Project Planning and Budgeting

Recall the four stages Project Definition and Conceptualization Project Planning and Budgeting Project Execution and Control Project Termination and Closeout

Elements Of Project Management Project team individuals from different departments within company Matrix organization team structure with members from different functional areas depending on skills needed Project manager leader of project team Ch 17 - 2

Project Planning Statement of work written description of goals, work & time frame of project Activities require labor, resources & time Precedence relationship shows sequential relationship of project activities Ch 17 - 3

WORK BREAKDOWN 1

WORK BREAKDOWN 2

GANTT CHART

Simplified Project Network Construct forms Pour concrete 1 2 3 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 4

PERT CHART 1

PERT CHART 2

Elements Of Project Planning Define project objective(s) Identify activities Establish precedence relationships Make time estimates Determine project completion time Compare project schedule objectives Determine resource requirements to meet objective Ch 17 - 5

Work breakdown structure (WBS) determine subcomponents, activities & tasks © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 6

Russell/Taylor Oper Mgt 3/e Gantt Chart Popular tool for project scheduling Graph with bar for representing the time for each task Provides visual display of project schedule Also shows slack for activities (amount of time activity can be delayed without delaying project) © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 7

A Gantt Chart Month 2 4 6 8 10 1 3 5 7 9 Month Activity 2 4 6 8 10      Activity Design house and obtain financing Lay foundation Order and receive materials Build house Select paint Select carpet Finish work  1  3  5  7  9 Month Ch 17 - 8

CPM/PERT Critical Path Method (CPM) DuPont & Remington-Rand (1956) deterministic task times activity-on-node network construction Project Eval. & Review Technique (PERT) US Navy, Booz, Allen & Hamilton multiple task time estimates activity-on-arrow network construction Ch 17 - 9

The Project Network Network consists of branches & nodes Node 1 2 3

Network Construction In AON, nodes represent activities & arrows show precedence relationships In AOA, arrows represent activities & nodes are events for points in time An event is the completion or beginning of an activity A dummy shows precedence for two activities with same start & end nodes Ch 17 - 11

Project Network For A House 3 Dummy Lay foundation 2 Build house Finish work 3 1 1 2 4 6 7 3 1 Design house and obtain financing Order and receive materials 1 Select paint 1 Select carpet 5 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 12

Critical Path A path is a sequence of connected activities running from start to end node in network The critical path is the path with the longest duration in the network Project cannot be completed in less than the time of the critical path Ch 17 - 13

All Possible Paths 3 + 1 + 3 + 1 = 8 months 3 + 2 + 0 + 3 + 1 = 9 months; the critical path B: 1-2-3-4-5-6-7 3 + 2 + 0 + 1 + 1 + 1 = 8 months C: 1-2-4-6-7 3 + 1 + 3 + 1 = 8 months D: 1-2-4-5-6-7 3 + 1 + 1 + 1 + 1 = 7 months Ch 17 - 14

Concurrent Activities 3 2 3 Lay foundation Order material Lay foundation Dummy 2 4 Order material Incorrect precedence relationship Correct precedence relationship © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 15

Early Times (Housebuilding example) ES - earliest time activity can start Forward pass starts at beginning of CPM/PERT network to determine ES times EF = ES + activity time ESij = maximum (EFi) EFij = ESij + tij ES12 = 0 EF12 = ES12 + t12 = 0 + 3 = 3 months © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 16

Russell/Taylor Oper Mgt 3/e Computing Early Times ES23 = max (EF2) = 3 months ES46 = max (EF4) = max (5,4) = 5 months EF46 = ES46 + t46 = 5 + 3 = 8 months EF67 =9 months, the project duration © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 17

Russell/Taylor Oper Mgt 3/e Late Times LS - latest time activity can start & not delay project Backward pass starts at end of CPM/PERT network to determine LS times LF = LS + activity time LSij = LFij - tij LFij = minimum (LSj) © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 18

Russell/Taylor Oper Mgt 3/e Computing Late Times LF67 = 9 months LS67 = LF67 - t67 = 9 - 1 = 8 months LF56 = minimum (LS6) = 8 months LS56 = LF56 - t56 = 8 - 1 = 7 months LF24 = minimum (LS4) = min(5, 6) = 5 months LS24 = LF24 - t24 = 5 - 1 = 4 months © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 19

Russell/Taylor Oper Mgt 3/e Early And Late Times ( ) ES=5, EF=5 LS=5, LF=5 ( ) ES=3, EF=5 LS=3, LF=5 3 ( ) ES=8, EF=9 LS=8, LF=9 ( ) ES=5, EF=8 LS=5, LF=8 2 3 1 1 2 4 6 7 ( ) ES=3, EF=4 LS=4, LF=5 3 1 ( ) ES=0, EF=3 LS=0, LF=3 1 1 ( ) ES=6, EF=7 LS=7, LF=8 ( ) ES=5, EF=6 LS=6, LF=7 5 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 20

Russell/Taylor Oper Mgt 3/e Activity Slack Activities on critical path have ES=LS & EF=LF Activities not on critical path have slack Sij = LSij - ESij Sij = LFij - EFij S24 = LS24 - ES24 = 4 - 3 = 1 month © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 21

Russell/Taylor Oper Mgt 3/e Activity Slack Data Activity LS ES LF EF Slack (S) 1-2* 0 0 3 3 0 2-3 3 3 5 5 0 2-4 4 3 5 4 1 3-4* 5 5 5 5 0 4-5 6 5 7 6 1 4-6* 5 5 8 8 0 5-6 7 6 8 7 1 6-7* 8 8 9 9 0 * Critical path © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 22

Probabilistic Time Estimates Reflect uncertainty of activity times Beta distribution is used in PERT Mean (expected time): a + 4m + b 6 t = 2 b - a 6 ( ) Variance: 2 = Where, a = optimistic estimate m = most likely time estimate b = pessimistic time estimate © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 23

Example Beta Distributions P (time) P (time) b a m t b P (time) a b m = t © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 24

Russell/Taylor Oper Mgt 3/e PERT Example Equipment testing and modification 2 6 Final debugging Equipment installation Dummy System Training 1 3 5 7 9 System development Manual Testing System changeover System Testing Job training Dummy Position recruiting Orientation 4 8 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 25

Russell/Taylor Oper Mgt 3/e Activity Information Time estimates (wks) Mean Time Variance Activity a b c t 2 1 - 2 6 8 10 8 .44 1 - 3 3 6 9 6 1.00 1 - 4 1 3 5 3 .44 2 - 5 0 0 0 0 .00 2 - 6 2 4 12 5 2.78 3 - 5 2 3 4 3 .11 4 - 5 3 4 5 4 .11 4 - 8 2 2 2 2 .00 5 - 7 3 7 11 7 1.78 5 - 8 2 4 6 4 .44 7 - 8 0 0 0 0 .00 6 - 9 1 4 7 4 1.00 7 - 9 1 10 13 9 4.00 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 26

Russell/Taylor Oper Mgt 3/e Early And Late Times Activity t 2 ES EF LS LF S 1 - 2 8 0.44 0 8 1 9 1 1 - 3 6 1.00 0 6 0 6 0 1 - 4 3 0.44 0 3 2 5 2 2 - 5 0 0.00 8 8 9 9 1 2 - 6 5 2.78 8 13 16 21 8 3 - 5 3 0.11 6 9 6 9 0 4 - 5 4 0.11 3 7 5 9 2 4 - 8 2 0.00 3 5 14 16 11 5 - 7 7 1.78 9 16 9 16 0 5 - 8 4 0.44 9 13 12 16 3 7 - 8 0 0.00 13 13 16 16 3 6 - 9 4 1.00 13 17 21 25 8 7 - 9 9 4.00 16 25 16 25 0 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 27

Russell/Taylor Oper Mgt 3/e Network With Times ( ) ES=8, EF=13 LS=16 LF=21 2 6 ( ) ES=0, EF=8 LS=1, LF=9 5 ( ) ES=13, EF=25 LS=16 LF=25 ( ) ES=8, EF=8 LS=9, LF=9 8 4 ( ) ES=0, EF=6 LS=0, LF=6 ( ) ES=9, EF=13 LS=9, LF=16 3 9 1 3 5 7 9 6 ( ) ES=6, EF=9 LS=6, LF=9 7 ( ) ES=13, EF=25 LS=16 LF=25 ( ) ES=9, EF=13 LS=12, LF=16 ( ) ES=0, EF=3 LS=2, LF=5 4 ( ) ES=13, EF=13 LS=16 LF=16 3 ( ) ES=3, EF=7 LS=5, LF=9 4 2 4 8 ( ) ES=3, EF=5 LS=14, LF=16 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 28

Russell/Taylor Oper Mgt 3/e Project Variance Project variance is the sum of variances on the critical path © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 29

Probabilistic Network Analysis Determine probability that project is completed within specified time where  = tp = project mean time  = project standard deviation x = proposed project time Z = number of standard deviations x is from mean Z = x -   © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 30

Normal Distribution Of Project Time Probability Z  = tp x Time © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 31

Probabilistic Analysis Example What is the probability that the project is completed within 30 weeks? © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 32

Determining Probability From Z Value 1.9 0.4713 0.4719 … 0.4767 . . . . P( x<= 30 weeks) = 0.9719  = 25 x = 30 Time (weeks) © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 33

Russell/Taylor Oper Mgt 3/e What is the probability that the project is completed within 22 weeks? P( x<= 22 weeks) =0.1271 x = 22  = 25 Time (weeks) © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 34

Russell/Taylor Oper Mgt 3/e Project Crashing Crashing is reducing project time by expending additional resources Crash time is an amount of time an activity is reduced Crash cost is the cost of reducing the activity time Goal is to reduce project duration at minimum cost © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 35

House-building Network Activity times in weeks 3 8 12 4 1 2 4 6 7 12 4 4 4 5 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 36

Normal Activity And Crash Data Total Normal Crash Allowable Crash Time Time Normal Crash Crash Time Cost per Activity (wks) (wks) Cost Cost (wks) Week 1-2 12 7 $3,000 $5,000 5 $400 2-3 8 5 2,000 3,500 3 500 2-4 4 3 4,000 7,000 1 3,000 3-4 0 0 0 0 0 0 4-5 4 1 500 1,100 3 200 4-6 12 9 50,000 71,000 3 7,000 5-6 4 1 500 1,100 3 200 6-7 4 3 15,000 22,000 1 7,000 $75,000 $110,700 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 37

Network With Crashing Costs Activity 1-2 can be crashed a total of 5 weeks for $2000 Crash cost per week = Total crash cost/Total crash time = $2,000/5 = $400 per week 3 $500 8 $7,000 12 4 $7,000 1 2 4 6 7 $400 $3,000 12 4 4 4 $200 $200 5 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 38

Normal And Crash Relationships $ 12 4 2 6 8 10 14 1,000 3,000 4,000 5,000 7,000 2,000 6,000 Crash cost Crashed activity Slope = crash cost per week Normal cost Normal activity Crash time Normal time Weeks © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 39

Russell/Taylor Oper Mgt 3/e Crashing Solution Normal Crash Crash Crash Crashing Time Time Time Cost per Cost Activity (wks) (wks) Used Week Incurred 1-2 12 7 5 $400 $2,000 2-3 8 5 3 500 1,500 2-4 4 3 0 3,000 0 3-4 0 0 0 0 0 4-5 4 1 0 200 0 4-6 12 9 3 7,000 21,000 5-6 4 1 0 200 0 6-7 4 3 1 7,000 7,000 12 $31,500 © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 40

Russell/Taylor Oper Mgt 3/e Crashed Project 3 8 5 4 3 12 7 12 9 1 2 4 6 7 4 3 4 4 5 Original time Crashed times © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 41

Time-Cost Relationship Crashing costs increase as project duration decreases Indirect costs increase as project duration increases Reduce project length as long as crashing costs are less than indirect costs © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 42

Russell/Taylor Oper Mgt 3/e Time-Cost Tradeoff Minimum cost = optimal project time Total cost Cost ($) Indirect cost Direct cost Crashing Time Project Duration © 2000 by Prentice-Hall Inc Russell/Taylor Oper Mgt 3/e Ch 17 - 43