Chapter 3

Project Management
Topics to be covered
Project
Project Management (organization)
Project Life Cycle
Project Planning
Network Scheduling
 CPM WBS
 PERT Gantt Chart
Project crashing
Project risks
 Projects financing;
  Project
 Project :- Temporary endeavor undertaken to create a unique product,
service, or result.
 A project ends when its objectives have been reached, or the project
has been terminated.
 Projects can be large or small and take a short or long time to
complete.
 A sequence of unique, complex and connected activities:
Having one goal or purpose with
Unique scope of work and
That must be completed by:
 A specific time,
 Within budget, and
 According to specification.
2
 Project
Example:
 Organizational Project ( Building Construction,
Launching a new product).
 National Project (Great Renaissance Dam project, Gilgel
Gibe, Awash-Amertinesh, Addis Ababa City Rail Way
Project and etc.)
Developing military weapons systems, aircrafts, new ships.
 Developing and implementing new processing systems.
Developing and Installing new Chemical factory and
improving the existing one.

3
  Project Management
Project management is the application of knowledge, skills,
tools and techniques to project activities, in order to meet
project requirements and meet or exceed stakeholder
needs and expectations from a project which tries to
balance competing demands for project scope, time, cost,
quality and resources.
Is accomplished through the application and integration of
the project management processes of initiating, planning,
executing, monitoring and controlling, and closing.

4
 Project Management
 A method for organizing tasks.  The triple constraint of
Project management:
 Tools to aid in task sequencing,  Scope goals: What work
dependency analysis, resource will be done?
allocation, scheduling, etc.  Time goals: How long
should it take to complete?
 Tools to track progress relative to plan.  Cost goals: What should it
cost?
 Why Project management?
 Complex project needs coordination of:
 Multiple people
 Multiple resources
Multiple tasks – some must precede
others
 Multiple decision points – approvals
 Phased expenditure of funds Resources
 Matching of people/resources to tasks
Scope/Quality
It is the project manager’s duty to balance
these three often-competing goals. 5
Project Management

6
 Suggested steps in project management
 Generate a formal definition of the project, with goals, constraints,
and assumptions.
Identify project start/end dates, any mandatory milestones,
including reports, deliverables, etc.
List constraints – money, equipment availability, holidays, etc.
Identify tasks to be accomplished – high level (i.e., by categories).
 Refine detailed task list: Then, for each task in list:
Estimate time (person hours, calendar period)
Identify dependencies among tasks
Identify resources (people, money, parts, etc.)
Organize task groups roughly by starting date and List dependencies
that should or must hold.
Identify critical path, see if it can be shortened.
Assign person-hours and specific team member(s) to each task.
7
 Suggested steps in project management
 As project progresses:
Monitor, record progress on all tasks, at least weekly – use
“Tracking Gantt Chart”.
Pay particular attention to those on critical path.
Revise plan as needed to take into account changes, adapt to meet
milestones.

Project Life Cycle

 Projects will generally be sub-divided into several stages or phases to
provide better management control.
 Each project phase is marked by completion of one or more
deliverables.
A deliverable is a tangible, verifiable work product (such as
feasibility study, a detail design or working prototype).
 Collectively, these project phases are called the Project Life Cycle.
8
 Project Life Cycle

 Phases of Project
1. Scoping the project 2. Planning the project
 State the problem/opportunity.  Identify project activity.
 Establish the project goal.  Estimate activity duration.
 Define the project objectives.  Determine resource requirements.
 Identify the success criteria.  Construct/ analyze the project
 List assumptions, risks, obstacles. network.
 Prepare the project proposal.
9
 Phases of Project
3. Launching plan 4. Monitoring progress
 Recruit and organize project  Establish progress reporting
team. system
 Establish team operating rules.  Install change control
 Level project resources. tools/process.
 Schedule work packages.  Monitor project progress versus
plan.
 Document work packages
 Revise project plans.
5. Project Closing
 Obtain client acceptance.
 Install project deliverables.
 Complete project documentation.
 Complete post-implementation audit
 Issue final project report.
10
  Project Planning
Planning prescribes the path to be followed in executing the project,
whereas the controls are the means to collect, analyze, compare and
correct.
 Project planning addresses work to be accomplished during a project
to meet the defined goals and objectives.
 It also identifies those activities and strategies that are detrimental to
a project’s successful completion.
 Major components of the planning phase:
 Objective: a goal, target or quota to be achieved by a certain time.
 Schedule: a plan showing when individual or group activities or
accomplishments will be started and/or completed.
 Budget: planned expenditures needs to achieve or exceed objectives.
 Forecast: a projection of what will happen by a certain time.
 Organization: design of the number and kind of positions, along with
11
 Project Planning
corresponding duties and responsibilities, required to achieve or
exceed objectives
Policy: a general guide for decision-making and individual actions.
Procedure: a detailed method for carrying out a policy.
Standard: a level of individual or group performance defined as
adequate or acceptable.
Work Breakdown Structure (WBS)
 A work breakdown structure defines the hierarchy of project tasks,
subtasks, and work packages.
 A method of breaking down a project into individual elements
(components, subcomponents, and tasks) in a hierarchical structure
which can be scheduled and cost.
 It defines tasks that can be completed independently of other
tasks, facilitating resource allocation, assignment of responsibilities
and measurement and control of the project.
 It can be used to identify the tasks in the CPM and PERT. 12
 
Level
Work Breakdown Structure
Program

1 Project 1 Project 2

2 Task 1.1 Task 1.2

3 Subtask 1.1.1 Subtask 1.1.2

4 Work Package 1.1.1.1 Work Package 1.1.1.2

13
Work Breakdown Structure

14
 Project/network Scheduling
Tools and Techniques
1) Gantt Chart
 The Gantt chart is the oldest compared to network
diagrams and is used effectively in simple, short-duration
types of projects.
 Graph or bar chart with a bar for each project activity that
shows passage of time.
 Provides a visual display of project schedule.
 Vertical axis shows tasks and horizontal shows duration
for each activity.

15
 Network Scheduling
 Network scheduling is a diagram which represents all the events and
activities in sequence (in which they are required to be performed to
complete the project), along with their interrelationships and
interdependencies.
Terms related to network planning methods:
 Event: An event is a specific instant of time which marks the start
and the end of an activity.
 Event consumes neither time nor resources.
 It is represented by a circle and the event number is written with in
the circle. Event and node are synonyms.
 Activity: Every project consists of a number of operations or tasks
which are called activities.
 An activity is an element of project and it may be a process, a
material handling or material procurement cycle, etc.
 An activity is shown by an arrow and it begins and ends with the
event. 17
 Network Scheduling
 Unlike event, an activity consumes time and resources. An activity
may be performed by an individual or a group of individuals.
 An activity is normally given a name like, A, B, etc.
 Critical activities: Are those activities which if they consume
more than their estimated time, the project will be delayed.
 Non-critical activities: Such activities have provision (float or slack)
so that, even if they consume a specified time over and above the
estimated time, the project will not be delayed.
 Dummy activities: When two activities start at the same instant of
time, the head events are joined by a dotted arrow and this is known as
a dummy activity. A dummy activity is assumed to take nil time, but it
facilitates the drawing of the arrow diagram subject to the precedence
constraints, by avoiding redundancy.

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  Building Activity Network
AOA
 Nodes represent start and finish events for each activity, and arrow
represent an activity and precedence.
 Arrows can only come from/go to single node.
 Only one arrow between two given nodes.
 A dummy activity is used to illustrate precedence relationships in
AOA networks. It serves only as a “connector,” however, it is not a
“real” activity and represents neither work nor time.

19
 Building Activity Network
AON
 The node (the block in the figure) is the activity; inside the node is
information about the activity, such as its duration, start time, and
finish time .
 Requires no dummy nodes.

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Situations in Network Diagram

B
A
A must finish before either B or C
C can start.

A
C Both A and B must finish before C can
B start.

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

A B

Dummy
A must finish before B can start
C both A and C must finish before D can start.
21
D
 2. Critical Path Method (CPM)
 CPM is a technique used for planning and controlling the most logical
and economic sequence of operations for accomplishing a project.
 The project is analyzed into different activities whose relationships are
shown on the network diagram. The network is then utilized for
optimizing the use of resources, progress and control.
 CPM
Used when activity times are known with certainty.
Used to determine timing estimates for the project, each activity in
the project, and slack time for activities.
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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 Critical Path Method (CPM)

Forward pass
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, where t is activity time.

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.
 LF = minimum LS of immediate successors.
23
  CPM Analysis/Steps
1. Break down the project into various activities systematically (WBS).
2. Label all activities
3. Arrange all the activities in logical sequence.
4. Construct the network diagram.
5. Number all the nodes(events) and activities.
6. Find the time for each activity.
7. Mark the activity times on the arrow (if AOA) and in node if (AON).
8. Calculate early and late start and finishing times.
9. Calculate total float for each activity, Float = LS - ES = LF – EF.
(Float is the maximum amount of time that an activity can be
delayed in its completion before it becomes a critical activity, i.e.,
delays completion of the project.)
10. Identify the critical activities and mark the critical path on the arrow.
11. Critical path is that the sequence of activities and events where there
is no “slack” i.e.. Zero slack. 24
  CPM Example:
Consider the following consulting project: Develop a critical path
diagram and determine the duration of the critical path and slack times
for all activities.
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

First draw the precedence diagram.

D(2)

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

A(2)

E(5) 25
 Determine early starts and early finish
times
Forward Pass EF= ES + t
D(2)
ES=0 ES=2 ES=3 ES = 9
EF=2 EF=3 EF=4 EF =14
ES=4
EF=6 ES=14
A(2) B(1) C(1) F(5) G(1) EF=15

Hint: Start with Critical path:

ES=0 and go forward E(5) A–B–C–E–F–G
in the network from
A to G. ES=4
EF=9

26
  Determine late starts and late finish times
Hint: Start with LF=15 or the
total time of the project and go
backward in the network from Backward Pass.
ES=4
G to A.
EF=6
LS= LF - t
D(2)
ES=0 ES=2 ES=3 ES =9 ES=14
EF=2 EF=3 EF=4 LS=7 EF=14 EF=15
LF=9
A(2) B(1) C(1) F(5) G(1)
ES=4
LS=0 LS=2 LS=3 EF=9 LS=9 LS=14
LF=2 LF=3 LF=4 LF=14 LF=15
E(5)

LS=4
LF=9
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 Critical Path & Slack
Float = LS - ES = LF - EF

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

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

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 3. Program Evaluation and Review
Techniques (PERT)
 PERT is based on the assumption that an activity’s
duration follows a probability distribution instead of being
a single value, Because of the uncertainty of activity
timings.
 The statistical probability feature of PERT foretells the
probability of reaching the specified target date.
 Three time estimates are required to compute the
parameters of an activity’s duration distribution:
1. Pessimistic time (tp) - the time the activity would take if things did not go
well.
2. Most likely time (tm) - the consensus best estimate of the activity’s
duration.
3. Optimistic time (to) - the time the activity would take if things29did go
• The fundamental assumption in PERT is that
the three time estimates form the end points
and mode of Beta distribution. It is further
assumed that to and tp are about equally
likely to occur whereas the probability of
occurrence of tm is 4 times that of tp or to
Program Review and Evaluation Techniques (PERT)

31
 PERT Analysis
 Break down a project into different activities systematically.
 Arrange activities in logical sequence.
 Draw network diagram.
 Using three-time estimate, calculate expected time for each activity
 Calculate standard deviation and variance for each activity.
 Determine earliest starting times and latest finishing times.
 Identify Critical path(s) and total project duration.
 Lastly, calculate the probability that the project will finish at due date.
x-
Z=

where  = Te = project mean time
 = Project standard mean time
x = (proposed ) specified time
32
  PERT Networking Example
Consider the following tasks from A to I and find the critical path,
longest path on the network.
Immediate
Task Predecesors Optimistic Most Likely Pessimistic
A None 3 6 15
B None 2 4 14
C A 6 12 30
D A 2 5 8
E C 5 11 17
F D 3 6 15
G B 3 9 27
H E,F 1 4 7
I G,H 4 19 28
Opt. Time + 4(Most Likely Time) + Pess. Time
Expected Time =
6 33
 PERT Example Solution

Immediate Expected Te(A)= 3+4(6)+15

Task Predecesors Time 6
A None 7
B None 5.333 ET(A)=42/6=7
C A 14 Te(B)= 2+4(4)+14
D A 5
6
E C 11
F D 7 ET(B)=32/6=5.333
G B 11 Te(C)= 6+4(12)+30
H E,F 4
I G,H 18 6
ET(C)=84/6=14
C(14) E(11)
Critical path:
A(7) H(4) A–C–E–H–I
D(5) F(7)

I(18) Duration = 54 Days

B G(11)
(5.333)
34
Probability Exercise
What is the probability of finishing this project in less than 53 days?

Task Optimistic Most Likely Pessimistic Variance

A 3 6 15 4
B 2 4 14
C 6 12 30 16
D 2 5 8
E 5 11 17 4
F 3 6 15
G 3 9 27
H 1 4 7 1
I 4 19 28 16
Pessim . - O ptim . 2
A ctivity variance,  2
= ( )
6

(Sum the variance along the critical path.)  2

= 41
35
Probability Exercise Solutions

p(t < D)

D=53 TE = 54 t

X - TE 53 - 54
Z= = = - .156
 cp
 2
41

p(Z < -.156) = .438, or 43.8 % Refer Z table

There is a 43.8% probability that this project will be

completed in less than 53 weeks. 36
 Probability Exercise Solution
 What is the probability that the project
duration will exceed 56 weeks?

p(t <X)

TE = 54 X=56
t

X - TE 56 - 54
Z= = = .312

2
cp
41

p(Z > .312) = .378, or 37.8 %

37
 CPM Exercise
Activity Immed. Predec. Most Likely Time (Hr.)
A --- 6
B --- 5
C A 3
D A 5
E A 1
F B, C 4
G B, C 2
H E, F 6
I E, F 5
J D, H 3
K G, I 5
For the above activity:
Determine the critical path and duration.
Determine ES and EF for each activity.
Determine LS and LF for each activity.
Determine float or slack for each activity. 38
 PERT Exercise
Optimistic Time Most Likely Pessimistic
Activity Immed. Predec. (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

For the above activity:

Determine the expected time of each activity.
Determine the critical path and duration.
Determine probability of completing the project with less than 24 hrs.
Determine the probability of completing the project with in 20 hrs. 39
  Project Crashing
■ Project crushing is reducing of the completion time of
the project .
■ Project crashing is a method for shortening project duration by reducing one or
more critical activities to a time less than normal activity time.
 Question: Can we cut short its project completion time? If so, how!
Yes, the project duration can be reduced by assigning more resources to
project activities. But, doing this would somehow increase our project cost!
How do we strike a balance?
Trade-off concept
Here, we adopt the “Trade-off” concept
We attempt to “crash” some “critical” events by allocating more resources to
them, so that the time of one or more critical activities is reduced to a time
that is less than the normal activityy time.
• How to do that:
• Question: What criteria should it be based on when deciding to
crashing critical times?
40
 Example – crashing (1)
Max weeks can be crashed
Normal weeks 2 6(3)
5 (1)
4(0) 3(0) 3
1
5(0)
The critical path is 1-2-3, the completion time =11
How? Path: 1-2-3 = 5+6=11 weeks
Path: 1-3 = 5 weeks Now, how many days can we “crash” it?
The maximum time that can be crashed for:
Path 1-2-3 = 1 + 3 = 4 Path 1-3 = 0
Should we use up all these 4 weeks?
If we used all 4 days, then path 1-2-3 has (5-1) + (6-3) = 7 completion weeks
Now, we need to check if the completion time for path 1-3 has lesser than 7
weeks (why?) Now, path 1-3 has (5-0) = 5 weeks
Since path 1-3 still shorter than 7 weeks, we used up all 4 crashed weeks
Question: What if path 1-3 has, say 8 weeks completion time?
 Example – crashing (1)
5 (1) 2 6(3)
3
1
Such as 8(0)
Now, we cannot use all 4 days (Why?)
Because path 1-2-3 will not be critical path anymore as
path 1-3 would now has longest hour to finish
Rule: When a path is a critical path, it will not stay as a critical
path. So, we can only reduce the path 1-2-3 completion time to the
same time as path 1-3. (HOW?)
2 6(3)
5 (1)
Solution: 3
1
8(0)
We can only reduce total time for path 1-2-3 = path 1-3,that is 8 weeks
If the cost for path 1-2 and path 2-3 is the same then We can random pick
them to crash so that its completion Time is 8 weeks 42
 Example – crashing (1)
Solution:
4(0) 4(1)
2 6(3)
5 (1)
3
1
OR 8(0)
3(0)
5 (1) 6(3)
2

1
3
8(0)

Now, paths 1-2-3 and 1-3 are both critical paths

43
Project Crashing and Time-Cost Trade-Off
Example Problem (3 of 5)

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

Project Crashing and Time-Cost Trade-Off
Example Problem (2 of 5)
Crash cost & crash time have a linear
relationship:
Total Crash Cost $2000

Total Crash Time 5 weeks
 $400 / wk
  Project Risk
 Risk the possibility of loss or injury”
 Project risk involves understanding potential problems
that might occur on the project and how they might
impede project success
 A situation involving exposure to danger;
 “The combination of the probability of an event and its
consequences”
 “Effect of uncertainty on objectives”
Uncertainties include events (which may or not
happen); Uncertainties caused by ambiguity or a lack
of information; and Also includes both negative and
positive impacts on objectives. (developed by an
international committee representing over 30 countries
and is based on the input of several thousand subject
matter experts.)
  Roots Of Uncertainty
 Stakeholders
 Objectives
 Variety of Resources, (human, capital, material..)
 Project Organizations
 Scope of work
 Cost
 Time
 Delivery of Quantified and Qualitative objectives
 Technologies
 Environment
 Regulators

47
 Roots of Uncertainty are associated with
 Who, Who are the parties ultimately involved
(Executing Agencies, partners, etc..)
 Why, What do they want (motives, objectives..)
 What, What is it the parties interested in (design)
 Which way, How is to be done (activities)
 Wherewithal, What resources are required (resources)
 When, when does it have to be done (Schedule,
timetable)

11/20/2019 Shehzad Akram 48

 .  Types of Risk
unsystematic, specific to
firm or assets, Systematic, non-
diversifiable diversifiable
Project-Specific Risks Market Risk
Competitive Risks Systematic risk can not be
International Risk diversified however parts
Industry-specific Risks of the risk can be reduced
Political through risk mitigation
Legal and transferring techniques

49
  Sources of Risks
 INTERNAL  EXTERNAL
 Resources(Processes)  Political risk
 Inadequate internal controls,  Country Risk
 Human errors (incompetence,  Market Risk
inexperienced, corruption)  Currency Risk
 IT failure  Interest Rate Risk
 Inadequate human resources  Counter-part Risk
 Operational Risks  Credit or default Risk
 Legal Risks??  Environmental Risk
Project Risk Management (PRM)
PRM Art and science of planning, organizing, securing and managing
resources (Management) to harness/control/manage the effects of
uncertainties on objectives (Risk)of a temporary endeavor (project).
 One of the nine knowledge areas defined in PMBOK (Project
Management Body of Knowledge)
  Risk Management
 Is a Comprehensive System that includes:
 Creating an appropriate risk management environment
 Maintaining an efficient Risk Measurement
 Mitigating and Monitoring Process
 Establishing an Adequate Internal Control Arrangement Core of the
Strategic Management of the Company
 It is the process whereby organizations methodically address the risks
attaching to their activities with the goal of achieving sustained
benefit within each activity and across the portfolio of all activities.
 Risk Management is the;
 Identification;
 Assessment; and
 prioritization of risks
 Monitoring followed by coordinated and economical application of
resources to minimize, monitor, and control the probability or impact
of unfortunate events or to maximize the realization of opportunities.
  Why Risk Management:
 Its objective is to add maximum sustainable value to all
the activities of the organization.
 It marshals the understanding of the potential upside and
downside of all those factors which can affect the
organization.
 It increases the probability of success, and reduces both
the probability of failure and the uncertainty of achieving
the organization's overall objectives Healthy Stress Vs the
bad stress
Role of Risk Management
Risk Identification Focus of downside of risk
Risk Appraisal Exploit Opportunities arising from risks
Risk Management

52