Operations

Management
Project Management
Chapter 3

McGraw-Hill/Irwin Copyright © 2011 The McGraw-Hill Companies, All Rights Reserved

10-1
Learning Objectives

1. Explain what project management is and

why it is important.
2. Identify the different ways projects can be
structured.
3. Describe how projects are organized into
major subprojects.
4. Understand what a project milestone is.
5. Determine the “critical path” for a project.
6. Demonstrate how to “crash,” or reduce the
length, of a project.

10-2
 What is Project Management?

• Project: a series of related jobs usually

directed toward some major output and
requiring a significant period of time to
perform
• Project management: the management
activities of planning, directing, and
controlling resources (people, equipment,
material) to meet the technical, cost, and
time constraints of a project

LO 1
10-3
 Project Characteristics

• Single unit
• Many related activities
• Difficult production planning and
inventory control
• General purpose equipment
• High labor skills

10-4
 An Example

• Building construction

The change stems from

awareness of the strategic
value of time-based
competition and a
quality mandate for
continuous improvement
are the triggers of projects
initiative.

10-5
 An Example

• Research project

Each new
product/service
introduction is a
unique event—a
project.

10-6
 Types of Development Projects

LO 2
10-7
Management of Large Projects

• Planning - goal setting, project definition,

team organization
• Scheduling - relating people, money, and
supplies to specific activities and activities
to one and other
• Controlling - monitoring resources, costs,
quality, and budgets; revising plans and
shifting resources to meet time and cost
demands

10-8
 Project Management Activities

Planning Scheduling
 Objectives  Project

 Resources activities
 Work break-  Start & end

down schedule times

 Organization  Network

Controlling
 Monitor, compare,
revise, action

10-9
 The Project Organization
may be most helpful when

 Work tasks can be defined with a specific

goal and deadline
 The job is unique or somewhat unfamiliar
to the existing organization
 The work contains complex interrelated
tasks requiring specialized skills
 The project is temporary but critical to the
organization
 The project cuts across organizational
lines.
10-10
 Project Planning, Scheduling,
and Controlling

Project Planning
Time/cost estimates
1. Setting goals
Budgets
2. Defining the project
Engineering diagrams
3. Tying needs into timed project
Cash flow charts
activities
Material availability details
4. Organizing the team
Project Scheduling
1. Tying resources to specific CPM/PERT
activities Gantt charts
2. Relating activities to each other Milestone charts
3. Updating and revising on a Cash flow schedules
regular basis
Project Controlling
Reports
1. Monitoring resources, costs, quality,
• budgets
and budgets
• delayed activities
2. Revising and changing plans
• slack activities
3. Shifting resources to meet demands

Before Project During Project

10-11
 Project Planning

Establishing
objectives
Defining project
Creating work
breakdown structure
Determining
resources
Forming organization

10-12
 Project Organization

 Often temporary structure

 Uses specialists from entire company
 Headed by project manager
Coordinates activities
Monitors schedule
& costs Eng. Eng.
 Permanent Mkt.
structure called Acct.
‘matrix organization’
Mgr.

10-13
 Structuring Projects

• Pure project
• Functional project
• Matrix project

LO 2
10-14
 Pure Project

• Advantages
– The project manager has full authority
– Team members report to one boss
– Shortened communication lines
– Team pride, motivation, and commitment are high
• Disadvantages
– Duplication of resources
– Organizational goals and policies are ignored
– Lack of technology transfer
– Team members have no functional area "home"

LO 2
10-15
 Functional Project

LO 2
10-16
 Functional Project Continued

• Advantages
– A team member can work on several projects
– Technical expertise maintained in functional area
– Functional area is “home” after project completed
– Critical mass of specialized knowledge
• Disadvantages
– Aspects of the project that are not directly related to
the functional area get short-changed
– Motivation of team members is often weak
– Needs of the client are secondary and are
responded to slowly

LO 2
10-17
 Matrix Project

LO 2
10-18
 Matrix Project Continued

• Advantages
– Better communications between functional areas
– Project manager held responsible for success
– Duplication of resources is minimized
– Functional “home” for team members
– Policies of the parent organization are followed
• Disadvantages
– Too many bosses
– Depends on project manager’s negotiating skills
– Potential for sub-optimization

LO 2
10-19
 The Role of
the Project Manager

Project Plan
and Schedule

Revisions and
Updates

Project Project
Manager Team
Information
regarding times, Performance
costs, problems, Reports
delays Feedback Loop

Top
Resources
Management

10-20
 Work Breakdown Structure

This work breakdown structure (WBS) defines

the project by dividing it into its major
subcomponents (or tasks), which are then
subdivided into more detailed components, and
finally into a set of activities and their related
costs.

 1. Project
 2. Major tasks in the project
 3. Subtasks in the major tasks
 4. Activities (or work packages) to
be completed
10-21
 Work Breakdown Structure Continued

• Project milestones: specific events on the

project
• Work breakdown structure (WBS): defines
the hierarchy of project tasks, subtasks,
and work packages
• Activities: pieces of work that consume
time
– Defined within the context of the WBS

10-22
An Example of a Work Breakdown
Structure

10-23
 Earned Value Management (EVM)

• A technique for measuring project progress

in an objective manner
• Has the ability to combine measurements of
scope, schedule, and cost in a project
• Provides a method for evaluating the
relative success of a project at a point in
time

10-24
 Essential Features of any EVM
Implementation

1. A project plan that identifies the activities

to be accomplished
2. A valuation of each activity work
3. Predefined earning or costing rules to
quantify the accomplishment of work

10-25
Earned Value Management Charts

10-26
 Project Scheduling

 Identifying precedence
relationships
 Sequencing activities
 Determining activity
times & costs
 Estimating material &
worker requirements
 Determining critical
activities

10-27
 Purposes of Project Scheduling

 Shows the relationship of each activity to

others and to the whole project.
 Identifies the precedence relationships
among activities.
 Encourages the setting of realistic time and
cost estimates for each activity.
 Helps make better use of people, money,
and material resources by identifying
critical bottlenecks in the project.

10-28
Project Management Techniques

 Gantt chart
 Critical Path Method (CPM)
 Program Evaluation & Review
Technique (PERT)

10-29
 Gantt Chart

One popular project scheduling approach is

the Gantt chart. Gantt charts are low-cost
means of helping managers make sure that
(1) activities are planned, (2) order of
performance is documented, (3) activity time
estimates are recorded, and (4) overall
project time is developed.

10-30
 Gantt Chart

Time Period
Activity
J F M A M J J
Design
Build
Test

10-31
 Project Control Reports

Detailed cost breakdowns for each task

Total program labor curves
Cost distribution tables
Functional cost and hour summaries
Raw materials and expenditure
forecasts
Variance reports
Time analysis reports
Work status reports

10-32
 PERT and CPM

• Network techniques
• Developed in 1950’s
– CPM by DuPont for chemical plants
(1957)
– PERT by Booz, Allen & Hamilton with the
U.S. Navy, for Polaris missile (1958)
• Consider precedence relationships and
interdependencies
• Each uses a different estimate of activity
times
10-33
 Questions Which May Be
Addressed by PERT & CPM

 Is the project on schedule, ahead of

schedule, or behind schedule?
 Is the project over or under cost budget?
 Are there enough resources available to
finish the project on time?
 If the project must be finished in less than
the scheduled amount of time, what is the
way to accomplish this at least cost?

10-34
The Six Steps Common to PERT &
CPM

 Define the project and prepare the work

breakdown structure,
 Develop relationships among the activities.
(Decide which activities must precede and
which must follow others.)
 Draw the network connecting all of the activities
 Assign time and/or cost estimates to each
activity
 Compute the longest time path through the
network. This is called the critical path
 Use the network to help plan, schedule, monitor,
and control the project
10-35
A Comparison of AON and AOA
Network Conventions

10-36
 Critical Path Analysis

• Provides activity information

– Earliest (ES) & latest (LS) start
– Earliest (EF) & latest (LF) finish
– Slack (S): Allowable delay
• Identifies critical path
– Longest path in network
– Shortest time project can be completed
– Any delay on critical path activities
delays project
– Critical path activities have 0 slack

10-37
 Earliest Start and Finish Steps

• Begin at starting event and work forward

• ES = 0 for starting activities
– ES is earliest start
• EF = ES + Activity time
– EF is earliest finish
• ES = Maximum EF of all predecessors for non-
starting activities

10-38
 Latest Start and Finish Steps

• Begin at ending event and work backward

• LF = Maximum EF for ending activities
– LF is latest finish; EF is earliest finish
• LS = LF - Activity time
– LS is latest start
• LF = Minimum LS of all successors for non-
ending activities

10-39
 HOW TO DRAW A NETWORK
DIAGRAM
CPM with Single Time Estimate
Activity Designation Immed. Pred. Time (Weeks)
Assess customer's needs A None 2
Write and submit proposal B A 1
Obtain approval C B 1
Develop service vision and goals D C 2
Train employees E C 5
Quality improvement pilot groups F D, E 5
Write assessment report G F 1

Develop a critical path diagram and determine the

duration of the critical path and slack times for all
activities.
10-40
 AON Network
Act. Imed. Pred. Time

A None 2
B A 1
C B 1
D C 2
E C 5
F D,E 5
D(2)
G F 1

A(2) B(1) C(1) F(5) G(1)

E(5)
10-41
 Determine early starts and early
finish times

ES=4
EF=6

ES=0 ES= ES=3 D(2) ES=9 ES=14

EF=2 2 EF=4 EF=14 EF=15
EF=
A(2) B(1) C(1) F(5) G(1)
3 ES=4
EF=9
Hint: Start with ES=0
and go forward in the E(5)
network from A to G.

10-42
 Hint: Start with LF=15 or
Determine late starts and the total time of the
late finish times project and go backward
in the network from G to
ES=4 A.
EF=6

ES=0 ES= ES=3 D(2) ES=9 ES=14

EF=2 2 EF=4 LS=7 EF=14 EF=15
A(2) EF=
B(1) C(1) LF=9 G(1)
F(5)
3 ES=4
LS=0 LS=2 LS=3 EF=9 LS=9 LS=14
LF=2 LF=3 LF=4 E(5) LF=14 LF=15

LS=4
LF=9
10-43
 Critical Path & Slack

ES=4 Slack=(7-4)=(9-6)= 3 Wks

EF=6
ES=0 ES= ES=3 D(2) ES=9 ES=14
EF=2 2 EF=4 LS=7 EF=14 EF=15
A(2) EF= C(1)
B(1) LF=9 F(5) G(1)
3 ES=4
LS=0 LS=2 LS=3 EF=9 LS=9 LS=14
LF=2 LF=3 LF=4 E(5) LF=14 LF=15

LS=4 Duration=15 weeks

LF=9
10-44
 Milwaukee General Hospital’s
Activities and Predecessors

Activity Description Immediate

Predecessors
A Build internal components -
B Modify roof and floor -
C Construct collection stack A
D Pour concrete and install frame A, B
E Build high-temperature burner C
F Install pollution control system C
G Install air pollution device D, E
H Inspect and test F, G
10-45
 AON Network for Milwaukee
General Hospital

F
A C

Start F H

B D G

LO 3
10-46
 AOA Network (With Dummy
Activities) for Milwaukee General
C
2 Construct 4
stack

Dummy
Activity H
1 6 7
Inspect/Test

D
3 Pour concrete/ 5
Install frame

LO 3
10-47
 Latest Start and Finish Steps

Name
Activity
Earliest Earliest
Start ES EF
Finish

Latest
LS Duration LF
Start Activity Latest
Finish

LO 3
10-48
 Critical Path for
Milwaukee General Hospital

F
A C

F
Start H

B D G

LO 3
10-49
 AON Network for Milwaukee General
Hospital Includes Critical Path

A C FF
0 H 2 2 H 4 4 H 7
0 A 2 2 C4 10 13
2 2 3
E H
Slack=0 Slack=0 4 H 8 Slack=6
0 HStart0 F 13 H 15
0 4 8 13 15
0 4 2
0
BB DD Slack=0 G
Start 0 H 3 3 H 7 8 G H 13
1 4 4 8 8 13
3 4 5
Slack=1 Slack=1 Slack=0

LO 3
10-50
 Gantt Chart
Earliest Start and Finish

Milwaukee General Hospital

1 2 3 4 5 6 7 8 9 10 1112 13 1415 16
A Build internal components
B Modify roof and floor
C Construct collection stack
D Pour concrete and install
frame
E Build high-temperature
burner
F Install pollution control
system
G Install air pollution device
H Inspect and test

LO 3 3-51
10-51
 Gantt Chart
Latest Start and Finish

Milwaukee General Hospital

1 2 3 4 5 6 7 8 9 10 1112 13 1415 16
A Build internal components
B Modify roof and floor
C Construct collection stack
D Pour concrete and install
frame
E Build high-temperature
burner
F Install pollution control
system
G Install air pollution device
H Inspect and test
3-52
LO 3
10-52
 Gantt Chart
Latest Start and Finish

Build House Project

1 1 1
Activity 1 2 3 4 5 6 7 8 9 0 1 2

1-2 Fdn & frame

1-3 Buy shrubs
2-3 Roof
2-4 Interior work
3-4 Landscape

LO 3 3-53
10-53
 PERT Activity Times

 3 time estimates


 Optimistic times (a)
 Most-likely time (m)
 Pessimistic time (b)
 Follow beta distribution
 Expected time: t = (a + 4m + b)/6
 Variance of times: v = (b - a)2/6

LO 3
10-54
 Project Times

Used to obtain
 Expected project time (T)
probability of project
 Sum of critical path activity completion!
times, t
 Project variance (V)
 Sum of critical path activity
variances, v

LO 3
10-55
 PERT Probability Example

You’re a project planner for

General Dynamics. A
submarine project has an © 1995
Corel Corp.

expected completion time of 40

weeks, with a standard
deviation of 5 weeks. What is
the probability of finishing the
sub in 50 weeks or less?

LO 3
10-56
 Converting to Standardized
Variable

X - T 50 - 40
Z = = = 2 .0
s 5
Normal Standardized Normal
Distribution Distribution
s =5 sZ = 1

T = 40 50 X mz = 0 2.0 Z
PowerPoint presentation to accompany Heizer/Render – © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Principles of Operations Management, 5e, and Operations 3-57
Management, 7e
10-57
Standardized Normal Probability
Table (Portion)

Z .00 .01 .02

0.0 .50000 .50399 .50798 sZ =1

: : : :

2.0 .97725 .97784 .97831 .97725

2.1 .98214 .98257 .98300 mz = 0 2.0 Z
Probabilities in body
PowerPoint presentation to accompany Heizer/Render – © 2004 by Prentice Hall, Inc., Upper Saddle River, N.J. 07458
Principles of Operations Management, 5e, and Operations 3-58 10-58
Management, 7e
 Variability of Completion Time for
Noncritical Paths

 Variability of times for activities on noncritical

paths must be considered when finding the
probability of finishing in a specified time.
 Variation in noncritical activity may cause
change in critical path.

10-59
 CPM with Three Activity Time
Estimates

• If a single time estimate is not

reliable, then use three time
estimates
– Minimum
– Maximum
– Most like
• Allows us to obtain a probability
estimate for completion time for the
project

10-60
Finding Activity Time and Variance

a  4m  b
ET 
6
ba
2

 
2

 6 
a  minimum
m  most likely
b  maximum
ET  expected time
10-61
 Example: Activity Expected Times
and Variances

a  4m  b
ET 
6
ba
2

 
2

 6 
D  TE
Z
 2
cp
10-62
 Example: Network with Three Time
Estimates

Probabilit y of Finishing in 35 Weeks

D  TE 35  38
Z   0.87
 cp 11.89
 2

10-63
 Factors to Consider when
Crashing

 The amount by which an activity is crashed is,

in fact, permissible.
 Taken together, the shortened activity
durations will enable one to finish the project
by the due date.
 The total cost of crashing is as small as
possible.

10-64
 Steps in Project Crashing

 Compute the crash cost per time period.

For crash costs assumed linear over time:
(Crash cost  Normal cost
Crash cost per period 
(Normal time  Crash time)
 Using current activity times, find the critical
path
 If there is only one critical path, then select
the activity on this critical path that (a) can
still be crashed, and (b) has the smallest
crash cost per period. Note that a single
activity may be common to more than one
critical path
 Update all activity times.
10-65
Crash and Normal Times and
Costs for Activity B

10-66
Cost-Time Curves Used in
Crashing Analysis

10-67
 An example of project crashing

Time-Cost Models and Project Crashing

10-68
 Procedure for Project Crashing

1. Prepare a CPM-type network diagram

2. Determine the cost per unit of time to
expedite each activity
3. Compute the critical path
4. Shorten the critical path at the least
cost
5. Plot project direct, indirect, and total-
cost curves and find the minimum-cost
schedule

10-69
10-70
10-71
10-72
 Advantages of PERT/CPM

 Especially useful when scheduling and controlling

large projects.
 Straightforward concept and not mathematically
complex.
 Graphical networks aid perception of relationships
among project activities.
 Critical path & slack time analyses help pinpoint
activities that need to be closely watched.
 Project documentation and graphics point out who is
responsible for various activities.
 Applicable to a wide variety of projects.
 Useful in monitoring schedules and costs.
10-73
 Limitations of PERT/CPM

 Assumes clearly defined, independent, &

stable activities
 Specified precedence relationships
 Activity times (PERT) follow
beta distribution
 Subjective time estimates
 Over-emphasis on critical path

10-74
10-75