Chapter 17

Project
Management

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Chapter 17: Learning Objectives
You should be able to:
LO 17.1 Describe the project life cycle
LO 17.2 Discuss the behavioral aspects of projects in terms of project
personnel and the project manager
LO 17.3 Name the six key decisions in project management
LO 17.4 Explain the nature and importance of a work breakdown
structure in project management
LO 17.5 Give a general description of PERT/CPM techniques
LO 17.6 Construct simple network diagrams
LO 17.7 Analyze networks with deterministic times
LO 17.8 Analyze networks with probabilistic times
LO 17.9 Describe activity “crashing” and solve typical problems
LO 17.10 Discuss the advantages of using PERT and potential
sources
of error
LO 17.11 Discuss the key steps in risk management
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Projects
Projects
 Unique, one-time operations designed to
accomplish a specific set of objectives in a
limited time frame
 Examples:
The Olympic Games
Producing a movie
Software development
Product development
ERP implementation

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The Nature of Projects
Projects go through a series of stages – a life
cycle
Projects bring together people with a
diversity of knowledge and skills, most of
whom remain associated with the project for
less than its full life
Organizational structure affects how projects
are managed

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Project Life Cycle

1. Initiating
2. Planning
3. Executing
4. Monitoring and Controlling
5. Closing

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Project Life Cycle (cont.)

FIGURE 17.1
Project life
cycle
LO 17-6
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Project Management Decisions
Project success depends upon making
key managerial decisions over a
sequence of steps:
 Deciding which projects to implement
 Selecting the project manager
 Selecting the project team
 Planning and designing the project
 Managing and controlling project resources
 Deciding if and when a project should be
terminated

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Project Manager
 The project manager is ultimately responsible for
the success or failure of the project
 The project manager must effectively manage:
 The work
 The human resources
 Communications
 Quality
 Time
 Costs

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Project Management Body of
Knowledge
The Project Management Institute (PMI) has
developed a list of 10 areas of knowledge:
1. Managing integration
2. Managing scope
3. Managing time/schedule
4. Managing costs
5. Managing quality
6. Managing human resources
7. Managing communication
8. Managing risk
9. Managing procurement
10. Managing stakeholders
LO 17-9
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The Project Management Triangle

Sc
st

he
Co

du
le
Quality

Performance Objectives

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Behavioral Issues
 Behavioral problems can be created or
exacerbated by
 Decentralized decision making
 Stress of achieving project milestones on time and
within budget
 Surprises
 The team must be able to function as a unit
 Interpersonal and coping skills are very important
 Conflict resolution and negotiation can be an important
part of a project manager’s job

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Avoiding Problems
 Many problems can be avoided or mitigated
by:
 Effective team selection
 Leadership
 Motivation
 Maintaining an environment of
 Integrity
 Trust
 Professionalism
 Being supportive of team efforts

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Project Champion
Project champion
 A person who promotes and supports a project
Usually resides within the organization
Facilitate the work of the project by ‘talking up’ the
project to other managers who might be asked to
share resources with the project team as well as
employees who might be asked to work on parts of
the project
The project champion can be critical to the success
of a project

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Work Breakdown Structure (WBS)
WBS
 A hierarchical listing of what must be done
during a project
Establishes a logical framework for identifying the
required activities for the project
1. Identify the major elements of the project
2. Identify the major supporting activities for each of
the major elements
3. Break down each major supporting activity into a
list of the activities that will be needed to
accomplish it

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WBS: Working with Gantt Charts

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WBS: Working with Gantt Charts
(cont.)

FIGURE 17.3
Gantt chart for
bank example
17-16
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PERT and CPM
 PERT (program evaluation and review
technique) and CPM (critical path method)
are two techniques used to manage large-
scale projects
 By using PERT or CPM managers can obtain:
 A graphical display of project activities
 An estimate of how long the project will take
 An indication of which activities are most critical to
timely project completion
 An indication of how long any activity can be delayed
without delaying the project

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17-18
17-19
Network Conventions

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Network Diagram
 Network diagram
 Diagram of project activities that shows sequential
relationships by use of arrows and nodes
 Activity on arrow (AOA)
 Network diagram convention in which arrows
designate activities
 Activity on node (AON)
 Network convention in which nodes designate
activities
 Activities
 Project steps that consume resources and/or time
 Events
 The starting and finishing of activities

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17-22
17-23
17-24
17-25
Example 1

17-26
Answer

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Deterministic Time Estimates
Deterministic
 Time estimates that are fairly certain
Probabilistic
 Time estimates that allow for variation

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Early Start, Early Finish
Finding ES and EF involves a forward
pass through the network diagram
 Early start (ES)
 The earliest time an activity can start
 Assumes all preceding activities start as early as possible
 For nodes with one entering arrow
 ES = EF of the entering arrow
 For activities leaving nodes with multiple entering arrows
 ES = the largest of the largest entering EF
 Early finish (EF)
 The earliest time an activity can finish
 EF = ES + t

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Late Start, Late Finish
 Finding LS and LF involves a backward pass
through the network diagram
 Late Start (LS)
 The latest time the activity can start and not delay the
project
 The latest starting time for each activity is equal to its latest
finishing time minus its expected duration:
 LS = LF − t
 Late Finish (LF)
 The latest time the activity can finish and not delay the
project
 For nodes with one leaving arrow, LF for nodes entering that
node equals the LS of the leaving arrow
 For nodes with multiple leaving arrows, LF for arrows entering
node equals the smallest of the leaving arrows

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Slack and the Critical Path
Slack can be computed one of two ways:
 Slack = LS – ES
 Slack = LF – EF
Critical path
 The critical path is indicated by the activities
with zero slack

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Using Slack Times
 Knowledge of slack times provides managers
with information for planning allocation of
scarce resources
 Control efforts will be directed toward those activities
that might be most susceptible to delaying the project
 Activity slack times are based on the assumption that all
of the activities on the same path will be started as early
as possible and not exceed their expected time
 If two activities are on the same path and have the same
slack, this will be the total slack available to both

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Probabilistic Time Estimates
 The beta distribution is generally used to
describe the inherent variability in time
estimates
 The probabilistic approach involves three
time estimates:
 Optimistic time, (to)
 The length of time required under optimal conditions
 Pessimistic time, (tp)
 The length of time required under the worst
conditions
 Most likely time, (tm)
 The most probable length of time required

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17-34
17-35
17-36
The Beta Distribution

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Probabilistic Time Estimates (2 of 3)
The expected time, te ,for an activity is a
weighted average of the three time estimates:
to  4t m  t p
te 
6
The expected duration of a path is equal to
the sum of the expected times of the activities
onPath
that path:
mean 
 of expected times of activities on the path

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Probabilistic Time Estimates (3 of 3)
 The standard deviation of each activity’s time is
estimated as one-sixth of the difference between
the pessimistic and optimistic time estimates. The
variance is the square of the standard deviation:

 t p  to 
2

  2

 6 
 Standard deviation of the expected time for the
path:
 path   Variances of activities on path 

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Knowledge of Path Statistics
Knowledge of expected path times and their
standard deviations enables managers to
compute probabilistic estimates about project
completion such as:
 The probability that the project will be
completed by a certain time
 The probability that the project will take longer
than its expected completion time

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Path Probabilities
 Calculating path probabilities involves the use of the
normal distribution
 Although path activities are represented by the beta
distribution, the path distribution can be represented by a
normal distribution

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Determining Path Probabilities

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Project Completion Time
 A project is not complete until all project activities
are complete
 It is risky to only consider the critical path when
assessing the probability of completing a project
within a specified time
 To determine the probability of completing the project within a
particular time frame
 Calculate the probability that each path in the project will
be completed within the specified time
 Multiply these probabilities

 The result is the probability that the project will be

completed within the specified time

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Assumption: Independence
Independence
 Assumption that path duration times are
independent of each other
Requires that
1. Activity times are independent
2. Each activity is on only one path
The assumption of independence is usually
considered to be met if only a few activities in a
large project are on multiple paths

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Simulation
 When activity times cannot be assumed to be
independent, simulation is often used
 Repeated sampling is used
 Many passes are made through the project network
 In each pass, a random value for each activity time is
selected based on the activity time’s probability
distribution
 After each pass, the project’s duration is determined
 After a large number of passes, there are enough data
points to prepare a frequency distribution of the
project duration
 Probabilistic estimates of completion times are made
based on this frequency distribution

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Time-Cost Trade-Offs
 Activity time estimates are made for some
given level of resources
 It may be possible to reduce the duration of
a project by injecting additional resources
 Motivations:
 To avoid late penalties
 Monetary incentives
 Free resources for use on other projects

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Time-Cost Trade-Offs: Crashing
 Crashing
 Shortening activity durations
 Typically, involves the use of additional funds to support
additional personnel or more efficient equipment, and the
relaxing of some work specifications
 The project duration may be shortened by increasing
direct expenses, thereby realizing savings in indirect
project costs

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Crashing Decisions
To make decisions concerning crashing
requires information about:
1. Regular time and crash time estimates for
each activity
2. Regular cost and crash cost estimates for
each activity
3. A list of activities that are on the critical path
 Critical path activities are potential candidates for
crashing
 Crashing non-critical path activities would not have
an impact on overall project duration
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Crashing: Procedure
 General procedure:

1. Crash the project one period at a time

2. Crash the least expensive activity that is on the critical
path
3. When there are multiple critical paths, find the sum of
crashing the least expensive activity on each critical
path
 If two or more critical paths share common
activities, compare the least expensive cost of
crashing a common activity shared by critical paths
with the sum for the separate critical paths

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Crashing Activities

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PERT: Advantages
Among the most useful features of PERT:
1.It forces the manager to organize and quantify
available information and to identify where
additional information is needed
2.It provides a graphic display of the project and
its major activities
3.It identifies
a. Activities that should be closely watched
b. Activities that have slack time

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Sources of Error
 Potential sources of error:
1. The project network may be incomplete
2. Precedence relationships may not be correctly
expressed
3. Time estimates may be inaccurate
4. There may be a tendency to focus on critical path
activities to the exclusion of other important project
activities
5. Major risk events may not be on the critical path

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Risk Management
 Risks are an inherent part of project
management
 Risks relate to occurrence of events that have
undesirable consequences such as
 Delays
 Increased costs
 Inability to meet technical specifications

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Risk Management (cont.)
 Good risk management involves
 Identifying as many risks as possible
 Analyzing and assessing those risks
 Working to minimize the probability of their
occurrence
 Establishing contingency plans and budgets for
dealing with any that do occur

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