May 3, 2012

PM0010 [Introduction to Project Management] Set1 Q6

Q.6 List the benefits of WBS? Need for risk management in an organisation-comment

The WBS provides the project manager and team with the necessary framework of tasks going forward to create detailed cost estimates and also to provide major input to project task scheduling at the most detailed and accurate level possible. By going through the WBS motions, the project manager and team will have a pretty good idea whether or not they‘ve captured all the necessary tasks, based on the project requirements, that are going to need to happen to get the job done.

Four key benefits to developing a WBS are:
#1 – WBS forces the team to create detailed steps
The WBS forces the project manager, team members, and customers to delineate the steps required to build and deliver the product or service. The exercise alone encourages a dialogue that will help clarify ambiguities, bring out assumptions, narrow the scope of the project, and raise critical issues early on.

#2 – WBS lays the groundwork for schedule and budget
It lays the groundwork for developing an effective schedule and good budget plans. A well- defined WBS enables resources to be allocated to specific tasks, helps in generating a meaningful schedule, and makes calculating a reliable budget easier.

#3 – WBS creates accountability
The level of detail in a WBS makes it easier to hold people accountable for completing their tasks. With a defined WBS, people cannot hide under the cover of broadness. A well-defined task can be assigned to a specific individual, who is then responsible for its completion.

#4 – WBS creation breeds commitment
The process of developing and completing a WBS breeds excitement and commitment. Although the project manager will often develop the high-level WBS, he will seek the participation of his core team to flesh out the extreme detail of the WBS. This participation will spark involvement in the project.

Benefits to managing risk
Risk management provides a clear and structured approach to identifying risks. Having a clear understanding of all risks allows an organization to measure and prioritize them and take the appropriate actions to reduce losses. Risk management has other benefits for an organization, including:
  • Saving resources: Time, assets, income, property and people are all valuable resources that can be saved if fewer claims occur.
  • Protecting the reputation and public image of the organization.
  • Preventing or reducing legal liability and increasing the stability of operations.
  • Protecting people from harm.
  • Protecting the environment.
  • Enhancing the ability to prepare for various circumstances. 
  • Reducing liabilities.
  • Assisting in clearly defining insurance needs.
An effective risk management practice does not eliminate risks. However, having an effective and operational risk management practice shows an insurer that your organization is committed to loss reduction or prevention. It makes your organization a better risk to insure.

Why manage your risk?
An organization should have a risk management strategy because:
People are now more likely to sue. Taking the steps to reduce injuries could help in defending against a claim. Courts are often sympathetic to injured claimants and give them the benefit of the doubt.

Organizations and individuals are held to very high standards of care.
People are more aware of the level of service to expect, and the recourse they can take if they have been wronged. Organizations are being held liable for the actions of their employees/volunteers. Organizations are perceived as having a lot of assets and/or high insurance policy limits.


Organization Breakdown Structure (OBS)
Organization Breakdown Structure (also known as Organizational Breakdown Structure) or OBS is a hierarchical model describing the established organizational framework for project planning, resource management, time and expense tracking, cost allocation, revenue/profit reporting, and work management.

Work Breakdown Structure (WBS) captures all elements of projects in an organized fashion. Breaking down large, complex projects into smaller project pieces provides a better framework for organizing and managing current and future projects. WBS facilitates resource allocation, task assignment, measurement and control of project cost and billing. The WBS is utilized at the beginning of the project to define scope, identify cost centers and is the starting point to developing project plans/Gantt charts.

The Organization Breakdown Structure groups together similar project activities or work packages and relates them to the organization‘s structure. OBS is used to define the responsibilities for project management, cost reporting, billing, budgeting and project control. The OBS provides an organizational rather than a task-based perspective of the project. The hierarchical structure of the OBS allows the aggregation (rollup) of project information to higher levels. When project responsibilities are defined and work is assigned, the OBS and WBS are connected providing the possibility for powerful analytics to measure project and workforce performance at a very high level (example business unit performance) or down to the details (example user work on a task).

To develop an Organization Breakdown Structure:
  1. Draw of the entire organization as a hierarchy 
  2. Define all departments and project teams. 
  3. Specify functional (where cost for the work the user does is allocated to) and approval (who approves the work the user performs and any leave time approvals) groups for every user. 
The following is a sample OBS:
Cost Breakdown Structure is the breakdown of a project into cost elements.
This breakdown is typically in line with the Work Breakdown Structure (WBS); indicating "where" cost are allocated. The breakdown can sometimes be in line with the company's Chart of Accounts, indicating "what" the costs are for. In theory, cost could be in line with "who" is spending the cost, "when" costs are being spent, etc.

You're right, the Cost Breakdown Structure or CBS (no, not the network :) ) is very similar to the WBS. Instead of breaking down tasks your break costs.
Let's assume you're working on a construction project. Your main element in the CBS is "Project Costs"

So you'll have something:

1. Project Costs 
  1.1 Labor
      1.1.1 Management wages 
      1.1.2 Workers' wages

 1.2 Material
    1.2.1 Concrete
    1.2.2 Sand
    1.2.3 Iron
    1.2.4 Copper
    1.2.5 Paint
    1.2.6 HVAC equipment
1.3 Logistics
   1.3.1 Acquiring site
   1.3.2 Transportation
 
1.3.3 Water and electricity bills 
   1.3.4 Machine renting
      1.3.4.1 Drilling machines 
      1.3.4.2 Trucks

Fixed-Price or Lump Sum Contract
The term firm fixed price or lump sum contract refers specifically to a type or variety of fixed price contract where the buyer or purchaser pays the seller or provider a fixed total amount for a very well-defined product, however there is the allowance within these for a variance in the event there are incentives attained through project incentives achieved or targets met. There are benefits of this type of contract to both the buyer and the seller, and these are similar to those for the fixed price incentive fee contract. To the seller, it is beneficial because it typically allows for the seller or provider to charge a reasonable base fee, yet also allows for exceptional performance to be rewarded further. However, for the buyer that also provides a very tangible benefit. The buyer typically will be paying a very reasonable base fee up front, but there is of course the chance that the price will go up in the future if certain conditions are met.

Time & material contract
A contract providing for the procurement of supplies or services on the basis of direct labor hours at specified fixed hourly rates (which rates include direct and indirect labor, overhead, and profit), and material at cost.

A time and materials contract is a contract that
provides for acquiring supplies or services on the basis of (1) direct labor hours at specified fixed hourly rates that include wages, overhead, general and administrative expenses, and profit and (2) materials at cost, including, if appropriate, material handling costs as part of material costs.

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