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development of computer-aided process simulation techniques have accelerated in recent years, their use is still not widespread because they are mainly applied in project management education and training.

The purpose of all the models is to estimate total life cycle cost. Some of the models are mathematical and therefore not included in this study. Dhillon (1989:46-74) discusses this topic in depth.

Since this study deals with the cost estimation and cost management of projects, it was deemed necessary to briefly discuss the basic principles of project management and compare traditional project management with life cycle project management.

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Figure 2.8 Time distribution of project effort

Source:

Adapted from Meredith and Mantel (1995:14)

2.10.1 The use of project management

The building of the Egyptian pyramids and the Tower of Babel may not have been some of the very first projects, because the cave dwellers probably embarked on projects to gather the raw material for mammoth stew!

Project management emerged mainly for three reasons: the exponential expansion of humankind and human knowledge, the growing demand for a broad range of complex, sophisticated, customised goods and services, and thirdly, the evolution of worldwide competitive markets for the production and consumption of goods and services (Meredith & Mantel 1995:1).

Meredith and Mantel (1995:1) state that project management, initiated by the military, can be used by an organisation as a powerful tool to improve its ability to plan, implement and control its activities, and helps to utilize its people and resources.

Conception Selection Planning, Scheduling Evaluation

Time

Level of effort

Peak effort level

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The basic purpose of project management is therefore to meet specified performance within cost and on schedule.

Webb (2000:9), however, argues that the role of the project manager as one simply delivering the project in terms of cost, time and performance is too narrow a view.

He designed a new model for project management, adding three components to traditional project management, namely technology, expectations and risks, as represented in figure 2.9.

Figure 2.9 A new model for project management

Source:

Adapted from Webb (2000:10)

Webb (2000:10) argues that project managers not only have to think in terms of the time-cost-performance triangle, but also have to manage external dimensions. Projects are created to exploit opportunities presented by advancing technology. Expectations, however, are raised with each

TECHNOLOGY

It creates opportunities but brings with them expectations

and risks

RISK

For society as a whole, for the sponsor and for the

Individual

EXPECTATIONS

From society as a whole and from the sponsor

TIME

PERFORMANCE

COST

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advancement, not only in the technology itself, but also on the part of society as a whole. Each advancement in technology will bring risks that the expectations placed on a project on the part of society as a whole and the sponsor will not be fulfilled. This involves risks for the individual.

Meredith and Mantel (1995:9) mention that better control and improved customer relations are experienced by organisations using project management. Shorter development times, lower costs, higher quality and reliability and higher profit margins are also reported. More benefits entail a sharper orientation towards results, better interdepartmental coordination and higher worker morale.

There are also disadvantages in project management. Project management results in greater organisational complexity. It improves the probability that organisational policy will be violated, because of the autonomy required for the project manager. Higher cost, more management difficulties and low personnel utilisation are also reported (Meredith and Mantel 1995:9). The project life cycle has similar stages and phases as described for life cycle costing.

2.10.2 The project life cycle

Meredith and Mantel (1995:13) define a project’s life cycle as the similar stages on the path from origin to completion, as illustrated in figure 2.1.

Initially, minimum effort is required. As activity increases, the real work gets underway. As the project nears completion, effort rises to a peak, and then ceasing when the project is terminated.

In traditional project management, it was thought that performance took precedence over schedule and cost early in the life cycle, during periods of high activity, cost was deemed to be of prime importance, and in the final stages, it was thought that schedule became paramount, when the client demanded delivery. This is actually untrue. Performance and schedule are more important than cost during all stages (Meredith and Mantel 1995:14).

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Traditional project management and life cycle project management will now be compared.

2.10.3 Traditional project management versus life cycle project management

The primary focus of traditional project management is the management of the project delivery phase. Life cycle project management is an approach used to manage a project in which life cycle objective functions are used as the criteria for decision making throughout the project’s life. The following life cycle objective functions are identified:

š financial objectives, such as equity, internal rate of return, and cost/worth ratio

š customer satisfaction objectives, such as functionality, operability, aesthetics, quality and user satisfaction

š due diligence objectives, which involve reducing exposure to risks and liabilities, including compliance with statutory requirements.

Life cycle project management is necessary because of turbulent environments (particularly shifting markets), the rapid rate at which technology changes, the increasing influence of the host communities and stakeholders, and the environmental, social, safety and legal implications of capital projects (Jaafari 2000:45; Jaafari & Manivong 2000:26).