Project management; Chapter 5

Department of Business Administration

FALL 2020-2021

Chapter 5: Project Management

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 Project Management; Chapter 5

Outline: What You Will Learn . . .

 Discuss the behavioral aspects of projects in terms of project

personnel and the project manager.
 Discuss the nature and importance of a work breakdown
structure in project management.
 Give a general description of PERT/CPM techniques.
 Construct simple network diagrams.
 List the kinds of information that a PERT or CPM analysis can
provide.
 Analyze networks with deterministic times.
 Analyze networks with probabilistic times.
 Describe activity “crashing” and solve typical problems.

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 Project Management; Chapter 5

Projects
JAN FEB MAR APR MAY JUN
Build A

A Done

Build B

B Done

Build C

C Done

Build D

Ship On time!

Project: Unique, one-time operations designed

to accomplish a specific set of objectives in a
limited time frame.
3
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 Project Management; Chapter 5

Project Management
 How is it different?
 Limited time frame
 Narrow focus, specific objectives
 Less bureaucratic
 Why is it used?
 Special needs
 Pressures for new or improves products or services
 What are the Key Metrics
 Time
 Cost
 Performance objectives
 What are the Key Success Factors?
 Top-down commitment
 Having a capable project manager
 Having time to plan
 Careful tracking and control
 Good communication
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 Project Management; Chapter 5

Project Management
 What are the Major Administrative Issues?
 Executive responsibilities
 Project selection
 Project manager selection
 Organizational structure
 Organizational alternatives
 Manage within functional unit
 Assign a coordinator
 Use a matrix organization with a project leader
 What are the tools?
 Work breakdown structure
 Network diagram
 Gantt charts
 Risk management
5
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 Project Management; Chapter 5

Key Decisions
 Deciding which projects to implement
 Criteria-attractive-cost and benefit-available fund
 Selecting a project manager
 Central person
 Selecting a project team
 Person’s knowledge and skills-relationship with others
 Planning and designing the project
 Goals-timetable-budget-resources
 Managing and controlling project resources
 Personnel-equipment-budget
 Deciding if and when a project should be terminated
 Likelihood of success-costs-resources

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 Project Management; Chapter 5

Project Manager
Responsible for:

Work Quality

Human Resources Time

Communications Costs

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 Project Management; Chapter 5

Technical Information about projects

 Project management Institute (PMI) was established in 1969. In 1990, The

institute had 17,500 members. In 2001, there were 86,000 members. In
2018, this number reached to 550,000 members.
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 Project Management; Chapter 5

Technical Information about projects

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 Project Management; Chapter 5

Technical Information about projects

 https://www.wrike.com/blog/complete-collection-project-management-statistics-2015/

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 Project Management; Chapter 5

Technical Information about projects

 https://www.wrike.com/blog/complete-collection-project-management-statistics-2015/

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 Project Management; Chapter 5

Unethical Issues

 Temptation to understate costs

 Withhold information
 Misleading status reports
 Falsifying records
 Comprising workers’ safety
 Approving substandard work

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 Project Management; Chapter 5

Project Life Cycle

Feasibility

Management
Planning
Concept
Execution

Termination
Concept: A proposal needed
Feasibility: Cost, benefit and risk analyses
Planning: find out the necessary human resources, time and cost
Execution: control for time, available resource and cost
Termination: It should be reevaluated for the sake of project’s safety
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 Project Management; Chapter 5

Work Breakdown Structure

Project X

Level 1

Level 2

Level 3

Level 4

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 Project Management; Chapter 5

Planning and Scheduling

Gantt Chart MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Locate new facilities

Interview staff

Hire and train staff

Select and order

furniture

Remodel and install

phones

Move in/startup

15
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 Project Management; Chapter 5

The Network Diagram

 Network (precedence) diagram – diagram of
project activities that shows sequential relationships
by the use of arrows and nodes.
 Activity-on-arrow (AOA) – a network diagram
convention in which arrows designate activities.
 Activity-on-node (AON) – a network diagram
convention in which nodes designate activities.
 Activities – steps in the project that consume
resources and/or time.
 Events – the starting and finishing of activities,
designated by nodes in the AOA convention.
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 The Network Diagram
Project Management; Chapter 5

 Path
 Sequence of activities that leads from the starting node to the
finishing node
 Critical path
 The longest path; determines expected project duration
 Critical activities
 Activities on the critical path
 Slack
 Allowable slippage for path; the difference the length of path and
the length of critical path
 Slack is the length of the time where an activity can be delayed
without interfering with the project completion.
 Dummy
 Using this variable does not cost any burden for the company. This
exists solely for the purpose of establishing precedence relationships
for the sake of simplicity and is not asssigned any time.
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 Project Management; Chapter 5

Project Network – Activity on Arrow

Order
AOA furniture 4
Furniture
Locate 2 setup
facilities
Remodel
1 5 6
Move
in
Interview
Hire and
train
3

18
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 Project Management; Chapter 5

Project Network – Activity on Node

Order
furniture
Locate Furniture
2 setup
facilities
AON
1 6
Move
Remodel
in

S 5 7

Hire and
Interview
train

3 4

19
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 Project Management; Chapter 5

Network Conventions
a
b
c a

c
b
a and b must be completed a must be completed
before c can start before b or c can start

a c
a c

b Dummy
activity
b d

a must be completed
a and b must be completed
before c can start//
before b or c can start
b and dummy must be completed
before c can start 20
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 Project Management; Chapter 5

Computing Algorithm
Forward pass
 Network activities
ES t EF
 ES: early start
 EF: early finish-EF=ES+t
 LS: late start-LS=LF-t
 LF: late finish
LS LF
 Used to determine ES t EF
 Expected project duration
 Slack time-LS-ES or LF-EF Backward pass
 Critical path- the longest period

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 Project Management; Chapter 5

The Network Diagram- PERT and CPM

 PERT: Program Evaluation and Review Technique
 CPM: Critical Path Method
 Both techniques are widely used for planning and
coordinating large-scale projects.
 Using the two techniques, manager are able to obtain:
 Graphically displays project activities
 Estimates how long the project will take
 Indicates most critical activities
 Show where delays will not affect project

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 Project Management; Chapter 5

Example 1-Bank Network convention- CPM

The following table contains information related to the major activities of a
research project. Use the information to do the following:
(a) Draw a precedence diagram using AOA and AON
(b) Find the critical path based AOA.
(c) Determine the expected length of the project.
(d) The amount of slack time for each path
Activity Immediate Predecessor Expected Time (days)

a - 5
c a 8
d c 2
b a 7
e - 3
f e 6
i b, d 10
m f,i 8
g - 1
h g 2
k h 17
end k,m 23
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 Project Management; Chapter 5

Answer-Bank Network convention

 Activities with no predecessors are at the beginning (life side) of the network.
 Activities with multiple predecessors are located at path intersections.
 (a) Use first AOA; the precedence diagram using AOA is constructed as follows:

c d
8 2
b
7 i
a
S 10
5 f
e
6

m
3 8
g
1 k
h End
17
2 24
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 Project Management; Chapter 5

Example-Bank Network convention

(b)Find the critical path based AOA.

a-c-d-i-m*=5+8+2+10+8=33#
a-b-i-m=5+7+10+8=30
e-f-m= 3+6+8=17
g-h-k=1+2+17=20

a-c-d-i-m*-Critical path

(c) Determine the expected length of the project.

33 # -Expected project duration

25
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 Project Management; Chapter 5

Answer-Bank Network convention

 (d) calculate the amount of slack time for each path
LS LF
13 13 ES t EF
5 13 13
c d 15
5
8 2 15 15
5 8 15
5 b 12
5 15 25
0 7 i
a 10 25
19 25
S 0 5 19 25
f 9
16 3 3 25
0 e
6 33
3 33
01 3

m
8
g 33
14 16 20
1 14 16 k
1 3
1 h 3
17 End
2 26
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 Project Management; Chapter 5

Example 2-Bank Network convention_ CPM

The following table contains information related to the major activities of a
research project. Use the information to do the following:
(a) Draw a precedence diagram using AOA
(b) Find the critical path based AOA.
(c) Determine the expected length of the project.
(d) The amount of slack time for each path
Activity Immediate Predecessor Expected Time (days)

a - 8
b a 6
d b 3
c a 11
e - 4
f e 9
g c, d, f 1
end g

27
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 Project Management; Chapter 5

Example 2-Bank Network Figure

6 weeks
(a) Bank Network question 4
er
Ord iture

Fur p
n
fur b 3 weeks

set
8 weeks 2

n i tu
u
Rem

d
ate s od e

re
c Move in
Lo ilitie c l
fac a 11 weeks
g
1 5 6
In in 1 week
te t ra
r
e vie and
w re f
4 weeks Hi
9 weeks

28
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 Project Management; Chapter 5

Answer-Bank Network Figure

(b) and (c) Critical Path

P a th L e n g th S la c k
(w e e k s )
1 -2 -3 -4 -5 -6 18 2
1 -2 -5 -6 20 0
1 -3 -5 -6 14 6

 Knowledge of slack times provides managers with

information for planning allocation of scarce resources
and for directing control efforts toward those activities
that may be most susceptible to delaying the project.

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 Project Management; Chapter 5

Example-ES-EF-LS-LF-slack
(d) Required: Compute slack time, ES, EF, LS and LF

14
4 Forward pass
6
8

14
2 8 ES t EF

3
8 11
8 19

17
0 19 1 20
1 5 6
0
13
4
9
4 LS LF
4 ES t EF
EF: early finish-EF=ES+t
LS: late start-LS=LF-t 3 Backward pass
Slack time-LS-ES or LF-EF

30
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 Project Management; Chapter 5

Answer (d- cont...) -ES-EF-LS-LF-slack

Forward pass
10 6 16
8 14 ES t EF
2 14
4
6
8 16 3 19

14
0 8 8
0 8
2 8 14 17

3
8 11 2
0 8 19

17
0 8 11 19 19 1 20
1 8 19 5 6
0 0
13 19 1 20
4
6 4 10 9 19 20
0 4 4 0
4 10 9 19
6 4 13
3 6 LS LF
EF: early finish-EF=ES+t
ES t EF
LS: late start-LS=LF-t
Slack time-LS-ES or LF-EF Backward pass 31
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 Project Management; Chapter 5

PERT Model-Time Estimates

 The main determinant of the way PERT and CPM networks
are analysed and interpreted is whether activity time estimates
are probabilistic or deterministic.

 Deterministic
 Time estimates that are fairly certain
 Probabilistic
 Estimates of times that allow for variation

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 Project Management; Chapter 5

Probabilistic Time Estimates

 Optimistic time
 Time required under optimal conditions
 Pessimistic time
 Time required under worst conditions
 Most likely time
 Most probable length of time that will be required

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 Project Management; Chapter 5

Probabilistic Estimates
 Beta Distribution is generally used to describe the inherent variability in
timeEstimates. Although there is no real theoretical justification for using
the Beta Distribution, it has certain features that make it attractive in
practice.

to tm te tp

Activity Optimistic Most likely Pessimistic

start time time (mode) time

34
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 Project Management; Chapter 5

Expected Time

te = to + 4t m +t p
6
te = expected time
to = optimistic time
tm = most likely time
tp = pessimistic time
 The knowledge of the expected path times and their std. Deviation enables a
manager to compute probabilistic estimates of the project completion time as
such specific time and scheduled time
35
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 Project Management; Chapter 5

Variance

(t –
 p o t ) 2

36

= variance
to = optimistic time
tp = pessimistic time
The size of Variance reflects the degree of uncertainty associated
with an activity’s time:
The large the variance, the greater the uncertainty.
36
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 Project Management; Chapter 5
Example 3-Probabilistic Time Estimates
The following table contains information related to the major activities of a
research project. Use the information to do the following:
(a) Draw its precedence diagram.
(b) Find the critical Path.
(c) Determine the expected time of the project.
(d) Calculate variance or standart deviation of the project
(e) Compute the probability that the project can be completed within 15 and 17
weeks of its start.
Activity Immediate Predecessor O-M-P

a - 1-3-4
b a 2-4-6
c b 2-3-5
d - 3-4-5
e d 3-5-7
f e 5-7-9
g - 2-3-6
h g 4-6-8
i h 3-4-6
end c, f, i 37
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 Project Management; Chapter 5

Answer-Probabilistic Time Estimates

(a) Draw its precedence diagram

Optimistic Most likely Pessimistic
time time time

2-4-6
b

2- c
- 4

3-
3
1- a

5
3-4-5 3-5-7 5-7-9
d e f
-6
2- g

4
3- i
3-
6

4-6-8
h
38
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 Project Management; Chapter 5

Answer b,c and d-Probabilistic Time Estimates

Path Activity t0 tm tp te Total Path

a-b-c a 1 3 4 2.83  
  b 2 4 6 4 10
  c 2 3 5 3.17  
d-e-f d 3 4 5 4  
  e 3 5 7 5 16
  f 5 7 9 7  
g-h-i g 2 3 6 3.33  
  h 4 6 8 6 13.5
  i 3 4 6 4.17  
39
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 Project Management; Chapter 5

Answer b,c and d-Probabilistic Time Estimates

Total
Std
Path Activity t0 tm tp Var) Total  dev)
a-b-c a 1 3 4 1/4    
  b 2 4 6 4/9 0.94 0.97
  c 2 3 5 1/4    
d-e-f d 3 4 5 1/9    
  e 3 5 7 4/9 1 1
  f 5 7 9 4/9    
g-h-i g 2 3 6 4/9    
  h 4 6 8 4/9 1.14 1.07
  i 3 4 6 1/4    
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 Project Management; Chapter 5

Answer-Probabilistic Time Estimates

Tabc = 10.0 σabc = 0.97(critical path)
Tdef = 16.0 (critical path) σdef = 1.0
T = 13.50 σghi = 1.07
ghi 4.00
b

3.1 c
. 83
2

7
a
4.00 5.0 7.0
d e f
.4 17
3.3 g
3

i
6.0
h
 Based on your estimations, what would your comment be? 41
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 Project Management; Chapter 5

Path Probabilities

Specified time – Path mean

Z =
Path standard deviation
 Z indicates how many standard deviations of the path
distribution the specified time is beyond the expected path
duration. The more positive the value, the better. A negative
value of z indicates that the specified time is earlier than the
expected path duration.
 Z=+3.00-probability 100%-
 From the relevant table +3.00 is almost equal to 0.9987.

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 Project Management; Chapter 5

Example-The Path probability

 Given the information on the example of probabilistic
time estimates (part (e) in the previous example):

 e) Determine
 The probability that the project can be completed within 17
weeks of its start.
 The probability that the project will be completed within 15
weeks of its start.
 The probability that the project will not be completed within
15 weeks of its start.

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 Project Management; Chapter 5

Answer-The Path probability

 Determine (e)
 The probability that the project can be completed within
17 weeks of its start. Path: a-b-c

17 – 10
Z = =7.22 Prob.comp in 17 week=1.00
0.97 Appendix B, Table B, p.p 884/5
 Determine
 The probability that the project will be completed within
17 weeks of its start. Path: d-e-f
17 – 16 =1 Prob.comp in 17 week=0.8413
Z =
1 Appendix B, Table B, p.p 885

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 Project Management; Chapter 5

Answer-The Path probability

 Determine
 The probability that the project will be completed within
17 weeks of its start. Path: g-h-i

Z = 17 – 13.5 =3.27 Prob.comp in 17 week=1.00

1.07 Appendix B, Table B, p.p 884/5

Prob finish in 17 week=1.00 X 0.8413 X 1.00= 0.8413

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 Project Management; Chapter 5

Answer-The Path probability

 Determine
 The probability that the project can be completed within
15 weeks of its start. Path: a-b-c

15 – 10
Z = =5.15 Prob.comp in 15 week=1.00
0.97 Appendix B, Table B, p.p 884/5
 Determine
 The probability that the project will be completed within
15 weeks of its start. Path: d-e-f
15 – 16 =-1.00 Prob.comp in 15 week=0.1587
Z =
1 Appendix B, Table B, p.p 885

46
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 Project Management; Chapter 5

Answer-The Path probability

 Determine
 The probability that the project will be completed within
15 weeks of its start. Path: g-h-i

Z = 15 – 13.5 =1.40 Prob.comp in 15 week=0.9192

1.07 Appendix B, Table B, p.p 884/5

Prob finish in 15 week=1.00 X 0.1587 X 0.9192= 0.1459

 The probability that the project will not be completed within 15 weeks of
its start: 1- 0.1459=0.8541

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 Project Management; Chapter 5

Answer-The Path probability-Graphically

17
Weeks
1.00
a-b-c
Weeks
10.0

0.8413
d-e-f
Weeks
16.0

1.00
g-h-i
13.5 Weeks

48
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 Project Management; Chapter 5

Answer-The Path probability-Graphically

15
Weeks

1.00
a-b-c
Weeks
10.0
0.1587

d-e-f
Weeks
16.0

0.9192
g-h-i
13.5 Weeks

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 Project Management; Chapter 5

Table 12.3, page 569

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 Project Management; Chapter 5

Time-cost Trade-offs: Crashing

Excluded from the exam topics
 In many projects, it is possible to reduce the length of a
project by injecting additional resources. The impetus to
shorten projects may reflect efforts to avoid late penalties,
or/ to take advantage of monetary incentives for timely
completion of a project, or/ to free resources for use on
other projects. This is called crashing.
 Crash – briefly, shortening activity duration
 Procedure for crashing
 Crash the project one period at a time
 Only an activity on the critical path
 Crash the least expensive activity
 Multiple critical paths: find the sum of crashing the least
expensive activity on each critical path
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 Project Management; Chapter 5

Time-Cost Trade-Offs: Crashing

Excluded from the exam topics

Total
cost

Expected indirect costs

Shorten

Cumulative CRASH
(direct)
cost of
crashing Shorten

Optimum
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MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2012- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
 Project Management; Chapter 5

Example-Crashing
Using the following information, develop the optimal time cost solution.
Indirect costs are $ 1000 per day.
(a) Determine which activities are on the critical path, its length, and the
length of the other path
(b) Rank the critical activities in order of lowest crashing cost, and
determine the number of days each can be crashed.
(c) Determine the critical path after each reduction by shortening the
project. Excluded from the exam topics

Activity Normal time Crash time Cost per day to crash

a 6 6

c 10 8 $500

d 5 4 300

b 4 1 700

e 9 7 600

f 2 1 800
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MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2012- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
 Project Management; Chapter 5

 Determine the expected length of the project.

Excluded from the exam topics

10
6 b
a
2
f
5

9
c

e
4
d

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MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2012- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
 Project Management; Chapter 5

Answer-Crashing
Excluded from the exam topics

(a) Determine which activities are on the critical path, its length, and the
length of the other path
Path length
a-b-f 18
c-d-e-f 20 (critical path)

(b) Rank the critical activities in order of lowest crashing cost, and
datermine the number of days each can be crashed.
Activity Cost per day to crash Available days
c $ 300 1
e 600 2
d 700 3
f 800 1

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MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2012- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
 Project Management; Chapter 5

Answer-Crashing
Excluded from the exam topics
(c) Determine the critical path after each reduction by shortening the
project.
(1) Shorten activity c one day at a cost of $ 300. The length of the
critical path becomes 19 days.
(2) Activity c cannot be shorten any more. Shorten activity e one day at
cost of $ 600. The length of the critical path c-d-e-f becomes 18 days
which is the same as length of path a-b-f.
(3) The path are now both critical, further improvement will necesitate
shortening both paths.
Path Activity Cost per day to crash
a-b-f a no reduction possible
b $ 500
f 800
c-d-e-f c no further reduction possible
d $ 700
e 600
f 800
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MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2012- Prof. Dr. Sami Fethi, EMU, All Right Reserved.
 Project Management; Chapter 5

Answer-Crashing
Excluded from the exam topics
At the first glance, it would seem that crashing f would not be
advantageous, because it has the highest crashing cost. However, f is on
both paths, so shortening f by one day would shorten both paths by one
day for a cost of $ 800. The option of shortening the least expensive
activity on each path would cost $ 500 for b and $ 600 for e or $ 1100.
Thus shorten f by one day. The project duration is now 17 days.
(4) At this point, no additional improvement is feasible. The cost to crash
b is $ 500 and the cost to crash e is $ 600, for a total of $ 1100 and that
would exceed the indirect costs of $ 100 per day.
(5) The crashing sequence is summarized below:
Length after crashing n days
Path n=0 1 2 3
a-b-f 18 18 18 17

c-d-e-f 20 19 18 17

activity crashed c e f
cost $300 600 800 57
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 Project Management; Chapter 5

Thanks

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MGMT 405, POM, 2014/15. Lec Notes © Stevenson, McGraw Hill, 2012- Prof. Dr. Sami Fethi, EMU, All Right Reserved.