Project design: construction of a shipyard in Kedah

Author: Iloka Benneth Chiemelie

Published: 21st of May 2014

Introduction

Project management is a new dimension field of study which overlooks all elements in project design as it is related to understanding the best approaches to ensure that a given project becomes a success. Just like every other management field, the field of project management is well integrated into understanding the best management approaches that can be adopted towards building success in any given project design. As such, this paper seeks to understand the necessary approaches in project management by conducting a detailed analysis of project life-cycle as it is related to cost management and planning, project control and execution and all other facets that are used to facilitate project process.

Basically, the design of this paper is based on understanding all underlying elements of project process, by integrating project design to be based on acceptable principles and standards, and drafting the right measures to ensure that the project is a success. The paper will also try to incorporate management approaches into the project design features in order to understand the best practices that can be adopted toward ensuring a successful project design and management.

The project for this case is the construction of a shipyard in Kedah. The project is in its infancy stage following the successful license form the government to construct such a project, and this paper will detail how the project will go about.

Project life cycle

Time frame for the project

Understanding the time frame for any given project is very crucial as it will help to control operations in the project execution process. This project is projected to last for a period of 3 years. The project time is as discussed in the table below:

Table 1: project timeframe

Time factor	Description
Shipyard and docking June 2013 – July 2015	This is the first stage of the project and it would involve the construction of shipyard and docking units in the allocated area that have been drafted for the project.
Residential areas and road network August 2013 – December 2014	The workers will be provided with houses that are in close proximity with the shipyard in order to ensure efficiency of the workforce presence to work. As such, there are plans for residential houses to be constructed in the site.
Recreation and hospitals June 2013 – June 2014	This is the first project that will be completed, and the reason is to ensure security by providing necessary medical facilities and helps before people starts to actually work in the site. There is also a need for them to relax after work, and such need is behind the construction of recreational areas.

Project life-cycle

Understanding the life-cycle of a project is important project management as it is the project phase which puts into practice all elements that are contained in the project timeframe design. The importance of project life-cycle is centred on the notion that it helps the project managers to visualize and understand all concepts that will be undertaken at each stage, and such an understanding is important as it helps the project manager to draft the right control measures for the whole project phase in order to ensure that all aspects of the project process are in line with the actual intended process and capable of yielding set project objectives.

Figure 1: Project-lifecycle

There are basically three stages in the project as described in figure 1 above, with the first stage being the conceptualization stage. This is the stage at which all the concepts of the project design are basically drawn-out, detailing how the project would look like upon completion. This section will also bring to light the architectural design of the whole project, detailing how the road mapping would look like and how the houses will be constructed and interconnected.  The second stage is the project execution stage, and it is the stage at which the designs in stage one are put into place by constructing them out wherever they are supposed to be. This stage will also involve the implementation of control measures to ensure that the whole project process is in line with what it has been projected to look like. Once the first and second stages have been completed, the last stage will be transfer to shareholders. The shareholders are those who sponsored the project process.

Time planning

Advantages and disadvantages of project management tools (milestone charts, Gantt charts and networks)

In order for project to be successfully managed, there is a need for certain tools as described above to be adopted in the project management process. These tools have numerous advantages and also associated disadvantages as provided by Mansfield Community Education Centre (2013).

As for the benefits, milestone chart is a tool used to measure the required time for any given phase in the project process to be completed, while Gantt chart presents a visualization of the processes involved in the project and the time frame for completing each of the processes. Network on the other hand serve as the link between these processes, which is used to define the period at which a given processes ends and another is begun, as well as contingency plans used to ensure that failure in the process is easily controlled. As such, these features mean that these tools are very beneficial as they help to define all processes in the project design and design what should be done and how it should be done, as well as create necessary control measures to ensure that the project process is in line with the overall project objective.

In any case, they also have disadvantages that come in the form of their inability to serve a forecasting tool or be used in the project process to predict future occurrence. In projects, it is important for the project manager to be able to tell what might happen in the future, as such an understanding will enable the project manager to know what best to do at the present in order to stop such future occurrence in case if it is predicted to be disastrous. Basically, such a disadvantage is significant in the sense that the lack of understanding of what might happen in a project in the future might result in the project failing entirely.

Simple Milestone Chart for the project

Simple table of activities

Activities	Date
1.      Employment of architect
2.      Conceptualization
3.      Approvals
4.      Awarding contracts
5.      Employment of workers
6.      Beginning of shipyard
7.      First meeting of the board
8.      First monitoring program
9.      Purchases as agreed on meeting
10.  Delivery
11.  Beginning of hospital & recreation
12.  Beginning of road maps
13.  Second general meeting
14.  Second monitoring
15.  Beginning of residential areas
16.  Additional recruitments if needed
17.  Rounding up of hospital
18.  Rounding up of road network
19.  Final general meeting
20.  Final monitoring program
21.  Rounding up of residential area
22.  Rounding up of shipyard
23.  Transfer of ownership

Simple Gantt Chart

Time definition

The issues relating to estimating activity duration

In order to understand the issues related to estimation of activities, it is important to note that estimation is related to probability. It is associated with uncertainties about a given scenario and as such will definitely have some negativity in the form of high risk. As such, these are the two issues that are associated with estimation. In an estimated activity, uncertainty is high because the time duration might end up not being equal to the required time as a result of numerous factors. Such factors can be linked directly to the project such as the issues of insufficient resources, the issues of insufficient labour, and the issue of workforce strikes. It can also be as a result of external factors such as government order to stop work. No matter what the factor might be, estimation increases the level of uncertainty and the subsequent results is an increase in the risk level of the project. With the completion day uncertain, the transfer day might be at risk and the end result is that the company might have to incur extra costs as a result of their lack of ability to transfer the project on estimated date.

The causes of poor time estimates

There are numerous factors that influence uncertainty in the duration of a given project and such factors include:

 Lack of experience – in order to estimate the time required to complete any given project, the project estimator need to have had experience in such project as it is related to starting and finishing the project somewhere else. Such an experience will better position the person to understand necessary obstacles that might stand on the way of the project becoming a success, and as such help guide the estimator to estimate a more accurate date. As such, lack of necessary experience will mean that the person will not be able to provide a more accurate estimation (Mansfield Community Education Centre, 2013),

Eternal influence – external influence such as the weather and investors relation and resources can also led to an estimator presenting wrong estimate about a given project and the outcome will be that the person will not be able to present accurate estimation about a project (Mansfield Community Education Centre, 2013),

The effects of resources on activity durations

Resources yield the highest influence on the duration of any given project and the influence can be either positive or negative. The influence if said to be positive when the resources are readily available, as it will be used to ensure that the project is completed within the estimate time. However, in cases where the resources are not readily available, it can then be said that the influence is negative as the implication will be that the project will not be completed within the stipulated time (Mansfield Community Education Centre, 2013),. 

The techniques available for estimating time

1.      Work breakdown - this form of estimation is done by understanding the individual duration of all processes in the project.

2.      Historical – the duration for such projects in the future can be used to determine the estimated time for similar projects in the present time.

3.      Analogy - the time for a given project can be estimated by understanding the activities involved in the project and comparing it with a similar project that a company had done before, through a machine or software for estimation.

4.      Expert judgment – just like the historical estimation, experts can make predictions about how long a project can last by comparing their past experience with the current project being handled.

5.      Volume of resources – the amount of resources available at the time the project was started can also be used to estimate the duration of such project.

Network analysis

Types of networks

As described earlier. It is important to establish networks between processes in any given project design as it will help to understand what is required at each stages of the project. The types of network available include:

1.      PERT - is typically represented as an activity on arc network, in which the activities are represented on the lines and milestones on the nodes. The Figure 7.4 shows a simple example of a PERT diagram.

2.      Gantt Chart - This is a specialised bar chart developed by Henry L Gantt showing current progress on each major project activity relative to necessary completion dates.

3.      Linear programming - is a quantitative tool for planning how to allocate limited or scarce resources so a single criterion of the project is optimised;

4.      Queuing, or waiting-line models are mathematical models describing operating characteristics of queuing situations, in which service is provided to persons or units waiting in line;

5.      Routing, or distribution models are quantitative models assisting managers in planning the most effective and economical approaches to distribution problems, and;

6.      Simulation models, being a mathematical imitation of reality (Mansfield Community Education Centre, 2013),

Principles of network analysis

1.      Identify the specific activities and milestones.

2.      Determine the proper sequence of the activities.

3.      Construct a network diagram.

4.      Estimate the time required for each activity.

5.      Determine the critical path.

6.      Update the Network chart as the project progresses.

Issues to be considered in project scheduling

In the process of scheduling a project, a number of issues need to be put into consideration, and some of these issues include:

Resource availability – the level of resource availability is necessary to ensure that the project is scheduled in such a way that the objectives will be meeting within the scheduled period of time.

External factors – other factors from the stakeholders need to be considered as well, such as the level of investment, and control also influences the duration of a project and as such should be put into consideration.

Value of determining the ‘critical path’

The critical path is determined by adding the times for the activities in each sequence and determining the longest path in the project. The critical path determines the total time required for the project. The value of critical path is that since the critical path determines the completion date of the project, the project can be accelerated by adding the resources required to decrease the time for the activities in the critical path. Such a shortening of the project sometimes is referred to as project crashing.

Network analysis of the above project 

Cost planning

Strategic financial issues related to cost management the project

In the course of undertaking the selected project, numerous financial issues occur as either mitigating factors or enhancing factors. Some of these issues are:

The source of funding – this is a very significant issue in the sense that is there is no funding, the project won’t be undertaken. As such, it is important to understand the sources of the funds needed for the project to become a success. This is a strategic issue because it is not clear as to who the investors might be and whether they might be from the public or private sector. Considering that the project being design is a shipyard, it becomes clear that investors from both the private and public sectors might be interested as it is a significant investment that has the potentials of returning heavily in the future if it becomes a success. However, since the project is still not yet undertaken in the sense that the investors need to fund it from the beginning to the finishing stages, it becomes very difficult to convince these investors to undertake such funding approach as they might vie wit as being quite risk in the sense that if they don’t have enough resources to finish the project, they might be facing potentials for high investment losses.

Changes in price of commodities over time – another issue to be considered in sourcing the fund for this project is the issue of inflation that will subsequently increase the cost of resources required to make the project a success. Since the funding will be based basically on estimation, and the project will last for a period of 3 years, this is a serious issue because such duration is significant enough for the price of resources to increase and the end product is that the increase in price of resources will man a direct increase in the cost of completing the project, and since the cost has been predetermined prior to the increase, it will mean that the more investment will be required to complete the project. The outcome of this issue is that both the investors and contracted company will be negatively affected.

Insufficient funding – even when the source of fund has been found and the price of resources doesn’t change over the period of the project, there is still an issue of insufficient funding which comes from the investors not being able to provide the required amount of funding. This is a serious issue as it will put the project on hold and even decrease the possibility of the project being completed.

Likely source of funding

Direct investment – this is a potential source of funding and it involves the project being funded directly from the investors’ pocket.

Bank loan – another potential option is bank loan as it serves as the most reliable source of funding but such a high project will definitely accumulate high interest which might affect the profitability of the project upon completion.

Leasing – another option is a leasing format that takes the form of build-operate-transfer (B.O.T), in which contractors from other companies can actually build some of the facilities in the project and operate it for an agreed period of time then transfer it to the shareholders. This is quite helpful as it will reduce the volume of investment required to make the project a success.

Cost definition

Types of estimates that might be required at various stages

Personnel item estimation – as the name implies, this form of cost is undertaken to understand the amount of money required to handle all issues related the workforce. The workforce in this case is defined as all the staffs involved from the initiation stage to the project completion stage and an estimation need to be undertaken, which will look into the salary and wages payable, the health insurance, allowances and the cost of other factors in the project process that influences the workforce.

Non-personnel estimation – this estimation is undertaken to understand the cost of other factors that are not related to employees. Such costs resolve around the amount of investment on resources, where resources are defined as the materials needed to make the project a success. Such cost will come in the form of purchases, delivery, and maintenance.

Both of the costs described above are significant on their own as they cannot function independently and the project cannot be completed without a careful integration of these costs. For instance, the personnel cost is irrelevant is the resources are not there, and the resources are irrelevant if the personnel are not there.

Cost estimating methods appropriate for each type

Resource Costing for Personnel Items - A common technique for cost estimating is to list the resources needed for the project and to total their costs. Typical resources include equipment, material, services and labor. Costs for equipment, material and services can be gotten by consulting price lists or by going out for bids for the larger pieces. Labor costs are hourly, and can be based on the total costs on estimates from similar projects or ask for bids to carry out the work.

Cost monitoring and control

Appropriate steps to establish cost monitoring and control procedures for the project

In order to establish the cost monitoring and control measures, there are a number of steps that needs to be put into consideration and they include:

The actual amount of resources needed – this is important as it will help to understand the actual amount of cost that will be incurred and how such cost will be incurred in relation to the resources that it will be used to purchase.

The actual amount of employees needed – as stated earlier, employees and costs work together and one cannot function independent of the order. As such, it is also important to determine the number of employees needed to understand the procedures in the project, and such an understanding will help to understand the right measures for controlling costs.

Budge of the project

Activities	Cost (RM)
Employee salary	20,000,000
Employee health insurance	5,000,000
Allowances	7,000,000
Resource purchases	500,000,000
Resource delivery	80,000,000
Hiring of machineries	200,000,000
Construction contract	198,000,000
Monitoring	3,000,000
Overhead	100,000,000
Total	1,113,000,000

Cost histogram

Earned Value analysis 

From the analysis, the duration of each process will influence the expenses in order process. As such, if the present process is completed within the stipulated date, the expenses for the next process will be within the range, but if the date is delayed, the expenses will increase and as such the value will be lost in terms of accrued costs.

Planned value

Activities	Cost (RM)	Duration (Months)
Employee salary	20,000,000	3
Employee health insurance	5,000,000	3
Allowances	7,000,000	26
Resource purchases	500,000,000	8
Resource delivery	80,000,000	8
Hiring of machineries	200,000,000	36
Construction contract	198,000,000	36
Monitoring	3,000,000	36
Overhead	100,000,000	36
Total	1,113,000,000	192

Actual cost at half way

Activities	Cost (RM)	Duration (Months)	Actual cost at half way
Employee salary	20,000,000	3	21,500,000
Employee health insurance	5,000,000	3	6,900,000
Allowances	7,000,000	26	6,000,000
Resource purchases	500,000,000	8	480,000,000
Resource delivery	80,000,000	8	81,000,000
Hiring of machineries	200,000,000	36	NA
Construction contract	198,000,000	36	NA
Monitoring	3,000,000	36	NA
Overhead	100,000,000	36	NA
Total	1,113,000,000	192	NA

Earned value at half way

Activities	Cost (RM)	Duration (Months)	Actual cost at half way	Earned Value at half way
Employee salary	20,000,000	3	21,500,000	-1,500,000
Employee health insurance	5,000,000	3	6,900,000	-1,900,000
Allowances	7,000,000	26	6,000,000	1,000,000
Resource purchases	500,000,000	8	480,000,000	20,000,000
Resource delivery	80,000,000	8	81,000,000	-1,000,000
Hiring of machineries	200,000,000	36	NA
Construction contract	198,000,000	36	NA
Monitoring	3,000,000	36	NA
Overhead	100,000,000	36	NA
Total	1,113,000,000	192	NA	16,600,000

Conclusion

Project management is a very complex field, and the complexity comes in the form of uncertainties that are associated with the high level of probability involved in the project process. It is never easy to determine the extent of success in any given project as certain external forces might actually influence the chances of success negatively is not well managed and controlled.

As such, the main purpose of this paper was to understand the features that need to be analysed and understood in project management in order to ensure a successful project process. The indication is that there are numerous processes in a project management that needs to be carefully understood and well implemented if the project is to become a success. Such processes where discussed in this paper as project life-cycle, cost planning and management, execution, resource planning and management and transfer.

The findings from this paper reveals that when projects are carefully designed and well implemented, the chances of success is enhanced as the management of the project process will be much easier than when compared with unplanned project.

Recommendations

A number of uncertainties were identified in this project, with most of them coming in the form of sourcing funds and fund management. In the case of sources of funding, it was not clear where the source of fund will come from as the project is such that attracts high interest because of the expected returns, but the level of investment needed is very significant and as such will incur high fund  which might not be easy for expected shareholders to source. On the management aspect, the focus was to understand how the sourced funds will be spent and the indication revealed is that the sourced funds might not be enough if it is influenced by external factors such as inflation and changes in government policies.

The implication from the above analysis is that cost planning and management is the most significant aspect of any project design, and it should be well understood as it directly influences the chances of success of failure of any given project. As such, it is recommended that project managers should take extra time towards understanding the influence of cost related variables on their project design and ensure that all cost enhancing factors are well controlled in order to ensure that the projected cost doesn’t actually exceed the actual cost as shown in the above analysis.

References

Mansfield Community Education Centre (2013), “Introduction to Project Management.” Available at: http://www.mansfield.vic.gov.au/Libraries/Community_Development/Intro_to_Project_Management_Manual.sflb.ashx [Accessed on: 25/03/2013].