Project Scheduling: Risk and Control

The deadline is approaching of the $20 million T-5 project, and Project Manager
Monte Optimum was concerned about maintaining the project’s schedule. With 10
months left, substantial portions of the software remained to be developed, and
Optimum was never sure that all the necessary development work would be
finished on time.

Software Development

Optimum had had his project team working at the maximum speed in recent months
on the software development for T-5’s auto-navigation system. The number of
workers assigned to the project had been increased recently, so total development
costs amounted to $350,000 per month, which exceeded the project’s budget by 25%.
Optimum believed that there was a 70% chance that the project team would finish
software development in the remaining 10 months. Despite the risk of not meeting
the deadline, he was not able to increase the number of workers on the project or
increase the rate of software development in any way.

If the software were not finished on time, Optimum was fairly sure that one or two
extra months of work would be sufficient to finish the project. However, each
month’s delay in project completion would cause a 3% ($600,000) reduction in the
contract price. In addition to this exactly calculated cost of not maintaining the
schedule, a difficult-to-quantify, but no less significant cost of lost reputation was
associated with not finishing the project as scheduled.

Hardware Expansion

The difficulty in developing the software for T-5 was in part due to the poor original
design for the hardware. This somewhat under-designed hardware was making the
software development much more difficult and time-consuming than was originally
expected.

One solution that would virtually take schedule risk away would be to immediately
expand the hardware portion of the system. This hardware expansion would take
five months and its cost would be $1.6 million. Additionally, this expansion would
greatly reduce the software development effort, so that software development costs
would fall down to $250,000 per month for the remaining 10 months of the project.

Postponing the Hardware Expansion

Since the hardware expansion could be finished in five months, Optimum thought
continuing with the full development of the software for the next five months would
be discreet before turning to the hardware expansion. The progress of software
development of the next five months might give him a better estimate of the
probability of finishing the project on time. If the five-month progress turned out to
be positive, then Optimum estimated that the probability of finishing the project on
time would increase to 80%. If the progress proved to be negative, the probability
would decrease to 30%. However, there also existed the distinct possibility that the
progress over the next five months would not help him improve his estimation of
the probability, staying at a 70% probability of finishing the project on time.
Optimum thought that this latter event (not obtaining useful information in the next
five months) had a probability of occurrence of about 30%. He deliberated how to
apportion the remaining 70% probability to each of the “positive progress” and
“negative progress” events and soon came up with an idea that, in order to be
consistent with all of his previous appraisals, the probability of positive progress
must be 49%, while the probability of negative progress must be 21% (Why?).

If he determined to do the hardware expansion at the end of five months, he would

again remove all risk of not maintaining the schedule and would also mitigate much
of the software development burden. He believed that the monthly cost of software
development in the remaining five months would only be $150,000, because a large
portion of software developed in the previous five months would be usable.

Assignment:

You are a management science specialist, and Optimum asks you to recommend an
optimal decision. Make proper assumptions for unclearly or ambiguously described
situations, if any, and discuss them in detail. How should your recommendation be
modified if these assumptions change? Prepare your analysis report to be submitted
to Optimum, keeping in mind that he does not have a good knowledge on decision
trees. It is highly recommended to develop your own study questions. Make your
analysis as comprehensive as possible.