PROJECT MANAGEMENT

1. PROJECT MANAGEMENT CHAPTER 18 DAVID A. COLLIER AND JAMES R. EVANS

2. 18-1 Explain the key issues associated with projectmanagement. 18-2 Describe how to apply the Critical Path Method(CPM). 18-3 Explain how to make time/cost tradeoff decisionsin projects. 18-4 Describe how to calculate probabilities for projectcompletion time using PERT.

3. 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 city’s 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 stadium’s 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 Greece’s 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.

4. 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?

5. Aprojectis 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 managementinvolves all activities associated with planning, scheduling, and controlling projects.

6. Exhibit 18.1 Example Projects in Different Functional Areas That Impact the Value Chain

7. The Scope of Project Management • Define: clearly understand the goal of the project, responsibilities, deliverables, and what must be accomplished. • Plan: determine the steps needed to execute the project, delegate tasks, and identify start and completion dates. • Organize: coordinate the resources to execute the plan cost-effectively. • Control: collect and assess status reports and manage changes to baselines. • Close: compile statistics, reassign people, and prepare a “lessons learned” list.

8. 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.

9. 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.

10. Exhibit 18.2 Contributors and Impediments to Project Success

12. Techniques for Planning, Scheduling, and Controlling Projects • All project management decisions involve three factors: time, resources, and cost. • Key steps to help plan, schedule, and control projects are: • Project definition: identifying the activities that must be completed and the sequence to perform them. • Resource planning: determining resource needs for each activity. • Project scheduling: specifying a time schedule for the completion of each activity. • Project control: establishing controls for determining progress and responding to problems.

13. 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.

14. Project Definition • Activitiesare 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.

15. Exhibit 18.3 Project Activities and Precedence Relationships

16. Project Definition Aproject network consists of a set of circles or boxes callednodes,which represent activities, and a set of arrows calledarcs,which define the precedence relationships between activities. This is called an activity-on-node (AON) network representation.

17. Exhibit 18.4 Project Network for the Software Integration Project

18. 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.

19. Exhibit 18.5 Wildcat Software Consulting, Inc. Project Work Activities Times and Costs

20. Project Scheduling With the Critical Path Method Thecritical 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.

21. 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.

22. Exhibit 18.6 Activity-on-Node Format and Definitions

23. Exhibit 18.7 Wildcat Software Consulting Activity-on-Node Project Network

24. Exhibit 18.8 CPM Tabular Analysis for Wildcat Software Consulting Using Normal Time

25. Project Control • A schedulespecifies 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.

26. Gantt Chart Symbols

27. Exhibit 18.9 Early Start Schedule Gantt Chart for Wildcat Software Project

28. Exhibit 18.10 Example Gantt Chart of Wildcat Software with Activity E Delayed

29. Time/Cost Trade-Offs • Crashing a projectrefers to reducing the total time to complete the project to meet a revised due date. • Crash timeis the shortest possible time the activity can realistically be completed. • Crash costis 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]

30. Exhibit 18.11 Wildcat Software Project Data Including Crash Times and Costs

31. 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.

32. Exhibit 18.12 Normal versus Crash Activity Analysis

33. Exhibit 18.13 CPM Tabular Analysis for Wildcat Software Consulting for Target 20-Week Completion Time

34. 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.

35. 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 = $500 Crash B by 2 weeks = $1,000 Crash C by 1 week = $250 Additional 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.

36. Exhibit 18.14 Wildcat Software Consulting 17-Week Project Schedule at Total Project Cost = $39,550

37. SolvedProblem 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.

38. Solution There are two critical paths: Path A-B-D-F Path A-C-D-F Both paths take 19 weeks to complete. Only activity E has a slack time of 1 week.

39. 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 #2Crashing Option #3 Crash A by 1 week=$400 Crash D by 1 week=$200 Crash B by 1 week=$350 Crash C by 1 week=$300 Total cost=$650 Crashing Option #4Crash Option # 5 Crash F by 1 week=$500 Crash 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.

40. Second Week Crash Options: Crashing Option #1Crashing Option #2 Crash A by 1 week=$400 Crash D by 1 week=$200 Crash E by 1 week=$ 50 Total cost=$250 Crashing Option #3Crashing 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.

41. 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.

42. Uncertainty in Project Management • Three PERT estimates are obtained for each activity: • Optimistic time (a): activity time under ideal conditions, • Most probable time (m): most likely activity time under normal conditions, • Pessimistic time (b): activity time if breakdowns or serious delays occur.

43. Exhibit 18.15 Activity Time Distribution for Activity B of Wildcat Software Project

44. 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.

45. Exhibit 18.16 Activity Time Estimates for the Wildcat Software Integration Project

46. 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.

47. 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 (σ2) in project duration is given by the sum of the variances of the critical-path activities: • σ2 = 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.

48. 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.

49. Exhibit 18.17 Probability of Completing the Wildcat Software Project within 25 Weeks

50. Solved Problem • For the PERT network below: • What is the expected completion time and variance for the project? • What is the probability that the project will meet a 12-day deadline?