Managerial decision modeling with spreadsheets by stair render chapter 07

Identify for Each Activity: • Which other activities must be completed previously predecessors • Time required for completion • Resources required This completes the project planning pha

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 EFT’s}

• 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)

Go to file 7-1.xls

Project Variance and Standard Deviation

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:

μp = expected completion time= 15 weeks

σp = proj standard deviation = 1.76 weeks

Normal Probability Calculations

Z = (Target time – expected time)

σp

Z = (16 - 15) = 0.57

1.76This 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 project’s 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