# 7/11/13

Proj Cost & Schedule Control

Week 3: Scheduling Networks - Lecture

Scheduling Networks
Introduction | Sensitivity Analysis | Scheduling and Networks | Network Demonstration Problem | Scenario Analysis Introduction We start this week discussing the concept of sensitivity. Sensitivity analysis is the study of project input variables to determine which are most susceptible to changes. We will take this into consideration when establishing our project plan. Our second major topic for this week is the discussion of the process for developing schedules by the use of creating a project network diagram. Using a network diagram we will analyze the schedule to determine how much flexibility we have in the schedule. The flexibility can then be used to our advantage to make informed schedule decisions. We will learn a manual process, but in the end, there are software programs available that will help us with the details of this process. I have included a couple of demonstration problems that can be of value in your project work, as well as for future reference. Sensitivity Analysis Sensitivity analysis determines which parameters (both cash and non-cash variables such as project life) are the most sensitive to a project's economic feasibility. As such, sensitivity analysis forms a bridge between economic analysis and risk analysis. Highlighting these sensitive factors allows further analysis and closer examination, with the goal of improving relevant cash-flow estimates by gathering additional data to narrow the range of accuracy. Objectives: To determine the behavior of measures of economic effectiveness due to estimating errors To determine the effect of these errors on project selection Types: Sensitivity analysis can be undertaken on single project variables such as break-even point, life of equipment (replacement analysis), rate of return, or on multiple variables such as that performed in scenario analysis. For example, we could adjust the cost estimates of labor and materials each by +/- 20%. The estimate which impacts the project the most is the most sensitive to the 20% swing. The project manager will add this variability as a risk and put a plan in place to mitigate the swing for the most sensitive variable. Scheduling and Networks The text provides us with a very detailed explanation of the scheduling process. The basis is to develop project networks where all the duration and dependencies are considered and their interactions accounted for. The concept
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of the critical path, or the path through the network that takes the longest, will be developed. It will show that the critical path is the basis for the project schedule. Although activity on arrow, AOA, exists, the activity on node, AON, format will be the one that we will use in our exercises and exams to keep it simple. Network Demonstration Problem Network Diagram Exercise Once a WBS has been constructed, you are then in a position to sequence the activities (work packages). A graphic depiction of the activities can facilitate team participation in the placing of the activities in the proper sequence. It can show the logical relationship between the various work packages. Work packages can be represented by boxes. Dependencies, what must be done before another activity can be started, are represented by arrows linking various activities. It is possible to have multiple arrows going to a box. It is possible that multiple paths may develop before coming to the end of the project. Once durations have been estimated for the various activities, it is possible to determine how long the project will take to complete. The path that takes the longest period of time to complete is called the critical path. Part 1: Draw a network diagram for the following activities based on the predecessor information provided. Here, we will use a 9 Box configuration for each activity node to track the task information required for the slack analysis. When you have established the relationships, then enter the duration of each activity on your diagram in the top middle and bottom middle of the 9 Box and calculate how long it will take to complete the project. In other words, determine the critical path. Activity A B C D E F Predecessors None None A A B, D C, D Duration 3 4 2 4 4 3

Starting from the left and moving to the right allows us to trace tasks that need to be completed. Tasks A and B can be done at the same time, but B needs to be completed before E; and tasks C and D can be done at the same time, but only after task A is completed. Task F must wait on the completion of tasks C and D. Adding up
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1. The forward pass proceeds from left to right and completes the top row of the 9 Box. Make the start time for

the first activity a "0".
2. Calculate EF times for each activity based upon the duration that has been estimated for each activity, by

starting at the first activity (left most) and on through all activities. Therefore, the EF for that activity will be EF = ES + Duration. 3. The EF time for the first activity will then become the ES for the second activity, and so on. 4. When multiple paths converge at an activity (sometimes called a "merge"), the ES for that activity will be the latest EF (the largest number) from the joint predecessor activities.

Now, the backward pass . . . As the name suggests, this is the reverse of the forward pass.
1. The backward pass proceeds from right to left and completes the bottom row of the 9 Box.
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Starting at the last activity (right most) fill in the LF in the 9 Box with the project duration. Calculate LS times for each activity based upon the duration that has been estimated for each activity. Therefore, the LS for that activity will be LS = LF - duration. When the path splits to multiple predecessors at an activity, the LS for that activity will be the LF time to carry back to the multiple predecessors. 6. When multiple paths converge at an activity while moving left, the LF for that activity will be the earliest LS (the smallest number) from the joint successor activities.
2. 3. 4. 5.

Slack Calculation Now we have all the information to calculate slack for each activity. The calculation is slack = LS - ES or slack = LF - EF. Slack can be calculated readily from the two outside columns. The two slack numbers should obviously match. This is also a nice check and balance to make sure we completed the rest of the box correctly. Critical path activities will obviously have zero slack by definition.

Expert Says Test your knowledge of concepts learned in this lecture. Answer the following question by typing your reply in the textbox. Then click "Compare Response" to find out what the Professor says.

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View transcript here

Scenario Analysis Scenario analysis is an advanced calculation combining several concepts we have studied. It is presented here as an application. I recommend you read it and understand the principles. You will not be seeing a problem of this type on a quiz or the Final Exam. Scenario analysis is considered a form of "what if" analysis. When applied across several input variables it will also reveal how sensitive variables are compared to each other. You are employed by an architect/engineering firm that has just received a contract to perform a feasibility study for an indoor parking structure (assume a 30-year project life). Your firm expects this study to ultimately lead to a contract to design the structure and supervise its construction. You have been selected to handle the study. Based on historical cost information on similar projects, discussion with the client, potential customers, and other stakeholders, you have determined a lower limit, base case, and upper limit of project cash flows (see table below). These scenarios (lower, base, and upper) are based on the expected general economic conditions in the area. Your task is to determine the worth in each scenario and to use this information to advise on how the project should proceed. Cash Flow Estimates (\$000s) Item Lower Limit Base Upper Limit Land (Outflow) (1,000) (1,000) (1,000) Building (Outflow) (3,600) (4,000) (4,800) Annual Revenues 587 620 681 Annual Expenses 90 100 110 Salvage Value 1,000 1,000 1,000 Solution: PW(Lower) = (4,600) + 30(587 - 90) + 1,000 = 20,510 PW(Base) = (5,000) + 30(620 - 100) + 1,000 = 21,600 PW(Upper) = (5,800) + 30(681 - 110) + 1,000 = 23,930

Based on the estimated range of cash flows, the project should proceed because all scenarios have a positive
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worth. Note that this is a simplified calculation. A more accurate evaluation would be obtained using discounted cash-flow analysis.

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