Chapter 03. Operations Management and TQM

Operations
Management
Chapter 3 –
Project Management
© 2006 Prentice Hall, Inc. 3–1

Outline
 Global Company Profile: Bechtel
Group
 The Importance Of Project
Management
 Project Planning
 The Project Manager
 Work Breakdown Structure
 Project Scheduling

Outline - Continued
 Project Controlling
 Project Management Techniques:
PERT And CPM
 The Framework Of PERT And CPM
 Network Diagrams And Approaches
 Activity-on-Node Example
 Activity-on-Arrow Example

Outline - Continued
 Determining The Project Schedule
 Forward Pass
 Backward Pass
 Calculating Slack Time And Identifying
The Critical Path(s)
 Variability In Activity Times
 Three Time Estimates In PERT
 Probability Of Project Completion

Outline - Continued
 Cost-time Trade-offs And Project
Crashing
 A Critique Of PERT And CPM
 Using Microsoft Project To Manage
Projects
 Creating A Project Schedule Using MS
Project
 Tracking Progress And Managing
Costs Using MS Project

Learning Objectives
When you complete this chapter, you
should be able to :
Identify or Define:
 Work breakdown structure
 Critical path
 AOA and AON Networks
 Forward and backward passes
 Variability in activity times

Learning Objectives
When you complete this chapter, you
should be able to :
Describe or Explain:
 The role of the project manager
 Program evaluation and review
technique (PERT)
 Critical path method (CPM)
 Crashing a project
 The use of MS Project
Bechtel Projects
 Restoring over 650 oil wells in Kuwait left ablaze
or uncapped after Desert Storm
 Building 26 massive distribution centers in just
two years for the internet company Webvan
Group
 Constructing 30 high-security data centers
worldwide for Equinix, Inc.
 Building and running a rail line between London
and the Channel Tunnel ($4.6 billion)
 Developing an oil pipeline from the Caspian Sea
region to Russia ($850 million)

Bechtel Projects
 Expanding the Dubai Airport in the UAE ($600
million), and the Miami Airport in Florida ($2
billion)
 Building liquid natural gas plants in Yemen $2
billion) and in Trinidad, West Indies ($1 billion)
 Building a new subway for Athens, Greece ($2.6
billion)
 Constructing a natural gas pipeline in Thailand
($700 million)
 Building a highway to link the north and south of
Croatia ($303 million)

Strategic Importance of
Project Management
 Bechtel Kuwait Project:
 8,000 workers
 1,000 construction professionals
 100 medical personnel
 2 helicopter evacuation teams
 6 full-service dining halls
 27,000 meals per day
 40 bed field hospital
© 2006 Prentice Hall, Inc. 3 – 10

Strategic Importance of
Project Management
 Microsoft Windows Longhorn Project:
 hundreds of programmers
 millions of lines of code
 millions of dollars cost
 Ford Redesign of Mustang Project:
 450 member project team
 Cost $700-million
 25% faster and 30% cheaper than
comparable project at Ford

Project Characteristics
 Single unit
 Many related activities
 Difficult production planning and
inventory control
 General purpose equipment
 High labor skills

Examples of Projects
 Building Construction
 Research Project

Project Organization
Works Best When
 Work can be defined with a specific
goal and deadline
 The job is unique or somewhat
unfamiliar to the existing organization
 The work contains complex interrelated
tasks requiring specialized skills
 The project is temporary but critical to
the organization

Management of Projects
 Planning - goal setting, defining the
project, team organization
 Scheduling - relates people, money,
and supplies to specific activities
and activities to each other
 Controlling - monitors resources,
costs, quality, and budgets; revises
plans and shifts resources to meet
time and cost demands

Project Management
Activities
 Planning
 Scheduling
 Objectives
 Project activities
 Resources
 Start & end times
 Work break-down
schedule  Network
 Organization
 Controlling
 Monitor, compare, revise, action
Project Planning,
Scheduling, and Controlling
Figure 3.1
Before Start of project During

project Timeline project
Project Planning,
Figure 3.1

Project Planning,
Figure 3.1

Project Planning,
Figure 3.1

Project Time/cost
Planning,
Budgets
estimates

Engineering diagrams
Cash flow charts
Material availability details
Budgets
Delayed activities report
Slack activities report
CPM/PERT
Gantt charts
Milestone charts
Cash flow schedules
Figure 3.1

Project Planning
 Establishing objectives
 Defining project
 Creating work
breakdown structure
 Determining
resources
 Forming organization

Project Organization
 Often temporary structure
 Uses specialists from entire company
 Headed by project manager
 Coordinates activities
 Monitors schedule
and costs
 Permanent
structure called
‘matrix organization’

A Sample Project
Organization
President
Human Quality
Resources Marketing Finance Design Production
Mgt
Project 1 Project
Manager
Mechanical Test Technician
Engineer Engineer
Project 2 Project
Manager
Electrical Computer Technician
Engineer Engineer
Figure 3.2

Matrix Organization
Marketing Operations Engineering Finance
Project 1
Project 2
Project 3
Project 4

The Role of
the Project Manager
Highly visible
Responsible for making sure that:
 All necessary activities are finished in order

and on time
 The project comes in within budget
 The project meets quality goals
 The people assigned to the project receive
motivation, direction, and information

The Role of
the Project Manager
Highly visible
Responsible for making sure
Project that: should be:
managers
 Good coaches
 All necessary activities are finished in order
and on time  Good communicators
 The project comes inAble to organize
within budget activities
from a variety of disciplines
 The project meets quality goals
 The people assigned to the project receive
motivation, direction, and information

Ethical Issues
 Bid rigging – divulging confidential information
to give some bidders an unfair advantage
 “Low balling” contractors – try to “buy” the
project by bidding low and hope to renegotiate
or cut corners
 Bribery – particularly on international projects
 Expense account padding
 Use of substandard materials
 Compromising health and safety standards
 Withholding needed information
 Failure to admit project failure at close

Work Breakdown Structure
Level
1. Project
2. Major tasks in the project
3. Subtasks in the major tasks
4. Activities (or work packages)
to be completed

Project Scheduling
 Identifying precedence
relationships
 Sequencing activities
 Determining activity times & costs
 Estimating material and worker
requirements
 Determining critical activities

Purposes of Project
Scheduling
1. Shows the relationship of each activity to
others and to the whole project
2. Identifies the precedence relationships
among activities
3. Encourages the setting of realistic time
and cost estimates for each activity
4. Helps make better use of people, money,
and material resources by identifying
critical bottlenecks in the project
Project Management
Techniques
 Gantt chart
 Critical Path Method
(CPM)
 Program Evaluation
and Review
Technique (PERT)

A Simple Gantt Chart
Time
J F M A M J J A S
Design
Prototype
Test
Revise
Production

Service For A Delta Jet
Deplaning
Passengers
Baggage claim
Baggage Container offload
Pumping
Fueling
Engine injection water
Cargo and mail Container offload
Main cabin door
Galley servicing
Aft cabin door
Lavatory servicing Aft, center, forward
Drinking water Loading
First-class section
Cabin cleaning
Economy section
Cargo and mail Container/bulk loading
Galley/cabin check
Flight services
Receive passengers
Operating crew Aircraft check
Baggage Loading
Passengers Boarding
0 15 30 45 60
Figure 3.4 Minutes
Project Control Reports
 Detailed cost breakdowns for each task
 Total program labor curves
 Cost distribution tables
 Functional cost and hour summaries
 Raw materials and expenditure forecasts
 Variance reports
 Time analysis reports
 Work status reports

PERT and CPM
 Network techniques
 Developed in 1950’s
 CPM by DuPont for chemical plants (1957)
 PERT by Booz, Allen & Hamilton with the
U.S. Navy, for Polaris missile (1958)
 Consider precedence relationships and
interdependencies
 Each uses a different estimate of
activity times

Six Steps PERT & CPM
1. Define the project and prepare the

work breakdown structure
2. Develop relationships among the
activities - decide which activities
must precede and which must follow
others
3. Draw the network connecting all of
the activities

Six Steps PERT & CPM
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

Questions PERT & CPM
Can Answer
1. When will the entire project be
completed?
2. What are the critical activities or tasks in
the project?
3. Which are the noncritical activities?
4. What is the probability the project will be
completed by a specific date?

Questions PERT & CPM
Can Answer
5. Is the project on schedule, behind
schedule, or ahead of schedule?
6. Is the money spent equal to, less than, or
greater than the budget?
7. Are there enough resources available to
finish the project on time?
8. If the project must be finished in a shorter
time, what is the way to accomplish this
at least cost?

A Comparison of AON and
AOA Network Conventions
Activity on Activity Activity on
Node (AON) Meaning Arrow (AOA)
A comes before
(a) A B C B, which comes
before C A B C
A A
A and B must both
(b) C be completed
before C can start C
B B
B
B and C cannot
(c) A begin until A is B
completed A
Figure 3.5
C C
C and D cannot
A C begin until A A C
(d) and B have
both been
B D completed B D
C cannot begin
until both A and B
A C are completed; D A C
(e) cannot begin until Dummy activity
B is completed. A
B D dummy activity is
introduced in AOA B D
Figure 3.5
B and C cannot
begin until A is
completed. D
A B D cannot begin A B D
until both B and
(f) C are completed. Dummy
A dummy C
C activity
activity is again
introduced in
AOA.
Figure 3.5
AON Example
Milwaukee Paper Manufacturing's
Activities and Predecessors
Immediate
Activity Description Predecessors
A Build internal components —
B Modify roof and floor —
C Construct collection stack A
D Pour concrete and install frame A, B
E Build high-temperature burner C
F Install pollution control system C
G Install air pollution device D, E
H Inspect and test F, G
Table 3.1
AON Network for
Milwaukee Paper
Activity A
A (Build Internal Components)
Start
Activity B
Start B (Modify Roof and Floor)
Activity
Figure 3.6
AON Network for
Milwaukee Paper
Activity A Precedes Activity C
A C
Start
B D
Activities A and B
Precede Activity D Figure 3.7
AON Network for
Milwaukee Paper
F
A C
E
Start H
B D G
Arrows Show Precedence

Relationships
Figure 3.8
AOA Network for
Milwaukee Paper
C
2 4
(Construct
Stack)
Co (In F
nt al
nt sta
ne ern
s)
o m ld A
(Build Burner)
ro ll
p o In t
ls
)
C ui
H
(B
Dummy 7
E
1 6
Activity (Inspect/
Test)
Ro (M B
o f od G ll
/F ify s ta ion
lo
or (In llut ice)
) 3
D
5 Po ev
D
(Pour
Concrete/
Install Frame) Figure 3.9
Determining the Project
Schedule
Perform a Critical Path Analysis
 The critical path is the longest path
through the network
 The critical path is the shortest time in
which the project can be completed
 Any delay in critical path activities
delays the project
 Critical path activities have no slack
time
Schedule
Activity Description Time (weeks)
A Build internal components 2
B Modify roof and floor 3
C Construct collection stack2
D Pour concrete and install frame 4
E Build high-temperature burner 4
F Install pollution control system 3
G Install air pollution device 5
H Inspect and test 2
Total Time (weeks)25
Table 3.2
Schedule
Earliest start (ES) = earliest time at
Activity
which an activity can start,(weeks)
Description Time assuming
A Build internal components
all predecessors have been 2 completed
B Modify roof
Earliest and floor
finish (EF) = 3 earliest time at
C Construct
which ancollection stack2
activity can be finished
D Pour concrete
Latest and =install
start (LS) latestframe
time at 4which
an activity
E Build can start so
high-temperature as to not4delay
burner
the completion
F Install time ofsystem
pollution control the entire3
project
G Install air pollution device 5
Latestand
H Inspect finish
test(LF)2=latest time by
which an activity has to be finished so
Total Time
as to not(weeks)25
delay the completion time Tableof3.2
© 2006 Prentice Hall, Inc. the entire project 3 – 51
Schedule
Activity Name
or Symbol
A Earliest
Earliest ES EF Finish
Start
Latest LS LF Latest
Start 2 Finish
Figure 3.10 Activity Duration

Forward Pass
Begin at starting event and work forward
Earliest Start Time Rule:
 If an activity has only one immediate

predecessor, its ES equals the EF of the
predecessor
 If an activity has multiple immediate
predecessors, its ES is the maximum of
all the EF values of its predecessors
ES = Max (EF of all immediate predecessors)

Forward Pass
Begin at starting event and work forward
Earliest Finish Time Rule:
 The earliest finish time (EF) of an activity

is the sum of its earliest start time (ES)
and its activity time
EF = ES + Activity time

ES/EF Network for
Milwaukee Paper
ES EF = ES + Activity time
Start
0 0

ES/EF Network for
Milwaukee Paper
EF of A =
ES ES of A + 2
of A
A
Start 0 2
0 0

ES/EF Network for
Milwaukee Paper
A
0 2
2 EF of B =
ES ES of B + 3
0
Start
0 of B
B
0 0 3
3
ES/EF Network for
Milwaukee Paper
A C
0 2 2 4
2 2
Start
0 0
B
0 3

ES/EF Network for
Milwaukee Paper
A C
0 2 2 4
2 2
Start
0 0
= Max (2, 3) D
0
3 7
B
0 3
3
4
ES/EF Network for
Milwaukee Paper
A C
0 2 2 4
2 2
Start
0 0
B D
0 3 3 7
3 4

ES/EF Network for
Milwaukee Paper
A C F
0 2 2 4 4 7
2 2 3
Start E H
0 0 4 8 13 15
0 4 2
B D G
0 3 3 7 8 13
3 4 5
Figure 3.11

Backward Pass
Begin with the last event and work backwards
Latest Finish Time Rule:
 If an activity is an immediate predecessor

for just a single activity, its LF equals the
LS of the activity that immediately follows
it
 If an activity is an immediate predecessor
to more than one activity, its LF is the
minimum of all LS values of all activities
that immediately follow it
LF = Min (LS of all immediate following activities)

Backward Pass
Begin with the last event and work backwards
Latest Start Time Rule:
 The latest start time (LS) of an activity is

the difference of its latest finish time (LF)
and its activity time
LS = LF – Activity time

LS/LF Times for
Milwaukee Paper
A C F
0 2 2 4 4 7
2 2 3
Start E H
0 0 4 8 13 15
13 15
0 4 2
B LS = LF
D – Activity time
G
0 3 3 7 8 13
3 4 5 LF = EF
of Project
Figure 3.12

LS/LF Times for
Milwaukee Paper
A C F
0 2 2 4 4 7
10 13
2 2 3
Start E H
0 0
LF =4 Min(LS
8 of 13 15
following activity) 13 15
0 4 2
B D G
0 3 3 7 8 13
3 4 5
Figure 3.12

LS/LF Times for
Milwaukee Paper
LF = Min(4, 10)
A C F
0 2 2 4 4 7
2 4 10 13
2 2 3
Start E H
0 0 4 8 13 15
4 8 13 15
0 4 2
B D G
0 3 3 7 8 13
8 13
3 4 5
Figure 3.12

LS/LF Times for
Milwaukee Paper
A C F
0 2 2 4 4 7
0 2 2 4 10 13
2 2 3
Start E H
0 0 4 8 13 15
0 0 4 8 13 15
0 4 2
B D G
0 3 3 7 8 13
1 4 4 8 8 13
3 4 5
Figure 3.12

Computing Slack Time
After computing the ES, EF, LS, and LF times
for all activities, compute the slack or free
time for each activity
 Slack is the length of time an activity can

be delayed without delaying the entire
project
Slack = LS – ES or Slack = LF – EF

Computing Slack Time
Earliest Earliest Latest Latest On
Start 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
Table 3.3

Critical Path for
Milwaukee Paper
A C F
0 2 2 4 4 7
0 2 2 4 10 13
2 2 3
Start E H
0 0 4 8 13 15
0 0 4 8 13 15
0 4 2
B D G
0 3 3 7 8 13
1 4 4 8 8 13
3 4 5
Figure 3.13

ES – EF Gantt Chart
for Milwaukee Paper
1 2 3 4 5 6 7 8 9 10 11 12
13 14 15 16
A Build internal
components
B Modify roof and floor
C Construct collection
stack
D Pour concrete and
install frame
E Build high-
temperature burner
F Install pollution
control system
G Install air pollution
device
H Inspect and test

LS – LF Gantt Chart
for Milwaukee Paper
1 2 3 4 5 6 7 8 9 10 11 12
13 14 15 16
A Build internal
components
B Modify roof and floor
C Construct collection
stack
D Pour concrete and
install frame
E Build high-
temperature burner
F Install pollution
control system
G Install air pollution
device
H Inspect and test

Variability in Activity Times
 CPM assumes we know a fixed time

estimate for each activity and there
is no variability in activity times
 PERT uses a probability distribution
for activity times to allow for
variability

 Three time estimates are required

 Optimistic time (a) – if everything goes
according to plan
 Most–likely time (m) – most realistic
estimate
 Pessimistic time (b) – assuming very
unfavorable conditions

Estimate follows beta distribution
Expected time:
t = (a + 4m + b)/6
Variance of times:
v = [(b – a)/6]2

Estimate follows beta distribution
Expected time:
t = (a + 4m + b)/6
Probability of
Variance of times:
1 in 100 of Probability
Probability
< a occurring of 1 in 100 of

v = [(b − a)/6]2 > b occurring
Activity
Time
Optimistic Most Likely Pessimistic

Time (a) Time (m) Time (b)

Computing Variance
Most Expected
Optimistic Likely Pessimistic Time Variance
Activity a m b t = (a + 4m + b)/6 [(b – a)/6]2
A 1 2 3 2 .11
B 2 3 4 3 .11
C 1 2 3 2 .11
D 2 4 6 4 .44
E 1 4 7 4 1.00
F 1 2 9 3 1.78
G 3 4 11 5 1.78
H 1 2 3 2 .11
Table 3.4

Probability of Project
Completion
Project variance is computed by
summing the variances of critical
activities
s2 =pProject variance
= (variances of activities
on critical path)

Completion
Project variance is computed by
summing the variances of critical
Project variance
activities
s2 =p.11 + .11 + 1.00 + 1.78 + .11 = 3.11
Project standard deviation

sp = Project variance
= 3.11 = 1.76 weeks

Completion
PERT makes two more assumptions:
 Total project completion times follow a

normal probability distribution
 Activity times are statistically
independent

Completion
Standard deviation = 1.76 weeks
15 Weeks
(Expected Completion Time)
Figure 3.15

Completion
What is the probability this project can
be completed on or before the 16 week
deadline?
due expected date

Z = –date
/sp of completion
= (16 wks – 15 wks)/1.76
= 0.57 Where Z is the number of

standard deviations the due
date lies from the mean

Completion
From Appendix I
What is the probability
.00 .01 this
.07 .08 project can
be completed on or before the
.1 .50000 .50399
16 week
.52790 .53188
deadline? .2 .53983 .54380 .56749 .57142
due expected date

Z.5 =.69146/s.69497
−date p of
.71566 .71904
completion
.6 .72575 .72907 .74857 .75175
= (16 wks − 15 wks)/1.76
= 0.57 Where Z is the number of

standard deviations the due
date lies from the mean

Completion
0.57 Standard deviations

Probability
(T ≤ 16 weeks)
is 71.57%
15 16 Time
Weeks Weeks
Figure 3.16

Determining Project
Completion Time
Probability
of 0.99
Probability
of 0.01
2.33 Standard Z
From Appendix I deviations
0 2.33
Figure 3.17

Variability of Completion
Time for Noncritical Paths
 Variability of times for activities on
noncritical paths must be
considered when finding the
probability of finishing in a
specified time
 Variation in noncritical activity may
cause change in critical path

What Project Management
Has Provided So Far
 The project’s expected completion time
is 15 weeks
 There is a 71.57% chance the equipment
will be in place by the 16 week deadline
 Five activities (A, C, E, G, and H) are on
the critical path
 Three activities (B, D, F) have slack time
and are not on the critical path
 A detailed schedule is available

Trade-Offs And Project
Crashing
It is not uncommon to face the
following situations:
 The project is behind schedule
 The completion time has been
moved forward
Shortening the duration of the

project is called project crashing
Factors to Consider When
Crashing A Project
 The amount by which an activity is
crashed is, in fact, permissible
 Taken together, the shortened
activity durations will enable us to
finish the project by the due date
 The total cost of crashing is as small
as possible

Steps in Project Crashing
1. Compute the crash cost per time period.

If crash costs are linear over time:
Crash cost (Crash cost – Normal cost)

per period = (Normal time – Crash time)
2. Using current activity times, find the

critical path and identify the critical
activities

3. If there is only one critical path, then
select the activity on this critical path
that (a) can still be crashed, and (b) has
the smallest crash cost per period. If
there is more than one critical path, then
select one activity from each critical path
such that (a) each selected activity can
still be crashed, and (b) the total crash
cost of all selected activities is the
smallest. Note that a single activity may
be common to more than one critical
path.
4. Update all activity times. If the desired

due date has been reached, stop. If not,
return to Step 2.

Crashing The Project
Time (Wks) Cost ($) Crash CostCritical
Activity Normal Crash Normal Crash Per Wk ($) Path?
A 2 1 22,000 22,750 750 Yes

B 3 1 30,000 34,000 2,000 No
C 2 1 26,000 27,000 1,000 Yes
D 4 2 48,000 49,000 1,000 No
E 4 2 56,000 58,000 1,000 Yes
F 3 2 30,000 30,500 500 No
G 5 2 80,000 84,500 1,500 Yes
H 2 1 16,000 19,000 3,000 Yes
Table 3.5

Crash and Normal Times
and Costs for Activity B
Activity
Cost
Crash
Crash Cost – Normal Cost

$34,000 — Crash Cost/Wk =
Normal Time – Crash Time
Crash $33,000 — $34,000 – $30,000
Cost =
3–1
$32,000 — $4,000
= = $2,000/Wk
2 Wks
$31,000 —
$30,000 —
Normal
Normal —
Cost
| | |
1 2 3 Time (Weeks)
Figure 3.18
Crash Time Normal Time
Critical Path And Slack Times
For Milwaukee Paper
A C F
0 2 2 4 4 7
0 2 2 4 10 13
2 2 3
Start Slack = 0 Slack = 0 E Slack = 6 H
0 0 4 8 13 15
0 0 4 8 13 15
0 4 2
B D Slack = 0 G Slack = 0
0 3 3 7 8 13
1 4 4 8 8 13
3 4 5
Slack = 1 Slack = 1 Slack = 0

Figure 3.19
Advantages of PERT/CPM
1. Especially useful when scheduling and
controlling large projects
2. Straightforward concept and not
mathematically complex
3. Graphical networks help to perceive
relationships among project activities
4. Critical path and slack time analyses help
pinpoint activities that need to be closely
watched

Advantages of PERT/CPM
5. Project documentation and graphics

point out who is responsible for various
activities
6. Applicable to a wide variety of projects
7. Useful in monitoring not only schedules
but costs as well

Limitations of PERT/CPM
1. Project activities have to be clearly
defined, independent, and stable in their
relationships
2. Precedence relationships must be
specified and networked together
3. Time estimates tend to be subjective and
are subject to fudging by managers
4. There is an inherent danger of too much
emphasis being placed on the longest, or
critical, path

Using Microsoft Project
Program 3.1
Program 3.2

Program 3.3

Program 3.4

Program 3.5

Program 3.6
Program 3.7

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© 2006 Prentice Hall, Inc. 3–1

© 2006 Prentice Hall, Inc. 3–2

© 2006 Prentice Hall, Inc. 3–3

© 2006 Prentice Hall, Inc. 3–4

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Before Start of project During

Before Start of project During

Before Start of project During

Before Start of project During

Scheduling, and Controlling

Before Start of project During

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 All necessary activities are finished in order

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1. Define the project and prepare the

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4. Assign time and/or cost estimates

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Arrows Show Precedence

Figure 3.10 Activity Duration

 If an activity has only one immediate

ES = Max (EF of all immediate predecessors)

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 The earliest finish time (EF) of an activity

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Latest Finish Time Rule:

 If an activity is an immediate predecessor

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Latest Start Time Rule:

 The latest start time (LS) of an activity is

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