Project Management Final

.
Planning & economic evaluation of

transportation projects
Planning & economic evaluation of transportation projects
Planning & Economic Evaluation of Transportation

Projects
Transportation project
Management
Ashenafi Aregawi(PhD): Planning & economic of transportation projects Transportation Project Management: 0
. Planning & economic evaluation of transportation projects
Outline
 Introduction to project management
 Critical Path Method: CPM
 Project monitoring and control
 Uncertainty in project management
 Resource planning
 Cost planning
Introduction to Project Management

Brief history
– Project management (PM) focuses on:
 Specific results
 Scheduling /calendars
 Resources (capital, staff, etc…)
– The origins of PM
 Fredrick Taylor (1856-1915)
 Scientific study
 Process designing
Brief history
 In the 1950’s a new era of PM began with the concern to systematize the PM
techniques:
– Development of Polaris missiles
– How to manage different experts (Henry Gantt’s)? How to manage logistics
associated with mega-projects in the defence area?
– Car industry, cinema... followed these footsteps
 The spreading of PM techniques, of a variety of software tools available,
..., expansion of the use of such tools
Brief history
 The growing importance of PM
 It is not restricted to the improvements in PM
 Competitive pressure
 Reduction in the life cycle of the products
 PM helps to connect solutions to customers’ needs, increasing the
possibilities of success:
 The winners spend twice as much resources anticipating the
development of activities
 70% of the development of new products is delayed due to the
poor definition and understanding of customers needs
 The changes in products requirements introduce more delays
in their developments than any other cause (Boznak,
1994)
.Planning & economic evaluation of transportation projects
Project definition
 Project: a set of actions required to achieve an output:
 It exists in terms of one (or more) objective(s) translated by clear

targets and clear specifications – nature, size and quality
 Definition of the actions that are part of the project – process of

selection between the possible alternatives to reach the desired
results.
 Analysis of the requirements of each alternative – resources

required.
Project definition
Once the project is selected (some steps must be followed):
 Planning:
 Detailed definition of elementary actions – activities –
definition of actions to develop and of the necessary
conditions to perform those actions
 Activities scheduling
 Identification of the necessary resources:
 Human resources
 Equipment
 Material
 Financial resources (capital)
.
Project definition
Once the project is selected:
 Management:
 Ensure that goals and partial specifications are met
 Co-ordination of actions
 Availability (allocation) of resources – at the right time and right

place
 Guidance and control, with possible plan review

Project definition
 Qualities of the project manager:
 Ability to analyze a complex structure and understand

the consequences of possible changes to be made
 Decision-making skills and ability to implement them (or

ensure their accomplishment)
Project planning
 Result of project planning => the program:
 Decomposition of the project into inter-related elementary

units (activities)
 Structuring- definition and clear understanding of the

problems and design an adequate process to meet the goals
 Detailed description of the activities to carry out: scheduling,

resources, need of predicting and estimating future conditions
(information and experience available)
Project planning
 The program should set the project :
 Quality  goals in terms of quantity and quality

specifications
 Time  deadlines and completion dates to be respected
 Resources  consider all the necessary resources

(materials, equipment, manpower…)
Project planning
 Identification of activities and representation of their
interrelationships => activities network:
 Activity: operation, task or process that consumes time and, usually,
other resources
 Identification of the activities that are part of the project and the
interrelationships between them
 Precedence relationships (activity B can start only after activity
A is completed) imposed by reasons of character:
 Physical
 Practical (work organization)
 Legal, political, etc.
.
Project planning
 Activities network – adequate graphical denotation identifying
the activities and their interdependencies, fulfilling the aims of
the following analysis, and consequently leading to the
establishment of the project programme.
Project planning
 Activities network 3 D
B
A F
1 2 5 6
C
4 E
 Activities A, B, C, .. – directed arc

 Nodes 1, 2, 3, … – events that represent finishing of activities that
converge on them, thus activities that emanate from them can start
 Interdependencies:
 B and C depend on A (directly)
 F can only start after D and E are completed
 Sequence BD can be run in parallel with sequence C  E
Project planning
 Prediction and estimation
 Planning => ability to make predictions and estimations with regard

to future events:
 Based on information available and the experience acquired
 Based on objectives and transparent methods
 But many projects are unique!

Project planning
 For each activity it is necessary to estimate:
 the length of the activity
 the resources requirements
 But these variables are dependent!
 Iterative process until a balanced solution is found
 Consensus required by the project team
 Realistic estimation:
 Exaggerated optimism => unreal estimation
 Extreme pessimism => little demanding schedule!

Project planning
 Prediction and estimation
 Example: estimate the duration of an activity
1. Measurement of work quantity – Ex: Digging works:
6400m3
2. Selection of processes/means of accomplishment – Ex:
bulldozer XPTO
3. Estimate duration – Ex: Bulldozer XPTO productivity = 20m3/h
Duration  6400  320hours  40days
20
4. Allocate resources and redefine duration – Ex: 4

bulldozers => 10 days
Critical Path method
Activities network – construction of a house
Prece- Duration
Activities
dence (weeks)
A Foundations -- 1
B 1st floor structure A 2
C Roofing structure B 2
D Ground floor walls B 3
E 1st floor walls C 3
F Roofing structure C 5
G Sanitary and electrical installations D,E 3
H Windows D,E 2
I Interior trim G,H 8
J Exterior trim H 4
K Landscaping F,J 1
.
Critical Path Method

Critical Path Method: CPM
 Critical activities
 Occurrence (of a node): when all the activities that converge at a node are
finished => all the activities that start from that node can be initiated.
 Earliest start time (EST) of a node occurrence: minimum period of time

that has to pass since the beginning of the project until all activities that
converge at a node are completed.
dij
j
i
ESTj  maxESTi  dij

i
n
. Planning & economic evaluation of
 Latest finish time (LFT) of a node occurrence: the latest point in
time of a node occurrence that is not harmful for the
accomplishment of the project in the estimated deadline (enables
the accomplishment of all the succeeding activities)
dij j
i 
LFTi  min LFTj  dij
j

m
 Total Slack (TS): the total possible slack for the completion of an
activity when all the preceding activities take place at the earliest
start time and all the succeeding activities in the latest finish time
(the amount an activity can expand or be delayed without
affecting the overall duration of a project).
ESTi LFTi ESTj LFTj 16 17 20 21

dij d9,15= 2
i j 9 15
TSij  LFTj  ESTi  dij  TS9,15  21  16  2  3

 Independent slack (IS): total slack available for completing an
activity when all the preceding activities take place at the latest
finish time and all the succeeding activities can take earliest start
time (the amount of activity can expand without affecting the
preceding activity).
ESTi LFTi ESTj LFTj 16 17 20 21

dij d9,15= 2
i j 9 15
ISij  ESTj  LFTi  dij  IS9,15  20  17  2  1
It is possible to move the activity one(1) day

irrespective of the scheduling of the other
activities
Planning
. & economic evaluation of transportation projects
 Necessary conditions for an activity to be critical: when the
earliest start time and the latest finish time are equal and the
activity cannot be delayed. But this condition is not enough!
 It is also necessary that the activity has a zero slack!
 Determining critical activities:
1. Draw a network diagram
2. Calculate the EST (from the beginning to the end) of the
nodes
3. Calculate the LFT (from the end to the beginning) of the
nodes
4. Calculate the TS of the activities
5. Mark all the critical activities
Critical Path method
Prece- Duration
Activities
dence (weeks)
A Foundations -- 1
B 1st floor structure A 2
C Roofing structure B 2
D Ground floor walls B 3
E 1st floor walls C 3
F Roofing structure C 5
G Sanitary and electrical installations D,E 3
H Windows D,E 2
I Interior trim G,H 8
J Exterior trim H 4
K Landscaping F,J 1

Project network – Determining
the critical path
Duration of 14 18
the activity 5 5
8
4 (8)
10 11
6
A-1 B-2 9
1 2 3
(0) (0)
19 19
0 0 1 1 3 3 G-3
5 7
(0)
8 8 11 11
LFT
EST
Critical
TS path

 CPM (Critical Path Method) Minimum
– Critical activities: A, B, C, E ,G ,I duration time of
– Critical path: A B  C  E  G  I
the project
– Duration of the critical path = dA+dB+dC+dE+dG+dI = 1+2+2+3+3+8=19
Scheduling
Activi- Weeks
Semanas
A
B
Non-critical
activity
C
D
Total slack
E
F Critical
G
activity
0 5 10 15 20
Project Monitoring and Control

% of quantity of work
Progress predicted after

increase of workers
100%
done
Predicted progress
(initial)
Projection of the
50%
real progress
Decision of increasing
manpower
Real progress
10 20 30 Weeks
• Type of costs of reducing the duration of the activities:

– Direct costs: costs with resources (manpower, material, machines)
directly associated with the accomplishment of the project
– Indirect costs: costs with resources not directly associated to the

productive activities (supervision and control, administrative staff,
capital costs, etc.)
– Contingency costs: as a result of fines, bonus or other unexpected costs

associated to project accomplishment
• Type of costs of reducing the duration of the activities

Costs
Total costs
Indirect costs
Minimum costs
Contingency costs
Direct costs
Duration of Project duration

Minimum cost
 Direct costs of accomplishing an activity:
– They are functions of the resources used and respective duration
– More resources or with more productivity => less duration and higher cost
Cost
C2
“usual”
situation
C1
CN
C3
d2 d1 dN d3 Duration of the
activity

• Reduction of project duration:
– Act over critical activities
– Select the activity with the lower marginal cost of duration reduction:
• Marginal costs are given (generally) by a linear approximation to the curve

“duration of the activity cost”
– The approximation can have several thresholds
– Marginal cost:
C  CN
C marg_1  1
d N  d1
C  CN
C marg_ 2  2
d N  d2
N.B.: attention to the parallel critical path and

elimination of slacks in sub-critical activities

30 30
• Example:
2
70 70
B - 67 5
1
3
110 110
0 0
70 70
Activity Normal situation 1st threshold 2nd threshold
Duratio n Cost Duratio n Cost Duratio n Cost
A 30 17 28 19 26 22
B 67 4 65 44 62 54
C 30 22 28 26 26 34
D 30 27 24 32 22 39
E 20 12 18 15 15 20
F 40 52 37 61 33 21
G 40 47 37 62 35 82

Uncertainty in Project Management
 Program (or Project) Evaluation and Review Technique:
PERT method
 Risk Analysis
 Until now the analysis carried out were based on the principle that
all values were known deterministically – characterised by single values
 Reality => uncertainty associated to estimates – the need for
methods that
 Specify uncertainties in a quantified way
 And that measure the extent of their effects

 PERT (Program Evaluation Review Technique) – project planning and control

method that considers uncertainty associated with activities duration:
– Decomposition of the project into activities (detailed steps that can be

more accurately estimated)
– Drawing the network representing the project in order to make analysis

about the overall duration of the project (time required to conclude it)
– However, the analysis of the network is stochastic and

dedicated to a statistic characterization of the overall duration of the
project
• Duration of activities
– Uncertainty associated to duration of activities  it starts to be
considered a random variable
– PERT proposes that the duration of each activity is made by three
estimates:
 Optimistic estimate (Dop) – estimate of accomplishment time
when this take place in completely favourable
conditions so that the possibility of concluding the
activity in a shorter time is put aside
 Pessimistic estimate (Dpe ) – when, on the contrary, the
conditions are clearly adverse
 Most likely estimate (Dml) – when the accomplishment of the
activity takes place under normal conditions

• Duration of activities
– Average and variance result from the assumption that the duration of the
activity can be statistically described by a Beta distribution
Function density of
Probability
of 1%
probability
Probability
of 1%
Dop Dmp Dpe Duration
6
N.B. the Beta distribution presents extreme flexibility, depending on the

different frameworks of Dop, Dpe and Dml, with negative or positive asymmetry
 Duration of activities
– Why a distribution instead of, as usual in Statistics, rehearse its
adequateness to a set of empirical observations of the duration?
 This is due to the fact that those observations might not be

available for reasons of information constraints or the non-
repetitive character the activities
– However, if the companies:

 Transform the elements collected during the project in
appropriate data base
 Adopt a standard decomposition of the projects

 It will be possible to estimate the duration of the activities based on real
samples
.
 Stochastic analysis of activities networks
• Total duration of the project DT is a random variable
– Average
T  1  2 ...  n (4)
– Variance
2  2  2 ...  2 (5)
T 1 2 n
– Central Limit Theorem: the sum of the independent random

variables converges to a normal random distribution if the
number of variables is large enough => DT normal random
variable

 Stochastic analysis of activities networks
– Example – the duration of the activity will be given by:
DT  maxD  D D ; D B  DE ; D B  DC  D D 
A
– Maximum duration of the project goes into the analysis of

extreme values, with a high degree of complexity
• Alternative paths with common activities => non-
independent paths
• If activity C did not exist, there would be no independent
paths and in that case:
– P: probability of completing the activities A → D before date L
– P’: probability of completing activities B → E before date L
– Given the independence of two paths the probability of the
project being concluded before date L is given by P x P’
.
 PERT introduces the fundamental simplifying

hypothesis:
1. Admitting that the time for project accomplishment is
controlled by the duration of the critical path determined for
average values of activities duration
2. Under these conditions network statistical analysis is

reduced to the analysis of the critical path for average
values with clear advantages of simplicity and operationality
3. However, this simplification can lead to deviations from

reality if there are sub-critical paths (to average values) with
durations close to the critical path

 PERT method works the following way:
1. The project is decomposed into a set of activities and the
interdependencies between them are identified
2. For each activity three time estimates are produced (optimistic,
pessimistic and most likely).
– Having these estimates as basis the average and variances
of duration (1) and (2) are calculated
3. The activities network representing the project is drawn
– Using average durations the expected time for each activity
is calculated (such as with the CPM) and the critical path is
determined

 PERT method works the following way:
4. To perform a statistical analysis the network is reduced to that
critical path.
– The time for completing the project is, under these

circumstances, given by the duration of the critical path
determined in the previous step, with average and variance
given by expressions (4) and (5), with application of the
sums to the activities that form the critical path (3)
– Admitting that the total distribution has a normal distribution

we are able to produce probabilistic statements regarding the
deadline for the conclusion of the project
Resource Planning
 Resources
– The accomplishment of any activity always implies the use of resources
– Personnel or material required for the performance of an activity
– The allocation of a resource to an activity has a cost as it won’t be used
for other goals
– Type of resources:
 Renewable (cumulative): resources that enable the constitution of
stocks that will feed the necessities of the project over time
 Non-renewable (Non-cumulative): those that correspond to the use
of capabilities so that their non utilization during some time will lead
to an unrecoverable loss (ex: personnel, electricity, …)
Resource Planning
 Availability of resources and project scheduling
– Until now we have dealt with time
– But scheduling is also important with regard to resources since it

is vital to reach high levels of economy in the resources spent
 Need to combine availability of resources with the need to

use them over time
– The need of resources over time depend on the calendar

adopted for the project => the calendar must take into account
time, deadlines and consumption of the resources
Resource Planning
 Renewable resources
– It is important to ensure that the accumulated availabilities are equal
or higher than the accumulated needs  study their evolution
Renewable
resources
availabilities
needs
stocks
Time
Resource Planning
 Renewable resources
– Larger Stocks:
 More storage costs, capital costs...
– Reduction of stocks => more frequent renewal:
 More receptions costs, more order costs, delivery costs…
Acummulated
resources
availabilities
needs
Stocks
Time
Resource Planning
 Reorder point policy
An order is always placed when the stock falls until a pre-fixed level M
(reorder point)
Level of stocks + orders
Stock
Q
Stock
levels
Order delivery
Place the order time

Resource Planning
 Cyclic revision policy
–The orders are placed at fixed time intervals and the quantity
to order is variable and calculated to rise the existing stock
plus the order till a maximum level M (replenishment level)
M
Stock level + orders
Stock level
Inventory points Cycle Delivery time

duration
  
time
T T
Resource Planning
 Non-renewable resources
– The analysis to develop must be based on comparisons between
utilizations and instant availabilities (they are not allowed to
accumulate!)
Waste of Complementary
resources resources
M
workers/hou
Nº. of
M’
r
Needs
(load diagram)
Time
Resource Planning
• Non-renewable resources
– In order to make the solution viable it is necessary to have a team
with size of M
• Waste of resources
– Moving M downwards to level M’ we reduce the waste of resources
but solutions must be found for complementary resources:
• Extra hours…
• Additional costs. Is it worth?
– Alternative solution:
• Try to schedule activities in such a way that the chart with the
needs of non-accumulating resources is the most regular as
possible
– More adequate scheduling
– According to the levels available
Cost Planning
 Concept of discounting:
 Project financing
 Economic evaluation/ present values
 Refer to previous lectures of the same course

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Planning & economic evaluation of

Planning & economic evaluation of transportation projects

Planning & Economic Evaluation of Transportation

 Introduction to project management

 Critical Path Method: CPM

 Project monitoring and control

 Uncertainty in project management

Introduction to Project Management

Introduction to Project Management

Introduction to Project Management

Introduction to Project Management

 It exists in terms of one (or more) objective(s) translated by clear

 Definition of the actions that are part of the project – process of

 Analysis of the requirements of each alternative – resources

Introduction to Project Management

Introduction to Project Management

Once the project is selected:

 Ensure that goals and partial specifications are met

 Availability (allocation) of resources – at the right time and right

 Guidance and control, with possible plan review

Introduction to Project Management

 Qualities of the project manager:

 Ability to analyze a complex structure and understand

 Decision-making skills and ability to implement them (or

Introduction to Project Management

 Decomposition of the project into inter-related elementary

 Structuring- definition and clear understanding of the

 Detailed description of the activities to carry out: scheduling,

Introduction to Project Management

 Quality  goals in terms of quantity and quality

 Time  deadlines and completion dates to be respected

 Resources  consider all the necessary resources

Introduction to Project Management

Introduction to Project Management

Introduction to Project Management

 Activities A, B, C, .. – directed arc

Introduction to Project Management

 Planning => ability to make predictions and estimations with regard

 Based on information available and the experience acquired

 Based on objectives and transparent methods

 But many projects are unique!

Introduction to Project Management

 the length of the activity

 the resources requirements

 But these variables are dependent!

 Iterative process until a balanced solution is found

 Consensus required by the project team

 Exaggerated optimism => unreal estimation

 Extreme pessimism => little demanding schedule!

Introduction to Project Management

4. Allocate resources and redefine duration – Ex: 4

Critical Path method

Activities network – construction of a house

Critical Path Method

Activities network – construction of a house

Critical Path Method: CPM

 Earliest start time (EST) of a node occurrence: minimum period of time

ESTj  maxESTi  dij

Critical Path Method: CPM

Critical Path Method: CPM

ESTi LFTi ESTj LFTj 16 17 20 21

TSij  LFTj  ESTi  dij  TS9,15  21  16  2  3