Project Management

Project Management
INDE 6386/4388
Department of Industrial Engineering
Projects
Projects are an interrelated set of
activities with a definite starting and
ending point, which results in a unique
outcome from a specific allocation of
resources

The three main goals are to:
Complete the project on time
Not exceed the budget
Meet the specifications to the satisfactions
of the customer
Projects
Project management is a systemized,
phased approach to defining, organizing,
planning, monitoring, and controlling
projects
Projects often require resources from
many different parts of the organization;
projects are temporary
A collection of projects is called a
program
Defining and Organizing Projects
Define the scope, time frame, and
resources of the project.
Project managers must be
Facilitators
Communicators
Decision makers
Project team members must have
Technical competence
Sensitivity
Loyalty
Planning Projects
There are five steps to planning projects
1. Defining the work breakdown structure
2. Diagramming the network
3. Developing the schedule
4. Anal yzing the cost-time trade-offs
5. Assessing risks
Work Breakdown Structure
A statement of all the tasks that must be
completed as part of the project
An activity is the smallest unit of work
effort consuming both time and
resources that the project manager can
schedule and control
Each activity must have an owner who is
responsible for doing the work
Work Breakdown Structure
Purchase and deliver equipment
Construct hospital
Develop information system
Install medical equipment
Train nurses and support staff
Select administration staff
Site selection and survey
Select medical equipment
Prepare final construction plans
Bring utilities to site
Interview applicants for
nursing and support staff
Organizing and Site Preparation Physical Facilities and Infrastructure Level 1
Level 0
Level 2
Relocation of St. Johns Hospital
Diagramming the Network
Network diagrams use nodes and arcs
to depict the relationships between
activities
1. Project teams to identify and organize data
to identify interrelationships between
activities
2. Enable the estimation of completion time
3. Crucial activities are highlighted - CPM
4. Cost and time trade-offs can be analyzed
Precedent relationships determine the
sequence for undertaking activities
Activity times must be estimated using
historical information, statistical analysis
or informed estimates
In the activity-on-node approach,
nodes represent activities and arcs
represent the relationships between
activities
S T U
S precedes T, which
precedes U.
AON Activity Relationships
S
T
U
S and T must be
completed before U
can be started.
T
U
S
T and U cannot
begin until S has
been completed.
S
T
U
V
U and V cant begin
until both S and T
have been completed.
S
T
U
V
U cannot begin until
both S and T have been
completed; V cannot
begin until T has been
completed.
S T V
U
T and U cannot begin
until S has been
completed and V cannot
begin until both T and U
have been completed.
Developing the Schedule
Schedules can help managers achieve
the objectives of the project
1. Estimate the completion time by finding
the critical path
2. Identify start and finish times for each
activity
3. Calculate the amount of slack time for
each activity
Critical Path
The sequence of activities between a
projects start and finish is a path
The critical path is the path that takes
the longest time to complete
St. J ohns Hospital Project
Activity Immediate
Predecessors
Activity Times
(wks)
Responsibility
ST. JOHNS HOSPITAL PROJECT
START
ORGANIZING and SITE PREPARATION
A. Select administrative staff
B. Select site and survey
C. Select medical equipment
D. Prepare final construction plans
E. Bring utilities to site
F. Interview applicants for nursing and
support staff
PHYSICAL FACILITIES and INFRASTRUCTURE
G. Purchase and deliver equipment
H. Construct hospital
I. Develop information system
J. Install medical equipment
K. Train nurses and support staff
FINISH
START
START
A
B
B
A
C
D
A
E, G, H
F, I, J
K
0
12
9
10
10
24
10
35
40
15
4
6
0
Kramer
Stewart
Johnson
Taylor
Adams
Taylor
Burton
Johnson
Walker
Sampson
Casey
Murphy
Pike
Ashton
Activity Immediate
Predecessors
Activity Times
(wks)
Responsibility
START
support staff
FINISH
Completion Time
Finish
K
6
I
15
F
10
C
10
H
40
J
4
A
12
B
9
Start
G
35
D
10
E
24
Activity IP Time
A START 12
B START 9
C A 10
D B 10
E B 24
F A 10
G C 35
H D 40
I A 15
J E, G, H 4
K F, I, J 6
Activity Immediate
Predecessors
Activity Times
(wks)
Responsibility
START
support staff
FINISH
Completion Time
Finish
K
6
I
15
F
10
C
10
D
10
H
40
J
4
A
12
B
9
Start
G
35
E
24
Path Estimated Time (weeks)
AIK 33
AFK 28
ACGJK 67
BDHJK 69
BEJK 43
Activity Immediate
Predecessors
Activity Times
(wks)
Responsibility
START
support staff
FINISH
Completion Time
Finish
K
6
I
15
F
10
C
10
D
10
H
40
J
4
A
12
B
9
Start
G
35
E
24
Path Estimated Time (weeks)
AIK 33
AFK 28
ACGJK 67
BDHJK 69
BEJK 43
The following information is known about a project
Draw the network diagram for this project
Activity Activity Time (days)
Immediate
Predecessor(s)
A 7
B 2 A
C 4 A
D 4 B, C
E 4 D
F 3 E
G 5 E
Finish
G
5
F
3
E
4
D
4
Activity Activity Time (days)
Immediate
Predecessor(s)
A 7
B 2 A
C 4 A
D 4 B, C
E 4 D
F 3 E
G 5 E
B
2
C
4
Start
A
7
Project Schedule
The project schedule specifies start and
finish times for each activity
Managers can use the earliest start and
finish times, the latest start and finish
times, or any time in between these
extremes
The earliest start time (ES) for an activity is the latest earliest
finish time of any preceding activities. For activities with
more than one preceding activity, ES is the latest of the
earliest finish times of preceding activities
The earliest finish time (EF) is the earliest start time plus its
estimated duration
EF = ES + t
The latest start time (LS) is the latest finish time minus its
estimated duration
LS = LF t
The latest finish time (LF) for an activity is the latest start
time of any activities that immediately follows. For
activities with more than one activity that immediately
follows, LF is the earliest of the latest start times of
those activities
Early Start and Early Finish Times
Calculate the ES, EF, LS, and LF times for each activity in the hospital
project. Which activity should start immediately?
To compute the early start and early finish times, begin at the start node
at time zero. Because activities A and B have no predecessors, the
earliest start times for these activities are also zero. The earliest finish
times for these activities are
EF
A
=0 +12 =12 and
EF
B
=0 +9 =9
Because the earliest start time for activities I, F, and C is the earliest
finish time of activity A,
ES
I
=12, ES
F
=12, and ES
C
=12
Similarly,
ES
D
=9 and ES
E
=9
After placing these ES values on the network diagram, we
determine the EF times for activities I, F, C, D, and E:

EF
I
=12 +15 =27, EF
F
=12 +10 =22, EF
C
=12 +10 =22,
EF
D
=9 +10 =19, and EF
E
=9 +24 =33
Network Diagram ES and EF
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
The earliest start time for activity G is the latest EF time of all
immediately preceding activities. Thus,

ES
G
=EF
C
=22, ES
H
=EF
D
=19
EF
G
=ES
G
+t =22 +35 =57, EF
H
+t =19 +40 =59

Latest finish
time
Latest start
time
Activity
Duration
Earliest start
time
Earliest finish
time
0
2
12
14
A
12
Network Diagram ES and EF
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
To compute the latest start and latest finish times, begin by setting
the latest finish activity time of activity K at week 69, which is the
earliest finish time as determined in Figure. Thus, the latest start
time for activity K is

LS
K
=LF
K
t =69 6 =63
If activity K is to start no later than week 63, all its predecessors
must finish no later than that time. Consequently,

LF
I
=63, LF
F
=63, and LF
J
=63
The latest start times for these activities are shown in Figure as

LS
I
=63 15 =48, LF
F
=63 10 =53, and LS
J
=63 4 =59
After obtaining LS
J
, the latest start times for the immediate
predecessors of activity J :

LS
G
=59 35 =24, LS
H
=59 40 =19, and LS
E
=59 24 =35
Similarly, we can now calculate the latest start times for activities C
and D:

LS
C
=24 10 =14 and LS
D
=19 10 =9
Activity A has more than one immediately following
activity: I, F, and C. The earliest of the latest start times
is 14 for activity C. Thus,

LS
A
= 14 12 = 2

Similarly, activity B has two immediate followers: D and
E. Because the earliest of the latest start times of these
activities is 9.

LS
B
= 9 9 = 0
Network Diagram
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
S = 36
S = 2 S = 41
S = 2
S = 26
S = 2
S = 0
S = 0
S = 0 S = 0 S = 0
Gantt Chart
Activity Slack
Activity slack is the maximum length of
time an activity can be delayed without
delaying the entire project
Activities on the critical path have zero
slack
Activity slack can be calculated in two
ways
S = LS ES or S = LF EF
Calculate the four times for each activity in order to determine the
critical path and project duration.
Activity Duration
Earliest
Start
(ES)
Latest
Start
(LS)
Earliest
Finish
(EF)
Latest
Finish
(LF)
Slack
(LS-ES)
On the
Critical
Path?
A 7 0 0 7 7 0-0=0 Yes
B 2
C 4
D 4
E 4
F 3
G 5
The critical path is ACDEG with a project duration of 24 days
Calculate the four times for each activity in order to determine the
critical path and project duration.
Activity Duration
Earliest
Start
(ES)
Latest
Start
(LS)
Earliest
Finish
(EF)
Latest
Finish
(LF)
Slack
(LS-ES)
On the
Critical
Path?
A 7 0 0 7 7 0-0=0 Yes
B 2
C 4
D 4
E 4
F 3
G 5
7 9 9 11 9-7=2 No
7 7 11 11 7-7=0 Yes
19 21 22 24 21-19=2 No
19 19 24 24 19-19=0 Yes
11 11 15 15 11-11=0 Yes
15 15 19 19 15-15=0 Yes
Finish
G
5
F
3
E
4
D
4
B
2
C
4
Start
A
7
Activity Duration
Earliest
Start
(ES)
Latest
Start
(LS)
Earliest
Finish
(EF)
Latest
Finish
(LF)
Slack
(LS-ES)
On the
Critical
Path?
A 7 0 0 7 7 0-0=0 Yes
B 2 7 9 9 11 9-7=2 No
C 4 7 7 11 11 7-7=0 Yes
D 4 11 11 15 15 11-11=0 Yes
E 4 15 15 19 19 15-15=0 Yes
F 3 21 21 22 24 21-19=2 No
G 5 19 19 24 24 19-19=0 Yes
Start Finish
A
7
B
2
C
4
D
4
E
4
F
3
G
5
Activity Duration
Earliest
Start
(ES)
Latest
Start
(LS)
Earliest
Finish
(EF)
Latest
Finish
(LF)
Slack
(LS-ES)
On the
Critical
Path?
A 7 0 0 7 7 0-0=0 Yes
B 2 7 9 9 11 9-7=2 No
C 4 7 7 11 11 7-7=0 Yes
D 4 11 11 15 15 11-11=0 Yes
E 4 15 15 19 19 15-15=0 Yes
F 3 21 21 22 24 21-19=2 No
G 5 19 19 24 24 19-19=0 Yes
Start Finish
A
7
B
2
C
4
D
4
E
4
F
3
G
5
Cost-Time Trade-Offs
Total project costs are the sum of
direct costs and indirect costs
Projects may be crashed to shorten
the completion time
Costs to crash
Cost to crash per period =
CC NC
NT CT
1. Normal time (NT) 3. Crash time (CT)
2. Normal cost (NC) 4. Crash cost (CC)
Procedure for Cost-Time Trade offs
Step 1: determine the critical path
Step 2: find the activity (or activities) on the critical
path(s) with the lowest cost of crashing
Step 3: reduce the time for this activity until
it cannot be further reduced
another path becomes critical
the increase in direct costs exceeds the savings; if
more than one path is critical, the time for an activity
on each path may have to be reduced
simultaneously.
Step 4: repeat this procedure until the increase in
direct costs exceeds the savings
Cost-Time Relationships
DIRECT COST AND TIME DATA FOR THE ST. JOHNS HOSPITAL PROJECT
Activity Normal Time
(NT) (weeks)
Normal Cost
(NC)($)
Crash Time
(CT)(weeks)
Crash Cost
(CC)($)
Maximum Time
Reduction
(week)
Cost of
Crashing per
Week ($)
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
Cost to crash per peri od =
CC NC
NT CT
Critical Path : BDHJK
A Minimum-Cost Schedule
EXAMPLE
Determine the minimum-cost schedule for the St. J ohns Hospital project. The
project indirect cost is $8,000/wk and crash time is set for 65 weeks. If the
hospital is not operational after 65 wks, the penalty cost is $20,000/week.
SOLUTION
The projected completion time of the project is 69 weeks; the project costs
for that schedule are $1,992,000 in direct costs, 69($8,000) = $552,000 in
indirect costs, and (69 65)($20,000) = $80,000 in penalty costs, for total
project costs of $2,624,000. The five paths in the network have the
following normal times:
AIK 33 weeks
AFK 28 weeks
ACGJK 67 weeks
BDHJK 69 weeks
BEJK 43 weeks
STAGE 1
Step 1. The critical path is BDHJ K.
Step 2. The cheapest activity to crash per week is J at $1,000, which
is much less than the savings in indirect and penalty costs of
(8000+20,000) $28,000 per week.
Step 3. Crash activity J by its limit of three weeks because the
critical path remains unchanged. The new expected path times are
ACGJ K: 64 weeks and BDHJ K: 66 weeks
The net savings are 3($28,000) 3($1,000) =$81,000. The total
project costs are now $2,624,000 - $81,000 =$2,543,000.
STAGE 1
Step 1. The critical path is BDHJ K.
Step 2. The cheapest activity to crash per week is J at $1,000, which
is much less than the savings in indirect and penalty costs of
$28,000 per week.
Step 3. Crash activity J by its limit of three weeks because the
critical path remains unchanged. The new expected path times are
The net savings are 3($28,000) 3($1,000) =$81,000. The total
project costs are now $2,624,000 - $81,000 =$2,543,000.
Finish
K
6
I
15
F
10
C
10
D
10
H
40
J
1
A
12
B
9
Start
G
35
E
24
STAGE 2
Step 1. The critical path is still BDHJ K.
Step 2. The cheapest activity to crash per week is now D at $2,000.
Step 3. Crash D by two weeks. The first week of reduction in activity
D saves $28,000 because it eliminates a week of penalty costs, as
well as indirect costs. Crashing D by a second week saves only
$8,000 in indirect costs because, after week 65, no more penalty
costs are incurred. These savings still exceed the cost of crashing D
by two weeks. Updated path times are


The net savings are $28,000 +$8,000 2($2,000) =$32,000. Total
project costs are now $2,543,000 $32,000 =$2,511,000.
STAGE 2
Step 1. The critical path is still BDHJ K.
Step 2. The cheapest activity to crash per week is now D at $2,000.
Step 3. Crash D by two weeks. The first week of reduction in activity
D saves $28,000 because it eliminates a week of penalty costs, as
well as indirect costs. Crashing D by a second week saves only
$8,000 in indirect costs because, after week 65, no more penalty
costs are incurred. These savings still exceed the cost of crashing D
by two weeks. Updated path times are
The net savings are $28,000 +$8,000 2($2,000) =$32,000. Total
project costs are now $2,543,000 $32,000 =$2,511,000.
Finish
K
6
I
15
F
10
C
10
D
8
H
40
J
1
A
12
B
9
Start
G
35
E
24
STAGE 3
Step 1. After crashing D, we now have two critical paths. Both critical
paths must now be shortened to realize any savings in indirect
project costs.
Step 2. Our alternatives are to crash one of the following
combinations of activities- (A, B); (A, H); (C, B); (C, H); (G, B); (G,
H)or to crash activity K, which is on both critical paths (J has
already been crashed).

We consider only those alternatives for which the costs of crashing
are less than the potential savings of $8,000 per week. The only
viable alternatives are (C, B) at a cost of $7,600 per week and K at
$4,000 per week. We choose activity K to crash.
STAGE 3
Step 3. We crash activity K to the greatest extent possiblea
reduction of one weekbecause it is on both critical paths. Updated
path times are


Net savings are $8,000 - $4,000 =$4,000. Total project costs are
$2,511,000 $4,000 =$2,507,000.

STAGE 3
Step 3. We crash activity K to the greatest extent possiblea
reduction of one weekbecause it is on both critical paths. Updated
path times are


Net savings are $8,000 - $4,000 =$4,000. Total project costs are
$2,511,000 $4,000 =$2,507,000.

Finish
K
5
I
15
F
10
C
10
D
8
H
40
J
1
A
12
B
9
Start
G
35
E
24
STAGE 4
Step 1. The critical paths are still BDHJ K and ACGJ K.
Step 2. The only viable alternative at this stage is to crash activities
B and C simultaneously at a cost of $7,600 per week. This amount is
still less than the savings of $8,000 per week.
Step 3. Crash activities B and C by two weeks, the limit for activity B.
Updated path times are
The net savings are 2($8,000) 2($7,600) =$800. Total project
costs are now $2,507,000 $800 =$2,506,200.
STAGE 4
Step 1. The critical paths are still BDHJ K and ACGJ K.
Step 2. The only viable alternative at this stage is to crash activities
B and C simultaneously at a cost of $7,600 per week. This amount is
still less than the savings of $8,000 per week.
Step 3. Crash activities B and C by two weeks, the limit for activity B.
Updated path times are
The net savings are 2($8,000) 2($7,600) =$800. Total project
costs are now $2,507,000 $800 =$2,506,200.
Finish
K
5
I
15
F
10
C
8
D
8
H
40
J
1
A
12
B
7
Start
G
35
E
24
Stage Crash
Activity
Time
Reduction
(weeks)
Resulting
Critical
Path(s)
Project
Duration
(weeks)
Project
Direct
Costs,
Last Trial
($000)
Crash
Cost
Added
($000)
Total
Indirect
Costs
($000)
Total
Penalty
Costs
($000)
Total
Project
Costs
($000)
0 B-D-H-J-K 69 1,992.0 552.0 80.0 2,624.0
1 J 3 B-D-H-J-K 66 1,992.0 3.0 528.0 20.0 2,543.0
2 D 2 B-D-H-J-K
A-C-G-J-K
64 1,995.0 4.0 512.0 0.0 2,511.0
3 K 1 B-D-H-J-K
A-C-G-J-K
63 1,999.0 4.0 504.0 0.0 2,507.0
4 B, C 2 B-D-H-J-K
A-C-G-J-K
61 2,003.0 15.2 488.0 0.0 2,506.2
Assessing Risk
Risk is the measure of the probability
and consequence of not reaching a
defined project goal
Risk-management plans are developed
to identify key risks and prescribe ways
to circumvent them
Project risk can be assessed by
Strategic fit
Service/product attributes
Project team capabilities
Operations
Simulation and Statistical Analysis
When uncertainty is present, simulation
can be used to estimate the project
completion time
Statistical analysis requires three
reasonable estimates of activity times
1. Optimistic time (a)
2. Most likely time (m)
3. Pessimistic time (b)
Statistical Analysis
a m b Mean
Time
Beta distribution
a m b
Mean
Time
3 3
Area under curve
between a and b
is 99.74%
Normal distribution
Statistical Analysis
The mean of the beta distribution can be
estimated by
t
e
=
a + 4m + b
6
The variance of the beta distribution for each
activity is
2
=
b a
6
2
Calculating Means and Variances
EXAMPLE
Suppose that the project team has arrived at the following time
estimates for activity B (site selection and survey) of the St. J ohns
Hospital project:
a =7 weeks, m =8 weeks, and b =15 weeks
a. Calculate the expected time and variance for activity B.
b. Calculate the expected time and variance for the other
activities in the project.
SOLUTION
a. The expected time for activity B is
The expected time does not equal the most likely time. The
variance for activity B is
t
e
= = = 9 weeks
7 + 4(8) + 15
6
54
6
2
= = = 1.78
15 7
6
2
8
6
2
b. The following table shows the expected activity times and
variances for this project.
Time Estimates (week) Activity Statistics
Activity Optimistic (a) Most Likely (m) Pessimistic (b) Expected Time (t
e
) Variance (
2
)
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
Activity
Immediate
Predecessor(s)
Optimistic
(a)
Most
Likely
(m)
Pessimistic
(b)
Expected
Time (t)
Variance
()
A 5 7 8
B 6 8 12
C 3 4 5
D A 11 17 25
E B 8 10 12
F C, E 3 4 5
G D 4 8 9
H F 5 7 9
I G, H 8 11 17
J G 4 4 4
Bluebird University: activity for sales training seminar
6.83 0.25
8.33 1.00
4.00 0.11
17.33 5.44
10.00 0.44
4.00 0.11
7.50 0.69
7.00 0.44
11.50 2.25
4.00 0.00
Analyzing Probabilities
Because the central limit theorem can be applied, the mean of
the distribution is the earliest expected finish time for the project
T
E
= =
Expected activity times
on the critical path

Mean of normal
distribution
Because the activity times are independent
2
= (Variances of activities on the critical path)
z =
T T
E

2

Using the z-transformation
where
T =due date for the project
Calculating the Probability
EXAMPLE
Calculate the probability that St. J ohns Hospital will become
operational in 72 weeks, using (a) the critical path and (b) path AC
GJ K.
SOLUTION
a. The critical path BDHJ K has a length of 69 weeks. From
the table in the variance of path BDHJ K:
2
=1.78 +1.78
+2.78 +5.44 +0.11. Next, we calculate the z-value:
0.87
3.45
3
11.89
69 72
= =
= z
Using the Normal Distribution, go down the left-hand column to 0.8
and then across to 0.07. This gives a value of 0.8078.
Thus the probability is 0.81 that the length of path BDHJ K will
be no greater than 72 weeks.
Length of
critical path
Probability of
meeting the
schedule is
0.8078
Normal distribution:
Mean = 69 weeks;
= 3.45 weeks
Probability of
exceeding 72
weeks is 0.1922
Project duration (weeks)
69 72
Because this is the critical
path, there is a 19
percent probability that
the project will take longer
than 72 weeks.
EXAMPLE
Calculate the probability that St. J ohns Hospital will become
operational in 72 weeks, using (a) the critical path and (b) path AC
GJ K.
SOLUTION
b. From the that the sum of the expected activity times on path A
CGJ K is 67 weeks and that
2
=0.11 +2.78 +7.11 +5.44 +
0.11 =15.55. The z-value is
1.27
3.94
5
15.55
67 72
= =
= z
The probability is about 0.90 that the length of path AC
GJ K will be no greater than 72 weeks.
The director of the continuing education at Bluebird University
wants to conduct the seminar in 47 working days from now. What
is the probability that everything will be ready in time?
The critical path is
and the expected completion time is
T =
T
E
is:
ADGI,
43.17 days.
47 days
43.17 days
(0.25 +5.44 +0.69 +2.25) =8.63
And the sum of the variances for
the critical activities is:
Example
= = = 1.30
3.83
2.94
47 43.17
8.63

T =47 days
T
E
=43.17 days
And the sum of the variances for the critical activities is: 8.63
z =
T T
E

2

Assuming the normal distribution applies, we use the table for the
normal probability distribution. Given z =1.30, the probability that
activities ADGI can be completed in 47 days or less is
0.9032.
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
Quantitative Business
Analysis- Beneficial Tools for
Business
Add-In Process for Microsoft Excel
Excel 2003
Data Solver
If Solver is inactive: Excel Options Add-In
Solver
Excel 2007
Excel Options Add-Ins Solver Add-Ins
Linear Programming
MMI Example:
Micro Motors Inc. (MMI) produces multilayer actuators (MLAs)
and Ultrasonic Motors (USMs) every month. The following
table summarizes the necessary data for producing MLAs and
USMs. Though USMs generate a larger gross profit per unit
with a smaller amount of raw materials per unit than MLAs,
USMs require a working period five times longer than MLAs.
MMI has two major constraints: 1) labor- total 500 h/month
maximum and 2) raw material available- total 300 g/month
maximum.MMI would like to determine the optimum
production quantities (unit number) X for MLAs and Y for
USMs in order to maximize the gross profit.
Product Gross
Profit/Unit
Required
Labor/Unit
Gross
Profit/Labor
Required
material/Unit
MLA $25 5 h $5/h 5 g
USM $100 25h $4/h 2 g
Mathematical Modeling
Decision Variables
X: unit numbers for MLAs
Y: unit numbers for USMs
Objective Function
Maximize 25X+ 100Y
Constraints
Labor: 5X + 25Y 500
Raw Material: 5X +2Y 300
X, Y 0

Graphical Solution
Two constraints can be
transformed as:
Y -(1/5)X + 20
Y -2.5 X +150

4 point coordinate: (0,0),
(0,20), (60,0), M
Solve Y= -(1/5)X + 20= -2.5
X +150
(56.52, 8.696) extreme
point
Maximum Profit= $2283

Excel Spreadsheet Solver
Step1: Set Target Cell Objective Function
Step2: Equal To Max or Min
Step3: Changing Cells Decision Variables
Step4: Subject to Constraints Add
Constraints
Step5: Options: Check both Linear Model and
Non-Negative
Step6: Solve
Step7: Reports
MMI
Product Schedule
MLA USM
Decision Variables: Units 56.52174 8.695652
Total limit
Objective Function: Profit 25 100 2282.609
Constraints: Labor 5 25 500 500
Materials 5 2 300 300
Excel Spreadsheet Solver- Answer
Report
Microsoft Excel 12.0 Answer Report
Worksheet: [Book1]Sheet1
Report Created: 2/19/2011 5:58:28 PM
Target Cell (Max)
Cell Name Original Value Final Value
$E$7 Profit Total 2282.608696 2282.608696
Adjustable Cells
$C$5 Units MLA 56.52173913 56.52173913
$D$5 Units USM 8.695652174 8.695652174
Constraints
Cell Name Cell Value Formula Status Slack
$E$9 Labor Total 500 $E$9<=$G$9 Binding 0
$E$10 Materials Total 300 $E$10<=$G$10 Binding 0
Microsoft Excel 12.0 Sensitivity Report
Worksheet: [Book1]Sheet1
Adjustable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$C$5 Units MLA 56.52173913 0 25 225 5
$D$5 Units USM 8.695652174 0 100 25 90
Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$E$9 Labor Total 500 3.913043478 500 3250 200
$E$10 Materials Total 300 1.086956522 300 200 260
Excel Spreadsheet Solver- Sensitivity Report
Effective changes to either objective function coefficient or
a constraint value
How much can the objective function coefficient change
without changing the optimal solution (keeping X, Y the
same)
Range of optimality: 20 (=25-5) to 250(=25+225) for MLA
10(=100-90) to 125(=100+25) for USM
Shadow price: change in objective function value per unit
increase to its constraint value
Range of feasibility: range of values for a constraint value
in which the shadow prices for the constraints remain
unchanged (Allowable increase and decrease) : 300
h(=500-200) to 3750(=500+3250) for Labor
Excel Spreadsheet Solver- Sensitivity
Report
Integer Model
MMI Example- Part II: seeks the solution for
nonnegative integer numbers of X and Y
Add one more condition in Subject to the
Constraints

Integer Model
Integer Model- Answer Report
Worksheet: [solverexample.xlsx]Sheet1
Target Cell (Max)
$E$7 Profit Total 2275 2275
Adjustable Cells
$C$5 Units MLA 55 55
$D$5 Units USM 9 9
Constraints
$E$10 Materials Total 293 $E$10<=$G$10 Not Binding 7
$C$5 Units MLA 55 $C$5=integer Binding 0
$D$5 Units USM 9 $D$5=integer Binding 0
Binary Model
Appropriate use of binary variables:
If Z1,Z2,Z3 are binary variables representing
whether each of 3 production lines should be set
(Zi=1) or not set (Zi=0) :
At least two production lines must be set: Z1+Z2+Z3 2
If line 1 is set, line 2 must not be set: Z1+Z2 1
If line 1 is set, line 2 must be set: Z1-Z2 0
One but not both of lines 1 and 2 must be set: Z1+Z2=1
Both or neither of lines 1 and 2 must be set: Z1-Z2=0
Total line construction budget cannot exceed $k and the
setting costs for lines 1, 2, and 3 are $A, $B, and $C,
respectively: AZ1+BZ2+CZ3 K
Binary variables can be used in restrictions: X M Zi
M denotes an extremely large number and does not
restrict the value of X if Z1=1
Binary Model
MMI Example- Part III: Seeks solution for
only one product, either MLAs or USMs

Binary Model- Answer Report
Worksheet: [solverexample.xlsx]binary
Target Cell (Max)
$E$8 Profit Total 2000 2000
Adjustable Cells
$C$5 on/off MLA 0 0
$D$5 on/off USM 1 1
$C$6 units MLA 0 0
$D$6 units USM 20 20
Constraints
$C$6 units MLA 0 $C$6<=$H$5 Binding 0
$D$6 units USM 20 $D$6<=$I$5 Not Binding 1E+20
$E$11 Materials Total 40 $E$11<=$G$11 Not Binding 260
$E$5 on/off Z1+Z2 1 $E$5=1 Not Binding 0
$C$5 on/off MLA 0 $C$5=binary Binding 0
$D$5 on/off USM 1 $D$5=binary Binding 0
$C$6 units MLA 0 $C$6=integer Binding 0
$D$6 units USM 20 $D$6=integer Binding 0
Program Evaluation and Review
Technique (PERT)
MMI Example: MMI received a purchase order (PO)
for 20 sets of a motor kit (a set of the metal tube
motor and its driver electronic chip) from Saito
Industries in J apan with delivery due in 90 days.
Lead zirconate titanate (PZT), metal tubes, and
drivers are manufactured in outsourcing factories
located in J apan, the United States, and Taiwan,
respectively, so additional transportation periods
should be taken into account. The entire project
can be represented by the 10 activities given the
following table: one simulation, five motor
manufacturing, two driver manufacturing, and two
final testing.
Program Evaluation and Review
Technique (PERT)- MMI Example
PERT Network
PERT Approach
Two of primary objectives of PERT:
To determine the minimum possible completion
time for the project
To determine a range of start and finish times for
each activity so that the project can be completed
in minimum time

PERT analysis introduce the earliest start
time(ES), earliest finish time(EF), latest start
time(LS), and the latest finish time(LF).
PERT
Approach
Earliest
Start/Finish
Times
Solve manual:
ES(A)=0, EF(A)=0+14=14
A is the immediate predecessors of B,C, and D:
ES(B)=14, EF(B)=14+21=35
ES(C)=14, EF(C)=14+28=42
ES(D)=14, EF(D)=14+24=38
B is the immediate predecessors of E:
ES(E)=35, EF(E)=35+10=45
Both C and E are immediate predecessors of F:
ES(F)=MAX(EF(C), EF(E))=MAX(42,45)=45
EF(F)=45+7=52
Repeat this process for all nodes => EF(J)=MAX EF time=76
days
Excel Solver:
Define the variables: X
A
=ES(A), X
B
=ES(B),
MINIMIZE X
A
+X
B
+X
C
++X
J

SUBJ ECT TO: X
B
X
A
+14, X
C
X
A
+14, X
D
X
A
+14
X
E
X
B
+21
X
F
X
E
+10, X
F
X
C
+28
X
G
X
F
+7
X
H
X
D
+24
X
I
X
G
+7, X
I
X
H
+10
X
J
X
I
+7
All Xs 0
PERT
Preparation
sheet & Solver
dialog for MMI
example
Solve manual:
Minimum completion date=76 days
Backward pass is made through network
Begin with activities that have no successors: J
LF(J )=76, LS(J )=76-10=66 then go backward
LF(I)=LS(J )=66, LS(I)=66-7=59
LF(G)=LS(I)=59, LS(G)=59-7=52
LF(H)=LS(I)=59, LS(H)=59-10=49
LF(F)=LS(G)=52, LS(F)=52-7=45
LF(E)=LS(F)=45, LS(E)=45-10=35
LF(B)=LS(E)=35, LS(B)=35-21=14
LF(C)=LS(F)=45, LS (C)=45-28=17
LF(D)=LS(H)=49, LS(D)=49-24=25
LF(A)=MIN(LS(B),LS(C), LS(D))=MIN(14,17,25)=14
LS(A)=LF(A)-14=14-14=0
PERT Approach- Latest Start/Finish
Times
LF is the Min LS of all successors and
LS=LF-activity completion time
Excel Solver:
Define variables:
Y
A
=LF(A), Y
B
=LF(B), , Y
J
=LF(J )
LF for an activity LF for an immediate
Successor Activity- Immediate Successors
Activity Completion Time

PERT Approach- Latest Start/Finish
Times
Excel Solver:
Maximize: Y
A
+ Y
B
+ Y
C
++ Y
J
SUBJ ECT TO: Y
A
Y
B
-21
Y
A
Y
C
-28
Y
A
Y
D
-24
Y
B
Y
E
-10
Y
C
Y
F
-7
Y
D
Y
H
-10
Y
E
Y
F
-7
Y
F
Y
G
-7
Y
G
Y
I
-7
Y
H
Y
I
-7
Y
I
Y
J
-10
Y
J
=EF(J )=76
All Ys0
PERT Approach-
Latest
Start/Finish
Times
Activity Node
Immediate
Predecessors a b m mu sigma variance ES EF LS LF Slack
Simulation A 12 16 14 0 14 0 14
PZT Plate B A 18 24 21 14 35 14 35
Metal Tube C A 24 32 28 14 42 17 45
Driver D A 21 27 24 14 38 25 49
Transport 1 E B 7 17 10 35 45 35 45
Motor Assembly F C,E 5 11 7 45 52 45 52
Characterization G F 5 9 7 52 59 52 59
Transport 2 H D 7 17 10 38 48 49 59
Test I G,H 5 9 7 59 66 59 66
Transport 3 J I 7 17 10 66 76 66 76
Project Completion Time 76
Min sum ES 337 Max Sum LF= 500
Critical Path and Slack Times
Slack time is the amount of time an activity
can be delayed from its ES without delaying
the projects estimated completion time.
Slack time=ES-LS or (=EF-LF)

Activity Node
Immediate
Simulation A 12 16 14 0 14 0 14 0
PZT Plate B A 18 24 21 14 35 14 35 0
Metal Tube C A 24 32 28 14 42 17 45 3
Driver D A 21 27 24 14 38 25 49 11
Transport 1 E B 7 17 10 35 45 35 45 0
Motor Assembly F C,E 5 11 7 45 52 45 52 0
Characterization G F 5 9 7 52 59 52 59 0
Transport 2 H D 7 17 10 38 48 49 59 11
Test I G,H 5 9 7 59 66 59 66 0
Transport 3 J I 7 17 10 66 76 66 76 0
With slack time in an activity, manager has
some flexibility in scheduling
Activities that have no slack time called
critical activity
Any delay in critical activity will delay
completion of the entire project
Critical path is formed by critical activities
Critical path is the longest path in the network
Min completion time of project=
14+21+10+7+7+7+10=76
In MMI Example critical path is: A-B-E-F-G-I-J
Critical Path and Slack Times
Analysis of Possible Delays
Single Delay:
Delay in critical activity cause delay in the
entire project
Delay in noncritical activity : delay less than
slack time will not affect project completion
time; delay exceeds slack time will affect
project completion time equal to :delay time-
slack time
Gantt Charts
One responsibility of project manager is to
track the progress of the project
Gantt chart is popular tool to display
activities and monitor their progress
Time is measured in horizontal line axis
and each activity is listed on the vertical
axis and a bar is drawn corresponding to
its expected completion time
Gantt Charts
Node Activity ES m
J Transport 3 66 10
I Test 59 7
H Transport 2 38 10
D Driver 14 24
G Characterization 52 7
F Motor Assembly 45 7
C Metal Tube 14 28
E Transport 1 35 10
B PZT Plate 14 21
A Simulation 0 14
0 10 20 30 40 50 60 70 80
Transport 3
Test
Transport 2
Driver
Characterization
Motor Assembly
Metal Tube
Transport 1
PZT Plate
Simulation
J
I
H
D
G
F
C
E
B
A
Time (delay)
A
c
t
i
v
i
t
y
MMI
Mean(A-B-E-F-G-I-J) 77.66666667
Standard Deviation 2.98142397
Variance 8.888888889
Activity Node
Immediate
Simulation A 12 16 14 14 0.6667 0.44444 0 14 0 14 0
PZT Plate B A 18 24 21 21 1 1 14 35 14 35 0
Metal Tube C A 24 32 28 28 1.3333 1.77778 14 42 17 45 3
Driver D A 21 27 24 24 1 1 14 38 25 49 11
Transport 1 E B 7 17 10 10.667 1.6667 2.77778 35 45 35 45 0
Motor Assembly F C,E 5 11 7 7.3333 1 1 45 52 45 52 0
Characterization G F 5 9 7 7 0.6667 0.44444 52 59 52 59 0
Transport 2 H D 7 17 10 10.667 1.6667 2.77778 38 48 49 59 11
Test I G,H 5 9 7 7 0.6667 0.44444 59 66 59 66 0
Transport 3 J I 7 17 10 10.667 1.6667 2.77778 66 76 66 76 0
Probabilistic Approach to Project
Scheduling
The expected completion time of the project
is 77.672.98 days
The due delivery time is 90 days, the
probability of the entire project completion
time in less than 90 days can be calculated
as
P(X 90 days)=p(Z (90-77.67)/2.98)=p(Z
4.1)= 99.9 %
Because this is higher than 4, we can say
that the probability of failing to meet the due
date is negligible.
Probabilistic Approach to Project
Scheduling
Linear Programming Approach to
Crashing
Define 2 variables:
X
j
=ES time for the activity
Z
j
=T
N
-T
C
=amount by which the activity is to be
crashed
Objective function:
To minimize the additional investment spent
to reduce the completion time of activities
MIN M
j
Z
j
M
j
: Cost per unit reduction time
Constraints:
No activity can be reduced more than its maximum
time reduction
Z
j
R
j
The start time for an activity must be at least as
great as the finished time of all immediate
predecessors activities
X
j
(ES
for
an activity) EF for an immediate predecessor
EF for an immediate predecessor of the activity= X
j
(ES
for a predecessor) +T
N
(normal completion time of the
predecessor)- Z
j
(crashed time of the predecessor)
The project must be completed by its deadline D
EF for a terminal activity D
Linear Programming Approach to
Crashing

Project Management - Tools For Business

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