LGT 2106

Principles of Operations Management

2023/24, Semester 1

Lecture 6
Project Management
 Learning Outcomes of Lecture 6
1. Explain what projects are and how projects are organized
2. Analyze projects using critical path scheduling
3. Identify the time–cost trade-offs involved in expediting the completion of a project
4. Discuss some of the criticisms often associated with project management techniques

References: Jacobs & Chase, 15th ed, Chapter 4.

Definition of Project Management
• Project
• A series of related jobs or tasks focused on the completion of an overall objective
and required a significant period of time to perform
• Project Management
• Planning, directing, and controlling resources (people, equipment, material) to meet
the technical, cost, and time constraints of the project
• Program
• Synonym for a project, although it also can consist of several interrelated projects
Types of Development Projects
• Projects can be categorized based on the type of change being planned
Different Project Structures
• Before the project starts, senior management must decide which of three
organizational structures will be used to tie the project to the parent firm

• Pure project

• Functional project

• Matrix project
 Pure Project
• A structure for organizing a project where a self-contained team works full time on the project
• Advantages
• The project manager has full authority over the project.
• Team members report to one boss. They do not have to worry about dividing loyalty with a functional-area manager.
• Lines of communication are shortened. Decisions are made quickly.
• Team pride, motivation, and commitment are high.
• Disadvantages
• Duplication of resources. Equipment and people are not shared across projects.
• Organizational goals and policies are ignored, as team members are often both physically and psychologically removed from
headquarters.
• The organization falls behind in its knowledge of new technology due to weakened functional divisions.
• Because team members have no functional area home, they worry about life-after-project, and project termination is delayed.
Functional Project
• In this structure, team members are assigned from the functional units of the organization.
The team members remain a part of their functional units and typically are not dedicated
to the project.
• Advantages
• A team member can work on several projects.
• Technical expertise is maintained within the functional area even if individuals leave the project or organization.
• The functional area is a home after the project is completed. Functional specialists can advance vertically.
• A critical mass of specialized functional-area experts creates synergistic solutions to a project’s technical problems.
• Disadvantages
• Aspects of the project that are not directly related to the functional area get shortchanged.
• Motivation of team members is often weak.
• Needs of the client are secondary and are responded to slowly.
Matrix Project
• A structure that blends the functional and pure project structures. Each project uses
people from different functional areas. A dedicated project manager decides what tasks
need to be performed and when, but the functional managers control which people to use.
• Advantages
• Communication between functional divisions is enhanced.
• A project manager is held responsible for successful completion of the project.
• Duplication of resources is minimized.
• Team members have a functional “home” after project completion, so they are less worried about life-after-
project than if they were a pure project organization.
• Policies of the parent organization are followed. This increases support for the project.
• Disadvantages
• There are two bosses. Often the functional manager will be listened to before the project manager.
• It is doomed to failure unless the PM has strong negotiating skills.
• Suboptimization is a danger, because PMs hoard resources for their own project, thus harming other projects.
Why is Project Management Important?
• At the highest levels of an organization, management often involves juggling a
portfolio of projects.

• One-fifth of the world's economic activity, with an annual value of $12 trillion, is
organized as projects. (https://doi.org/10.1287/educ.2016.0146)

• An average 11.4 percent of investment is wasted due to poor project performance.

(According to 2020 Pulse of the Profession®, Project Management Institute)

• The variety of project management applications has expanded greatly over recent
years.
• IT implementations, research and development, software development, corporate change management,
and new product and service development.
Project Management: Key Terms
• A project starts out as a statement of work (SOW)
• SOW may be a written description of the objectives to be achieved, with a brief statement
of the work to be done and a proposed schedule specifying the start and completion dates
• Task (Activity)
• A subdivision of a project, usually performed by one group or organization
• Subtask
• May be used to further subdivide a project into more meaningful pieces
• Work Package
• A group of activities combined to be assignable to a single organizational unit
• Milestones
• Specific events to be reached at points in time
Work Breakdown Structure (WBS)
• Work breakdown structure
• Method by which a project is divided into tasks and subtasks
• Defines the hierarchy of project tasks, subtasks, and work packages
Part of a Work Breakdown Structure for Opening a New Restaurant
A Good Work Breakdown Structure:
• Allow the activities to be worked on independently

• Make activities manageable in size

• Give authority to carry out the program

• Monitor and measure the program

• Provide the required resources

Project Management Activities
❖ Planning
➢ Objectives
➢ Resources
➢ Work break-down
structure ❖ Scheduling
➢ Organization ➢ Project activities
➢ Start & end times
➢ Network

❖ Controlling
© 2011 Pearson
➢ Monitor, compare, revise, action Education
Project Planning, Scheduling, and Controlling

Figure 3.1
Before Start of project During
project Timeline project

© 2011 Pearson
Education
Project Planning, Scheduling, and Controlling

Figure 3.1
Before Start of project During
project Timeline project
Project Planning, Scheduling, and Controlling

Figure 3.1
Before Start of project During
project Timeline project
Project Planning, Scheduling, and Controlling

Figure 3.1
Before Start of project During
project Timeline project
Project Planning, Scheduling, and Controlling
Time/cost estimates
Budgets
Engineering diagrams
Cash flow charts
Material availability details

Budgets
Delayed activities report
Slack activities report

CPM/PERT
Gantt charts
Milestone charts
Cash flow schedules

Figure 3.1
Before Start of project During
project Timeline project
Project Control - Gantt Chart
❖ Gantt Chart (or bar chart)

➢ Graphical technique that shows the

amount of time required for each
activity and the sequence in which the
activities are to be performed

➢ The chart is named after Henry L.

Gantt, who won a presidential citation
for his application of this type of chart
to shipbuilding during World War I
Cost and Performance Tracking Schedule
• Shows the degree of completion of
these projects. The dotted vertical line
signifies today

• Project 1 is already late since it still

has work to be done
• Project 2, although on schedule, is not
being worked on temporarily
• Project 3, also on schedule, continues
to be worked on without interruption.

• Two cost overruns occurred

Network-Planning Models
A project is made up of a sequence of activities that form a
network representing a project.

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.

Critical path method (CPM) helps to identify the critical

path(s) in the project networks.
Critical Path Scheduling
• PERT (Program Evaluation and Review Technique)
• The technique developed by the U.S. Navy for planning the Polaris missile project.

• CPM (Critical Path Method)

• Technique developed by J. E. Kelly and M. R. Walker to schedule preventative
maintenance shutdowns of chemical processing plants.
• Identifies the longest time-consuming path through a network of tasks required to
complete a project (i.e., the shortest time in which the project can be completed).
Critical Path Scheduling
• For critical path scheduling techniques to be most applicable, a project must
have the following characteristics
• It must have well-defined jobs or tasks whose completion marks the end
of the project.

• The jobs or tasks are independent; they may be started, stopped, and
conducted separately within a given sequence.

• The jobs or tasks are ordered; certain ones must follow others in a given
sequence.
Network Diagram
• Node: activity (task)

• Arrows: precedence relationship between activities

E G

A B C D J

F H
CPM Key Terms
• For some activities in a project there may be some leeway in when a activity can start and finish.
• Slack Time
• The amount of time the starting of an activity can be delayed without affecting the earliest completion date of the overall
project.

Slack Time = Late Start Time – Early Start Time

= Late Finish Time – Early Finish Time

Early start time (ES): the earliest possible time an activity can begin.

Early finish time (EF): the early start time plus the time needed to complete the activity.

Late finish time (LF): the latest time an activity can end without delaying the project.

Late start time (LS): the late finish time minus the time needed to complete the activity.
CPM Steps
Identify each activity to be done and
estimate how long it will take

Determine the required sequence and

construct a network diagram

The critical path is defined as the

Determine the critical path longest sequence of connected
activities through the network.

Determine the early start/finish and late

start/finish schedule and slack times
CPM Network for A Computer Design Project

Paths:
ACFG =38
ACEG =35
ABDFG =37
ABDEG =34
C(7) F(8)

A(21) G(2)

B(4) D(2) E(5)

 Forward Pass
• Begin at starting event and work forward
• Earliest Start Time Rule:
➢If an activity has only a single immediate predecessor, its ES equals the EF of the
predecessor

➢If an activity has multiple immediate predecessors, its ES is the maximum of all the
EF values of its predecessors

ES = Max {EF of all immediate predecessors}

© 2011 Pearson
Education
 Forward Pass
• Begin at starting event and work forward
• Earliest Finish Time Rule:
➢The earliest finish time (EF) of an activity is the sum of its earliest start time
(ES) and its activity time

EF = ES + Activity time

© 2011 Pearson
Education
 Backward Pass
• Begin with the last event and work backwards
• Latest Finish Time Rule:
➢If an activity is an immediate predecessor for just a single activity, its LF equals the
LS of the activity that immediately follows it

➢If an activity is an immediate predecessor to more than one activity, its LF is the
minimum of all LS values of all activities that immediately follow it

LF = Min {LS of all immediate following activities}

© 2011 Pearson
Education
 Backward Pass
• Begin with the last event and work backwards
• Latest Start Time Rule:
➢The latest start time (LS) of an activity is the difference of its latest finish time (LF)
and its activity time

LS = LF – Activity time

© 2011 Pearson
Education
Determine ES/EF and LS/LF Schedule

Critical 21 28 28 36
Path:
ACFG C(7) F(8)

21 28 28 36
0 21 36 38

A(21) G(2)

0 21 36 38
21 25 25 27 28 33

B(4) D(2) E(5)

22 26 26 28 31 36
Slack Calculations and Critical Path

Slack = LS-ES = LF-EF

Time–Cost Trade-off Model
• Time–Cost Trade-off Model
• Extensions of the basic critical path method
• Attempt to develop a minimum-cost schedule for an entire project and to control
expenditures during the project
• A model that develops the relationship between direct project costs, indirect costs, and
time to complete the project by minimizing the sum of direct and indirect costs
• Crashing
• Compression or shortening of the time to complete the project
• Crash Costs
• The additional costs of an activity when time to complete it is shortened
Time–Cost Trade-off Model
• Activity direct costs
• The costs associated with expediting activities
• Worker-related: requiring overtime work, hiring more workers, and transferring workers from other
jobs
• Resource-related: buying or leasing additional or more efficient equipment and drawing on
additional support facilities

• Project indirect costs

• The costs associated with sustaining the project
• Overhead, facilities, and resource opportunity costs, and, under certain contractual situations,
penalty costs or lost incentive payments

• Scheduling problem is essentially one of finding the project duration that minimizes the sum of activity
direct costs and project indirect costs
Minimum-Cost Scheduling
Step 1: Prepare CPM-type network diagram.
a. Normal cost (NC): the lowest expected activity costs
b. Normal time (NT): the time associated with each normal cost
c. Crash time (CT): the shortest possible activity time
d. Crash Cost (CC): the cost associated with each crash time

Step 2: Determine the cost per unit of time to expedite (or crash) each activity.

Step 3: Compute the critical path(s).

Step 4: Shorten the critical path(s) at the least cost.

Step 5: Plot project direct, indirect, and total-cost curves and find the minimum-cost schedule.
Example Summary of Activity Times and Costs
Normal Crash Normal Crash
Activity Time Time Cost Cost
A 2 1 $6 $10
B 5 2 $9 $18
C 4 3 $6 $8
D 3 1 $5 $9

Cost per unit of time to

𝐶𝐶−𝑁𝐶
expedite =
𝑁𝑇−𝐶𝑇
Calculation of Cost Per Day to Expedite Each Activity
Reducing Project Completion Time One Day at a Time
Least-Cost Activity to
Normal D D B A* B&C† B+
Expedite

Length of Path
ABD 10 9 8 7 6 5 4
ACD 9 8 7 7 6 5 5
Project Completion
10 9 8 7 6 5 5
Time

Total Cost of All

$26 $28 $30 $33 $37 $42 $45
Activities
Current Critical Path(s) ABD ABD ABD ABD & ABD & ABD & ACD
ACD ACD ACD

Remaining Number of A-1, B-3, A-1, B-3, A-1, B-3 A-1, B-2, B-2, C-1 B-1
Days Activity May Be D-2 D-1 C-1
Shortened
Cost Per Day to A-4, B-3, A-4, B-3, A-4, B-3 A-4, B-3, B-3, C-2 B-3
Expedite Each Activity D-2 D-2 C-2

Activity D cannot be Activity A cannot be

reduced any further at reduced any further at Project has reached
this point this point minimum duration

*To reduce both critical paths by one day, reduce either A alone, or B and C together at the same time (since either B or C by
itself modifies the critical path without shortening it).
†B & C must be crashed together to reduce both critical paths by one day.
+ Crashing activity B does not reduce the length of the project, so this additional cost would not be incurred.
Plot of Costs and Minimum Cost Schedule
Assume that indirect costs are $10 for the first eight days of the project. If the project
takes longer than eight days, indirect costs increase at the rate of $5 per day.
Criticisms of PERT and CPM
Activities are entities having a clear beginning and ending point for each activity.
Criticism: Projects change over time such that a beginning network may be highly inaccurate later on.

Activity sequence relationships can be specified and networked.

Criticism: The sequence of relationships cannot always be specified beforehand.

Project control should focus on the critical path.

Criticism: It is not necessarily true that the longest time-consuming path (or the path in which each of the
activities has zero slack) ultimately determines project completion time.