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2 – 1 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Project Management 2 For Operations Management, 9e by Krajewski/Ritzman/Malhotra © 2010 Pearson Education PowerPoint Slides by Jeff Heyl

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2 – 2 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Projects Projects are an interrelated set of activities with a definite starting and ending point, which results in a unique outcome from a specific allocation of resources Projects are common in everyday life The three main goals are to: Complete the project on time Not exceed the budget Meet the specifications to the satisfactions of the customer

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2 – 3 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Projects Project management is a systemized, phased approach to defining, organizing, planning, monitoring, and controlling projects Projects often require resources from many different parts of the organization Each project is unique Projects are temporary A collection of projects is called a program

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2 – 4 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Defining and Organizing Projects Define the scope, time frame, and resources of the project Select the project manager and team Good project managers must be Facilitators Communicators Decision makers Project team members must have Technical competence Sensitivity Dedication

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2 – 5 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Organizational Structure Different structures have different implications for project management Common structures are Functional Pure project Matrix

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2 – 6 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Planning Projects There are five steps to planning projects 1.Defining the work breakdown structure 2.Diagramming the network 3.Developing the schedule 4.Analyzing the cost-time trade-offs 5.Assessing risks

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2 – 7 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Work Breakdown Structure A statement of all the tasks that must be completed as part of the project An activity is the smallest unit of work effort consuming both time and resources that the project manager can schedule and control Each activity must have an owner who is responsible for doing the work

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2 – 8 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Purchase and deliver equipment Construct hospital Develop information system Install medical equipment Train nurses and support staff Work Breakdown Structure Figure 2.1 Select administration staff Site selection and survey Select medical equipment Prepare final construction plans Bring utilities to site Interview applicants for nursing and support staff Organizing and Site PreparationPhysical Facilities and Infrastructure Level 1 Level 0 Level 2 Relocation of St. Johns Hospital

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2 – 9 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Diagramming the Network Network diagrams use nodes and arcs to depict the relationships between activities Benefits of using networks include 1.Networks force project teams to identify and organize data to identify interrelationships between activities 2.Networks enable the estimation of completion time 3.Crucial activities are highlighted 4.Cost and time trade-offs can be analyzed

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2 – 10 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Diagramming the Network Precedent relationships determine the sequence for undertaking activities Activity times must be estimated using historical information, statistical analysis, learning curves, or informed estimates In the activity-on-node approach, nodes represent activities and arcs represent the relationships between activities

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2 – 11 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. STU S precedes T, which precedes U. Diagramming the Network AONActivity Relationships S T U S and T must be completed before U can be started. Figure 2.2

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2 – 12 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Diagramming the Network AONActivity Relationships T U S T and U cannot begin until S has been completed. S T U V U and V cant begin until both S and T have been completed. Figure 2.2

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2 – 13 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Diagramming the Network AONActivity Relationships S T U V U cannot begin until both S and T have been completed; V cannot begin until T has been completed. STV U T and U cannot begin until S has been completed and V cannot begin until both T and U have been completed. Figure 2.2

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2 – 14 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Developing the Schedule Schedules can help managers achieve the objectives of the project Managers can 1.Estimate the completion time by finding the critical path 2.Identify start and finish times for each activity 3.Calculate the amount of slack time for each activity

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2 – 15 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Critical Path The sequence of activities between a projects start and finish is a path The critical path is the path that takes the longest time to complete

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2 – 16 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. St. Johns Hospital Project ActivityImmediate Predecessors Activity Times (wks) Responsibility ST. JOHNS HOSPITAL PROJECT START ORGANIZING and SITE PREPARATION A.Select administrative staff B.Select site and survey C.Select medical equipment D.Prepare final construction plans E.Bring utilities to site F.Interview applicants for nursing and support staff PHYSICAL FACILITIES and INFRASTRUCTURE G.Purchase and deliver equipment H.Construct hospital I.Develop information system J.Install medical equipment K.Train nurses and support staff FINISH Example 2.1 START A B A C D A E, G, H F, I, J K Kramer Stewart Johnson Taylor Adams Taylor Burton Johnson Walker Sampson Casey Murphy Pike Ashton

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2 – 17 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. ActivityImmediate Predecessors Activity Times (wks) Responsibility ST. JOHNS HOSPITAL PROJECT START ORGANIZING and SITE PREPARATION A.Select administrative staff B.Select site and survey C.Select medical equipment D.Prepare final construction plans E.Bring utilities to site F.Interview applicants for nursing and support staff PHYSICAL FACILITIES and INFRASTRUCTURE G.Purchase and deliver equipment H.Construct hospital I.Develop information system J.Install medical equipment K.Train nurses and support staff FINISH St. Johns Hospital Project Example 2.1 Completion Time Finish K6K6 I 15 F 10 C 10 H 40 J4J4 A 12 B9B9 Figure 2.3 Start G 35 D 10 E 24 ActivityIP Time ASTART12 BSTART9 CA10 DB10 EB24 FA10 GC35 HD40 IA15 JE, G, H4 KF, I, J6

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2 – 18 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. ActivityImmediate Predecessors Activity Times (wks) Responsibility ST. JOHNS HOSPITAL PROJECT START ORGANIZING and SITE PREPARATION A.Select administrative staff B.Select site and survey C.Select medical equipment D.Prepare final construction plans E.Bring utilities to site F.Interview applicants for nursing and support staff PHYSICAL FACILITIES and INFRASTRUCTURE G.Purchase and deliver equipment H.Construct hospital I.Develop information system J.Install medical equipment K.Train nurses and support staff FINISH St. Johns Hospital Project Example 2.1 Completion Time Finish K6K6 I 15 F 10 C 10 D 10 H 40 J4J4 A 12 B9B9 Figure 2.3 Start G 35 E 24 PathEstimated Time (weeks) A–I–K33 A–F–K28 A–C–G–J–K67 B–D–H–J–K69 B–E–J–K43

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2 – 19 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. ActivityImmediate Predecessors Activity Times (wks) Responsibility ST. JOHNS HOSPITAL PROJECT START ORGANIZING and SITE PREPARATION A.Select administrative staff B.Select site and survey C.Select medical equipment D.Prepare final construction plans E.Bring utilities to site F.Interview applicants for nursing and support staff PHYSICAL FACILITIES and INFRASTRUCTURE G.Purchase and deliver equipment H.Construct hospital I.Develop information system J.Install medical equipment K.Train nurses and support staff FINISH St. Johns Hospital Project Example 2.1 Completion Time Finish K6K6 I 15 F 10 C 10 D 10 H 40 J4J4 A 12 B9B9 Figure 2.3 Start G 35 E 24 PathEstimated Time (weeks) A–I–K33 A–F–K28 A–C–G–J–K67 B–D–H–J–K69 B–E–J–K43

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2 – 20 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 2.1 The following information is known about a project Draw the network diagram for this project ActivityActivity Time (days) Immediate Predecessor(s) A7 B2A C4A D4B, C E4D F3E G5E

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2 – 21 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Finish G5G5 F3F3 E4E4 D4D4 Application 2.1 ActivityActivity Time (days) Immediate Predecessor(s) A7 B2A C4A D4B, C E4D F3E G5E B2B2 C4C4 Start A7A7

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2 – 22 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Project Schedule The project schedule specifies start and finish times for each activity Managers can use the earliest start and finish times, the latest start and finish times, or any time in between these extremes

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2 – 23 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Project Schedule The earliest start time (ES) for an activity is the latest earliest finish time of any preceding activities The earliest finish time (EF) is the earliest start time plus its estimated duration EF = ES + t The latest finish time (LF) for an activity is the latest start time of any preceding activities The latest start time (LS) is the latest finish time minus its estimated duration LS = LF – t

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2 – 24 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Early Start and Early Finish Times EXAMPLE 2.2 Calculate the ES, EF, LS, and LF times for each activity in the hospital project. Which activity should Kramer start immediately? Figure 2.3 contains the activity times. SOLUTION To compute the early start and early finish times, we begin at the start node at time zero. Because activities A and B have no predecessors, the earliest start times for these activities are also zero. The earliest finish times for these activities are EF A = = 12 and EF B = = 9

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2 – 25 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Early Start and Early Finish Times Because the earliest start time for activities I, F, and C is the earliest finish time of activity A, ES I = 12, ES F = 12, and ES C = 12 Similarly, ES D = 9 and ES E = 9 After placing these ES values on the network diagram, we determine the EF times for activities I, F, C, D, and E: EF I = = 27, EF F = = 22, EF C = = 22, EF D = = 19, and EF E = = 33

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2 – 26 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Early Start and Early Finish Times The earliest start time for activity G is the latest EF time of all immediately preceding activities. Thus, ES G = EF C = 22, ES H = EF D = 19 EF G = ES G + t = = 57, EF H + t = = 59 Latest finish time Latest start time Activity Duration Earliest start time Earliest finish time A 12

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2 – 27 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Network Diagram Figure 2.4

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2 – 28 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Early Start and Early Finish Times To compute the latest start and latest finish times, we begin by setting the latest finish activity time of activity K at week 69, which is the earliest finish time as determined in Figure 2.4. Thus, the latest start time for activity K is LS K = LF K – t = 69 – 6 = 63 If activity K is to start no later than week 63, all its predecessors must finish no later than that time. Consequently, LF I = 63, LF F = 63, and LF J = 63

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2 – 29 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Early Start and Early Finish Times The latest start times for these activities are shown in Figure 2.4 as LS I = 63 – 15 = 48, LF F = 63 – 10 = 53, and LS J = 63 – 4 = 59 After obtaining LS J, we can calculate the latest start times for the immediate predecessors of activity J: LS G = 59 – 35 = 24, LS H = 59 – 40 = 19, and LS E = 59 – 24 = 35 Similarly, we can now calculate the latest start times for activities C and D: LS C = 24 – 10 = 14 and LS D = 19 – 10 = 9

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2 – 30 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Early Start and Early Finish Times Activity A has more than one immediately following activity: I, F, and C. The earliest of the latest start times is 14 for activity C. Thus, LS A = 14 – 12 = 2 Similarly, activity B has two immediate followers: D and E. Because the earliest of the latest start times of these activities is 9. LS B = 9 – 9 = 0

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2 – 31 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Network Diagram Figure 2.4

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2 – 32 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Gantt Chart Figure 2.5

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2 – 33 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Activity Slack Activity slack is the maximum length of time an activity can be delayed without delaying the entire project Activities on the critical path have zero slack Activity slack can be calculated in two ways S = LS – ES or S = LF – EF

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2 – 34 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 2.2 Calculate the four times for each activity in order to determine the critical path and project duration. ActivityDuration Earliest Start (ES) Latest Start (LS) Earliest Finish (EF) Latest Finish (LF) Slack (LS-ES) On the Critical Path? A =0Yes B2 C4 D4 E4 F3 G5 The critical path is A–C–D–E–G with a project duration of 24 days

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2 – 35 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 2.2 Calculate the four times for each activity in order to determine the critical path and project duration. ActivityDuration Earliest Start (ES) Latest Start (LS) Earliest Finish (EF) Latest Finish (LF) Slack (LS-ES) On the Critical Path? A =0Yes B2 C4 D4 E4 F3 G5 The critical path is A–C–D–E–G with a project duration of 24 days =2No =0Yes =2No =0Yes =0Yes =0Yes

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2 – 36 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 2.2 ActivityDuration Earliest Start (ES) Latest Start (LS) Earliest Finish (EF) Latest Finish (LF) Slack (LS-ES) On the Critical Path? A =0Yes B =2No C =0Yes D =0Yes E =0Yes F =2No G =0Yes StartFinish A7A7 B2B2 C4C4 D4D4 E4E4 F3F3 G5G5 The critical path is A–C–D–E–G with a project duration of 24 days

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2 – 37 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 2.2 ActivityDuration Earliest Start (ES) Latest Start (LS) Earliest Finish (EF) Latest Finish (LF) Slack (LS-ES) On the Critical Path? A =0Yes B =2No C =0Yes D =0Yes E =0Yes F =2No G =0Yes StartFinish A7A7 B2B2 C4C4 D4D4 E4E4 F3F3 G5G5 The critical path is A–C–D–E–G with a project duration of 24 days

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2 – 38 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Cost-Time Trade-Offs Total project costs are the sum of direct costs and indirect costs Projects may be crashed to shorten the completion time Costs to crash Cost to crash per period = CC – NC NT – CT 1.Normal time (NT)3.Crash time (CT) 2.Normal cost (NC)4.Crash cost (CC)

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2 – 39 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Cost-Time Relationships Linear cost assumption Direct cost (dollars) |||||| Time (weeks) Crash cost (CC) Normal cost (NC) (Crash time)(Normal time) Estimated costs for a 2-week reduction, from 10 weeks to 8 weeks 5200 Figure 2.6

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2 – 40 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Cost-Time Relationships TABLE 2.1 | DIRECT COST AND TIME DATA FOR THE ST. JOHNS HOSPITAL PROJECT ActivityNormal Time (NT) (weeks) Normal Cost (NC)($) Crash Time (CT)(weeks) Crash Cost (CC)($) Maximum Time Reduction (week) Cost of Crashing per Week ($) A12$12,00011$13,00011,000 B950,000764,00027,000 C104,00057, D1016,000820,00022,000 E24120, ,000108,000 F1010,000616,00041,500 G35500, ,000103,000 H401,200,000351,260,000512,000 I1540, ,50052,500 J410,000113,00031,000 K630,000534,00014,000 Totals$1,992,000$2,209,500

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2 – 41 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Minimum-Cost Schedule EXAMPLE 2.3 Determine the minimum-cost schedule for the St. Johns Hospital project. SOLUTION The projected completion time of the project is 69 weeks. The project costs for that schedule are $1,992,000 in direct costs, 69($8,000) = $552,000 in indirect costs, and (69 – 65)($20,000) = $80,000 in penalty costs, for total project costs of $2,624,000. The five paths in the network have the following normal times: A–I–K33 weeks A–F–K28 weeks A–C–G–J–K67 weeks B–D–H–J–K69 weeks B–E–J–K43 weeks

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2 – 42 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Minimum-Cost Schedule STAGE 1 Step 1. The critical path is B–D–H–J–K. Step 2. The cheapest activity to crash per week is J at $1,000, which is much less than the savings in indirect and penalty costs of $28,000 per week. Step 3. Crash activity J by its limit of three weeks because the critical path remains unchanged. The new expected path times are A–C–G–J–K: 64 weeks and B–D–H–J–K: 66 weeks The net savings are 3($28,000) – 3($1,000) = $81,000. The total project costs are now $2,624,000 - $81,000 = $2,543,000.

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2 – 43 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Minimum-Cost Schedule STAGE 1 Step 1. The critical path is B–D–H–J–K. Step 2. The cheapest activity to crash per week is J at $1,000, which is much less than the savings in indirect and penalty costs of $28,000 per week. Step 3. Crash activity J by its limit of three weeks because the critical path remains unchanged. The new expected path times are A–C–G–J–K: 64 weeks and B–D–H–J–K: 66 weeks The net savings are 3($28,000) – 3($1,000) = $81,000. The total project costs are now $2,624,000 - $81,000 = $2,543,000. Finish K6K6 I 15 F 10 C 10 D 10 H 40 J11J111 A 12 B9B9 Start G 35 E 24

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2 – 44 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Minimum-Cost Schedule STAGE 2 Step 1. The critical path is still B–D–H–J–K. Step 2. The cheapest activity to crash per week is now D at $2,000. Step 3. Crash D by two weeks. The first week of reduction in activity D saves $28,000 because it eliminates a week of penalty costs, as well as indirect costs. Crashing D by a second week saves only $8,000 in indirect costs because, after week 65, no more penalty costs are incurred. These savings still exceed the cost of crashing D by two weeks. Updated path times are A–C–G–J–K: 64 weeks and B–D–H–J–K: 64 weeks The net savings are $28,000 + $8,000 – 2($2,000) = $32,000. Total project costs are now $2,543,000 – $32,000 = $2,511,000.

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2 – 45 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Minimum-Cost Schedule STAGE 2 Step 1. The critical path is still B–D–H–J–K. Step 2. The cheapest activity to crash per week is now D at $2,000. Step 3. Crash D by two weeks. The first week of reduction in activity D saves $28,000 because it eliminates a week of penalty costs, as well as indirect costs. Crashing D by a second week saves only $8,000 in indirect costs because, after week 65, no more penalty costs are incurred. These savings still exceed the cost of crashing D by two weeks. Updated path times are A–C–G–J–K: 64 weeks and B–D–H–J–K: 64 weeks The net savings are $28,000 + $8,000 – 2($2,000) = $32,000. Total project costs are now $2,543,000 – $32,000 = $2,511,000. Finish K6K6 I 15 F 10 C 10 D88D888 H 40 J11J111 A 12 B9B9 Start G 35 E 24

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2 – 46 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Minimum-Cost Schedule STAGE 3 Step 1. After crashing D, we now have two critical paths. Both critical paths must now be shortened to realize any savings in indirect project costs. Step 2. Our alternatives are to crash one of the following combinations of activities(A, B); (A, H); (C, B); (C, H); (G, B); (G, H)or to crash activity K, which is on both critical paths (J has already been crashed). We consider only those alternatives for which the costs of crashing are less than the potential savings of $8,000 per week. The only viable alternatives are (C, B) at a cost of $7,600 per week and K at $4,000 per week. We choose activity K to crash.

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2 – 47 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Minimum-Cost Schedule STAGE 3 Step 3. We crash activity K to the greatest extent possiblea reduction of one weekbecause it is on both critical paths. Updated path times are A–C–G–J–K: 63 weeks and B–D–H–J–K: 63 weeks Net savings are $8,000 - $4,000 = $4,000. Total project costs are $2,511,000 – $4,000 = $2,507,000.

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2 – 48 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Minimum-Cost Schedule STAGE 3 Step 3. We crash activity K to the greatest extent possiblea reduction of one weekbecause it is on both critical paths. Updated path times are A–C–G–J–K: 63 weeks and B–D–H–J–K: 63 weeks Net savings are $8,000 - $4,000 = $4,000. Total project costs are $2,511,000 – $4,000 = $2,507,000. Finish K55K555 I 15 F 10 C 10 D88D888 H 40 J11J111 A 12 B9B9 Start G 35 E 24

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2 – 49 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Minimum-Cost Schedule STAGE 4 Step 1. The critical paths are still B–D–H–J–K and A–C–G–J–K. Step 2. The only viable alternative at this stage is to crash activities B and C simultaneously at a cost of $7,600 per week. This amount is still less than the savings of $8,000 per week. Step 3. Crash activities B and C by two weeks, the limit for activity B. Updated path times are A–C–G–J–K: 61 weeks and B–D–H–J–K: 61 weeks The net savings are 2($8,000) – 2($7,600) = $800. Total project costs are now $2,507,000 – $800 = $2,506,200.

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2 – 50 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Minimum-Cost Schedule STAGE 4 Step 1. The critical paths are still B–D–H–J–K and A–C–G–J–K. Step 2. The only viable alternative at this stage is to crash activities B and C simultaneously at a cost of $7,600 per week. This amount is still less than the savings of $8,000 per week. Step 3. Crash activities B and C by two weeks, the limit for activity B. Updated path times are A–C–G–J–K: 61 weeks and B–D–H–J–K: 61 weeks The net savings are 2($8,000) – 2($7,600) = $800. Total project costs are now $2,507,000 – $800 = $2,506,200. Finish K55K555 I 15 F 10 C88C888 D88D888 H 40 J11J111 A 12 B77B777 Start G 35 E 24

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2 – 51 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A Minimum-Cost Schedule StageCrash Activity Time Reduction (weeks) Resulting Critical Path(s) Project Duration (weeks) Project Direct Costs, Last Trial ($000) Crash Cost Added ($000) Total Indirect Costs ($000) Total Penalty Costs ($000) Total Project Costs ($000) 0B-D-H-J-KB-D-H-J-K691, , J3B-D-H-J-KB-D-H-J-K661, , D2B-D-H-J-KA-C-G-J-KB-D-H-J-KA-C-G-J-K 641, , K1B-D-H-J-KA-C-G-J-KB-D-H-J-KA-C-G-J-K 631, , B, C2B-D-H-J-KA-C-G-J-KB-D-H-J-KA-C-G-J-K 612, ,506.2

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2 – 52 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 2.3 Indirect project costs = $250 per day and penalty cost = $100 per day for each day the project lasts beyond day 14. Project Activity and Cost Data Activity Normal Time (days) Normal Cost ($) Crash Time (days) Crash Cost ($) Immediate Predecessor(s) A51,00041,200 B580032,000 C A, B D31,50022,000B E590031,200C, D F21,30011,400E G39003 E H G

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2 – 53 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 2.3 Direct cost and time data for the activities: Project Activity and Cost Data ActivityCrash Cost/DayMaximum Crash Time (days) A2001 B6002 C3001 D5001 E1502 F1001 G00 H2002 Solution: Original costs: Normal Total Costs = Total Indirect Costs = Penalty Cost = Total Project Costs = $7,500 $250 per day 21 days = $5,250 $100 per day 7 days = $700 $13,450

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2 – 54 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 2.3 Step 1:The critical path is, and the project duration is B–D–E–G–H 21 days. Step 2:Activity E on the critical path has the lowest cost of crashing ($150 per day). Note that activity G cannot be crashed. Step 3:Reduce the time (crashing 2 days will reduce the project duration to 19 days) and re-calculate costs: Costs Last Trial = Crash Cost Added = Total Indirect Costs = Penalty Cost = Total Project Cost = $7,500 $150 2 days = $300 $250 per day 19 days = $4,750 $100 per day 5 days = $500 $13,050 Note that the cost to crash ($250 per day) is less than the combined indirect cost and the penalty cost per day savings ($350).

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2 – 55 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 2.3 Step 4:Repeat until direct costs greater than savings (step 2)Activity H on the critical path has the next lowest cost of crashing ($200 per day). (step 3)Reduce the time (crashing 2 days will reduce the project duration to 17 days) and re-calculate costs: Costs Last Trial = Crash Cost Added = Total Indirect Costs = Penalty Cost = Total Project Cost = $7,500 + $300 (the added crash costs) = $7,800 $200 2 days = $400 $250 per day 17 days = $4,250 $100 per day 3 days = $300 $12,750 Note that the cost to crash ($200 per day) is less than the combined indirect cost and the penalty cost per day savings ($350).

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2 – 56 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 2.3 (step 4)Repeat (step 2)Activity D on the critical path has the next lowest crashing cost ($500 per day). (step 3)Reduce the time (crashing 1 day will reduce the project duration to 16 days) and re-calculate costs: Costs Last Trial = Crash Cost Added = Total Indirect Costs = Penalty Cost = Total Project Cost = $7,800 + $400 (the added crash costs) = $8,200 $500 1 day = $500 $250 per day 16 days = $4,000 $100 per day 2 days = $200 $12,900 which is greater than the last trial. Hence we stop the crashing process. Note that the cost to crash ($500 per day) is greater than the combined indirect cost and the penalty cost per day savings ($350).

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2 – 57 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 2.3 The summary of the cost analysis follows. The recommended completion date is day 17 by crashing activity E by 2 days and activity H by 2 days. Trial Crash Activity Resulting Critical Paths Reduction (days) Project Duration (days) Costs Last Trial Crash Cost Added Total Indirect Costs Total Penalty Costs Total Project Costs 0B-D-E-G-H21$7,500$5,250$700$13,450 1EB-D-E-G-H219$7,500$300$4,750$500$13,050 2HB-D-E-G-H217$7,800$400$4,250$300$12,750 Further reductions will cost more than the savings in indirect costs and penalties. The critical path is B – D – E – G – H.

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2 – 58 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Assessing Risk Risk is the measure of the probability and consequence of not reaching a defined project goal Risk-management plans are developed to identify key risks and prescribe ways to circumvent them Project risk can be assessed by Strategic fit Service/product attributes Project team capabilities Operations

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2 – 59 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Simulation and Statistical Analysis When uncertainty is present, simulation can be used to estimate the project completion time Statistical analysis requires three reasonable estimates of activity times 1.Optimistic time (a) 2.Most likely time (m) 3.Pessimistic time (b)

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2 – 60 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Statistical Analysis ambMean Time Beta distribution amb Mean Time 3σ3σ3σ3σ Area under curve between a and b is 99.74% Normal distribution Figure 2.7

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2 – 61 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Statistical Analysis The mean of the beta distribution can be estimated by t e = a + 4m + b 6 The variance of the beta distribution for each activity is σ 2 = b – a 6 2

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2 – 62 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Calculating Means and Variances EXAMPLE 2.4 Suppose that the project team has arrived at the following time estimates for activity B (site selection and survey) of the St. Johns Hospital project: a = 7 weeks, m = 8 weeks, and b = 15 weeks a.Calculate the expected time and variance for activity B. b.Calculate the expected time and variance for the other activities in the project.

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2 – 63 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Calculating Means and Variances SOLUTION a.The expected time for activity B is Note that the expected time does not equal the most likely time. These will only be the same only when the most likely time is equidistant from the optimistic and pessimistic times. The variance for activity B is t e = = = 9 weeks 7 + 4(8) σ 2 = = = –

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2 – 64 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Calculating Means and Variances b.The following table shows the expected activity times and variances for this project. Time Estimates (week)Activity Statistics ActivityOptimistic (a)Most Likely (m)Pessimistic (b)Expected Time (t e )Variance (σ 2 ) A B C D E F G H I J K

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2 – 65 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Activity Immediate Predecessor(s) Optimistic (a) Most Likely (m) Pessimistic (b) Expected Time (t) Variance (σ) A578 B6812 C345 DA EB81012 FC, E345 GD489 HF579 IG, H81117 JG444 Application 2.4 Bluebird University: activity for sales training seminar

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2 – 66 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Analyzing Probabilities Because the central limit theorem can be applied, the mean of the distribution is the earliest expected finish time for the project T E = = Expected activity times on the critical path Mean of normal distribution Because the activity times are independent σ 2 = (Variances of activities on the critical path) z = T – T E σ2σ2 Using the z-transformation where T = due date for the project

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2 – 67 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Calculating the Probability EXAMPLE 2.5 Calculate the probability that St. Johns Hospital will become operational in 72 weeks, using (a) the critical path and (b) path A–C–G–J–K. SOLUTION a.The critical path B–D–H–J–K has a length of 69 weeks. From the table in Example 2.4, we obtain the variance of path B–D–H–J–K: σ 2 = Next, we calculate the z-value:

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2 – 68 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Calculating the Probability Using the Normal Distribution appendix, we go down the left- hand column to 0.8 and then across to This gives a value of Thus the probability is about 0.81 that the length of path B–D–H–J–K will be no greater than 72 weeks. Length of critical path Probability of meeting the schedule is Normal distribution: Mean = 69 weeks; σ = 3.45 weeks Probability of exceeding 72 weeks is Project duration (weeks) Because this is the critical path, there is a 19 percent probability that the project will take longer than 72 weeks. Figure 2.8

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2 – 69 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Calculating the Probability SOLUTION b.From the table in Example 2.4, we determine that the sum of the expected activity times on path A–C–G–J–K is 67 weeks and that σ 2 = = The z-value is The probability is about 0.90 that the length of path A–C–G–J–K will be no greater than 72 weeks. EXAMPLE 2.5 Calculate the probability that St. Johns Hospital will become operational in 72 weeks, using (a) the critical path and (b) path A–C–G–J–K.

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2 – 70 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 2.5 The director of the continuing education at Bluebird University wants to conduct the seminar in 47 working days from now. What is the probability that everything will be ready in time? The critical path is and the expected completion time is T = T E is: A–D–G–I, days. 47 days days ( ) = 8.63 And the sum of the variances for the critical activities is:

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2 – 71 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. = = = – Application 2.5 T = 47 days T E = days And the sum of the variances for the critical activities is: 8.63 z = T – T E σ 2 Assuming the normal distribution applies, we use the table for the normal probability distribution. Given z = 1.30, the probability that activities A–D–G–I can be completed in 47 days or less is

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2 – 72 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Near-Critical Paths Project duration is a function of the critical path Since activity times vary, paths with nearly the same length can become critical during the project Project managers can use probability estimates to analyze the chances of near- critical paths delaying the project

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2 – 73 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Monitoring and Controlling Projects Tracking systems collect information on three topics Open issues that require resolution Risks that might delay the project completion Schedule status periodically monitors slack time to identify activities that are behind schedule

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2 – 74 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Project Life Cycle StartFinish Resource requirements Time Definition and organization PlanningExecutionClose out Figure 2.9

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2 – 75 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Monitoring and Controlling Projects Problems can be alleviated through Resource leveling Resource allocation Resource acquisition Project close out includes writing final reports, completing remaining deliverables, and compiling the teams recommendations for improving the project process

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2 – 76 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 1 Your company has just received an order from a good customer for a specially designed electric motor. The contract states that, starting on the thirteenth day from now, your firm will experience a penalty of $100 per day until the job is completed. Indirect project costs amount to $200 per day. The data on direct costs and activity precedent relationships are given in Table 2.2. a.Draw the project network diagram. b.What completion date would you recommend?

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2 – 77 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 1 TABLE 2.2 | ELECTRIC MOTOR PROJECT DATA ActivityNormal Time (days) Normal Cost ($) Crash Time (days) Crash Cost ($) Immediate Predecessor(s) A41,00031,300None B71,40042,000None C52,00042,700None D61,20051,400A E390021,100B F112,50063,750C G480031,450D, E H F, G

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2 – 78 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 1 SOLUTION a.The network diagram is shown in Figure Keep the following points in mind while constructing a network diagram. 1.Always have start and finish nodes. 2.Try to avoid crossing paths to keep the diagram simple. 3.Use only one arrow to directly connect any two nodes. 4.Put the activities with no predecessors at the left and point the arrows from left to right. 5.Be prepared to revise the diagram several times before you come up with a correct and uncluttered diagram. Start Finish A4A4 B7B7 C5C5 D6D6 E3E3 F 11 G4G4 H3H3 Figure 2.10

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2 – 79 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 1 b.With these activity times, the project will be completed in 19 days and incur a $700 penalty. Using the data in Table 2.2, you can determine the maximum crash-time reduction and crash cost per day for each activity. For activity A Maximum crash time = Normal time – Crash time = 4 days – 3 days = 1 day Crash cost per day = Crash cost – Normal cost Normal time – Crash time CC – NC NT – CT = = $300 $1,300 – $1,000 4 days – 3 days

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2 – 80 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 1 ActivityCrash Cost per Day ($)Maximum Time Reduction (days) A3001 B2003 C7001 D2001 E 1 F2505 G6501 H1002

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2 – 81 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 1 TABLE 2.3 | PROJECT COST ANALYSIS StageCrash Activity Time Reduction (days) Resulting Critical Path(s) Project Duration (days) Project Direct Costs, Last Trial ($) Crash Cost Added ($) Total Indirect Costs ($) Total Penalty Costs ($) Total Project Costs ($) 0C-F-H1910,1003, ,600 1H2C-F-H1710, , ,200 2F2A-D-G-H1510, , ,100 B-E-G-H C-F-H

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2 – 82 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 1 Table 2.3 summarizes the analysis and the resultant project duration and total cost. The critical path is C–F–H at 19 days, which is the longest path in the network. The cheapest activity to crash is H which, when combined with reduced penalty costs, saves $300 per day. Crashing this activity for two days gives A–D–G–H: 15 days, B–E–G–H: 15 days, and C–F–H: 17 days Crash activity F next. This makes all activities critical and no more crashing should be done as the cost of crashing exceeds the savings.

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2 – 83 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 2 An advertising project manager developed the network diagram in Figure 2.11 for a new advertising campaign. In addition, the manager gathered the time information for each activity, as shown in the accompanying table. a.Calculate the expected time and variance for each activity. b.Calculate the activity slacks and determine the critical path, using the expected activity times. c.What is the probability of completing the project within 23 weeks? Figure 2.11 Start Finish A B C D E F G

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2 – 84 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 2 Time Estimate (weeks) ActivityOptimisticMost LikelyPessimisticImmediate Predecessor(s) A147 B267 C336B D61314A E3612A, C F6816B G156E, F

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2 – 85 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 2 SOLUTION a.The expected time and variance for each activity are calculated as follows t e = a + 4m + b 6 ActivityExpected Time (weeks)Variance A B C D E F G

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2 – 86 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 2 SOLUTION b.We need to calculate the earliest start, latest start, earliest finish, and latest finish times for each activity. Starting with activities A and B, we proceed from the beginning of the network and move to the end, calculating the earliest start and finish times. ActivityEarliest Start (weeks)Earliest Finish (weeks) A =4.0 B =5.5 C =9.0 D =16.0 E =15.5 F =14.5 G =20.0

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2 – 87 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 2 Based on expected times, the earliest finish date for the project is week 20, when activity G has been completed. Using that as a target date, we can work backward through the network, calculating the latest start and finish times ActivityLatest Start (weeks)Latest Finish (weeks) G F E D C B A4.08.0

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2 – 88 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 2 A D E G C F B Finish Start Figure 2.12

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2 – 89 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 2 Start (weeks)Finish (weeks) ActivityEarliestLatestEarliestLatestSlackCritical Path A No B Yes C Yes D No E Yes F No G Yes PathTotal Expected Time (weeks)Total Variance A–D = = 2.78 A–E–G = = 3.94 B–C–E–G = = 3.88 B–F–G = = 4.16

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2 – 90 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Solved Problem 2 So the critical path is B–C–E–G with a total expected time of 20 weeks. However, path B–F–G is 19 weeks and has a large variance. c.We first calculate the z-value: z = = = 1.52 T – T E σ2σ2 23 – Using the Normal Distribution Appendix, we find the probability of completing the project in 23 weeks or less is Because the length of path B–F–G is close to that of the critical path and has a large variance, it might well become the critical path during the project

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2 – 91 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.

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