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| November 16, 2015

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Inflation could be a possible problem for long term projects. This is because the price of materials and even labor may increase every year but if inflation isn’t taken into account when the customers pays the contractor, the contractor could lose money. In our text, Schwalbe includes a document which shows that many businesses do not take inflation into account if the project will last for one year or less.(Schwalbe, 2014) From my experience, most businesses and economists analyze inflation on a yearly basis as well. Therefore, if a project will last for more than a year, there is a good chance that material prices, and other prices, will be higher at the end of the project than they were when the project was launched.

If I were the project manager (PM) of a long-term project, I would do my best to account for inflation in my cost analysis. I would do this by first attempting to accurately estimate the duration of the project utilizing schedule management techniques such as critical path analysis. To do this,I would try to make the most accurate WBS possible by communicating with the project team and stakeholders, create an accurate network diagram to display the dependencies, then use a technique like critical path in order to get a good estimate of the duration.(Schwalbe, 2014) Once the duration is known, I would use simple mathematics to calculate inflation with respect to the number of years the project will take to complete.

The great thing about EVM is that it integrates the triple constraint, cost, time, and scope together.(Schwalbe, 2014, p.291) When calculating cost and schedule variance, as well as performance indexes, any negative number or any percentage less than 100% means that something is lacking.(Schwalbe, 2014, p.291) I would personally use EVM as a front-line tool to notice if any of my variances or indexes are adequate or not. If all calculations were positive and percentages were 100% or greater, I would know that the project is meeting it’s cost, time, and scope goals.(Schwalbe, 2014, p.292) If I noticed that the numbers were actually less than expected, I would use this information to dive in a little deeper to discover where the problem is taking place so that corrective action could be taken.

I have witnessed some instances where managers have under-bid projects knowing that it should cost more to complete the project. This is a violation of ethics; when bidding a project, managers should attempt to produce a truthful and accurate estimate of the cost of a project. The PM’s own interests can cloud his/her judgment because they want to contract in order to make money. Companies should take action to ensure that their employees are practicing good ethical decision making by not only doing what is right for themselves, but what is right for everyone. The golden rule of ethics instructs us to treat others the way we would want to be treated;(Gilbert, 2012) if all business professionals would respect this simple rule, our country would be a much nicer place to do business.

 

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Inflation is an unforeseen threat to any project that does not have a plan during long term projects.  We have seen the ever changing price of gas which leads to virtually everything else rising in price as well.  The best plan for any project is too ensure a good Planned Value (PV) that is based on real numbers.  However, as the project continues its course the actual cost (AC) starts to change based on the economy and inflation.  One of the best ways to help subsidize inflation cost is a positive earned value (EV).  This is easier to complete with in house employees verses contract support.  If the rate of performance (RP) is less man hours than planned it is a step in the right direction.  However, earned value management (EVM) works of the baseline established in the proposal and builds a comparison over the duration of the project.  The real way to win the inflation game is not to over spend and to conduct trends analysis and utilize the money at the right times.

An ethical dilemma that project managers encounter during inflation and cost issues is bang for the buck purchases.  In this, we have all seen computer companies or consoles buy “like” quality protects to put in their systems to meet production deadlines.  However, this creates a dilemma where you organization accepts a percentage of system failures to meet global demand.  Xbox and PlayStation both acknowledged a less than 1% of their consoles were affected.  Now that still works out to more than 10,000 units.  This hiccup paid off in the end resulting in Xbox One being the biggest launch in the company’s history which was over a million consoles sold in 24 hours.  Ethical dilemma or acceptable risk time proved the lower quality to be worth making the production deadline and the bottom dollar happy!

 

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One area that is often overlooked when planning a project is inflation.  Naturally, as the cost of goods and services increase, the overall cost of the project will increase as well.  This typically is not much of a concern for short term projects but when considering long term projects it could lead to many issues such as an underestimate in final costs and a reduced return on investment.  To combat this I would consider inflation after the final estimate for the project is determined.  Over the last 100 years the average rate of inflation is 3.2% per year (McMahon, 2014).  If the project cost estimate is $100,000 and expected to last one year I would add $3,200 to the final estimate to account for inflation.

Earned Value Management is valuable tool for project managers to measure project performance which integrates scope, time and cost (Schwalbe, 2014).  I could see this being a very useful tool, especially on long-term phased projects.  If each phase of a project has a determined budget, this method can help determine progress based off time passed and money spent.  In the end this tool can be useful in the prevention of cost over runs.

I’m sure one area project managers face ethical dilemmas with on a consistent basis are project costs.  There are many reasons a project can go over budget ranging from a poor estimate, unforeseen expenses or mistakes made during production.  This could lead to a project manager facing the dilemma of asking for and increased budget which is never welcomed or cutting corners to stay within budget.  Neither is a great option but the latter could lead to quality issues and result in the customer not being satisfied with the end product.

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