Presentation on

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 Presented by
Mr. Samee Bhangu

MBSM 4th Sem

College of Statistics & Actuarial Sciences

University of the Punjab Lahore, Pakistan.

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A project is a unique endeavor to
produce a set of deliverables within
clearly specified time, cost and quality
constraints.
Projects are different from standard
business operational activities as they:
 Are unique in nature.
 Have a defined timescale.
 Have an approved budget.
 Have limited resources.
 Involve an element of risk.
 Achieve beneficial change.

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● A unique, one-time operational activity or effort
● Requires the completion of a large number of
interrelated activities
● Established to achieve specific objective
● Resources, such as time and/or money, are
limited
● Typically has its own management structure
● Need leadership

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 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

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 Project
Management is the skills, tools
and management processes required
to undertake a project successfully. It
incorporates:
 A set of skills.
 A suite of tools.
 A series of processes.

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Samee Bhangu 9
 President

Human Quality
Sales Finance Engineering Production
Factors Control

Project 1 Project
Manager
Propulsion Test
Physiologist Technician
Engineer Engineer

Project 2 Project
Manager
Structural Inspection
Psychologist Technician
Engineer Technician

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 Payne & Turner categorized into 4 types in 1999
= of capital of
1. Major Projects Organization
2. Large Projects =1/10 of capital of
3. Medium Organization

Projects =1/100 of capital of

Organization
4. Small Projects
=1/1000 of capital of
Organization

16-11 Samee Bhangu

 Type 2 Type 4
projects projects
Product Research and
Development Organizational
(Water) change
(Air)

Type 1 Projects Type 3 Projects

Engineering System development
(Earth) (Fire)

te r s of
r ea ce
G an ss
Ch cce
Su 16-12 Samee Bhangu
 Project planning
 Project scheduling
 Project control
 Project team
 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
 Project Manager
 most important member of project team

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 Scope statement
 a document that provides an understanding, justification,
and expected result of a project
 Statement of work
 written description of objectives of a project
 Organizational Breakdown Structure
 a chart that shows which organizational units are
responsible for work items
 Responsibility Assignment Matrix
 shows who is responsible for work in a project

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Samee Bhangu 16
 Figure 5: Full circle and arrow diagram for the computer
project we are using as an example

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 Where one activity cannot start until another has
been completed, we start the arrow for the
dependent activity at the completion event circle
of the previous activity. An example of this is
shown below:

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A different case is shown below

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Activity Description Duration
1-2 Social work team to live in village 5w
1-3 Social research team to do survey 12w
3-4 Analyse results of survey 5w
2-4 Establish mother & child health program 14w
3-5 Establish rural credit programme 15w
4-5 Carry out immunization of under fives 4w

4
2

1 5

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 Project Leader
 The Team
 Work Methods and Procedures
 Work Plan

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

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 Resource Availability and/or Limits
 Due date, late penalties, early completion
incentives
 Budget
 Activity Information
 Identify all required activities
 Estimate the resources required (time) to
complete each activity
 Immediate predecessor(s) to each activity
needed to create interrelationships

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  Gantt chart
 Critical Path Method (CPM)
 Program Evaluation & Review
Technique (PERT)
 Network Diagrams

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 Gantt Chart

Graph or bar chart with a bar for each project activity that shows passage of time
Provides visual display of project schedule

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 Critical Path Method (CPM)
 E I Du Pont de Nemours & Co. (1957) for construction
of new chemical plant and maintenance shut-down
 Deterministic task times
 Activity-on-node network construction
 Repetitive nature of jobs
 Project Evaluation and Review Technique
(PERT)
 U S Navy (1958) for the POLARIS missile program
 Multiple task time estimates (probabilistic nature)
 Activity-on-arrow network construction
 Non-repetitive jobs (R & D work)

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 PERT-Program Evaluation and Review
Technique, for planning and
coordinating large projects and is
concern about scheduling of activities
 CPM-Critical Path Method, for planning
and coordinating large projects and is
concern about importance of activities

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 Learning Objectives
 Aware and Understand the Concepts and
Principles of PERT/CPM
 Analyze Business Problem and Relate to
the Applicability Of the Use of
 PERT/CPM
 Identify Business Problems and Use
PERT/CPM in its solution
 Solve Business Problems Using PERT/CPM

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 Path
 A connected sequence of activities leading
from the starting event to the ending event
 Critical Path
 The longest path (time); determines the
project duration
 Critical Activities
 All of the activities that make up the critical
path

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  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
Backward Pass
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
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 Draw the CPM network
 Analyze the paths through the network
 Determine the float for each activity
 Compute the activity’s float
float = LS - ES = LF - EF
 Float is the maximum amount of time that this activity
can be delay in its completion before it becomes a
critical activity, i.e., delays completion of the project
 Find the critical path is that the sequence of activities and
events where there is no “slack” i.e.. Zero slack
 Longest path through a network
 Find the project duration is minimum project completion
time

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 CPM Network
f,f, 15
15

g,
g, 17
17 h, 9
a, 6
i,i, 66

b, 8

d,
d, 13
13 j,j, 12

c,
c, 55
e,
e, 99

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 PERT is based on the assumption that an activity’s
duration follows a probability distribution instead of
being a single value
 Three time estimates are required to compute the
parameters of an activity’s duration distribution:
 pessimistic time (tp ) - the time the activity would
take if things did not go well
 most likely time (tm ) - the consensus best
estimate of the activity’s duration
 optimistic time (to ) - the time the activity would
take if things did go well

Mean (expected time): te = tp + 4 tm + to

6
2
Variance: Vt =σ 2
= tp - to
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 Expected project time Used to obtain
(T) probability of
 Sum of critical path
project completion!
activity times, t
 Project variance (V)
 Sum of critical path
activity variances, v

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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?

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 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
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 Draw the network.
 Analyze the paths through the network and find the
critical path.
 The length of the critical path is the mean of the
project duration probability distribution which is
assumed to be normal
 The standard deviation of the project duration
probability distribution is computed by adding the
variances of the critical activities (all of the
activities that make up the critical path) and taking
the square root of that sum
 Probability computations can now be made using
the normal distribution table.

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PERT (Program Evaluation and Review
Technique)
 PERT is a variation on Critical Path Analysis that
takes a slightly more skeptical view of time
estimates made for each project stage.
 Use the formula below to calculate the time to
use for each project stage:

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 Probability

Zσ

µ = tp x Time

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 Immed. Optimistic Most Likely Pessimistic
Activity Predec. Time (Hr.) Time (Hr.) Time (Hr.)
A -- 4 6 8
B -- 1 4.5 5
C A 3 3 3
D A 4 5 6
E A 0.5 1 1.5
F B,C 3 4 5
G B,C 1 1.5 5
H E,F 5 6 7
I E,F 2 5 8
J D,H 2.5 2.75 4.5
K G,I 3 5 7

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PERT Network

A E H J

B I K
F

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 Activity ES EF LS LF Slack
A 0 6 0 6 0 *critical
B 0 4 5 9
5
C 6 9 6 9 0*
D 6 11 15 20 9
E 6 7 12 13 6
F 9 13 9 13
0*
G 9 11 16 18 7
H 13 19 14 20 1
I 13 18 13 18 0*
J 19 22 20 23 1
K 18 23 18 23 0*

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Vpath = VA + VC + VF + VI + VK
= 4/9 + 0 + 1/9 + 1 + 4/9
= 2
σ path = 1.414
z = (24 - 23)/σ = (24-23)/1.414 = .71
From the Standard Normal Distribution table:
P(z < .71) = .5 + .2612 = .7612

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➀ Define the project and all of its significant
activities or tasks
➁ Develop relationships among the activities.
(Decide which activities must precede and which
must follow others.)
➂ Draw the network connecting all of the activities
➃ Assign time and cost estimates to each activity
➄ Compute the longest time path through the
network. This is called the critical path
➅ Use the network to help plan, schedule, monitor,
and control the project

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 Useful at many stages of project
management
 Mathematically simple
 Uses graphical displays
 Gives critical path & slack time
 Provides project documentation
 Useful in monitoring costs

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 Assumes clearly defined,
independent, & stable activities
 Specified precedence relationships
 Activity times (PERT) follow
beta distribution
 Subjective time estimates
 Over-emphasis on critical path

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• Network analysis is the general name given to certain specific techniques
which can be used for the planning, management and control of projects

 Use of nodes and arrows

Arrows ➨ An arrow leads from tail to head directionally
 Indicate ACTIVITY, a time consuming effort that is required
to perform a part of the work.
Nodes  A node is represented by a circle
- Indicate EVENT, a point in time where one or more activities
start and/or finish.
• Activity
– A task or a certain amount of work required in the project
– Requires time to complete
– Represented by an arrow
• Dummy Activity
– Indicates only precedence relationships
– Does not require any time of effort
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 Main features of PERT/CPM is the use
of a network or precedence diagram to
depict major project activities and
their sequential relationships
 Two conventions in network
construction;
1. Activities on Arrow- arrows designate
activities.
2. Activities on node- nodes designate
activities

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 Project Network

 Event
 Signals the beginning or ending of an activity
 Designates a point in time
 Represented by a circle (node)
 Network
 Shows the sequential relationships among
activities using nodes and arrows

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
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 3
Lay Dummy
foundation
2 0 Build Finish
3 1 house work
1 2 4 6 7
Design house Order and 3 1
and obtain receive Select 1 1 Select
financing materials paint carpet
5

AON Project Network for House

Lay foundations Build house
2 4
Finish work
2 3
7
Start 1 1
3
Design house 6
3
and obtain 5 1
1
financing 1 Select carpet
Order and receive
Select paint
Sameematerials
Bhangu 51
 B
A
A must finish before either B or C can start

C
A
C both A and B must finish before C can start

A
C both A and C must finish before either of B or D can
start
B
D

A
B
A must finish before B can start
Dummy both A and C must finish before D can start

C
D Bhangu
Samee 52
 3
Lay foundation Lay
Dummy
foundation
2 0
2 3
1
Order material 2 4
Order material

(a) Incorrect precedence (b) Correct precedence

relationship relationship

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Illustration of network analysis of a minor redesign of a product and its associated
packaging.

The key question is: How long will it take to complete this project ?

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For clarity, this list is kept to a minimum by specifying only immediate
relationships, that is relationships involving activities that "occur near to each
other in time".

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 Is this a Start Activity?
 Is this a Finish Activity?
 What Activity Precedes this?
 What Activity Follows this?
 What Activity is Concurrent with this?

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 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

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 Crash cost
Crashing activity

Slope = crash cost per unit time

Activity cost

Normal Activity
Normal
cost
Normal
time

Crash time Activity time

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 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 Tradeoff
Min total cost = Total project cost
optimal project
time Indirect cost
cost

Direct cost

time
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 2 4
12
8
7
1 4
12

3 6
4 5 4
4

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Activity Normal Normal Crash Crash Allowable slope
time cost Rs time cost Rs crash time
1 12 3000 7 5000 5 400
2 8 2000 5 3500 3 500
3 4 4000 3 7000 1 3000
4 12 50000 9 71000 3 7000
5 4 500 1 1100 3 200
6 4 500 1 1100 3 200
7 4 1500 3 22000 1 7000

75000 110700

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Crash Action
 You may find that you need to
complete a project earlier than your
Critical Path Analysis says is
possible. In this case you need to
take action to reduce the length of
time spent on project stages.

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 Aswith Gantt Charts, in practice project
managers tend to use software tools like
Microsoft Project to create CPA Charts. Not
only do these ease make them easier to
draw, they also make modification of plans
easier and provide facilities for monitoring
progress against plans. Microsoft Project is
reviewed at the top of our left hand title
bar.

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 Learning Objectives
 Be Familiar and Understand the Concepts
and Principles of Project Financing and
Budgeting
 Know and understand how project cost is
analysed and identify sources of financing
 Identify and Analyze Project Costs and
Benefits
 Compute for the Financial and Economic
Viability of Projects

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 How much will the project cost
 To develop
 To operate
 To maintain
 Canwe sustain project operations
and maintenance?

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 How much is needed to operate and maintain
the project in usable form?
 If we can charge user fees, how much should it
be? How much more is needed to collect the
fees (administrative cost of collecting the fees)?
 Given the fees, what is the projected number of
users?
 If we do not collect the fees, what is the
projected number of users?
 If the project cannot be expected to pay for
itself, will the provincial government be willing
to subsidize its operations and maintenance?
By how much?

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If operations and maintenance of the
project cannot be sustained, either
from project revenues or subsidies
from the province, the project
investment should not be undertaken.

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 Equity (Owner’s Investment)

 Loan (Banks and other sources)

 Grant(Government and other

Sources)

 Co-Financing

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 Budget Budget
Accountability Preparation

Budget Budget
Execution Authorization

Budget
Review

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 ?
 What is the output of the project?
 Output, not outcomes
 Characterize the output
 Public, private, mixed
 Tradeable, nontradeable, partly
tradeable

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 Financialconsiderations are often an
important consideration in selecting
projects
 Three primary methods for determining
the projected financial value of projects:
 Net present value (NPV) analysis
 Return on investment (ROI)
 Payback analysis

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 Net present value (NPV) analysis is a
method of calculating the expected net
monetary gain or loss from a project by
discounting all expected future cash
inflows and outflows to the present
point in time
 Projects with a positive NPV should be
considered if financial value is a key
criterion
 The higher the NPV, the better

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 Note
that
totals
are
Uses
equal,
Excel’s
but
npv
NPVs
function
are
not.

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Multiply
by the
discount
rate each
year, then
take cum.
benefits –
costs to
get NPV

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 Determine estimated costs and benefits for
the life of the project and the products it
produces
 Determine the discount rate (check with
your organization on what to use)
 Calculate the NPV (see text for details)
 Notes: Some organizations consider the
investment year as year 0, while others
start in year 1. Some people enter costs as
negative numbers, while others do not.
Check with your organization for their
preferences.

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 Determine estimated costs and benefits for
the life of the project and the products it
produces
 Determine the discount rate (check with
your organization on what to use)
 Calculate the NPV (see text for details)
 Notes: Some organizations consider the
investment year as year 0, while others
start in year 1. Some people enter costs as
negative numbers, while others do not.
Check with your organization for their
preferences.
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 Project Sponsorship at executive
level
 Good project charter
 Strong project management
 The right mix of team players
 Good decision making structure
 Good communication
 Team members are working toward
common goals
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 Failure to align project with
organizational objectives
 Poor scope
 Unrealistic expectations
 Lack of executive sponsorship
 Lack of project management
 Inability to move beyond individual and
personality conflicts
 Politics

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 Microsoft Project (Microsoft Corp.)
 MacProject (Claris Corp.)
 PowerProject (ASTA Development Inc.)
 Primavera Project Planner (Primavera)
 Project Scheduler (Scitor Corp.)
 Project Workbench (ABT Corp.)

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