Management Science

1
Management Science

• Term 1, 2003/2004
• Class 8 Project Planning
• Raf Jans Moritz Fleischmann
• Rotterdam School of Management

2
Agenda Class 8

• Introduction to project management
• Project planning and scheduling
• Critical path method
• Reducing project duration crashing
• Resource constraints
• Uncertainty in project planning
• Critical chain method

3
Objectives

• Provide snapshot of basic project planning
  elements
• Develop understanding of basic project scheduling
  techniques
• Develop analytic skills for systematic project
  planning
• Highlight role of risk management in project
  planning
• Develop understanding for application of general
  quantitative methods, such as linear programming
  and simulation, in project planning

4
What is a Project?

• A unique set of activities meant to produce a
  defined outcome within an established time frame
  using specific allocations of resources.
• gt one of a kind operations - as opposed to
  routine
• gt clear goal
• gt limited duration
• Example Project MoonshotPut a man on the moon
  and return him safely by December 31, 1969 at a
  cost of 9B.

5
Project Examples

• RD
• New product development
• Construction, infrastructure
• Software development and implementation
• Internal reorganization
• Preparing a bid for hosting the Olympic Games
• Dismantling a nuclear power plant
• Mergers Acquisitions

6
Laws of Project Management

• No project will finish in time, with the original
  budget and resources.
• Projects move swiftly until 90 is done from
  that moment onwards, the project remains for 90
  done
• A poorly-planned project takes three times as
  long as planned. A well-planned project takes
  only twice as long

7
Project Management Objectives
TIMING
BUDGET
SCOPE
gt Make the right trade-offs!
8
Project Management

• Basic project management steps
• Define and organize the project
• Plan the project
• Monitor and control the project

9
Project Management

• Define and organize the project
• Establish the project organization
• Define the project parameters
• Plan the project framework
• Assemble the project definition document
• Plan the project
• Monitor and control the project

10
Project Management

• Define and organize the project
• Plan the project
• Develop the work breakdown structure
• Develop the schedule
• Analyze resources
• Optimize tradeoffs
• Develop a risk management plan
• Monitor and control the project

11
Project Management

• Define and organize the project
• Plan the project
• Monitor and control the project
• Collect status information
• Plan take adaptive action
• Close out the project

12
Project Management

• Define and organize the project
• Plan the project
• Develop the work breakdown structure
• Develop the schedule
• Analyze resources
• Optimize tradeoffs
• Develop a risk management plan
• Monitor and control the project

Focus of this class
13
Challenges in Project Planning
Size
Complexity
Need of systematic planning and decision making
approach
Uncertainty
Conflicts
14
Example IPO of InterCat

• Design and maintenance of internet catalogues
• Focus on small consumer businesses
• Founders Janet Richards Gilbert Baker
• Currently 30 employees
• Going public to expand funding
• Issue of 5 million shares
• gt Planning initial public offering (IPO) process

15

The spread is the payment an underwriter
receives for his services
16
Questions

• How long does it take to complete this project?
• Which activities are critical to the project
  duration?
• What is the risk of exceeding a committed
  deadline?
• What is the cost of this project?
• How can the project duration be shortened?At
  which cost?
• On which activities should project management
  focus?

17
Project Network
G - 6
M - 1
C - 2
H - 3
P - 5
N - 3
A - 3
B - 1.5
E - 5
F - 1
Q - 4
I - 5
O 3.5
D - 3
activity
J - 3
K - 1
L - 2
duration
18
Critical Path Method (CPM)

• Developed in the 50s by DuPont
• Basic project scheduling technique based on
  network representation
• Represent each task by a node, linked to its
  immediate predecessors by arcs(activity on node
  (AON) network sometimes an alternative
  activity on arc (AOA) network is used gt see
  Winston / Albright)
• Determine earliest and latest start and finish
  dates for all activities

19
Project Network
Earliest finish date of the project
13.519.5
Earliest start date of A
G - 6
Earliest finish date of A
19.520.5
4.56.5
13.516.5
M - 1
2328
C - 2
H - 3
P - 5
03
34.5
7.512.5
12.513.5
19.522.5
N - 3
A - 3
B - 1.5
E - 5
F - 1
2327
13.518.5
Q - 4
19.523
4.57.5
I - 5
O 3.5
D - 3
13.516.5
16.517.5
17.519.5
J - 3
K - 1
L - 2
20
Project Network
Latest finish date of P without delaying the
project
13.519.5
G - 6
19.520.5
1622
4.56.5
M - 1
13.516.5
2328
C - 2
H - 3
2223
5.57.5
P - 5
1922
19.522.5
03
34.5
7.512.5
12.513.5
2328
N - 3
F - 1
E - 5
B - 1.5
A - 3
2327
2023
12.513.5
7.512.5
34.5
03
Q - 4
13.518.5
19.523
4.57.5
I - 5
2428
O 3.5
D - 3
1722
19.523
4.57.5
13.516.5
16.517.5
17.519.5
J - 3
K - 1
L - 2
17.519.5
16.517.5
13.516.5
21
Project Network
13.519.5
G - 6
Slack of activity C 1wk
19.520.5
1622
4.56.5
M - 1
13.516.5
2328
C - 2
H - 3
2223
P - 5
5.57.5
1922
19.522.5
03
34.5
7.512.5
12.513.5
2328
N - 3
F - 1
E - 5
B - 1.5
A - 3
2327
2023
12.513.5
7.512.5
34.5
03
Q - 4
13.518.5
19.523
4.57.5
I - 5
O 3.5
2428
D - 3
1722
19.523
4.57.5
13.516.5
16.517.5
17.519.5
J - 3
K - 1
L - 2
Activities without slack form the critical path
17.519.5
16.517.5
13.516.5
22
Project Network Notation
Node representation Earliest start
earliest finish Latest start latest
finish

Activity - Duration
23
CPM Key Concepts

• Compute earliest start date (ES) and earliest
  finish date (EF) for each activitycalculate
  through forward pass
• ES maximum EF of all immediate predecessors
• EF ES activity duration
• Project completion time EF of last activity
• Compute latest start date (LS) and latest finish
  date (LF) for each activitycalculate through
  backward pass
• Final activity LF project duration
• LF minimum LS of all immediate successors
• LS LF activity duration

24
CPM Key Concepts

• Comparing ES and LS gives indication of
  criticality of each activity
• Slack of an activity LS ES(or, equivalently
  LF EF)
• This is the amount of time by which this activity
  may be delayed without delaying the project
  (given that no other activities are delayed!)
• A critical path is a sequence of activities
  without slack
• These activities determine the overall project
  duration
• Any delay in a critical activity has an immediate
  impact on the project duration
• NB There can be more than one critical path

25
CPM Spreadsheet Model
26
Alternative representationGantt Chart
gt Mainly used for status reporting
27
CPM What if . ?
Change in activity time
Critical activity
Non- Critical activity
Project completion time unaffected if T lt
slack Project completion time increases by T
slack if T gt slack
Project completion time increases by exactly T
Increase by T units
Project completion time unaffected
Project completion time affecteddecrease by at
most T gt recalculate
Decrease by T units
28
Reducing Project Duration

• Janet and Gilbert get to hear that their most
  fierce competitor, SoftSales, is also planning to
  go public. They fear that if InterCat does not
  complete its IPO before SoftSales, the price
  investors are willing to pay will drop. Janet and
  Gilbert therefore decide that they want to move
  their planned IPO date forward by two weeks. They
  think this goal is possible if they throw more
  resources people and money into some
  activities.
• gt Can InterCat meet the new deadline?
• gt At what cost?

29
Costs for Expediting Activities
30
Project Network after Crashing
new on critical path
New duration 26 wks Add. cost 12,000
G - 6
M - 1
C - 2
H - 3
P - 5
N - 3
F - 1
E - 5
B - 1
A - 2
Q - 4
I - 5
O 3
D - 3
crashed activities
J - 3
K - 1
L - 2
31
Crashing the InterCat Project

• Reduce project duration by two weeks through the
• following steps
• 1. Reduce Activity O by 0.5 weeks gt cost
  2,500
• gt at this point, Activity N also become critical
• gt crashing Activity O further only makes sense
  if one crashes Activity N simultaneously gt
  reduction would cost 12,000 per week gt there
  are cheaper options, namely
• 2. Reduce Activity A by 1 week gt cost 6,000
• 3. Reduce Activity B by 0.5 weeks gt cost 3,500

32
InterCat Schedule after Crashing
33
Crashing

• Reduce project duration by expediting selected
  tasks at the expense of additional costs
• Crashing only makes sense for activities on the
  critical pathgt select critical activity with
  smallest marginal cost
• Watch out crashing may change the critical
  path!gt Additional activities may become
  criticalgt Carry out crashing step by step,
  while updating the critical pathgt It may
  be necessary to crash several (parallel)
  activities simultaneously to shorten critical path

34
Using Linear Programming to MakeCrashing
Decisions

• Decision variables
• ESi earliest start time of activity i
• Ci amount of crashing of activity i
• Constraints
• Precedence relationsgt Act. i can only start
  when all its predecessors are finished
• Maximum crash time per activity
• Target project duration
• Objective
• Minimize crash costs
• gt See Excel example on BB

35
Time-Cost Trade-off
36

• IF ONLY LIFE WERE THAT SIMPLE ...

37
Resource Constraints

• Scheduling tasks in parallel is key to achieving
  short project duration
• But
• Parallel tasks may result in resource conflicts
• Same person required for several tasks
• Tasks carried out on same equipment
• Tasks consuming same raw material
• gt Infeasible schedule if peak load exceeds
  available capacity

38
Example Resource Constraints
3 d. A
1 d. D
End
Start
2 d. B
4 d. E
2 d. C
39
Example Resource Constraints
3 d. A
1 d. D
End
Start
2 d. B
4 d. E
2 d. C
Critical path without resource considerations 6
days
Workforce requirementsA 2, B 3, C 2, D
4, E 2 Workforce available 4
40
Example Resource Constraints
3 d. A
1 d. D
End
Start
2 d. B
4 d. E
2 d. C
B
Infeasible!
D
4
capacity
A
2
C
E
time
0
8
2
4
10
6
41
Example Resource Constraints
3 d. A
1 d. D
End
Start
2 d. B
4 d. E
2 d. C
gt Project duration 10d gt More critical
activities
4
capacity
C
D
B
2
E
A
time
0
6
8
10
2
4
42
Resource Constraints

• Take resource constraints into account in
  activity schedule
• Resources can, in principal, be incorporated as
  additional constraints in spreadsheet / LP models
• Finding optimal schedule becomes much harder,
  virtually impossible for large project sizes
• Luckily
• Conflicts typically limited to a few key
  resources
• gt Focus scheduling effort on those (comp.
  bottleneck handling in production scheduling)
• gt Simpler heuristics / rules of thumb

43
Uncertainty

• Dealing with uncertainty one of major challenges
  in project management
• Potential factors of uncertainty
• Time requirements
• Costs
• Product performance
• Market development
• Customer requirements
• gt Need of risk management

44
Project risk management

• gt Take uncertainty explicitly into account in
  planning
• gt Identify risk factors
• gt Use project buffers (time and budget)
• gt Use early warning indicators
• gt Develop contingency planning / response
  scenario
• gt Monitor / re-evaluate the project!
• gt Flexibility is key!
• gt Make trade-offs schedule scope - budget

45
Analyzing Impact of Uncertainty

• Modeling uncertainty in project management
• Statistical methods estimate mean and std.dev.
  of project duration, budget, based on estimates
  for individual tasks
• advantage simple calculations
• disadvantages
• relies on special probability distributions
• relies on independence of individual uncertain
  factors
• cannot answer questions regarding criticality of
  a task
• Alternative Simulation

46
Simulation for Project Planning

• Monte Carlo simulation
• Model uncertain parameters by means of
  probability distributions
• Evaluate distribution of project duration, cost,
  start dates,
• gt The notion of a fixed critical path is
  replaced by task criticality, the likelihood
  that a task is on a critical path

47
InterCat Uncertain Activity Duration
48
InterCat Activity Criticality
49
Trade-Off Between Duration and Reliability
prob. of finishing within 28 weeks only 44 !
50
Impact of Varying Activity Times

• Change in activity time Change in project
  duration
• Critical activity Non-critical activity
• Increase by T units increase by T if T ?
  activity slack
• gt no change
• if T gt activity slack
• gt increase by T slack
• Decrease by T units decrease by at most T no
  change
• gt recalculate
• Asymmetry delays have more impact than shortcuts
• Tendency to underestimate impact of activity time
  variability

51
Some Caveats

• Safety buffers in activity times tend to be
  consumed even if things go well(Parkinsons
  law)
• gt Inflated duration estimates
• gt No real buffer function
• gt Propagation of delays
• Reduced efficiency due to excessive multi-tasking
  of key people
• gt Proposed remedy (Goldratt) critical chain
  scheduling

52
Critical Chain Approach

• Key ideas
• Integral view consider larger portions of the
  project as units (chains), rather than
  individual tasks
• Use sharp estimates for duration on task level
• To absorb uncertainty, use safety buffers on
  project/chain level (rather than on activity
  level)
• Focus scheduling on key resources
• Take key resources into account in scheduling
  critical path
• Avoid excessive multi-tasking
• Give advanced notice to key resources to assure
  availability

53
Program Management

• Manage portfolio of projects
• Project selection
• Interdependencies between multiple projects
• Time
• Resources
• Learning
• Overall planning and scheduling techniques
  similar to individual projects

54
Key Insights

• Network techniques, such as CPM, provide a basis
  for systematic project scheduling
• CPM helps identify the activities that
  essentially determine the project duration
• Analyzing slack in project schedule helps
  understand criticality of different activities
• Expediting may change the critical path of a
  project
• Parallel activities are key to limiting project
  duration, but may evoke resource conflicts
• Risk management is essential to project planning

55
Reading

• Review reading for this class
• A note on Project Scheduling by A. Shumsky(gt
  blackboard)
• If you want to know more .
• Critical Chain Scheduling and Buffer Management
  by F.S. Patrick(gt blackboard)
• Winston and Albright, Section 5.5 (slightly
  different techniques, AOA networks)
• Project Management in Practice by Mantel,
  Meredith, Shafer and Sutton, Wiley, 2001
• Critical Chain by E.M. Goldratt
• Creating Project Plans to Focus Product
  Developmentby C. Wheelwright and K. Clark,
  Harvard Business Review

56
Information on the web

• Project Management Institute (http//www.pmi.org)
  
• Software review OR/MS today(http//www.lionhrtpub
  .com/orms/RD/products/project.html)
• Software companies
• Microsoft Project
• Prochain (as add-in to Microsoft Project)
• Primavera
• many others

57
Outlook on Next Class

• Class 9 Application / Guest speaker
• Class 10 Behavioral decision making
• No specific preparation
• Workshop Assignment 3 Simulation

58
Think it over

• When you fail to plan, you plan to fail.
• - Management Science credo
• Yes, just you make a plan Just be a shining
  light!
• And then make still a second plan.
• But neither one will work.
• - B. Brecht, The Three-Penny-Opera