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Previously…

Chapter 1: Operations and supply chain

management (OSCM)
The design, operation, and improvement of the system that create and deliver the firm’s primary products and
services

OSCM
Processes
Planning, Sourcing, Making, delivering, Returning

Services and Goods Difference

Goods–Services Continuum

Product–service bundling

EFFICIENCY, EFFECTIVENESS, AND Evaluate Efficiency & Benchmarking

VALUE

HISTORICAL DEVELOPMENT OF Manufacturing strategy Just-in-time (JIT)

OPERATIONS AND SUPPLY CHAIN
MANAGEMENT Total quality control (TQC) Lean manufacturing
Total quality management (TQM) Business Process reengineering (BPR)
Six Sigma Mass customization
Electronic Commerce Sustainability and the Triple Bottom Line
Business analytics

Current Issues in Operations and Supply

Chain Management

Previously…

Chapter 2: Economic Prosperity

STRATEGY AND Sustainability

The ability to meet current resource needs without
compromising the ability of future generations to
Social Responsibility
SUSTAINABILITY meet their needs.
Environment
Stewardship

Competitive Dimensions

Trade-Offs and Straddling

Order Winners and Order

Qualifiers

Supply chain risk and Risk

management
Partial measure
Productivity measurement Multifactor measure
Total measure

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Previously…

Chapter 5: Project
A series of related jobs usually directed toward some major output
and requiring a significant period of time to perform.
Project (Part I)
Planning, directing, and controlling resources (people, equipment,
Project management material) to meet the technical, cost, and time constraints of the
project.

Pure project
Functional project
Project Structures
Matrix project

SOW

Project milestones
Organizing Project Tasks
Work breakdown structures

Activities

Managing projects Gantt chart

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OPERATIONS MANAGEMENT
Lecture - 2

Ch.5 Projects (Part II)

OMIT: Earned Value Management (EVM)

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CPM/PERT

 CPM
 Critical Path Method
 Developed by Du Pont & Remington Rand
 Developed for industrial projects for which activity times generally were
known
 PERT
 Program Evaluation and Review Technique
 Developed by U.S. Navy for Polaris missile project
 Developed to handle uncertain activity times
 Today’s project management software packages have combined the
best features of both approaches

CPM/PERT

 CPM and PERT have been used to plan, schedule, and control a
wide variety of projects:
 R&D of new products and processes
 Construction of buildings and highways

 Maintenance of large and complex equipment

 Design and installation of new systems

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CPM/PERT

 CPM/PERT is used to plan the scheduling of individual activities

that make up a project
 Projects may have as many as several thousand activities
 A complicating factor in carrying out the activities is that some
activities depend on the completion of other activities before they
can be started

CPM/PERT

 Project managers rely on CPM/PERT to help them answer

questions such as:
 What is the total time to complete the project?
 What are the scheduled start and finish dates for each specific activity?

 Which activities are critical and must be completed exactly as scheduled

to keep the project on schedule?
 How long can noncritical activities be delayed before they cause an
increase in the project completion time?

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Project Network

 A project network can be A project is made up of a sequence of activities that

constructed to model the form a network, representing the project
precedence of the activities
 The nodes of the network
represent the activities The path taking longest time through this network
of activities is called the “critical path”
 The arcs of the network reflect
the precedence relationships
of the activities
The critical path provides a wide range of scheduling
 A critical path for the network information useful in managing a project
is a path consisting of
activities with zero slack – OR
it is the longest path from Critical path method (CPM) helps to identify the
start to finish of the project critical path(s) in the project networks

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written consent of McGraw-Hill Education.

Critical Path Method (CPM)

Identify each activity to be done and estimate

how long it will take to complete it

Determine the required sequence of activities

and construct a network diagram reflecting the
precedence relationships

Determine the critical path

Determine the early start/finish and late

start/finish schedule

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CPM Example 1
Consider the following consulting project:

Activity Designation Immed. Pred. Time (Weeks)

Assess customer's needs A None 2
Write and submit proposal B A 1
Obtain approval C B 1
Develop service vision and goals D C 2
Train employees E C 5
Quality improvement pilot groups F D, E 5
Write assessment report G F 1

Develop a critical path diagram and determine the duration of the critical path
and slack times for all activities

11

CPM Example 1

Immed.
Task Time
Pred.
A None 2
B A 1
C B 1
D C 2
E C 5
F D,E 5
G F 1
D(2)

A(2) B(1) C(1) F(5) G(1)

E(5)

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CPM Example 1

ES= 4
EF= 6

ES= 0 ES= 2 ES= 3 ES= 9 ES= 14

D(2) ES= 6 or 9?
EF= 2 EF= 3 EF= 4 EF= 14 EF= 15

A(2) B(1) C(1) ES= 4 F(5) G(1)

EF= 9

E(5)

Hint: Start with ES=0

and go forward in the
network from A to G.

13

CPM Example 1
Hint: Start with LF=15 or
the total time of the project
Slack=7-4=9-6=3 and go backward in the
ES= 4
EF= 6 network from G to A.
ES= 0 ES= 2 ES= 3 D(2) ES= 9 ES= 14
EF= 2 EF= 3 EF= 4 EF= 14 EF= 15
LS= 7
A(2) B(1) C(1) LF= 9 F(5) G(1)
ES= 4
EF= 9
LS= 0 LS= 2 LS= 3 LS= 9 LS= 14
LF= 2 LF= 3 LF= 4 or 7? LF= 14 LF= 15
LF= 4
E(5)

LS= 4
LF= 9

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CPM Example 5.2:

Immediate Time
Activity Designation
Predecessors (Week) Develop a critical path diagram and determine the duration of
Design A - 21 the critical path and slack times for all activities
Build prototype B A 5
Evaluate
C A 7
Critical Path:
equipment
1. A  C  F  G
Test prototype D B 2
2. A  B  D  F  G
Write equipment
E C,D 5
report
Write methods
F C,D 8
report
Write final report G E,F 2 21 26 26 28 28 33 Slack=36-33=3

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

0 21 36 38
21 26 26 28 31 36
A(21) G(2)
21 28 28 36
0 21 36 38
C(7) F(8)

21 28 28 36

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PERT-CPM with Three Activity Time Estimates

 For new or unique projects, estimating time for each activity are uncertain in many cases.
 Or, when activity times vary, a single time estimate may not be reliable
 To incorporate uncertain activity times into analysis, we need to get three time-estimates for
each activity:
 Optimistic time = the minimum activity time
 Most possible time = the most probable activity time
 Pessimistic time = the maximum activity time
 In the three-time estimate approach, the critical path is determined as if the mean times for
the activities were fixed times.
 The overall project completion time is assumed to have a normal distribution with mean equal
to the sum of the means along the critical path and variance equal to the sum of the variances
along the critical path.
 This allows calculation of a probability estimate of completion time

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PERT Method Calculations

a = Optimistic time: the optimistic completion time estimate

b = Pessimistic time: the pessimistic completion time estimate
m = Most likely time: the most likely completion time estimate
ET = Expected time
𝜎 = Variance
𝒂 + 𝟒𝒎 + 𝒃
𝑬𝑻 =
𝟔
𝟐
𝟐
𝒃−𝒂
𝝈 =
𝟔

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PERT Method Calculations

Immediate Most likely Pessimistic

Activity Designation Optimistic (a)
Predecessors (m) (b)
Design A - 10 22 28 𝒂 + 𝟒𝒎 + 𝒃
Build prototype B A 4 4 10 𝑬𝑻 =
𝟔
Evaluate equipment C A 4 6 14
𝟐
Test prototype D B 1 2 3
𝟐
𝒃−𝒂
Write equipment
E C,D 1 5 9 𝝈 =
report 𝟔
Write methods report F C,D 7 8 9

Write final report G E,F 2 2 2

Step 1: Calculate the Expected time and construct

critical path diagram

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PERT Method Example (1):

Activity
Immediate
a m b
Expected 𝒂 + 𝟒𝒎 + 𝒃
Predecessors Time (Week)
10 + 4 × 22 + 28 𝑬𝑻 =
A - 10 22 28 21 6
= 21 𝟔
𝟐
B A 4 4 10 5
𝟐
𝒃−𝒂
C A 4 6 14 7 4 + 4 × 4 + 10
=5 𝝈 =
D B 1 2 3 2 6 𝟔
E C,D 1 5 9 5

F C,D 7 8 9 8 21 26 26 28 28 33 Slack= 36-33=3

G E,F 2 2 2 2
B(5) D(2) E(5)

0 21 36 38
21 26 26 28 31 36
A(21) G(2)
21 28 28 36
Critical Path:
0 21 36 38
1. A  C  F  G C(7) F(8)

2. A  B  D  F  G
21 28 28 36
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19

PERT Method Example (2):

Immediate Expected ACTIVITY 𝟐 𝟐

Activity a m b 𝒃−𝒂 𝟐𝟖 − 𝟏𝟎
Predecessors Time (Week) VARIANCES 𝝈𝟐 = = =𝟗
𝟔 𝟔
A - 10 22 28 21 9
𝟐 𝟐
B A 4 4 10 5 1 𝒃−𝒂 𝟏𝟎 − 𝟒
𝝈𝟐 = = =𝟏
C A 4 6 14 7 2.7778 𝟔 𝟔
D B 1 2 3 2 0.1111

E C,D 1 5 9 5 1.7778
ACFG
 ∑𝜎 = 9 + 2.7778 + 0.1111 + 0 = 11.8889
F C,D 7 8 9 8 0.1111
ABDFG
G E,F 2 2 2 2 0
 ∑𝜎 = 9 + 1 + 0.1111 + 0.1111 + 0 = 10.2222

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PERT Method Example (3):

Immediate Expected ACTIVITY

Activity a m b
Predecessors Time (Week) VARIANCES

A - 10 22 28 21 9

B A 4 4 10 5 1

C A 4 6 14 7 2.7778

D B 1 2 3 2 0.1111

E C,D 1 5 9 5

F C,D 7 8 9 8 0.1111

G E,F 2 2 2 2 0
Step 3: Calculate the probability of finishing
ACFG in 35 weeks
 ∑𝜎 = 9 + 2.7778 + 0.1111 + 0 = 11.8889
𝐷−𝑇 35 − 38
ABDFG 𝑍= = = −0.87
11.8889
 ∑𝜎 = 9 + 1 + 0.1111 + 0.1111 + 0 = 10.2222 ∑𝜎
𝑃 . = 𝑁𝑂𝑅𝑀. 𝑆. 𝐷𝐼𝑆𝑇 −0.87, 𝑇𝑅𝑈𝐸 = 0.1922

Probability of finishing in 35 weeks (or less) is about 19%

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21

PERT Method Example (3):

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PERT Method Example (4):

What is the probability that the project duration will exceed 39 weeks?

𝐷−𝑇 39 − 38
𝑍= = = 0.29
11.8889
∑𝜎
𝑃 . = 𝑁𝑂𝑅𝑀. 𝑆. 𝐷𝐼𝑆𝑇 0.29, 𝑇𝑅𝑈𝐸 = 0.6141
𝑃 = 1 − 0.6141 = 0.3859 = 38.69%
𝑇 = 38 𝐷 = 39

What is the probability that the project duration between 35 and 39 weeks?

𝑃 −𝑃 = 0.6141 − 0.1922 = 0.4219 = 42.19%

𝐷 = 35 𝑇 = 38 𝐷 = 39
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23

CPM Exercise: Frank’s Fine Floats

Frank’s Fine Floats is in the business of building

elaborate parade floats. Frank and his crew have
a new float to build and want to use PERT/CPM
to help them manage the project .
The table shows the activities that comprise the
project. Each activity’s expected completion
time (in days) and immediate predecessors are
listed as well.
Frank wants to know the total time to complete
the project, which activities are critical, and the
earliest and latest start and finish dates for each
activity.

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PERT Exercise

Given the following network and activity time

estimates, determine the expected project
completion time and variance, and the probability
that the project will be completed in 28 days or
less.

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25

Time-Cost Models and Project Crashing

 A time-cost model – Extension of the critical

path models that considers the trade-off
between the time required to complete an
activity and the cost
 Considers direct activity costs, indirect costs of project,
and activity completion times
 Often refer as “crashing” – The compression of
the time to complete project

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Time-Cost Models and Project Crashing

 The project manager often must finish the project sooner

than indicated by the Critical Path Method.
 The manager can reduce a project completion by adding
resources (material, equipment, and so on) to selected
activities.
 However, added resources (e.g. more workers, overtime, and
so on) generally increase project costs.
 Thus, the decision to reduce the project duration is based on
an analysis of the trade-off between time and cost.

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Project Crashing

Prepare a CPM-type network diagram

Determine the cost per unit of time to

expedite each activity

Compute the critical path

Shorten the critical path at the least cost

Plot project, indirect, and total cost curves to

find the minimum-cost schedule

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Project Crashing – Example

 Step 1: The diagram should list:

 Normal cost (NC) – the lowest expected activity cost
 Normal time (NT) – the time associated with each normal cost
 Crash time (CT) – the shortest possible activity time
 Crash cost (CC) – the cost associated with each crash time

 Step 2:
𝐶𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑡𝑖𝑚𝑒 =

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Project Crashing – Example

 Step 2 (Cont.): Calculate cost per day to expedite each activity

 Step 3: Compute critical path

 The critical path is A-B-D
 The schedule will take 10 days

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Project Crashing – Example

 Step 4: Reduce the project completion time one day at a time

Activity D cannot be
reduced any further
at this point

Activity A cannot be
reduced any further
at this point

Activity C cannot be
reduced any further
at this point Crash B and C together to Project has reached
reduce both critical paths minimum duration

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Project Crashing – Example

 Step 4: Plot cost curves and find minimum cost schedule

Minimum total cost
occurs with 8-day
duration, which is $40
($30 direct + $10
indirect)

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Project Management Information Systems

 Over 100 companies offer project management software

 Microsoft Project is popular for managing mid-size projects
 Oracle’s Primavera Project Planner is often used for very large projects
 In addition to scheduling tasks, resources must also be assigned to specific tasks through
software tools
 Software can be used to spot over-allocation of resources
 Planned use exceeds available supply
 When resources are over-allocated, either more resources are required or rescheduling is necessary
 Taking advantage of task slack can free resources
 Progress tracking is a key feature for managing projects as they are being completed

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33

Crashing Example

A project has been defined to contain the following list of activities, along with their
normal time (weeks), crash time (weeks), normal costs ($000), and crash costs ($000).

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Crashing Example (Cont.)

1. What is the normal project length?

2. To reduce the project completion time by 1week, which activities should be
crashed?
3. Suppose that you would like to reduce the project completion time by
three weeks. Show, step by step, how you arrive at your schedule. What
would the final total project costs be? Show also the critical path(s) after
reducing the project completion time by three weeks.

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