CE 401 Project Planning and Management

Abu Naser Chowdhury PhD

How to find me

• Contact info:
• Email: naserc-ce@uap-bd.edu
• Website:
• http://www.naserchowdhury.com
• Mobile: +8801753850339
• Office hours: By appointment
• Available normally:
9.00am – 1.00pm
Course Overview
• Text Book available at
Sumon Library
169 New Market Dhaka 1205
Phone : 8614561
1. Project Management - Rajeev M. Gupta
2. PMBOK (pdf)
3. Principles of Construction Safety (pdf)
4. Project Management - R.B. Khanna

• Format:
Combination of lectures and in-class exercises
Grading

• Group Assignment (20%)

– Random assignment to group
– Demonstrate engagement with the course material
– Watch video and assessment
• Mid-term (20%)
– Multiple-choice questions; short questions
• Final exam (50%)
– Descriptive, critical thinking
• Class Attendance (10%)
Expectations
What I expect of you

• Attendance. I expect you to attend every class

• Participation. Strongly encouraged
• Group work. Presentation and active participation
• Assignments.

What to expect from me

• Exams will be based on text and lecture notes; so even if we

don’t review it in the lecture, if it is in the text, it is fair game
• Available after class or by appt.
• Use practical examples to highlight relevance of theories
What is the objective of
showing those pictures?

?
Today’s reality...

Construction is complex and challenging

Delays, changes, disputes, accidents cost more
than ever
Owners don’t have the expertise or the staff to
stay on top

Success demands collaboration... and

leadership!
Construction Management

Construction Management is a professional service that

applies effective management techniques to the planning,
design and construction of a project from inception to
completion for the purpose of controlling time, cost and
quality
Construction Management Values

Construction Management is a
discipline and management
system specifically created to
promote the successful
execution of capital projects for
owners

These projects can be highly

complex. Few owners maintain
the staff resources necessary to
pay close, continuing attention
to every detail; yet these details
can “make or break” a project
Management

The planning, organizing, leading, and

controlling of human and other resources to
achieve organizational goals effectively and
efficiently
Basic resources

• workforce
• material
• subcontractors
• information
• equipment
• time
• construction plant
• money
Project Management
Optimize the three attributes of: quality, cost, and
time

Principle objective of a construction manager is to complete

each project on time and within budget, while maintaining
acceptable levels of safety and risk
CM

Safety

Time Cost

Quality
4 Functions of Management
Planning

Process of identifying and selecting

appropriate organizational goals and courses
of action

Steps in Planning…

• Deciding which goals the organization will pursue

• Deciding what courses of action to adopt to attain
those goals
• Deciding how to allocate organizational resources
 Why do Planning?
• To asses the company’s
position [strengths and
weaknesses], and the
opportunities and threats it
faces.
• To set goals, establish
priorities, and develop
strategies.
• To plan the deployment of
resources needed to attain
the goals selected.
• To give firm direction.
• To make sure the goals of
all parties are aligned.
• To ensure that different
functional areas have
coordinated efforts.
• To outline potential
alternative actions the firm
can take.
• To project costs.
• To assess performance.
Video Time!
Organizing

Task managers perform to create a structure of

working relationships that allow organizational
members to interact and cooperate to achieve
organizational goals

• Involves grouping people into departments according to the

kinds of job-specific tasks they perform
• Managers lay out lines of authority and responsibility
• Decide how to coordinate organizational resources
Leading

Articulating a clear organizational vision for its

members to accomplish, and energize and enable
employees so that everyone understands the part
they play in achieving organizational goals

Leadership involves using power, personality, and

influence, persuasion, and communication skills
Outcome of leadership is highly motivated and committed
workforce
Controlling

Task of managers is to evaluate how well an

organization has achieved its goals and to take
any corrective actions needed to maintain or
improve performance

The outcome of the control process is the ability to

measure performance accurately and regulate
organizational efficiency and effectiveness
Levels of Management
4 Managerial Functions

First line managers - Responsible for daily supervision of the

non-managerial employees who perform many of the specific
activities necessary to produce goods and services
Middle managers - Supervise first-line managers.
Responsible for finding the best way to organize human and
other resources to achieve organizational goals
Top managers - Responsible for the performance of all
departments and have cross-departmental responsibility and
ultimately responsible for the success or failure of an
organization
CEO - is company’s most senior and important manager,
concerns about creation of a smoothly functioning top-
management team
4 Managerial Functions
Construction Contracts

Elements of a legal contract

• offer
• acceptance
• consideration
• legal in every respect
• requires a meeting of the minds
• offer + acceptance = binding obligation
Video Time!
Why do we need written contracts?
1. Basic lack of trust
2. Clearly establishes the risks and obligations of each party
3. Provides means by which performance can be assessed
and measured
4. Provides means by which breaches can be identified
5. Provides means by which default can be established
6. Establishes the owner’s means of control
7. Establishes the contractor’s scope of work
What does a written contract do for us?
• A written contract provides the document by which risks,
obligations, and relationships of both parties are clearly
established, thus ensuring the performance of these elements
in a disciplined manner.
Types of Construction Contract
Lump Sum Contract: features include -
 all the risks are taken care off by the contractor
 Higher markup can be asked in order to take care of unforeseen
contingencies
 if the actual cost of the project is underestimated, the underestimated cost
will reduce contractor’s profit by that amount
 But overestimate may reduce the chance of being a low bidder

Unit Price Contract: features include -

 Risk of inaccurate estimation of uncertain quantities for some key tasks has
been removed in this contract
 Some contractors may submit an unbalanced bid when it discovers large
discrepancies between its estimates and the owner’s estimates of quantities.
 Owner may disqualify the contractor if it appears to be heavily unbalanced.
Types of Construction Contract

Unit Price Contract: features include -

 To the extent of an underestimate or overestimate, neither error will
effect the contractor’s profit beyond the markup in the unit prices.

Cost Plus Percentage Fee: features include -

 Only in compelling reasons, such as urgency or emergency time
 Contractor will receive the actual direct job cost plus a fixed percentage
 Owner may disqualify the contractor if the bid appears to be heavily
unbalanced.
1. Lump Sum or Fixed Price Contract

• The Owner knows the actual cost of the project before it

begins
• Contractor required to achieve the project at the
Bid/Negotiated Contract Value
• Minimize the risk for the Owner if the project is well
estimated, contractual documents accurate, and project clearly
defined
• High risk for the Contractor in case of many unforeseen.
Usually a high incentive to finish early at low cost
2. Unit Price Contract

• Agreement on the price charged per unit by the Contractor to

the Owner
• Contractor overhead must be integrated in the Unit’s Prices
• The lowest bidder is normally selected
• Necessity of an Owner presence on site to measure the actual
quantities
• Highly dependant on the accuracy of the estimation of the
quantities given by the Owner/Designer
– Difficult to accurately quantify the work necessary
– Contractor can make a more profit because payment is based
on actual quantities but he can also lose money in the same
way
– The total cost for the Owner can be greater than planned
Unit Price: Example

• Activities:
– Footings 80 $/sq ft
– Columns 1,550 $/unit
• Scheduled quantities:
– Footings 100 sq ft
– Columns 9 units

• Contract initial value:

– 80 * 100 + 1,550 * 9 = 14,750 $
3. Cost Plus Percentage Fee

• The Owner is paying the actual cost plus a fixed

percentage fee
• High risk for the Owner
• Maximum flexibility for the Owner
• Used only if the pricing could not be calculated in any
other way and if it is urgent
• No financial insurance of ultimate cost
• Little incentive to reduce cost
• The contractor agrees to do his best effort to achieve the
goal
• Whatever the quality of the work, the reward is the same
but the owner gets the quality he pays for
Cost Versus Price for Cost Plus %
4. Cost Plus Fixed Fee
• Cost may vary but the fee remains firm
• The fee is independent of the duration of the project
• Used only if the pricing could not be determined in an
alternative manner
• No financial insurance of ultimate cost
• Little incentive to reduce costs but high incentive to finish
early
• The contractor agrees to make best efforts to complete the
work
• Promotes collaboration at the early stages of the project
 Contractual Risk Allocation

RISK SHARING METER

Modified from Kerzner, 2000

100 % Lump-Sum (Fixed Price) 0%

Fixed-Price w/ Economic Price Adjustments

CONTRACTOR’S RISK

Fixed-Price Incentive

OWNER’S RISK
Cost-Plus Incentive

Cost-Plus Fixed Fee

Cost-Sharing

0%
RISK Allocation Cost-Plus Percentage 100 %
Construction Contract Documents

• Advertisement for bids

• Information for bidders
• Bid form
• General notices
• Notice of award • Contract form or agreement
• Notice to proceed • General conditions or provisions
• Bid bond • Supplemental and/or special
conditions
• Performance bond • Plans
• Specifications
Documents forming Contract

The following documents forming the contract shall be

interpreted in the following order of priority:
• The Signed Contract Agreement
• The notification of Award (NOA)
• Completed Tender and acceptance of tender
• Particular Conditions of Contract (PCC)
• General Conditions fo Contract (GCC)
• Tender Specifications
• General Specifications
• Drawing
• Bill of Quantities (BOQ)
• Any other documents listed in PCC
Examples of GCC and PCC
GCC 25.1 Instructions: The contractor shall carry out all the
instructions of the PM that comply with the applicable law
GCC 28.1 Working hours: The contractor shall not perform any work
on the site on the weekly holidays or during the night or outside the
normal hours or on any religious holiday, without the prior written
approval from the PM
GCC 41.1 Completion of works: The contractor shall carry out the
works in accordance with the programme of works submitted by the
contractor and as updated with the approval of the PM
GCC 43.3 Programme of works: If the contractor dose not submit
an updated programme at an intervals stated in the PCC, the PM may
withhold an amount as stated in the PCC
PCC: The Contractor shall submit a programme for the works within
7 (seven) days of singing the contract.
Construction Contract

……bidders are required to:

• examine all portions of the contract documents
• examine the physical conditions of the site
• determine legal requirements affecting the work
• complete these investigations prior to bidding
Specification

Standard, supplemental, and special provisions

• 02 types of specifications:
• method specification dictates equipment and
procedures
• performance specification specifies only the desired
end result or product
Submittals required in Contracts

• copies of subcontracts
• shop drawings and support calculations
• catalog cuts
• material or equipment samples
• schedule(s)
• certified payrolls
• certificates of insurance
• environmental test reports
• material test reports & certifications
CE401 Project Planning and Management
Abu Naser Chowdhury PhD
Video Time!
Project and its Characteristics

A project is a temporary endeavor involving a connected sequence

of activities and a range of resources, which is designed to achieve
a specific and unique outcome and which operates within time,
cost and quality constraints and which is often used to introduce
change.
Characteristic of a project
• A unique, one-time operational activity or effort
• Requires the completion of a large number of interrelated

activities
• Established to achieve specific objective

• Resources, such as time and/or money, are limited

• Typically has its own management structure

• Need leadership
Project Stakeholders

Project stakeholders are individuals and organizations that

are actively involved in a project or whose interest may be
+ve/-ve ly affected as a result of project execution or project
completion.

Key Stakeholders are:

Project Manager
Customer
Performing Organization
Project Team members
Sponsor
Examples of Project …

Can this be a project?

Project and its Characteristics …cont

• Most realistic projects are large and complex

• Tens of thousands of steps and millions of dollars may be
involved
• Managing large-scale, complicated projects effectively is a
difficult problem and the stakes are high
• The first step in planning and scheduling a project is to
develop the work breakdown structure (WBS)
• Time, cost, resource requirements, predecessors, and
people required are identified for each activity
• Then a schedule for the project can be developed
Project Life cycle and its Phases

A project has 4 phases

1. Concept Phase
2. Planning Phase
3. Implementation Phase
4. Termination Phase

CDEF

Overall 85% effort and 40% time of the overall project is consumed
during the implementation phase, whereas planning phase consume 9%
efforts and 30% of time.
 Project Life Cycle and its phases
Level of Effort

Definition Planning Execution/Impl./Control Closeout

 Selection  Estimates  Status Reports  Training
 Charter  Schedules  Changes  Transfer
 Goals  Sequencing  Quality Documents
 Specs  Budgets  Forecasts  Release
 Tasks  Resources Resources
 Responsi  Risks  Lessons
bilities  Staffing Learned
Influence of Change Vs Cost of Change

Risky aspects of a project. As the project progress, the cost to make

change increases drastically and value addition becomes difficult
Classification of Projects

On the basis of duration, quantum of investment, ownership

nature and risk involvement.

Figure: Project Classification Based on risk

Reasons for Project Failure

In general but not limited to the following list:

1. Poorly defined scope/objectives
2. Underestimated time and cost
3. Large project planning
4. Improper technology selection
5. Defective planning process
Work Breakdown Structure
Work Breakdown Structure (WBS)

Project must be divided into manageable tasks and then logically

order
The definition of tasks and their sequences is referred as the Work
Breakedown Structure (WBS)
WBS is essential in Planning and executing the Project.

• A method of breaking down a project into individual elements

• 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 is the foundation of project planning
• It is developed before identification of dependencies and
estimation of activity durations
Work Breakdown Structure (WBS)

WBS Example - Banquet

Banquet WBS
Provide
Level 1 1.0
Banquet

Level 2
1.1 1.2 1.3 1.4 1.5 1.6

Plan and Room and

Dinner Guests Staff Speakers
Supervise Equipment

1.3.1
1.1.1 Create 1.2.1 Make 1.4.1 Make 1.5.1 Hire
Identify Site/ 1.6.1 Invite
Plan Menu Guest List Shoppers
Room
1.2.2
1.4.2
1.1.2 Make Create 1.3.2 Set up 1.5.2 Hire 1.6.2
Receive
Budget Shopping Tables/Chairs Cooks Transport
RSVPs
List
1.1.3 Prepare 1.6.3
1.3.3 Lay out 1.4.3 Create 1.5.3 Hire
Disbursements/ 1.2.3 Shop Coordinate
Settings/Utensils Name Tags Servers
Reconciliation Topics
1.1.4
1.4.4 Review 1.5.4 Hire 1.6.4 Backup
Coordinate 1.2.4 Cook 1.3.4 Decorate
Special Needs Hosts for No-shows
Activities

Level 3 1.3.5 Prepare

1.2.5 Serve 1.5.5 Hire 1.6.5 Send
Equipment, Pots,
Dinner Cleanup Thank Yous
Etc.
Work Breakdown Structure (WBS)

Automobile WBS

Building a Car Level 1

Chassis Body Powertrain Electrical Level 2

Engine Transmission Level 3

Block Pistons Oil Pan Level 4

Design Level 5
Work Packages Build

Test
Video Time!
WBS is more than…
Once the WBS has been drawn, a bottom-up cost estimate can
be produced starting at the lowest branch of the family tree. In
this method, each work package is costed and arranged in such
a way that the total cost of the packages on any branch must
add up to the cost of the package of the parent package on the
branch above
WBS Work Package – Level of Detail

• WHO will be the responsible individual or organization?

• How much TIME will the activity take?
• What COST is associated with accomplishing the activity?
• Can PROGRESS be tracked easily?
All the questions need clear answers for proper project
planning.
Project Management

• It is nothing more (or less) than knowing what

the status of a project is:
☺ when it should be done
☺ how much (and if) it has slipped from the
original schedule
☺ what the bottlenecks are
☺ what you might drop to save some time
Project Management Models History

• One of the earliest techniques was the Gantt chart

(used by US Navy).
• This type of chart shows the start and finish times
of one or more activities, as shown below:
 Project Planning, Scheduling & Controlling

Project Planning:
1. Setting goals.
2. Defining the project.
3. Tying needs into timed project activities.
4. Organizing the team.
Project Scheduling:
1. Tying resources to specific activities.
2. Relating activities to each other.
3. Updating and revising on regular basis.

Before Project
Project Controlling:
During Project 1. Monitoring resources, costs, quality and
budgets.
2. Revising and changing plans.
3. Shifting resources to meet demands.
Project Planning…

• Resource Availability and/or Limits

• Due date, late penalties, early completion
incentives
• Budget
• Activity Information
• Identify all required activities
• Estimate the resources required (time) to complete
each activity
• Immediate predecessor(s) to each activity needed
to create interrelationships
Project Scheduling and Control
Techniques

Gantt Chart

Critical Path Method (CPM)

Program Evaluation and Review Technique (PERT)
PERT and CPM

• The program evaluation and review technique (PERT)

and the critical path method (CPM) are two popular
quantitative analysis techniques to help plan, schedule,
monitor, and control projects
• They were developed because there was a critical
need for a better way to manage.
• Originally the approaches differed in how they estimated
activity times
• PERT used three time estimates to develop a
probabilistic estimate of completion time
• CPM was a more deterministic technique
• They have become so similar they are commonly
considered one technique, PERT/CPM
From project networks, we determine

• The project duration

• The critical path
• Tasks on the critical path
• Tasks not on the critical path
• Slack or float associated with non-critical
tasks
• Earliest start, earliest finish, latest start
and latest finish times
Six Steps of PERT/CPM

1. Define the project and all of its significant activities or

tasks
2. Develop the relationships among the activities and decide
which activities must precede others
3. Draw the network connecting all of the activities
4. Assign time and/or cost estimates to each activity
5. Compute the longest time path through the network; this is
called the critical path
6. Use the network to help plan, schedule, monitor, and
control the project
 The critical path is important since any delay in these
activities can delay the completion of the project
Q?
Given the large number of tasks in a project, it is easy
to see why the following questions are important
1. When will the entire project be completed?
2. What are the critical activities or tasks in the project,
that is, the ones that will delay the entire project if
they are late?
3. Which are the non-critical activities, that is, the ones
that can run late without delaying the entire project’s
completion?
4. If there are three time estimates, what is the
probability that the project will be completed by a
specific date?
Q?

5. At any particular date, is the project on schedule,

behind schedule, or ahead of schedule?
6. On any given date, is the money spent equal to, less
than, or greater than the budgeted amount?
7. Are there enough resources available to finish the
project on time?
8. If the project is to be finished in a shorter amount of
time, what is the best way to accomplish this at the
least cost?
Drawing the PERT/CPM Network

• There are two common techniques for drawing PERT

networks
• Activity-on-node (AON) where the nodes represent
activities
• Activity-on-arc (AOA) where the arcs are used to represent
the activities
• The AON approach is easier and more commonly found in
software packages
• One node represents the start of the project, one node for
the end of the project, and nodes for each of the activities
• The arcs are used to show the predecessors for each
activity
Drawing the PERT/CPM Network…(some Basics)

• Use of nodes and arrows

• Arrows An arrow leads from tail to head directionally
• Indicate ACTIVITY, a time consuming effort that is required to
perform a part of the work.
• Nodes  A node is represented by a circle
• Indicate EVENT, a point in time where one or more activities start
and/or finish.
• Activity
• A task or a certain amount of work required in the project
• Requires time to complete
• Represented by an arrow
• Dummy Activity
• Indicates only precedence relationships
• Does not require any time of effort
Drawing the PERT/CPM Network…(some Basics)

• Event
• Signals the beginning or ending of an activity
• Designates a point in time
• Represented by a circle (node)
• Network
• Shows the sequential relationships among activities using
nodes and arrows
Activity-on-node (AON)
nodes represent activities, and arrows show
precedence relationships
Activity-on-arrow (AOA)
arrows represent activities and nodes are events for
points in time
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
B can start
A C Both A and b must finish before
B either of C or D can start
D
A B
A must finish before B can start
Dummy
both A and C must finish before D can
C start
D
Situations in Network Diagram

Activity-on-Node (AON):
• Uses nodes to represent the activity
• Uses arrows to represent precedence relationships
Interpreting Network into Bar Chart
ANC
Example of PERT/CPM

• ANC, Inc. has long been trying to avoid the expense of

installing air pollution control equipment
• The local environmental protection group has recently given
the foundry 16 weeks to install a complex air filter system on
its main smokestack
• ANC was warned that it will be forced to close unless the
device is installed in the allotted period
• They want to make sure that installation of the filtering system
progresses smoothly and on time
ANC
Example of PERT/CPM
• Activities and immediate predecessors for ANC Inc.

IMMEDIATE
ACTIVITY DESCRIPTION
PREDECESSORS
A Build internal components —
B Modify roof and floor —
C Construct collection stack A
D Pour concrete and install frame B
E Build high-temperature burner C
F Install control system C
G Install air pollution device D, E
H Inspect and test F, G
ANC
Example of PERT/CPM

• Network for ANC Inc.

A C F
Build Internal Construct Collection Install Control
Components Stack System

E H
Start Inspect Finish
Build Burner
and Test

B D G
Modify Roof Pour Concrete and Install Pollution
and Floor Install Frame Device
Time Activity

• The time estimates in PERT are

Optimistic time (a) = time an activity will take if
everything goes as well as
possible. There should be only a
small probability (say, 1/100) of this
occurring.
Pessimistic time (b) = time an activity would take
assuming very unfavorable
conditions. There should also be
only a small probability that the
activity will really take this long.
Most likely time (m) = most realistic time estimate to
complete the activity
 Time Activity

• PERT often assumes time estimates follow a beta probability

distribution
• The beta probability distribution is often used when there is no
solid historical data upon which to activity time base estimates
• Found to be appropriate in many cases for determining an
expected value and variance for activity completion times
Probability of 1 in 100
of a Occurring
Probability

Probability of 1 in 100
of b Occurring

Activity Time
Most Most Most
Optimistic Likely Pessimistic
Time Time Time
(a) (m) (b)
 Time Activity

• To find the expected activity time (t), the beta distribution

weights the estimates as follows
a  4m  b
t
6

• To compute the dispersion or variance of activity

completion time, we use the formula

ba
2

Variance   
 6 
Time Activity

• Time estimates (weeks) for ANC Inc.

EXPECTED
MOST TIME,
OPTIMISTIC PROBABLE PESSIMISTIC t = [(a + 4m + VARIANCE
ACTIVITY a m b b)/6] [(b – a)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25
How to find Critical Path?

• We accept the expected completion time for each task as the

actual time for now
• The total of 25 weeks in Table does not take into account the
obvious fact that some of the tasks could be taking place at the
same time
• To find out how long the project will take we perform the
critical path analysis for the network
• The critical path is the longest path through the network
How to find Critical Path?

• ANC’s network with expected activity times

A 2 C 2 F 3

E 4 H 2
Start Finish

B 3 D 4 G 5
How to find Critical Path?

• To find the critical path, need to determine the following

quantities for each activity in the network

1. Earliest start time (ES): the earliest time an activity can begin
without violation of immediate predecessor requirements
2. Earliest finish time (EF): the earliest time at which an activity can
end
3. Latest start time (LS): the latest time an activity can begin without
delaying the entire project
4. Latest finish time (LF): the latest time an activity can end without
delaying the entire project
How to find Critical Path?

• In the nodes, the activity time and the early and late start
and finish times are represented in the following manner

ACTIVITY t
ES EF
LS LF

• Earliest times are computed as

Earliest finish time = Earliest start time
+ Expected activity time
EF = ES + t
Earliest start = Largest of the earliest finish times of
immediate predecessors
ES = Largest EF of immediate predecessors
 EXPECTED
MOST TIME,
OPTIMISTIC PROBABLE PESSIMISTIC t = [(a + 4m + VARIANCE
ACTIVITY a m b b)/6] [(b – a)/6]2

How to find Critical Path? A

B
1
2
2
3
3
4
2
3
4/36
4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25

• At the start of the project we set the time to zero

• Thus ES = 0 for both A and B

A t=2
ES = 0 EF = 0 + 2 = 2

Start

B t=3
ES = 0 EF = 0 + 3 = 3
 EXPECTED
MOST TIME,
OPTIMISTIC PROBABLE PESSIMISTIC t = [(a + 4m + VARIANCE
ACTIVITY a m b b)/6] [(b – a)/6]2

How to find Critical Path? A

B
1
2
2
3
3
4
2
3
4/36
4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36

• ANC’s ES and EF times

F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25

A 2 C 2 F 3
0 2 2 4 4 7

E 4 H 2
Start 4 8 13 15 Finish

B 3 D 4 G 5
0 3 3 7 8 13
 EXPECTED
MOST TIME,
A 2 C 2 F 3 OPTIMISTIC PROBABLE PESSIMISTIC t = [(a + 4m + VARIANCE
ACTIVITY a m b b)/6] [(b – a)/6]2
0 2 2 4 4 7
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
E 4 H 2
D 2 4 6 4 16/36
Start 4 8 13 15 Finish
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
B 3 D 4 G 5
0 3 3 7 8 13 H 1 2 3 2 4/36
25

• Latest times are computed as

Latest start time = Latest finish time

– Expected activity time
LS = LF – t

Latest finish time = Smallest of latest start times

for following activities
LF = Smallest LS of following activities
 For activity H
LS = LF – t = 15 – 2 = 13 weeks
 EXPECTED
MOST TIME,
OPTIMISTIC PROBABLE PESSIMISTIC t = [(a + 4m + VARIANCE
ACTIVITY a m b b)/6] [(b – a)/6]2
A 1 2 3 2 4/36

How to find Critical Path? B 2 3 4 3 4/36

C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
• ANC’s LS and LF times F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25

A 2 C 2 F 3
0 2 2 4 4 7
0 2 2 4 10 13

E 4 H 2
Start 4 8 13 15 Finish
4 8 13 15

B 3 D 4 G 5
0 3 3 7 8 13
1 4 4 8 8 13
How to find Critical Path?

• Once ES, LS, EF, and LF have been determined, it is a simple

matter to find the amount of slack time/float that each activity has

Slack = LS – ES, or Slack = LF – EF

• From Table, we see activities A, C, E, G, and H have no slack time

• These are called critical activities and they are said to be on the
critical path
• The total project completion time is 15 weeks
• Industrial managers call this a boundary timetable
 A 2 C 2 F 3
0 2 2 4 4 7
0 2 2 4 10 13
Slack!
E 4 H 2
Start 4 8 13 15 Finish
4 8 13 15

B 3 D 4 G 5
0 3 3 7 8 13
1 4 4 8 8 13

EARLIES EARLIES LATEST LATEST ON

T START, T FINISH, START, FINISH, SLACK, CRITICAL
ACTIVITY ES EF LS LF LS – ES PATH?
A 0 2 0 2 0 Yes

B 0 3 1 4 1 No

C 2 4 2 4 0 Yes

D 3 7 4 8 1 No

E 4 8 4 8 0 Yes

F 4 7 10 13 6 No

G 8 13 8 13 0 Yes

H 13 15 13 15 0 Yes
 A 2 C 2 F 3
0 2 2 4 4 7
0 2 2 4 10 13
CPM
E 4 H 2
Start 4 8 13 15 Finish
4 8 13 15

B 3 D 4 G 5
0 3 3 7 8 13
1 4 4 8 8 13
CPM of ANC Inc.

A 2 C 2 F 3
0 2 2 4 4 7
0 2 2 4 10 13

E 4 H 2
Start 4 8 13 15 Finish
4 8 13 15

B 3 D 4 G 5
0 3 3 7 8 13
1 4 4 8 8 13
 Probability of Project Completion

• The critical path analysis helped determine the expected project

completion time of 15 weeks
• But variation in activities on the critical path can affect overall
project completion, and this is a major concern
• If the project is not complete in 16 weeks, the foundry will have to
close
• PERT uses the variance of critical path activities to help determine
the variance of the overall project

Project variance = ∑ variances of activities

on the critical path
 EXPECTED
MOST TIME,
OPTIMISTIC PROBABLE PESSIMISTIC t = [(a + 4m + VARIANCE
Probability of Project ACTIVITY
A 1
a m
2
b
3
b)/6]
2
[(b – a)/6]2
4/36

Completion B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
ACTIVITY VARIANCE
H 1 2 3 2 4/36
A 4/36 25

B 4/36
C 4/36
D 16/36
E 36/36
F 64/36
G 64/36
H 4/36

 Hence, the project variance is

Project variance = 4/36 + 4/36 + 36/36 + 64/36 + 4/36 = 112/36 = 3.111

Probability of Project Completion

Project standard deviation   T  Project variance

 3.11  1.76 weeks
• We assume activity times are independent and total project
completion time is normally distributed
• The project’s expected completion date is 15 weeks.
• Assume that the total project completion time follows a normal
probability distribution
• Chart tells us that there is a 50% chance of completing the entire
project in less than 15 weeks and a 50% chance it will exceed 15
weeks
Standard
Deviation = 1.76
Weeks
Probability of Project Completion

• The standard normal equation can be applied as follows

Due date  Expected date of completion

Z
T
16 weeks  15 weeks
  0.57
1.76 weeks

• From Probability Distribution Table we find the probability

of 0.71566 associated with this Z value
• That means there is a 71.6% probability this project can be
completed in 16 weeks or less
Probability of Project Completion

• Probability of ANC Inc meeting the 16-week deadline

Expected Time is 0.57 Standard

15 Weeks Deviations
Probability
(T ≤ 16 Weeks)
is 71.6%

15 16
Time
Weeks Weeks
Summary of CMP and PERT
CPM
It defines Critical Path Method
It was first developed by DuPont
for its Chemical Plant Project
It uses deterministic time
approach
It is based on assumption that
exact time of any activity is
known
It does not consider any
probabilistic aspect
PERT
It denotes Programme Evaluation
and Review Technique
It was first developed by NASA
for its ballistic missiles project
It uses probabilistic time
approach
It uses three time estimates.
Optimistic, most likely and
pessimistic
It can measure the probability of
project completion in some
practical time
Some Definitions

Network: Network is a diagrammatic representation of

various activities showing their interdependencies and
dependencies, without drawing on scale. Network is the
most commonly used tool for planning and controlling any
project.
Critical Activities: The activities which are crucial for
completion of a project on schedule time.
Project Duration: A project is said to be completed only
when all the activities involved are completed.
Exercise

Find the critical path of those activities. Also find the

total float and free float of those

Activity Precedence Activity Duration (days)

a - 8
b - 9
c a 9
d a,b 4
e a 6
f c 5
g c,d,e 7
Video Time!
Video Time!
Forward and Backward Pass
Forward Pass

Backward Pass
Free Float and Total Float
Free Float: The amount of time that a schedule activity can
be delayed without delaying the early start date of any
immediately following schedule activities
Free Float = ESs – EFp - Lag
Total Float: The total amount of time that a schedule
activity may be delayed from its early start without delaying
the project finish date, or violating a schedule constraint.
It is the amount of time a task can be delayed without delaying the
project end date. Total Float = LS – ES or LF - EF
Practical Definition:
Slack or Float provide flexibility in the project schedule. When
leveraged properly, project managers can shift activities and
resources to meet the project objectives and priorities. It is the
amount of time an activity can be delayed without impacting other
activities or the project end date and changes over the course of the
project implementation
Free Float and Total Float…cont.
Free Float Example
Free Float and Total Float

A 2 B 1 E 4
0 2 2 3 3 7
0 2 9 10 10 14

C 6 D 6
2 8 8 14
2 8 8 14

F 2
2 4
12 14

H 2 G 3
0 2 14 17
12 14 14 17
Summary of Float

Slack and Float are the same thing. We differentiate between

Total Float and Free Float to understand the amount of delay
we can tolerate without impacting the project schedule and
successor activities, respectively.

The concept and use of float helps us keep our project on

schedule and use resources more efficiently as the project
progresses. The lack of float or its disappearance gives us
clear indication our project is out of control and corrective
measures must be taken. Additionally, by using what-if
scenarios, we can understand impacts to the project.

Understanding float and its use is one industry trick of

successful project managers.
CPM Exercise

Find the completion time and critical path.

Activity Duration (mins) Predecessor

Make Menu 30 -
Shop for Ingredients 60 Make Menu
Prepare Ingredients 60 Shop for Ingredients
Prepare Appetizers 60 Shop for Ingredients
Cook Food 30 Prepare Ingredients
Wash Tableware 45 Make Menu
Set Table 15 Wash Tableware
Serve Dinner 0 Set Table, Cook Food, Prepare Appetizers
Keeping the Project on Track - Control

Two things to know: (1)Where you suppose to be and

(2) where you are
Principle: Unless you know both cost and schedule, you
have absolutely no idea where your project actually is.

C = Cost

C = f (P, T, S) P = Performance
T = Time
S = Scope
PERT – a cost accounting system

• Although PERT is an excellent method of monitoring and

controlling project length, it does not consider the very
important factor of project cost
• PERT/Cost is a modification of PERT that allows a
manager to plan, schedule, monitor, and control cost as well
as time
• PERT/Cost is an accounting information system that helps
management gauge progress against scheduled time and
cost estimates
• It is a project oriented system that is based on analyzing a
segmented project
• Each segment is a collection of work package
• When discrepancies are found between the actual progress
and the expected progress, corrective action can be taken.
PERT – a cost accounting system

Assumptions:
Once started a work package is performed continuously until it
is finished
The cost associated with a work package are spread evenly
throughout its duration

• Value of Work to Date = p x [Work Package Budget]

• Expected Remaining Completion Time =
(1-p) x Original Expected Completion Time
PERT – a cost accounting system

• Cost Overrun/Underrun Analysis

• For each work package (completed or in progress)
we calculate

Cost Overrun =
[Actual Expenditures to Date] - [Value of Work to Date]

Corrective Actions:
If a project is found to be
Behind the schedule and or
Experiencing cost overruns
PERT – a cost accounting system

Management seeks out the causes for these problems -

• Correct the project completion time or cost estimates.
• Reassess work package completion times and cost estimates.
• Identify departments or contractors that cause delays.
Possible Corrective actions, to be taken whenever needed -

• Focus on uncompleted activities.

• Determine whether crashing activities is desirable.

• In the case of cost underrun, channel more resources to

problem activities.

• Reduce resource allocation to noncritical activities

 A 2 C 2 F 3
0 2 2 4 4 7
0 2 2 4 10 13

E 4 H 2
Start 4 8 13 15 Finish
4 8 13 15

B 3 D 4 G 5

Project Completion time = 15 weeks 0

1
3
4
3
4
7
8
8
8
13
13

At the end of 10 weeks a progress assessment is made

IMMEDIATE Expenditure
ACTIVITY DESCRIPTION PREDECES (Actual) Status
SORS

A Build internal components — 2600 Finish

B Modify roof and floor — 5000 Finish

C Construct collection stack A 3000 Finish

Pour concrete and install
D B 5000 Finish
frame
Build high-temperature
E C 700 Finish
burner
F Install control system C 5600 40%

G Install air pollution device D, E 700 Finish

H Inspect and test F, G 2000 25%

Work packages to focus on
 • Value of Work to Date = p x [Work Package Budget]
• Cost Overrun = [Actual value to date] –[Estimated value]

Project Cost Control – Cost Analysis

Work Budgeted Values Percentage Estimated Actual Cost

Package Complete Value Vaule Overrun
Time Cost
A 2 2000 100% 2000 2600 600
B 3 3000 100% 3000 5000 2000
C 2 4500 100% 4500 3000 -1500
D 4 2500 100% 2500 5000 2500
E 4 500 100% 500 700 200
F 3 13000 40% 5200 5600 400
G 5 1500 100% 1500 700 -800
H 2 6000 25% 1500 2000 500
CE401 Project Planning and Management
Abu Naser Chowdhury PhD
Quality and Inspection

Quality:
The totality of features and
characteristics (attributes) of a product
or service that bear on its ability to
satisfy a given need

Inspection:
The process of measuring,
examining, testing, gauging or
otherwise comparing one more
characteristics of a product/service
with specified requirements
Quality Control and Assurance

Quality Control:
The actions which provide a mean
to control and measure the
characteristics of an item, process or
facility to established requirements

Quality Assurance:
All those plans and systemic actions
necessary to provide adequate
confidence that an item or facility
will perform satisfactory in service
Quality Control and Assurance

Quality Assurance Quality Control

An overall A series of
management plan to analytical
guarantee the measurements used
integrity of data to assess the
(The “system”) quality of the
analytical data
(The “tools”)
2 Aspects of Quality in Design and
Manufacturing
• Product features • Freedom from
• Characteristics Deficiencies
that result from • Product does what it
design is supposed to do
• Functional and • Product is absent of
aesthetic defects and out-of-
features that tolerance conditions
appeal to the
customer
• “Grade”
Aspects of Quality: Product Features

• Design configuration, size, weight

• Function and performance
• Distinguishing features of the model
• Aesthetic appeal First Class Brick:
• Ease of use Size
• Availability of options Weight
• Reliability and dependability Strength:
• Durability and long service life Water absorption:
• Serviceability Color:
• Reputation of product and producer
Aspects of Quality:
Freedom from Deficiencies
• Absence of defects
• Conformance to specifications
• Components within tolerance
• No missing parts
• No early failures
Quality Responsibilities

• Product features are the aspect of quality for which the

design department is responsible
• Product features determine to a large degree the price that a
company can charge for its products
• Freedom from deficiencies is the quality aspect for
which the manufacturing departments are responsible
• The ability to minimize these deficiencies has an important
influence on the cost of the product
• These are generalities
• The responsibility for high quality extends well beyond the
design and manufacturing departments
Traditional Quality Control

Typical management principles and practices:

• Customers are external to the organization
• The sales and marketing department are
responsible for customers
• Company is organized by functional departments
• Inspection department is responsible for quality
• Inspection follows production
• Knowledge of Statistical Quality Control techniques
resides only in the minds of the QC experts in the
organization
Modern View of Quality Control

High quality is achieved by a combination of:

• Good management – three objectives of “total
quality management”
• Achieving customer satisfaction
• Continuous improvement
• Encouraging involvement of entire work force
• Good technology – traditional statistical tools
combined with modern measurement and
inspection technologies
Total Quality Management (TQM)

Typical management principles and practices:

• Quality is focused on customer satisfaction
• Internal customers and external customers
• Quality goals are driven by top management
• Quality control is pervasive in the organization
• Quality must be built into the product, not inspected in
afterward
• Production workers must inspect their own work
• Continuous improvement
• A never ending chase to design and produce better
products
Six Sigma

• A quality-focused program that utilizes

worker teams to accomplish projects aimed at
improving an organization’s operational
performance
• Started at Motorola Corp in 1980s
• Started by Mikel Harry at Motorola in 1970s
• Encouraged by CEO Robert Galvin
• Motorola wins Malcolm Baldrige Award, 1988
• Subsequently adopted by other companies,
including GE
• GE claims savings in $billions
General Goals of Six Sigma 6σ

• Better customer satisfaction

• High quality products and services
• Reduced defects
• Improved process capability through reduction
in process variations
• Continuous improvement
• Cost reduction through more effective and
efficient processes
ISO 9000

• ISO = International Organization for Standardization

• U.S. representative to ISO 9000 is ANSI/ASQC
• ISO 9000 is a standard for the systems and procedures
used by a facility that affect the quality of the products
and services provided by the facility
• It is not a standard for the products and services
• ISO 9000 is generic, not industry specific
• It can be applied to any facility producing any
product or providing any service
2 Ways to Apply ISO 9000

• Implement the standards simply for the sake of

improving a firm’s quality systems
• ISO 9000 Registration – formal certification
that the facility satisfies the standard
• Benefits:
• Reduce frequency of quality audits by customer firms
• Qualify for business partnerships with companies that
require ISO 9000 registration (especially in Europe)
Quality Improvement Methodology

It is an improvement methodology
Developed by Walter Shewhard in 1939
Known as Shewhard Cycle. In Japan it is known as
Deming Cycle because Dr. Deming introduced it first in
1950.
It is quite straight forward, but not intuitive.

Plan: Select the process for

improvement. Analyze it
and plan a change that will
have beneficial effect.
Quality Improvement Methodology …cont

Do: Apply the change to small

scale….a test. It is critical step
and the hallmark for the
approach. Look for desired
effect to further quality
improvement.
Check: Observe the effect of change. More than casual
observation. Study the results – why the occurred, how
they affect the process/ system.
Act: If results are as expected,
change the system. Otherwise, go to
the plan step to revisit the process to
analyze it again a prepare a new plan
Quality – Summary

1. Quality involves product, defect, process, customer and

system
2. Quality is the ability of a set of inherent characteristics
of a product, system or process to fulfill requirements of
customers and other interested parties.
3. Quality is the forth among equals in relation to the
project triple constraint of time, cost and scope
4. Quality is not an expensive process, an expensive
product or time consuming
5. Quality benefits include customer satisfaction, reduced
costs, increased profits and increased competitiveness.
Quality Assurance Plan

Work breakdown structure (WBS) reference number for the task

concerned
A statement of requirement
A statement of the specification that is specific and measurable
A description of the assurance activity
Schedule information
Designation of the responsible entity
Project Quality Assurance Plan
Pareto’s Law

Vilfredo Pareto, Italian Economist

Wealth seems to be distributed in populations according to an
80/20 rule: 80 percent of the wealth is controlled by 20
percent of the population

The rule is also valid for defects in administration and

production process; 80% of the defects are caused by
20% of the possible source of error
Pareto chart forces to consider the data and go after the
things that have the most effect on the process
Pareto’s Law
Where to focus/concentrate for action…for effective action, not
trail and error
Collaboration
CE 401 Project Planning and Management
Abu Naser Chowdhury PhD
… as a Construction Manager
• Complete project on time and within budget
• What effect does accident/injury have on company?
• Worker’s Compensation
• Property damage
• Loss of time due to accident investigation
• Employee morale
• Employee safety
• Moral obligation (humanitarian concerns)
• Economic terms ( financial concerns)
Then & Now
• 1970 • 2000
• 56 million workers
• 3.5 million worksites
• 14,000 + deaths
• 2.5 million workers
disabled by accidents &
injuries
• 10 times as many
person-days lost from
job related disabilities
as from strikes
• 300,000 new
occupational disease
cases
• 105 million workers
• 6.9 million worksites
• 5,915 deaths
• Workplace deaths have
been more than cut in
half
• Occupational injury and
illness rates have
declined by 40%
OSHA
• Occupational Safety and Health Administration (OSHA)
• Created by OSH Act of 1970
• Also known as Williams-Steiger OSH Act of 1970
• Signed into law December 29, 1970 by Richard Nixon
• Imposed nationwide safety standards
• General industry
• Construction
• Strict employee S & H standards
• Covered employees
• Enforce same standards for inspections,
investigations, record-keeping requirements, and
enforcement procedures
 The Most Frequent Causes of Deaths in
Construction

• OSHA has found that 90% of all construction fatalities

result from 4 types of construction accidents:
• Falls from elevation 33%
• Struck by equipment/falling object 22%
• Caught in/between 18%
• Electrical shock 17%

Statistics show that new employees on the job for one

month or less account for 25% of all construction
accidents
The Most Common injuries in Construction
The Most Common Type of Construction injury:
• Overexertion
• Struck by an object
• Falls from elevation

The Most Affected Area of the Body by injury:

• Back 21%
• Lower extremities 12%
• Torso and fingers 10%
Construction Safety

Safety is the absence of danger

Safety is the control of recognized
hazards to attain an acceptable level of
risk

A hazard is anything in the workplace that

has the potential to harm people. Hazards can
include objects in the workplace, such as
machinery or dangerous chemicals.
Construction Safety

Risk is the probability of loss

A probability or threat of damage, injury,
liability, loss or any other negative occurrence
that is created by external or internal
vulnerabilities
What is vulnerability then?
Video Time!
Personal Protective Equipment (PPE) on
Site
Most construction sites require at least:
• Hard hat
• Safety Boots
• Hi-viz jacket
• Safety Glasses

Wear them always for safety

General Contractor as Prime

• Meet “general duty clause”

• Keep workers informed
• Know mandatory OSHA standards
• Comply with all regulations, rules, standards
• Inspect workplace
• Minimize or eliminate potential hazards
• Warn employees of potential hazards
General Contractor as Prime …cont.
• Provide training per OSHA standards
• Provide employees with proper equipment
• Provide medical examinations as needed
• Report fatalities (within 8 hours)
• Report hospitalizations ( more than 3 employees,
within 8 hours)
• Keep OSHA-required records
• Post required records
• Post OSHA poster
• Provide employee access to OSHA records
• Employee medical and exposure records
Employee Responsibility
• Ethical use of rights under OSHA
• Comply with OSHA standards
• Follow employer mandated safety program
• Use correct PPE
• Report hazardous/dangerous conditions
• Report job-related injury or illness
• Cooperate with OSHA inspection
Common Mistakes in Construction Site
Common Mistakes in Construction Site
Accident Vs Injury

Accident?
Mishap or Near Miss
Injury?
Accident that Hurts Someone

• Many Accidents Occur

• Most Cause No Injuries

• Most are not Reported

Accidents!

• Which Accidents will Cause

Injuries?
We Don’t Know!

Because We Don’t Know Which Accidents will Cause

Injuries…
The Goal is to Prevent All Accidents
Accidents!

Accidents are Opportunity to:

Recognize Hazard And Take 3 Steps

Step 1: Reporting Accidents

Step 2: Investigating Accidents
Step 3: Eliminating Accidents
Step 1: Reporting Accidents

• Realize that it Happened:

Practice Incident Recall
Report Accidents Immediately
Any Free Warnings Today?
Step 2: Investigating Accidents

• Determine the Cause:

2% - “Acts of God”
10% - Unsafe Conditions
88% - Unsafe Acts of People

Examples of unsafe act:

Inattentiveness
Carelessness
Creating Unsafe Conditions
Step 3: Eliminating Accidents

• Eliminate the Causes:

Removing Unsafe Conditions
Changing Unsafe Behavior
7 Principles to prevent accident!

Strategies for control and management of Health and Safety

at work in Construction industry:
1. Avoid a risk altogether by eliminating hazards
2. Tackle risks at source
3. Adapt work to the individual when designing work areas and
selecting method of works
4. Use technology to improve conditions
5. Give priority to protection for the whole workplace rather than to
individuals
6. Ensure everyone understands what they have to do to be safe and
healthy at work
7. Make sure that Health and Safety Management is accepted by
everyone
…if followed accident prevention is more likely to achieve
Basic Safety Philosophy for Success

• All accidents are preventable.

• No job is worth getting hurt for
• Every job will be done safely
• Incidents can be managed
• Safety is everyone’s responsibility
• Continuous improvement
• Safety as a “way of life” for 24 hours/day
• All individuals have the responsibility and accountability
to identify eliminate or manage risks associated with their
workplace
• Legal obligations will be the minimum requirements for
our health & safety standards
• Individual will be trained and equipped to have the skills
and facilities to ensure an accident free workplace
CE401 Project Planning and Management
Abu Naser Chowdhury PhD
Procurement

• Procurement means acquiring goods and/or services

from an outside source. Procurement is the term
generally used by government, while business uses
the term purchasing and outsourcing is commonly
used by the information technology industry.
• It is estimated that in the year 2003 the worldwide
information technology outsourcing market has
grown to over US$110 billion.
The act of obtaining or buying, goods and services The process
includes preparation and processing of a demand as well as the end
receipt and approval of payment.
Procurement Management
• Project procurement management includes the following
processes for acquiring goods and services from outside the
project organization:
• Procurement planning: determining what to procure and
when.
• Solicitation planning: documenting product requirements
and identifying potential sources.
• Solicitation: obtaining quotations, bids, offers, or
proposals as appropriate.
• Source selection: choosing from among potential vendors.
• Contract administration: managing the relationship with
the vendor.
• Contract close-out: completion and settlement of the
contract.
Procurement process

Important milestones & Decision making stage

Procurement
Planning
• Procurement planning involves identifying which
project needs can be best met by using products or
services outside the organization. It includes deciding:
• Whether to procure.
• How to procure.
• What to procure.
• How much to procure.
• When to procure.
• It is essential to be thorough and creative when planning
procurement. Even though a company may be viewed as a
competitor, it will often be advantageous to collaborate on
some projects.
Inputs are: Project Scope Statement, Product Description,
Market Conditions, Constraints and Assumptions
Solicitation
Planning
• Solicitation planning involves preparing of the
documents needed for requesting bids (solicitation),
and determining the evaluation criteria for the award
of a contract. Common documents used in this
process are:
• Request for Proposals: used to solicit proposals
from prospective sellers where there are several
ways to meet the sellers’ needs.
• Requests for Quotes: used to solicit quotes for
well-defined procurements.
• Invitations for bid or negotiation and initial
contractor responses are also part of solicitation
planning.
Solicitation

• Solicitation (or tendering) involves obtaining proposals,

tenders or bids from prospective sellers. Prospective sellers do
most the work in this process, usually at no cost to the buyer
or the project. The buying organization is responsible for
advertising the “request to tender” (the solicitation)/”Invitation
for Tender”.
• Organizations can advertise to procure goods and services in
several ways:
• Approaching the preferred vendor.
• Approaching several potential vendors.
• Advertising to anyone interested.
• A bidders’ conference or similar meeting between the buyer
and the prospective sellers can help clarify the buyer’s
expectations.
Source Selection

• Once buyers receive proposals, they must select a

vendor or decide to cancel the procurement
Source selection involves:
• Evaluating bidders’ proposals
• Choosing the best one
• Negotiating the contract
• Awarding the contract
• It is highly recommended that buyers use formal
evaluation procedures for selecting vendors.
• Buyers often create a “short list”
Source Selection

Sample: Short list of 3 Proposals

• After developing a short list of possible sellers, organizations will

often undertake more detailed evaluation
• The project team members and other stakeholders then evaluate
each proposal by assigning points to each criteria
Contract
Administration
Contract administration ensures that the seller’s
performance meets contractual requirements.
Contracts are legal relationships, and are subject to
the contract law in the country where the project is
conducted, and in the case of international
projects, the country of supply.

Due to their complexity, many project managers

ignore contractual issues. This can result in serious
problems. Ideally, the project manager and the
project team should be actively involved with
contract law experts in the preparation and
administration of contracts.
Contract Close-out

Contract close-out is the final project procurement

management process. It includes:
• Product verification to determine if all work was
completed correctly and satisfactorily.
• Administrative activities to update records to reflect
final results.
• Archiving information for future use.
• Procurement audits are often undertaken during contract
close-out to identify lessons learned in the procurement
process.

It is very important to prepare contracts with great care and

expert assistance. It is equally important to initiate and
follow effective contract administration procedures.
Tendering/Bidding Method

Open Tendering Method (OTM)

Limited Tendering Method (LTM)
Request For Quotation Method (RfQM)
Open Tendering Method (OTM)
A bidding process that is open to all qualified bidders
and where the sealed bids are opened in public for
scrutiny and are chosen on the basis of price and
quality
• Public bidding, resulting in low prices
• Published in newspapers
• Quotations must be sent in the specific forms that are
sold, before the time &date mentioned in the tender
form
• In technical items, ‘two packets or two bins’ system is
followed. Offers are given in two separate packets.
• Technical bid
• Financial bid
Open Tendering Method (OTM) ….Cont.

• First technical bid is opened & short listed

• Then financial bid of selected companies are opened &
lowest is selected
• Delayed tenders & late tenders are not accepted. But if, in
case of delayed tenders, if the rate quoted is very less, then it
can be accepted.
• Quotations are opened in presence of indenting department,
accounts & authorized persons of party
• Validity of tenders – generally 90 days
Open Tendering Method (OTM)

• Invitation for Tender (IFT) shall be advertised in at least

one Bangla language newspaper and in one English language
newspaper.
• Time allowed for tender preparation (National)
14 days – up to 200 lac
21 days – up to 500 lac
28 days – above 500 lac
•Time allowed for tender preparation (International) : 42 day
• Tender security and performance security is a MUST
Most Competitive and Transparent Method
 Limited Tendering Method (LTM)

Specialized nature works for a limited number of suppliers

or contractors
When goods/services are only available from approved
enlisted/potential tenderers
Time and administrative cost is disproportionate to
goods/services
Tender security is not mandatory but performance security
is a must
The entity contacts suppliers individually. However, this method is to
be used only when justified by any of the reasons provided include:
absence of tenders in response to an open or selective tender; absence
of competition for technical reasons connected with the protection of
patents or copyrights; reasons of extreme urgency or very
advantageous conditions which would only arise in the short term.
Request for Quotation Method

For the purchase of readily available goods/services and low

value service works
Value of goods….2 lac each time but maximum 10m lac in a year
Value of services….5 lac each time but maximum 20 lac in a year

Sample
Points to remember while purchasing
/Procurement
• Proper specification
• Invite quotations from reputed firms
• Comparison of offers based on basic price, freight & insurance, taxes and
levies
• Quantity & payment discounts
• Payment terms
• Delivery period, guarantee
• Vendor reputation
(reliability, technical capabilities, Convenience, Availability, after-sales
service, sales assistance)
• Short listing for better negotiation terms
• Seek order acknowledgement
CE 401 Project Planning and Management
Abu Naser Chowdhury PhD
Material Management

Inventory Transportation

Cost
of the
Customer Service
Service
Material Management

It is concerned with planning, organizing and controlling

the flow of materials from their initial purchase through
internal operations to the service point through distribution.

OR

Material management is a scientific technique, concerned

with Planning, Organizing & Control of flow of materials,
from their initial purchase to destination.
Each step is vital. The aim of Material Management is:
To get
1. The Right quality
2. Right quantity of supplies
3. At the Right time
4. At the Right place
5. For the Right cost
Material Management
PURPOSE OF MATERIAL MANAGEMENT
• To gain economy in purchasing
• To satisfy the demand during period of replenishment
• To carry reserve stock to avoid stock out
• To stabilize fluctuations in consumption
• To provide reasonable level
Objective of MM
of client services • Right price
• High turnover
• Low procurement
storage cost
• Continuity of supply
• Consistency in quality
• Good supplier relations
• Development of personnel
• Good information system
Objective of material management

Primary
•Right price
•High turnover
•Low procurement Secondary
•& storage cost •Forecasting
•Continuity of supply •Inter-departmental
•Consistency in quality harmony
•Good supplier relations •Product improvement
•Development of •Standardization
personnel •Make or buy decision
•Good information •New materials & products
system •Favorable reciprocal
relationships
Material Management
Four basic needs of Material management
1. To have adequate materials on hand when needed
2. To pay the lowest possible prices, consistent with quality and value
requirement for purchases materials
3. To minimize the inventory investment
4. To operate efficiently

Elements of material management

1. Demand estimation
2. Identify the needed items
3. Calculate from the trends in Consumption during last 2 years.
4. Review with resource constraints
Spectrum of Control
The underlying spectrum is to provide effectiveness to a function that
must start from planning stage and will end when the finished product is
finally distributed:
1. Planning sets the Goal and indicates the available sources of finance.
2. Scheduling specifies the requirements, the quantum and the delivery
schedules.
3. Purchasing and Procurement select and retain vendors; and contracts
with them.
4. Inspection and Quality control conduct test checks for conformance to
specifications.
5. Stores and Inventory control determine inventory status, undertake
maintenance and upkeep.
6. Material Handling controls physical movement at any stage the
material is.
7. Distribution Logistics controls flow and distribution, and finally,
traffic, shipment and despatch conclude with final delivery.
Inventory

• Typically Inventory implies a list of items held in stock.

Stock implies the Quantity of a particular item on hand.

• Inventory is a stock of Materials used to facilitate

Production or to satisfy Customer demands. It include Raw-
materials, Work-in-progress and Finished goods.

• Inventory acts as a buffer between the demand and supply

rates of different nature.

• Inventories are vital

to the successful functioning
of Manufacturing &
Retailing organisations.
Type of Inventory

• Raw Material and Production Inventories: These are raw

materials and other supplies, parts and components which
enter into the product during the production process and
generally form part of the product.
• In-process Inventories: These are semi-finished materials,
and partly finished products formed at various stages of
production. Also named as Decoupling Inventories to
decouple or disengage different parts of the production
system.
• MRO Inventories: Maintenance, repairs and operating
supplies which are consumed during the production process
and generally do not form part of the product itself are
referred to as MRO Inventories. e.g. oils and lubricants,
machinery and plant spares, tools and fixtures etc.
Type of Inventory

• Lot-size Inventories: It is a common practice to buy some

raw materials in Large quantities than are necessary for
immediate need in order to avail quantity discounts and
lowering down costs of buying, receiving, inspection,
transport and handling. It is also termed as Cycle inventories.
• Fluctuation Inventories: In order to cushion against
unpredictable fluctuation in demand these are maintained. The
general practice of serving the customer well is the reason for
holding such Inventories. But they are not absolutely essential
in the sense that such stocks are always uneconomical.
Type of Inventory

• Anticipation Inventories: In case of seasonal variations in the

availability of some raw materials, it is convenient and also
economical to build up stocks where consumption patterns
may be reasonably uniform and predictable. Such inventories
are carried to meet predictable changes in demand.

6 types of inventory
Inventory Control System

Inventory control system is either Manual or Computerized or a

combination of two. It performs following functions:

1. Transaction Accounting: Every Inventory system requires a

method of record keeping, which must support the accounting
needs of the organization and the inventory management
function.
It requires the Perpetual (never ending or changing) records be
kept by recording every disbursement and receipt. In some other
cases, periodic counts e.g. annual of the inventory may be
required.
Whatever the exact method used, every Inventory control system
requires a suitable transaction accounting to follow with.
Inventory Control System

2. Inventory Decision Rules: A decision system is to be developed

regarding when and how much to order

3. Exception Reporting: A reporting system so as to alert

Management to changing assumptions e.g. Stockouts, Excessive
Inventory, Forecasting not meeting demand schedules

4. Forecasting: Judgment plays a Vital role in forecasting,

however, to modify Quantitative forecasts for unusual events

5. Top Management Reporting: The reports should include (a)

costs of operating the Inventory, (b) Investment levels at a time
compared with other periods, (c) the Service levels provided to
customers etc.
Selective Inventory Control (SIC)

• ABC Inventory Classification: The rationale of ABC

classification is the impracticality of giving an equally high
degree of attention to the record of every inventory item, due
to limited information- processing capacity

But, in a modern computerized well-implemented planning

system, every item, irrespective of its cost and volume, can
receive the same degree of care and attention

ABC analysis leads to classification of Inventory items on the

basis of their USAGE in monetary terms
A – High consumption value items .
B – Moderate consumption value items.
C – Low consumption value items.
Selective Inventory Control (SIC)
A B C
% age of items 10-20 20-30 60-70
% age of value 70-85 10-25 5-15

Where should we focus? Concentrate?

• FSN Analysis: FSN Study may be made to weed out

(discard/remove) unwanted materials and parts. It is based on the
Consumption pattern of items

F - stands for Fast

S - stands for Slow moving
N - stands for non-moving materials and parts
This speed classification helps in the arrangement of stocks in the
stores and in determining the distribution and handling patterns
Selective Inventory Control (SIC)

• VED Analysis: VED Analysis is also the same in principle.

The only difference is that it finds out which materials and
parts are valuable, which are essential, and which are desirable.
Inventory items are classified on the basis of their criticality to
the production process or other services.
V – Vital items without which the production process would
come to a standstill
E – Essential items whose stock-out might cause temporary
losses in production.
D – Desirable items which are required but do not immediately
cause a loss of production.
This is also essentially meant for a sizeable reduction in
inventory
Selective Inventory Control (SIC)
• HML Analysis: Similar to the ABC analysis except that the items
are classified on the basis of Unit Cost rather than their Usage
value.
H stands for High cost per unit.
M stands for Medium cost per unit.
L stands for low cost per unit.
• SDE Analysis: SDE Analysis works on the criteria of availability
of items.
S stands for Scarce items
D stands for Difficult to obtain
E stands for Easily available
• S-OS Analysis: This analysis is based on the nature of Supplies.
S stands for Seasonal items
OS stands for Off-seasonal items
Selective Inventory Control (SIC)
• GOLF Analysis: This analysis is based on the Source of Supplies
G stands for Government Sources
O stands for Ordinary Sources
L stands for Local Sources
F stands for Foreign Sources
This is meant for deciding Procurement of materials from different
sources.

• XYZ Analysis: XYZ analysis is based on the criteria of Closing

Inventory value of different items.
X – Items whose Inventory value is high.
Y – Items whose Inventory value is neither too high nor too low.
Z – Items with Low investments in them.
Summary: The various types of analysis are not mutually exclusive.
They can be, and often are, used jointly to ensure better control over
MATERIALS
Summary of SIC
TITLE BASIS MAIN USES

ABC Analysis Usage value To control on the Significant few &

the Insignificant many
FSN Analysis Consumption pattern To control Obsolescence
of the Component
VED Analysis Criticality of the To determine the Stocking Levels of
Component Spare parts

HML Analysis Unit Price of the To control purchases

Material
SDE Analysis Problems faced in Lead-time analysis and Purchasing
Procurement Strategies
SOS Analysis Nature of Supplies Procurement/ Holding Strategies for
Seasonal items like Agricultural
products
GOLF Analysis Source of material Procurement Strategies
XYZ Analysis Value of items in To review the Inventories and their
Storage Uses at Scheduled intervals
CE401 Project Planning and Management
Abu Naser Chowdhury PhD
Engineering Economy

Engineering Economy:
It deals with the concepts and techniques of analysis
useful in evaluating the worth of systems, products, and
services in relation to their costs

Basic Concepts

• Cash flow
• Interest Rate and Time value of money
• Equivalence technique
Cash Flow
• Engineering projects generally have economic consequences
that occur over an extended period of time
• For example, if an expensive piece of machinery is
installed in a plant were brought on credit, the simple
process of paying for it may take several years
• The resulting favorable consequences may last as long as
the equipment performs its useful function
• Each project is described as cash receipts or disbursements
(expenses) at different points in time
Categories of Cash Flows

• First cost: expense to build or to buy and install

• Operations and maintenance (O&M): annual expense,
such as electricity, labor, and minor repairs
• Salvage value: receipt at project termination for sale or
transfer of the equipment (can be a salvage cost)
• Revenues: annual receipts due to sale of products or
services
• Overhaul: major capital expenditure that occurs during
the asset’s life
Cash Flows Examples…
Time Value of Money

• Money has value

– Money can be leased or rented
– The payment is called interest
– If you put $100 in a bank at 9% interest for one
time period you will receive back your original
$100 plus $9

Original amount to be returned = $100

Interest to be returned = $100 x .09 = $9
Replacement Analysis

• Should the existing equipment be retained or replaced?

• The “Defender” is the existing equipment.
• The “Challenger” is the best available replacement
equipment.
• If the defender proves more economical, it will be
retained. If the challenger proves more economical, it
will be installed.

Copyright Oxford University Press 2009

Reasons for Replacement

Use to determine whether an existing asset

should be replaced with a new asset

• Deterioration
– Higher O&M costs; less reliability than anticipated
• Requirement change
– Consumer wants more/less/different
• Technology
– New technology provides new challengers
• Financing
– Better interest rates
Replacement Studies

The objective is to address the question of whether a currently

owned asset should be kept in service or immediately
replaced

What to do with an existing asset?

• Keep it
• Abandon it (do not replace)
• Replace it, but keep it for backup purposes
• Augment the capacity of the asset
• Dispose of it, and replace it with another
Replacement Studies

Three reasons to consider a change.

• Physical impairment (deterioration)
• Altered requirements
• New and improved technology is now available.

The second and third reasons are sometimes referred

to as different categories of obsolescence.
Replacement Studies

• When examining whether to continue using

(economically) an existing process or product
(equipment), the calculation is called a replacement
study
• Any of the basic methods will work for comparison,
but the annual cost method is most common
• Existing equipment is sometimes called the
defender and the new is the challenger
• Salvage in replacement studies is an estimate of
future value (F)
 Replacement Studies

• Economic life- when the cost to keep an asset (O & M)

exceeds the value (revenue) it can produce.
• Cost to keep is sum of amortized initial cost (decrease
with time) PLUS the operating cost (increase with time)
• Summation of amortization and operation produces a
U-shaped curve

operation

$
amortization

time time Economic life

Replacement Studies…example 1

Acme owns a CNC machine that it is considering

replacing. Its current market value is $25,000, but it can
be productively used for four more years at which time
its market value will be zero. Operating and maintenance
expenses are $50,000 per year
Acme can purchase a new CNC machine, with the same
functionality as the current machine, for $90,000. In four
years the market value of the new machine is estimated to
be $45,000. Annual operating and maintenance costs will
be $35,000 per year.
Should the old CNC machine be replaced using a before-
tax MARR of 15% and a study period of four years?
Replacement Studies…example 1

Defender

Challenger

PW of the challenger is greater than PW of the defender

(but it is close).
Replacement Studies…example 2

An asset purchased 2 years ago for $40,000 is harder to maintain

than expected. It can be sold now for $12,000 or kept for a
maximum of 2 more years, in which case its operating cost will be
$20,000 each year, with a salvage value of $9,000 two years
from now. A suitable challenger will have a first cost of $60,000
with an annual operating cost of $4,100 per year and a salvage
value of $15,000 after 5 years. Determine the values of
P, A, n, and S for the defender and challenger for an AW analysis.
Interest rate is 10%. What is the decision?

Defender: P = $-12,000; A = $-20,000; n = 2; S = $9,000

Challenger: P = $-60,000; A = $-4,100; n = 5; S = $15,000
Replacement Studies…example 3

An asset purchased 2 years ago for $40,000 is harder to maintain

than expected. It can be sold now for $12,000 or kept for a
maximum of 2 more years, in which case its operating cost will be
$20,000 each year, with a salvage value of $10,000 after 1 year
or $9000 after two years. A suitable challenger will have an
annual worth of $-24,000 per year. At an interest rate of 10% per
year, should the defender be replaced now, one year from now,
or two years from now?
Solution: Defender AW
AWD1 = -12,000(A/P,10%,1) – 20,000 + 10,000(A/F,10%,1) = $-23,200
AWD2 = -12,000(A/P,10%,2) – 20,000 + 9,000(A/F,10%,2) = $-22,629
ESL is n = 2 years; AWD = $-22,629
Challenger AW = $-24,000 Replace defender in 2 years
Abandonment…Example

A machine lathe has a current market value of

$60,000 and can be kept in service for 4 more years.
With an MARR of 12%/year, when should it be
abandoned? The following data are projected for
future years.

Year 1 Year 2 Year 3 Year 4

Net receipts $50,000 $40,000 $15,000 $10,000

Market value $35,000 $20,000 $15,000 $5,000

Abandonment…solution

Keep for one year

Keep for two years

Keep for three years (BEST!)

Keep for four years

Abandonment…Example

A machine lathe has a current market value of

$60,000 and can be kept in service for 4 more years.
With an MARR of 12%/year, when should it be
abandoned? The following data are projected for
future years.

Year 1 Year 2 Year 3 Year 4

Net receipts $50,000 $40,000 $15,000 $10,000

Market value $35,000 $20,000 $15,000 $5,000

Abandonment…solution

Keep for one year

Keep for two years

Keep for three years (BEST!)

Keep for four years

Video Time!
Dr. Pannapa Herabat