operations management chapter 3 – project management
TRANSCRIPT
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Operations ManagementOperations ManagementChapter 3 – Project Management
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Bechtel Projects
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)
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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)
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Strategic Importance of Project Management
Microsoft Windows Vista Project:hundreds of programmersmillions of lines of codehundreds of millions of dollars cost
Hard Rock Cafe Rockfest Project:100,000 + fansplanning began 9 months in advance
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Single unit Many related activities Difficult production planning and
inventory control General purpose equipment High labor skills
Project Characteristics
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Examples of Projects
Building Construction
Research Project
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Management of Projects
1. Planning - goal setting, defining the project, team organization
2. Scheduling - relates people, money, and supplies to specific activities and activities to each other
3. Controlling - monitors resources, costs, quality, and budgets; revises plans and shifts resources to meet time and cost demands
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Planning Objectives Resources Work break-down
schedule Organization
Scheduling Project activities Start & end times Network
Controlling Monitor, compare, revise, action
Project Management Activities
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Project Planning, Scheduling, and Controlling
Figure 3.1
Before Start of project Duringproject Timeline project
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Project Planning, Scheduling, and Controlling
Figure 3.1
Before Start of project Duringproject Timeline project
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Project Planning, Scheduling, and Controlling
Figure 3.1
Before Start of project Duringproject Timeline project
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Project Planning, Scheduling, and Controlling
Figure 3.1
Before Start of project Duringproject Timeline project
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Project Planning, Scheduling, and Controlling
Figure 3.1
Before Start of project Duringproject Timeline project
BudgetsDelayed activities reportSlack activities report
Time/cost estimatesBudgetsEngineering diagramsCash flow chartsMaterial availability details
CPM/PERTGantt chartsMilestone chartsCash flow schedules
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Establishing objectives Defining project Creating work breakdown
structure Determining
resources Forming organization
Project Planning
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Often temporary structure Uses specialists from entire company Headed by project manager
Coordinates activities Monitors schedule
and costs Permanent
structure called ‘matrix organization’
Project Organization
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A Sample Project Organization
TestEngineer
MechanicalEngineer
Project 1 ProjectManager
Technician
Technician
Project 2 ProjectManager
ElectricalEngineer
Computer Engineer
Marketing FinanceHumanResources Design Quality
Mgt Production
President
Figure 3.2
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Project OrganizationWorks Best When
1. Work can be defined with a specific goal and deadline
2. The job is unique or somewhat unfamiliar to the existing organization
3. The work contains complex interrelated tasks requiring specialized skills
4. The project is temporary but critical to the organization
5. The project cuts across organizational lines
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Matrix OrganizationMarketing Operations Engineering Finance
Project 1
Project 2
Project 3
Project 4
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The Role of the Project Manager
Highly visibleResponsible 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
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The Role of the Project Manager
Highly visibleResponsible 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
Project managers should be:
Good coaches Good communicators Able to organize activities from a variety of
disciplines
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Work Breakdown Structure
Level
1. Project2. Major tasks in the project3. Subtasks in the major tasks4. Activities (or work packages)
to be completed
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Work Breakdown Structure
Figure 3.3
Level IDLevel Number Activity
1 1.0 Develop/launch Windows Vista OS2 1.1 Develop of GUIs2 1.2 Ensure compatibility with earlier
Windows versions3 1.21 Compatibility with Windows ME3 1.22 Compatibility with Windows XP3 1.23 Compatibility with Windows 20004 1.231 Ensure ability to import files
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Project Scheduling
Identifying precedence relationships
Sequencing activities Determining activity times &
costs Estimating material & worker
requirements Determining critical activities
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Purposes of Project Scheduling
1. Shows the relationship of each activity to others and to the whole project
2. Identifies the precedence relationships among activities
3. Encourages the setting of realistic time and cost estimates for each activity
4. Helps make better use of people, money, and material resources by identifying critical bottlenecks in the project
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Scheduling Techniques
1. Ensure that all activities are planned for
2. Their order of performance is accounted for
3. The activity time estimates are recorded
4. The overall project time is developed
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Gantt chart Critical Path Method
(CPM) Program Evaluation and
Review Technique (PERT)
Project Management Techniques
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A Simple Gantt Chart
TimeJ F M A M J J A S
Design
Prototype
Test
Revise
Production
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Passengers
Baggage
Fueling
Cargo and mail
Galley servicing
Lavatory servicingDrinking water
Cabin cleaning
Cargo and mail
Flight services
Operating crewBaggagePassengers
DeplaningBaggage claimContainer offloadPumpingEngine injection waterContainer offloadMain cabin doorAft cabin doorAft, center, forwardLoadingFirst-class sectionEconomy sectionContainer/bulk loadingGalley/cabin checkReceive passengersAircraft checkLoadingBoarding
0 10 20 30 40Time, Minutes
Service For A Delta Jet
Figure 3.4
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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
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Network techniques Developed in 1950’s
CPM by DuPont for 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
PERT and CPM
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Six Steps PERT & CPM
1. Define the project and prepare the work breakdown structure
2. Develop relationships among the activities - decide which activities must precede and which must follow others
3. Draw the network connecting all of the activities
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Six Steps PERT & CPM
4. Assign time and/or cost estimates to each activity
5. Compute the longest time path through the network – this is called the critical path
6. Use the network to help plan, schedule, monitor, and control the project
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1. When will the entire project be completed?2. What are the critical activities or tasks in the
project?3. Which are the noncritical activities?4. What is the probability the project will be
completed by a specific date?
Questions PERT & CPM Can Answer
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5. Is the project on schedule, behind schedule, or ahead of schedule?
6. Is the money spent equal to, less than, or greater than the budget?
7. Are there enough resources available to finish the project on time?
8. If the project must be finished in a shorter time, what is the way to accomplish this at least cost?
Questions PERT & CPM Can Answer
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A Comparison of AON and AOA Network Conventions
Activity on Activity Activity onNode (AON) Meaning Arrow (AOA)
A comes before B, which comes before C
(a) A B CBA C
A and B must both be completed before C can start
(b)
A
CC
B
A
B
B and C cannot begin until A is completed
(c)
B
A
CA
B
CFigure 3.5
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A Comparison of AON and AOA Network Conventions
Activity on Activity Activity onNode (AON) Meaning Arrow (AOA)
C and D cannot begin until both A and B are completed
(d)
A
B
C
D B
A C
D
C cannot begin until both A and B are completed; D cannot begin until B is completed. A dummy activity is introduced in AOA
(e)
CA
B D
Dummy activity
A
B
C
D
Figure 3.5
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A Comparison of AON and AOA Network Conventions
Activity on Activity Activity onNode (AON) Meaning Arrow (AOA)
B and C cannot begin until A is completed. D cannot begin until both B and C are completed. A dummy activity is again introduced in AOA.
(f)
A
C
DB A B
C
D
Dummy activity
Figure 3.5
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AON Example
Activity DescriptionImmediate
Predecessors
A Build internal components —
B Modify roof and floor —
C Construct collection stack A
D Pour concrete and install frame A, B
E Build high-temperature burner C
F Install pollution control system C
G Install air pollution device D, E
H Inspect and test F, G
Milwaukee Paper Manufacturing'sActivities and Predecessors
Table 3.1
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AON Network for Milwaukee Paper
A
Start
BStart Activity
Activity A(Build Internal Components)
Activity B(Modify Roof and Floor)
Figure 3.6
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AON Network for Milwaukee Paper
Figure 3.7
C
D
A
Start
B
Activity A Precedes Activity C
Activities A and B Precede Activity D
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AON Network for Milwaukee Paper
G
E
F
H
CA
Start
DB
Arrows Show Precedence Relationships
Figure 3.8
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H(Inspect/ Test)
7Dummy Activity
AOA Network for Milwaukee Paper
6
F(Install Controls)
E(Build Burner)
G
(Insta
ll
Pollution
Device)
5D
(Pour Concrete/ Install Frame)
4C
(Construct Stack)
1
3
2
B(Modify
Roof/Floor)
A(Build
Intern
al
Components)
Figure 3.9
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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
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Determining the Project Schedule
Perform a Critical Path AnalysisActivity Description Time (weeks)
A Build internal components 2B Modify roof and floor 3C Construct collection stack 2D Pour concrete and install frame 4E Build high-temperature burner 4F Install pollution control system 3G Install air pollution device 5H Inspect and test 2
Total Time (weeks) 25
Table 3.2
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Determining the Project Schedule
Perform a Critical Path Analysis
Table 3.2
Activity Description Time (weeks)A Build internal components 2B Modify roof and floor 3C Construct collection stack 2D Pour concrete and install frame 4E Build high-temperature burner 4F Install pollution control system 3G Install air pollution device 5H Inspect and test 2
Total Time (weeks) 25
Earliest start (ES) = earliest time at which an activity can start, assuming all predecessors have been completedEarliest finish (EF) = earliest time at which an activity can be finishedLatest start (LS) = latest time at which an activity can start so as to not delay the completion time of the entire projectLatest finish (LF) = latest time by which an activity has to be finished so as to not delay the completion time of the entire project
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Determining the Project Schedule
Perform a Critical Path Analysis
Figure 3.10
A
Activity Name or Symbol
Earliest StartES
Earliest FinishEF
Latest Start LS Latest FinishLF
Activity Duration
2
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Forward PassBegin 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}
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Forward PassBegin 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
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ES/EF Network for Milwaukee Paper
Start
0
0
ES
0
EF = ES + Activity time
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ES/EF Network for Milwaukee Paper
Start0
0
0
A
2
2
EF of A = ES of A + 2
0
ESof A
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B
3
ES/EF Network for Milwaukee Paper
Start0
0
0
A
2
20
3
EF of B = ES of B + 3
0
ESof B
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C
2
2 4
ES/EF Network for Milwaukee Paper
B
3
0 3
Start0
0
0
A
2
20
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C
2
2 4
ES/EF Network for Milwaukee Paper
B
3
0 3
Start0
0
0
A
2
20
D
4
73= Max (2, 3)
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D
4
3 7
C
2
2 4
ES/EF Network for Milwaukee Paper
B
3
0 3
Start0
0
0
A
2
20
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E
4
F
3
G
5
H
2
4 8 13 15
4
8 13
7
D
4
3 7
C
2
2 4
ES/EF Network for Milwaukee Paper
B
3
0 3
Start0
0
0
A
2
20
Figure 3.11
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Backward PassBegin 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}
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Backward PassBegin 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
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LS/LF Times for Milwaukee Paper
E
4
F
3
G
5
H
2
4 8 13 15
4
8 13
7
D
4
3 7
C
2
2 4
B
3
0 3
Start0
0
0
A
2
20
LF = EF of Project
1513
LS = LF – Activity time
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LS/LF Times for Milwaukee Paper
E
4
F
3
G
5
H
2
4 8 13 15
4
8 13
7
13 15
D
4
3 7
C
2
2 4
B
3
0 3
Start0
0
0
A
2
20
LF = Min(LS of following activity)
10 13
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LS/LF Times for Milwaukee Paper
E
4
F
3
G
5
H
2
4 8 13 15
4
8 13
7
13 15
10 13
8 13
4 8
D
4
3 7
C
2
2 4
B
3
0 3
Start0
0
0
A
2
20
LF = Min(4, 10)
42
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LS/LF Times for Milwaukee Paper
E
4
F
3
G
5
H
2
4 8 13 15
4
8 13
7
13 15
10 13
8 13
4 8
D
4
3 7
C
2
2 4
B
3
0 3
Start0
0
0
A
2
20
42
84
20
41
00
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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
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Computing Slack TimeEarliest Earliest Latest Latest On
Start Finish Start Finish Slack CriticalActivity ES EF LS LF LS – ES Path
A 0 2 0 2 0 YesB 0 3 1 4 1 NoC 2 4 2 4 0 YesD 3 7 4 8 1 NoE 4 8 4 8 0 YesF 4 7 10 13 6 NoG 8 13 8 13 0 YesH 13 15 13 15 0 Yes
Table 3.3
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Critical Path for Milwaukee Paper
E
4
F
3
G
5
H
2
4 8 13 15
4
8 13
7
13 15
10 13
8 13
4 8
D
4
3 7
C
2
2 4
B
3
0 3
Start0
0
0
A
2
20
42
84
20
41
00
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ES – EF Gantt Chartfor Milwaukee Paper
A Build internal componentsB Modify roof and floorC Construct collection stackD Pour concrete and install
frameE Build high-temperature
burnerF Install pollution control
systemG Install air pollution deviceH Inspect and test
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
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LS – LF Gantt Chartfor Milwaukee Paper
A Build internal componentsB Modify roof and floorC Construct collection stackD Pour concrete and install
frameE Build high-temperature
burnerF Install pollution control
systemG Install air pollution deviceH Inspect and test
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
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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
Variability in Activity Times
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Three time estimates are requiredOptimistic time (a) – if everything goes
according to planPessimistic time (b) – assuming very
unfavorable conditionsMost likely time (m) – most realistic estimate
Variability in Activity Times
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Estimate follows beta distribution
Variability in Activity Times
Expected time:
Variance of times: t = (a + 4m + b)/6
v = [(b – a)/6]2
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Estimate follows beta distribution
Variability in Activity Times
Expected time:
Variance of times: t = (a + 4m + b)/6
v = [(b − a)/6]2Probability of 1 in 100 of > b occurring
Probability of 1 in 100 of < a occurring
Prob
abili
ty
Optimistic Time (a)
Most Likely Time (m)
Pessimistic Time (b)
Activity Time
Figure 3.12
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Computing VarianceMost Expected
Optimistic Likely Pessimistic Time VarianceActivity a m b t = (a + 4m + b)/6 [(b – a)/6]2
A 1 2 3 2 .11B 2 3 4 3 .11C 1 2 3 2 .11D 2 4 6 4 .44E 1 4 7 4 1.00F 1 2 9 3 1.78G 3 4 11 5 1.78H 1 2 3 2 .11
Table 3.4
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Probability of Project Completion
Project variance is computed by summing the variances of critical activities
s2 = Project variance
= (variances of activities on critical path)
p
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Probability of Project Completion
Project variance is computed by summing the variances of critical activitiesProject variances2 = .11 + .11 + 1.00 + 1.78 + .11 = 3.11
Project standard deviation
sp = Project variance
= 3.11 = 1.76 weeks
p
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Probability of Project Completion
PERT makes two more assumptions:
Total project completion times follow a normal probability distribution
Activity times are statistically independent
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Probability of Project Completion
Standard deviation = 1.76 weeks
15 Weeks
(Expected Completion Time)Figure 3.13
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Probability of Project Completion
What is the probability this project can be completed on or before the 16 week deadline?
Z = – /sp
= (16 wks – 15 wks)/1.76
= 0.57
due expected datedate of completion
Where Z is the number of standard deviations the due date or target date lies from the
mean or expected date
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Probability of Project Completion
What is the probability this project can be completed on or before the 16 week deadline?
Z = − /sp
= (16 wks − 15 wks)/1.76
= 0.57
due expected datedate of completion
Where Z is the number of standard deviations the due date or target date lies from the
mean or expected date
.00 .01 .07 .08.1 .50000 .50399 .52790 .53188.2 .53983 .54380 .56749 .57142
.5 .69146 .69497 .71566 .71904
.6 .72575 .72907 .74857 .75175
From Appendix I
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Probability of Project Completion
Time
Probability(T ≤ 16 weeks)is 71.57%
Figure 3.14
0.57 Standard deviations
15 16Weeks Weeks
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Determining Project Completion Time
Probability of 0.01
Z
Figure 3.15
From Appendix I
Probability of 0.99
2.33 Standard deviations
0 2.33
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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
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What Project Management Has Provided So Far
The project’s 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
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Trade-Offs And Project Crashing
The project is behind schedule The completion time has been
moved forward
It is not uncommon to face the following situations:
Shortening the duration of the project is called project crashing
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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
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Steps in Project Crashing
1. Compute the crash cost per time period. If crash costs are linear over time:
Crash costper period =
(Crash cost – Normal cost)
(Normal time – Crash time)
2. Using current activity times, find the critical path and identify the critical activities
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Steps in Project Crashing3. 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.
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Steps in Project Crashing
4. Update all activity times. If the desired due date has been reached, stop. If not, return to Step 2.
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Crashing The Project
Time (Wks) Cost ($) Crash Cost CriticalActivity Normal Crash Normal Crash Per Wk ($) Path?
A 2 1 22,000 22,750 750 YesB 3 1 30,000 34,000 2,000 NoC 2 1 26,000 27,000 1,000 YesD 4 2 48,000 49,000 1,000 NoE 4 2 56,000 58,000 1,000 YesF 3 2 30,000 30,500 500 NoG 5 2 80,000 84,500 1,500 YesH 2 1 16,000 19,000 3,000 Yes
Table 3.5
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Crash and Normal Times and Costs for Activity B
| | |1 2 3 Time (Weeks)
$34,000 —
$33,000 —
$32,000 —
$31,000 —
$30,000 —
—
Activity Cost Crash
Normal
Crash Time Normal Time
Crash Cost
Normal Cost
Crash Cost/Wk = Crash Cost – Normal CostNormal Time – Crash Time
= $34,000 – $30,0003 – 1
= = $2,000/Wk$4,0002 Wks
Figure 3.16
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Critical Path And Slack Times For Milwaukee Paper
Figure 3.17
E
4
F
3
G
5
H
2
4 8 13 15
4
8 13
7
13 15
10 13
8 13
4 8
D
4
3 7
C
2
2 4
B
3
0 3
Start0
0
0
A
2
20
42
84
20
41
00
Slack = 1 Slack = 1
Slack = 0 Slack = 6
Slack = 0
Slack = 0
Slack = 0
Slack = 0
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Advantages of PERT/CPM
1. Especially useful when scheduling and controlling large projects
2. Straightforward concept and not mathematically complex
3. Graphical networks help highlight relationships among project activities
4. Critical path and slack time analyses help pinpoint activities that need to be closely watched
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Advantages of PERT/CPM
5. Project documentation and graphics point out who is responsible for various activities
6. Applicable to a wide variety of projects7. Useful in monitoring not only schedules but
costs as well
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1. Project activities have to be clearly defined, independent, and stable in their relationships
2. Precedence relationships must be specified and networked together
3. Time estimates tend to be subjective and are subject to fudging by managers
4. There is an inherent danger of too much emphasis being placed on the longest, or critical, path
Limitations of PERT/CPM
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Project Management Software
There are several popular packages for managing projects Primavera MacProject Pertmaster VisiSchedule Time Line Microsoft Project
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Using Microsoft Project
Program 3.1
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Using Microsoft Project
Program 3.2
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Using Microsoft Project
Program 3.3
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Using Microsoft Project
Program 3.4
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Using Microsoft Project
Program 3.5
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Using Microsoft Project
Program 3.6
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Using Microsoft Project
Program 3.7