35A00210

Operations Management
Lecture 19
Project management
Project basics
Project planning
Project management
Project monitoring
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Product type and production
process
DTO
MTO
ATO
MTS
Continuous
flow
Project
J ob
shop
Batch
Production
line
P
r
o
d
u
c
t
i
o
n
p
r
o
c
e
s
s
Product Bulk Unique
Oil
refinement
PC
Car
IT
system
Oil
drilling
platform
Form of
manufacturing
M
o
s
t
l
y
m
a
k
e
-
t
o
-
o
r
d
e
r
M
o
s
t
l
y
m
a
k
e
-
t
o
-
s
t
o
c
k
2
Individual Group Organization Multi-
organization
Nation Multi-nation
Complexity
Low High
U
n
c
e
r
t
a
i
n
t
y
Low
High
Novel
writing Wedding
Product
development
Oil and gas
exploration
Basic
research
Company
audit
Advertising
campaign
Antarctic
expedition
Oil
tanker
Chemical
plant
Airport
Car
plant
Airbus
Channel
Tunnel
Euro
project
Motorway
Thames
Barrier
Military
campaign
Projects differ in complexity &
uncertainty
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What is it about?
Project
- one-time, organized effort to achieve a predetermined goal
Projects becoming increasingly common
- organizing operations so that most of the work is done in project
teams
- customized solutions the basis for the current trend
- shortening product life cycles force companies to different operating
models
- forces to look at the company and its operations in a new way
Project management
- resource (people, machines and materials) planning, control and
monitoring so that technical, cost and time objectives are achieved
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Project work has many
advantages...
Clear organizational
structure
Flexible structure
Opportunity to manage
large entities
Goal-orientation and
clarity of goals
Easy to monitor and
measure
Managing a team frees
management resources
Opportunity to allocate
resources flexibly
Opportunity to even work
load and get support from
others
Benefits of team work
Opportunity to learn from
others
Internal flow of
information
High commitment
Develops working tension
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and quite many disadvantages!
Resource battles between
projects
Conflicting goals of
participants
Plans and reality do not
meet
Sliding schedules
Often l ate
Project implementation
poor due to lack of
management
Situations change
constantly
Categorization
Heavy work load and
work load fluctuati ons
Employees lack project
working skills
Team work problems
Difficulty of transferring
experiences
Internal flow of
information
Informing interest groups
Stressing work tension
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T
Time, timing
and resources
Different approaches to projects
Project
Budgeting and monitoring
Team
work
Development
Participative
planning
Evaluation
Leadership
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Biggest worries of a project manager
insufficient resources 69%
keeping with the schedule 67%
unclear goals 63%
uncommitted members 59%
insufficient planning 56%
information break-downs 54%
changes (goals/resources) 42%
organizational conflicts 35%
Why is an operational view
important?
13
All projects are not alike
Several factors increase project difficulty, e.g.
- large size of the project
- number of parties involved, -volume, significance
- long duration of the project
- interdependence of project components
- uncertainty of new solutions
- exceptionally high quality expectations
- publicity and politics
- new operating environment and strange cultures
- pressure to succeed
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Lecture 19
Project management
Project planning
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Project life cycle
Project frame
problem
goal and objective
identifying success
factors
assumptions, risks,
obstacles
Project implementation
organizing a team
rules of operating
resource allocation
scheduling
work documentation
Project finish
customer approval
finishing project reports
check-up
Project planning
identifying the activities
estimating duration
resource needs
project network
project proposal
Project monitoring
reporting
monitoring tools
monitoring
changes
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Work breakdown structure
Project
Part A
Level 1
Level 2
Level 3
Level 4
Part B Part C
18
Work breakdown structure and
phasing
Breakdown divides the project to i ndepen-
dently planned and executed activities
Goals of work breakdown e.g.
- partition into sub-projects, developing sub-schedules, dividing
responsibilities, determining costs, outlining and coding, integration of
schedule and financial management
Different methods to work breakdown structure
- phased breakdown, breakdown into systems, structural breakdown,
breakdown according to work types etc.
In phasing the goal i s to understand the
relationship between activities
- makes decision-making easier
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Time management
Schedule i s the core of the project
- corner-stone, basis for resource and cost management
- project managers biggest worry
Time affects many variables
- delay penalties, cost of capital, project profit, lost profit, market
advantage, reputation, delivery window, resources and costs
Often a top-down process
Increasing workers is often not the cure, if
project i s at risk of going on overtime
- It is better to reallocate workers time!!
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Gantt-chart as a time management
tool - basic form has several limitations -
Time
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Network methods
- Gantt-chart limi tations taken into account -
A,3
Activity
Activity
relation
B,5 E,5
G,2
F,3
D,6
C,7
Activity
name
Activity
duration
5
Acti vity-on-node
(AON)
6 1 2
3
4
A,3
B,5
C,7 F,3
G,2
E,8
D,6
Activity-on-arc
(AOA)
Event
Activity
22
Lecture 19
Project management
Project management
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Basic tool s used in management
Critical path
PERT
Crashing
24
Critical path method
Good to know also activity durations and starting times,
not just the process diagram
- earliest and latest possible start time
Critical path reveals the activities most important for
total project duration
- assumes deterministic activity durations!
- activities on non-critical paths have slack
Method helps to identify the critical activities in the
project, allocate resources properly and communicate
the nature of the project
- delay in a slack-activity might not delay the entire project
DuPont developed the method in 1956
- timing maintenance breaks in a chemical factory (factory closed)
- used historical averages as activity durations
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What are the critical activities and what is the total
duration of the project?
Critical path example
- process activities and their duration -
26
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B,4
A,3
F,3
D,6
I,8 C,2 E,5 G,7
H,5
Critical path example
- process descripti on -
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I,8 A,3 C,2 E,5 G,7
Critical path example
- findi ng the path -
B,4
F,3
D,6
H,5
0 3
3 7 7 13
3 5 5 10 10 17 17 25
5 8 10 15
0 3
7 11 11 17
3 5 5 10 10 17 17 25
9 12 12 17
Critical path: A-C-E-G-I
Total duration: 25 weeks
X,T
ES EF
LS LF
4 4
2 4
0 0 0 0 0
A,3 I,8 C,2 E,5 G,7
Earliest
start
Earliest
finish
Latest
start
Latest
finish 28
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Critical path example
- finding the path in table format -
LS-ES; 17-17
or
LF-EF; 25-25
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In reality activity durations have variance that
needs to be accounted for
- PERT method notes the variance in activity durations
- time distribution is assumed to follow beta-distribution
U.S. Navy developed the method in 1958
- Polaris-missile project (AOA-diagram)
PERT
- program evaluati on and review technique -
30
PERT example
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C A
B
E
I
D F
H
G
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PERT example
- expected times and total project durati on -
C,14 A,7
B
5,33
E,11
I,18
D,5 F,7
H,4
G,11
Expected
time
=
Total durati on = 54 days
Critical path A, C, E, H and I
NOTE:
times are the
expected
times
32
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PERT example
- calculating variance -
Activity
variance
= NOTE:
only activities on
critical path are taken
into consideration
here
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PERT example
- calculating probabil ity for project durati on -
t. T
E
=54
P (z <-0.156) =0.5 - 0.0636 =0.436, i.e. 43.6 %
What is the probability that the project is completed in less
than 53 days?
T=53
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PERT example
Expected project duration is 54 days
- probability to complete the project in 53 days is 43,6%
Activities A, C, E, H and I form the critical path of the
project
- whole project is delayed if an activity on the critical path is delayed
Activities B, D, F and G are not critical so their
resources can perhaps be smoothed out
35
Basic assumptions in CPM and
PERT
Activities can be separated
Network relations of activities are clear
Activities have a clear start and finish
Activity durations and variances can be defined
and are independent of each other
- in PERT activities times follow beta-distribution and variance for
project duration is the sum of critical paths activities variances
Project management mostly focused on the
critical path
- critical path duration follows normal distribution
- PERT assumes that only on path has significant probability of being
critical (often not true in real life )
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C
o
s
t
Time
Cost of
crashing
(direct cost)
Penalty cost ,
no deal
(indirect cost)
Total cost
Project crashing
In some cases it is worthwhile to speed up the
project
37
Project crashing
You can speed up some project activities
- increasing personnel resources; over-time work, increasing work
shifts, transferring personnel, hiring new employees
- increasing machine resources; purchasing or leasing
Different acti vities have different crashing
costs, and not everything can be crashed
- cost of crashing often assumed linear in calculations
Project crashing should begin with activities on
the critical path
- highest marginal utility first etc.
- need to consider new critical paths
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Crashing cost curve
Time
C
o
s
t
Reality
Theory
Normal
time
Crashed
time
Crashed
cost
Normal
cost
Calculations assume a
linear crashing cost.
I n practice crashing cost
is lower in the beginning
than in the end!
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Project crashing example
A construction company wants to complete the following project as in 27 days. As a
cost conscious project manager, which activities would you suggest crashing? The
objective is naturally to minimize the cost of crashing. (Assume that cost of crashing
can be divided to individual days and the costs are linear)
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Project crashing example
A-B-D-F 30 days -3
A-C-D-F 29 days -2
A
B
C
D
E
F
A-C-E-F 28 days -1
Cheapest is to crash
activities A, B, D
by one day
A-B-D-F 27 days
A-C-D-F 27 days
A-C-E-F 27 days
Cost
600
=6-5 =1300-1000
Crashing
need
max. 1
a 300
max. 1
a 100
max. 1
a 600
max. 2
a 200
max. 2
a 250
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Tools are used in many situations
Managing
time and cost
trade-off
Budget
making
Monitoring
costs
Resource
allocation and
management
Gantt
CPM
PERT
crashing
42
Projects and resource
management
Time is not the only resource that needs to be
monitored
- people, machines and equipment, money etc.
- there are naturally trade-offs between resources
Resource management tries to even out the
load
- change the activity timing
- activities are delayed on purpose
- assuming there is slack in the system
- activity duration is increased or decreased
- if possible to change duration by changing resources
- delay the project
- make a new project plan
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Lecture 19
Project management
Project monitoring
Project monitoring has three main
goals
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Trade-offs exist between the goals
Time
Quality
Cost
Typical monitoring measures
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value of completed part
time
c
o
s
t
s
/
c
o
m
p
l
e
t
i
o
n
r
a
t
e
Cost difference
basic schedule
realized
cost
Schedule difference
TIme- /schedule difference
we were supposed to be at this point a week ago
given the completion rate,
we have spend X more
than budgeted
we are 5% behind the
estimated completion
rate
Failure is difficult to avoid
- 10 most common reasons for project failure -
Insuffici ent inquiry of customer expectations
Project's priority has dropped
Responsibili ties were not clearly defined
Too optimi stic schedule
Project plan was not used to project mgmt.
Lacking resources
Project was not monitored against the plan
No set way of communicating
Lost focus
Change management was forgotten
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The (only partly joking) laws of
project management
1. No major project will ever be installed on time, within budget or with the
same staff that started it. Yours will not be the first.
2. Projects progress until they become 90% complete. Then they remain
90% complete forever.
3. One advantage of fuzzy project objectives is that they let you avoid the
embarrassment of estimating the corresponding costs.
4. When things are going well something will go wrong. When things
cannot get any worse they will. When things appear to be going better you
have overlooked something.
5. If the project content is allowed to change freely the rate of change will
exceed the rate of progress.
6. No system is ever completely debugged. Attempts to debug a system
inevitably introduce new bugs that are even harder to find.
7. A carelessly planned project will take three times longer to complete
than expected. A carefully planned project will take only twice as long.
8. Project teams detest project reporting because it vividly manifests their
lack of progress.
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