2007 Pearson Education

Immediate
Activity Description Predecessor(s) Responsibility
A Select administrative and medical staff. Johnson
B Select site and do site survey. Taylor
C Select equipment. A Adams
D Prepare final construction plans and layout. B Taylor
E Bring utilities to the site. B Burton
F Interview applicants and fill positions in A Johnson
nursing, support staff, maintenance,
and security.
G Purchase and take delivery of equipment. C Adams
H Construct the hospital. D Taylor
I Develop an information system. A Simmons
J Install the equipment. E,G,H Adams
K Train nurses and support staff. F,I,J Johnson
St. Adolfs Hospital
Example 3.1
2007 Pearson Education
St. Adolfs Hospital
Diagramming the Network
Finish Start
A
B
C
D
E
F
G
H
I
J
K
A
B
C A
D B
E B
F A
G C
H D
I A
J E,G,H
K F,I,J
Immediate
Predecessor
2007 Pearson Education
St. Adolfs Hospital
Finish Start
A
B
C
D
E
F
G
H
I
J
K
Path Time (wks)

A-I-K 33
A-F-K 28
A-C-G-J-K 67
B-D-H-J-K 69
B-E-J-K 43
Paths are the sequence of
activities between a
projects start and finish.
2007 Pearson Education
St. Adolfs Hospital
Finish Start
A
B
C
D
E
F
G
H
I
J
K Path Time (wks)

A-I-K 33
A-F-K 28
A-C-G-J-K 67
B-D-H-J-K 69
B-E-J-K 43
Project Expected
Time is 69 wks.
The critical path is the
longest path!
2007 Pearson Education
Earliest Start Time (ES) is the latest earliest finish
time of the immediately preceding activities.
Earliest Finish Time (EF) is an activitys earliest
start time plus its estimated duration.
Latest Start Time (LS) is the latest finish time
minus the activitys estimated duration.
Latest Finish Time (LF) is the earliest latest start
time of the activities that immediately follow.
For simplicity, all projects start at time zero.
St. Adolfs Hospital
Developing the Schedule
2007 Pearson Education
What AON Nodes look like

Latest
Finish
Latest
Start
Activity
Activity
Duration
Slack
The earliest you can complete
an activity -- determined by
adding the activity time to the
earliest start time.
The latest you can finish an
activity without delaying the
project completion date. It is the
same as the Latest Start time of
the next activity. If there are two
or more subsequent activities,
this time is the same as the
earliest of those Latest Start
times.
Determined by the earliest finish
time of the precedent activity. If
there are two or more precedent
activities, this time is the same as
precedent activity with the latest
Earliest Finish time.
This is the Latest
Finish time minus
the activity time.
Slack is the difference, if any,
between the earliest start and latest
start times (or the earliest finish and
latest finish times).
S = LS ES or S = LF EF
2007 Pearson Education
Earliest
Start
Earliest
Finish
2007 Pearson Education
Earliest Start and Earliest Finish Times
K

6
C

10
G

35
J

4
H

40
B

9
D

10
E

24
I

15
Finish
Start
A

12
F

10
2007 Pearson Education
0
Earliest start time
12
Earliest finish time
0 9
9 33
9 19 19 59
22 57 12 22
59 63
12 27
12 22 63 69
Example 3.2
2007 Pearson Education
Earliest Start and Earliest Finish Times
2007 Pearson Education
Critical Path
The Critical Path
takes 69 weeks
K

6
C

10
G

35
J

4
H

40
B

9
D

10
E

24
I

15
Finish
Start
A

12
F

10
0 9
9 33
9 19 19 59
22 57 12 22
59 63
12 27
12 22 63 69 0 12
Example 3.2
2007 Pearson Education
K

6
C

10
G

35
J

4
H

40
B

9
D

10
E

24
I

15
Finish
Start
A

12
F

10
0 9
9 33
9 19 19 59
22 57 12 22
59 63
12 27
12 22 63 69 0 12
Latest Start and Latest Finish Times
2007 Pearson Education
48 63
53 63
59 63
24 59
19 59
35 59
14 24
9 19
2 14
0 9
Latest
finish
time
63 69
Latest
start
time
Example 3.2
2007 Pearson Education 2007 Pearson Education
K

6
C

10
G

35
J

4
H

40
B

9
D

10
E

24
I

15
Finish
Start
A

12
F

10
0 9
9 33
9 19 19 59
22 57 12 22
59 63
12 27
12 22 63 69 0 12
48 63
53 63
59 63
24 59
19 59
35 59
14 24
9 19
2 14
0 9
63 69
Earliest start time Earliest finish time
Latest start time
Latest finish time
Example 3.2
2007 Pearson Education
Project Schedule
A Gantt Chart is a project schedule, usually created
by the project manager using computer software,
that superimposes project activities, with their
precedence relationships and estimated duration
times, on a time line.
Activity slack is useful because it highlights activities that
need close attention.
Free slack is the amount of time an activitys
earliest finish time can be delayed without delaying
the earliest start time of any activity that immediately
follows.
Activities on the critical path have zero slack and cannot be
delayed without delaying the project completion.
2007 Pearson Education 2007 Pearson Education
Activity Slack Analysis
Node Duration ES LS Slack

A 12 0 2 2
B 9 0 0 0
C 10 12 14 2
D 10 9 9 0
E 24 9 35 26
F 10 12 53 41
G 35 22 24 2
H 40 19 19 0
I 15 12 48 36
J 4 59 59 0
K 6 63 63 0
K

6
C

10
G

35
J

4
H

40
B

9
D

10
E

24
I

15
Finish
Start
A

12
F

10
0 9
9 33
9 19 19 59
22 57 12 22
59 63
12 27
12 22 63 69 0 12
48 63
53 63
59 63
24 59
19 59
35 59
14 24
9 19
2 14
0 9
63 69
Example 3.3
2007 Pearson Education
Analyzing Cost-Time
Trade-Offs
There are always cost-time trade-offs in
project management.
You can completing a project early by hiring more
workers or running extra shifts.
There are often penalties if projects extend
beyond some specific date, and a bonus may be
provided for early completion.
Crashing a project means expediting some
activities to reduce overall project completion
time and total project costs.
2007 Pearson Education
Project Costs
The total project costs are the sum of direct costs,
indirect costs, and penalty costs.
Direct costs include labor, materials, and any other
costs directly related to project activities.

Indirect costs include administration, depreciation,
financial, and other variable overhead costs that can
be avoided by reducing total project time.
The shorter the duration of the project, the lower
the indirect costs will be.
2007 Pearson Education
Cost to Crash
To assess the benefit of crashing certain activities,
either from a cost or a schedule perspective, the
project manager needs to know the following times
and costs.
Normal time (NT) is the time necessary to complete
and activity under normal conditions.
Normal cost (NC) is the activity cost associated
with the normal time.
Crash time (CT) is the shortest possible time to
complete an activity.
Crash cost (CC) is the activity cost associated with
the crash time.
2007 Pearson Education
Cost to Crash per Period
The Cost to Crash per Period =
CC NC
NT CT
Crash Cost Normal Cost
Normal Time Crash Time
2007 Pearson Education
Linear cost assumption
8000
7000
6000
5000
4000
3000
0
D
i
r
e
c
t

c
o
s
t

(
d
o
l
l
a
r
s
)

| | | | | |
5 6 7 8 9 10 11
Time (weeks)
Crash cost (CC)
Normal cost (NC)
(Crash time) (Normal time)
Estimated costs for
a 2-week reduction,
from 10 weeks to
8 weeks
5200
St. Adolfs Hospital
Cost-Time Relationships in Cost Analysis
2007 Pearson Education
The objective of cost analysis is to
determine the project schedule that
minimizes total project costs.
A minimum-cost schedule is determined
by starting with the normal time schedule
and crashing activities along the critical path
in such a way that the costs of crashing do
not exceed the savings in indirect and
penalty costs.
St. Adolfs Hospital
Minimizing Costs
2007 Pearson Education
Use these steps to determine the minimum cost
schedule:
1. Determine the projects critical path(s).
2. Find the activity or activities on the critical path(s)
with the lowest cost of crashing per week.
3. Reduce the time for this activity until
a. It cannot be further reduced or
b. Until another path becomes critical, or
c. The increase in direct costs exceeds the savings that result
from shortening the project (which lowers indirect costs).
4. Repeat this procedure until the increase in direct
costs is larger than the savings generated by
shortening the project.
St. Adolfs Hospital
Minimum Cost Schedule
2007 Pearson Education
Direct Cost and Time Data for the
St. Adolfs Hospital Project
A 12 $ 12,000 11 $ 13,000 1 $ 1,000
B 9 50,000 7 64,000 2 7,000
C 10 4,000 5 7,000 5 600
D 10 16,000 8 20,000 2 2,000
E 24 120,000 14 200,000 10 8,000
F 10 10,000 6 16,000 4 1,500
G 35 500,000 25 530,000 10 3,000
H 40 1,200,000 35 1,260,000 5 12,000
I 15 40,000 10 52,500 5 2,500
J 4 10,000 1 13,000 3 1,000
K 6 30,000 5 34,000 1 4,000
Totals $1,992,000 $2,209,500
Maximum Cost of
Normal Normal Crash Crash Time Crashing per
Time Cost Time Cost Reduction Week
Activity (NT) (NC) (CT) (CC) (wk) (CC-NC)
Shorten
first
2007 Pearson Education
St. Adolfs Hospital
Finding the minimum cost schedule: Stage 1
Step 1: The critical path is: B-D-H-J-K.
Step 2: The cheapest activity to crash is J at $1000.
Step 3: Crash activity J by its limit of three weeks
because the critical path remains unchanged.
The new project length becomes 66 weeks.
The project completion time is 69 weeks.
The direct costs for that schedule are $1,992,000.
The indirect costs are $8000 per week.
Penalty costs after week 65 are $20,000 per week.
Total cost is $2,624,000 for 69 weeks
($1,992,000 + 69($8000) + (69 65)($20,000)
Example 3.4
2007 Pearson Education
St. Adolfs Hospital
Finding the minimum cost schedule: Stage 1
The project completion time is 69 weeks.
The direct costs for that schedule are $1,992,000.
The indirect costs are $8000 per week.
Penalty costs after week 65 are $20,000 per week.
Total cost is $2,624,000 for 69 weeks
Crashing by 3 weeks saves $81,000 for a new total cost of
$2,543,000.

Savings is 3 weeks of indirect costs (3 * $8000 = $24,000)
plus 3 weeks of penalties (3 * $20,000 = $60,000)
less the cost of crashing (3 * $1,000 = $3,000)
Example 3.4
2007 Pearson Education
Step 1: The critical path is still B-D-H-J-K.
Step 2: The cheapest activity to crash per week is now D at $2,000 a
week.
Step 3: Crash D by 2 weeks.
The first week of reduction saves $28,000 by eliminating both the
penalty and indirect costs (but $2,000 goes toward crashing costs.)
The second week of reduction had no penalty, so it saves only
the indirect costs of $8,000.

Total cost is now $2,511,00 ($2,543,00 - $28,000 - $8,000 + $4,000)
St. Adolfs Hospital
Finding the minimum cost schedule: Stage 2
The indirect costs are $8000 per week.
Penalty costs after week 65 are $20,000 per week.
Example 3.4
2007 Pearson Education
St. Adolfs Hospital
Finding the minimum cost schedule: Stage 3
Start
A
12
B
9
D
8
E
24
F
10
Finish
C
10
G
35
H
40
I
15
J
1
K
6
Shortening D and J have
created a second critical
path, A-C-G-J -K. Both
critical paths are 64
weeks.
Both must now be
shortened to realize any
savings in indirect costs.
Example 3.4
2007 Pearson Education
St. Adolfs Hospital
Finding the minimum cost schedule: Stage 3
The alternatives are to crash one of the following
combination of activities: A-B, A-H, C-B, C-H, G-B, G-H,
or
Crash activity K which is on both critical paths.
(J and D have already been crashed.)
The cheapest alternative is to crash activity K.
It can only be crashed by one week at a cost of $4,000
The net savings are $8,000 $4,000 = $4,000
Total project cost now becomes $2,507,000
A $ 1,000
B 7,000
C 600
D 2,000
E 8,000
F 1,500
G 3,000
H 12,000
I 2,500
J 1,000
K 4,000
The indirect costs are $8000 per week.
Example 3.4
2007 Pearson Education
St. Adolfs Hospital
Finding the minimum cost schedule: Stage 4
A $ 1,000
B 7,000
C 600
D 2,000
E 8,000
F 1,500
G 3,000
H 12,000
I 2,500
J 1,000
K 4,000
Start
A
12
B
9
D
8
E
24
F
10
Finish
C
10
G
35
H
40
I
15
J
1
K
5
63 wks
The critical paths remain the same
but are now both 63 weeks.
Example 3.4
2007 Pearson Education
B and C are the only remaining activities that can
be crashed simultaneously without exceeding the
potential savings of $8000 per week in indirect
costs.
Crash activities B and C by two weeks (the limit for
activity B)
Net savings are 2($8,000) 2($7,600) = $800
Total project costs are now $2,506,200
A $ 1,000
B 7,000
C 600
D 2,000
E 8,000
F 1,500
G 3,000
H 12,000
I 2,500
J 1,000
K 4,000
St. Adolfs Hospital
Finding the minimum cost schedule: Stage 4
The indirect costs are $8000 per week.
Example 3.4
2007 Pearson Education
St. Adolfs Hospital
Summary
The minimum cost schedule is 61 weeks. Activities J, D, K, B,
and C were crashed for a total savings of $117,800
Example 3.4
2007 Pearson Education
Application 3.3
2007 Pearson Education
Application 3.3
2007 Pearson Education
Application 3.3
2007 Pearson Education
Application 3.3
2007 Pearson Education
Application 3.3
2007 Pearson Education
Application 3.3
2007 Pearson Education
Assessing Risks
Risk is a measure of the probability and
consequence of not reaching a defined
project goal.
A major responsibility of the project manager
at the start of a project is to develop a risk-
management plan.
A Risk-Management Plan identifies the key
risks to a projects success and prescribes
ways to circumvent them.
2007 Pearson Education
Categories of
Project Risk
Strategic Fit: Projects should have a purpose that supports
the strategic goals of the firm.
1. Service/Product Attributes: If the project involves new
service or product, several risks can arise.
Market risk comes from competitors.
Technological risk can arise from advances made once the
project has started, rendering obsolete the technology chosen for
service or product.
Legal risk from liability suits or other legal action.
2. Project Team Capability: Involves risks from the project
team itself such as poor selections and inexperience.
3. Operations Risk: Information accuracy, communications, and
project timing.
2007 Pearson Education
Statistical Analysis
The Statistical Analysis approach requires that
activity times be stated in terms of three reasonable
time estimates for each activity.
1. Optimistic Time (a) is the shortest time in which a activity
can be completed if all goes exceptionally well.
2. Most Likely Time (m) is the probable time for an activity.
3. Pessimistic Time (b) is the longest time required.
The expected time for an activity thus becomes
t
e
=
a + 4m + b
6
2007 Pearson Education
Probabilistic
Time Estimates
Mean
m a b
Time
P
r
o
b
a
b
i
l
i
t
y

Beta
Distribution
Pessimistic Optimistic
2007 Pearson Education
Time
P
r
o
b
a
b
i
l
i
t
y

Normal
Distribution
Mean
a b m
3s 3s
Area under curve
between a and b
is 99.74%
Probabilistic
Time Estimates
2007 Pearson Education
A F
I
C G
Finish
D
E
H B J
K
Start
t
e
=
a + 4m + b
6
Mean
s
2
=
( )
b a
6
2
Variance
St. Adolfs Hospital
Probabilistic Time Estimates
Example 3.5
Calculating Means and Variances
2007 Pearson Education
Activity B
Most
Optimistic Likely Pessimistic
(a) (m) (b)
7 8 15
A F
I
C G
Finish
D
E
H B J
K
Start
St. Adolfs Hospital
Probabilistic Time Estimates
t
e
= = 9 weeks
7 + 4(8) + 15
6
s
2
= = 1.78
( )
15 - 7
6
2
Example 3.5
Calculating Means and Variances
2007 Pearson Education

Optimistic Likely Pessimistic Expected Variance
Activity (a) (m) (b) Time (t
e
) (s
2
)

Time Estimates (wk) Activity Statistics
A 11 12 13 12 0.11
B 7 8 15 9 1.78
C 5 10 15 10 2.78
D 8 9 16 10 1.78
E 14 25 30 24 7.11
F 6 9 18 10 4.00
G 25 36 41 35 7.11
H 35 40 45 40 2.78
I 10 13 28 15 9.00
J 1 2 15 4 5.44
K 5 6 7 6 0.11
St. Adolfs Hospital
Probabilistic Time Estimates
Example 3.5
2007 Pearson Education
Application 3.4
2007 Pearson Education
s
2
= (variances of activities)
z =
T T
E

s
2
s
2
= 1.78 + 1.78 + 2.78 + 5.44 + 0.11 = 11.89
z =
72 69
11.89
Probabilities
Critical Path = B - D - H - J - K
T = 72 days T
E
= 69 days
St. Adolfs Hospital
Analyzing Probabilities
From Normal Distribution appendix
P
z
= .8078 .81
Example 3.6
2007 Pearson Education
Project duration (weeks)
69 72
Normal distribution:
Mean = 69 weeks;
s = 3.45 weeks
Probability of
exceeding 72
weeks is 0.1922
St. Adolfs Hospital
Probability of Completing Project On Time
Example 3.6
Probability
of meeting
the schedule
is 0.8078
Length of
critical path
2007 Pearson Education
s
2
= (variances of activities)
z =
T T
E

s
2
s
2
= 0.11 + 2.78 + 7.11 + 5.44 + 0.11 = 15.55
z = = 1.27
72 67
15.55
Probabilities
Critical Path = A - C - G - J - K
T = 72 days T
E
= 67 days
From Normal Distribution appendix
P
z
= .8980 .90
St. Adolfs Hospital
Probability of Completing Project On Time
Example 3.6
2007 Pearson Education
Application 3.5
2007 Pearson Education
Application 3.5
2007 Pearson Education
Resource-Related Problems
Excessive Activity Duration Estimates:
Many time estimates come with a built-in
cushion that management may not realize.

Latest Date Mentality: The tendency for
employees to procrastinate until the last
moment before starting.

Failure to Deliver Early, even if the work
is completed before the latest finish date.
2007 Pearson Education
Path Mergers occur when two or more
activity paths combine at a particular node.
Both paths must be completed up to this
point, which will eliminate any built-up slack.
Multitasking is the performance of multiple
project activities at the same time. Work on
some activities is delayed for other work.
Loss of Focus by a manager can happen if
the critical path changes frequently.
Resource-Related Problems
2007 Pearson Education
The Critical Chain Approach
A Critical Chain is the sequence of dependent
events that prevents a project from completing in a
shorter interval and recognizes resource as well as
activity dependencies.
Time Estimates: The most likely time (m) is used to build the
critical chain project plan. The difference between it and the
pessimistic time (b m) is used to develop the time buffers.
Buffers: Once the critical chain and all paths feeding it are
identified, time buffers can be added to protect the chain.
Using Latest Start Schedules has the advantage of
delaying project cash outlays.
Project Control: Managers, using the critical chain
approach, must control the behavioral aspects of their
projects.
2007 Pearson Education 2007 Pearson Education
A F
I
C G
Finish
D
E
H B J
K
Start
Activity Duration ES LSSlack

C 10 16 142
G 35 26 242
J 4 61 592
K 6 65 632
D 10 10 91
H 40 20 191
E 24 10 3525
I 15 16 4832
F 10 16 5337
SLACK CALCULATIONS
AFTER ACTIVITIES A AND B
HAVE BEEN COMPLETED
Monitoring Project
Resources
2007 Pearson Education
Project Life Cycle
Start Finish
R
e
s
o
u
r
c
e

r
e
q
u
i
r
e
m
e
n
t
s

Time
Definition
and
organization
Planning Execution Close out
2007 Pearson Education 2007 Pearson Education
Solved Problem 1
2007 Pearson Education 2007 Pearson Education
Solved Problem 1
2007 Pearson Education 2007 Pearson Education
Solved Problem 2
What is the probability of
completing the project in
23 weeks?
2007 Pearson Education 2007 Pearson Education
Solved Problem 2
2007 Pearson Education 2007 Pearson Education
Solved Problem 2
Finish
Start
A

4.0
0.0
4.0
4.0
8.0
D

12.0
4.0
8.0
16.0
20.0
E

6.5
9.0
9.0
15.5
15.5
G

4.5
15.5
15.5
20.0
20.0
C

3.5
5.5
5.5
9.0
9.0
F

9.0
5.5
6.5
14.5
15.5
B

5.5
0.0
0.0
5.5
5.5
2007 Pearson Education 2007 Pearson Education
Solved Problem 2
Using the Normal Distribution appendix,
we find that the probability of completing
the project in 23 weeks or less is 0.9357.