Management
Copyright 2013 Pearson Education, Inc. publishing as
Prentice Hall
02 0 1
What is a Project?
Project
An interrelated
set of
activities with
a definite
starting and
ending point,
which results
in a unique
outcome for a
What is Project
Management?
Project
Management
A systemized,
phased
approach to
defining,
organizing,
planning,
monitoring,
02 0 4
Planning Projects
Defining the Work Breakdown
Structure
Diagramming the network
Developing the schedule
Analyzing costtime
tradeoffs
Assessing risks
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02 0 5
Work Breakdown
Structure
Work Breakdown Structure
A statement of all the work that
has to be completed.
Activity
The smallest unit of work effort
consuming both time and
resources that can be planned
and controlled.
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Work Breakdown
Structure
Level 1
Organizing and Site Preparation
Physical Facilities and Infrastructure
Select administration staffPurchase and deliver equipment
Site selection and survey
Select medical equipment
Construct hospital
Develop information systemLevel 2
Interview applicants
for
and
support
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Education,
Inc. Publishing as
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02 07
Diagramming the
Network
Program Evaluation and Review
Technique (PERT)
Critical Path Method (CPM)
ActivityonNode approach
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02  08
Example 2.1
Example 2.1
Immediate
Predecessor
A
C
A
D
B
E
B
F
A
G
C
H
D
I
Start
Finish
E
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02  11
Application 2.1
The following information is known about a project
Activity
Immediate
Predecessor(s)
B, C
02  12
Application 2.1
Activity
Immediate
Predecessor(s)
B, C
B
2
Start
A
7
F
3
D
4
E
4
C
4
Finish
G
5
02  13
02  14
0
Latest start time
12
12
14
Latest finish
time
Duration
Example 2.2
Paths are the
sequence of
activities between a
projects start and
finish.
Start
Path
Time (wks)
AIK
AFK
ACGJK
BDHJK
BEJK
33
28
67
69
43
Finish
02  17
Example
2.2
Earliest start time
12
27
15
0 A 12
12
12
Start
22 22
10
B
9
D 19 19
10
69
10
12
63
22
57
Finish
35
H
40
59 59
J
4
9 E
33
24
63
Example
2.2
0
12
I
15
12 12
12
Start
22 22
D 19 19
69
57
Finish
35
H
59 59
40
10
K
6
10
B
63
22
10
12
The Critical
Path takes 69
weeks
27
J
4
33
24
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02  19
63
Example
2.2
Latest
start time
0
2
12
48
15
63
12 12
12 14 53
12
14
Start
0
0
B
9
9
9
9
9
F
10
C
1
0
27
63
63
22
63
22 22 G
24 24
35
K
6
69
69
57
59
Finish
19 19
59 59
10 19 19 40 59 59
63
63
E 33
3524
59
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02  20
Example
2.2
S=
2 0
S=
36
12
48
I
15
27
63
S=
22
41
12 12 F
2 12 14 53
10 63
S = 12
2 14
Start
S=
0
B
0 9
9
C
1
0
S=
D
9 09
9
63
63
S=
2
22 22 G
24 24
35
S=
0
H
19 19
10 19 19 40
S=
K 0 69
6
69
57
59
Finish
59 59
59 59
J
4
E 33
9
S=
26 35 24 59
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02  21
63
S=
63
Developing a Schedule
Gantt chart
Application 2.2
Calculate the four times for each activity in order to
determine the critical path and project duration for
the diagram in Application Problem 1.
Activit
y
Duratio
n
Earlies Latest
t Start Start
(ES)
(LS)
0
Earlies
t
Latest
Finish Finish
(EF)
(LF)
7
Slack
(LSES)
00=0
On the
Critica
l Path?
Yes
5
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02  23
Prentice Hall
Application 2.2
Calculate the four times for each activity in order to
determine the critical path and project duration.
Activit
y
Duratio
n
Earlies Latest
t Start Start
(ES)
(LS)
0
7
7
11
15
19
19
0
9
7
11
15
21
19
Earlies
t
Latest
Finish Finish
(EF)
(LF)
7
9
11
15
19
22
24
7
11
11
15
19
24
24
Slack
(LSES)
00=0
97=2
77=0
1111=0
1515=0
2119=2
1919=0
02  24
On the
Critica
l Path?
Yes
No
Yes
Yes
Yes
No
Yes
Application 2.2
B
2
Start
A
7
F
3
D
4
C
4
E
4
Finish
G
5
Analyzing CostTime
TradeOffs
Project Crashing
Shortening (or
expediting) some
activities within a
project to reduce
overall project
completion time.
Project Costs
Direct Costs
Indirect Costs
Penalty Costs
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Analyzing CostTime
TradeOffs
Project Costs
Normal time (NT) is the
Cost to crash per
time necessary to
period =
complete an activity
CC NC
under normal
NT CT
conditions.
Normal cost (NC) is the
activity cost associated
with the normal time.
Crash time (CT) is the
shortest possible time
to complete an activity.
Crash cost (CC) is the
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02  27
activity cost
associated
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CostTime Relationships
Direct cost (dollars)
8000
7000
6000
Estimated costs
for a 2week
reduction, from
10 weeks to
8 weeks
5200
5000
4000
3000

5

6

7

9


10 11
(Crash time)
(Normal time)
Time (weeks)
Figure 2.6
02  28
Analyzing CostTime
TradeOffs
Determining the Minimum Cost Schedule:
1. Determine the projects critical path(s).
2. Find the activity or activities on the critical
path(s) with the lowest cost of crashing per week.
3. Reduce the time for this activity until
a. It cannot be further reduced or
b. Until another path becomes critical, or
c. The increase in direct costs exceeds the savings
that result from shortening the project (which
lowers indirect costs).
4. Repeat this procedure until the increase in direct
costs is larger than the savings generated by
shortening the project.
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02  29
Example 2.3
DIRECT COST AND TIME DATA FOR THE ST. JOHNS HOSPITAL PROJECT
Activity
Normal
Time (NT)
(weeks)
Normal
Cost (NC)
($)
Crash Time
(CT)
(weeks)
Maximum
Time
Reductio
n (week)
12
10
10
24
10
35
40
Inc. publishing
15Copyright 2013 Pearson Education,
10
52,500 as 02 530
Prentice40,000
Hall
$12,000
50,000
4,000
16,000
120,000
10,000
500,000
1,200,000
11
Crash Cost
(CC)($)
$13,000
Cost of
Crashing per
Week ($)
1,000
64,000
7,000
7,000
600
20,000
2,000
10
8,000
1,500
10
3,000
12,000
14
6
25
35
200,000
16,000
530,000
1,260,000
2,500
Example 2.3
Determine the minimumcost schedule for
the St. Johns Hospital project.
Project completion time =69 weeks.
Project cost = $2,624,000
Direct = $1,992,000
Indirect = 69($8,000) = $552,000
Penalty = (69 65)($20,000) = $80,000
AIK
33 weeks
AFK
28 weeks
ACGJK
67 weeks
BDHJK
69 weeks
BEJK
43 weeks
02  31
Example 2.3
STAGE 1
Step 1. The critical path is BDHJK.
Example 2.3
I
15
STAGE 1
A
12
Start
B
9
F
10
K
6
C
10
G
35
D
10
H
40
Finish
J
1
E
24
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Prentice Hall
Example 2.3
STAGE 2
Step 1. The critical path is still BDHJK.
Step 2. The cheapest activity to crash per week
is now D at $2,000.
Step 3. Crash D by two weeks.
The first week of reduction in activity D saves
$28,000 because it eliminates a week of
penalty costs, as well as indirect costs.
Crashing D by a second week saves only
$8,000 in indirect costs because, after week
65, no more penalty costs are incurred.
Updated path times are
ACGJK: 64 weeks and BDHJK: 64 weeks
The netCopyright
savings
are $28,000
+ $8,000
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Prentice
2($2,000)
=Hall
$32,000.
Example 2.3
I
15
STAGE 2
A
12
Start
B
9
F
10
K
6
C
10
G
35
D
8
H
40
Finish
J
1
E
24
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02  35
Example 2.3
STAGE 3
Step 1. The critical paths are BDHJK and ACGJ
(A, B); (A, H); (C, B); (C, H); (G, B); (G, H) or
to crash Activity K
We consider only those alternatives for which
the costs of crashing are less than the
potential savings of $8,000 per week.
Step
We3.choose activity K to crash 1 week at
per week.
$4,000
Updated path times are: ACGJK: 63 weeks
and BDHJK: 63 weeks
Net savings are $8,000  $4,000 = $4,000.
Total project
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Inc. publishing as
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areEducation,
$2,511,000
$4,000
=
02  36
Prentice Hall
$2,507,000.
Example 2.3
I
15
STAGE 3
A
12
Start
B
9
F
10
K
5
C
10
G
35
D
8
H
40
Finish
J
1
E
24
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02  37
Example 2.3
STAGE 4
Step 1. The critical paths are still BDHJK and ACGJK.
Example 2.3
I
15
STAGE 4
A
12
Start
B
7
F
10
K
5
C
8
G
35
D
8
H
40
Finish
J
1
E
24
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02  39
Example 2.3
Stage
Crash
Activity
Time
Reduction
(weeks)
Resulting
Critical
Path(s)
Project
Duration
(weeks)
Project
Direct
Costs,
Last Trial
($000)
BDHJK
69
1,992.0
BDHJK
66
1,992.0
BDHJK
ACGJK
64
1,995.0
BDHJK
ACGJK
63
1,999.0
B, C
BDHJK
ACGJK
61
2,003.0
Crash
Cost
Added
($000)
3.0
4.0
4.0
15.2
Total
Indirect
Costs
($000)
552.0
528.0
512.0
504.0
488.0
Total
Penalty
Costs
($000)
80.0
20.0
0.0
0.0
0.0
Total
Project
Costs
($000)
2,624.0
2,543.0
2,511.0
2,507.0
2,506.2
Application 2.3
Indirect project costs = $250 per day
Penalty cost = $100 per day past day 14.
Project Activity and Cost Data
Normal
Activi Time
ty
(days)
Normal
Cost
($)
Crash
Time
(days)
800
600
5
Prentice Hall
1,000
1,500
Crash
Cost
($)
1,200
2,000
A, B
900
2,000
900
Immediate
Predecessor
(s)
02  41
C, D
Application 2.3
5
6
C
2
7
8
ES ID EF
LS
0
1
A
5
5
6
13
19
8
8
Start
0
0
B
5
5
5
5
5
D
3
8
8
E
5
F
2
DUR
LF
15
21
13
13
Finish
13
13
G
3
16
16
16
16
H
5
21
21
02  42
Application 2.3
Project Activity and Cost Data
Activit
y
Crash Cost/Day
200
600
300
500
150
100
H Total 200
2
Normal
Costs = $7,500
$250
Total Indirect Costs
= per day 21 days = $5,250
Penalty Cost =
$100 per day 7 days = $700
Total Project Costs =
$13,450
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Application 2.3
Step 1: The critical path is BDEGH , and the project
duration is 21 days.
Step 2: Activity E on the critical path has the lowest cost of
crashing ($150 per day). Note that activity G cannot be
crashed.
Step 3: Reduce the time (crashing 2 days will reduce the
project duration to 19 days) and recalculate costs:
Normal Costs Last Trial = $7,500
$150 2 days = $300
Crash Cost Added =
$250 per day 19 days = $4,750
Total Indirect Costs =
$100 per day 5 days = $500
Penalty Cost =
$13,050
Total Project Cost =
02  44
Application 2.3
Step 4: Repeat until direct costs greater than savings
(step 2) Activity H on the critical path has the next lowest cost
of crashing ($200 per day).
(step 3) Reduce the time (crashing 2 days will reduce the
project duration to 17 days) and recalculate costs:
Costs Last Trial = $7,500 + $300 (the added crash costs) = $7,800
Crash Cost Added = $200 2 days = $400
Total Indirect Costs = $250 per day 17 days = $4,250
Penalty Cost = $100 per day 3 days = $300
Total Project Cost = $12,750
02  45
Application 2.3
(step 4) Repeat
(step 2) Activity D on the critical path has the next lowest
crashing cost ($500 per day).
(step 3) Reduce the time (crashing 1 day will reduce the project
duration to 16 days) and recalculate costs:
Costs Last Trial = $7,800 + $400 (the added crash costs) = $8,200
Crash Cost Added = $500 1 day = $500
Total Indirect Costs = $250 per day 16 days = $4,000
Penalty Cost = $100 per day 2 days = $200
Total Project Cost = $12,900 which is greater than the last trial.
Hence we stop the crashing process.
Application 2.3
The recommended completion date is day 17.
Resulti
ng
Critical
Paths
Reducti
on
(days)
Projec
t
Durati
on
(days)
Cost
s
Last
Trial
Cras
h
Cost
Adde
d
Total
Indire
ct
Costs
Total
Pena
lty
Cost
s
Total
Projec
t
Costs
Tri
al
Crash
Activi
ty
BDEGH
21
$7,5
00
$5,25
0
$700
$13,4
50
BDEGH
19
$7,5
00
$300
$4,75
0
$500
$13,0
50
BDEGH
17
$7,8
00
$400
$4,25
0
$300
$12,7
50
02  47
Assessing Risks
Riskmanagement Plans
Strategic Fit
Service/Product Attributes
Project Team Capability
Operations
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02  48
Assessing Risks
Statistical Analysis
Optimistic time (a)
Most likely time (m)
Pessimistic time (b)
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02  49
Statistical Analysis
Area under curve
between a and b
is 99.74%
Mean
Time
Beta distribution
a
m
Mean
Time
Normal distribution
Statistical Analysis
The mean of the beta distribution
can be estimated by
a + 4m + b
te =
6
ba
6
02  51
Example 2.4
Suppose that the project team has
arrived at the following time
estimates for activity B (site selection
and survey) of the St. Johns Hospital
project:
a = Calculate
7 weeks, the
m =expected
8 weeks, time
and band
= 15
a.
variance for activity
weeksB.
b. Calculate the expected time and
variance for the other activities in
the project.
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02  52
Example 2.4
a.
7 + 4(8) + 15
54
=
= 9 weeks
6
6
15 7
6
8
6
= 1.78
02  53
Example 2.4
b.The following table shows the expected
activity times and variances for this
project. Time Estimates (week)
Activity Statistics
Activity
Optimistic
(a)
Most Likely
(m)
Pessimistic
(b)
Expected Time
(te)
Variance
(2)
11
12
13
12
0.11
15
1.78
10
15
10
2.78
16
10
1.78
14
25
30
24
7.11
18
10
4.00
25
36
41
35
7.11
35
40
45
40
2.78
10
13
28
15
9.00
15
5.44
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7 Inc. publishing 6
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02  54
0.11
Application 2.4
The director of
continuing
education at
Bluebird
University just
approved the
planning for a
sales training
seminar. Her
administrative
assistant
identified the
various activities
Copyright 2013 Pearson Education, Inc. publishing as
02  55
Prentice Hall
that must be
Application 2.4
The Network
Diagram is:
Start
J
I
Finish
Application 2.4
Activity
Immediate
Predecessor(s)
Optimistic
(a)
Pessimistic
(b)
12
11
17
25
10
12
C, E
F
5
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9
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2013 Pearson
Education,
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Expected
Time (t)
02  57
Variance
()
Application 2.4
Activity
Immediate
Predecessor(s)
Optimistic
(a)
Pessimistic
(b)
12
11
17
25
10
12
Expected
Time (t)
Variance
()
6.83
0.25
8.33
1.00
4.00
0.11
17.33
10.00
5.44
0.44
4.00
0.11
C, E
7.50
0.69
7.00
0.44
F
5
7 Inc. publishing
9
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2013 Pearson
Education,
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11.50
2.25
02  58
4.00
0.00
Analyzing Probabilities
Because the central limit theorem can be
applied, the mean of the distribution is the
earliest expected finish time for the project
TE =
T TE
p
where
T = due date for the project
02  59
Example 2.5
Calculate the probability that St.
Johns Hospital will become
operational in 72 weeks, using (a) the
critical path and (b) path ACGJK.
a. The critical path BDHJK has a
length of 69 weeks. From the table
in Example 2.4, we obtain the
variance of path BDHJK: 2 =
1.78 + 1.78 + 2.78 + 5.44 + 0.11 =
11.89 Next, we calculate the z72 69
3
value:
z
0.87
11.89 3.45
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02  60
Example 2.5
Using the Normal Distribution appendix,
we find a value of 0.8078. Thus the
probability is about 0.81 the length of
path BDHJK will be no greater than
Normal distribution:
Length of
72 weeks.
Mean = 69 weeks;
critical
Because this is
the critical path,
there is a 19
percent
probability that
the project will
take longer than
72 weeks.
= 3.45 weeks
path
Probability of
exceeding 72
weeks is
0.1922
Probability
of meeting
the schedule
is 0.8078
69 72
Project duration (weeks)
Example 2.5
b.
1.27
15.55 3.94
The probability is about 0.90
that the length of path ACGJK
will be no greater than 72
weeks.
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02  62
Application 2.5
The director of the continuing education at
Bluebird University wants to conduct the
seminar in 47 working days from now. Using
the activity data from Application 2.4, what is
the
probability
that everything will be ready in
T=
47 days
time?
TE is: 43.16 days
02  63
Application 2.5
The Network
Diagram is:
Start
J
I
Finish
Application 2.5
T = 47 days
TE = 43.16 days
And the sum of the variances for the critical
activities Tis:
T8.63
E
47 43.16
3.84
z=
8.63
2.94
= 1.31
02  65
02  66
11 Prentice Hall
2,500
1,000
1,400
2,000
1,200
900
3
4
4
5
2
1,300
2,000
2,700
1,400
1,100
3,750
None
None
None
A
B
C
02  68
D
6
Finish
G
4
Start
B
7
E
3
C
5
F
11
H
3
02  69
02  70
A
B
C
D
E
F
G
200
200
250
650
1
1
5
1
100
Activity
02  71
Crash
Activity
Time
Reduction
(days)
Resulting
Critical
Path(s)
Project
Duration
(days)
Project
Direct
Costs,
Last
Trial ($)
Crash
Cost
Added
($)
Total
Indirect
Costs
($)
Total
Penalty
Costs
($)
Total
Project
Costs
($)
CFH
19
10,100
3,800
700
14,600
CFH
17
10,100
200
3,400
500
14,200
ADGH
15
10,300
500
3,000
300
14,100
BEGH
CFH
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02  72
Optimistic
Most Likely
Pessimistic
Immediate Predecessor(s)
13
14
12
A, C
16
E, F
02  75
a + 4m + b
6
Variance
4.0
1.00
5.5
0.69
3.5
0.25
12.0
1.78
6.5
2.25
9.0
2.78
4.5
0.69
02  76
Activity
A
B
C
D
E
F
G
Activity
15.5
20.0
6.5
15.5
9.0
15.5
8.0
20.0
5.5
9.0
0.0
5.5
4.0
8.0
02  78
D 16.0
Finish
4.0
9.0
15.5
Start
5.5
9.0
15.5 G 20.0
0.0
F
5.5
14.5
Earliest
Finish (weeks)
Latest
Earliest
Latest
Slack
Critical Path
4.0
4.0
8.0
4.0
No
0.0
5.5
5.5
0.0
Yes
5.5
5.5
9.0
9.0
0.0
Yes
4.0
8.0
16.0
20.0
4.0
No
9.0
9.0
15.5
15.5
0.0
Yes
5.5
6.5
14.5
15.5
1.0
No
G
Path
15.5
15.5
20.0
Total Expected Time (weeks)
20.0
0.0
Yes
Total Variance
AD
4 + 12 = 16
AEG
4 + 6.5 + 4.5 = 15
BCEG
BFG
5.5 + 9 + 4.5 = 19
3.88
02  80
z=
T TE
23 20
=
3.88 = 1.52
02  82