Project Management

Chapter 17
What is Project? How is it different
from routine or day to day work in
organization?
Projects
3
Projects
Projects
Interrelated set of activities which are unique,
one-time operations designed to accomplish a
specific set of objectives in a limited time frame
and specific allocation of resources
Examples:
The Olympic Games
Producing a movie
Software development
Product development
Research Project
Projects

Why do you need to properly manage
project?

Even the most organized manager can go
fail!

START WITH A SIMPLE QUIZ!

If it takes 1 man to deliver a job in 9 months,
How many men are required to deliver the job in
1 month?

If it takes 1 woman to deliver a baby in 9 months,
How many women are required to deliver a baby
in 1 month?
6
PROJECT MANAGEMENT
IS LIKE
Having babies !?

Easy to CONCEIVE, but
Hard to DELIVER!!!
Project Life Cycle
Projects go through a series of
stages a life cycle


R
e
s
o
u
r
c
e


r
e
q
u
i
r
e
m
e
n
t

9-8
Project Management Process
Project
unique, one-time operational activity or effort
9-9
Project Management Process (cont.)
Project Management Process (cont.)
Triple Constraints
Scope
Quality
80%
20%
SCIENCE
ART
THE ART & SCIENCE OF
PROJECT MANAGEMENT
Understand Requirements
ASK Consulting
13
Global and Diversity Issues in Project
Management
Global and Diversity Issues in Project
Management
In existing global business environment, project
teams are formed from different genders,
cultures, ethnicities, etc.

Cultural research and communication are
important elements in planning process

Projects bring together people with a diversity of
knowledge and skills, most of whom remain
associated with the project for less than its full
life

Organizational structure affects how
projects are managed

Functional Structure: The team is housed in a
specific functional area. Assistance from other areas
must be negotiated.
Pure Project: Team members work exclusively for
the project manager, which is best for large projects.
Matrix Structure: A compromise between the
functional and project structures. Members remain in
various functional areas and the project manager
coordinates across functional areas. Dual authority
can cause problems.

Project Manager
The project manager is ultimately responsible for the
success or failure of the project
The project manager must effectively manage:
The work
The human resources
Communications
Quality
Time
Costs
Behavioral Issues
Behavioral problems can be created or exacerbated by
Decentralized decision making
Stress of achieving project milestones on time and within
budget
Surprises
The team must be able to function as a unit
Interpersonal and coping skills are very important
Conflict resolution and negotiation can be an important part of a
project managers job
Avoiding Problems
Many problems can be avoided or mitigated by:
Effective team selection
Leadership
Motivation
Maintaining an environment of
Integrity
Trust
Professionalism
Being supportive of team efforts
Project Champion
Project champion
A person who promotes and supports a
project
Usually resides within the organization
Facilitate the work of the project by talking up the
project to other managers, and who might be
asked to share resources with the project team as
well as employees who might be asked to work
on parts of the project
The project champion can be critical to the
success of a project
Work Breakdown Structure
(WBS)
WBS
A hierarchical listing of what must be done
during a project
Establishes a logical framework for identifying the
required activities for the project
1. Identify the major elements of the project
2. Identify the major supporting activities for each of the
major elements
3. Break down each major supporting activity into a list
of the activities that will be needed to accomplish it

Gantt Chart
PERT and CPM
PERT (program evaluation and review technique) and
CPM (critical path method) are two techniques used to
manage large-scale projects
By using PERT or CPM Managers can obtain:
1. A graphical display of project activities
2. An estimate of how long the project will take
3. An indication of which activities are most critical to timely
project completion
4. An indication of how long any activity can be delayed without
delaying the project
St. Johns Hospital Project
Activity Immediate
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
START
START
A
B
B
A

C
D
A
E, G, H
F, I, J
K
0

12
9
10
10
24
10

35
40
15
4
6
0
Kramer

Stewart
Johnson
Taylor
Adams
Taylor
Burton
Johnson

Walker
Sampson
Casey
Murphy
Pike
Ashton
Activity Immediate
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
Completion Time
Finish
K
6
I
15
F
10
C
10
H
40
J
4
A
12
B
9
Start
G
35
D
10
E
24
Activity IP Time
A START 12
B START 9
C A 10
D B 10
E B 24
F A 10
G C 35
H D 40
I A 15
J E, G, H 4
K F, I, J 6
What are the possible paths from start to finish?
Activity Immediate
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
Completion Time
Finish
K
6
I
15
F
10
C
10
D
10
H
40
J
4
A
12
B
9
Start
G
35
E
24
Path Estimated Time (weeks)
AIK 33
AFK 28
ACGJK 67
BDHJK 69
BEJK 43
Which one is the critical path?
Activity Immediate
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
Completion Time
Finish
K
6
I
15
F
10
C
10
D
10
H
40
J
4
A
12
B
9
Start
G
35
E
24
Path Estimated Time (weeks)
AIK 33
AFK 28
ACGJK 67
BDHJK 69
BEJK 43
Application
The following information is known about a project
Draw the network diagram for this project
Activity Activity Time (days)
Immediate
Predecessor(s)
A 7
B 2 A
C 4 A
D 4 B, C
E 4 D
F 3 E
G 5 E
Finish
G
5
F
3
E
4
D
4
Application
Activity Activity Time (days)
Immediate
Predecessor(s)
A 7
B 2 A
C 4 A
D 4 B, C
E 4 D
F 3 E
G 5 E
B
2
C
4
Start
A
7
Deterministic Time Estimates
Deterministic
Time estimates that are fairly certain
Probabilistic
Time estimates that allow for variation
Probabilistic Time Estimates
The beta distribution is generally used to describe the
inherent variability in time estimates
The probabilistic approach involves three time estimates:
Optimistic time, (t
o
)
The length of time required under optimal conditions
Pessimistic time, (t
p
)
The length of time required under the worst conditions
Most likely time, (t
m
)
The most probable length of time required
Probabilistic Time Estimates
The expected time, t
e
,for an activity is a
weighted average of the three time
estimates:


The expected duration of a path is equal to
the sum of the expected times of the
activities on that path:


6
4
p m o
e
t t t
t
+ +
=

= path on the activities of times expected of mean Path

Probabilistic Time Estimates
The standard deviation of each activitys time is estimated
as one-sixth of the difference between the pessimistic
and optimistic time estimates. The variance is the
square of the standard deviation:



Standard deviation of the expected time for the path

( )
2
2
6
(

=
o p
t t
o
( )

= path on activities of Variances

path
o
Determining Path Probabilities
deviation standard Path
mean Path - time Specified
= z
Assumption: Independence
Independence
Assumption that path duration times are
independent of each other
Requires that
1. Activity times are independent
2. Each activity is on only one path
The assumption of independence is usually
considered to be met if only a few activities in a
large project are on multiple paths
Simulation
When activity times cannot be assumed to be
independent, simulation is often used
Repeated sampling is used
Many paths are made through the project network
In each pass, a random value for each activity time is
selected based on the activity times probability distribution
After each pass, the projects duration is determined
After a large number of passes, there are enough data points
to prepare a frequency distribution of the project duration
Probabilistic estimates of completion times are made based
on this frequency distribution
PERT/CPM
Project managers rely on PERT/CPM to
help them answer questions such as:
What is the total time to complete the project?
What are the scheduled start and finish dates
for each specific activity?
Which activities are critical and must be
completed exactly as scheduled to keep the
project on schedule?
How long can noncritical activities be delayed
before they cause an increase in the project
completion time?
Project Risk
Category of Project risk:
Strategic Fit: Projects should have a purpose that supports the
strategic goals of the firm.
1. Service/Product Attributes: If the project involves new service
or product, several risks can arise.
Market risk comes from competitors.
Technological risk can arise from advances made once the
project has started, rendering obsolete the technology chosen for
service or product.
Legal risk from liability suits or other legal action.
2. Project Team Capability: Involves risks from the project team
itself such as poor selections and inexperience.
3. Operations Risk: Information accuracy, communications, and
project timing.
Risk is the measure of the probability and consequence of not
reaching a defined project goal
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)
Statistical Analysis
a m b Mean
Time
Beta distribution
a m b
Mean
Time
3 3
Area under curve
between a and b
is 99.74%
Normal distribution
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

2
=
b a
6
2
Calculating Means and
Variances
b. The following table shows the expected activity times and
variances for this project.
Time Estimates (week) Activity Statistics
Activity Optimistic (a) Most Likely (m) Pessimistic (b) Expected Time (t
e
) Variance (
2
)
A 11 12 13 12 0.11
B 7 8 15 9 1.78
C 5 10 15 10 2.78
D 8 9 16 10 1.78
E 14 25 30 24 7.11
F 6 9 18 10 4.00
G 25 36 41 35 7.11
H 35 40 45 40 2.78
I 10 13 28 15 9.00
J 1 2 15 4 5.44
K 5 6 7 6 0.11
What is the probability that the project
completes 3 days later than the
expected project completion time?

Or

the project completes after 72 days
St. Adolfs Hospital
Probabilistic Time Estimates
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

2
= E (Variances of activities on the critical path)
z =
T T
E

2

\
Using the z-transformation
where
T = due date for the project
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 AC
GJK.
SOLUTION
a. The critical path BDHJK has a length of 69 weeks.
From the table in Example 2.4, we obtain the variance of
path BDHJK:
2
= 1.78 + 1.78 + 2.78 + 5.44 + 0.11. Next,
we calculate the z-value:
0.87
3.45
3
11.89
69 72
= =

= z

Jadual A.4
Taburan Z

DUA TITIK PERPULUHAN UNTUK Z
Z 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
0.0 0.0000 0.0040 0.0080 0.0120 0.0160 0.0199 0.0239 0.0279 0.0319 0.0359
0.1 0.0398 0.0438 0.0478 0.0517 0.0557 0.0596 0.0636 0.0675 0.0714 0.0753
0.2 0.0793 0.0832 0.0871 0.0910 0.0948 0.0987 0.1026 0.1064 0.1103 0.1141
0.3 0.1179 0.1217 0.1255 0.1293 0.1331 0.1368 0.1406 0.1443 0.1480 0.1517
0.4 0.1554 0.1591 0.1628 0.1664 0.1700 0.1736 0.1772 0.1808 0.1844 0.1879
0.5 0.1915 0.1950 0.1985 0.2019 0.2054 0.2088 0.2123 0.2157 0.2190 0.2224
0.6 0.2257 0.2291 0.2324 0.2357 0.2389 0.2422 0.2454 0.2486 0.2517 0.2549
0.7 0.2580 0.2611 0.2642 0.2673 0.2704 0.2734 0.2764 0.2794 0.2823 0.2852
0.8 0.2881 0.2910 0.2939 0.2967 0.2995 0.3023 0.3051 0.3078 0.3106 0.3133
0.9 0.3159 0.3186 0.3212 0.3238 0.3264 0.3289 0.3315 0.3340 0.3365 0.3389
1.0 0.3413 0.3438 0.3461 0.3485 0.3508 0.3531 0.3554 0.3577 0.3599 0.3621
1.1 0.3643 0.3665 0.3686 0.3708 0.3729 0.3749 0.3770 0.3790 0.3810 0.3830
1.2 0.3849 0.3869 0.3888 0.3907 0.3925 0.3944 0.3962 0.3980 0.3997 0.4015
1.3 0.4032 0.4049 0.4066 0.4082 0.4099 0.4115 0.4131 0.4147 0.4162 0.4177
1.4 0.4192 0.4207 0.4222 0.4236 0.4251 0.4265 0.4279 0.4292 0.4306 0.4319
1.5 0.4332 0.4345 0.4357 0.4370 0.4382 0.4394 0.4406 0.4418 0.4429 0.4441
1.6 0.4452 0.4463 0.4474 0.4484 0.4495 0.4505 0.4515 0.4525 0.4535 0.4545
1.7 0.4554 0.4564 0.4573 0.4582 0.4591 0.4599 0.4608 0.4616 0.4625 0.4633
1.8 0.4641 0.4649 0.4656 0.4664 0.4671 0.4678 0.4686 0.4693 0.4699 0.4706
1.9 0.4713 0.4719 0.4726 0.4732 0.4738 0.4744 0.4750 0.4756 0.4761 0.4767
2.0 0.4772 0.4778 0.4783 0.4788 0.4793 0.4798 0.4803 0.4808 0.4812 0.4817
2.1 0.4821 0.4826 0.4830 0.4830 0.4838 0.4842 0.4846 0.4850 0.4854 0.4857
2.2 0.4861 0.4864 0.4868 0.4871 0.4875 0.4878 0.4881 0.4884 0.4887 0.4890
2.3 0.4893 0.4896 0.4898 0.4901 0.4904 0.4906 0.4909 0.4911 0.4913 0.4916
2.4 0.4918 0.4920 0.4922 0.4925 0.4927 0.4929 0.4931 0.4932 0.4934 0.4936
2.5 0.4938 0.4940 0.4941 0.4943 0.4945 0.4946 0.4948 0.4949 0.4951 0.4952
2.6 0.4953 0.4955 0.4956 0.4957 0.4959 0.4960 0.4961 0.4962 0.4963 0.4964
2.7 0.4965 0.4966 0.4967 0.4968 0.4969 0.4970 0.4971 0.4972 0.4973 0.4974
2.8 0.4974 0.4975 0.4976 0.4977 0.4977 0.4978 0.4979 0.4979 0.4980 0.4981
2.9 0.4981 0.4982 0.4982 0.4983 0.4984 0.4984 0.4985 0.4985 0.4986 0.4986
3.0 0.4987 0.4987 0.4987 0.4988 0.4988 0.4989 0.4989 0.4989 0.4990 0.4990
3.1 0.4990 0.4991 0.4991 0.4991 0.4992 0.4992 0.4992 0.4992 0.4993 0.4993
3.2 0.4993 0.4993 0.4994 0.4994 0.4994 0.4994 0.4994 0.4995 0.4995 0.4995
3.3 0.4995 0.4995 0.4995 0.4996 0.4996 0.4996 0.4996 0.4996 0.4996 0.4997
3.4 0.4997 0.4997 0.4997 0.4997 0.4997 0.4997 0.4997 0.4997 0.4997 0.4998
3.5 0.4998
4.0 0.49997
4.5 0.49999
5.0 0.499999
6.0 0.499999


0 Z z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
.0 .5000 .5040 .5080 .5120 .5160 .5199 .5239 .5279 .5319 .5359
.1 .5398 .5438 .5478 .5517 .5557 .5596 .5636 .5675 .5714 .5753
.2 .5793 .5832 .5871 .5910 .5948 .5987 .6026 .6064 .6103 .6141
.3 .6179 .6217 .6255 .6293 .6331 .6368 .6406 .6443 .6480 .6517
.4 .6554 .6591 .6628 .6664 .6700 .6736 .6772 .6808 .6844 .6879
.5 .6915 .6950 .6985 .7019 .7054 .7088 .7123 .7157 .7190 .7224
.6 .7257 .7291 .7324 .7357 .7389 .7422 .7454 .7486 .7517 .7549
.7 .7580 .7611 .7642 .7673 .7703 .7734 .7764 .7794 .7823 .7852
.8 .7881 .7910 .7939 .7967 .7995 .8023 .8051 .8078 .8106 .8133
.9 .8159 .8186 .8212 .8238 .8264 .8289 .8315 .8340 .8365 .8389
1.0 .8413 .8438 .8461 .8485 .8508 .8531 .8554 .8577 .8599 .8621
1.1 .8643 .8665 .8686 .8708 .8729 .8749 .8770 .8790 .8810 .8830
1.2 .8849 .8869 .8888 .8907 .8925 .8944 .8962 .8980 .8997 .9015
1.3 .9032 .9049 .9066 .9082 .9099 .9115 .9131 .9147 .9162 .9177
1.4 .9192 .9207 .9222 .9236 .9251 .9265 .9279 .9292 .9306 .9319
1.5 .9332 .9345 .9357 .9370 .9382 .9394 .9406 .9418 .9429 .9441
Areas of the cumulative standard normal
distribution
0 Z
Areas of the cumulative standard normal
distribution
(Continue)
z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
1.6 .9452 .9463 .9474 .9484 .9495 .950
5
.9515 .9525 .9535 .9545
1.7 .9554 .9564 .9573 .9582 .9591 .959
9
.9608 .9616 .9625 .9633
1.8 .9641 .9649 .9656 .9664 .9671 .967
8
.9686 .9693 .9699 .9706
1.9 .9713 .9719 .9726 .9732 .9738 .974
4
.9750 .9756 .9761 .9767
2.0 .9772 .9778 .9783 .9788 .9793 .979
8
.9803 .9808 .9812 .9817
2.1 .9821 .9826 .9830 .9834 .9838 .984
2
.9846 .9850 .9854 .9857
2.2 .9861 .9864 .9868 .9871 .9875 .987
8
.9881 .9884 .9887 .9890
2.3 .9893 .9896 .9898 .9901 .9904 .990
6
.9909 .9911 .9913 .9916
2.4 .9918 .9920 .9922 .9925 .9927 .992
9
.9931 .9932 .9934 .9936
2.5 .9938 .9940 .9941 .9943 .9945 .994
6
.9948 .9949 .9951 .9952
2.6 .9953 .9955 .9956 .9957 .9959 .996
0
.9961 .9962 .9963 .9964
2.7 .9965 .9966 .9967 .9968 .9969 .997
0
.9971 .9972 .9973 .9974
2.8 .9974 .9975 .9976 .9977 .9977 .997
8
.9979 .9979 .9980 .9981
2.9 .9981 .9982 .9982 .9983 .9984 .998
4
.9985 .9985 .9986 .9986
3.0 .9987 .9987 .9987 .9988 .9988 .998
9
.9989 .9989 .9990 .9990
3.1 .9990 .9991 .9991 .9991 .9991 .999
2
.9992 .9992 .9993 .9993
3.2 .9993 .9993 .9994 .9994 .9994 .999
4
.9994 .9995 .9995 .9995
3.3 .9995 .9995 .9995 .9996 .9996 .999
6
.9996 .9996 .9996 .9997
3.4 .9997 .9997 .9997 .9997 .9997 .999
7
.9997 .9997 .9997 .9998
Calculating the Probability
Using the Normal Distribution appendix, we go down the left-hand
column to 0.8 and then across to 0.07. This gives a value of 0.8078.
Thus the probability is about 0.81 that the length of path BDHJ
K will be no greater than 72 weeks.
Length of
critical path
Probability of
meeting the
schedule is
0.8078
Normal distribution:
Mean = 69 weeks;
= 3.45 weeks
Probability of
exceeding 72
weeks is 0.1922
Project duration (weeks)
69 72
Because this is the
critical path, 19.22 %
the project will take
longer than 72 weeks.
Calculating the Probability
SOLUTION
b. From the table in Example, we determine that the sum of
the expected activity times on path ACGJK is 67
weeks and that
2
= 0.11 + 2.78 + 7.11 + 5.44 + 0.11 = 15.55.
The z-value is
1.27
3.94
5
15.55
67 72
= =

= z
The probability is about 0.90 that the length of path
ACGJK will be no greater than 72 weeks.
EXAMPLE
Calculate the probability that St. Johns Hospital will become
operational in 72 weeks, using (a) the critical path and (b) path AC
GJK.
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

In st. Adoft case, 90% chances its near critical path exceed 72 weeks

Budget Control
Budget control is an important aspect of
project management
Costs can exceed budget
Overly optimistic time estimates
Unforeseen events
Unless corrective action is taken, serious
cost overruns can occur
Time-Cost Trade-Offs
Activity time estimates are made for some given level of
resources
It may be possible to reduce the duration of a project by
injecting additional resources
Motivations:
To avoid late penalties
Monetary incentives
Free resources for use on other projects

ANY POSSIBLE REASONS WHY
PROJECT NEED TO BE SHORTEN?
Project Costs
Time-Cost Trade-Offs: Crashing
Crashing
Shortening activity durations
Typically, involves the use of additional funds to support additional
personnel or more efficient equipment, and the relaxing of some
work specifications
The project duration may be shortened by increasing direct
expenses, thereby realizing savings in
indirect project costs
Crashing Activities
Project Costs
The total project costs are the sum of direct costs, indirect
costs, and penalty costs.
Direct costs include labor, materials, and any other costs
directly related to project activities.

Indirect costs include administration, depreciation, financial,
and other variable overhead costs that can be avoided
by reducing total project time.
The shorter the duration of the project, the
lower the indirect costs will be.
Reduce indirect cost
Speed up the process (you may enjoy
bonus? Or avoid penalty?)

In deciding to what extend the project should
be shorten (crash cost) make sure
increase in cost as a result of a crash<
savings in total indirect cost, penalty or
any other overhead cost.

Project Costs
Cost-Time
Relationships
TABLE 2.1 | DIRECT COST AND TIME DATA FOR THE ST. JOHNS HOSPITAL PROJECT
Activity Normal Time
(NT) (weeks)
Normal Cost
(NC)($)
Crash Time
(CT)(weeks)
Crash Cost
(CC)($)
Maximum Time
Reduction
(week)
Cost of
Crashing per
Week ($)
A 12 $12,000 11 $13,000 1 1,000
B 9 50,000 7 64,000 2 7,000
C 10 4,000 5 7,000 5 600
D 10 16,000 8 20,000 2 2,000
E 24 120,000 14 200,000 10 8,000
F 10 10,000 6 16,000 4 1,500
G 35 500,000 25 530,000 10 3,000
H 40 1,200,000 35 1,260,000 5 12,000
I 15 40,000 10 52,500 5 2,500
J 4 10,000 1 13,000 3 1,000
K 6 30,000 5 34,000 1 4,000
Totals $1,992,000 $2,209,500
The project completion time is 69 weeks.
The direct costs for that schedule are $1,992,000.
The indirect costs are $8000 per week.
Penalty costs after week 65 are $20,000 per week.
Total cost is $2,624,000 for 69 weeks
($1,992,000 + 69($8000) + (69 65)($20,000)
A Minimum-Cost Schedule
EXAMPLE
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:
AIK 33 weeks
AFK 28 weeks
ACGJK 67 weeks
BDHJK 69 weeks
BEJK 43 weeks
A Minimum-Cost Schedule
STAGE 1
Step 1. The critical path is BDHJK.
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
ACGJK: 64 weeks and BDHJK: 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.
A Minimum-Cost Schedule
STAGE 1
Step 1. The critical path is BDHJK.
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
ACGJK: 64 weeks and BDHJK: 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
K
6
I
15
F
10
C
10
D
10
H
40
J
1
A
12
B
9
Start
G
35
E
24
A Minimum-Cost Schedule
STAGE 2
Step 1. The critical path is still BDHJK.
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
ACGJK: 64 weeks and BDHJK: 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.
A Minimum-Cost Schedule
STAGE 2
Step 1. The critical path is still BDHJK.
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
ACGJK: 64 weeks and BDHJK: 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
K
6
I
15
F
10
C
10
D
8
H
40
J
1
A
12
B
9
Start
G
35
E
24
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.
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

ACGJK: 63 weeks and BDHJK: 63 weeks

Net savings are $8,000 - $4,000 = $4,000. Total project costs are
$2,511,000 $4,000 = $2,507,000.

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

ACGJK: 63 weeks and BDHJK: 63 weeks

Net savings are $8,000 - $4,000 = $4,000. Total project costs are
$2,511,000 $4,000 = $2,507,000.

Finish
K
5
I
15
F
10
C
10
D
8
H
40
J
1
A
12
B
9
Start
G
35
E
24
A Minimum-Cost Schedule
STAGE 4
Step 1. The critical paths are still BDHJK and ACGJK.
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
ACGJK: 61 weeks and BDHJK: 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.
A Minimum-Cost Schedule
STAGE 4
Step 1. The critical paths are still BDHJK and ACGJK.
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
ACGJK: 61 weeks and BDHJK: 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
K
5
I
15
F
10
C
8
D
8
H
40
J
1
A
12
B
7
Start
G
35
E
24
A Minimum-Cost Schedule
Stage Crash
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)
0 B-D-H-J-K 69 1,992.0 552.0 80.0 2,624.0
1 J 3 B-D-H-J-K 66 1,992.0 3.0 528.0 20.0 2,543.0
2 D 2 B-D-H-J-K
A-C-G-J-K
64 1,995.0 4.0 512.0 0.0 2,511.0
3 K 1 B-D-H-J-K
A-C-G-J-K
63 1,999.0 4.0 504.0 0.0 2,507.0
4 B, C 2 B-D-H-J-K
A-C-G-J-K
61 2,003.0 15.2 488.0 0.0 2,506.2
Sources of Error
Potential sources of error:
1. The project network may be incomplete
2. Precedence relationships may not be correctly expressed
3. Time estimates may be inaccurate
4. There may be a tendency to focus on critical path activities to
the exclusion of other important project activities
5. Major risk events may not be on the critical path
Critical Chain Project
Management
To better manage projects, managers need to be aware of
certain aspects of the project:
1. Time estimates are often pessimistic and with attention can be
made more realistic
2. When activities are finished ahead of schedule, that fact may go
unreported, so managers may be unaware of resources that
could potentially be used to shorten the critical path
The critical chain is analogous to the critical path of a
network
A key feature of the critical chain approach is the use of
various buffers
Feeding
Project
Capacity

Project Management Software
Technology has benefited project management
CAD
To produce updated prototypes on construction and product-
development projects
Communication software
Helps to keep project members in close contact
Facilitates remote viewing of projects
Project management software
Specialized software used to help manage projects
Assign resources
Compare project plan versions
Evaluate changes
Track performance
Project Management Software
Advantages
Advantages include:
Imposes a methodology and common project management
terminology
Provides a logical planning structure
May enhance communication among team members
Can flag the occurrence of constraint violations
Automatically formats reports
Can generate multiple levels of summary and detail reports
Enables what if scenarios
Can generate a variety of chart types
Risk Management
Risks are an inherent part of project management
Risks relate to occurrence of events that have undesirable
consequences such as
Delays
Increased costs
Inability to meet technical specifications
Good risk management involves
Identifying as many risks as possible
Analyzing and assessing those risks
Working to minimize the probability of their occurrence
Establishing contingency plans and budgets for dealing with any
that do occur
Operations Strategy
Projects present both strategic opportunities and risks
It is critical to devote sufficient resources and attention to projects
Projects are often employed in situations that are characterized by
significant uncertainties that demand
Careful planning
Wise selection of project manager and team
Monitoring of the project
Project software can facilitate successful project completion
Be careful to not focus on critical path activities
to the exclusion of other activities that may
become critical
It is not uncommon for projects to fail
When that happens, it can be beneficial to examine the probable reasons for
failure