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CE 401 Project Planning and Management
Abu Naser Chowdhury PhD
How to find me
Contact info: Email: [email protected]
Website:
http://www.naserchowdhury.com
Mobile: +8801753850339
Office hours: By appointment Available normally:
9.00am1.00pm
Text Book available at
Sumon Library
169 New Market Dhaka 1205
Phone : 8614561
1. Project Management - Rajeev M. Gupta
2. PMBOK (pdf)
3. Principles of Construction Safety (pdf)
4. Project Management - R.B. Khanna
Format:Combination of lectures and in-class exercises
Course Overview
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Grading
Group Assignment (20%) Random assignment to group
Demonstrate engagement with the course material
Watch video and assessment
Mid-term (20%) Multiple-choice questions; short questions
Final exam (50%) Descriptive, critical thinking
Class Attendance (10%)
What I expect of you
Attendance. I expect you to attend every class
Participation. Strongly encouraged Group work. Presentation and active participation
Assignments.
What to expect from me
Exams will be based on text and lecture notes; so even if wedont review it in the lecture, if it is in the text, it is fair game
Available after class or by appt.
Use practical examples to highlight relevance of theories
Expectations
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What is the objective ofshowing those pictures?
?
Todays reality...
Construction is complex and challenging
Delays, changes, disputes, accidents cost more
than ever
Owners dont have the expertise or the staff to
stay on top
Success demands collaboration... and
leadership!
Construction Management is aprofessional service thatapplies effective management techniques to the planning,
design and construction of a project from inception to
completion for the purpose of controlling time, cost and
quality
Construction Management
Construction Management Values
Construction Management is a
discipline and management
system specifically created to
promote the successful
execution of capital projects for
owners
These projects can be highly
complex. Few owners maintain
the staff resources necessary to
pay close, continuing attention
to every detail; yet these details
can make or break a project
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The planning, organizing, leading, and
controlling of human and other resources to
achieve organizational goals effectively and
efficiently
Management
Basic resources
workforce
subcontractors
equipment
construction plant
material
information
time
money
Optimize the three attributes of: quality, cost, and
time
Principle objective of a construction manager is to complete
each project on time and within budget, while maintaining
acceptable levels of safety and risk
Project Management
Safety
Time Cost
ualit
CM
4 Functions of Management
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Planning
Process of identifying and selecting
appropriate organizational goals and courses
of action
Deciding which goals the organization will pursue
Deciding what courses of action to adopt to attain
those goals
Deciding how to allocate organizational resources
Steps in Planning
Video Time!
Organizing
Task managers perform to create a structure of
working relationships that allow organizational
members to interact and cooperate to achieve
organizational goals
Involves grouping people into departments according to the
kinds of job-specific tasks they perform Managers lay out lines of authority and responsibility
Decide how to coordinate organizational resources
Articulating a clear organizational vision for itsmembers to accomplish, and energize and enable
employees so that everyone understands the partthey play in achieving organizational goals
Leading
Leadership involves using power, personality, and
influence, persuasion, and communication skills
Outcome of leadership is highly motivated and committed
workforce
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Controlling
Task of managers is to evaluate how well an
organization has achieved its goals and to take
any corrective actions needed to maintain or
improve performance
The outcome of the control process is the ability to
measure performance accurately and regulate
organizational efficiency and effectiveness
Levels of Management
First line managers - Responsible for daily supervision of thenon-managerial employees who perform many of the specific
activities necessary to produce goods and services
Middle managers - Supervise first-line managers.Responsible for finding the best way to organize human and
other resources to achieve organizational goals
Top managers - Responsible for the performance of alldepartments and have cross-departmental responsibility and
ultimately responsible for the success or failure of an
organization
CEO - is companys most senior and important manager,concerns about creation of a smoothly functioning top-
management team
4 Managerial Functions
4 Managerial Functions
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Elements of a legal contract
offer
acceptance
consideration
legal in every respect
requires a meeting of the minds
offer + acceptance = binding obligation
Construction Contracts
Video Time!
Why do we need written contracts?
1. Basic lack of trust
2. Clearly establishes the risks and obligations of each party
3. Provides means by which performance can be assessed
and measured
4. Provides means by which breaches can be identified
5. Provides means by which default can be established
6. Establishes the owners means of control
7. Establishes the contractors scope of work
A written contract provides the document by which risks,obligations, and relationships of both parties are clearly
established, thus ensuring the performance of these elements
in a disciplined manner.
What does a written contract do for us?
Types of Construction Contract
Lump Sum Contract: features include -
all the risks are taken care off by the contractor
Higher markup can be asked in order to take care of unforeseen
contingencies
if the actual cost of the project is underestimated, the underestimated cost
will reduce contractor s profit by that amount
But overestimate may reduce the chance of being a low bidder
Unit Price Contract: features include -
Risk of inaccurate estimation of uncertain quantities for some key tasks has
been removed in this contract
Some contractors may submit an unbalanced bid when i t discovers large
discrepancies between its estimates and the owner s estimates of quantities.
Owner may disqualify the contractor if it appears to be heavily unbalanced.
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Types of Construction Contract
Unit Price Contract: features include -
To the extent of an underestimate or overestimate, neither error will
effect the contractors profit beyond the markup in the unit prices.
Cost Plus Percentage Fee: features include -
Only in compelling reasons, such as urgency or emergency time
Contractor will receive the actual direct job cost plus a fixed percentage
Owner may disqualify the contractor if the bid appears to be heavily
unbalanced.
The Owner knows the actual cost of the project before it
begins
Contractor required to achieve the project at theBid/Negotiated Contract Value
Minimize the risk for the Owner if the project is well
estimated, contractual documents accurate, and project clearly
defined
1. Lump Sum or Fixed Price Contract
High risk for the Contractor in case of many unforeseen.Usually a high incentive to finish early at low cost
Agreement on the price charged per unit by the Contractor to
the Owner
Contractor overhead must be integrated in the Units Prices
The lowest bidder is normally selected
Necessity of an Owner presence on site to measure the actual
quantities
2. Unit Price Contract
Highly dependant on the accuracy of the estimation of the
quantities given by the Owner/Designer
Difficult to accurately quantify the work necessary
Contractor can make a more profit because payment is basedon actual quantities but he can also lose money in the same
way
The total cost for the Owner can be greater than planned
Unit Price: Example
Activities:
Footings 80 $/sq ft
Columns 1,550 $/unit
Scheduled quantities:
Footings 100 sq ft
Columns 9 units
Contract initial value:
80 * 100 + 1,550 * 9 = 14,750 $
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Advertisement for bids
Information for bidders
Bid form
General notices
Notice of award
Notice to proceed
Bid bond
Performance bond
Contract form or agreement
General conditions or provisions
Supplemental and/or specialconditions
Plans
Specifications
Construction Contract Documents
Documents forming Contract
The following documents forming the contract shall be
interpreted in the following order of priority:
The Signed Contract Agreement
The notification of Award (NOA)
Completed Tender and acceptance of tender
Particular Conditions of Contract (PCC)
General Conditions fo Contract (GCC)
Tender Specifications
General Specifications
Drawing
Bill of Quantities (BOQ)
Any other documents listed in PCC
Examples of GCC and PCC
GCC 25.1 Instructions: The contractor shall carry out all the
instructions of the PM that comply with the applicable law
GCC 28.1 Working hours: The contractor shall not perform any work
on the site on the weekly holidays or during the night or outside the
normal hours or on any religious holiday, without the prior written
approval from the PM
GCC 41.1 Completion of works: The contractor shall carry out the
works in accordance with the programme of works submitted by the
contractor and as updated with the approval of the PM
GCC 43.3 Programme of works: If the contractor dose not submit
an updated programme at an intervals stated in the PCC, the PM may
withhold an amount as stated in the PCC
PCC: The Contractor shall submit a programme for the works within
7 (seven) days of singing the contract.
bidders are required to:
examine all portions of the contract documents examine the physical conditions of the site
determine legal requirements affecting the work
complete these investigations prior to bidding
Construction Contract
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Standard, supplemental, and special provisions
02 types of specifications:
method specification dictates equipment and
procedures
performance specification specifies only the desired
end result or product
Specification
copies of subcontracts
shop drawings and support calculations
catalog cuts
material or equipment samples
schedule(s)
certified payrolls
certificates of insurance
environmental test reports
material test reports & certifications
Submittals required in Contracts
CE401 Project Planning and ManagementAbu Naser Chowdhury PhD
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Video Time!
A project is a temporary endeavor involving a connected sequenceof activities and a range of resources, which is designed to achievea specific and unique outcome and which operates within time,
cost and quality constraints and which is often used to introducechange.
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
Project and its Characteristics
Characteristic of a project
Project Stakeholders
Project stakeholders are individuals and organizations that
are actively involved in a project or whose interest may be
+ve/-ve ly affected as a result of project execution or project
completion.
Key Stakeholders are:
Project Manager
Customer
Performing Organization
Project Team members
Sponsor
Examples of Project
Can this be a project?
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Most realistic projects are large and complex
Tens of thousands of steps and millions of dollars may be
involved
Managing large-scale, complicated projects effectively is a
difficult problem and the stakes are high
The first step in planning and scheduling a project is to
develop the work breakdown structure (WBS)
Time, cost, resource requirements, predecessors, and
people required are identified for each activity
Then a schedule for the project can be developed
Project and its Characteristics cont
Project Life cycle and its Phases
A project has 4 phases
Overall 85% effort and 40% time of the overall project is consumed
during the implementation phase, whereas planning phase consume 9%
efforts and 30% of time.
1. Concept Phase
2. Planning Phase
3. Implementation Phase
4. Termination Phase
C D E F
Definition Planning Execution/Impl./Control Closeout
LevelofEffort
Selection
Charter
Goals
Specs
Tasks
Responsi
bilities
Estimates
Schedules
Sequencing
Budgets Resources
Risks
Staffing
Status Reports
Changes
Quality
Forecasts
Training
Transfer
Documents
ReleaseResources
Lessons
Learned
Project Life Cycle and its phases
Influence of Change Vs Cost of Change
Risky aspects of a project. As the project progress, the cost to make
change increases drastically and value addition becomes difficult
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Classification of Projects
On the basis of duration, quantum of investment, ownership
nature and risk involvement.
Figure: Project Classification Based on risk
Reasons for Project Failure
In general but not limited to the following list:
1. Poorly defined scope/objectives
2. Underestimated time and cost
3. Large project planning
4. Improper technology selection
5. Defective planning process
Work Breakdown Structure
Work Breakdown Structure (WBS)
A method of breaking down a project into individual elements
It defines tasks that can be completed independently of othertasks, facilitating resource allocation, assignment ofresponsibilities and measurement and control of the project
It is the foundation of project planning
It is developed before identification of dependencies andestimation of activity durations
Project must be divided into manageable tasks and then logically
order
The definition of tasks and their sequences is referred as the Work
Breakedown Structure (WBS)WBS is essential in Planning and executing the Project.
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WBS Work PackageLevel of Detail
WHO will be the responsible individual or organization?
How much TIME will the activity take?
What COST is associated with accomplishing the activity?
Can PROGRESSbe tracked easily?
All the questions need clear answers for proper project
planning.
It is nothing more (or less) than knowing what
the status of a project is:
when it should be done
how much (and if) it has slipped from theoriginal schedule
what the bottlenecks are
what you might drop to save some time
Project Management
Project Management Models History
One of the earliest techniques was the Gantt chart(used by US Navy).
This type of chart shows the start and finish timesof one or more activities, as shown below:
Before Project
Project Planning:1. Setting goals.
2. Defining the project.
3. Tying needs into timed project activities.4. Organizing the team.
Project Scheduling:1. Tying resources to specific activities.
2. Relating activities to each other.
3. Updating and revising on regular basis.
Project Controlling:
1. Monitoring resources, costs, quality andbudgets.
2. Revising and changing plans.
3. Shifting resources to meet demands.
During Project
Project Planning, Scheduling & Controlling
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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 neededto create interrelationships
Project Planning
Gantt Chart
Critical Path Method (CPM)
Program Evaluation and Review Technique (PERT)
Project Scheduling and Control
Techniques
Theprogram evaluation and review technique (PERT)
and the critical path method (CPM) are two popular
quantitative analysis techniques to help plan, schedule,
monitor, and control projects
They were developed because there was a critical
need for a better way to manage.
Originally the approaches differed in how they estimated
activity times
PERT used three time estimates to develop a
probabilistic estimate of completion time
CPM was a more deterministic technique They have become so similar they are commonly
considered one technique, PERT/CPM
PERT and CPM
From project networks, we determine
The project duration
The critical path
Tasks on the critical path Tasks not on the critical path
Slack or float associated with non-criticaltasks
Earliest start, earliest finish, latest startand latest finish times
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1. Define the project and all of its significant activities or
tasks
2. Develop the relationships among the activities and decide
which activities must precede others
3. Draw the network connecting all of the activities
4. Assign time and/or cost estimates to each activity
5. Compute the longest time path through the network; this is
called the critical path
6. Use the network to help plan, schedule, monitor, and
control the project
Six Steps of PERT/CPM
The critical path is important since any delay in theseactivities can delay the completion of the project
Q?
Given the large number of tasks in a project, it is easyto see why the following questions are important
1. When will the entire project be completed?
2. What are the critical activities or tasks in the project,that is, the ones that will delay the entire project ifthey are late?
3. Which are the non-critical activities, that is, the onesthat can run late without delaying the entire projectscompletion?
4. If there are three time estimates, what is theprobability that the project will be completed by aspecific date?
5. At any particular date, is the project on schedule,
behind schedule, or ahead of schedule?
6. On any given date, is the money spent equal to, less
than, or greater than the budgeted amount?
7. Are there enough resources available to finish the
project on time?
8. If the project is to be finished in a shorter amount of
time, what is the best way to accomplish this at the
least cost?
Q?
Drawing the PERT/CPM Network
There are two common techniques for drawing PERT
networks
Activity-on-node (AON) where the nodes representactivities
Activity-on-arc (AOA) where the arcs are used to represent
the activities
The AON approach is easier and more commonly found in
software packages
One node represents the start of the project, one node for
the end of the project, and nodes for each of the activities
The arcs are used to show the predecessors for each
activity
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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.
NodesA 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
Drawing the PERT/CPM Network(some Basics)
Drawing the PERT/CPM Network(some Basics)
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 arrowsActivity-on-node (AON)
nodes represent activities, and arrows showprecedence relationships
Activity-on-arrow (AOA)
arrows represent activities and nodes are events forpoints in time
A must finish before either B or C
can start
Both A and B must finish before C
can start
Both A and b must finish before
either of C or D can start
A must finish before B can startboth A and C must finish before D can
start
A
C
B
D
Dummy
AB
CA
B
C
D
C
B
A
Situations in Network Diagram
Activity-on-Node (AON):
Uses nodes to represent the activity
Uses arrows to represent precedence relationships
Situations in Network Diagram
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Interpreting Network into Bar Chart
ANC, Inc. has long been trying to avoid the expense of
installing air pollution control equipment
The local environmental protection group has recently giventhe foundry 16 weeks to install a complex air filter system on
its main smokestack
ANC was warned that it will be forced to close unless the
device is installed in the allotted period
They want to make sure that installation of the filtering system
progresses smoothly and on time
ANC
Example of PERT/CPM
ACTIVITY DESCRIPTIONIMMEDIATEPREDECESSORS
A Build internal components
B Modify roof and floor
C Construct collection stack A
D Pour concrete and install frame B
E Build high-temperature burner C
F Install control system C
G Install air pollution device D,E
H Inspect and test F,G
Activities and immediate predecessors for ANC Inc.
ANC
Example of PERT/CPM
A
Build InternalComponents
H
Inspectand Test
E
Build Burner
C
Construct CollectionStack
Start
F
Install ControlSystem
Finish
G
Install PollutionDevice
D
Pour Concrete andInstall Frame
B
Modify Roofand Floor
Network for ANC Inc.
ANC
Example of PERT/CPM
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The time estimates in PERT are
Optimistic time (a) = time an activity will take ifeverything goes as well aspossible. There should be only asmall probability (say, 1/100) of thisoccurring.
Pessimistic time (b) = time an activity would takeassuming very unfavorableconditions. There should also beonly a small probability that theactivity will really take this long.
Most likely time (m) = most realistic time estimate tocomplete the activity
Time Activity
PERT often assumes time estimates follow a beta probability
distribution
The beta probability distribution is often used when there is no
solid historical data upon which to activity time base estimates Found to be appropriate in many cases for determining an
expected value and variance for activity completion times
MostPessimisticTime
(b)
MostLikelyTime
(m)
MostOptimisticTime
(a)
Probability
Activity Time
Probability of 1 in 100of aOccurring
Probability of 1 in 100of bOccurring
Time Activity
2
6
Variance
ab
To find the expected activity time (t), the beta distribution
weights the estimates as follows
6
4 bmat
To compute the dispersion or variance of activitycompletion time, we use the formula
Time Activity
ACTIVITYOPTIMISTIC
a
MOSTPROBABLE
mPESSIMISTIC
b
EXPECTEDTIME,
t= [(a + 4m +b)/6]
VARIANCE[(b a)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25
Time estimates (weeks) for ANC Inc.
Time Activity
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We accept the expected completion time for each task as the
actual time for now
The total of 25 weeks in Table does not take into account the
obvious fact that some of the tasks could be taking place at the
same time
To find out how long the project will take we perform the
critical path analysis for the network
The critical path is the longest path through the network
How to find Critical Path?
ANCs network with expected activity times
A 2 C 2
H 2E 4
B 3 D 4 G 5
F 3
Start Finish
How to find Critical Path?
To find the critical path, need to determine the following
quantities for each activity in the network
1. Earliest start time (ES): the earliest time an activity can begin
without violation of immediate predecessor requirements
2. Earliest finish time (EF): the earliest time at which an activity can
end
3. Latest start time (LS): the latest time an activity can begin without
delaying the entire project
4. Latest finish time (LF): the latest time an activity can end without
delaying the entire project
How to find Critical Path?
Earliest start = Largest of the earliest finish times ofimmediate predecessors
ES = Largest EF of immediate predecessors
Earliest finish time = Earliest start time+ Expected activity time
EF = ES + t
In the nodes, the activity time and the early and late start
and finish times are represented in the following manner
ACTIVITY t
ES EF
LS LF
Earliest times are computed as
How to find Critical Path?
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At the start of the project we set the time to zero
Thus ES = 0 for bothA andB
Start
A t= 2
ES = 0 EF = 0 + 2 = 2
B t= 3
ES = 0 EF = 0 + 3 = 3
ACTIVITY
OPTIMISTICa
MOST
PROBABLE
m
PESSIMISTIC
b
EXPECTED
TIME,t= [(a+ 4m+
b)/6]
VARIANCE
[(b a)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25
ACTIVITY
OPTIMISTICa
MOST
PROBABLE
m
PESSIMISTIC
b
EXPECTED
TIME,t= [(a+ 4m+
b)/6]
VARIANCE
[(b a)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25
How to find Critical Path?
ANCs ES and EF times
A 2
0 2
C 2
2 4
H 2
13 15
E 4
4 8
B 3
0 3
D 4
3 7
G 5
8 13
F 3
4 7
Start Finish
ACTIVITY
OPTIMISTIC
a
MOST
PROBABLE
m
PESSIMISTIC
b
EXPECTED
TIME,
t= [(a+ 4m+
b)/6]
VARIANCE
[(b a)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25
ACTIVITY
OPTIMISTIC
a
MOST
PROBABLE
m
PESSIMISTIC
b
EXPECTED
TIME,
t= [(a+ 4m+
b)/6]
VARIANCE
[(b a)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25
How to find Critical Path?
LS = LFt= 152 = 13 weeks
Latest times are computed as
Latest start time = Latest finish timeExpected activity time
LS = LFt
Latest finish time = Smallest of latest start timesfor following activities
LF = Smallest LS of following activities
ACTIVITY
OPTIMISTICa
MOST
PROBABLE
m
PESSIMISTIC
b
EXPECTED
TIME,t= [(a+ 4m+
b)/6]
VARIANCE
[(ba)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25
ACTIVITY
OPTIMISTICa
MOST
PROBABLE
m
PESSIMISTIC
b
EXPECTED
TIME,t= [(a+ 4m+
b)/6]
VARIANCE
[(ba)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25
For activity H
A 2
0 2
C 2
2 4
H 2
13 15
E 4
4 8
B 3
0 3
D 4
3 7
G 5
8 13
F 3
4 7
Start Finish
A 2
0 2
A 2
0 2
C 2
2 4
C 2
2 4
H 2
13 15
H 2
13 15
E 4
4 8
E 4
4 8
B 3
0 3
B 3
0 3
D 4
3 7
D 4
3 7
G 5
8 13
G 5
8 13
F 3
4 7
F 3
4 7
Start Finish
A 2
0 2
0 2
C 2
2 4
2 4
H 2
13 15
13 15
E 4
4 8
4 8
B 3
0 3
1 4
D 4
3 7
4 8
G 5
8 13
8 13
F 3
4 7
10 13
Start Finish
ACTIVITY
OPTIMISTIC
a
MOST
PROBABLE
m
PESSIMISTIC
b
EXPECTED
TIME,
t= [(a+ 4m+
b)/6]
VARIANCE
[(b a)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25
ACTIVITY
OPTIMISTIC
a
MOST
PROBABLE
m
PESSIMISTIC
b
EXPECTED
TIME,
t= [(a+ 4m+
b)/6]
VARIANCE
[(b a)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25
How to find Critical Path?
ANCs LS and LF times
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Probability of Project
Completion
ACTIVITY VARIANCE
A 4/36
B 4/36
C 4/36
D 16/36
E 36/36
F 64/36
G 64/36
H 4/36
Hence, the project variance is
Project variance = 4/36 +4/36 +
36/36 +64/36 +
4/36 =112/36 = 3.111
ACTIVITY
OPTIMISTIC
a
MOST
PROBABLE
m
PESSIMISTIC
b
EXPECTED
TIME,
t= [(a+ 4m+
b)/6]
VARIANCE
[(b a)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25
ACTIVITY
OPTIMISTIC
a
MOST
PROBABLE
m
PESSIMISTIC
b
EXPECTED
TIME,
t= [(a+ 4m+
b)/6]
VARIANCE
[(b a)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25
We assume activity times are independent and total projectcompletion time is normally distributed
varianceProjectdeviationstandardProjectT
weeks1.76113 .
Probability of Project Completion
The projects expected completion date is 15 weeks.
Assume that the total project completion time follows a normalprobability distribution
Chart tells us that there is a 50% chance of completing the entireproject in less than 15 weeks and a 50% chance it will exceed 15weeks
Standard
Deviation = 1.76
Weeks
The standard normal equation can be applied as follows
T
Z
completionofdateExpecteddateDue
570weeks1.76
weeks15weeks16.
From Probability Distribution Table we find the probabilityof 0.71566 associated with thisZ value
That means there is a 71.6% probability this project can becompleted in 16 weeks or less
Probability of Project Completion
Probability of ANC Inc meeting the 16-week deadline
0.57 Standard
Deviations
Expected Time is15 Weeks
Probability(T 16 Weeks)is 71.6%
Time15
Weeks16Weeks
Probability of Project Completion
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CPM PERT
It defines Critical Path Method It denotes Programme Evaluation
and Review Technique
It was first developed by DuPont
for its Chemical Plant Project
It was first developed by NASA
for its ballistic missiles project
It uses deterministic time
approach
It uses probabilistic time
approach
It is based on assumption that
exact time of any activity is
known
It uses three time estimates.
Optimistic, most likely and
pessimisticIt does not consider any
probabilistic aspect
It can measure the probability of
project completion in some
practical time
Summary of CMP and PERT
Network:Network is a diagrammatic representation of
various activities showing their interdependencies and
dependencies, without drawing on scale. Network is the
most commonly used tool for planning and controlling anyproject.
Critical Activities: The activities which are crucial for
completion of a project on schedule time.
Project Duration: A project is said to be completed only
when all the activities involved are completed.
Some Definitions
Exercise
Activity Precedence Activity Duration (days)
a - 8
b - 9
c a 9
d a,b 4
e a 6
f c 5
g c,d,e 7
Find the critical path of those activities. Also find the
total float and free float of those
Video Time!
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Video Time!
Forward Pass
Backward Pass
Forward and Backward Pass
Free Float: The amount of time that a schedule activity can
be delayed without delaying the early start date of any
immediately following schedule activities
Total Float: The total amount of time that a schedule
activity may be delayed from its early start without delaying
the project finish date, or violating a schedule constraint.
Practical Definition:
Slack or Floatprovide flexibility in the project schedule. When
leveraged properly, project managers can shift activities and
resources to meet the project objectives and priorities. It is the
amount of time an activity can be delayed without impacting other
activities or the project end date and changes over the course of the
project implementation
Free Float and Total Float
It is the amount of time a task can be delayed without delaying the
project end date. Total F loat = LSES or LF -EF
Fr ee Fl oat = ESs
EFp -Lag
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Free Float and Total Floatcont.
Free Float Example
Slack and Float are the same thing. We differentiate between
Total Float and Free Float to understand the amount of delay
we can tolerate without impacting the project schedule and
successor activities, respectively.
The concept and use of float helps us keep our project on
schedule and use resources more efficiently as the project
progresses. The lack of float or its disappearance gives us
clear indication our project is out of control and corrective
measures must be taken. Additionally, by using what-if
scenarios, we can understand impacts to the project.
Understanding float and its use is one industry trick of
successful project managers.
Summary of Float
Activity Duration (mins) Predecessor
Make Menu 30 -
Shop for Ingredients 60 Make Menu
Prepare Ingredients 60 Shop for Ingredients
Prepare Appetizers 60 Shop for Ingredients
Cook Food 30 Prepare Ingredients
Wash Tableware 45 Make Menu
Set Table 15 Wash Tableware
Serve Dinner 0 Set Table, Cook Food, Prepare Appetizers
CPM Exercise
Find the completion time and critical path.
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Principle: Unless you know both cost and schedule, you
have absolutely no idea where your project actually is.
Keeping the Project on Track - Control
Two things to know: (1)Where you suppose to be and
(2) where you are
C =f(P, T, S)
C = Cost
P = Performance
T = Time
S = Scope
Although PERT is an excellent method of monitoring and
controlling project length, it does not consider the very
important factor of project cost
PERT/Cost is a modification of PERT that allows a
manager to plan, schedule, monitor, and control cost as well
as time
PERT/Cost is an accounting information system that helps
management gauge progress against scheduled time and
cost estimates
It is a project oriented system that is based on analyzing a
segmented project
Each segment is a collection of work package
When discrepancies are found between the actual progress
and the expected progress, corrective action can be taken.
PERTa cost accounting system
PERTa cost accounting system
Assumptions:
Once started a work package is performed continuously until it
is finished
The cost associated with a work package are spread evenly
throughout its duration
Value of Work to Date = p x [Work Package Budget]
Expected Remaining Completion Time =
(1-p) x Original Expected Completion Time
Cost Overrun/Underrun Analysis
For each work package (completed or in progress)
we calculate
Cost Overrun =
[Actual Expenditures to Date] - [Value of Work to Date]
Corrective Actions:
If a project is found to be
Behind the schedule and or
Experiencing cost overruns
PERTa cost accounting system
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Management seeks out the causes for these problems -
Correct the project completion time or cost estimates.
Reassess work package completion times and cost estimates.
Identify departments or contractors that cause delays.
Possible Corrective actions, to be taken whenever needed -
Focus on uncompleted activities.
Determine whether crashing activities is desirable.
In the case of cost underrun, channel more resources to
problem activities.
Reduce resource allocation to noncritical activities
PERT a cost accounting system
ACTIVITY DESCRIPTIONIMMEDIATEPREDECES
SORS
Expenditure(Actual) Status
A Build internal components 2600 Finish
B Modify roof and floor 5000 Finish
C Construct collection stack A 3000 Finish
DPour concrete and installframe
B 5000 Finish
EBuild high-temperatureburner
C 700 Finish
F Install control system C 5600 40%
G Install air pollution device D,E 700 Finish
H Inspect and test F,G 2000 25%
Work packages to focus on
Project Completion time = 15 weeks
At the end of 10 weeks a progress assessment is made
A 2
0 2
0 2
C 2
2 4
2 4
H 2
13 1 5
13 1 5
E 4
4 8
4 8
B 3
0 3
1 4
D 4
3 7
4 8
G 5
8 13
8 13
F 3
4 7
10 13
Start Finish
A 2
0 2
0 2
A 2
0 2
0 2
C 2
2 4
2 4
C 2
2 4
2 4
H 2
13 1 5
13 1 5
H 2
13 1 5
13 1 5
E 4
4 8
4 8
E 4
4 8
4 8
B 3
0 3
1 4
B 3
0 3
1 4
D 4
3 7
4 8
D 4
3 7
4 8
G 5
8 13
8 13
G 5
8 13
8 13
F 3
4 7
10 13
F 3
4 7
10 13
Start Finish
Work
Package
Percentage
Complete
Estimated
ValueActual
Vaule
Cost
Overrun
Time Cost
A 2 2000 100% 2000 2600 600
B 3 3000 100% 3000 5000 2000
C 2 4500 100% 4500 3000 -1500
D 4 2500 100% 2500 5000 2500
E 4 500 100% 500 700 200
F 3 13000 40% 5200 5600 400G 5 1500 100% 1500 700 -800
H 2 6000 25% 1500 2000 500
Budgeted Values
Project Cost Control Cost Analysis
Value of Work to Date = p x [Work Package Budget]
Cost Overrun = [Actual value to date] [Estimated value]
CE401 Project Planning and Management
Abu Naser Chowdhury PhD
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The totality of features and
characteristics (attributes) of a product
or service that bear on its ability to
satisfy a given need
Quality:
The process of measuring,
examining, testing, gauging or
otherwise comparing one morecharacteristics of a product/service
with specified requirements
Inspection:
Quality and Inspection
Quality Control:
The actions which provide a mean
to control and measure thecharacteristics of an item, process or
facility to established requirements
Quality Assurance:
All those plans and systemic actions
necessary to provide adequate
confidence that an item or facility
will perform satisfactory in service
Quality Control and Assurance
Quality Assurance
An overall
management plan to
guarantee the
integrity of data
(The system)
Quality Control
A series of
analytical
measurements used
to assess the
quality of the
analytical data
(The tools)
Quality Control and Assurance
Product features
Characteristics
that result fromdesign
Functional andaestheticfeatures thatappeal to thecustomer
Grade
Freedom fromDeficiencies
Product does what itis supposed to do
Product is absent ofdefects and out-of-tolerance conditions
2 Aspects of Quality in Design and
Manufacturing
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Aspects of Quality: Product Features
Design configuration, size, weight
Function and performance
Distinguishing features of the model
Aesthetic appeal
Ease of use
Availability of options
Reliability and dependability
Durability and long service life
Serviceability
Reputation of product and producer
First Class Brick:
Size
Weight
Strength:
Water absorption:
Color:
Aspects of Quality:
Freedom from Deficiencies
Absence of defects
Conformance to specifications
Components within tolerance No missing parts
No early failures
Quality Responsibilities
Product features are the aspect of quality for which the
design department is responsible
Product features determine to a large degree the price that a
company can charge for its products
Freedom from deficiencies is the quality aspect for
which the manufacturing departments are responsible
The ability to minimize these deficiencies has an important
influence on the cost of the product
These are generalities
The responsibility for high quality extends well beyond the
design and manufacturing departments
Typical management principles and practices:
Customers are external to the organization
The sales and marketing department areresponsible for customers
Company is organized by functional departments
Inspection department is responsible for quality
Inspection follows production
Knowledge of Statistical Quality Control techniquesresides only in the minds of the QC experts in theorganization
Traditional Quality Control
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Modern View of Quality Control
High quality is achieved by a combination of:
Good management three objectives of total
quality management
Achieving customer satisfaction
Continuous improvement
Encouraging involvement of entire work force
Good technologytraditional statistical tools
combined with modern measurement and
inspection technologies
Total Quality Management (TQM)
Typical management principles and practices:
Quality is focused on customer satisfaction
Internal customers and external customers Quality goals are driven by top management
Quality control is pervasive in the organization
Quality must be built into the product, not inspected inafterward
Production workers must inspect their own work
Continuous improvement
A never ending chase to design and produce betterproducts
Six Sigma
A quality-focused program that utilizes
worker teams to accomplish projects aimed at
improving an organizations operational
performance
Started at Motorola Corp in 1980s
Started by Mikel Harry at Motorola in 1970s
Encouraged by CEO Robert Galvin
Motorola wins Malcolm Baldrige Award, 1988
Subsequently adopted by other companies,including GE
GE claims savings in $billions
General Goals of Six Sigma 6
Better customer satisfaction
High quality products and services Reduced defects
Improved process capability through reduction
in process variations
Continuous improvement
Cost reduction through more effective and
efficient processes
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ISO 9000
ISO = International Organization for Standardization
U.S. representative to ISO 9000 is ANSI/ASQC
ISO 9000 is a standard for the systems and procedures
used by a facility that affect the quality of the products
and services provided by the facility
It is not a standard for the products and services
ISO 9000 is generic, not industry specific
It can be applied to any facility producing any
product or providing any service
2 Ways to Apply ISO 9000
Implement the standards simply for the sake of
improving a firms quality systems
ISO 9000 Registrationformal certification
that the facility satisfies the standard
Benefits:
Reduce frequency of quality audits by customer firms
Qualify for business partnerships with companies that
require ISO 9000 registration (especially in Europe)
It is an improvement methodology
Developed by Walter Shewhard in 1939
Known as Shewhard Cycle. In Japan it is known as
Deming Cycle because Dr. Deming introduced it first in
1950.
It is quite straight forward, but not intuitive.
Quality Improvement Methodology
Plan: Select the process for
improvement. Analyze it
and plan a change that willhave beneficial effect.
Do: Apply the change to small
scale.a test. It is critical step
and the hallmark for the
approach. Look for desiredeffect to further quality
improvement.
Check: Observe the effect of change. More than casual
observation. Study the resultswhy the occurred, how
they affect the process/ system.
Act: If results are as expected,
change the system. Otherwise, go to
the plan step to revisit the process to
analyze it again a prepare a new plan
Quality Improvement Methodology cont
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1. Quality involves product, defect, process, customer and
system
2. Quality is the ability of a set of inherent characteristics
of a product, system or process to fulfill requirements of
customers and other interested parties.
3. Quality is the forth among equals in relation to the
project triple constraint of time, cost and scope
4. Quality is not an expensive process, an expensive
product or time consuming
5. Quality benefits include customer satisfaction, reduced
costs, increased profits and increased competitiveness.
QualitySummary
Quality Assurance Plan
Work breakdown structure (WBS) reference number for the task
concerned
A statement of requirement
A statement of the specification that is specific and measurable
A description of the assurance activity
Schedule information
Designation of the responsible entityProject Quality Assurance Plan
Paretos Law
Vilfredo Pareto, Italian Economist
Wealth seems to be distributed in populations according to an
80/20 rule: 80 percent of the wealth is controlled by 20
percent of the population
The rule is also valid for defects in administration and
production process; 80% of the defects are caused by
20% of the possible source of error
Pareto chart forces to consider the data and go after the
things that have the most effect on the process
Paretos Law
Where to focus/concentrate for actionfor effective action, not
trail and error
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Collaboration
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CE 401 Project Planning and Management
Abu Naser Chowdhury PhD
as a Construction Manager
Complete project on time and within budget What effect does accident/injury have on company?
Workers Compensation
Property damage
Loss of time due to accident investigation
Employee morale
Employee safety Moral obligation (humanitarian concerns)
Economic terms ( financial concerns)
Then & Now
1970
56 million workers
3.5 million worksites
14,000 + deaths
2.5 million workersdisabled by accidents &injuries
10 times as manyperson-days lost from
job related disabilitiesas from strikes
300,000 newoccupational diseasecases
2000
105 million workers
6.9 million worksites 5,915 deaths
Workplace deaths havebeen more than cut inhalf
Occupational injury andillness rates havedeclined by 40%
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Occupational Safety and Health Administration (OSHA)
Created by OSH Act of 1970
Also known as Williams-Steiger OSH Act of 1970
Signed into law December 29, 1970 by Richard Nixon
Imposed nationwide safety standards
General industry
Construction
Strict employee S & H standards
Covered employees
Enforce same standards for inspections,investigations, record-keeping requirements, and
enforcement procedures
OSHA
The Most Frequent Causes of Deaths in
Construction
OSHA has found that 90% of all construction fatalities
result from 4 types of construction accidents:
Falls from elevation 33% Struck by equipment/falling object 22%
Caught in/between 18%
Electrical shock 17%
Statistics show that new employees on the job for one
month or less account for 25% of all construction
accidents
Overexertion
Struck by an object
Falls from elevation
The Most Common Type of Construction injury:
The Most Affected Area of the Body by injury:
Back 21% Lower extremities 12%
Torso and fingers 10%
The Most Common injuries in Construction
Construction Safety
Safety is the control of recognized
hazards to attain an acceptable level ofrisk
A hazard is anything in the workplace that
has the potential to harm people. Hazards can
include objects in the workplace, such as
machinery or dangerous chemicals.
Safety is the absence of danger
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Construction Safety
A probability or threat of damage, injury,
liability, loss or any other negative occurrence
that is created by external or internal
vulnerabilities
What is vulnerability then?
Risk is the probability of loss
Video Time!
Personal Protective Equipment (PPE) on
Site
Most construction sites require at least:
Hard hat
Safety Boots
Hi-viz jacket
Safety Glasses
Wear them always for safety
General Contractor as Prime
Meet general duty clause
Keep workers informed
Know mandatory OSHA standards
Comply with all regulations, rules, standards
Inspect workplace
Minimize or eliminate potential hazards
Warn employees of potential hazards
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Provide training per OSHA standards
Provide employees with proper equipment
Provide medical examinations as needed
Report fatalities (within 8 hours)
Report hospitalizations ( more than 3 employees,
within 8 hours)
General Contractor as Prime cont.
Keep OSHA-required records
Post required records
Post OSHA poster
Provide employee access to OSHA records
Employee medical and exposure records
Ethical use of rights under OSHA
Comply with OSHA standards
Follow employer mandated safety program
Use correct PPE
Report hazardous/dangerous conditions
Report job-related injury or illness
Cooperate with OSHA inspection
Employee Responsibility
Common Mistakes in Construction Site
Common Mistakes in Construction Site
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Accident?
Mishap or Near Miss
Injury?
Accident that Hurts Someone
Many Accidents Occur
Most Cause No Injuries
Most are not Reported
Accident Vs Injury
Because We Dont Know Which Accidents will Cause
Injuries
The Goal is to Prevent All Accidents
Which Accidents will Cause
Injuries?
We Dont Know!
Accidents!
Accidents are Opportunity to:
Recognize Hazard And Take 3 Steps
Step 1: Reporting Accidents
Step 2: Investigating Accidents
Step 3: Eliminating Accidents
Accidents!
Realize that it Happened:
Practice Incident Recall
Report Accidents Immediately
Any Free Warnings Today?
Step 1: Reporting Accidents
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Step 2: Investigating Accidents
Determine the Cause:
2% - Acts of God
10% - Unsafe Conditions
88% - Unsafe Acts of People
Examples of unsafe act:
Inattentiveness
Carelessness
Creating Unsafe Conditions
Eliminate the Causes:
Removing Unsafe Conditions
Changing Unsafe Behavior
Step 3: Eliminating Accidents
7 Principles to prevent accident!
Strategies for control and management of Health and Safety
at work in Construction industry:
1. Avoid a ri sk altogether by eliminating hazards
2. Tackle risks at source
3. Adapt work to the individual when designing work areas and
selecting method of works
4. Use technology to improve conditions
5. Give priority to protection for the whole workplace rather than to
individuals
6. Ensure everyone understands what they have to do to be safe and
healthy at work7. Make sure that Health and Safety Management is accepted by
everyone
if followed accident prevention is more likely to achieve
All accidents are preventable.
No job is worth getting hurt for
Every job will be done safely
Incidents can be managed
Safety is everyones responsibility
Continuous improvement
Safety as a way of life for 24 hours/day
All individuals have the responsibility and accountabilityto identify eliminate or manage risks associated with theirworkplace
Legal obligations will be the minimum requirements forour health & safety standards
Individual will be trained and equipped to have the skillsand facilities to ensure an accident free workplace
Basic Safety Philosophy for Success
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Contract Close-out
Contract close-out is the final project procurementmanagement process. It includes:
Product verification to determine if all work wascompleted correctly and satisfactorily.
Administrative activities to update records to reflectfinal results.
Archiving information for future use.
Procurement audits are often undertaken during contractclose-out to identify lessons learned in the procurement
process.
It is very important to prepare contracts with great care andexpert assistance. It is equally important to initiate andfollow effective contract administration procedures.
Tendering/Bidding Method
Open Tendering Method (OTM)
Limited Tendering Method (LTM)Request For Quotation Method (RfQM)
Public bidding, resulting in low prices Published in newspapers Quotations must be sent in the specific forms that aresold, before the time &date mentioned in the tender
form
In technical items, two packets or two bins system isfollowed. Offers are given in two separate packets. Technical bid Financial bid
Open Tendering Method (OTM)
A bidding process that is open to all qualified bidders
and where the sealed bids are opened in public for
scrutiny and are chosen on the basis of price and
quality
First technical bid is opened & short listed
Then financial bid of selected companies are opened &
lowest is selected
Delayed tenders & late tenders are not accepted. But if, in
case of delayed tenders, if the rate quoted is very less, then it
can be accepted.
Quotations are opened in presence of indenting department,
accounts & authorized persons of party
Validity of tendersgenerally 90 days
Open Tendering Method (OTM) .Cont.
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Material Management
PURPOSE OF MATERIAL MANAGEMENT
To gain economy in purchasing
To satisfy the demand during period of replenishment
To carry reserve stock to avoid stock out
To stabilize fluctuations in consumption
To provide reasonable level
of client services
Objective of MM
Right price
High turnover
Low procurement
storage cost
Continuity of supply Consistency in quality
Good supplier relations
Development of personnel
Good information system
Objective of material management
PrimaryRight price
High turnoverLow procurement
& storage cost
Continuity of supply
Consistency in quality
Good supplier relations
Development of
personnel
Good information
system
SecondaryForecasting
Inter-departmental
harmony
Product improvement
Standardization
Make or buy decision
New materials & products
Favorable reciprocal
relationships
Four basic needs of Material management
1. To have adequate materials on hand when needed
2. To pay the lowest possible prices, consistent with quality and value
requirement for purchases materials
3. To minimize the inventory investment
4. To operate efficiently
Elements of material management
1. Demand estimation
2. Identify the needed items
3. Calculate from the trends in Consumption during last 2 years.
4. Review with resource constraints
Material Management
The underlying spectrum is to provide effectiveness to a function that
must start fromplanning stage and will end when the finishedproduct is
finally distributed:
1. Planning sets the Goal and indicates the available sources offinance.2. Scheduling specifies the requirements, the quantum and the delivery
schedules.
3. Purchasing and Procurement select and retain vendors; and contracts
with them.
4. Inspection and Quality control conduct test checks forconformance to
specifications.
5. Stores and Inventory control determine inventory status, undertake
maintenance and upkeep.
6. Material Handling controls physical movement at any stage the
material is.
7. Distribution Logistics controls flow and distribution, and finally,
traffic, shipment and despatch conclude with final delivery.
Spectrum of Control
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Inventory
Typically Inventory implies a list of items held in stock.Stockimplies the Quantity ofaparticularitem on hand.
Inventory is a stock of Materials used to facilitateProduction orto satisfy Customerdemands. It include Raw-materials, Work-in-progress and Finished goods.
Inventory acts as abufferbetween the demand and supplyrates ofdifferent nature.
Inventories are vitalto the successful functioningofManufacturing &Retailing organisations.
Raw Material and Production Inventories: These are rawmaterials and other supplies, parts and components whichenter into the product during the production process and
generally form part of the product. In-process Inventories: These are semi-finished materials,and partly finished products formed at various stages of
production. Also named as Decoupling Inventories todecouple or disengage different parts of the productionsystem. MRO Inventories: Maintenance, repairs and operatingsupplies which are consumed during the production processand generally do not form part of the product itself arereferred to as MRO Inventories. e.g. oils and lubricants,machinery and plant spares, tools and fixtures etc.
Type of Inventory
Lot-size Inventories: It is a commonpractice to buy some
raw materials in Large quantit ies than are necessary for
immediate need in order to avail quantity discounts and
lowering down costs of buying, receiving, inspection,
transport and handling. It is also termed as Cycle inventories.
Fluctuation Inventories: In order to cushion against
unpredictable fluctuation in demand these are maintained. The
generalpractice ofserving the customerwell is the reason for
holding such Inventories. But they are not absolutely essential
in the sense that such stocks are always uneconomical.
Type of Inventory
Anticipation Inventories: In case ofseasonal variations in the
availability of some raw materials, it is convenient and also
economical to build up stocks where consumption patternsmaybe reasonably uniform andpredictable. Such inventories
are carried to meetpredictable changes in demand.
Type of Inventory
6 types of inventory
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Inventory control system is either Manual or Computerized or a
combination of two. It performs following functions:
1. Transaction Accounting: Every Inventory system requires a
method of record keeping, which must support the accounting
needs of the organization and the inventory management
function.
It requires the Perpetual (never ending or changing) records be
kept by recording every disbursement and receipt. In some other
cases, periodic counts e.g. annual of the inventory may be
required.Whatever the exact method used, every Inventory control system
requires a suitable transaction accounting to follow with.
Inventory Control System
2. Inventory Decision Rules: A decision system is to be developed
regarding when and how much to order
3. Exception Reporting: A reporting system so as to alert
Management to changing assumptions e.g. Stockouts, Excessive
Inventory, Forecasting not meeting demand schedules
4. Forecasting: Judgment plays a Vital role in forecasting,
however, to modify Quantitat ive forecasts for unusual events
5. Top Management Reporting: The reports should include (a)
costs of operating the Inventory, (b) Investment levels at a time
compared with other periods, (c) the Service levels provided to
customers etc.
Inventory Control System
ABC Inventory Classification: The rationale of ABCclassification is the impracticality of giving an equally highdegree of attention to the record of every inventory item, dueto limited information- processing capacity
But, in a modern computerized well-implemented planningsystem, every item, irrespective of its cost and volume, canreceive the same degree of care and attention
ABC analysis leads to classification of Inventory items on the
basis of their USAGE in monetary terms
AHigh consumption value items .BModerate consumption value items.
CLow consumption value items.
Selective Inventory Control (SIC)
A B C
% age of items 10-20 20-30 60-70
% age of value 70-85 10-25 5-15
Where should we focus? Concentrate?
FSN Analysis: FSN Study may be made to weed out
(discard/remove) unwanted materials and parts. It is based on the
Consumption pattern of items
F - stands for Fast
S - stands for Slow moving
N - stands for non-moving materials and parts
This speed classification helps in the arrangement of stocks in the
stores and in determining the distribution and handling patterns
Selective Inventory Control (SIC)
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VED Analysis: VED Analysis is also the same in principle.
The only difference is that it finds out which materials and
parts are valuable, which are essential, and which are desirable.
Inventory items are classified on the basis of their criticality to
the production process or other services.
V Vital items without which the production process would
come to a standstill
EEssential items whose stock-out might cause temporary
losses in production.
DDesirable items which are required but do not immediately
cause a loss of production.This is also essentially meant for a sizeable reduction in
inventory
Selective Inventory Control (SIC)
HML Analysis: Similar to the ABC analysis except that the items
are classified on the basis of Unit Cost rather than their Usage
value.
H stands for High cost per unit.M stands for Medium cost per unit.
L stands for low cost per unit.
SDE Analysis: SDE Analysis works on the criteria of availability
of items.
S stands for Scarce items
D stands for Difficult to obtain
E stands for Easily available
S-OS Analysis: This analysis is based on the nature of Supplies.
S stands for Seasonal items
OS stands for Off-seasonal items
Selective Inventory Control (SIC)
GOLF Analysis: This analysis is based on the Source of Supplies
G stands for Government Sources
O stands for Ordinary Sources
L stands for Local Sources
F stands for Foreign Sources
This is meant for deciding Procurement of materials from different
sources.
XYZ Analysis: XYZ analysis is based on the criteria of Closing
Inventory value of different items.
XItems whose Inventory value is high.
YItems whose Inventory value is neither too high nor too low.
ZItems with Low investments in them.Summary: The various types of analysis are not mutually exclusive.
They can be, and often are, used jointly to ensure better control over
MATERIALS
Selective Inventory Control (SIC)
TITLE BASIS MAIN USES
ABC Analysis Usage value To control on the Significant few &the Insignificant many
FSN Analysis Consumption patternof the Component To control Obsolescence
VED Analysis Criticality of theComponent
To determine the Stocking Levels ofSpare parts
HML Analysis Unit Price of theMaterial
To control purchases
SDE Analysis Problems faced inProcurement
Lead-time analysis and PurchasingStrategies
SOS Analysis Natureof Suppl ies Procurement/ Holding Strategies for Seasona l i tems l ike Agricu lturalproducts
GOLF Analysis Sourceof mater ial Procurement Strategies
XYZ Analysis Value of items inStorage
To review the Inventories and theirUses at Scheduled intervals
Summary of SIC
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CE401 Project Planning and Management
Abu Naser Chowdhury PhD
Engineering Economy
It deals with the concepts and techniques of analysis
useful in evaluating the worth of systems, products, and
services in relation to their costs
Engineering Economy:
Basic Concepts
Cash flow
Interest Rate and Time value of money
Equivalence technique
Cash Flow
Engineering projects generally have economic consequences
that occur over an extended period of time
For example, if an expensive piece of machinery is
installed in a plant were brought on credit, the simple
process of paying for it may take several years
The resulting favorable consequences may last as long as
the equipment performs its useful function
Each project is described as cash receipts or disbursements
(expenses) at different points in time
First cost: expense to build or to buy and install
Operations and maintenance (O&M): annual expense,
such as electricity, labor, and minor repairs Salvage value: receipt at project termination for sale or
transfer of the equipment (can be a salvage cost)
Revenues: annual receipts due to sale of products or
services
Overhaul: major capital expenditure that occurs during
the assets life
Categories of Cash Flows
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Cash Flows Examples
Time Value of Money
Money has value
Money can be leased or rented
The payment is called interest
If you put $100 in a bank at 9% interest for one
time period you will receive back your original
$100 plus $9
Original amount to be returned = $100
Interest to be returned = $100 x .09 = $9
Copyright Oxford University Press 2009
Should the existing equipment be retained or replaced?
The Defender is the existing equipment.
The Challenger is the best available replacement
equipment.
If the defender proves more economical, it will be
retained. If the challenger proves more economical, it
will be installed.
Replacement Analysis
Reasons for Replacement
Deterioration
Higher O&M costs; less reliability than anticipated
Requirement change
Consumer wants more/less/different
Technology
New technology provides new challengers
Financing
Better interest rates
Use to determine whether an existing assetshould be replaced with a new asset
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The objective is to address the question of whether a currently
owned asset should be kept in service or immediately
replaced
Replacement Studies
What to do with an existing asset?
Keep it
Abandon it (do not replace)
Replace it, but keep it for backup purposes
Augment the capacity of the asset Dispose of it, and replace it with another
The second and third reasons are sometimes referred
to as different categories of obsolescence.
Three reasons to consider a change.
Physical impairment (deterioration)
Altered requirements
New and improved technology is now available.
Replacement Studies
When examining whether to continue using(economically) an existing process or product(equipment), the calculation is called a replacementstudy
Any of the basic methods will work for comparison,but the annual cost method is most common
Existing equipment is sometimes called thedefenderand the new is the challenger
Salvage in replacement studies is an estimate of
future value (F)
Replacement Studies
Economic life- when the cost to keep an asset (O & M)
exceeds the value (revenue) it can produce.
Cost to keep is sum of amortized initial cost (decreasewith time) PLUS the operating cost (increase with time)
Summation of amortization and operation produces a
U-shaped curve
$
operation
amortization
time
$
Economic lifetime
$
Economic lifetime
$
Economic life
Replacement Studies
time
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Acme owns a CNC machine that it is considering
replacing. Its current market value is $25,000, but it can
be productively used for four more years at which time
its market value will be zero. Operating and maintenance
expenses are $50,000 per year
Acme can purchase a new CNC machine, with the same
functionality as the current machine, for $90,000. In four
years the market value of the new machine is estimated to
be $45,000. Annual operating and maintenance costs will
be $35,000 per year.
Should the old CNC machine be replaced using a before-
tax MARR of 15% and a study period of four years?
Replacement Studiesexample 1
PW of the challenger is greater than PW of the defender
(but it is close).
Challenger
Defender
Replacement Studiesexample 1
An asset purchased 2 years ago for $40,000 is harder to maintainthan expected. It can be sold now for $12,000 or kept for amaximum of 2 more years, in which case its operating cost will be$20,000 each year, with a salvage value of $9,000 two yearsfrom now. A suitable challenger will have a first cost of $60,000with an annual operating cost of $4,100 per year and a salvagevalue of $15,000 after5 years. Determine the values ofP, A, n, and S for the defender and challenger for anAW analysis.Interest rate is 10%. What is the decision?
Replacement Studiesexample 2
Defender: P = $-12,000; A = $-20,000; n = 2; S = $9,000
Challenger: P = $-60,000; A = $-4,100; n = 5; S = $15,000
An asset purchased 2 years ago for $40,000 is harder to maintainthan expected. It can be sold now for $12,000 or kept for amaximum of 2 more years, in which case its operating cost will be$20,000 each year, with a salvage value of $10,000 after 1 yearor $9000 after two years. A suitable challenger wi ll have anannual worth of $-24,000 per year. At an interest rate of 10% peryear, should the defender be replaced now, one year from now,or two years from now?
Replacement Studiesexample 3
Solution: Defender AW
AWD1 = -12,000(A/P,10%,1) 20,000 + 10,000(A/F,10%,1) = $-23,200
AWD2 = -12,000(A/P,10%,2) 20,000 + 9,000(A/F,10%,2) = $-22,629
ESL is n = 2 years; AWD = $-22,629
AWD2 = -12,000(A/P,10%,2) 20,000 + 9,000(A/F,10%,2) = $-22,629
ESL is n = 2 years; AWD = $-22,629
Challenger AW = $-24,000 Replace defender in 2 years
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Video Time!
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