CHAPTER 18 PROJECT MANAGEMENT 1 ©2013 OM4 Cengage Learning. All Rights Reserved. May not be...

CHAPTER 18 PROJECT MANAGEMENT 1 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1 PROJECT MANAGEMENT CHAPTER 18 DAVID A. COLLIER AND JAMES R. EVANS

CHAPTER 18 PROJECT MANAGEMENT 2 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18-1 Explain the key issues associated with project management. 18-2 Describe how to apply the Critical Path Method (CPM). 18-3 Explain how to make time/cost tradeoff decisions in projects. 18-4 Describe how to calculate probabilities for project completion time using PERT.

CHAPTER 18 PROJECT MANAGEMENT 3 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Olympic Games were established over 2,500 years ago. Athens, Greece, was chosen in 1997 to host the 2004 Games, but badly underestimated the cost and overestimated the citys ability to meet construction and preparation schedules. Organizers were plagued with construction delays and budget overruns, forcing them to complete 7 years of work in just 4. Delays in the main stadiums glass-and-steel room pushed back delivery of the entire complex to the end of July, immediately preceding the August 13, 2004, opening ceremonies. The International Olympic Committee had even considered asking the Athens organizers to cancel the games. Problems also occurred with other venues. Construction delays had consequences for Greeces own athletes, forcing them out of their own training centers. Even the famed Parthenon, which was to have been restored for the Games, was still shrouded with scaffolding when tourists began arriving. Despite all this, the venues were ready although some at the last minute, and the Games were successfully completed.

CHAPTER 18 PROJECT MANAGEMENT 4 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. What do you think ? Think of a project in which you have been involved, perhaps at work or in some student activity. What factors made your project either difficult or easy to accomplish?

CHAPTER 18 PROJECT MANAGEMENT 5 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A project is a temporary and often customized initiative that consists of many smaller tasks and activities that must be coordinated and completed to finish the entire initiative on time and within budget. Examples: market research studies, construction, movie production, software development, book publishing, wedding planning Project management involves all activities associated with planning, scheduling, and controlling projects.

CHAPTER 18 PROJECT MANAGEMENT 6 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.1 Example Projects in Different Functional Areas That Impact the Value Chain

CHAPTER 18 PROJECT MANAGEMENT 7 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Scope of Project Management 1.Define: clearly understand the goal of the project, responsibilities, deliverables, and what must be accomplished. 2.Plan: determine the steps needed to execute the project, delegate tasks, and identify start and completion dates. 3.Organize: coordinate the resources to execute the plan cost-effectively. 4.Control: collect and assess status reports and manage changes to baselines. 5.Close: compile statistics, reassign people, and prepare a lessons learned list.

CHAPTER 18 PROJECT MANAGEMENT 8 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Scope of Project Management Principles for Project Managers Manage people individually and as a project team. Reinforce the commitment and excitement of the project team. Keep everyone informed. Build agreements and consensus among the team. Empower the project team.

CHAPTER 18 PROJECT MANAGEMENT 9 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Scope of Project Management Organizational Structure Pure project structure with team members assigned exclusively to projects and report to a project manager. Results in duplication of resources. Pure functional structure charters projects exclusively within functional departments. Ignores cross-functional issues. Matrix structure, which lends resources to projects while still maintaining functional control. Minimizes duplication of resources and facilitates communication.

CHAPTER 18 PROJECT MANAGEMENT 10 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.2 Contributors and Impediments to Project Success

CHAPTER 18 PROJECT MANAGEMENT 12 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. All project management decisions involve three factors: time, resources, and cost. Key steps to help plan, schedule, and control projects are: 1.Project definition: identifying the activities that must be completed and the sequence to perform them. 2.Resource planning: determining resource needs for each activity. 3.Project scheduling: specifying a time schedule for the completion of each activity. 4.Project control: establishing controls for determining progress and responding to problems. Techniques for Planning, Scheduling, and Controlling Projects

CHAPTER 18 PROJECT MANAGEMENT 13 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Project Definition Example: Design and installation of a new software system. Project Objective: To develop an integrative software package within a predetermined budget and promised project completion date that meets all system requirements while providing adequate interfaces with legacy systems. Deliverables: (1) new software package, (2) successful implementation of the package, (3) pre- training of sales force and PC system operators.

CHAPTER 18 PROJECT MANAGEMENT 14 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Project Definition Activities are discrete tasks that consume resources and time. Immediate predecessors are those activities that must be completed immediately before an activity may start. Precedence relationships ensure that activities are performed in the proper sequence when they are scheduled. The work breakdown structure is a hierarchical tree of end items that will be accomplished by the project team during the project.

CHAPTER 18 PROJECT MANAGEMENT 15 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.3 Project Activities and Precedence Relationships

CHAPTER 18 PROJECT MANAGEMENT 16 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Project Definition A project network consists of a set of circles or boxes called nodes, which represent activities, and a set of arrows called arcs, which define the precedence relationships between activities. This is called an activity-on-node (AON) network representation.

CHAPTER 18 PROJECT MANAGEMENT 17 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.4 Project Network for the Software Integration Project

CHAPTER 18 PROJECT MANAGEMENT 18 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Resource Planning Resource planning includes developing time estimates for each activity and allocating resources that will be required. Cost control is a vital part of project management, and resource planning aids in good budgeting.

CHAPTER 18 PROJECT MANAGEMENT 19 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.5 Wildcat Software Consulting, Inc. Project Work Activities Times and Costs

CHAPTER 18 PROJECT MANAGEMENT 20 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Project Scheduling With the Critical Path Method The critical path is the sequence of activities that takes the longest time and defines the total project completion time. Assumptions: The project network defines a correct sequence of work in terms of technology and workflow. Activities are assumed to be independent of one another with clearly defined start and finish dates. The activity time estimates are accurate and stable. Once an activity is started it continues uninterrupted until it is completed.

CHAPTER 18 PROJECT MANAGEMENT 21 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Project Scheduling With the Critical Path Method Rules for calculating activity times: Rule 1: EF = ES + T Rule 2: the ES time for an activity equals the largest EF time of all immediate predecessors. Rule 3: LS = LF T Rule 4: the LF time for an activity is the smallest LS of all immediate successors.

CHAPTER 18 PROJECT MANAGEMENT 22 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.6 Activity-on-Node Format and Definitions

CHAPTER 18 PROJECT MANAGEMENT 23 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.7 Wildcat Software Consulting Activity-on-Node Project Network

CHAPTER 18 PROJECT MANAGEMENT 24 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.8 CPM Tabular Analysis for Wildcat Software Consulting Using Normal Time

CHAPTER 18 PROJECT MANAGEMENT 25 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Project Control A schedule specifies when activities are to be performed. Because of uncertainty of task times, unavoidable delays, or other problems, projects rarely progress on schedule. Gantt charts graphically depict the project schedule so that a project manager knows exactly what activities should be performed at a given time. Project management software can assist in allocating limited resources, such as labor and equipment that are shared among all the activities.

CHAPTER 18 PROJECT MANAGEMENT 26 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Gantt Chart Symbols

CHAPTER 18 PROJECT MANAGEMENT 27 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.9 Early Start Schedule Gantt Chart for Wildcat Software Project

CHAPTER 18 PROJECT MANAGEMENT 28 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.10 Example Gantt Chart of Wildcat Software with Activity E Delayed

CHAPTER 18 PROJECT MANAGEMENT 29 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Time/Cost Trade-Offs Crashing a project refers to reducing the total time to complete the project to meet a revised due date. Crash time is the shortest possible time the activity can realistically be completed. Crash cost is the total additional cost associated with completing an activity in its crash time rather than in its normal time. Crash cost per unit of time = Crash Cost Normal Cost Normal Time Crash Time [18.1]

CHAPTER 18 PROJECT MANAGEMENT 30 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.11 Wildcat Software Project Data Including Crash Times and Costs

CHAPTER 18 PROJECT MANAGEMENT 31 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Wildcat Software Consulting, Inc. Example How much would it cost to complete the project in 20 weeks instead of the current 22 weeks? How much would it cost to finish in the fastest possible time? First, determine the crash cost per unit of time for each activity. The only way to reduce project completion time is by reducing activities on the critical path. Determine the lowest cost in reducing the critical path. To minimize project completion time, trial-and-error or linear programming can be used to determine the lowest cost and shortest time.

CHAPTER 18 PROJECT MANAGEMENT 32 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.12 Normal versus Crash Activity Analysis

CHAPTER 18 PROJECT MANAGEMENT 33 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.13 CPM Tabular Analysis for Wildcat Software Consulting for Target 20-Week Completion Time

CHAPTER 18 PROJECT MANAGEMENT 34 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Wildcat Software Consulting, Inc. Example Crash cost per unit of time for each activity: A - $400 per week B - $500 per week C - $250 per week D - $50 per week E - $1,200 per week G - $1,100 per week I - $1,000 per week Activities F, H, J, and K cannot be crashed The only way the project completion time can be reduced is by crashing activities on the critical path. When we do this, however, another path in the network might become critical.

CHAPTER 18 PROJECT MANAGEMENT 35 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Wildcat Software Consulting, Inc. Example In this example, several options exist for completing the project in 20 weeks: Crashing Option #1Crashing Option #2 Crash B by 1 week = $500Crash B by 2 weeks = $1,000 Crash C by 1 week = $250Additional Cost = $1,000 Additional Cost = $750 Crashing Option #3 Crash C by 1 week = $500 Crash E by 1 week = $1,200 Additional Cost = $1,700 The least expensive option is the first. The critical path remains the same, namely, B-C-E-F-H-J-K. Notice that although activity D costs only $50 per week to crash, it is not on the critical path, so crashing it would not affect the completion time.

CHAPTER 18 PROJECT MANAGEMENT 36 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.14 Wildcat Software Consulting 17-Week Project Schedule at Total Project Cost = $39,550

CHAPTER 18 PROJECT MANAGEMENT 37 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Solved Problem The critical path calculations for a project network are shown below. Find the best crashing option to reduce the project completion time to 17 weeks.

CHAPTER 18 PROJECT MANAGEMENT 38 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Solution There are two critical paths: 1. Path A-B-D-F 2. Path A-C-D-F Both paths take 19 weeks to complete. Only activity E has a slack time of 1 week.

CHAPTER 18 PROJECT MANAGEMENT 39 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Solution One Week Crash Options: We might first look at activities common to both critical paths, namely A and D, and consider crashing each of them individually. Other options are to crash activities B and C together, activity F, and activities A and D together. Crashing Option #1Crashing Option #2 Crashing Option #3 Crash A by 1 week=$400Crash D by 1 week=$200Crash B by 1 week=$350 Crash C by 1 week=$300 Total cost=$650 Crashing Option #4Crash Option # 5 Crash F by 1 week=$500Crash A by 1 week=$400 Crash D by 1 week=$200 Total cost=$600 The lowest cost option is to crash activity D by 1 week, costing $200. Now, all three paths through the network are critical paths with a total duration of 18 weeks.

CHAPTER 18 PROJECT MANAGEMENT 40 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Second Week Crash Options: Crashing Option #1Crashing Option #2 Crash A by 1 week=$400Crash D by 1 week=$200 Crash E by 1 week=$ 50 Total cost=$250 Crashing Option #3 Crashing Option #4 Crash B by 1 week=$350 Crash F by 1 week=$500 Crash C by 1 week=$300 Total cost=$650 All other crash options cost more than Option #2. Therefore, we should recommend that we crash D by a second week and E by 1 week for a total cost of $250. All three network paths take 17 weeks to complete. The total normal costs are $3,900 plus crashing D by 2 weeks (+$400) and E by 1 week (+$50), so the total cost of a 17 week project completion schedule is $4,350.

CHAPTER 18 PROJECT MANAGEMENT 41 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Uncertainty in Project Management PERT (Project Evaluation and Review Technique) is another approach to project management. PERT was developed to handle uncertainties in activity completion times. In contrast, CPM assumes that activity times are constant.

CHAPTER 18 PROJECT MANAGEMENT 42 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Uncertainty in Project Management Three PERT estimates are obtained for each activity: 1.Optimistic time (a): activity time under ideal conditions, 2.Most probable time (m): most likely activity time under normal conditions, 3.Pessimistic time (b): activity time if breakdowns or serious delays occur.

CHAPTER 18 PROJECT MANAGEMENT 43 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.15 Activity Time Distribution for Activity B of Wildcat Software Project

CHAPTER 18 PROJECT MANAGEMENT 44 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Uncertainty in Project Management Expected Time = (a + 4m + b)/6 [18.2] Variance = (b a) 2 /36 [18.3] where: a is the optimistic time estimate, m is most likely or probable, b is the pessimistic time estimate PERT assumes a beta probability distribution.

CHAPTER 18 PROJECT MANAGEMENT 45 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.16 Activity Time Estimates for the Wildcat Software Integration Project

CHAPTER 18 PROJECT MANAGEMENT 46 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Uncertainty in Project Management The critical path is found using the expected times in the same fashion as in the Critical Path Method. PERT allows us to investigate the effects of uncertainty of activity times on the project completion time.

CHAPTER 18 PROJECT MANAGEMENT 47 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Uncertainty in Project Management The critical path is B-C-E-F-H-J-K with an expected completion time of 22 weeks. The variance ( 2 ) in project duration is given by the sum of the variances of the critical-path activities: 2 = 1.78 + 0.11 + 0.44 + 0.11 + 0.11 + 0.11 + 0.11 = 2.77. This formula is based on the assumption that all the activity times are independent. We can also assume that the distribution of the project completion time is normally distributed.

CHAPTER 18 PROJECT MANAGEMENT 48 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Uncertainty in Project Management Although they expect completion in 22 weeks, the project manager wants to know the probability that they will meet the 25-week deadline. The z-value for the normal distribution at T = 25 is given by z = (25 22)/1.66 = 1.81 Using z = 1.81 and the tables for the standard normal distribution, we see that the probability of the project meeting the 25-week deadline is 0.4649 + 0.5000 = 0.9649.

CHAPTER 18 PROJECT MANAGEMENT 49 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit 18.17 Probability of Completing the Wildcat Software Project within 25 Weeks

CHAPTER 18 PROJECT MANAGEMENT 50 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Solved Problem For the PERT network below: a.What is the expected completion time and variance for the project? b.What is the probability that the project will meet a 12- day deadline?

CHAPTER 18 PROJECT MANAGEMENT 51 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Solved Problem a.There are two paths, A-B-C-E-F = 12 days and A-B-D-E-F = 14 days, through the network. The critical path is A-B-D-E-F = 14 days. The variance of the project time is the sum of the activity variances on the critical path or 1 + 0.8 + 1 + 0.5 + 0.2 = 3.5 days. b.z = (12 14)/ 3.5 = 2/1.871 = 1.07. From Appendix A, the probability from - to z = 1.07 is P (z -1.07) = 0.14231. Therefore, P(completion time 12) = 0.1423. Also, note that there is only a 50 percent chance of completing the project within the expected time of 14 days (that is, z = (14 14)/1.871 = 0 and P(completion time 14) = 0.5000.

CHAPTER 18 PROJECT MANAGEMENT 52 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Solved Problem The probability to meet at 15-day completion time is found by computing z = (15 -14)/3.5 = 1/1.871 = 0.53. From Appendix A, the probability from minus infinity to z is 0.53; P(z 0.53) = 0.70194, and therefore, P(completion time 15 days) = 0.70194.

CHAPTER 18 PROJECT MANAGEMENT 54 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Alternative Water Supply Single Project Case Study 1.Draw the project network diagram and determine the normal time to complete the project, activity slack times, the critical path(s), and total project costs (i.e., baseline your project) using the Critical Path Method. 2.Determine the best way to crash the project to complete it in 35 weeks with revised activity slack times, critical path(s), and total project costs. Provide reasoning as to how all crashing decisions were made. 3.Activity times with the greatest uncertainty are activities D, E, and H. Describe conceptually how you could model this uncertainty in activity times. (You do not have the necessary data to actually do this numerically.) 4.What are your final recommendations?

CHAPTER 18 PROJECT MANAGEMENT 55 2013 OM4 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Alternative Water Supply Single Project Case Study

CHAPTER 18 PROJECT MANAGEMENT 1 ©2013 OM4 Cengage Learning. All Rights Reserved. May not be...

Documents

Transcript of CHAPTER 18 PROJECT MANAGEMENT 1 ©2013 OM4 Cengage Learning. All Rights Reserved. May not be...