Operations Management Chapter 3 Project Management Power

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Operations Management Chapter 3 – Project Management Power. Point presentation to accompany Heizer/Render Principles of Operations Management, 7 e Operations Management, 9 e © 2008 Prentice Hall, Inc. 3–

Outline þ Global Company Profile: Bechtel Group þ The Importance of Project Management þ Project Planning þ The Project Manager þ Work Breakdown Structure þ Project Scheduling © 2008 Prentice Hall, Inc. 3– 2

Outline - Continued þ Project Controlling þ Project Management Techniques: PERT and CPM þ The Framework of PERT and CPM þ Network Diagrams and Approaches þ Activity-on-Node Example þ Activity-on-Arrow Example © 2008 Prentice Hall, Inc. 3– 3

Outline - Continued þ Determining the Project Schedule þ Forward Pass þ Backward Pass þ Calculating Slack Time and Identifying the Critical Path(s) þ Variability in Activity Times þ Three Time Estimates in PERT þ Probability of Project Completion © 2008 Prentice Hall, Inc. 3– 4

Outline - Continued þ Cost-Time Trade-Offs and Project Crashing þ A Critique of PERT and CPM þ Using Microsoft Project to Manage Projects þ Creating a Project Schedule Using MS Project þ Tracking Progress and Managing Costs Using MS Project © 2008 Prentice Hall, Inc. 3– 5

Learning Objectives When you complete this chapter you should be able to: 1. Create a work breakdown structure 2. Draw AOA and AON networks 3. Complete both forward and backward passes for a project 4. Determine a critical path © 2008 Prentice Hall, Inc. 3– 6

Learning Objectives When you complete this chapter you should be able to: 5. Calculate the variance of activity times 6. Crash a project 7. Use Microsoft Project software to create a project © 2008 Prentice Hall, Inc. 3– 7

Bechtel Projects þ Building 26 massive distribution centers in just two years for the internet company Webvan Group ($1 billion) þ Constructing 30 high-security data centers worldwide for Equinix, Inc. ($1. 2 billion) þ Building and running a rail line between London and the Channel Tunnel ($4. 6 billion) þ Developing an oil pipeline from the Caspian Sea region to Russia ($850 million) þ Expanding the Dubai Airport in the UAE ($600 million), and the Miami Airport in Florida ($2 billion) © 2008 Prentice Hall, Inc. 3– 8

Bechtel Projects þ Building liquid natural gas plants in Yemen $2 billion) and in Trinidad, West Indies ($1 billion) þ Building a new subway for Athens, Greece ($2. 6 billion) þ Constructing a natural gas pipeline in Thailand ($700 million) þ Building 30 plants for i. Motors. com, a company that sells refurbished autos online ($300 million) þ Building a highway to link the north and south of Croatia ($303 million) © 2008 Prentice Hall, Inc. 3– 9

Strategic Importance of Project Management þ Microsoft Windows Vista Project: þ hundreds of programmers þ millions of lines of code þ hundreds of millions of dollars cost þ Hard Rock Cafe Rockfest Project: þ 100, 000 + fans þ planning began 9 months in advance © 2008 Prentice Hall, Inc. 3 – 10

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 © 2008 Prentice Hall, Inc. 3 – 13

Project Management Activities þ Planning þ Objectives þ Resources þ Work break-down schedule þ þ Scheduling Organization þ Project activities þ Start & end times þ Network þ Controlling þ © 2008 Prentice Hall, Inc. Monitor, compare, revise, action 3–

Project Time/cost estimates Planning, Budgets Engineering diagrams Scheduling, and Controlling Cash flow charts Material availability details Budgets Delayed activities report Slack activities report CPM/PERT Gantt charts Milestone charts Cash flow schedules Figure 3. 1 Before project © 2008 Prentice Hall, Inc. Start of project Timeline During project 3 – 19

Project Organization þ Often temporary structure þ Uses specialists from entire company þ Headed by project manager þ Coordinates activities þ Monitors schedule and costs þ Permanent structure called ‘matrix organization’ © 2008 Prentice Hall, Inc. 3 – 21

A Sample Project Organization President Human Resources Project 1 Project 2 Figure 3. 2 © 2008 Prentice Hall, Inc. Finance Design Quality Mgt Production Mechanical Engineer Marketing Test Engineer Technician Electrical Engineer Computer Engineer Technician Project Manager 3–

Project Organization Works 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 © 2008 Prentice Hall, Inc. 3 – 23

The Role of the Project Manager Highly visible Responsible for making sure that: þ All necessary activities are finished in order and on time þ The project comes in within budget þ The project meets quality goals þ The people assigned to the project receive motivation, direction, and information © 2008 Prentice Hall, Inc. 3–

The Role of the Project Manager Highly visible Project managers Responsible for making sure that: should be: þ Good coaches þ All necessary activities are finished in order þ Good communicators and on time þ Able to budget þ The project comes in withinorganize activities from a variety of disciplines þ The project meets quality goals þ The people assigned to the project receive motivation, direction, and information © 2008 Prentice Hall, Inc. 3–

Ethical Issues þ Bid rigging – divulging confidential information to give some bidders an unfair advantage þ “Low balling” contractors – try to “buy” the project by bidding low and hope to renegotiate or cut corners þ Bribery – particularly on international projects þ Expense account padding þ Use of substandard materials þ Compromising health and safety standards þ Withholding needed information þ Failure to admit project failure at close © 2008 Prentice Hall, Inc. 3 – 27

Work Breakdown Structure Level ID Number Activity 1 1. 0 Develop/launch Windows Vista OS 2 1. 1 Develop of GUIs 2 1. 2 Ensure compatibility with earlier Windows versions 3 1. 21 Compatibility with Windows ME 3 1. 22 Compatibility with Windows XP 3 1. 23 Compatibility with Windows 2000 4 1. 231 Ensure ability to import files Level Figure 3. 3 © 2008 Prentice Hall, Inc. 3 – 29

Project Scheduling þ Identifying precedence relationships þ Sequencing activities þ Determining activity times & costs þ Estimating material & worker requirements þ Determining critical activities © 2008 Prentice Hall, Inc. 3 – 30

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 © 2008 Prentice Hall, Inc. 3 – 31

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 © 2008 Prentice Hall, Inc. 3 – 32

Service For A Delta Jet Passengers Baggage Fueling Cargo and mail Galley servicing Lavatory servicing Drinking water Cabin cleaning Cargo and mail Flight services Operating crew Baggage Passengers Figure 3. 4 © 2008 Prentice Hall, Inc. Deplaning Baggage claim Container offload Pumping Engine injection water Container offload Main cabin door Aft, center, forward Loading First-class section Economy section Container/bulk loading Galley/cabin check Receive passengers Aircraft check Loading Boarding 0 10 20 30 Time, Minutes 40 3–

Project Control Reports þ Detailed cost breakdowns for each task þ Total program labor curves þ Cost distribution tables þ Functional cost and hour summaries þ Raw materials and expenditure forecasts þ Variance reports þ Time analysis reports þ Work status reports © 2008 Prentice Hall, Inc. 3 – 36

PERT and CPM þ Network techniques þ Developed in 1950’s þ CPM by Du. Pont for chemical plants (1957) þ PERT by Booz, Allen & Hamilton with the U. S. Navy, for Polaris missile (1958) þ Consider precedence relationships and interdependencies þ Each uses a different estimate of activity times © 2008 Prentice Hall, Inc. 3 – 37

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 © 2008 Prentice Hall, Inc. 3 – 38

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 © 2008 Prentice Hall, Inc. 3 – 39

Questions PERT & CPM Can Answer 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? © 2008 Prentice Hall, Inc. 3 – 40

Questions PERT & CPM Can Answer 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? © 2008 Prentice Hall, Inc. 3 – 41

A Comparison of AON and AOA Network Conventions Activity on Node (AON) (a) A C B A (b) C B B (c) A Figure 3. 5 © 2008 Prentice Hall, Inc. C Activity Meaning A comes before B, which comes before C A and B must both be completed before C can start B and C cannot begin until A is completed Activity on Arrow (AOA) A B C A B A C B C 3–

A Comparison of AON and AOA Network Conventions Activity on Node (AON) A C B D (d) A C (e) B Figure 3. 5 © 2008 Prentice Hall, Inc. D Activity Meaning C and D cannot begin until both A and B are completed C cannot begin until both A and B are completed; D cannot begin until B is completed. A dummy activity is introduced in AOA Activity on Arrow (AOA) A C B D A C Dummy activity B D 3–

A Comparison of AON and AOA Network Conventions Activity on Node (AON) A B (f) C D Activity Meaning 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. Activity on Arrow (AOA) A Dummy activity B D C Figure 3. 5 © 2008 Prentice Hall, Inc. 3–

AON Example Milwaukee Paper Manufacturing's Activities and Predecessors Activity A Description Build internal components Immediate Predecessors — 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 Table 3. 1 © 2008 Prentice Hall, Inc. 3 – 45

AOA Network for Milwaukee Paper Ro (M B of od /F ify lo or ) © 2008 Prentice Hall, Inc. C 4 (Construct Stack) Dummy Activity D 5 (Pour Concrete/ Install Frame) 3 F Co (In nt sta ro ll ls ) E E (Build Burner) 1 (B C ui om ld A po Int ne ern nt al s) 2 6 H (Inspect/ Test) 7 G ll ta ion s In llut ce) ( i Po ev D Figure 3. 9 3–

Determining the Project Schedule Perform a Critical Path Analysis þ The critical path is the longest path through the network þ The critical path is the shortest time in which the project can be completed þ Any delay in critical path activities delays the project þ Critical path activities have no slack time © 2008 Prentice Hall, Inc. 3 – 50

Determining the Project Schedule Perform a Critical Path Analysis Activity A B C D E F G H Description Time (weeks) Build internal components 2 Modify roof and floor 3 Construct collection stack 2 Pour concrete and install frame 4 Build high-temperature burner 4 Install pollution control system 3 Install air pollution device 5 Inspect and test 2 Total Time (weeks) 25 Table 3. 2 © 2008 Prentice Hall, Inc. 3 – 51

Determining the Project Schedule Perform a Critical Path Analysis Earliest start (ES) = earliest time at which an activity can Activity Description assuming all predecessors (weeks) Time have start, A Build internal components 2 been completed Modify roof and floor 3 Earliest. B finish (EF) = earliest time at which an activity can be finished C Construct collection stack 2 D Pour latest time at which an activity can 4 Latest start (LS) =concrete and install frame start so as to not burner E Build high-temperature delay the completion 4 F Install time of the entire project pollution control system 3 Latest. G finish (LF) = latest time bydevice an activity has to Install air pollution which 5 be finished so as to not delay the H Inspect and test 2 completion time of the entire project Table 3. 2 Total Time (weeks) 25 © 2008 Prentice Hall, Inc. 3 – 52

Determining the Project Schedule Perform a Critical Path Analysis Activity Name or Symbol A Earliest Start ES EF Latest Start LS LF Figure 3. 10 © 2008 Prentice Hall, Inc. 2 Earliest Finish Latest Finish Activity Duration 3 – 53

Forward Pass Begin at starting event and work forward Earliest Start Time Rule: þ If an activity has only a single immediate predecessor, its ES equals the EF of the predecessor þ 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} © 2008 Prentice Hall, Inc. 3 – 54

Forward Pass Begin at starting event and work forward Earliest Finish Time Rule: þ 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 © 2008 Prentice Hall, Inc. 3 – 55

Backward Pass Begin with the last event and work backwards Latest Finish Time Rule: þ If an activity is an immediate predecessor for just a single activity, its LF equals the LS of the activity that immediately follows it þ 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} © 2008 Prentice Hall, Inc. 3 – 63

Backward Pass Begin with the last event and work backwards Latest Start Time Rule: þ 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 © 2008 Prentice Hall, Inc. 3 – 64

Computing Slack Time After computing the ES, EF, LS, and LF times for all activities, compute the slack or free time for each activity þ Slack is the length of time an activity can be delayed without delaying the entire project Slack = LS – ES © 2008 Prentice Hall, Inc. or Slack = LF – EF 3 – 69

Computing Slack Time Earliest Start Finish Activity ES EF A B C D E F G H 0 0 2 3 4 4 8 13 2 3 4 7 8 7 13 15 Latest Start LS Latest Finish LF Slack LS – ES On Critical Path 0 1 2 4 4 10 8 13 2 4 4 8 8 13 13 15 0 1 0 6 0 0 Yes No Yes Table 3. 3 © 2008 Prentice Hall, Inc. 3 – 70

ES – EF Gantt Chart for Milwaukee Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 A Build internal components B Modify roof and floor C Construct collection stack D Pour concrete and install frame E Build hightemperature burner F Install pollution control system G Install air pollution device H Inspect and test © 2008 Prentice Hall, Inc. 3 – 72

LS – LF Gantt Chart for Milwaukee Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 A Build internal components B Modify roof and floor C Construct collection stack D Pour concrete and install frame E Build hightemperature burner F Install pollution control system G Install air pollution device H Inspect and test © 2008 Prentice Hall, Inc. 3 – 73

Variability in Activity Times þ CPM assumes we know a fixed time estimate for each activity and there is no variability in activity times þ PERT uses a probability distribution for activity times to allow for variability © 2008 Prentice Hall, Inc. 3 – 74

Variability in Activity Times þ Three time estimates are required þ Optimistic time (a) – if everything goes according to plan þ Pessimistic time (b) – assuming very unfavorable conditions þ Most likely time (m) – most realistic estimate © 2008 Prentice Hall, Inc. 3 – 75

Variability in Activity Times Estimate follows beta distribution Probability Figure 3. 12 Expected time: t = (a + 4 m + b)/6 Probability Variance of oftimes: of 1 in 100 Probability of < a occurring v = [(b − a)/6]2 1 in 100 of > b occurring Activity Time Optimistic Time (a) © 2008 Prentice Hall, Inc. Most Likely Time (m) Pessimistic Time (b) 3 – 77

Computing Variance Activity A B C D E F G H Optimistic Most Likely Pessimistic Expected Time Variance a m b t = (a + 4 m + b)/6 [(b – a)/6]2 1 2 1 1 3 1 2 3 2 4 4 2 3 4 3 6 7 9 11 3 2 4 4 3 5 2 . 11. 11. 44 1. 00 1. 78. 11 Table 3. 4 © 2008 Prentice Hall, Inc. 3 – 78

Probability of Project Completion Project variance is computed by summing the variances of critical activities 2 sp = Project variance = (variances of activities on critical path) © 2008 Prentice Hall, Inc. 3 – 79

Probability of Project Completion Project variance is computed by summing the variances of critical Project variance activities s 2 =. 11 + 1. 00 + 1. 78 +. 11 = 3. 11 p Project standard deviation sp = = © 2008 Prentice Hall, Inc. Project variance 3. 11 = 1. 76 weeks 3 – 80

Probability of Project Completion PERT makes two more assumptions: þ Total project completion times follow a normal probability distribution þ Activity times are statistically independent © 2008 Prentice Hall, Inc. 3 – 81

Probability of Project Completion What is the probability this project can be completed on or before the 16 week deadline? due Z = date – expected date /sp of completion = (16 wks – 15 wks)/1. 76 = 0. 57 © 2008 Prentice Hall, Inc. Where Z is the number of standard deviations the due date or target date lies from the mean or expected date 3 – 83

Probability of Project Completion From Appendix I What is the probability this project can. 00. 01. 07. 08 be completed on or before the 16 week. 1. 50000. 50399. 52790. 53188 deadline? . 53983. 54380. 2. 56749. 57142. 5. 6 due Z. 69146. 69497 completion /sp = date − expected date. 71904. 71566 of. 72575 . 74857 . 75175 = (16 wks − 15 wks)/1. 76 = 0. 57 © 2008 Prentice Hall, Inc. . 72907 Where Z is the number of standard deviations the due date or target date lies from the mean or expected date 3 – 84

Variability of Completion Time for Noncritical Paths þ Variability of times for activities on noncritical paths must be considered when finding the probability of finishing in a specified time þ Variation in noncritical activity may cause change in critical path © 2008 Prentice Hall, Inc. 3 – 87

What Project Management Has Provided So Far þ The project’s expected completion time is 15 weeks þ There is a 71. 57% chance the equipment will be in place by the 16 week deadline þ Five activities (A, C, E, G, and H) are on the critical path þ Three activities (B, D, F) are not on the critical path and have slack time þ A detailed schedule is available © 2008 Prentice Hall, Inc. 3 – 88

Trade-Offs And Project Crashing It is not uncommon to face the following situations: þ The project is behind schedule þ The completion time has been moved forward Shortening the duration of the project is called project crashing © 2008 Prentice Hall, Inc. 3 – 89

Factors to Consider When Crashing A Project þ The amount by which an activity is crashed is, in fact, permissible þ Taken together, the shortened activity durations will enable us to finish the project by the due date þ The total cost of crashing is as small as possible © 2008 Prentice Hall, Inc. 3 – 90

Steps in Project Crashing 1. Compute the crash cost per time period. If crash costs are linear over time: (Crash cost – Normal cost) Crash cost period = (Normal time – Crash time) 2. Using current activity times, find the critical path and identify the critical activities © 2008 Prentice Hall, Inc. 3 – 91

Steps in Project Crashing 3. 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 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. © 2008 Prentice Hall, Inc. 3 – 92

Crashing The Project Time (Wks) Activity Normal Crash A B C D E F G H 2 3 2 4 4 3 5 2 1 1 1 2 2 1 Cost ($) Crash Cost Critical Normal Crash Per Wk ($) Path? 22, 000 30, 000 26, 000 48, 000 56, 000 30, 000 80, 000 16, 000 22, 750 34, 000 27, 000 49, 000 58, 000 30, 500 84, 500 19, 000 750 2, 000 1, 000 500 1, 500 3, 000 Yes No Yes Table 3. 5 © 2008 Prentice Hall, Inc. 3 – 94

Crash and Normal Times and Costs for Activity B Activity Cost Crash $34, 000 — Crash Cost/Wk = Crash $33, 000 — Cost Crash Cost – Normal Cost Normal Time – Crash Time = $34, 000 – $30, 000 3– 1 $4, 000 = = $2, 000/Wk 2 Wks $32, 000 — $31, 000 — $30, 000 — Normal Cost Figure 3. 16 © 2008 Prentice Hall, Inc. Normal — | 1 Crash Time | 2 | 3 Normal Time (Weeks) 3–

Critical Path And Slack Times For Milwaukee Paper 0 0 Start 0 0 A 2 2 2 Slack = 0 2 4 4 4 10 Slack = 0 0 4 4 0 1 B 3 3 3 4 4 Slack = 1 © 2008 Prentice Hall, Inc. C D 4 7 8 Slack = 1 E 4 8 F 3 7 13 Slack = 6 13 13 8 Slack = 0 8 8 G 5 H 2 15 15 Slack = 0 13 13 Slack = 0 Figure 3. 17 3–

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 © 2008 Prentice Hall, Inc. 3 – 97

Advantages of PERT/CPM 5. Project documentation and graphics point out who is responsible for various activities 6. Applicable to a wide variety of projects 7. Useful in monitoring not only schedules but costs as well © 2008 Prentice Hall, Inc. 3 – 98

Limitations of PERT/CPM 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 © 2008 Prentice Hall, Inc. 3 – 99

Project Management Software þ There are several popular packages for managing projects þ Primavera þ Mac. Project þ Pertmaster þ Visi. Schedule þ Time Line þ Microsoft Project © 2008 Prentice Hall, Inc. 3 – 100