents. “The educational reform must be ahead of each social reform”. Let us look after the present project management education: its ecology is entirely based on industrial economy and is built on the real platform of “capital-manufacture-market”; its dealing objects are such real objects of “machine-labor-materials-technical specifications”. All of those possess quite different natures with what emerged in digital Internet era nowadays, where virtual objects with B2B, C2B and C2C are played on the virtual

1.3 Talent, Innovation and Strategy in Project Management Future

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platform with subversive changes in project ecology with the past. One needs to redefine the theorems, methods, procedures and tools of project management, thus it inevitably will cause a series of changes in PM education. We cannot carry out it in spite of the changes and need to take counter-measures against it correspondingly, otherwise, we may commit serious mistakes in whether or not we could cultivate qualified PM talents accommodating to the professional changes in the coming future. Every country expects to her economic development; however, which depends on the successes of the projects. In other word, there must be a lot of best practice in project management. One needs to know that, without excellent project management education, it is in vain attempt to cultivate qualified PM talents, nor to achieve the project best practice for achieving the goals of their expectation.

1.3.2 Strategy of Project Management Internet Era We are in the transition from industrial economy to knowledge economy. It is important that the assets of these two economies are quite different. The assets of the previous one are those hardware and real capitals, but the assets of the latter one are virtual knowledge assets, which need to be revealed through emerging the innovative idea to implant into their products and realize the core competitiveness of the firm in the market. For that reason, the mission of an enterprise under industrial economy is entirely different from that of the mission under knowledge economy. The goals of project management are “do the right thing; do the things right; and do the right implementation”. System analysis could guarantee to do the right things; organizational system and its regulation could lead to do the things right, and doing right implementation will be more difficult due to the treatment of relation between people, for “people-people” relation is far more complicated than that of “people-machine” relation. It needs more efforts for the smooth and comprehensive solution. The driven force of science and technology development in the coming future will be “Internet + AI”. While the PM platform will be the internet virtual platform and the dealing objects of PM will be virtual objects. Especially the newly emerged public–private–partnership (PPP) financing approach will be widely applied to major project, such as large scaled infrastructure projects, where the scope and complexity of PM will be difficult increasingly, especially with the related stakeholders. All the stakeholders will jointly operate on Internet platform, which may further lead PM of PPP projects a subversive challenge.

1.3.3 The Characteristics of Digital Economy (1) Background of digitization economy development It’s an irreversible new scientific and technological revolution, and centering on digital revolution is approaching to us, which has become a subversive change in

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the twenty-first century. Digitization has reconstructed the life of human being, i.e., the movement from digitalized livelihood to digitized production and then digitized life. Digitization economy, a brand new economy, will not only be the most advanced productivity, but also become the latest global development opportunity in our century. Taking the economic evolution in China as an example, recently, there were two historic changes in China’s economic development: the first was 1980s–1990s, the transition from planning economy to market economy, causing liberation of social productivity; the second was starting from twenty-first century, the transition from traditional economy to digital economy, causing a big leap in social productivity. Human beings are undergoing two grand migrations: the first is from offline to online, which has extended to human’s development space; the second is from physical world to digital world, which stimulates the people’s life moving to high dimensional space. Digits are high-dimensional, representing the essence of things and the refinement of cognition. Using mathematical formulation (no matter structured or non-structured) to model the objective events implies people who are able to solve any problem through numerical/digital way. (2) The characteristics of digital economy (a) Traditional economy is based on physical economy, while digital economy is based on digits, or we call digitized economy. It is characterized on “digitization of all business” and “commercialization of all digits”. The change of the basic logic roots in industrial organization mode and enterprise production mode. (b) The cornerstone of digital economy is digital technologies, which include big data (as resource), cloud calculation (as platform), Internet of things (as transmission), block chain (for reliance) and artificial intelligence (for intelligence). (c) The latest development of digitization is comprehensive intelligence, which is the great liberation of cognition labor, and AI marks the most significant progress in the history of human civilization. (d) The intelligent economy is realized by “the industrialization of intelligence and intelligentization of industry”. It is noted that intelligentization will increase 10 times development speed than the industrial era; 300 times bigger in economic scope and 3000 times of social influence than the industrial one (by Mc Kinsey). When intelligemtization level exceeds 75%, 3.5 times of GDP growth can be reached without increasing of input. (e) Digital economy is user-oriented economy. Internet becomes closest to user with zero distance in space and real time information transfer, which derives many new modes of economy—user economy, platform economy, sharing economy, service economy and value economy are served to users, around to users, enhancing user experience and taking the needs of the users as priority. Digital economy is positioned in C2B, which has created and attained maximized value for users all along.

1.3 Talent, Innovation and Strategy in Project Management Future

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(f) Digital economy is essentially an innovation oriented economy, which is talent oriented and placing the creativity of talents at the first place, emphasizing self-motivation and self-development of human being. New economy calls for new leadership which is based on value, and the key of its value lies on cognition. The level of cognition is shown in two aspects: (i) The cognition of space—as the iceberg can see 1/8 above the water and actually it possesses 7/8 below the water surface; and (ii) The cognition of time and future. The potentiality of future may be far more meaningful than the reality existing nowadays. Therefore cognition ability is new leadership. (g) The essence of digitization is not technology, but new thinking, which is the source of fortune and innovate new value, and digitization will open a complete new era of digital economy. (h) The digital revolution is the greatest revolution in the history of human civilization. It combines real world with virtual world and mixes together biological intelligent civilization with machine intelligent civilization.

1.3.4 Conclusion What shall we do in the reform of project management profession? What shall we do for PM talents cultivation in the future? The only conclusion should be that: “Talents, Innovation, and Strategy”! Putting talent education first; insisting innovative ideas in every aspect and carrying strategic thinking in the development. This is what we need to implement in the future development of digital economy and digitized project management (DPM).

1.4 Overall Accommodation to Updated Project Management Under digital Internet era, the essentials of project management is implemented through the information (data) flow over the Internet and the processes are to collect, rank, induce, sort, re-production and distribute all the information (data) occurred during whole life cycle of the project. i.e., “The project management means to execute and treat certain information and maneuvered in real-time among different stakeholder persons and organizations”. For instance, the organizational behavior is represented by distributing and flowing the specific information (data) to those people and organizations in different levels, offering different restraints and limitations, real time or off-real time getting the feedback information (data) through certain calculation or AI inference. One may recognize how the subversive changes of organizational behavior which is in the digital Internet era.

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It is necessary to carry out project management under digital Internet era based on numerous successful project best practice experiences and lessons from the failures. The professional ecology is subjected to a big changes, which associates with new scenario of development in project environment: the traditional elements of organization, resource and authority are facing re-structuring and getting weakened, so we need to carry out the studies of project management under Internet, big data exploration, Internet of Things and AI environment. How to transform and build a structured project management skeleton in theorems, methodologies, tools and system procedures accommodating to digital Internet era nowadays and on the platform of in-deterministic, non-structured social opportunities and requirements, are still a perspective future worth to devote our efforts. The success of the project can be measured in different scale. In the past, one recognizes it just the comprehensive fulfillment of jobs, assigned in the WBS for achieving project goals. Actually, it is not sufficient for project management under digital Internet era, since the completion of the project is by no mean to say that it is the end. The information (data), even the experiences (knowledge) have to be stored in data base and knowledge base for retrieving in the future. According to Harold Kerzner, it defines the project as a successive commercial value which is planning to achieve; the success of the project means it has achieved the expected commercial value under competitive constrain conditions. Therefore, the core of project management can be understood as organically combine different professional aspects for presenting its commercial value. For the project management outcome deliveries, which are the “value” and the “value of application”. The “value” can be achieved if the mission of conventional project management: schedule, cost and quality are satisfied. However, the “value of application” means the vitality of the products, which are the very basis of successive value added and the extending period of existence of the product in the competitive market. No matter under industrial or knowledge economy, the basic knowledge structure for project management talent is the same as shown in the project management institute (PMI) talent triangle i.e., the “technical project management”, “leadership” and “strategic business management” in each side of the triangle. What this means to you is that as focus on developing the additional skills, you need to meet the evolving demands on your profession. But in doing so, it also means new opportunities to elevate your value as a strategic partner in business success. All above mentioned statements show that, the basic concepts of project management still remain effective, and so-called the new digital era brings the subversive changes is limited in the approach of processing information (data) which is from real platform to the Internet virtual platform with specific tools and approaches of information (data) treatment. This is why we can maintain the basic concepts of conventional project management as the basis of further modifications to accommodate the modern project management under digital Internet era.

1.5 Conventional Project Management

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1.5 Conventional Project Management 1.5.1 Project Life Cycle The project life cycle can be divided into four stages: project establishment (necessity proof), solutions, project implementation and project completion. These four stages go through the complete process of project generation until its completion. The project establishment (necessity proof) stage mainly solves the necessity and feasibility of the project. Besides, the sufficient and necessary conditions for starting a project include the possibility for project implementation. Necessity research mainly demonstrates the benefits that the project can bring to investors, owners, organizations and the public; while the feasibility research mainly demonstrates the feasibility in various aspects, such as economic feasibility, technical feasibility, social feasibility and environmental ecological feasibility. The solution stage mainly deals with the methods to implement the project. Generally, several feasible solutions are compared with each other and we choose the favor’s solution to implement and it is usually carried out by bidding and tendering. After the project is decomposed by a series of jobs, so the project implementation stage mainly manages the scheduling and its control. According to the project requirements, it arranges different period to form the project progress plan, resource (capital, people, equipment etc.) supply plan, etc., which form the basis for project implementation. Control the schedule progress, the actual cost and the quality of the project are the main concerns in this stage. The project completion stage mainly solves the issues from the completion of the project to its formal delivery. Since the project is composed of various subsystems, each subsystem should pass through self-test and then the commissioning by both contractor and client sides for acceptance. Only if all the subsystem can be passed through the commissioning, can the entire system of the project be formally delivered. Besides, it is necessary to transfer all of the technical, business and contract documentations, carry out financial cleaning according to the contract, and the corresponding maintenance and training works at the project completion stage.

1.5.2 Scope, WBS, and SMART Principle 1.5.2.1

Project Scope Analysis

The project is composed by a series of tasks that happen to the procedures of the project. One should have a clear understanding of the tasks in the project through scope analysis before the project begins. The scope analysis means listing all the tasks needed to be done for the project so that all the works can be implemented one by one after the project starts. The tasks listed must be exact and proper, for if the work listed is more than necessary, more cost will be needed; while if the work listed

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T

t1

l11

l1j

tn

ti

l1m1

li1

lik

limi ln1

lnp

lnmn

Fig. 1.1 Logic diagram of hierarchical tree structure

is less than necessary, the project could not be properly completed. The objective of scope analysis is to accurately list all the work items needed to be completed, no more and no less, so that one can make appropriate preparations for the next stage of project scheduling.

1.5.2.2

Work Breakdown Structure

To plan the implementation of the project, we need not only to understand the work of various parts of the project, but also to understand the interrelationships among them and their organization (or their structural state). Work breakdown structure (WBS) is to organize each project task through its inherent attributes and links to form the inverted hierarchical tree. The nodes of the tree represent a specific work item, and the tree’s hierarchy clarifies its relevance and affiliation in connotations. The logical relationship of the hierarchical tree structure is shown in Fig. 1.1. It only lists three levels in the figure, while in fact it can be logically multi-layered. The general term in the top of the tree is T. The second is the subordinate t1 , …, ti , …, tn which represents n work items (work package). The third is li1 , …, lik , …, limi which represents the mi work items under the ti work package separately. Figure 1.1 only represents a logical relationship in a broad sense. When T describes the specific work of the project, each node represents a specific task. When T describes the overall organizational structure of the project, each node represents a specific work organization. However, if T describes the project resources (human, financial, material) configuration, each node represents the specific resources (human, capital and materials equipment) of every task.

1.5.2.3

Cost Breakdown Structure

To plan and control the cost of the project, it is necessary to understand the cost and distribution of the work in each part of the project. Cost breakdown structure is to organize the cost of each project task through its inherent attributes and links to form

1.5 Conventional Project Management

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Total cost of the project

the cost of work package 1

the cost of task 11.

the cost of task 1m.

the cost of work package i

the cost of task i1. the cost of task ik.

the cost of work package n

the cost of task n1. the cost of task np

Fig. 1.2 The logical diagram of the hierarchical cost tree structure

the inverted hierarchical tree. The nodes of the tree represent a specific cost of the work item, and the tree’s hierarchy clarifies the distribution of costs on each work item. Figure 1.2 shows the logical diagram of the hierarchical cost tree structure. The whole project consists of n work packages and the total cost of the entire project is the sum of n work package costs. Concerning each work package, it is made up of the work of its subordinates. So the cost of each work package is the sum cost of its subordinate tasks. For example: the cost of work package 1 is the cost sum of its subordinate m tasks; the cost of work package i is the cost sum of k subordinate tasks; the cost of work package n is the sum cost of p subordinate tasks. The combination of the cost breakdown structure and the project schedule will constitute the prerequisite and basis of the financial budget plan required for the implementation of the project.

1.5.2.4

Organizational Breakdown Structure

Organizational breakdown structure can also be treated with the principles of WBS work mentioned above, which applies to the vertical organizational structure.

section1............................. section i ………………section n

department11…department1m… departmenti1…department2k…

department n1…department np

Fig. 1.3 The logical diagram of the hierarchical tree organization structure

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1 Introduction of Project Management project

Project establishment stage Solution stage Project implementation stage Project completion stage

l11.............. l1j........l1m1 l21......... l2k........l2m2

l31......... l3p.......... l3m3

l41......... l4q.......... l 4m4

Fig. 1.4 The logical diagram of the hierarchical tree structure of life cycle works

Figure 1.3 shows the logical diagram of the hierarchical tree organization structure, in which corporate headquarter, section and department form the three-level organizational structure that is widely used now.

1.5.2.5

Resource Breakdown Structure

In Fig. 1.1, if T describes the project resource (human resource, capital, and material) configuration, the Fig. 1.1 will form the logical diagram of the hierarchical tree of resource structure. Each node represents the specific resources (human resource, capital and material equipment) demand for work tasks.

1.5.2.6

Life Cycle Work Breakdown Structure

Life cycle work breakdown structure is not often used in the project management, so it only has the theoretical logic function. The contents of the project life cycle work are shown in Fig. 1.4. From Figs. 1.1– 1.4, the contents of work at each stage of the project life cycle can clearly be seen. The cost of work of each stage of the project life cycle is shown in Figs. 1.1 and 1.2. From Fig. 1.1 to RBS clearly presents the resource demand at each stage of the project life cycle.

1.5.2.7

SMART Principle

In the Fig. 1.4, each element lijk represents a specific task to be completed in the process of project implementation. So each lijk must have the feasibility or necessary conditions for implementation, which is the SMART principle. SMART is the abbreviation of English by specific, measurable, achievable, relevant and traceable.

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The project implementation tasks may eventually be completed only if all the elements (work tasks) of the WBS in hierarchical tree meet the SMART principle. Any element that does not meet the SMART principle will not be completed and will ultimately affect to overall completion of the project. No matter what tasks a project manager arranges, the following five points should be kept in mind: Specific—the task must be a specific job that can be clearly described; Measurable—in the process of task, its progress, quality, cost should be measurable; Achievable—the task objectives must ultimately be achievable and feasible; Relevant—the task must be fulfilled by relevant executor, in relevant time and location; Traceable—any stage of the implementation of the task can be traced back and under a controlled state. The SMART principles enable project managers to avoid mistakes in their work, allowing him/her to take control of the entire project task and in the active position. Experience shows that those who can follow the SMART principles to consider problems and arrange tasks are often successful.

1.5.3 Project Personnel and Organization 1.5.3.1

The Importance of Personnel and Organization

The importance of personnel and organization to a project is obvious, because the implementation of a project completely relys on the staffs. However, having staff is not sufficient enough, the necessary condition for realizing the role of the staffs only if they could be well organized through organization. Practice has proved that a random combination of staff without commitments could not effectively play a role in the implementation of the project. Furthermore, a chaotic team could not bring benefits to the project and even cause catastrophic consequences for the project. 1.5.3.2

Project Personnel

A successful project management depends on two aspects of personnel factors: highquality project manager and mature team members. Especially, high-quality project managers should implement the team’s democratic management and fully trust the enthusiasm of team members. Creating a team with progressive spirit and culture through effective project management and the care of the career development of employees are important in team management. Project managers need to retain a certain degree of authority in order to be able to effectively carry out their management and leadership in order, so that the project can be carried smoothly. Mature team members should be represented by the fact that each member can play a role independently in his work, be able to flexibly handle part of his own work, understand the overall situation of the project and the objectives of each step, and participate in the decision-making process of the project team through their own experience at the same time.

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1 Introduction of Project Management

The most important person in the project is the project manager, who is the core of the project team. Under the leadership and arrangement of the project manager, the team members cooperate with each other to complete their corresponding jobs of the project, for they are the main implementers of the project’s tasks and the basic pillar of project implementation. The success of a project requires the project manager, who possesses a wide range of capabilities, as shown in Fig. 1.5. To implement a project, the project manager needs to do a lot of work internally, as shown in Fig. 1.6. In addition to the tasks shown in Fig. 1.6, the formulation of a project team management system and the establishment of a project management office are two used to be ignored but very important works. The former one is to determine the team’s working rules, which belongs to “legislative” problem in the team, and the project management will have rules to follow and in a busy but not chaos situation with it. The latter one is a “law enforcement” agency which is responsible for the special project management problems and becoming the administrative center

Fig. 1.5 The ability of a project manager

Fig. 1.6 Project manager’s mission diagram

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Fig. 1.7 Diagram of the contact unit and object of the project manager

of the project team. This will allow the project manager to get rid of some specific business, and focus on dealing with the main problems of project management. The project manager’s daily work is also involved in all aspects of the object. Figure 1.7 shows the stakeholders or objects involved in the work of the project manager. From the Figs. 1.6–1.7, we can see that the requirement of project manager’s ability is very comprehensive. To achieve the tasks of Figs. 1.6 and 1.7, it is not difficult to see that the project manager needs all the capabilities shown in Fig. 1.5.

1.5.3.3

Project Organization

As we all know, the project is composed of a series of tasks designed to accomplish a (or some) certain goal, and has a certain time and resource constraints. The project is in the support of human resources and will be implemented through careful organization. Scientific and rational management mechanisms will depend on the distribution and interrelationship of team members. Usually when the team members are relatively scattered, the management system should take a relatively concentrated method; and when the team members are relatively concentrated, the management system should take a relatively more flexible way of democratic management. But when the situation is urgent, the centralized management should be concerned. The organization of the project management schedule can be divided into two parts: the project plan formed by the consideration of the system thinking; and the supervision and control of the project management process. The organization of the project

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1 Introduction of Project Management

Table 1.3 Project-based management model Contacts to

For the purpose of

General manager

HR department

Guarantee the HR for each stage

General manager

Operation and planning department

Operation externally and management internally

General manager

Finance and accounting department

Financing outside and cost control inside

General manager

Technical department

Technical support and R&D

General manager

Engineering department

Project implementation

General manager

Procurement department

Procurement for the project necessary installations, facilities and services

General manager

Quality insurance department

Guaranteeing the quality in each stage of project works

must adapt to the above characteristics, and the management mechanism will organize the project team in a dynamic way to implement goal-oriented management optimization. There are three main types of organizational models: professional type; project type; and matrix organization pattern between these two types. Professional management model is based on the professional-based organization model with the operations as Table 1.3. Project-based management model is a project-centered organizational model, and it can be shown as: GM→Manager of project management department→Project manager→Section manager. Matrix management model is a project team organizational model aimed at taking into account of the advantages and disadvantages of both professional and projecttype models. Table 1.4 shows the main points to satisfy the owner’s control of the project and the effectiveness of professional business operations. 1.5.3.4

Project Team Management

The project manager will take overall management to the project implementation, while, the team management sectors will coordinate to various departments and sectors of the enterprise for guaranteeing the efficient and smooth management of the project. (1) Project management office—HR management and post obligation management. (2) Technical management sector—work breakdown structure, time duration assessment and procedural control management. (3) Procurement planning management—schedule management, contract management, and material procurement management. (4) Finance and Accounting sector—estimation and assessment, cost control management.

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Table 1.4 The main point to satisfy the owner’s control of the project and the effectiveness of professional business operations Contacts to General

For the purpose of

HR department

Guarantee the HR for each stage

General

Operation and Planning

Operation externally and

Manager

department

management internally;

General

Finance and Accounting

Financing outside and cost control

Manager

department

inside;

General

Technical department

Technical support and R&D;

Engineering department

Project implementation;

Procurement department

Procurement for the project

Coordinating with

Manager

Manager General Manager General Manager

necessary installations, facilities and services;

General

Quality insurance

Guaranteeing the quality in each

Manager

department

stage of project works.

General

Project management

Each individual project managers

Manager

department

Coordinate to

(5) Quality management sector—quality planning, quality control and quality insurance management. (6) Project operation sector—project implementation management and system/facilities preparation management. The project manager manages the implementation of the project in a comprehensive manner, and its subordinate management departments (departments or groups) coordinate the work with various functional departments of the enterprise. (1) Project management office: Human resource management; personnel responsibility management. (2) Technical management group: Work breakdown structure management; time assessment management; and process control management. (3) Planning and purchasing group: Progress management; contract management; and material purchasing management. (4) Financial and accounting group: Budget estimation management; cost control management.

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1 Introduction of Project Management

(5) Quality management group: Quality planning management; quality control management; quality assurance management. (6) Project operations group: Project implementation management; equipment, system preparation management, etc.

1.5.4 Project Execution (Scheduling and Control) 1.5.4.1

Project Plan

To operate a complex project, it is necessary to make a careful plan and then operate accordingly to the scheduled plan. In order to plan a project, it is important to make sure that what to be done to achieve the project’s objectives. Only if we clarify the works to be done, can we plan the project on time and in order, then to start the project. (1) The basis of the project plan—project scope management Determination the project scope is the basis and premise for the project plan. As stated in Sect. 1.3, the project scope refers to the work that must be done for the completion of the project, and it reflects the characteristics of the project, that implies what to be done and how to do it. It should be noted that the project scope differs from the product scope. The latter refers to the features and characteristics of the product or service. While there maybe have certain correlations between the project scope and the product scope, for example, a part of a large product may be a project. When we develop a new type of aircraft (product), one of the components such as engine (communication system or others) research is entirely possible a complete project. The definition of a product’s scope is the measure or its functional requirements, while the definition of a project’s scope is the basis for the formation of a project plan. The relationship between the scope of a project and a product can make a project eventually become the submitted product. (2) Project scope description document For an important project, the confirmation of scope is based on a complete project scope document, which includes: (a) The project characteristics and its necessity are important for the project evaluation and its risk analysis. (b) The illustration of project objectives, such as quantitative indicators of project products (cost technical and time indicators) and qualitative indicators (such as applicable technical specifications).

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(c) The description of the deliverables of the project and the submission of comprehensive and satisfactory results represent the completion of the project. For example, providing all the documentation of executable program software as well as its user’s manual means the fulfillment of the project of software development. (3) Project scope management Project scope management is to ensure the project only performs the work within its scope in the implementation which means refusing the extra work. Project scope management includes: (a) Define the scope and divide the project into smaller checkable work tasks. (b) Verify the acceptability of the work scope with the scope definition, then assign it to the relevant departments or individuals for implementation. (c) Prepare the project plan document before the project starts. (d) Continue to verify the progress of plan after the project starts. (e) Manage and control the project scope changes. (4) Project work breakdown structure After defining the scope of the project, the next work is to distinguish and sort out the different ranges, different properties, and different processes of the task, and form a series of work processes and hierarchical trees for the project further to develop a plan for facilitating structured processing. (a) Definition of work/process: a task unit with a defined goal, start and finish time which facilitates management (time/expense/resources). (b) The project should be broken down into a series of work, which will be facilitated to management, the degree of decomposition depending on the nature of the project and control/management of the specific requirements. (c) Once the project is broken down into a series of work, the order or the logical relationship between the works should also be determined by the project’s technical and organizational requirements of management. (5) Project plan management Project plan management is essentially the dynamic and real-time management during the implementation of the project. The contents of the project plan management can be divided into time management, resource management and cost management with each particular control procedures. The project’s time control can be divided into four steps: (1) (2) (3) (4)

Define each task(work) in the project execution process. Define the order of each task (work) in the project execution process. Plan the task (work) in the project implementation process. Control the task (work) plan in the project execution process.

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1 Introduction of Project Management

The project resource control can be divided into four steps: (1) (2) (3) (4)

Define each resource for the project. Define the order and time required for each resource of the project. Schedule the number of resources required for each project according to time. Control the plan of each project resource. The project cost control can be divided into three steps:

(1) Define the cost of each project task. (2) Schedule the amount of costs required for each task of the project according to time schedule. (3) Control the cost required for the project according to the time schedule.

1.5.4.2

Project Control

(1) Project uncertainty environment As we all know, we are in the VUCA era, and our project is carried out in a changeable environment. It is impossible for the project always to follow the plan during its implementation. It must be delayed, excessive or changing in terms of time schedule, cost consumption or in possible changing of mission objective. For effectively control the project’s plan, it is important to understand the internal and external environment changes during the project implementation process: (1) Uncertainty in the internal environment. The following uncertainties of the internal environment of the projects will be detrimental to the project implementation as planned. (a) Changes in the project objectives: During project implementation, due to the changes of client’s intention, the dynamic demand of the market competition or the technical reason that causes project cannot be carried out according to the original plan. (b) Changes in project resources: The project resources include “hard” resources and “soft” resources. The former one mainly refers to the human resource, financial capabilities, and materials; while the latter one refers to the technology, management, trademarks, market reputation, patents and other non-material resources. Such as the interruption of the funding chain due to the deterioration of the economy during the project period, or the technology cannot meet the requirements of the market today may which also have a significant impact on the project. (c) Changes in project organization: Changes in the project organization may change the harmonic relationship between the project team cooperating with each other and may hurt to the original effective mechanism of team work, and even cause the losing of talent from the project team and affect the smooth progress of the project.

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(2) Uncertainty in the external environment. The following uncertainties of the external environment of the project will also affect the implementation of the project. (a) Changes in the global economic situation: In view of increasingly shown the globalization of economic integration trend today, the global economic crisis will have a profound impact on the economic situation in every country. All kinds of projects will be affected by the global economic uncertainties, especially in the economic situation of consumer countries, and the impact on exporting countries is even greater. (b) Changes in the local economic situation: In the overall situation of the global economy, the economic situation of each country is still different. The local economic situation more directly affects the project. If the local monetary tightens, the credit loan for the project financing will be a problem, and the project may have the risk of disruption of funding chain. (c) Changes in the local political situation: In the external environment of the project, the local political situation is the most indispensable factor, especially in some areas of political turmoil. The smooth implementation of the project requires a stable environment. Changes in government market policies and monetary policy, macroeconomic uncertainty tend to make the prospects of the project unclear. (d) The influences of the local legislation: For the project investment, construction and commercial sales, the local regulations and legislations have a large effect on the project implementation, and will be punished by various fines or even caused the whole project to come to a premature end with a little careless. (e) The influences of the local cultural situation: The globalization of the economy must bring the globalization of the project (including various parts of the project), which leads to people with different cultural backgrounds work together in a same project. Cultural conflicts and human factors will have more impact on the project than ever before. For example, misunderstanding with each other due to the different human culture customs and eventually leads to major claim cases which happen frequently. (3) The control of plan The control of the plan is to confirm the existence of the above-mentioned uncertain environment, and actively rectifying the project while the implementation of the plan inevitably produces deviations. The so-called “control” refers to the combination of “monitoring” and “balance”. The “monitoring” means to “watch” the implementation of the project for detecting its deviation from the plan, then take the adjustment action. While “balance” is a substantive corrective action, its purpose is to take adjustment action to make the state of implementation return to the original plan from the departure state and even adjust to the optimized state. The project dynamic control process is shown in Fig. 1.8. Choose the ideal plan for the implementation of the project as the basis for management and control, and

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1 Introduction of Project Management

Fig. 1.8 Deviation during implementation and its dynamic correction control

set them as the plan track, and then determine the specific goals and details of the implementation process. Starting from the start point of the project implementation, the deviation (relative to the planned orbit) is actively controlled among a certain period of time during the implementation and this corrective action is repeated in each time period of the control cycle that will be performed. In this way, the actual state of the project is like a broken line that swings back and forth in the planned orbit. The selection of the length of the control cycle is to make the deviation controlled within a certain range to ensure that the implementation of the project can be controlled in the vicinity of the optimized planned orbit. Therefore, the control process can ensure that the project is carried out as planned with necessary adjustments to achieve the objectives of the project. Sometimes, the project implementation plan must be adjusted and optimized due to changes of objective requirements, such as: (a) The duration of the compression can be achieved by compressing the duration of the work (or some items) on the critical path which means that some of the resources be used for work on non-critical paths that will be prioritized to those key line works for shortening the overall duration of the project. (b) Use the resources in a balanced manner in order to optimize the use of resources and to avoid the peak demand for resources. Under the fixed conditions of construction period, the concept of resource balance is the idea of “cutting peak and filling the valley” and to use the resources in a fixed period in a balance way. For example, in the use of funds, we can adjust the implementation of project work plan to avoid the focus of capital investment. On the basis of maintaining the level of basic capital investment, and then “cut peak and fill the valley” for reducing the accumulated cost of funds to minimum.

1.5 Conventional Project Management

1.5.4.3

27

Cost Management

(1) Cost composition and decomposition We first analyze the cost components of a project. Taking a new product development project as an example, the composition of the cost can be shown in Fig. 1.9, which shows the composition of the various parts of the project cost. In general, the outsourcing of new product, outsourcing services and payment of patent is considerable. In addition, in some large-scale infrastructure or industrial construction projects, the cost of equipment and outsourcing accessories may be as high as 70–80% or more, for which the cost control must be given sufficient attention. Taking the usual largescale overseas infrastructure or industrial construction projects as an example, the general equipment and outsourcing accessories are accounted for about 80% of the total investment, construction and management costs accounted for 15%, and the normal profits of only about 5%. In this point, the cost of control must be very cautious in the procurement processes. If there is a deviation in the procurement, which results in overruns or problems in the management, it will often impact the only 5% profit bottom line. The failure of cost management and control is the main reason of the frequently lost of overseas projects and overseas investments in many enterprises due to increasing of uncertainties. (2) Project cost management The purpose of project cost management is to ensure that the cost of the project must be controlled within the budget. The contents of the project cost management are shown in Fig. 1.10.

Fig. 1.9 Project cost composition analysis

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1 Introduction of Project Management

Fig. 1.10 The composition of project cost management

(a) Project resource plan: According to the project work breakdown structure to determine the time required to complete the project and resource content, it necessary to list in advance and make arrangements for the implementation of the project. (b) Cost estimate of the project: The cost of all kinds of work and activities that must be done one by one for project implementation. (c) Project cost budget plan: Estimate the cost of the project based on the estimated cost of the project, taking into account a certain percentage of the management costs and some un-foreseeing expenditures to form the entire project cost budget plan. (d) Cost control and forecasting of the project: Determine the reasonable limits of cost control based on the cost estimates and the cost forecasts. The implementation of cost control is in dynamic concept, which is generally controlled by the earned value analysis method to control the real-time state of project cost and achieve real-time cost control. (3) Earned value and cost, schedule control The basis and starting point of the project control is the real-time monitoring of the cost and schedule of the project implementation. Before taking any corrective action, it is necessary to have an accurate understanding of the actual progress and cost of the project as well as its deviations from the original plan, which are the basis for the assessment. For this reason, three parameters must be introduced: (1) BCWP(EV): Budgeted cost of work performed (BCWP) represents the budget for the completion of the work. It checks the value of the work that has been completed so far or the actual cost of the completing work. It is called the earned value (EV). (2) ACWP (AC): Actual cost of work performed (ACWP) is the actual cost of completed work so far, or being called actual cost (AC). Therefore, the evaluation of the cost of the project can be expressed as cost variation (CV). CV = BCWP − ACWP (CV is positive for cost surplus; CV is negative for cost overrun).

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Fig. 1.11 Project implementation progress and cost deviation

(3) BCWS (PV): Budgeted cost of work scheduled (BCWS) is the budget value of the planned work. It is called planned value (PV). Therefore, the assessment of the progress of the project scheduled plan can be expressed as schedule variance (SV). SV = BCWP − BCWS (SV is positive indicates process ahead; SV is negative indicates process delay). The deviation of the actual schedule and costs of the project and the progress of the original plan can be represented by the inter-relation of the above three parameter curves. The project implementation schedule and cost deviation is shown in Fig. 1.11. In the figure, the CV is the difference between the curve BCWP and ACWP in the vertical coordinate of the inspection date, and the SV is the difference between the curve BCWP and BCWS in the vertical coordinate. It uses the deviation of the cost to convert the deviation of the simulation schedule to the horizontal coordinate, as shown in Fig. 1.11. The control of cost and progress during the implementation of the project can be carried out with reference to Figs. 1.8 and 1.11. After setting a certain limit on the cost deviation CV and the schedule deviation SV, the control cycle shown in Fig. 1.8 can be determined, and we can further adjust the control cycle according to CV and SV size. Therefore, the progress and cost control of the project operation is in essence the real-time control of the cost deviation CV and the schedule deviation SV in each of the adjusted control periods, and continuous measure the cost deviation and schedule deviation in the project implementation time and then change the schedules and adjust the resources in time.

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1.5.4.4

1 Introduction of Project Management

Quality Control

(1) Project quality management The quality of the project is a key indicator of whether the project meets its intended target and achieves project owner (or users, consumers) satisfaction. It is also one of the basic questions that need to be controlled in the cost, schedule and quality of the project management process. Therefore, if there is no project quality requirement, in other word, no project owner’s satisfaction, then there will be no project success. Project quality control is different from the project’s cost control and planned schedule control which has no external quantitative attributes, and it must be implemented throughout the project implementation process. So it is better to say that it is a process of organization problems, an implementation of mechanism rather than a methodological problem. For example, the total quality management problem is the whole time, whole process and full participation process organization problem. (2) Several concepts of quality The International Standard Organization defines “quality” as: The entity (product, activity or process) has a combination of functions and features that satisfy the owner (user) intrinsic and external needs. Therefore, the quality of the product is to meet the needs of users, including performance, reliability, durability, security, economy and appearance and so on. The quality of the service product is reflected in the extent to whether its service is consistent with the user’s expectations. Regardless of a specific job, a specific product, or the process of service, its quality is measured by its final effect. “Quality” can also be defined as the suitability of the product and the extent to which the user’s needs are met when used. Therefore, the quality of the product is not determined by the manufacturer but by the users. (3) Characteristics of quality The quality characteristics of a product or task (including a variety of items) are expressed as satisfying the inherent and external needs of the user (or owner) for their functions, attributes, and characteristics. The characteristics of quality include: (1) Intrinsic quality refers to the product or task (including all kinds of projects) in the use of the function, social benefits, potential economic benefits, or product strength, accuracy and characteristics. (2) External quality refers to the product or the task (including all kinds of projects) external attraction, such as product external packaging, appearance, taste, color and decoration. (3) Economic quality refers to the cost of products or tasks (including all kinds of projects), durability, price and maintenance (repair) costs. (4) Commercial quality refers to the guarantee period of products or tasks (including various items), after-sales service conditions, and responsibilities of various manufacturers or contractors to users.

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(5) Environmental quality refers to the product or task (including all kinds of projects) in the implementation process, the manufacturing process and the future use of the operation of the process of environmental impact, and its positive contribution to the environment or negative pollution to the environment. (4) Total quality management Total quality management (TQM) is a model of quality management that requires companies to focus on the quality of their products or tasks (including all types of projects), emphasizing the full range of quality work, the whole process and full investment, with a view to achieve long-term success based on users (owners) satisfaction, and at the same time benefiting its employees and society. The concept of total quality management is: (a) The quality assessment is given by the user (owner). (b) Quality is guaranteed through work (processes, initiatives and management), rather than through final audits or quality checks. (c) Quality management is the responsibility of all employees (project team members). (d) Ensuring the quality of each work process and link is the key in quality management. The total quality management is sometimes called as total quality control, which can be achieved through full investment of the enterprise (project team). The quality management in all processes of the product manufacturing (project implementation) and the quality management in each stage of the product/project process as shown in Fig. 1.12.

Fig. 1.12 Project total quality management and control

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1.5.4.5

1 Introduction of Project Management

Project Risk Management

(1) Definition of risk The project environment is full of uncertainties, so project management is carried out under uncertain conditions. We know that the risk comes from uncertainties, so it isn’t surprised that the risk is always associated with the implementation of project, or project runs under a risk environment. Project risk is an event that people do not want it to happen but it always likely to be happened. The risk can bring losses to the project, and the project manager must prevent it to be happened. In other words, project risk management can be understood as the counter-measures to be taken for preventing, or mitigating the potential losses of risk to the project during its planning and implementation. Although there is no uniform definition of risk at present, there are several general understanding and exposition. (a) The degree of risk means the degree of uncertainty. (b) Risk is the expression of the microscopic probability that people do not want it to be happened. (c) Or, risk is the possibility of damage and loss. (2) The characteristics of the risk Risk is an objective existence, but its degree is measurable. The content of the risk depends on the project environment, the time and space of the project implementation. The existence of risk is due to the impact of human activities and project implementation on the environment. There are three characteristics of risk. The first is its negativity, and the project risk always brings the general loss and negative impact. The second is its uncertainty; the impacts of project risk on the project are uncertain in time, place and intensity. Thirdly, the risk itself is complex; the reasons for its formation are extremely complex. So it seems impossible to determine it clearly. (3) Risk management The first step of risk management is to analyze the risk. The task of risk analysis is to study the law of risk generation of the project, then the methods to control and avoid it. The purposes of project risk management are to find effective risk control methods in order to minimize the loss of the risk upon to the project, to increase the risk security up to the maximum level, and to study how to transfer the insurmountable risks in order to effectively reduce the project cost. The contents of the risk analysis include: (a) Risk confirmation At all stages of the project implementation, the nature and characteristics of risks are different due to the different environment, location and characteristics of the project. The primary goal of risk management is to identify and confirm the risks in each stage. If there is a risk mistaken on this stage, especially missing the main risk, it

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will result serious impact on the project for the deficiency in protection against it. This will bring serious problems to the project and even cause serious damage and ultimately may lead to the failure of the project. (b) Risk qualitative assessment The qualitative assessment of the risk of each stage should not only research the severity of the consequences of the risk, but also examine the frequency of its occurrence for determine the management strategy of its treatment. For example, the consequence of an aircraft crash leads to numerous deaths of passengers, which should be considered an extremely serious event. But the probability of a plane crash is very small, so that people dare to take the plan at the risk of aircraft crash. For another example, despite the fact that storms are less destructive than aircraft crash, the probability of occurrence is much greater than that of airplanes, so people should take measures seriously for preventing the risk of storm and flood. (c) Quantitative risk assessment It is not enough to make a qualitative analysis of the risk, and it is still necessary to quantitatively analyze it for clarifying the exact cost losing of the risk to the project. This is the basis for the risk of whether to take a response against it and what measures to be taken. For example, a project risk can bring the project a loss of one billion dollars, but the probability of occurrence is very small, only once in a ten thousand years. If it is insured, it should pay for insurance 50,000 dollars per year. In this way, we can analyze that the probability of the project risk loss of 100,000 dollars/year, and compared to the cost of insurance is only 50,000 dollars/year, so we can decide to use the cost of insurance to transfer risk for it is lower cost and more favorable. (d) Risk countermeasures Using the best technology for risk response and decision, the risk countermeasures of the project are divided into the following categories. (i)

Risk mitigation: Since the risk is due to the uncertainties of the project environment, it is effective to reduce the risk by increasing the determinants of the project and reducing the uncertainties in the project. (ii) Risk avoiding: Avoiding risk factors in project operation environment can effectively prevent risk generation. (iii) The risk that can’t be circumvented or overcome by itself can be transferred, such as transferring to the other subcontract party or to insurance company. (iv) Facing risk: When the impact of risk is small, or the cost of maneuvering risk is more than the loss of risk itself, it will not be dealt with and take a direct facing against it. (4) Risk management steps The steps for risk management are shown in Fig. 1.13.

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Fig. 1.13 Risk management decision flow-chart

1.6 Program Management 1.6.1 Definition of Program Management The latest PMBOK of PMI defines: “A program is defined as a group of related projects, subsidiary projects, and program activities managed in a coordinated manner to obtain benefits not available from managing them individually.” The project is a one-time effort to deliver unique products and services with a defined deadline. While the program management refers to a group of multiple projects associated with each other at the same time, managers need to focus on their unified management of resources in an optimal allocation and scientific and rational management of programs in order to obtain the benefits that cannot be obtained by independent management. In this way, it achieves the target revenue of the project group and achieves the strategic goal of the organization. Successful program management requires market insight, business economics thinking and the passion for reform and innovation, good management processes at the same time. Project program management requires the use of knowledge and resources for planning and comprehensive implementation to meet the requirements of various projects and customers. The introduction of the standard for program management provides the upper management of the enterprise how to improve their program management level and provide appropriate environment and support for their work. In the past, PMBOK did not provide more specific guidance to the project program, while the promulgation of the program management standard solved the problem. In addition, this standard also details the life cycle of the project program, and the relationship between the program and project or project portfolio. According to the reference: “Multiple projects may be needed to accomplish a set of goals and objectives for an organization. In those situations, projects may be grouped together into a program.” The program management standard is very similar to that of the PMBOK. The management of the program is broken down into forty-one standard processes based on the interaction of the five process groups and the ten knowledge areas. Its style of expression differs from PMBOK in that the project group management standard

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describes the specific content of each process in the form of a process group rather than a knowledge domain. Program management and multi-project management are both connected yet different. A “multi-project” consists of several projects, and each of “multi-project” is managed by the project manager as a separate project. While the program management does not care about the specific details of the project, but focus on managing the project’s interdependence, the project’s priority relationship and delivery of comprehensive benefits and other projects in the overall affairs, such as unified organizational resources in various projects for the purpose of optimal allocation of resources among the projects and so on.

1.6.2 Research Background of Program Management With the rapid economic growth nowadays, for an organization-level enterprise, program management has become a hot spot in project management research and practice. Enterprises implement multiple projects under uniform resource conditions, which often involve sharing and conflict between different projects in terms of capital, time, facilities and human resources. Therefore, it has become a realistic research topic which allocates rationally and effectively various kinds of resources with a view to shorten the projects’ cycle, reduce projects’ cost and improve the efficiency of enterprise management. As a large-scale integrated project, it is often composed of many independent projects. For project-based enterprises, it has a large number of orders each year, and needs to undertake a large number of projects to achieve the planned output target of the enterprise. The purpose of program management is to optimize the allocation of resources and to accomplish multiple projects through more reasonable organization and process methods, so as to maximize corporate profits. Multi-project management is a comprehensive management process of how to coordinate and allocate existing project resources and obtain the best project implementation under the premise of multiple projects. For example, as a manufacturing enterprise, the implementation of program management possesses very important practical significance. First of all, there may be more than one project at the same time being implemented in an enterprise, so there is often a competition among the projects in terms of capital, time and human resources. Such a relationship between projects often leads to fierce disputes over the deployment of corporate resources. Improper handling, it may cause losses, so it needs to use program management to coordinate. Secondly, the successful implementation of project group management directly affects the economic interests of enterprises. The ultimate goal of the enterprise is to make profit, successful project program management which can reduce the total project cost and optimize the enterprise resource allocation, thus to improve the profit margin of the enterprise.

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1.6.3 The Essence of Program Management The successful practice of PM in recent years shows that the core essence of the program management is the centralized and coordinated management of multiple projects, so as to obtain the strategic goals and benefits of the enterprise. Therefore, multiple project management is not necessary to be the program management; however, as long as there is program management, there must be project management. Program management and project management are different from each other. The essence of the previous one is to centralize managing the allocation of resources and harmonize the multi-project schedules for achieving the effect of integrated revenue. The program management is not directly involved in the daily management of each project, and its work is focused on overall planning, controlling, coordinating and guiding the specific management of each project; whiles, the detailed operation of individual project remains to project management.

1.7 Portfolio Management With the continuous development of project management during enterprise operation, the management of project cluster and project portfolio is becoming much more important. The project cluster management mainly focuses on the parallel operation of similar projects; however, the projects in portfolio or cluster may not related from each other. The portfolio management can filter, evaluate, plan, execute, and control the projects in current organization from the perspective of the company. It is also the systematic process in the selecting, supporting and managing the projects in portfolio, which involves the strategic level of the enterprise. The key problem of the portfolio is about how to select the suitable project clusters considering the enterprise strategy and limited resources, which has significant influence on the strategic development of the enterprise. Although the targets of different projects are quite different, they still have something in common. When using the portfolio management to select projects, the company must consider the potential project clusters as a whole and try to find the balance among the long-term strategic goal, short-term benefits and several of limitations. In another word, the enterprise should make it clear whether the chosen projects are worth investing and how about the feasibility of those projects. Moreover, the enterprise should also think about whether the portfolio follows its long-term strategic goal, what is its commercial value and how to run it complementarily. Project portfolio management involves issues such as project decision making, prioritization, separating review, regrouping and reordering of project groups. (1) Project decision: Project portfolio management is to choose a set of projects, which may be affected by the market situation, the possibility of funds, risk considerations influence. At the same time, considering multi-selective projects,

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(2)

(3) (4)

(5)

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the project portfolio management must also study whether it meets the needs of long-term strategy of the enterprise. Prioritization: Because of limited funds, enterprises cannot invest in all projects. In order to make decisions, prioritization must be placed on all possible projects. The enterprise should consider the factors of input cost, risk management, profit opportunity and intention of prioritization in order. Separate reviews: Prioritized by alternative projects, the projects that bring the greatest return on investment will be selected into the portfolio of the enterprise. Regrouping: If a new project is added to the existing portfolio, it must be reviewed again. First, the enterprise should find whether the goal of the new project agrees with the strategic objectives of the original project portfolio. If it does not agree, the enterprise should consider if the new project can extend the new strategic direction of the enterprise? At this time, it is necessary to further evaluate the old and new project portfolio to find the optimal balance point of the new project portfolio. Reordering: If the enterprise strategy changes after the portfolio, the manager must reorder the projects. In this sense, the enterprise project portfolio management belongs to the strategic management of the enterprise.

The introduction of the standard for portfolio management is particularly suitable for large enterprises and groups with diversification of strategy, meanwhile, it is also applicable to manage investment companies and risk management Inc. which possess different kinds of projects and helps the decision-makers of large companies to improve their project management level as well as the ability to carry out and control large project clusters. The standard for portfolio management divides the portfolio management into positioning process group and regulatory and control process group. The standard divides the portfolio management into nine specific processes with standardization and normalization. According to the market demand, technical risk, cycle length and investment size, the positioning process group of the portfolio management will evaluate, locate and sort projects from available projects, so as to dynamically grasp the progress of project portfolio when we are undertaking project portfolio. The regulatory and control process group of project portfolio will monitor the entire management projects dynamically, control the development phase of new products, schedule, adjust resource allocation and add or remove project portfolio in real time, which can achieve economic, effective and optimum portfolio management. In the implementation of the above two process groups, the standard will also divide the whole process into nine specific process including project confirmation, project classification, project evaluation, project selection, project prioritization, project portfolio balance, project authorization, project portfolio assessment and strategic change and periodic reports, so that the entire portfolio management process is fully standardized and normalized, which improves the quality of management. When carrying out strategic portfolio management, enterprises usually plan according to the regular rate of return, and establish an initial project portfolio which

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is basically consistent with the strategic objectives of enterprises. Such a project portfolio is more consistent with the overall business strategy than a single project selection.

1.8 Challenges of Project Management in the Future The professional ecology of project management is facing subversive changes, which will more and more depend on the platform of “Internet + AI”. The challenges of project management in coming future can be concluded as we are facing to a group of virtual objects on the virtual platform rather than a group of real objects on the real platform in the past. Project is the representation of modern productivity. All the events and issues of project are the objects that project management should be involved and accommodated to modern development of science and technology. As a matter of fact, the Internet and the Internet of things will be the scientific platform of different industrial professions; moreover, artificial intelligence is still in its fast developing stage, which can be replaced human being to make decision in different cases and playing a management roles. Therefore, the “Internet + AI” will certainly become the hot spot in the development of science and technology also in project management profession. Even though, the innovations of technology, management and business mode are the ever main subjects of economic development; however, upon any innovation, Internet will play the important role. The recently emerged PPP projects, which would be the most popular mode of financing in large scaled projects in the future, is just an innovation in business mode, but it requires the knowledge structure of a PPP project manager to cover many areas far broader than that of the conventional one, not only in technology and management, but also in finance, legislation, contract management etc. The operation of law and finance in PPP projects is so sophisticated that makes PPP project managers psychologically puzzling. It implies that if all the information and data of those virtual objects are connected by Internet and on the virtual platform of “Internet + AI”, while the tool and methodology of project management will be never than before facing subversive challenges. The Internet has now been using in different professional fields and is becoming irreversible tendency of communication platform for mutual connectivity. Since the government has established common Internet platform for different enterprises to integrate their information and data in business, therefore, the operation mode of “Internet + PM” will inevitably be popularized, it would be definitely changed the business modes and organizational governance in different professions including its program management and portfolio management practices. It cannot be underestimated that the operation mode of “Internet + PM” has great impact on the traditional mode nowadays and in coming future, we must take measures to accommodate it both in business operation mode as well as in talent cultivation. Especially for the project management education, we cannot ignore and keep silence in facing such a subversive changes; besides, we must respond it firmly by innovated ideas and

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breakthrough in practice, taking countermeasures in strategic way against the severe challenges. We know that the project is the economic cell of society. Without best practices and successful projects, there will be no economic prosperity of a nation. In other words, if you want the cells of your body to be stronger, you need to have nutrition and physical exercise. For a country, if you want the projects to be successful, you really need PM talents and favorite social environment. Here, PM talents are similar to nutrition and favorite environment such as government policies, soundness of legislation system as well as prosperous market potentiality etc., which is like physical exercise for growing the cells. What we need to do is to strengthen our cells by qualified PM talents and healthy exercising of our cells by harmonically clarifying our project environment. As in VUCA era nowadays, the rigid management philosophy based on industrial economy is no longer appropriate; instead, the flexible governance ideas are more accommodating. It is the time that one should act based on “project governance” idea rather than on “project management” mindset in the past. It is well known that Chinese traditional culture (for instance, Taiji logic, the Chinese wisdom for project governance) possesses tremendous elements in soft treatment of contradictory events. There is a huge space of using Chinese cultural essence to deal with the management issues in VUCA era not only in China but also elsewhere throughout the world. In our view, the essence of Chinese culture is the “unification of two opposites”. It is reflected not only in the “The Art of War”, but also in different issues, as a universal truth. For instance, in the governing principles of ancient China, it tells us the way to be a leader, and one must insist on character-building, to guard against greed, frugal and diligent, refrain from anger, emulate good deeds and correct his/her own mistakes,…. A project manager, as the leader of the project, needs to be respectful of relatives, to do self reflection, once he/she wants to perform his/her leadership. It’s the way of Chinese culture to unify two opposites—the leader and the people to be led. Essentially, project management is to make a series of decisions amid uncertainties for the purpose of realizing project goals. In digital era, project management is performed via the platform of the Internet, and the “organization” on the platform is no longer a concrete and solid body, but a hierarchical network of transferring and reproducing information across different organizational layers up and down. The whole procedure of project management is essential the process of transferring, reproducing information across different layers of the organizational framework to manage the team activities for the comprehensive project implementation. Therefore, organizational project management will be the one of future PM trends under Internet era. Theoretically, the real organization is no more essential in digital era, because with the help of artificial intelligence and big data technologies, project management can be implemented by a series of well organized information/data flow over the Internet. We must study hard about the characteristics of PM ecology under Internet era in order to reform our PM education for cultivating “up to date” talents accommodating to future PM development. Moreover, we need to integrate the essence of Chinese

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traditional culture for healthy development of PM under VUCA environment that would be the feedback elements contributed from PM practices. As the globalization of economy, the cross-national projects characterized in people with different cultural background work together, are growing far rapidly than before. Project risk management under sophisticated environment is still a hot subject which is worth to study in the future. During the author involved five years’ (2010–2014) theoretical and practical site investigation in a Sino-UK joint research project on the overseas construction and investment behavior of Chinese enterprises, we conclude that the conventional political, economic, legislative, cultural, technical and management risks, the failure of Chinese enterprises are caused by their decision makers who have stepped into the “decision traps”. There are eight decision traps, namely: (1) (2) (3) (4) (5) (6) (7) (8)

Trap of misunderstanding (by fickleness and extreme). Trap of lost control (by chaos in thinking philosophy). Trap in misdirection (by blind judgment). Trap in lack of investigation (by great determination under less information). Trap in misjudgment (by experientialism and dogmatism). Trap in moral insufficiency (by swindle and failure in good faith). Trap in learning insufficiency (less leadership by lack of diligence). Trap in irresponsibility (by less professional ethics).

Moreover, the implicit risks are more severe than the explicit risks mentioned above; and the problem lies in its implicitness, severity and difficulty in removal. The implicit risks can be moved only if the “soft power” of the enterprises and its staffs can be approached to the international market standard. The “soft power” is not only to be represented by the military and economic potentialities, but also more important by the market behavior of enterprises as well as the personal qualification of its staffs.

1.9 System Analysis and Structured Approach Let us review the procedures and management of the project step by step, thus we can conclude that the essence of methodology and tool of project management are “system analysis and structured approach”. Followings are the track of concluding above mentioned statements: Project has its fundamental characters, i.e., it has defined and definite goals. “Project management” means oriented to these objectives to achieve it through processing the definite resources in organization, distribution, allocation and management. The “scope analysis” is defined the necessary works by which the project objectives can be achieved; it should be based on the principle of “doing the necessary works; no more and no less”. Based on WBS, no redundant work is allowable. The planning and scheduling of project implementation are following up to consider: According to scope analysis, staffing the manpower needs in different sorts,

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different levels and in different time. The WBS “hierarchical tree” (Fig. 1.1) is built to locate different works by classification of work. To build the tree by top-down sequence with SMART principle and marked by 4W2H (What, Why, When, Who, How long does it takes and How much does it cost?) in each node of the tree, representing special work of the project implementation. Actually, through the information attached in each node of the tree, it is possible to retrieve necessary information for developing the project implementation schedule; the project cost estimation and the manpower planning of the project. It is understandable that schedule means plan with time, and it could be critical path method (CPM), parallel processing schedule as well as network scheduling. During the implementation of the schedule, control, monitoring and adjusting of the schedule are inevitable. Control covers the schedule, cost and quality aspects, which are initiated by monitoring and ended by the re-identification and decisions of adjustment. Latter to the accomplishment of schedule implementation of the project, there will be the “project ending” stage. The works in this stage include testing, commissioning, transferring, financial cleaning and documentations. It cannot be underestimated the importance of this stage, for the project will soon be over, and the project team will be correspondingly dismissed, so any residual problem will cause trouble for particular stakeholder of the former project. For instance the financial cleaning, since the project account is closed, it will be extremely difficult to ask for additional residual payment; besides, the insufficiency of documentation will cause inconvenient to the latter operators etc. It is emphasized that, during the life cycle of the project there are many critical issues which will have life and death influence to the project, such as the project feasibility analysis, decision making of bidding and acceptance of tendering, contracts’ assignment, contract (interface) management, risk management in different stages of the project etc. Finally, let us conclude that the theoretical foundation of project management is “system analysis”; and its methodology is so-called “object-oriented structured method”. For it’s clear that building WBS hierarchical tree of the project is based on system analysis and each “node” in the WBS hierarchical tree is representing a concrete work of the project, which needs to satisfy SMART principle and consumes cost, time and manpower. Retrieving each of them from the nodes step by step and one after another from the tree is followed to a “structured” way, from which the information of project schedule, cost estimation as well as the staff (worker) responsibility matrix can be correspondingly obtained. Summary This chapter presents the general overview of this book, which has not only reviewed the fundamental principle of traditional project management, where the fundamental core principles and methodology—the system analysis and structured approach are emphasized. This chapter also provides the basic information of the new scenario caused by Internet, which has brought subversive impact on the previous one. Project management under Internet era is due to the emergence of knowledge economy and digital era, it also correspondingly brings a new generation of talents,

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digital innovation and strategy for the development of project management future. It rises to a problem—how conventional project management can be modified and accommodates to Internet? This chapter gives the answer. The program management and portfolio management under Internet are also discussed in this chapter and it is also a part of the challenges for project management in the future. Review Questions (1) Why knowledge economy will cause such a subversive impact on project management? (2) What is the knowledge structure of a talent required under Internet era? (3) What are the basic principles of project management? (4) How scope analysis, WBS, and SMART principle work for project management? (5) Understanding how conventional project management can transit and accommodating to Internet environment? (6) What are the principles of program and portfolio management under Internet era? Homework (1) What are the differences between the traditional project management and the project management under Internet era? (2) How system analysis and structured method are used? Can you specify an example illustrating how the principle of system analysis and structured method work? (3) What is the project management strategy under VUCA environment? What are the measures against it? (4) Use scope analysis, WBS, and SMART principle to solve a practical project with illustration. (5) Illustrate the characteristics of program management and portfolio management under Internet era and how to realize it? (6) Discuss what the challenges of project management in the future are?

Further Reading 1. Kerzner, H.: Project Management: A System Approach to Planning, Scheduling and Controlling [M], 7th edn. Wiley, Hoboken (2001) 2. PMI Talent Triangle [R/OL].: (2015). https://www.pmi.org/learning/training-development/ talent-triangle 3. Qian, Z.: Minimalist Digital Economy [M]. BMI Publishing, Hong Kong (2018) 4. PMI.: The Standard for Portfolio Management [M], 3rd edn. PMI Inc., Newtown Square (2013)

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5. Lin, S.: The Development Tendency of Project Management under Internet Era [J]. J. Project Manage. Rev. 4(2), 1215 (2018) (in Chinese) 6. Rebentisch, E.: Integrating Program Management and System Engineering [M]. Wiley, Hoboken (2017) 7. Blanchard, B.S., Fabrysky, W.J.: System Engineering and Analysis [M], 5th edn. Pearson Education, New York (2011) 8. Pinto, J.K.: Project Management: Achieving Competitive Advantage [M]. Pearson Education, New York (2007) 9. Lin, S.: Fuzzy-AI Model for Managerial Science [C]. PMI World Research Conference, Warsaw (2008) 10. Lin, S.: Uncertainty Modeling and Analysis in Civil Engineering: Fuzzy Modeling of Risky Investment Decision in Engineering Project [M], pp. 167–187. CRC Press, Boca Raton (1998) 11. Shaopei, Lin, Yang, X.: System Analysis and Computer Algorithms [M]. Shanghai Jiao Tong University Press, Shanghai (1990) (in Chinese) 12. Ding, R.: Taiji Logic: The Chinese Wisdom for Project Governance [M]. Springer, Cham (2019) 13. Lin, S.: Fuzzy-AI in Design Consideration, Lecture in Architectural Design Institute [R]. Harvard University, Boston (2002) 14. PMI.: A Guide to the Project Management Body of Knowledge (PMBOK Guide) [M], 6th edn. PMI Inc., Newtown Square (2017)

Chapter 2

Project Life Cycle Management

Reading Guide (1) Understand the purpose and necessity of the project management life cycle stages, and make readers have an overall understanding for the content in different stages of the project. (2) Understand project life cycle is the nature law of the development of the project and must follow on. (3) Understand the basic points, characteristics and laws of the various stages of the project life cycle. (4) Understand the method of project overall management, and further to control the comprehensive management at various stages of the project. Facing Digitization of Project Management We are entering into digital Internet era; we need as efficient as possible to lower the cost of management. The traditional principle in project management is based on hierarchy of organization to transfer managerial information layer by layer, also up and down repeatedly. Where information cannot be real time transfer and depends on the efficiency of the organization, which is heavily influenced by human factor of individual personnel on the organizational chart. Project management under Internet era though still maintains the principles of project management, but its information transferring processes are real time and without any interruption and influenced by human factor. Moreover, with the popularization of artificial intelligence technology applications, it can be widely used in the project management in routine and creative procedures, such as providing help in analysis and decision making, making judgment of project status and deciding the next step of project development according to past experience and data, etc. The whole life cycle of project management ecology will certainly enter into a new scenario with full utilization of big data search and prediction, AI technology, Internet of things, cloud calculation, etc. And then each procedure of the project life cycle items will be more simplified and straightforward with highest efficiency.

© Shanghai Jiao Tong University Press and Springer Nature Singapore Pte Ltd. 2020 S. Lin and D. Huang, Project Management Under Internet Era, https://doi.org/10.1007/978-981-15-2799-9_2

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Case Guide Company B was a listed electronics company, and the company manager Wang was a vigorous and resolute practitioner. But he often lacked of careful thinking about the reason and consequences of his work, and often brought negative results. For example, in the process of developing a new product project, manager Wang was eager to introduce a new game mobile phone YXSJ123 before the next spring festival in order to seize business opportunities and give parents a new year’s gift for their children. Manager Wang believed that his own market judgment was correct, so in order to hurry up, he was willing to pay a lot of money to raise YXSJ123’s various outsourcing parts and patents, which caused the development cost increased. In addition, in order to prove its development of YXSJ123 products was correct, and to make it well-known, Mr. Wang also worked with the media to make advertising for YXSJ123 which made the cost far beyond the general level. As the Spring Festival was approaching, it was expected that the date of the new products to market on time had been grasped. After a bit of nervous work, Mr. Wang was relieved and involuntarily in the face issued a trace of a smile. However, the good time was not long. In the days leading up to the release of YSXJ123, the company J unexpectedly brought its new product JXCP to the market. Company J was a joint venture company of domestic wellknown electronic products company C and Japan company D, which was a famous Japanese animation company. Therefore, company J not only had a wide market base of domestic sales network and maintenance, but also had a strong technical base and technical development capability. According to the market analysis, J’s JXCP new product not only covered B’s YXSJ123 products in the functional aspects, but also was highly competitive in the price, consisting only about 80% of B’s YXSJ123 product. At the same time, J’s new JXCP game software update speed and software prices compared to B’s YXSJ123 products occupied an absolute advantage, so B’s YXSJ123 new product could only be “stillborn” without launch. This was a devastating blow to Company B. Company B’s stock fell in the stock market, and the company was almost on the verge of bankruptcy. This case tells us that any project, especially the major project decisions must go through market research and must have rigorous requirements and feasibility studies. Mr. Wang could operate such a significant development investment decision on his own, indicating that company B lacked the necessary establishment examination system, and did not do the preliminary stage work of the project. Moreover, because company B lacked market research before investing in YSXJ123 products, so its technology development plan could not withstand the market test in front of strong competitors. In addition, in the YXSJ123 project implementation process, in order to catch the progress, Mr. Wang insisted regardless of the cost which indicated that the company B lacked the control ability of the schedule and cost during implementation of the project, resulting in a serious cost exceeding. Although YXSJ123 project has been

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completed, the market’s transients have caught company B unawares, and it is impossible to do the final work on a normal program which is the result of the ultimate stock crash. The YXSJ123 project failed to follow the project development process including project selection, project implementation and project ending stage, which was the law of project development. The failure of the YXSJ123 project indicated that it was not in accordance with the project life cycle rules.

2.1 The Theory and Modeling of Project Overall Management The project is a one-time event that is oriented by the owner and has a defined goal, a clear schedule with limited resources. The implementation of the project depends on the scope of the project, costs, funding, project progress and the intention of the project owner. At the same time, the implementation of the project is always carried out in an uncertain environment. The project overall management concept is to fully meet the above requirements of the project. It is necessary to understand the project from the overall content and process of the project, to fully consider and arrange the implementation of the project, and to take risk management measures in advance for the uncertainty of the project implementation in order to carry out the overall management of the project and comprehensively control the implementation of the project. For the overall management of the project, we must establish the corresponding model to determine its theory, methods and processes. That is, the overall management of the project is based on the theory of systems engineering, the methodology of integration and structuring. It is the process of project implementation which is based on the goal-oriented, using network-based planning as a link to the scope management and work breakdown structure (WBS). The so-called systematic analysis is the theoretical basis; it is reflected in the scope of management, structure and WBS. The work of the project must be exhaustive, comprehensive, no more and no less. So it needs the integrated and structured methodology; since the project work has been a detailed division of labor, but as a whole project, these works still need to integrate, including adjustment, coordination, reporting and information systems, for which the integration is used. According to the overall management of the project model, the overall project life cycle is divided into four stages: project initiation and planning, project solution alternative, project implementation and project completion. The formation of these four stages is the natural form of development process of the project. Any project cannot leave this law, for which any project management must be followed. The overall project management model requires a standard form for its implementation, which possesses a significant challenge to the best practices of project management.

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2.2 Project Initiation Phase 2.2.1 Project Establishment and Planning Project establishment and planning is to ensure that the project can successfully complete its prescribed tasks and achieve the desired objectives. Therefore, the project establishment should demonstrate its necessities and possibilities of the project. In this stage, following problems are needed to be answered: (1) Why should this project be established? How is it necessity? (2) What are the economic, technical, environmental and social benefits of the project? What is the feasibility of implementing this project? (3) Who (company or organization) is responsible for initiating and owning this project? What is its economic strength and market potential? (4) Who (company or organization) is responsible for the implementation of this project? What are its technical capabilities and management capabilities? (5) Whether the project has acceptable economic and social benefits by qualitative and quantitative analysis? (6) What is the support level of the stakeholders for the project by analysis and evaluation? Any decision of the project is due to the needs or benefits of the project sponsor (owner); such as the company decides to develop a product; bank manager decides to develop a financial product; government department decides to promote a large infra-structure construction and so on. In order to implement the project, a series of problems and planning works must be carried out for ensuring that the project can be successfully completed at the required scheduling time, limited cost budget and defined quality requirements.

2.2.2 Overall Consideration of Project Establishment The overall consideration of the project establishment is to carry out the whole process of the project according to the project management model, through a comprehensive demonstration and arrangement for ensuring that the implementation of the project can be set forth on a reliable basis. In order to establish clear project outputs, it is necessary to conduct a feasibility study through data collection, investigation and confirm the economic effectiveness and technical feasibility of the project. It also involves considerations of strategic planning, resource assurance, risk assessment, and personnel organization. In order to plan the project management process, it is necessary to identify the project objectives, to carry out the work breakdown structure on the basis of the scope management, and then define the activities contained in each job so that the activities can be expressed in the network map. After the time estimation and cost estimation of various activities, then the cost budget and time of project implementation can be estimated.

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2.2.3 Project Feasibility Analysis The feasibility analysis is an important issue for the project to approach its final success. It consists of three main aspects: (1) Technical feasibility: To identify any technical barriers can be conquered during the implementation of the project. Such as core technologies in manufacturing, building techniques of construction, availability of required techniques and facilities, including computing capabilities or digital environments etc. (2) Economic feasibility: To clarify the economic effectiveness of the project can be satisfied the client’s/owner’s expectation, and especially for those long-term projects, the discounted net-present value return should be guaranteed, such as internal rate of return (IRR) and payback period should be within the range of client’s/owner’s expectation. (3) Environmental feasibility: It is mainly for dealing with the environmental risks. Such as political and cultural risks in overseas projects, the implement ability of project under difficult construction site, the stability of outsourcing logistics, the quality and reliability of suppliers, and the condition of credit loan budget supply and the payment condition etc.

2.2.4 Project Decision-Making Trap 2.2.4.1

Management Decision-Making and Decision-Making Traps

We can study the management decision-making traps through the “softening” trends of the project management science and the management psychology point of view. We know that the essence of so-called project management is to make a series of decision under uncertainties for all the project management activities. The best practice of project management is to make a series of correct decisions at all critical stages of the project, especially when the project is at the establishment stage. How to avoid errors when making the decisions? First of all, we must study the decision-makers’ performance in front of temptations and traps during the decision-making process of project practice in order to study the psychological law for making wrong decisions. The key is to study the classification of the traps during wrong decisions. Decision traps can be divided into: (1) The trap of deviation of understanding: This is caused by the decision maker who has not paid fully awareness of project environments. (2) The trap of out of control: This is the result of the project decision-makers out of control of the project goal and corresponding resources required. (3) The trap of strategic direction: This is due to the incorrect strategy of the project decision maker at the establishment stage of the project.

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(4) The trap of lack of investigation: This is caused by lack of investigation by the decision maker on current situation of the project. (5) The trap of wrong evaluation: This is caused by an improper assessment of current project environmental conditions and the conditions required for the successful completion of the project. (6) The trap of moral defection: This is due to the project decision-maker is lack of professional ethics in dealing with the unfavorable impacts of the project on the environment, sustainable development and on public society. (7) The trap of lack of learning: This is caused by the project decision-maker who does not learn from the mistakes occurred and results in repeated mistakes, even junior errors.

2.2.4.2

The Basic Form of the Decision Error

Decision-making errors are strongly related to the subjective factors of decision makers. There are three basic forms: (1) The stamina of the decision-maker can’t afford the temptation and attraction from outside world, and leading to wrong decisions. (2) Decision-maker makes hasty decisions without a thorough investigation and careful consideration. (3) Decision-maker abuses their authority and pour resources into project decision in a stubborn and one-sided mood.

2.2.4.3

The Reason for the Decision Error

(1) The decision error is due to the incorrect attitude and method According to statistics, 2/3 of the decision errors belong to following categories: (a) People do not make a systematic summary of the decision-making mistakes, neither the relationship between decision-making and consequences, nor the good way to analyze decisions. From different motivations, policy makers are always self-protected to avoid accusing after problems arise, or stubbornly insist on their own decisions rather than seriously summing up their own reasons. (b) People can’t realize that there is no so-called “optimum” decision in project management. Correspondingly, only satisfactory and acceptable decisions are realistic. Do not know this and go to the extremes may also make things messy. (c) It may be a good solution at some point, especially when the decision maker is in a dilemma to make decision in a hurry in the practice of management. But experience has proved that hasty decision-making is after all the most dangerous, and even causes disastrous consequences.

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(d) In any harsh environment, the decision maker must be soberly and calmly rescheduling his/her resources and keeping his/her plan in a cautious and comprehensive manner. If the decision-maker can’t do it, it must be a failure. (2) Blindly input in the absence of detailed and thoughtful investigation (a) A psychological problem is the decision makers who tend to make the decision error and stuffy to be conservative and complacent, which makes project in the event of a mistake after mistake. (b) An intuitive project-driven motivator enables project decision-makers to make decisions in a hurry without comprehensive investigation. Later, when the pressure on the project environment continues to increase, they also try to take shortcuts and rashly make a decision again in a hurry according to the simplest way. Just like gambling on major project decision issues, gamblers’ behavior will certainly push the project to the consequences of a disaster or catastrophe. (3) Ignore to correct the small mistake, and cause the big mistake The decision-makers does not correct the mistake they had known, instead take fluke mind to blindly input which ultimately cause the failure of the project. (4) The project decision maker is careless, lacks professionalism, and leads to mistakes The decision maker does not consider the objectives of the project carefully and does not seriously study the income and profit of the project, and without taking into account the risk of the project, so that the project decision is made in a hurry, and eventually it leads to failure.

2.2.5 Case Study Case 2.1 Decision of Disneyland Paris Project After the success of the Disney World in Orlando and Tokyo, investors were extremely optimistic and confident about another Disney project in Europe. They studied nearly 200 construction programs, including programs built in France and Spain. Investor Michael Eisner simply thought that France was a European transportation center with great potential for profit opportunities and thus rushed to invest, while he ignored the negative weather conditions in France and the negative impact of arrogant French culture. The project had an investment budget of $2.5 billion in 1988, while the actual cost was $4.4 billion. High ticket prices made the actual number of visitors far fewer than the 11 million people expected each year, and there were plenty of tickets for discounts. Hotel occupancy rate was also much lower than the expected 76%, while only 37%. As a result, the park and the hotel lost $960 million and $400 million in

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their first year of opening in 1994. Michael Eisner’s stock price for the Paris Disney project company was also very low in this market reaction. The reasons for the failure of the Disneyland project are that: (1) The decision makers of the project ignored the European culture, which was not allowed to bring the liquor into the park. (2) The decision makers of the project ignored the idea that “not allowing picnics in the park” was a violation of European culture, and it was a mistake to blunt American culture directly into Europe. (3) Project decision makers failed to estimate the European recession to make the situation worse, and visitors found that if they went to the Orlando Disneyland in the United States could not only save 30% of the fare, but also enjoy the warm weather, which seemed more attractive. (4) Project decision-makers ignored the other side of the convenient traffic conditions in Paris which visitors could visit and leave the park at the same day, which had brought a great impact on the hotel’s turnover. (5) The decision makers of the project ignored the negative factors of the Paris site and insisted on their initial “Euro Disneyland Dreams” and used their one-sided feasibility study report to cover their wrong decisions. (6) Project decision makers who ignored the basic principles of the project was profitability, could not clearly see this point which would blur the basic purpose of the project. Because of this, they were hesitant in the front of the project, and they just thought of the past successful experience while ignored the lessons of the past. They did not seriously consider what was the risk of the project? What might happen that didn’t expect to be happen in the project?

2.3 Project Solution Phase After the project establishment, it is necessary to consider all the preparatory work before the project implementation. At this stage, the first thing is to solve how to implement the project? What will implement? Why should it be implemented? Who is going to implement? When will it be implemented? Where should it be implemented? Etc.

2.3.1 Project Bidding 2.3.1.1

Request for Proposal

After the feasibility study of the project, the objectives of the project have been determined. In order to make these objectives clarified, a written document must be formed with the objectives of the project. In addition to the argumentation of the

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report itself, finally, the project needs to submit an request for proposal (RFP) required for bidding activities. The recommendation must meet the following requirements which are necessary to demonstrate: (1) The content and the number of documents required by the owner for delivering the project. (2) The specific requirements from the owners on the project works and the technical standards to be followed. (3) Object support provided by the owner to the contractor. (4) The evaluation and acceptance conditions of the project. (5) The form of project contract which the owner intends to, including the terms of payment, the time limit for the completion, the form and content of the tender document, the time limit for the submission of the tender, as well as the considerations of the bid evaluation, such as the quotation, the schedule and the experience of technology and management of the bidder, etc.

2.3.1.2

The Bidding Rules

The bidding process is generally open. The tender will be published to the public openly; the RFP specifies the content and requirements of the project and it provides the qualifications and conditions of the bidder (organization), the time for submission of tenders and the corresponding contact person. Usually the bidder (organization) needs to purchase the tender documents and pay some management fees. The bidding process is presided over by the owner (or the corresponding agency), and the organization will arrange the relevant tender document review and decision process. The process of tendering is to determine the winner of the tender candidates and to sign the contract with the winner. Sometimes, an owner can apply the hidden rules to a few potential bidders to indicate the approximate scope of the project’s base-line. Although this is done occasionally, it will effectively control the bidder with potential bidders, which will help to avoid the bidder’s excessive bid that exceeds the base-line target set by the owner of the project. When the tender’s quotation exceeds the target, the owner may even ask the bidders to modify their offer. However, the principle of the tender process requires open, fair and transparent. Any kinds of violation to above principle, such as bribery and string mark and other phenomena should be opposed and strictly prohibited.

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2.3.2 Project Tendering 2.3.2.1

Whether the Bidder Should Participate in the Bid?

When the bidder receives the announcement of the tender, the following questions should be seriously considered: (1) Based on bidder’s condition, is it necessary in response to bid for this tender announcement? (2) What are the technical and financial risks during bidding? (3) Is this project in the advantage of the bidders? (4) Can the bid for the project benefit to the future expansion of the bidder’s business? (5) Does the bidder have experience and reputation in the context of similar projects? (6) Does the project owner have the necessary economic strength to develop and carry through the end of the project? (7) Is the bidder’s resource sufficient to carry out a bid for such a scale and a high quality project? (8) Bidding is not the result, and bidding and preparation of tender document is a process of competition with the others. (9) Bidders should realize that if they continue to bid and lost frequently. The bidder’s reputation will be severely to be hurt, so as it’s necessary to consider whether the tender announcement is worth to respond?

2.3.2.2

How Does the Bidder Prepare the Tender?

The bidder must make all preparation works before the decision of responding to bid: (1) The bidder should make contact with the owner in advance for thoroughly understand the requirements and expectations of the owner. (2) Conduct comprehensive market research on all aspects of the project, including information about competitors. (3) Prepare a comprehensive document for the owners with the overall strategies and considerations of project implementation, in order to get the feedback of approval from the owners. (4) Sometimes the owner may not need to bid directly and sign contract with the contractor (organization), even though, the preparation before the tender is still important and necessary.

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How Does the Bidder Make a Bid?

Tender document is not only a technical document, but it is also a publicity document for the bidder (organization). How to do it well also involves the bidder’s reputation in the professional community. Therefore, it must be: (1) Fully understand the owner’s objectives and intentions of the project. (2) Show the arguments to the owner that the project can be totally completed by the bidder. (3) Show in maximum extent of how the project will benefit to the owner. (4) The bidder should show it to the owner in maximum extent that the bidder is the best project contractor for the implementation of the project. (5) The tender document should show it to the owner the performance of the bidder in the past similar projects. (6) The tender document should show it to the owner that the bidder is able to effectively control the cost at a highly specialized level, complete the project on time, and reach the targets of the project for achieving the greatest satisfaction of the owner.

2.3.3 Award of Bid The award of bid is carried out under the auspices of the owners after the project tender documents are collected and it is the final stage of the project bidding process. Although there is no uniform rule, those simple small projects can be simplified and omitted a number of processes. Generally, for the large-scale projects, project decisions should include the following processes.

2.3.3.1

Organizing Tender Advisory Organization

The project tender advisory group is entrusted by the relevant organization, composed of several experts (depending on the nature and size of the project), and its members are responsible for the preparation of RFP of the tender documents. As the third party, the mission of the tender advisory group is responsible for the fair, impartial and transparent review to various tender documents in accordance with the requirements specified by the owners. It makes an assessment to each tender document and provids a reference to the owners. The advice of the project tender advisory group is just a reference for the owner, so it doesn’t have the function of final decision making.

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Tender Screening

In the bidding of large projects, there are sometimes too many tender proposals being submitted, which should be selected (or be screened) in advance. The tender screening shall be conducted by the bidding advisory group of the project. The basic principles are: (1) Does the bidder (organization) have experience with similar projects? (2) Is the bidder (organization) technically capable of completing the project? (3) Does the bidder (organization) have the ability to manage the implementation of this project? (4) Does the bidder (organization) have a stable organization and enough human and other resources to complete this project? (5) What are the possibility, advancement and reliability of the bidder (organization) to fulfill in time, cost and quality requirements in completing the project plan? (6) Does the bidder (organization) have a reliable precaution in risk management? (7) Does the bidder (organization) have a good business reputation in the past? The screening process can be carried out by taking to the project a preliminary assessment according to the above-mentioned questions by expert scoring, and then get the total score by means of a weighted average and set a minimum limit for screening. Finally, screening the candidate projects by the order of scores higher than the minimum limit successively, the winning bidder is determined by highest scores of the candidate bidders. 2.3.3.3

Evaluation of Key Tender’s Document

As the winning bidder is identified, the project adversary group (now becomes to award consultation group) will conduct a detailed review of the tender’s document of key bidder in the above seven areas, and will be evaluated separately by each expert. 2.3.3.4

Summary of Assessment Results

The sub-item assessment of each tender will be discussed at the group meeting by each expert of the award consultation group. Each expert communicated and balanced the views of each other, unified understanding, identified existing problems, and remained them in the next investigation. 2.3.3.5

Bidder (Organization) Consultation Visit

Before the award of bidding project, it is necessary to investigate and solve the problems in the follow-up visit of the bidder (organization). It is necessary to inform the corresponding bidders (organization) in advance of the issues that need to be clarified in their tender documents and then to identify the remaining problems by means of a return visit, a meeting or a supplementary report.

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Award of the Bid

The process of award of bid is carried out after the experts who have fully exchanged their views and identified their concerning issues. In order to maintain fairness of the subject matter, it is necessary to take the comprehensive evaluation of the bidding documents by the experts in the award consultation group and decide the winning bidder.

2.3.4 Product Project Solution 2.3.4.1

General Process

The solution to the general product project does not necessarily have to go through the bidding process, but it must still be selected by the alternative screening. In the project establishment stage of the product, based on the market research, the usage and function of the product has been fully demonstrated and confirmed in written form. The functional verification of the product actually confirms the goal of the product. The solution phase of the product project is usually composed of two parts: the technical scheme and the marketing strategy plan. The project operator (team) of the project organization (company) proposes a number of alternatives and then finalizes it through the prescribed comparison procedure.

2.3.4.2

Contents of Technology Program of the Product

The contents and requirements of product technical program are: (1) Confirmation of functions, technical standard and technical parameters requirements of the product. (2) The verification of main technical key points for the implementation of the product functions. (3) R&D work required for product function development. (4) Discussion and demonstration of the main technical route (strategy) of product function implementation. (5) Main technical processes of implementation of product functions, including product design and technological process design, etc. (6) The main program schedule for the implementation of the product functions. (7) The main economic indicators and cost estimation for the implementation of product functions.

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Product Market Strategy

Product market strategy can be analyzed through the market environment rule strength-weakness-opportunity-threat (SWOT) of the product as following: (1) (2) (3) (4) (5) (6)

Confirmation of market situation of products based on market survey. Market advantage analysis of product functions. Market disadvantage analysis of product functions. Market opportunity analysis of product functions. Market risk and challenge of product functions. Further special market investigation and competitor investigation for product market development. (7) Advertising and media promotion strategies for the product to market. (8) Marketing strategy based on SWOT analysis. (9) The main planning schedule of the product to market. (10) Main economic indicators and cost estimations of the product market development.

2.3.5 Case Study Case 2.2 Professional Transfer of Heavy Machinery Company Company H is a specialized company in heavy machinery manufacturing, which is strength and enjoys a great reputation both at home and abroad. However, heavy machinery market competition is fierce, especially the special heavy machinery market space is quite limited, and its further development is much difficult. Taking into account the future of sustainable development of enterprises, after investigation, company H decides that the future business should be in broader areas to develop it products, yet which aspect to be developed is not resolved. According to the future international market forecast, in the global urban and rural infrastructure construction, mainly in developing countries, its infrastructure will have a huge market demand. Among them, the development of large-scale steel bridge construction will be a development direction of company H. In addition, due to the surge in international oil prices, the development of large offshore oil and gas and marine platforms, heavy machinery and equipment manufacturing is also very promising directions. In order to make the decision, company H does SWOT analysis on the two plans, as shown in Table 2.1. For future sustainable development and open up new markets, company H conducts a large-scale steel bridge structure and offshore heavy equipments, and offshore platforms for oil and gas development. They do “SWOT analysis in two directions” program solution phase presented in Table 2.1. The analysis shows that the prospect of widening the large steel bridge structure is more obvious than that of offshore oil and gas development platform. The advantage is obvious and the risk is small. Therefore, it should be the focus of sustainable development of company H. However, the

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Table 2.1 Two plans SWOT analysis of company H Manufacture of large steel structure bridge

Offshore heavy machinery and equipment manufacturing

Strength

• Company H specializes in the manufacture of heavy steel structure; Good adaptability of bridge steel structure • In general, the cost of the company H is 20–30% lower than the international average • Developing countries generally lack the technology and funds for infrastructure construction. In the future, international banking are likely to assist them through credit loans or indirect investment, which increases the winning opportunities for bidder enterprises in the project bidding

• Company H is good at heavy steel structure manufacturing; have a certain adaptability on the sea heavy machinery and equipment manufacturing and offshore steel platform as well as steel structure manufacturing • In general, the quotation cost of the company H is 20–25% lower than that of international average

Weakness

• Company H did not have steel bridge manufacturing experience in the past, and is not familiar with the construction industry rules • Although company H is internationally well known, but has no performance and reputation in the aspect of infrastructure and bridge construction • Company H is not familiar with the environment in the infrastructure construction of international bidding activities, and has a certain contract risk • Most of the technical staffs in company H have the mechanical professional background. Moreover, the number of skilled workers who are familiar with civil engineering is limited it needs to be accommodated in mastering international professional and technical standards

• Company H didn’t have experience in heavy machinery, equipment manufacturing and steel platform manufacturing in the past, and is not familiar with the rules of construction industry • Although company H is internationally well known, but has no experience and reputation in the aspect of marine heavy machinery equipment manufacturing and steel platform • Company H is not familiar with the environment in the marine heavy machinery and equipment manufacturing of international bidding activities, and has a certain contract risk • Among the technical personnel of company H, the number of people who are familiar with the Marine engineering is relatively small, and it is necessary to have an adaptation process to master the requirements of international technical standards • There is a certain difficulty in project financing due to the severe risks in the marine projects (continued)

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Table 2.1 (continued) Manufacture of large steel structure bridge

Offshore heavy machinery and equipment manufacturing

Opportunity

• According to the United Nations, 70% of the world’s infrastructure will be built in developing countries over the next 20 years. Most developing countries have an urgent need for this, but lack of technology and capital. Large steel bridges are the main objects of infrastructures, so there is a large market space and prospects

• Over the past 20 years, international oil prices soared about 4 times. Broad offshore oil and gas development will become a hot spot for international capital investment in the future for quite some times and will have a large market capacity and prospects.

Threat

• A large number of steel manufacturers around the world can participate in the division of the international market share, and forming a large market sharing competition activities

• The world has a huge shipbuilding industry market and heavy equipment, steel structure manufacturing enterprises too, to form a large sea heavy equipment and steel platform competition parties • Manufacturing technologies of marine heavy machinery and equipments, including offshore platform, are extremely complex. Its manufacturing technology and international technical standards as well as the standard requirements are correspondingly complexed, thus the technical risk is also increased

high level of marine equipment and offshore oil and gas development platform has a large market capacity and prospects, even if its strength is not as good as the steel structure, and the risk is greater, but its market prospects are good, so it should not be given up. Company H should actively create conditions for parallel development in two directions when the opportunities are both available.

2.4 Project Implementation Phase About 70–80% of the project resource is put into the implementation phase, which is a major focus of project management. From management point of view, the project implementation phase should complete following works: (1) Establish an effective project team and a strong leadership team. (2) Establish effective management mechanism, reasonable rules and regulations, and work procedures.

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(3) Establish project quality standards and other technical specifications and standards. (4) Configure the limited resources according to schedule and plan. Implement project objectives by refining the work of WBS. (5) Supervise and control progress, cost, quality and scope of project implementation.

2.4.1 Project Organization and Leadership The first step in completing the project is to build the project team effectively with corresponding strong leadership. Without this step, all effective project management will be in vain attempt. (1) Establish a project team to enable it to perform the mission of completing the project. The team can have sufficient administrative power, effective management of project and personnel functions. (2) Choose the appropriate and competent project manager. Project manager is the center of the project team organization playing a significant role of success or failure of the project. The project manager not only leads and manages all aspects of the project at all stages of the project life, but also communicates, coordinates and implements the concerned interests of the owner and stakeholders of the project so that the project can be supported and completed successfully. (3) The staff of the project are dynamically recruited at different stages of the project life so that the team organization can be efficient and become a task force at all stages during project implementation, thus to ensure the project can be completed in each stages of the project supported with sufficient human resources.

2.4.2 Project Management Regulation and Process In addition to organization and leadership, the team should also have a coherent working environment, strict working rules and the necessary working regulations. In order to implement the project, it is necessary to establish an effective management mechanism, rigorous rules and scientific working procedures. (1) Establish the implementation of the project management regulation; define the division of responsibilities within the team; establish job responsibilities and corresponding management rules. (2) According to the overall management of the project, the work of the project in each stage shall be woven into the processes according to its technical or technological process and sequence. Reasonable working procedures can greatly improve work efficiency, speed up project progress, reduce operation cost, ensure the integration and structure management of the projects. Thus the best practice of project management can be ensured.

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2.4.3 Management of Quality Standards and Other Technical Specifications Quality assurance is the basic condition of any successful project. The quality standard of the project and other technical specifications are the guarantee conditions for the realization of the project quality and technical specifications. Therefore, it must be considered seriously in any stage of project implementation. (1) According to the characteristics of the project, determine the quality standards to be adopted and the technical specifications should be followed. (2) Based on above quality standards and specifications, according to its implementation conditions, these standards and specifications should be incorporated into the project design and quality plan. (3) According to the different stages of the project works, the quality standards and technical specifications are determined in its quality requirement list. During the implementation of the project, the quality assurance in each job can be extended to the overall quality assurance of the project. (4) Establish a phased and hierarchical quality inspection and supervision system to ensure that project quality is effectively under control throughout the implementation of the project.

2.4.4 Project Plan and Control Management On the basis of identifying the project objectives, the work is detailed through WBS, thus the progress plan for the project is set up to implement the project objectives. The next steps are to configure the limited resources of the project according to planning and scheduling; invest capital, personnel and other equipments, or other material resources in stipulated time; plan the works of the project implementation according to the time schedule. In the process of project implementation, it is necessary to supervise and control the progress, cost, quality and scope of project in real time. When project quality management has a set of guaranteed measures, the cost and progress of the controlled project are implemented as net earned value method. As described in Sect. 5.6, the net earned value method can also monitor the real-time cost and time schedule of the project. If problems are found, plan adjustment and cost control measures can be taken on time.

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2.4.5 Project Risk Management Before project implementation, a comprehensive and detailed risk management plan must be made. In the project implementation phase, the project should be executed on two sets of plans. Under normal circumstances, a plan on the “desktop” is the project schedule. However, when the project has a sudden risk situation, it can be immediately transferred to “under the desktop”, which is the management plan of the project under various risks. Aiming at all kinds of risks, project risk management plans have considered a set different responses, which will dissolve the risks with the best results of project risk mitigation or avoiding.

2.5 Project Completion About 5–7% of the total project resources are devoted to the project completion stage. This is the last “close up” key stage of the project, which cannot be underestimated. The works that needs to be done in this stage are: (1) (2)

Confirm the completion of the project. The contractor (party B) should conduct self-inspection and teat to the project sub-items, and should conduct the acceptance inspection jointly with the owner (party A). (3) After completion of the acceptance of each sub-item, the contractor should conduct a systematic examination of the project and then conduct the total acceptance with the owner. (4) Carry out the formal delivery of the project according to the contract. (5) Transfer the technical and management documents of the project according to the contract. (6) According to the contract, financial cleaning should be carried out among project owners, contractors, subcontractors and suppliers. (7) The assets should be cleaned according to the contract. (8) Project summary and confirmation of remaining issues, such as maintenance and after-sales service problems during project (product) applications. (9) Post-evaluation of projects (or products). (10) The disbanding of the project team and the afterward arrangement of the personnel.

2.5.1 The “Tailless” Finishing Process The project is a “one time” activity in a certain time period, with reasonable organization of resources. During the implementation phase of the project, both the management and operation team of party A and party B are temporary. Once the project

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is completed, the project team has consummated their job and will be completely dismissed. Therefore, before the project is officially turned over and the project team is withdrawn, the project should complete the “tailless” close-up. So-called “tailless” close-up of the project, it must carry out project self-checking, project formal acceptance and handover, transfer of project documentations, project financial audit and cleaning, project experience and lesson summarization, project team dismissing and arranging and project post-evaluation and so on. As far as possible there will be no longer a legacy problem to be resolved after the project that is transferred and the team is dismissed.

2.5.2 Project Self-checking After the completion of the project, the project execution side (usually the contractor of the project (party B) or the execution side of the product project development) conducts a self-checking of the project. Self-checking should be carried out by each branch of the project (subsystem). Two points need to be pointed out: (1) Project self-checking is simply the job of the execution side (party B), and the project owner side (party A) usually is absent from this process. (2) Every division (subsystem) of the project must be self-checked by party B item by item, after approval and sign by the division director of party B. The joint inspection of subsystem can be carried out with owner side (party A), then enters into the next phase of the project acceptance (commissioning) work.

2.5.3 Project Commissioning The project acceptance (commissioning) work is carried out after the completion of the project self-inspection. The main points are: (1) The project acceptance is carried out by the representative of executing side (party B) of the project and the representative of owner (party A) of the project. (2) Project acceptance work should be a process, which is the process of inspection and reception of each division (subsystem) of the project under the participation of party A and party B. (3) The acceptance and transfer of the project by party A and party B can be taken place only if every item of the project has been jointly inspected by both sides and signed by the representatives of both sides.

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2.5.4 Project Transferring Project transfer is the most important part of project completion. The main points are: (1) Project transfer is the formal handover process between project party A and party B after the completion of the project. It is the symbol of project milestones. (2) Project transfer can be taken place after the formal acceptance of each item and the overall project. The final transfer of the project cannot be carried out unless the approval and signature by the representatives of both parties. (3) Project transfer means that project contracts have formally consummated, at the same time, it is required each contract of the project work (including the arrangement of project afterwards) completed. (4) Project transfer means the formal end of the project contracts, and it also has the legal meaning and significance.

2.5.5 Project Documentation Transfer Throughout the life cycle of the project, various documents have been produced, which are significant to the later operation, post-evaluation and transaction processing of the project. In those documents, some are owned by the project owner (party A), and some of the documents must be collected and delivered by the contractor(s) (party B) to the owner (party A) after project completion. They include the following aspects. (1) Relevant documents of the project (mainly collected by party A), including: (a) (b) (c) (d)

Feasibility study report of the project and related investigation reports. Approval materials for project establishment. Information related to social and market research of the project. Other materials that the project initiation and establishment are based.

(2) Materials and documentations concerning to bidding announcement, bidding RFP, tender assessment and bidding decision of the project (collected by the project owner [party A]). (3) Total package of contracting and subcontracting documents of the project; or in the product development project, the contracts and outsourcing suppliers’ contracts will be collected both by the owner side (party A) and the execution side (parties B). (4) For various technical documents of the project, the contractor side (party B, including other subcontractors of B) of the project should collect and submit to the project owner (party A), including: (a) All design materials and drawings, including technical specifications and standards adopted.

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(b) R&D research report and related literature and information. (c) The operation specification of the project; or the specifications of the products, the applied instructions, etc. (5) The materials of the main equipments and other data of the project of the contractor (party B) should collect and deliver to the project owner (party A) after project completion. When the equipments are supplied by party A, it should be collected by party A oneself. Its contents include: (a) Purchase contracts of equipment, materials and services, as well as all important outsourcing products (including service products). (b) Supplier’s quality inspection documents and quality guarantee certificates. (c) Acceptance documents of equipment, materials (including services) during arrival. (d) Quality inspection documents and relevant information. (6) All documents emerged during the implementation of the project include: (a) Schedule management documents of party A and party B of the project. (b) All contracts (including sub-contracts) of the project. (c) Revised contents of contracts, the negotiation memorandum of both sides (and multiple sides) on despite, as well as the negotiation records to be kept as legal arguments. (7) All documents emerged during project acceptance and referral process, include: (a) The signed documents by party A and party B during acceptance in each item of the project. (b) The formal transfer documents signed by representatives of party A and party B during the formal transferring ceremony.

2.5.6 Project Financial Audit and Cleaning Because the project is an activity that occurs within a certain period of time and by some temporary organizations, once the project is over, these temporary organizations including project management team of party A and project operation team of Party B will be disbanded. As a result, it must complete all the financial audit and cleaning process before its end, which include: (1) Party A shall pay the contract amount to party B (and to the corresponding subcontractors of party B) in terms of time, mode and amount of payment as stipulated in the contract(s) after the whole or sub-item of the project is completed and officially accepted or transferred. (2) According to the provisions of the contract, except party A could reserve a certain amount of retention funds as post-project deposit, generally the project funds must be paid completely (financial cleaning) in the project completion phase.

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(3) The payment of the project must be paid by party A to party B of the contract in accordance with the provisions of the contract (including the general contract and subcontract), and generally it can’t be cross or skip level payment with the contract. (4) According to the project financial practices and contract provisions, the payment of the contract must be ahead of a financial payment notice and the statutory corresponding financial audit procedures (documents). (5) If the project (or part of the project) cannot be delivered on time, the party A could defer the payment in accordance with the contract. It can also pay a certain percentage of the payment and impose the necessary fines of delay in accordance with the provisions of the contract. (6) After the completion of the project, the remaining resources (equipment, materials) of the project should be cleaned up between party A and party B according to the contract. (7) In overseas projects or transnational projects, unless the special case has been particularly explained, the foreign exchange rates of all the contractual and other payments should be followed to the exchange rate that very day.

2.5.7 Summarize Project Experience and Lessons In order to summarize the project experience and lessons, the project summary should be made by the project owner (party A) and the contractor (party B) respectively. Regardless of the project party A or party B, the project summary should be carried out on the following aspects. (1) Work summary of the project in the establishment phase (by party A): (a) Is the basis of the project establishment sufficient? (b) Are social and market surveys sufficient? (c) Are the project objectives appropriate and accurate? (2) Work summary of the bidding phase (by party A and party B respectively): (a) Is the request for the tender document appropriate? Is it clear enough? (b) What are the experiences and lessons of project Party A (and Party B) in the bidding strategy? (c) Is the bidding and bid evaluation process reasonable? Is it fair? Is it effective? (d) Is the organization and working procedure of the project bidding group reasonable and effective? (e) Summarize how the project owner (party A) and the contractor (party B) should be reasonably interacted in order to achieve the effect of efficient bidding.

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(3) The conclusion of the project contract works and the implementation processes of the contract (by party A and party B respectively): (a) How to minimize the contract risks by both parties? (b) How to make the contract on both sides have the greatest effective constraints, in order to achieve the highest efficiency without shirking responsibility with each other. (c) What processes and mechanisms are used to effectively resolve disputes arising from the execution of the project? (4) The experiences and lessons in management and procedures by the owner’s team (party A) and contractor’s team (party B) respectively during project implementation. (5) How does the owner’s team (party A) and contractor’s team (party B) effectively control the project plan and schedule? How to monitor the progress, cost and quality separately from the perspective of both sides? (6) During the implementation of the project, how can the project management team of party A and the project implementation team of party B realize effective communication in order to achieve effective interaction of project management? (7) Throughout the whole project management processes, party A and party B have carried out their various aspects of management, including project integration management, scope management, time management, cost management, quality management, risk management, human resource management, communication management and procurement management. What are their experiences and lessons in the implementation strategies?

2.5.8 Dissolution of the Project Team It is because the project is operated by the temporary organization of owner’s management team (party A) and contractor’s implementation team (party B) in a certain period of time. Once the project is completed, the project itself doesn’t have the necessary funds and resources to support these temporary organizations, so it must be dismissed right away, and the corresponding staffs must be disbanded and rearranged. It is exactly because the project management team of party A and the project implementation team of party B are essentially involved in the main body of project organization and implementation, so its revocation and dissolution also need to have a certain process. The conditions for dissolving the organization of party B are: (1) Project contractor (party B) has completed all the working tasks stipulated in the contract. (2) According to the contract, party B has been financially settled with the owner party A.

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(3) According to the contract, party B has made clear the handover of documentations to party A. (4) Party B has completed the project implementation experiences and lessons and exchanged with party A. (5) Party B has arranged its event processing unit which is responsible for the “post-project” period affairs of party B. (6) Party B has been prepared for the demobilization and reorganization of its personnel. The conditions for dissolving the organization of party A are: (1) The project has been completed in accordance with the contents of the contract, and has been carried out formal acceptance and transfer. (2) Party A has been financially settled with party B as stipulated in the contract. (3) Party A has completed its responsible part of the documentations according to the project content and contract stipulation, accepted the documentations transferred by party B, arranged the overall materials and complete documentation system of the whole project. (4) Party A has completed the documents of experiences and lessons of project implementation, and exchanged with party B. (5) Party A has arranged its transaction unit in the “post-project” period, which is responsible for the affairs during the “post-project” (or after sale service of the product) period while party A transfers the project to the project operating unit (or the product to ultimate users). (6) Party A has been prepared for the orderly demobilization and reorganization of its personnel.

2.5.9 Post-project Evaluation It is not sufficient to determine the rationality of the project establishment only through the feasibility study of the project. Because the project is based only on the subject recognitions of the project owner (party A) in unconfirmed social and market investigation information, the post-evaluation of the project has become the most direct and effective verification standard of the rationality of the project. The post-project evaluation can be summarized as follows: (1) Whether the project meets the expected project objectives defined in the feasibility study which are evaluated term by term according to the data of social and economic benefits of the project after a certain period of the actual project operation. The shortest operation of the project is generally determined by the nature of the project for six months to more than one year. (2) Whether the product meets the expected market objectives in the feasibility study is evaluated by the actual use period of the product through a certain stage, according to the market performance and economic benefit data of the product.

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The shortest market launch period and use period of products are generally determined according to the nature of the product for three months to more than six months. (3) The main purpose of the post-evaluation of the project is to verify the social and economic benefits in each of the positive arguments of the project feasibility study report, in order to obtain a positive experience and to further guide the operation of the project. For the negative point of view in establishment of project, it also goes through the verification of the social and economic benefits, in order to obtain negative lessons, and further guide the establishment of new projects. (4) The main purpose of the post-evaluation of the product is to verify the social and economic benefits in each of the positive arguments of the product feasibility studies of its formulation, in order to obtain a positive experience and to further guide the further development of the project. For the negative point of view in formulation of product, it also goes through the verification of the social and economic benefits, in order to obtain negative lessons, and further guide the formulation of new products.

2.6 Life Cycle Management Under Internet As a matter of fact the essence of so-called management that can be regarded as the transmission a series of information flows through the nodes of organizational network targeting for completion of certain objectives. It is doubtlessly that for the life cycle management of a project, which possesses different character of management scenario in different stages of its life-long duration, will play different function from its particular input information and result its output information through its individual special operation. Before Internet era, in all above operations of life cycle management, the information will be transmitted between different sections according to real organizational chart and realized its function through real people; however, under Internet era, in all life cycle management operations, the information will be transmitted through unified virtual Internet platform and the function of each node in the organizational network will be performed through information treatment between input and output by means of specific software (conventional and artificial intelligence one), which represents the operation function by the people who works on that organizational post during past time. For realization the life cycle management of project, it is necessary to development the software system as following: (1) Develop the infrastructure of the software system accommodating to development different kinds of software for implementing different function of managerial operation under different occasion of life cycle management of project.

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(2) Develop management software in different phases—project initiation phase, solution phase, implementation phase and completion phase of the life cycle management of the particular project. (3) Develop the different specialized software accommodating to the particular projects associated with related R&D activities. We are now entering into the era of digital revolution; the Internet will be the virtual platform for information transmission. It is estimated that the society of mankind will undergo a great revolution of digital transformation in our daily life. The emergence of artificial intelligence technology offers a tremendous promotion to digital economy in our social life, which implies intelligentization of the world with cloud and big data operation and evolutes the characteristics of our society from automation to informatization and then to intelligent era. It is obvious that the totally realization of life cycle management of project under Internet is perspective. Summary This chapter is based on the theory and model of project management. It provides a comprehensive understanding of the issues that need to be solved at all stages of the project life cycle through the project initiation phase (focusing on project establishment and feasibility studies), the solution phase (focusing on project bidding or product development technology and market strategy), the project implementation phase (focusing on organizational leadership and planning control during implementation), as well as the completion phase of the project (focusing on tailless project closing works), which is also the nature law in the development of project life cycle. Among above four phases, the most critical one is the argument of project initiation phase, since the other three phases are only the specific processes derived from the first stage. By the nature of project management, it is more and more challenging to ensure the correctness of decision making in project initiation. Therefore, starting from “managerial psychology” and “organizational behavior”, we provide a reverse analysis of discussing the most common kinds of “decision traps” that steps in by project decision-makers. The “decision traps” produces these errors which are explained by ideological understanding and further verified by the analysis of practical example. This is also an excellent example of the “softening” problem that the current project management development frontier is concerned about. Review Questions (1) What is the theory of project integrated management? What is the overall project management model? (2) Why is the argument of project initiation stage of the project most critical? (3) What are the problems to be solved in the project solution phase? What kind of strategy does the tender and bidder should have in the process of bidding? How can we make a positive interaction with each other? (4) How to understand the key role of organization and system management during project implementation? How to recognize the importance of planning and control? How to understand the relevance of technical standards and project quality?

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(5) Why the project completion phase is the final milestone in project management best practices? What is the key to the success of the project completion phase? why? Homework (1) Why the integrated management of the project should be considered in the life cycle management of the project? (2) Illustrate the reasons for success and failure in project decision making. Why is it successful? Why is it a failure? Where are the points of their successes? Where are the points of their failure? (3) Discuss what are the main issues of the product project in the solution phase? How should the organizer of product development and the operator of product development interact positively? (4) Discuss the role of technical specifications and standards in the successful implementation of the project. (5) Discuss the role of project contracts in the project completion phase.

Further Reading 1. PMI.: A Guide to the Project Management Body of Knowledge (PMBOK Guide) [M], 6th edn. PMI Inc., Newtown Square (2017) 2. Burke, R.: Project Management Techniques [M]. College Edition. Burke Publishing, London (2007) 3. Pinto, J.: Project Management: Achieving Competitive Advantages [M]. Pearson Education, New York (2007) 4. Gido, J., Clements, J.P.: Successful Project Management [M], 7th edn. Cengage Learning, Boston (2017) 5. Kerzner, H.: Project Management: A System Approach to Planning, Scheduling and Controlling [M], 7th edn. Wiley, Hoboken (2001)

Chapter 3

Personnel and Organizations

Reading Guide (1) Understand the basic mission, job characteristics, personal skills and working skills of project manager, so that readers would have a general understanding of the project manager. (2) Understand the organization, team building and effective team characteristics of the project. (3) Understand the project management model and organization. (4) Understand the basic principles and knowledge of project human resource management. Facing Digitization of Project Management What are the personnel and organization mean in project management? If we recognize that essentially project management is just transferring of different information up and down to different persons in different location of the organization for the evaluation, judgment and decisions by reproduction of new information to transfer up and down for the actions to be taken in different departments of the project organization to promote the project forward, we will suddenly realize that all the real world personnel and organization are in vain essential, but just a media of information to organize and practice the project. Actually the real world personnel and organization is less meaningful, and it can be replaced by the well organized information flow in virtual world through the Internet for achieving the same results. A dramatic scenario can be appeared that Internet and AI technology in the virtual world can be fully replaced the personnel and organization in the real world by means of well organized information flow for achieving prescribed goals in project management. Why we can’t recognize that it’s a subversive impacts and changes of project management under the Internet era? Case Guide Company G is a professional manufacturer of specialized pressure vessels, which are used in all types of chemical production factories and nuclear power plants, therefore it requires high safety and correspondingly high quality in manufacturing. However, © Shanghai Jiao Tong University Press and Springer Nature Singapore Pte Ltd. 2020 S. Lin and D. Huang, Project Management Under Internet Era, https://doi.org/10.1007/978-981-15-2799-9_3

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the production quality of company G is not the best, and the defective index of the product is high, which leads to continuous annual losing of the company. Therefore, solving the quality problem is a matter of life and death to the company. Mr. Williams is the Vice CEO responsible for production of the company G, who is confronted with the production status of the company and can only start with the issue of quality control. Therefore, he makes a systematic investigation into the quality problems of the company’s products and divides the quality problems into different kinds. Large number of survey data show that the quality of products from the technical problems of workers accounted for 28%, and from human factor by carelessness accounted for 68%. Further investigation shows that due to company G which is a professional manufacturing enterprise, the organization structure is adopted by the professional type. Different orders are unified to be arranged for workshop production without the involvement of representative from project owner and project manager. Then the quality failure is caused by less sufficient quality monitoring. In response to the above situation, Mr. Williams takes the measures as following: (1) Strengthen management of quality in workshop production by punishment to the responsible individuals who involved in the quality accidents. Quality accidents are divided into three categories: a fine of $500 for a serious accident, a fine of $300 for a general accident, and a fine of $100 for a minor accident. (2) Change the production organization into project type, that is, with orders, according to the order any product will set a project manager responsible for the project schedule, cost and quality. The quality of product has greatly improved after adjustment in quality supervision and re-organization; however, it is not satisfactory. After communicating with the workers in the group, they say that fining the quality accident individual is a rather negative way and cannot arouse the enthusiasm of individuals. Moreover, many accidents are caused by the fact that the workers are not skilled enough in the technology. At the same time, the project-type production organization cannot give full play to the advantages of the original professional-type organization and make the production organization appear to be fragmented, thus increasing the product cost. Therefore, under the initiative of Mr. Williams, company G makes further rectification on the above issues: (1) Change the original quality accident penalty to a more humanization method. That is, the penalty for quality accidents of three types remains the same, but it is stipulated that any individual could return the penalty if he/she conducts no quality problem within two months after the punishment of quality accident. Any individual, who conducts no quality accident by six months or throughout the whole year, will be awarded $500 and $1000 respectively. (2) The production organization will be replaced by a matrix type organization with the advantages combined by project-type and professional-type. (3) Strengthen the training of production skills for those front-line workers and organize specialized seminar or workshop for training and exchanging experience purpose.

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Sure enough, the new quality supervision measures have obtained agreement and support by everyone. All project managers, managerial persons and workers could proactively implement with consciousness the provisions of the quality assurance regulations. It finally makes product quality of company G fully improved. This is because Mr. Williams takes a “soft maneuvering” of humanization approach in staff management and adjusts the reward and punishment regulation in quality control, so as to promote the quality awareness and enthusiasm of front-line workers. At the same time, adopting the “matrix type” organizational form can comprehensively combine the advantages of “project type” and “professional type” organizations so that the former director of production organization and the newly arranged project manager can jointly exert the positive roles and achieving favorable results.

3.1 Project Manager 3.1.1 Project Manager’s Responsibilities The project manager plays a decisive role in the success of the project. The project manager’s responsibilities are as follows.

3.1.1.1

Plan

First, the project manager should identify the objectives of the project and agree with the owner. During the implementation of the project, the project manager must share his understanding of the project objectives with the project team members so that everyone can reach a consensus on the project objectives. This will play an important role in stimulating the enthusiasm of the team members for better playing during project implementation. The project manager, as the leader of the project, should work with his team members to develop a detailed plan for the project, evaluate the implementation plan together with the owner and incorporate it into computer program for the execution of the management.

3.1.1.2

Organization

The organizational works mainly involve the planning, arrangement and effective application of resources. It involves arrangement of internal managerial works and arrangement for external contracting works, including assigning tasks to team members as well as external subcontractors. At the same time, it also defines respective responsibilities and their rights to perform the tasks of team members; and creates an atmosphere within the team that encourages each member to work actively and passionately.

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Control

The project manager should monitor the progress of the project in real time and compare it with the plan in time. Especially in large projects, where project implementation sites and resources are scattered, computer communications and corresponding software must be applied during the process of project implementation. Cooperation and working together are also required to the team members during the control processes of the project.

3.1.2 Personal Ability and Qualification of Project Manager It is doubtless the importance of the project manager to project success. Project managers must have the following personal skills and qualifications in order to perform their daunting tasks. 3.1.2.1

Leadership

The project manager should be able to inspire his team members to devote themselves fully to the project work; be able to stimulate their enthusiasm in work and work together for accomplish the project tasks; be able to carry out consultation and leadership on every project work, including offering team member decision-making power within their scope of work; and be able to control the emergence and distribution of negative factors of the project work within the team.

3.1.2.2

Ability to Develop Talent

The project manager should be able to frequently consider the training and cultivating of young people in the team and properly arrange their work to enable them to grow up rapidly with work. Encourage young people to innovate at work, give them the opportunity to make decisions at work and take responsibility for their work. Arrange young people and experienced team members to work together for promoting the growth of young people through work.

3.1.2.3

Communication Skills

The project manager should be a capable person to coordinate work and communicate with each other and he/she must be able to effectively contact all the stakeholders and organizations involved in the project. The project manager must keep abreast of the actual progress of the project and communicate and report to the owners and superiors timely and regularly. The project manager must pay special attention to the views of the owner and the superior for adjusting the implementation of the project according to these opinions timely.

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The Ability to Create Team Spirits

On the basis of communicating with team members, a good team must have a carrier that has accumulated and tempered over many years and brought together with its common willingness, and this is the spirits of the team. Project manager should always concern on the difficulties of team members both in their life and in their work, be considerable and good at mobilizing the enthusiasm of team members, be gathering the enthusiasm and promote it to be the “soft power” of the team. The project manager should be able to build a good team spirit so that the implementation of the project can get twice the result with half the effort.

3.1.2.5

Ability to Work Under Pressure

When the progress of the project is lagging and the cost exceeded or the project does not meet the expectation of the owners, the project manager should have the ability to bear and successfully relieve the pressure. The ability to deal with changes in circumstances during the implementation of the project takes the initiative to take responsibility in the event of negligence during the implementation of the project so as not to hurt their subordinates in the event. Project manager should be a positive optimist, mentally healthy, and full of sense of humor.

3.1.2.6

Ability to Solve Problems

Project managers should also have a strong ability to solve problems. They should be able to find out the problems in advance rather than passively in later encounter, because solving problems later often requires more time and effort. Project managers should be able to deal with problems on time based on fully use of communication channels, and encourage team members to work on their own schedule, reporting and asking the project manager for assistance only on those key issues.

3.1.2.7

The Ability of Time Management

Time factor is a key issue in project management. Project schedule is the rule that must be followed in project time management. During the implementation of the project, the uncertainty of the actual situation is the main factor which causes the project plan change. The project manager should have the ability to control the time resources after the plan changes and be able to properly apply the time resources of the project to make appropriate treatment and apply it to the most critical situations.

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Quick Reaction Ability

The project environment is full of uncertainty, of which the only certainty is its uncertainty. Project managers are facing to a project environment in VUCA era. These uncertainties can come from the changes required by the owner; changes from within the team; and from some unforeseen factors. The project manager must have prompt response capability, and make corresponding decisions promptly in case of complex project changes, so as to reduce losses of the project and guide the project smoothly out of the crisis. So the project manager must be familiar with every detail of the project so that the right decision can be made instantaneously as the project environment changes.

3.1.2.9

The Tolerance of Giving Others Power

The project manager should be aware that what he/she should do during the implementation of the project are: “Identify the ‘work’ and get a ‘right person’, give him/her a ‘plan’ and protect it for ‘implementation’”. A competent project management can never be a person who just gets into a job and doesn’t care about the others. The main task of project manager is to plan the work and ensure that the members complete the project tasks. The so-called authorization is granted to the project team members to complete the task entrusted with the task resources, the right to exercise their decisions and actions. Obviously, there is a certain obligation to have rights, at the same time of authorization, the project team members also assume the commitment and responsibility to complete the task. Therefore, empowerment is essentially a measure to promote work. Giving power to others also reflects the mind of the project manager; without a deep understanding of the project, without a broad vision of things, without a high-minded perspective, and there is no project manager to give the right to the others.

3.1.3 Working Methods of Project Manager How should the project manager develop his/her ability? We must be clear that through practice is the only way to develop the project manager’s ability. Project manager must: (1) At work, always pay attention to the opinions and reflections of others. (2) Always check and reflect on the mistakes in your work. (3) Always listen to the opinions of people who are familiar with the situation to improve your work. (4) Constantly update their knowledge through continuous education, reading relevant documents and materials.

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In short, working methods of the project manager must implement the principle of “communication, democracy, diligence and pragmatism”. The growth of the project manager is “well done” by practice rather than through reading books.

3.1.4 Project Manager Communication Skills 3.1.4.1

The Communication Object Faced by the Project Manager

The communication objects of project manager are all the project stakeholders (or organizations) involved in the project. These stakeholders are divided into internal project and external project two parts, and should be included in the daily coordination of the project manager. The stakeholders within the project include the owner (and its board of directors) of the project, the leader of the project, the members of the project team, and other department heads of the company where the project is located. Project external stakeholders include the government competent department of the project, contractors (project managers representing the owner), subcontractors, suppliers, consultants (design, supervision, legal, accounting, insurance, business management and planning consulting firms) as well as the project-related social public organizations and individuals.

3.1.4.2

Correct Coordination of Internal Relations

The project manager should frequently be able to control and coordinate all aspects of the relationship within the project; be good at verbal communication; be able to maintain good relationship with the organizations and individuals within the project; and be good at negotiating, persuasion and discussion for promoting change perspectives of the others; and finally be able to resolve conflicts and contradictions within the team through the good personal relationship of the project manager himself with the others within the project team.

3.1.4.3

Correctly Deal with External Relations

Project managers should be able to regularly control and coordinate with external aspects of the project; be good at regularly communicating with them through documents, e-mails or verbal communications; be able to maintain good working relations with external entities, organizations and personnel in the project; and be good at communicating, consulting and discussing with various stakeholders (organizations) to promote understanding by each one to the project. In case of disagreement, the project manager should obtain consensus through consultation, reconciliation, understanding or promising of alternative exchange of interests, causing the other party to change their mind; through good personal integrity and personal relationship of the project manager in the outside professional community to resolve conflicts of interest with the others outside the project.

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3.1.5 Case Study Case 3.1 Leadership of Project Manager Mr. Li is recognized as the most experienced project manager in our Harbor Engineering Company. He has various working methods in organizing and leading various tasks, applying various styles of leadership method and achieving very good results, and it reflects real leadership of a project manager. For example, on a night of typhoon, the meteorological department forecasts in that night that there would be a struck by ten-stage typhoon. Mr. Li held an emergency meeting immediately after receiving the typhoon warning. He arranged an emergency port tie-in for all kinds of ships at the harbor construction site. All the site machinery was stopped and tied in place, and all aerial work facilities were strictly protected. After the arrangement, the relevant departments were ordered to execute, while Mr. Li stayed awake all night and urged all departments to carry out the instruction promptly with monitoring personally at the scene. This is Mr. Li’s “centralized” leadership. Other example is a situation that during construction, the pile foundation of the wharf caused problems due to lack of geological prospecting work, which affected the construction progress of the project. Mr. Li timely participated a meeting with design side, owner side and construction side to work together for solving the problem. After consultations, they finally achieved consistent solution of modifying the design. This is the “participatory” leadership style used by Mr. Li. Another example is a routine inspection of the quality of earth and rock fill. Mr. Li directly assigned this task to engineer Xu, the team leader of construction site quality assurance, and said to Xu: “Tomorrow you together with your group members to check the quality of earth and rock fill, and come to me whenever you need my support”. On the third day, engineer Xu reported to Mr. Li that the check of quality of the earth and rock fill was completed and its quality was fully satisfied. This is the “authorized” leadership style used by Mr. Li. Mr. Li is able to apply different methods of leadership on different occasions, indicating that he is able to change leadership style and flexible leadership skills.

3.2 Project Team 3.2.1 The Construction of Project Team After selecting the project manager correctly and planning the project, building a harmonious and coordinated project team will become the key to the project implementation and success. The purpose of the project team is better to organize and promote team members to work together for achieving the project goals.

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3.2.2 Four Phases of Project Team Building In fact, it is not easy for a team to work collaboratively. It needs a process of consolidation and inception. The construction process of the project team is generally divided into four phases. Formation phase: It is the early phase of the organization. The team members from all directions come to the team with different kinds of ideas, some emotional, some too impatient to wait, some hesitate. It is necessary for project manager to organize the team as soon as possible under such a psychological diversification and encourage everyone to be settled down in mentality as soon as possible. Puzzle phase: When the team is set up and the work is arranged, the emotions of the team members will be confused, and some may complain about the new work being inconsistent with their expectation, some may fluctuation of their mind because of the promotion is unsuccessful. In all the situations, the project manager needs to coordinate the various conflicts within the team and properly figure out how to solve the problem properly. Normal phase: When the puzzle phase is diverted, the team may enter its normal phase. At this point, every member of the team has defined their own tasks and responsibilities, understood the resources that each one has at its disposal. During the normal phase, the interrelationship among members of the team has been improved. The entire team is in a normal working condition under the encouragement and guidance of the project manager. Efficiency phase: The whole team is in the phase of being able to exert maximum efficiency. The team members are work together to achieve mutual cooperation, mutual trust and mutual understanding. In fact, from the perspective of dynamic human resource management, team building is also a dynamic process. Large projects have generally lasted for many years and it is frequent in personnel movement. At different phase of the project there will be different people involved and departure, for most of the people involved in the team also go through the above processes. Therefore, the team organization and management must take into account about this situation.

3.2.3 The Characteristics of an Efficient Team 3.2.3.1

The Characteristics of a Efficient Team

The characteristics of an effective project management team must possess the following characteristics: (1) The team members must understand the objectives of the project, including the scope of work of the project, cost estimation, quality requirements, the planning and scheduling of the project, and its benefits to the company, society and individuals.

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(2) The project is decomposed or divided into specific tasks to each team member for implementation, its time and quality requirements, expected project’s role and responsibilities for each team member. (3) Guided by the direction of the project manager, each team member can dedicate himself and independently to fulfill the assigned work. (4) As the culture of the project team, we should highly trust each other in the project team; understand, support and help with each other. 3.2.3.2

Obstacles to Effective Team Work

As mentioned above, building an effective team is not an easy task. It has the following obstacles that affect the working efficiency of the project team. For example: (1) The goal of the project is not yet clear enough and has not been understood by the entire project team. (2) The role and responsibility of each project team member has not yet clarified. (3) The organizational structure and work division in the project team are unreasonable. (4) Insufficient communication within the organization of the project team. (5) Poor project team leadership. (6) The staffs of the project team are not stable. (7) Others in the project team management are not appropriate, such as the performance management system and reward/punishment systems of the team are not reasonable.

3.2.4 Conflict and Resolution of Project Team Work In the project team work, there will be a variety of differences and conflicts. If the conflict cannot be solved timely, it may have impact on implementation and completion of the project. To this end, we should first make following analyses to the conflicts of the team work as well as their solutions.

3.2.4.1

The Source of the Conflict

(1) Different understanding of the project tasks; such as the scope of the work, the number of tasks, the requirements of the project task as well as its standards. (2) Different understanding of the allocation and distribution of project resources. (3) Different understanding of project schedule, processes and order. (4) Different opinions on the cost estimation and the corresponding performance measurement of the project. (5) Differences in personal understanding, such as personality of the view in different things, personal irritability and so on.

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Conflict Handling

Conflict cannot be dealt solely by the project manager; it must mainly depend on the people who are involved in the project. Conflict handling in the project team can be divided into: (1) To avoid conflict or to withdraw from the conflict timely for resolve the dispute. (2) Strong authorization in solution; that is, use the power or authority to solve the problem of disputes. (3) Mediation for eliminating disputes; that is, identify as many as possible the common ground and consensus to solve the problem of disputes. (4) Compromise to eliminate disputes; that is, withdraw from each other halfway to find the middle-line solution of the disputes. (5) Win-win cooperation; to find a win-win approach to solve the problem of disputes. The solution to the problem The project implementation process will encounter various problems, although its solution is also in different types, it still have to follow a general approach of solution. i.e.: (1) When a problem occurs, it is important to make clear all aspects of the problem. (2) Through brainstorming, to identify the possible causes of problems. (3) Through data acquisition and data analysis to determine the most likely causes of the problem. (4) Through brainstorming, suggest possible way of problem solving. (5) Evaluate various options that may solve the problem. (6) Identify the best possible solution to the problem. (7) Adjust the planning and scheduling of the best solution to the problem. (8) Implement the best solutions to the problems. (9) Confirm whether the existing problems have been solved.

3.2.5 Become a Member of a Successful Team Each project team member has the corresponding responsibility for the team. To become a qualified project team member, one must work seriously, open and active, and working hard. To do this, he/she must make a careful plan for his/her works and be able to control it in a timely manner. He/she must be able to communicate with stakeholders and all work-related aspects in a timely and effective manner, and work to create a harmonious, lively and an environment with open-up to the future.

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3.3 Project Organization Project environment and requirements are different; it also causes the project goals and resources available are different. In this way, for different projects, it is impossible to use a unified organizational structure to adapt to different projects. In fact, it is impossible to adapt to different projects with a unified project organization structure. Therefore, different project organization structures are needed to adapt to projects in different work scopes, different process technologies, different professions, different environments and in different stage of project development.

3.3.1 Project Management Patterns 3.3.1.1

Professional Structure Model

The professional project organization structure is characterized by the organization of different professional departments to form a professionally enforceable organization that can effectively fulfill the prescribed professional tasks. In this organizational structure, it is the managers of different departments that are prominent, and there is no role for the project manager. Therefore, in this type of project organization the project connotation is seldom embodied. Along this way, it is difficult to coordinate the tasks of the project in various departments. If some issues in a project need to be coordinated within such organizations as shown in Fig. 3.1, the response rate will be extremely slow. Since there is no project management in this picture, once the project has some problems to be solved, it will not be able to find someone in charge. To summarize the situation of the professional organizational structure, its advantages are high efficiency, no repetition during implementation of the project and achieving

Fig. 3.1 Professional organization structure

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Fig. 3.2 Project-based organizational structure

professional efficiency. The shortcomings of the professional organization structure are the lack of organic management of the project as a whole. The organizational structure is negligible of consideration and sense for the project owner, so the project post-processing is very slow and difficult to satisfy the project owner’s requirements.

3.3.1.2

Project-Type Structure Model

Compared with the shortcomings of the professional organizational structure, the project-based organizational structure is characterized by project-focused project implementation organization; each project has its own independent control of resources to maintain their respective forms of organization. Figure 3.2 shows the project-based structure model; its biggest advantage is that it has independent resources and organizations to ensure the direct and effective implementation of the project. Since the organization of the project is responsible for the project owner, once the problem occurs, the project owner can directly communicate with the project manager for solving the problem promptly. However, the biggest disadvantage of the project-based organizational structure is that the resources are allocated to each project independently and repeatedly, resulting in a certain surplus of resources and increasing the cost of the project. In addition, due to the independent operation of each project, the information communication and the exchanging of experience among the projects are not sufficient.

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Fig. 3.3 Matrix organizational structure

3.3.1.3

Matrix Structure Mode

Taking into account of the advantages and disadvantages of the professional structure and project-based structure, the matrix structure model is proposed as shown in Fig. 3.3. Matrix structure organization maintains the basic framework of the professional organization structure, but also in accordance with the project-based structure to highlight the independent operation of the project, so that advantages of each organizational structure can be taken into account. Figure 3.3 shows the matrix organizational structure, where the general manager (GM) and the vice general manager (VGM) in charge of the leadership of each department throughout the organizational structure. Among them, the VGM responsible for the project management will lead each project manager for implementing the projects, and the owner of each project can directly communicate with the corresponding project manager directly. Therefore, the advantages are obvious to the efficiency of facing to the owner, and it is similar to the advantages of the projectbased structure. However, as shown in Fig. 3.3, they also have the characteristics of a professional organization structure. The functions of each professional department are also available at the same time, indicating whether their resource allocation is centralized or used professionally.

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In matrix organizational structure, the project is performed in the direction of the horizontal arrows. For each project, it is the responsibility of the corresponding project manager, which is finally completed through the horizontal processing by various professional departments. The matrix structure model has the advantages of both professional and project-based organizational structures, what is more, its resource utilization and management are relatively efficient, and the exchange experience within the organizational structure is also more flexible. The biggest advantage is that it is prior to project owners and is an owner-friendly type of organizational structure. However, its biggest drawback is that the internal management and business processes within the organization are not yet smooth enough. The vertical and horizontal reporting systems are somewhat repeated. As to an operator, it is sometimes necessary to balance the vertical and horizontal relations and thus increasing the management difficulty.

3.3.1.4

Weak Matrix Type (Tends to Project Type) Structural Mode

The weak matrix structure model is based on the project organizational structure by adding a very limited function project manager to take into account the communication of project information, but the entire organizational system tends to project type.

3.3.1.5

Balance Matrix Structure Mode

The balanced matrix structure model is a project manager with certain functions and powers added to the organizational structure to take account of project information communication and development. The whole organizational system tends to be between project type and professional type.

3.3.1.6

Strong Matrix (Tend to Professional) Structure Mode

Strong matrix structure model is based on the project-based organizational structure by adding a more powerful project manager to ensure project communication and implementation of information, and the entire organizational system tends to be professional.

3.3.2 Project Management Organization The organization of project management is diverse, and there is no consensus on the right or wrong, which needs to be determined according to the historical situation of the organizational structure and the specific situation of the project. Table 3.1

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Table 3.1 Organizational classification of project management Organizational form project features

Professional

Project manager permissions

Matrix

Project type

Weak matrix

Balancing matrix

Strong matrix

Little or none

limited

From small to medium

From medium to large

High even full power

Project manager working time % in the project

almost none

0–25%

15–60%

50–95%

85–100%

Project manager task

Half time

Half time

Full-time

Full-time

Full-time

A common title for project manager tasks

Project coordinator/ Project leader

Project coordinator/Project manager

Project manager/Project director

Project manager/Plan manager

Project manager/Plan manager

Project management executives

Half time

Half time

Half time

Full-time

Full-time

describes the organizational classification of project management, and expounds the change of project management organizational structure from professional to project type.

3.3.3 Case Study Case 3.2 Small Private Software Vendor Business Management Newtech Software Company is a small private software supplier with only eleven individuals. The company manager John considers that the members of the company are composed of four software engineers (Eric, Cohn, Peter, Patrick) and four programmers (Linda, Holon, Shirley, Malia), one financial officer (Yao) and one logistics and management (Jimmy). Manager Wang’s division of labor as follows in Table 3.2. This is a similar professional organizational structure. During the initial stage of the company, manager John was able to cope with the situation. However, with the increasing of business volume of Newtech Software Company, the above division of labor within the organization presents many drawbacks. First of all, Mr. John himself was very busy, and he needed to do business, managed the project internally, validated the software and delivered it to the client without any errors. Due to limitation of physical power of manager John, he was often repeated mistakes. In addition, due to the large number of online projects and the absence of any specific project manager

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Table 3.2 Labor divisioning of new software company No

Working content

Responsible person

1

Software market development and outsourcing services

John

Participants

2

Overall management of software projects

John

3

Software requirements analysis

Eric (Engineer)

4

Software system analysis

Cohn (Engineer)

5

Software development preparation

Peter (Engineer)

Linda, Holon, Shirley

6

software test

Patrick (Engineer)

Malia

7

Software documentation validation and packaging

John

8

Financial settlement

Yao (Accounting)

Note

in each project, the operation of the company appeared to be somewhat confusing and customers were being disappointed. In order to solve above organizational problems, the company made the following organizational changes presented in Table 3.3. The table shows that four projects are online at the same time. Each of the four software engineers is responsible for four projects as project manager respectively. However, their original responsibility for software requirements, system analysis, programming and software testing remains unchanged. The professionalization of HR application remains the same, so the global organization will maintain high efficiency. However, since each of these projects has its own project manager, the owner can easily find the project manager of his project to communicate with him and make the project work in an orderly manner. In this way, the original professional organization structure is changed to a similar matrix structure. While, the overall function and control management of the company by Manager John remains unchanged, and each project will under control by special project manager. The process of software development can be handled professionally, and the function of each member can be fully expressed simultaneously, which will greatly improve the efficiency of the project management of the company.

3.4 Project Human Resource Management Human resource (HR) management is a completely different concept with the past personnel management and project HR management is the embodiment of personnel management during the implementation of the project. Human resource is a kind of resource with sociality, initiative, regeneration and consumption, which is necessary for the implementation of any kind of project. The project HR management is also associated with the project cycle, and it has temporary and team nature.

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Table 3.3 Job responsibilities for different people in different project No

Working contents

1

Software

System

Programming

Software test

requirements

analysis

Peter(Engineer)

Patrick

Eric, (Engineer)

Cohn

Linda, Holon,

(Engineer),

(Engineer)

Shirley

Malia

Note

Software market development and outsourcing services (Manager John to be responsible for)

2

Software Project Management (Manager John is responsible to)

3

4

Project -1, Project

Indicates

Manager Eric

the

process

(Engineer)

processed

that is

Project -2, Project Manager Cohn (Engineer)

5

Project -3, Project Manager Peter (Engineer)

6

Project -4, Project Manager Patrick (Engineer)

7

Software product

Manager John

validation 8

Financial settlement

Yao (Accounting)

3.4.1 Human Resource Management and Personnel Management The personnel and organization at the project management level are often reflected in the human resource management of the project, which has a function of preparing manpower for the project. The current formulation of human resource (HR) is quite different from that of past personnel affairs (PA). These differences can be reflected in the following seven aspects. (1) From the perspective of management. Personnel management is only based on the employee’s point of view, considering only the number of employees

3.4 Project Human Resource Management

(2)

(3)

(4)

(5)

(6)

(7)

91

and its cost of consumption. Human resource management treats employees as resources or potential resources of the enterprise. From the perspective of management activities. Personnel management only considers employees’ problems passively. Human resource management will actively consider employee issues. From the perspective of content management. Personnel management is simply to be considered by the employee’s from continuous supplementary viewpoint. Human resources management will take comprehensive account of the development of enterprises, as well as consider career and performance evaluation of the staffs. From the management point of view. Personnel management is limited to the operational level to consider the issue; however, the human resource management considers enterprise development and employee issues at the decision-making level. From the property of the management. Personnel management considers employee issue which is non-creative and non-profitable. Human resources management considers employee issue creatively with long-term potentiality of the profit. From the perspective of management. Personnel management focuses only on the measures to reduce costs. Human resource management considers how to realize the potentiality of employees in order to get more “added value” results. From the perspective of the scope of management. Personnel management considers problem only in certain departments of the unit or the unit system. Human resources management consideration will be based on the entire society and encourage the exchange and optimization of human resources in the society through contact, recruitment, selection, distribution, cultivation and appointment, so as to further stimulate the enthusiasm of employees to serve for the creation of social wealth.

3.4.2 HR Management Is an Organizational Behavior of the Enterprises Project management is the organizational behavior for achieving project objectives through the project team, because the implementation of the project requires certain human resources. Therefore, the organizational guarantee of human resource has becoming a major element in project management. It is embodied by following characteristics and organizational behavior. (1) In Group. For the implementation of project is the process of completion for each item according to the planning and schedule, since the item work activities are characterized in group, therefore the insurance of HR supply should be based on the schedule of project implementation and characterized in group.

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(2) Dynamic. Since the requirements of HR are different at different stage during the project implementation, the project personnel possesses mobility with the progress of the project, which defines the dynamic feature of project HR management. (3) Containing corporate culture. Everywhere in the HR management contains corporate culture, such as the project management team building, the mobilization of enthusiasm of team members, the accumulation of corporate culture, the consideration of personal carrier development of team members, and so on. (4) The combination of project management processes. Any HR management process must be closely integrated with the project management process. Based on the schedule for the implementation of the project, the supply plan for HR can be set up. Staffing project personnel by HR plan, we should further cooperate with the project manager in project team construction, such as timely and appropriately training the team members, establish scientific and reasonable performance appraisal system, such as reward and punishment systems, etc.

3.4.3 Project Human Resource Management 3.4.3.1

What Is Human Resource? What Is Human Resource Management?

Human Resource is the most active and important “first element” for completing a project (or product). It includes the sum of human labor, ability, intelligence, and skill. It is a kind of social productivity which depends on social environment, and can be regenerated with consumption of some natural resources. Human resource management should focus on establishing an efficient and united team; implement dynamic human resource management along with the project progresses; and implement human resources management through three aspects of human resources planning, project staffing and project team building.

3.4.3.2

The Manpower Plan

To formulate the project manpower master plan for project implementation, first of all, the WBS work breakdown structure should be carried out according to the recognition and analysis of the project objectives, and considered the possible organizational constraints and identify certain constraints. According to the project schedule, one can predict the human resources required in each phase of the project. Human resource manager should master and evaluate the current market human resource information in order to develop an HR master plan for human resource management. The main task of the project human resources master plan is to ensure that the necessary human resources for the project can be supplied according to the project

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schedule in all phases of the project life cycle. The project manpower master plan lists the human resource plan in each stage of the project and timely to guarantee: (1) (2) (3) (4)

Provide the required manpower on time. Provide the required amount of manpower. Provide the manpower according to the required type of work. Provide the required manpower according to its duties.

3.4.3.3

Project Manpower Plan Analysis

The most important aspect of the human resources plan is the comprehensive balance of human resources. This is the necessity for ensuring the lowest cost of human resources. The comprehensive balance of human resource mainly focuses on the comprehensive balance of the total amount and the comprehensive structural balance. The former one refers to the total number of personnel and supplys balance of human resource; the latter one refers to the structural balance of human resources, such as the balance between project managers and executers, the balance of different types of personnel as well as the balance between key personnel and supporting staff and so on. In the process of structural balance, it still needs detailed job analysis. That is, what are the specific tasks required for completing the project? What kinds of staffs are needed for the completion of the tasks? How many staffs are required? Etc.

3.4.3.4

Staff Recruitment

The purpose of staff recruitment is to recruit employees through internal or external recruitment channels in accordance with the human resources plan, and according to the required type to recruit the necessary amount of personnel on time. Internal recruitment mechanism can promote the personnel flow within the enterprise, promote career development opportunities for internal staff and stimulate the enthusiasm of internal staff. It is an approach of low cost and high efficiency, which should be in priority to consider. Nevertheless, it is limited by local conditions within the enterprise with limited choice. The approach of external recruitment has a wide range of option and can bring new personnel and new ideas to the project. However, its cost is higher, and it still takes a relatively long time to implement, moreover, the external personnel needs some time for training. The recruitment of personnel required for the project can be conducted in various means, including advertising applications, recruitment from talent markets, recruitment from school graduates and recruitment through the Internet. Recruitment must be followed by a rigorous selection process to ensure the quality of staff that is what the project needs. The selection method is also varied, usually including personal resume review, written examination, interview and so on.

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In the process of recruiting team members, those who are willing to work hard, who want to work immediately, who are concerned about the quality of the working relationship, who are good at finding work solutions, who pay attention to details of the work and who are able to responsibility from very beginning to very end, should be listed to the priority in the basic team of the project team.

3.4.4 Project Cultural Management 3.4.4.1

Project Team Culture

Project team culture is the embodiment of corporate culture at the primary level. The essence of corporate culture can be described by garrisons iceberg model which is shown in Fig. 3.4. Where above the horizontal line is the external expression of corporate culture, including the corporate behavior in the market and other variety of tangible issues, which form the fixed style of culture and the fixed manner of business operation of the enterprise externally. Shallow layer is located just under the horizontal line, where illustrates how the external expression of the enterprise culture is formed? What are the managerial philosophies of the corporate? And how does it reflect to the managerial style of the corporate? How does it reflect to HR management and personnel management of the enterprise?

Fig. 3.4 Iceberg model of corporate culture

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What really form the corporate culture are those factors in the deep water layer. The traditional cultural cornerstone, such as in China the confucianism of Confucius and Mencius, the cornerstone of ancient Chinese culture, the islamic teachings of Arab countries and the Christianity and Catholic culture of westerners, then the concepts of faith and value will subsequently be derived. The political influence of the host country, such as the value orientation of capitalism and socialist countries, will inevitably produce differences. At the same time, the socio-economic structure of various countries will also have a profound impact on the corporate culture. The Iceberg corporate culture model of Garrison’s helps us understand the formation of corporate culture and its roots. It tells us why the market behavior of corporations in different countries is different. Why do the people of different countries, regions, nationalities and cultures produce conflicts, differences and contradictions when working together? With the integration of the global economy, people are facing more and more transnational cooperation projects today, which is of practical significant. Cultural management in enterprises can effectively improve its performance. Although it is difficult to accurately quantify the relationship between corporate culture and corporate performance, it can qualitatively to say that corporate culture and corporate performance are closely related with each other. And PMI has conducted successful qualitative and quantitative studies in this area since 2005.

3.4.4.2

Team Culture Building

The project team culture construction is the building the “soft power” of the team spirit. It includes the team advocating atmosphere, team work style and team unity culture. Team advocating atmosphere: Team advocating atmosphere is the performance of internal expression in value-orientation. As a well-known international consulting firm has an unspoken rule, namely: “If your work can not be appreciated by the client, if your work is not recognized by the society, then your further stay will be the greatest unfair for all staffs of the firm.” The firm serves it as a common convention and a professional ethics. This unspoken rule represents the corporate culture of “striving do the best” and it also reflects the code of conduct for each member to “strive for all the best”. Forming a consensus of “working hard and winning the best” within the company to form a corporate culture and atmosphere not only greatly promotes the working efficiency with the quality of the internationally renowned consulting company, but also keeps the company internationally leading position all year round. Team work style: Externally, the working style of the team is closely linked to the internal corporate culture. The working style of above famous international consulting firm is a direct product of its internal corporate culture. This corporate culture encourages every member of the firm to keep improving of work quality and full service attitude towards the clients, reflecting the external image of the enterprise is “high-level consulting”, “high-quality personnel”, and “high-quality service”. The cultivation and formation of team working style need to inherit the

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tradition of corporate culture, and it needs to be “transmitted, helped and brought” for its implementation. When a new member joins to a business project, he or she always follows the culture of the original one. In adapting to the work environment and hearing about the performance of his colleagues, the new members will naturally adapt to the corporate culture in their job and acts in order to carry forward the working style of the team to achieve their process of integration into the firm. Team unity culture: Team unity atmosphere is a concrete embodiment of each member into the collective. Team unity can not only improve mutual trust, mutual support and interdependence among team members, and to complement accomplishments of each others in the project. At the same time, the team unity spirit can enhance the sense of collective honor from team members and stimulate their working enthusiasm for improving the work quality, rising work enthusiasm and work efficiency.

3.4.4.3

Multi-cultural Project Management

With the progress of global economic, the current large-scale projects are often cross-national. Regardless of the design, consulting, financing, international bidding and tendering processes during the project initiation phase, or the procurement, outsourcing, subcontracting and so on during the project implementation phase, it is inevitable to consist cross-domain, cross-national and cross-cultural people to participate. Multi-cultural project management has become an insurmountable issue in multinational projects. Since people in recent year has actively participated in the project activities at the international market, it has achieved a series of achievements. However, there are also many problems that mainly come from the underestimation of the multicultural risks of overseas projects. In the overseas project environment, the risk of the project is often caused by the differences in thinking and understanding of the project participants. For people from different cultural backgrounds are very likely to produce such differences in thinking. Therefore, under the impact of human factors on overseas projects, multi-cultural project management has become an important issue. Several “inequalities” are obtained from the practice of overseas project management in the past. It concludes the following aspects. “Inequality” I: Having the affordability to acquire an enterprise is by no mean to say that you have the ability to manage it. “Inequality” II: The successful management model domestically does not mean that it is a successful model abroad. “Inequality” III: The best domestic management team does not mean the best management in abroad. These “inequalities” illustrate that the main difference between the implementation of project management in overseas multicultural environments and the domestic one is mainly due to the influence of multicultural factors. Under a multi-cultural environment, the multicultural obstacles in the management of overseas projects inevitably become the bottleneck of the problem. Therefore,

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on the basis of investigation, we should confirm the source of the cultural barriers and their impact on the project management in order to find out the corresponding treatment methods and conduct the multi-cultural project management. The obstacles to project management under multi-cultural conditions can be divided as follows. (1) Social barriers to project management in a multicultural context are: a. Political instability and social unrest on the project site will lead to a greater risk in implementing the project. b. The social atmosphere of the project site is not good, and the working environment is poor the social order in chaos, moreover, the corruption is becoming a trend in the society. c. There are a great variety of religious customs and taboos where the project is located, which will have a great impact on the normal implementation of the project. d. The legal system where the project is located is deficit. Many issues are vague and difficult to treat during project implementation. (2) Barriers of personnel to project management in a multicultural context are: a. The basic educational level of the staffs in the project area is poor and the technical qualification is low, which makes the implementation of the project difficult. b. Poor professional ethics, poor job responsibilities, lazy working style and low working efficiency in the project location. c. The local project personnel has xenophobia against foreign workers, causing the problem in unity among the staffs which can be affecting the normal progresses of project management. d. The local personnel has no belonging sense to the project, no cohesion to the team and difficult in promoting their enthusiasm for mobilizing their work. (3) The obstacle factors of the organizational behavior of the project management contract in multi-cultural situation are: a. The parties in the contract have different languages with communication difficulties, which can cause a slow decision-making and low efficiency during the implementation of the project. b. The two parties in the contract have many misunderstandings and contradictions due to the difficulty of understanding each other due to different cultures. c. Easy to stimulating the sense to the other side as poor in integrity, which causes erratic controversy repeatedly during the implementation of the contract. d. Disagreements and contradictions are caused by different work efficiency, working attitude and working habits the two organizations.

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e. Disagreements and contradictions are caused by different rules and regulations, working methods and working style of the two parties to the contract. f. The distrust, incompatibility and misunderstandings cause the contradictions from different cultures of the two parties involved in the contract. After analyzing the challenges and obstacles of project management under the condition of multi-culture, considering the problems of project managers oneself, we conclude the subjective reasons of causing the mistakes in multi-culture projects are as follows. (1) Failed in building a talent team capable in controlling cross-regional and crossnational strategic substantive management, because: a. Domestic management mode cannot be “acclimatized” in abroad. b. Limited leadership capacity is not enough to adapt to changeable international environment. c. Limited management capacity of the leadership is not enough to lead the market risk aversion in an international market place. d. The leadership’s limited international horizons may not enough to meet the challenges of projects in a globalized environment. e. The limited international experience of the leadership is not sufficient to stabilize the backbone of the team with the confidence of enterprises. The consequence is that those who have switched their jobs one after another, while the remaining people have no sense of belonging. (2) Unable to adapt and overcome the obstacles that exist in different cultures: a. Some nationalities innate superiority to other nationalities. b. Historical and geographical differences lead to mutual understanding difficult. c. Language barriers lead to difficulties in communicating with each other. d. Cultural conflicts lead to difficulties in mutual trust. e. Differences in religious beliefs, especially those of atheists, make it difficult for people of a multicultural background to truly integrate emotionally. (3) Failed to make a profound understanding of the local community, humanities, laws and customs,failed in underestimate the following impacts: a. Impact on project management caused by ignorance of local religious practices. b. Impact on project management caused by do not understand the local cultural environment. c. Impact on project management caused by do not understand the local social situation. d. Impact on project management caused by lack of understanding of local religious practices.

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In order to carry out project management in a multi-cultural environment, it is necessary to sum up our experiences and to learn the strategies adaptability. The key point is to train a contingent overseas project managers who are familiarized with business and humanities, and are good at adapting to various overseas environments. Under the environment of global economy, people are facing a large number of overseas projects and facing challenges and tests of multi-cultural project environment. Therefore, we must cultivate project managers, whose knowledge structure and qualification should be able to cope with the project management in a multicultural environment. They should use their international vision to determine their inclusiveness, and find a way out of project management in a multicultural environment. Therefore, we should study the rules of overseas multicultural project management and study the adaptability and corresponding knowledge structure required by the managers who are involved.

3.4.5 Project Team Management Project team is the basic force of project implementation. A good team can be a united, emotionally progressive and efficient task force to accomplish project tasks; however, a poor team can then be perplexed by existing problems within the team. It can make the team conflict of opinion, deep contradiction and morale in sluggish, such a phenomena could directly affect to the execution of the project; even more it may lead to the failure of the project. The same team members, the same project environment, different project team management will have quite different consequences. It should be said that the project team management needs the utmost attention by business leaders, but more importantly, it also needs the direct leadership of the project manager. Team building and team management are not just a list of specific tasks as listed in a “hard” technical project management; it is a “softer” technique of implementing project management and it is essentially a ramification of corporate culture and team culture. In this team culture building processes, theorem of “organizational behavior” and “managerial psychology” will play a significant role. The building of the project team includes “soft” and “hard” two aspects. The previous one is the spiritual aspect in terms of culture building, including the team advocating atmosphere, team working style, team unity and so on. However, the latter one is performed by a set of specific work, such as staffing, personnel training, performance appraisal, and incentive measures; let’s illustrate below: (1) Staffing Prior to project start-up, project team members are recruited “in place” to form a project team, but it does not necessarily mean “on place”. After the project starts, the project team members should immediately be required to work according to the division of each responsibility. However, at the beginning of the team composition, it will take some time for them to get together at work because they are not familiar

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with each other. In addition, the staff in the early stages of team formation, the team mood has not yet stable enough, excited, expectation, waiting, doubts and other emotions will affect the team members from “in place” to “on place”, which will also directly affect the working efficiency of the team. Therefore, the project manager should arrange the work division for each member as soon as possible and actively communicate with the team members so that they could clarify their responsibilities accordingly and devote themselves in their respective works. (2) Personnel training For the purpose of the team members can be worked effectively as soon as possible, the systematic training of team members is another important effort for project team building. The main purpose and object of staff training is to equip team members with the knowledge, skills and abilities required to accomplish their tasks in order to increase the team’s efficiency in completing the project. The training work starts with the training necessity analysis: What does the job need? What is missing from team members? We need to confirm this before to determine the training contents and the way of training. Personnel training can make team members who feel their own technical level that can be improved. Self professional career is being implemented, and the self value in the project can be achieved, so as to inspire and enhance the enthusiasm of team members for better accomplishing the project task. (3) Performance appraisal The principle of project performance appraisal should be based on meeting the requirements of project owners and stakeholders. Such as the return of investment or profit of the project, the qualitative and quantitative objectives of the project outcomes, and the individual goals used to measure the individual performance of the team members. The performance appraisal of team mainly focuses on the performance of individual members. The assessment of individual performance is based on the normative standards formulated by the enterprise to assess the performance of each member in the degree of fulfillment of their responsibilities of job according to the normative standards established by the enterprise; accordingly, the process of rewarding and punishing individuals is carried out. According to the assessment plan, the target, content and time of the assessment shall be carried out according to the standard of performance appraisal, regardless of the use of data-based absolute standards or for different objects to develop relative standards, assessment criteria which must be base on the principles of scientific, reasonable, fair and operable. (4) Incentive measures The incentive measures must be implemented in the team building, so as to stimulate the enthusiasm and creativity of the team members, improve their working efficiency, and promote the completion of project tasks. Similar to the performance appraisal, the implementation of incentive measures must also be open, transparent, reasonable and operable. Incentives can be material rewards, spiritual honors rewards, or a combination of material and spiritual rewards.

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3.4.6 Case Study Case 3.3 Cultural Conflict Management in a Multinational Project Environment The company C of China decided to invest in offshore oil resources in country S. After negotiation, the two sides reached an agreement that a joint ventured C-S oil company would be formed by S oil company of country S and company C, in which company S provided offshore petroleum mineral resources with a shareholding of 40%; company C is responsible for funding and technology, holding 60%. The co-developed oil was distributed by company C and company S according to the shareholding proportion. Due to the holding of company C, Mr. Qiu, the chairman and general manager of C-S, was appointed by company C. Except most of the board directors, head in finance and technical departments, C-S had also been staffed by localization, and with 80% of the staff were local staff in country S. C-S’s project started with offshore oil exploration and offshore logging. Given that country S was in the Caribbean and that company C dispatched its own fleet from China to overly cost local. C-S decided to subcontract company H in North America for offshore exploration while offshore logging was subcontracted to South America for company B. H’s employees were English-speaking; employees at B were Portuguese-speaking. Most employees at S-C were Spanish-speaking, but the owner, project manager and other backbone at C-S, were speaking Chinese. In this way, people in four different languages and with different cultural backgrounds were working together on this offshore exploration platform. Mr. Qiu, general manager of company C-S, came from petroleum geology major and had been an outstanding oil geology expert who diligently contributed to China’s petroleum development for decades. But he lacked experience in project management, especially in overseas project management. He lacked considerations of what kind of work and cultural conflicts he/she might have to work together for people who had so many cultural backgrounds gathered in the narrow space of offshore exploration platforms. Therefore, he dispatched a petroleum logging engineer, Mr. Liu, as the project manager for the offshore exploration platform. As a professional engineer and technical expert, Mr. Liu lacked the concept of multi-cultural management and therefore neglected to prevent problems from finally taking place. The problem was first reflected in the unity of the companies working on offshore exploration platforms. Mr. Liu, the project manager, specialized in petroleum geology, had been diligently served for petroleum development for decades and being an outstanding expert of petro-geology, but he was lack of experience in project management, especially for the project management under multi-cultural environment. He failed to consider what could be happened in such a narrow space of an offshore platform and gathering so many people with different cultural background to work together. He just appointed Mr. Liu, an offshore logging expert who had no idea and also had no pre-caution on multi-cultural management, as the project manager of the platform to manage the interactive operation by different parties on the platform. The accident thus happened suddenly due to the confliction of the staffs from different parties with different culture background.

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Project manager Mr. Li didn’t fully communicate in advance with the company staff working on the platform to understand their own tasks and the tasks of the others. In view of the psychological gap between company’s H English speakers and Spanish and Portuguese speakers of company S and company B, there was a dispute between personnel of company H with personnel of company S and company B on the division and interfacing of works, which eventually caused the staffs of company H to beat and abuse staffs of company B. Project manager Mr. Liu failed to handle the existing differences in a timely, decisive and correct manner. He favored the members of company H in his work, which caused great dissatisfaction with staffs of company B and company S. The sentiments of both parties rose sharply and then developed into mass brawl. Accordingly, company H categorically decided to withdraw from the platform, the platform work immediately terminated. Mr. Liu hurried to report the incident to C-S’s general manager Qiu. In the absence of a full investigation of the incident, there was no proven reason and without any negotiation with the other parties. General manager Q categorically believed that company H had breached the contract and submitted a Letter of Merit Claim to company H through Bank of China, which claimed for breach of contract. Company H considered that the owner company C-S did not provide the necessary safety conditions for its employees to perform their work obligations on the offshore exploration platform. Therefore, according to the contract, company H had the right to withdraw from the scene and announce the suspension of work. In this way, company H and company C-S had disputed over the execution of the contract. If they were not properly resolved, it would surely lead to huge losses caused by the project halt. At the same time, the development of the situation would inevitably enter into the long-running arbitration and other legal proceedings. The deadlock of the dispute eventually transferred to headquarter of company C. The headquarter dispatched three emergency handling teams led by Mr. Wang to country S for handling. Mr. Wang and members of the team had worked overseas as project managers for many years. They had extensive experience in overseas project management and were good at managing conflicts in a multi-ethnic and multi-cultural environment. The emergency handling team grasped the principle of “equality, consultation and facilitated settlement”. After meeting with President of company S, they held various forums with general manager Qiu and Mr. Liu to investigate the truth of the issue. They patiently worked with the leaders of company H, S and company B, and told them that if the situation could not be properly resolved, it would resulting with various losses of interests in each party. Only through consultation and mediation, it would reach reconciliation with the outcome of “win-win” solution, and they wanted their leaders to go back and talk these to their employees. On this basis, company C-S ordered the project team to publicly criticize the abusive employees and punished the employee who took the lead in the beating only. The punishment was conducted fairly against any employee of the company and executed by the company to which the employee belonged. After handling the incident, the emergency handling team also helps the project team to do the following issues:

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(1) Establish a mechanism for consultation among multiple companies, and if similar disagreements occur in the work in the future, the consultation mechanism should be immediately activated to keep the situation under control and promptly resolve the issue. (2) It is suggested to organize and strengthen the recreational activities of employees on the offshore platform, organize film and other healthy exchange activities and create a working atmosphere of solidarity and cooperation among all parties on the platform. (3) It is suggested that the project manager should take “promoting the diversity of multiculturalism as the complementary of multiple cultures” and “change the conflict of multiculturalism to multicultural solidarity” as its important management concepts.

3.5 Personnel and Organization Management Under Internet Era As a matter of fact, the personnel and organization are performed by the “organizational structure” in project management. Speaking to “organizational structure”, it is a hierarchical node set representing by persons and department. The role of “organizational structure” for project management is just transfer “instruction” (usually in paper work or oral in the past) and “report” (usually also in paper work or oral in the past), actually which is transferring information top-down and bottom-up between such organizational layers. Under the Internet subversive impact, information can be easily real time transfer between those virtual organizational nodes far more efficient than that of the information transferring mode in the past. On the virtual platform under Internet, the organization roles is performed by transferring digital information top-down and bottom-up between those virtual nodes located at different organizational layers, which are playing receiving digital information, then reproducing information transferring downward according to the specific functions of the node at the specific layer as a “digital instruction”. Moreover, it will also accept information from lower layer and reproduce new information upward according to the specific functions of the node at the specific layer as a “digital report” to the specific node(s) in the upper layer. It is obvious that the roles “organization” in the project management can be totally realized through the “digital instruction” and “digital report” through the Internet and perform an efficient and real time approach. Thus, the project management under Internet era is exerting subversive impact on traditional project in concept, theorem, procedure and tools. One needs to update his/her knowledge for suiting the new technical tendency of our era. More importantly, it is an urgent realistic task for us to cultivate our young talents with updated knowledge for accommodating the requirements of digital era in project management.

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Summary “Personnel and organization” is always the content of project management. Imagine if there are no people, where does project come from? Where is the success of the project? It seems to say that people are the key, it cannot be absent; people are the real power. However, the fact is that people are powerful forces only if they are well-organized. If a group of people without well organization, they cannot present power, and even cause chaos and disaster. The project manager can be regarded as the key figure in the project personnel and project team management, his/her ability and skill requirements are unique. A project manager should have a broad knowledge and a wide range of competence. Not only it requires “hard” technology, but more importantly, is the “soft” skills. Therefore, to become a truly qualified project manager is really not so easy! How to become a qualified project manager? The answer is only this one: he/she not “learns” from the book, but from the practice. The organization and maturity of the project team need to go through a process. Through the efforts of the project manager, the project team should be gradually matured from the formative stage, the confused stage and the normal stage to reach the efficiency stage as soon as possible and to build the team as a team with excellent teamwork, solidarity, mutual assistance, mutual encouragement and high efficiency. If there is no good human resource management, there will no best practice of project management can be implemented. In addition to establishing a detailed manpower supply plan and accurate performance appraisal methods in order to implement the reward and punishment system, modern human resources management is more important to promote the building of enterprise culture. The “soft” construction of these human resources management plays a decisive role in the construction and management of modern enterprises. Project management under multicultural conditions is also a prominent issue in project management. Especially for the large number of overseas projects nowadays, the project risks are often caused by the human factor of multi-cultural background, inter-regional and inter-ethnic involvement. Therefore, mastering the law of multicultural management has become an important proposition of our human resources management. Finally, the importance of soft skills by the project manager is critical, for a lot of project risks are come from multi-cultural conflicts, which is unable to solve just by hard rules of information transferring. The harmonic combination of digitization project management and the maneuvering of project governance will be the best perspectives in the future. Review Questions (1) What is human resource management and personnel management? What is its difference between theory and practice? (2) Why do we say the building of project team culture is the key to complete the project mission?

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(3) What is the ability of a project manager? What problems will arise in the early stages of the project team? What competences do project managers have to use to solve these problems? (4) How to understand the tasks and roles of project management during project implementation? How to understand the interaction between the project manager and the team members during project implementation? (5) Why multi-cultural project management is important? Why is the risk of overseas project management closed to the multi-cultural management of the project? (6) What is the relation of digitization with the governance of personnel and organization in project management? Homework (1) Discuss what happens at the beginning of the project team building and what the project manager should do at this stage? (2) Use an example to discuss the role of project manager in project management, and how it can be successful? Why it is a failure? Where are the respective points in success and failure? (3) What is the main problems of project team culture? How should the project manager interact with the team members for achieving a good team culture? (4) Discuss the role of HR management in project success and give an example. (5) Discuss the contents of multi-cultural management of the project, and analysis the roles of these contents in overseas project risk management. (6) Discuss what is the relation of digitization with the governance of personnel and organization in project management?

Further Reading 1. PMI: A Guide to the Project Management Body of Knowledge (PMBOK Guide), 4th edn. Newtown Square, PMI Inc (2008) 2. Turner, J.R.: People in Project Management [M]. Gower Publishing Ltd (2003) 3. Pinto, J.: Project Management: Achieving Competitive Advantages. Pearson Education Inc., New York (2006) 4. Kerzner, Harold: Project Management: A System Approach to Planning, Scheduling and Controlling, 7th edn. Wiley, Hoboken (2001) 5. Morris, P., Jeffrey, Pinto, K.: The Guide to Managing Projects. Wiley Publishing (2004) 6. Bruce, Yu, Z.P.: Facing big data: the selection of enterprise innovation as a project. J. Proj. Manag. Rev. 2, 3031 (2018). (in Chinese) 7. Harison, F.L.: Advanced Project Management: A Structured Approach [M]. Aldershot Gower (1992) 8. Gido, J., Clements, J.P.: Successful Project Management, 3rd edn. Cengage Learning, Boston (2006) 9. Burke, R.: Project Management Techniques. College Edition. Burke Publishing (2007) 10. Garrison, T.: International Culture, 2nd edn. Elm Publication, Huntingdon (1998)

Chapter 4

Project Planning and Control

Reading Guide (1) Understand the importance of work breakdown structure (WBS) in project planning and how it works. (2) Understand the common methods used in project scheduling. (3) Understand the importance of task variation and constraints of projects in project planning and control, especially under internet era. (4) Understand how project control ensure that the implementation of the project meets the objectives. (5) Understand the importance of resource management, especially in multi-project management. Facing Digitization of Project Management The emergence of new technologies under the changeable market environment and in the information age, requires shorter lead time and rapid response; it presents many new challenges and new requirements for schedule control. Currently, related technologies in the context of “Internet+” continue to develop; in particular, with the continuous promotion of new technologies such as digital mobile technology and cloud computing, many companies in the traditional industry actively advocate and promote the transformation or integration of project schedule management into agile. Some new features of process control are as follows: (1) (2) (3) (4) (5)

Requirement changes are frequently occurred during project process. Gradual integration replaces traditional centralized closing. Early iterations can expose risks. Continuous assessment and adjustment. Ability to take tactical changes in process management.

Along with the virtualization of resource forms, the characteristics of the Internet “de intermediation” break the organizational framework of resource allocation hierarchy and form an internal interactive and collaborative resource network. The traditional method of resource management has been questioned. The electronic © Shanghai Jiao Tong University Press and Springer Nature Singapore Pte Ltd. 2020 S. Lin and D. Huang, Project Management Under Internet Era, https://doi.org/10.1007/978-981-15-2799-9_4

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resource management is in line with the trend of the “Internet+” era, using Internet thinking to implement the innovative mode of resource management. The new features of resource management based on the “Internet+” era are summarized as follows: (1) Organizing resource integration in a borderless process. (2) Cross border cooperation in resource management and business activities. (3) Big data based resource management. Case Guide SZ 6 was the second human spaceflight of the Chinese space program, launched on October 12, 2005 from the Jiuquan Satellite Launch Center. The Shenzhou spacecraft carried a crew for five days in low Earth orbit. In order to assure the success of the project, comprehensive project management in terms of project control needs to be applied, including schedule control, technical state control, quality control, and so on. (1) Process control In order to ensure that all levels of schedule planning are implemented, the task group was organized at first according to the work characteristics, while the technical leader, scheduling supervisor and quality supervisor were also defined. A detailed reporting system and various meeting systems, such as weekly scheduling meetings, special scheduling meetings, quality analysis meetings, and various review meetings, were used to ensure a detailed assessment of the process of the entire project on a weekly basis. In addition, the plan management process of SZ-6 implementation process was drawn as the implementation basis of the process management. Feed-forward control was carried out on the analyzed short-term projects. In the development process, the supervisors were required to implement the tracking process, and the problems that can be solved on-site could be controlled at the same time. Dynamic assessments techniques were used on a weekly basis, and feedback control was carried out on the short line that affected the process. At the same time, special projects would be prepared, and special groups would be set up for key routes to work collectively. For those who still cannot meet the requirements of the benchmark plan after taking corrective measures, a supplementary schedule process was prepared to effectively manage the schedule changes. (2) Technical state control In order to strengthen the technical state management and ensure that all technical state changes are controlled, the project team has developed the technical state change procedure of SZ 6. The design and production of the technical status change request forms and the technical status change implementation checklists were also designed. The technical status baseline was established, including system level function system analysis, subsystem level function system analysis, and single machine function system baseline. Functional baselines and product baseline systems were formed as benchmarks for comparative studies of technical state changes.

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In order to control the deviation and tolerance of the product, the project team established the deviation and tolerance application forms to review and control the tolerance and deviation. (3) Quality control For single or subsystem products, the project team required a test coverage check and drew an inspection process to ensure that the software tests cover all normal working modes and designed fault working modes of launch, flight, on-orbit operation and return, so as to ensure the accuracy of software version and functions. For the quality problems arising from technical parts, strict implementation of certain standards was compulsory. For the problems belonging to management issues, responsibility was set up clearly and rules and regulations were improved. The quality control process was implemented in a refined manner, requiring members of the project team to have five “withs” (with evidence, inspection, records, comparisons, conclusions) and eight “clears” (clear job responsibilities, clear task basis, clear test status, clear operation points, clear test data, clear technical key, clear emergency plan, clear interface relationship). In order to make the spacecraft’s final assembly, testing and filling, the quality of the whole process was always under control. In order to realize the model of “no problem out of factory, no launch with doubts, before the ship left the factory, the relevant development personnel were organized to “recall and review whether there are problems and hidden dangers in the previous stage of work, and whether corrective measures are proposed for the problems raised.”Furthermore, they needed to estimate the problems that needed to be prevented in the next stage of work, and proposed preventive measures. Finally, it was necessary to fill the fault recall form and summary form of anticipated problems. In the whole life cycle, the project team actively promoted the quality culture of “zero defect, zero doubt, zero fault”.

4.1 Project Scheduling This part introduces project scheduling techniques. It is the fundamental step before a project goes into running. The focus of this part is on critical path method (CPM), as well as the program evaluation and review technique (PERT). The task is basically the building block of a project. A task is a well defined, finite package of work that can be accomplished within a fraction of the project duration and can be assigned to an individual or a team. Sometimes tasks are also referred to as jobs. Tasks are typically organized and grouped in a work breakdown structure (WBS). The WBS, however, is simply a tree structure and does not provide the logical dependencies between tasks. When tasks are set in relation to each other, we obtain a network of tasks. This is very useful because the network can then be used for planning and monitoring the project. The two main network based techniques in use today are the CPM PERT.

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4.1.1 Work Breakdown Structure Before we start to analyze the logical dependencies between tasks, we first need to have a complete and well structured list of tasks. It is very important that this list should be carefully generated with some fundamental principles. The formal way of assembling a list of tasks is called work breakdown structure, which literally breaks the total work to be done in a project down into smaller pieces that can be more easily managed. Important points regarding WBS are: (1) (2) (3) (4) (5)

A WBS is used to create the task list. A WBS is a tree decomposition of project tasks. The smallest level tasks in a WBS are referred to as terminal elements. A WBS is the key starting point for project planning. A WBS can be activity oriented (tasks) or deliverable oriented (results) or a hybrid of the two. (6) There are various ways to generate a WBS for a new project (e.g. sticky notes method). (7) Pritchard (1999) provides formal guidance on properly establishing a WBS. The simplest way of presenting a WBS is as an indented list. Another common representation of a WBS is as a tree structure. This is graphically appealing, and can also be used to highlight who is responsible for what part of the project when multiple partners are involved. However, coming up with a good WBS is not an easy task. This activity is difficult because of the following factors: (1) Not all tasks are known ahead of time if we are dealing with a completely new product/system or problem. (2) It is difficult to create tasks that are roughly of equal size, because task durations are uncertain. (3) It is difficult to find the right level of detail. Some guidelines for establishment of a good WBS are as follows: a. No more than 100200 terminal elements, if more are necessary, please use sub projects. b. Can be up to 34 levels deep. c. Not more than 59 jobs at one level.

4.1.2 Critical Path Method Once a WBS is generated for the project, a project graph is usually required to facilitate project planning. There are a number of steps to generate a project graph as follows.

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(1) Create a task list by itemizing all tasks in a table with an: a. b. c. d.

Identifying symbol (tag, ID number). Task description. Immediate prerequisite jobs. Expected task duration.

(2) Rearrange jobs in “technological order”. a. No job appears in the list until all its predecessors have been listed. b. Iterations are not allowed. These are referred to as “cycle errors” in CPM. c. Example: job “A” precedes “B” and precedes “C” but precedes “A” is not allowed. (3) Plot jobs on a large piece of paper or using a project management software to do so. a. Create a dummy task called “start” (task duration is zero). b. Each job is drawn on the graph as a circle or box. c. Connect all tasks without predecessor to start with a uni directional arrow. d. Proceed from left to right and connect tasks to their immediate predecessors with uni directional arrows. e. Rearrange the tasks such that the number of crossing arrows is minimized. f. Create a dummy task called “end” or “finish” (task duration is zero). g. Connect all jobs that don’t have a successor to “finish”. h. If there are too many tasks to fit on one page, use shadow connector tasks to connect the graph over several pages. i. Project management computer programs do this automatically, once a task list with precedence information has been built; nevertheless it is a good exercise to build a rough project graph by hand at least once in order to understand the procedure. An example of a project graph is shown in Fig. 4.1. Note that in this simple example there are a total of 4 unique paths. The total time of each path is the sum of job durations on the path. The four paths are as follows. (1) (2) (3) (4)

A → C→E → F→G → H; total duration: 100. A → C→D → G→H; total duration: 70. A → B→D → G→H; total duration: 60. A → B→E → F→G → H; total duration: 90.

In Fig. 4.1 we see that the critical path (CP) is the path that has the longest expected total duration: ACEFGH = 100. This is important information, because it is the critical path that determines the total expected duration of the project. Some important aspects of the critical path are: (1) The CP is the “bottleneck” of the project in terms of time. (2) Shortening or lengthening tasks on the critical path directly affects project finish time.

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Fig. 4.1 Example project graph

(3) The duration of “non critical” tasks (those that are not on the CP) is irrelevant to the project finish time. (4) Crashing (=compressing) all jobs is ineffective, and it is more efficient to focus on the (small) subset of jobs that are on the CP. The critical path is shown using bolded arrows. Critical tasks are shaded gray. (1) Crashing (= compressing) tasks on the CP can shift the CP to a different set of tasks. (2) Shortening tasks (“crashing” them) is a technical and economical challenge. (3) Previously non critical tasks can become critical. (4) Lengthening of non critical tasks can also shift the critical path. (5) There can be multiple critical paths in the same project. Knowing the critical path of a project can be very useful for the following reasons: (1) (2) (3) (4)

Allows the project manager to focus on key tasks. Helps allocation of resources (funding, best people) to the critical tasks. Helps to forecast the end date of the project better. Helps focus the project team, and can be used as a management tool at weekly staff meetings and for project reviews. (5) Caution: it can be dangerous to focus exclusively on the CP, because there may be near critical tasks in a project that could easily become critical. So how does one determine the critical path? In Fig. 4.1 this is easy because the project is small and we are able to fully enumerate all paths and find the longest one, the CP. In large projects there may be hundreds or thousands of paths and it would be unwieldy to evaluate all of them. Therefore, a critical path algorithm is developed in order to find the CP, without having to evaluate all paths. This is also useful because—at the same time—additional information about the tasks may be developed in the context of the overall project. First, we have to introduce some conventions regarding task times as follows.

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Fig. 4.2 Critical path algorithm to determine early start (ES) and early finish (EF) times of project tasks

(1) Start time: S. (2) For each job: earliest start (ES). This is the earliest start time of a job if all its predecessors start at their ES and take the expected duration to complete. (3) Job duration: t. (4) Earliest Finish: EF = ES + t. The earliest finish Time of the entire project (F) is the EF of the last task, the “end” or “finish” dummy task. The workings of the algorithm are shown in Fig. 4.2. The CP algorithm (part 1) goes through the following steps: (1) Mark the value of S to left and right of start (0). (2) Consider any new unmarked job, all of whose predecessors have been marked. Mark to the left of the new job the largest number to the right of its immediate predecessors. (3) Add to ES the job time t and mark result to the right ⇒ EF. (4) Stop when Finish has been reached. This, however, does not yet tell us where the CP is. Next, we define latest start and latest finish times for each task. (1) Set target finish time for project: T ≡ F. (2) Usually the target is a specific calendar date. (3) Late finish (LF) is the latest time a job can be finished, without delaying the project beyond its target time T. (4) Late start: LS = LF-t. (5) When is the latest date the project can be started? Answer: It is the LS time of the “start” task. The CP algorithm (part 2) then goes through the following steps. (1) Work from the end of the project: T. (2) Mark value of T to left and right of finish.

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Fig. 4.3 Critical path algorithm (2nd part) to determine late start (LS) and late finish (LF) times of project tasks

(3) Consider any new unmarked job, all of whose successors have been marked — mark to the right the smallest LS time marked to the left of any of its immediate successors. (4) Subtract from this number, LF, the job time t and mark result to the left of the job ⇒ LS. (5) Continue upstream until Start has been reached, then top the results of this are shown in Fig. 4.3. Examining Fig. 4.3 we notice that for some tasks the early start (ES) and late start (LS) times are the same, i.e. ES = LS. These tasks have no slack. Slack is a very important concept in project management. The main points regarding slack are: (1) For some tasks it is true that ES = LS, in that case there is no slack. All such tasks are critical, i.e. and they are members of a critical path. Specifically, this means that once the last predecessor task is completed, and zero-slack tasks need to be started immediately in order not to delay the total project completion (2) The total slack of a task is TS = LS-ES (late start minus early start). (3) The total slack of a task is to be interpreted as the maximum amount of time a task may be delayed beyond its early start without delaying project completion. (4) Slack time is precious, and it represents managerial freedom. Don’t squander it unnecessarily, e.g. so slack can be used for work load smoothing in a project or between multiple projects. (5) When T = F then all critical tasks have TS = 0. (6) There is at least one path from start ⇒ finish with critical jobs only.

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(7) When T > F, then all critical jobs have TS = T-F. The CPM method is therefore very useful for: (1) Estimating the expected end date, F, of a project. (2) Finding the critical path, CP, and all the tasks on it. (3) Computing the total slack, TS, and free slack, FS, for non-critical tasks, and using this information as a managerial resource. (4) Identifying tasks and paths that are near critical. (5) Updating the project end date, critical path and slacks as the project progresses and individual tasks are completed. Despite its usefulness, there are a number of shortcomings in using the CPM method. Some typical errors and issues are as follows: (1) (2) (3) (4)

Estimated job times are wrong. Predecessor relationships may contain cycles → “cycle error”. Overlooked some predecessor relationships. Some predecessor relationships may be listed that are spurious and perhaps most importantly. (5) Some tasks/jobs may be missing.

4.1.3 Program Evaluation and Review Technique The PERT method is similar to CPM, except for some important differences: (1) CPM assumes time estimates are deterministic. a. Obtain task duration from previous projects. b. Suitable for construction type projects. (2) PERT treats durations as stochastic. PERT = CPM + probabilistic task times. a. Better for R&D type projects. b. Limited previous data to estimate time durations. c. Captures schedule (and implicitly some cost). In PERT, task time durations are treated as uncertain. For PERT, three task durations are estimated for each task: A, M, B: (1) A— a. Optimistic time estimate. b. Minimum time in which the task could be completed. c. Everything has to go right.

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(2) M — a. Most likely task duration A. b. Task duration under normal working conditions. c. Most frequent task duration based on past experience. (3) B — a. Pessimistic time estimate. b. Time required under particularly bad circumstances. c. Most difficult to estimate, includes unexpected delays.Using the β approximation assumption we can estimate the mean expected time (TE) and the time variance (TV) of a task based only on an estimate of A, M and B. (1) Mean expected task duration (TE): TE = (A + 4 M + B)/6. (2) Time variance (TV): TV = (B-A)2 /6. (3) Example: A = 3 weeks, M = 5 weeks, B = 7 weeks then TE = 5 weeks. Both CPM and PERT are widely use today. The methods are clearly effective and important for project planning. There are some remarks about these two methods worth to mention: (1) CPM is useful, despite criticism, to identify the critical path. (2) Focuses attention on a subset of the project tasks. (3) Slack (TS and FS) is precious. We can apply this flexibility to smooth resource/schedules. (4) PERT treats task times as probabilistic; individual task durations are β distributed. (5) Selective “crashing” of critical tasks can reduce total project cost. (6) CPM and PERT do not allow task iterations. (7) Jobs should be of similar size and complexity. (8) Find the right level of graininess (not too fine, not too coarse).

4.2 Project Control Before starting a new project, project managers and project team members cannot foresee the various situations during project execution. Despite the clear objectives of project management and the development of the most appropriate project management plan, including schedule, cost and quality plans, it is still necessary to closely monitor the implementation of the project plan and identify deviations and deficiencies in the implementation of the project, in order to ensure that the project is implemented according to the baseline plan as much as possible, to minimize the planned changes, so that the project achieves the expected objectives in schedule, cost and quality.

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4.2.1 General Description Control is an important function in all management functions (planning, organization, leadership and control). For project management, control is the economic and technical goal of determining the project’s objectives, i.e., deliverables, including delivery time, cost (or price), performance and quality requirements. The so called control is to ensure that the system operates according to the expected target, continuous tracking observation of the operating condition and output of the system and compare the observation results with the expected goals. If there is deviation, the process of deviation and correction should be timely analyzed. For a large complex system, a hierarchical control method can also be adopted, that is, a large scale complex system is hierarchically decomposed into a relatively independent and relatively simple subsystem control method. Within the subsystem, the system structure is relatively simple. In the upper system, the internal details of the subsystem are ignored, and the upper system can also be simplified. The so called project control refers to the project manager according to the status of the project progress, compare the original plan (established goals), identify the deviation, analyze the causes, study the corrective measures, and implement the whole process of corrective measures. The purpose of project control is to ensure that the implementation of the project meets the project’s objectives. Project control will be exercised to meet the final target of contractual agreed progress, particularly special attention to be paid to tasks, authority and responsibilities (TAR) and pre TAR activities. Cost control will be performed to lower the actual cost than estimated cost, under the condition that the contractual progress is achieved.

4.2.2 Basic Content of Project Control 4.2.2.1

Tasks of Project Control

Project control should be established as an independent function in project management. It implements verification and controlling function during the processing of a project in order to reinforce the defined performance and formal goals. The tasks of project control are also: (1) The creation of infrastructure for the supply of the right information and its update. (2) The establishment of a way to communicate disparities of project parameters. (3) The development of project information technology based on an intranet or The determination of a project key performance indicator system (KPI). (4) Divergence analyses and generation of proposals for potential project regulations. (5) The establishment of methods to accomplish an appropriate project structure, project workflow organization, project control and governance.

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(6) Creation of transparency among the project parameters.

4.2.2.2

Methods of Project Control

Project control is that element of a project that keeps it on track, on time and within budget. Project control begins early in the project with planning and ends late in the project with post implementation review, having a thorough involvement of each step in the process. Fulfillment and implementation of these above tasks can be achieved by applying specific methods and instruments. The following methods of project control can be applied: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

Investment analysis. Cost benefit analysis. Value benefit analysis. Expert surveys. Simulation calculations. Risk profile analysis. Surcharge calculations. Milestone trend analysis. Cost trend analysis. Target/actual comparison.

4.2.2.3

Major Content of Project Control

The target description of project deliverables generally includes three indicators: delivery period, cost and quality. Therefore, the basic content of project control includes three indicators: delivery period, cost and quality. The major content of project control includes progress control, cost control and quality control, commonly known as the three major controls. (1) Progress control. As the project progresses, the progress of the project must be continuously monitored to ensure that each job is scheduled. At the same time, it is necessary to keep abreast of the implementation status of the plan, and compare and analyze the actual situation with the plan. If necessary, effective measures should be taken to make the project proceed according to the scheduled progress target and avoid delays in the construction period. This process is called schedule control. The requirements for schedule control according to different management levels can be divided into total schedule control, main schedule control and detailed schedule control. (2) Cost control. Cost control is to ensure that work is carried out within their respective budgets. The basis for cost control is the fee for the project in advance. Use the budget. The basic method of cost control is to require each department to regularly report its expense report, and then the control department will review

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the expenses to ensure the legality of various expenditures, and then compare the expenses incurred with the budget to analyze whether it exceeds the budget. And take corresponding measures to make up for it. Cost management cannot exist independently and be separated from technical management and progress management. On the contrary, it is necessary to make a comprehensive balance among cost, technology and progress. Timely and accurate cost, schedule and technical tracking reports are the basis for project funding management and cost control. (3) Quality control. The goal of quality control is to ensure that the quality of the project meets the quality requirements set by the parties concerned. The scope of quality control involves all aspects of the project quality process. In the project control process, these three control indicators are usually contradictory and conflicting. Accelerating progress often leads to cost increases and quality degradation; lowering costs also affects schedule and quality; too much emphasis on quality can affect schedules and costs. Therefore, in the process of controlling the progress, cost and quality of the project, we must pay attention to the coordination of the three.

4.2.2.4

Project Control System

Project control systems are needed for cost, risk, quality, communication, time, change, procurement, and human resources. In addition, auditors should consider how important the projects are to the financial statements, and how reliant the stakeholders are on controls? And how many controls exist? Auditors should review the development process and procedures for how they are implemented. The process of development and the quality of the final product may also be assessed if needed or requested. A business may want the auditing firm to be involved throughout the process to catch problems earlier on so that they can be fixed more easily. An auditor can serve as a controls consultant as part of the development team or as an independent auditor as part of an audit. Businesses sometimes use formal systems development processes. These help assure systems are developed successfully. A formal process is more effective in creating strong controls, and auditors should review this process to confirm that it is well designed and is followed in practice. A good formal systems development plan outlines: (1) (2) (3) (4) (5)

A strategy to align development with the organization’s broader objectives. Standards for new systems. Project management policies for timing and budgeting. Procedures describing the process. Evaluation of quality of change.

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4.2.3 Progress Control 4.2.3.1

Basic Concept of Project Control

The so called project process control specifically refers to ensuring that the project can be completed within the schedule and avoiding the delay of the construction period through specific measures or methods during the project implementation. During the progress control period, it is usually necessary to formulate a matching schedule in advance, and comprehensively analyze the major influencing factors of the project schedule objectives, as to prepare adequately for the later project construction. During the construction period, the actual progress and planned progress of the project should be effectively compared and analyzed. If there is a certain deviation, effective measures or methods should be taken immediately to adjust the project schedule. In addition, during the construction period, the construction rate of the project will be continuously improved under the premise of quality and quantity. People should timely understand and master the construction progress and the latest state of the project and conduct an overall evaluation and analysis of the development trend in the later stage of the construction, which ensures that the project can be completed within the planned time.

4.2.3.2

Principle of Process Control

Process control is a very complicated problem. In order to ensure the completion of the project on time, the plan must be reasonably designed. The main theories and methods of process control are as follows: (1) Dynamic control theory. As the project progresses, the progress of the project is constantly changing; and the relationship between the actual progress and the original plan is also changing. It is possible to advance or lag behind the plan, resulting in deviations ahead or behind. At this point, the originally designed plan cannot meet the project progress very well and is no longer applicable to the project status. It is necessary to determine the cause of the deviation based on the analysis of the deviation, reasonably determine the adjustment measures, and improve the plan to determine the new target to control the construction progress and ensure the project duration. In the construction of complex projects, it is impossible to implement them perfectly according to the original plan. Various problems are emerging one after another. It is necessary to uphold the dynamic improvement mentality and adjust the plan according to the actual situation at any time to ensure the project. (2) Elastic control theory. During the construction of the project, the construction progress will be affected by various internal and external factors, so the plan cannot be fixed and must be given considerable flexibility. Although experienced project personnel with scientific methods can produce more accurate plans, the uncontrollable factors still exist, and it is necessary to leave a margin for

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(3)

(4)

(5)

(6)

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each project. Once a sub project exceeds the predetermined construction period, due to the remaining margin of other sub projects, the plan can be adjusted accordingly, so as not to have a major impact on the entire construction plan. If the construction period is too rigid, once any deviation occurs, other sub projects will be seriously affected, directly affecting the total construction period, and is not conducive to the coordination between the sub projects. Closed loop control theory. The project construction schedule control is closed loop. From the start of planning to the development of the improvement plan, it is difficult to avoid deviations in the implementation of the plan, or require changes, so the implementation of the plan must be checked; it is necessary to compare and analyze the countermeasures, adjust the construction accordingly, and improve the original plan. The overall progress control of the project is achieved through a closed loop, spiral up plan. System control theory. Project development must be organized from the overall height, and it is necessary to systematically solve problems in construction. The progress of the project needs to be regarded as a whole system, and the construction, inspection, deviation, adjustment and other matters should be considered in the system. The management and control related to the progress and any specific adjustments must be considered from a system perspective. All personnel management must also consider the overall needs of the system. Information management theory. The project will be affected by a large amount of information from specific work levels. Meanwhile, issuing instructions to each job also requires the provision of complicated information. Information management must be strengthened to effectively communicate the various departments and tasks of the project. The effective management and control of information is the basis for realizing the above mentioned dynamic control, bomb control, closed loop control, system control, etc. Efficient information transmission is very important to complete the project plan on time and must be taken seriously. Network control theory. As the development of the project becomes more and more complex, the corresponding requirements for the construction schedule of the project are getting higher and higher. Computer network technology is increasingly being applied to project planning. Scientific and efficient computer technology is very convenient to the management, adjustment and overall analysis of complex project plans, and it is more and more important in the control of project implementation.

4.2.3.3

Process Control Requirements

In the actual project process, any project should continuously deepen the understanding of the project before and during the development of the project plan, to achieve security at every stage. The control of the project process needs to be carried out in strict accordance with the project plan. There are many influencing factors in the

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actual implementation process, which will hinder the progress of the project. After the project schedule is adjusted, it should be able to solve the problem, so that the project schedule is basically the same as the original plan, and the project schedule deviation is kept within the minimum range. In order to make the project schedule meet the original plan to the maximum extent, it is necessary for the project responsible personnel to continuously adjust and improve the project plan, so that the project plan meets the requirements of the actual conditions of the project. At the same time, the actual construction progress of the project meets the project plan to the maximum extent. The ultimate goal of the project plan is to save project operating costs, obtain project economic benefits, and achieve a win win situation between control and efficiency. In the entire control system, it will have serious consequences for the overall interests of the project, if there is a lack of plan or a disorder of schedule. Therefore, the formulation of the project plan needs to implement dynamic monitoring and control over the whole process of the project, in line with the overall interests of the project, and the project risk.

4.2.3.4

Operation Analysis of Process Control System

(1) Integrity. The project is a holistic and systematic complete content. The whole part of the project construction process is not a simple paragraph addition but an organic combination between the project parts. Between individuals and individuals, between individuals and the whole, and between the whole and the whole should be connected, communicated and coordinated. First of all, the whole is closely related to the part, and the realization of the overall function and some functions will promote the development of the project. Secondly, the whole and part can be used as multiple independent individuals, with their own goals, plans, work contents and related control and management. Such individual connections together constitute the realization of the overall function. Moreover, from a philosophical point of view, the overall function is greater than the sum of individual functions. This principle is also used in project engineering. Any individual who leaves the whole cannot realize its own value, only in the overall environment. Fully make the role of the individual fully utilized. Finally, both the whole and the part have their own functional characteristics and innovations, and it is not easy to compare the whole with the individual. (2) Dynamic correlation. Dynamic correlation refers to the interrelationship between the real movements of things. The project schedule control is a dynamic process. The project is constantly changing during the construction process, and the control of the project should also be dynamic control. The principle of dynamic correlation mainly includes three aspects. First, control the correlation between features. Each factor in the project is not independent, there are interrelated, coordinated, interdependent and dynamic between factors. When one of the factors is affected, the overall project progress will also be affected. Second, the correlation between factors and the system are as a whole. Each individual

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in the project together constitutes a dynamic whole. Third, determine the relevance of dynamic systems to the environment. The system and the environment are the unity of opposites. The dynamic development of the system depends on the environment, and the development of the environment is inseparable from the changes in the system. (3) Hierarchical principle. The hierarchical principle is a relatively common and simple principle. A project will be divided into levels. The level does not only have different work content and work focus, but also different control characteristics and control mechanisms. The project schedule control level can be roughly divided into three types. First, the project schedule control exists in the form of a hierarchical system. Second, different levels of functions are different and different in characteristics, but in the whole, this level plays a common and integral role. Third, the levels and levels are interrelated and mutually coordinated. All in all, each level of the project is an important part of the project, and the part and the whole are inseparable. Each level plays a huge role in the overall project. These levels jointly promote the development of the project.

4.2.4 Cost Control 4.2.4.1

Definition of Cost

Accounting management gives the definition that cost is the resource that is sacrificed or abandoned in order to achieve a particular goal. Financial accounting, on the other hand, argues that cost is the price of acquiring assets. The cost concept given by the committee on cost and standards, which is affiliated with the American Institute of Accounting, is interpreted as a value sacrifice that occurs or does not occur in order to achieve a specific purpose, which can be measured in monetary units. The main purpose of this definition is to study the cost from the whole value sacrifice, not simply to study and discuss the cost from the perspective of accounting. Although the above definitions are different, the part that they all contain is that the cost is the expense of the resource, which can be expressed in monetary way. The above understanding of costs actually involves a sacrifice of resources or value. This sacrifice is pluralistic, and we can see it as a multifaceted resource sacrifice, or a single sacrifice, in terms of specific understanding and application. It relatives to a business or corporate entity, and the cost here is the cost of the enterprise. But if you explore costs in a project environment, the concept of project cost is raised. The cost in this paper refers to the various resource costs required to accomplish multiple tasks in a specific project.

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Definition of Cost Control

Cost control refers to a series of preventive and regulatory measures implemented by an enterprise or company in order to achieve the expected objectives of cost management, within a limited time frame by the main body controlling the cost of management within the scope of its responsibility control, before the consumption of various resources and in the subsequent cost management control process, the main factors and conditions affecting the cost. And the concept of cost control is applied to a project, so we can consider it as a system, then control is through our artificial application of a certain process of action, so that it’s output in accordance with the established direction or requirements of the correct. Therefore, the project cost control refers to the project management, through the project management, so that the actual cost of the project in the plan and budget within the scope of a project to manage the work. Project cost control is the embodiment of project comprehensive management. Through project management, the actual cost of the project plan and budget should be controlled within the scope as assigned.

4.2.4.3

Content of Cost Control

The content of cost control depends on the specific actual situation, because of the difference of various working conditions and the difference of control focus, the specific content of implementing cost control will also be different. Therefore, the control focus of different nature enterprises under different industry background conditions will also vary greatly. We can study cost control from two aspects of cost formation process and cost classification. By referring to relevant information and actual implementation, cost control can generally be divided into the following steps: cost estimation, planning, implementation, accounting, analysis, assessment, collation and final cost report preparation, and the whole project cost management process includes planning, estimation, budget, cost control. Cost estimates generally refer to the approximate cost of compiling the resources required to complete a project activity according to the composition of the project; cost budgeting refers to the estimated cost of aggregating activities or work packages in order to establish a set of cost benchmarks, while cost control refers to factors that affect the cost deviation and controls changes compared to the project budget. Project cost control is in the process of cost formation of various production and operation activities to guide, limit and supervise, timely detection of deviations, take corrective measures, so that the specific and all production costs of each project are controlled within the original scope, and constantly reduce costs, in order to ensure the achievement of the established cost objectives. The project cost control steps are shown in Fig. 4.4. For cost estimates in the Fig. 4.4, we want to predict the direct cost of the project and generate costs before the project starts. But any predictions are uncertain. Project cost estimation is an estimate of the duration required for each activity based on relevant information such as the scope of work and resource conditions of the project. To

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Fig. 4.4 Project cost control

achieve cost control, cost estimates must first be made and reflected in monetary values. Cost measurement is used to fully and accurately account for the actual cost costs of the controlled object over a certain period of time. The design and development of cost measurement system should be determined synthetically in combination with the characteristics of the project, the focus of cost control determined by the company and international practice. Cost deviation analysis is the key link of cost control, and its analysis process involves all aspects of the project execution process, which is an important basis for the project to formulate corrective measures. Simply put, cost deviation analysis is to monitor the positive and negative deviation of costs, analyze the causes and to ensure that the project runs towards the established direction of the target. The key to effective control is to conduct a risk analysis of the current phase in accordance with the project plan node during the project implementation phase, and to identify deviations and problems that are imminent or have occurred as early as possible in the project cost, so that preventive and corrective measures can be taken in a timely manner. Project cost problems can be found in a timely manner, the scope of project implementation and project progress, the less impact, otherwise project costs to be controlled within the scope of cost forecasting, may not narrow the scope of the project, or delay the project duration progress or reduce the quality of the project, and ultimately cause customer complaints. Cost correction measures refer to the temporary or permanent corrective action taken according to the reason of the analysis of the previous link, according to the number of risk sequence and the actual situation of the project at the present stage, so as to achieve the prevention and mitigation of cost deviation. The effect confirmation and the experience summary refer to the implementation of the cost correction measures in the continuation of the project in the process of validation. Whether the corrective action effect is effective or not, it needs to be summarized by the project team members. Effective measures continue to be implemented and continuously observed, ineffective or less effective countermeasures to immediately stop execution. So as to call the project team members to continue their efforts, you can use the process decision

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making process diagram method, from the global overall grasp of the project status to make a correct judgment, appropriate to put forward all possible means or measures.

4.2.4.4

Method of Cost Budget

(1) The concept and content of cost budget Project cost budget is a project management work that formulates project cost control standard, which involves allocating and determining budget, cost quota and determining the overall project budget according to the cost estimation of the project. The project cost budget process, as shown in Fig. 4.5: In order to control the cost of a project, it is generally necessary to estimate the previous project to transform the project budget. To achieve this transformation, the WBS is used to decompose the project, combined with the project schedule to establish the benchmark of cost control, taking into account the hidden risks of the project, through analysis, evaluation to determine the probability of loss and loss expectations of the predicted value. (2) Basis of project cost budget The basis of the project cost budget should generally include the following aspects. (a) Project scope description. Describe the issues that identify the final deliverables of the project and how to achieve it, as follows: (i)

Project boundaries. Confirmation of the project boundary means that we identify the specific matters that should be included in the project, excluding matters outside the project that are also to be determined. (ii) Project objectives. Project objectives are benchmarks for measuring the success of project implementation. A specific project will include cost, schedule, and technical performance, so the purpose of implementing the project is to make the most of the resources available so that the project can achieve the desired technical results under a certain budget. (iii) Project requirements. Able to fully understand the needs of customers so that the final delivery of the project products and services can meet the contracted and technical requirements.

Fig. 4.5 Cost budget process

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(iv) Project deliverables. It includes direct output resulting from the product or service provided by the final project. (v) Project product acceptance standard. It is the relevant provision for determining whether the delivered product meets the conditions of delivery. (vi) Project cost estimation. The estimate is a guide and reference for the development of project cost budgets and cost control baselines, and the accuracy of estimates is key to cost estimation. (vii) Project technical specification. The note must clearly indicate the relevant technical specifications and standards applicable to the scope of supply of this project in order to ensure that the final product or service delivered complies with the customer’s standards and requirements. (2) Work breakdown structures. The work decomposition structure is a kind of project management tool which is very practical at present, and it is the project management and the implementers who effectively split the work of the whole implementation project, and subdivide the whole work package into an executable and clear work flow with a distinct division of labor. In the implementation process, the overall objectives of the project can be broken down to different levels of small work packages, so that the entire project team can strive for the goal of the implementation of the job, which is the final project delivery possible. The underlying planning work of the work breakdown structure is called the work packages, which can be used to make progress plans, estimate costs, monitor and control. Work decomposition structure can be applied to project time planning, schedule, project objectives decomposition, project deliverables and other work process, in short, the project work breakdown structure can be more clear about the implementation of the project. The link between the composition of all work in the enclosure and the results of the project eventually are provided. (3) Cost estimation of project activities. Estimation is a quantitative inference or estimation of the subjects based on specific conditions and relevant knowledge. Project activity cost estimation refers to the inference or estimation of the total cost of completing the project, and the accuracy of its estimate is related to the project requirements and the work experience and personal accomplishment of the person involved in the estimate. Cost estimation is the basis of project cost budget, and the object of cost estimation includes not only working hours, raw materials, required purchasing equipment or services. It is also necessary to pre estimate and add to the estimated cost of the project pre unforeseen entries that may affect the cost of the project, such as project risk forecasting and prevention. However, depending on the nature and scope of the specific project, the type of cost estimate can determine the scope and entry of the estimate based on the specific circumstances.

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(4) Project progress plan. The plan is simply described as the starting time expected to be spent on the project’s planned activities. The development of the project schedule can be based on the work breakdown structure steps of the project activities to develop the progress plan. Progress plans are designed to control the time required for project execution, and strict time period requirements are one of the main features of the project, so progress planning is a critical step in project management. Common methods for making progress plans are key date table method, gantt chart, key route method and network planning technology. Now project management common management software project can help achieve the implementation of the above methods. In the course of the implementation of the plan should always pay attention to the project dynamics, check the implementation of the plan, as the actual situation changes and adjust to ensure the smooth realization of the plan objectives. (5) Contract. The preparation of the budget may be based on the scope of procurement products, services or results provided by the contracts entered into, as well as information on their costs. (6) Project cost management plan. Project management plans and other ancillary plans will be considered in the preparation of the cost budget.

4.2.5 Quality Control 4.2.5.1

Basic Connotation of the Quality

The quality of the project is in accordance with the relevant laws and regulations in force in the country, the technical standards in the whole construction process, and the relevant requirements in the contract, to meet the safety, application, durability, economy and aesthetics of the project to make the normative requirements. The quality of the project is accompanied by the signing of the contract, the safety, application, durability, economy and aesthetics of the project to make clear requirements, and the relevant requirements are the content of the project quality. It can be said that the formation process of the product, the same is the formation of the project quality process. The quality of the project consists of all individual quality and multiple quality in the project, including decision quality, design quality, production quality (including equipment quality, material quality) and other quality.

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Basic Connotation of Quality Control

Quality control is a complete set of management methods, with a specific management system, mainly used in the quality control of enterprise production products. Enterprises through quality control to achieve product quality objectives, in the production before the development of detailed quality control guidelines, reasonable resource management, management responsibilities, measurement and analysis to improve the integration of links, so that links and links between each other to promote, mutual supervision, and ultimately achieve the effect of quality control. It can be said that the most important work of quality control is quality control, reasonable and effective quality control can ensure the orderly implementation of quality control work. Quality control is a complex management work, which takes a long time to accompany all the procedures of the project, from investment decision to plan to use, which is a coherent management process, and only the construction of all departments of the enterprise can be completed according to qualified quality standards of their own work content, in order to enable the project to be completed on time, and ensure the enterprise gets the final benefit.

4.2.5.3

Characteristics of Quality Control

Quality control has the following characteristics: (1) Scientific. Quality control will be “system engineering”, “mathematical statistics”, “operational research” and other scientific theoretical methods are absorbed into the theoretical category of quality control, and according to the theory to guide the actual project in the process of operation. Quality control begins with the identification of specific criteria, the grasp of large policies and objectives, the determination of responsibility planning, and then the implementation of management through the formulation of good functional activities. First carry on the quality assessment, then carry on the quality control, finally carry on the quality improvement. Therefore, quality control is a method of prevention in advance, but also a management method after the fact, and quality control not only control the time of the project, improve the efficiency, but also save the cost of project capital. (2) Maneuverability. Through the output, output value and other numerical indicators to measure the quality control situation, and pay more attention to serve the customer’s immediate needs, and constantly improve product quality to enhance product competitiveness, not only to meet the production of standards compliant products, but through the comprehensive system of integrated management to achieve higher quality standards. Wanting to implement the whole process, all round quality control, it is necessary for the relevant project implementers to learn the quality control content, cultivate a strong sense of quality control, the “quality first” idea throughout the production process, firmly believe that

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only the implementation of quality control to ensure product reliability. In general, “pre prevention” is the central idea of comprehensive quality control; the implementation process is based on scientific management and data as the basis. (3) Dynamic. Quality control is a control scheme covering the whole process, all links and elements of the project, focusing on dynamic, changing and comprehensive analysis and control. Or can be understood as a process of forming and developing a product that needs to go through, a process that is a chain of many overlapping, with a close connection between the links. The control of quality not only stays in the quality itself, but also in the comprehensive and in depth control, from the quality formation process and even the subsequent protection of product quality, including service quality, management quality, control cost quality and so on. The completion of these activities needs mutually beneficial cooperation between the internal departments of the enterprise. Design quality, test quality, manufacturing quality and the level of use and maintenance quality reflect the overall quality of an enterprise’s quality control, which is a comprehensive system, emphasizing the quality of the project in the manufacturing project, rather than relying solely on post construction inspection. Therefore, the fundamental quality control of the project is prevention, testing as a supplement, in advance, in the event, after the whole process to eliminate the quality of hidden dangers. At the same time in all manufacturing related links to implement the quality control, not only in the final link to test, to ensure that each process is in line with quality standards, but also to ensure the quality of the next process requirements, each work and related processes combined to fundamentally improve quality awareness. To improve the attitude of all employees responsible for the quality of the project, not only requires the surface of the quality of qualified but also the quality of the project has higher requirements. Only by mastering and applying quality control can the quality of the project be guaranteed.

4.2.5.4

PDCA Cycle Theory of Quality Control

The quality control system is a cyclic process, which operates according to the principle of plan-do-check-act (PDCA) cycle. The PDCA plan implies: P (analysis, objectives, plans and actions for the problems and causes of development policy), D (realization, implementation according to plans and measures), C (inspection: using a variety of methods to inspect and evaluate activities according to standards), A (four aspects summarized and improved). According to PDCA cycle theory, in the project quality management, we need to do a good job of four phases of attention. The first phase is the planning phase P. At this phase, it is necessary to focus on the analysis of nodes that may have large risks or quality defects, design risk response plans for related nodes, and ensure that the plan can be realized in the project construction.

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The second phase is the implementation phase D. At this phase, it is necessary to focus on the implementation of responsibilities related to productive activities, in line with the guidance of the previous phase. Start project execution and planning activities. This requires the gradual completion of the preparation, delivery, organization and technical implementation of the project. The third phase is the inspection phase C. In the inspection phase, it is necessary to compare the main effect of construction with the expected target, which also needs to start the sixth link of circular management, carry out the appropriate effect test and find out the existing problems and causes. Analysis in the project specific implementation process, the project quality management effect, for the project quality management of the advantages and disadvantages of evaluation and cause analysis, and then the quality of the project is constantly analysis and improvement. The fourth phase is the processing phase A. In the processing phase, it is necessary to dispose of the test results at the upper level, focus on starting seven or eight steps of circular management, summarizing the experience separately, and implementing the superiority of the previous period management in the later management, and paying attention to consolidating the overall effect of project management. To control the management defects existing in the previous stage, to prevent and reduce the causes of quality management defects, and gradually improve the specific measures in the post management, and constantly improve the project quality management tools and effects.

4.3 Project Resource Management 4.3.1 Introduction to Project Resource Management The resource management of the project refers to the activities of planning, coordination, organization, command and control of the manpower, materials, machinery, equipment, technology and funds involved in the project in order to reduce the cost of the project. The purpose of resource management is to save resources and reduce the cost of engineering construction under the premise of ensuring project quality and construction period. To this end, resource management should pay attention to the optimal allocation,the optimization of resources, and dynamic management of resources. The resource management of the project is the top priority in the project management process, and it is also an important means for the contractor to complete the project and an important guarantee for the project objectives. Therefore, in the construction project, the task of resource management must be done to comprehensively strengthen and improve the management of the project. At the same time, doing a good job in project resource management can bring huge economic benefits to contracted enterprises.

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4.3.2 Targets and Requirements The main goal of resource management for projects is to reduce materialized labor and live labor. In detail, during the project implementation process, there are the following points: (1) The management of resources is mainly to arrange and allocate the right amount of resources at an appropriate time so that they can smoothly enter the construction process to realize the allocation of resources. (2) It should be matched with scientific and reasonable resources to achieve efficient and safe production. (3) Implement dynamic management of resources. (4) Resources should be scientifically used to optimize the configuration and achieve the purpose of saving. During the management process of project implementation, the planning and management of resource management mainly includes the following requirements. (1) Be sure that the resource management is placed in the management of the progress. Since resources have a very important position in the construction process of the project, the availability of resources directly affects the completion of the construction period. Therefore, when formulating the plan, comprehensive consideration of various factors, the assumption of resource input and time, so that can guarantee the needs of various departments. Especially in the construction process of large scale projects, scientific and rational production systems, including the production and supply of resources, generally occupy a very important position in the project planning system. (2) Be sure that the resource management is in the management of costs and take steps to reduce costs. (3) In the process of drafting the construction plan, quality assurance, etc., it is necessary to cover the corresponding aspects of resource management.

4.3.3 Contents of Resource Management In project management, in general, resource management mainly includes material supply, human resources, equipment and facilities, technology and financial management. In the following, the main contents of resource management except human resources are explained below.

4.3 Project Resource Management

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Material Management

(1) Material supply and procurement management. a. Material supply system: The supply of project materials is the most important part of its management process, and it is inextricably linked to the supply market of materials. The main question is what kind of supply system should be used to meet its needs during the construction of the project. It includes the enterprise management material procurement supply system and project management department’s material procurement supply system. b. Material supply method: The supply method of materials refers to the supply and demand relationship of materials used by the company to the engineering projects. Generally, it is determined according to different needs and on the premise of the best economic benefits. There are mainly seven types of picking methods, feeding methods, receiving methods, transit supply methods, buying and selling methods, leasing methods and service methods. (2) Planning management of materials. The planning management of materials is the prediction, deployment and arrangement of the materials required for the project, and is the basis for guiding and procuring, purchasing, processing, stocking and supplying the materials of the project. The accuracy of material planning in terms of material type, quantity and time is an important factor in reducing costs, accelerating capital turnover, saving money, and ensuring project progress. It plays an important role in promoting production. Therefore, the materials required for the project should be included in the demand plan. The material plan can be divided into two categories: material demand plan and supply plan according to its content and role. The material requirements plan is based on the project design documents and construction organization design, reflecting the variety, specifications, quantity and time requirements of the various materials required to complete the project, and is the basis for the preparation of other plans. The material supply plan is an implementation plan that is prepared according to the required plan to meet the project requirements in each material, including balance plan, reserve plan, and procurement plan. (3) On site management of materials. The project manager is the overall leader of the on site material management; the project personnel in charge of the project manager is the person directly responsible for the material management at the construction site; under the guidance of the competent material staff, the team staff assists the team leader in organizing and supervising the class combination, use and return work. Field material personnel should establish a responsibility system for material management positions. The contents of on site material management mainly include: material plan management, material acceptance, material storage, storage and distribution, material use supervision, material recovery, etc.

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The problems that should be paid attention to in on site material management mainly include the following aspects. First of all, we must master the situation of the entire project. Then, on site material support supply needs to be guaranteed. Third, adhere to the acceptance of materials and processes and strengthen the custody of on site materials.

4.3.3.2

Technical Resource Management

Technology is the primary productivity of a project and the basis for production and project management. Technical resources refer to the technical wealth created and accumulated by those engaged in technical activities and their technical activities, including: technological innovation, technology reserves, technology accumulation, and technical information collection. The purpose of standardizing the management of technical resources is to ensure the timely collection, accumulation, organization and establishment and maintenance of technical resources. Main content of technical management: (1) The technical management of the project manager department shall meet the following requirements: review the drawings, participate in the drawing review, conduct engineering changes, negotiate the construction plan, conduct technical disclosure, provide service and supervision to the technical management of the subcontractors, conduct pre inspection and pre existence of the construction. Implement technical measures and manage technical information. (2) Plans developed in the technical management process need to cover process technology, design technology, and corresponding plans for technology development. (3) By cooperating with relevant departments, the project management department can take corresponding measures to build a scientific technical management system to scientifically manage various technologies in the project. Its main tasks are: to develop a scientific and rational management system, to manage relevant technical data, and to determine the responsibilities of various technical positions. (4) The assessment of the management of various technologies in the project mainly includes the research work on technology, the implementation of technical solutions and measures in the project, the resolution of technical problems, the cataloguing of various technical information and the application of emerging technologies.

4.3 Project Resource Management

4.3.3.3

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Technical Equipment Resource Management

During the implementation of the project, the management of the corresponding equipment and facilities has a very important position. Equipment facilities, especially mechanical equipment, play an important role in the progress of the project. The integrated management of it must be strengthened. For the selection, use, management, maintenance, repair and other work of equipment, it is necessary to systematically organize professional personnel to manage it, strengthen the skills training for operators, and ensure the performance of equipment. To ensure the efficiency of the production process, the management work is mainly based on the working principle and capability of the equipment, optimizing the configuration, scientific management, proper arrangement, and ensuring the efficient operation of the facility, so as to save equipment and not delay the normal construction work, resulting in not only saving resources, but also the company’s economic benefits have a certain role in promoting. In project management, the management of equipment must be based on the company’s production and production and a scientific and reasonable equipment management system. Various management measures and different means should be taken to configure on the corresponding equipment, such as purchase or renting, etc. At the same time, strengthening the professional management of production equipment mainly adopts the centralized management method, and comprehensively uses the centralized management methods to strengthen the development of equipment social specialization and cooperation, which give full play to the utilization efficiency of machinery and equipment, and make the equipment fully available use. By improving the level of construction mechanization of enterprises, enterprises can win a greater economic share in the competition. The choice of equipment is carried out at the time of project planning. The principle is as follows: meet the needs, practical and economical; reduce idleness base on existing equipment and exert the existing mechanical equipment capabilities; make full use of social equipment resources, and open the idle mechanical equipment of the enterprise to the society at the same time; break the closure of the concept of self locking has won higher economic benefits for enterprises.

4.3.3.4

Fund Management

(1) Factors affecting the use of project funds The funds of the project are the monetary performance of the project manager department occupying and controlling the materials and property, the means of market circulation, and the necessary conditions and material basis for carrying out production and business activities. Therefore, the management of funds is directly related to the smooth progress of the project and the economic benefits of the project. The main influencing factors of project fund utilization are as follows:

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a. The bidding price of the project and the corresponding payment method mainly refer to the length of the construction period, the information related to the advance payment, and the payment of all the construction funds. b. The price of various materials and equipment on the market, including price and rental expenses. c. After the separation of volume and price under market conditions, the internal quota of enterprises is an important internal factor that affects the use of funds. d. National bank loans and interest rates on deposits, etc. e. The selected construction plan and the rational use of science and technology will bring about various aspects of the use of funds. (2) Project funding expenditure and income projections and comparisons a. Estimation of capital income Since the project funds are mainly derived from the estimation of income, from the beginning of the project contract, that is, the construction unit receives the project prepayment, the progress payment for each month, and the settlement of the project after the project is completely completed and qualified. It must organize the corresponding personnel to make a scientific estimate of the income of all funds, and draw up a fund income form, so as to facilitate the smooth construction of the project and ensure the smooth progress of the project. b. Estimation of capital expenditure The expenditure on funds mainly includes the employment of labor and investment in production materials and corresponding equipment and facilities. In the estimation of capital expenditure, it is mainly necessary to consider: engineering project labor contract, project cost control plan, material management plan of facilities and equipment. In accordance with the above mentioned plans and contracts, all direct expenditures and indirect expenditures during the construction of the project are estimated. The estimated expenditures for all costs of the project must be corresponding in time and amount. (3) Key points of project fund management a. It is determined that the project department has a core management position for the flow of funds in the project. It is also required to ensure that each project team is responsible for all funds in the project. b. According to the actual needs, the project manager will set up a separate account in the company. The internal circulation of funds needs to be signed and confirmed to ensure the safety of funds. c. Internal banks often use different systems to solve internal lending problems, such as paid use, low interest rates in quotas, higher interest rates, higher interest rates on deposits, and fixed assessments. When the overall funding of the project is insufficient, it is only adjusted by internal banks, and does not require the external adjustment method.

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d. The project manager needs to control the funds according to the actual situation, and analyze according to the specific situation to ensure the rational use of funds and achieve the purpose of improving economic efficiency. e. The project department needs to coordinate the supply schedule and funding needs of the equipment and materials supply in real time. (4) The Principle for the use of project funds a. The principle of promoting production, saving investment, living within the limits of income, and moderate debt. b. The principle of combining the interests of the state, enterprises and employees. c. Acting in accordance with the law, in accordance with the Labor Law to ensure that the wages of employees are issued on time; in accordance with the labor subcontract, to ensure that the outsourcing of labor costs in accordance with the provisions of the contract settlement and payment; according to the material procurement contract to pay the purchase price.

4.3.4 Primary Criteria in Resource Management In the implementation of the project, the management of its resources should be based on the following criteria: (1) (2) (3) (4)

The principle of drafting the costs of each project. Ensure the principle of project resource supply. The principle of saving project resources. Accounting principles.

4.3.5 Typical Method of Project Resource Management The main task of resource management is to prepare resource management plans and ensure the application of resources. At the same time, various resources should be optimally configured during the project construction process. The completion of these tasks is inseparable from the project’s schedule, and currently, in the project management method of the project, network planning technology is a popular method of scheduling. Network planning technology is to express the relationship between the work tasks in the project and the tasks among them through the network diagram, and estimate the duration of each work and the resource demand. Calculate the key work and key lines in the plan, and then select the most reasonable plan and implement it by constantly changing the data and parameters based on each work. At the same time, effective supervision and control should be carried out during the implementation of

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the plan to ensure the reasonable use of various resources such as manpower, material resources, financial resources and time, and to successfully complete the prescribed tasks. Network planning technology was developed in the 1950s. It first appeared in the United States, and the most representative ones were critical method (CPM) and plan evaluation and review technique (PERT). Today, network planning technology is widely used in industrial, agricultural, defense, and scientific research programs and management. The network diagram used in the network planning technology is essentially a directed, ordered graph composed of lines with arrows and some nodes. According to the line with arrows in the network diagram and the meaning of the nodes, the network diagram can be divided into two network diagrams of single code and double code. In the single code network diagram, the lines with arrows indicate the logical relationship between tasks, and the nodes represent tasks; in the double code network diagram, the line with arrows between the two nodes represents the task, and the node represents the completion or start of the work. In the network diagram, for an activity, the work immediately before it is called the immediate work. The work parallel to this activity is called parallel work, and the work immediately after it is called the work immediately. The time parameters of tasks in the network plan mainly include task duration, earliest start time, latest start time, earliest end time, latest end time, total time difference, and free time difference. The duration of a task is the time that it takes to complete the task while meeting the resource requirements of the task. The earliest start time of the task refers to the earliest start time of the task. It must happen when all its immediate work is completed. The latest start time of the task refers to the time at which the task must start at the latest without affecting the entire project duration. The earliest end time refers to the earliest end time of the task. The latest end time of the task refers to the time at which the task must end at the latest without affecting the entire project duration. The total time difference of the task refers to the maximum relaxation time of the task in the case of affecting the project duration. The free time difference of the task refers to the maximum relaxation time of the task without affecting the earliest start time of the work.

4.3.6 Multi-project Resource Management Multi-project resource management refers to a series of management activities such as planning, allocating, organizing, and coordinating resources for carrying out multiple project implementation processes under the constraints of limited resources. Reduction of the degree of resource confliction and the maximization of the utility of limited resources in multiple project configurations are the aims of the multi project resource management. Therefore, multi-project resource management is based on both system idea and system approach.

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Classification of Multi-project Resource Management

Multi-project resource management is divided into project group management and project portfolio management. The former is that there is no common connection between the multiple projects on the target, but the project itself is similar. There are similarities in the work development methods and the resources required for people, materials and machines. The resource management of multiple projects can be cross referenced. The latter is not similar between multiple projects. It is difficult to cross reference, but these projects can make the resources of the enterprise’s human and material resources be used reasonably, improve the production capacity of the enterprise, and ensure the realization of the company’s target. (1) Project group management. It is to put together multiple similar projects for management by putting together multiple work processes, resources used and similar technical methods, and treating them as a project to form a scale. Economy, these projects have similarities, and together they can reduce the duplication of management and improve work efficiency. (2) Portfolio management Portfolio management involves establishing a portfolio investment strategy to determine what type of project is appropriate for the portfolio. Evaluate the proposed projects and prioritize them, establish a balanced portfolio of investment objectives, monitor the performance of the portfolio, and adjust the content of the portfolio to achieve the desired goals. Portfolio management generally consists of 5 phases, as Fig. 4.6.

4.3.6.2

Features of Multi-project Resource Management Features

Multi-project resource management is a dynamic, complex, and systematic management that integrates enterprise resources. The difficulty of multi-project resource management depends on the number of projects managed by the enterprise at the same time, the size of each project, the complexity of each project and the intensity of resource required by different projects. Multi-project resource management has the following characteristics: (1) Multi-project oriented. Resource management activities are relatively simple when managing, coordinating, coordinating, and allocating resources for a single project. For multi-projects, because each unique project has its own different goals and different characteristics, it determines more. There is a big difference in the demand for resources between projects at different stages and between different projects. It is also because of the diversity of goals that the difficulty and complexity of multi-project resource management will increase greatly. (2) Tight connection. For multi-project management, each project is generally prioritized. The plans for the use of funds and resources have been carefully arranged and closely linked. The larger deviations of any one of the projects will affect

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Fig. 4.6 Combination project life cycle

other projects which may even lead to failure of the entire project. The more projects, the more difficult it is to manage resources. Therefore, the dynamic handling of the relationship between funds and resources among projects is a key factor in the success of multi-project resource management. (3) Process complexity. The process of multi project resource management implementation is very complicated. From the beginning of the adoption of the mandatory positioning method, fuzzy comprehensive evaluation method and other methods to prioritize each project, to implement multi-project schedule management in accordance with this priority order, dynamic multi-project resource management, the use of mathematical planning mathematical models such as law, heuristic algorithm, and genetic algorithm are used to solve the problem of multi-project resource balance. Whether the method it uses or the disciplines involves, it reflects the complexity of the multi-project resource management process. (4) Target uniformity. Multi-project resource management means that taking resources of each project as a whole, using the system ideas to carry out unified management and overall planning the schedule of each project with the amount of resources, for ensuring the realization of the project objectives. The success of multi-project resource management is the overall success of the multi-project.

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Difference Between Multi-project and Single Project Resource Management

The early single project resource management is a simple project resource management, which is mainly aimed at human resource management. The factors such as materials, time and information have not yet risen to the management scope of the whole life cycle of the project. Early single project resource management regards human resources as the most critical and active resources. Without human resources, the other three resources lose their sense of existence. Human resources are the intellectual assets of the project, and the other three resources are the tools of human resources. Only through it can other resources be integrated. It can quickly combine with other resources to create effects. Therefore, it can be seen that the early single project resource management mainly emphasizes the management of human resources, attaches importance to the management of people, gives full play to people’s creativity, and strives to do their best, and by putting each member in the most suitable position to work to the maximum extent of the efficiency of each member. Nowadays, with the development of science and technology, there are many projects and production of products that do not require people to participate in the whole process. There are many steps that can be replaced by machines. The more important things for enterprises may be materials, time, resources such as information, human resources are not as core as early single project resource management. The current multi project resource management should be a coordinated concept that includes four factors: human resources, materials, time, information. The key point of enterprises in the management of multi project resources is to fully grasp the information and reasonably arrange the key factors such as manpower, materials and Table 4.1 The differences between multi-project management and single-project resource management Single project resource management

Multi-project resource management

Definition

Less uncertainties

More uncertainties

Target

For specific projects, complete customers on time and within budget Satisfied product

Strategically and proactively integrate multiple projects Goal to make it overall optimal

Implementation effect

Complete the project at the lowest cost according to quality requirements during the required construction period

Coordinate the resource allocation of each project, arrange the progress reasonably, and achieve the highest comprehensive benefits

Organization structure

There are functional departments and project managers, which can form a variety of organizational structures

The organizational structure is complex and may not have a functional manager, but the project manager plays a key role

Degree of difficulty

Less difficult and less complex

Difficult and complex

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time. Multiple projects have higher resource utilization ratios in resource allocation than single projects at the same time, which can better improve business operation efficiency. Therefore, multi project and multi project resource management is a development trend of future project management. Table 4.1 shows the differences between multi-project resource management and single project resource management.

4.4 Case Study Case 4-1 An Enterprise Information Construction Project Method: Multi-project resource management based on complex system theory Step 1: Identify resource requirements for individual projects, i.e., problem definition and target selection. The definition or problem in system research is to propose specific requirements, and to find various favorable conditions in the existing conditional state that can realize the demand, and find ways to use these conditions to achieve the goal. Specifically, we analyze the required resources of each project based on the characteristics of each project. In the project selection, the financial analysis method (net present value method, internal rate of return, investment payback period) is adopted, although the current profit of individual projects is not large. It is beneficial to the future development of the enterprise, but not in line with the direction of the company’s development, which give up or reduce the priority of the resource use of this project. We prioritize each project in order to prioritize the resources required for each project. The enterprise’s informatization construction projects are divided into two categories, information system development projects and distributed control system projects. The information system development project includes software development and network construction of the local area network. The distributed control system type project is used for data acquisition and production monitoring of the production workshop, including hardware integration and system configuration of the automation control system. The demand for resources of these two types of projects is different. The information system development project has higher requirements for human resources (software developers) and requires skilled development experience. In terms of network construction, we generally use outsourcing to do integrated wiring. Each project team is responsible for network configuration and testing. It is responsible for construction quality control. In addition to purchase different card equipment from professional companies, the project is integrated by the project team and requires more construction equipment. There are many people and the demand staff which have rich integration experience. We list the resource requirements for each project, categorize them, and list the timelines and priorities of the resources required for each project based on the schedule for each project. Different projects have completely different requirements for different resources and different quantities of resources in different periods. We not only need to set the types and quantities of resources needed by setting standards,

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but also calculate the peak demand by formula, because these peaks may become the conflict factor in project management. This is the key point that needs to be controlled by the person in charge of the company. Step 2: Resource constraint analysis, i.e., system integration and system analysis. From here on, we will discuss how system engineering does. The so-called system analysis is to analyze various alternative (exploratory) schemes according to the system’s goals and standards. In this project, we analyze the resources of the enterprise. In terms of human resources, the level of system analysts and software engineers is relatively high, but the number is small. Many people have multiple jobs. The project team members get the PMP certificate or certificate from the Ministry of Information Industry. There are not many senior project managers, but they have rich experience in the construction of distributed control projects. The network maintenance and construction equipment are complete, and the number of common tools is sufficient. There are also expensive optical fiber construction and test equipment, and one communication can also be obtained. The company needs to book the lease in advance. Every year, employees have about ten days of paid vacation. In the development cycle, five people are going out of production to participate in the training. Statistics are visible for the time of the proposed vacation and the time frame for not being able to participate in the project work, in order to develop a resource management plan in the future. The time and period of use of large equipment and professional tools required for construction have also been estimated. Due to high inventory costs, some consumables (such as single, multimode fiber, large logarithmic cable, ground cable, line card, etc.) can only be purchased when the inventory is reduced to the assigned limit. If multiple distribution control projects are to be constructed at the same time, it is necessary to adjust the insurance stock and turnover stock. Step 3: Develop and implement a multi-project resource plan, i.e., optimized system selection and plan implementation. According to the system goals and standards, the best and most suitable ones are selected after comparing the selected schemes. The plan is then implemented accordingly. The project selection and prioritization process is based on the analysis of resource requirements and available resources. It requires in-depth consideration of the various inputs and the possible value of the project. Such considerations sometimes have no standards. It quite often is based on the decision-making team for a while, which might be highly risky. When the priority of the project is set, the middle level of the enterprise will formulate a resource plan that conforms to the corporate strategy according to the selected project and the priority order. After the resource plan is determined and issued within the company, the operators at each execution level will optimize the resources. They will also configure and have their respective projects implemented within the intended plan. A total project plan is formed based on the schedule of each project and the demand for each resource at different project stage. The load situation of each resource in each time period is visible so that resource idleness and conflicts can be avoided. Unsuitable resource allocations can be adjusted to achieve resource balance and optimal use of resources.

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While project management tools are important, but resource management methods are especially important in multi-project management. Resource management needs to start with the resource definition and define the basic properties of the resource, such as skills, current utilization, current participation in project conditions, resource costs, maximum utilization, etc. In the process of resource allocation, reference skills, project conditions and utilization are allocated. During the project implementation process, the utilization and cost of resources need to be collected, and the load of the current individual resources and the load of the project resources of project group are calculated. Resources will be analyzed and coordinated. As the location of individual project manager is relatively scattered, it is not possible to get the feedback of each project in time. By monthly project meetings, one can understand the progress of each project timely and adjust the items which are not required to be implemented. Adjust these projects and transfer idle resources to other projects that are more likely to succeed. These periodical meeting will shorten the information lag and have a good track of the project. Therefore, all project managers are required to email their update and work plan report by email every Friday afternoon. The report should indicate the implementation of this week and management action. The layer of project helps to solve resource problems and do the resource de-confliction during project implementation.

4.5 Project Scheduling and Control Under Internet Era Driven by the development of information technology, human society has entered the information age, and all walks of life have undergone earth shaking changes. Information technology is a weapon for management activities, which can effectively correct problems and deficiencies in traditional management activities. This is especially true for project management. First, it saves project management resources. The project management content is complex. The management of each theme activity requires large number of people to participate in it. It is responsible for the collection, sorting and classification of information, which inevitably leads to the excessive consumption of project construction resources. Secondly, it can reduce the error rate in project management. In the final analysis, traditional project management is based on manual management. In addition to inefficiency, manual management also has many human errors. The application of information technology and the construction of information platform can avoid this phenomenon and improve project management in an all round way and achieve the expected management objectives. This is the opportunity for project management in the information age. In terms of project management, the arrival of the information age is not only a “once in a lifetime” opportunity, but also a very difficult challenge. At information age, it requires that related companies not only repair the existing paradigm with technical content, but also from the information technology to build a new paradigm, which has a very high demand for enterprises. First of all, it requires enterprises

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to have a certain information management foundation. Various management activities, such as quality management, schedule management, and resource management, have begun to adopt partial or comprehensive information management methods. Second, it requires enterprises to invest a large amount of funds and technology. The construction of information systems, whether it is research and development or the purchase of software systems of related enterprises, its operation and post maintenance are not small expenses, and have high requirements for the company’s capital storage capacity and payment ability. Not only that, the information management platform ultimately needs to be operated by people. Many enterprises even have an information management system, but the lack of information awareness and weak information skills of managers have affected the actual management effect. The important value of the project and project management is valued by people because of the keyword “change”. However, the use of “change” alone is not enough to express the characteristics of the times we are in. The abbreviation of volatility, uncertainty, complexity, and ambiguity constitutes VUCA, a term derived from military terms,that has begun to be widely used. And VUCA has become the new normal of the project environment. If we can transform the world based on operational oriented epistemology in a relatively stable era, then in the era of VUCA, we need to “redefine the project”, “redefine the project success” and “redefine the project management”. In order to meet the challenges of the VUCA environment, the traditional project management paradigm needs to break the internal and external boundaries of project management, utilize open platforms and make full use of extensive social resources, and cooperate to solve various technical and management problems including the whole process of project management. Project theory based on lack of project practice will be hollow and weak, and project practice without project theory guidance will easily become blind and inefficient. We need to establish project epistemology in the VUCA environment and use it to understand project practices and refine them into relevant new theoretical systems. At present, many elements of project management encounter the dilemma of management science, and theatrically become the subsidiary of economics, mathematics or psychology, and the theory and practice will gradually drift away.

4.5.1 New Features of Process Control Based on the “Internet+” 4.5.1.1

New Features of Process Control

The emergence of new technologies in the information age and the changing market environment, requiring shorter lead times and rapid change response, presents many new challenges and new requirements for schedule control. Currently, related technologies in the context of “Internet+” continue to develop. In particular, with

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the continuous promotion of new technologies such as digital, mobile technology and cloud computing, many companies in the traditional industry actively advocate and promote the transformation or integration of project schedule management into agile. Some new features of process control are as follows. (1) Requirements changes are allowable in project process Changes in demand and “further spread” have been the main causes of problems in the project, delays in delivery, dissatisfaction of customers, and frustration of developers. In the progress control, by demonstrating to the user part of the system functions generated by the iteration, the requirement check is enforced and can help reduce the demand and reflect the essence of the system. This will correct the deviation of the understanding of the user’s needs in time, as to ensure that the developed system truly solves the customer’s problem. (2) Gradual integration replaces traditional centralized closing In traditional project development, the integration phase almost always results in time consuming rework due to the requirement to unify all modules in the integrated system. To avoid this rework, each iteration ends with parts of the integrated build system. This constant accumulation will minimize the amount of rework in the future. (3) Early iterations can expose risks Iterative development methods can help companies in early iterations. Reduce risk because tests for all processes are included in these iterations. The main guiding principle of iterative development is architecture centricity. The main problem to be solved in the early iterations is to determine the system architecture as quickly as possible, and to design the system architecture that meets the core requirements as quickly as possible through several iterations, which can quickly reduce the risk of the entire project. After the system architecture is stable, the risk of the project is relatively low. At this time, the unfinished functions in the system are implemented to complete the entire project. (4) Continuous assessment and adjustment By the end in each iteration, an assessment is made to determine if the iteration has reached the intended goal. The project manager can clearly know which requirements have been achieved, and accurately estimate the status of the project, make necessary adjustments to the project development progress, and ensure that the project is completed on time. (5) Ability to take tactical changes in process management Iterative development can quickly generate an executable architecture, and the product development can be adjusted at any time according to the business situation or market environment during the iterative process. For example, in order to compete with existing similar products, it is possible to decide to adopt a one step approach to competitors and release a simplified product in advance.

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4.5.1.2

147

Agile Management Method in Process Control

Agile project management methods can help project management departments exert more influence on the increase, change, or elimination of demand. By adopting incremental delivery, replacing the one time delivery model at the end of the project, the waste of products and processes is reduced, and the development direction of the project in process control is guided. Improve customer to customer communication by providing ongoing customer feedback as early as possible, helping to identify problems early and make the right decisions. With the rapid development of “Internet+” technology applications, enterprise informatization faces unprecedented opportunities and challenges. Many companies continue to focus on the innovation and improvement of information products, and widely apply agile project management methods to accelerate the development and launch of new products and functions. The goal of agile project management is to deliver the maximum in the shortest possible time business value. It is an iterative and incremental approach to managing projects in small steps, highly flexible, and interacting with users. It usually divides a project into multiple small projects that are both interconnected and independently deliverable, and iteratively delivers in stages according to business needs priorities, during which the software is always operational. Agile management methods have two major advantages in process control: First, through the iterative method, the system functions are released in batches, which greatly reduces the information system delivery cycle and makes the information investment more effective. Second, the demand changes that occur in this iteration can be met at the fastest speed in the next iteration, responding to changes in business needs in a timely manner, and enhancing system application effects.

4.5.2 New Features of Resource Management Based on the “Internet+” The “Internet+”, which emphasizes cross border and integration, is increasingly infiltrating into the operational activities of enterprises, reshaping and shaping new business forms. As the result of Internet thinking practice, “Internet+” represents the advanced productivity that adapts to the development direction of the times and stimulates the management change of enterprises. Along with the virtualization of resource forms, the characteristics of the Internet “de intermediation” break the organizational framework of resource allocation hierarchy and form an internal interactive and collaborative resource network. The traditional method of resource management has been questioned. The electronic resource management is in line with the trend of the “Internet+” era, using Internet thinking to implement the innovative mode of resource management. The new features of resource management based on the “Internet+” are summarized as follows.

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Organizing Resource Integration in a Borderless Process

The characteristics of Internet age thinking are borderless. Resource patterns are becoming more and more virtualized, and the system’s adhesion is declining. Elastic distribution and remote management become the normal way of working. Enterprises need to break the original resource pooling method and establish a new resource management model. The electronic resource management is different from the previous resource management mode. It breaks through the limitations of the one way communication of information in the past and pays more attention to the multi channel communication of information within the enterprise. The mode change of electronic resource management reflects the objective law of the transition from computer data processing era to network information age. With Internet technology, electronic resource management supports organizational networking and virtualization, helping organizations better acquire, deploy, and develop resources and capital. The analysis of resource interaction by combining technical factors and social factors embodies the essence of resource sharing participation in weak contact networks. In the borderless organization, the integrity of resource management is maintained.

4.5.2.2

Cross Border Cooperation in Resource Management and Business Activities

With the deepening of cross border thinking on the Internet, corporate business development and resource demand have shown a diversified development trend. Resource management not only needs to evaluate and predict the knowledge structure and value orientation of resources from the macro level, but also needs to assess the level of resource protection and application potential from the micro level and technical perspective. In the traditional resource management mode, the resource department integrates the resource management functions, and the centralized management mode restricts the Internet thinking of cross border integration. A single knowledge structure with limited resource managers cannot match the core productivity of the Internet. The diversified knowledge structure within the enterprise requires that the activities of resource management be dispersed into various business departments. The implementation of electronic resource management provides technical support for the parallel transfer of resource management activities, and it strengthens the core functions of resource management itself.

4.5.2.3

Big Data-Based Resource Management

The Internet makes resource management possibly is based on big data analysis and decision making, which opens an effective way to measure resources value. In big data analysis, the way of resource management works effectively avoids the deviation

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of subjective emotions, and it can make more scientific and rational decisions by means of data analysis. Electronic resource management has built an internal resource management information platform. The role of the resource sharing center is not only to centralize the related transactional work within the enterprise, but also to provide resource management services for all business units. It is also that the relevant information and policies between enterprises can be quickly exchanged and shared, and the development of human resources management to the direction of big data management is promoted.

4.5.3 Strategies for Constructing New Paradigms 4.5.3.1

Relying on External Environment Construction

Informatization construction is the inevitable development trend of project management in the information age. Due to the dual constraints of subjective ability and objective conditions, there are many problems in the current information construction of enterprises. Such problems seriously limit the actual informatization construction of project management. The effect is that the level of informatization of project management is far lower than the actual level of information technology development. In addition to relying on the invisible hand of the market, we must also play the role of the government’s visible hand. Informatization construction is not only an inevitable requirement of the information age, but also an objective needs for all walks of life to obtain new life in the information age. The government needs to introduce corresponding policies to encourage and support the development of informatization construction, and to encourage enterprises with informatization construction to actively participate in the informatization construction of project management with the construction of incentive mechanism, and fully realize the informatization of project management. Informatization construction is not only a slogan, but also a practice that requires huge investment, and the basic work is particularly important. Enterprises are limited by resources, technology, talents and other resources, and have limited ability in technology research and development investment. The government needs to do the main force of technology research and development, increase the financial support for technology research and development, and lay a solid environmental foundation for the information construction of enterprises. This is an effective means for the construction of a new paradigm of engineering management in the information age.

4.5.3.2

Focusing on Project Management

With the deepening of the project and the increasing management experience, the project management has undergone profound changes, gradually developing from extensive management to refined management. The main feature of the new paradigm

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of project management in the information age is refined management, which avoids the tradition. The non differential management in project management enhances the professionalism of management, which has a particularly positive effect on the improvement of project management effectiveness. In this regard, in the construction of the new paradigm of information management, enterprises must first determine the informatization approach suitable for enterprises from the actual needs of enterprises. Informatization construction has been carried out in the market for a long time, and many enterprises have made great achievements in informatization construction. However, it should also be noted that the market positioning and management level of enterprises vary widely, and there is no one size fits all management model. Enterprises should not blindly copy the experience of others. Instead, they should carry out the informatization construction of project management on the basis of self demand, and enterprises can independently develop corresponding information management systems. Other companies can outsource research and development tasks or directly purchase the most appropriate systems for enterprise project management. In the purchase of information systems, enterprises should consider number of factors, especially after sales service, to improve the actual effect of project management.

4.5.3.3

Building Information Platform

In the construction of the new paradigm of engineering management in the information age, the construction and improvement of the information platform is undoubtedly at the core. The management carrier centered on the information platform is essentially the embodiment of the new paradigm. The various types of information involved in project management are diverse. Bidding information, fund use information, progress information, regulatory information, and material consumption information are all important sources of information in the project. The main goal of the construction of information platform is to provide an effective platform for the collection, sorting, classification and application of various types of information. It can collect all the information related to project management and provide reference for decision makers while the project is being carried out. Compared with the construction of information platform, information technology has been applied in project management for a period of time. However, there is a clear one sided phenomenon in the application process, that is, application of information technology only in several key areas, between different regions. The information is not shared, such as the separation of security management and quality management, which weakens the overall effectiveness of project management. Therefore, in the construction of the information platform, it is necessary to pay attention to the integration of information and services between different functional modules, so that a variety of management content can be uniformly cast into the information management platform. Furthermore the value of the information can be maximized, and the project management is also the inevitable requirement of the information age.

4.5 Project Scheduling and Control Under Internet Era

4.5.3.4

151

Guaranteed by Internal Personnel Training

Project management involves all aspects and contents of the project construction and is a comprehensive management activity. Moreover, all tasks in project management must be completed by dedicated personnel. Even in the current information age, the level of project management information and intelligence has been greatly improved. The information awareness, information literacy and even the level of information technology operation of managers are still important content that affects the actual effect of project management. From the current management status of the general project team, most of the personnel, including the management and the operation layer, have not adjusted the concept in time according to the trends and requirements of the information age. The result is that even if information technology is the center and a corresponding new paradigm of management is created, the problem of personnel level has not been properly solved, and the informatization of project management has been reduced. In this regard, it is particularly necessary to strengthen the informatization training of internal personnel, mainly the training of information operation skills. The project management centered information management platform is built to provide management with an online position that is different from traditional offline management. The project team needs to increase the training intensity and training frequency of staff in the information age, and comprehensively improve the information awareness of managers, especially important department managers, such as schedule management, resource management, and quality management. The new paradigm in project management refers to a paradigm that is quite different from the traditional paradigm. It has innovative features in terms of concept, connotation and even form. There are many ways to build a new paradigm, and information technology is undoubtedly the most critical. The new paradigm of the information age, in short, is a management model built on the core of information technology, which plays a prominent role in improving project management efficiency and optimizing project management efficiency. In the new information age, project management is always in the VUCA environment, and new challenges and problems continue to emerge. There is a need to continuously analyze new features that emerge from each of the elements of project management, including schedule management, resource management, financial management, and quality management. It is possible to continuously iterate and gradually form a new paradigm of project management, which is a major urgent problem to be solved in project management in the new era. Summary Sophiscated project planning and effective project control are key to the success of a project. In the new information age, project management is always in the VUCA environment, and new challenges and problems continue to emerge. There is need to continuously analyze new features that emerge from each one of the elements of project management, including schedule management, resource management, financial management, and quality management. It is possible to continuously iterate and

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gradually form a new paradigm of project management, which is the major urgent problem to be solved in project management in the new era. Review Questions (1) Why is it difficult to come up with a good work breakdown structure (WBS) for a project? (2) What factors affect task duration in a project? How can task durations be shortened in projects? What might be the consequences of such action? (3) What are some of the factors that influence task durations in projects? Why are task durations variable? (4) Why managing complex projects is so difficult? Homework (1) Resource conflicts happening in parallel projects usually can be transformed into mathematical optimization problems. Do a survey on this topic. (2) Project control should be considered within the realm of project management iron triangle. How the priorities should be set? What are the influencing factors? Is there any systematic ways to consider this problem? Do a survey on this topic. (3) Optimal resource allocation in a portfolio of multiple projects is difficult, and sometimes it is called resource constrained multi-project scheduling problem (RCMPSP). Conduct a survey on existing methods and applications in this topic. (4) What are the key points of the scheduling, control and resource management under Internet era? Can you specify an example for each in scheduling control and resource management?

Further Reading 1. Pritchard, C.L.: How to Build a Work Breakdown Structure: The Cornerstone of Project Management (Beginnings). CRC Press, Boca Raton (1999) 2. Forsberg, K., Mooz, H., Cotterman, H.: Visualzing Project Management, 3rd edn. Wiley, Hoboken (2005) 3. Jeffrey, P.: Project Management: Achieving Competitive Advantage [M]. Pearson Education Inc., New York (2007) 4. Mack, O., Khare, A. Krmer, A. et al.: Managing in a VUCA World. Springer, Berlin (2015) 5. Holtzblatt, K., Wendell, J.B., Wood, S.: Rapid Contextual Design. Morgan Kaufmann Publishers (2005) 6. Chen, R.M., Wu, C.L., Wang, C.M. et al.: Using novel particle swarm optimization scheme to solve resource constrained scheduling problem in PSPLIB. Expert Syst. Appl. (37), 18981911 2010 7. Wade, M., Hulland, J.: Review: the resource based view and information systems research: review, extension, and suggestions for future research. MIS Quart. 28(1), 107142 (2004) 8. Shtub, A., Bard, J.F., Globerson, S.: Project Management Processes, Methodologies and Economics. 3rd ed. Person Education South Asia Pteltd, pp. 1012 (2010) 9. Shaopei, L.: Development tendency of project management under internet era. J. Project Manag. Rev. 4(2), 1215 (2018) (in Chinese)

Chapter 5

Economic Analysis in Project Management

Reading Guide (1) Understand the basic concepts, theories and methods of project economic problems, so that readers can have a general understanding to the management of project economy. (2) Understand the basic points of project cash flow, project economic feasibility analysis and its application in investment decision. (3) Understand the methods and features of project cost management, project budgeting and the role of project cost management based on the net earned value from performance control costs. (4) Understand the principles of multi-project cost management and the preparation multi-project optimized capital budgets. Facing Digitization of Project Management As we understand, the economic analysis of the project is going through financial calculations, which is actually in digital form. Therefore, it is born natural that the platform of digitization of project management can be quite adaptable for the economic analysis once there is the clarified analyses formulation for the analyses. Moreover, the software can implement the routine procedures of economic feasibility studies eventually. Case Guide Project financing is always a matter of life and death problem in project economics. A good project, a well managed project, tends to fail only because of the interruption of the funding chain. Therefore, the risk of financing is often the problem in the project initiation stage that the project initiator should consider. An investment company A is facing to the financing demands of several real estate developers, the P, Q and R real estate companies. Mr. Lin, an investment adviser of company A, is responsible for handling this investment and financing issue.

© Shanghai Jiao Tong University Press and Springer Nature Singapore Pte Ltd. 2020 S. Lin and D. Huang, Project Management Under Internet Era, https://doi.org/10.1007/978-981-15-2799-9_5

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The project of company P is a commercial real estate in downtown area, with an investment of $0.4 billion, and the internal rate of return (IRR) is 25% for the three years of investment and eight years of construction (including sales and rent). Demand equity financing $0.2 billion. The project of company Q is a villa group on the outskirts of the city, with an investment of $0.38 billion, and the internal rate of return is 25% for the two-year investment and five years construction (including sales). A total financing of $0.18 billion is required. The project of company R is a downtown office building with an investment of $0.32 billion, and the internal rate of return for rent is 25% for three years. Demand equity financing of $0.15 billion. Mr. Lin’s analyses to the above three financing required companies are as follows: (1) The internal rate of return in all investment projects is 25%, so the deciding factors of investment will be the risk factor and payback period of the project itself. (2) According to the duration of the payback period, company Q has the shortest period of return in just five years, so it seems that priority should offer for it. However, the project is located on the outskirts of the villa group, and its surrounding environment has not yet well developed, moreover, its price is rather high which causes more risk. (3) According to the duration of payback period, the project of company P has rather short payback period of ten years, so it should properly consider. Moreover, the project is located in the bustling urban area; the risk of commercial real estate development is relatively low. After comprehensive analysis, Mr. Lin decides to recommend the board of directors of company A that among P, Q, and R three companies, and he chooses to finance the shares of company P. The reason is that the project profitability of company P is considerable, the payback period is not too long, and the risk is relatively low for the commercial real estate in that region. Mr. Lin also suggests that since company A is an investment company, it is not suitable for direct control of company P, and company A should consult with company P and change the amount of equity financing to $0.16 billion. In this way, in the aspect of equity holding, company P will continue to control and retain the original board of directors and management team of company P. Company A holds 40% of the shares; participates in the board of directors and serves as the chair of the supervision board of company P. The shortfall of $0.04 billion will be financed by company A through bank guarantees to company P at a low interest rate.

5.1 Basic Concepts of Project Economics

155

5.1 Basic Concepts of Project Economics 5.1.1 Investment and Profit To earn profit is the aim of any investment; investment behavior means any expenditure, which is making profits. The motivation of an investor to take the investment behavior only if he/she recognizes the opportunity of having profits, then makes investment decision according to the objective market environment. Expectation and possibly obtaining profit is the driven force of investment; obtaining profit is the principle of investment. Obtaining profit is the basic point of all investment behavior. It illustrates by “promoting people to abandon the satisfaction of present aspiration and striving the inducement of more satisfaction of one’s aspiration in the future”. Owing to the investment, the necessary conditions of implementation of project, technique, personnel, facilities and materials can be available, utilization those resources in phase, and the project tasks can be completed with economic effects. Through increasing revenue and decreasing cost, more economic achievements may obtain. Usually, project profit means the revenues deduct cost; it presents the result of capital investment, or the productivity of capital.

5.1.2 The Cost of Capital In economic society, the use of capital in the project economy cannot unpaid. It must satisfy the expectation of capital owners to meet their profit motive or anticipant profit. The price of capital utilization means the cost of capital. Funds are transferred from fund holders to fund users through various forms of loans and borrowing; accordingly the capital user must also pay the holder interest (annual interest or monthly interest) according to the period (such as year or month), which is the responsibility defined by law. Otherwise, if the cost of capital is less than the profit, there will be no meaning to invest for the deficiency in revenue with the cost. The current interest of the loan is the basis to measure the cost of the capital based on the principal. The interest rate is depended on the factors such as the sufficiency of capital, risks of the loan, the amount of the loan, the duration of the loan as well as whether the interest is taxable or not.

5.1.3 Time Value of Money Since it is a matter of time before a project is completed, the economic value of any instantaneous activity in the project economy will be difficult to determine over the course of the project’s life cycle. The monetary value spent at the beginning

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of the project is not equal to the latter part of the project. The actual situation is that the longer the time goes, the smaller the value of these currencies. In order to accurately measure the role of transient economic activity of a project, and to assess the economic activity of a project over a long period of its life cycle, it is necessary to introduce a currency that measures the value of the economic activity of the project and to accurately represent these currencies at time value. Therefore, it is necessary to introduce the notion of time in the project economy, which is also inseparable from the economic activities such as investment and profit. The time value of money means that today’s monetary value cannot have the same value as an equivalent amount of money in the future. It is due to the interest and compound interest of funds; moreover, due to the turmoil in the world and the inflation in real society. Therefore, over time, it is reasonable to consider the discount rate in terms of monetary value today. The monetary value that measures the economic activity of a project today will be higher than the value of the same amount of money in the future. This will be the basic principle for considering the economic evaluation of the project.

5.1.4 Interest and Compound Interest The concept of interest is due to the difference between the value of the funds before and after use. That is, the use of funds is costly, and the cost of a loan is interest. Based on the principal the interest should pay on the interest rate, which is the percentage of interest paid per unit time compared with the principal, such as an annual interest rate of 7% per annum. Suppose P is the present value of currency, Fn the future value of P after n time period, i the interest rate, then the interest rate can be expressed as: i = Fn − P/P(n = 1, i is the annual interest rate)

(5.1)

Now introduce the concept of currency future value: P1 = P + iP = P(1 + i)(present value after the first year) P2 = P + iP1 = P(1 + i)2 (present value after the second year) P3 = P + iP2 = P(1 + i)3 (present value after the third year) So the future value of P after n years is Fn: Fn = Pn−1 + iPn−1 = P(1 + i)n

(5.2)

In the formula, (1 + i)n is the compounding factor or compound interest rate once repayment after n time period (which can be year, month, or season). In the same way, the net present value of the fund F after the nth time period which takes the compound interest rate into consideration is:

5.1 Basic Concepts of Project Economics

Pn = F/(1 + i)n = F(1 + i)−n

157

(5.3)

It should be noted that the factor i can be regarded as the loan interest rate, and it can also be regarded as the cost of the capital, or return on investment. The average pre-tax recovery rate can reach 20%, but for the more risky projects, such as offshore oil development, its offshore operations risk and reservoir risks are large, what’s more, the pre-tax rate of return can be as high as 20–30%. In (5.3), 1/(1 + i)n can be considered as a net present value factor. Therefore, the future value of year after year of investment A is: F(A) = A(1 + i)n−1 + A(1 + i)n−2 + A(1 + i)n−3 + · · · + A(1 + i) + A   = A 1 + (1 + i) + (1 + i)2 + · · · + (1 + i)n−1 (5.4) Or,   F(A)(1 + i) = A (1 + i) + (1 + i)2 + . . . (1 + i)n

(5.5)

Equation (5.5) minus (5.4), obtained: F(A)(1 + i) − F(A) = A[(1 + i)n−1 ], that is,    F(A) = A/ (1 + i)n−1 /i

(5.6)

The [((1 + i)n−1 )/i] in (5.6) is called the compound interest rate after a period of n years of capital investment. Similarly, annual investment A is:    A = F i/ (1 + i)n−1

(5.7)

In which [i/((1 + i)n−1 )] is the fund mortgage factor. The time value of money has a wide range of applications in economic analysis of actual projects, such as investment benefit, time impact on profit, choice of investment plan, calculation of present value of compound return and calculation of capital recovery.

5.1.5 Net Present Value (NPV) How to make a comprehensive comparison of the present value of revenues and expenditures generated at different times in the project economy? That is, how can the present value of receipts and disbursements over different time be rationally considered in the entire project economy? The solution to this problem is to convert the monetary value of the individual receipts and disbursements occurring at different time into a single calculation based on the discount rate of a certain figure converted to

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the beginning of the project. In this way, the same value of receipts and disbursements, due to the time they occur, shows a different effect at the present value of the discount at the beginning of the project. We called the net present value as the present value of the receipts and disbursements at any time at the very beginning of the project. In this way, as the project is often invested in the initial stage and harvested later in the future, based on the concept of net present value, the profitability of the future may not be as value as it was at that time. This also means the actual value of the future profitability of the project which will be smaller than the value shown. The longer the project cycle, the more significant this effect is, and the lower the benefit is. In addition, as shown above, the net present value of profitability which relates to the discounted rate; it means that the higher the discounted rate, the higher the potentiality of profitability in net present value. Therefore, for the same future income value, the longer the project life cycle, the lower the economic benefit; the higher the discount rate, the better the economic benefit.

5.1.6 Case Study Case 5-1 Manufacturing Equipment Transformation Investment Options For the transformation of equipment system, factory C needs to introduce a complete set of equipment from the suppliers with the operation time of the equipment 10 years. Supplier A provides highly automated equipment system SA valued at $20 million and supplier B offers semi automated system SB equipment valued at $10 million. The factory C has applied loans from the bank for the renewal of the equipment, with a loan interest rate of 10%. Taking into account the system SA annual maintenance and operation fee of $1.0 million, and system SB annual maintenance and operation fee of $2.0 million. How can Mr. Harrison, the director of factory C further determine whether accept of system SA equipment program or system SB equipment in the economic analysis of the project? In order to conduct a quantitative economic analysis of the project, it needs to convert into a net present value of the discount calculation. Table 5.1 (Unit: $ thousand) shows the net present value of system SA and system SB at the discount rate of 10%. It shows from Table 5.1 that the total investment of system SA and system SB is $3.0 million irrespective of the time effect, but the total investment of SA is $2.61415 million when converted into present value while SB is only $2.2289 million. The difference is ($2.61415–$2.2289) million = $0.38525 million. So SB will be better than SA . In addition, it is clear that the SB can save up to $1.0 million of investment, which can be invested in other projects for more profits. This example can also show that with option SA , an extra 10 million is now spent. The advantage is that it can save an annual operating and maintenance fee of $1 million. However, the net saving is not as imagined as $10 × 100 thousand = $1.0 million, due to discounting rate, the real value is just $0.61445 million. Finally, the exceeded expenditure of SA than SB is $1000–$614.45 = $388.55, and it is more economic efficiency of SB than SA .

5.1 Basic Concepts of Project Economics

159

Table 5.1 Net present value of system SA and system SB Yr

Project expenditures

System SA expenses

Discounted value

Project expenditures

System SB expenditure

Discounted value

0

Equipment investment

2000

2000.00

Equipment investment

1000

1000.00

1

Annual maintenance costs

100

90.91

Annual maintenance costs

200

181.82

2

Annual maintenance costs

100

82.64

Annual maintenance costs

200

165.28

3

Annual maintenance costs

100

75.31

Annual maintenance costs

200

150.26

4

Annual maintenance costs

100

68.30

Annual maintenance costs

200

136.60

5

Annual maintenance costs

100

62.09

Annual maintenance costs

200

124.18

6

Annual maintenance costs

100

56.45

Annual maintenance costs

200

112.90

7

Annual maintenance costs

100

51.32

Annual maintenance costs

200

102.64

8

Annual maintenance costs

100

46.65

Annual maintenance costs

200

93.30

9

Annual maintenance costs

100

42.41

Annual maintenance costs

200

84.82

10

Annual maintenance costs

100

38.55

Annual maintenance costs

200

77.10

Sum

$ 3.0 million (interest rate 0%), the net present value is $2.61415 million (interest rate 10%)

$3.0 million (interest rate 0%), the net present value is $ 2. 2289 million (interest rate 10%)

This example shows that the investment usually takes place at the beginning of the project. The longer the term of the project will be, and the lower the economic benefit will be. In addition, under the same project final profitability, the higher the discounting rate of the project, the higher the economic benefit will be.

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5.2 Discounted Cash Flow 5.2.1 Concept of Cash Flow The purpose of investment is to make profit. However, the profitability at the end of the project and the time effect on the currency are also reflected in the consideration of discounting the inflows (expenditures) and outflows (receipts) of each item to the present value during the project implementation process, which is called the cash flow of project. This item-by-item income and expenditure not only reflects the realtime financial status of the project, but also generally reflects the process and status of profitability of the project.

5.2.2 The Basic Elements of Cash Flow There are several basic elements of net cash flow as follows. (1) (2) (3) (4)

(5) (6)

(7)

(8)

Outlet: Refers to the project owner injected into the project funds in order to run the project. Income: Refers to other incomes during project operation. Revenue: The sum of the income items during the operation of the project. Operation cost: The daily expenses of the project operation. Expenditure items in the project cash flow statement offer a negative value, while revenue items offer a positive value. For the cash flow statement of the project can be divided into pre-tax and after-tax cash flow statements, and the items in the table called cash items, while others are referred to as non-cash items (such as hidden bookkeeping items). Taxation: Each item of income is the quoted tax, including income tax, industrial and commercial tax, value added tax and mineral tax etc. Equipment: Including the cost of various types of equipment and buildings required for the project, which can be gradually deducted from operating income by depreciation. Depreciation: Refers to the loss and devaluation of equipment and buildings that take into account the actual value resulting from the passage of time in project implementation. Depreciation of the equipment does not appear in the cash flow table and is deducted directly from the taxable income tax when calculating income tax. Amortization: The concept is generated at the same time as the concept of depreciation. It means that the costs of the project assets (equipment and buildings) can be offset by the amount deducted from the proceeds over time. This is a method of phasing out equipment and other assets over a period of time, essentially putting the money invested in for a period of time and then gradually recycling it through taxes and hidden bookkeeping items.

5.2 Discounted Cash Flow

161

(9)

Book Value: Refers to the portion of the investment that is not currently deducted by depreciation or loss in the project accounts. It does not appear in the cash flow statement, but in bookkeeping. (10) Leasehold cost: Refers to the lease payments made to the owners of land or resources for the acquisition of certain land and other natural mineral resources necessary for the implementation of the project.

5.2.3 Cash Flow of Project Revenue and Expenditure The project generates a wide variety of income and expenditures during its implementation. Figure 5.1 shows its receipts and payments items and conditions. The project’s capital investment includes working capital and direct investment. Project implementation and operating cash flow include research and development expenditures, external investment expenditures, dividends to equity shareholders, income from intellectual property or patents, interest expense (or income) from capital lending, expenditures on operating costs of the project, income from sales of project products and expenses for paying taxes. Paying tax is a relatively important and complicated expenditure item for the project. The operation of the project received an annual gross profit, which must be subjected by a series of deduction for forming the amount of taxable income, based on which the income tax is subjected. Those deduction items for forming taxable income

Fig. 5.1 Cash flow of project revenue and expenditure

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from annual gross profit are depreciation, depletion, repayment, donation, installment deduction and prescribed cost recovery. Taxable income should be multiplied by the corresponding tax rates (including income tax, industrial and commercial tax, value added tax, mineral tax, etc.) for determining the taxes. The final net profit of the project is the gross profit minus the amount of various taxes.

5.2.4 Accumulated Cash Flow Chart The total changes of cash flow and its trend during the implementation of the project can be expressed by Table 5.2 (unit: $100 million). The time effect of cash flow can also be shown more clearly in Fig. 5.2. In the Table 5.2, we do not consider the impact on the discount rate. We only analyze the lapse of investment return from the input-output analysis. Table 5.2 shows the investment in a project over the years and its historical revenue. The project invested a total of $3.1 billion between 2000 and 2002. This investment should be offset by the annual income after the project was put into operation in 2003. In Fig. 5.2 we can see the intersection point A of cumulated investment curve and cumulated revenue curve, which represents the investment of the project that has paid back. We also find the point B, the intersection point of cumulated cash flow curve crossing zero, and it indicates that the corresponding project production payback period is 4.3 years, while the payback period for the entire project is 7.3 years. The cumulative cash flow chart of the project is important for understanding the overall economic status of the project. Especially in the investment decisionmaking during the project economic feasibility study stage. The cumulative cash flow chart of the project can clearly express the trend of cash flow of the project, indicating the recovery of the project investment, for the slope of the cumulative Table 5.2 The investment in a project over years Year

Investment

2000

1.0

−1.0

−1.0

2001

5.0

−5.0

−6.0

2002

20.0

−20.0

−26.0

2003

5.0

2004

Project benefits

Net cash flow

Cumulative net cash flow

0.5

−4.50

−30.5

3.0

3.0

−27.5

2005

8.0

8.0

−19.5

2006

13.0

13.0

−6.5

2007

22.5

22.5

16.0

2008

22.5

22.5

38.5

2009

22.0

22.0

60.5

2010

14.0

14.0

74.5

5.2 Discounted Cash Flow

163

Fig. 5.2 The production flow between cumulated investment curve and cumulated revenue curve

return curve indicates the speed of fund recovery. In addition, the start-up period of project recovery and the duration of full capital recovery of project investment are all important parameters of project investment decision.

5.2.5 Case Study Case 5-2 Economic Decision Analysis of Urban Drainage Network Town A has a secondary wastewater treatment plant with a capacity sufficient to treat the sewage of 25000 inhabitants. The main pipeline, which has a diameter of 0.559 m, was built in 1980 and has been in use for 30 years and is scheduled to be replaced during 20102020. The plan of town A is shown in Fig. 5.3. According to its general plan, another sewage treatment system in the suburbs of another 20000 inhabitants will be constructed and the economic analysis and decision-making of the plan will be carried out immediately. The drainage network plan of the scheme not only meets the needs of newly-built residential quarters, but also meets the forecast curve of urban population growth in Fig. 5.4. During the economic analysis and decision making, the loan interest rate for municipal construction is known as 8%, and the service life of all pipelines is 40 years. Considering that all drainage network solutions must simultaneously meet the needs of population growth in new neighborhoods and old towns in the overall town planning, in which case the social benefits of each option can be treated as the same. The only criterion for selection is the minimum investment in the program.

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Fig. 5.3 A city layout plan

Fig. 5.4 Prediction curve of urban population growth

The original price data based on economic decision analysis is shown in Table 5.3. According to the service life of the pipe network is 50 years; the compound discounted interest rate is 1/(1 + 0.08)50 = 0.0213. When the duration is more than 50 years, it can be ignored due to its small future value. In the following economic analysis, the construction of pipeline network is based on the number of residents it served, so it should be based on the population forecast of Fig. 5.4. Then the reconstruction plan includes:

5.2 Discounted Cash Flow

165

Table 5.3 Basic construction cost for pipeline construction Resident population

Sewage discharge 1000 m3 /day

Water pipe diameter (meter)

Construction cost ($/m) City average

Suburb

2,500 5,000

25

0.254

470.0

430.0

510.0

5.0

0.381

730.0

660.0

790.0

10,000

10.0

0.457

940.0

860.0

1,020.0

15,000

15.0

0.533

1,180.0

1,070.0

1,270.0

25,000

2.5

0.610

1,240.0

1,130.0

1,340.0

Dense residential area

(1) Construction of new pipelines instead of the old pipelines. (2) Construction of new pipelines along the old pipelines. The desired optimum solution must be the adaptability of throughput capability of the pipeline with the population growth in various stages defined in Fig. 5.4. Three proposals were discussed. Its investment cost plan is: Cn = C

(5.8)

In the formula, Cn is the investment of steel pipe in year n; C for a given diameter pipe cost (unit: $/m); ln is the planned pipeline length (in meters) for year n. The basic construction cost for pipeline construction can be referred to Fig. 5.3. Option 1: In 0-th year, build suburban drainage pipeline 3000 m with diameter 0.381 m. C0 = 660 × 3000 = 1980 ($thousand) In 10-th year, construct 7000 m pipeline diameter 0.610 m for replacing the trunk line. C10 = 1340 × 7000 = 9380 ($thousand) In 20-th year, parallel to drainage pipeline diameter 0.381 m built 20 years ago, newly build 3000 m suburban pipeline 3000 m. C20 = 660 × 3000 = 1980 ($thousand) In 40-th year, build suburban drainage pipeline 3000 m, diameter 0.381 m, replacing the pipeline diameter 0.381 m, built 40 years ago. C40 = 660 × 3000 = 1980 ($thousand) In 50-th year, build 7000 m pipeline diameter 0.610 m for replacing the trunk line built in 40 years ago. C50 = 1340 × 7000 = 9380 ($thousand) Table 5.4 shows the construction management and service conditions of Option 1 over the years. Then the total net present value of option 1 (in $1000) is: (NPV)1 = 1980 + 9380/(1.08)10 + 1980/(1.08)20 + 1980/(1.08)40 + 9380/(1.08)50 = 1980 + 4340 + 424 + 91 + 200 = 7035($thousand)

166

5 Economic Analysis in Project Management

Table 5.4 Construction management and service conditions of option 1 Construction year

Time(year)

Area

Drainage population

Demands for water supply and drainage within 10 years

Diameter (m)

Age (years)

2010

0–10

Suburb Urban area

5,000 20,000

2,500 15,000

0.381 0.533

New 30

2020

10–20

Suburb Urban area

5,000 25,000

5,000 20,000

0.381 0.610

10 New

2030

20–30

Suburb Urban area

10,000 25,000

7,500 22,500

0.381 0.381 0.610

New 20 10

2040

30–40

Suburb Urban area

10,000 25,000

10,000 25,000

0.381 0.381 0.610

10 30 20

2050

40–50

Suburb Urban area

10,000 25,000

10,000 25,000

0.381 0.381 0.610

New 20 30

2060

50–60

Suburb Urban area

10,000 25,000

10,000 25,000

0.381 0.381 0.610

10 30 New

Option 2: In the 0-th year, build 3000-m suburban drain with a diameter of 0.457 meters. C0 = 860 × 3000 = 2580 ($thousand) In the 10-th year, 7000 meters of pipes with a diameter of 0.610 meters will be replaced in the urban area to replace the trunk pipeline. C10 = 1340 × 7000 = 9380 ($thousand) In the 40-th year, a submarine pipeline of 3000 meters in diameter of 0.457 m in the city will be built to replace the sewer pipeline built in year 0. C40 = 860 × 3000 = 2580 ($thousand) In the 50-th year, a new diameter of 0.610 meters of urban water pipeline will be used to replace the water pipeline built in the 10th year. C50 = 1340 × 7000 = 9380 ($thousand) The net present value of option 2 is: (NPV)2 = 2580 + 9380/(1.08)10 + 2580/(1.08)40 + 9380/(1.08)50 = 2580 + 4345 + 110.9 + 20 = 7244 ($thousand) Option 3: In 0-th year, 3000 meters of suburban sewer pipeline with a diameter of 0.254 m will be built. C0 = 430 × 3000 = 1290 ($thousand)

5.2 Discounted Cash Flow

167

In the 10-th year, 3000 meters of sewer pipeline with a diameter of 0.254 m will be built in the suburbs; 7000 meters of sewers with a diameter of 0.610 m in urban areas replaced the original trunk pipeline. C10 = 430 × 3000 + 1340 × 7000 = 10670 ($thousand) In the 20-th year, 3000 meters of suburban sewer pipeline with diameter of 0.254 m will be constructed. C20 = 430 × 3000 = 1290 ($thousand) In the 30-th year, a further 3000 m of sewer pipeline with a diameter of 0.254 m will be built in the suburbs. C30 = 430 × 3000 = 1290 ($thousand) In the 40-th year, sewer pipe with a diameter of 0.254 m will rebuild in the suburbs to replace the 3000-meter pipeline constructed in the 10-th year. C40 = 430 × 3000 = 1290 (($thousand) In the 50-th year, 3000 meters of sewer pipeline with a diameter of 0.254 m will be built in the suburbs; 7000 m of sewer pipeline with a diameter of 0.610 m in urban area replaced the original ones built in the 10-th year. C50 = 430 × 3000 + 1340 × 7000 = 10670 ($thousand) For option-3, (NPV)3 = 1290 + 10670/(1.08)10 + 1290/(1.08)20 + 1290/(1.08)30 + 1290/(1.08)40 + 10670/(1.08)50 =1290 + 4940 + 277 + 130 + 59 + 220 = 6916 ($thousand) Compare the total net present value of the three options: (NPV)1 = $7035 ($thousand) (NPV)2 = $7244 ($thousand) (NPV)3 = $6916 ($thousand) We determine Option 3 for the selected option. Its characteristics are: (1) The primary pipeline is small, only to meet the population growth needs of 10 years, and make full use of the effective pipeline throughput capacity. (2) The increased capacity of pipeline to be added later also only meets the increment of population in 10 years. (3) Increasing amount of work in the suburban area, for as far as possible reducing the urban construction.

5.3 Profit of Investment 5.3.1 Profit Introduction In economic society, any project (except for some projects that are public welfare) aims to make profits. As mentioned earlier, the NPV input and output of the project dynamically reflects the actual economic activity of the project. The difference between the total project output and the total project investment is the actual

168

5 Economic Analysis in Project Management

profit (or loss) of the project. Since the purpose of the project is to make profits, we must control the economic activities of the project in each time step. We shall make adjustments and take measures timely whenever it goes abnormal. The concept of profit is to ensure that the dynamic output of the project can be as much as greater than the dynamic input, so as to achieving maximum profitability of the project.

5.3.2 Payment Period and Payback Period of the Project As shown in Fig. 5.2, the cumulated cash flow curve cross zero point B relates to the concept of payback period, which refers to the balance point of input and outlet; it measures by the period from the date on which the project begins to produce its output until to the balance point B in Fig. 5.2. While the project recovery cycle refers to the period from the beginning of the first input of the project to the cross zero point B of the cumulative cash flow curve. As the payment period is concerned, it measures from the date of first invest to the time that the investment cumulated curve in Fig. 5.2 turns to horizontal. The payback period of a general project is always longer than the payment period, but we always hope that it will try to get closer to each other. That is, we will try our best to put project funds into operation as soon as possible and generate output benefits. Because it causes reducing the area covered by the cumulative cash flow curve of the project with the horizontal axis in Fig. 5.2, it can save the cost of investment, meanwhile, reduce the project economic risk, by which it can eventually increase the probability of project success.

5.3.3 Net Present Value Profit—Investment Ratio In general, the investment ratio R is the ratio of project profit P over project investment I. It is the return on investment of the project. R = P/I

(5.9)

where in (5.9), R is pre tax profit investment ratio if P is pre-tax gross profit; and R is post-tax profit investment ratio if P is post-tax profit. Besides, all the profit P and investment I should use its net present value for obtaining the net present value profit-investment ratio R.

5.3.4 Discounted Cash Flow Rate of Return Considering the actual operation of the project, its economic status should evaluate by the discounted value of the input and output. The movement of the cash flow of

5.3 Profit of Investment

169

input and output represents the project economic activity, thus the profit-investment ratio of the project or the rate of return should also measured by the discounted cash flow. Here, the discount rate of cash flow is:       R = P /I = Sum p m − Sum i k /Sum i k

(5.10)

where R in (5.10) is the discount rate of the cash flow of the project; Sum [p m] is the sum of the sum of remittance values of the mth output or earnings of the project (m = 1, 2, 3, …); Sum [i k] is the kth income or capital investment projects, the sum of the value of the retreat (k = 1, 2, 3, …).

5.3.5 Project Installment Repayment In large-scale projects, especially in some projects with high risk of foreign cooperation, in order to reduce the investment risk, investment interviews often hope that part of the funds will be returned in the middle of the project after the smooth development of the project. The refund of funds can be either one or several times, which is called the installment repayment of the project. Under the relevant provisions, the installment repayment of the project can be exempted from taxation. We use Fig. 5.5 to analyze the project’s cash flow changes in the presence of installments. The intersection A of the cumulative investment curve and the cumulative return curve of the cash flow shows that the project has already recoup the input costs. It is also reflected as the point B beyond the abscissa of the cumulative cash flow curve. At any time beyond point B, the installment repayment of the project can be considered. If Ca is considered for repayment at point C of the cumulative cash flow curve in Fig. 5.5, the cumulative cash flow curve declines to D. As the project progresses, the accumulated cash flow curve drops to F when the cumulative cash flow curve rises to E, and then considers the repayment Cb . As the project progresses, the cumulative cash flow curve drops to H when the cumulative cash flow curve rises to G, and then considers the repayment Cc . After three repayments, as the project progressed, the cumulative cash flow curve continued to rise.

5.3.6 Tax on Projects The tax of the project has an extremely important influence on the economic activities of the project. It is closely related to the economic benefits and profits of the project. The actual income of the project during the operation period has the obligation to pay taxes to the state. The tax payable for project income includes all kinds of taxes

170

5 Economic Analysis in Project Management

Fig. 5.5 Changes in cash flow under installment repayments

and various tax rates. Common taxes include industrial and commercial taxes, stamp duty, land tax, mining tax and income tax. The former four are based on actual income or land size as the base. However, it is very important that the income tax is collected not on the basis of the actual income but on the basis of the actual income derived from the deduction of various factors and based on the “taxable income”. Factors to be deducted include operating costs, depreciation of equipment and houses, interest on loans, social charitable donations, investment recovery of risky projects, etc., as shown in Fig. 5.5. The project cost recovery will also be deducted from the cumulative cash flow curve at this time must be after-tax, otherwise the deducted cost recovery will be the corresponding cash because any project of the actual income should be taxable, only after deducting tax after-tax cash flow can handle investment recovery issues. The deduction of income tax is the basis of income tax deduction, deducted from various factors according to the actual income of the project in Fig. 5.6. Therefore, the amount of taxable income can be understood as the net income before tax. While the income tax payable is the product of taxable income and the corresponding income tax rate. Table 5.5 (unit: $millions) shows a seven-year project with an initial investment of 820, and the second year after the operation has 260 output per year. If you do not consider the tax, then the cumulative cash flow is shown in column (3); but after considering the tax factor, you must determine the amount of income tax payable (7) from the income (2): Income tax payable (7) = (2)-(4)-(5)-(6).

5.3 Profit of Investment

171

Fig. 5.6 The composition of the income tax payable for the project

Income tax payable for the current year (8) = (7) × income tax rate (= 0.46). Current year cash flow (9) = (2)-(8)-(5)-(6). Cash after tax for the current year (10) = cash flow from the last year (10) + cash flow for the year (9). The depreciation item (4) does not appear in the cash flow and is deducted only in the amount of income tax payable (7), which reflects the original intention of depreciation of funds in installments, and also shows that depreciation actually increases the project’s economic vitality and economy anti-risk ability. In contrast to column (3) and column (10) of Table 5.5, accumulated cash flow and accumulated after-tax cash flow show a huge difference of 4.2 times between 1000 and 237.61 in the seventh year of project completion. This shows that in assessing the economic benefits of the project must consider the project after-tax situation. This point must pay attention to the project manager.

5.3.7 Case Study Case 5-3 Overseas Project Cooperative Management Economic Model Guided by our country’s “going out” policy, our country’s technology and capital have gone abroad in large numbers. Under the principle of “mutual benefit and win-win”, our country cooperates with a certain African country to develop mining industry and set up a Sino-African joint mining company to develop copper mine. Figure 5.7 shows the proposed project-based cooperative economic model for the Sino-African joint mining company. The project is funded by a 5-year investment

(2)

(1)

260

260

260

260

260

260

260

2

3

4

5

6

7

−820

Income

Input

1

0

Year

1000

740

480 0

136.65

136.65

136.65

14.4

14.4

14.4

14.4

14.4

65.6

65.6

65.6

65.6

65.6

180.0

43.35

43.35

43.35

43.35

29.6

82.8

19.94

19.94

19.94

19.94

13.61

97.2

160.06

160.06

160.06

160.06

166.39

136.65

220

65.6

−40

14.4

150.4

26.22

(9)

Cash flow

−300

57.6

(8)

Income tax

−820 65.6

(7)

Income tax should be deducted

153.78

14.4

(6)

Loan interest

123.0

(5)

Fixed tax

−560

(4)

Depreciation

−820

(3)

Cumulative cash flow

Table 5.5 Cash flow table without discounting

237.61

140.41

−19.65

−179.71

−339.77

−499.83

−666.22

−820

(10)

After-tax accumulated cash flow

172 5 Economic Analysis in Project Management

5.3 Profit of Investment

173

Fig. 5.7 Joint project revenue share diagram

from 2011 to 2015 and will start to operate and be profitable from 2016 onwards. The project management plan is 15 years until 2030. Among them, 2016–2020 is the five-year cost recovery period, which will be the profit period for the project in 2021. According to the agreement, the profitability of the project may be allocated in kind according to the investment proportion. The mineral resources of the host country can be acquired by the Chinese party at the prevailing international market price. In the mode of Fig. 5.7, the abscissa indicates the year in which the project is operating and the ordinate indicates the percentage of profit distribution. The details of Fig. 5.7 are as follows: (1) The fixed tax (industrial and commercial tax, production tax, stamp duty, and others) of the project is handled in accordance with the tax laws of the country where the project is located and the relevant regulations. (2) Joint mining company’s project investment accounted for 49% of Chinese companies, local companies accounted for 51% of the shares handled, the Chinese side and to help solve the problem of local companies financing loans. In order to benefit and benefit the host country, only the P% of net profit for the year is allocated to both net profit distribution (in kind of the mineral products at the international market price), leaving (100-P)% as the country of residence national income. (3) P% is the percentage of the two parties’ net profits for the year; the value of P needs to be confirmed in the contract after negotiation between both parties. As the cost increases year after year, the P value may also become a declining

174

5 Economic Analysis in Project Management

ladder. However, for resource exploitation projects in mining development, the compensation for resource countries is reflected in the special Royalty Tax. (4) The contribution of China’s contribution refers to the contribution made by China in the construction of the project to help the economic development of the host country. After the project is profitable, it can recover some of the contributions according to the agreement. (5) As the operating expenses of the project are increasing year by year, the proportion of operating expenses will increase year by year with the same profit value.

5.4 Project Economic Analysis 5.4.1 Project Manager’s Business Philosophy Since the purpose of the project is to make profits, the project manager who is the project leader must grasp the dynamic economic activities of the project from time to time and adjust the dynamic inputs and outputs of the project in time. Project managers need to take steps to ensure the profitability that the final output of the project is greater than that of the input investment. Project managers need to schedule the project according to the reasonable arrangements for resources to achieve project goals. And through the management of the project to reflect the information flow, material flow and capital flow during the implementation process (including the consumption of funds and project revenue and profit). In fact, with the project information flow and material flow, the capital flow of the project will ultimately determine the profitability of the project. Generally speaking, it is to say the project is able to achieve its ultimate goal of economic profitability. Understanding the economic relationship of the projects will enable the project manager to solidly understand the business philosophy of the project, which is the basic qualification necessary for every project manager in the economic society. The purpose of the project is maximum profitability under the premise of investment security. In this way, the impact factors of the project economic assessment are naturally concentrated into two: IRR of project internal return rate and payback period. Their roles are: (1) The project always has the risk that the investment of the project can be out of the risk only if the investment payback period is reached. Therefore, in order to achieve the safety of the project, the project payback period should be as short as possible during the project economic assessment. (2) Taxation or not, or whether the consideration of the discounting will have a great impact on the payback period of the project. In the feasibility study of the major projects, the taxation and discounting rate of the project should be considered

5.4 Project Economic Analysis

175

in determining payback period of the project. However, it can be temporarily ignored in the initial project economic assessment, because at this time, the approximate magnitude concept of some economic indicators are enough, and it can be obtained by simplified cash flow calculation process and then considering an empirical reduction factor. This reduction factor can be obtained through the comparison of the cash flow with taxation and the discounting of the similar projects to the simplified calculation of the cash flow excluding the tax and discount. (3) The determination of IRR is generally based on the assumption of a default rate, which takes (0.10–0.25) according to the risk of the project. By setting the default rate, you can calculate the cumulative tax cash flow for the items as shown in Table 5.6. Obviously, its value at this time can not exactly zero. In order to find the corresponding IRR when the final accumulated tax cash flow of the post tax discount is zero, two different discount rates can be assumed to make the final cumulative post tax discount cash flow values positive and negative separately. Then, the IRR value can be obtained through interpolation. (4) The IRR can in fact fully reflect the substance of the economic potentiality of the project. That is, IRR not only reflects the profitability of the project, but also reflects the ability of the project against risks. (5) Comprehensively considering the IRR and payback period of the project, the profitability and safety of the project can be taken into account, and on this basis, the project economic evaluation can be comprehensively carried out.

5.4.2 Investment Decision Cases for Large Projects The feasibility study is considered for an overseas container terminal for investment decision making. Its fundamental parameters are as follows. (1) (2) (3) (4) (5) (6) (7) (8)

Terminal scale: The annual throughput of containers 1 million tons, that is, 100000 TEU of 10 tons. The estimated the port charge fee for each 10-ton TEU container is $550. The estimated operating cost of a 10-ton TEU container is $350/piece, among them, the fixed costs account for 30%. The estimated total construction investment is $60 million. It is estimated that the construction period will be in 2 years, and the crossing period between construction and production is only 1 year. Estimated annual investment is 30% in the first year, 40% in the second year and 30% in the third year. The estimated liquid capital is 25% of the operating income. Industrial and commercial tax will need to be paid after put into production, the tax rate is 8%.

176

5 Economic Analysis in Project Management

(9)

There is 60% of infrastructure investment that is self-raised by the investors, 40% of which is borrowed from banks by investor. The interest rate of concessional loans is 5%; repayments are made in the second year after the loans which are put into production; repayments are made once a year and repayments are equal in five years. (10) Liquidity is settled by means of short-term loans with an interest rate of 8% per annum. (11) The fixed assets shall be calculated on the average service life of 15 years. After the service life ends, they shall be depreciated by 10% of the original value. Based on the above basic parameters, the calculation details are shown in Table 5.6, and the payback period of the project is calculated accordingly. Since the project did not have any surplus before the 8th year, the project only showed a surplus of + $858000 up to the 9th year, while the current year surplus of the project is $1560000. Therefore, the project investment recovery period can be calculated by interpolation: 8 + (1560000 − 868000)/1560000 = 8 + 0.45 = 8.45 (year) In Table 5.7, for the loading and unloading, annual throughput and investment factors of the goods, the sensitivity analysis is conducted according to the positive and negative 10% and the positive and negative 20% respectively. As can be seen from Table 5.7, the loading and unloading fee of port container has a great influence on the payback period of investment. If the loading fee produces a positive or negative 10% float, the investment payback period of the project may produce the difference between the investment payback period from 7.09 to 11.25, and the larger the fluctuation, the more drama will be affected. Such as 20% of the fluctuation, it can cause 6.48–21.31 years of payback period difference. The increase of port throughput can be the income of the project, thus speeding up the recovery of investment. However, reducing the handling and fixing costs can also achieve the goal of increasing profits and accelerating investment recovery. As shown in Table 5.7, the annualized throughput fluctuates between plus and minus 10%, and the corresponding payback period can produce fluctuation range of 7.68– 9.53 years. Similarly, if the estimated investment is not accurate, with a deviation of plus or minus 20%, the payback period of the project may vary from 7.6 to 9.3 years. In summary, we can see that the loading and unloading fee of container has the greatest impact on the special payback period. With a 20% reduction in handling charges, the payback period is 21.31 years, which exceeds the service life of fixed equipment (15 years). When the other conditions remain unchanged, the payback period is 15 years and when the handling fee is accordingly reduced to 17.5%, that is, reached $454 per container, at this time, the project will not be profitable. Therefore, the determination of the handling fee is extremely important. In addition, lower port throughput and lower loading charges will lead to a rapid increase in payback period. This can be found in the trend of changes in cash flow in Fig. 5.2. Because in the early stage of the project, if the profit is low, the rising tendency of its accumulated cash flow curve is also weak, which will extending to the right cross zero point B, so as to extend the recovery period of the project.

480 190

6248

20,713

(4) Operating expenses (Thousand $)

(5) Interest: Loan interest (Thousand $) Short loan interest (Thousand $)

(6) Tax (Thousand $)

(7) Net income (Thousand $)

2,400

3,600

1,375

600

699

29,387

(2) Loan (Thousand $)

(3) Private capital (Thousand $)

(4) Recycling working capital (Thousand $)

(5) Recycling scrap value ($)

(6) Short-term loan (Thousand $)

Subtotal (Thousand $)

(3) Cash outflow

20,713

(1) Net income (Thousand $)

(2) Cash inflow

78,100

50,540

(3) Output value (Thousand $)

1,800

1,080

720

0

0

0

0

0

0

1

550

142

0

(2) Handling fee ($/box)

(1) Throughput (10,000 cases)

(1) Profit and loss calculation

Project/Year

2,400

36

1,440

960

−36

2,488

520

1,080

720

168

220 168

0

36 84

2,275

2,750

550

5

3

−36

36

0

0

550

0

2

Table 5.6 Shows the calculation of the project payback period

755

143

612

612

308

120 45

2,765

3,850

550

7

4

1,408

1,408

1,478

440

96 56

3,500

5,500

550

10

5

1,473

1,473

1,043

440

72 15

3,500

5,500

550

10

6

1,512

1,512

1,512

440

48

3,500

5,500

550

10

7

1,536

1,536

1,536

440

24

3,500

5,500

550

10

8

1,560

1,560

1,560

440

3,500

5,500

550

10

9

1,560

1,560

1,560

440

3,500

5,500

550

10

10

1,975

600

1,375

0

0

0

0

0

0

0

18

(continued)

1560

1560

1560

440

3500

5500

550

10

17

5.4 Project Economic Analysis 177

2,400

699

3,600

15,313

29,387

(6) Repay own funds (Thousand $)

Surplus (Thousand $)

Subtotal (Thousand $)

1,375

(3) Liquidity (Thousand $)

(5) Repay the short loan (Thousand $)

6,000

(1) Infrastructure investment (2) (Thousand $)

(4) Repay the loan (Thousand $)

0

Project/Year

Table 5.6 (continued)

1,800

1,800

1

2,400

2,400

2

2,488

688

1,800

3

755

480

275

4

1,408

516

480

412

5

1,473

183

480

6

1,512

1,032

480

7

1,536

1,056

480

8

1,560

858

702

9

1,560

1,560

10

1560

1560

17

1,975

1,975

18

178 5 Economic Analysis in Project Management

Variations change factors

loading fee

Annual throughput

Investment

Ordinal number

1

2

3

9.3

7.13

6.48

+20%

Table 5.7 The calculation of the different recovery period

8.88

7.68

7.09

+10%

8.45

8.45

8.45

0

8.02

9.53

11.25

−10%

7.6

10.95

21.31

−20%

−0.043

+0.52 +0.12

−0.11 −0.05 +0.043

Average −1%

Average +1%

Remarks

5.4 Project Economic Analysis 179

180

5 Economic Analysis in Project Management

5.5 Project Cost Management 5.5.1 Introduction to Project Cost Management The project cost management with the project schedule management, project quality management and project procurement management consist of the main components of project management, which are also the life-and-death factors of the project. The main tasks of project cost management are to guarantee the fulfillment of predescribed tasks of the project within its budget plan for approaching pre-defined goals of the project. As we know, the processes of project management essentially are the processes of information flow, capital flow and material flow; the processes of reasonably accessing resources (man power, materials, capital, time, information and management) are for the fulfillment of project tasks. In general sense, the resources of project such as HR, materials and capitals can be represented by currency; thus we can use currency value to represent the expenditures of above mentioned resources of the project, representing the cost by currency value and using currency value for cost management of the project. Project cost management can be presented by Fig. 5.8. It includes: (1) General resource planning of the project—estimate the kinds and quantities of different resources necessary for the completion of the project. (2) The cost estimation of the project—estimate the costs of different resources necessary for the completion of the project. (3) The cost budgeting of the project — allocate the estimated general cost to different items of work or working packages, forming the cost budgets of different items of work, which is the fundamental basis of cost forming of the project. (4) Project cost control—dynamically control the variation of budgets during the implementation of project. The task of project cost control is to control in each time interval of the project implementation the actual cost should less than budget value, and the budget value should less than the estimation of the project. In real world failure project, the actual cost used to be much higher than the budget value, which directly causing the breakoff of the capital chain, consequently, the interruption of work and even worse, the dreadful collapse of the project. Therefore, one of the most important tasks of project management is carefully carry out the project cost management, which is tightly related to schedule management, quality management, variation management and its inter-relationship. Once the project objective is identified, we need carefully to carry out the following works: (1) Carry out the “scope management”, “work breakdown structure” of the project and make layout of the “planning/scheduling”. (2) Preliminarily estimate different resources which is necessary to the implementation of the project, conversed it into currency, to form the estimation and budget of the project.

5.5 Project Cost Management

181

Fig. 5.8 Project cost management

(3) Input the capital according to project schedule to form the capital input plan of the project, which is corresponding to the punctual work to be done in series. (4) Comparing those scheduled punctual works with the works actually done, one may obtain the discrepancies between actual expenditure with the scheduled budget; and control these dynamic discrepancies is the very basis of project cost control.

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5 Economic Analysis in Project Management

5.5.2 Resource Plan of Project During preparing of the project estimation, project resource plan, which is formed by “scope management” and “work breakdown structure (WBS)” of the project, is firstly to be considered. The “scope management” defines the works necessary to be completed for fulfill the project. The scope of the work must maintain in its completeness and follow to “no-more-no-less” principle, for any additional work from necessary will cause waste, nevertheless, and any work losing from the scope analysis will cause the project unachievable. It is the reason that the scope management becomes pre-condition of the project resource plan, thus the WBS can provide the details of organizing those jobs and working packages defined by scope analysis for implementation. It is important of resource information and corresponding historical materials during resource planning. The resource information provides us all kinds and prices of different existing resources for the completion of the project; such as whether the project necessary labors and technicians can be available on time both in number and quality? Whether the installation and facilities can be supplied on time both in number and quality? The historical materials could provide valuable information from the past similar project, thus support the compilation of resource plan with evidences and necessary reference information, and it also beneficial to the development of resource planning. During resource planning of mega projects, it is necessary to consider the realistic problem of how to acquire these resources. For instance, the lending of major facilities and installations during large scaled offshore oil exploration project; the comprehensive parallel working of major technical talents during multi-project development; as well as the procurement strategies of different materials and equipments in different stages. Since the scale, scope and environment condition of various projects are different with each others, there will be different contents and characters in resource plan for different projects; meanwhile, the judgment by experts or “brain storm” method and the historical materials will be the decisive factors. The output of the project resource plan includes the number and available time of different kinds of resource (man powers, equipments and materials) provided for different work (or working package). Ultimately, the resource plan must complete a supply schedule for the lowest necessary quantities of different resources accommodating to WBS planning and schedule, so as to facilitate the procurement work as well to forming the final cost estimation of the project.

5.5.3 Project Cost Estimation The project cost estimation (sometimes it called the assessment of project cost) is the basis of project cost management. It means to sum up different resources necessary from the activities based on scope management and work breakdown structure WBS,

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183

and then converted into currency for future planning and accessing usage. Project cost estimation is to make an assessment of expenditures necessary for the completion of the project. For determining the amount of project cost estimation, corresponding market price standards (such as “quota” and “standard price” for different resources) are needed. If there are no such available standards or quotas, the past reference materials (such as materials of related similar projects, cost data base, etc.) can be used for estimation. For mega projects with long-term duration, it is necessarily to consider price inflation of materials and the changes of those factors in staff salary as well as in the re-structuring of project team organization. The development of project cost estimation can be in different ways: the “topdown estimation” approach of distributive evaluation and the “bottom-up estimation” approach of cumulative estimation. The characters as well as the advantages and disadvantages of both above mentioned methods are shown in Table 5.8. Except the approaches mentioned above, there is possible to obtain project cost estimation through parameter modeling or by special software. The previous one is based on past experience of similar projects to abstract the characteristic parameters of the project, and evaluate the project cost through mathematical modeling of these characteristic parameters, which can rather straight forward obtain the evaluation of project cost estimation; the mathematical model could be rather simplifier or rather complex, which may cause big diversify on the exactness of the final solution. Moreover, more practical experience by past historical samples is needed by the model builder on hand. In recent years, the project cost estimation through specific software has more popularly taken place, due to computer efficiency in high speed; the result can be easily obtained. At the moment, there is plenty of commercial Table 5.8 Project cost estimation Method of cost estimation

Advantages

Disadvantages

“Top-Down Estimation” approach of distributive evaluation

Distribute the total project cost estimation to each WBS fined working package in hierarchical layer, such as to assess the distribution of the expenditure. Besides, much time saving during the assessment of distribution of the total cost

Just based on the experience of the project operator to distribute the total project cost estimation to each WBS fined working package in hierarchical layer. Mistakes may be occurred when deficiency of experience by the project operator, or lack of information support

“Bottom-Up Estimation” approach of cumulative evaluation

For the cost of each working package is determined by individual project operator, so there will have minor errors. It also will have less contradiction in later project implementation

“Bottom-Up Estimation” of cumulative evaluation will spend much longer time; Besides, it needs enforced monitoring for avoiding enlargement of the cost on individual working package by the project operator due to local interests

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5 Economic Analysis in Project Management

Fig. 5.9 The project cost estimation breakdown structure

software available in the market, and the software supplier has cumulated a lot of practical samples for project cost estimation and built corresponding data bases for project cost estimation. So, for small and median construction and manufacturing project, one may obtain the project cost estimation directly through computer aided software could be an acceptable choice. In accordance with the WBS, the project cost estimation is obtained by assigning to the individual working package at its WBS hierarchical structure with corresponding cost. Figure 5.9 shows the project cost estimation breakdown structure to a new product with the cost during whole project life-cycle starting from R&D to production and then put to the market. According to Fig. 5.9, in Fig. 5.10 the bar chart shows the schedule of the project providing the duration of the project will last for one year. Combining the Figs. 5.9 and 5.10, we obtain the cost distribution in each project item with each time interval; the project cost management is then entered to project cost budget stage.

5.5.4 Project Cost Budget Project cost budget is aimed to set up a reference value in order to compare real time cost expenditure during project implementation to this value for achieving control and assess the cost management situation. Project cost budget is the cost reference

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Fig. 5.10 The bar chart schedule of project activities

value, formed by distributing the cost from project cost estimation to each different working package, and taking account of various risks during implementation. Project cost budget is based on project cost estimation; therefore, it is also based on scope analysis and WBS. In project cost budget, the cost of risk management should take into account, for it is related to one of the critical factors that can be influenced to the success or failure of the project. Since uncertainty is the source of the risk during project implementation, such as the cost deviates to the reference value is directly caused by the existence of these uncertain factors; besides, the mistakes of the project operator, delay of scheduling time, variation of project objectives, floating material prices, floating staff wages and the errors of project cost estimation etc. It is also reasonable to add 10–20% risk management cost on the project cost estimation for the project cost budget. Since it could be directly causing the overspend of real cost to the reference value, if we don’t take such a consideration; then the reference value of project cost may be underestimated, which thus may loss control of the cost management and finally causing project failure. Based on project cost budget, Fig. 5.11 presents a cost budget cumulative curve with time as the cost reference for real time control. The horizontal-axis of Fig. 5.11 represents time and the vertical axis represents the percentage of cost exhausted.

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5 Economic Analysis in Project Management

Fig. 5.11 Cost budget cumulative curve with time

The S-curve in Fig. 5.11 forms the reference curve of project cost budget, the corresponding curve S1 is formed in earliest beginning time; and S2 is formed in the latest beginning time. S curve shows the percentage of budget exhausted during the time; it measures and controls the cost expenditure. Such as when cumulated budget exhausted is i%, correspondingly, for curve S1 and S2 , its cumulated time will be t1i and t2i as shown in Fig. 5.11. In fact, the curve S is not unique, any curve Si among time ti and (t2i –t1i ) can be produced within the boundaries of S1 and S2 . Thus any curve S among S1 and S2 can satisfy the control bound of managing cost budget. Therefore, if we distribute the Fig. 5.9 cost expenditures according to time interval to the work packages in Fig. 5.10; then cumulating it in month, we can obtain Fig. 5.12 (unit: $thousand), which involves all information concerning to cumulated monthly cost budget.

5.5.5 Project Cost Control The project cost control is aimed to control the real cost of the project during its implementation. By means of setting up a reference value, the project real cost control is realized by control the varying cost around this reference value within an acceptable range. Therefore, project cost control is an important managerial affair for realizing minimization of cost and maximizing the project value. The task of project cost control is during the implementation of project, dynamically making the real cost under control and within allowable range of the budget through the efforts of monitoring and management. As the progress of project implementation, there must be some variations of real cost, upon that reason, one needs to continuously monitor and control the real cost of the project, and correspondingly revise its cost estimation and budget. Moreover, it is necessary to predict the final

5.5 Project Cost Management

187

Fig. 5.12 Cost expenditures in month

cost during project completion for appropriate arrangement. In fact, the contents of project cost control are as following: (1) Feed-forward control of different possible influence factors which may cause cost changes. (2) Mid-way control of the project cost during project implementation. (3) After-completion control of the project real cost. The key is to control the cost variation factors and approaching the object of project cost control through feed-forward control, mid-way control and after completion control. The geographical explanation of the essentials of cost control can be referred to the constantly revision of S curve shown in Fig. 5.13. We put two curves Supper and Slower above and below the reference curve of cumulative project cost budget S with the deviation ; the real cumulative project cost budget curve will swing among the upper bound of cumulative cost budget curve Supper and lower bound curve Slower . Whenever the real cumulative cost budget curve touch whether Supper or Slower , the

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5 Economic Analysis in Project Management

Fig. 5.13 Cost control and its rectification

cost control process will be launched immediately for rectifying the deviation. In Fig. 5.13, the cost control rectification is occurred in time t1 , t2 , …, and t6 . The project cost control is tightly related to project quality and project schedule. If problem is happened in project cost control, it will subsequently cause problems in project quality and project scheduling, and consequently the losses of project in the latter stage. Therefore, it is our obligation to find out the cost control problem in advance and solve it timely, so as to effectively control the cost and achieving our project goals.

5.6 Earned Value Method (EVM) Analysis and Applications 5.6.1 Earned Value Method (1) Introduction to EVM In order to carry out the integrated management toward cost and schedule, after a longterm studies, the US military has launched a so-called “cost/schedule control system criteria” for the integrated management of cost and schedule. This achievement has then opened to the public in 1996, and named as “earned value method”. EVM is a measuring method for estimating the real cost of the project performance. In modern project cost management, it is an important approach of integrated control for project real cost and project schedule performance. The basic idea of EVM is introducing an intermediate variable “earned value” for investigating the changes of project cost with project schedule performance, such as to control the real cost of the project and reasonably predict its future development. Since the key problem in project cost control is to analyze the cost situation on time, and to find

5.6 Earned Value Method (EVM) Analysis and Applications

189

out the differences of real cost with the budget one, so as to take measures for rectify the deviation before the cost situation is getting further worse. (2) The definition of EVM The formula of EV is: The earned value EVWP × BC

(5.11)

where: work performed (WP) representing the work already done; budget cost (BC) representing the budget cost of the work done. (3) a. b. c.

Terminologies of project earned value method Budgeted cost of work scheduled (BCWS). Budgeted cost of work performed (BCWP). Actual cost of work performed (ACWP), which is the real project actual cost AC, obtained by the multiplication of project unit cost and project work performed. d. Earned value (EV) of project; which is the intermediate variable of project cost multiplied by project rated cost from budget and the project work performed. e. Plan value (PV); the plan budget value of project performance, obtained by multiplication of project budget cost and project work performance. f. Budget of actual completion planned (BAC). g. Estimation of actual completion (EAC). h. Estimation till completion (ETC), the necessary budget until the completion of project. For implementing EVM, following terminologies are introduced:

5.6.2 Relation Between Cost and Schedule The parameter changes between cost and schedule in project cost management are: (1) Cost variance (CV)

CV = BCWP − ACWP

(5.12)

It indicates the absolute deviation of budget cost of work performed and the actual cost of work performed, which is caused by the combined variation of project cost from budget value to actual value and the schedule from planned work to actual work performed.

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5 Economic Analysis in Project Management

(2) The cost deviation percentage (CDP) CDP = (BCWP − ACWP)/BCWP × 100

(5.13)

In (5.12) and (5.13), the negative value means cost exceeds to the budget. (3) Schedule variance (SV) SV = (BCWP − BCWS)

(5.14)

It indicates the budget cost of work scheduled and the budget cost of work performed (earned value). It also reflects the influence to project cost by the deviation of project planned work and the work already performed. If (5.14) is negative, it means the project schedule which has defects and needs to be rectified. (4) Cost performance index (CPI) CPIEV/ACBCWP/ACWP

(5.15)

CPI represents the relative deviation of actual cost of work performed with the budget cost of work performed; it also represents the performance of cost management. Usually, the CPI should be greater than 1.0, otherwise, there will be something abnormal. (5) Schedule completion index (SPI) SPIEV/PVBCWP/BCWS

(5.16)

SPI represents the ratio between project budget coast of work performed (earned value) and project budget cost of work scheduled (cost), which is the influence of the variation of project work performed to project cost by means of intermediate variable “earned value” in currency.

5.6.3 Graphic Analysis of Project Earned Value Method 1. Project earned value analysis Figure 5.14 shows the relation of different variables in earned value analysis for the project cost management and project schedule management. Where one may find the deviation of project cost, find out whether there are problems in cost management or in schedule management; that is the key for taking corresponding measurements.

5.6 Earned Value Method (EVM) Analysis and Applications

191

Fig. 5.14 The relation of different variables in earned value analysis

2. Prediction analysis of cost management Prediction of the future development trend of project cost is one of the important tasks in project cost management. Figure 5.15 shows the tendency of future cost development trend, which may enhance the foreseeing ability of project cost management and make the later measures more pertinent. All above mentioned can be realized through earned value analysis.

Fig. 5.15 Prediction of project cost analysis

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5 Economic Analysis in Project Management

Figure 5.14 and Fig. 5.15 show that, through the theory of earned value method it is possible to predict the cost and schedule situation in the sixth month (project completion time) when in the third month. There are three different predictions as follows. (1) Predict EAC the cost when project completion, it reads: EAC(ACBAC − EV)/CPI

(5.17)

where: AC—The actual cost from project start up to right now; BAC—The total budget cost; EV—Earned value at the moment. (2) Predict the budget cost of uncompleted work: EACACBAC − EV

(5.18)

(3) Predict total project budget cost after completion of remain work: EACACETC

(5.19)

where: ETC is the cost of “estimate till completion”. To predict and analysis the future project cost parameters’ development tendency based on present cost data has important value for the project cost and schedule management. However, the prediction of cost development tendency needs enough data accumulation; usually, the favorable result can be achieved only if there is more than 15–20% of project work performed. 3. Evaluation curve by earned value method As shown in Fig. 5.16, the vertical axis represents cost and the horizontal one represents time. BCWS is the budget cost of work scheduled; which increases with the time continuously and approaches to its maximum until the end of the project; so it reveals to an “S” shape and thus called “S” curve. Here ACWP represents the actual cost of work performed, and it is also a time parameter of the schedule and increases continuously as the project progressing; so it also reveals as an “S” shape curve. The cost evaluation by using EVM can be performed such as in Fig. 5.16 with CV < 0, SV < 0, which shows that the project has some unfavorable situations in exceeding in budget and schedule delay, then corresponding measures should be taken.

5.7 Cost Management for Multiple Investment Projects

Cost

193

BCWS Current date ACWP CV BCWP

SV

Time Schedule delay Fig. 5.16 Evaluation curve by earned value method

5.7 Cost Management for Multiple Investment Projects Nowadays, almost all large enterprises are operated in multi-project mode, so the cost management is correspondingly according to multi-project cost problem, and the optimization of resource distribution will be the key issue. Resource distribution problem is concentrated to capital distribution which will focus on as much as possible to save the cost of capital. This paragraph will quantitatively analyze the investment control of the enterprise through the establishment the multi-project optimum capital allocation model, aimed to approach cost minimization of capital (resources) in multi project investment.

5.7.1 Establishment of Multi-project Optimum Capital Allocation Model Most of the modern enterprises are facing multi-feasible project for investment, but limited by investment capital (resource constraint), it is impossible simultaneously to take all of these feasible projects. Thus it is the need for the enterprise to operate and make reasonable arrange in providing necessary capital (resource) in sufficient number and on time during the implementation of possible multi-projects, so as to satisfy maximum utilization rate of the capital (resource) under the constraint of capital availability. Assume there are three feasible projects to be completed within certain time duration and being constrained by the total investment R0 .

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5 Economic Analysis in Project Management

Fig. 5.17 The individual investment curve

We define: R0 R R T0 AR n1 n2 n3

Total investment constraint; Surplus capital ($100million); Current payment needed ($100million/month); Total time period; Surplus capital area ($100million/month); Total investment time period of project-1 (known as 36 months); Total investment time period of project-2 (known as 36 months); Total investment time period of project-3 (known as 36 months)

The definition of optimum investment model for multi-projects is: under the total capital constraint R0 , the starting time of tree projects are T1 , T2 , T3 respectively, finding out the minimum surplus capital area AR , or the maximum investment capital utilization rate. ⎧ ⎫ ⎧ 1 ⎨ T1 ⎬ ⎨ t0 ≈ T1 t02 ≈ T2 , T = T2 ⎩ ⎭ ⎩ 3 T3 t0 ≈ T3

(AΩ R → min)

(5.20)

The individual investment curve R1 , R2 , R3 of project 1, 2 and 3 (as multi-projects) are presented in Fig. 5.17a–c, which can be expressed in matrix form: ⎫ ⎫ ⎫ ⎧ ⎧ ⎧ r11 ⎪ r21 ⎪ r31 ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ r r r ⎪ ⎪ ⎪ ⎪ ⎪ 12 ⎪ 22 ⎪ 32 ⎪ ⎪ ⎪ ⎪ ⎪ ⎬ ⎬ ⎬ ⎨ ⎨ ⎨ r r r 13 23 33 , R2 = , R3 = . R1 = ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ .. ⎪ .. ⎪ .. ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ . ⎪ . ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ . ⎪ ⎪ ⎪ ⎭ ⎭ ⎭ ⎩ ⎩ ⎩ r136 r236 r336

(5.21)

where: r11 , r12 , r13 , …, r136 , represent the monthly investment of project-1 during the 36 months;

5.7 Cost Management for Multiple Investment Projects

195

r21, r22 , r23 , …, r236 , represent the monthly investment of project-2 during the 36 months; r31 , r32 , r33 , …, r336 , represent the monthly investment of project-3 during the 36 months. Obviously, if the investment period of any project varies, only perform the corresponding change in (5.21). Under multiple project condition (three projects), the cumulative investment curve R = R(t) = R1 (t) + R2 (t) + R3 (t)

(5.22)

Then ⎧ ⎫ 0⎪ ⎪ ⎪ ⎪ ⎧ ⎪ ⎧ ⎫ ⎫ ⎪ ⎧ ⎫ ⎪ ⎪ r11 ⎪ 0⎪ ⎪ 0⎪ ⎪ ⎪ ⎪ ⎪ 0 ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ r 0 0 12 ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ 0 ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ . . r + r 13 21 ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ . . 0 ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ .⎪ .⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ r + r 14 22 ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ r ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ 11 ⎪ 0 0 ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ . ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ . r ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ 12 . 0 r ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ 21 ⎬ ⎨ ⎬ ⎨ ⎨ ⎬ ⎬ ⎨ r 13 r31 = r17 + r25 + r31 Matrix size (m x 1) r22 + + R= ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ..⎪ ⎪ ⎪ ⎪ r18 + r26 + r32 ⎪ ⎪ ⎪ r32 ⎪ ⎪ r23 ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ . ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ r33 ⎪ ⎪ .⎪ ⎪ ⎪ ⎪ ⎪ ⎪ . ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ . ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ . r 136 ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ . . ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ . ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ . 0 ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ..⎪ r . 236 ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ .⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ 0⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ 0⎪ r336 ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎩ ⎪ ⎭ ⎪ . ⎩ ⎭ ⎩ ⎭ ⎪ ⎪ ⎪ ⎪ . 0 ⎪ ⎪ 0 0 . ⎪ ⎪ ⎪ ⎪ ⎩ ⎭ 0 (5.23) In (5.23) the operation duration of multi-project are m months, and R also represents the monthly investment strength of multi-project (three projects) during m months.

5.7.2 Establishment of Mathematical Model Determine R1 , R2 , R3 ⎫ R1 = R1 (t1 ) Matrix size(1 × n 1 ) ⎬ R2 = R2 (t2 ) Matrix size(1 × n 2 ) ⎭ R3 = R3 (t3 ) Matrix size(1 × n 3 )

(5.24)

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5 Economic Analysis in Project Management

Then the monthly investment matrix for 3 projects within the investment period R = R1 (t1 ) + R2 (t2 ) + R3 (t3 )

(5.25)

When there are n projects, the total monthly surplus resource R ⎫ ⎧ R(t1 ) − R0 ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎬ ⎨ R(t2 ) − R0 ⎪

Ω R Take positive = . ⎪ ..⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎭ ⎩ R(tn ) − R0   Ω(ti ) = [R(ti ) − R0 ] > 0 AΩ(ti ) (i = 1, 2, . . . , n) Ω(ti ) = 0[R(ti ) − R0 ] ≤ 0 AΩ = The total area of Ω R =

n 

Ω(ti ) → Min

(5.26)

(5.27)

(5.28)

t=1

Where R is the function of the starting time of n projects T1 , T2 , …, Tn .

5.7.3 The Realization of Mathematical Model by Calculation Definition: R(ti ) (i = 1, 2, 3, …, n), the investment curve of ith project; A(ti) (i = 1, 2, 3, …, n), is a function of capital investment starting time T1 , T2 , …, Tn . For (5.28) is a minimum value obtained by the computer arithmetic solution of n-dimensional simultaneous algebraic equation through separately assign the first derivatives to T1 , T2 , …, Tn which equal zero. The procedures of the solution can be illustrated as following description. (1) Determine the monthly budget of capital investment for each project. (2) According to monthly budget investment one could regress it into a digitalized curve with the variable of project starting time Ti (i is the series of multi-project). (3) (5.28) is the minimum principle of A(ti) , through ∂ AΩ(ti ) /∂ Ti = 0, (i = 1, 2, . . . , n) to form the n simultaneous algebraic equations with n-variables (i is the series of multi-project). (4) The solution of above mentioned n simultaneous algebraic equations with n variables (i = 1, 2, …, n), are just the investment starting time of the project Ti (i) (i = 1, 2, …, n). (5) List all the investment curve R(ti ) (i = 1, 2, 3, …, n) according to starting time Ti (i = 1, 2, …, n) and calculate A(ti) according to (5.25) through (5.28).

5.7 Cost Management for Multiple Investment Projects

197

(6) Calculate multi-project optimum monthly investment budget table according to (5.25). (7) Invest capital of each n projects based on the multi-project optimum monthly investment budget table, the maximum capital utilization rate can be achieved under the capital constraint of Ro .

5.7.4 Case Study Case 5–4 Sample of Optimum Investment of Multi-project Program During sub-way construction of city S, three projects must be built in parallel, and the huge program needs huge amount of capital investment, so how can we strengthen the investment control in order to optimize the investment cost and improve the capital efficiency? The three subway projects is called subway line-I, subway line-II and subway line-III respectively. Table 5.9 (Unit: $) shows the monthly construction investment within 3 years of construction period: Substitute data of above table to the model of optimum capital control (5.28), supposing the duration of completion of three projects (n = 3) is 45 months (m = 45) and the total capital constraint is R = 45 billion USD and monthly investment capital constraint Ro = 1.0 billion USD. According to the model of optimum capital allocation, we obtain the investment curves of project I, II, and III as shown in Fig. 5.17, where the starting time T1 of project I is 1.0; the starting time T2 of project II is 8.0; and the starting time T3 of project III is 2.0. According to the principle of maximum capital utilization of multi-project program and under the constraint of total monthly investment and total investment, Fig. 5.18 represents the surplus capital AR that is 201.3 ($100million/month); yet the original AR without capital investment optimization is 250.7 ($100million/month), that means the difference or saving is 49 ($100million/month). The capital cost saving according annual interest rate 7% will be approximately (4900000000/12) × 0.07 = 2.858 ($million), and it is the investment cost saving through multi-project program investment management. At the moment the subway construction is entering in a high-speed growing stage in many big metropolitan city, so the metro networking construction needs to construct multi-projects in parallel, and the huge capital investment has raised much higher requirement of optimum capital distribution and allocation of the rail transportation construction.

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5 Economic Analysis in Project Management

Table 5.9 The monthly construction investment

Subway line-I

Subway line-II

271622169

152386709

160024030

Month 2

67157185

317372815

22795827

Month 3

435160699

99398069

92525165

Month 4

174170962

84303734

53207709

Month 5

266522016

70347806

137079114

Month 6

248737749

342104844

94689900

Month 7

125618838

342714328

14578831

Month 8

187023265

128052663

211968022

Month 9

316716687

192325990

239517255

Month 10

123183362

156569212

86233437

Month 11

1042406192

216586954

110726641

Month 12

729368261

279855799

167716836

Month 13

208799075

206375533

125404424

Month 1

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Fig. 5.18 The surplus capital and capital cost saving

5.8 Project Financial Management Under Internet Era 5.8.1 Project Financial and Cost Management Under Internet Era The characteristics illustrated by PMBOK from PMI is that the function of project management is to overall planning, synergy and control all the activities harmonically, since it means rising efficiency of work and simultaneously saving the cost. Among them, the management of planning and scheduling, causal to the investment and cost management will play the key functions to the success of the project. As now we are entering the Internet digital era, the characteristics of project management and the cost management under the digital era will remain fundamental principle of project management the same. It emphasizes on system analysis to numerous factors and objects encountered during management for qualitative handling and structured methodology to deal with internal anfractuosities issues step by step for quantitative project implementation. The former organization in different layers of management is no longer necessary under Internet era; it can be unified on a same platform, where information can be straightforward transferred cross the layer without any interruption, thus increasing the management working efficiency. Since as based on information technology, we know management which is just a form and skeleton of information transferring. It seems obvious that the whole project can be mobilized through planning and scheduling management. For it directly affects to the cost expenditure, consequently, it raise the invest capital and cost control as the project is going forward to its completion.

200

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The digitization of planning and scheduling management can directly promote the digitization of capital investment and cost control and management. It will form the basic framework of digitization transformation of conventional project management into the new version of digital project management, which is exactly the project management under Internet era. The performance of project management under Internet era is realized by a series of information transfer driven by corresponding professional application software to carry out a series of managerial actions for the project implementation. Actually, the role of the software is to perform certain specific functions in the project management; moreover, if it is needed, one may also involve certain specific operations, in which the specific software of artificial intelligence, so big data search (or prediction) and machine learning can also promote to realize the operations. For implement digital project management, it is necessary to develop a series of professional software according to managerial procedure for use, and build up corresponding data base, knowledge base as the supporting infra-structure. The project is started with sequentially input project information such as capital investment schedule and cost budget table, etc. As the progress of project implementation, the current data will be collect and input to the system and the corresponding software will work for certain objectives, meanwhile, all the data/information transfer will be realized on the same platform from the very beginning until to the very end under Internet condition.

5.8.2 The Existing Difficulties for Digital Cost Management Since the maturity of digital project management is far from enough to form a reliable and matured framework system and carry out the cost management work solely in digital manner. It is recognized that the architecture of digital systematic manipulation in comprehensive cost management has not yet established. The difficulties for the digital capital investment and cost management are sourced by following factors: (1) Digital cost management is followed up to planning and scheduling management, and poor digital planning and scheduling work will certainly influence to the quality of digital cost management. (2) Due to poor scheduling work, it always misleads to a changeable scheduling due to dis-coordination of related works, and such uncertain in cost expenditure will influence to the quality of cost management. On the other hand, the project manager cannot properly manage the schedule and come apart with the actual situation, so it forms instability of the cost situation and makes it confusing. (3) The data collected during different process with different definition, it causes internal defaults and finally influence to the quality of cost management. (4) For software is just the tool for implementation of digital management, its role is just reflect the reality but in digital form. The quality of software depends on whether it is coincide with the professional processes. The problem is the

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interface communication between project management people and software development people cannot fully and smoothly understand with each other, and it causes the default of adaptability in software with the practical situation.

5.8.3 Some Considerations in Digital Cost Management Toward the drawbacks in practice of the digital investment and cost management, some considerations must be considered during its implementation. Such like for the purpose of establishing a real digitized investment and cost management system, it is an urgent need to develop an organizational systematic series of cost management software in different stage of investment and cost management for replacing independent and in a terrible mess commercial software and tool software existed in the market nowadays. A unified solution system software base for investment and cost management should be developed. The whole system can be divided into two parts: the basic system for the fundamental operation of conventional investment and cost management and control; and for the sake of openness, the another part mainly an application software base dealing for different specific issues, which can be called whenever practical operation of individual case is occurred. For the systemization of digital investment and cost management, it seems necessary to form a “close ring online solution” for the management and control. i.e.: first of all, the standardization of operation framework of investment and cost management procedures; secondly, identifying the processes of cost management and control in different stages of project implementation; thirdly, “close ring solution” online is pursued. In every step of real cost expenditure it needs to compare with budget one, regularly process feedback, early warming of the status if exceeds the bound from beginning to the end of project completion. The high quality investment and cost management software system must be integrated the system procedures of milestone planning, guidance planning, control planning and implementation planning. The top down procedure in software development according to the investment and cost management/control in different stage should be adopted. Afterward, checking and identifying the procedure are followed. The bottom up procedure should be performed for cost status feedback, examine and approval. Based on the digitization of project scheduling management, the cost management software system should guarantee all the procedures of cost management accommodating to the schedule management. Starting from project estimation to budget plan one needs to compare the actual cost expenditure with the corresponding budget for carrying out the cost monitoring and control. In order to facilitate the manager to supervise the cost management and control processes, the software should provide clear and visualized graphic and tabling facilities. The software system should provide high level and high standard of cost management. It must be able to catch

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up the key points in investment and cost management, such as how to balance and optimize the number of capital investment as well as its allocation for generalized multi-project program.

5.8.4 The Implementation of Digital Cost Management Nothing is better than to develop a corresponding cost management software system for realizing digital cost management. For this purpose, we need to identify the basic technical requirements of the software system for fulfilling the digital cost management. First of all, we need well schedule the operation system for the cost management software, which should totally integrate both function of informatization and automation. Then, eliminate the isolation of information transfer in any link of the operation processes, also to resolve the fault phenomena thoroughly within the system during operation. For guaranteeing the linkage of different parts in the system together, multiple communication to be effectively put through is strictly needed between different part of the system, in this regard, establishing a comprehensive protocol system as the pre-requisite. Why such a protocol system is necessary? The reasons are quite obvious, for our cost management system should be accommodated to real time accessing, more precise and safer, more requirement in robustness during its operation. The development of the cost management software system needs to consider following steps, which is the consequence of logic thinking according the procedures of the real operations of the investment and cost management and control. (1) Overall planning and arrangement In this period, we need to identify the definition of the contents of investment and cost management. Next to project planning and scheduling phase defined by WBS, we then compile the cost management procedures. In such a complicated system, it should be well planned and arranged before the software development work starts; otherwise, the corresponding work will enter in chaos situation. Based on the real operation in cost management, applying system analysis and arrangement, one needs to deal with the work as a system engineering, to schedule an overall system of project investment and cost management; to engineer the scope of work and define the interfaces of cost management and control in different phases. One needs to open the system in visual manner for supervising and checking in different phases and in different layers of professional links, corresponding to various cost management responsibilities, among them, each layer of cost monitoring should be installed according to the beginning and ending dates of project schedule, sine the cost is associated with the works consummated during different phase of project implementation.

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(2) Checking and feedback In order to obtain exact quantitative response of the system during cost management processes, unifying protocol and criteria in different parts of the system, feedback the management status in each regular period for facilitating effective cost management. For checking and controlling purpose, the following points should be considered during the development of software system of cost management: (1) (2) (3) (4) (5)

Define the period of cost management checking. The system functions of checking. Feedback period for monitoring. The records of feedback. Cost weekly report for issuing.

(3) Analysis and control The system should provide visual and comprehensive information about investment and cost management of the project in each phases as well as in each milestone of the cost management, so as to provide an overall and comprehensive information status to the project manager for maneuvering the status of investment and cost expenditures. Where, it should be easily and clearly presented difference graphics and curves for evaluate whether or not the investment is in optimum state and the intensity of cost expenditure is within the limited bound, or the cost management of the project is in “healthy” region. The software must provide information on: a. b. c. d. e. f.

The cost status in real time basis. Cost information monitoring in real time basis. Real time cost information searching. The comparison analysis of cost expenditure. Progressing curve of cost expenditure. Batch processing for the individual cost expenditure curves in a multi-project program. g. The cost management pre-warming system functions. The different pre-warming system functions are also attached in the software, such as the constraint of total investment bound, the bound of maximum monthly investment capital, the maximum discrepancy between actual cost with the budget value, etc. The warming sign should be explicit and clearly shown in different colors. 4. Knowledge and standards The rising of cost management level of the enterprise is expressed by the accumulation of their experience and knowledge. Especially under digital knowledge economy nowadays, the experience and knowledge are first important to the enterprise, for it represents the most important potential assets of the enterprise. All the knowledge should install into knowledge base with different standard module for different operation, which is to be used in different cases of the cost management in the future. The knowledge and standard module can be separately divide into several kinds.

204

(1) (2) (3) (4) (5)

5 Economic Analysis in Project Management

Cost estimation module. Cost budget module. Cost management operation module. Monthly capital investment module. Different standard module, etc.

Summary This chapter is aimed to make clear to the reader the contents, methodology of project economics, and its important position and roles in project management. The economics and cost analysis in project management is the tool for finally solve the ultimate economic goal of the project; it is also an important and organic part of project management. Every project managerial person should understand that project is actually a dynamic system concerning to people, capital, materials and information, and any variation of inter-relationship of them will influence to the project cost and be expressed by its cost expenditures. Generally speaking, the success of a project is by means of profitability as the criterion; in other word, control the cost management of the project will be the key to approaching project success. Starting from basic concepts of project economics, introducing the concept of discounter cash flow, this chapter has explored the essentials of a successful project investment. It also discussed internal rate of return, payback period of the project investment, taxation of project as well as those practical problems of amortization return of investment. All of the methods mentioned in this chapter can be used as a basis for the investment decision of a new developing project, also the basis of economic problem solving. Besides, this chapter also discusses the project cost management, the roles of discounted cash flow in the project cost management; earned value method (EVM) analysis and applications as well as the cost management for multiple investment projects. Moreover, the financial management under Internet condition is discussed in detail. The cost management for multiple investment projects is a complicated and realistic problem in real world project cost management, and the numerical method presented in this chapter provides a universal approach for solving various kinds of complex financial operational cases. The aim of project cost management is to provide an effective control of project cost during project implementation; except the general illustration on project cost management, we also emphasize the earned value method during project cost management. Since we may analyze a variety of problems in cost management through the intermediate variable “earned value” in practical operation, such as parametrical status of project cost, relationship between cost and schedule, predict the cost development tendency as well as the effective method for predict final completion cost, etc. which is also the popularly adopted cost control and management method in practice. Through the establishment of the optimum capital investment model for multiproject program, one can quantitatively solve the evenly capital investment and a series of how to improve capital investment efficiency problems, which is popularly meaningful to cost management problem of different kinds of multi-project programs.

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Besides, the establishment of optimum capital allocation model for multi-project program will be beneficial to multi-project enterprise as the basis of designing the financing plan and the basis of evaluation of bank loan. The emergence of Internet will offer a serious impact to the cost management, since all the information in different layers of managerial hierarchy will straightforward transfer in real time on a same platform without any interruption, thus greatly improving the working efficiency of the cost management and control for the real project. Review Questions (1) Why discounted rate is the basis of project economic analysis? Could you explain the principle of project selection by means of net present value (NPV)? (2) Why the internal rate of return and investment payback period are the basic factors to be considered during project evaluation and investment decision of the project? Could you use cash flow graphic method for illustrate the influence of discounted rate and taxation toward the payback period of the project? (3) Why the cost management is the key of project success? How do you understand the cost management is a problem of system engineering? (4) Why the “earned value (EV)” in the project cost management could link up different parameters in project cost management and the relationship of cost and schedule? Why “earned value” could predict the tendency of project cost and the final cost of project completion? (5) What is the principle of cost management for multi-project program? How to consider the concrete processes of (5.58) solution? How to determine the table of optimum monthly investment capital for multi-project program? Homework (1) What is the so-called internal rate of return IRR? Illustrate the meaning of IRR to the project economics. (2) Discuss the functions of IRR and project payback period. What factors could influence these two? And how it will affect to the ecology of a project in its existence and development? (3) Discuss the influence of discounted rate, taxation, depreciation and capital payback to the cash flow of the project. (4) Why earned value method (EVM) could perform integrated management of cost and schedule of the project? Illustrate the role of EVM to project cost management. (5) Using case simulation to compile the optimum monthly capital investment budget table for three projects, the investment curves of three projects are listed in the Table below:

206 Month of capital investment

5 Economic Analysis in Project Management Monthly capital investment budget ($Thousand) Project 1

Project 2

Project 3

1

5000

8000

5000

2

6000

12000

10000

3

8000

20000

20000

4

10000

25000

30000

5

15000

30000

30000

6

20000

35000

20000

7

20000

40000

20000

8

20000

40000

20000

9

25000

40000

10000

10

10000

40000

5000

11

5000

30000

12

5000

30000

13

25000

14

25000

15

10000

16

10000

Investment period

12 months

16 months

Notes

10 months

The limitation of monthly investment for three projects R0 = 80 ($ million), total investment period T0 = 24 months

Further Reading 1. Rebentisch, E.: Integrating Program Management and System Engineering. Wiley, Hoboken (2017) 2. Jelen, F.C., Black, J.H.: Cost and Optimization Engineering, 2nd edn. McGraw-Hill Book Company (1983) 3. Lin, S., Xiaofeng, Y.: System Analysis and Computer Algorithms. Shanghai Jiao Tong University Press, Shanghai (1990). (in Chinese) 4. Lin, S., Guoqiang, Z.: Economic Analysis and Bidding/Tendering Decision. Shanghai Jiao Tong University Press, Shanghai (1990). (in Chinese) 5. Kerzner, Harold: Project Management: Best Practice Achieving Global Excellence. Willey, Hoboken (2006) 6. PMI.: A Guide to the Project Management Body of Knowledge (PMBOK Guide), 6th edn. Newtown Square: PMI Inc. (2017) 7. Jido, J.: Successful Project Management, 3rd edn. Cengage Learning, Boston (2006) 8. Pinto, J.: Project Management: Achieving Competitive Advantages. Pearson Education Inc., New York (2006) 9. Bao, X.: Project Planning and Scheduling Management under Internet Era. Shanghai: Forum on “Project Management Development Tendency under Internet Era”, Shanghai Jiao Tong University, 26 Mar 2018 (in Chinese) 10. Gatti, S.: Project Finance in Theory and Practice, 2nd edn. Elsevier (2018)

Further Reading

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11. Mao, X., Lin, S.: Investment optimization problem in multi-project program. J. Optim. Infrastruct. 22(1), 2732 (2010) (in Chinese) 12. Lin, S.: Uncertainty Modeling and Analysis in Civil Engineering: Fuzzy Modeling of Risky Investment Decision in Engineering Project, p. 167187. CRC Press, Boca Raton (1998) 13. Lin, S., et al.: Fuzzy economic assessment for offshore oil fields. J. China Ocean Eng. 4(1), 97108 (1990) 14. Lin, S., et al.: Fuzzy risk analysis of harbor engineering investment by hierarchy system approach. J. China Ocean Eng. 6(1), 8794 (1992) 15. White, J.A., Agee, M.H., Case, K.E.: Principles of engineering economic analysis, 2nd edn. Wiley, Hoboken (1977)

Chapter 6

Project Risk Management

Reading Guide (1) Understand the basic concepts, characteristics, theories and methods of project risk management so that readers have a general understanding of project risk management. (2) Understand the current situation, characteristics and countermeasures of project risk management both at home and abroad. Understand the new situation of project risk management development. (3) Understand the basic points and laws of qualitative analysis and quantitative analysis of project risk management. (4) Through the case studies, master contents and methods of qualitative analysis and quantitative analysis of project risk management. Facing Digitization of Project Management Essentially, risk management means to make a series of countermeasure decision when the risk factors are merely taken place during project implementation. Facing digitization of project management, it expresses a colorful and a fascinated scenario. Though the basic theorem of project risk management remains the same under the Internet era, the risk management under digitization environment can be expressed in following manner: risk management will be processed in real time base, also on a virtual platform, where the response of risk management according to external changes can be much faster than before. Especially, when the involvement of artificial intelligence and fuzzy reasoning, the decision making for risk management can be digitized and performed right away. The involvement of probability theory, the application of statistics for quantitative decision making, and more powerfully, the big data exploration and prediction will make the risk management of the project full of vitality. Case Guide The failure of company SQ in country C to acquire company SL in country K. At the end of 2004, company SQ spent 500 million US dollars on acquisition of 48.92% shared in bankruptcy SL of country K, and then increased to 51.33% in © Shanghai Jiao Tong University Press and Springer Nature Singapore Pte Ltd. 2020 S. Lin and D. Huang, Project Management Under Internet Era, https://doi.org/10.1007/978-981-15-2799-9_6

209

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6 Project Risk Management

the following year. Company SL was the fifth largest automobile manufacturer in country K. It produced SUV luxury cars with an annual capacity of 200,000 vehicles and research capability. The intention of SQ merged SL is: (1) Trying to build a global operating system through mergers. (2) SL’s SUVs and their diesel engines are complementary to SQ’s. After restructuring, synergies between product design, development, parts procurement and operation of the network will enhance their competitiveness. However, the social culture of country K is different from that of country C and the corporate culture of company SL is very different from that of SQ. The union of company SL is strong, often threatened by strikes with a strong national self-esteem. All the huge expenses of the trade unions are paid by the company. The labor cost of the single car reaches 20%, much higher than the normal rate of 8% in country K. Company SQ policy makers have not considered the risk of acquiring overseas assets, and have not conducted exhaustive research on the acquisition targets. Its brand strength is general, and lack of market sale channel at the same time. The company has a total of 7100 employees, but it is inefficient, so the output is only about 9150 thousand vehicles. Therefore, in the 2008 international financial crisis, it was difficult to survive and was on the verge of bankruptcy. SQ chooses the wrong target during the acquisition and underestimated the difficulty of the integration after the acquisition, including the spoils of strong unions, cultural differences and mutual recognition of obstacles. The company also underestimates risks in the law, and continues to create problems in terms of labor disputes and intellectual property issues, and even eventually litigate. Although SQ acquired company SL, failed to import a strong management team. SL’s employees are not convinced of SQ’s management, and SQ’s culture and management cannot be integrated into SL and cannot gain the actual control over SL. The competition in the past depends on cost; today’s competition depends on technology; and the competition in the future depends on risk management; that is, “winning at risk”. In the end, the two sides are deeply in opposition. The company SQ was out in 2009 and the plan of “company K in C” was blown away with a loss of more than 150 million USD. This shows that in the overseas mergers and acquisitions activities, risk analysis and management is the primary consideration. After concluding this case we have the following understanding: (1) SQ tends to focus only on the transaction price when acquiring SL while the potential risks of the acquisition enterprises and the future integration problems are not considered. (2) The pursuit of scale effect considered in the acquisition may not bring the anticipated cost reduction and market share increase. On the contrary may also bring all kinds of unforeseen risks. (3) The problem of cultural risk is neglected by the people in the past, and its handling and solution depend on the corporate culture and management level of both parties. A stronger corporate culture is often the cultural theme of the final combined company, and it does not change with who the buyer is.

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(4) The business “strength” of acquiring company is very crucial. It is not only financial, market and technology, but also the management team and experience of international operations, including: the strong culture of the enterprise; more importantly, the management team of cross-cultural management and its integration ability to the original enterprise. This has been proved by the practice of General Motors of the United States to merge with Daewoo motor company of Korea, that is, the strong GM culture embeds daewoo culture.

6.1 Introduction to Risk Management 6.1.1 Definition of Risk Project environment is full of uncertainties; project risk is sourced by uncertain conditions, so it is no wonder that project implementation is always associated with risks. For risk is concerned, it is an event that people do not want to happen but it is possible to happen, which can cause a big loss to the project, and the project manager really cannot be on his/her guard. General speaking, project risk management can be understood as measures to prevent and mitigate the potential loss of risk during project planning and implementation. Although there is no unified definition of risk at present, there are several common understandings and expositions about it: (1) The degree of risk means the degree of uncertainty. (2) Risk is the expression of the microscopic probability that people do not want to occur. (3) The risk is the possibility of damage and loss.

6.1.2 Characteristics of Risk Risk is an objective reality, but its extent is measurable. The content of the risk depends on the project environment and the time and space of the project implementation. The existence of risk is the result of influence impacted by human activities and environment on the project implementation. There are three characteristics of risk. Firstly, it’s negative, because the risk always brings loss and negative impact on the project. Secondly, followed by its uncertainty, its impacts on the project are uncertain in time, place and intensity. Thirdly, the risk itself is complex, and the reasons for its formation are extremely complex and yet unknown, so it seems impossible to be determined consequently. Due to changeable world, especially we are entering into a VUCA era, the reasons of emergence of risk still puzzling to us, so it is not the time to talk about eliminating

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project risk, but just to find the resolution way for avoiding, mitigating, transferring or facing the project risks.

6.1.3 Risk Management The first step of risk management is to analyze the risk. The task of risk analysis is to study the law of project risk and how to control and avoid it. The purpose of project risk management is to find an approach of effective risk control for the project in order to minimize the losses caused by the risks and to maximize the safety of the project, to study how to transfer the insurmountable risks of the projects to the outside, with a view to effectively reduce project costs and so on.

6.1.3.1

Risk Confirmation

Due to the different environment, location and characteristics of the project, the nature and characteristics of the risks in each stage of project implementation are also different. The primary objective of risk management is to identify and confirm the different risks in each stage for later processing. If there is a mistake in this link, disregarding on these risks which may seriously impact on the project and fail in necessary precautions, it will bring serious potential risks to the project and cause serious losses, even resulting failure of the project.

6.1.3.2

The Steps of Risk Management

The steps of risk management are shown in Fig. 6.1.

6.2 Risk Assessment 6.2.1 Qualitative Assessment of Risk Qualitative assessment of risk is a subjective assessment process based on the experience accumulated by people in past practice of various types of risks and on the basis of these experiences a qualitative assessment of the risks at all stages of the project is conducted. In qualitative risk analysis, we should not only study the severity of the risk, but also study the frequency of the occurrence. For example, the consequences of an aircraft crash result in death, which should be considered as extremely serious, but the probability of a plane crash is so limited that people dare to fly regardless to the risk of a plane crash. For another example, although the devastating effects of

6.2 Risk Assessment

213

Fig. 6.1 Risk management decision flowchart

storm floods are apparently smaller than the plane crash, the chances of it occurring are far greater than the probability of an aircraft crash. Therefore, people should take measures seriously to prevent the risk caused by rainstorm flood.

6.2.2 Quantitative Assessment of Risk In practice, it is not enough to make a qualitative analysis of risk. People still need to conduct quantitative analysis to find out exactly what the specific loss caused by the project is, to make sure whether the annual cost for transferring the risk is lower than the annual specific loss caused by the project, this is the basis for deciding whether or not to take countermeasures and how to make decisions. For example, a project risk can bring billions dollars losses to the project, but its probability of occurrence is very limited as once in a thousand years. If you insure, you need to pay a deposit of $50,000/year. In this way, we can analyze: the probability risk of the project is $100,000/year, compared with the cost of insurance is only $50,000/year, so it is more advantageous to use the insurance for transferring the risk.

6.3 Risk Countermeasures Use the best technology for project risk management and decision making. The project risk counter-measures are divided into the following aspects.

214

6 Project Risk Management

(1) Risk mitigation: Since the risk is caused by the uncertainty of the project environment, increasing the uncertainty can increase risk in the project and reducing the uncertainty in the project can effectively mitigate the risk of the project. (2) Risk aversion: By avoiding risk factors in the project operation environment, risks can be effectively prevented. (3) The risk transfer: Risks that cannot be avoided or overcome by themselves can be transferred, such as to the subcontracting party or to the insurance, etc. (4) Facing to the risk: When the impact of risk is limited, or the cost of risk aversion and regulation exceeds the potential loss of risk, we would rather not dealing with it and take direct facing to the risks.

6.4 Qualitative Analysis of Risk 6.4.1 On Qualitative Risk Because risk assessment is just a subjective assessment process, yet the risk is analyzed and judged according to the practical experience accumulated in the past. We take offshore oil development project as an example to carry out risk qualitative analysis. Oil companies face a variety of risks in the offshore oil exploration and development process, therefore, before carrying out the project, preliminary qualitative analysis and evaluation of their risks must be carried out for confirming the feasibility in political, technical, economic and security aspects, then entering to the next in-depth analysis for determining whether or not to the investment decision. The risk of offshore oilfield development can be divided into: (1) The risk of the exploration oil field is “dry-well” field. Before the oilfield is formally put into operation, careful exploration work must be carried out for determining the exact oil reserves, category of oil products, quality of the oilfield and to confirm the commercial value of its actual exploitation. Because the exploration of offshore oil fields is itself a costly project. Once the result of the field exploration is “dry well”, it will be withdrawn at no expense refund and the huge investment in offshore exploration will be lost. (2) Risk of local political situation. The stability of the political situation in the local country and the possibility of regime change can lead to the risk of environmental change of the project. (3) The risk of the local economic situation. The stability of economic situation in local country and the constraints that could lead to inflation, foreign exchange controls and other limitations of economic performance.

6.4 Qualitative Analysis of Risk

215

(4) The risk of the local security situation. Whether the security situation of local country is stable enough, also the risk of possible terrorist attacks on people and property. Considerations should also be taken to the possibility of encountering the pirate attack in the operational region under the offshore environment. (5) The risk of storm damage to offshore oil and gas exploration equipments. Whether the area is in the area where typhoons, hurricanes or earthquakes can occur, causing the risk of storm damage to offshore oil and gas exploration equipments. (6) The risk of environmental damage caused by offshore oil production. Risk of pollution by oil leakage caused by inadvertent operation and corresponding possible huge economic compensation by the pollution of offshore area. (7) The risk that the oil finding is not enough to form a commercially meaningful oilfield. If the exploration results prove that although there is oil and gas finding in the oilfield, the productivity is insufficient to reach the expected commercially meaningful value, and the project still has to be abandoned and the huge investment in offshore exploration will also face the risk of “no return”. (8) The risk of having no sufficient number of commercially exploitable oilfields in a multi-oilfield development project. Because oilfield exploration and development investments are a venture capital investment for oil companies, oil companies are generally undertaking exploration of a group of projects at the same time and expecting the probability of success of their commercially viable oilfields. For example, with a projected probability of success of 70%, of the 10 oil fields under exploration, more than 7 oil fields are required to be identified as commercially meaningful oilfields after exploration. Otherwise, there is a risk that exploration costs will be out of control. The rapid qualitative analysis of the above risk factors aims at initially identifying the candidate oilfield projects for the oil companies. Most of the above risks can be judged and estimated by direct information or accumulated empirical information. After qualitative analysis of the risks in exploration and development of offshore oilfields one by one as described above, fields with insurmountable condition for certain risks or fields with uncontrollable risks may directly discharge from the list of candidate oilfields for achieving the expected primary election results. Finally, it is necessary to carry out quantitative analysis of risk, which is to provide the necessary risk control information and data for investment decision. Quantitative risk analysis is a very complex and comprehensive multi-disciplinary work, after considering all kinds of risk factors, the final investment decision-making is based on the economic profitability, while the latter is determined by the probability of oil reserve of the fields. Therefore, the decision to consider offshore oil exploration and development under a risk scenario is determined by the expected probability of production (or profitability).

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6.4.2 Case Study Case 6-1 Risk Analysis of Overseas Construction Projects With the globalization of economy, numbers of enterprises are going abroad for carrying out engineering projects and related investment activities. According to the relevant estimates, in the next considerable period of time, many enterprises will continue to go abroad for engineering projects and investment. The overseas business activities include various types of engineering and investment activities in the forms of engineering, procurement and construction (EPC), build (construction), operation and transfer (BOT), public- private-partnership (PPP). Therefore, identifying the risks faced by the overseas project environment and avoiding falling into the trap of various types of decision-making for prevent huge losses will be an life- and death-important issue for those enterprises that invest or operate overseas. In order to find the main risks for specific overseas projects, we first classify and list all possible risks in the overseas construction project management in Table 6.1, so we will have a thorough risk consideration before making the decision. It is not difficult to see that most of the above risk events can be determined by qualitative risk analysis. Most of them are caused by poor project decision-making or inadequate preparation. In order to reduce the impact of the risks, we should conduct an intensive investigation of the environment and comprehensive study in all aspects of the country conditions during preparation for overseas projects by understanding the political, economic, social, cultural, and religious conditions of the countries to be investigated. The main contents of overseas construction projects that should be understood and investigated are described in Table 6.2 below. In this way, the investigation and research will be strengthened through the preparatory work of the project in order to provide decision-makers with sufficient information on the qualitative analysis of risks as a basis for conducting project risk management and risk response measures so that the risks of overseas projects can be controlled within a certain level, which is absolutely necessary.

6.4.3 Project Decision and Trap 6.4.3.1

Decision Trap

Project risk management is to constantly make “correct and reasonable decision” in the project risk management strategy; otherwise the error decision will form the source of new project risk. How to avoid the decision-making trap and keep the correct decision which becomes an important issue in the project risk management. Under the trend of “softening” in management science development, we can study the trap in management decision from the viewpoint of managerial psychology. As well known, the essence of project management is to make a series of decisions in all project management activities. The best practice of project management is to make a series of correct decisions at each critical stage of the project, especially when

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Table 6.1 Overseas project construction risks Political risk

Including: political instability, government change, war, turmoil, terrorism, state relations, government credit, trade embargo, property collection (collection, requisition, nationalization) and so on

Legal risk

Including: laws and regulations instability, labor restrictions, materials, equipment access restrictions, tax system changes, overtime restrictions, changes in various laws and regulations

Economic risk

Including: exchange rate risk, inflation, interest rate risk, currency exchange restrictions, guarantee risk, payment conditions and risks

Natural risk

Including: earthquakes, volcanoes, typhoons, floods, debris flows, water shortages, poor water quality, unpredictable geological conditions, climate and environment, endemic diseases and so on

Social risk

Including: religious taboo, ethnic conflicts, social security, government corruption, public attitudes, government efficiency, quality of workers, strong unions, strike out without restraint

Contract risk

Including: unclearness of owner’s requirements, ambiguous in claim condition, overlord clause of dispute arbitration process, ambiguous in contract price constitution, uncertain in valuation choice and the payment method, the budget leakage item and so on

Technical risk

Including: infeasible of technical solutions, problems in the design documents, not familiar with technical specifications, reliability of information provided by the owners, problems raised by equipment manufacturing standards and performance indicators

Implementation risk

Including: construction site restrictions, inadequate or unqualified material sources, poor supply of equipment and accessories, lack of cooperation with leasing equipment suppliers, poor compliance capacity of subcontractors, language barriers, communication difficulties and risks of transportation conditions

Financing risk

Including: lack of financing channels, high financing costs, complexity of financing structures and other risks

Operational risk

Including: overruns in operating costs, sluggish operating income, low productivity, high maintenance cost due to frequent repair, damage and impact of operations on the environment, etc

the project is in the feasibility study stage for project setting. How to avoid errors in decision making? In order to study the law that people make wrong decisions,we must study the performance of decision-makers in facing temptation and traps during project practice. The most crucial point is to study the environment and traps that make the wrong decisions. The trap of decision can be divided into: (1) The trap of understanding deviation. This is caused by the result of one-sided environmental awareness of policy maker. (2) The trap of loss of control. This is caused by mismanagement of the project manager to project objectives and loss control of the required resources. (3) The trap of strategic direction. This is due to the incorrect strategy of the project decision maker during the feasibility study stage of project setting.

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Table 6.2 The main investigation contents of overseas construction project Local contract conditions and environment investigation

The environment and condition for implementation of the local contract, the laws and regulations or normative basis, which the contracts are based on; the abitration and consultation mechanisms for disputes and claims as well as for the breach of contract

Local labor market inspection

Local labor standards, employment quotas, labor law related regulations (working hours, social security, minimum wage limits, etc.)

Permanent equipment and materials inspection

The detailed requirements of the owner on the equipment, the inspection specifications for the construction and materials, the local availability of the main materials supply, the procurement, transportation and storage conditions of the materials and equipment

Construction equipment inspection

The possibility of repurchase of construction equipment at the local market, the local operation and maintenance costs of the construction equipment, and whether the equipment has an impact on the local environmental protection requirements

Foreign labor policy investigation

Personnel licensing permits for processing foreign workers, working permit, residence permit, various types of documents handling fees and processing time

Inspection of construction conditions

The geological conditions of the project site, the road conditions around the project, the local climate and environment

The investigation of political and social environment

Security conditions in the local community, the risk of losses for personnel and property, the risk of terrorist attacks or the kidnapping of personnel, and other security issues. Whether there are infectious diseases, living conditions and costs, whether to allow holidays and night construction, environmental protection documents and other relevant provisions

Investigation of local humanities and cultural environment

Local cultural differences, religious situations, possible risks arising from cultural conflicts, and the impact on the project caused by human factors

(4) The trap of lack of investigation. This is caused by the lack of research on the current status of the project. (5) The trap of evaluation error. This is due to the result of an improper assessment of the project manager on existing conditions and the conditions required for the success of the project.

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(6) The trap of moral defect. This is due to lack of professional ethics by the project decision-maker in dealing with the environment, sustainable development and impact on public society. (7) The trap of lack of study. This is caused by the project decision maker poor in absorbing lessons from past project mistakes, which causes duplicate to their mistakes and even the primary mistakes.

6.4.3.2

Basic Form of Decision-Making Error

The decision error has a great relationship with the subjective factors of the decisionmaker. There are three basic forms: (1) The strategy of decision-makers cannot withstand the temptation and attraction of the outside world, resulting in wrong decisions. (2) Decision makers make hasty decisions without thorough investigation and careful consideration. (3) The decision-makers abuse their power and pour resources into the decision of projects in a stubborn and one-sided mood.

6.4.3.3

Reasons for Mistakes in Decision Making

(1) Decision mistakes are due to incorrect attitudes and methods. According to statistics, 2/3 of the decision errors fall into this category. a. People do not systematically summarize by mistake in decision-making, neither studies the relationship between decision-making and its consequences, nor do they have a good way to analyze and make decisions. From different motives, decision makers always self-protect themselves from the problems of their wrong decision, or stubbornly stick to their own decisions rather than earnestly summarize their own lessons in making that wrong decision. b. People fail to realize that there is no “optimum” decision in project management. Accordingly, only satisfied and acceptable decisions are reasonable. You may go to extreme if you don’t understand this. c. Rush decision in management practices may be a good solution at some point, especially when policy makers are caught in a dilemma. But experience shows that hurried decision-making is, after all, the most dangerous and can sometimes causes catastrophic consequences. d. Under any harsh environment, the decision-maker must re-arrange his/her resources with a clear and calm mind and keep cautious and comprehensive consideration of his/her plan to re-invest. Failure to do so there must be a failure. (2) Invest blindly without a thorough and thoughtful survey. a. A psychological problem is that the decision maker often self-gratifies after the decision mistake, which makes the project further suffers to a mistake after mistake.

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b.

An intuitive, project-driven motivation allows project decision maker to take the project in a hurry without a thorough investigation. Later, when the environment pressure of the project increasing, they also tries to take shortcuts, using the simplest way to rash again in a hurry for making another decision. Like gambling on major project decisions, the gambler’s behavior will be sure to push the project into disaster. (3) Unable to promptly correct slight decision error will result in serious mistake. The policy makers cling to the mistake instead of correcting it; instead, they trust to luck and persist in their investments ultimately causing fail the project completely. (4) Decision makers lack of professionalism and lead to mistakes. The decision makers do not carefully consider the goals of the project, do not study the profitability of the project, and do not take into account the risks of the project. The project decision-making is skittish and eventually as a result, leads the project to failure.

6.4.3.4

Case Study

Case 6-2 Project Decision Making of Disneyland Paris Following the success of Orlando in the United States and Tokyo Disneyland in Japan, investors were extremely optimistic and confident in building a Disneyland project in Europe. Nearly 200 construction projects were studied, including those built in France and Spain. Mr. Michael Eisner, an investor, simply considered that France was a European transportation hub with potentially profitable opportunities and made a rash decision on investment, while ignoring the negative impact of France’s unfavorable climatic conditions and arrogant French culture. The project had a $2.5 billion investment budget in 1988, while the actual cost was $4.4 billion. High ticket prices made the actual number of tourists was far less than the expected 11 million per year, and not to mention there were still many tourists who hold the discount tickets. The hotel occupancy rate was far below the expected 76%, but only reached 37%. As a result, parks and hotels lost a total of 960 million dollars and 400 million dollars in the first year of their opening in 1994. The price of the shares listed by Michael Eisner for Disney’s Paris-based project company was very sluggish. Why did the Paris Disneyland project fail? The reasons are: (1) Policymakers of the project ignored the fact that ardent spirits were not allowed to enter the park according to European culture. (2) The project decision makers ignored the restrictions on “not allowing picnics in the park”, which was also a violation of European culture, and it was a mistake to simply copy American culture directly to Europe. (3) The project decision makers failed to estimate that Europe’s recession made things worse. Visitors found it more attractive to go to Orlando Disneyland in

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the United States to save 30% on fares and enjoyed warmer weather at the same time. (4) Project decision makers overlooked the other side of Paris’s convenient traffic conditions that tourists could leave after visiting the park in one day, which would have a huge impact on the turnover of the hotels. (5) Project decision makers in spite of the negative factors located in Paris, and stuck to their initial “European Disney dream”, and used their one-sided feasibility study report to hide their wrong decisions. (6) Project decision makers ignored the basic principles of the project is make profit, and couldnot clearly see the ambiguity of the project objective. It was exactly because of this that they were hesitant to assess project prospects, and they only thought of past successes and neglected the past lessons. They didn’t seriously consider what the risk of the project was, and what might be happened that the project didn’t want to happen. Case 6-3 Decision of the Millennium Dome Project in London As a masterpiece of the twenty-first century, the Millennium Dome in London was once the center of public opinion at the time. The building was financed by the British government and the community, cost as much as $785 million, plus an additional $175 million, totaling $960 million. But the fact was not as good as imagined that the dismal statistics since the formal opening of the new millennium in New Year’s Day in 2000 showed that the number of visitors per year was only 1.2 million instead of the 4.5 million originally estimated. That was a big embarrassment for supporters, including Prime Minister Tony Blair and the tycoons of the upper class. After this loss, the millennium dome was shut down a year later. The owners managed to find another way out of the mess, even trying to remove it and build a new residential building on the site of the Thames River. Why the decision of the millennium dome was wrong? First of all, because it was only driven by interests and not sufficient market research. Secondly, its decision making was based on the expectation of the number of visitors, which was very different from reality. Finally, because the losses were largely public investment, and the public was not aware of vague project goals, what’s more, they insisted that the project be carried out to the end.

6.5 Apply Probability Theory to Quantitative Risk Decision Making Most of our current understanding of project risk management is still in the state of qualitative more and quantitative less, conceptual more and theory less, sentimental more and rational less, and lack of risk management combining with qualitative and quantitative. In response to the above mentioned problems, we try to establish a comprehensive set of risk assessment system by quantifying the project risk and establishing mathematical quantification model based on probability.

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6.5.1 Apply Probability Theory to Risk Management Probabilistic quantification of risk using probability theory is a commonly used risk quantitative analysis method. In order to make decisions under uncertain conditions, we use different probability density functions to assign the probability of occurrence to an event. The probability of this quantification is based on: (1) The subjective probability determined according to the frequency of similar events in the past. (2) According to the Baysian hypothesis, this subjective frequency will be the frequency in the future. (3) According to past experience and the personal feelings of the original intention by surrounding environment. It is effective to use the method of generating probability to represent the occurrence of uncertain events, which can make the subjective opinions a logical and reasonable result. Probabilistic risk analysis methods include: (1) To measure the degree of risk or unknown event by subjective probability, it represents the feeling of individual opinion or analyst based on existing statistical data. (2) Using the probability of past success, it means replacing the independent event. The advantage of using subjective probabilities (0–1.0) as a quantitative measure of uncertainty is that it reflects objective reality. (3) To express uncertain event by means of probabilistic method, it can make the subjective opinion to be reasonably expressed in the probabilistic treatment of uncertain event. Applying expectation method based on probability theory and using subjective probability method, which changes in (0–1.0) range for reflecting uncertainties in objective reality, is a reasonable method fitting logic law of the reality. (4) The subjective probabilistic method still valid when dealing with the occurrence probability of multiple uncertain events; however, the total summation of subjective probability equals to 1.0. In assessing the economic risk of a project, we can use the probability expression of uncertain events to deal with the uncertainties of the individual inflows or outflows in the cash flow. At this point, we must introduce and use the concepts of the expected monetary value (EMV) and the risk weighted expectation (RWE).

6.5.1.1

Mathematical Expectation

The concept of mathematical expectation is that for a group of uncertain events (the number of uncertain events can be unlimited), and the occurrence probability of each event is a certain value of (0–1.0), which becomes the mathematical expectation of the uncertain event.

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The sum of the probabilities (mathematical expectations) of all uncertain events is 1.0. In the application of mathematical expectation of economic analysis, the possible uncertainty can be seen as the different possible (scheme) events; at this point, the measure of the output value can be pre-tax or after-tax monetary value. The net present value (NPV) can also be considered as discounted or not discounted.

6.5.1.2

Probability and Expected Monetary Value

The economic risk analysis of a project can be achieved by considering each input and output factor as an uncertain quantity and processing by a probability expression. Taking the risk of offshore oil development as an example, it involves the probability distribution of different uncertain input factors, such as the uncertainty of petroleum geology, engineering uncertainty and the uncertainty of economic data. The probability distribution of these inputs eventually leads to the probabilistic distribution output of the basic economic and physical parameters. We introduce the concept of “maximum monetary expectation”, which is a method of seeking the maximum possible profit of a project under uncertain conditions. That is, under uncertain conditions, different incidents may occur during project implementation (such as different possible project alternatives, etc.); one may through maximum EMV to determine the best alternative. Expected monetary value EMV is an efficient approach in the monetary forming uncertain project profitability assessment with weighted sensitivity analysis, where the uncertain event can calculate its weighted expected monetary value EMV, and then integrate to form the weighted sensitivity synthetic value as the gist of final decision making.

6.5.2 Weighted Sensitivity Venture Capital Decision Investing in a project under risk conditions should consider following uncertainties. (1) How to do quantitative treatment of projects with uncertain input factors? (2) The influence of the possible change of uncertain input factors, that is, the sensitivity analysis of the project under the uncertain factors or the impact on the project under the different possible events. (3) The weight relationship between the impact of various uncertain input factors on the project.In response to the above points, we can separately take the following measures when evaluating projects with uncertain input: (1) They can be transformed into a set of quantitative sensitivity analysis questions, considering their certainty with different inputs, each of which is possible and definitive. (2) Due to different probabilities of occurrence of different situations, it is necessary to carry out weighted processing of different possible situations to reflect the probability of occurrence.

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(3) In this way, we can combine weighted processing with sensitivity analysis to evolve an assessment of an item with uncertain input factors into a sensitivity analysis of a set of possible scenarios at different probability of occurrence. (4) When projects are evaluated in monetary terms, EMV can be used to process the aggregate of expected monetary values for a set of possible events. At this point, the sum of the weighted values of a group of possible events (the sum of the probabilities of all possible events) is 1.0. We also take the case of offshore oil exploration and development decision assessment as a specific example, and the risk decision making of the project investment by EMV method can be carried out as follows. Step one:

the basic situation evaluation criteria Net profit 4 billion barrels 6 billion dollars Step two: sensitivity analysis Possible situation Oil storage Net profit Dry oil well 0 (losing $500 million) Low production wells 2 billion barrels 3 billion dollars Basic situation 4 billion barrels 6 billion dollars High production wells 6 billion barrels 9 billion dollars Step three: weighted sensitivity average Oil reserves Net profit (Probability) weighted value EV Dry oil well 0 (losing $500 million) 0.15 (Losing 0.75 billion dollars) Low production wells 2 billion barrels 3 billion dollars 0.30 9 billion dollars Basic situation 4 billion barrels 6 billion dollars 0.35 21 billion dollars High production wells 6 billion barrels 9 billion dollars 0.20 18 billion dollars _________________________ Total EMV = $ 4725 million Oil storage

The process of decision assessment for offshore oil exploration and development is shown in Fig. 6.2. In the selection of multi-field investment opportunities, the above method can be used to select the oil field with the largest EMV value in a group of optional fields, which is the preferred investment project in the risk environment.

Fig. 6.2 The process of decision assessment for off shore oil exploration and development

6.5 Apply Probability Theory to Quantitative Risk Decision Making

6.5.2.1

225

Case Study

Case 6-4 Project Risk Investment Decision Corporation ZT is considering the construction and investment of seaport and railway projects in country J, which requires the venture capital decision-making under uncertain conditions. The land of J is in the sea of a certain continent, and the terrain is complex. Most of the land is the lowland plain and the desert. It has several million square kilometers of hinterland and is rich in natural resources. In order to promote the economic development of many developing countries in the continent, this project is of great economic and strategic significance. The project has the potential to achieve a win-win situation for J developing countries and the investor; however, there is also considerable risk due to the fact that lack of investor’s past experience of participating in overseas construction and investment in such projects and the situation in country J is not sufficient. The purpose of this case is to evaluate the potential profitability of a project under a risk scenario by using the expected EMV of the project to determine the investment decision. When the project is evaluated in monetary form, the project risk is considered as a combination of the expected monetary value of a set of possible events, and then the EMV can be used to deal with it. At this point, a group of possible events means that due to the different effects of various risks on the project, all kinds of possible events are analyzed as the sensitivity, and the weighted sum of the probabilities of all possible events is 1.0. This project considering the future practices for multimodal transport, railways and ports will increase its imports of container, exports for the ore and other bulk goods, in the economic test should be calculated separately according to the container and bulk, but for simplicity, unified with the amount of freight by weight. In this way, the risk decision of applying the EMV method to the project investment can be carried out as follows.

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Step one: the basic situation evaluation criteria Annual freight throughput Net profit 10 million tons 500 million dollars * * This value should be determined by detailed calculation of basic data. Step two: sensitivity analysis Possible situation Limit freight

Annual freight throughput

Net profit

2.5 million tons **

Low freight

5 million tons

(losing $50 million) $250 million

Basic situation

10 million tons

$500 million

High freight

30 million tons

$1.5 billion

** Affected by political turmoil or war, the volume of cargo dropped sharply, and the increase in operating costs resulted in a loss of $500 million. Step 3: weighted sensitivity average Annual freight throughput Limit freight 2.5 million tons Low freight

5 million tons

Net profit

(losing $50 million) $250 million

Basic situation 10 million tons High freight 30 million tons

Probability Weighted value *** EV 0.10 0.30

(losing $5 million) $75 million

$500 million

0.40

$200 million

$1.5 billion

0.20

$300 million

-------------------------------------------------------------------The total annual EMV = $ 570 million = $ 0.57 billion

***The probability weighted values can be based on subjective experience, or determined by hierarchical analysis method of “two comparisons” to build the weighted matrix form involving all kinds of project risk factors (political risk, legal risk, economic and financial risk, cultural risk, contract risk, the risk of their own maturity, and the owners risk), shown in Sect. 6.6. Considering that the payback period of the project is 20 years, the expected monetary value of this project before the discounting is 0.57 × 20 = 11.4 ($ billion). As the potential expected monetary value (profit-making opportunity) of this project investment is shown, the initial investment decision can be considered accordingly.

6.5.3 Decision Tree Method The decision tree method is a graphic illustration procedure of decision making with uncertain factors. It contains three parts as shown in Fig. 6.3: (1) Node (root node, natural state node, and final node). (2) Alternative branch. (3) Probability branch.

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Fig. 6.3 The structure and meaning of decision tree

Each node in Fig. 6.3 represents the state in which the project is located. The project starts with “root node” and progresses to each intermediate “natural state node” through several “alternative branch”; then through several layers of “natural state nodes” and “probability branch” approaches to the “final node” displaying their final output value. From “root node” to “natural state node”, the decision tree is facing with two or more branches, and from “natural state node” to “final node”. The decision tree also faces with two or more probability branches, and as shown in Fig. 6.3, both the probability value and the probability calculation must be shown on each probability branch for determine the output value of the “end node”. It should be pointed out that each “end point” may be the next round of new “root nodes” to continue the new round of probability tree deduction. Therefore, the structure of the probability tree will form a multi-layer structural system.

6.5.3.1

Case Study

Case 6-5 Decision Tree Method Applied in Bidding Decision Company C intends to tender for two engineering projects of A and B. Before the bidding, the company applies decision tree method to make decision on the bidding strategy. Due to the limited resources of company C, it can only select one of the two projects in A and B, or both give up bidding. Based on past experience, it is preferable for bidders to take a high bid (although the probability of success is only 30%) or a low bid (the probability of success may reach 70%). Therefore, the possible countermeasure in bidding of company C is:

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(1) (2) (3) (4) (5)

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high-bid of A project. low-bid of A project. high-bid of B project. low-bid of B project. both bids are given up.

Since company C has a good understanding of similar projects of project A and project B, there is a certain profit after winning the bid as shown in Table 6.3. The whole decision tree process is shown in Fig. 6.4 with the profit in thousand dollars. When considering the cost of bidding, it should be considered that if the investment target A fails. The cost of the loss is $5000; while if the project B fails, the cost of the loss is $10,000. The node numbers 1, 2, 3, …, 10 in Fig. 6.4 represent the profitable state of the nodes in the decision tree. The root node 1 goes through 5 alternative branches for 5 different decision schemes: Node 2 represents high bid for A project; node 3 low bid for A project; node 5 high bid for B project; node 6 low bid for B project; and node 4 represents both abandon to bid for project A and B. Table 6.3 Bidding processes and corresponding profits Bidding strategy

Output status

Estimated profitability ($ million)

Winning probability (%)

EMV

Total EMV

High bid A project

Project highly profitable

5000

30

1500

+1400a

Project medium profit

1000

50

500

Project loss

−3000

20

−600

Project highly profitable

4000

20

800

Project medium profit

500

60

300

Project loss

−4000

20

−800

Project highly profitable

7000

30

2100

Project medium profit

2000

50

1000

Project loss

−3000

20

−600

Project highly profitable

6000

30

1800

Project medium profit

1000

60

600

Project loss

−1000

10

−100

0

100

0

Low bid for A project

High bid for B project

Low bid for B project

Both give up a In

+300

+2500

+2300

0

Table 6.3, 5000 × 0.3 + 1000 × 0.5 + (−3000) × 0.2 = 1500 + 500 − 600 = 1400

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Fig. 6.4 The whole decision tree processes

(1) The node numbers 1, 2, 3, …, 10 shown in Fig. 6.4 respectively represent the profit status nodes of the decision tree. The root node 1 points to 5 kinds of decision-making schemes through 5 alternative branches: node 2 with high bid of A, node 3 with low bid of A, node 5 with high bid of B, node 6 with low bid of B and node 4 abandon the bidding. Node 2, which has a high bid of project A, faces two choices of probability branch: a failure of 70% probability and success node 7 with a probability of 30%; and node 7 faces three choices of probability branch: 30% of well-peration results, 50% of the normal results and 20% of operation losses.

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(2) Node 3, which has a low bid of project A, faces two probability branch choices: a failure of 50% probability and success node 8 with 50% probability; later, node 8 faces three probability branch choices: 20% of well-operation results, 60% of the normal results and 20% of operation losses. (3) Node 5, which has a high bid of project B, faces two probability branch choices: a failure of 70% probability and success node 9 with a probability of 30%; and node 9 faces three probability branch choices: 30% of well-operation results, 50% of the normal results and 20% of operation losses. (4) Node 6, which has a low bid of project B, faces two probability branch choices: a failure of 50% probability and success node 10 with a probability of 50%; and node 10 faces three probability molecule choices: 20% of well-functioning results, 60% of the normal results and 20% of operating losses. (5) Node 4, which represents both A and B failure to win the bid, the probability is 100%. As descripted in Table 6.3 (unit: $million) we can confirm that the expected currency value of the node 7 with the high bid of project A is 1.4 millions; that is, the probability profit of the scheme is $1.4 million after the uncertainty factor that is considered. In the same way, node 8 with the low bid on A has a profit of 0.3 million in probability; node 9 with a high bid in B has a profit of $2.5 million; node 8 with a low bid in B has a profit of $2.3 million in probability. Similarly, we can also understand the potential probability of profit for various bidding strategies as follows: node 2 with the high bid in A has a probability of profit of $0.385 million; node 3 with a low bid of A has a probability of profit of $0.125 million; while node 5 with the high bid in B has a probability of profit of $0.62 million; node 6 with a low bid of B has a probability of profit of $1.1 million. In the same principle, the potential profit of the root node 1 is proposed to have 20% probability in each alternative branch; then the potential profit is $0.446 million. Through the above analysis, company C should compare other bidding activities with the potential probability profit of $0.446 million to make decision making. If you decide to consider participating in the bidding activity, the bidding strategy should choose the “high bid of B project” with the highest probability of $2.5 million profit.

6.5.4 Risk and Uncertainty—Monte Carlo Simulation Monte Carlo simulation (MCS) method is the most widely used method in the uncertain risk quantitative evaluation in real project, which is the result of the lack of confidence in the analysis of risk stochastic process. Monte Carlo simulation method is actually the application of digital simulation technology in the computer to achieve a risk analysis process by random process. It can also be easily implemented in random tests for the uncertain problems represented by non-probabilistic methods, without resorting to complicated standard analytical methods. In assessing and predicting the uncertainty of project risk, we often can use the probability distribution for variation

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factors, such as normal probability distribution, bimodal distribution, logarithmic distribution, constant distribution, trigonometric distribution and so on. It also represents one’s subjective assessment to the law of the changes in their variables, which will eventually manifest themselves in different values of variation. The ideas of the implementation of Monte Carlo simulation method are as follows: (1) The basic idea is to translate the problem into finding the corresponding outputs (also constants) of the project under a large number of random input values (constants). The random input is determined by the input of a special distribution of uncertain curve (which may or may not be a probability function) through the integration of random numbers. (2) Through the calculation of a large number of the above random outputs, the data are stored in the corresponding tables, and the outputs can represent the NPV, the discounter cash flow rate of return (DCFROR) and others. It can also be expressed in terms of frequency of distribution. (3) Random computation is achieved by a number of random generators. We estimate and express each uncertain input by the subjective probability distribution function. According to the probability theory, the input will be changed by the distribution function, and then calculate the corresponding output according to the changes and the calculation model. (4) In the input interval of the probability distribution, a random number generator is introduced, and each random number input quantity is controlled by the generator, which followed by a corresponding output quantity is calculated. Repeatedly the random number, the input value is repeatedly generated and corresponding calculation is carried out, and the successive calculation value will be stored. In this way, with a large number of sufficient numbers of the above calculation, the results obtained will reflect the distribution of the corresponding output or may be converted to a distribution of frequencies. The average value also represents the long-term expected aggregate value of the process. (5) Monte Carlo simulation shows how to use the sample test method to simulate a complex uncertain process and implemented by computer. It is also an integrated use of random sample analysis and numerical implementation processes that can contain one or more uncertain inputs and multiple indeterminate outputs. (6) Therefore, a master control program is needed to evaluate the output of uncertain process using Monte Carlo simulation. A subroutine that can represent the uncertain input as a distribution function, a random generator that provides random numbers for iterative numerical calculation of outputs (eg, economic indicators DCFROR, NPV, etc.) and subroutines that aggregate into output distributions (probability or frequency). (7) A detailed implementation block diagram of the Monte Carlo simulation method for uncertain economic analysis of oil-field development project is shown in Fig. 6.5.

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Fig. 6.5 Monte Carlo simulation for economic analysis of oil-field development

6.6 Use Fuzzy Set Theory to Make Risk Analysis Decisions In addition to project risk probability analysis model, we can also through fuzzy quantification of project risk factors, on the basis of quantitative fuzzy mathematics model to form a set of fuzzy risk assessment system for dealing with project risk management and decision-making problem.

6.6.1 Summary of Fuzzy Set Theory 6.6.1.1

Definition of Fuzzy Subset

Fuzzy subset is defined as a fuzzy subset A on the domain U. For any element u ∈ U we can specify a number of uA (u) ∈ [0, 1], which represents the degree of membership of u to A. We call µA is the membership function of A. The fuzzy subset A is completely described by its membership function, which indicates that the elements belong to the degree of its collection, but it is not the probability of that element belonging to that set, but only a membership degree.

6.6 Use Fuzzy Set Theory to Make Risk Analysis Decisions

233

For ordinary collections: / U, µA = 0 When uA (u) ∈ U, µA = 1; uA (u) ∈

(6.1)

For a fuzzy set, µA can be continuously evaluated between [0, 1], during that time µA = [0, 1] is called multi-valued logic.

6.6.1.2

Definition of Fuzzy Relation R

→ V. Define a fuzzy subset R of U × V as a fuzzy relation from U to V: U − The fuzzy relation R is described by its membership function µR . Example If the height set of human body is U = {140, 150, 160, 170, 180} (unit: cm); If the weight set of human body is V = {40, 50, 60, 70, 80} (unit: kg); Table 6.4 reflects the fuzzy relation µR between U and V is called fuzzy relational table of sets U and V. For example, a person with a height of 160 cm and a weight of 60 kg, has a membership function of 0.90, while the weight of 70 kg, the membership function is 0.8.

6.6.2 Fuzzy Set Project Risk Assessment The essence of fuzzy mathematical model is to quantize the fuzzy information by reasoning and verification, and to obtain new information and concepts by using human’s inductive and deductive ability. The establishment of risk assessment index matrix R and corresponding risk weight P is the foundation of establishing the model. Table 6.4 Fuzzy Relation UR between U and V Ui /cm

Vi /kg 40

50

60

70

80

140

0.99

0.8

0.2

0.1

0.01

150

0.8

0.99

0.8

0.2

0.1

160

0.2

0.8

0.90

0.8

0.2

170

0.1

0.2

0.8

0.99

0.8

180

0.01

0.1

0.2

0.8

0.99

234

6.6.2.1

6 Project Risk Management

Determination of the Risk Evaluation Index Matrix R

All kinds of risk factors in the project are reflected as fuzzy information. According to fuzzy information, eventually project risk can get its quantitative assessment and finally determine the corresponding risk countermeasure. For that reason, we must make quantitative processing and set up fuzzy mathematics model as follows. The project risk factor set U contains the following seven types of risks: U = {Political risk, legal risk, economic and financial risk, cultural risk, contract risk, risk from inside enterprise, and risk from the owner}. To the extent of all kinds of risks, the degree of risk definition is defined as V, and it is divided into four risk degree domains: very severe domain VS, rather serious domain RS, slight risk domain SL, and risk free negligible domain NG. V = {VS, RS, SL, NG}, and set the following fuzzy membership: (very severe risk, VS) corresponding to VVS = {0.75, 0.15, 0.1, 0}; (rather serious risk, RS) corresponding to VRS = {0.35, 0.45, 0.15, 0.05}; (slight risk, SL) corresponding to VSL = {0.05, 0.15, 0.45, 0.35}; (negligible risk, NG) corresponding to VNG = {0, 0.1, 0.15, 0.75}. It should be pointed out that there is a certain subjective information of determining the degree of risk VVS, VRS, VSL and VNG mentioned above. It is essentially the same as the probability method described in Sect. 6.5 to judge the probability distribution by subjective information. By the same token the determination of risk degree V set is similar to the treatment of fuzzy membership function, which is based on past experience. Practice proved that based on the subjective experience the judgment of problem by fuzzy method is not very sensitive to the selection of fuzzy membership function or the degree set, much less. Recently the fuzzy membership function processing has established a reasonable approach through case study model, based on artificial intelligence and machine learning. Introducing fuzzy sets to describe the degree of risk, the fuzzy relationship between U and V is: Ri = rij (i = 1, 2, 3, 4, . . . , 7) (j = 1, 2, 3, 4)

(6.2)

rij —The degree of membership of the i-th factor in risk factor U to the jth risk factor in risk set V. After determining i, you have to Ri = {ri1, ri2, ri3, ri4}, namely i kinds of risk relative to the degree of 4 degrees of membership, for example: i = 1, R1 = {0.75, 0.15, 0.1, 0} The political environment in the project environment is very severe. i = 2, R2 = {0.35, 0.45, 0.15, 0.05} The legal risk of the project environment is rather serious.

6.6 Use Fuzzy Set Theory to Make Risk Analysis Decisions

235

i = 3, R3 = {0.05, 0.15, 0.45, 0.35} The environmental and economic risk of the project is slightly. i = 4, R4 = {0.05, 0.15, 0.45, 0.35} The environmental and cultural risk of the project is slightly. i = 5, R5 = {0, 0.1, 0.15, 0.75} Project environmental contract risk is negligible. i = 6, R6 = {0.05, 0.15, 0.45, 0.35} Project environment on their own risk is slightly. i = 7, R7 = {0.35, 0.45, 0.15, 0.05} Project environment of owner’s conduct risk is very severe. When i = 1 above, the political risk in the host country is very severe, while for i = 2, 7, the legal risk and the owner’s behavior risk in the host country are both very severe. While other risks respectively make the corresponding judgment, the fuzzy risk matrix of the whole system is: ⎡

0.75 ⎢ 0.35 ⎢ ⎢ 0.05   ⎢ ⎢ R = ri j = ⎢ 0.05 ⎢ ⎢ 0 ⎢ ⎣ 0.05 0.05

6.6.2.2

0.15 0.45 0.15 0.15 0.1 0.15 0.45

0.1 0.15 0.45 0.45 0.15 0.45 0.15

⎤ 0 0.05 ⎥ ⎥ 0.35 ⎥ ⎥ ⎥ 0.35 ⎥ ⎥ 0.75 ⎥ ⎥ 0.35 ⎦ 0.05

(6.3)

Determination of the Risk Weight P

In this paper, AHP is used to determine the weight of evaluation index. The advantage of this method is to compare the risk factors of all aspects of the project in a “pair comparison”. Because the “pair comparison” is more accurate than “one to multiple”, its accuracy is much higher, thus it can avoid the risk of directly assessing multiple risks. The introduction of a variety of risk allocation matrix P = {Pi} (i = 1, 2, . . . , 7)

∼

(6.4)

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6 Project Risk Management



pi = 1

(6.5)

The specific calculation steps are as follows: (1) Build an AHP structure. First of all, we take the seven major risk factors of overseas projects as the basic evaluation indicators, and in order to better determine the appropriate degree of weight, we introduce three intermediate evaluation indicators of maturity, local safety and project profitability to establish risk factor weight tree system as a hierarchy analysis structure. A quantitative model is established by quantifying project risks as shown in Fig. 6.6 below. (2) Construct judgment matrix. After the establishment of the hierarchical structure model, the judgment matrix needs to be constructed according to the subordinate relations of the upper and lower levels, that is, judging its importance through various levels. Here we use “pair comparison” 9 scale method in Table 6.5 to assign values. (3) Calculate the relative weight of each element and test the consistency of judgment matrix. To verify the rationality of the “pair comparison” of the weights obtained, the consistency of the judgment matrix needs to be verified. When CR < 0.1, it is considered that the consistency is satisfied. When CR ≥ 0.1, the matrix should be properly modified until a satisfactory consistency is obtained. (4) Introduce the weight component of the risk weight matrix {P}.

Fig. 6.6 Project risk factor weight tree hierarchy

6.6 Use Fuzzy Set Theory to Make Risk Analysis Decisions Table 6.5 The “pair comparison” data for calculating the risk weight matrix {P}

Grade

“Pair comparison” grade

1

Absolutely important

2

Fairly important

3

Comparatively important

4

Slightly important

5

Equal important

6

Slightly important

7

Comparatively important

8

Fairly important

9

Absolutely important

237

Table 6.7 shows the “pair comparison” data when calculating the risk weight matrix {P} of the evaluation index by the analytic hierarchy process. The weight of the final evaluation index {P} is: {P} = {Political risk, legal risk, economic and financial risk, cultural risk, contract risk, risk from inside enterprise, and risk from the owner} {P} = {0.1319, 0.0908, 0.0822, 0.1496, 0.1652, 0.2972, 0.0831}

(6.6)

For different project environments, the “pair comparison” data are included in the risk weight matrix {P} of the evaluation index. Equation (6.6) is the weight matrix of all kinds of risks in the risk management in this particular project.

6.6.3 Fuzzy Set Project Risk Decision The fuzzy evaluation matrix {E} of the comprehensive risk of the project is the product of (6.6) and (6.3). {E} = {P}[R]

(6.7)

{E} is a fuzzy evaluation matrix of a 4-element comprehensive risk of the project. The 4 elements represent the four risk levels of “very severe (VS), rather serious (RS), slight serious (SL) and negligible (NG)” fuzzy membership. If {E} = {0.72, 0.18, 0.08, 0.02} of an item means the fuzzy evaluation of the comprehensive risk of the item, we can come to the conclusions as follows. The fuzzy membership degree of “very severe” (VS) is 0.72. The fuzzy membership of “rather serious” (RS) risk is 0.18. The fuzzy membership degree of “slight serious” (SL) is 0.08. The fuzzy membership degree of “negligible” (NG) is 0.02.

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According to the principle of max (E), the risk degree of the project is “very severe” and the fuzzy membership is 0.72.

6.6.4 Case Study Case 6-6 Fuzzy Decision on Investment Risk of Overseas Projects Table 6.6 lists typical examples of overseas projects for us to make specific analysis. For the sake of simplicity, we only use the example of fourteenth—the huge loss of Saudi Mecca light rail project as below. A construction contractor in China announced to the public in 2010 that due to the contracting of the Saudi Mecca light rail project, and the actual construction expenditure greatly exceeded the contract price, resulting in a loss of $640 million. The local Ladenti Railway Construction Group quoted at $2.7 billion, the Chinese offer $2.2 billion, and eventually signed a contract for $1.77 billion. The quote was based on the cost of light rail in Guangzhou offer. The contract type was EPC+O+M, handling a whole package of design, procurement and construction, moreover, to provide the operation and maintenance. However, the owner invited UK design units to design and order a large number of European control equipments at prices much higher than the original contract budget. The Chinese side failed to take effective measures for leading and prevent the situation of breach the contract. Many scene situations are not effectively priori considered: workers have limited daily working hours and cannot work overtime for such a short construction contract term of only 16 months; winds and sand on site, high temperature (up to 60 ºC), lack of water, Ramadan period, no one working and all transport are forcibly suspended; poor cooperation and communication with each other, demolition difficult, slow construction progress etc. also the underground pipe network and land requisition and demolition have seriously lagged. The consequence of losses causing by above factors is also borne by the contractor. Can the project claim for breach of contract? How to claim? Is it possible project likely to take measures for protecting the contractor before signing the contract, such as the compensation of the maximum contract price to limit the contractor’s losses? (1) Fuzzy risk analysis of the Mecca light rail project in Saudi Arabia a. Determination of project risk matrix [R]. i = 1, R = {0.35, 0.45, 0.15, 0.05} The political risk in Saudi Arabia is more serious. i = 2, R = {0.05, 0.15, 0.45, 0.35} The legal risk in Saudi Arabia is mild.

6.6 Use Fuzzy Set Theory to Make Risk Analysis Decisions

239

Table 6.6 List of typical examples of overseas projects No.

Project name

Country

Project mode

Project implementation results

1

A 150 MW power station project

Indonesia

BOOT

It has become a successful example of infrastructure construction in the country and attracting foreign investment

2

A bridge project

Bengal

EPC

Completed on schedule

3

A bridge project

Sudan

DB general contracting

Project completed ahead of schedule inspection

4

A power project

India

EPC

Completed on schedule, the government spoke highly of it

5

A highway project

Afghanistan

EPC

Completed on schedule, to be followed by a number of projects

6

A Mengba mine project

Bengal

EPC

Project completed and transferred normally

7

Some western railway reconstruction project

Venezuela

EPC

The project is delivered normally and maintain long-term cooperation with the owners

8

A subway project

Iran

Electromechanical system part of EPC

Duration of the project is delayed, but follow-up project opportunities are obtained through the social benefits achieved by the project

9

S building project

Sudan

EPC

Project cost serious overruns

10

A country on the 3rd highway upgrade project

Africa

Construction general contracting

Contract management mistakes lead to delays in construction

11

A country power station expansion project

Africa

Construction general contracting

Serious delay in the construction period, the owner suspended the contract (continued)

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Table 6.6 (continued) No.

Project name

Country

Project mode

Project implementation results

12

A marine platform manufacturing project

Thailand

Construction general contracting

Unfinished contract works, the owners terminate the contract

13

A power station project

Nepal

EPC

Blind bidding, research is not sufficient, failed to communicate with the owners

14

A light rail project

Saudi Arabia

EPC+O+M

Although the project was successfully completed, it suffered serious losses

15

A highway project

Poland

EPC

Low-cost bidding, contract risk prevention is not good, resulting in payment of project money and a large number of contractors disbursement, the final project was suspended, caught in the dispute between the two parties

i = 3, R = {0.05, 0.15, 0.45, 0.35} Saudi Arabia’s economic risk is mild in the project country. i = 4, R = {0.75, 0.15, 0.1, 0} Saudi Arabia’s cultural risk in the project country is extremely high. i = 5, R = {0.75, 0.15, 0.1, 0} The contractual risk of Saudi Arabia in the project country is very serious. i = 6, R = {0.75, 0.15, 0.1, 0} The project our own business risk is extremely serious. i = 7, R = {0.35, 0.45, 0.15, 0.05}

6.6 Use Fuzzy Set Theory to Make Risk Analysis Decisions

b.

c.

241

The risk of Saudi property owners in the project country is more serious. The introduction of risk weight matrix formula (6.6). {P} = {political risk, legal risk, economic risk, cultural risk, contract risk, enterprise’s own risk, owner’s behavior risk} = {0.1319, 0.0908, 0.0822, 0.1496, 0.1652, 0.2972, 0.0831}. The fuzzy evaluation vector of (6.7). {E} = {P}[R] = {0.1319, 0.0908, 0.0822, 0.1496, 0.1652, 0.2972, 0.0831}× ⎡ ⎤ 0.35 0.45 0.15 0.05 ⎢ 0.05 0.15 0.45 0.35 ⎥ ⎢ ⎥ ⎢ 0.05 0.15 0.45 0.35 ⎥ ⎢ ⎥ ⎢ ⎥ ⎢ 0.75 0.15 0.1 0 ⎥ ⎢ ⎥ ⎢ 0.75 0.15 0.1 0 ⎥ ⎢ ⎥ ⎣ 0.75 0.15 0.1 0 ⎦ 0.35 0.45 0.05 0.05 E = {0.5429, 0.2145, 0.1713, 0.0713}

Max [E] the risky extremely severe fuzzy membership of 0.5429 in the VS segment where the risk is “very severe”, which indicates that it is highly risky and undesirable to invest in the project. (2) Project risk fuzzy quantified assessment case verification According to the 15 cases as shown in Table 6.6, we construct 15 evaluation index matrices Rijk of (6.3) respectively, where the dimensions of Rijk are = 1, 2, …, 7; j = 1, 2, 3, 4; k = 1, 2, …, 15; and the evaluation vector {E} of the comprehensive fuzzy risk is the matrix product of the evaluation index weight matrix {P} and the evaluation index matrix [Rijk ]. Using the case of Table 6.6, we calculate the value of the evaluation vector E of the project fuzzy risk quantitative management after calculation through (6.3), (6.6) and (6.7). The analysis is shown in Table 6.7 fuzzy quantitative assessment of the case validation. (3) Application fuzzy risk comprehensive assessment process conclusion a. When decision making of project selection, the fuzzy evaluation matrix {E} of the comprehensive risk of the project could provide the distribution of the fuzzy membership of the project in different risk degree in the section. Among them, the region of max {E} in the section of (VS, RS, SL, NG) represents the degree of the actual risk of the project, so as to provide the decision with comprehensive risk evaluation support. b. Except the location of max {E} can describe the risk level of the project as a whole, the fuzzy membership degree can further indicate the extent to which the overall project risk belongs to the region in section (VS, RS, SL, NG). c. The quantitative fuzzy comprehensive evaluation of project risk is an attempt of uncertain quantitative analysis, which can be used for both pre-evaluation and

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Table 6.7 Fuzzy quantitative assessment of the case validation No.

Project name

Max{E}

Membership

Project implementation results

Verification analysis

1

A 150 MW power station project

NG

0.6062

It has become a successful example of infrastructure construction in the country and attracting foreign investment

Fuzzy quantitative assessment and actually match

2

A bridge project

NG

0.3765

Completed on schedule, the government spoke highly of

Fuzzy quantitative assessment and actually match

3

A power project

NG

0.4044

Project completed ahead of schedule inspection

Fuzzy quantitative assessment and actual match

4

A power project

NG

0.4158

Completed on schedule, the government spoke highly of the Project

Fuzzy quantitative assessment and actually match

5

A highway project

NG

0.4044

Completed on schedule, to be followed by a number of projects

Fuzzy quantitative assessment and actually match

6

A Mengba mine project

NG

0.3633

Project completed and transferred normally

Fuzzy quantitative assessment and actually match

7

Some western railway reconstruction project

NG

0.4044

The project is delivered normally and maintain long-term cooperation with the owners

Fuzzy quantitative assessment and actually match

8

A subway project

VS

0.3933

Duration of the project is delayed, but follow-up project opportunities are obtained through the social benefits achieved by the project

Fuzzy quantitative assessment and actually match

(continued)

6.6 Use Fuzzy Set Theory to Make Risk Analysis Decisions

243

Table 6.7 (continued) No.

Project name

Max{E}

Membership

Project implementation results

Verification analysis

9

S building project

VS

0.4708

Project cost serious overruns

Fuzzy quantitative assessment and actually match

10

A country on the 3rd highway upgrade project

VS

0.4104

Contract management mistakes lead to delays in construction

Fuzzy quantitative assessment and actually match

11

A country power station expansion project

VS

0.3671

Serious delay in the construction period, the owner suspended the contract

Fuzzy quantitative assessment and actually match

12

A marine platform manufacturing project

VS

0.3849

Unfinished contract works, the owners terminate the contract

Fuzzy quantitative assessment and actually match

13

A power station project

VS

0.4541

Blind bidding, research is not sufficient, failed to communicate with the owners

Fuzzy quantitative assessment and actually match

14

A light rail project

VS

0.5429

Although the project was successfully completed, it suffered serious losses

Fuzzy quantitative assessment and actually match

15

A highway project

VS

0.4831

Low-cost bidding, contract risk prevention is not good, resulting in payment of project money and a large number of contractors disbursement, the final project was suspended, caught in the dispute between the two parties

Fuzzy quantitative assessment and actually match

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6 Project Risk Management

post-evaluation of the projects. The degree of risk where max {E} is located is more accurate than the regular risk assessment of project. However, the definition of the value of fuzzy membership is still to be verified by more theoretical work and practice in the future. Summary The purpose of this chapter is to provide readers with a systematic understanding of the content, analysis and countermeasure strategies of project risk management. Project risk management requires the identification of project risks, the qualitative and quantitative analysis of risks, and the decision-making for responding the risks. Project risk management is not only implemented in the project implementation process, but in practice it is more importantly in early stage feasibility analysis for decision-making to launch the project. As the project is carried out under uncertain environment, the early stage risk decision-making taking uncertain factors into consideration and project’s early-stage risk considering the risk management during project implementation become the focus of the problem. The project risk management firstly comes from the identification of the risk. The countermeasure to the risk is often based on the analysis of the risk itself, which depends on the qualitative identification of the characteristics of the risk itself and the quantitative impact to the project by the risk. In major projects, quantitative analysis should still be carried out under uncertain conditions of the system. The probability methods of risk analysis and decision-making (including decision tree and Monte Carlo simulation) and the application of fuzzy set theory to risk decisionmaking introduced in this chapter are practical tools for quantitative project risk management. Probabilistic approach to project risk issues can often be achieved through economic means that the impact of risk to the project can be assessed by potential profitable economic indicator “expected monetary value” (EMV). The method of risk investment decision and decision tree of weighted average sensitivity introduced in this chapter are all implemented by EMV method. At the same time, the application of EMV method has illustrated by the case of venture capital investment decision of the project. According to Table 6.7, the results of fuzzy set method have a high similarity in the practice with project implementation and investment decision in many high-risky overseas projects. Theoretically, the main content of fuzzy set method is to identify various types of risk in the evaluation of the weight factors and the description of the severity of various types of risk. A clarified procedure of forming the method is available. Most important is that to form fuzzy expression by fuzzy set method is less sensitive to the final assessment results. Even though there is some deviation in the value of the fuzzy expression, the final evaluation result can be kept almost unchangeable. Therefore, the method is rather stable in evaluation results and the fuzzy set method of project risk decision seems to have its broad application prospect.

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245

Review Questions (1) Why does project risk analysis and management determine the success or failure of a project? The project risk management should be considered by system approach, how many steps it is divided into? And what is the specific content of each step? (2) For project risk comes from the uncertain of project environment, then to understand why project risk management must consider all kinds of uncertainties in project implementation environment? How to realize the management of each above mentioned step under uncertain factors? (3) In practice, the most important issue in project risk management is the investment decision of project, how to make risk decision of project under uncertain risk condition? Why the EMV, which has taken weighted sensitivity average, can be used for risk investment decision? (4) Why project risk management must be combined qualitative and quantitative analyses? What are the similarities and differences between the qualitative method based on probabilistic theory and the essence of quantitative method based on fuzzy theory? (5) How to understand the EMV expected monetary value of the project, decision tree decision-making method and Monte Carlo simulation method is based on the theory of probability-based risk qualitative method? At what key points did they introduce the theory of probability theory? (6) How to understand the essence of project risk factors be expressed by fuzzy set? Why fuzzy set method can control the characteristics of various uncertain risks but also can ensure the accuracy of results of the decision-making? How to understand the physical meaning of risk matrix and risk factor weight matrix in project risk decision based on fuzzy set? Then further understand how the weight matrix of risk factors is formed from the risk factor by the analytic hierarchy process from the “pair comparison” of the stratification factors? Homework (1) Describe the content and steps of project risk management, and give examples to illustrate the management contents of each step. (2) Describe the essence of project risk analysis and decision making using probability theory. Try to explain why the risk of air plane crashing with serious consequences and people still dare to ride. (3) Describe the essence of decision tree analysis using probability theory. Give an example to illustrate the application of decision tree to project decision making and explain the meaning of each step. (4) Describe the nature of the expected monetary value EMV of the project. Give an example to illustrate the application of EMV for project decisions and explain the meaning of each step. (5) Describe the essence of the Monte Carlo simulation method. Give an example to illustrate the application of the Monte Carlo simulation approach to project decision making and to illustrate the meaning of each step.

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(6) Describe in essence the application of fuzzy set theory to risk analysis and decision-making. Why fuzzy set method can be more ideal and realistic to form the final decision-making results?

Further Reading 1. Chapman, C., Ward, S.: Project Risk Management: Processes, Techniques and Insights. Wiley, Hoboken (2007) 2. Saaty, T.L. The Analytic Hierarchy Process. McGraw Hill Inc. (1980) 3. Lin, S.: Fuzzy-AI Model for Managerial Science, Key Note Speech, Proceedings of PMI World Research Conference. Warsaw (July 2008) 4. Lin, S., Wenyan, Z.: Decision traps and fuzzy quantitative risk management of overseas projects. ICE J. Civ. Eng. Innov. 5(1), 2940 (2011) 5. Lin, S.: On paradox of fuzzy modeling: supervised learning for rectifying fuzzy membership function. Artif. Intell. Rev. 23, 395405 (2005) 6. Nutt, P.C.. Why Decisions Fail. Berrett-Koehler Publishers Inc., San Francisco (2002) 7. China Railway Construction Mecca huge loss of 4.1 billion. New Century Weekly, 2010.11 (in Chinese) 8. Sina Car, SAIC Mergers Sangyong After All [EB/OL]. (20090305). www.sina.com.cn 9. Chao, Z., Shouqing, W.: Case: Analysis of China’s Foreign Contracted Projects. China Construction Industry Press, Beijing (2007). (in Chinese) 10. Ming, B.: International Engineering Management. Dalian University of Technology Press, Dalian (2004) (in Chinese) 11. Financial Channel. United States General Motors South Korea’s Daewoo Motor Co. Merges [EB/OL]. (20020430) www.news.xinhuanet.com (in Chinese) 12. Chao, W., Yuqing, M., Shouqing, W.: Risk Identifications and Analyzes of International Engineering Project. Proj. Manag. 8, 4451 (2011) (in Chinese)

Chapter 7

Project Management Under Internet + AI Era and Knowledge Economy

Reading Guide (1) Understand different mission of enterprise under industrial economy and under knowledge economy. (2) Understand how a successful enterprise maintains sustainable development under knowledge economy. (3) Understand the program of studies for project management under digital era and knowledge economy. (4) Understand how digital economy is coming with the example of Jingdong 618. (5) Understand how AI and expert system work for engineering design purpose. (6) Understand how an intelligent engineering system works. Facing Digitization of Project Management As the progress of science and technology, we are entering into the Internet digital era. The new generation of project management will be implemented on the Internet platform, where the layout, planning, implementation, tools, control and operation will be carried out through system analysis and structured implement methodologies. The essentials of traditional project management are to make and transfer a series of decision through hierarchical framework of “organization” on the real platform for the implementation of project. Nevertheless, the subversive impact of Internet has seriously changed the ecology of project management. Under VUCA nowadays, the strictly theoretical based “project management” is no longer sufficient, and it needs to be supplemented by “project governance” based on softening skills with the principles of “softening of theorem” and “hardening of knowledge”. As a matter of fact, “organization” is just a real tool for transferring information; however, on the Internet platform, it is possible to share, reproduce and transfer information top down and bottom up to each professional sector in real time basis, and realize the “seamless and high efficiency operations” of all the procedural items as an “organization” of project management during its implementation.

© Shanghai Jiao Tong University Press and Springer Nature Singapore Pte Ltd. 2020 S. Lin and D. Huang, Project Management Under Internet Era, https://doi.org/10.1007/978-981-15-2799-9_7

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Case Guide In January 2019, the directorial board of automobile company A was decided to manufacture one million cars in the year of 2020. The decision is offered to CEO Mr. B; then, how does Mr. B realize his mission through the organizational behavior under Internet condition? The organizational chart is hierarchically performed by different nodes in each level, then the interactions between nodes in each level for transferring information top down and bottom up, then, to realize the overall management to the mission of company A in 2010. The CEO Mr. B has five vice CEOs: C1, C2, C3, C4 and C5, responsible in procurement, production, technology, financial and supporting respectively, Mr. B operates the mission of company A in 2020 through coordinating these vice CEOs in offering different information and accepts their feedback information on the Internet platform in real time base, thus controlling and implementing the tasks of project management in 2020. Let’s take how Mr. B contacts with vice CEO C1 as an example. B offers C1 the procurement tasks of 2020 for preparing all the materials and facilities of outsourcing. Since vice CEO C1 has his/her department directors C11, C12, C13, C14, …, responsible to the purchasing tires, steel plates, engine, electronic facilities, … respectively. Then C1 reproduces information and offers C11 to purchase 5.2 million of tires (each car will equip 5 tires including one backup and other 200 thousands tires are spare tires); offers C12 to purchase 520 thousands of thin steel plates (0.5 ton thin plate for each car); offers C13 to purchase 1.02 million of engines (20 thousands engines for backup) and offers C14 to outsourcing 1.01 electronic and communication facilities (10 thousands for backup). Let’s further take department director C11 as an example. His/Her task is purchasing 5.2 million of tires, so C11 needs to operate with bidding and tendering process. He/She may further mobilize his/her subordinates section head C111, C112, C113, … for publicizing and call for bidding, for supplier selection, for tender document evaluation and for procurement contracting. C11 also needs to feedback information of when and how much the budget required, of when and how big does the warehouse space required as well as of when will the transportation be required by the purchase of tires to the vice CEO C2, C4 and C5 respectively. The nodes at different levels hierarchically in the organizational chart on the Internet platform represent physically different people in each level of this chart; their function is just accepting information, reproducing information and transfer these information top down and bottom up in real time. At the node of the chart, the reproduction of conventional information can be realized by defined software from regular professional procedures; the reproduction of information with human decision making can also be realized by prescribed artificial intelligence software block in particular posts of the organizational network chart. The same situation will be happened in different nodes throughout the organizational chart. Therefore, the realization of organizational behavior of project management under knowledge economy and digital Internet era can be realized totally and automatically by the information transferring on the Internet platform, which may offer subversive impact on the traditional mode of project management under industrial economy era.

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7.1 Two Types of Economy and Their Characteristics The industrial economy was started since the Industrial Revolution took place in Western Europe since 18th century. The characteristics of industrial economy are based on implementing the circulation of social production principle “capitalproduction-market”, where the enterprise possesses real capital (cash, bond, or other kinds of hard properties), by which the man power, materials, machine tools and technologies can be available, then the product manufacturing follows up for circulating the product in the market for profits. The repeated process of social production principle forms the basic rule in industrial economy society. For steadily carrying out this social production principle, the enterprise needs to find their appropriate products and to form all the production processes as a “project”. Through proper organized all of these production resources and procedures, the “project” can thus be implemented. A series of strict management rules are necessary for the enterprise under industrial economy for carrying out this operation, by which the general principles of traditional project management under industrial economy is founded. The typical representation of industrial economy in reality was the Taylor’s production line in early 20th century in the car manufacturing. Taylor’s production line has gathering all the resources with various regulations and rules along the line and shaping the basic principles of project management, which represents the productivity of the enterprise in that era. The success of an enterprise not only depends on the project management itself, but also depends on the assessment of project status in great extent. There are many attributes for establishing an enterprise: firstly, one should have resources (capital, human resource, machine tools, materials etc.); secondly, one should organize these resources and transfer it into productivity properly; thirdly, one should identify what does the enterprise doing. What are its mission, value and expected contribution to the society? Actually, project management can play a role as to bridge up the success of the enterprise with all of those attributes. As a matter of fact, every enterprise activity can be regarded as a project activity under defined concepts, theorem, methodologies, procedures and tools. In other word, project management is the very basis of enterprise vitality and insurance of its market success. The knowledge economy was emerged in late 20th century in the United States due to the development of science and technology, especially the Internet and information technology. The characteristics of knowledge economy can be concluded that, not only real product but also virtual service product occupies the majority of social production and contribution to the GDP of a country. Where, the production is no longer operated on the real platform with real capital and real resources, but on the virtual platform with virtual assets (knowledge) and virtual means of resources—the creativity, innovative ideas and competitiveness of the products in the market. The mission of enterprise in knowledge economy is to mobilize its staffs for the transformation of their virtual knowledge assets into creative and innovative ideas for making their real and virtual products to be competitive in the market for earning the profits. The characteristics of knowledge economy are based on

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the circulation of social production principle—“knowledge—creativity—innovative ideas—competitive product—market sale”. There will be no longer strict rule and enforcement management framework, and the working rule can be rather flexible. Based on information, management means to make a series of decision under uncertain environment. In the past, information was shared in a real platform yet not in a real time base. It always delays during its transferring and processing between different departments of the enterprise, which causes less efficiency of the management. Under the knowledge economy and Internet environment, every management related information is distributed and transferred on the Internet platform in the real time basis, which can be accessible by different departments simultaneously. Based on mass cloud memory, big data processing and AI reasoning, managerial data and information can be fully utilized to create powerful productivity, thus greatly increasing the efficiency in project implementation. In industrial economy, each enterprise activity can be regarded as a project activity under defined concepts, procedures and tools. However, in knowledge economy, due to the enterprise possesses virtual knowledge assets and to process project through creative and innovative ideas for real and virtual products, the working platform and operating objects are different from previous one in industrial economy, the operation concepts, methodologies, procedures and tools in project management under digital knowledge era will have subversive changes than before. One needs to accommodate such situation and take corresponding updated measures. It is worth pointing out that even though the project environment has dramatically changed, but the basic principles and theorem of project management remain unchangeable, and project management principles remains the very basis of vitality and insurance of market success of the enterprise under the digital Internet era.

7.2 Business Mode Internet Era and Knowledge Economy It is recognized that the project management office (PMO) under knowledge economy and Internet era is widely spreading in different professional industries. There is an irreversible trend that Internet will be used as a fundamental information platform for project management practice in each field. What should we do for pushing forward the project management profession under the Internet era? Doubtlessly, the business modes as well as the organization governance, either in project, program level or in portfolio level will be consequently changed. One cannot underestimate the impact of Internet environment to the former way of project management under industrial economy. This is why as the project management strategist, and PMO needs to take corresponding measures against it as shown in later Sect. 7.8. The economic development has undertaking the path characterized from “marketdriven” to “requirement-driven”. The position change of individuals under Internet era is quite obvious; their career will change to the path of “knowledge-innovationindependence-personality-vision”. For their social position will be changed from “company-staff” to “platform-individual”, one may extend his/her ability to the

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extreme on the common social Internet platform and transform one’s working rule from “passive” to “active”, or from fixing in definite organization to face the whole society for one’s contribution. One may rely on his/her social creditability, which is derived by social big data through Internet, and following to the path of “behaviorcompetence-creditability-personality-wealth” for obtaining his/her personal wealth and benefits. The relationship between people under Internet era will be no longer through “networking”, but through definite “rules”. The business rules are diversified upon individual client’s need along the path of “creativity-representationdisplaying-ordering-design-production-clients”. Under Internet era social believing will be evolved along the path of “rule-order-morality-believing”, then the thinking philosophy and action of people will be greatly restrained by the Internet platform and Internet environment. The social industrial structure under Internet era is going to change from traditional one to Internet-based one. Moreover, the artificial intelligence technology will be further applied in the operations of different management stages for instant decision making by big data statistical analyses, machine learning and intelligent fuzzy reasoning etc., and the latter one represents “softening of theorem” under digital era for dealing with uncertainties in real world. Thus, involving cloud calculation and Internet of things, it forms a comprehensive solving framework of “Internet + AI” platform, which may heavily destroy existing business mode. Furthermore, there will be the evolution of “Internet-movable Internet-Internet of things” to form a comprehensive platform of Internet ecology for promoting the productivity of the society. Certainly, it will deeply influence to the managerial philosophy and methods during the treatment of information in project management. As a matter of fact, management processes can be understood as a series of decision making, in other word, a process of maneuvering information and creating new information, the only difference is that in industrial economy era, and such information processing and creating are performed on a real platform, but in knowledge economy era, it is on a unified “Internet” platform. Such as the organization in real platform can be represented by headquarter, different departments and its subordinate sections hierarchically to perform different information processing capabilities. However, on Internet platform, the same function of information processing can be also consummated and perform the organization function by sorting, classifying, distributing, districting, leveling and re-generating of information between different levels for performing the organizational roles. Entering into Internet era, the subversion to project management ecology and environment will heavily influence to the methodology of solution frameworks of project management, program management as well as portfolio management. For “project management”, all the operation procedures will be completed through internet, and the database (including cloud base) should be built to be real-time accessible to all procedures during the life cycle of the project. The real time transferring of information between different departments makes it possible to accelerate the processes and thus rise efficiency of project management works. For “program management” under Internet platform, it is possible to access millions of transactions (projects) in parallel with the strictness of reviewing, monitoring, controlling and updating rather

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than conventional “program management” to handle just at most dozens of projects. The management philosophy and the method of maneuvering information and data for numerous projects from unified (or distributed) data base (or cloud data base) have totally changed. For “portfolio management” under Internet platform, it is also possible to access and compare numerous initiatives under strict criteria of selection by specified requirements, which is impossible to realize in the past. All above mentioned statements show that the emergence of Internet platform provides us the possibility to carry out comprehensive best practice and high efficiency of project management. Nevertheless, the modes and procedures of project management under Internet era have been subverted; the corresponding project management mode is subjected to big challenges and needs to be rectified. Doubtlessly, under digital knowledge economy, the main asset of an enterprise is no longer real one, but virtual knowledge. An innovative enterprise is based on creativity, and it also needs the competence of transferring creativity into product competitiveness in the market; correspondingly, the critical mission of an enterprise under knowledge economy nowadays is how can they transform their virtual asset “knowledge” to innovative ideas and finally become the market competitive real and virtual products serve for their clients. Therefore, for dealing with knowledge assets under digital era, all the knowledge and experiences of the enterprise should be carefully preserved in long term, which represents “hardening of experiences”. The future enterprise will become a knowledge-based organization with the potentiality of being an innovation initiator and an innovation idea transferor. The emergence of “block chain” implies a revolution in project management under Internet environment, which is based on distributive accounting network and de-centralized concepts. As the development of digital economy and with weakening of organizational function, the decentralized network structure will make the global organizational risk approaches to minimum; in the meantime, the mutual coordination by each block and the function of individuals will be strengthened as well. Consequently, under Internet era, the subversion of professional chain seems to be happened from the chain of “producer-agent-consumer” to the chain of “consumerdesigner-producer”. Agent in the past business chain will be replaced by designer for satisfying numerous customized expectations and requirements. Certainly, the specifications and standards of project management throughout the world need to update and modify in its contents accordingly. As Internet era is inevitably approaching to our real life and causing dramatic changes, based on successful best practice of numerous projects. We need to search the essentials and new tendency of project management under Internet era and try to develop a new standard or practice guide for accommodating the tendency of development. Through examining of some Internetbased enterprises, it is recognized that the necessity of promoting this new approach of project management and guiding it for its further healthy development. We suggest that further investigation along this direction in totally “digitization” transformation of whole profession should be promoted. It needs to establish corresponding transformation infrastructures, necessary R&D works as well as follow-up to solve practical problems during the specific professional transformation. In which the joint efforts of task force team from related enterprises and institutions are needed for deepening the studies of the problem.

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7.3 Sustainable Development of Successful Enterprise Under Knowledge Economy If you are a successful enterprise today, but you are not necessarily to be the successful enterprise tomorrow. A lot of practical examples show the truth that the vitality of an enterprise is deeply planting in its technical and business potentiality of accommodating to future market development. Under knowledge economy and VUCA era, market reveals much changeable, based on market information, the enterprise needs to use its knowledge assets for taking innovative strategies and reform approaches for covering the inconsistency from market needs. The rule of “knowledge—innovative ideas—new market strategy—core competitiveness—new products—new markets” will rescue the enterprise from the market risks and continuously to maintain its sustainability. Once the enterprise insists its traditional operation mode, which violets to the market needs, then failure is inevitably to occur. Let us take the experiences of how Zhen-Hua Heavy Industry, Ltd., a successful machine-manufacturing enterprise, characterized in producing heavy mechanical installations that have taken re-consideration for her sustainable development after subversive market changes. Its experiences in successful operation and maintaining sustainable development by re-orienting to a group of new products under the market changing, have widely attracted eyes from the professional community to the worldwide. In 90 s of last century, the development of Zhen-Hua enterprise approaches to extreme, while: (1) The total capitals and fixed assets including production and transportation installations have increased dramatically to be doubled within two years. (2) The production sale increases 30% per year, and the world market occupation of its main product container crane approaches 70% more. (3) Organizationally, the staff number, and their technical level have insistently increasing. (4) Diversifying their products for covering different kinds of heavy machinery, extending their available markets, also exploring new markets. (5) The enterprise has greatly increasing its capability in resistance of risks, the “whole business operation chain” including design, production, manufacture, sale, transportation, assembly, testing and after sale service, has established. (6) Greatly increase market reputation of the enterprise and its trade-mark. The successful development of the enterprise due to external favorable conditions, such as the expansion of world market needs in container crane. As regard to internal factors, the successful development of the enterprise is caused by strong market competitiveness due to: (1) Focus on providing container’s crane all over the world, for accommodating the world economic growth (Fig. 7.1). (2) Low product cost based on low price of labor and land. (3) Short delivery period is due to standardization of design procedure, powerful manufacturing capacity, core competitiveness technology of group shipping of

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Fig. 7.1 Providing products on container’s crane

(4) (5) (6) (7)

the crane without re-assembling on site, thus accelerate of capital circulation flow, and causing lower operational risks (Figs. 7.2 and 7.3). Reliable creditability in bank loan and other kinds of financing means, which guarantee the financial operation of the enterprise. Pay serious attention on talent cultivation, promoting technical development and exploration of new products and new markets. Sum up experiences and draw lessons from enterprise practices. Strengthening exchange and cooperation between enterprises at home and abroad. Advocate enterprise culture and spirit of cohesiveness for the enterprise.

Fig. 7.2 Integrated group shipping

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Fig. 7.3 Group shipping vessel crossing the golden gate bridge, USA

Nevertheless, as to world-wide economic depression in 1998, international navigation logistics degraded correspondingly due to decrease of international trade, which induced to serious dropdown in demand of new harbor construction and consequently container crane demand, what’s more, all advantages of enterprise were inactivated, such as cost increasing, market saturation, rough material inflation as well as exchange rate variation, etc. It means that the sustainable development of the enterprise was facing tremendous challenges. How to rescue the situation and maintain prosperity? The enterprise must go through the principle of “knowledgeinnovative ideas-new market strategy-core competitiveness-new products-new markets” to find the new way of sustainable development by exploring its new products and new markets. Sustainability under unfavorable environmental changes is an important subject facing to each enterprise; yet maintain sustainability is the only choice especially for large scale enterprises. Not only the revenue, profit and market occupation are the first prerequisites; schedule, cost and quality are the basic requirements in the second; clients’ satisfaction, minimum scope variation, bright corporation culture, smooth working procedures and value outlook are also have to be maintained. The sustainability thinking of the enterprise can be concluded as follows: firstly, to keep core competitiveness in exploring new products for accommodating new market demands; secondly, integrating resources and services both from upper to lower streams of the product development chain; and thirdly, entering into international market and exploring the international business through joint merging and acquisition with partners; lastly relying on technical innovation, the enterprise could totally re-structuring its business mode with innovative products. Followings are the details.

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(1) Targeting to offshore development for oil & gas exploration and production, keeping core competitiveness for exploring new products of: a. b. c. d. e.

Steel structures of large scaled marine bridges (Fig. 7.4). Heavy marine floating cranes (7500–10000 t) (Fig. 7.5). Explore various offshore platforms (Fig. 7.6). Bulk cargo loading and unloading machine (Fig. 7.7). Harbor loading and unloading machine (Fig. 7.8).

Fig. 7.4 Steel structures of large scaled marine bridges

Fig. 7.5 Heavy marine floating cranes (7500–10000 t)

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Fig. 7.6 Explore various offshore platforms

Fig. 7.7 Bulk cargo loading and unloading machine

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Fig. 7.8 Harbor loading and unloading machine

(2) Integrating resources and services both upward and downward in product development chain for providing engineering-procurement-construction (EPC) mode service, the enterprise will not only play a role as supplier, but also be responsible to scheme, planning, design and construction works in the “turn key” service. (3) Cooperated with another domestic harbor engineering corporation for carrying out merging & acquisition abroad or hold control share to well-known foreign engineering company, entering into international engineering market for exploring international business through EPC projects as a general contractor in planning, design and construction, also as a supplier in procurement, for obtain profits from different aspects. (4) Based on strong technical potentiality of the enterprise, it re-orients its function as from product supplier to system supplier, from providing hardware product to intelligent product combined with hardware and software. Moreover, the enterprise is being responsible to the construction of an automatic harbor. It is a symbol of new development that realizes the sustainability of the enterprise has crossed the stage of quantity increasing to a new stage of quality leap. The considerations of sustainability of Zhen-Hua Heavy Industry, Ltd. can be concluded as: Continuously exploring new products and new market by core competitiveness; integrating the upper stream and down-stream resources for EPC service and carrying M&A overseas for exploration in the international market. The symbols of a successful enterprise under knowledge economy are not just of those productivity, efficiency and revenue, which are necessary but not sufficient. A matured enterprise not only should hold a large percentage of market shares, but

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also need to possess the potentiality of ever increasing her market occupation rate. Therefore, knowledge, intelligence and innovation are necessary conditions needed for maintaining sustainability of an enterprise in knowledge economy and digital era. It also means that there is still a long way to go for a successful and matured enterprise for continuously improving her capability in maintaining persistent sustainable development under the challenges of digital era. We hope to aware those who are self-satisfactory by available enterprise achievements, to pay their attention to the market changes and business situation for restructuring and updating their strategic planning, especially under such a fast growing in technical advances and subversive impact on knowledge and digital era. If one ignores and under-estimates this problem, such as Apple i-phone replaced conventional phone; digital photo replaced sensitivity photo. The enterprise would never be matured enough and would never approach to its sustainable development.

7.4 Case Study Case 7-1 E-commerce and Logistics Technical progress is a driving force to improve our daily life, especially when we are entering to digital Internet era. It brings subversive changes in our life and changes social ecology and pushes business to operate from real platform to virtual one, and deal the objects from real to virtual as well. As regard to retail business, it is essential that tremendous improvement of the retail principle “cost-efficiencycustomer satisfaction” can be achieved through Internet platform. An e-commerce and logistics delivery company Jingdong 618 in China can be used as an example to show how successful a retail enterprise could be established a complicated system, which takes advantages of artificial intelligence, cloud calculation, data mining, big data and statistics, to cover whole processes of procure, sale, dispatching and service of delivery to client. Besides, based on the individual preference of clients, there is a “recommended system” serving to provide clients the information of commodities and corresponding suggestions. In application of pattern recognition and voice recognition, the JIMI client service robot of Jingdong 618 is also a best practice, where the technologies of machine learning, neuro-network, and natural language treatment have fully utilized for saving the cost of manpower as well as the to sustain the peak pressure of the business information treatment. The retail business system of Jingdong 618 is presented in Fig. 7.9, which comprises of input (PC, App, mobile etc.), searching system, advertisement system, sales promotion system, order system, commodity supplier system, supply chain system, payment system and logistics system. All of those systems need to withstand the data flow during peak pressure of their business, such as on October 1st national day of China, and there will be several billions of deals in e-business ordering. Actually, there are four challenges in sales promotion system: firstly, it is extreme mass data flow in the system net including some billions of commodities; secondly, there consists several dozen billions of information retrieval and transfer, which can easily

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Fig. 7.9 Retail business system of Jingdong 618

collapse the system; thirdly, real time response of the price changing, any delay will cause complain from the clients; fourthly, quoted price isn’t a simple matter, and one needs to calculate differentiation price from the others according to sales promotion rule. In 2017, Jingdong 618 combines functions of “technique + retail”, “trade-mark + retail”, “IP + retail”, “finance + retail” and “multi-terminal + retail”, linked with online and offline to promote the participation of consumers and trade-mark suppliers into common action, thus, transforms its role from an intelligent retailer to a retail infrastructure provider. The intelligent commodity sorting and searching system, dispatching and logistic system are another hot sport of Jingdong 618, in which there are compatible chain of business ordering system, man-less warehouse, automatic stereoscopic garage (Fig. 7.10), auto-sorting system and intelligent logistic robots/shuttle vehicles to form a comprehensive auto-sorting and dispatching system, and it strongly support the business success of the enterprise. Among the system, according to media report, supported by central sorting system, the auto-sorting system can deal with 71 thousand pieces of parcel per hour, replaced approximately 150 labor’s productivity per hour; auto-sorting process is performed by scanning the parcel when it arrives sorting machine, then delivers it to its destination. The intelligent logistic robots and shuttle vehicles (Fig. 7.11) are shuttling back and forth in sorting and dispatching hall, which perform powerful productivity of the enterprise. The successful practice of Jingdong 618 has verified that technology is not only a tool for the enterprise, but also the innovative driven force in its business growth, client satisfaction as well as in creative sustainable development. It is obvious that Jingdong 618 is a technical enterprise, which relies on technical progress to achieve

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Fig. 7.10 Internal view of automatic stereoscopic garage

Fig. 7.11 Working of shuttled vehicle each loaded 150 kg

business development. Through digital revolution, under “Internet + AI” ecology, it has been transformed from a traditional e-commerce company into an enterprise with intelligent e-commerce and logistics/delivery capabilities.

7.5 Program of Studies on Project Management Under Digital Era and Knowledge Economy We recognize that even though the emergence of digital Internet area will not totally change the basic principles of project management; however, the methodology, operation procedure and tools are changed. So we need further to study the new ecology of project management for its healthy development. Fortunately, a new generation of industrial talents, who are personally involved in the challenge of “Internet + AI”

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vortex, tightly related to his present job and professional responsibility in different fields is formed. The talents who are full of passion in innovation and discovery, and have had sound basis in IT and AI technologies, growing up and widely spread in different fields of digital practices in social and industrial applications. They are enthusiastically involved to the movement of studying the changes of project management under digital Internet era through their practice and they also realize that it is the great cause of development in modern project management. As to the next step, what we suggest to a researcher involved in the great topic of “PM under digital Internet era and knowledge economy” is that, for building the framework of our task, we may base on our present work, rectifying our understanding in this topic and following to the track below likely to 12 fundamental problems for establishing the theoretical and application system framework of modern project management in coming future. (1)

Why the renovation of business system management under digital Internet era is needed? (2) Your understanding of digital Internet era in knowledge economy—Why it is a subverted impact on the project management? (3) What are the characteristics of project management under digital “Internet + AI” era? (4) What are the competences and knowledge structures of a project manager needed in the coming future? What are the thinking philosophies (strategic and tactic) for a project management talent in the digital era? (5) What are the characteristics of “PM talent triangle” (including technical project management knowledge, commercial strategic analyses and leadership in each side) and its concrete contents under knowledge economy and “Internet + AI” era? (6) What are the differences of the rules defined in current PM knowledge system based on industrial economy and that of based on digital era and knowledge economy? Can you specify one by one in its “operation platform” and “dealing objects” changed from “real” to “virtual”? (7) Develop the project management procedures of e-business under digital Internet era and indicate the differences in managerial concepts, theorem, procedures, tools and operation with the former project management procedures. (8) Extending your understanding from (7) of the project management to ebusiness projects for program and portfolio management fields under digital “Internet + AI” era and in knowledge economy. (9) Identifying what the knowledge structure and competence of a project management talent under “Internet + AI” era are required. (10) What project management innovative measures should be taken for accommodating digital “Internet + AI” era? (11) Find out the differences in e-business project than before at: a. Project life cycle. b. Scope, WBS, and specific, measurable, achievable, relevant, traceable (SMART) principle.

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c. d. e. f.

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Project personnel and organization. Project planning, scheduling, implementation and control. Program management. Portfolio management.

(12) How to realize the totally “digitalization transformation” of project management for organizationally systematic implementation to a multi-functional universal enterprise? What are the infrastructures of this transformation? What are the R&D works which remain to be carried out? And what will be the details of specific applications (such as in tele-communication, in railway transportation, etc.) of this transformation? Above mentioned is the program of studies in “PM under digital era and knowledge economy”. Based on practices under digital era and tracing along the predescribed way of studies, our goals can be certainly achieved by the collective efforts of our updated PM talents.

7.6 Expert System for Airplane Structural Design 7.6.1 On AI and Expert System for Structural Design Based on AI technology, the knowledge which depends on the expert system can be effectively applied in engineering structural design. The design, manufacture, operation and testing of engineering structure need comprehensive knowledge, which has just partially reflected in codes and specifications. These knowledge depends on experience cumulated from the long-term practice by professional experts. As a matter of fact, the majority of such engineering experience is empirical, nonstructured (cannot be expressed by explicit analytic mathematical formulations), which causes the knowledge transfer during design a difficult problem. Engineering solution is a comprehensive and complex interactive process. Taking engineering design as an example, it is carried through conceptual initiation of object, preliminary design, detailed design, system modeling and optimization etc. It also needs multi-disciplinary knowledge and experience, while the AI, knowledge engineering will make it possible to form the framework of theoretical expression, explanation and treatment. When the knowledge is going to digitize and store into computer (hardening of knowledge) for applying in different situation of engineering design, it will play a big role for future application, as the expert system will also play the role in design by knowledge supports. It is worth pointing out that expert system supported by knowledge engineering can be widely and effectively used in many fields, such as chemical, medical, geological, meteorological, educational and military events in convincing diagnosis, explanation, decision making and treatment. It can be used for:

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Fig. 7.12 Knowledge capturing for knowledge base building

(1) Serve to the client with authorized consultation knowledge. (2) Serve to the client with rich shareable knowledge base and data base as the supporting environment of scientific and comprehensive consultation. (3) Consulting service to the client’s interesting problems by means of inference mechanism for inferring new knowledge. (4) Provide explanation, evaluation and prediction of various social and engineering problems, so that people can reasonably allocate and handle resources. The core problem is the methodology in digitization of knowledge and building the knowledge base for subsequent problem solving. Figure 7.12 shows the knowledge digitization for knowledge capturing and knowledge base building, where digitization transformer DT can be realized in different approaches.

7.6.2 Production System and Inference Network The basis of solution system of many expert systems is to match the defined problem with the simple rules as we called “IF-THEN-ELSE” production rule. It is called “rule-based system” for the known facts and the rules have been considered in software design in advance. Production system expresses expert knowledge by means of a set of rules. It has an expression as: IF(Fact 1 is true); (Fact 2 is true); ………… (Fact n is true);

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THEN (Conclusion fact n + 1 is true) (Conclusion fact n + 2 is true) ………… (Conclusion fact n + m is true) The total knowledge is expressed by rule table: RULES = (RULE 1RULE 2RULE 3 … RULE n)Use identifying structure as an example, the rule table of production system by LISP language can be expressed as the followings: (SET RULES (build rule table) (IDENTIFY 1 (IF (structure is riveted) AND (structure subjects to aero dynamic loads)) (THEN (structure is aeronautical or astronautical))) (IDENTIFY 2 (IF (construction needs fiber laying) AND (structure is non-metallic)) (THEN (structure is composite))) (IDENTIFY 3 (IF (structure is metallic) AND (material density is greater than 2.7)) (THEN (structure is aluminium structure))) The inference mechanism of expert system is expanded term by term by the knowledge rules from knowledge base, and makes it every possible to expand the identified facts. The inference process is carried out along inference network through “forward chaining” and “backward chaining” as shown in Fig. 7.13. In the inference network of Fig. 7.13, each node represents a fact or assert, connected by the arrow. The arrow is launched from one node to the other, such as in the figure that determination of aviation structure is ID1; determination of composite material structure is by ID2 and ID3 is for determining of aluminum alloy structure. The nodes in the bottom represent the original facts; the nodes at the top represent the assumed conclusion and the nodes in the middle are either the arrow launched out precondition, or the arrow ripping into for the conclusion. During inference process, the common used “backward chaining” method is a solving procedure starting from the un-vouched assumption and tries to prove it by finding the rules that can verify the assumptions and also the facts that the rules can be applied. In the contrast, the “forward chaining” method starts from a set of facts, followed by adding new facts and repeatedly trying to fit it with appropriate rules, terminated by utilizing all of the rules. Meanwhile, several new facts found by the solution process can be also used for stimulating other rules.

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Fig. 7.13 Inference network of structural cognition

7.6.3 The Building of Expert System for Airplane Structural Design It is well known that expert system is an important branch of artificial intelligence technology; expert system will certainly consist of an important constitutive part in the conceptual design of aviation structure. Let’s call back for the CAD of aviation structural, the optimal design integration (ODIN) and aerospace vehicle interactive design (AVID) systems developed by Langley Research Center of NASA possess the functions of synthesis, feedback and optimization during the global integrated design processes. Starting from the mathematical modeling of exterior geometric configuration of the air-vehicle, the calculation of aero-dynamics loading, selection of propulsion system, flying feature calculation as well as ballistic calculation etc. will be carried out. The final solution is the optimum one through weight appraisal. Above-mentioned procedures are repeated by the help of interaction feature and database capability. Expert system will certainly involve expert experiences and realize the structural design by means of knowledge base, data base and inference mechanism of the system.

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The potentiality of application of artificial intelligence technology in the CAD is high, especially in the conceptual design of air vehicle structures; expert system has its better perspectives. Since: (1) The conceptual design is the critical step in the preliminary design of structures, where the knowledge and experience of expert are particularly needed, and it is difficult to obtain by pure computer software. (2) For the designer it is difficult to interfere computer processing in design issues, therefore, the correctness of design cannot be checked by designer radically, rather than design expert system. (3) The design expert system is well developed to perform every puzzle facing to the designer, and it becomes an efficient tool of designer in design problem solving. (4) The design expert system is strengthened in conceptual knowledge rather than in mathematical formulations, which accommodates to conceptual design and preliminary design stage. The explanation of Fig. 7.14 can be shown as below: a. VENPLN represents the sub-system block-1 of geometric arrangement and planning; determine the general layout of the air vehicle, and calculate the main parts, such as the fuselage, wings and empennage by means of geometric software to determine the volume, area, rotational inertia, centriod and later aero-dynamic load calculation. The sub-system block-1 mainly for selecting optimum alternative of the aeronautic structure based on the rules specified by codes and experiences for satisfying the flying requirements of the airplane under the constraints of weight and size. In Fig. 7.14, the KBPLN, DBPLN and IMPLN represent knowledge base, data base and inference mechanism of planning respectively. b. VENPRO represents subsystem block-2 for the preliminary design propulsion system. It can determine the engine type, ratio of propulsion and initial weight during taking-off, so as to select propulsion, specific impulse and engine weight for the initial alternative. The block-2 will automatically check the characteristics of flight parameters. In Fig. 7.14, the KBPRO, DBPRO and IMPRO represent knowledge base, data base and inference mechanism of propulsion design respectively. c. VENSTR represents subsystem block-3 for the optimum structural alternative in geometrical layout, structural solution in safety and economy. Upon which the total structural sizes, different part weights, center of gravity and rotational inertia can be determined. In Fig. 7.14, the KBSTR, DBSTR and IMSTR represent knowledge base, data base and inference mechanism of structural design respectively. d. VENEQP represents subsystem block-4 for the final optimum selection of equipments in the air vehicle. Based on design requirements and the cost and functions, design decision are made including mechanical parts, apparatus of communication and electric installation of the air vehicle. In Fig. 7.14, the KBEQP, DBEQP and IMEQP represent knowledge base, data base and inference mechanism of equipment design respectively.

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Fig. 7.14 Design expert system framework for air vehicle

e. VENMNF represents subsystem block-5 for the optimum manufacturing planning development, aimed to determine the optimum solution in quality and cost under required manufacturing duration. In Fig. 7.14, the KBMNF, DBMNF and IMMNF represent knowledge base, data base and inference mechanism of manufacturing design respectively. The inference procedure and corresponding knowledge flow and data flow are expressed in Fig. 7.14, which is a mega system model supporting to multiple users environment with sufficient software supporting. Thus the design of bearing structural system of air vehicle can be carried out by using production expert system with the functional and material property information presented in structural design hierarchical tree as Fig. 7.15. Obviously, Fig. 7.15 represents a set of structural design solution, for determining the appropriate alternative, and one needs to travel the tree

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Fig. 7.15 Hierarchical information tree of aviation structural design

by means of “heuristic elimination rules” assigned by the designer in advance. The node can be selected as feasible alternative only if it can pass all the requirements through the tree traveling. The processes are shown below: IF (diameter of vehicle is greater than iooomm) AND (3d system is unstiffened shell structure) THEN (alternative is not feasible) IF (3d system is stiffened skin structure) AND (2d system is diaphragm) THEN (alternative is not feasible) It is concluded that engineering design is related to a broad comprehensive knowledge of multiple disciplines; the arts of design cumulated during long-term practice will not be mastered by a minority of design experts, as the development of computer science and artificial intelligence, the simulation of design arts can be gradually explored for providing scientific argumentation for higher design quality, such as the expert system presented hereby.

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7.7 Internet + AI Based Engineering Application Systems 7.7.1 Background Information The technology explosion is one of the characteristics of our era, while Internet offers subversive impact on the different fields of social life and essentially change the ecology of our life; moreover, the widely application of artificial intelligence technology has further made the automatic solution and decision making possible, which also changes the management issues in real time accessing and covering a broader field. It is doubtless that “Internet + AI” will dominate our future social productivity and achieve technical and economic efficiencies. The most realistic transformation of application systems are updating available systems into an intelligent one, i.e., to transform CAD into intelligent CAD; similarly, to transform MIS into IMIS, DSS into IDSS etc. AI can be simply illustrated as the technique of simulating the intelligence of human being by means of computer, including knowledge based expert system, problem solving theorem, robot system, vision ability, voice recognition and natural language understanding. From application point of view, it can be subdivided into two categories. (1) The combination of AI with hardware includes different intelligent robot system, including different kinds of intelligent machine, intelligent instrument and various intelligent hardware. (2) The combination of AI with software includes ICAD, ICAM, IMIS and IDSS etc. We will focus on discussion the AI combined with software systems for engineering applications in design, planning and managerial decision making.

7.7.2 The AI Exploration for Application Systems On the one hand, the engineering design, diagnosis, planning, control and management systems are studying the state of these systems essentially for identifying, decision making and for taking action. As an example, the intelligent design system (IDS) is a result of evolution by CAD combined with AI, image processing (IP), knowledge engineering (KE), pattern recognition (PR), and neural network (NN) as shown in Fig. 7.16. On the other hand, the development of intelligent design appears its tendency of integration, such as multi-level, multi-aspect and multi-stage integration satisfying different design requirements. The system architecture of intelligent design system is shown in Fig. 7.17, where there exists multi-media interface, generalized integration model (mathematical integration, knowledge integration and network integration) and intelligent model (including self-adaption, self-learning and self-organization).

7.7 Internet + AI Based Engineering Application Systems

Fig. 7.16 The four generations of intelligent design development

Fig. 7.17 The system architecture of intelligent design system

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There still performs heuristic-optimization approach in the system structure, combining AI inference mechanism with operational research and theorem of optimization. Another function of the system is that it equips with the feature of multi-base synergistic work supported by DB, KB, model base and method base served for design purposes.

7.8 PMO Under Internet Era It is recognized that the PMO under Internet has been widely spread over different professional industries. There is an irreversible trend that Internet platform has become as a fundamental tool for project management practice; correspondingly, the philosophy of PMO operation must be subjected to changes. What should we do for pushing forward the project management profession under Internet era? It is a realistic challenge problem facing to all of us that we need to take following situations into consideration for determining our PMO strategy. (1) The government impetus of promotion Many countries are stepping in improving government services via the Internet. It aims to set up a nationwide Internet-based government service system and use Internet tools to facilitate public services, which is an important step for accelerating the processes, where Internet as the fastest and most convenient way for the government to interact and provides service to the people. Accordingly, all the industries should be subordinated and accessible to the nationwide government Internet platform for their normal business operation, and it also inter-connects to government agencies and other business partners. Thus, the operation mode of Internet era for project management will inevitably blossom, since the business modes as well as the organizational governance, either in project, program level or in portfolio level will be consequently changed. One cannot underestimate the impact on Internet environment to the traditional way of project management; this is why we need to take corresponding measures against it for the best practice toward success. (2) Necessity of Internet from social economic development The law of economic growth has undertaken the path from single different individual countries to “globalization economy” driven by multi-element market requirements. In the past the production and distribution of social resource are decided by individual market. Due to dis-connectivity of market needs, the residual productivity and overlapped production have emerged in many industrial sectors, which have been caused serious losses. Internet, especially the platform for the global market can eliminate those phenomena of over-construction or uneven investment that has been happened in past years. So, as to save social resource and avoid waste by those duplicate and residual productivities, it is necessary to optimize social resource distribution through Internet for the healthy economic development in all over the world.

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(3) Characteristics of individual under Internet era The change of individual under “Internet +” era is quite obvious, so the career will go along the path of “knowledge-innovation-independence-personality and vision”. For the basic social structure will be changed from “company-staff” to “platform-individual”, one may extend one’s ability to the extreme on the common social Internet platform and transform one’s working rule from fixing in definite organization to facing the whole society for one’s contribution, or from “passive” to “active”. One may rely on one’s social creditability, which is derived by social big data through Internet, and follow to the path of “behaviorcompetence-creditability-personality-wealth” for obtaining one’s personal wealth and benefits. “Networking” will be no longer relationship between people under Internet era, but through definite “rules”. The business rules are diversified along the path of “creativity-representation-displaying-ordering-production-clients”. Under Internet era social believing will be evolved along the path of “rule-order-morality-believing”, then the thinking philosophy and action of people will be greatly restrained by the Internet platform and internet environment. (4) Characteristics of business modes under Internet era Industrial structure under Internet era is going to change from traditional one to Internet one, where the existing business mode has been heavily destroyed. The future tendency must be that, lower class enterprise involves in service, middle class in products and the highest enterprises are building Internet platforms for the others. The social ecology will be the global platform involving each subordinate platform from companies, enterprises and organizations connecting to the government platform. Another characteristic of social business ecology is the “co-existence of diversifying”. Despite of transverse development in the past, the enterprise will pursue vertical development in their business pursuing preciseness and deepness. The enterprises are search their ways on individuality of their products through science and technology and on the connectivity to their specified clients through internet. Under Internet era, employment phenomena will be gradually weakened and partnership phenomena will be risen. The evolution of business and e-commerce are taking the route of business to business (B2B)business to customer (B2C)customer to customer (C2C)customer to business (C2B)customer to fabrication (C2F). The business is entering to the era of individualism and globalization. Furthermore there will be the evolution of Internet-movable Internet and “Internet of things” to form a comprehensive platform of Internet ecology for promoting the productivity of the society. Certainly, it will deeply influence to the managerial philosophy and managerial methods to the traditional project management. Consequently, the subversion of professional chain seems to be happened from the chain of “producer-agent-consumer” to the chain of “consumer-designer-producer”. Agent in the past business chain will be replaced by designer for satisfying numerous customized expectations and requirements from the consumer.

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(5) Subversion to project management behavior Due to the emergence of Internet, the mode of traditional project management has changed, so it will heavily influence to the theoretical frameworks of project management, program management and portfolio management. For project management, all the operation procedures will be completed through Internet, and the database (including cloud base) will be built and accessible to all procedures during the life cycle of the project. The real time organizational management of the project will be replaced by transferring of information between different departments hierarchically and make it possible to accelerate the processes and thus rise efficiency of project management. For program management, it is possible to access millions of transactions (projects) in parallel with the strictness of reviewing, monitoring, controlling and updating rather than to handle just some projects in the past. The management philosophy and the methods of maneuvering have heavily changed. For portfolio management, it is also possible to compare almost infinite initiatives under strict criteria of selection, which is impossible to realize without a global Internet platform as the basis. All above mentioned statements show us that the emergence of Internet provides us the possibility to carry out comprehensive and highly efficient best practice of project management. Nevertheless, the modes and contents of the project management under Internet era have been subverted; the corresponding theoretical framework of the project management is subjected to rectification. (6) What shall PMO do PMO is a leading strategic sector over all the departments and sections of an enterprise, which guides the strategy and principle of operation in every business activity of the enterprise. Certainly, under Internet environment, PMO needs to update and modify all the philosophical thinking in its operation strategic guides accordingly. Internet era is inevitably approaching to our real life and causing dramatic change in project management. Based on successful best practice of numerous projects, we need to develop and conclude the essentials of PMO principles under the new tendency of Internet era and try to develop a new standard or a new practice guide in “PMO under Internet era” for accommodating the tendency of development of our era. Summary We are entering in VUCA era, so the stiffened solution of project management problems are no longer appropriate rather than the softened solution. In other word, we need to involve soft skills in our project management, to add our strategy both in project management (PM) and project governance (PG), where the philosophy of “dialectic unification of two opposites” are necessary, for instance, eastern “Tiji logic” may help in this regard. Softening the management with soft skills will be the general tendency in the future. By the help of artificial intelligence technology, cloud calculation and big data exploration, it could replace human being to processing common management affaires, including decision making under changeable environment during different

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stages of the project management, and to determine the future development tendency according to actual situation, thus which reveals the cordial changes in project management. Accommodating to the development of digital economy, each one in the society is a knowledge individual, essentially, who is an independent “knowledge-economic entity”. They interact with each other in a defined job and play their specific role. Under such case, the social organization structure will lose their former style, and the real organization roles will no longer exist and be replaced by the information re-production and transfer between the nodes in the hierarchical net of different functional sectors. Everyone, who is involved in the project, is just playing their particular role to offer their contributions. Where, more authorization, fault tolerance and cooperation are needed. Decentralization is another character of project management in digital era, which brings data security but maintains open and transparency of managerial procedures. The application of “block chain” to project management is another perspective direction of its future development, and this may strengthen the cooperative capacity of individual teams in the project to diversify distributive joint efforts. The “block chain” may possibly become the core of next generation of Internet. Since it promotes further detailed division of duties and brings a technical revolution of Internet infrastructure, forms a new type of production relationship. Such like the revolution of container in last century, which promotes the changes of global economic pattern as well as the geopolitics, thus greatly promotes the economic globalization. If we recognize “block chain” as a new relation of production, which promotes further detailed technical division, reduces cost in collaboration, thus increases productivity of the society. Nowadays, we are facing a new technical revolution of “block chain”, and it is our believing that it may cause the effects beyond our imagination to our era such as in the project management. The roles and tasks of enterprise in knowledge economy are entire different from that of the enterprise in industrial economy, since the assets of the enterprise is no longer solid one as in the past, but virtual one. The objectives of enterprise management should focus on how to realize the transformation of its virtual assets (knowledge of their staffs) to be a real one. Every effort from the enterprise is to stimulate the passion of its staffs for the willingness of contribute their knowledge into creative ideas, which become innovative features of their products and increase its market competitiveness; so as to increase the enterprise’s potentiality to win in the market competition. We are engaged in a great era, subjected to the subversive challenges of digital era in project management, how to accommodate and push forward its healthy development? It is the mission of all of us for our great era. Review Questions (1) Why it is the principles of “softening of theorem” and “hardening of knowledge” in the VUCA and Internet era? (2) What are the business modes under the Internet era and its real meaning during operation?

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(3) Why under Internet and VUCA era, the “project management” is not enough for dealing with practical problems; it must be supplemented by soft skills with “project governance”? (4) What shall we consider for further study in the project management under Internet digital era? How can one make oneself to be accommodated the Internet era? (5) The whole professional chain of intelligent retail e-business including dispatching and delivery, to see how artificial intelligence, big data exploration, Internet of things, cloud calculation and assessing, etc. have been used in practice. (6) How a successful enterprise maintains sustainable development under severe impact from external market environment at the Internet and digital era? (7) How to understand and predict the technical advancement of “Internet + AI” in systematic application system such as the intelligent design system (IDS) in the coming future? Homework (1) Illustrate the principles of “softening of theorem” and “hardening of knowledge”, and specify the practical examples for explanation. (2) Explain one-by-one the various business modes under Internet market place. (3) Why there must be “project management” associated with “project governance” for solving problems under Internet and VUCA era? (4) Your understanding of further topics to be studied for project management under Internet and digital era. (5) What are the innovative strategies of the successful enterprise for its sustainability under Internet and digital era? Can you specify any practical example? (6) What advanced intelligent techniques have the Jingdong 618 used in realizing the whole-rounded intelligent and automatic retail e-commerce including commodities’ collecting, dispatching and delivery?

Further Reading 1. Shaopei, L.: Development tendency of project management under internet era. J. Proj. Manag. Rev. 4(2), 1215 (2018)(in Chinese) 2. Jing Dong Group: “618”—The Way We Win!. Electronics Industry Press, Beijing (2017). (in Chinese) 3. Shanghai Zhenhua Heavy Industry Co., Ltd. (ZPMC) [EB/OL] https://cn.zpmc.com/ 4. Rebentisch, E.: Integrating Program Management and System Engineering [M]. Wiley, J Hoboken (2017) 5. Blanchard, B.S., Fabrysky, W.J.: System Engineering and Analysis, 5th edn. Pearson Education Inc., New York (2011) 6. PMI. A Guide to the Project Management Body of Knowledge (PMBOK Guide). 6th edn. PMI Inc., Newtown Square (2017)

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7. PMI. Project Manager Competency Development Framework. 3rd edn. PMI Inc., Newtown Square (2017) 8. Jannach, D., et al.: Recommended System. Cambridge University Press, Cambridge (2010) 9. Flach, P.: The Art & Science of Algorithms That Make Sense of Data [M]. Cambridge University Press, Cambridge (2015) 10. Yu, Z: On Digitalization of Project Management. J. Proj. Manag. Rev. 4(1) (2018) (in Chinese) 11. Ronggui, D: Tiji Logic: Chinese Wisdom for Project Governance. Springer (2019) 12. Ronggui, D: The Time for Re-definition of Project Management. J. Proj. Manag. Rev. 4(2), 1 (2018) (in Chinese) 13. Shaopei, L.: Modeling Techniques of Artificial Intelligent Applied Engineering Systems. J. Comput. Aided Eng. 2, 2542 (1993). (in Chinese) 14. Shaopei, Lin: Fuzzy-AI in Design Consideration, Lecture in Architectural Design Institute. Harvard University, Boston (2002) 15. Shaopei, L. et al.: Knowledge engineering and expert system of structural engineering. Acta Aeronautica et Astronautica Sinica, 8(7), 317326 (1987) (in Chinese)

Appendix

Conclusive Remarks

Perspectives in Project Management in Digital and “Internet + AI” Era. It is going to the end of this book “Project Management under Internet Era”. Taking account of the changes brought by Internet and digital era on project management nowadays, how shall we respond? The impetus of this book is trying to make the preliminary answer to feed the students in their project management course with the ideas of involving the changes from Internet, for they can’t sustain themselves in coming Internet era but remain with the traditional theory of project management. Emphasizing project economic analysis is one of the characteristics of this book. It is only because under market economy, the aim of almost any project is to obtain and to maximize the profit. Therefore, how to minimize the cost and how to maximize the revenue of the project become the critical subjects of project economic management. The book is based on system analysis and structured way for project implementation through strategic, tactic and operational approaches. It is based on the principles of “softening of theorem” and “hardening of experiences” in digital era. This book is different from conventional PM textbook, which strictly follows the Talor based production line philosophy under industrial economy, and tries to illustrate those principles of digitization of management and facilitate the students with ideas to manage the project under Internet era. As for the commercial analyses of project, the book provides rather deepened analyses in project management. In conventional contents of planning, scheduling, control and operation of project management, the book provides with advanced solving methodologies and illustrative samples. Except being a textbook for graduate students in related engineering management majors, for the purpose of improving maneuverability of complicated real projects, this book can also be used as a reference book for project management practitioners. Following to the environment changes in project management, it is necessary to introduce methods and tools for accommodating the new challenges to project management under digital Internet era—directly to its basic procedures, methods, tools and strategies. The characteristics of project management in its future development should be well studied; its perspectives need to be explored to the readers. A future picture is shown in this book that the operation of project management © Shanghai Jiao Tong University Press and Springer Nature Singapore Pte Ltd. 2020 S. Lin and D. Huang, Project Management Under Internet Era, https://doi.org/10.1007/978-981-15-2799-9

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will be performed on a virtual platform to deal with virtual objects, which make big differences for every project management practitioner. We also provide concepts of future perspective that project management will be processed under the “Internet + AI” environment. i.e. Based on comprehensive information collected from the Internet, AI technology is used for making a series of decision in each project stage, representing the implementation of project management. This concept is extremely important for those professional instructors of project management, who are going to cultivate future generation of PM talents. Applying innovative studies of project management under Internet, Internet of things, big data and artificial intelligence to promote the changes of project management contents, including traditional organization, resources, and other management elements, form the essentials of this book. How to transform the problem from unstructured opportunities and need to structured project management framework under uncertain environment, which has its broad prospects. In short, we should actively carry out our research works to form the system of project management theories, methods, and tools accommodating to the digital Internet era, thus promoting the development of the project management discipline. Available PM books are focused on traditional project management points of view under industrial economy, corresponding to the methods and tools operated on real platform and dealing with real objects; nevertheless, this book focuses on system analysis of project and structured implementation methodologies under digital knowledge economy, which is operated on the virtual platform and dealing with virtual objects. We try to explain project management nowadays in a way to soften the theories and harden the knowledge for accommodating the challenges from the new digital era.

Index

A Actual Cost (AC), 13, 28, 51, 117, 124, 125, 180, 189, 190, 192, 201, 203, 220 Actual Cost of Work Performed (ACWP), 28, 29, 189, 192 Agile management, 147 Artificial Intelligence (AI), 3, 4, 6, 8–12, 38, 45, 70, 71, 73, 200, 209, 234, 247, 248, 250, 251, 261–263, 266, 267, 269, 270, 272, 274, 276, 279, 280

B Bidding, 13, 41, 52–57, 59, 65, 67, 71, 96, 136, 150, 227–230, 240, 243, 248 Big data, 4, 5, 10, 12, 39, 45, 71, 108, 148, 149, 200, 209, 250, 251, 259, 273, 274, 276, 280 Block Chain (BC), 10, 189, 252, 275 Budgeted Cost of Work Performed (BCWP), 28, 29, 189 Budgeted Cost of Work Scheduled (BCWS), 29, 189, 192 Build-Operation-Transfer (BOT), 216 Business to Business (B2B), 6, 8, 273 Business to Customer (B2C), 6, 273

C Cloud calculation, 4, 10, 45, 251, 259, 274, 276 Competitive products, 4, 250 Core competitiveness, 4, 9, 253, 255, 256, 258 Cost-benefit analysis, 118 Cost breakdown structure, 14, 15

Cost control, 2, 20, 21, 24, 27–30, 62, 117–119, 123–127, 136, 180, 181, 186–188, 199, 200, 204 Cost management, 23, 27, 28, 68, 119, 124, 128, 153, 180–182, 184, 185, 188– 191, 193, 199–205 Cost of capital, 155, 193 Cost Performance Index (CPI), 190 Cost trend analysis, 118 Critical Path Method (CPM), 41, 109–111, 115, 116, 138 Customer to Business (C2B), 6, 8, 10, 273 Customer to Customer (C2C), 6, 8, 273 Customer to Fabrication (C2F), 6, 273

D Data Technology (DT), 3, 4, 264 Decision making, 5, 36, 41, 45, 55, 71, 72, 163, 175, 209, 213, 217, 219–221, 223, 224, 226, 230, 241, 245, 248, 251, 263, 270, 274 Decision trap, 40, 49, 71 Decision tree, 226–229, 244, 245 Digital economy, 9–11, 71, 247, 252, 275 Digital era, 5, 7, 12, 39, 41, 103, 199, 247, 251, 252, 259, 261–263, 275, 276, 279, 280 Digitization of professions, 252 Digitization transformation, 1, 2, 200 Digitized Project Management (DPM), 5, 11 Discounted Cash Flow (DCF), 160, 204 Discounted cash flow rate of return, 168

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282 E Earned Value (EV), 28, 62, 153, 188–192, 204, 205 Earned Value Method (EVM), 62, 188–190, 192, 193, 204, 205 Engineering-Procurement-Constriction (EPC), 216, 238–240, 258 Engineering-Procurement-ConstructionOperation-Maintenance (EPC+O+M), 238, 240 Expected Monetary Value (EMV), 222–226, 228, 244, 245

F Financial management, 132, 151, 199, 204 Fixed assets, 3, 176, 253 Free Slack (FS), 115, 116 Fuzzy risk comprehensive assessment, 241

G General contractor, 2, 258

H Human Resource (HR), 16, 19–21, 24, 35, 61, 89–94, 104, 105, 119, 132, 141– 143, 149, 180, 249

I Industrial economy, 1, 3–5, 8, 9, 39, 247– 251, 262, 275, 279, 280 Internal Rate of Return (IRR), 49, 142, 154, 174, 175, 204, 205 Internet, 1–12, 38, 39, 41, 42, 70, 71, 73, 93, 103, 107, 108, 145, 147, 148, 199, 200, 204, 205, 247–252, 259, 261, 262, 270, 272–276, 279, 280 Internet era, 1, 2, 5–9, 11, 12, 39, 41, 42, 45, 70, 73, 103, 107, 144, 152, 199, 200, 209, 248, 250–252, 259, 262, 272–276, 279, 280 Internet of things, 4, 6, 10, 12, 38, 45, 251, 273, 276, 280 Investment analysis, 118

K Knowledge economy, 1, 3–5, 7–9, 12, 41, 42, 203, 247–253, 258, 259, 261–263, 275, 280

Index L Lifecycle management, 70–72 Life cycle work breakdown structure, 16 Liquid assets, 3 M Market-profits, 4 Milestone trend analysis, 118 Monte Carlo Simulation (MCS), 230–232, 244, 245 Multiple-investment project, 193, 204 N Net present value, 142, 156–159, 165–168, 205, 223 O Object-oriented structured method, 41 Off-line, 10, 151, 260 On-line, 10, 88, 89, 151, 201, 260 Organizational breakdown structure, 15 Organizational management, 274 Outsourcing procurement, 96 P Payback period, 49, 142, 154, 162, 168, 174–177, 204, 205, 226 Payment period, 168 Personnel management, 89–91, 94, 104, 121 Plan-Do-Check-Act (PDCA), 130 Planning and schedule management, 199, 200 Plan Value (PV), 29, 189 Portfolio management, 6–8, 36–38, 42, 139, 251, 252, 262, 263, 274 Process control, 21, 107, 120–122, 145–147 Professional digitization, 252 Program Evaluation and Review Technique (PERT), 109, 115, 116, 138 Program management, 6, 8, 34–36, 38, 42, 251, 252, 263, 274 Project budget, 124, 126, 189, 190, 192 Project control, 24, 28, 107, 108, 116–120, 151, 152 Project cost estimation, 41, 124, 127, 182– 185 Project economic analysis, 174, 205, 279 Project economics, 153, 155, 204, 205 Project Governance (PG), 2, 39, 104, 247, 274, 276 Project lifecycle, 8

Index Project Management (PM), 1–9, 11–13, 16– 20, 30, 32, 35–42, 45, 47–50, 60, 61, 66, 68, 71–73, 77, 78, 81, 84, 86– 92, 96–99, 101–105, 107, 108, 111, 114, 116, 153, 209, 247, 261–263, 274–276, 279, 280 Project Management Office (PMO), 1, 18, 20, 21, 250, 272, 274 Project planning (scheduling), 8, 202, 263 Public-Private-Partnership (PPP), 9, 38, 216 Q Qualitative risk management, 212, 216 Quality control, 21, 22, 30, 31, 74, 75, 108, 109, 118, 119, 128–130, 142 Quantitative risk management, 221 R Research and Development (R&D), 20, 66, 71, 115, 145, 149, 150, 161, 252, 263 Resource breakdown structure, 16 Resource management, 23, 68, 73, 81, 90– 92, 104, 107, 108, 129, 131, 132, 134, 135, 137–145, 147–149, 151, 152 Risk assessment, 33, 48, 212, 214, 221, 232, 233, 244 Risk management, 32–34, 37, 40, 41, 47, 56, 63, 68, 105, 185, 209–213, 216, 221, 222, 232, 237, 244, 245 S Scope management, 22, 23, 47, 48, 68, 180, 182

283 Sensory economy, 3 Simulation calculations, 118 Softening of theorem and hardening of experience, 247, 275, 276, 279 Specific, Measurable, Achievable, Relevant and Traceable (SMART) principle, 262 Stakeholder management, 2, 11, 19, 79 Strength-Weakness-Opportunity-Threat (SWOT), 58, 59 Sub-contractor, 63, 65, 66, 75, 79, 134, 217 Supplier management, 79, 88

T Target/actual comparison, 118 Tendering, 13, 41, 53, 54, 96, 248 Total Slack (TS), 114–116

V Value benefit analysis, 118 Value of money, 155–157 Virtual platform, 4, 8, 9, 12, 38, 71, 103, 209, 249, 280 Volatility, Uncertainty, Complexity and Ambiguity (VUCA), 1, 24, 39, 40, 42, 78, 145, 151, 211, 247, 253, 274–276

W Work Breakdown Structure (WBS), 8, 12– 15, 17, 20, 21, 23, 28, 40–42, 47, 48, 61, 62, 92, 107, 109, 110, 126–128, 152, 180, 182–185, 202, 262