4–1
Chapter Four
McGraw-Hill/Irwin
Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
4–2
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• LO4–1: Explain what projects are and how
projects are organized.
• LO4–2: Analyze projects using networkplanning models.
• LO4–3: Evaluate projects using earned value
management.
• LO4–4: Exemplify how these techniques are
implemented in commercial software
packages.
4–3
– A series of related jobs, usually directed toward some
major output and requiring a significant period of time
to perform.
• What is project management?
– Planning, directing, and controlling resources (people,
equipment, material, etc.) to meet the technical, cost,
and time constraints of the project.
• Why is project management important?
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• What is a project?
– At the highest levels of an organization, management
often involves juggling a portfolio of projects.
4–4
Type of
Project
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
Degree of Change
4–5
• A self-contained team works full-time on the project.
Functional Project
• Responsibility for the project lies within one functional area
of the firm. Employees from that area work on the project,
usually only part-time.
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
Pure Project
Matrix Project
• A blend of pure and functional project structures – people
from different functional areas work on the project, possibly
only part-time.
4–6
Disadvantages
• Duplication of resources
• Organizational goals and policies are ignored
• Lack of technology transfer
• Team members have no functional area
"home"
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
Advantages
• The project manager has full authority
• Team members report to one boss
• Shortened communication lines
• Team pride, motivation, and commitment are
high
4–7
Disadvantages
•Aspects of the project that are not directly related to
the functional area get short-changed
•Motivation of team members is often weak
•Needs of the client are secondary and are responded to
slowly
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
Advantages
•A team member can work on several projects
•Technical expertise maintained in functional area
•Functional area is “home” after project completed
•Critical mass of specialized knowledge
4–8
Disadvantages
•Too many bosses
•Depends on project manager’s negotiating skills
•Potential for sub-optimization
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
Advantages
•Better communications between functional areas
•Project manager held responsible for success
•Duplication of resources is minimized
•Functional “home” for team members
•Policies of the parent organization are followed
4–9
– A written description of the objectives to be
achieved
• Task
– A further subdivision of a project – usually
shorter than several months and performed by
a single group or organization
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• Statement of Work
• Work Package
– A group of activities combined to be assignable
to a single organizational unit
4–10
– Specific events in the life of the project
• Work Breakdown Structure
– Defines the hierarchy of project tasks,
subtasks, and work packages
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• Project Milestone
• Activities
– Pieces of work that consume time
4–11
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
Overview
Details
4–12
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
Overview
Details
4–13
The path taking longest time through this network of
activities is called the “critical path.”
The critical path provides a wide range of scheduling
information useful in managing a project.
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
A project is made up of a sequence of activities that
form a network representing a project.
Critical path method (CPM) helps to identify the
critical path(s) in the project networks.
4–14
Determine the required sequence
and construct a network diagram.
Determine the critical path.
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
Identify each activity to be done
and estimate how long it will take.
Determine the early start/finish
and late start/finish schedule.
4–15
C(7)
B(5)
A(21)
D(2)
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F(8)
G(2)
E(5)
4–16
C(7)
21
F(8)
28
21
36
28
36
28
A(21)
0
Critical
Path 2:
ABDFG
38
36
G(2)
21
26
21
26
B(5)
21
28
D(2)
26
For the Excel template visit
www.mhhe.com/sie-chase14e
26
33
28
36
38
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
0
28
21
Critical
Path 1:
ACFG
E(5)
28
31
36
Excel: Critical
Paths
4–17
 Minimum
 Maximum
 Most likely
• This allows calculation of a probability
estimate of completion time.
• This is the distinguishing characteristic of the
PERT method.
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• When activity times vary, a single time
estimate may not be reliable.
– Instead, estimate three values
4–18
𝐸𝑇
𝑎 + 4𝑚 + 𝑏
=
2
𝑏
−
𝑎
6
𝜎2 =
6
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
𝑎 = 𝑚𝑖𝑛𝑖𝑚𝑢𝑚
𝑏 = 𝑚𝑎𝑥𝑖𝑚𝑢𝑚
𝑚 = 𝑚𝑜𝑠𝑡 𝑙𝑖𝑘𝑒𝑙𝑦
𝐸𝑇 = 𝑒𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑡𝑖𝑚𝑒
𝜎 2 = 𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒
Excel: PERT
Calculations
For the Excel template visit
www.mhhe.com/sie-chase14e
4–19
4–20
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
C(7)
0
21
F(8)
28
21
36
28
36
28
A(21)
0
38
36
G(2)
21
26
21
B(5)
21
28
26
28
D(2)
26
26
33
E(5)
28
31
36
38
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28
21
36
4–21
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• Probability of finishing in 35 weeks (or less)
4–22
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• Probability
of finishing
in 35
weeks (or
less) is
about 19%
4–23
– Considers direct activity costs, indirect costs
of project, and activity completion times
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• A time-cost model extends the CPM
model to consider the trade-off between
time required to complete an activity
and total project cost.
• It is often referred to as “crashing” the
project to reduce overall duration.
4–24
Determine the cost per unit of time to
expedite each activity.
Compute the critical path.
Shorten the critical path at the point where
costs are lowest.
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
Prepare a CPM-type network diagram.
Plot project, indirect, and total cost curves
to find the minimum-cost schedule.
4–25
Excel: Project
Crashing
For the Excel template visit
www.mhhe.com/sie-chase14e
4–26
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
Activity D cannot be
reduced any further
at this point
Activity A cannot be
reduced any further
at this point
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Project has reached
minimum duration
4–27
– Planned use exceeds available supply
• When resources are over-allocated, either
more resources are required or
rescheduling is necessary.
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• In addition to scheduling tasks, resources
must also be assigned to specific tasks.
• Software can be used to spot overallocation.
– Taking advantage of task slack can free
resources
4–28
• Charts provide an
easily understood
visual presentation.
• Software can be used
to create the charts.
• Gantt charts show, in
a graphic manner, the
amount of time
involved and the
sequence of activities.
Often referred to as a
bar chart.
4–29
4–30
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• Has the ability to combine measurements
of scope, schedule, and cost in a project
• Provides a method for evaluating the
relative success of a project at a point in
time
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• A technique for measuring project progress
in an objective manner
4–31
A valuation of each
activity work
Predefined earning
or costing rules to
quantify the
accomplishment of
work
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
A project plan that
identifies the
activities to be
accomplished
4–32
Costs of scheduled and performed work
Budgeted costs (scheduled
and performed work) and
actual costs
Budgeted cost (work performed) and actual
costs
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
Budgeted costs (scheduled) and actual
costs
4–33
Without a
means of
quantifying
how much
work has been
accomplished,
this is the only
available
information.
Project appears to
be over budget in
weeks 1 – 4.
Actual costs
exceed budget.
After week 5, the
project appears to
be under budget.
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• A simple comparison of just costs versus
budget does not tell the whole story.
4–34
EVM provides
information
about
performance
according to
the schedule.
After week 6, the
project has fallen
behind schedule.
Project is ahead
of schedule in
weeks 1 – 5.
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• With predefined methods of quantifying the quantity
of work accomplished, EVM provides much more
information.
4–35
Project is under
budget in terms of
actual work
performed
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• With predefined methods of quantifying the quantity
of work accomplished, EVM provides much more
information.
4–36
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• A combined view gives an overview of project
performance in terms of the original plan.
4–37
At time “X”, Activity B is 80%
complete (budgeted cost was
$10K).
At time “X”, Activity C is
70% complete (budgeted
cost was $20K). 80% of
this activity should be
complete by now.
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
At time “X”, Activity A is
100% complete (budgeted cost
was $18K).
At time “X”, Activity D is
0% complete (budgeted cost
was $40K). 15% of this
activity should be complete
by now.
4–38
• Activity B – 100% of $10K = $10K
• Activity C – 80% of $20K = $16K
• Activity D – 15% of $40K = $6K
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• Activity A – 100% of $18K = $18K
• BCWS = $18K + $10K + $16K + $6K = $50K
4–39
• Activity B – 80% of $10K = $8K
• Activity C – 70% of $20K = $14K
• Activity D – 0% of $40K = $0K
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• Activity A – 100% of $18K = $18K
• BCWP = $18K + $8K + $14K + $0K = $40K
4–40
For performance indices:
PI < 1 means costs are higher than planned
PI = 1 means costs are exactly as planned
PI > 1 means costs are lower than planned
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
Actual cost of
$45K obtained
from
accounting
records
4–41
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• Check out the website of the Project Management Institute
(www.pmi.org).
• Two of the leading companies are Microsoft, with Microsoft
Project, and Primavera, with Primavera Project Planner.
• The Microsoft Project program comes with an excellent online
tutorial, which is one reason for its overwhelming popularity
with project managers tracking midsized projects.
• For managing very large projects or programs having several
projects, Primavera Project Planner is often the choice.
Primavera was the first major vendor of this type of software
and has possibly the most sophisticated capability.
4–42
– For example, the systems can schedule back labor and
equipment for a project.
• Mid- to high-level project management information
systems (PMIS) software can also resolve overallocations through a “leveling” feature. Several rules
of thumb can be used such as:
Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.
• In addition to scheduling tasks, a major capability of
all these software packages is assigning resources to
competing tasks and projects.
– You can specify that low-priority tasks should be delayed
until higher-priority ones are complete
– Or that the project should end before or after the original
deadline, etc.
4–43