Download KRM Chapter 3 - Project Management

Project Management
Chapter 3
© 2007 Pearson Education
Projects
 A project is an interrelated set of activities
with a definite starting and ending point,
which results in a unique outcome for a
specific allocation of resources.
 The three main goals of project
management are…
1. Complete the project on time or earlier.
2. Do not exceed the budget.
3. Meet the specifications to the satisfaction of the
customer.
© 2007 Pearson Education
Project Management
 Project management is a systemized, phased
approach to defining, organizing, planning,
monitoring, and controlling projects.
 A collection of projects is called a program, which is
an interdependent set of projects with a common
strategic purpose.
 A cross-functional effort: Even though a project
may be under the overall purview of a single
department, other departments likely should be
involved.
© 2007 Pearson Education
Project Scope
and Objectives
 Defining a project’s scope, time frame,
allocated resources and objective, is
essential.
 A Project Objective Statement provides the
objectives and essence of the project.
 Time frame should be specific for start and
ending of the project.
 Necessary resources are also defined, either
in dollar terms or in personnel allocation.
© 2007 Pearson Education
Planning Projects
 Planning projects involves five steps:
1. Defining the work breakdown structure -a statement of all work that has to be
completed.
2. Diagramming the network -- a graphical
network
3. Developing the schedule -- specifying
start times for each activity
4. Analyzing cost-time trade-offs
5. Assessing risks
© 2007 Pearson Education
Defining the Work
Breakdown Structure
 A Work Breakdown Structure is simply a statement
of all work that has to be completed.
 Major work components are identified and then
broken down into smaller tasks by the project team.
 This process may involve a hierarchy of work levels.
 An Activity is the smallest unit of work effort
consuming both the time and resources that the
project manager can schedule and control.
 Task Ownership: Each activity must have an owner
who is responsible for doing the work.
© 2007 Pearson Education
Diagramming the Network
 A Network Diagram visually displays the
interrelated activities using nodes (circles) and arcs
(arrows) that depict the relationships between
activities.
 Two network planning methods (PERT & CPM) were
originally distinctive, but today the differences are
minor and will be jointly referred to as PERT/CPM.
 PERT (Program Evaluation and Review Technique) was
utilized when activity times involved risk.
 CPM (Critical Path Method) was used when activity times
were certain.
© 2007 Pearson Education
Precedence
Relationships
 Precedence relationships determine a sequence
for undertaking activities, and specify that any given
activity cannot start until a preceding activity has
been completed.
Activity On Node approach
In the AON approach, the
nodes (circles) represent
activities, and the arcs
represent the precedence
relationships between
them.
© 2007 Pearson Education
AON
S
T
“S” precedes “T” which
precedes “U”
U
Activity Relationships
S & T must be completed
before U can be started.
T & U cannot begin until
S has been completed.
T
S
U
T
© 2007 Pearson Education
S
U
Activity Relationships
U & V can’t begin until S &
T have been completed.
U cannot begin until S & T have
been completed. V cannot begin
until T has been completed.
S
U
S
U
T
V
T
V
© 2007 Pearson Education
Activity Relationships
T & U cannot begin until S has been
completed; V cannot begin until both
T & U have been completed.
S
T
U
© 2007 Pearson Education
V
St. Adolf’s Hospital
Example 3.1 (Modified)
Activity
A
B
C
D
E
F
G
H
I
J
K
Description
Immediate
Predecessor(s)
Select administrative and medical staff.
—
Select site and do site survey.
—
Select equipment.
A
Prepare final construction plans and layout.
B
Bring utilities to the site.
B
Interview applicants and fill positions in
A
nursing, support staff, maintenance,
and security.
Purchase and take delivery of equipment.
C
Construct the hospital.
D
Develop an information system.
A
Install the equipment.
E,G,H
Train nurses and support staff.
F,I
© 2007 Pearson Education
F,I,J in the text
Responsibility
Johnson
Taylor
Adams
Taylor
Burton
Johnson
Adams
Taylor
Simmons
Adams
Johnson
St. Adolf’s Hospital
Activity
AON Network
A
B
C
D
E
F
G
H
I
J
K
Description
I
Immediate
Predecessor(s)
Select administrative and medical staff.
—
Select site and do site survey.
—
Select equipment.
A
F
K A
Prepare final construction plans and layout.
B
Bring utilities to the site.
B
Interview applicants and fill positions in
A
nursing,
maintenance,
Startsupport staff, C
Finish
G
and security.
Purchase and take delivery of equipment.
C
Construct the hospital.
D
D
B
H
J A
Develop an information
system.
Install the equipment.
E,G,H
Train nurses and support staff.
F,I,J
E
Figure 8.4
© 2007 Pearson Education
Responsibility
Johnson
Taylor
Adams
Taylor
Burton
Johnson
Adams
Taylor
Simmons
Adams
Johnson
St. Adolf’s Hospital
Activity
Description
Completion Time
A
B
C
D
E
F
G
H
I
J
K
I
15
Immediate
Predecessor(s)
Select administrative and medical staff.
—
Select site and do site survey.
—
A
F
KA
Select equipment.
12
10
Prepare final construction
plans and layout. 6B
Bring utilities to the site.
B
Interview applicants and fill positions in
A
C
G
nursing,
Startsupport staff, maintenance,
Finish
10
35
and security.
Purchase and take delivery of equipment.
C
Construct the hospital.
B
D
H
JD
Develop an information
system.
9
10
40
4A
Install the equipment.
E,G,H
Train nurses and support staff.
F,I,J
E
24
© 2007 Pearson Education
Responsibility
Johnson
Taylor
Adams
Taylor
Burton
Johnson
Adams
Taylor
Simmons
Adams
Johnson
St. Adolf’s Hospital
Path
Expected Time (wks)
Activity
Immediate
Predecessor(s)
Description I
Completion
Time
A-F-K
28
15
A
Select administrative
and medical staff.
A-I-K
33
B
Select site and
A-C-G-J
61Ado site survey.
F
C
Select equipment.
12
10
B-D-H-J
D
Prepare final63
construction
plans and layout.
B-E-J
E
Bring utilities37
to the site.
F
G
H
I
J
K
Interview applicants and fill positions in
C
G
nursing,
Startsupport staff, maintenance,
10
35
and security.
Purchase and take delivery of equipment.
Construct the hospital.
B
D
H
Develop an information
system.
9
10
40
Install the equipment.
Train nurses and support staff.
E
24
© 2007 Pearson Education
—
—
KA
6
B
B
A
Responsibility
Johnson
Taylor
Adams
Taylor
Burton
Johnson
Finish
C
JD
4A
E,G,H
F,I,J
Adams
Taylor
Simmons
Adams
Johnson
St. Adolf’s Hospital
The critical path is the
longest path!
Path
Time (wks)
A-F-K
A-I-K
A-C-G-J
B-D-H-J
B-E-J
28
33
61
63
37
Project Expected
Time is 63 wks.
© 2007 Pearson Education
I
A
Start
B
F
K
C
G
D
H
E
Finish
J
St. Adolf’s Hospital
Developing the Schedule
 Earliest Start Time (ES) is the latest earliest finish
time of the immediately preceding activities.
 Earliest Finish Time (EF) is an activity’s earliest
start time plus its estimated duration.
 Latest Start Time (LS) is the latest finish time
minus the activity’s estimated duration.
 Latest Finish Time (LF) is the earliest latest start
time of the activities that immediately follow.
 For simplicity, all projects start at time zero.
© 2007 Pearson Education
What AON Nodes look like
Determined by the earliest finish
time of the precedent activity. If
there are two or more precedent
activities, this time is the same as
precedent activity with the latest
“Earliest Finish” time.
Slack is the difference, if any,
between the earliest start and latest
start times (or the earliest finish and
latest finish times).
S = LS – ES
or
S = LF– EF
Slack
Activity
Earliest
Finish
Earliest
Start
This is the Latest
Finish time minus
the activity time.
© 2007 Pearson Education
Latest
Start Activity
Duration
Latest
Finish
The earliest you can complete
an activity -- determined by
adding the activity time to the
earliest start time.
The latest you can finish an
activity without delaying the
project completion date. It is the
same as the Latest Start time of
the next activity. If there are two
or more subsequent activities,
this time is the same as the
earliest of those “Latest Start”
times.
St. Adolf’s Hospital
I
15
Earliest start time
0
Earliest finish time
A 12
F
K
12
10
6
C
G
Start
B
9
Earliest Start
and
Earliest Finish Times
© 2007 Pearson Education
Finish
10
35
D
H
J
10
40
4
E
24
St. Adolf’s Hospital
12
I 27
15
0
A 12
12
27 K 33
10
12
12
Start
F 22
C 22
6
22
10
0
B 9
9
Latest Start
and
Latest Finish Times
© 2007 Pearson Education
9
D 19
10
9 E 33
24
G 57
Finish
35
19
H 59
40
59
J 63
4
Project
finish
Time = 63
St. Adolf’s Hospital
12
I 27
15
0
A 12
12
10
12
12
Start
F 22
C 22
Latest
start
time
22
10
0
B 9
9
Latest Start
and
Latest Finish Times
© 2007 Pearson Education
9
D 19
10
9 E 33
24
27 K 33
57
63
6
G 57
Finish
35
19
H 59
40
Latest
finish
time
J
59
63
59 4 63
Latest start
time
St. Adolf’s Hospital
Earliest start time
Latest start time
A
0
12
2 12 14
I
12
27
42 15 57
Critical
path
0
0
B 9
9 9
Latest Start
and
Latest Finish Times
© 2007 Pearson Education
Latest finish time
F
27 K 33
57
63
12
22
47 10 57
C
Start
Earliest finish time
12
22
14 10 24
D
9
19
9 10 19
9 E 33
35 24 59
6
G
22
57
24 35 59
H
19
59
19 40 59
Finish
J
59
63
59 4 63
Project Schedule
 A Gantt Chart is a project schedule, usually created
by the project manager using computer software,
that superimposes project activities, with their
precedence relationships and estimated duration
times, on a time line.
 Activity slack is useful because it highlights activities that
need close attention.
 Free slack is the amount of time an activity’s
earliest finish time can be delayed without delaying
the earliest start time of any activity that immediately
follows.
 Activities on the critical path have zero slack and cannot be
delayed without delaying the project completion.
© 2007 Pearson Education
© 2007 Pearson Education
St. Adolf’s Hospital
Developing the Schedule
 The project team must make time estimates
for each activity.
 Activity times may be risky, in which case a
probability distribution can be used.
 For this project the times will be certain.
 Activity slack is the maximum length of
time that an activity can be delayed without
delaying the entire project.
 For St. Adolf’s we can’t go beyond 63 weeks.
© 2007 Pearson Education
Activity
Slack Hospital
St.
Adolf’s
I
12
27
42 15 57
Slack = LS – ES
or
A
0
12
2 12 14
Slack = LF – EF
F
C
12
22
14 10 24
Start
0
0
Activity Slack
Analysis
© 2007 Pearson Education
B 9
9 9
27 K 33
57
63
12
22
47 10 57
D
9
19
9 10 19
9 E 33
35 24 59
6
G
22
57
24 35 59
H
19
59
19 40 59
Finish
J
59
63
59 4 63
Activity
Slack Hospital
St.
Adolf’s
I
SlackK = 57 – 27 = 30
or
A
0
12
2 12 14
SlackK = 63 – 33 = 30
12
27
42 15 57
F
C
12
22
14 10 24
Start
0
0
Activity Slack
Analysis
© 2007 Pearson Education
B 9
9 9
27 K 33
57
63
12
22
47 10 57
D
9
19
9 10 19
9 E 33
35 24 59
6
G
22
57
24 35 59
H
19
59
19 40 59
Finish
J
59
63
59 4 63
Node Duration ES
A
B
C
D
E
F
G
H
I
J
K
LS
Slack
St.12Adolf’s
0
2 Hospital
2
I
9
10
10
24
10
35
40
15
4
6
0
12
9
9
12
22
19
12
59
27
0
14
9
35
47
24
19
42
59
57
0
2
0
26
35
2
0
30
0
30
0
0
Critical Path
© 2007 Pearson Education
B 9
9 9
12
27
42 15 57
F
27 K 33
57
63
12
22
47 10 57
C
12
22
14 10 24
D
9
19
9 10 19
9 E 33
35 24 59
6
G
22
57
24 35 59
H
19
59
19 40 59
Finish
J
59
63
59 4 63
Analyzing Cost-Time
Trade-Offs
 There are always cost-time trade-offs in
project management.
 You can completing a project early by hiring more
workers or running extra shifts.
 There are often penalties if projects extend
beyond some specific date, and a bonus may be
provided for early completion.
 Crashing a project means expediting some
activities to reduce overall project completion
time and total project costs.
© 2007 Pearson Education
Project Costs
 The total project costs are the sum of direct costs,
indirect costs, and penalty costs.
 Direct costs include labor, materials, and any other
costs directly related to project activities.
 Indirect costs include administration, depreciation,
financial, and other variable overhead costs that can
be avoided by reducing total project time.
 The shorter the duration of the project, the lower
the indirect costs will be.
© 2007 Pearson Education
Cost to Crash
 To assess the benefit of crashing certain activities,
either from a cost or a schedule perspective, the
project manager needs to know the following times
and costs.
 Normal time (NT) is the time necessary to complete
and activity under normal conditions.
 Normal cost (NC) is the activity cost associated
with the normal time.
 Crash time (CT) is the shortest possible time to
complete an activity.
 Crash cost (CC) is the activity cost associated with
the crash time.
© 2007 Pearson Education
Cost to Crash per Period
CC − NC
NT − CT
The Cost to Crash per Period =
© 2007 Pearson Education
Crash Cost − Normal Cost
Normal Time − Crash Time
St. Adolf’s Hospital
Cost-Time Relationships in Cost Analysis
Direct cost (dollars)
8000 —
Crash cost (CC)
7000 —
Linear cost assumption
6000 —
5200
5000 —
Estimated costs for
a 2-week reduction,
from 10 weeks to
8 weeks
4000 —
3000 —
0—
Normal cost (NC)
|
5
|
6
(Crash time)
© 2007 Pearson Education
|
7
8
|
9
|
10
|
11
(Normal time)
Time (weeks)
Direct Cost and Time Data for the
St. Adolf’s Hospital Project
Activity
Normal
Time
(NT)
Normal
Cost
(NC)
Crash
Time
(CT)
Crash
Cost
(CC)
Maximum
Time
Reduction
(wk)
A
B
C
D
E
F
G
H
I
J
K
12
9
10
10
24
10
35
40
15
4
6
$ 12,000
50,000
4,000
16,000
120,000
10,000
500,000
1,200,000
40,000
10,000
30,000
11
7
5
8
14
6
25
35
10
1
5
$ 13,000
64,000
7,000
20,000
200,000
16,000
530,000
1,260,000
52,500
13,000
34,000
1
2
5
2
10
4
10
5
5
3
1
Totals
$1,992,000
© 2007 Pearson Education
$2,209,500
Cost of
Crashing per
Week
(CC-NC)/MTR
$ 1,000
7,000
600
2,000
8,000
1,500
3,000
12,000
2,500
1,000
4,000
St. Adolf’s Hospital
Modeling project schedule in Excel
Forward schedule (Earliest time)
ES = EF of predecessor, if only one predecessor
ES = Max(EF of predecessors), if more than one
EF = ES + Activity duration
Backward schedule (Latest time)
LF = LS of successor, if only one successor
ES = Min(LS of successors), if more than one
LS = LF - Activity duration
© 2007 Pearson Education
St. Adolf’s Hospital
Optimal crashing using Excel Solver
Target cell = Cost or project completion time
Changing cells = Crashing time
Constraints = Crashing time <= MTR
Options:
• Non-negative
• Tolerance
• Estimates, derivative, search
© 2007 Pearson Education
St. Adolf’s Hospital
Pert = Project Evaluation Review Technique
Finding probability for project completion time
© 2007 Pearson Education
Assessing Risks
 Risk is a measure of the probability and
consequence of not reaching a defined
project goal.
 A major responsibility of the project manager
at the start of a project is to develop a riskmanagement plan.
 A Risk-Management Plan identifies the key
risks to a project’s success and prescribes
ways to circumvent them.
© 2007 Pearson Education
Statistical Analysis
 The Statistical Analysis approach requires that
activity times be stated in terms of three reasonable
time estimates for each activity.
1. Optimistic Time (a) is the shortest time in which a activity
can be completed if all goes exceptionally well.
2. Most Likely Time (m) is the probable time for an activity.
3. Pessimistic Time (b) is the longest time required.
 The expected time for an activity thus becomes…
a + 4m + b
te =
6
© 2007 Pearson Education
Probabilistic
Time Estimates
Probability
Beta
Distribution
a
Optimistic
© 2007 Pearson Education
m
b
Mean
Pessimistic
Time
St. Adolf’s Hospital
Probabilistic Time Estimates
Example 3.5
Calculating Means and Variances
I
Mean
a + 4m + b
te =
6
Variance
2 =
(
© 2007 Pearson Education
A
Start
B
b–a
6
F
C
G
D
H
2
)
K
E
Finish
J
St. Adolf’s Hospital
Probabilistic Time Estimates
Example 3.5
Calculating Means and Variances
I
Activity B
Most
Optimistic Likely Pessimistic
(a)
(m)
(b)
7
8
15
7 + 4(8) + 15
te =
= 9 weeks
6
2 =
(
15 - 7
6
© 2007 Pearson Education
2
) = 1.78
A
Start
B
F
K
C
G
D
H
E
Finish
J
St. Adolf’s Hospital
Probabilistic Time Estimates
Example 3.5
Time Estimates (wk)
Optimistic
Activity
(a)
A
B
C
D
E
F
G
H
I
J
K
© 2007 Pearson Education
11
7
5
8
14
6
25
35
10
1
5
Likely
(m)
Pessimistic
(b)
12
8
10
9
25
9
36
40
13
2
6
13
15
15
16
30
18
41
45
28
15
7
Activity Statistics
Expected Variance
Time (te )
( 2 )
12
9
10
10
24
10
35
40
15
4
6
0.11
1.78
2.78
1.78
7.11
4.00
7.11
2.78
9.00
5.44
0.11
St. Adolf’s Hospital
I
15
A
F
K
12
10
6
C
G
Start
10
35
B
D
H
J
9
10
40
4
E
24
© 2007 Pearson Education
Finish
St. Adolf’s Hospital
I
12
27
42 15 57
A
0
12
2 12 14
F
C
Start
Critical
path
0
0
B 9
9 9
12
22
14 10 24
D
9
19
9 10 19
9 E 33
35 24 59
© 2007 Pearson Education
27 K 33
57
63
12
22
47 10 57
6
G
22
57
24 35 59
H
19
59
19 40 59
Finish
J
59
63
59 4 63
TE = 63 weeks
St. Adolf’s Hospital
What is the probability the project will be
completed in 65 weeks?
Critical Path = B - D - H - J
TE = 9 + 10 + 40 + 4 = 63 weeks
2 =  (variances of critical path activities)
2 = 1.78 + 1.78 + 2.78 + 5.44 = 11.78
 = 11.78 = 3.432
© 2007 Pearson Education
St. Adolf’s Hospital
Probabilities
Critical Path = B - D - H - J
T = 65 weeks TE = 63 weeks  = 3.432
z=
T – TE

=
65 – 63
3.432
= 0.58
From Normal table in page 807,
for z = 0.58, the table area = 0.7190
The probability that the project will be
Completed within 65 days is 71.9%
© 2007 Pearson Education
St. Adolf’s Hospital
Normal distribution:
Mean = 63 weeks;
 = 3.432 weeks
Length of
critical path
Probability of
meeting the
schedule is
0.7190
Probability of
exceeding 65
weeks is 0.2810
63 65
Project duration (weeks)
© 2007 Pearson Education
St. Adolf’s Hospital
Expected project completion time with 98% probability
Critical Path = B - D - H - J
T = TE + z 
Normal table for 98%, z = 2.055
T = 63 + 2.055 (3.432) = 70.05 weeks
© 2007 Pearson Education
St. Adolf’s Hospital
Probabilities
Path = A - C - G – J Find probability for T = 65 weeks
TE = 12 + 10 + 35 + 4 = 61 weeks
2 =  (variances of activities)
2 = 0.11 + 2.78 + 7.11 + 5.44 = 15.44
z=
T – TE
2
© 2007 Pearson Education
From Appendix 2
65 – 61
z=
= 1.02
Pz = .8461
15.44
Application 3.1
© 2007 Pearson Education
Application 3.1
Solution
© 2007 Pearson Education
Application 3.2
© 2007 Pearson Education
Application 3.2
Critical Path and Project Duration
© 2007 Pearson Education
Application 3.4
© 2007 Pearson Education
Application 3.5
© 2007 Pearson Education
Application 3.5
© 2007 Pearson Education
Solved Problem 1
© 2007 Pearson Education
Solved Problem 1
© 2007 Pearson Education
Solved Problem 2
What is the probability of
completing the project in
23 weeks?
© 2007 Pearson Education
Solved Problem 2
© 2007 Pearson Education
Solved Problem 2
4.0
8.0
0.0
4.0
A
4.0
Start
B
5.5
Finish
9.0
9.0
C
3.5
15.5
15.5
F
9.0
E
6.5
15.5
15.5
9.0
9.0
5.5
5.5
5.5
6.5
© 2007 Pearson Education
12.0
16.0
20.0
4.0
8.0
5.5
5.5
0.0
0.0
D
14.5
15.5
G
4.5
20.0
20.0
Solved Problem 2
© 2007 Pearson Education
Using the Normal Distribution appendix,
we find that the probability of completing
the project in 23 weeks or less is 0.9357.