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Chapter 3
Project Management
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Definition of Project Management
Structuring Projects
Work Breakdown Structure
Project Control Charts
Critical Path Scheduling
–
–

CPM with a Single Time
CPM with Three Activity Time Estimates
Time-Cost Models
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Project Management
Defined

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.
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Structuring Projects:
Pure Project: Advantages

The project manager has full authority over
the project.

Team members report to one boss.

Shortened communication lines.

Team pride, motivation, and commitment are
high.
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Structuring Projects:
Pure Project: Disadvantages

Duplication of resources.

Organizational goals and policies are
ignored.

Lack of technology transfer.

Team members have no functional area
"home."
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Structuring Projects: Functional
Project: Organization Structure
President
Research and
Development
Project Project Project
A
B
C
Engineering
Project Project Project
D
E
F
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Manufacturing
Project Project Project
G
H
I
5
Structuring Projects:
Functional Project: Advantages

A team member can work on several
projects.

Technical expertise is maintained within the
functional area.

The functional area is a “home” after the
project is completed.

Critical mass of specialized knowledge.
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Structuring Projects:
Functional Project: Disadvantages

Aspects of the project that are not directly
related to the functional area get shortchanged.

Motivation of team members is often weak.

Needs of the client are secondary and are
responded to slowly.
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Structuring Projects: Matrix Project:
Organization Structure
President
Research and
Development
Engineering
Manufacturing
Marketing
Manager
Project A
Manager
Project B
Manager
Project C
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Structuring Projects:
Matrix: Advantages

Enhanced interfunctional communications.
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Pinpointed responsibility.
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Duplication of resources is minimized.

Functional “home” for team members.

Policies of the parent organization are
followed.
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Structuring Projects:
Matrix: Disadvantages

Too many bosses.

Depends on project manager’s negotiating
skills.

Potential for suboptimization.
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Work Breakdown Structure
Level
1
2
Program
Project 1
Project 2
Task 1.1
Task 1.2
3
Subtask 1.1.1
4
Work Package 1.1.1.1
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Subtask 1.1.2
Work Package 1.1.1.2
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Project Control Charts: Gantt Chart
Vertical Axis:
Always Activities
or Jobs
Horizontal bars used to denote time.
Activity 1
Activity 2
Activity 3
Activity 4
Activity 5
Activity 6
Time Horizontal Axis: Always Time
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Network-Planning Models
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A project is made up of a sequence of
activities that form a network representing a
project.
The path taking longest time through this
network of activities is called the “critical
path.”
The critical path provides a wide range of
scheduling information useful in managing a
project.
Critical Path Method (CPM) helps to identify
the critical path(s) in the project networks.
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Prerequisites for Critical Path
Methodology
A project must have:
well-defined jobs or tasks whose completion
marks the end of the project;
independent jobs or tasks;
and tasks that follow a given sequence.
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Types of Critical Path Methods

CPM with a Single Time Estimate
– 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.

CPM with Three Activity Time Estimates
– Used when activity times are uncertain.
– Used to obtain the same information as the Single Time
Estimate model and probability information.

Time-Cost Models
– Used when cost trade-off information is a major
consideration in planning.
– Used to determine the least cost in reducing total project
time.
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Steps in the CPM with Single Time
Estimate
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1. Activity Identification.
2. Activity Sequencing and Network
Construction.
3. Determine the critical path.
– From the critical path all of the project and
activity timing information can be obtained.
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Example 1. CPM with Single Time
Estimate
Consider the following consulting project:
Activity
Assess customer's needs
Write and submit proposal
Obtain approval
Develop service vision and goals
Train employees
Quality improvement pilot groups
Write assessment report
Designation Immed. Pred. Time (Weeks)
A
None
2
B
A
1
C
B
1
D
C
2
E
C
5
F
D, E
5
G
F
1
Develop a critical path diagram and determine
the duration of the critical path and slack times
for all activities
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Example 1: First draw the network
Act.
Imed. Pred. Time
A
None
2
B
A
1
C
B
1
D
C
2
E
C
5
F
D,E
5
G
F
1
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Example 1: Determine early starts and
early finish times
D(2)
A(2)
B(1)
C(1)
F(5)
G(1)
E(5)
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Example 2. CPM with Three Activity
Time Estimates
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
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Example 2. Expected Time Calculations
Task
A
B
C
D
E
F
G
H
I
Immediate Expected
Predecesors
Time
None
None
A
A
C
D
B
E,F
G,H
Expected Time =
Opt. Time + 4(Most Likely Time) + Pess. Time
6
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Example 2. Network
C( )
E( )
A( )
H( )
D( )
F( )
I( )
B( )
G( )
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Example 2. Probability Exercise
What is the probability of finishing this project in
less than 53 days? Formally: P(t < D)
D=53
TE = 54
Z =
D - TE
2

 cp
t
D is the duration of Interest, i.e.,
TE is the expected duration of the Project, i.e.,
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 Pessim. - Optim. 
Activity variance, σ = 

6


2
2
Task
A
B
C
D
E
F
G
H
I
Optimistic Most Likely Pessimistic Variance
3
6
15
2
4
14
6
12
30
2
5
8
5
11
17
3
6
15
3
9
27
1
4
7
4
19
28
(Sum the variance of activities along the
critical path.)
=
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
2
cp
=
24
p(t < D)
TE = 54
D=53
Z=
D - TE

2
t
=
cp
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Example 2. Additional Probability
Exercise

What is the probability that the project
duration will exceed 56 days?
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Example 2. Additional Exercise
Solution
p(t < D)
TE = 54
Z=
D - TE

2
t
D=56
=
cp
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CPM Assumptions/Limitations

Project activities can be identified as entities.
(There is a clear beginning and ending point for
each activity.)

Project activity sequence relationships can be
specified and networked.
Project control should focus on the critical path.
The activity times follow the beta distribution, with
the variance of the project assumed to equal the
sum of the variances along the critical path.
Project control should focus on the critical path.

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Time-Cost Models

Basic Assumption: Relationship between
activity completion time and project cost.

Time Cost Models: Determine the optimum
point in time-cost tradeoffs.
–
–
–
Activity direct costs.
Project indirect costs.
Activity completion times.
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An Example of a Time-Cost Tradeoff Problem

The Fox Creek Bridge Company has a contract to build a
bridge. Fox Creek will be paid $1,100,000 for the bridge,
while direct costs for the construction are $500,000. The
following information describes the project:
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Activity Imm. Normal
Pred. Time
(Wks.)
A
None
7
B
None
5
C
A
8
D
A
7
E
B
6
F
C
3
G
C,D,E
4
H
E
6
I
G,H
7
J
C,D,E
6
C(8)
A(7)
Crash
Time
(Wks.)
5
3
7
7
3
1
3
6
5
3
F(3)
Normal
Cost
Crash
Cost
$70,000
$45,000
$68,000
$64,000
$48,000
$20,000
$25,000
$55,000
$65,000
$40,000
$80,000
$61,000
$74,000
--$54,000
$22,000
$28,000
--$77,000
$49,000
Cost per Week
to Expedite
Cost per Time Period to Expedite =
CC - NC
NT - CT
G(4)
D(7)
I(7)
J(6)
B(5)
E(6)
H(6)
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C(8)
A(7)
F(3)
G(4)
D(7)
I(7)
J(6)
B(5)
E(6)
H(6)
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Questions:

If Fox’s variable cost is $9,000/week what is the optimal
project duration?

How would your answer change if the variable cost were
$6,500/week?

First, note that the length of the project can only be reduced
by reducing the length of the critical path.
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
One alternative method for finding the critical
path is to calculate the lengths of all paths in
the project network.
– There are a total of 8 paths through our project
network.
– The longest path(s) is the critical path.
C(8)
F(3)
Path
A(7)
Length (Duration)
G(4)
D(7)
I(7)
J(6)
B(5)
E(6)
H(6)
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Action
Path
Length
ACF
ACJ
ACGI
ADJ
ADGI
BEJ
BEGI
BEHI
18
21
26
20
25
17
22
24
C(8)
A(7)
F(3)
Action Marginal
Cost
Total Cost
G(4)
D(7)
I(7)
J(6)
B(5)
E(6)
H(6)
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Questions:
Action Marginal
Cost
Total Cost
Project
Length

If Fox’s variable cost is $9,000/week what is the optimal
project duration?

How would your answer change if the variable cost were
$6,500/week?
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