Copyright 2006 John Wiley & Sons, Inc. Beni Asllani University of Tennessee at Chattanooga Project Management Operations Management - 5 th Edition Chapter 9 Roberta Russell & Bernard W. Taylor, III

Copyright 2006 John Wiley & Sons, Inc.9-2 Lecture Outline   Project Planning   Project Scheduling   Project Control   CPM/PERT   Probabilistic Activity Times   Project Crashing and Time-Cost Trade-off

Copyright 2006 John Wiley & Sons, Inc.9-3 What is a Project?   Project unique, one-time operational activity or effort   Examples constructing houses, factories, shopping malls, athletic stadiums or arenas developing military weapons systems, aircrafts, new ships launching satellite systems constructing oil pipelines developing and implementing new computer systems planning concert, football games, or basketball tournaments introducing new products into market

Copyright 2006 John Wiley & Sons, Inc.9-4 Hallmarks of a project A project is unique/non-repetitive. A project has a specific beginning, goal, purpose, and end. Thus a project is also temporary. Projects must be give specific resources. Projects usually cross functional lines and are organized as a matrix. Projects are for use by others: the usufructuary and the user. Projects generate systemic conflict. Projects are “open veins” from which the entity loses blood and where infection enter.

Copyright 2006 John Wiley & Sons, Inc.9-5 Project Elements  Objective  Scope  Contract requirements  Schedules  Resources  Personnel  Control  Risk and problem analysis

Copyright 2006 John Wiley & Sons, Inc.9-6 Project Management Process  Project planning  Project scheduling  Project control  Project team made up of individuals from various areas and departments within a company made up of individuals from various areas and departments within a company  Matrix organization a team structure with members from functional areas, depending on skills required a team structure with members from functional areas, depending on skills required  Project Manager most important member of project team most important member of project team

Copyright 2006 John Wiley & Sons, Inc.9-7 Functional Managers vs. Project Managers SSSSpecialist EEEExpert RRRRelay on analytical approach PPPProcess oriented FFFFocusing on how GGGGeneralist FFFFacilitator RRRRelying on systems approach RRRResult oriented FFFFocusing on what and when

Copyright 2006 John Wiley & Sons, Inc.9-8 Skill Requirements for Project Managers  Team building  Leadership  Conflict resolution  Technical expertise  Planning  Organization  Entrepreneurship  Administration  Management support  Resource allocation

Copyright 2006 John Wiley & Sons, Inc.9-9 Project Manager’s Bases of Influence  Authority The right to issue orders The right to issue orders  Assignment Ability to influence a worker’s later assignment Ability to influence a worker’s later assignment  Budget Ability to authorize others’ use of fund Ability to authorize others’ use of fund  Promotion Ability to improve a worker’s position Ability to improve a worker’s position  Money Ability to increase a worker’s compensation Ability to increase a worker’s compensation  Penalty Ability to dispense or cause punishment Ability to dispense or cause punishment  Work challenge Worker’s enjoyment of doing a task Worker’s enjoyment of doing a task  Expertise possession of special knowledge important to others possession of special knowledge important to others  Friendship Personal relationship with others Personal relationship with others

Copyright 2006 John Wiley & Sons, Inc.9-10 Project Scope  Scope statement a document that provides an understanding, justification, and expected result of a project a document that provides an understanding, justification, and expected result of a project  Statement of work written description of objectives of a project written description of objectives of a project  Work breakdown structure breaks down a project into components, subcomponents, activities, and tasks breaks down a project into components, subcomponents, activities, and tasks

Copyright 2006 John Wiley & Sons, Inc.9-11 Guides to Breakdown:  Have definite beginning and end.  Have clear performance criteria.  Be budgetable.  Be a single meaningful job.  Have responsibility assigned to individual.

Copyright 2006 John Wiley & Sons, Inc.9-12 Work Breakdown Structure for Computer Order Processing System Project

Copyright 2006 John Wiley & Sons, Inc.9-13  Organizational Breakdown Structure a chart that shows which organizational units are responsible for work items a chart that shows which organizational units are responsible for work items  Responsibility Assignment Matrix shows who is responsible for work in a project shows who is responsible for work in a project

Copyright 2006 John Wiley & Sons, Inc.9-14 Project Scheduling  Steps Define activities Define activities Sequence activities Sequence activities Estimate time Estimate time Develop schedule Develop schedule  Techniques Gantt chart Gantt chart CPM CPM PERT PERT Microsoft Project Microsoft Project

Copyright 2006 John Wiley & Sons, Inc.9-15 Gantt Chart   Graph or bar chart with a bar for each project activity that shows passage of time  Provides visual display of project schedule   Slack amount of time an activity can be delayed without delaying the project

Copyright 2006 John Wiley & Sons, Inc.9-16 |||||||||| Activity Design house and obtain financing Lay foundation Order and receive materials Build house Select paint Select carpet Finish work MonthMonth Example of Gantt Chart

Copyright 2006 John Wiley & Sons, Inc.9-17 Project Control  Time management  Cost management  Performance management Quality management Quality management  Earned Value Analysis a standard procedure for numerically measuring a project’s progress, forecasting its completion date and cost and measuring schedule and budget variation a standard procedure for numerically measuring a project’s progress, forecasting its completion date and cost and measuring schedule and budget variation  Enterprise project management

Copyright 2006 John Wiley & Sons, Inc.9-18 Controlling a “Project” Required performance Performance Budget limit Cost Due Date Target Cumulative Time (“schedule”)

Copyright 2006 John Wiley & Sons, Inc.9-19 CPM/PERT  Critical Path Method (CPM) DuPont & Remington-Rand (1956) DuPont & Remington-Rand (1956) Deterministic task times Deterministic task times Activity-on-node network construction Activity-on-node network construction  Project Evaluation and Review Technique (PERT) US Navy, Booz, Allen & Hamilton US Navy, Booz, Allen & Hamilton Multiple task time estimates Multiple task time estimates Activity-on-arrow network construction Activity-on-arrow network construction

Copyright 2006 John Wiley & Sons, Inc.9-20 Project Network   Activity-on-node (AON) nodes represent activities, and arrows show precedence relationships   Activity-on-arrow (AOA) arrows represent activities and nodes are events for points in time   Event completion or beginning of an activity in a project Branch Node

Copyright 2006 John Wiley & Sons, Inc.9-21 AOA Project Network for a House Lay foundation Design house and obtain financing Order and receive materials Dummy Finish work Select carpet Select paint Build house

Copyright 2006 John Wiley & Sons, Inc.9-22 Concurrent Activities 23 Lay foundation Order material (a)Incorrect precedence relationship (b)Correct precedence relationship 3 42 Dummy Layfoundation Order material 1 20

Copyright 2006 John Wiley & Sons, Inc.9-23 AON Network for House Building Project Start Design house and obtain financing Order and receive materials Select paint Select carpet Lay foundations Build house Finish work

Copyright 2006 John Wiley & Sons, Inc Start Critical Path  Critical path Longest path through a network Longest path through a network Minimum project completion time Minimum project completion time A: = 9 months B: = 8 months C: = 8 months D: = 7 months

Copyright 2006 John Wiley & Sons, Inc.9-25 Activity Start Times Start Start at 3 months Start at 6 months Start at 5 months Finish at 9 months Finish

Copyright 2006 John Wiley & Sons, Inc.9-26 Mode Configuration Activity number Activity duration Earliest start Latest start Earliest finish Latest finish

Copyright 2006 John Wiley & Sons, Inc.9-27 Forward Pass   Start at the beginning of CPM/PERT network to determine the earliest activity times   Earliest Start Time (ES) earliest time an activity can start ES = maximum EF of immediate predecessors   Earliest finish time (EF) earliest time an activity can finish earliest start time plus activity time EF= ES + t

Copyright 2006 John Wiley & Sons, Inc.9-28 Earliest Activity Start and Finish Times Start Design house and obtain financing Select pain Lay foundations Select carpet Build house Finish work Order and receive materials

Copyright 2006 John Wiley & Sons, Inc.9-29 Backward Pass   Determines latest activity times by starting at the end of CPM/PERT network and working forward   Latest Start Time (LS) Latest time an activity can start without delaying critical path time LS= LF - t   Latest finish time (LF) latest time an activity can be completed without delaying critical path time LS = minimum LS of immediate predecessors

Copyright 2006 John Wiley & Sons, Inc.9-30 Latest Activity Start and Finish Times Start Design house and obtain financing Select pain Lay foundations Select carpet Build house Finish work Order and receive materials

Copyright 2006 John Wiley & Sons, Inc.9-31 * Critical Path *7* *4* *2* *1*1 Slack S EF LF ES LS Activity Activity Slack

Copyright 2006 John Wiley & Sons, Inc.9-32 Probabilistic Time Estimates   Beta distribution a probability distribution traditionally used in CPM/PERT a = optimistic estimate m = most likely time estimate b = pessimistic time estimate where Mean (expected time): t = a + 4 m + b 6 Variance:  2 = b - a 6 2

Copyright 2006 John Wiley & Sons, Inc.9-33 Examples of Beta Distributions P(time) Time amtbamtb m = t Time Time ba

Copyright 2006 John Wiley & Sons, Inc.9-34 Project Network with Probabilistic Time Estimates: Example StartFinish 2 3,6,9 3 1,3,5 1 6,8,10 5 2,3,4 6 3,4,5 4 2,4,12 7 2,2,2 8 3,7,11 9 2,4,6 10 1,4,7 11 1,10,13 Equipment installation System development Position recruiting Equipment testing and modification Manual testing Job Training Orientation System training System testing Final debugging System changeover

Copyright 2006 John Wiley & Sons, Inc.9-35 Activity Time Estimates TIME ESTIMATES (WKS)MEAN TIMEVARIANCE ACTIVITY ambt б 2

Copyright 2006 John Wiley & Sons, Inc.9-36 Activity Early, Late Times, and Slack ACTIVITY t б  ESEFLSLFS

Copyright 2006 John Wiley & Sons, Inc.9-37 StartFinish Critical Path Earliest, Latest, and Slack

Copyright 2006 John Wiley & Sons, Inc.9-38  2 = б б б б 11 2  = = 6.89 weeks Total project variance

Copyright 2006 John Wiley & Sons, Inc.9-39 Probabilistic Network Analysis Determine probability that project is completed within specified time where  = t p = project mean time  =project standard deviation x =proposed project time Z =number of standard deviations x is from mean Z =Z =Z =Z = x -  

Copyright 2006 John Wiley & Sons, Inc.9-40 Normal Distribution Of Project Time  = t p Timex ZZ Probability

Copyright 2006 John Wiley & Sons, Inc.9-41 Southern Textile Example What is the probability that the project is completed within 30 weeks?  2 = 6.89 weeks  = 6.89  = 2.62 weeks Z = = = 1.91 x -   From Table A.1, (appendix A) a Z score of 1.91 corresponds to a probability of Thus P(30) = =  = 25 Time (weeks) x = 30 P( x  30 weeks)

Copyright 2006 John Wiley & Sons, Inc.9-42 Southern Textile Example  = 25 Time (weeks) x = 22 P( x  22 weeks) What is the probability that the project is completed within 22 weeks?  2 = 6.89 weeks  = 6.89  = 2.62 weeks Z = = = x -   From Table A.1 (appendix A) a Z score of corresponds to a probability of Thus P(22) = =

Copyright 2006 John Wiley & Sons, Inc.9-43 Project Crashing   Crashing reducing project time by expending additional resources   Crash time an amount of time an activity is reduced   Crash cost cost of reducing activity time  Goal reduce project duration at minimum cost

Copyright 2006 John Wiley & Sons, Inc Project Crashing: Example

Copyright 2006 John Wiley & Sons, Inc.9-45 Project Crashing: Example (cont.) $7,000 – $6,000 – $5,000 – $4,000 – $3,000 – $2,000 – $1,000 – – ||||||| Weeks Normal activity Normal time Normal cost Crash time Crashed activity Crash cost Slope = crash cost per week

Copyright 2006 John Wiley & Sons, Inc.9-46 Normal Activity and Crash Data TOTAL NORMALCRASHALLOWABLECRASH TIMETIMENORMALCRASHCRASH TIMECOST PER ACTIVITY(WEEKS)(WEEKS)COSTCOST(WEEKS)WEEK 1127$3,000$5,0005$ ,0003, ,0007,00013, ,00071,00037, , , ,00022,00017,000 $75,000$110,700

Copyright 2006 John Wiley & Sons, Inc $400 $500 $3000 $7000 $200 $ Project Duration: 36 weeks FROM … $400 $500 $3000 $7000 $200 $ Project Duration: 31 weeks Additional Cost: $2000 TO…

Copyright 2006 John Wiley & Sons, Inc.9-48  Crashing costs increase as project duration decreases  Indirect costs increase as project duration increases  Reduce project length as long as crashing costs are less than indirect costs Time-Cost Relationship

Copyright 2006 John Wiley & Sons, Inc.9-49 Time-Cost Tradeoff Cost ($) Project duration CrashingTime Minimum cost = optimal project time Total project cost Indirect cost Direct cost