Dr. Miltiadis A. BoboulosEng. Lazar Peshev

Industrial Project Management: A Handbook of Planning, Scheduling & Evaluation Techniques

1

Chapter 1 Decision modelling in management 1.1. Decision Modelling Modelling decisions in management is a process of developing models reflecting the interrelations between relevant factors in a real situation. The model is reality pre-sented in a simplified form. Modelling is a specific method and means of comprehen-sion. It is applied in company management to study various activity alternatives using developed models. Every individual model comprises various components, variables, parameters, relations, limitations and criteria [1].

• Components correspond to the elements of the system under study.

• Variables are used to describe the relations between individual components of

the model. They can have more than a single value [2].

• Parameters characterize the influence that various variables have in the

model. They are constant for every individual model, i.e. they have just a sin-

gle value [2].

• Relations reflect the links, relations and interaction between various compo-

nents, variables and parameters in the model [3].

• Limitations point out the variation limits and can be either placed in space

and time, can be single-value or multi-value, one-sided or double-sided,

global or local, etc [4].

• Criteria are means of evaluation, comparison and selection. They are objec-

tive and subjective, qualitative and quantitative [4].

The model reflects the nature, structure and functions of the original. It is its imaginary or real duplicate. Its resemblance to the original is used as a basis of building up the model and at the same time, a prerequisite for transferring the results of the experi-ments carried out with the model to the original. According to their form of compre-hension models are classified as theoretical and empirical. Depending on the chances of implementation models can be fictional and material. According to the degree of quantification models can be divided into qualitative and quantitative [5]. According to the factors being reflected there are models based in space and time. Depending to the structure being reflected models can be schematic, physical and mathematical.

2

i). Schematic models

In schematic models a logical correspondence between activities, tasks, executives, time schedules and resources is created, which is later easily transferred into a graphi-cal relation. The graphical relation allows the manager to follow directly and observe the logical links in time, to control the performance of individual tasks with respect to time schedules and consumption of resources [6]. And to look for additional provi-sions in both re-distribution of tasks between executives and it reducing the time needed for the performance of individual activities as a result of which the overall time is thus reduced [7]. The Gantt chart method is a typical representative of graphical models. Gantt charts represent charts spread out in time giving the relevant indications of tasks to be exe-cuted. These chronograms, along with activity planning make it possible to give graphical indications of activity work progress. Thus, process management is largely visualized and allows the manager not only to control performance but also find out when (in what time intervals) he can expect piling up of several parallel activities and hence, some organisational and technical difficulties that might occur [7]. This en-hances the search for possibilities for re-distribution of tasks or avoiding difficulties by advancing or moving some activities back in time. It can be noted here that Gantt charts are a good graphical technique allowing the manager to both plan and control task execution [7]. Network models (CPM, for example) are some of the most widely used graphical models. Network analysis is a technique for planning and control of complex projects and developing time schedules for resources needed for products to be manufactured. It achieves this aim by analyzing the component parts of a given product and evaluat-ing the consecutive interrelations between each event [8]. The results of this analysis are presented as a network diagram of internally linked activities. The idea in the contents of the network planning is close to that of programmed-goal planning (or the linear programming methods) but the technique for the realization of the process of implementation of the method is different. Here, again the basic thing is to break down the process of implementation of the decision into separate elementary tasks or operations that have to be performed in time and pointing out their interrela-tion and logical link in time and space in a connected graph (network) in which the separate elements could represent events or obtained partial results and the links be-tween them (the columns in the graph) represent operations, activities. The advantage of this process is that the final result features good visual presentation and systematical analysis of the process of implementation of decisions and the se-quence for accomplishing individual tasks. Also, numerical characteristics for the overall duration, the total resources required and last but not least – for those routes in the network that are critical for the accomplishment of the overall program are ob-tained. Critical here means that every extension of activities or every increase in re-sources consumption along the critical path would lead to overall increase in the dura-tion of the performance or overall increase in the cost of the entire program [8]. Another advantage is that some very well developed application software packages are available for using computer equipment for building and calculating network graphs. With the help of this software one can plan the accomplishment of individual opera-

3

tions, activities and tasks in time and in a logical link and sequence that is objectively dictated by the nature of the work being performed, as well as to evaluate the necessity of resources and time needed for the accomplishment of the complex of tasks. Also widely used are conformance tables, which actually present always two-dimensional matrices. The rows in them are used to indicate the names of individual executives and the columns are used to indicate the set of tasks to be performed. Then various letters or other graphical characters can be used to indicate the cross-points that correspond to, for example the degree of competence of a give executive in solv-ing a certain task [8]. This matrix provides for the correct distribution of executives in performing a complex of activities. Other such matrix diagrams could be made to indi-cate the correspondence between tasks and resources (and, for example technical means, financial means, etc.) Plotting various diagrams and curves indicating the rate and degree of resources con-sumption in time and allowing the manager to control the spending of these resources can plan the time and resources compliance. Technological block-diagrams are another common graphical technique used for plan-ning and control purposes. These diagrams visualize the performance of certain admin-istrative and managing activities and the accomplishment of a complex of activities for the implementation of a certain decision [8]. These block-diagrams are called techno-logical because they literally interpret the logics and sequence in the management process and in the technology for the realization of the process of implementation of decisions made. Various sets of graphical characters that in their content correspond to various activities and operations are used for the graphical and symbolic indications in these diagrams. All these symbols are used to shorten the written description and to visualize the overall process and also, point out the logical link between individual op-erations and activities in the form of individual procedures. With the help of the block diagrams and organigrams the manager is capable of making a visual representation of the process of implementation of decisions made and control the work progress for this decision using simple and clear graphical indications [8].

ii). Physical models

Physical models differ from analytical models in that they are not a system of formal mathematical records but spread-out diagrams that give detailed description of the structure of the subject matter being studied. The methods of imitation and acting modelling are among the most powerful analysis tools available to people, who are re-sponsible for the development and functioning of complicated processes and schemes. The idea of imitation modeling provides a possibility for experimenting with the sys-tem (existing or imaginary one) in cases when doing so with the real object would be impossible and purposeless. Individual persons, groups, etc. could act the role of such elements [9]. When building up such models some basic blocks imitating the behaviour of individ-ual elements of the modelled system are actually built up. Individual persons, groups, etc. could act the role of such elements. Moreover, it is very important to define the time scale in every individual imitation and acting model.

4

The difficulties in obtaining analytical solutions to ordinary mathematical models come primarily from the interference of the “uncertainty” factor. Hence, the necessity for including complicated statistical relations in the model that involve the usage of the theory of probability instrument and mathematical statistics. It is exactly these difficul-ties that cause and encourage the idea of creating imitation models. The existing uncer-tainty in them is achieved not by looking for descriptions using complicated mathe-matical formulas but by imitating actual reality [9]. Therefore, imitation modeling is experimentally applicable method that attempts at describing the behaviour of the sys-tem, building up theories and hypothesis, which in turn are capable of explaining the observed behaviour and applies these theories to forecast future behaviour of the sys-tem and defines those actions that could cause changes in the structure of the system or changes in the manner it functions.

iii). Mathematical models

The term mathematical modeling indicates the mathematical formulation of a given problem. Actually, it is an abstract form of description of the phenomena and proc-esses actually taking place, which gives many advantages for the analysis and solving various problems. These advantages are based on using the methods of applied mathematics, which make it possible to process, compare and calculate following strictly defined procedures large quantities of data featuring the problematic situation [9].

• Practically, this means that problems could be solved mathematically if the

following conditions are available:

• The processes and subjects could be quantitatively described;

• The relations existing between them could be interpreted using functional re-

lations and mathematical values;

• The results could be studied and interpreted from the real practical situation

point of view in other words the mathematical results are adequate with re-

spect to existing actual reality.

Therefore, the advantages to this effect lie in the wide variety of mathematical meth-ods applicable to the given problematic situation for searching definite solutions or the new problem formulation opens new possibilities for solving it. The second advantage of the mathematical models used is in the fact that a large part of repeating problematic situations can be qualified and defined through them. More-over, conditions are now available to look for routine solutions in determining how given situations belong to the corresponding group using developed models and re-spective program and technical means [10]. The use of computer equipment largely assists this as it can be used to create not only databases for solving problems but also, model databases that have been classified and defined for certain types of problematic

5

situations. These databases could help derive final or intermediate alternatives to be discussed as possible solutions quickly and efficiently. Along with defining and sorting problematic situations and relevant models for solving them, the practical application of mathematical models in economy in the recent forty years made it possible to define and sort individual stages of making up and solving the models, which besides of having educational importance helps the managers in or-ganizing correctly the usage of mathematical models in practice [10]. To answer the question about the procedures involved in the process of building up and applying mathematical models we should give a short explanation of these defin-ing stages that the process involves:

• The Initial Stage is always linked to creative analytical activities that run along with recognizing the problematic situation despite of the type of solu-tion method to be applied later. Of course, it is from this very stage that in cases where the problematic situation could be given sufficiently good quanti-tative characterization it becomes quite clear that mathematical methods are going to be used. This means that along with recognizing the problem itself at this initial stage it is also determined here if the problem has been sufficiently structured to be given quantitative description and eventually applying a model for solving it [10].

• During the Second Stage all necessary information is gathered in the form of data referring to the individual quantitative characteristics of the problem. These could include certain quantitative parameters featuring the activities of the organization but could also include parameters or variables introduced by the subject for describing a certain problem situation. However, these parame-ters should also be given quantitative characteristics. Compiling numerical data is a difficult and tedious activity especially when no continuity has al-ready been created in solving problem situations such that there is already sufficient information that has been acquired and stored in some form for cer-tain parameters [10]. In this sense, data to be later included in the model should have comparative character, should also be sufficiently and precisely defined and derived from reliable sources.

• The Third Stage is practically the assembly of the model. Here modeling ex-perts provide the mathematical form of the relations between individual char-acteristics, values and model parameters. And basing on these mathematical relations they make analytical calculations where possible, mainly for simpli-fying the mathematical formulae working with abstract mathematical sym-bols. At this stage the way of solving the model also becomes clear because in many cases it turns out that the final result cannot be calculated just on the basis of some analytical transformations. Also defined here is the algorithm for calculating the mathematical model itself. Algorithm is a logically de-scribed sequence of elementary operations that have to be carried out to find the final solution [10]. These operations can have either computing, logical or purely informational character (data recording, data transfer, etc.). Every in-dividual logarithm corresponds to an exactly defined procedure for finding the solution.

• The Fourth Stage comprises the finding of the solution. Once that the algo-

6

rithm for solving the model has been defined the solution itself can be calcu-lated either by using computer equipment (then it would be necessary to transform this algorithm into a software program for this equipment) or con-ventional calculation means (hand calculator, small-sized calculator, etc.). Very often in modeling it is necessary to iteratively perform previous stages depending on the results from the calculation of the model itself (when changes are necessary, additional clarification in the model contents, its vari-ables, parameters, values, etc.). When the second stage is repeated the model is additionally clarified and when the third stage is repeated, changes in the relations are usually made aimed at making the calculation of the model eas-ier. For example, it is often necessary for given non-linear and complex rela-tions to be replaced with simpler linear ones for the needs of simplification or to reduce the variety of parameters and variables making the model large in size and difficult to solve through aggregating and summarizing parameters and variables. A certain mathematical result claiming to be the solution of the initially set problem is obtained at the end of the Fourth stage [11].

• The Fifth Stage covers the answer to the question: how far the result obtained by purely mathematical means is an adequate solution to the actually existing problematic situation? The problem with the adequate solution is solved by means of analyzing the sensitivity of the result obtained when changing the conditions in the actual problematic situation being solved. The validity toler-ance of the result thus obtained is determined with respect to the real situa-tion. In other words, here again we proceed with the creative analysis. At this point again we go from the mathematical model to the actual reality and the exact practical task that has to be solved. Sometimes it is exactly at this stage when one has to return back to the very beginning of the process described so far because the results obtained are not adequate or do not exactly reflect ex-isting processes and phenomena. [11] This could either be due to mistakes in the very definition of the situation and building up the model or in the de-scription given in mathematical form of the relations between individual vari-ables and parameters.

Specialists in the application of mathematical models in economy are very well aware that the boundaries of these stages are largely provisional and that this is actually one continuous process of building up the model and its calculation followed by evaluation of the obtained results. It is important for the manager to have a general knowledge of the contents of this process to be able to get the idea and to control the activities of the teams that perform the modeling. The process of defining and sorting models in groups of problematic situations that are similar in type has formed certain directions in modeling that have acquired their own names and individual significance. Such are: modeling and distribution of resources, mass services modeling, exchange modeling, modeling the formation of reserves and modeling conflicting situations [11]. These modeling directions actually comprise the contents of an independently formed applied scientific subject – operations studies.

7

The models for planning and distribution of resources from the first type are most widely used since the very appearance of operations studies. These are mainly applied in two situations characteristic of the economy:

• A fixed amount of resources is available (this is usually insufficient). A cer-tain kind of activities is necessary to be performed aimed at achieving opti-mum effect (maximum income or profit from the activities performed or minimum expenses).

• The second group of problematic situations involved in the models for the distribution of resources could be characterized as follows: it is necessary to perform a certain volume of work (the work is fixed) and the usage of a cer-tain resource should be minimized or maximized.

The areas where such problematic situations arise and the models for the distribution of resources are applied are mainly related to the defined production programs and the personnel and other material resources support provided. A number of other tasks also exist that at first sight seem too irrelevant to the above area but still use the same mod-els to solve them as a result of the fact that similar relations occur during the analysis [11]. For example, determining the optimum route for transportation vehicles intended to serve a specified number of terminals is again solved using models from the plan-ning and distribution of resources area. Mathematical modeling is aimed at increasing decision rationality through applying mathematical methods and modern computer equipment. Mathematical models include several methods from mathematics, statistics, linear programming, dynamic program-ming, analysis, the theory of probabilities and other applicable when the factors influ-encing managing decisions can be quantitatively expressed [11]. Adopting these meth-ods when giving grounds for the suitability of various alternatives and the choice for one of them increases the reliability and quality of decisions made. The application of mathematical methods for modeling economy activities is con-stantly widening its boundaries covering new areas and solving new problematic situa-tions. It is important for the manager to understand that this is an exceptionally wide and dynamically developing area for the development of the tools and means and ap-plying the methods in solving problematic situations. That is why he should encourage the positive attitude of the specialists he is working most closely with in using this kind of models. It is very essential that he take care to train these specialists, as in-vestment in such training will be generously repaid later.

Comment on the following statement of Barholdi and Platzman and explain how it refers to mathematical modelling: “ A heuristic could be regarded as an information processor who deliberately but ju-diciously disregards certain information. Ignoring this information the heuristic is re-lieved of any effort that would have been needed to read this data and make computa-tions with it. Moreover, the decision this heuristic is going to make would be inde-pendent of the ignored information and, hence would not be influenced by any changes it might be subjected to. Of course, the art of heuristic design is about knowing exactly which information to ignore. Ideally, one tends to disregard the information that is ex-

8

pensive to acquire and maintain, hard to operate with in calculations and that would have little significance to the additional precision of the decision.”

Barholdi and Platzman, 1988 We know from the company management theory and the cybernetics that management and information are closely and deeply connected. Practically, it is impossible to per-form management without having the relevant information available. In essence, the management process is a constant process of compiling, recording and transferring various facts, data and reports and transforming them into management decisions. The information that has been received, considered and processed by the human intellect results in creating new ideas, knowledge and experience, i.e. new information origi-nates. It is exactly getting the experience that helps create in the human brain a data-base, which in the case of Barholdi and Platzman statement is referred to by the human processor. This is a process of mathematical modeling that utilizes the principles of linear programming. When a certain number of predictable variables and limiting re-quirements is available a heuristic would either include or ignore certain information in the limiting requirements basing on the result obtained after said database has been consulted [12]. If this particular information has not been useful to him in solving a similar problem in the past then all further detailed familiarization with this informa-tion is cancelled and it is pushed aside from the scope of the current problem. Or we could say here that all data that his personal experience tells him would not be neces-sary in solving a certain problem situation will be ignored. It will be disregarded judi-ciously as a result of a sensible and mathematically modeled evaluation. This data will be thrown outside of the scope formulated by the limiting requirements in the form of equalities and inequalities and thus it will not affect the definition of an extreme limit for the linear function. The heuristic will act like this after he has analyzed the secon-dary information provided by his own database (his own experience). This secondary information has been caused as a result of the logical comparison (reference) related to the fact whether (and how much) this information has been useful in solving a similar problem in the past experience of that person [12]. It is exactly here where the results of his inductive thinking are shown because the evaluation should be made quickly and completely so disregarding this information would help save whatever efforts that would be needed to read this data and make calculations with it. As a result of a cor-rect synthesis of obtained analytical results it will be necessary to provide sufficient confidence that the decision this heuristic is going to make would be independent of the ignored information and hence, would not be influenced by any changes in this in-formation. I.e. presumably, this would involve mathematical modeling by adopting the methods of linear and dynamic programming, statistics, etc. There is no doubt the statement of the art of heuristic design being in knowing exactly which information to ignore is true. Information is a resource that similar to all other resources has its own cost. It is necessary to gather and process the data using mini-mum materials, financial, credit, etc. expenditure and using available information sources and equipment [12]. This is the reason why human tendency for ignoring the information that is expensive to gather and maintain, hard to handle in calculations and that would have insignificant effect on the additional precision of the decision is un-derstandable.

9

We could say that this is a tendency for the ideal case, which is actually similar to searching for the optimum solution of a mathematical model, which analyses a list of actions the consequences of which are known for certain and chooses the combination of actions that would maximize profit or minimize expenses.

1.2. Network planning techniques Network planning techniques find wide application in project management. The usage of these models relates to the application of system methodology, which stresses on the importance of the links between individual activities as a necessary condition for achieving the set objectives. The CPM (Critical Path Method) and PERT (Program Evaluation and Review Technique) are among the most widely known methods. They are used for developing determined and stochastic network charts. The network chart is a set of performed activities and operations in a given project that are graphically presented in the form of a network where their sequence and interrelation is indicated [10]. The basic elements of network charts are the activities (operations) and the events in them. Every individual operation could express: a work process that involves time and resources consumption; a stand-by process that only requires time; a relation (a ficti-tious work) that shows the logical link between two events and does not require time or resources consumption. The events show the beginning or end of work (operations) [11]. They are performed momentarily, have no duration and do not require spending time or resources. According to the CPM and PERT methods the tips represent the events and the arrows – individual work activities. Every individual work activity is performed in between two events called the initial event, when it starts and the final event when it ends. No work activity can start before its initial event has occurred. One and the same event can be the final event for one or several work activities [12]. Every individual network chart has an event that indicates its start and this event is not preceded by other work activities. The final event in the network chart is called finishing event and indicates the completion of work activities. It is not followed by other work activities. Events are linked according to the sequence of performed work activities and thus form the network chart. A numbered circle indicates events and continuous lines indicate opera-tions. The length of the arrows is randomly selected, not to scale and does not indicate the duration of work activities. In the network chart they follow an order that indicates the sequence of performing them. Before we proceed with the development of network charts we should first clarify the technological sequence in performing the activity works and the links between them. Once we have established this we start making the network chart from the left to the right the number for the initial event of every individual work activity being smaller than the number of the final event. We recommend events to be numbered after the complete network has been made. Network charts differ in the number of events and work activities. The larger the num-ber of work activities and the more links are available between them, the more compli-cated will the network chart be. The number of work activities would depend on the degree of detailing, which is defined by the level of the managing body [12]. The

10

complexity of the network chart is estimated by the complexity coefficient expressed as the ratio between the number of work activities and the number of events in it. Charts having complexity coefficients between 1.0 and 1.2 are fairly simple; for coef-ficients of between 1.3 ÷ 1.9 – they have average complexity and for coefficients above 2 they are highly complex charts. The following basic rules should be observed when making network charts:

• every network chart should only have a single start and a single finishing event;

• parallel running activity works should be linked by introducing fictitious work activities or relations;

• no closed loops are allowed in the network charts i.e. there should not be any routes coming out of one event and then going back to it again;

• it is desirable when the network chart comprises many operations to replace similar sets of operations by one common one;

• no activity works having the same numeric code should be allowed in the net-work charts.

Once the network chart has been made it is necessary to make a check for the correct way of the indicated technological sequence and links between individual operations. The basic parameters of network charts are the:

1) Duration of every individual work activity

The duration of every individual work activity in the CPM method is a predetermined value and in the PERT method – a random value. The actual performance of every network chart depends on the correct and precise determination of the duration of in-dividual work activities, which is indicated in months, weeks, days. In predetermined network models the duration of every work activity is determined according to stan-dard applied norms [13]. When no standard norms are applicable for the duration of individual operations probability estimations are applied. In such cases estimations are indicated in the indeterminacy conditions, as it is impossible to predict exactly the necessary number of executives, equipment and material resources. This indetermi-nacy in time is an objective factor and should be taken into consideration. The duration of operations should be determined using expertise estimations. Every expert gives three estimations:

• an optimistic estimation, i.e. the minimum time for completing the work ac-

tivity in the most favourable conditions;

• the most probable estimation in normal, most often available conditions;

• a pessimistic estimation, i.e. the maximum time for completing the work ac-

tivity in the most unfavourable conditions.

The average time for completing every individual work activity is determined basing on above three expert estimations.

11

The degree of indeterminacy that accompanies the estimated duration is indicated by the variance value. The higher the significance of the variance the higher the indeter-minacy for the duration of every individual activity [13]. Finally, this affects the dead-line for completing the entire set of work activities. Competent specialists are invited to give the expert estimations.

2) Critical path duration

A path in the network chart is defined by a continuous sequence of work activities where the final event of every individual work activity is simultaneously the initial event of the next one. The duration of every path is determined by the sum of dura-tions of work activities it comprises. The path having the maximum duration is called the critical path. The critical path determines the time necessary to complete all work activities included in the network chart [14]. All work activities situated on the critical path are called critical work activities and the final deadline for completing the overall project depends on their duration. Reducing or increasing the duration of work activities situated on the critical path will reduce or increase the total duration, respectively. It is possible to have several critical paths within a single network chart. Those paths whose duration is the closest to the critical path duration are called sub-critical.

3) The early time for the occurring of a certain event

The early time for every individual event to occur is equal to the largest duration of all paths linking the initial event of the network chart with the given event. This is deter-mined beginning from the start of the chart and moving consecutively toward the end. It is assumed that the early time for the initial event in the network chart to occur is zero [14]. The early time for the finishing event in the network chart to occur is equal to the duration of the critical path.

4) Late time for the occurring of a certain event

The late time for every individual event to occur is calculated from right to left and represents the final deadline for the occurrence of the given event without affecting the time for the occurrence of the finishing event in the network chart. The late time for the occurrence of the finishing event in the network chart is equal to the early time for the occurrence of this event [14].

5) Early start of every individual work activity

The early start of every individual work activity is equal to the early time for the oc-curring of its initial event.

12

6) Late start of every individual work activity

The late start for every individual work activity determines the shortest possible time for starting it and is calculated as the difference between the short time for the occur-ring of its finishing event and its duration.

7) Early completion of every individual work activity

The early completion of every individual work activity indicates the earliest possible time for completing it and is determined by adding the duration of this work activity to the early occurring of its initial event.

8) Late completion of every work activity

The late completion of every individual work activity is equal to the short time for the occurring of its final event.

9) Full time reserve of every path in the network chart

The full time reserve of every path indicates how much the duration of all work activi-ties included in it could be increased without affecting the final deadline.

10) Full time reserve of every individual work activity

The full time reserve of every work activity indicates the amount of time its duration could be increased, so that the duration of the longest path passing through this work activity would not exceed the duration of the critical path. It also indicates the time that the start or finishing of this work activity could be delayed without affecting the final deadline [14]. Every work activity becomes critical when its full time reserve is exhausted. Work ac-tivities situated on the critical path do not have time reserves.

11) Free time reserve for every individual work activity

The free time reserve for a given work activity indicates the time that its start could be delayed without affecting the early start of the next work activity.

12) Independent time reserve for every individual work activity

The independent time reserve for a given work activity indicates the time available for performing this work in the cases when the previous work activity has finished at its latest time and the next work activity is starting at its earliest.

13

Estimated parameters are used for the optimization of network charts. The need for op-timization is implied by the limitations for the labour, material, financial, etc. re-sources. Resources optimization involves such arrangement of work activities in time that the volume of necessary resources does not exceed some specified amount provid-ing that the deadline for completing all work activities is kept [15]. The project management process involves evaluation of possible situations, control on the actual level attained, analysis of necessary changes aimed at correcting the sched-ule and re-distribution of resources. Efficient utilization of described methods can only be possible when complete co-ordination in the activities of all managing teams providing regular flow of trustworthy information and controlling the implementation of decisions made is available. The output information about the network schedule can be distributed between the managers and specialists at all levels of the management hierarchy in an amount that would allow for making analysis and decisions. At the same time, this information should be directed at the most responsible sections in the whole complex of performed activity works. Depending on the management levels in the company the information should be pro-vided with various degree of detail. Managers should obtain detailed information just for the work activities situated on the critical path. Once the information is obtained it might be considered necessary in the course of work to make some modifications to the network schedule aimed at finding new solutions that would provide for the com-pletion of the tasks within specified time-terms [15]. These modifications will affect the duration of the critical path and time reserves of individual operations, which in turn presumes that revisions of time estimations and the links between them are made. Compiling, processing and analyzing the information as well as the updating and op-timization of the network chart require time. This calls for regular co-ordination be-tween adopted modifications. Applying the methods of network planning allows distinguishing between major and secondary problems and defining the objectives laid before every manager from the various management levels. Practical experience has confirmed that the CPM method is the most suitable to apply in planning processes where preliminary time estimations for individual operations is not threatened by uncertainty or this preliminary data is standard (preparations for pro-duction, building, etc.) Unlike the critical path method, the PERT method is characterized by the fact that as far as time for operations and events deadlines is concerned it is a stochastic model. In this sense PERT provides objective modeling of a given accidental situation in the planned time for operations and subsequent accidental situations in time terms. More-over, PERT models some cybernetic aspects of planning and management of basic ma-terial processes, especially the feedback aspect [15]. When pre-specified time has the features of an estimation the PERT method is prefer-able. Basing on many time estimations in PERT the factors causing uncertainty are also considered to a certain degree using some mathematical and statistical methods. Therefore, PERT is widely used in the area of creative processes, like for example studies and development, design and project work [15].

14

Let us examine a project comprising the following list of activities along with times needed for performing them (Table 1.1).

Table. 1.1 Activities and times

ACTIVITY PREDECESSOR NORMAL

TIME (WEEK)

CRASH TIME

(WEEK)

NORMAL COST (£Х103)

CRASH COST (£Х103)

A - 4 2 10 11

B A 3 2 6 9

C A 2 1 4 6

D B 5 3 14 18

E B, C 1 1 9 9

F C 3 2 7 8

G E, F 4 2 13 25

H D, E 4 1 11 18

I H, G 6 5 20 29

Using manual techniques we estimated the activity network (Fig. 1.1).

Fig. 1.1 Activity network

CALCULATING TIMES: For each activity we will compute: ES - the earliest starting time, which is the earliest time that work can start on an activ-ity assuming all activities take their estimated times to complete. (Using a forward pass) [15]. ESA = 0 ESB = dA = 4

A B

C E

G

H

I

F

D

15

ESC = dA = 4 ESD = dA + dB = 4 + 3 = 7 ESE = max (dA + dB ), ( dA + dC ) = max (4 + 3), (4 + 2) = 7 ESF = dA + dC = 4 + 2 = 6 ESG = max (dA + dB + dЕ ), ( dA + dC + dF ) = max ( 4 + 2 + 1 ), (4 + 2 + 3 ) =

= max (7 ), (9) = 9 ESH = max (dA + dB + dD ), ( dA + dB + dE ), ( dA + dC + dE ) =

= max (4 + 3 + 5 ), ( 4 + 3 + 1 ), ( 4 + 2 + 1 ) = = max (12 ), ( 8 ), ( 7 ) = 12

ESI = max (dA + dB + dD + dH ), ( dA + dB + dE + dG ), ( dA + dC + dF + dG ) = = max (4 + 3 + 5 + 4), ( 4 + 3 + 1 + 4 ), ( 4 + 2 + 3 + 4 ) = 16

EF – the earliest finishing time, which is the earliest time an activity can be finishing assuming all activities take their estimated times to complete [15]. EFA = ESA + dA = 0 + 4 = 4 EFB = ESB + dB = 4 + 3 = 7 EFC = ESC + dC = 4 + 2 = 6 EFD = ESD + dD = 7 + 5 = 12 EFE = ESE + dE = 7 + 1 = 8 EFF = ESF + dF = 6 + 3 = 9 EFG = ESG + dG = 9 + 4 = 13 EFH = ESH + dH = 12 + 4 = 16 EFI = ESI + dI = 16 + 6 = 22 LS – the latest starting time, which is the latest time an activity can start on an activity without postponing completion of the project, assuming all activities take their ex-pected times to complete. (Using a backward pass) [15]. LSA = ESI – dH – dD – dB – dA = 16 - 4 – 5 – 3 –4 = 0 LSB = ESI – dH – dD – dB = 16 - 4 – 5 – 3 = 4 LSC = ESI – dG – dF – dC = 16 - 4 – 3 – 2 = 7 LSD = ESI – dH – dD = 16 - 4 – 5 = 7 LSE = ESI – dH – dE = 16 - 4 – 1 = 11 LSF = ESI – dG – dF = 16 - 4 – 3 = 9 LSG = ESI – dG = 16 - 4 = 12 LSH = ESI – dH = 16 - 4 = 12

16

LSI = ESI = 16 LF – the latest finishing time, which is the latest time an activity can be finished with-out postponing completion of the project, assuming all activities take their expected times to complete [15]. LFA = LSA + dA = 0 + 4 = 4 LFB = LSB + dB = 4 + 3 = 7 LFC = LSC + dC = 7 + 2 = 9 LFD = LSD + dD = 7 + 5 = 12 LFE = LSE + dE = 11 + 1 = 12 LFF = LSF + dF = 9 + 3 = 12 LFG = LSG + dG = 12 + 4 = 16 LFH = LSH + dH = 12 + 4 = 16 LFI = LSI + dI = 16 + 6 = 22

Table. 1.2

ACTIVITY A B C D E F G H I

ES 0 4 4 7 7 6 9 12 16

EF 4 7 6 12 8 9 13 16 22

LS 0 4 7 7 11 9 12 12 16

LF 4 7 9 12 12 12 16 16 22

d 4 3 2 5 1 3 4 4 6

Slack = (LF-ES-d) 0 0 3 0 4 3 3 0 0

DETERMINING THE CRITICAL PATH The critical path is the longest path through the network. It can be identified by the fact that the float on the path is usually zero (slack on all activities on critical path also zero) [15].

The Critical Path is: A – B – D – H – I ( See Fig. 1.2).

17

A B

C E

G

H

I

F

D0 4 4 7 7 12 9 13

12 16

16 22

12 167 8

11 12

6 9

9 4

4 6

7 9

0 4 4 7 7 12 16 22

12 16

CP

Fig. 1.2. Critical Path

The Critical Path determines the time needed for the completion of all work activities comprising the network chart. All work activities situated on the critical path are called critical and the final deadline for the completion of the project depends on their dura-tion [16].

Fig. 1.3. Gantt Chart

A

B

C

D

E

F

G

H

I

1 2 3 4 5 6 7 8 9 10

Critical Path

Critical Path

Earliest Time

Latest Time

11 12 13 14 15 16 17 18 19 20 21 22

18

DETERMINING THE NORMAL COMPLETION TIME (NT) The normal completion time for the project will be equal to the sum of all normal times needed for the completion of activities situated on the critical path [16]. Normal Time = dA + dB + dD + dH + dI = = 4 + 3 + 5 + 4 + 6 = 22 The normal time to complete the project is 22 weeks. DETERMINING THE NORMAL COST FOR THE PROJECT The normal cost for completing the project will be equal to the sum of all normal costs for all activities:

Normal Cost = CA + CB + CC + CD + CE + CF + CG + CH + CI = = 10.103 + 6.103 + 4.103 + 14.103 + 9.103 + 7.103 + 13.103 + 11.103 + 20.103

NC = £ 94.103

Normal Cost is £ 94 000 • Which activities can be shortened and what would be final project cost to re-

duce the project by three weeks.

Operations situated on the critical path have the following time reserve (See Table 1.3):

Table. 1.3 Time Reserve

ACTIVITY A B C D E F G H I

LS 0 4 7 7 11 9 12 12 16

LF 4 7 9 12 12 12 16 16 22

Time reserve 4 3 2 5 1 3 4 4 4

The time needed to complete activity A could be reduced from 4 to 2 weeks. This is equal to the crash time to complete this operation. The time for completing activity D could be reduced from 5 to 4 weeks, as the crash time for activity D is 3 weeks. Both operations are situated on the critical path. Thus the overall time along the critical path will be reduced by three weeks [16]. This will be reflected as a change in the cost of the project as follows:

• For activity A the cost will be equal to the crash cost:

CA = CA Crash = £11.103

19

• For activity D the crash time cost is:

(CD Crash - CD )/2 = (18.103 - 14.103 )/2 = £2.103 per week.

As we are reducing the time for activity D by one week the cost for activity D will therefore will be increased by £2.103.

CD = CD + £2.103 = £14.103 + £2.103 = £16.103

The overall cost of the project will be increased by £3000 (£1000 from the reduction in the time for completing activity A plus £2000 reducing the time for completing op-eration D). Or:

Overall Project Cost = NC + 3000 = £ 97 000 +£ 3 000 = £ 97 000

Overall Project Cost = £ 97 000

1.3. An order fulfilment for the production and assembly of 10 bench drills: A case study.

Let us consider a project of activities for the fulfilment of an order for the production and assembly of 10 bench drills, size 16mm. The sequence of operations is as follows:

Table. 1.4 Sequence of operations

№ ACTIVITY OPERATION PREDECESSOR

1. A Preparing the technical and manufacturing documentation -

2. B Ordering and making the patterns for parts to be made by die casting A

3. C Purchasing materials A

4. D Purchasing and ordering dies A

5. E Ordering packing A

6. F Die casting B

7. G Ordering and manufacturing of parts from subcontractors C

8. H Making some specialized dies D

9. I Making the packing E

10. J Mechanical processing of die-cast parts F

11. K Manufacturing parts from subcontractors G

20

12. L Manufacturing own parts B

13. M Assembly of all ten drills J, K, L, H

14. N Painting the drills M

15. O Packaging of the machines N, I

The table underneath indicates the normal and crash times for every individual opera-tion along with normal and crash costs.

Table. 1.5 Normal and crash times and costs

№ Activity Predecessor Normal

Time (day)

Crash Time (day)

Normal Cost ($)

Crash Cost ($)

1. A - 7 5 $500 $600

2. B A 10 8 $150 $210

3. C A 7 4 $1 000 $1 300

4. D A 4 4 $700 $700

5. E A 2 2 $50 $50

6. F B 2 2 $300 $300

7. G C 2 2 $40 $40

8. H D 7 5 $200 $300

9. I E 4 3 $500 $550

10. J F 7 6 $250 $300

11. K G 10 8 $1 000 $1 200

12. L C 27 24 $3 600 $4 050

13. M H,J,K,L 7 6 $700 $850

14. N M 2 2 $150 $150

15. O I,N 1 1 $50 $50

We make complete CPM computer analysis using the WinQSB software product.

21

Fig. 1.4. Activity network

Fig. 1.5. Gantt Chart

A0 7

0 7C

7 14

7 14

B7 17

32

E7 9

44 46

F19

26 34

I9 13

46 50

M41 48

41 48

D7 11

34

G14 16

29 31

J19 26

34 41

L14 41

14 41N

48 50

48 50

K16 26

31 41

H11 18

34 41

O50 51

50 51

22

Determining the critical path The question about the estimated time between two events is very essential for the de-sign, as the main reserves discovered in the network planning process represent ex-actly reductions in the times for the design activity. With this respect network planning provides possibility for defining the so-called critical path. The main feature of the critical path is that it is the most important path from the starting (initial) to the finish-ing (final) event. One of its characteristic features is that the minimum necessary time for performing respective activities is the longest in all other paths that link these two events [16]. In our case there is a single critical path. This path was defined following a CPM analysis using normal times and is indicated in the table shown underneath. Table. 1.6 Critical Path(s) (Using Normal Time)

03-25-2000 Critical Path 1 1 A 2 C 3 L 4 M 5 N 6 O

Completion Time 51

Using WinQSB we made an Activity Analysis using normal time and calculate ES, EF, LS, LF for every individual operation as well as the normal time for completing the project and the normal cost for the project. Table. 1.7 Activity Analysis (Using Normal Time)

03-25-2000 18:27::27

Activity Name

On Critical Path

Activity Time

Earliest Start

Earliest Finish

Latest Start

Latest Fin-ish

Slack (LS-ES)

1 A Yes 7 0 7 0 7 0 2 B no 10 7 17 22 32 15 3 C Yes 7 7 14 7 14 0 4 D no 4 7 11 30 34 23 5 E no 2 7 9 44 46 37 6 F no 2 17 19 32 34 15 7 G no 2 14 16 29 31 15 8 H no 7 11 18 34 41 23

23

9 I no 4 9 13 46 50 37 10 J no 7 19 26 34 41 15 11 K no 10 16 26 31 41 15 12 L Yes 27 14 41 14 41 0 13 M Yes 7 41 48 41 48 0 14 N Yes 2 48 50 48 50 0 15 O Yes 1 50 51 50 51 0

Project Completion Time = 51 days Total Cost of Project = $9 190 (Cost on CP = $6 000) Number of Critical Path(s) = 1 Using WinQSB we made Activity Analysis using crash times and calculate ES, EF, Ls and LF for every individual operation, as well as the crash time and crash cost of the project [16]. Table. 1.8 Activity Analysis (Using Crash Time)

03-25-2000 18:30:27

Activity Name

On Critical Path

Activity Time

Earliest Start

Earliest Finish

Latest Start

Latest Finish

Slack (LS-ES)

1 A Yes 5 0 5 0 5 0 2 B no 8 5 13 17 25 12 3 C Yes 4 5 9 5 9 0 4 D no 4 5 9 24 28 19 5 E no 2 5 7 36 38 31 6 F no 2 13 15 25 27 12 7 G no 2 9 11 23 25 14 8 H no 5 9 14 28 33 19 9 I no 3 7 10 38 41 31 10 J no 6 15 21 27 33 12 11 K no 8 11 19 25 33 14 12 L Yes 24 9 33 9 33 0 13 M Yes 6 33 39 33 39 0 14 N Yes 2 39 41 39 41 0 15 O Yes 1 41 42 41 42 0

Project Completion Time = 42 days Total Cost of Project = $10 650 (Cost on CP = $7 000) Number of Critical Path(s) = 1

24

Having performed the Crashing Analysis we estimated the cost for reducing the nor-mal time by 5 days (10%), i.e. to 46 days. Or how much more expensive would be the project to complete it 5 days earlier than the normal time.

Table. 1.8 Crashing Analysis for reducing the normal time by 5 days

03-25-2000

18:36::27

Activity Name

Critical Path

Normal Time

Crash Time

Suggested Time

Additional Cost

Normal Cost

Suggested Cost

1 A Yes 7 5 5 $100 $500 $600

2 B no 10 8 10 0 $150 $150

3 C Yes 7 4 4 $300 $1 000 $1 300

4 D no 4 4 4 0 $700 $700

5 E no 2 2 2 0 $50 $50

6 F no 2 2 2 0 $300 $300

7 G no 2 2 2 0 $40 $40

8 H no 7 5 7 0 $200 $200

9 I no 4 3 4 0 $500 $500

10 J no 7 6 7 0 $250 $250

11 K no 10 8 10 0 $1 000 $1 000

12 L Yes 27 24 27 0 $3 600 $3 600

13 M Yes 7 6 7 0 $700 $700

14 N Yes 2 2 2 0 $150 $150

15 O Yes 1 1 1 0 $50 $50

Overall Project: 46 $400 $9 190 $9 590

Reducing the normal time from 51 to 46 days (by 10%) will result in an increase in project cost of $400 ($9 590 - $9 190 = $400). This could be achieved by reducing the time for operation A from 7 to 5 days (which will cost additional $100) and the time for operation C from 7 to 4 days (which will cost additional $300). Using the Activity Analysis (using Crash Time) I have already estimated the Minimum Project completion time = 42 days. Using the Crashing Analysis I determine the resul-tant cost of the project provided it is completed for the minimum possible duration.

25

Table. 1.9 Crashing Analysis for the minimum possible duration (42 days)

03-25-2000 18:33:27

Activity Name

Critical Path

Normal Time

Crash Time

Suggested Time

Additional Cost

Normal Cost

Sugges-ted Cost

1 A Yes 7 5 5 $100 $500 $600

2 B no 10 8 10 0 $150 $150

3 C Yes 7 4 4 $300 $1 000 $1 300

4 D no 4 4 4 0 $700 $700

5 E no 2 2 2 0 $50 $50

6 F no 2 2 2 0 $300 $300

7 G no 2 2 2 0 $40 $40

8 H no 7 5 7 0 $200 $200

9 I no 4 3 4 0 $500 $500

10 J no 7 6 7 0 $250 $250

11 K no 10 8 10 0 $1 000 $1 000

12 L Yes 27 24 24 $450 $3 600 $4 050

13 M Yes 7 6 6 $150 $700 $850

14 N Yes 2 2 2 0 $150 $150

15 O Yes 1 1 1 0 $50 $50

Overall Project: 42 $1 000 $9 190 $10 190

Minimum Project Completion Time is 42 days, which has been achieved at an extra cost of:

$1000 = $10 190 - $9 190 = $1 000 If Optimistic Time (a), Most Likely Time (m) and Pessimistic Time(b) (Table 1.10) are used for the same project we can also make an Activity Analysis using WinQSB.

Table. 1.10 Optimistic Time, Most Likely Time and Pessimistic Time

ACTIVITY NUMBER

ACTIVITY IMMEDIATE PREDECESSOR

OPTIMISTIC TIME [ a ]

MOST LIKELY TIME [ m ]

PESSIMISTIC TIME [ b ]

1. A - 4 7 9 2. B A 7 10 12 3. C A 3 7 10 4. D A 3 4 5 5. E A 1 2 3 6. F B 1 2 3

26

7. G C 1 2 4 8. H D 4 7 9 9. I E 2 4 5 10. J F 4 7 8 11. K G 6 10 12 12. L C 23 27 31 13. M H,J,K,L 5 7 10 14. N M 1 2 3 15. O I,N 1 1 2

We can calculate ES, EF, LS, LF, activity mean time and standard deviation for every activity. We can also estimate Project Completion Time and also find the critical path. Table. 1.11 Activity Analysis using Optimistic, Most Likely and Pessimistic Times

Acti-vity

Name

On Criti-cal Path

Activity Mean Time

Earliest Start

Earliest Finish

Latest Start

Latest Finish

Slack (LS-ES)

Activity Time

Distri-bution

Standard Deviation

1 A Yes 6.8333 0 6.8333 0 6.8333 0 3 -T. e. 0.8333

2 B no 9.8333 6.8333 16.6667 22.1667 32 15.3333 3 -T. e. 0.8333

3 C Yes 6.8333 6.8333 13.6667 6.8333 13.6667 0 3 -T. e. 1.1667

4 D no 4 6.8333 10.8333 29.8333 33.8333 23 3 -T. e. 0.3333

5 E no 2 6.8333 8.8333 44 46 37.1667 3 -T. e. 0.3333

6 F no 2 16.6667 18.6667 32 34 15.3333 3 -T. e. 0.3333

7 G no 2.1667 13.6667 15.8333 28.8333 31 15.1667 3 -T. e. 0.5

8 H no 6.8333 10.8333 17.6667 33.8333 40.6667 23 3 -T. e. 0.8333

9 I no 3.8333 8.8333 12.6667 46 49.8333 37.1667 3 -T. e. 0.5

10 J no 6.6667 18.6667 25.3333 34 40.6667 15.3333 3 -T. e. 0.6667

11 K no 9.6667 15.8333 25.5 31 40.6667 15.1667 3 -T. e. 1

12 L Yes 27 13.6667 40.6667 13.6667 40.6667 0 3 -T. e. 1.3333

13 M Yes 7.1667 40.6667 47.8333 40.6667 47.8333 0 3 -T. e. 0.8333

14 N Yes 2 47.8333 49.8333 47.8333 49.8333 0 3 -T. e. 0.3333

15 O Yes 1.1667 49.8333 51 49.8333 51 0 3 -T. e. 0.1667

Project Completion Time = 51.0 days Number of Critical Path(s) = 1

3 -T. e. 3-Time Estimate

Performing Probability Analysis we can estimate the Chance to finish in 46 days.

27

Table. 1.12 Simulation Result

03-26-2000 Completion Cumulative

13:42:08 Time From To (included) Frequency % %

0 0 44.52 1 0.1000 0.1000 1 44.52 45.17 1 0.1000 0.2000 2 45.17 45.82 3 0.3000 0.5000 3 45.82 46.46 6 0.6000 1.1000 4 46.46 47.11 19 1.9000 3.0000 5 47.11 47.76 40 4.0000 7.0000 6 47.76 48.41 57 5.7000 12.7000 7 48.41 49.06 60 6.0000 18.7000 8 49.06 49.70 88 8.8000 27.5000 9 49.70 50.35 108 10.8000 38.3000

10 50.35 51.00 124 12.4000 50.7000 11 51.00 51.65 107 10.7000 61.4000 12 51.65 52.30 105 10.5000 71.9000 13 52.30 52.94 86 8.6000 80.5000 14 52.94 53.59 85 8.5000 89.0000 15 53.59 54.24 41 4.1000 93.1000 16 54.24 54.89 33 3.3000 96.4000 17 54.89 55.54 17 1.7000 98.1000 18 55.54 56.18 10 1.0000 99.1000 19 56.18 56.83 8 0.8000 99.9000 20 56.83 57.48 1 0.1000 100.0000 21 57.48 and over 0 0.0000 100.0000

Total Observations = 1000 Random Seed = 27437

Average Completion Time = 51.00 days

Chance to finish in 46 days = 0.8000%

28

Chapter 2 Increasing the production capacity of a company to meet the increasing product market demand.

2.1. Introduction The XYZ company produces pressed steel products and at present the factory does not have the capacity to meet product demand. Orders and quantities ordered by regular customers have recently increased. Additionally, the number of new customers is in-creasing. The management of the company has realised the company is incapable of meeting recent market requirements with its current production output. It is believed that the inadequacy of production output in meeting current demand carries the risk of financial losses resulting from the fact that the company is incapable of producing higher quantities and might thus lose some of its well-recognised customers as well as some potential new custom-ers and its company image will thus suffer. Currently, the company has the following machines and equipment available to pro-vide directly for its produc-tion output (Fig. 2.1): (a) Machines in Machine shop, 8 off; (b) Large presses, 4 off; (c) Small presses, 4 off; and (d) Assembly benches, 3 off. The Board of Directors of the company made a decision for change towards increasing the production capacity of the company with 50%. This will be realised as an expan-sion of the existing production premises and by increasing and quality improvement of available manufacturing equipment facilities through repair and refurbishment work. An initial study has identified future plant requirements and building extension plans have been made. The study recommendations were that new machines and benches had to be purchased to enable production to be increased by 50%. The factory had to be extended by one bay to accommodate the new equipment, with the existing produc-tion level not to be effected by more than the equivalent of two full weeks production, during the alterations. A new finished goods store should be established to allow suffi-cient room for raw materials and paint in the original store. The paint area should be in addition increased. A dispatch area should be also created adjacent to finished goods storage. Based on these requirements building plans have been prepared and the new plant look is illustrated in Fig. 2.2. The Board of Directors have approved the scheme in principle and authorised a project team to plan the work.

Machine shop

Large Press shop Small Press shop

Assembly

Office

ExistingFactory

PaintShop Paint Store

Finished GoodsRaw MaterialUnused Storage

Fig. 2.1 Existing company layout

29

The established project team comprised the individuals indicated in Fig. 2.3 and fea-tured a matrix arrangement (representatives of different departments were included in it). This arrangement has been often used when mak-ing changes within a com-pany, as is the case. All team members worked in close co-operation expressed in performing the intrinsic planning tasks for each individual position, at the same time maintaining constant feedback with other team positions as regards their achievements in each particular stage, their analyses and subsequent agreements.

The purpose of the present case study therefore, is to draw up a plan of events in-volved in the expansion and modernisation of the company to provide for a 50% in-crease of it production capacity. Main research objectives have been awarded in the following order: (a) Analyze the project requirements pre-defined by the company management. (b) Synthesize basic tasks evolving from the main project’s purpose and the requirements analysis. (c) Produce a work breakdown structure, down to the work package level. Define interrelations between individual tasks in terms of time and structure and identify priorities. (d) Draw up a network diagram and determine the du-ration of the project; define the critical path and float values. (e) Apply risk analysis and provide a strategy and plan for a risk management. Finally, preparation of a finan-cial plan and a schedule including a balance sheet and a projection of cash flow over the project life cycle.

Assembly Shop

Large Press Shop Small Press Shop

Office

Paint Shop

Paint Store

Finished GoodsStore

Raw Materia Store

Sliding Door MachineShop

NewFactory

Fig. 2.2 The new plant layout

CompanyManagement

ProjectManager

ProjectEngineer

ProcurementManager

WorksManager

ProductionManager

TrainingManager

RiskAnalyst

FinancialControler

Staff Staff Staff Staff Staff Staff

Fig. 2.3 The project team matrix arrangement

30

2.2. Producing a work breakdown structure

About the Work breakdown Structure The development of a project plan is predicated on having a clear and detailed under-standing of both the tasks involved, the estimated length of time each task will take, the dependencies between those tasks, and the sequence in which those tasks have to be performed. Additionally, resource availability must be determined in order to assign each task or group of tasks to the appropiate worker. One method used to develop the list of tasks is to create what is known as a work breakdown structure (WBS). A work breakdown structure is a hierarchic decomposition or breakdown of a project or major activity insto successive levels, in whcih each level is a finer breakdown of the preceding one. In final form a WBS is very similar in structure and layout to a document outline. Each item at a specific level of a WBS is numbered consecutively. Each item at the next level is numbered within the number of its parent item [15]. A work breakdown structure is a process for defining the final and intermediate prod-ucts of a project and their relationships. Generally, WBS uses a tree diagram/structure diagram to show the resolution of overall requirements into increasing levels of detail. WBS allows a team to accomplish its general requirements by partitioning a large task into smaller components and focusing on work that can be more easily accomplished. A work breakdown structure is an essential element in project planning and project management. In the quality planning process, WBS begins with a generalized goal and then identifies progressively finer levels of actions needed to accomplish the goal. In the quality improvement process, the tool is especially useful for creating an imple-mentation plan to remedy identified process problems [15]. For WBS to accurately re-flect the project, however, it is essential that the team using it have detailed under-standing of the tasks required. A Work Breakdown Structure is a way of representing the hierarchy of work products to show their dependencies and relationships, and sometimes their sources. A WBS can be developed to identify the tasks in a project. The number of levels in a WBS will depend on the size and complexity of the project. The Project Team has already identified the basic objective of the project, and namely to expand production capacity of the XYZ company in order to meet increased market demand for its products thus avoiding the real risk of being “pushed out” of the market [16]. An important task for the Team on its way towards achieving the basic objective of the project is to make an optimum work activities breakdown. Solving this task the team describes the tasks and workflow [16]. There are a number of things the project man-ager must accomplish when developing the work plan:

• Break the work into manageable "tasks" that can be assigned to appropriate people and resources.

31

• Define the work as independent elements that can be sequenced, scheduled, and monitored.

• Integrate the work elements into a total system with a beginning and an end.

• Present the sequence of tasks in a form that can be easily communicated to peo-ple involved in the project.

• Define the tasks at a level of detail appropriate for the length and complexity of the project.

• Verify that the completion of the tasks will result in the attainment of the pro-ject goals.

The Tree Diagram One method commonly used to create a WBS is a tree diagram. It is a chart that di-vides a job into tasks and sub-tasks, each of which contributes to a final result or out-put, and demonstrates its relationship to the others [16]. The Project Team has made up the following Tree Diagram seen in the next page (Fig. 2.4). The work breakdown structure shows the work that will need to be done on a project, moving from a general level to more and more detailed levels. It provides an orderly way to analyze and compare complex management strategies. Each task or sub-task is identified. Each task is numbered and each sub-task is num-bered as a sub-part of its parent task. This information is used with workload, facility, material, equipment and personnel analysis to work up the initial budget, or direct costs, for each element of the project. The Project Team should decide what tasks are to be contracted and what will remain in-house. A simple tree diagram may be suffi-cient for a straightforward project [16].

32

Fig. 2.4 Tree Diagram

1

2 3 4

2.1 2.2 3.1 3.2 4.1

2.1.1 2.1.2 2.1.3 2.2.1 2.2.2 2.2.3 2.2.4 3.1.1 3.1.2 3.1.3 3.2.1 3.2.2

Increasing the production capacityof the company aiming at meetingthe increased market demand forits products

Preliminary technicaland economical studyDeveloping a project forincreasing the productioncapacity of the company

Expansion of existingbuilding facilities

Building newproduction bay

Build

ing

a ne

w a

ssem

bly

shop

faci

lity

Build

ing

a ne

w m

achi

ne s

hop

faci

lity

Build

ing

a ne

w s

mal

l pre

sses

shop

faci

lity

Expansion andre-configuration

of existingbuildings

Rel

ocat

ing

the

finis

hed

good

s st

ore

Expa

nsio

n of

the

raw

mat

eria

ls s

tore

Expa

nsio

n of

the

larg

e pr

esse

s sh

op

Expa

nsio

n of

the

pain

ting

shop

Increasing existingmanufacturing facilities

Purchasing andinstallation of

new equipmentPu

rcha

sing

new

larg

e pr

esse

s

Purc

hasi

ng n

ew s

mal

l pre

sses

Purc

hasi

ng n

ew m

achi

nes

for

the

mac

hine

sho

p

Purchasing andinstallation of new manufacturing equipment and tooling

Purc

hasi

ng n

ew a

ssem

bly

tabl

es

Purc

hasi

ng n

ew s

tora

ge ra

cks

for

the

finis

hed

prod

ucts

sto

re

Overhaul of some ofthe existing equipment

Overhaul offour of theexisting

machines

Selecting the buildingwork company

Selecting suitable newequipment and suppliers

Prep

arat

ion

of th

e bu

ildin

g si

te

Exca

vatio

n w

ork

Cas

ting

of c

oncr

ete

Mak

ing

the

stee

l stru

ctur

e

Cla

ddin

g ro

of p

anel

s

Dem

olis

hing

wal

ls

Exca

vatio

n w

ork

Cla

ddin

g w

all p

anel

s

Inst

alla

tion

of m

achi

nes

Ord

erin

g

Del

iver

y

Inst

alla

tion

2.1.i.j i=1,2,3 j=1,2,3,4,5 2.2.i.j i=1,2,3,4 j=1,2,3,4 i=1,2 j=1,2,3 k=1,2

33

Preparing of Activities List and Activities Continuance

A specific objective of work breakdown, which has to be made by the Project team is to carry out necessary building work for the new production bay, relocating and in-stalling new equipment within the tight time schedule still keeping to the recommenda-tion of the management not to affect the existing production level by more than the equivalent of two full weeks production during the alterations [16]. To make time estimation for completing individual work activities the Project team has assigned several competent specialists, experts and technical staff, experienced in the realization and assessment of such activities. These specialists made maximum use of available rates and other readily available data from previous similar work activi-ties. The time necessary to carry out a single operation was taken as a basic time esti-mate. Identical measurement units, – work days were adopted to express time [16]. The Project team has made one remark that the time thus estimated in work days would require that the duration of the project is calculated relevant to the starting date of commencement of the project giving consideration to weekends and holidays as non-working days. Still, there are some activities such as concrete setting, for example, for which this is not valid. One of the factors, which imports a certain uncertainty in determining time estimations is weather conditions. Many activities, especially those carried out in open air, are di-rectly influenced by rainfall, temperatures and other weather conditions. These factors were taken into consideration taking into account the impact weather conditions may have on the overall project rather than its effect on individual work activities. No “force majeur” circumstances, such as fires, floods, etc. have been taken into consid-eration in the time estimations. The Project team is aware that the time necessary to complete this large number of work activities is not a constant value. It depends on the number of resources planned to be involved in the company expansion process. Resources are the people involved in the project activities, the funds, machines, mate-rials, energy, facilities, etc. The Project team has divided resources into two groups:

• Single-use resources (funds, materials);

• Multiple-use resources (people, facilities, equipment) The task of calculating the relationship between the time necessary for the completion of project activities and the resources spent for this purpose is greatly facilitated by the fact that all resource expenditure is to be estimated in terms of money spent. Single-use resources have been divided by the Project team into two positions:

• Funds necessary to purchase new equipment (small and large presses, machines and storage racks);

• Funds necessary to purchase building materials and provide for labour and technical facilities to be involved in the building company quotation. Preliminary study and reviewing quotations define the cost and delivery time for the new equipment. This time schedule is projected in the Team’s network diagram as a constant value, which is related to other activity time estimations.

34

The funds paid to the building company could also influence the time schedules for completion of building work. Increased funding could reduce the time necessary to complete certain activities planned for the project. For example, more excavation ma-chines and tools could be involved to complete excavation work thus reducing the time necessary to perform this part of the work. Consideration of this should also be given in the project development and it could greatly influence the deadline for the company expansion project whenever considered financially advantageous. Multiple-use resources have been divided by the Project team into two sections:

• Employees of the XYZ company;

• Building company employees. The activities projected to be carried out for the expansion of the company could be divided into building work activities and activities involved in the overhaul and reloca-tion of existing equipment in the production plant area. Employees of the building company shall be involved in building activities. Machine refurbishment and reloca-tion activities shall involve employees of the XYZ company. Above two types of ac-tivities could be carried out in parallel whenever particular operations allow it still keeping to the recommendation of the management not to affect the existing produc-tion level by more than the equivalent of two full weeks normal production during the alterations. Manufacturer’s experts shall be involved for the supervision of installation of new large presses. Actual assembly of the presses shall be carried out by employees of the XYZ company. No matter how well the activities completion schedule and resource distribution have been drawn up it is never possible to achieve continuous and uniform utilization of all resources. Some part of them will always stay idle waiting for its turn to get involved in the work. The Project team will aim at reducing this idle time. The same applies to purchasing and supply of new machinery and equipment. For example, the new equipment should be delivered before machine installationоn begins. Limited storage areas do not allow for this delivery to be supplied earlier than the time for its installa-tion. The objective of the Team was to plan the completion of activities in their logical se-quence taking into consideration complex intervening operations, which involve various groups of workers to carry out the work. Finally, the Project Team has drawn up the following list of activities to be involved in the expansion of the XYZ company including the times necessary to complete individ-ual tasks:

Table. 2.1 Activities involved in the expansion of the XYZ company

№ Activities Predecessor Time

A1 Preparation and approval of the building project and process equipment.

25

A2 Studying quotations, selecting suppliers and contract-ing the building work

A1 6

35

A3 Relocation of available raw materials from the paint store into the unused store

A1 2

A4 Demolition (dismantling) of the existing paint store A3, A2 3

A5 Order for purchasing and supply of new machines A4 35

A6 Tidying and levelling of the building site area. A4 2

A7 Halfway excavation of wall foundations and machine plinths and preparation for casting concrete.

A6 4

A8 Order for purchasing and supply of new small presses.

A7 28

A9 Order for purchasing and supply of new large presses.

A7 49

A10 Casting concrete into the halfway excavations for wall foundations and allow time for drying

A7 20

A11 Casting concrete into the halfway excavations for machine plinths and allow time for drying.

A7 20

A12 Completing the second half of excavations for wall foundations and machine plinths.

A7 4

A13 Building one third of the steel structure A10, A11 2

A14 Completing the second half of concrete casting into wall foundation excavations and drying.

A12 20

A15 Completing the second half of concrete casting into machine plinths excavations and drying.

A12 20

A16 Preparation of grooves for laying underground cables and laying the cables.

A12 1

A17 Completing laying the other two-thirds of the steel structure.

A13, A14, A15 4

A18 Cladding half of the wall and roof panels. A13 4

A19 Order for manufacturing and supply of roller shutter door

A18 19

A20 Preparation and casting of the floor A16, A18 4

A21 Completing cladding of roof and wall panels. A17, A18 4

36

A22 Demolition of existing outside wall A20, A21 2

A23 Laying insulations, water supply, drainage, electrical installations, heating, ventilation and painting of pro-duction rooms.

A22 5

A24 Installation of plinths for machines and assembly ta-bles

A22 1

A25 Installation of lights in the new production rooms A22 1

A26 Moving the small presses into the new production plant

A23, A24, A25 2

A27 Installation of two of the new small presses A8, A26 2

A28 Demolition of the wall between the small presses plant room and the large presses plant room

A26 1

A29 Excavations for plinths for the new two large presses and for those to be relocated

A28 2

A30 Casting concrete into the excavations for plinths for the large presses

A29 20

A31 Moving four of the machines from the old machine shop into the new shop and installation of one new machine

A5, A27 4

A32 Overhaul of the other four machines, relocating them and installing them in the new shop

A27 9

A33 Order for purchasing and supply of storage racks for finished products store

A31 5

A34 Moving assembly tables into the new assembly shop and installation of three new assembly tables

A31 1

A35 Demolition of the wall between the old assembly and machine shops; dmolition of the wall between the machine shop and painting room; demolition to pro-vide an opening for the roller shutter door between the painting shop and the large presses shop.

A34, A32 3

A36 Constructing a wall between the painting shop and the new finished product store.

A35 1

A37 Marking the area for finished goods dispatch A35 1

A38 Installation of the roller shutter door A35, A19 1

37

A39 Relocating the finished products store A36, A37, A38, A33

1

A40 Demolishing the wall between the old finished prod-uct store and the row materials store.

A39 1

A41 Re-positioning of the existing large presses and in-stallation of two new presses

A9, A30, A39 3

A42 Commissioning. A40, A41 2

Following the completion of activities in the above sequence of operations the Project team is now ready to continue with the next task: preparation of a network diagram, determining the critical path for the project, calculating float values, cost of the pro-ject, etc.

Analysis of Pre-Defined Project Requirements Prior to preparing the work breakdown structure an initial requirement analysis has to be made to be used for further synthesis of individual work packages and their interre-lation with time and structure. New machines and benches should be purchased to en-able production output to increase by 50%. Therefore, current manufacturing equip-ment should be increased by purchasing new items: Machines for the Machine Shop, - 1; Large presses, - 2; Small presses, - 2; Assembly benches, - 3. Building and construction plans for the extension have already been developed and approved. Following the documentation analysis the following observations can be used as a starting point for subsequent synthesis: (1) A new production shop is to be build up – Machine-, Small Presses- and Assembly Shop. (2) The first two large presses will stay in their current location. The other two presses will be relocated.

Two additional large presses will be purchased and installed on new plinths. There-fore, four new plinths for large presses will have to be made (12 – Fig. 2.5). (3) All four small presses will be relocated and two more will be purchased and delivered. Therefore, a total of six new plinths for small presses will have to be prepared in the

Office

ExistingFactory

PaintShop Paint Store

Finished GoodsRaw MaterialUnused Storage

Office

Paint Store

Finished GoodsStore

Raw Materia Store

NewFactory

1 5

12 - sesLarge Pres 13 - Small Presses

10 - BenchesAssembly

PaintShop

11 - Machines

4

2 3

6 8

7

9

14 - Paint Shop

15 - Finished Goods Store

Fig. 2.5 Building & construction factory layout

38

new production bay (13 – Fig. 2.5). (4) All eight existing machines in the Machine Shop will be relocated and one newly purchased one will be installed in the new pro-duction bay (11 – Fig. 2.5). (5) All three existing Assembly Benches plus three new ones will be relocated and installed in the new production bay of the new Assembly Shop (10 – Fig. 2.5). (6) Finished Goods Store and Raw Material Store join together in the new enlarged Raw Material Store. Therefore, the demolition of the partition wall 1 between them will have to be considered (Fig. 2.5). (7) The existing Finished Goods Store is re-located (15 – Fig. 2.5). The Paint Shop is expanded for the expense of the Machine Shop (14 – Fig. 2.5). (8) The Paint Store is relocated in the current Unused Store and no building or construction work is required to do this (9 – Fig. 2.5). The current Paint Store is demolished (4 – Fig. 2.5). (9) The wall 2 (Fig. 2.5) is demolished and the wall 7 is erected. The wall 6 is demolished, as well. The outside wall 5 is de-molished. At an initial planning stage the following points have been examined: The proposed site for extension required levelling. Foundations (for walls) and plinths (concrete sup-ports for machines) could be excavated concurrently, but need to be cast as separate items. Furthermore, casting of concrete may overlap die excavations by up to 50%. The toe steel structure may be commenced when at least half the foundations are com-plete. Cladding (wall panels) may be started when one third of the framework (steel structure) is ready. Moreover, the laying of underground cables in the new area must wait for the completion of the excavation, and must be completed before the floor can be cast. Services will have to be relocated in the old area. The floor may be started when the first half of the other concrete work is complete. Additionally, all machinery and assembly benches need to be mounted on plinths. The new large presses will re-quire assembly in position. All the plinths and floor in any particular bay must be completed before machine installations can commence. The existing outside wall may not be demolished before the cladding of the new section is completed and the new finished goods store will require services and racks will be necessary. All building ma-terial other than the roller shutter door is readily available. Finally, new equipment will be required before machine installation, as lighting as well.

Producing a Tree Diagram In the planning process, a work breakdown structure (WBS) begins with a generalised goal and then identifies progressively finer levels of actions needed to accomplish the goal. The number of levels in a WBS will depend on the size and complexity of the study. The initial conditions and requirements analysis was used in structuring the pro-ject tasks. The work was broken down into manageable "tasks" that can be assigned to appropriate people and resources. The tasks were in turn broken down to subtasks. All work elements were integrated into a total system with a beginning and an end. Verification was carried out to confirm that the task completion will result in the pro-ject goals attainment. All this was given graphic illustration in a Tree Diagram (Fig. 2.6) Each task was numbered and each sub-task was numbered as a sub-part of its par-ent task. A Work Breakdown Structure shows the work that will need to be done on a project, moving from a general level to more and more detailed levels. It provides an orderly way to analyse and compare complex management strategies. The project team used the prepared breakdown structure for its subsequent network planning of events. Tasks included in the tree diagram’s fifth level incorporate exactly these activities (Table 2.1), later employed in preparing the network diagram.

39

Synthesis of the Project Activities The activity to start the project with is the relocation of available raw materials from the Paint shop store to the unused store (9 – Fig. 2.5) taking care not to disturb the production process. Time for putting everything in the store in good order and prepar-ing the store for actual use is also provided here. The old Paint shop store demolition (4 – Fig. 2.5) will be carried out by sub-contracting a team of building workers with special required equipment. The site allocated for the building of the new production bay will be cleared of all building waste and levelled. Orders for the delivery of new machines, presses and benches will be placed observing respective time schedules of deliveries so that they arrive immediately before their in-stallation becomes possible. The following delivery times are to be observed here:

3 4

3.1 3.2 4.1

3.1.1 3.1.2 3.1.3 3.2.1 3.2.2

1Increasing the production capacity

of the XYZ company with 50% at least

Generalised Goal:

2

2.1 2.3

2.1.1 2.1.2 2.1.3 2.3.1 2.3.2 2.3.3 2.3.4

2.2

2.3.5

Constructionof a new ma-

nufacturing site

Purchasebuilding

materials

Expansion andrefurbishment ofexisting premises

4.1.1 4.1.2

Purchasing andinstallation of

new machinery

Purchasing andinstallation of new

manufacturingauxiliaries

Major overhaul offour existing

machines

Expansion of existing company premises

Select suitableequipment

and suppliers

Purchase new machinery

Major overhaul of some existing machinery

Select buildingwork contractor

Select suppliers ofbuilding materials

Fig. 2.6 Tree diagram of the work packages and levels.

40

New large presses (2 off) - 49 days; New small presses (2 off) - 28 days; New machine (1 off) - 35 days. In the case machines are delivered long before their required installa-tion, limited storage area hinders long waiting times when delivery is made too early and cannot provide for machine storage. The sub-contractor for the building and construction work can start excavation work on the site prepared for the new production bay, and eventually continue with the framework structure for casting concrete. Excavations will be required for wall foun-dations and machine mounting plinths. Having completed excavation work for half of the foundations (for walls) and plinths (concrete supports for machines), they can also start casting concrete into finished ex-cavations, separately for wall foundations and machine plinths. Excavation work for the rest of foundations and plinths shall continue in parallel. This will allow saving time lost in setting of concrete thus carrying out activities in parallel. It should be kept in mind here that casting and setting of concrete takes 20 days and this period also in-cludes weekends and days off work. Once concrete of the first half of foundations is set, they can start laying the steel structure. This activity will be divided into two parts with a ratio of 1/3 : 2/3 between them. Roof panel and cladding (wall panels) can commence when the first one-third part of the steel structure is complete. Excavation work, concrete casting and laying of the steel structure is carried out by different building and construction teams and these can work in parallel. The concrete will be cast into the second half of foundation excavations when these are finished. Laying steel structure and cladding (roof and wall panels) can continue when machine plinths are complete. The completion of excavation work can start preparations for casting floors in new production shops. The first activity here will be to make the framework for underground cable canals and laying underground cables themselves. Making the floor framework and casting floors can start when half the cladding of roof and wall panels is complete. When half of the roof and wall panel cladding is complete the new sliding door can be ordered which will eventually be installed between the new Painting Shop and the new Large Press shop. The delivery time takes account of the level of completion of build-ing work to allow for its immediate installation. The outside wall (5 – Fig. 2.5) is demolished by a team of building and construction workers using special equipment after the roof cladding of the new production bay is complete. This is followed by laying insulation, water supply and sewage, running electrical installations, heating, ventilation and painting work. Lighting in the new production area will be provided before machine installation. Installation of plinths re-quired for machines and assembly benches will be made by workers of the XYZ com-pany and may begin after the wall (5 – Fig. 2.5) is demolished. All activities listed above are carried out by specialised sub-contractors. Subsequently, we can proceed with the relocation and installation of machines, stop-ping the production process in stages according to a planned schedule. A strategy has been approved based on the following basic requirements: (a) the new presses are in-stalled and commissioned first and then old presses are re-located. A certain level of production output is thus maintained. (b) Use company staff to re-locate old presses and machines. (c) Install and commission new presses with the assistance of manufac-turers specialists.

41

Workers of the XYZ company are also involved in the activities for the relocation, re-pair and installation of new machines. First, the two new small presses are installed and tested. Then, the old small presses are relocated into the new shop (13 – Fig. 2.5). The aim here is to free the old Small Press shop which is to be included in the expan-sion of the Large Press shop. Once this room is free, the demolition of the wall (6 – Fig. 2.5) connecting the old Small Press shop and the Large Press shop can be started immediately. In the new room thus expanded building and construction workers can then start excavation work for the foundations for the two new large presses and the presses which are to be relocated. Concrete is cast into the foundation excavations and is then left to set. Two new small presses are installed in the new shop by company workers, parallel to the activities carried out by building contractor workers. Relocation of four of the machines from the old Machine shop and installation of one additional new machine (11 – Fig. 2.5) into the new Machine shop can commence af-ter small presses are relocated and installed. While this is being carried out the other machines are repaired and also moved, installed and tested in the new Machine shop. At this stage of the project implementation the storage racks for the new finished product store will have to be ordered for delivery. Company workers will continue with the relocation of assembly benches into the new Assembly Shop and the installa-tion of three new assembly benches (10 – Fig. 2.5). Meanwhile, the following activi-ties may commence in the freed old production shops: demolition of wall (2 – Fig. 2.5) between old Assembly shop and old Machine shop; demolition of the wall (3 – Fig. 2.5) between the Machine shop and Painting shop; building a wall (7 – Fig. 2.5) be-tween the Painting shop and the new Finished product store; provide an opening for the roller shutter door between the Paint shop and the Large presses shop. Parallel to above activities the goods dispatch area in the finished product store will be arranged. The roller shutter door can also be installed at this stage. When the finished product store is finished we can start moving the products from the old store (15 – Fig. 2.5). The wall (1 – Fig. 2.5) in the freed old finished goods store separating it from the raw material store will then be demolished. Thus, the raw material store is expanded and arranged. The concrete of the foundations for the large presses is now set and al-lows for the relocation of existing large (12 – Fig. 2.5) and installation of the two newly purchased large presses. New presses are assembled in position by manufac-turer’s specialists. Part of the production units will still continue their operation while the re-location process is carried out. For example, two of the large presses will not be relocated and are positioned at a sufficient distance away from the new building site. New produc-tion shops to which machines have already been moved can also start operation. This complies with the pre-set requirement of not affecting the current level of production by more than the equivalent of two full working weeks normal production. Based on the above discussions the Project Team has managed to synthesise the com-plete list of activities and durations (Table 2.2) involved in the expansion of the XYZ company to finalise the Work Breakdown Structure. Some of the activities (such as “Excavations for wall foundations and machine plinths”, “Casting concrete for wall foundations”, “Casting concrete for machine plinths”, “Laying steel structure”, etc.) were split into several parts with the aim of presenting how some of the operations are carried out parallel in time, thus resulting in total time reduction.

42

Table 2.2

№ Activities Predecessor Time

1. Relocating available raw materials from the paint store into the unused storage 2

2. Demolishing the old paint store 1 3 3. Purchasing and delivery of 1 new machine 1 35 4. Purchasing and delivery of 2 new small presses 1 28 5. Purchasing and delivery of 2 large presses 1 49 6. Purchasing and delivery of building materials 1 10 7. Cleaning up and levelling of the building site 2 4 8. First half of excavation work for foundations and plinths 7 4 9. Casting concrete into half of foundation excavations 8 14 10. Casting concrete into half of plinth excavations 8 14

11. Second half of excavation work for foundations and plinths 8 4

12. Installation of one third of the steel structure 6, 9 4

13. Casting concrete into second half of foundation excava-tions 11 14

14. Casting concrete into second half of plinth excavations 11 14 15. Laying of the underground cables 6, 11 2 16. Installation of remaining two-thirds of the steel structure 12, 13 8 17. First half of the cladding (wall panels) 12 7 18. Purchasing and delivery of sliding door 17 18 19. Preparation and casting of floor 9, 10, 15 4 20. Completion of the cladding (second half) 16, 17 7 21. Demolishing of the existing outside wall 20 2

22. Work involved in the electrical installation, water supply, etc. services 21 4

23. Installing plinths for 9 machines, 6 small presses and 6 as-sembly benches 14, 19 5

24. Purchasing and delivery of 3 assembly benches 22 5 25. Installation of lighting for the new production bay 21 3 26. Installation of 2 new small presses 4, 23, 25 1 27. Testing new small presses 26 2

28. Relocating 4 small presses from the old small press shop into the new one 27 2

29. Installation of 4 small presses 28 2 30. Testing 4 small presses 29 2

31. Demolishing the wall between the small presses shop and large presses shop. 28 1

32. Excavations for plinths for 4 large presses 31 2

43

33. Casting concrete supports for the large presses 32 14

34. Relocating the first four machines from the old machine shop into the new one 29 1

35. Installation of the first 4 machines + 1 new one 3, 34 1 36. Testing of the installed 5 machines 35 2 37. Repair the second 4 machines 29 4 38. Relocation of the second 4 machines 36, 37 1 39. Installation of the second 4 machines 38 1 40. Testing the second 4 machines 39 3

41. Relocation of assembly benches in the new Assembly Shop and installation of 3 new benches 24, 38 1

42. Purchasing and delivery of storage racks for the finished goods store. 38 5

43.

Re-configure walls and partitions between new production shops and arrangement of the new finished goods store and the expanded paint shop. Arrangement of the goods dis-patch area.

41 4

44. Installation of storage racks in the new finished goods store 42, 43 1

45. Installation of the sliding door 18, 43 1

46. Moving products from the old finished goods store into the new one. 44 2

47. Demolishing the wall between the old finished goods store and the raw material store. 46 1

48. Installation of 2 new large presses 5, 33 2 49. Testing and adjustment of new presses 48 2 50. Relocation of the 2 old large presses 49 2 51. Installation of 2 old large presses 50 2 52. Testing of the 2 old large presses 51 1

53. Commissioning of the new production shops 30, 40, 45, 47, 52 2

In order to estimate the time required to complete individual activities, the team used various regulations, process times, delivery times indicated in suppliers and sub-contractors quotations, as well as the analysis of time duration of similar previously carried out activities [16]. Working days were used as measurement units to define time duration. Since process time required for concrete to set (by the concrete work) is 20 days and this does not include weekends, this has to be re-calculated in working days. 20 calendar days usually include 6 weekends (3 Saturdays and 3 Sundays). Therefore, 14 working days were planned for these activities when the time schedule was made. Construction building work for the new production bay is carried out by a building sub-contractor and the contract to be concluded with him stipulates uninterrupted ac-cess for contractor with a clear site. The contract will cover the foundations, floor and

44

building fabric but not installation of services (electrical supply, power supply, sewer-age, etc.). These will be additionally sub-contracted with specialised contractors. In-stallation of new presses is planned to be carried out by suppliers’ specialists since this is a usual practice and this is usually provided for in the purchasing contract. Demolition of walls and cleaning up will be sub-contracted with a specialised contrac-tor possessing the suitable equipment. Company workers will assist with the relocation and installation of machines, old presses and work benches. Having prepared the “De-sign project for building and construction work and process equipment” in advance, enquiries for quotations from various companies offering building and construction services, installation services and similar specialised activities can be make. Subse-quently the received quotations paying special attention to cost, delivery time and quality assurance will be examined.

How the work breakdown structure could be used in both setting up and manag-ing the project? Managing a project effectively can make the difference between success and failure of that project. Planning and managing a project particularly in an area which is innova-tive is challenging, but invaluable as a means of keeping an overview and control over the process of development. The project team coordinates resources, controls progress of project, sets clear priori-ties and provides formal process by which to measure progress Project Objectives in this case need to be:

• clearly defined • realistic • measurable • communicated • agreed by stakeholders

A work breakdown structure (WBS) provides a means of breaking down a project into elements that can be scheduled and costed. Using a WBS helps the team to ensure that all elements of the project are being managed effectively through enabling the project manager to maintain an overview of the project [16]. A work breakdown structure is used to:

• create a project structure • break down the project into specific elements • ensure that all aspects of the project are planned for • provide a framework to enable high level planning

The WBS needs to encapsulate all elements of the project from market research and business planning right through to development of the material [17]. Creating a work breakdown structure the project team has included all aspects from the project from planning through development to delivery [17]. The following should be considered:

• Marketing planning • Business planning • Designing the programme • Writing materials

45

• Deciding on use of technology • Gaining quality approval for a new programme • Agreements with partner institutions (where appropriate) • Instituting administrative arrangements for the delivery of the programme

The aim was the activities to be: • measurable in terms of cost, resources and time • the responsibility of a single individual • provide an identifiable end product

It was important to develop an overview of the project and relate this to staff carrying out the tasks so that the project plan was both comprehensive and realistic. In this way it was possible to see where the gaps are and revise plans accordingly. The Project Team has responsibility for overall delivery of the project.

• Defines the tasks and milestones • Agrees resource allocations • Manages and controls the schedule • Monitors and reports progress

The objective of the team was to make up a work breakdown into individual activities for the work planned to be carried out. Completion of these activities will result in the realization of the project and the breakdown structure will be used in project manag-ing. With the Project for building and technological furnishing available and observing the management recommendations and its own conclusions, the project team sends an in-quiry to several competitive companies for their quotations for contracting the building work for the project. The team then evaluates the feedback paying special attention to prices, timing and quality of the building work offered. Consequently, one company is contracted according to the requirements of the XYZ company for keeping the time schedules agreed for the building work and an option to reduce work duration involv-ing additional resources whenever this is considered necessary. Final time schedules for the completion of the building work part of the project are then agreed for with the building contractor [17]. The team has estimated that the time necessary for the selection of the building work contractor could be used to also move currently available materials from the existing paint store into the unused store. This store will be the actual paint store in the new production layout. Thus, the relocation of paint materials will be performed by em-ployees of the XYZ company without interrupting the production process. This reloca-tion process will also involve arranging the storage area and preparation for future use of the new store. The building contractor will carry out the demolition of the old paint store. The new machines should be ordered for purchasing at this stage of the project. The time period for the delivery of this equipment is in accordance with the timing set for the outstanding future activities. One requirement for the project is to have new ma-chines delivered before the day of their planned installation. After the old paint store is demolished the area planned for the building site should be cleaned and leveled.

46

The building site area thus prepared is ready for the excavation work to begin and the concrete formwork for casting to start. Excavation involves wall foundations and ma-chines plinths. The project team monitors the performance of these activities against scheduled time duration’s and sends orders for purchasing new small presses and large presses when excavation work is halfway complete in order to ensure that these machines are deliv-ered before the date planned for their installation. Concrete casting could start when half of the wall foundation and machine plinth ex-cavation dies are made. Casting of concrete into the wall foundation and machine plinth excavation dies should be performed separately. Excavation work could con-tinue in parallel to concrete casting in order to save time for concrete setting and allow for some other overlapping activities to be carried out. Consideration should be given here to estimated time for casting concrete and setting, which is 20 days. Non-working days are also included in this period. At this stage, laying of the steel structure could begin on the first half of the founda-tions with set concrete. The project team has decided to divide this activity into three stages. When one third of the steel structure is complete they could start cladding wall and roof panels. The distribution and overlapping of these activities has been agreed in advance with the building contractor. Excavation for foundations and plinths, casting of concrete and making the steel structure will be carried out by three different groups of workers to allow for them to work in parallel. After the second half of excavation work is complete the concrete casting group of workers continue with this area. When concrete is set they continue with making the steel structure and overlapping cladding wall and roof panels. The completion of excavation work initiates the preparations for casting the floor in the new production premises. The first activity to be carried out is to make the form-work for underground grooves for cables and wires and run the cables themselves. When half of the cladding of wall and roof panels is complete they can start with the steel structure for the floor and proceed with casting the concrete floor. The completion of cladding half of the wall and roof panels is a sign for the project team to order the new roller shutter door to be manufactured. This door is planned to be installed between the new painting shop and the new large presses shop. The time necessary for the manufacturing of the door has been agreed for in advance with the manufacturer and in accordance with the timing of activities involved in the expansion of the company. Demolition of the existing external wall may start after the roof cladding of the new production room is complete. This activity is to be carried out by employees of the building contractor. The activities, which follow now include insulation, water supply and drainage, elec-trical installations, heating, ventilation and painting. All these activities shall be carried out by the specialised worker groups of the building contractor Room lighting should be provided before machine installation can commence. Deliv-ery of the lighting fixtures has been agreed for in advance with a specialized supplier. These shall be installed in the new production premises by employees of the supplier.

47

After the outside wall is demolished the shop could be prepared for positioning the machines. Machine installation will require installation of plinths and assembly tables, which is to be carried out by employees of the XYZ company. The work breakdown structure forecasts for this project stage are for beginning ma-chine relocation and installation into the new shop. The production process is to be stopped in several stages according to preliminary estimations. The activities for the relocation, overhaul and installation of new machines will involve employees of the XYZ company. The small presses are the first to be moved into the new production shop. The aim is to free the old small presses shop, which will now be included in the expansion of the new large presses shop. When the small presses are moved out of the shop this will al-low for the demolishing of the wall between the old small presses shop and large presses shop to start immediately. When the old small presses shop is emptied the building workers can then start excavation work for the plinths for the two new large presses and for some old ones, which are planned to be moved to a different location. Concrete can then be cast into excavation dies and left to set. Parallel to the work carried out by the building workers the employees of the XYZ company can install the two new small presses in the new small presses production shop. Relocation of four of the machines in the old machine shop can then commence so that these are installed in the new machine shop along with one new one. The rest of the machines are meanwhile given an overhaul and also moved, installed and tested into the new machine shop after repairs are finished. The projected relocation of stores necessitates that storage racks for the finished prod-ucts store are ordered to be purchased at this stage of the project. Company employees continue with the relocation of assembly tables into the new as-sembly shop and installation of three new tables. Employees of the building contractor can now start with the following activities in the free old production shops:

• Demolition of the wall between the old assembly shop and old machine shop

• Demolition of the wall between the machine shop and the painting shop

• Making an opening for the roller shutter door between the painting shop and the large presses shop

• Building a wall between the painting shop and the new finished product store The new goods dispatch area in the finished products store can be defined at this stage and the new roller shutter door installed between the new painting shop and the new large presses shop. When the finished products store is finished they can then start moving the goods from the old store into the new one. The wall connecting the old finished products store and the raw materials store can now be demolished in the empty old store. The raw materials store can thus be ex-panded and rearranged.

48

The concrete cast for the plinths of the large presses should now be set allowing for the existing large presses to be rearranged and two more new ones to be installed. The new large presses are assembled on the site by employees of the XYZ company under the supervision and instructions of specialists from the large presses manufacturer. Part of the production process still continues, for example two of the large presses, which are not going to be relocated. New production shops where machines have al-ready been installed could also start production. Thus, the initial requirement for not affecting the current production level during the modifications by more than the equivalent of two full working weeks of normal production is now met. The use of WBS by the project team and the application of network diagrams in plan-ning project activities allow for active and regular control of both project implementa-tion and project management. This comprises of:

• Timing control and correcting time estimations. Regular process checks are performed based on previously planned estimations to provide continuous up to date information. Based on the different impact that individual operations have on overall timing and final deadline of the entire project distinction should be made in the increasing control functions between the following:

• Operations involving no or insignificant backup times (critical or co-critical path);

• all other types of operations.

To provide constant information for the project team all data on work progress and correspondence with planned time schedules and scale shall be reported on a regular basis and visualised in a number of ways.

• Analysis of the cause of deviations (when such deviations occur). Statistics should be kept and analysis of possible causes made for deviations from planned schedules using the results of the increasing control. Moreover, different causes for out-of-schedule have different impact at the various stage of project realization.

• Analysis of attained results and planning events. Following the results of the operative increasing control the network diagram could be re-evaluated using the PERT technique based on the effectively required and eventually corrected timing. Thus, a visualisation of the arrangement of any modifications made during the increas-ing control is attained and deviations are noted for:

- Timing of subsequent operations and events; - Backup time; - Implementation of the critical path; - probability of keeping planned time schedules; - probable deadline for the entire project.

These tasks constitute the grounds for an in-depth purposeful decision-making process along with taking the necessary measures (for example, when important intermediate

49

or final deadlines are at stake, when the degree of concentration is increased for the development of some critical operations or modification to the operation processes).

• Detailed description and correction of process planning. It is not possible to make detailed planning of individual sub-tasks at the time of drawing up the network diagram for making the work breakdown structure and before actual project imple-mentation has started. This is only possible after several operation stages. These sub-tasks are initially treated as a single operation for which the required time expenditure should be estimated as precise as possible. Detailisation of this particular operation in view of planning the relevant processes and times is made after necessary results are achieved relative to the specific level of development. Based on newly arising or ini-tially unobserved requirements, additional sub-tasks might be considered necessary to be included in the network diagram and planning processes and timing corrected ac-cordingly. The practical value of using the WBS and network planning techniques in the present project lies in the chance of providing better common involvement of all participants in the planning, operative and control stages and correct observing of the specific rules in considering and performing the tasks. The advantages lie in the fact that it is possible to obtain very precise evaluations of the duration of performance of activities on the grounds of existing algorithms and software, as well as estimations of necessary resources and the dynamics of their con-sumption and also, it is possible to perform some control of the progress of the process itself on operation level. The latter is considered very important as it allows the man-ager to respond accordingly and re-adjust programmed activities; to look for compen-sation for allowed delays so the overall duration is not extended and to look for provi-sions for the over-expenditure so the accomplishment of the overall complex of activi-ties is not increased in cost. This kind of control is very efficient when using computers where the manager can lit-erally obtain everyday information of what activities, operations and tasks have to be carried out, what expenses have been made so far and what human resources has this involved. Comparing this planning goal to the actual situation he can operatively con-trol the fulfillment of the decisions he made.

2.3. Network planning The basic principle of network planning is to express by a model the performance of all partial tasks and operational processes that have to be performed consecutively and parallel to each other in order to solve the complicated planning task in its multidimen-sional relation in a form that is measurable in quantity and controllable in time [18]. Network planning has a wide range of application. It can be suitably applied every-where where high competence, complexity and interweaving of planned tasks burden the process of making scientifically based decisions. During the stage of preparation of decisions network diagrams provide for a detailed analysis of the activity process, fa-cilitates orientation in key issues and also in co-ordinated mutual activities of individ-ual activity teams [18]. Network diagrams represent a set of activities or operations performed in a given project, presented in the form of a network where the sequence and activity interrelation is indicated [19].

50

CPM Analysis The Project Team has employed the Critical Path Method along with the list of activi-ties prepared above and the time schedule to make the network analysis.

About Critical Path Method (CPM) The final result pursued in the application of this method is on one hand, to achieve clear and systematic analysis in the process of implementation of decisions and the se-quence in performing individual activities, and on the other hand, to obtain numerical characteristics of the overall duration of the process, of the total value of resources needed and, last but not least, of those routes in this network that are considered criti-cal for the accomplishment of the overall program [19]. Critical here should be under-stood in the sense that every extension of activities or every increase in resources con-sumption along the critical path would lead to overall increase in the duration of per-formance and hence, to overall increase in the cost of the entire program. A path in the network chart is defined by a continuous sequence of work activities where the final event of every individual work activity is simultaneously the initial event of the next one. The duration of every path is determined by the sum of dura-tions of work activities it comprises. The path having the maximum duration is called the critical path [19]. The critical path determines the time necessary to complete all work activities included in the network chart. All work activities situated on the criti-cal path are called critical work activities and the final deadline for completing the overall project depends on their duration. Reducing or increasing the duration of work activities situated on the critical path will reduce or increase the total duration, respectively. It is possible to have several critical paths within a single network chart. Those paths whose duration is the closest to the critical path duration are called sub-critical [19]. The Critical Path method is aimed at defining the activities that are critical to the suc-cessful completion of the project within the adopted schedule. It begins with an analy-sis of the duration of each activity. The initial time of the initial event is set at zero and the initial times for all subsequent events is determined by adding the times of the ac-tivities included in the network until the final event is reached [20].

Calculating the critical path: The times in the network are determined by taking the following measures:

Note down the time estimated for each activity. The earliest time for completing each activity is determined by following down

every path and adding the times of all activities that form this path from left to right along the network.

When possibilities for choosing paths are provided, the longest route is used to calculate the earliest time for completion.

The shortest or critical time for completion of the project as planned, which is also the earliest time for completing the final event, is established by consecu-tive calculations through the network as described in step 2 above to determine the longest path.

51

The critical path is determined by following the route formed by the activities leading to the shortest or critical time.

Starting from the final event and calculating back to front towards the initial even, provided that the critical time is not exceeded, determine the shortest times for the beginning of each event within the network.

The “rescue time”, which is an extra time that could be committed without causing delays in beginning another activity is calculated by deducting the ear-liest beginning time from the shortest beginning time at every event. According to the definition, no rescue belt is provided for the activities that form the criti-cal path.

The Critical Path Method is used to determine:

The shortest beginning times for each activity.

The value of the rescue or free time available at completion of activities that are not critical, without any delay in the overall completion of the project. The overall rescue time will be equal to the maximum increase in the duration of the activity that can result without increasing the duration of the overall project. The free rescue time will be the maximum increase in the duration of the activ-ity that can result without changes in the rescue times of the subsequent activi-ties [20].

The critical activities along the critical path where no rescue time is available and any delay in completing them would delay the overall project. These are the activities that should be paid greater attention, though this should not result in neglecting other activities especially when rescue time is limited.

Presently, some very well developed application software packages exist for using computers for making and calculating network charts. With the help of this software the manager can plan in time the progress of individual operations, activities and tasks in a logical link and sequence that is objectively dictated by the nature of work accom-plished and also evaluate the resources and time needed to accomplish the complex of tasks [20]. The Project Team has employed the specialized WinQSB software to establish the critical path in this study. This software product was also used to draw up the network diagram of project activities, calculate the float values, establish the critical path and determine the project completion time. A Gant Chart was also drawn up to provide better visualisation and control of the project. Table 2.3 Activity Analysis for Project Problem (Using Normal Time)

03-18-2001 17:36:47

Activity Name

On Critical

Path

Activity Time

Earliest Start

Earliest Finish

Latest Start

Latest Finish

Slack (LS-ES)

1 A1 Yes 25 0 25 0 25 0 2 A2 Yes 6 25 31 25 31 0 3 A3 no 2 25 27 29 31 4 4 A4 Yes 3 31 34 31 34 0 5 A5 no 35 34 69 59 94 25

52

6 A6 Yes 2 34 36 34 36 0 7 A7 Yes 4 36 40 36 40 0 8 A8 no 28 40 68 60 88 20 9 A9 no 49 40 89 55 104 15

10 A10 no 20 40 60 42 62 2 11 A11 no 20 40 60 42 62 2 12 A12 Yes 4 40 44 40 44 0 13 A13 no 2 60 62 62 64 2 14 A14 Yes 20 44 64 44 64 0 15 A15 Yes 20 44 64 44 64 0 16 A16 no 1 44 45 67 68 23 17 A17 Yes 4 64 68 64 68 0 18 A18 no 4 62 66 64 68 2 19 A19 no 19 66 85 83 102 17 20 A20 no 4 66 70 68 72 2 21 A21 Yes 4 68 72 68 72 0 22 A22 Yes 2 72 74 72 74 0 23 A23 Yes 5 74 79 74 79 0 24 A24 no 1 74 75 78 79 4 25 A25 no 1 74 75 78 79 4 26 A26 Yes 2 79 81 79 81 0 27 A27 no 2 81 83 88 90 7 28 A28 Yes 1 81 82 81 82 0 29 A29 Yes 2 82 84 82 84 0 30 A30 Yes 20 84 104 84 104 0 31 A31 no 4 83 87 94 98 11 32 A32 no 9 83 92 90 99 7 33 A33 no 5 87 92 98 103 11 34 A34 no 1 87 88 98 99 11 35 A35 no 3 92 95 99 102 7 36 A36 no 1 95 96 102 103 7 37 A37 no 1 95 96 102 103 7 38 A38 no 1 95 96 102 103 7 39 A39 no 1 96 97 103 104 7 40 A40 no 1 97 98 106 107 9 41 A41 Yes 3 104 107 104 107 0 42 A42 Yes 2 107 109 107 109 0

Project Completion Time = 109 days Number of Critical Path(s) = 2

Critical Path(s) for Project Problem From the analysis thus conducted it becomes clear that there are two Critical paths (see the table below). But we should mention here that this is not going to have any signifi-cance in our particular case and it is a proven fact that Project Completion Time of the project is identical for both critical paths - 109 days. The reason for this is that the only difference between the two critical paths are activities A14 and A15, “Completing the second half of concrete casting for wall foundations and drying time” and “Completing the second half of concrete casting for machine plinths and drying time”, respectively. In fact, these two activities are featured by the same duration period and are also per-formed in parallel (see the network diagram below). They are both part of one and the same activity, concrete casting, which was divided into two only hypothetically aiming at achieving maximum overlapping between individual operations and minimisation of time expenditure [20].

53

Table 2.4

03-18-2001 Critical Path 1 Critical Path 2 1 A1 A1 2 A2 A2 3 A4 A4 4 A6 A6 5 A7 A7 6 A12 A12 7 A14 A15 8 A17 A17 9 A21 A21

10 A22 A22 11 A23 A23 12 A26 A26 13 A28 A28 14 A29 A29 15 A30 A30 16 A41 A41 17 A42 A42

Completion Time 109 109

Creation of the Network Diagram Visualizing the interweaving of various issues and studying the critical path by means of network schematic models largely facilitates the planning activity, influence and control on tasks. The flexibility it provides allows network planning to deal with even unforeseen changes in the planning process. Using network model makes it possible to express the progress of many sequential and parallel operational processes in their mutual relationship and versatile interdepend-ence and in a measurable in quantity and predictable in time form. Large flexibility of planning and control operations is ensured [20]. Describing the multiple relations be-tween partial tasks provides for fast and wide-range definition of the sequence of deci-sions, modifications, failure to meet time schedules, etc. in accomplishing the overall project.

54

A1

025

025

A2

2531

2531

A4

3134

3134

A3

2527

2931

A53469

5994

A63436

3436

A7

3640

3640

A84068

6088

A10

4060

4262

A94089

55 A12

4044 44

A11

4060

4262

A13

6062

6264

A15

A14

4464

4464

A16

4445

6768

A17

6468 68

A18

6266

6468

A19

6685

83 A21

6872

6872

A20

6670

6872

A22

7274

7274

A23

7479

7479

A25

7475

7879

A24

7475 79

A26

7981

7981

A27

8183

8890

A28

8182

8182

A29

8284

8284

A30

84

A31

8387

9498

A32

8392

9099

A33

8792

98A34

8788

9899

A35

9295

99

A38

9596

A37

9596

A36

9596

A39

9697

A41

A40

9798

A42

4464

4464

LEG

END

- CR

ITIC

AL

PATH

ESEF

LSLF

Act

ivity

Fig. 2.7 Network Diagram

55

Gantt Chart

A typical representative of graphical methods is the Gantt Chart, which represents dia-grams spread out with time giving appropriate indications of tasks that have to be ac-complished. These chronograms, along with planning the activities allow give graphi-cal indications of work progress and activity accomplishment [20]. This makes process management visually clear and allows the manager to not only control the implementa-tion but also to estimate when (in which time intervals) to expect piling up of several parallel activities and hence anticipate organizational and technical difficulties. This could be a warning to the manager to look for possibilities of re-distributing work ac-tivities or avoiding these “bottlenecks” by moving activities back or forward in time. Therefore, Gantt Chart is a good graphical technique enabling the Project Team to both - plan and control the accomplishment of tasks [18]. A Gantt chart is a matrix, which lists on the vertical axis all the tasks to be performed. Each row contains a single task identification, which usually consists of a number and name [19]. The horizontal axis is headed by columns indicating estimated task dura-tion, skill level needed to perform the task, and the name of the person assigned to the task, followed by one column for each period in the project's duration. Each period may be expressed in hours, days, weeks, months, and other time units. In some cases it may be necessary to label the period columns as period 1, period 2, and so on. In this case it is expressed in days. The graphics portion of the Gantt chart consists of a horizontal bar for each task con-necting the period start and period ending columns. A set of markers is usually used to indicate estimated and actual start and end. Each bar on a separate line, and the name of each person assigned to the task is on a separate line. In many cases when this type of project plan is used, a blank row is left between tasks [20]. When the project is un-der way, this row is used to indicate progress, indicated by a second bar, which starts in the period column when the task is actually started and continues until the task is ac-tually completed. Comparison between estimated start and end and actual start and end should indicate project status on a task-by-task basis. Variants of this method include a lower chart, which shows personnel allocations on a person-by-person basis. For this section the vertical axis contains the number of people assigned to the project, and the columns indicating task duration are left blank, as is the column indicating person assigned. The graphics consists of the same bar notation as in the upper chart indicates that the person is working on a task [20]. The value of this lower chart is evident when it shows slack time for the project personnel, that is, times when they are not actually working on any project.

56

1A1A2

A4A5A6A7A8A9A10A11A12

A13A14A15A16A17A18A19A20A21

A22A23A24A25A26A27A28A29A30A31A32A33A34A35A36A37A38A39

A40A41A 24

Fig. 2.8 Gantt Chart

57

Critical Path Method (CPM) The Critical Path Method is used to determine the shortest starting times for each ac-tivity. It is also used to determine the value of the rescue or free time available at com-pletion of activities that are not critical, without any delay in the overall completion of the project. Moreover, the Critical Path method is used to define the critical activities along the critical path where no rescue time is available and any delay in completing them would delay the overall project. These are the activities that should be paid greatest attention [20]. The CPM is the most suitable method to apply in planned processes where giving a preliminary indication of time required for individual processes is not threatened by uncertainty or this preliminary indication is based on established rates (preparations for production, building and construction work, etc.). Having prepared the activity list and defined their relevant times and interrelations, a project network diagram has been prepared using the Critical Path Method. The PERT/CPM module of the WinQSB software was used for the purpose. Data included in the list of activities was entered and an activity analysis for project problem was made using normal time. Following this a calculation was made for: the critical path, the float values - ES, EF, LS, LF and the Slack ( = LS - ES) for every ac-tivity, where: ES - the earliest starting time, which is the earliest time that work can start on an activity assuming all activities take their estimated times to complete; EF - the earliest finishing time, which is the earliest time an activity can be finishing assum-ing all activities take their estimated times to complete; LS - the latest starting time, which is the latest time an activity can start on an activity without postponing comple-tion of the project, assuming all activities take their expected times to complete; LF - the latest finishing time, which is the latest time an activity can be finished without postponing completion of the project, assuming all activities take their expected times to complete [20]. As a result of the Activity Analysis made for the Project Problem (using normal time), the overall project duration was established: Project Completion Time = 84 working days; the exact equal to 16 weeks and 4 days. The Critical Path is the longest path through the net-work. It can be identified by the fact that the float on the path is usually zero (slack on all activities on critical path also zero). The critical path defines the time required to complete all activities included in the network diagram. All activities located on the critical path are called critical activities and their du-ration determines the deadline of completing the en-tire project [20]. In our particular case there are two critical paths (Fig. 2.9). All said above is also illustrated in the WinQSB - generated network diagram (Graphic Ac-tivity Analysis - see Fig. 2.10), which provides a graphical visualisation of the prepared network dia-gram.

Fig. 2.9

58

Besides, the float values calculated during the Critical Path Analysis helped define the starting dates when orders for purchasing and delivery of new machines and presses have to be placed such that they arrive immediately before their installa-tion may commence. Thus, the need for storing them in stores and some other expenses involved are avoided. This is achieved by means of considering the calcu-lated Latest Start as the start time for all these ac-tivities (N 3, 4, 5, 24, 42), For example, the new machine will be ordered on the 34th day after the project is started so it arrives exactly when it can be installed in the new Machine Shop – on the 69th day after the start of the project; the new 2 small presses will be ordered on the 23rd day and will ar-rive on the 51st day after the start o the project, etc. In other words, the so-called Backward pass is ap-plied in this particular case. We adopt the similar procedure for the dates of or-dering new large presses, storage racks, etc. Earlier delivery dates might be considered for some types of building materials. This is due to the fact that storing such materials does not involve problems as those observed with new machines. All said above is given visual representation through the prepared Gantt Chart (Fig. 2.11).

Gantt Chart The Gantt Chart represents a diagram spread over a certain period of time and giving appropriate indi-cation of tasks that have to be carried out. It is a matrix, which lists on the vertical axis all the tasks to be performed. Each row contains a single task identification, which usually consists of a number and name [21]. The horizontal axis is the time scale over which the project will endure. Therefore, the length of each task bar corresponds to the duration of the task, or the time necessary for completion. The Gantt Chart is used to provide visual represen-tation and explain all said above concerning ma-chine purchasing and delivery times. As we can see, activities which are not included in the critical path (for which the slack ≠ 0) are represented by two different task bars – one defined by the Earliest Time (the left one), and the other one defined by the Latest Time. The objective to be fulfilled when

Fig. 2.10 Network Diagram (Graphic Activity Analysis)

59

placing delivery orders (activities N 3, 4, 5, 24, 42) is to observe the appropriate deliv-ery time indicated as the Latest Time in the diagram.

The Gantt chart, along with planning individual activities, allow for providing graphi-cal indication of the progress of their completion. Thus, process management is given good visualisation and allows not only to control the performance characteristics but also to give estimation when (in what time intervals) a built-up of several parallel ac-tivities can be expected leading to eventual organisational and technical difficulties [21]. This can be regarded as a call for redistributing work load by moving activities back or forth in time. 2.4. PERT analysis The project team has paid particular attention to moving the machines into the new production bay. Four of the old machines need overhaul and this was planned prior to moving. A decision has been made to move four of the existing machines while the others are being overhauled. The second group of machines will be moved only after the first four machines have been installed and tested. The nature of these sub-level tasks leads to considerable uncertainty of time estimations [21].

Fig. 2.11 Gantt Chart

60

Therefore, the Project Team employed the Evaluation and Review Technique (PERT) analysis to determine the probability of having this machine moving and overhaul process completed within 12 days.

Program Evaluation and Review Technique Program Evaluation and Review Technique (PERT) is a variation on Critical Path Analysis that takes a slightly more sceptical view of time estimates made for each pro-ject stage. To use it, estimate the shortest possible time each activity will take, the most likely length of time, and the longest time that might be taken if the activity takes longer than expected [21]. A distinguishing feature of PERT is its ability to deal with uncertainty in activity com-pletion times. For each activity, the model usually includes three time estimates:

• Optimistic time (a) - generally the shortest time in which the activity can be completed. It is common practice to specify optimistic times to be three stan-dard deviations from the mean so that there is approximately a 1% chance that the activity will be completed within the optimistic time.

• Most likely time (m) - the completion time having the highest probability. Note that this time is different from the expected time [21].

• Pessimistic time (b) - the longest time that an activity might require. Three standard deviations from the mean is commonly used for the pessimistic time.

PERT assumes a beta probability distribution for the time estimates. For a beta distri-bution, the expected time for each activity can be approximated using the following weighted average:

Expected time = (Optimistic + 4 x Most likely + Pessimistic) / 6

This helps to bias time estimates away from the unrealistically short time-scales nor-mally assumed. To calculate the variance for each activity completion time, if three standard deviation times were selected for the optimistic and pessimistic times, then there are six standard deviations between them, so the variance is given by: [(Pessi-mistic - Optimistic) / 6 ] 2

Defining Activities, Sequence, Estimates The approach adopted for the planning of this specific section of the overall project keeps track of the basic stages of the PERT Analysis: the activities to be performed were defined; links in sequence of activities were defined; 3 estimate times were de-fined for each individual activity - most optimistic (a), most pessimistic (b), and most likely (m). Results were then given systematic representation in Table 2.5:

61

Table 2.5

Activities Prede-cessor

Optimistic Time - a (days)

Most Likely Time - m (days)

Most Pessimistic Time – b (days)

A Prepare site - 2 2 2

B Move 1st four machines A 1 1 1

C Install 1st four machines B 1 1 1

D Test 1st four machines C 1 2 3

E Overhaul 2nd four machines A 2 4 10

F Move 2nd four machines D, E 1 1 1

G Install 2nd four machines F 1 1 1

H Test 2nd four machines G 1 3 6

Determine the Critical Path Data from the above table were then entered into a new cpm-file of the PERT/CPM module of the specialised WinQSB software.

The Critical path was determined (Fig. 2.13) and the float values (ES, EF, LS, LF, Slack) and Standard Deviation for every activity (Fig. 2.12) were calculated.

As a result of the Activity Analysis carried out, the duration of this specific part of the project involving machine over-haul and relocation has been calculated:

Completion Time = 11.83 days Standard Deviation = 1.57

Fig. 2.12

Fig. 2.13

62

Graphic Activity Analysis The Project Team draws up the network diagram of activities. The machines overhaul and moving process can be seen in Fig. 2.14.

Gantt Chart Activities involved in the overhaul and relocation of ma-chines and their interrelation in time have been visualised in the prepared Gantt Chart (Fig. 2.15). The red colour indicates activities included in the criti-cal path. As we can see, activi-ties not included in the critical path have a slack ≠ 0. These are represented by two task bars having different place-ment in time – Earliest Time and Latest Time [21].

Probability of Completion within 12 Days At this stage we determined the probability of completing overhaul and relocation activities within 12 days. We used the function for Probability Analysis of the WinQSB software (Fig. 2.16). As a result of this, the Project Team determined the probability of com-pletion within 12 days as:

Probability = 54.2219 % (Standard Deviation = 1.5723)

ES EF

LS LFACTIVITY

ES - EARLIEST STARTING TIMEEF - EARLIEST FINISHING TIMELS - LATEST STARTING TIMELF - LATEST FINISHING TIMEON CRITICAL PATH

A0 2

0 2B

2 3

2.67 3.67

E2 6.67

2 6.67

C3 4

3.67 4.67D

4 6

4.67 6.67F

6.67 7.67

6.67 7.67G

7.67 8.67

7.67 8.67H

8.67 11.83

8.67 11.83

Fig. 2.14

1

A

B

E

F

H

G

Fig. 2.15

Fig. 2.16

63

Analysis of the suitability of the techniques used and discussion on the main al-ternatives. The basic techniques employed in the present project are Work Breakdown Structure, Critical Path Method, Program Evaluation and Review Technique and Gantt Chart.

CPM (The Critical Path Method) and PERT (Program Evaluation and Review Technique) are both techniques used for project planning and control. These are the so-called network models for planning and management. The idea that comprises the subject matter of the network planning methods is very close to that of the programmed goal planning (or the linear programming methods) but the method implementation technique is different. Here, again the basic procedure is to break down the decision implementation process into a number of individual ele-mentary tasks or operations that have to be completed for a certain time and pointing out their interrelation and logical link in time and space in a combined chart (network) in which individual elements could represent events or accomplished partial results and the connections between them (the columns of the chart) represent operations or activities. A number of basic principles and rules exist for assembling network charts that allow the manager or the team of specialists to gradually build up the overall network:

every activity begins with a certain event and ends with some subsequent event;

no activity could begin before it initial event had taken place; parallel activities between two successive events should be avoided; independent activities should be presented in the network logically and inde-

pendently; no “loops” are allowed in the chart (network): for example, one activity can

only be performed once with respect to time. The development of these methods allows, for example for the time estimations for ac-complishing certain activities and operations to be given in a statistical order as antici-pated values. Most widely used in this area are the CPM (Critical Path Method) and PERT (Program Evaluation and Review Technique, the MPM (metra potential meth-ods) methods, etc. Although network methods initially appear to meet the needs of managing complicated and time-consuming projects eventually they become quite universal by nature and are successfully applied in all areas of economical activities. They are especially usefully applied and used in long-term planning of individual activities involving:

changing the production schedule and introducing new productions; managing investments and erecting complex buildings; adopting new technologies in the process of modernization and restructuring of

production; developing and implementing in practice of scientific and technical achieve-

ments.

64

The characteristic in all these cases is that the process is predictable and could be bro-ken up into successively linked activities and operations. Objectively predetermined regularities are available between individual activities and operations and these are mainly with respect to the order in which they should be accomplished: the process is featured by step-by-step progress but simultaneously offers possibilities for parallel performance of complete chains of activities and operations; the process extends for a long time and necessitate the participation of a large number and variously skilled ex-ecutives whose activities should be committed to one common complex project.

CPM – The Critical Path Method

Basic structure The Critical Path method is aimed at defining the activities that are critical to the suc-cessful completion of the project within the adopted schedule. It begins with an analy-sis of the duration of each activity. The initial time of the initial event is set at zero and the initial times for all subsequent events is determined by adding the times of the ac-tivities included in the network until the final event is reached. Calculating the critical path: The times in the network are determined by taking the following measures:

Note down the time estimated for each activity.

The earliest time for completing each activity is determined by following down every path and adding the times of all activities that form this path from left to right along the network.

When possibilities for choosing paths are provided, the longest route is used to calculate the earliest time for completion.

The shortest or critical time for completion of the project as planned, which is also the earliest time for completing the final event, is established by consecutive calculations through the network as described in step 2 above to determine the longest path.

The critical path is determined by following the route formed by the activities leading to the shortest or critical time.

Starting from the final event and calculating back to front towards the initial even, provided that the critical time is not exceeded, determine the shortest times for the beginning of each event within the network.

The “rescue time”, which is an extra time that could be committed without caus-ing delays in beginning another activity is calculated by deducting the earliest beginning time from the shortest beginning time at every event. According to the definition, no rescue belt is provided for the activities that form the critical path.

65

Usage: The Critical Path Method is used to determine:

The shortest beginning times for each activity.

The value of the rescue or free time available at completion of activities that are not critical, without any delay in the overall completion of the project. The over-all rescue time will be equal to the maximum increase in the duration of the ac-tivity that can result without increasing the duration of the overall project. The free rescue time will be the maximum increase in the duration of the activity that can result without changes in the rescue times of the subsequent activities.

The critical activities along the critical path where no rescue time is available and any delay in completing them would delay the overall project. These are the ac-tivities that should be paid greater attention, though this should not result in ne-glecting other activities especially when rescue time is limited.

PERT – Program Evaluation and Review Technique The Program Evaluation and Review Technique (PERT) regards the durations of ac-tivities within the network as uncertain. Instead of giving individual evaluation of each activity time it uses three estimations as follows:

The optimistic time (a) –– the shortest time, in which the activity can be com-pleted, if all goes exceptionaly well. The probability of completing the activity sooner is estimated to be only one chance in a hundred.

Most likely time (m) – the best guess of the time required to perform the activity. Most weight is given to this estimate.

Most pessimistic time (b) –- the longest estimated time assuming that practically everything that can go wrong does go wrong. The probability that it will take more time is estimated to be only one chance in a hundred

Unlike the Critical Path Method, the PERT method is characterised by the fact that it is a stochastic model in terms of time for operations and time schedules for events. To this effect PERT objectively models the given event at the planned time for operations and subsequent events at the given time schedules. Also, PERT models some cyber aspects of planning and management of some basic material process and especially the feedback aspect. This especially refers to the purposeful influence at deviations from the plan and in ac-tual practice that exceed planned marginal values. PERT as a stochastic model has been developed for the processes of studying, devel-opment, designs and transfer of produce in complicated projects where many inter-dependent partial operations requiring time and money have to be coordinated and planned with respect to time.

66

PERT is often used in building sites where activities could be delayed as a result of bad weather conditions, etc. Due to its complexity the PERT system is developed by means of computers that are used to generate required planning and control data.

Advantages The main advantage of network analysis is that it takes into consideration the internal interrelations of all activities constituting a general project. Strip diagrams could also be used successfully to indicate actual and final times of individual activities but these do not discover interrelations and cannot underline the critical activities and free times allowable for completion of uncritical activities (rescue time), as would the critical path and PERT methods.

Simulation of management roles for the organisation and delivery of an opening planning meeting. The Board of directors of the company has authorized a team to work on the project and plan activities. The project team has been carefully selected to include specialists from all departments interested to take part in the company expansion activities. They are all relevantly qualified, experienced and professionally competent. There is one building specialist, one design expert one overhaul expert, one production manager and one deliveries specialist in the team. A member of the management team of the XYZ company has been selected man-ager of the Project team. He is authorized to manage the project and is responsible for the co-ordination between team members. He is the connection between the project team and the company management. The team manager is responsible for organising the opening meeting for planning the activities to be carried out for the expansion of the company. He will have to decide on the topics to be discussed, draw op the agenda of the meeting and decide the time and place where the meeting is to be held. He might decide to ask additional assistance from specialist from other departments when he considers this necessary or when sug-gested by someone from the team. Such experts usually face the specific problem from a different viewpoint and therefore, they sometimes come up with unconventional thoughts and ideas. The basic document to be discussed is the “Project for building and technological furnishing of the XYZ company”. Every specialist in the project team should have been given a copy of this document in advance in order to be given the opportunity to get familiar with its contents. Everyone will thus have the chance to deliver his own personal opinion on the particular subject, which is a prerequisite for the meeting to keep to the business and result in making particular decisions. To solve the problem, the team manager will choose various instruments to gather, assess and present ideas. He will also have to ensure some additional tools and mate-rials necessary for the visualisation and presentation of the ideas. The opening planning meeting of the project team will be held in accordance with the following agenda prepared by the team Manager:

67

1. Opening

• Introduction to the goals of the project, briefly to the reasons that have neces-sitated the change and results of the preliminary studies.

• Summary of the present situation

• Introducing team members and the roles assigned to each of them;

2. Presentation of the subject:

• Determining the basic stages of the work breakdown structure, drawing up a preliminary list of activities to be involved in the realization of the project for the expansion of the XYZ company.

• Preparing a work breakdown in the form of а Tree Diagram.

• Distributing responsibilities between team members.

3 Discussions At the beginning of the meeting the manager again clarifies the criteria and recom-mendations given in the preliminary studies. The participants then generate ideas ex-changing opinion and experience in the particular field. The discussions rest on the fol-lowing aspects of the issues being discussed:

Resources - Whose input do we need? - Whose input could we use? - Has anything like this been done before? - What mistakes can we learn from? - What successes can we learn from? - What resources do we have? - What resources might we need? Executive issues - How does this relate to the strategic plan? - How does it relate to other priorities, directions, goals? - How will this affect our competitive position? Administration - Who's accountable for this project's success? - Lines of communication - Methods of reporting - What structures do we need? - What planning is still likely to be required? - What re-grouping will we need? - How often? - What people do we need? - Current staffing?

68

- Hiring? - Subcontractors? - Consultants? - How do we get involvement? - What skills are required? - Who needs to know how to do what? - What training do we need? - How do we get it? - What other communication do we need? - Who needs to be informed as we go along? - What policies/procedures affected? - What needed? - Staffing? Finance - What will this cost? - How do we get it? - What might affect the cost? - Might we need additional money? - What are the potential payoffs money? - Who signs the checks? Operations - What is the timing? - Hard deadlines? - What might affect timing? - Who's going to do the work? - How do we ensure complete delivery? Quality - How will we monitor our progress? - How will we know if we're on course? - What data do we need, when? - What reports, to whom, when? Space/Facilities/Equipment - What requires room? - How do you get it? - What tools do we need? - When? - Phones - Computers

69

Research - What might you need to know? Public Relations - Is there value in others knowing about this? - How do we do that? - Risks - What could happen? - Could we handle it? Creative thinking... - Who would have concern about the success of this project? - What would they say, ask, or input, that you haven't yet? - What's the worst idea you can imagine, about doing this project? - (What is therefore the best idea, which is its opposite?) - What is the most outrageous thing you can think of, about this project? - What would make this project particularly unique? - What the worst that could happen? - How could we deal with that? - What's the best that could happen? - Are we ready to deal with that? - How do we feel about this project?

The manager suggests to everyone in the team to write down a list of activities he could offer to be involved in his specific field. Once individual opinions have been written down a generalized list is generated, which describes all activities planned to be carried out in the company in order to reach the goals set. This list is then offered for discussion eliminating eventual duplicating activities. During the discussion similar activities are grouped in individual work packages. The sequence of their accomplishment is discussed from different points of view and con-sideration is given to activities, which allow to be carried out in parallel. Various alter-natives are suggested and analysed. Visualisation of opinions is provided wherever possible in the course of the discussion. The aim is to illustrate work breakdown by means of a tree diagram and assist distribu-tion of responsibility in the various directions through grouping similar activities. All members of the team analyse and assess project activities together. Moreover, the discussion is directed by the manager such that professional issues are discussed pur-posefully and returned back to the specific subject whenever drifted. Every member of the team should be given the chance to express his opinion. The important matters should be separated from some insignificant ones, similar ac-tivities should be grouped together and suggestions for solutions to arising problems should be worked out.

70

Synthesizing solutions based on the analysis of discussion results The basic objectives in the first level of the tree diagram are drawn up. These include: expansion of the building facilities, increasing currently available equipment and overhaul for some of the currently available machines. Subsequently, the three basic types of activities to be carried out are then spelled out: building work; purchasing equipment and machine overhaul. The sub-tasks at levels 2, 3 and 4 are then defined identifying specific activities in-volved in each of the three basic fields mentioned above and further details are given. The Tree diagram is then drawn up giving clear distinction between individual activity packages and their relationship in terms of both time and resources. Clear understand-ing of responsibilities and competencies among members of the Project Team is also achieved.

• Roles and responsibilities of team members in the basic project fields to be involved are then distributed, building, purchasing and overhaul.

• A preliminary list of activities is drawn up. A decision is also made on the se-quence of time schedules and resources observing the recommendations given in the preliminary study.

• Decisions on the further proceedings with respect to this list are made giving special consideration to its finalization, sequence of operations, timing and in-terrelations.

• Specific measures are then defined along with time schedules and people re-sponsible.

End of meeting Finally, the Team Manager thanks the participants and announces the topic for the next meeting: Making the final detailed list of activities and preparations for drawing up a network diagram using the Critical Path Method (CPM) and Program Evaluation and Review Technique (PERT). 2.5. Risk analysis Risk analysis is the process of assessing, managing and communicating risks. It is a formal process to identify and evaluate the technical, schedule, and cost uncertainties associated with the design and implementation of large and complex projects. Risk analysis is performed by the Risk Manager in close cooperation with other mem-bers of the project team, observing the following sequence:

1. Identify risks 2. Risks Assessments 3. Plan for risks 4. Monitor and manage risks

The primary aim of risk management is to identify and mitigate events that might ad-versely affect project performance.

71

Identify Risks A combined technique is used for risk identification and this is based on two basic methods:

- Review of task list and schedule. - Brainstorm and talks with other members of the project team and external ex-

perts. First the tasks included in the critical path are examined, then tasks nearly on the criti-cal path, and finally, non-critical path tasks. More specifically, the focus is on: Tasks, for which the project team has no expertise. The duration and cost estimates

for these tasks are more likely to be inaccurate. Duration and cost estimates that are aggressive. Estimators are asked the question

how confident they are in their assumptions, especially for critical path tasks. Situations where a limited amount of resources is available to accomplish particu-

lar tasks and where those resources are fully allocated, over allocated, or may be-come unavailable.

Tasks with several predecessors. The more dependencies a task has, the greater the likelihood of a delay.

Tasks with long durations or a lot of resources. Estimates provided for these larger tasks are more likely to be inaccurate.

Parallel to these discussions talks with individual team members are organised to dis-cuss possible risk areas within the project schedule specific to each member’s individ-ual involvement and extent of responsibility. People who have used the services of particular subcontractors or other subcontractors are also consulted to consider possi-ble sub-contracting of building and construction work. As a result of all abovementioned activities and discussions, project risk is broken down to the following basic areas divided based on the type of particular tasks where such risk may be present:

Supply risks; Building and construction work risks; Risks involved in overhaul activities and re-location of machines and equip-

ment. Production risks Financial risk

The following types of risk were identified relative to the type of causes: Late supply risks; Poor quality supply risks; Poor quality works risks; Financial penalties risk Expenditure beyond set financial limits risks; Unfavourable weather conditions risks; Building equipment failure risks;

72

Unexpected circumstances risks – power cuts, water supply interruptions, etc.; Force majeure calamities risks (hurricanes, earthquakes, etc.); Risk of delays in current production orders for contracted deliveries due to dis-

turbances in normal production level, in the course of restructuring, to the equivalent of over 2 working weeks.

The second group of risks is a sub-division of the first one and one-way links are available between the two groups. The general risk structure is illustrated in Fig. 2.17.

The following risks were identified based on individual tasks included in the schedule (these constitute the next level of risk breakdown): A risk of delay in supplies is present to the purchasing and supply of machines,

small and large presses (activities 3, 4, 5) and the cause for this is supplier’s fault – untimely assembly or defects found during inspection at manufacturer’s factory;

Excavation works to be carried out outdoors (activities 8, 11 at the critical path) carry the risk of unfavourable weather conditions and building equipment failure.

Concrete casting for foundations (activities 9, 13 at the critical path) carry the risk of unfavourable weather conditions and building equipment failure, as well as the risk of delay of excavation works, activities 8 and 11 (for the foundations). The risk of delays in the supply of concrete is estimated as negligible and is therefore ig-nored due to the fact that many possible suppliers are available with capacities to cover urgent demand.

The installation of steel structure in outdoor conditions (activities 12, 16 – at the critical path) carries the risk of unfavourable weather conditions and building equipment failure, as well as the risk of delay of concrete casting works, activities 9 and 13.

Project Risk

Late

supp

ly ri

sks

Poor

qua

lity

supp

ly ri

sks

Poor

qua

lity

wor

ks ri

sks

Fina

ncia

l pen

altie

s ris

k

Expe

nditu

re b

eyon

d se

t fin

anci

al li

mits

risk

s

Unf

avou

rabl

e w

eath

er

cond

ition

s ris

ks

Bui

ldin

g eq

uipm

ent

failu

re ri

sks

Une

xpec

ted

circ

umst

ance

s ris

ks

Forc

e m

ajeu

r ca

lam

ities

risk

s

Ris

k of

del

ays i

n cu

rren

t pr

oduc

tion

orde

rs

Supply risks Building and construction work risks

Risks involved in overhaul activities

Production risks

Financial risks

Fig. 2.17

73

Installation of the new machine and presses (activities 26, 48 – at the critical path and 35) carry the risk of delays in supply (activities 3, 4, 5) and also the risk of de-fects found during inspection.

The overhaul of 4 machines (activity 37) carries the risk of delays due to unex-pected amount of wear.

Risk Assessment and Plan for Risk Management The risk of unfavourable weather conditions during excavation and concrete cast-

ing works was assessed as fairly low, as building equipment to be used here is of very high technical level and is not likely to be influenced significantly by such conditions. Such type of work can easily be done even in rainy weather. Only tem-peratures below 3ºC and force majeur calamities could seriously hinder these op-erations but the probability of occurrence during this particular season is negligibly low. Nevertheless, it is still planed to study weather forecasts for the specific period when such works are scheduled. If the delay in concrete casting is of 1 to 4 days, this is not of critical significance since concrete has long setting periods. In such cases, to make up for these days of delay, supplies of concrete additions of shorter setting periods will be ordered. This will raise the financial value but only negligi-bly and is only applied if and when the risk actually occurs.

Risks of failure of building and construction equipment are greatly minimised at the subcontractor selection stage, where one of the selection criteria is the quality of performance, level of technology involved and available back-up technical equipment. Corresponding provisions in the contract can also be made for this (back-up alternative – assistance from another company; penalties, etc.);

The risk of occurrence of some unexpected circumstances, such as water-supply or power cuts, is assessed as fairly low. Nevertheless, its neutralisation is being con-sidered by means of providing on the building site of a diesel power generator, fuel and pumps.

With the preventive measures taken above for excavation and concrete casting works, as well as measures against risks of building equipment failure, the possible risk during installation of the steel structure and cladding is similarly reduced. De-liveries of steel structure materials, panels, etc. are scheduled at an earlier date since these do not require storage. Therefore, no delay in supply risk has been con-sidered here.

The risk of delay in supply of an extra machine and the two small presses has been assessed as fairly low due to the fact that these machines are of the size which is usually produced in series production (not to customer’s orders) so the supplier can always take necessary measures when threatened by delays in supply. Moreover, provision shall be made in the supply contract for the machine to be ready (and in-spected) two or more days before actual delivery time. This is fully possible, as these activities are not included in the critical path and feature large slack values. This is not a problem for the supplier as we are talking here about small quantities (1+2) and fairly small size (i.e. no storage expense is involved).

74

The risk of delay in the overhaul of the 4 old machines is a real one and rather dan-gerous as it may affect the normal level of production beyond the normal required amount. The most probable time of completion of this activity is 4 days and the pessimistic time is 10 days. 4 days have been provided in the schedule. A list of all defects in the machines will be made the first day so the actual time of required re-pairs will be known from the very beginning of this activity. This gives us 3 days to take necessary measures, such as, for example, to subcontract some mechanical machining work. The fact that machines and mechanical machining operations are widely practiced greatly reduces the risk here. Nevertheless, preliminary study and selection of a suitable subcontractor is planned along with the preparation of neces-sary documentation – drawings, specification sheets, etc.

The risk of delay in the installation of the 2 large presses is also assessed as a real one due to the possible delay of 12 weeks (as a result of defects found during in-spection). In the worst case (if both large presses are found defective), this will de-lay the production schedule by 3 working days – a total of 6 days for both presses to be re-located, but two are still in operation as they are not to be re-located – i.е. 6/2=3 working days in aggregate. The normal level of production will be restored in 3 days but the increase of production output will be put off in time. Here we will have to study possible subcontracting for pressing operations. Moreover, penalty clauses shall be provided for in the contract to cover additional expense involved in subcontracting.

Financial risks are usually a consequence of the occurrence of other risks. A risk venture fund is envisaged to be provided to cover the most probable amount of the financial risk calculated based on other occurred risks. This fund shall be approved by the management of the company.

Monitor and Manage Risks Having prepared the risk management plan and started the implementation of the pro-ject, the risk manager is responsible to make sure everybody on the project team act on it. Any necessary actions are taken according to the proactive, mitigation, and contin-gency plans. Responsibilities for the control and indications for the occurrence of individual risks are then allocated among team members as follows: the procurement manager is re-sponsible for ensuring timely supplies and observing the activities planned in the risk management plan; the works manager is responsible for machine overhaul activities, to provide list of all defects found in machines and the results of measures to repair these defects; the financial manager is responsible for observing the occurrence of the finan-cial flow risk; I, the production manager, am responsible for all risks related to the level of production: disturbances in the general order of re-locating machines and presses and planned operation interruptions, as well as for taking any necessary and timely corrective measures as planned. The project engineer is responsible for delays in the building and construction work schedule and for taking required corrective measures. The overall monitoring is exercised by the risk manager and he reports regu-larly to the project manager. The risk manager performs the following tasks in the course of risk monitoring:

75

Includes a Risks section in status reports and requests that resources identify any assumptions they are making, as well as any new risks they see.

Sets up regular meetings with team members to re-evaluate the risk management plan and to identify new risks to the project.

Each time the project's actual progress varies significantly from the plan reassesses the risks and re-evaluates the risk management plan.

2.6. VENDOR RATING METHODS Proper organisation of the process for the supply of products and services will ensure full compliance with set requirements for project implementation. The main objective of the Procurement Manager and his team is to ensure all delivered products and ser-vices meet accepted quality requirements, prices and delivery times. It is necessary to establish an accurate method of assessment of potential suppliers, selection of suppli-ers, measures for inspection of supplied products and claim settlement procedures.

Methods of Assessment and Rating of Vendors The XYZ company has to select suppliers based on their ability to meet delivery re-quirements, including all project-specific requirements. Therefore, it is necessary to make an assessment of potential suppliers and then make the right choice. Several methods of assessment are used in practice:

Collecting quotations from potential suppliers; Sending self-assessment questionnaires (incorporating the requirements of the

buyer) to potential suppliers; Assessment by visits to the supplier on the site; Evaluation of supplier’s samples; Acquiring information from other companies where similar building and con-

struction works (projects) have been carried out. Based on the assessment data thus collected, a decision is made for rating potential suppliers and (qualifying) lists are drawn up for:

Sub-contractors of full quality capabilities (group A); Sub-contractors of conditional quality capabilities (group B); Sub-contractors of no quality capabilities (group C).

The reason for rating each individual supplier in a particular position and group is in-dicated against its name. These lists shall be constantly undated based on above as-sessment and approved by company management. One or several methods could be applied to rate potential suppliers. Each individual method incorporates various assessment criteria to assist the right choice for a sup-plier.

76

Applying Various Methods of Assessment Collecting quotations from potential suppliers. The company may enquire for quota-tions from suppliers of products and services based on certain parameters derived from the “Design project for building and construction work and process equipment for the XYZ company”. In its enquiry for quotation the company shall indicate the parameters that should be met by the quotation. Quotations shall indicate prices of raw materials and services, time of completion of building and construction work and capabilities to comply with project requirements.

Sending self-assessment questionnaires. All potential suppliers are invited to provide their own self-assessment of their quality capabilities. The XYZ company prepares the questionnaire where it includes not only questions relating to parameters which are specific to the project (prices, times, etc.), but also some additional questions giving indication of the work organisation of the potential supplier and his capabilities to de-liver good-quality products and services:

- Do they have an established ISO 9001 quality management system; - Do they make assessment of their sub-suppliers; - Do they have approved documentation of their organisational structure and allo-

cation of responsibilities; - Do they have an established procedure for updating documentation when revi-

sions are made; - Do they manufacture to specific documentation; - Do they have in-process control of production; - Do they inspect their finished products; - Do they keep records of inspection results and is storage provided for such

documentation; - Do they process inspection results; - Do they have regular inspection of measurement and control equipment and do

they keep relevant records; - Have they established a procedure for the management of defective products; - Do they give designations to defective products; - Do they check the complete lot prior to dispatch; - Is it possible to have an assistant to verify these data on the site.

The potential supplier gives his answers to the questions included in this questionnaire and these answers might have critical significance for rating by the XYZ company of potential suppliers quoting similar prices and capabilities. Assessment by paying on-the-site visits to the supplier. When supplies of critical sig-nificance are considered, supplier capabilities may be assessed by paying visits to po-tential suppliers. The basic activities involved in this type of assessment are to estab-lish personal contacts and check on-the-site the capabilities of the supplier to deliver good-quality products and services. The following type of information is collected:

77

- General company (factory) data; type and size of production; - Do they have branches or subsidiaries – location and size; - What is the scope of their own R&D activities; - Do they deliver similar products to other customers – references and data; - What part of the order is planned to be sub-contracted with other sub-suppliers or

company branches and subsidiaries; - Type of available means of transportation; - Outdoor and indoor storage area and sites; - Technical condition of machines and equipment: age and maintenance; - Special means of in-process control; - Do they have any planned arrangements for control or other provisions that give

indication of the type and scope of inspection activities; - What measures do they employ to discard defective products from the delivery

batch; - Do they provide insurance against transportation damages; - Do they issue quality certificates; - Do they check measurement equipment and testing devices and is there room

provided for such checks and what equipment have they installed in it.

Collecting information from companies where similar building and construction activities have been executed. Representative of the XYZ company may visit other customers of potential suppliers and acquire information and references on products or activities carried out. A combination of several methods is often applied.

Selection of Suppliers by the XYZ company The Procurement Manager has the task to plan accurate and timely supply of delivered raw materials, machines and equipment. Therefore, the optimum selection of potential suppliers of machines, equipment, raw materials and services is of critical significance to meeting deadlines and maintaining interrelations between activities involved in the project. The overall supply required for the implementation of the project can be subdivided into the following separate sub-supplies: Supply of machines and equipment:

- machine; - small presses; - large presses; - building reinforcement material, roof panels, window frames; - insulation, water supply & sewage, electrical installations; - specialised equipment (benches, storage racks, etc.).

78

Supply of raw materials: - machines and equipment (presses); - building and construction materials (concrete framework, cement, paint, etc.); - building reinforcement material, roof panels, window frames; - insulation, water supply & sewage, electrical installations; - specialised equipment (benches, storage racks, etc.).

Supply of services: - transportation; - excavation works; - building and construction works; - building supervision services.

This breakdown of supplies will allow the Procurement Manager and his assistants to contact specific suppliers with enquiries for quotations. Procurement documentation based on “Design project for building and construction work and process equipment for the XYZ company” will be used as the basis for the order. These shall provide full description (specification) and quality requirements for the product to be purchased. Documents shall be verified and approved by authorised persons in the company. The breakdown of supplies is also useful in defining the exact specification for re-quired raw materials and equipment and defining the specific system of requirements to be met by suppliers. This stage shall be present in the overall process of selection of suppliers, regardless of the method of selection applied. The following step is to make enquiries to various suppliers. The following methods are applied here: collecting quotations, sending out self-assessment questionnaires; and evaluation of samples. Two alternatives are available to the procurement department for sub-contracting building and construction work: sub-contract a specialised company to carry out build-ing and construction work with raw materials supplied by the XYZ company; and sub-contract a specialised company to carry out building and construction work using its own transportation and supply of raw materials. The right choice will be made after all quotations have been examined, taking into consideration the value of the project and the experience the XYZ company has had in building and construction activities.

For the first alternative it is necessary to provide accurate sequencing and distribution of activities and allocation of responsibilities involved in the procurement of supplies between the two companies. Timely and good-quality supplies would ensure project implementation complies with set deadlines. Storage area will have to be provided and incoming quality control shall be organised. Suppliers shall ensure 100% delivery on the agreed date. Inspection of supplied products shall be carried out based on standards currently in force for individual groups of products. Since it is impossible to inspect all parameters of supplied products during the incoming inspection procedure, the XYZ company and

79

suppliers may agree on providing inspection records for certain product parameters or quality certificates. This would limit incoming inspection of materials to identity checks and appearance observations. When it is impossible to provide a certain delivery or the quality of supply deterio-rates, the procurement manager has to select the next supplier in the rating list of “ap-proved suppliers”. The following block diagram (Fig 2.18) can illustrate activities and responsibilities in-volved in the procurement process:

The second alternative involves the selection of a construction company that has the sole responsibility to arrange for transportation and supply of required materials in the course of building and construction works. This is the best alternative to use for the implementation of the project provided an acceptable price is quotated. An overall as-sessment of the supplier shall be made here and visits paid on the site to study his ca-pabilities. Consideration should be given to all aspects of assessment described above.

Building and construction design project,

Planned assignments Establish raw material demand

Proect Team Members

Drawings

Specifications Prepare an order

List of "approved suppliers”

Selection of supplier

Order

Updated orderPossible additions to the initial order

File with additional quality requirements set in the course of

operation

Inspection of order progress of order

delivery time cost (price)

Order

Approval of order

Order Original

Placement of order

not OK

OK

logical operation

control operation

to the approved supplier

Procurement Manager

Fig. 2.18

80

A contract is to be signed to ensure for the successful implementation of the project and this should include the following provisions:

- rights and obligations of the two contracting parties; - quality assurance; - define project completion time; - set up claim rising procedures; - penalties provided under the contract.

2.7. Measures in the “large presses test failing” case The large presses would normally be tested before delivery, but then require partial disassembly to accommodate shipping and installation. If the presses fail on testing then delivery may be delayed by up to 12 weeks.

Problem Analysis Several basic alternatives are available to this unfavourable situation: Alternative1 – both presses show defects on testing at the factory of the manufacturer. Elimination of these defects will take time. Delivery will be delayed but the delay will be far less than 12 weeks as it will be possible to take action immediately on the spot. Alternative 2 – only a single press shows defects on testing at the factory of the manu-facturer. Delivery of this one press is delayed. The other press is delivered, installed and commissioned in due time. Alternative 3 – both presses show defects on testing at the new production shop fol-lowing delivery. This results in delay in commissioning of both new presses. The de-lay might extend to 12 weeks. Alternative 4 – only one press shows defects on testing at the new production shop fol-lowing delivery. This results in delay in commissioning of this particular press and the other one is commissioned in due time. Other unfavourable alternatives also exist but the worst of all is alternative 3 when both presses show defects on testing at the new production shop following delivery. It is the worst possible alternative because: Commissioning of the two new presses is delayed for the longest period of all – 12

weeks; In this case, it will be a while before we find out about the problem – the first two

days of week 16 on the project. Thus, not much time is left to take necessary ac-tion.

Therefore, we will discuss here subsequent action in the case of alternative 3. According to the prepared schedule (see Table 2.2) the two new large presses are de-livered (activity 5) on the 72nd day from the beginning of the project (week 15). They are tested (activity 49) and it is then when we find out about the problem situation – 76th – 77th day, at the earliest. Before this happens, normal level of production is not affected as meanwhile all four old large presses are in operation and two of them will be re-located after the two new ones are installed. Activity 5 is not included in the

81

critical path and its slack is = 22 days. Nevertheless, it is not possible to use early times (ES and EF) for the delivery as we will still have to wait for the testing - founda-tions and plinths for the presses will not be finished. The proper solution to the prob-lem is not in the earlier delivery time – this is not possible due to both the 12-week time period and the arrangement of activities in the schedule.

Problem Solution There is another solution to this problem. It is greatly facilitated by the fact that activi-ties 49 to 53 (until the completion of the project) are only related to the testing of new presses and the subsequent re-location of old ones. All other activities involving sub-contracting, hired equipment, etc. for which payment is made are already complete. Machine foundation plinths are also finished. The only activities left to complete are the re-location, installation and testing of the 2 old presses and the end to the project. This will take 6 days. This means three days of normal level of production will be lost (as two of the old presses are not to be re-located and are in continuous operation). Therefore, when we find out the two new presses fail on testing we do not proceed with the re-location of the two old ones. Instead, we first take action to subcontract the portion of work which the two new presses were supposed to complete. The amount of work will be equal to a 12-week volume of production of the two large presses. We must remind here that this possibility was envisaged in the risk management task and measures were considered for a preliminary study of eventual subcontractors and preparation of required documentation for the subcontractor (drawings, specification sheets, etc.). The two old machines are re-located when the finished products from the sub-contractor start to arrive at the XYZ company. This ensures that the planned normal level of production is maintained throughout the period of eliminating failures in the new presses.

Conclusions In this situation the delay in the project will be equal to the time period between

subcontracting the portion of work and the time when the first products from the subcontractor start to come in. As this has been studied in advance, it is expected that this will take not more than 3 to 5 days.

The delay is not likely to bring extra cost to the project as there are no other activi-ties to delay. Additional cost might result from the subcontracting of operations.

The additional cost brought to the project will be neutralised by the penalties pro-vided for in the supply contract for the large presses.

The set level of production will be maintained. 2.8. Separate works production schedule By production schedule in the course of company restructuring it is actually under-stood a schedule for the re-location of those facilities, which are directly involved in the production process: machines, presses and assembly benches. In other words, minimising the effect of re-location activities on the level of production is related to the optimum performance achieved with this schedule.

82

My position of a Product Manager has determined the tasks and responsibilities I had to take as a member of the project team:

Project tasks and the activities involved in them related to planning production in various departments, meanwhile ensuring that the required production output is guaranteed and the strategy and duration of the project are met

Responsibilities for maintaining current basic production output of the company while the modifications are carried out (within a preset reasonable range).

As a result of the performed analysis of tasks and requirements for the entire project, the main purpose was generated and specified, as well as the tasks of the current pro-duction management, and the strategy required to accomplish them.

Main Aim Prepare production schedule for each individual production department and plan re-location of machines to cover production volume and meet the strategy for project du-ration.

Main Tasks Prepare the production schedule; Optimum incorporation of the production programme in the overall project sched-

ule. The accomplishment of this task was guaranteed through the following sub-tasks: - Maintain constant feedback with other team members when planning project ac-

tivities; - Deliver accurate and timely information, carry out immediate analysis of re-

ceived feedback information and implement the required modifications in plan-ning project activities;

The new production programme should not affect the current production volume by more than the equivalent of two full working weeks of normal production in the course of implementing the required changes.

Strategy Milestones Maintain a certain level of production by means of ensuring optimum matching of

activities involved in the re-location, installation and testing of new and old presses, machines and assembly benches [23].

First complete the installation and commissioning of new presses and then continue with the re-location of old ones, thus ensuring the required level of production.

Use company workers for the re-location of old presses and machines. Install and commission new presses with the assistance of manufacturers’ special-

ists.

83

Production Schedule Activities involved in the re-location of facilities, which are directly involved in the production process, were defined: machines, presses, assembly benches, as well as their sequence and completion times (Table 2.6): Table 2.6

Activity Name Predecessor Normal TimeA Install 2 new small presses 1 B Test 2 new small presses A 2 C Move 4 old small presses B 2 D Install 4 old small presses C 2 E Test 4 old small presses D 2 F Move first four machines into the new machine

shop D 1

G Install first 4 machines + 1new machine F 1 H Test 5 newly installed machines G 2 I Overhaul second 4 machines D 4 J Re-location of second 4 machines H, I 1 K Install second 4 machines J 1 L Test second 4 machines K 3 M Re-location of assembly benches + 3 new benches J 1 N Install 2 new large presses E 2 O Test and adjust 2 new presses N 2 P Move 2 old large presses O 2 Q Install 2 old large presses P 2 R Test 2 old large presses L, M, Q 1

A Critical Path Analysis (using Normal Times) was carried out using the WinQSB software. Calculations of the Critical path and float values (ES, EF, LS, LF, and the Slack) for every ac-tivity were made (Fig. 2.19). The duration of this particular part of the project involving re-location of machines, presses and assembly benches was es-tablished based on the above analysis:

Completion Time = 18 days

Fig. 2.19

84

Fig. 2.20 provides visual illustration of the network diagram of activities.

Fig. 2.21 illustrates the schedule by means of a Gantt Chart.

We must say here that the schedule thus drawn up is conditional in so far as it incorpo-rates only activities related to the re-location of equipment, which is directly involved in production. It will become an entirely real schedule from the moment when it is in-

Fig. 2.21

A0 1

0 1B1 3

1 3C3 5

3 5D5 7

5 7E7 9

7 9N911

911O

1113

1113P

1315

1315Q

1517

1517R

1718

1718

F7 8

8 9G8 9

910H911

1012J

1112

1213K

1213

1314L

1316

1417

I711

812M

1213

17

ES EF

LS LFACTIVITY

ES - EARLIEST STARTING TIMEEF - EARLIEST FINISHING TIMELS - LATEST STARTING TIMELF - LATEST FINISHING TIMEON CRITICAL PATH

Fig. 2.20

85

tegrated into the overall project schedule of activities (Task 1). At this point several other project activities show up and are interrelated to activities included in the pro-duction schedule. Nevertheless, sequence and durations of individual activities included in this schedule are still maintained the same. This was a significant point when we aimed at meeting the initial requirement for not affecting the normal level of production by more than the equivalent of 2 full weeks. Analysis of the schedule in terms of lost days of pro-duction (the affected level of production) indicated its compliance with abovemen-tioned initial requirement.

Maintaining the Level of Production during the Alterations First, the 2 new small presses are installed and tested. Then they can be commis-

sioned and loaded with production work. This will require 3 days starting from the moment when the foundation bases in the new production shops are ready. Thus, a delay of 3 days in the overall time schedule will result but the normal production run will not be affected in this period.

Following the commissioning of the new small presses, we can proceed with the re-location, installation and testing of the old 4 small presses. This will take 6 days during which the production run will be affected by 50%, since the 2 new presses are already in operation and cover 50% of the production volume. Therefore, 3 working days of production will be lost here.

Following the installation of the 4 small presses (but before testing them) we can start with the re-location of 4 machines in the Machine Shop where they are in-stalled together with 1 newly purchased machine. The other 4 machines are given general overhaul and subsequently re-located as well, which is after the first 5 have been tested and commissioned. This will take a total of 9 working days. But the first two days (when the first 4 are re-located and tested and the second 4 are re-paired) overlap with the two days of testing small presses. As I already mentioned, since the 2 new small presses are already functioning, this overlapping is again converted into 50%, i.e. it becomes 1 day instead of two. Moreover, 5 machines (the first 4 + 1 new) have already been commissioned in the last 5 days (out of to-tally 9). During these 5 days these 5 machines produce exactly as much volume as 8 machines would produce in 3 days (in normal production). Therefore, 9 - 1 - 3 = 5 more working days of production are lost in the Machine Shop (not counting the overlapping days).

Re-location of the old 3 assembly benches and their installation together with the 3 new ones is carried out in parallel with the installation of the second 4 machines. This is carried out in this particular time to make use of the period while the Ma-chine Shop is idle and no parts for assembly are be accumulated. The production process in the Assembly Shop is interrupted by 1 day, but this overlaps with the in-stallation of 5 machines in the Machine Shop and therefore, does not result in more days lost from production.

Two of the large press will not be re-located – they stay where they are and con-tinue their operation. At the time when the small presses are moved out and the 4 new foundation bases are finished, the first to be installed, tested and commis-sioned are the 2 new large presses. Therefore, there will be no interruption of the

86

normal production run here, since 4 working large presses are ensured all the time to cover the normal production volume.

IN GENERAL – the lost production time (not counting overlapping periods) is:

3 + 5 = 8 working days of production < 10 working days (2 weeks)

The existing production volume is not affected by more than the equivalent of two full weeks’ production, during the alterations. The impact of alterations on production volume with the prepared production schedule is shown in Fig. 2.22:

Conclusions The production schedule thus prepared is completely integrated in the overall project activity schedule and also takes account of other project activities (building, etc.) and resources. Moreover, the production level is affected for 8 working days < 2 working weeks, which is the initial requirement. The schedule defines the sequence of re-locating machines, presses and benches on the new production bay, but actually it is a real production schedule since its main objec-tive is to maintain the production volume to an optimum level – it defines times and sequence of operation of machines, presses, etc.

2.9. Hiring & training of new workers To raise its production output, the company has to hire and train new workers. To be able to successfully conduct such training, the Training manager is responsible for preparing a reasoned strategy and a plan (time scales) for the hiring and training of new workers. He has identified measures and allocated responsibilities for the familia-risation of newly hired workers with their obligations and for the professional training,

LARGE PRESS SHOP

SMALL PRESS SHOP

MACHINE SHOP

ASSEMBLY SHOP

Affected production volume

8 working daysWorking dayLost day

Fig. 2.22

87

safety instructions and familiarisation with some special features of the working place and the production processes.

Analysis of the Needs Since the number of machines is increasing, new workers have to be hired to the fol-lowing workstations (provided two-shift operation is considered):

1 machine – 2 new workers 3 assembly benches – 6 new workers 2 small presses – 4 new workers 2 large presses – 4 new workers

Metal-cutting machines are widely used and it is assumed it will be easy to find and hire 2 new workers sufficiently well qualified to need any additional specialised train-ing. Moreover, operations carried out in metal-cutting machines following the pressing operation mainly involve drilling holes and grinding operations. In other words, no complicated milling, etc. operations are involved. It is assumed that sufficiently well qualified new workers will also be hired for the 6 new fitter jobs in the Assembly Shop. Assembly operations involved in pressed steel products are not particularly complicated. The initial period of adaptation is expected to cause no loss in productivity. Nevertheless, a period of training and adaptation will be required for the 8 new press workers. This is expected, as we must take into account here the fact that these are highly specialised and not so widely used machines such as the universal ones men-tioned above. It is assumed it will be hard to find adequately trained and skilled work-ers.

Strategy and Plan Efforts in hiring new workers shall be focused primarily on hiring workers of certain professional experience and qualifications. Another important part of the strategy is to hire workers in time for them to be able to take part in the installation and inspection of the new machines and presses. The purpose of this measure is for the workers to ac-quire initial knowledge of the design and functions of machines and presses. More-over, installation of new presses is to be carried out by manufacturer’s specialists and this is another advantage – some of their expert knowledge will be acquired for free. Sufficient time will be provided for new workers to get familiar with machines and processes and get used to them. A combination of utilisation of labour and an initial process of familiarisation of workers with their operational functions will thus be achieved [24]. Two new workers are planned to be hired for the Machine Shop just before the new

machine is delivered and installed. This means they shall begin work in the begin-ning of week 12 on the project. The rest of the workers in the machine shop will assist their new colleagues observing a specific plan. No reduction in overall pro-ductivity is expected.

The procedure for the 6 new workers in the Assembly Shop will be similar and they will begin work just before the new machine is delivered and installed. This

88

means they shall begin work in the beginning of week 13 on the project. No reduc-tion in overall productivity of the assembly shop is expected here either.

Press operations are principally monotonous. Once set and adjusted to produce a spe-cific production series, presses do not require complicated operations and much spe-cific knowledge to operate. Therefore, if initial adjustments and settings are made by old skilled workers, it is highly possible for newly hired workers to start work from the very first days (though of reduced productivity). Practically, the main problem is op-erational safety and initially, the lack of specific production synchronisation. The following sequence is planned to be observed in hiring press workers: 4 new

workers will be hired before the new small presses are installed – during week 11 on the project. They are expected to take part in machine installation activities. Meanwhile, old workers will be assigned one new worker to train them on machine operations. The second group of 4 new workers will be hired during the week im-mediately preceding the installation of the new large presses – beginning of week 15 on the project. An important issue of the strategy is to initially use new workers for the production of large series of products where no frequent changes in settings of presses are involved. This will help avoid any significant reduction in productiv-ity. The aim is to have adequately trained workers when the new large presses are installed and to ensure the production schedule prepared by the Product manager is met. The following assumptions are made in support of these intentions:

Taking into consideration above discussions, it is assumed that a productivity re-duction of 30% will be observed for old press workers during the first week when they are assigned new workers for training.

Meanwhile, productivity of new workers will be increasing progressively and with the abovementioned monotonous and not very complicated nature of operations, it is expected that: - After one week of initial training, new workers will be able to work on their

own, once the presses are set and adjusted for a large series production run, and the expected productivity is 90 – 95% of the average;

- In two weeks time they will be able to handle some changes in press settings and deliver a productivity of 90 – 95% of the average. Meanwhile, productivity of old workers will be reduced by no more than 5%;

- In 3 weeks time they will be capable of delivering maximum productivity and able to handle frequent changes in press settings. Meanwhile, productivity of old workers will not be reduced.

The schedule for hiring new workers can be illustrated as follows: Table 2.7

Production shop Number of new workers

Week on the project when they are hired

Duration of training

Machine Shop 2 12 - Assembly Shop 6 13 - Small Presses Shop 4 11 1 week Large Presses Shop 4 15 1 week

89

Conclusion Provided all basic issues included in the strategy are observed and especially the vol-ume of production series, the normal level of production will not be affected beyond the allowed extent and maximum productivity will be achieved within 1 week to 10 days time.

2.10. Financial plan and schedule

Financial Flow Analysis When we prepared the financial plan and schedule we used the same measurement units as in project schedule – working days, but we also considered calendar days and weeks from the beginning of the project. Thus, once developed, the schedule can fit into any required calendar period of time. It is assumed it starts from the beginning of the working week – Monday (but this is not a compulsory condition) [25]. Financial flows corresponding to the tasks included in the prepared schedule are as fol-lows: Demolishing the old paint store (activity 2 – duration 3) Cleaning up and levelling

of the building site (activity 7 – duration 4). A specialised company is subcon-tracted with 6 workers and the required equipment (JCB + skip hire). The cost for this is:

(£800 + £1,200)*7days = £14,000 Agreed terms of payment are: Full payment at end of each week. Therefore the following payments are due: - End of first week (on the 5th working day on the project):

(£800 + £1,200)*3days = £6,000 - On the 4th day of the second week – the 9th working day from the beginning

of the project: (£800 + £1,200)*4days = £8,000

Demolishing the existing outside wall (activity 21 – duration 2). To be carried out by the same subcontractor using the same equipment. The cost for this is:

(£800 + £1,200)*2days = £4,000 and this will be paid end of week 10 (the 50th working day on the project).

Demolishing the wall between the small press shop and large press shop (activity 31 – duration 1). To be carried out by the same subcontractor using the same equipment. The cost for this is:

(£800 + £1,200)*1day = £2,000 and this will be paid end of week 12 (the 60th working day on the project).

Re-configure walls and partitions between new production shops and arrangement of the new finished goods store and the expanded paint shop. Arrangement of the goods dispatch area (activity 43 – duration 4). To be carried out by the same sub-contractor but without the JCB and skip hire. The cost for this is:

£800*4days = £3,200 and this will be paid end of week 14 (the 70th working day on the project).

90

Demolishing the wall between the old finished goods store and the raw material store (activity 47 – duration 1). To be carried out by the same subcontractor using the same equipment. The cost for this is:

(£800 + £1,200)*1day = £2,000 and this will be paid end of week 15 (the 75th working day on the project).

Purchasing and delivery of 1 new machine (activity 3). The cost of the machine is £12,000 + £600 delivery cost, or a total of £12,600.

Terms of payment: 15% on order with balance within 1 week of delivery. De-livery cost: full payment on delivery. Therefore, payment due is as follows: - on order: on the 4th day of week 7 (on the 34th working day on the project):

£12,000*15% = £1,800 - on delivery: on the 4th day of week 14 (69th working day on the project):

£600 - balance to full amount – on the 4th day of week 15 (74th working day on the

project): £10,200 Purchasing and delivery of 2 new small presses (activity 4). The cost of one small

press is £46,000 + £800 delivery cost for 2 presses or £600 / press for single ma-chine deliveries.

Terms of payment: 10% on order with balance within 30 days of delivery. De-livery cost: full payment on delivery. Therefore, the following payment is due: - on order: on the 4th day of week 5 (on the 24th working day on the project):

£46,000*2*10% = £9,200 - on delivery: on the 1st day of week 11 (51st working day on the project): £600 - the balance to the full amount – on the 3rd day of week 14 (73rd working day

on the project): £82,800 Purchasing and delivery of 2 new large presses (activity 5). The cost of one large

press is £120,000. + £1000 for single machine deliveries. Terms of payment: 10% on order with balance within 30 days of delivery. De-livery cost: full payment on delivery. Therefore, the following payment is due: - on order: on the 4th day of week 5 (on the 24th working day on the project):

£120,000*2*10% = £24,000 - on delivery: on the 1st day of week 11 (51st working day on the project):

£2000 - the balance to the full amount – on the 3rd day of week 15 (73rd working day

on the project): £216,000 Building new bay. Include activities 8, 9, 10, 11, 12, 13, 14, 16, 17, 19 and 20.

Contract stipulates uninterrupted access for contractor with a clear site. The con-tract will cover the foundations, floor and building fabric but not installation of services. The total cost of contract is £1,200,000. A stage payment of £400,000

91

when foundation work is complete with the balance within 30 days of building completion.

Therefore, the following payment is due: - upon completion of activity 13: on the 1st day of week 7 (on the 31st working

day on the project) - £400,000 - 30 days after building completion: on the 3rd day of week 14 (on the 68th

working day on the project) - £800,000 Works involved in the provision of services: water supply and sewerage, electrical

installation and lighting. Include activities 15, 22 and 25. These are carried out by specialised subcontractor. The total cost of the contract is £90,000 with raw materi-als delivered by the subcontractor. Payment is agreed to be made as follows:

- on completion of laying of the underground cables (activity 15) - £30,000. Therefore, this amount will paid on the 4th day of week 4 (on the 19th work-ing day on the project);

- the balance is paid within one month of completion of service works for elec-trical installation, water supply & sewerage (activity 22) and installation of lighting (activity 25). Therefore, £60,000 will paid on the 2nd day of week 12 (57th working day on the project).

Purchasing and delivery of the sliding door (activity 18). The cost of the sliding door is £6,500 + £500 delivery cost, or a total of £7,000.

Terms of payment: 30% on order and the balance on delivery. Delivery cost: full payment on delivery. Therefore, the following payment is due: - on order: on the 3rd day of week 13 (on the 63rd working day on the project):

£6,500*30% = £1,950 - on delivery: in the beginning of week 17 (81st working day on the project):

£4550 and £500 delivery cost, or a total of £4550 + £500 = £5050

Machine maintenance costs are £40/ hr + parts. Estimated cost of parts is £800 / machine. Payment of outstanding charges at end of each week.

Therefore, the following payment is due for 4 machines to be given general overhaul (activity 37): 4 machines*4days*8hours*£40 = £5120 Additionally, the following payment is due for spare parts: 4 machines*£800 = £3200 The total amount due at the end of week 13 (on the 65th working day on the pro-ject) is as follows: £5120 + £3200 = £8320

The cost of 3 assembly benches is £1,800. 50% is to be paid on purchase and the balance of 50% is to be paid on delivery (activity 24). The cost of delivery for 3 machines is £200 and is again paid on delivery.

Therefore, the following payment is due: - on order: on the 3rd day of week 14 (on the 68th working day on the project):

92

£1,800*50% = £900 - on delivery: on the 3rd day of week 15 (on the 73rd working day on the pro-

ject): £900 + £200 = £1,100

Purchasing and delivery of storage racks for the Finished Goods Store (activity 42). The cost of storage racks is £12,000. Payment is 15% on purchase and the balance of 85% on delivery. Delivery cost for 3 racks is £500 and is also paid on delivery.

Therefore, the following payment is due: - on order: the 3rd day of week 15 (73rd working day on the project):

£12,000*15% = £1,800 - on delivery: the 3rd day of week 16 (78th working day on the project):

£10,200 + £500 = £10,700 The financial flow described above illustrates expenditure and payments due in the course of project activities in accordance with the initially prepared schedule. The total amount of expenditure and payments forms the overall cost of the project.

Financial Schedule A schedule of payments was prepared based on the analysis of financial flows – Table 2.8. Payments for individual project activities are rated and ordered by precedence. The schedule describes the cash flow over the project life cycle. Therefore, the second column indicates the working day from the beginning of the project when payment is to be made; the third column indicates the week from the beginning of the project; and the fourth column indicates the activity payment is made for [25].

93

Table 2.8

No Working day

(from beginning of the project)

Week Amount Activity payment is made for

1. 5 1-st £6,000 Activity 2 2. 9 2-nd £8,000 Activity 7 3. 19 4 £30,000 Activities 15, 22 and 25 4. 23 5 £9,200 Activity 4 5. 24 5 £24,000 Activity 5

6. 31 7 £400,000 Activities 8, 9, 10, 11, 12, 13, 14, 16, 17, 19 and 20

7. 34 7 £1,800 Activity 3 8. 50 10 £4,000 Activity 21 9. 51 11 £600 Activity 4 10. 51 11 £2000 Activity 5 11. 57 12 £60,000 Activities 15, 22 and 25 12. 60 12 £2,000 Activity 31 13. 63 13 £1,950 Activity 18 14. 65 13 £8,320 Activity 37

15. 68 14 £800,000 Activities 8, 9, 10, 11, 12, 13, 14, 16, 17, 19 and 20

16. 69 14 £600 Activity 3 17. 69 14 £900 Activity 24 18. 70 14 £3,200 Activity 43 19. 73 14 £82,800 Activity 4 20. 73 15 £216,000 Activity 5 21. 73 15 £1,100 Activity 24 22. 73 15 £1,800 Activity 42 23. 74 15 £10,200 Activity 3 24. 75 15 £2,000 Activity 47 25. 78 16 £10,700 Activity 42 26. 81 17 £5,050 Activity 18

Total: £1,692,220

The cost of the project is £1,692,220. Actually, we can say this is the most likely cost since it is calculated based on most likely time scales.

Some changes to the financial plan and schedule might be required if some of the risks listed in task 4 occur. For example, some additional payment might be required for subcontractors, for hiring technical equipment, for additional supplies of materials and spare parts, for longer durations of some activities, which are normally paid on an hourly basis. Some income might also result from penalty provisions in contracts and insurances. All these additional financial

94

flows form the risk section of the financial plan. Together with the revised original flows, they all form the financial plan of occurred risks [26].

Estimated Annual Balance Sheet The company has recorded the following results for its last full year of production:

- Income from sales......................£5,483,256 - Purchased items .........................£2,142,897 - Operating expenses....................£3,246,692

The company is expected to increase its income from sales in the current year as a result of the increased production capacity. The increase of production capacity is 50% but this does not cover the entire annual accounting period – the project duration time shall be excluded and the time from the beginning of the year until the beginning of the project (if the project was started in March and lasted 16 weeks, the increased capacity would be valid for the other 6 months of the year [27]. Therefore:

Estimated income from sales:

= (£5,483,256/12)*6 + (£5,483,256/12)*6*150% = £6,854,070

For the period of increased production capacity in the current year, the company will feature a similar 50% increase in purchased items expenditure:

Estimated expenditure on purchased items:

= (£2,142,897/12)*6 + ((£2,142,897/12)*6*150% = £2,678,621.25

Operating expenses for the current year will also increase but to a far less extent – mainly for newly hired workers and also as a result of the increased number of machines and equipment. Approximate estimations can be based on the average salary, electricity expenses, water sup-ply expenses, etc. (current utilities) [27]. Moreover, it should be kept in mind here that changes in the number of workers and production capacity are in force for only half of the an-nual financial period (after the implementation of the extension project).

Estimated operating expenses: £3,620,000

The estimated annual balance sheet is as illustrated in Table 2.9:

Table 2.9

2002 2003 2004 2005

Income from sales A £5,483,256 £6,854,070.00 £8,224,884.00 £8,224,884.00

Purchased items B £2,142,897 £2,678,621.25 £3, 214,345.50 £3, 214,345.50

Operating expenses C £3,246,692 £3,620,000.00 £3,993,308.00 £3,993,308.00

D = A-(B+C) £93,667 £555,448.75 £1,017,231.00 £1,017,231.00

Capital investment (exten-sion project expenditure)

E - £1,692,220.00 - -

Liabilities F - - -£1,136,771.25 -£119,540.25

Financial result G = D-E-F £93,667 -£1,136,771.25 -£119,540.25 £778,150.50

The balance sheet indicates estimated figures for the years 2004 and 2005 to allow for the cal-culation of the estimated investment payback period. The investment made in 2003 will affect the financial picture for the entire year 2004 and 2005. No interest payments are considered here [27].

95

Conclusions The cost of the project is £1,692,220

A budget deficiency of -£1,136,771.25 is expected in the year 2003. This is due to the in-vestment involved in production expansion. This will be covered by a bank loan. The revenue growth relative to the year 2002 is 125%.

A budget deficiency of -£119,540.25 is expected in the year 2004. The revenue growth relative to the year 2002 is 150%.

Complete payback on investment will be achieved in February 2005. In other words, the overall payback period will be 23 months (from March 2003 till February 2005). A finan-cial profit of £778,150.50 is expected.

96

REFERENCES 1. Harris, Robert B. Precedence and Arrow Networking Techniques for Construction. New

York: John Wiley & Sons, 1978 (TH438.H37).

2. Meredith, Jack R., and Samuel J. Mantel Jr. Project Management: A Managerial Ap-proach. New York: John Wiley & Sons, 1985

3. Smith-Daniels, Dwight E., and Nicholas J. Aquilano. "Constraiiri Resource Project Scheduling." Journal a/Operations Management 4, no. 4 (1984), pp. 369-87.

4. Funk, Jeffrey L. The Teamwork Advantage: An Inside Look at Japanese Product and Technology Development. Cambridge, Mass.: Productivity Press, 1992 (HD66.F86).

5. Rogers, Tom. "Project Management; Emerging as a Requisite for Success." Industrial En-gineering, June 1993, pp. 42-43.

6. Smith-Daniels, Dwight E., and Vikki L. Smith-Daniels. "Optimal Project Scheduling with Materials Ordering." HE Transaction! 19, no. 2 (June 1987), pp. 122-29.

7. Goodman, Louis J. Project Planning and Management. New York: Van Nostrand Rein-hold, 1988 (HD69.P75G65).

8. Goodman, Louis J., and Ralph N. Love. Project Planning and Management: An Inte-grated Approach. New York: Pergamon Press, 1980.

9. Kerzner, Harold. Project Management/or Executives. New York: Van Nostrand Reinhold, 1984.

10. Kerzner, Harold, and Hans Thamhain. Project Management for Small and Medium Size Business. New York: Van Nostrand Reinhold, 1984 (HD69.P75K491).

11. Wiest, Jerome D., and Ferdinand K. Levy. A Management Guide to PERTICPM. 2nd ed. Englewood Cliffs, N.J.: Prentice-Hall, 1977 (TS158.2.W53).

12. Cleland, David I., and William R. King. Project Management Handbook. New York: Van Nostrand Reinhold, 1983.

13. Hughes, Michael William. Why Projects Fail: The Effects of Ignoring the Obvious. Indus-trial Engineering 18, no. 4 (April 1986), pp. 14-18.

14. Robert R. van der Velde, Dirk Pieter van Donk. Understanding bi-project manage-ment: engineering complex industrial construction projects. International Journal of Project Management, Volume 20, Issue 7, October 2002, Pages 525-533.

15. Johanna Kirsilä, Magnus Hellström, Kim Wikström. Integration as a project man-agement concept: A study of the commissioning process in industrial deliveries. Interna-tional Journal of Project Management, Volume 25, Issue 7, October 2007, Pages 714-721.

16. Tuula Lehtimäki, Henri Simula, Jari Salo. Applying knowledge management to project marketing in a demanding technology transfer project: Convincing the industrial customer over the knowledge gap. Industrial Marketing Management, Volume 38, Issue 2, February 2009, Pages 228-236.

97

17. Abdulaziz S Alidi. Use of the analytic hierarchy process to measure the initial viability of industrial projects. International Journal of Project Management, Volume 14, Is-sue 4, August 1996, Pages 205-208.

18. Tien-Fu Liang. Fuzzy multi-objective project management decisions using two-phase fuzzy goal programming approach. Computers & Industrial Engineering, Volume 57, Issue 4, November 2009, Pages 1407-1416.

19. C Leong. Accountability and project management: a convergence of objectives. Interna-tional Journal of Project Management, Volume 9, Issue 4, November 1991, Pages 240-249.

20. Ari-Pekka Hameri. Project management in a long-term and global one-of-a-kind project. International Journal of Project Management, Volume 15, Issue 3, June 1997, Pages 151-157.

21. Brian V Morgan. Benefits of project management at the front end. International Jour-nal of Project Management, Volume 5, Issue 2, May 1987, Pages 102-119.

22. Ilmari O. Nikander, Eero Eloranta. Project management by early warnings. Interna-tional Journal of Project Management, Volume 19, Issue 7, October 2001, Pages 385-399.

23. Bruce Merrifield. Industrial project selection and management. Industrial Marketing Management, Volume 7, Issue 5, October 1978, Pages 324-330.

24. W. K. Brauers. Multiple criteria decision making in industrial project management. En-gineering Costs and Production Economics, Volume 20, Issue 2, October 1990, Pages 231-240.

25. JF Woodward. Project management education — levels of understanding and misunder-standing. International Journal of Project Management, Volume 1, Issue 3, August 1983, Pages 173-178.

26. J. Dahlgren, J. Söderlund. Managing inter-firm industrial projects — on pacing and matching hierarchies. International Business Review, Volume 10, Issue 3, June 2001, Pages 305-322.

27. Jonas Söderlund. Building theories of project management: past research, questions for the future. International Journal of Project Management, Volume 22, Issue 3, April 2004, Pages 183-191.

Dr. Miltiadis A. BoboulosEng. Lazar Peshev

Industrial Project Management: A Handbook of Planning, Scheduling & Evaluation Techniques

In this book the authors present an overview of project management techniques

applicable for industrial projects. Factory case studies are presented in which event

plans have been drawn up involving the expansion and modernization of the

companies to provide for a production capacity increase. Analysis of the pre-defined by

the management project requirements and task synthesis evolving from the project's

purpose has been given. Examples of producing a work breakdown structure, down to

the work package level have been also estimated. Definition of interrelations between

individual tasks in terms of time and structure and identification of priorities has been

additionally investigated. The applicability risk analysis and provision of a strategy and

plan for a risk management has been furthermore considered. Finally, preparation of a

financial plan and a schedule including a balance sheet and a projection of cash flow

over the project life cycle have been estimated and assessed.