COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS, AND INTERNATIONAL HOSPITALITY MANAGEMENT
NOTES
PROJECT MANAGEMENT
HISTORY OF NETWORK MANAGEMENT TOOLS
There are two widely known network management tools: Critical Path Method (CPM) and Program Evaluation and
Review Technique (PERT). In 1956, the CPM grew out of a research effort by Morgan R Walker of Du Pont and James E. Kelly of
Remington Rand. A research team at E. I. du Pont de Nemours & Company, Inc., led by a du Pont engineer, Morgan R. Walker,
and a Remington-Rand computer specialist, James E. Kelley, Jr., initiated a project to develop a computerized system to
improve the planning, scheduling, and reporting of the company’s engineering programs (including plant maintenance and
construction projects). The resulting network approach is known as the critical path method (CPM). The research team was
primarily concerned with finding ways to reduce the time required to perform tasks such as construction work and plant
maintenance. To determine the optimal tradeoff of cost and time was the goal of the originators of CPM.
At virtually the same time (1958), the U.S. Navy established a research team composed of members of the Navy
Special Projects Office, Lockheed (the prime contractor), and the consulting firm of Booz, Allen, Hamilton, led by D. G. Malcolm,
that developed PERT for the design of a management control system for the Polaris Missile Project (a ballistic missile–firing
nuclear submarine). The Polaris project eventually included 23 PERT networks encompassing 2,000 events and 3,000
activities.
The most popular management science techniques—CPM and PERT networks. Their popularity is due primarily to the
fact that a network forms a picture of the system under analysis that is easy for a manager to interpret. Sometimes, it is
difficult to explain a set of mathematical equations to a manager, but a network often can be easily explained. CPM/PERT has
been applied in a variety of government agencies concerned with project control, including various military agencies, the
National Aeronautics and Space Administration (NASA), the Federal Aviation Administration (FAA), and the General Services
Administration (GSA). These agencies are frequently involved in large-scale projects involving millions of dollars and many
subcontractors. Examples of such governmental projects include the development of weapons systems, aircraft, and NASA
space exploration projects. It has become a common practice for these agencies to require subcontractors to develop and use a
CPM/PERT analysis to maintain management control of the myriad project components and subprojects. CPM/PERT has also
been widely applied in the private sector. Two of the major areas of application of CPM/PERT in the private sector have been
research and development (R&D) and construction. CPM/PERT has been applied to various R&D projects, such as developing
new drugs, planning and introducing new products, and developing new and more powerful computer systems. CPM/PERT
analysis has been particularly applicable to construction projects. Almost every type of construction project—from building a
house to constructing a major sports stadium to building a ship to constructing an oil pipeline—has been subjected to network
analysis. Network analysis is also applicable to the planning and scheduling of major events, such as summit conferences,
sports festivals, basketball tournaments, football bowl games, parades, political conventions, school registrations, and rock
concerts. The availability of powerful, user-friendly project management software packages for the personal computer has
also served to increase the use of this technique.
Management is generally perceived to be
concerned with the planning, organization, and
control of an ongoing process or activity such as
the production of a product or delivery of a service.
Project management is different in that it reflects a
commitment of resources and people to a typically
important activity for a relatively short time frame,
after which the management effort is dissolved.
Projects do not have the continuity of supervision
that is typical in the management of a production
process. As such, the features and characteristics of
project management tend to be somewhat unique.
The figure provides an overview of project
management, which encompasses three major
processes—planning, scheduling, and control. It
also includes a number of the more prominent
elements of these processes.
❖
Return of Investment (ROI) is a performance measure that is often used to evaluate the expected outcome of a project
or to compare a number of different projects. To calculate ROI, the benefit (return) of a project is divided by the cost
of the project; the result is expressed as a percentage or a ratio:
ROI =
(Gain − Cost)
Cost
Rizal Avenue Extension, Batangas City, Philippines
+63 43 980-0385 loc. 1124
www.batstate-u.edu.ph
cabeihm.pb@g.batstate-u.edu.ph
A project team typically consists of a group of individuals selected from other areas in the organization, or from
consultants outside the organization, because of their special skills, expertise, and experience related to the project
activities. The project manager is often under great pressure. A degree of security is attained in the supervision of a
continuing process that is not present in project management.
❖
A scope statement is a document that provides a common understanding of a project. It includes a justification for the
project that describes what factors have created a need within the company for the project. It also includes an
indication of what the expected results of the project will be and what will constitute project success. Further, the
scope statement might include a list of the types of planning reports and documents that are part of the project
management process. A similar planning document is the statement of work (SOW). In a large project, the SOW is
often prepared for individual team members, groups, departments, subcontractors, and suppliers. This statement
describes the work in sufficient detail so that the team member responsible for it knows what is required and whether
he or she has sufficient resources to accomplish the work successfully and on time.
❖ The work breakdown structure (WBS) is an organizational
chart used for project planning. It organizes the work to be
done on a project by breaking down the project into its major
components, referred to as modules. These components are
then subdivided into more detailed subcomponents, which are
further broken down into activities, and, finally, into individual
tasks. The end result is an organizational structure of the
project made up of different levels, with the overall project at
the top level and the individual tasks at the bottom. A WBS
helps identify activities and determine individual tasks, project
workloads, and the resources required. It also helps to identify
the relationships between modules and activities and avoid
unnecessary duplication of activities. A WBS provides the basis for
developing and managing the project schedule, resources, and
modifications.
❖ An organizational breakdown structure (OBS) is a table or chart that
shows which organizational units are responsible for work items. After
the OBS is developed, the project manager can then develop a
responsibility assignment matrix (RAM). A RAM shows who in the
organization is responsible for doing the work in the project.
❖ A project schedule evolves from the planning documents discussed
previously. 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.
Developing a schedule encompasses four 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; third, estimate the time required to complete each activity; and
fourth, develop the schedule based on the sequencing and time estimates of
the activities.
a.
A Gantt chart is a graph or bar chart with a bar for each project
activity that shows the passage of time. Using a Gantt chart is a
traditional management technique for scheduling and planning small
projects that have relatively few activities and precedence
relationships. This scheduling technique (also called a bar chart) was
developed by Henry Gantt, a pioneer in the field of industrial
engineering at the artillery ammunition shops of the Frankford
Arsenal in 1914. A Gantt chart provides a visual display of a project
schedule, indicating when activities are scheduled to start and to finish and where extra time is available and
activities can be delayed. A project manager can use a Gantt chart to monitor the progress of activities and see
which ones are ahead of schedule and which ones are behind schedule. A Gantt chart also indicates the
precedence relationships between activities; however, these relationships are not always easily discernible.
The chart will also show the slack as the amount of time an activity can be delayed without delaying the
project. This problem is one of the disadvantages of the Gantt chart method, and it limits the chart’s use to
smaller projects with relatively few activities.
❖
Project control is the process of making sure a project progresses toward successful completion. It requires that the
project be monitored and progress 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 (i.e., it is not on schedule, cost overruns
are occurring, activity results are not as expected), corrective action must be taken. In the rest of this section we will
describe several key elements of project control, including time and cost management and performance monitoring.
o
Time management is the process of making sure a project schedule does not slip and that a project is on time.
This requires monitoring of individual activity schedules and frequent updates. If the schedule is being
delayed to an extent that jeopardizes the project success, it may be necessary for the project manager to shift
resources to accelerate critical activities. Some activities may have slack time, so resources can be shifted
from them to activities that are not on schedule. This is referred to as time–cost trade-off.
o
Cost management is often closely tied to time management because of the time–cost trade-off occurrences
mentioned previously. If the schedule is delayed, costs tend to go up in order to get the project back on
schedule. Also, as a project progresses, some cost estimates may prove to be unrealistic or erroneous.
Therefore, it may be necessary to revise cost estimates and develop budget updates. If cost overruns are
excessive, corrective actions must be taken.
o
Performance 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
❖
o
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. The project manager and individuals and organizational
units with performance responsibility develop these status reports.
Earned value analysis (EVA) 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 WBS that compartmentalizes project work into small packages that are easier to measure.
The drawbacks of EVA are that it is sometimes difficult to measure work progress, and the time required for
data measurement can be considerable.
Project Planning
Project plans generally include the following basic elements:
❖ Objectives—A detailed statement of what is to be accomplished by the project, how it will achieve the company’s goals
and meet the strategic plan, and an estimate of when it needs to be completed, the cost, and the return.
❖ Project scope—A discussion of how to approach the project, the technological and resource feasibility, the major tasks
involved, and a preliminary schedule; it includes a justification of the project and what constitutes project success.
❖ Contract requirements—A general structure of managerial, reporting, and performance responsibilities, including a
detailed list of staff, suppliers, subcontractors, managerial requirements and agreements, reporting requirements, and
a projected organizational structure.
❖ Schedules—A list of all major events, tasks, and subschedules, from which a master schedule is developed.
❖ Resources—The overall project budget for all resource requirements and procedures for budgetary control.
❖ Personnel—Identification and recruitment of personnel required for the project team, including special skills and
training.
❖ Control—Procedures for monitoring and evaluating progress and performance, including schedules and cost.
❖
Risk and problem analysis—Anticipation and assessment of uncertainties, problems, and potential difficulties that
might increase the risk of project delays and/or failure and threaten project success.
Characteristics of Project Management
• The time of completion of the project can take weeks, months, or even years. Due to the extended duration of such
projects, many changes can happen, which are oftentimes difficult to forecast..
•
The complexity of the nature of the project involves many interrelated activities or events. It also involves participants
from the organization, as well as those that are not directly employed in the company, such as suppliers, contractors,
etc.
•
Delays in the project may require the payment of penalty fees.
•
The sequential nature of projects means that some activities cannot begin until a certain condition or event had taken
place.
•
Projects are carefully planned activities that involve a unique undertaking.
Terminologies in PERT and CPM
• Activity refers to the effort that needs resources and time to accomplish a goal or a project.
•
Event is a goal that has been completed at a certain period. It can also be called as milestone as it happens after all
activities that precede it must be accomplished.
•
Project involves a series of events and activities with a definable beginning and a definable end, which is the goal.
•
Network refers to activities and events that are arranged in a logical and chronological order and presented
graphically that demonstrate the relationship among the different activities and events that will lead to the
completion of a project.
•
Critical Activity has a strong impact on project completion. A slight delay of a critical activity will hold up the target
completion date of an entire project.
•
Path represents a collection of activities that connects one event to another.
•
Critical Path is comprised of a sequence of critical activities that occur from the start of a project until full completion.
It is the longest path throughout the project network.
•
Immediate Predecessors are activities that must be accomplished before the start of an activity in question.
•
Activity Slacks or float activity is the length of time that a task is allowed to be delayed as it will not cause a delay for
the entire project.
Differences between PERT and CPM
Both analytical methods have the same approach. There are, however, distinctions:
❖ CPM used a single activity time estimate, and in the network, activities were nodes. PERT used multiple activity time
estimates, and in the network, activities were lines between nodes.
❖ PERT usually requires three estimates to calculate the weighted average of the expected completion date of the
project based on the probability distribution of the time of completion. Thus, PERT is a probabilistic tool, while CPM is
a deterministic tool. CPM needed only one estimate of project duration.
❖ CPM includes an explicit estimate of the cost, whereas PERT is a tool mainly focused on planning and controlling time.
Purpose of PERT/CPM:
To allow efficient project management, PERT/CPM can aid in determining critical activities. PERT/CPM also provides
techniques that can inform project managers how close the remaining activities are to becoming critical. The following are the
minimum information that PERT/CPM can provide:
✓ Activities that are critical.
✓ Activities that are noncritical.
✓ The slack time per noncritical activity.
✓ Other information as needed by management.
Advantages of PERT/CPM:
✓
Detailed Planning. PERT/CPM enables management to prepare a detailed plan that specifies what must be done to
accomplish all tasks on time.
✓ Commitments and Communication. All the participants in the project are required to make a commitment of the
following completion dates. PERT/CPM also allows more fluid communication with members of the organization and
between suppliers and vendors.
✓ Efficient Monitoring and Control. All critical activities must be identified. Doing this enables management to efficiently
monitors all activities through records and reports. More intensive monitoring will be given only to critical activities.
✓ Identifying Potential Problem Areas. Contingency plans must be prepared on the anticipated problem areas, especially
in the critical areas.
✓ Proper Use of Resources. PERT/CPM enables management to have a preview of the overall plan. Thus, resources are
properly allocated, especially on bottlenecks of problem areas.
✓ Rescheduling. An efficient monitoring system can easily pinpoint deviations from the schedule. Hence, such deviations
can easily be corrected to minimize delays.
PERT/CPM Procedure:
The PERT/CPM procedure is divided into three phases: (a) Formulation; (b) Solution; and (c) Analysis and Application.
A. The formulation phase is for the preparation of the basic inputs to PERT/CPM. There are three steps in the formulation
phase:
1.
Analyze the project by defining the activities and assigning responsibilities to the participants.
2.
After finalizing the content of each activity, the sequence of executions is determined.
3.
The third step is to estimate the length of time for each activity. In the case of CPM, the activity duration estimate is
considered deterministic. This assumption is based on the wealth of experience or expertise of participants. For PERT,
however, the duration is unknown; therefore, three estimates are needed to predict the duration.
B. The solution phase involves the creation of the network, event analysis, and activity analysis.
C.
The last phase, analysis and application, is focused on monitoring and control, as well as resource utilization.
Solving CPM:
The solution is the second phase of PERT/CPM, which necessitates the construction of a network. There are two main
procedures: forward pass and backward pass.
Forward pass aims to determine the earliest start and earliest finish time of each activity by going forward on the
network. Backward pass, on the other hand, identifies the latest start and latest finish time of each activity by moving
backward through the network.
1) List down the activities, immediate predecessors, and approximated time as provided by the problem.
2) Construct the project network.
3) Calculate the completion time of each activity.
4) Compute the earliest start time and earliest finish time of the initial activities.
𝑬𝑭 = 𝑬𝑺 + 𝒕
Activity
ES
EF
𝑡
LS
LF
where ES is the earliest start time for an activity, EF is the earliest finish time
activity and t is the activity time.
for an
5) Calculate the earliest start time and earliest finish time using the forward pass.
6) Enter the latest start time and latest finish time using the backward pass.
𝑳𝑺 = 𝑳𝑭 − 𝒕
where LS is the latest start time for an activity, LF is the latest finish time for an activity and t is the activity time.
7) Calculate the latest finish time and latest start time.
8) Calculate the slack for all activities using the formula below. The zero slack points to the critical path.
𝑺𝒍𝒂𝒄𝒌 = 𝑳𝑺 − 𝑬𝑺 = 𝑳𝑭 − 𝑬𝑭
A CPM/PERT network is drawn with branches and nodes. As previously mentioned, when
CPM and PERT were first developed, they employed different conventions for drawing a
network. With CPM, the nodes represent the project activities. The branches with arrows in
between the nodes indicate the precedence relationships between activities. This approach to
constructing a network is called activity-on-node (AON). Alternatively, with PERT, the branches in between the nodes
represent activities, and the nodes reflect events or points in time such as the end of one activity and the start of another. This
approach is called activity-on-arrow (AOA), and the activities are identified by the node numbers at the start and end of an
activity. A dummy activity shows a precedence relationship but no passage of time.
Example 1: The diagram below illustrates a Gantt chart of a simplified project description for building a house. The project
contains only seven general activities, such as designing the house, laying the foundation, ordering materials, and so
forth.
Activity
1
2
3
4
5
6
7
Activity Slack for House Building Project
LS
ES
LF
EF
Slack, S
Example 2: Three months before the Fair College Foundation Week, Ms. Dina Ignacio was appointed as the committee chair. It
will be a week-long celebration that will be participated in by the Basic Education Department and tertiary schools. As
part of the preparations for the 20th foundation week, several activities have to be undertaken.
Table 1: Activity Schedule of Fair College
Activity
A
B
C
D
E
F
G
H
I
J
K
Description
Immediate
Predecessor
--A
B
B
C
D, E
F
F
G
I
I, J
Time (Weeks)
0.5
1
1
1
2
1
1
2
1
1
1
Probabilistic Time Estimates
In a PERT project network, we determine three time estimates for each activity, which will enable us to estimate the
mean and variance for a beta distribution of the activity times. We assume that the activity times can be described by a beta
distribution for several reasons. First, the beta distribution mean and variance can be approximated with three estimates.
Second, the beta distribution is continuous, but it has no predetermined shape (such as the bell shape of the normal curve). It
will take on the shape indicated—that is, be skewed—by the time estimates given. This is beneficial because typically we have
no prior knowledge of the shapes of the distributions of activity times in a unique project network. Third, although other types
of distributions have been shown to be no more or less accurate than the beta, it has become traditional to use the beta
distribution for probabilistic network analysis.
The three time estimates for each activity are the most likely time, the optimistic time, and the pessimistic time. The
most likely time is the time that would most frequently occur if the activity were repeated many times. The optimistic time is
the shortest possible time within which the activity could be completed if everything went right. The pessimistic time is the
longest possible time the activity would require to be completed, assuming that everything went wrong. In general, the person
most familiar with an activity makes these estimates to the best of his or her knowledge and ability. In other words, the
estimate is subjective.
These three time estimates can subsequently be used to estimate the mean and variance of a beta distribution. If
• 𝑎 = optimistic time estimate
•
𝑚 = most likely time estimate
•
𝑏 = pessimistic time estimate
the mean and variance are computed as follows:
𝑴𝒆𝒂𝒏 𝑬𝒙𝒑𝒆𝒄𝒕𝒆𝒅 𝑻𝒊𝒎𝒆: 𝒕 =
Example 3:
𝒂 + 𝟒𝒎 + 𝒃
𝟔
𝑽𝒂𝒓𝒊𝒂𝒏𝒄𝒆: 𝒗 = (
𝒃−𝒂 𝟐
)
𝟔
The Southern Textile Company has decided to install a new computerized order processing system that will
link the company with customers and suppliers online. In the past, orders for the cloth the company produces were
processed manually, which contributed to delays in delivering orders and resulted in lost sales. The company
wants to know how long it will take to install the new system.
The network for the installation of the new order processing system is shown in the figure below. The
network begins with three concurrent activities: The new computer equipment is installed (activity 1); the
computerized order processing system is developed (activity 2); and people are recruited to operate the system
(activity 3). Once people are hired, they are trained for the job (activity 6), and other personnel in the company,
such as marketing, accounting, and production personnel, are introduced to the new system (activity 7). Once the
system is developed (activity 2), it is tested manually to make sure that it is logical (activity 5). Following activity
1, the new equipment is tested, and any necessary modifications are made (activity 4), and the newly trained
personnel begin training on the computerized system (activity 8). Also, node 9 begins the testing of the system on
the computer to check for errors (activity 9). The final activities include a trial run and changeover to the system
(activity 11) and final debugging of the computer system (activity 10).
Activity
1
2
3
4
5
6
7
8
9
10
11
𝑎
Time Estimates
𝑚
𝑏
Mean Time
Variance
Probability Analysis:
The CPM/PERT method assumes that the activity times are statistically independent, which allows us to sum the
individual expected activity times and variances to get an expected project time and variance. It is further assumed that the
network mean and variance are normally distributed. This assumption is based on the central limit theorem of probability,
which for CPM/PERT analysis and our purposes states that if the number of activities is large enough and the activities are
statistically independent, then the sum of the means of the activities along the critical path will approach the mean of a normal
distribution. For the small examples in this chapter, it is questionable whether there are sufficient activities to guarantee that
the mean project completion time and variance are normally distributed. Although it has become conventional in CPM/PERT
analysis to employ probability analysis by using the normal distribution, regardless of the network size, the prudent user of
CPM/PERT analysis should bear this limitation in mind.
Probability Analysis of the Project Network
Using the normal distribution, probabilities can be determined by
computing the number of standard deviations (Z) a value is from the
mean, as illustrated in the figure.
Example 4: Given the assumptions, the expected project time (𝑡𝑝 )
and variance (𝑣𝑝 ) as the mean (𝜇) and variance (𝜎 2 ) of a normal
distribution:
𝜇 = 25 𝑤𝑒𝑒𝑘𝑠,
𝜎 2 = 6.9 𝑤𝑒𝑒𝑘𝑠
a) Suppose the textile company manager told customers that
the new order processing system would be completely
installed in 30 weeks. What is the probability that it will, in
fact, be ready by that time?
b) Suppose one customer, frustrated with delayed orders, has told the textile company that if the new ordering system is
not working within 22 weeks, she will trade elsewhere. What is the probability of the project’s being completed within
in 22 weeks?
Example 5: Given the following AON network and activity time estimates, determine the expected project completion time and
variance, as well as the probability that the project will be completed in 28 days or less:
You TRY!
1. Given the following network and activity time estimates, determine the expected time and variance for each activity
and indicate the critical path:
2.
The Farmer’s American Bank of Leesburg is planning to install a new computerized accounts system. Bank
management has determined the activities required to complete the project, the precedence relationships of the
activities, and activity time estimates, as shown in the following table:
Determine the expected project completion time and variance and determine the probability that the project will be
completed in 40 weeks or less.
Prepared by: Mr. JOHN LLENORD C. VILLANUEVA, Instructor