PRODUCTIONAND

OPERATION MANAGEMENT

ASSIGNMENTON

PROJECT MANAGEMENT

Group 6

1. AKSHAT ATRAY 2K12/ME/212. AKSHAY AGGARWAL 2K12/ME/223. AKSHAY KUMAR 2K12/ME/234. AKSHAY MALIK 2K12/ME/24

Contents1. Introduction2. Project Planning

2.1. Why Planning is necessary2.2. Planning Pitfalls to avoid2.3. How to use key Planning tools

3. Project Scheduling3.1. Gantt Chart3.2. CPM/PERT3.3. Network Diagram3.4. Activity Scheduling3.5. Probabilistic Time Estimation3.6. Time cost Trade off and Project Crashing

4. Project Control4.1. Time management4.2. Quality management4.3. Cost management 4.4. Communication4.5. Performance management4.6. Earned Value Analysis

5. Reference

Contribution

Akshat Atray 2k12/ME/21 Project Planning and Gantt chart

Akshay Aggarwal 2K12/ME/22 CPM/PERTAkshay Kumar 2K12/ME/23 Time Cost Tradeoff

and Project CrashingAkshay Malik 2K12/ME/24 Probabilistic Time

Estimation and Project Control

1. Introduction

Managers typically oversee a variety of operations. Some of these involve routine, repetitive activities, but others involve non routine activities. Under the latter heading are projects unique, one-time operations designed to accomplish a set of objectives in a limited time frame. Other examples of projects include constructing a shopping complex, merging two companies, putting on a play, and designing and running a political campaign. Examples of projects within business organizations include designing new products or services, designing advertising campaigns, designing information systems, reengineering a process, designing databases, software development, and designing Web pages.   Projects may involve considerable cost. Some have a long time horizon, and some involve a large number of activities that must be carefully planned and coordinated. Most are expected to be completed based on time, cost, and performance targets. To accomplish this, goals must be established and priorities set. Tasks must be identified and time estimates made. Resource requirements also must be projected and budgets prepared. Once under way, progress must be monitored to assure that project goals and objectives will be achieved.

   The project approach enables an organization to focus attention and concentrate efforts on accomplishing a narrow set of performance objectives within a limited time and budget framework. This can produce significant benefits compared with other approaches that might be considered. Even so, projects present managers with a host of problems that differ in many respects from those encountered with more routine activities. The problems of planning and coordinating project activities can be formidable for large projects, which typically have thousands of activities that must be carefully planned and monitored if the project is to proceed according to schedule and at a reasonable cost.

   Projects can have strategic importance for organizations. For example, good project management can be instrumental in successfully implementing an enterprise resource planning (ERP) system or converting a traditional operation to a lean operation.

The management of project involves three phases:

1. Planning: This phase includes goal setting, defining the project and team organization.2. Scheduling: This phase relates people, money and supplies to specific activities and relates activities o

each other.3. Controlling: Here the firm monitors resources, costs, quality and budgets. It also revises or changes

plans and shifts resources to meet time and cost demands.

2. Project Planning

Projects can be defined as a series of related tasks directed toward a major output. In some firms a project organization is developed to make sure existing programs continue to run smoothly on a day to day basis while new projects are successfully implemented.

2.1 WHY PLANNING IS NECESSARY

There are times when a project manager is instructed by the project sponsor to skip the planning process of a new project since, “it wastes time.” Here are some reasons why planning is vitally necessary.

For every hour spent in planning, approximately six to eight hours of Misdirected activity is prevented. Gresham’s Law: If initial planning is done poorly, the rise of daily problems will eventually prevent adequate replanning. 10/10 Rule: In order to complete the project within 10% of the estimated cost, 10% of the total

estimated cost must be allocated to planning.

2.2 PLANNING PITFALLS TO AVOID

As with other aspects of managing projects, there are common pitfalls to avoid. Unless they are understood, the project manager may wander into crisis management.

Planning a project without a project charter. Planning the project hastily. Neglecting to include project risk mitigations in the schedule and budget. Not giving schedule/cost estimates a “sanity check.” Not building margins into the planning. Neglecting to get sponsor/customer approval of the project management plan.

2.3 HOW TO USE KEY PLANNING TOOLS

Planning “tools” can often assist the project manager with the project planning process. Like any such tools, not all may be required for every project. The five key planning tools used most often by project managers are:

Tool #1: Work Breakdown Structure (WBS). Tool #2: Organization Breakdown Structure (OBS). Tool #3: Responsibility Allocation Matrix (RAM). Tool #4: Network Diagram.

Tool #1: Work Breakdown Structure

“A Work Breakdown Structure is a deliverable-oriented hierarchical decomposition of the work to be executed by the project team to accomplish the project objectives and create the required deliverables.”A Work Breakdown Structure is a fundamental project management technique for defining and organizing the total scope of a project, using a hierarchical tree structure. The first two levels of the WBS (the root node and Level 2) define a set of planned outcomes that collectively and exclusively represent 100% of the project scope. At each subsequent level, the children of a parent node collectively and exclusively represent 100% of the scope of their parent node.

Complex projects can be overwhelming to the project manager. Instinctively, many project managers will take a multifaceted project and break it down into smaller, more manageable parts. This process is called decomposing the project.

The tool most often used to accomplish this is the Project Work Breakdown Structure. The WBS is nothing more than a hierarchical diagram that shows the various elements of the project in pictorial form.

Large, complex projects are organized and comprehended by breaking them into progressively smaller pieces until they are a collection of defined "work packages" that may include a number of tasks. A $1,000,000,000 project is simply a lot of $50,000 projects joined together. The Work Breakdown Structure (WBS) is used to provide the framework for organizing and managing the work.

If the WBS designer attempts to capture any action-oriented details in the WBS, he/she will likely include either too many actions or too few actions. Too many actions will exceed 100% of the parent's scope and too few will fall short of 100% of the parent's scope. The best way to adhere to the 100% Rule is to define WBS elements in terms of outcomes or results. This also ensures that the WBS is not overly prescriptive of methods, allowing for greater ingenuity and creative thinking on the part of the project participants. For new product development projects, the most common technique to assure an outcome-oriented WBS is to use a product breakdown structure (PBS).

Feature-driven software projects may use a similar technique which is to employ a feature breakdown structure. When a project provides professional services, a common technique is to capture all planned deliverables to create a deliverable-oriented WBS. Work breakdown structures that subdivide work by project phases (e.g. Preliminary

Design Phase, Critical Design Phase) must ensure that phases are clearly separated by a deliverable (e.g. an approved Preliminary Design Review document, or an approved Critical Design Review document).

Of all the levels on a WBS, Level-2 is often the most important because it determines how actual costs and schedule data are grouped for future project cost and schedule estimating. A project manager may find it useful to know how much it took to design (major work element) a product after it had been completed so that the data can be used for future analogous estimating. In other cases, the project manager may want to know how much a major part of the product actually cost after the project was completed. For this a PBS would be used. Level-2 is therefore used to capture “actual” from a project for future estimating purposes.

When completed, each WBS element should contain the following four items:

The scope of work, including any “deliverables.” The beginning and end dates for the scope of work. The budget for the scope of work. The name of the person responsible for the scope of work.

By using a WBS in this manner the project manager can approach a complex project and decompose it into manageable, assignable portions. There is minimal confusion among project members when this technique is used. In addition to the 100% Rule, it is important that there is no overlap in scope definition between two elements of a WBS. This ambiguity could result in duplicated work or miscommunications about responsibility and authority. Likewise, such overlap is likely to cause confusion regarding project cost accounting. If the WBS element names are ambiguous, a WBS dictionary can help clarify the distinctions between WBS elements.Example of WBS with 100% rule:

The above WBS diagram also illustrates the 100% Rule. These percentages are usually based on the estimated costs, or estimated effort (direct labor hours). At the beginning of the decomposition process, the project manager assigns 100% to the total scope of this project. At WBS Level 2, the 100% is subdivided into five elements at Level-2. The number of points allocated to each is an estimate based on the relative effort involved. Level 2 elements are further subdivided to Level 3, and so forth.

Tool #2: Organization Breakdown Structure (OBS) Like the WBS, the OBS is a hierarchical diagram. It typically depicts the overall organization of the project members, usually with the project manager at the top, the team leaders at Level 2, and the individual team members below Level 2. Staff members may also be included. The OBS shows clear lines of responsibility and reporting within the project. As a rule of thumb, there should be no more than about six people reporting directly to the project manager.

Tool #3: Responsibility Allocation Matrix (RAM) The RAM is a matrix which relates the project OBS to the WBS to help ensure that each element of the project's WBS is assigned to a responsible individual. The primary purpose of using a RAM is to avoid role confusion on projects.

There can be three RAMs on any given project, those being, a) the Key Stakeholder RAM, b) the Project Management Team RAM (illustrated below), and c) individual Team RAMs. In each case, responsibilities can be defined in various ways using a simple number system. For instance, a “1” on the RAM would indicate that the individual has primary responsibility, a “2” would indicate that the individual must be consulted by the person who has primary responsibility, a “3” might indicate that the person may be consulted by the person who has primary responsibility, a “4” would indicate that the person has signature authority, and “5” would indicate that the individual is a back-up to the primary individual, etc.

While RAMs can alleviate many forms of project role confusion they can also create confusion if not constructed properly. Three rules must be followed when constructing RAMs. Rule No. 1: Every row must contain only one “1”. To have more than this would result in having more than one individual with primary responsibility. Each individual might assume that the other is taking the responsibility and thus no one will fulfill this role, or the two individuals may be in conflict with each other, each wanting to meet the responsibility their way. Rule No. 2: Every column must contain at least one “1.” If an individual plays a key role on the project yet has no primary responsibility assigned it may mean that either a responsibility has been omitted from the RAM, or the individual has only a supportive role to the project. Rule No. 3: Support functions must be included (2, 3, 4, etc.). To omit all supportive functions will destroy needed project synergy. Individuals will see only their primary responsibility and will be, in effect, “licensed” to ignore other vital supportive roles.

Tool #4: Network Diagrams A project network diagram is a flow chart depicting the sequence in which a project's non-summary activities (“terminal elements”) are to be completed, showing all their dependencies. The network diagram is excellent for planning and replanning project activities sequencing, and it also identifies the project’s critical path. Upon completing the construction of the network diagram, the activities which represent the longest path from project start to project end, are identified. That means if any of these critical path activities slip, so does the project completion date.

3. PROJECT SCHEDULING

It is typically the most critical element in the project management process, especially during the implementation phase (i.e., the actual project work), and it is the source of most conflict and problems. One reason is that frequently the single most important criterion for the success of a project is that it be finished on time. If a stadium is supposed to be finished in time for the first game of the season and it’s not, there will be a lot of angry ticket holders; if a school building is not completed by the time the school year starts, there will be a lot of angry parents; if a shopping mall is not completed on time, there will be a lot of angry tenants; if a new product is not completed by the scheduled launch date, millions of dollars can be lost; and if a new military weapon is not completed on time, it could affect national security. Time is also a measure of progress that is very visible. It is an absolute with little flexibility; you can spend less money or use fewer people, but you cannot slow down or stop the passage of time.

Developing a schedule encompasses the following basic steps. First, define the activities that must be performed to complete the project; second, sequence the activities in the order in which they must be completed; next, estimate the time required to complete each activity; and finally, develop the schedule based on this sequencing and time estimates of the activities.

Because scheduling involves a quantifiable measure, time, several quantitative techniques, including the Gantt chart and CPM/PERT networks, are available that can be used to develop a project schedule.

3.1 Gantt Chart

The Gantt chart is a popular visual tool for planning and scheduling simple projects. It enables a manager to initially schedule project activities and then to monitor progress over time by comparing planned progress to actual progress. Figure below illustrates a Gantt chart for a bank's plan to establish a new direct marketing department. To prepare the chart, the vice president in charge of the project had to first identify the major activities that would be required. Next, time estimates for each activity were made, and the sequence of activities was determined. Once completed, the chart indicated which activities were to occur, their planned duration, and when they were to occur. Then, as the project progressed, the manager was able to see which activities were on schedule and which were behind schedule. However, Gantt charts fail to reveal certain relationships among activities that can be crucial to effective project management. For instance, if one of the early activities in a project suffers a delay, it would be important for the manager to be able to easily determine which later activities would result in a delay. Conversely, some activities may safely be delayed without affecting the overall project schedule. The Gantt chart does not directly reveal this. 

3.2 CPM (CRITICAL PATH METHOD) / PERT (PROGRAM EVALUATION AND REVIEW TECHNIQUE)

Critical Path Method (CPM) is a means to forecast the shortest possible time a project will take. Basically the Critical Path runs along tasks that are dependent on one another and cannot be moved. Therefore logically, this is the shortest path through the project. The CPM method is concerned with making the optimum tradeoff between project completion time and project cost. Like the PERT method, CPM can only be applied if we have some information about the activities making up the project.

PERT (Program, Evaluation and Review Technique) is used to determine how long a project should take to complete, and which steps in the project planning are most critical -- that is, which steps would act as bottlenecks if delayed. To apply the method, certain information is needed in advance: it must be possible to analyze the project into activities, the dependency relationships between the activities must be known, and the time taken for each activity must be known or at least estimable. Some cases are too simple for PERT -- cases where we've performed very similar projects many times before, and know that the current project will take the same time as they did, plus or minus a few per cent. Other cases are too complex -- for example, the Manhattan project, where the individual activities making up the project are themselves so novel that we don't know whether they're feasible at all, let alone how long they can be expected to take.

PERT and CPM are both methods for predicting the cost and completion time of projects. PERT is usually concerned just with the time taken, while CPM looks at cost/time tradeoffs.

PERT and CPM belong within Network Theory, a variety of mathematical analysis originating in electrical engineering, but applicable to problems in many other areas. PERT was first used by the U.S. Department of the Navy in planning and carrying out the development of the Polaris submarine-launched missile program. It is now used for project planning in many industries.

While CPM is just a method, PERT takes the form of a network diagram displaying each of the activities in a project. It's more usual to work with projects in the form of a list (known as a Work Breakdown Structure, or WBS), or Gantt Chart.

Typically we describe dependencies as being one of the following:

FS - finish to start (most common)

An activity finishes and a dependent one starts.

SF - start to finish (almost never used)

An activity starts when a dependent one finishes.

SS - start to start:

An activity may begin when a dependent one does.

FF - finish to finish

An activity may finish when a dependent one does.

PERT is Program Evaluation Review Technique and CPM is Critical Path Method for network analysis of flow models of a set of operations consisting of definite start and end nodes and fixed activities in between. Both CPM and PERT provide the user with project management tools to plan, monitor, and update their project as it progresses. There are many similarities and differences between the two, however.

Similarities between PERT and CPM:

1. Both follow the same steps and use network diagrams.

2. Both are used to plan the scheduling of individual activities that make up a project.

3. They can be used to determine the earliest/latest start and finish times for each activity.

Differences between PERT and CPM:

1. PERT is probabilistic whereas CPM is deterministic.

2. In CPM, estimates of activity duration are based on historical data.

3. In PERT, estimates are uncertain and we talk of ranges of duration and the probability that activity duration will fall into that range.

4. CPM concentrates on Time/Cost trade off.

3.3 Network Diagram

One of the main features of PERT and related techniques is their use of a network Diagram of project

activities that shows sequential relationships by use of arrows and nodes.  Or precedence diagram

Diagram of project activities that shows sequential relationships by use of arrows and nodes.  to depict

major project activities and their sequential relationships. There are two slightly different conventions for constructing these network diagrams. Under one convention, the arrows designate activities; under the other convention, the nodes designate activities. These conventions are referred to as activity-on-arrow (AOA)

Network diagram convention in which arrows designate activities.  and activity-on-node

(AON) Network diagram convention in which nodes designate activities. . Activities Project steps that

consume resources and/or time. consume resources and/or time. The nodes in the AOA approach represent

the activities' starting and finishing points, which are called events The starting and finishing of activities,

designated by nodes in the AOA convention . Events are points in time. Unlike activities, they consume

neither resources nor time. The nodes in an AON diagram represent activities.

Both conventions are illustrated in figure below, using the bank example that was depicted in the Gantt chart in figure before. In the AOA diagram, the arrows represent activities and they show the sequence in which certain activities must be performed (e.g., Interview precedes Hire and train); in the AON diagram, the arrows show only the sequence in which certain activities must be performed while the nodes represent the activities. Activities in AOA networks can be referred to in either of two ways. One is by their endpoints (e.g., activity 2-4) and the other is by a letter assigned to an arrow (e.g., activity c). Activities in AON networks are referred to by a letter (or number) assigned to a node. Although these two approaches are slightly different, they both show sequential relationships—something Gantt charts don't. Note that the AON diagram has a starting node, S, which is actually not an activity but is added in order to have a single starting node.

Example of AOA and AON diagram:

A simple network diagram

A dummy activity is inserted into the network to show a precedence relationship, but it does not represent any actual passage of time.  Another important aspect of paths is the length of a path: How long will a particular sequence of activities take to complete? The length (of time) of any path can be determined by summing the expected times of the activities on that path. The path with the longest time is of particular interest because it governs project completion time. In other words, expected project duration equals the expected time of the longest path. Moreover, if there are any delays along the longest path, there will be corresponding delays in project completion time. Attempts to shorten project completion must focus on the longest sequence of activities. Because of its influence on project completion time, the longest path is referred to as the critical path and its activities are referred to as critical activities.

3.4 Activity Scheduling

Forward Pass Start at the beginning of CPM/PERT network to determine the earliest activity times Earliest Start Time (ES)– earliest time an activity can start– ES = maximum EF of immediate predecessors Earliest finish time (EF)– earliest time an activity can finish– earliest start time plus activity time

EF= ES + t

Backward Pass– Determines latest activity times by starting at the end of CPM/PERT network and working forward– Latest Start Time (LS)– Latest time an activity can start without delaying critical path time

LS= LF - t– Latest finish time (LF)– latest time an activity can be completed without delaying critical path time– LS = minimum LS of immediate predecessors

Slack: amount of time an activity can be delayed without delaying the project activity slack = LS - ES = LF – EF

3.5 Probabilistic Time Estimation

The preceding discussion assumed that activity times were known and not subject to variation. While that condition exists in some situations, there are many others where it does not. Consequently, those situations require a probabilistic approach.

   The probabilistic approach involves three time estimates for each activity instead of one:1.   Optimistic time: The length of time required under optimum conditions; represented by to.

2.   Pessimistic time: The length of time required under the worst conditions; represented by tp.

3.   Most likely time: The most probable amount of time required; represented by tm.

Managers or others with knowledge about the project can make these time estimates.

   The beta distribution is generally used to describe the inherent variability in time estimates (see Figure). Although there is no real theoretical justification for using the beta distribution, it has certain features that make it attractive in practice: The distribution can be symmetrical or skewed to either the right or the left according to the nature of a particular activity; the mean and variance of the distribution can be readily obtained from the three time estimates listed above; and the distribution is unimodal with a high concentration of probability surrounding the most likely time estimate.   Of special interest in network analysis are the average or expected time for each activity, te, and the variance

of each activity time,  . The expected time of an activity, te, is a weighted average of the three time estimates:

A beta distribution is used to describe probabilistic time estimates

p. 762

The expected duration of a path (i.e., the path mean) is equal to the sum of the expected times of the activities on that path:

   The standard deviation of each activity's time is estimated as one-sixth of the difference between the pessimistic and optimistic time estimates. (Analogously, nearly all of the area under a normal distribution lies within three standard deviations of the mean, which is a range of six standard deviations.) We find the variance by squaring the standard deviation. Thus,

   The size of the variance reflects the degree of uncertainty associated with an activity's time: The larger the variance, the greater the uncertainty.

   It is also desirable to compute the standard deviation of the expected time for each path. We can do this by summing the variances of the activities on a path and then taking the square root of that number; that is,

Example 5 illustrates these computations

The network diagram for a project is shown in the accompanying figure, with three time estimates for each activity. Activity times are in weeks. Do the following:

a.    Compute the expected time for each activity and the expected duration for each path.

b.    Identify the critical path.

c.    Compute the variance of each activity and the variance and standard deviation of each path

Solution:

b.   The path that has the longest expected duration is the critical path. Because path d-e-f has the largest path total, it is the critical path

Knowledge of the expected path times and their standard deviations enables a manager to compute probabilistic estimates of the project completion time, such as these: The probability that the project will be completed by a specified time. The probability that the project will take longer than its scheduled completion time.

These estimates can be derived from the probability that various paths will be completed by the specified time. This involves the use of the normal distribution. Although activity times are represented by a beta distribution, the path distribution is represented by a normal distribution. The central limit theorem tells us that the summing of activity times (random variables) results in a normal distribution. This is illustrated in Figure 17.9. The rationale for using a normal distribution is that sums of random variables (activity times) will tend to be normally distributed, regardless of the distributions of the variables. The normal tendency improves as the number of random variables increases. However, even when the number of items being summed is fairly small, the normal approximation provides a reasonable approximation to the actual distribution.FIGURE 17.9Activity distributions and the path distribution

3.6 PROJECT CRASHING AND TIME-COST TRADEOFF

The project manager is frequently confronted with having to reduce the scheduled completion time of a project to meet a deadline. In other words, the manager must finish the project sooner than indicated by the CPM/PERT network analysis. Project duration can often be reduced by assigning more labor to project activities, in the form of overtime, and by assigning more resources (material, equipment, and so on). However, additional labor and resources increase the project cost. Thus, the decision to reduce the project duration must be based on an analysis of the tradeoff between time and cost. Project crashing is a method for shortening the project duration by reducing the time of one (or more) of the critical project activities to less than its normal activity time. This reduction in the normal activity time is referred to as crashing. Crashing is achieved by devoting more resources, usually measured in terms of dollars, to the activities to be crashed.

1 Time-Cost Trade-Off

The objective of the time-cost trade-off analysis is to reduce the original project duration, determined form the critical path analysis, to meet a specific deadline, with the least cost. In addition to that it might be necessary to finish the project in a specific time to:

- Finish the project in a predefined deadline date.

- Recover early delays.

- Avoid liquidated damages.

- Free key resources early for other projects - Avoid adverse weather conditions that might affect productivity.

- Receive an early completion-bonus.

- Improve project cash flow

Reducing project duration can be done by adjusting overlaps between activities or by reducing activities’

duration. What is the reason for an increase in direct cost as the activity duration is reduced? A

simple case arises in the use of overtime work. By scheduling weekend or evening work, the completion

time for an activity as measured in calendar days will be reduced. However, extra wages must be paid

for such overtime work, so the cost will increase. Also, overtime work is more prone to accidents and

quality problems that must be corrected, so costs may increase. The activity duration can be reduced by

one of the following actions:

- Applying multiple-shifts work.

- Working extended hours (over time).

- Offering incentive payments to increase the productivity.

- Working on weekends and holidays.

- Using additional resources.

- Using materials with faster installation methods.

- Using alternate construction methods or sequence.

Activity Time-Cost Relationship

In general, there is a trade-off between the time and the direct cost to complete an activity; the less

expensive the resources, the larger duration they take to complete an activity. Shortening the duration on

an activity will normally increase its direct cost which comprises: the cost of labour, equipment, and

material. It should never be assumed that the quantity of resources deployed and the task duration are

inversely related. Thus one should never automatically assume that the work that can be done by one man

in 16 weeks can actually be done by 16 men in one week.

A simple representation of the possible relationship between the duration of an activity and its direct costs

appears in Figure 8.1. Considering only this activity in isolation and without reference to the project

completion deadline, a manager would choose a duration which implies minimum direct cost, called the

normal duration. At the other extreme, a manager might choose to complete the activity in the minimum

possible time, called

crashed duration, but at a maximum cost

Figure 8.1: Illustration of linear time/cost trade-off for an activity

Cost slope = crash cost – normal cost / normal duration – crash duration

As shown in Figures 8.1, 8.2, and 8.3, the least direct cost required to complete an activity is called the

normal cost (minimum cost), and the corresponding duration is called the normal duration. The shortest

possible duration required for completing the activity is called the crash duration, and the corresponding cost is

called the crash cost. Normally, a planner start his/her estimation and scheduling process by assuming the least

costly option

Illustration of non-linear time/cost trade-off for an activity

Example 8.1

A subcontractor has the task of erecting 8400 square meter of metal scaffolds. The contractor can use several

crews with various costs. It is expected that the production will vary with the crew size as given below:

Estimated daily production(square meter)

Crew size

(men)Crew formation

Co

st (

LE

)

166

204

230

5

6

7

1 scaffold set, 2 labours, 2 carpenter, 1 foreman

2 scaffold set, 3 labours, 2 carpenter, 1 foreman

2 scaffold set, 3 labours, 3 carpenter, 1 foreman

Consider the following rates: Labour LE96/day; carpenter LE128/day; foreman LE144/day and scaffolding

LE60/day. Determine the direct cost of this activity considering different crews formation.

Solution

The duration for installing the metal scaffold can be determined by dividing the total quantity by the estimated

daily production. The cost can be determined by summing up the daily cost of each crew and then multiply it

by the duration of using that crew. The

calculations are shown in the following table.

Crew size Duration (days) Cost (LE)

5

6

7

50.6 (use 51)

41.2 (use 42)

36.5 (use 37)

51 x (1x60 + 2x96 + 2x128 + 1x144) = 33252

42 x (2x60 + 3x96 + 2x128 + 1x144) = 33936

37 x (2x60 + 3x96 + 3x128 + 1x144) = 34632

This example illustrates the options which the planner develops as he/she establishes the normal duration for an

activity by choosing the least cost alternative. The time-cost relationship for this example is shown in Figure

8.4. The cost slop for this activity can be calculates as follow:

Cost slope 1 (between points 1 and 2) = (33936 – 33252) / (51 – 42) = 76.22 LE/day

Cost slope 2 (between points 2 and 3) = (34632 – 33936) / (42 – 37) = 139.2 LE/day

34800

34600 3

34400

34200

340002

33800

33600

334001

33200

33000 30 35 40 45 50 55

Duration (days)

Figure 8.4: Time-cost relationship of Example 8.1

3 Project Time-Cost Relationship

Total project costs include both direct costs and indirect costs of performing the activities of the project. Direct

costs for the project include the costs of materials, labor, equipment, and subcontractors. Indirect costs, on the

other hand, are the necessary costs of doing work which can’t be related to a particular activity, and in

some cases cannot be related to a specific project.

If each activity was scheduled for the duration that resulted in the minimum direct cost in this way, the time to

complete the entire project might be too long and substantial penalties associated with the late project

completion might be incurred. Thus, planners perform what is called time-cost trade-off analysis to shorten the

project duration. This can be done by selecting some activities on the critical path to shorten their duration.

As the direct cost for the project equals the sum of the direct costs of its activities, then the project direct cost

will increase by decreasing its duration. On the other hand, the indirect cost will decrease by decreasing the

project duration, as the indirect cost are almost a linear function with the project duration.

Project cost

Project duration

Figure 8.5: Project time-cost relationship

The project total time-cost relationship can be determined by adding up the direct cost and indirect cost

values together. The optimum project duration can be determined as the project duration that results in the least

project total cost.

Shortening Project Duration

The minimum time to complete a project is called the project-crash time. This minimum completion time can be

found by applying critical path scheduling with all activity durations set to their minimum values. This minimum

completion time for the project can then be used to determine the project-crash cost. Since there are some

activities not on the critical path that can be assigned longer duration without delaying the project, it is

advantageous to change the all-crash schedule and thereby reduce costs.

Heuristic approaches are used to solve the time/cost trade off problem such as the cost- lope method used in

this chapter. In particular, a simple approach is to first apply critical path scheduling with all activity durations

assumed to be at minimum cost. Next, the planner can examine activities on the critical path and reduce the

scheduled duration of activities which have the lowest resulting increase in costs. In essence, the planner

develops a list of activities on the critical path ranked with their cost slopes. The heuristic solution proceeds by

shortening activities in the order of their lowest cost slopes. As the duration of activities on the shortest path

are shortened, the project duration is also reduced. Eventually, another path becomes critical, and a new

list of activities on the critical path must be prepared. Using this way, good but not necessarily optimal

schedules can be identified.

The procedure for shortening project duration can be summarized in the following steps:

1. Draw the project network.

2. Perform CPM calculations and identify the critical path, use normal durations and costs for all activities.

3. Compute the cost slope for each activity from the following equation: cost slope = crash cost – normal cost / normal duration – crash duration

4. Start by shortening the activity duration on the critical path which has the least cost slope and not been

shortened to its crash duration.

5. Reduce the duration of the critical activities with least cost slope until its crash duration is reached or until

the critical path changes.

6. When multiple critical paths are involved, the activity(ies) to shorten is determined by comparing the cost

slope of the activity which lies on all critical paths (if any), with the sum of cost slope for a group of

activities, each one of them lies on one of the critical paths.

7. Having shortened a critical path, you should adjust activities timings, and floats.

8. The cost increase due to activity shortening is calculated as the cost slope multiplied by the time of

time units shortened.

9. Continue until no further shortening is possible, and then the crash point is reached.

10. The results may be represented graphically by plotting project completion time against cumulative cost increase. This is the project direct-cost / time relationship. By adding the project indirect cost to this curve to obtain the project time / cost curve. This curve gives the optimum duration and the corresponding minimum cost.

4. PROJECT CONTROLProject control is the process of making sure the project progresses toward a successful completion.It requires that the project be monitored and progress be measured so that any deviations from the project plan, and particularly the project schedule, are minimized. If the project is found to be deviating from the plan—that is, it is not on schedule, cost overruns are occurring, activity results are not as expected, and so on—then corrective action must be taken. In the rest of this section we will describe several key elements of project control, including time management, quality control, performance monitoring, and communication.

4.1 TIME MANAGEMENTTime management is the process of making sure the project schedule does not slip and it is on time. This requires the monitoring of individual activity schedules and frequent updates. If the schedule is being delayed to an extent that jeopardizes the project success, then the project manager may have to shift resources to accelerate critical activities. Some activities may have slack time, and resources can be shifted from them to activities that are not on schedule. This is referred to as time–cost tradeoff. However, this can also push the project cost above budget. In some cases, the work may need to be corrected or made more efficient. In other cases, original activity time estimates upon implementation may prove to be unrealistic, with the result that the schedule must be changed and the repercussions of such changes on project success evaluated.

4.2 COST MANAGEMENTCost management is often closely tied to time management because of the time–cost tradeoff occurrences that we mentioned previously. If the schedule is delayed, costs tend to increase in order to get the project back on schedule. Also, as the project progresses, some cost estimates may prove to be unrealistic or erroneous. As such, it will be necessary to revise cost estimates and develop budget updates. If cost overruns are excessive, then corrective actions must be taken.

4.3 QUALITY MANAGEMENTQuality management and control are an integral part of the project management process. The process requires that project work be monitored for quality and that improvements be made as the project progresses just the same as in a normal production or manufacturing operation. Tasks and activities must be monitored to make sure that work is done correctly and that activities are completed correctly according to plan. If the work on an activity or task is flawed, subsequent activities may be affected, requiring rework, delaying the project, and threatening project success. Poor-quality work increases the risk of project failure, just as a defective part can result in a defective final product if not corrected. As such, the principles of quality management and many of the same techniques for statistical analysis and statistical process control discussed in earlier chapters for traditional production processes can also be applied to the project management process.

4.4 COMMUNICATIONCommunication needs for project and program management control in today’s global business environment tend to be substantial and complex. The distribution of design documents, budget and cost documents, plans, status reports, schedules, and schedule changes in a timely manner is often critical to project success. As a result, more and more companies are using the Internet to communicate project information, and are using company intranet project Web sites to provide a single location for team members to access project information. Internet communication and software combined with faxing, videoconferencing systems, phones, handheld computers, and jet travel are enabling transnational companies to engage in global project management.

4.5 PERFORMANCE MANAGEMENTPerformance management is the process of monitoring a project and developing timed (i.e., daily, weekly, monthly) status reports to make sure that goals are being met and the plan is being followed. It compares planned target dates for events, milestones, and work completion with dates actually achieved to determine whether the project is on schedule or behind schedule. Key measures of performance include deviation from the schedule, resource usage, and cost overruns. These reports are developed by the project manager and by individuals and organizational units with performance responsibility.

4.6 Earned value analysis (EVA)

It is a specific system for performance management. Activities “earn value” as they are completed. EVA is a recognized standard procedure for numerically measuring a project’s progress, forecasting its completion date and final cost, and providing measures of schedule and budget variation as activities are completed. For example, an EVA metric such as “schedule variance” compares the work performed during a time period with the work that was scheduled to be performed. A negative variance means the project is behind schedule. “Cost variance” is the budgeted cost of work performed minus the actual cost of the work. A negative variance means the project is over budget. EVA works best when it is used in conjunction with a work breakdown structure (WBS) that compartmentalizes project work into small packages that are easier to measure. The drawbacks of EVA are that it’s sometimes difficult to measure work progress and the time required for data measurement can be considerable.

Description of Earned Value Management terms Three quantities form the basis for cost performance measurement using Earned Value Management. They are Budgeted Cost of Work Scheduled (BCWS) or Planned Value (PV), Budgeted Cost of Work Performed (BCWP) or Earned Value (EV) and Actual Cost of Work Performed (ACWP) or Actual Cost (AC). The above quantities are defined below. • Budgeted Cost of Work Scheduled (BCWS) or Planned Value (PV) – The sum of budgets for all work packages

scheduled to be accomplished within a given time period. • Budgeted Cost of Work Performed (BCWP) or Earned Value (EV) – The sum of budgets for completed work

packages and completed portions of open work packages. • Actual Cost of Work Performed (ACWP) or Actual Cost (AC) – The actual cost incurred in accomplishing the

work performed within a given time period. For equitable comparison, ACWP is only recorded for the work performed to date against tasks for which a BCWP is also reported.

From these three quantities we can determine our total program budget as well as make a determination of schedule and cost performance and provide an estimated cost of the project at its completion. Additional terms are defined to record cost and schedule performance and program budget: • Performance Measurement Baseline (PMB) – The sum of all work packages Budgeted Cost of Work Scheduled

(BCWS) for each time period, calculated for the total program duration. The PMB forms the time-phased budget plan against which project performance is measured.

• Budget At Completion (BAC) – The sum of all the budgets allocated to a program. In addition to the PMB, there generally is an amount of management reserve, which is a portion of the total program budget not allocated to specific work packages and withheld for management control processes. The BAC consists of the PMB plus all management reserve.

• Schedule Variance (SV) – The difference between the work actually performed (BCWP) and the work scheduled (BCWS). The schedule variance is calculated in terms of the difference in dollar value between the amount of work that should have been completed in a given time period and the work actually completed.

• Cost Variance (CV) – The difference between the planned cost of work performed (BCWP) and actual cost incurred for the work (ACWP). This is the actual dollar value by which a project is either overrunning or under running its estimated cost.

• Cost Performance Index (CPI) – The ratio of cost of work performed (BCWP) to actual cost (ACWP). CPI of 1.0 implies that the actual cost matches to the estimated cost. CPI greater than 1.0 indicates work is accomplished for less cost than what was planned or budgeted. CPI less than 1.0 indicates the project is facing cost overrun.

• Schedule Performance Index (SPI) – The ratio of work accomplished (BCWP) versus work planned (BCWS), for a specific time period. SPI indicates the rate at which the project is progressing.

• Estimate At Completion (EAC) – It is a forecast of most likely total project costs based on project performance and risk quantification. At the start of the project BAC and EAC will be equal. EAC will vary from BAC only when actual costs (ACWP) vary from the planned costs (BCWP). Most common forecasting techniques are some variations of:

1. EAC = Actual to date plus a new estimate for all remaining work. This approach is most often used when past performance shows that the original estimating assumptions were fundamentally flawed, or they are no longer relevant to a change in conditions.

2. EAC = Actual to date plus remaining budget. This approach is most often used when current variances are seen as atypical and the project management team expectations are that similar variances will not occur in the future.

3. EAC = Actual to date plus the remaining budget modified by a performance factor, often the cumulative cost performance index (CPI). This approach is most often used when current variances are seen as typical of future variances.

4. EAC = Budget At Completion (BAC) modified by a performance factor, cumulative cost performance index (CPI). This approach is most often used when no variances from BAC have occurred.

• Estimate To Complete (ETC) – The difference between Estimate At Completion (EAC) and the Actual Cost (AC). This is the estimated additional cost to complete the project from any given time.

• Variance At Completion (VAC) – The difference between Budget At Completion and Estimate At Completion (EAC). This is the dollar value by which the project will be over or under budget.

As of first quarter of year 2002 there is a shift in using the terms Planned Value (PV), Earned Value (EV) and Actual Cost (AC) instead of Budgeted Cost of Work Scheduled (BCWS), Budgeted Cost of Work Performed (BCWP) and Actual Cost of Work Performed (ACWP).Illustrative example of Earned Value

In the following four periods we expect to complete $100 of work:1 2 3 4 Total

Work scheduled($)[Planned Value]

25 25 25 25 100

As time progresses, we can see what was actually spent in each period:

1 2 3 4 TotalWork Scheduled ($)Planned Value

25 25 25 25 100

Actual Cost($) 22 20 25 25 92

Variance 3 5 0 0 8

From an accounting sense it appears that this project is experiencing an underun of 8%. It was expected to cost $100 and has actually cost $92. What is missing from this equation is the value of how much work actually was completed or “performed”.

1 2 3 4 TotalWork Scheduled($)(Planned Value)

25 25 25 25 100

Accomplished Value($)(Earned Value)

20 20 20 20 20

Actual Cost ($) 22 20 25 25 92Schedule Variance(SV)(SV=EV-PV)

-5 -5 -5 -5 -20i.e 20%

Cost Variance(CV)(CV=EV-AC)

-2 0 -5 -5 -12i.e 12%

We now have a clear picture of the actual status of the work. We currently have a schedule variance of -$20. We were scheduled to complete $100 of work, and have only completed $80. In addition the work that was completed ($80) has cost more than we planned ($92) creating a cost variance of $12. The actual cost variance

is not 8% as calculated by the traditional approach but is 15% which is more accurate as it also consider the work accomplished.

References: 1. Principles of Operation Management, Heizer and Render 2. Operations Management, Roberta Russell and Bernard Taylor 3. Production/ Operations Management, William J Stevenson