Chapter 3

Project Management
Topics to be covered
Project
Project Management (organization)
Project Life Cycle
Project Planning
Network Scheduling WBS
 CPM Gantt Chart
 PERT
Project crashing
Project risks
 Projects financing;
 Project
Project :- Temporary endeavor undertaken to create a
unique product, service, or result.
A project ends when its objectives have been reached, or
the project has been terminated.
Projects can be large or small and take a short or long time
to complete.
A sequence of unique, complex and connected activities:
Having one goal or purpose with
Unique scope of work and
That must be completed by:
 A specific time,
 Within budget, and
 According to specification. 2
 Project
Example:
 Organizational Project ( Building Construction,
Launching a new product).
 National Project (Great Renaissance Dam project, Gilgel
Gibe, Awash-Amertinesh, Addis Ababa City Rail Way
Project and etc.)
Developing military weapons systems, aircrafts, new ships.
 Developing and implementing new processing systems.
Developing and Installing new Chemical factory and
improving the existing one.

3
 Project Management
Project management is the application of knowledge, skills,
tools and techniques to project activities, in order to meet
project requirements and meet or exceed stakeholder
needs and expectations from a project which tries to
balance competing demands for project scope, time, cost,
quality and resources.
Is accomplished through the application and integration of
the project management processes of initiating, planning,
executing, monitoring and controlling, and closing.

4
 Project Management
 A method for organizing tasks.  The triple constraint of
Project management:
 Tools to aid in task sequencing,  Scope goals: What work
dependency analysis, resource will be done?
allocation, scheduling, etc.  Time goals: How long
should it take to complete?
 Tools to track progress relative to plan.  Cost goals: What should it
cost?
 Why Project management?
 Complex project needs coordination of:
 Multiple people
 Multiple resources
Multiple tasks – some must precede
others
 Multiple decision points – approvals
 Phased expenditure of funds Resources
 Matching of people/resources to tasks
Scope/Quality
It is the project manager’s duty to balance
these three often-competing goals. 5
 Project Management
Project management tools and techniques assist project
managers and their teams in various aspects of project
management.
Specific tools and techniques include:
 Project charters, scope statements, and WBS (scope).
 Gantt charts, network diagrams, critical path analyses,
critical chain scheduling (time).
 Cost estimates and earned value management (cost).

6
 Suggested steps in project management
 Generate a formal definition of the project, with goals, constraints,
and assumptions.
Identify project start/end dates, any mandatory milestones, including
reports, deliverables, etc.
List constraints – money, equipment availability, holidays, etc.
Identify tasks to be accomplished – high level (i.e., by categories).
 Refine detailed task list: Then, for each task in list:
Estimate time (person hours, calendar period)
Identify dependencies among tasks
Identify resources (people, money, parts, etc.)

Organize task groups roughly by starting date and List

dependencies that should or must hold.
Identify critical path, see if it can be shortened.
Assign person-hours and specific team member(s) to each
task. 7
 Suggested steps in project management
As project progresses:
Monitor, record progress on all tasks, at least weekly – use
“Tracking Gantt Chart”.
Pay particular attention to those on critical path.
Revise plan as needed to take into account changes, adapt to
meet milestones.
Project Life Cycle
 Projects will generally be sub-divided into several stages or
phases to provide better management control.
Each project phase is marked by completion of one or more
deliverables.
A deliverable is a tangible, verifiable work product (such
as feasibility study, a detail design or working prototype).
Collectively, these project phases are called the Project Life
Cycle. 8
 Project Life Cycle

Phases of Project
1. Scoping the project 2. Planning the project
State the Identify project activity.
problem/opportunity. Estimate activity duration.
Establish the project goal. Determine resource
Define the project objectives. requirements.
Identify the success criteria. Construct/ analyze the
List assumptions, risks, project network.
obstacles. Prepare the project proposal.
9
 Phases of Project
3. Launching plan 4. Monitoring progress
 Recruit and organize project  Establish progress reporting
team. system
 Establish team operating rules.  Install change control
 Level project resources. tools/process.
 Schedule work packages.  Monitor project progress versus
plan.
 Document work packages
 Revise project plans.
5. Project Closing
 Obtain client acceptance.
 Install project deliverables.
 Complete project documentation.
 Complete post-implementation audit
 Issue final project report.
10
 Project Planning
Why project fails

technical issues project

14% management
problem (planing,
scheduling,
monitoring)
lack of 32%
communication
20%

failur to define
inexprience in
objectives
scope and
17
complexity
17%
17%

11
 Project Planning
Planning prescribes the path to be followed in executing the
project, whereas the controls are the means to collect, analyze,
compare and correct.
 Project planning addresses work to be accomplished during a
project to meet the defined goals and objectives.
 It also identifies those activities and strategies that are
detrimental to a project’s successful completion.
 Major components of the planning phase:
 Objective: a goal, target or quota to be achieved by a certain
time.
 Schedule: a plan showing when individual or group activities or
accomplishments will be started and/or completed.
 Budget: planned expenditures needs to achieve or exceed
objectives.
 Forecast: a projection of what will happen by a certain time.
 Organization: design of the number and kind of positions, 12
along
 Project Planning
corresponding duties and responsibilities, required to achieve or exceed
objectives
Policy: a general guide for decision-making and individual actions.
Procedure: a detailed method for carrying out a policy.
Standard: a level of individual or group performance defined as
adequate or acceptable.
Work Breakdown Structure
 A work breakdown structure defines the hierarchy of project tasks,
subtasks, and work packages.
 A method of breaking down a project into individual elements
(components, subcomponents, and tasks) in a hierarchical structure
which can be scheduled and cost.
 It defines tasks that can be completed independently of other
tasks, facilitating resource allocation, assignment of responsibilities
and measurement and control of the project.
 It can be used to identify the tasks in the CPM and PERT. 13
 Work Breakdown Structure
Level
Program

1 Project 1 Project 2

2 Task 1.1 Task 1.2

3 Subtask 1.1.1 Subtask 1.1.2

4 Work Package 1.1.1.1 Work Package 1.1.1.2

14
Work Breakdown Structure

15
 Project Scheduling Tools and Techniques
 Gantt Chart
 The Gantt chart is the oldest compared to network diagrams and is
used effectively in simple, short-duration types of projects.
 Graph or bar chart with a bar for each project activity that shows
passage of time.
 Provides a visual display of project schedule.
 Vertical axis shows tasks and horizontal shows duration for each
activity.

Gantt Chart

16
 Network Scheduling
Network scheduling is a diagram which represents all the events and
activities in sequence (in which they are required to be performed to
complete the project), along with their interrelationships and
interdependencies.
Terms related to network planning methods:
 Event: An event is a specific instant of time which marks the start
and the end of an activity.
Event consumes neither time nor resources.
It is represented by a circle and the event number is written with in the
circle. Event and node are synonyms.
 Activity: Every project consists of a number of operations or tasks
which are called activities.
An activity is an element of project and it may be a process, a
material handling or material procurement cycle, etc.
An activity is shown by an arrow and it begins and ends
17
with the event.
 Network Scheduling
 Unlike event, an activity consumes time and resources. An activity
may be performed by an individual or a group of individuals.
 An activity is normally given a name like, A, B, etc.
 Critical activities: Are those activities which if they consume more
than their estimated time, the project will be delayed.
 Non-critical activities: Such activities have provision (float or slack)
so that, even if they consume a specified time over and above the
estimated time, the project will not be delayed.
 Dummy activities: When two activities start at the same instant of
time, the head events are joined by a dotted arrow and this is known as
a dummy activity. A dummy activity is assumed to take nil time, but it
facilitates the drawing of the arrow diagram subject to the precedence
constraints, by avoiding redundancy.

18
 Building Activity Network (Precedence diagram)
Questions to construct network.
Which is a Start Activity?
Which is a Finish Activity?
What Activity Precedes this?
What Activity Follows this?
What Activity is Concurrent with this?
Define activities from WBS work packages.
Estimate duration and resources for each activity.
Define precedence relationships between activities.
Network Representation Schemes.
AON Network [Activity-on-Node]
AOA Network [ Activity-on- Arrow]
19
 Building Activity Network
AOA
Nodes represent start and finish events for each activity, and arrow
represent an activity and precedence.
 Arrows can only come from/go to single node.
Only one arrow between two given nodes.
A dummy activity is used to illustrate precedence relationships in AOA
networks. It serves only as a “connector,” however, it is not a “real”
activity and represents neither work nor time.

20
 Building Activity Network
 AON
The node (the block in the figure) is the activity; inside the
node is information about the activity, such as its duration,
start time, and finish time .
Requires no dummy nodes.

21
Situations in Network Diagram

B
A
A must finish before either B or C
C can start.

A
C Both A and B must finish before C can
B start.

A
C Both A and B must finish before either of
B C or D can start.
D

A B

Dummy
A must finish before B can start
C both A and C must finish before D can start.
22
D
 Critical Path Method (CPM)
CPM is a technique used for planning and controlling the most
logical and economic sequence of operations for accomplishing a
project.
The project is analyzed into different activities whose relationships
are shown on the network diagram. The network is then utilized for
optimizing the use of resources, progress and control.
 CPM
Used when activity times are known with certainty.
Used to determine timing estimates for the project, each activity
in the project, and slack time for activities. \
Path: A connected sequence of activities leading from the
starting event to the ending event.
Critical Path: The longest path (time); determines the project
duration.
Critical Activities: All of the activities that make up the
critical path. 23
 Critical Path Method (CPM)
Forward pass
Earliest Start Time (ES): Earliest time an activity can start.
ES = maximum EF of immediate predecessors.
Earliest finish time (EF): Earliest time an activity can
finish, earliest start time plus activity time.
EF= ES + t, where t is activity time.
Backward pass
Latest Start Time (LS): Latest time an activity can start
without delaying critical path time. LS = LF - t
Latest finish time (LF): Latest time an activity can be
completed without delaying critical path time.
LF = minimum LS of immediate successors.
24
 CPM Analysis
Break down the project into various activities systematically (WBS).
Label all activities
Arrange all the activities in logical sequence.
Construct the network diagram.
Number all the nodes(events) and activities.
Find the time for each activity.
Mark the activity times on the arrow (if AOA) and in node if (AON).
Calculate early and late start and finishing times.
Calculate total float for each activity, Float = LS - ES = LF – EF
Float is the maximum amount of time that an activity can be delayed
n its completion before it becomes a critical activity, i.e., delays
completion of the project.
Identify the critical activities and mark the critical path on the arrow.
Critical path is that the sequence of activities and events where there
s no “slack” i.e.. Zero slack.

25
 CPM
Consider the following consulting project: Develop a critical
path diagram and determine the duration of the critical path
and slack times for all activities.
Activity Designation Immed. Pred. Time (Weeks)
Assess customer's needs A None 2
Write and submit proposal B A 1
Obtain approval C B 1
Develop service vision and goals D C 2
Train employees E C 5
Quality improvement pilot groups F D, E 5
Write assessment report G F 1

First draw the precedence diagram.

D(2)

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

A(2)

E(5) 26
Determine early starts and early finish times
Forward Pass
EF= ES + t
D(2)
ES=0 ES=2 ES=3 ES = 9
EF=2 EF=3 EF=4 EF =14
ES=4
EF=6 ES=14
A(2) B(1) C(1) F(5) G(1) EF=15

Hint: Start with Critical path:

ES=0 and go forward E(5) A–B–C–E–F–G
in the network from
A to G. ES=4
EF=9

27
 Determine late starts and late finish times
Hint: Start with LF=15 or the
total time of the project and go
backward in the network from G Backward Pass.
ES=4
to A.
EF=6
LS= LF - t
D(2)
ES=0 ES=2 ES=3 ES =9 ES=14
EF=2 EF=3 EF=4 LS=7 EF=14 EF=15
LF=9
A(2) B(1) C(1) F(5) G(1)
ES=4
LS=0 LS=2 LS=3 EF=9 LS=9 LS=14
LF=2 LF=3 LF=4 LF=14 LF=15
E(5)

LS=4
LF=9
28
 Critical Path & Slack
Float = LS - ES = LF - EF ES=4
EF=6

Slack=(7-4)=(9-6)= 3 Wks

D(2)
ES=0 ES=2 ES=3 ES=9 ES=14
EF=2 EF=3 EF=4 LS=7 EF=14 EF=15
LF=9
A(2) B(1) C(1) F(5) G(1)
ES=4
LS=0 LS=2 LS=3 EF=9 LS=9 LS=14
LF=2 LF=3 LF=4 LF=14 LF=15
E(5)
Duration=15 weeks
LS=4
LF=9

29
 Program Evaluation and Review Techniques (PERT)
PERT is based on the assumption that an activity’s duration follows a
probability distribution instead of being a single value, Because of the
uncertainty of activity timings.
The statistical probability feature of PERT foretells the probability of
reaching the specified target date.
Three time estimates are required to compute the parameters of an activity’s
duration distribution:
Pessimistic time (tp) - the time the activity would take if things did not go
well. Most likely time (tm) - the consensus best estimate of the activity’s
duration. Optimistic time (to) - the time the activity would take if things did
go well.
The fundamental assumption in
tp + 4 tm + to
PERT is that the three time estimates Expected time: Te =
6
form the end points and mode of
Beta distribution. It is further 2
assumed that to and tp are about tp - to
Variance: Vt =σ 2 = 6
equally likely to occur whereas the
probability of occurrence of tm is 4
times that of tp or to . 30
Program Review and Evaluation Techniques (PERT)

31
 PERT Analysis
 Break down a project into different activities systematically.
 Arrange activities in logical sequence.
 Draw network diagram.
 Using three-time estimate, calculate expected time for each activity
 Calculate standard deviation and variance for each activity.
 Determine earliest starting times and latest finishing times.
 Identify Critical path(s) and total project duration.
 Lastly, calculate the probability that the project will finish at due date.
x-
Z=

where  = Te = project mean time
 = project standard mean time
x = (proposed ) specified time

32
 PERT Networking Example
Consider the following tasks from A to I and find the critical path,
longest path on the network.
Immediate
Task Predecesors Optimistic Most Likely Pessimistic
A None 3 6 15
B None 2 4 14
C A 6 12 30
D A 2 5 8
E C 5 11 17
F D 3 6 15
G B 3 9 27
H E,F 1 4 7
I G,H 4 19 28
Opt. Time + 4(Most Likely Time) + Pess. Time
Expected Time =
6 33
 PERT Example Solution

Immediate Expected Te(A)= 3+4(6)+15

Task Predecesors Time 6
A None 7
B None 5.333 ET(A)=42/6=7
C A 14 Te(B)= 2+4(4)+14
D A 5
E C 11 6
F D 7 ET(B)=32/6=5.333
G B 11 Te(C)= 6+4(12)+30
H E,F 4
I G,H 18 6
ET(C)=84/6=14
C(14) E(11)
Critical path:
A(7) H(4) A–C–E–H–I
D(5) F(7)

I(18) Duration = 54 Days

B G(11)
(5.333)
34
Probability Exercise
What is the probability of finishing this project in less than 53 days?

Task Optimistic Most Likely Pessimistic Variance

A 3 6 15 4
B 2 4 14
C 6 12 30 16
D 2 5 8
E 5 11 17 4
F 3 6 15
G 3 9 27
H 1 4 7 1
I 4 19 28 16
P e s s im . - O p tim .
A c tiv ity v a ria n c e , 
2 2
= ( )
6

(Sum the variance along the critical path.)  2

= 41
35
Probability Exercise Solutions

p(t < D)

D=53 TE = 54 t

X - TE 53 - 54
Z= = = - .156
  cp
2
41

p(Z < -.156) = .438, or 43.8 % Refer Z table

There is a 43.8% probability that this project will be

completed in less than 53 weeks. 36
 Probability Exercise Solution
 What is the probability that the project
duration will exceed 56 weeks?

p(t <X)

TE = 54 X=56
t

X - TE 56 - 54
Z = = = .312

2
41
cp

p(Z > .312) = .378, or 37.8 %

37
 CPM Exercise
Activity Immed. Predec. Most Likely Time (Hr.)
A --- 6
B --- 5
C A 3
D A 5
E A 1
F B, C 4
G B, C 2
H E, F 6
I E, F 5
J D, H 3
K G, I 5
For the above activity:
Determine the critical path and duration.
Determine ES and EF for each activity.
Determine LS and LF for each activity.
Determine float or slack for each activity. 38
 PERT Exercise
Optimistic Time Most Likely Pessimistic
Activity Immed. Predec. (Hr.) Time (Hr.) Time (Hr.)
A --- 4 6 8
B --- 1 4.5 5
C A 3 3 3
D A 4 5 6
E A 0.5 1 1.5
F B, C 3 4 5
G B, C 1 1.5 5
H E, F 5 6 7
I E, F 2 5 8
J D, H 2.5 2.75 4.5
K G, I 3 5 7

For the above activity:

Determine the expected time of each activity.
Determine the critical path and duration.
Determine probability of completing the project with less than 24 hrs.
Determine the probability of completing the project with in 20 hrs. 39
 Project Crashing
project crushing is reducing of the completion time of the project
Question: Can we cut short its project completion time? If so, how!
Yes, the project duration can be reduced by assigning more resources to
project activities. But, doing this would somehow increase our project
cost! How do we strike a balance?
■ Project crashing is a method for shortening project duration by
reducing one or more critical activities to a time less than normal activity
time.
Trade-off concept
Here, we adopt the “Trade-off” concept
We attempt to “crash” some “critical” events by allocating more
resources to them, so that the time of one or more critical activities is
reduced to a time that is less than the normal activityy time.
• How to do that:
• Question: What criteria should it be based on when deciding to
40
crashing critical times?
 Example – crashing (1)
Max weeks can be crashed
Normal weeks 2 6(3)
5 (1)
4(0) 3(0) 3
1
5(0)
The critical path is 1-2-3, the completion time =11
How? Path: 1-2-3 = 5+6=11 weeks
Path: 1-3 = 5 weeks Now, how many days can we “crash” it?
The maximum time that can be crashed for:
Path 1-2-3 = 1 + 3 = 4 Path 1-3 = 0
Should we use up all these 4 weeks?
If we used all 4 days, then path 1-2-3 has (5-1) + (6-3) = 7 completion weeks
Now, we need to check if the completion time for path 1-3 has lesser than 7
weeks (why?) Now, path 1-3 has (5-0) = 5 weeks
Since path 1-3 still shorter than 7 weeks, we used up all 4 crashed weeks
Question: What if path 1-3 has, say 8 weeks completion time?
 Example – crashing (1)
5 (1) 2 6(3)
3
1
Such as 8(0)
Now, we cannot use all 4 days (Why?)
Because path 1-2-3 will not be critical path anymore as
path 1-3 would now has longest hour to finish
Rule: When a path is a critical path, it will not stay as a critical
path. So, we can only reduce the path 1-2-3 completion time to the
same time as path 1-3. (HOW?)
2 6(3)
5 (1)
Solution: 3
1
8(0)
We can only reduce total time for path 1-2-3 = path 1-3,that is 8 weeks
If the cost for path 1-2 and path 2-3 is the same then We can random pick
them to crash so that its completion Time is 8 weeks 42
 Example – crashing
4(0)
(1) 4(1)
Solution: 2 6(3)
5 (1)
3
1
OR 3(0) 8(0)
5 (1) 6(3)
2

1
3
8(0)
Now, paths 1-2-3 and 1-3 are both critical paths

43
The Project Network
AOA Network for House Building Project

Expanded Network for Building a House Showing Concurrent

Activities
Project Crashing and Time-Cost Trade-Off
Example Problem (1 of 5)
Figure 8.19 The Project Network for Building a House

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

Project Crashing and Time-Cost Trade-Off
Example Problem (3 of 5)

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

Project Crashing and Time-Cost Trade-Off
Example Problem (2 of 5)
Crash cost & crash time have a linear
relationship:
T o ta l C ra sh C o st $2000

T o ta l C ra sh T im e 5 w eeks
 $400 / w k
Project Crashing and Time-Cost Trade-Off
General Relationship of Time and Cost (2 of 2)
 Project Risk
• Risk the possibility of loss or injury”
• Project risk involves understanding potential problems that
might occur on the project and how they might impede
project success
 A situation involving exposure to danger;
 “The combination of the probability of an event and its
consequences”
 “Effect of uncertainty on objectives”
Uncertainties include events (which may or not
happen); Uncertainties caused by ambiguity or a lack
of information; and Also includes both negative and
positive impacts on objectives. (developed by an
international committee representing over 30 countries
and is based on the input of several thousand subject
matter experts.)
 Roots Of Uncertainty
 Stakeholders
 Objectives
 Variety of Resources, (human, capital, material..)
 Project Organizations
 Scope of work
 Cost
 Time
 Delivery of Quantified and Qualitative objectives
 Technologies
 Environment
 Regulators

50
 Roots of Uncertainty are associated with
 Who, Who are the parties ultimately involved
(Executing Agencies, partners, etc..)
 Why, What do they want (motives, objectives..)
 What, What is it the parties interested in (design)
 Which way, How is to be done (activities)
 Wherewithal, What resources are required (resources)
 When, when does it have to be done (Schedule, timetable)

4/17/2018 Shehzad Akram 51

 . Types of Risk

unsystematic, specific to Systematic, non-

firm or assets, diversifiable
diversifiable Market Risk
Project-Specific Risks Systematic risk can not
Competitive Risks be diversified however
International Risk parts of the risk can be
Industry-specific Risks reduced through risk
Political mitigation and
Legal transferring techniques

52
 SOURCES Of RISKS
INTERNAL EXTERNAL
Resources(Processes) Political risk
Inadequate internal controls, Country Risk
Human errors (incompetence, inexperienced, Market Risk
corruption) Currency Risk
IT failure Interest Rate Risk
Inadequate human resources Counter-part Risk
Operational Risks Credit or default Risk
Legal Risks?? Environmental Risk
Project Risk Management (PRM)
PRM Art and science of planning, organizing, securing and managing
resources (Management) to harness/control/manage the effects of
uncertainties on objectives (Risk)of a temporary endeavor (project).
 One of the nine knowledge areas defined in PMBOK (Project
Management Body of Knowledge)
 Risk Management
 Is a Comprehensive System that includes:
 Creating an appropriate risk management environment
 Maintaining an efficient Risk Measurement
 Mitigating and Monitoring Process
 Establishing an Adequate Internal Control Arrangement Core of the
Strategic Management of the Company
 It is the process whereby organizations methodically address the risks
attaching to their activities with the goal of achieving sustained
benefit within each activity and across the portfolio of all activities.
 Risk Management is the;
 Identification;
 Assessment; and
 prioritization of risks
 Monitoring followed by coordinated and economical application of
resources to minimize, monitor, and control the probability or impact
of unfortunate events or to maximize the realization of opportunities.
 Why Risk Management:
 Its objective is to add maximum sustainable value to all
the activities of the organization.
 It marshals the understanding of the potential upside and
downside of all those factors which can affect the
organization.
 It increases the probability of success, and reduces both
the probability of failure and the uncertainty of achieving
the organization's overall objectives Healthy Stress Vs the
bad stress
Role of Risk Management
Risk Identification Focus of downside of risk
Risk Appraisal Exploit Opportunities arising from risks
Risk Management

55