Chapter 7

Project Management

2007 Pearson Education

 Project Management
Used to manage large complex projects

Has three phases:

1. Project planning
2. Project scheduling
3. Project controlling
 Phase 1: Project Planning
1. What is the project goal or objective?
2. What are the activities (or tasks) involved?
3. How are activities linked?
4. How much time required for each activity?
5. What resources are required for each
activity?
 Phase 2: Project Scheduling
1. When will the entire project be
completed?
2. What is the scheduled start and end time
for each activity?
3. Which are the critical activities?
4. Which are the noncritical activities?
 Phase 2: Project Scheduling (cont.)

5. How late can noncritical activities be w/o

delaying the project?
6. After accounting for uncertainty, what is
the probability of completing the project
by a specific deadline?
 Phase 3: Project Controlling
At regular intervals during the project the
following questions should be considered:

Is the project on schedule? Early? Late?

Are costs equal to the budget? Over
budget? Under budget?
Are there adequate resources?
What is the best way to reduce project
duration at minimum cost?
 Identifying Activities
Subdivides a large project into smaller units
Each activity should have a clearly defined
starting point and ending point
Each activity is clearly distinguishable from
every other activity
Each activity can be a project in itself
Work Breakdown Structure (WBS)
Divides the project into its various
subcomponents and defines hierarchical
levels of detail

Level
1 Project
2 Major tasks in project
3 Subtasks in major tasks
4 Activities to be completed
Example Work Breakdown
Structure
 Identify for Each Activity:
Which other activities must be completed
previously (predecessors)
Time required for completion
Resources required

This completes the project planning phase.

 Project Scheduling Phase
Commonly used techniques:

Program Evaluation and Review

Technique (PERT)

Critical Path Method (CPM)

 Project Management Example:
General Foundry Inc.
Have 16 weeks to install a complex air
filter system on its smokestack
May be forced to close if not completed
w/in 16 weeks due to environmental
regulations
Have identified 8 activities
 Drawing the Project Network
AON Activity on Node networks show
each activity as a node and arcs show the
immediate predecessor activities
AOA Activity on Arc networks show
each activity as an arc, and the nodes
represent the starting and ending points

We will use the AON method

AON Network for General Foundry
Activity Time Estimates
 Determining the Project Schedule
Some activities can be done
simultaneously so project duration should
be less than 25 weeks
Critical path analysis is used to
determine project duration
The critical path is the longest path
through the network
 Critical Path Analysis
Need to find the following for each activity:

Earliest Start Time (EST)

Earliest Finish Time (EFT)
Latest start time (LST)
Latest Finish Time (LFT)
 Forward Pass
Identifies earliest times (EST and EFT)
EST Rule: All immediate predecessors
must be done before an activity can begin
If only 1 immediate predecessor, then
EST = EFT of predecessor
If >1 immediate predecessors, then
EST = Max {all predecessor EFTs}
 EFT Rule:
EFT = EST + activity time

Node Notation:
Forward Pass: Earliest Start and Finish
Times
 Backward Pass
Identifies latest times (LST an LFT)
LFT Rule:
If activity is the immediate predecessor
to only 1 activity, then
LFT = LST of immediate follower
If activity is the immediate predeccor to
multiple activities, then
LFT = Min {LST of all imm. followers}
 LST Rule:
LST = LFT activity time
Backward Pass: Latest Start and Finish Times
 Slack Time and Critical Path(s)
Slack is the length of time an activity can
be delayed without delaying the project
Slack = LST EST

Activities with 0 slack are Critical Activities

The Critical Path is a continuous path
through the network from start to finish that
include only critical activities
Project Schedule and Slack Times
Critical Path and Slack Times
 Total Slack Time vs. Free Slack Time
Total slack time is shared by more than 1
activity
Example: A 1 week delay in activity B will
leave 0 slack for activity D

Free slack time is associated with only 1

activity
Example: Activity F has 6 week of free
slack time
 Variability in Activity Times
Activity times are usually estimates that
are subject to uncertainty
Approaches to variability:
1. Build buffers into activity times
2. PERT probability based
3. Computer simulation
 PERT Analysis
Uses 3 time estimates for each activity
Optimistic time (a)
Pessimistic time (b)
Most likely time (m)

These estimates are used to calculate an

expected value and variance for each
activity (based on the Beta distribution)
 Expected activity time (t)
t = (a + 4m + b)
6
Variance = [ (b a) / 6 ]2

Standard deviation = SQRT(variance)

= (b a)
6

Go to file 7-1.xls
Project Variance and Standard Deviation
Project variance (p2)
= (variances of all critical path activities)
p2 = 0.11 + 0.11 + 1.0 + 1.78 + 0.11
= 3.11

Project standard deviation (p)

= SQRT (Project variance)
p = SQRT ( 3.11) = 1.76
 Probability of Project Completion
What is the probability of finishing the
project within 16 weeks?
Assumptions:
Project duration is normally distributed
Activity times are independent
Normal distribution parameters:
p = expected completion time= 15 weeks
p = proj standard deviation = 1.76 weeks
 Normal Probability Calculations
Z = (Target time expected time)
p

Z = (16 - 15) = 0.57

1.76

This means 16 weeks is 0.57 standard

deviations above the mean of 15 weeks.
 Probability Based on
Standard Normal Table
Prob (proj completion < 16 weeks) = 0.7158
 Project Duration for
a Given Probability
What project duration does General
Foundry have a 99% chance of completing
the project within?

i.e. Prob (proj duration < ? ) = 0.99

From Std. Normal Table, this corresponds

to Z = 2.33
 Z = (? - 15) = 2.33
1.76

So ? = 15 + 2.33 x 1.76 = 19.1 weeks

 Scheduling Project Costs
1. Estimate total cost for each activity
2. Identify when cost will actually be spent
(we will assume costs are spread evenly)
3. Use EST and LST for each activity to
determine how costs are spread over
project
 Monitoring and
Controlling Project Costs
While the project is underway, costs are tracked
and compared to the budget

What is the value of work completed?

Value of work completed
= (% of work completed) x (total activity budget)

Are there any cost overruns?

Cost difference
= (Actual cost) (Value of work completed)
 Project Crashing
Reducing a projects duration is called
crashing
Some activities times can be shortened
(by adding more resources, working
overtime, etc.)
The crash time of an activity is the
shortest possible duration, and has an
associated crash cost
 Steps in Project Crashing
1. Compute the crash cost per time period
2. Find the current critical path (CP)
3. Find the lowest cost way to crash the CP
by 1 time period
4. Update all activity times. If further
crashing is needed, go to step 2.
 Crashing Using
Linear Programming
Decision: How many time periods to crash
each activity?

Objective: Minimize the total crash cost

Decision Variables
Ti = time at which activity i starts
Ci = number of periods to crash activity i
Constraints
An activity cannot begin before all
immediate predecessors are complete

There is a maximum amount that each

activity can be crashed

Go to file 7-2.xls