Chapter 2

© Oxford University Press 2011. All rights reserved.

Project Management And Appraisal

Sitangshu Khatua, Associate Dean,

Jyotirmoy School of Business, Kolkata


Chapter 2 Project Management – an Overview


• Explain the phases of project management and explain network diagrams AOA and AON as part of project scheduling process

• Understand the concept of WBS and OBS, Gantt chart, bar bhart, line of balance (LOB), etc.

• Understand different methods of project scheduling and networking like the critical path method (CPM) and program evaluation and review techniques(PERT)

• Assimilate the concept of cost crashing of project network• Describe how to analyse project scheduling with constrained resources• Understand the concept of critical chain and buffer management

approach• Understand the graphical evaluation and review techniques (GERT)• Understand project management software such as Microsoft Project

2010

Learning Objectives

Project Management and Appraisal by Sitangshu Khatua


Phases of Project Management



Project Scheduling Process Project scheduling is the basic concept of project (activity) network, the development of work breakdown and organizational breakdown structures and the network representation of activities and events.



The Activity – on – Arrow or Activity – on – Arc (AOA) representation which uses the set of arcs or arrows A to represent the activities and the set of nodes N to represent events

The Activity – on – Node (AON) representation which uses the set of nodes N to denote the activities or events and the set of set arc or arrows A to represent the precedence relations.


Activity Networks


Example – AOA Network

Following activities with their immediate predecessors are given, draw the corresponding AOA network diagram.

Activity Immediate PredecessorP QR P S PT PU Q,RV R, S, TW UX V



Activities R, S, T all are having immediate predecessor of P. then the above relationship can be depicted as follows.

Solution



Activities U and V have the common activity R. Therefore, the common activity R would be followed by two dummy activities approaching in opposite direction. The exact relationship is shown in the figure



Draw the corresponding AON diagram for the following Relationship:

Example – AON Network

Activity Immediate Predecessor

a

b

c a

d a

e b,c



s – start , f- finish

AON Network Diagram



AOA vs AON Network

The difference between AOA and AON network

AOA Network AON Network

In an AOA network diagram the activity is denoted by an arrow

In an AON network diagram each activity is represented by a node

Nodes are denoted by circles. Nodes are denoted by arrow.

Each event is numbered There is no need to number the events.

AOA is more popular and widely used.

It has a better visual aid because of its closer resemblance to the Bar chart.



Work Breakdown Structure (WBS)

The WBS defines the various project sub-activities in

relation to the project result.

The WBS creates a framework for project control and

provides the basis for insight in the time and cost status

of a project through various management tools.


© Oxford University Press 2011. All rights reserved.Project Management and Appraisal by Sitangshu Khatua


Organization Breakdown Structure (OBS)

Organization Breakdown Structure (OBS) shows the break-up of organizational units that would work for execution of the project. OBS is actually the Organization Chart for a Project. It links the responsibilities of the organizational units to the various WBS levels. A particular unit in the OBS is assigned a specific task corresponding to a particular element in the WBS level.




Gantt chart/Bar Chart

It is a means of displaying simple activities or events plotted against time. Gantt charts are most commonly used for exhibiting program progress or defining specific work required to accomplish an objective



Bar Chart



Activity Number Activity Name I Tender notificationII Vender selectionIII Agreement signed IV Inspection at sightV Procurement VI Receiving of

materials VII Material

specificationsVIII Operation

SchedulingIX Start production

List of Activities



It is simple to understand and easy to change.

It is the simplest and least complex means of portraying

progress

It can easily be expanded to identify specific elements

that may be either behind or ahead of schedule


Advantages of the Gantt Chart


Disadvantages of Gantt Chart It doesn’t show the interdependencies of the activities, and

therefore do not represent a network of activities. For example, whether the procurement activity (V) in the example require that the agreement be signed (III) before procurement can begin?

It cannot show the result of an early or a late start in activities. How will a slippage of the operation scheduling activity (VIII) in the example affect the completion date of the program?

It does not show the uncertainty involved in performing the activity and, therefore does not readily admit itself to sensitivity analysis. For instance, the longest time or shortest time or the average time that an activity might take


Critical Path Method (CPM)

It is the scheduled technique which is used to plan, schedule and control a project consisting of number of inter-related activities. These techniques provide a framework which defines the job that is to be formed, integrates them in a logical sequence and provides a system of control over the progress of the plan.



1. The project to be planned by network technique should consist of clearly specific job called Activities. Activities are classified as:

a.Critical activities b.Non-Critical Activities c.Dummy Activities

Features of CPM or Other Network Analysis Project



2. These activities must have a definite start and finish. The start and finish of an activity is called event.

A = Activity, 1 = Tail event, 2 = Head event

3. Event must occur in a definite pattern and must be performed in a technological sequence

4. Network Diagram

5. In a sequential project work operations can be pre-operations which precede the operation under consideration, post-operations which succeed the operation under consideration and concurrent operations which can be started simultaneously




6. Various times used in CPM:

a.Earliest Start Time (EST):

b.Earliest Finish Time (EFT):

EFT = EST + duration of activity

c. Latest Start Time (LST):

LST = LFT – duration of the activity.

d. Latest Finish Time (LFT):




7. Float or Slack = time available for completion of the activity –

time necessary to complete the same.Activity FloatSafety Float Free FloatTotal Float

8. Critical Path

9. Forward Pass & Backward Pass




A programmable algorithm for basic scheduling computation is given where:

D ij estimate of the mean duration time for activity i-jE i earliest occurrence time for event iL i latest allowable occurrence time for event iES ij earliest start time for activity i-jEF ij earliest finish time for activity i-jLS ij latest allowable start time for activity i-j LF ij latest allowable finish time for activity i-jS ij total slack (or float time) for activity i-jFS ij free slack (or float time) for activity i-jT s scheduled time for the completion of project or the occurrence of certain key events in the project


Basic scheduling Computation


Ej = maxi (Ei + Dij) 2 < J < t …………. (2.1) Et = (expected) project duration, andLi = Et or Ts, the scheduled project completion time. Then, Li = minj (Li - Dij) 1 < i < t -1 …………… (2.2) Earliest and Latest Activity Start and Finish Times and Slack

ESij = Ei …………….. (2.3)EFij = Ei + Dij …………….. (2.4)LFij = Lj …………….. (2.5)LSij = Lj - Dij …………….. (2.6)Sij = Lj - EFij …………….. (2.7)


Earliest and Latest event times




An Example to Show the Critical PathActivity Description Duration in

daysA(1-2) Start earth work 3B (1-4) Vendor selection 2C (1-7) Start Handling 1D (2-3) Continue earth work 3E (3-6) Finish earth work 2F (4-5) Ordering raw material 4G (4-8) Excavation for drains 6H (5-6) Receiving raw material 5I (6-9) Base concreting 4J (7-8) Continue handling 4K (8-9) Laying drains 5

Draw the network diagram and trace the critical path of the network. What are the various time estimates and the total duration of the above project?



EST (earliest start time) is calculated by preceding in the forward pass from the first event to the last event. It is calculated by starting from activity A i.e. from event 1 and given it a time zero. Now, ESTA= 0, ESTB = 0, ESTC = 0, ESTD = ESTA + Duration A = 0 + 3 = 3

ESTE = ESTD + Duration D = 3+3 = 6Similarly, ESTs of other activities can be calculated. ESTF = 2, ESTG = 2, ESTH = 6, ESTI = 11, ESTJ = 1, ESTK = 8

Paths can be possible – either A-D-E-I( 12 days), B-F-H-I (15 days), B-F-G-K (13 days), C-J-K (10 days). Out of which B-F-H-I will be the longest duration hence that will be the critical path. Therefore total project duration = 15 days.

LFT is calculated in the similar manner as EST but in the backward pass i.e. by preceding backward from the last event to the first event therefore LFTI = total project duration – Duration I

= 15 – 4 = 11.

Solution



LFTj = Duration of the project – Duration K = 15-5 = 10LFTC = LFTj - Duration J = 10 - 4 = 6, LST is calculated by the relation, LST = LFT – Duration of that activity. For example, LSTC = LFTC – Duration C = 6 – 1 = 5 EFT is calculated by the relation, EFT = EST + Duration of that activity. For example, EFTD = ESTD +Duration D = 3 + 3 = 6Similarly other LFTs, LSTs and EFTs will be calculated accordingly.

Total Float = LST – EST or LFT – EFT. For example, Float B = 0 – 0 or 2 – 2 = 0 (critical activity) and FloatD = 6 - 3 or 9 – 6 = 3 (non - critical activity).



The following table shows the different estimated time for the given problem and the figure below shows the required network diagram for the given problem:

Activity Duration EST LST EFT LFT Total Float

Remarks

A (1-2) 3 0 3 3 6 3 -B (1-4) 2 0 0 2 2 0 CriticalC (1-7) 1 0 5 1 6 5 -D (2-3) 3 3 6 6 9 3 -E (3-6) 2 6 9 8 11 3 -F (4-5) 4 2 2 6 6 0 CriticalG (4-8) 6 2 4 8 10 2 -H (5-6) 5 6 6 11 11 0 CriticalI (6-9) 4 11 11 15 15 0 CriticalJ (7-8) 4 1 6 5 10 5 -K (8-9) 5 8 8 13 15 2 -



6/9 11/113/6

0/0

2/2

6/6

15/15

1/6 8/10

Network Diagram



PERT

It is a probabilistic event oriented project scheduling technique. It is suitable in defense project, R&D project, where the activity time cannot be readily predicted.

PERT can be applied in the following cases:Long – range planningMarketing Promotional ProgramR&D ProjectsDefense ProjectsInstallation of MachineryConstruction ProgramsInstituting Inventory control8Designing Manufacturing prototype products.



1. Optimistic time (a): 2. Most likely time (m):

3. Pessimistic time (b):

Estimated or Expected time = t = te = (a + 4m + b)/6 Variance of time = σt

2 = [(b-a)/6]2


PERT Estimated Time


PERT Probability Calculation

Assume, the critical path consisting of n activities, and denoting the sum of their actual durations by T, this can be written as follows:


T =


Mean of t = Te = Variance of T = σt2 =

Shape of distribution of T: normal probability of meeting schedule Ts


PERT Probability Calculation


Steps of Programme Evaluation and Review Techniques



In an assembly line production following are the time estimate for the activities (per time estimates are given in weeks):

Pert – An Example

Activity a m b

(1,2) 7 11 13(2,3) 1 4 7(2,4) 10 15 48(3,5) 12 20 26(3,6) 4 7 16(3,7) 4 7 16(6,7) 5 8 11(4,7) 2 8 14(7,8) 9 12 15(8,9) 1 4 7

where, a = optimistic time, b = most likely time, c = pessimistic time



1. Find the expected time, Standard Deviation and variance for each activity.

2. Find the Standard Deviation and expected time for each event.

3. What is the expected time of completion of the project?

4. What is the probability of completing the project in 34 weeks?

5. What is the probability of the event no.7 to be completed in the 20th week?


Pert – An Example


Solution

Activity a m b te SD Variance

(1,2) 7 11 13 10.66667 1 1

(2,3) 1 4 7 4 1 1(2,4) 10 15 48 19.66667 6.333333 40.11111

(3,5) 12 20 26 19.66667 2.333333 5.444444

(3,6) 4 7 16 8 2 4(3,7) 4 7 16 8 2 4(6,7) 5 8 11 8 1 1(4,7) 2 8 14 8 2 4(7,8) 9 12 15 12 1 1(8,9) 1 4 7 4 1 1

1.

te = expected or mean time = (a +4m +b)/6, SD = (b-a)/6, Variance = SD2



Event Longest path to the event

Expected time Variance SD (Weeks)

1

2 1-2 10.66667 1 1

3 1-2-3 14.666.7 12 + 12 = 1 1

4 1-2-4 30.33334 41.1111 6.4111

5 1-2-3-5 34.33334 46.5555 6.8231

6 1-2-3-6 22.66667 6 2.4494

7 1-2-3-7 22.66667 6 2.4494

8 1-2-3-7-8 34.66667 7 2.6457

9 1-2-3-7-8-9 38.66667 8 2.8284

2.

(iii) The expected time of completion of project is Σ te in the longest path (1-2-3-7-8-9) is 38.66667 = 39 weeks (approx.)


Solution


(iv) The probability of the project being completed in 56 weeks for the longest path (1-2-3-7-8-9) is given by,

x is the given no. of weeks = 36, is the mean time = 39 and standard deviation of the longest path = 2.8284 =3 (approx.)

Therefore, from standard normal distribution tables,Probability = 0.5 – 0.4525 = 0.0475 i.e. 45.75%.

The probability of the event no.7 to be completed in the 40th week:Mean time (1-2-3-7)= 22.67 weeks i.e. 23 weeks, SD (1-2-3-7) = 2.4494 weeks, therefore

= 1.667

= (20 – 23)/2.4494 = - 1.223

Therefore, probability = 0.5 – 0.3907 = 0.1093 i.e. 10.93%



PERT vs. CPM

PERT CPMIt is used where the emphasis on reducing project execution time with out botheration for cost implication.

It is used where the emphasis is on optimizing resource allocation and minimizing overall cost for a given project execution time.

A probabilistic model with uncertainty A deterministic model with well known activity time based on past experience

Three time estimates (optimistic time, most likely time and pessimistic time) are used to make allowances for uncertainties.

It uses single time estimate.

An event oriented technique. An activity oriented techniqueThe use of dummy activity is required for depicting the proper sequence.

The use of dummy activity is not necessary for which diagram becomes slightly simpler.

It is suitable in defense project, R&D where the activity time cannot be readily predicted.

It is suitable for problems in industrial plant maintenance, civil construction projects etc.



Crashing of Project Network



• Normal Time (NT):• Crash Time (CT):• Normal Cost (NC): • Crash Cost (CC):• Cost slope:

Terms Related to Crashing of project

=



Network Cost Control



to– Time of update or Time Nowtc – Scheduled project completion timetf – Forecasted project completion timeACWP – Actual cost of work in place at t0

BCWS – Budgeted Cost of Work Scheduled for Completion at t0

BCWP – Budgeted Cost of Work in Place at t0

Cost Variance at t0 = ( BCWP –ACWP)/(BCWP)100% Scheduled Variance at t0 = ((BCWP-BCWS)/BSWP ) 100% The cost variance gives the total percentage of project cost over (under) run upto time t0 and is used for the forecasting of the total project cost.


Network Cost Control


Resource leveling:

Resources Smoothing:

Resource Allocation:

Critical chain (CC):

Project buffers:

Feeding buffer:


Critical Chain and the Buffer Management Approach


Item Equivalence Meaning BCWS = Budgeted Cost and Work Scheduled

PV = Planned Value Sum of authorized budget (from start to status date)

BCWP = Budgeted Cost and Work Performed

EV = Earned Value Sum of authorized budget for work actually performed

ACWP = Actual Cost of Work Performed

AC = Actual Cost Actual cost incurred, up to status date

BAC = Budget at Completion BAC = Budget at Completion The sum of all authorized budget for the project

CV = Cost Variance CV = Cost Variance CV = BCWP-ACWP (EV-AC) SV = Scheduled Variance SV = Scheduled Variance SV = BCWP-BCWS (EV-PV)CPI = Cost Performance Index CPI = Cost Performance Index CPI = BCWP/ACWPSPI = Scheduled Performance index

SPI = Scheduled Performance index

SPI = BCWP/BCWS

CR = Critical Ratio CR = Critical Ratio CR = CPI×SPI

Terminology used in Earn Value Management



Projected completion time and cost at the end of the project

Cost at CompletionOptimistic Likely Pessimistic

Formula Actual cost + (BAC – BCWP)

Actual cost + (BAC – BCWP)/CPI

Actual cost + (BAC – BCWP)/(CPI× SPI)

ACWP + (BAC-BCWP) (BAC/ CPI) ACWP + (BAC-BCWP) /(CPI× SPI)

Logic No further slippage will occur

Balance cost will be incurred at current efficiency

There is a time/cost relation

Time at CompletionFormula Scheduled work that

should have been completed in elapsed time + time remaining as per schedule

Actual time spent + time remaining as per schedule decided by SPI

Actual time spent + time remaining as per schedule decided by product of SPI + CPI

Elapsed time/SPI + time remaining as per schedule

Total scheduled time/ SPI

Actual time spent + time remaining as per schedule/CR

Logic Only current delay will spill over, rest will be as per schedule

Further delays will discuss at current efficiencies

Cost efficiency may slow down work



Project S -curve



Criterion PERT/CPM PERT/Cost LOB GERT VERT

Project Phase Acceptability

Prime application to one time projects, largely design and development phase

Same as basic PERT/CPM

Production only Most value in concept phase; usable in all phases to some degree

Most value in concept phase; usable in all phases to some degree

Parametric Focus Time oriented; treats performance and costs as objectives, constraints or by products

Add cost planning and control feature to basic PERT/CPM

Time-Oriented schedule and quantity

Time oriented add on cost feature, analyzes time and cost

Fully treats time costs and various performance measures; analyzes risk in all three.

Preparation Requirements

Network and Time estimating is significant, but is planning which should be done anyway

Cost estimating work packages and activity is significant addition to PERT preparation, but should be done anyway

Main requirement is production flow chart and cycle time

Networking requires special familiarity; multitude of features add complexity

Same comments as for GERT; use of optional features increases requirements

Evaluation of Major Network Based Project Management Techniques



System Operating Cost

Programs easy to use, main cost is effort of preparation and updating

Canned programs expand basic PERT; largest cost by far is preparation

Practically non-existent, especially if part of MRP or other system

Function of Database simulation requires multiple runs; input preparation appreciable

Same comment as for GERT; to use additional features increases cost

Comprehensiveness Limited to time parameter and non-repetitive activities

Limited to time and cost parameter and non-repetitive activities

Limited to repetitive situations only

Accommodates most types of activity

Accommodates most types of activity plus numerous inputs

Database By-product of preparation as is quality of data

Cost accumulation and control requires extensive data input

Requires only time and quantity at selected control points

Direct function of the number of feature selected; large if technique fully utilized

Direct function of the number of features selected; large if fully utilized




Flexibility Handles deterministic situations only, no ability to accommodate decision

Deterministic only , same as PERT

Deterministic situations only; fixed production cycle required; learning curve presents problem

Accommodates stochastic and deterministic activities

Significantly more optional input and output features than has budgeting capability

Ease of Update Relatively simple, requires discipline to ensure that future activities are re-evaluated. Actual times present little problem

Theoretically simple but major efforts in practice; “estimating actual” cost data and constant changes are problems

Requires only a physical count of cumulative production

Appreciable, but value of technique of planning, rather than control

Appreciable, but value of technique of planning, rather than control

Focus Reporting Highlighting of critical activities and problem areas are strong point; forecasts status at completion

Adds to PERT the ability to trade cost problems to the source

Highlights potential delivery schedule problem areas

Risk analysis focuses attention on hat is likely to occur and its probability

Analyzes and highlights outcomes in time, costs, and performance; can be used in a non project strategic planning

PERT: Program Evaluation and Review Techniques; CPM: Critical Path Method; LOB: Line of Balance; VERT: Venture Evaluation and Review Techniques; GERT: Graphical Evaluation and Review Techniques.



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Chapter 2