Project Management

1
Operations Management
Chapter 3 Project Management
PowerPoint presentation to accompany
Heizer/Render Principles of Operations
Management, 7e Operations Management, 9e
Some additions and deletions have been made by
Ömer Yagiz to this slide set.
(revised February 2012)
2
Outline

• Global Company Profile Bechtel Group
• The Importance of Project Management
• Project Planning
• The Project Manager
• Work Breakdown Structure
• Project Scheduling

3
Outline - Continued

• Project Controlling
• Project Management Techniques PERT and CPM
• The Framework of PERT and CPM
• Network Diagrams and Approaches
• Activity-on-Node Example
• Activity-on-Arrow Example

4
Outline - Continued

• Determining the Project Schedule
• Forward Pass
• Backward Pass
• Calculating Slack Time and Identifying the
  Critical Path(s)
• Variability in Activity Times
• Three Time Estimates in PERT
• Probability of Project Completion

5
Outline - Continued

• Cost-Time Trade-Offs and Project Crashing
• A Critique of PERT and CPM
• Using Microsoft Project to Manage Projects
• Creating a Project Schedule Using MS Project
• Tracking Progress and Managing Costs Using MS
  Project

6
Learning Objectives
When you complete this chapter you should be able
to

• Create a work breakdown structure
• Draw AOA and AON networks
• Complete both forward and backward passes for a
  project
• Determine a critical path

7
Learning Objectives
When you complete this chapter you should be able
to

• Calculate the variance of activity times
• Crash a project
• Use Microsoft Project software to create a project

8
Bechtel Projects

• Reconstruction projects in Iraq
• Building 26 massive distribution centers in just
  two years for the internet company Webvan Group
  (1 billion)
• Constructing 30 high-security data centers
  worldwide for Equinix, Inc. (1.2 billion)
• Building and running a rail line between London
  and the Channel Tunnel (4.6 billion)
• Developing an oil pipeline from the Caspian Sea
  region to Russia (850 million)
• Expanding the Dubai Airport in the UAE (600
  million), and the Miami Airport in Florida (2
  billion)

9
Bechtel Projects

• Building liquid natural gas plants in Yemen 2
  billion) and in Trinidad, West Indies (1
  billion)
• Building a new subway for Athens, Greece (2.6
  billion)
• Constructing a natural gas pipeline in Thailand
  (700 million)
• Building 30 plants for iMotors.com, a company
  that sells refurbished autos online (300
  million)
• Building a highway to link the north and south of
  Croatia (303 million)
• Jubail and Yabu industrial cities in Saudi Arabia
• Have visited Jubail several times - ÖY

10
Tepe Akfen Vie (TAV)

• Istanbul Atatürk airport
• Ankara Esenboga airport
• Izmir Adnan Menderes airport
• Georgia Tbilisi Batumi airports
• Tunisia Habib Bourgiba airport
• Macedonia (3 airports)

11
Strategic Importance of Project Management

• Microsoft Windows Vista Project
• hundreds of programmers
• millions of lines of code
• hundreds of millions of dollars cost
• Hard Rock Cafe Rockfest Annual Concert Project
• 100,000 fans
• planning began 9 months in advance
• U2 Concert in Istanbul (Sept. 2010)

12
Organizations for PM

• Project Management Institute
• http//www.pmi.org
• Turkish chapter of PMI
• http//www.pmi-tr.org/cms2/
• PMBOK Project Management Book of
  Knowledge (excellent source)

13
What is a project?

• Project
• series of related jobs usually directed toward
  some major output and requiring a significant
  period of time (and often funds) to perform.
• Project Management
• a series of activities (planning, scheduling, and
  controlling) in using resources (people,
  equipment, material) to meet the technical, cost,
  and time constraints of the project.
• Project or Program? Apollo moon program GAP
  program

14
Management of Projects

• Planning - goal setting, defining the project,
  team organization
• Scheduling - relates people, money, machines and
  supplies to specific activities and activities to
  each other according to time dimension
• Controlling - monitors resources, costs, quality,
  and budgets revises plans and shifts resources
  to meet time and cost demands

15
Project Management Activities

• Planning
• Objectives
• Resources
• Work break-down schedule
• Organization

• Scheduling
• Project activities
• Start end times
• Network

• Controlling
• Monitor, compare, revise, action

16
Project Planning, Scheduling, and Controlling
Figure 3.1
17
Project Planning, Scheduling, and Controlling
Figure 3.1
18
Project Planning, Scheduling, and Controlling
Figure 3.1
19
Project Planning, Scheduling, and Controlling
Figure 3.1
20
Project Planning, Scheduling, and Controlling
Figure 3.1
21
Project Planning

• Establishing objectives
• Defining project
• Creating work breakdown structure
• Determining resources
• Forming organization

22
Project Organization

• Often temporary structure
• Uses specialists from entire company
• Headed by project manager
• Coordinates activities
• Monitors schedule and costs
• Permanent structure called matrix organization

23
A Sample Project Organization
Figure 3.2
24
Project OrganizationWorks Best When

• Work can be defined with a specific goal and
  deadline
• The job is unique or somewhat unfamiliar to the
  existing organization
• The work contains complex interrelated tasks
  requiring specialized skills
• The project is temporary but critical to the
  organization
• The project cuts across organizational lines

25
Matrix Organization
26
The Role of the Project Manager
Highly visible Responsible for making sure that

• All necessary activities are finished in order
  and on time
• The project comes in (i.e. completed) within
  budget
• The project meets quality goals
• The people assigned to the project receive
  motivation, direction, and information

27
The Role of the Project Manager
Highly visible Responsible for making sure that

• All necessary activities are finished in order
  and on time
• The project comes in within budget
• The project meets quality goals
• The people assigned to the project receive
  motivation, direction, and information

28
Ethical Issues in PM

• Bid rigging divulging confidential information
  to give some bidders an unfair advantage
• very common in Turkey (ihaleye fesat karistirmak)
• Low balling contractors try to buy the
  project by bidding low and hope to renegotiate or
  cut corners
• Ilk defa duymuyorsunuz herhalde!
• Bribery particularly on international projects
• Remember Lockheed scandal it was investigated in
  every country except guess which? (hep bir
  agizdan . Türkiye)
  

29
Ethical Issues

• Mercedes Benz bribery scandal in 22 countries.
  (http//www.hurriyet.com.tr/ekonomi/14208149.asp)
• Expense account padding
• Use of substandard materials
• Compromising health and safety standards
• Withholding needed information
• Failure to admit project failure at close

30
Statement of Work (SOW)

• A project starts with a statement of work (SOW).
  (Proje Tanimi)
• description of the objectives to be achieved
• brief statement of the work to be done
• proposed schedule with start and completion dates
• performance measures in terms of budget
• completion steps (milestones) (önemli asamalar)
• written progress reports (gelisme raporlari) to
  be submitted

31
Work Breakdown Structure(WBS)
32
Work Breakdown StructureMS Vista
Figure 3.3
33
Another way to look at WBS
34
Project Scheduling

• Identifying precedence (öncelik) relationships
• Sequencing activities
• Determining activity times costs
• Estimating material worker requirements
• Determining critical activities

35
Purposes of Project Scheduling

• Shows the relationship of each activity to others
  and to the whole project
• Identifies the precedence relationships among
  activities
• Encourages the setting of realistic time and cost
  estimates for each activity
• Helps make better use of people, money, and
  material resources by identifying critical
  bottlenecks in the project

36
Scheduling Techniques

• Ensure that all activities are planned for
• Their order of performance is accounted for
• The activity time estimates are recorded
• The overall project time is developed

37
Project Management Techniques

• Gantt chart
• Critical Path Method (CPM)
• Program Evaluation and Review Technique (PERT)

38
A Simple Gantt Chart
39
Service For A Delta Jet
Figure 3.4
40
Project Control Reports

• Detailed cost breakdowns for each task
• Total program labor curves
• Cost distribution tables
• Functional cost and hour summaries
• Raw materials and expenditure forecasts
• Variance reports
• Time analysis reports
• Work status reports

41
PERT and CPM

• Network techniques
• Developed in 1950s
• CPM by Kelley and Walker for DuPonts chemical
  plants (1957)
• PERT by Booz, Allen Hamilton with the U.S.
  Navy, for Polaris missile (1958)
• Consider precedence relationships and
  interdependencies
• Each uses a different estimate of activity times

42
Six Steps PERT CPM

• Define the project and prepare the work breakdown
  structure
• Develop relationships among the activities -
  decide which activities must precede and which
  must follow others
• Draw the network connecting all of the activities

43
Six Steps PERT CPM

• Assign time and/or cost estimates to each
  activity
• Compute the longest time path through the network
  this is called the critical path
• Use the network to help plan, schedule, monitor,
  and control the project

44
Questions PERT CPM Can Answer

• When will the entire project be completed?
• What are the critical activities or tasks in the
  project?
• Which are the noncritical activities?
• What is the probability the project will be
  completed by a specific date?

45
Questions PERT CPM Can Answer

• Is the project on schedule, behind schedule, or
  ahead of schedule?
• Is the money spent equal to, less than, or
  greater than the budget?
• Are there enough resources available to finish
  the project on time?
• If the project must be finished in a shorter
  time, what is the way to accomplish this at least
  cost?

46
A Comparison of AON and AOA Network Conventions
Activity on Activity Activity on Node
(AON) Meaning Arrow (AOA)
Figure 3.5
47
A Comparison of AON and AOA Network Conventions
Activity on Activity Activity on Node
(AON) Meaning Arrow (AOA)
Figure 3.5
48
A Comparison of AON and AOA Network Conventions
Activity on Activity Activity on Node
(AON) Meaning Arrow (AOA)
Figure 3.5
49
AON Example
Milwaukee Paper Manufacturing'sActivities and
Predecessors for installing air pollutioncontrol
equipment in its facility
Table 3.1
50
AON Network for Milwaukee Paper
Figure 3.6
51
AON Network for Milwaukee Paper
Figure 3.7
52
AON Network for Milwaukee Paper
Figure 3.8
53
AOA Network for Milwaukee Paper
Figure 3.9
54
Determining the Project Schedule
Perform a Critical Path Analysis

• The critical path is the longest path through the
  network
• The critical path is the shortest time in which
  the project can be completed
• Any delay in critical path activities delays the
  project
• Critical path activities have no slack time

55
Determining the Project Schedule
Perform a Critical Path Analysis
Table 3.2
56
Determining the Project Schedule
Perform a Critical Path Analysis
Table 3.2
57
Determining the Project Schedule
Perform a Critical Path Analysis
Figure 3.10
58
Forward Pass
Begin at starting event and work forward
Earliest Start Time Rule

• If an activity has only a single immediate
  predecessor, its ES equals the EF of the
  predecessor
• If an activity has multiple immediate
  predecessors, its ES is the maximum of all the EF
  values of its predecessors

ES Max EF of all immediate predecessors
59
Forward Pass
Begin at starting event and work forward
Earliest Finish Time Rule

• The earliest finish time (EF) of an activity is
  the sum of its earliest start time (ES) and its
  activity time

EF ES Activity time
60
ES/EF Network for Milwaukee Paper
61
ES/EF Network for Milwaukee Paper
62
ES/EF Network for Milwaukee Paper
63
ES/EF Network for Milwaukee Paper
64
ES/EF Network for Milwaukee Paper
A and B must both be finished before D can be
started
7
65
ES/EF Network for Milwaukee Paper
66
ES/EF Network for Milwaukee Paper
Figure 3.11
67
Backward Pass
Begin with the last event and work backwards
Latest Finish Time Rule

• If an activity is an immediate predecessor for
  just a single activity, its LF equals the LS of
  the activity that immediately follows it
• If an activity is an immediate predecessor to
  more than one activity, its LF is the minimum of
  all LS values of all activities that immediately
  follow it

LF Min LS of all immediate following
activities
68
Backward Pass
Begin with the last event and work backwards
Latest Start Time Rule

• The latest start time (LS) of an activity is the
  difference of its latest finish time (LF) and its
  activity time

LS LF Activity time
69
LS/LF Times for Milwaukee Paper
70
LS/LF Times for Milwaukee Paper
71
LS/LF Times for Milwaukee Paper
72
LS/LF Times for Milwaukee Paper
73
Computing Slack Time
After computing the ES, EF, LS, and LF times for
all activities, compute the slack or free time
for each activity

• Slack is the length of time an activity can be
  delayed without delaying the entire project

Slack LS ES or Slack LF EF
74
Computing Slack Time
Table 3.3
75
Critical Path for Milwaukee Paper
Critical path A-C-E-G-H 15 wks
76
ES EF Gantt Chartfor Milwaukee Paper
77
LS LF Gantt Chartfor Milwaukee Paper
78
Another Example (AOA)
Consider the following consulting project
Develop an AOA network diagram diagram and
determine the duration of the critical path and
slack times for all activities
79
AOA project network
1
1
2
2
5
1
B
A
F
D
C
G
1
8
7
4
6
3
2
5
0
E
DUMMY
5
80
Forward pass
1
1
2
2
5
1
B
A
F
D
C
G
1
8
7
4
6
3
2
?
ES4 EF6
ES2 EF3
ES0 EF2
ES3 EF4
5
ES9 EF9
0
E
ES4 EF9
DUMMY
5
81
Forward pass
1
1
2
2
5
1
B
A
F
D
C
G
1
8
7
4
6
3
2
ES4 EF6
ES9 EF14
ES2 EF3
ES0 EF2
ES3 EF4
5
ES9 EF9
0
E
ES4 EF9
DUMMY
5
82
Forward pass
1
1
2
2
5
1
B
A
F
D
C
G
1
8
7
4
6
3
2
ES4 EF6
ES14 EF15
ES9 EF14
ES2 EF3
ES0 EF2
ES3 EF4
5
ES9 EF9
0
E
ES4 EF9
DUMMY
5
83
Backward pass
LS14 LF15
LS9 LF14
LS7 LF9
?
1
1
2
2
5
1
B
A
F
D
C
G
1
8
7
4
6
3
2
ES4 EF6
ES14 EF15
ES9 EF14
ES2 EF3
ES0 EF2
ES3 EF4
5
ES9 EF9
0
E
ES4 EF9
DUMMY
LS9 LF9
5
LS4 LF9
84
Backward pass
LS14 LF15
LS9 LF14
LS7 LF9
LS3 LF4
LS2 LF3
LS0 LF2
1
1
2
2
5
1
B
A
F
D
C
G
1
8
7
4
6
3
2
ES4 EF6
ES14 EF15
ES9 EF14
ES2 EF3
ES0 EF2
ES3 EF4
5
ES9 EF9
0
E
ES4 EF9
DUMMY
LS9 LF9
5
LS4 LF9
85
Calculate slack and obtain the critical path
LS14 LF15
LS9 LF14
LS7 LF9
LS3 LF4
LS2 LF3
LS0 LF2
2
1
1
2
5
1
B
F
D
A
C
G
1
8
7
4
6
3
2
ES4 EF6
ES9 EF14
ES14 EF15
ES2 EF3
ES0 EF2
ES3 EF4
5
ES9 EF9
0
E
ES4 EF9
DUMMY
LS9 LF9
5
LS4 LF9
Slack LF - EF or LS - ES
All activities have zero slack except D, which
has a slack of 3 wks. The critical path consists
of activities with zero (0) slack times
therefore the critical path is 1-2-3-4-5-6-7-8.
86
Variability in Activity Times

• CPM assumes we know a fixed time estimate for
  each activity and there is no variability in
  activity times
• PERT uses a probability distribution for activity
  times to allow for variability

87
Variability in Activity Times

• Three time estimates are required
• Optimistic time (a) if everything goes
  according to plan
• Pessimistic time (b) assuming very unfavorable
  conditions
• Most likely time (m) most realistic estimate

88
Variability in Activity Times

• Estimate follows beta distribution

89
Variability in Activity Times

• Estimate follows beta distribution

Expected time Variance of times
t (a 4m b)/6 v (b - a)/62
Figure 3.12
90
Computing Variance
Table 3.4
91
Probability of Project Completion
Project variance is computed by summing the
variances of critical activities
92
Probability of Project Completion
Project variance is computed by summing the
variances of critical activities
93
Probability of Project Completion
PERT makes two more assumptions

• Total project completion times follow a normal
  probability distribution
• Activity times are statistically independent

94
Probability of Project Completion
Standard deviation 1.76 weeks
Figure 3.13
95
Probability of Project Completion
What is the probability this project can be
completed on or before the 16 week deadline?
Where Z is the number of standard deviations the
due date or target date lies from the mean or
expected date
96
Probability of Project Completion
What is the probability this project can be
completed on or before the 16 week deadline?
Where Z is the number of standard deviations the
due date or target date lies from the mean or
expected date
97
Probability of Project Completion
Figure 3.14
98
Determining Project Completion Time
Figure 3.15
99
Determining Project Completion Time

• 
  15 (2.33)(1.76)
• 
  19.1 weeks
• 99 probability that the project
  will be finished in 19.1 weeks

100
Variability of Completion Time for Noncritical
Paths

• Variability of times for activities on
  noncritical paths must be considered when finding
  the probability of finishing in a specified time
• Variation in noncritical activity may cause
  change in critical path

101
What Project Management Has Provided So Far

• The projects expected completion time is 15
  weeks
• There is a 71.57 chance the equipment will be in
  place by the 16 week deadline
• Five activities (A, C, E, G, and H) are on the
  critical path
• Three activities (B, D, F) are not on the
  critical path and have slack time
• A detailed schedule is available

102
Trade-Offs And Project Crashing
It is not uncommon to face the following
situations

• The project is behind schedule
• The completion time has been moved forward

Shortening the duration of the project is called
project crashing
103
Factors to Consider When Crashing A Project

• The amount by which an activity is crashed is, in
  fact, permissible
• Taken together, the shortened activity durations
  will enable us to finish the project by the due
  date
• The total cost of crashing is as small as possible

104
Steps in Project Crashing

• Using current activity times, find the critical
  path and identify the critical activities

105
Steps in Project Crashing

• If there is only one critical path, then select
  the activity on this critical path that (a) can
  still be crashed, and (b) has the smallest crash
  cost per period. If there is more than one
  critical path, then select one activity from each
  critical path such that (a) each selected
  activity can still be crashed, and (b) the total
  crash cost of all selected activities is the
  smallest. Note that the same activity may be
  common to more than one critical path.

106
Steps in Project Crashing

• Update all activity times. If the desired due
  date has been reached, stop. If not, return to
  Step 2.

107
Crashing The Project
Table 3.5
108
Crash and Normal Times and Costs for Activity B
Figure 3.16
109
Critical Path And Slack Times For Milwaukee Paper
Figure 3.17
110
TIME - COST TRADE-OFF PROCEDURE

(CRASHING) Another
Illustration
Cost/day (Crash cost - Normal cost) / (Normal
time - Crash time) for example for activity B
(18 -9) / (5 - 2) 3 TL/day Others can be
obtained similarly.
111
TIME-COST TRADE-OFF ILLUSTRATION Suppose the
project network is as follows
ES2 EF7
B5
ES0 EF2
ES7 EF10
LS2 LF7
A,2
D,3
ES2 EF6
LS0 LF2
LS7 LF10
C,4
Critical Path A-B-D Duration 10 days T. Cost
26 TL
LS3 LF7
112
TIME-COST TRADE-OFF ILLUSTRATION
SHORTEN D BY 1 DAY
B5
A,2
D,2
C,4
C.P A-B-D Duration 9 days T. Cost 28 TL
113
TIME-COST TRADE-OFF ILLUSTRATION
SHORTEN D BY 1 MORE DAY
B5
A,2
D,1
C,4
C.P A-B-D Duration 8 days T. Cost 30 TL
114
TIME-COST TRADE-OFF ILLUSTRATION
SHORTEN B BY 1 DAY
B4
A,2
D,1
C,4
C.P A-B-D A-C-D Duration 7 days T.
Cost 33 TL
115
TIME-COST TRADE-OFF ILLUSTRATION
A OR (B C) CAN BE SHORTENED. LESS COSTLY TO
SHORTEN A BY 1 DAY
B4
A,1
D,1
C,4
C.P. A-B-D A-C-D Duration 6 days T.
Cost 37 TL
116
TIME-COST TRADE-OFF ILLUSTRATION
SHORTEN B C TOGETHER BY 1 DAY.
B3
A,1
D,1
C,3
C.P. A-B-D A-C-D Duration 5 days T.
Cost 42 TL
117
TIME-COST TRADE-OFF ILLUSTRATION
WE CAN SHORTEN B BY 1 MORE DAY (MAX. 3 DAYS)
B2
A,1
D,1
C.P. A-C-D Duration 5 days T. Cost 45 TL
C,3
TOTAL PROJECT COST IS NOW 45 TL PROJECT DURATION
IS STILL 5 DAYS. CAN NOT DECREASE PROJECT
DURATION ANY MORE..
118
Advantages of PERT/CPM

• Especially useful when scheduling and controlling
  large projects
• Straightforward concept and not mathematically
  complex
• Graphical networks help highlight relationships
  among project activities
• Critical path and slack time analyses help
  pinpoint activities that need to be closely
  watched

119
Advantages of PERT/CPM

• Project documentation and graphics point out who
  is responsible for various activities
• Applicable to a wide variety of projects
• Useful in monitoring not only schedules but costs
  as well

120
Limitations of PERT/CPM

• Project activities have to be clearly defined,
  independent, and stable in their relationships
• Precedence relationships must be specified and
  networked together
• Time estimates tend to be subjective and are
  subject to fudging by managers
• There is an inherent danger of too much emphasis
  being placed on the longest, or critical, path

121
Project Management Software

• There are several popular packages for managing
  projects
• Primavera
• MacProject
• Pertmaster
• VisiSchedule
• Time Line
• Microsoft Project

122
Using Microsoft Project
Program 3.1
123
Using Microsoft Project
Program 3.2
124
Using Microsoft Project
Program 3.3
125
Using Microsoft Project
Program 3.4
126
Using Microsoft Project
Program 3.5
127
Using Microsoft Project
Program 3.6
128
Using Microsoft Project
Program 3.7