Chapter 9

Project Management
Operations
Operations Management
Management -- 55thth Edition
Edition

Roberta Russell & Bernard W. Taylor, III

Beni Asllani
Copyright 2006 John Wiley & Sons, Inc. University of Tennessee at Chattanooga
 Lecture Outline

 Project Planning
 Project Scheduling
 Project Control
 CPM/PERT
 Probabilistic Activity Times
 Project Crashing and Time-Cost
Trade-off

Copyright 2006 John Wiley & Sons, Inc. 9-2

 What is a Project?
 Project
 unique, one-time operational activity or effort
 Examples
 constructing houses, factories, shopping malls, athletic
stadiums or arenas
 developing military weapons systems, aircrafts, new ships
 launching satellite systems
 constructing oil pipelines
 developing and implementing new computer systems
 planning concert, football games, or basketball tournaments
 introducing new products into market

Copyright 2006 John Wiley & Sons, Inc. 9-3

 Project Elements

 Objective
 Scope
 Contract requirements
 Schedules
 Resources
 Personnel
 Control
 Risk and problem analysis

Copyright 2006 John Wiley & Sons, Inc. 9-4

 Project Management Process
 Project planning
 Project scheduling
 Project control
 Project team
 made up of individuals from various areas and
departments within a company
 Matrix organization
 a team structure with members from functional areas,
depending on skills required
 Project Manager
 most important member of project team

Copyright 2006 John Wiley & Sons, Inc. 9-5

 Project Scope

 Scope statement
 a document that provides an understanding,
justification, and expected result of a project
 Statement of work
 written description of objectives of a project
 Work breakdown structure
 breaks down a project into components,
subcomponents, activities, and tasks

Copyright 2006 John Wiley & Sons, Inc. 9-6

 Work Breakdown Structure for Computer Order
Processing System Project

Copyright 2006 John Wiley & Sons, Inc. 9-7

  Organizational Breakdown Structure
 a chart that shows which organizational units are responsible for
work items
 Responsibility Assignment Matrix
 shows who is responsible for work in a project

Copyright 2006 John Wiley & Sons, Inc. 9-8

 Project Scheduling

 Steps  Techniques
 Define activities  Gantt chart
 Sequence  CPM
activities  PERT
 Estimate time  Microsoft Project
 Develop schedule

Copyright 2006 John Wiley & Sons, Inc. 9-9

 Gantt Chart

 Graph or bar chart with a bar for each project

activity that shows passage of time
 Provides visual display of project schedule
 Slack
 amount of time an activity can be delayed without
delaying the project

Copyright 2006 John Wiley & Sons, Inc. 9-10

 Example of Gantt Chart
Month
0 | 2 | 4 | 6 | 8 | 10
Activity
Design house
and obtain
financing
Lay foundation
Order and
receive
materials

Build house

Select paint

Select carpet

Finish work

1 3 5 7 9
Month
Copyright 2006 John Wiley & Sons, Inc. 9-11
 Project Control
 Time management
 Cost management
 Quality management
 Performance management
 Earned Value Analysis
 a standard procedure for numerically measuring a
project’s progress, forecasting its completion date and
cost and measuring schedule and budget variation
 Communication
 Enterprise project management

Copyright 2006 John Wiley & Sons, Inc. 9-12

 CPM/PERT

 Critical Path Method (CPM)

 DuPont & Remington-Rand (1956)
 Deterministic task times
 Activity-on-node network construction
 Project Evaluation and Review Technique
(PERT)
 US Navy, Booz, Allen & Hamilton
 Multiple task time estimates
 Activity-on-arrow network construction

Copyright 2006 John Wiley & Sons, Inc. 9-13

 Project Network

 Activity-on-node (AON)
 nodes represent activities,
and arrows show Node
precedence relationships
 Activity-on-arrow (AOA) 1 2 3
 arrows represent activities
and nodes are events for
points in time Branch
 Event
 completion or beginning
of an activity in a project

Copyright 2006 John Wiley & Sons, Inc. 9-14

 AOA Project Network for
a House

3
Lay Dummy
foundation
2 0 Build Finish
3 1 house work
1 2 4 6 7
Design house Order and 3 1
and obtain receive 1 1
Select Select
financing materials paint carpet
5

Copyright 2006 John Wiley & Sons, Inc. 9-15

 Concurrent Activities

3
Lay foundation Lay
Dummy
foundation
2 0
2 3
1
Order material 2 4
Order material

(a) Incorrect precedence (b) Correct precedence

relationship relationship

Copyright 2006 John Wiley & Sons, Inc. 9-16

 AON Network for House
Building Project
Lay foundations Build house

2 4
Finish work
2 3
7
Start 1 1
3
Design house 6
and obtain
3
1 5 1
financing
1 Select carpet
Order and receive
materials Select paint

Copyright 2006 John Wiley & Sons, Inc. 9-17

 Critical Path
2 4
2 3
7
Start 1 1
3

3 6
1 5 1
1

A: 1-2-4-7
3 + 2 + 3 + 1 = 9 months  Critical path
B: 1-2-5-6-7
3 + 2 + 1 + 1 + 1 = 8 months
 Longest path
C: 1-3-4-7 through a network
3 + 1 + 3 + 1 = 8 months
D: 1-3-5-6-7
 Minimum project
3 + 1 + 1 + 1 + 1 = 7 months completion time

Copyright 2006 John Wiley & Sons, Inc. 9-18

 Activity Start Times

Start at 5 months

2 4
Finish at 9 months
2 3
7 Finish
Start 1 1
3

3 6
1 5 1
1 Start at 6 months
Start at 3 months

Copyright 2006 John Wiley & Sons, Inc. 9-19

 Mode Configuration
Activity number Earliest start

Earliest finish
1 0 3

3 0 3
Latest finish

Activity duration Latest start

Copyright 2006 John Wiley & Sons, Inc. 9-20

 Forward Pass

 Start at the beginning of CPM/PERT network to

determine the earliest activity times
 Earliest Start Time (ES)
 earliest time an activity can start
 ES = maximum EF of immediate predecessors
 Earliest finish time (EF)
 earliest time an activity can finish
 earliest start time plus activity time
EF= ES + t

Copyright 2006 John Wiley & Sons, Inc. 9-21

 Earliest Activity Start and
Finish Times
Lay foundations
Build house
2 3 5
Start 4 5 8
2
3

1 0 3 7 8 9
1 1
Design house
Finish work
and obtain 6 6 7
financing 3 3 4
1
1 5 5 6
Select carpet
Order and receive 1
materials Select pain

Copyright 2006 John Wiley & Sons, Inc. 9-22

 Backward Pass
 Determines latest activity times by starting at
the end of CPM/PERT network and working
forward
 Latest Start Time (LS)
 Latest time an activity can start without delaying
critical path time
LS= LF - t
 Latest finish time (LF)
 latest time an activity can be completed without
delaying critical path time
 LS = minimum LS of immediate predecessors

Copyright 2006 John Wiley & Sons, Inc. 9-23

 Latest Activity Start and
Finish Times
Lay foundations
Build house
2 3 5
Start 4 5 8
2 3 5
3 5 8

1 0 3 7 8 9
1 0 3 1 8 9
Design house
and obtain 6 6 7 Finish work
financing 3 3 4
1 7 8
1 4 5 5 5 6
Select carpet
Order and receive 1 6 7
materials Select pain

Copyright 2006 John Wiley & Sons, Inc. 9-24

 Activity Slack

Activity LS ES LF EF Slack S
*1
*1 00 00 33 33 0
*2
*2 33 33 55 55 0
33 44 33 55 44 1
*4
*4 55 55 88 88 0
55 66 55 77 66 1
66 77 66 88 77 1
*7
*7 88 88 99 99 0
* Critical Path

Copyright 2006 John Wiley & Sons, Inc. 9-25

 Probabilistic Time Estimates
 Beta distribution
 a probability distribution traditionally used in
CPM/PERT
a + 4m + b
Mean (expected time): t=
6
2
b-a
Variance: σ 2
=
6
where
a = optimistic estimate
m = most likely time estimate
b = pessimistic time estimate
Copyright 2006 John Wiley & Sons, Inc. 9-26
 Examples of Beta Distributions
P(time)

P(time)
a m t b a t m b
Time Time
P(time)

a m=t b
Time

Copyright 2006 John Wiley & Sons, Inc. 9-27

 Project Network with Probabilistic
Time Estimates: Example
Equipment
installation Equipment testing
and modification
1 4
6,8,10 2,4,12 System Final
training debugging
System 10
development 8
Manual 3,7,11 1,4,7
Start 2 testing Finish
3,6,9
5 11
Position 2,3,4 9 1,10,13
recruiting 2,4,6
Job Training System
3 6 System changeover
1,3,5 3,4,5 testing

Orientation
7
2,2,2

Copyright 2006 John Wiley & Sons, Inc. 9-28

 Activity Time Estimates
TIME ESTIMATES (WKS) MEAN TIME VARIANCE
ACTIVITY a m b t б2
1 6 8 10 8 0.44
2 3 6 9 6 1.00
3 1 3 5 3 0.44
4 2 4 12 5 2.78
5 2 3 4 3 0.11
6 3 4 5 4 0.11
7 2 2 2 2 0.00
8 3 7 11 7 1.78
9 2 4 6 4 0.44
10 1 4 7 4 1.00
11 1 10 13 9 4.00

Copyright 2006 John Wiley & Sons, Inc. 9-29

 Activity Early, Late Times,
and Slack
ACTIVITY t б2 ES EF LS LF S
1 8 0.44 0 8 1 9 1
2 6 1.00 0 6 0 6 0
3 3 0.44 0 3 2 5 2
4 5 2.78 8 13 16 21 8
5 3 0.11 6 9 6 9 0
6 4 0.11 3 7 5 9 2
7 2 0.00 3 5 14 16 11
8 7 1.78 9 16 9 16 0
9 4 0.44 9 13 12 16 3
10 4 1.00 13 17 21 25 8
11 9 4.00 16 25 16 25 0

Copyright 2006 John Wiley & Sons, Inc. 9-30

 Earliest, Latest, and Slack
Critical Path
1 0 8 4 8 13
8 1 9 5 16 21
10 13 17

16 1 0 3
8 9
Start 2 0 6 Finish
7 9 16
6 0 6 9
5 6 11 16 25
3 6 9 9 9 13
9 16 25
4 12 16
3 0 3 6 3 7
3 2 5 4 5 9

7 3 5
2 14 16

Copyright 2006 John Wiley & Sons, Inc. 9-31

 Total project variance

σ 2 = б22+ б52 + б82 + б11 2

σ = 1.00 + 0.11 + 1.78 + 4.00
= 6.89 weeks

Copyright 2006 John Wiley & Sons, Inc. 9-32

 Probabilistic Network Analysis
Determine probability that project is
completed within specified time
x-µ
Z= σ
where
µ = tp = project mean time
σ = project standard deviation
x = proposed project time
Z = number of standard deviations x
is from mean
Copyright 2006 John Wiley & Sons, Inc. 9-33
 Normal Distribution Of Project
Time
Probability

Zσ

µ = tp x Time

Copyright 2006 John Wiley & Sons, Inc. 9-34

 Southern Textile Example
What is the probability that the project is completed
within 30 weeks?

P(x ≤ 30 weeks)
x-µ
σ 2
= 6.89 weeks Z= σ
σ = 6.89 30 - 25
= 2.62
σ = 2.62 weeks
= 1.91
µ = 25 x = 30 Time (weeks)

From Table A.1, (appendix A) a Z score of 1.91 corresponds to a

probability of 0.4719. Thus P(30) = 0.4719 + 0.5000 = 0.9719
Copyright 2006 John Wiley & Sons, Inc. 9-35
 Southern Textile Example
What is the probability that the project is completed
within 22 weeks?
x-µ
P(x ≤ 22 weeks) σ 2 = 6.89 weeks Z= σ
σ = 6.89 22 - 25
= 2.62
σ = 2.62 weeks
= -1.14
x = 22 µ = 25 Time
(weeks)

From Table A.1 (appendix A) a Z score of -1.14 corresponds to a

probability of 0.3729. Thus P(22) = 0.5000 - 0.3729 = 0.1271

Copyright 2006 John Wiley & Sons, Inc. 9-36

 Project Crashing
 Crashing
 reducing project time by expending additional resources
 Crash time
 an amount of time an activity is reduced
 Crash cost
 cost of reducing activity time
 Goal
 reduce project duration at minimum cost

Copyright 2006 John Wiley & Sons, Inc. 9-37

 Project Crashing: Example

2 4
12
8
7
1 4
12

3 6
4 5 4
4

Copyright 2006 John Wiley & Sons, Inc. 9-38

 Project Crashing: Example (cont.)
$7,000 –

$6,000 –
Crash cost
$5,000 –
Crashed activity
$4,000 –
Slope = crash cost per week
$3,000 –

$2,000 – Normal activity

Normal cost
$1,000 –

–
Crash time Normal time
| | | | | | |
0 2 4 6 8 10 12 14 Weeks

Copyright 2006 John Wiley & Sons, Inc. 9-39

 Normal Activity and Crash
Data
TOTAL
NORMAL CRASH ALLOWABLE CRASH
TIME TIME NORMAL CRASH CRASH TIME COST PER
ACTIVITY (WEEKS) (WEEKS) COST COST (WEEKS) WEEK

1 12 7 $3,000 $5,000 5 $400

2 8 5 2,000 3,500 3 500
3 4 3 4,000 7,000 1 3,000
4 12 9 50,000 71,000 3 7,000
5 4 1 500 1,100 3 200
6 4 1 500 1,100 3 200
7 4 3 15,000 22,000 1 7,000
$75,000 $110,700

Copyright 2006 John Wiley & Sons, Inc. 9-40

 $500 $7000
Project Duration:
2 4
$700
36 weeks
8 12
7
1
12
4 FROM …

$400 3 6
4 5 4
4 $200
$3000
$200

$500 $7000

2 4
8 12 $700
7
1
TO… 7
4

Project Duration: $400 3 6

31 weeks 4 5 4
Additional Cost: 4 $200
$3000
$2000 $200

Copyright 2006 John Wiley & Sons, Inc. 9-41

 Time-Cost Relationship
 Crashing costs increase as project
duration decreases
 Indirect costs increase as project
duration increases
 Reduce project length as long as
crashing costs are less than indirect
costs

Copyright 2006 John Wiley & Sons, Inc. 9-42

 Time-Cost Tradeoff
Minimum cost = optimal project time
Total project cost

Indirect cost
Cost ($)

Direct cost

Crashing Time
Project duration
Copyright 2006 John Wiley & Sons, Inc. 9-43
Copyright 2006 John Wiley & Sons, Inc.
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