You are on page 1of 97

Plant Location (Facility Location)

A manufacturing unit is a place, where men, materials, money, machinery and equipment etc are brought together for manufacturing the products. The selection of location of a manufacturing unit is an important phenomenon for the success of an enterprise and requires thorough analysis. So, it is an important strategic level decision making for an organization.

Location Theories
The facilities are located in a particular area or region depending on many parameters, factors and issues. Industrialization or centralization of facilities takes place in a area due to certain factors has been explained by two different theories propagated by Alfred Weber and Andreas Predohl.
(I) Alfred Weber, a German economist and sociologist, has put forth few guidelines in this regards. He simply classified the locational factors into primary and secondary categories. In primary factors materials, labour and agglomeration are responsible for industrialization in different locations. The materials are required in each and every type of industry to produce the goods or services, therefore the cost of transportation of these materials must be at minimum. Similarly the availability of labour of required skill level is another criterion to produce the goods of desired quality. The third aspect of Agglomeration is the concept of clustering where a particular type of industrial units is established with a view and perception of getting most of the required facilities readily available in a relatively small area. Deglomeration (just opposite of agglomeration) occurs when companies and services leave because of the diseconomies of industries excessive concentration. The secondary factors such as easy communication, cheap bank credits and insurance constitute the agglomeration. If these factors are not suitable to the companies then these issues act as deglomerating factors. (II) Andreas Predohl also pointed out that the companies relocate their plants and facilities considering the new advantages and disadvantages because of changing business environment, industrial modifications in geographical regions in global business conditions and thus making the hubs for a particular industry. Predohl could not point out the reasons of relocation of the plants and facilities in his theory.

What is Facility Location?

The facility location can be explained in the light of four factors viz. environment, facilities, clients and objective function, with the theme sentence i.e. facility should be located in a business environment to satisfy the clients with an objective function by locating at minimum places and minimum transportation with minimizing the cost and maximizing the profits. The facility location issues are to be sorted out in the light of following aspects:
1) Environment

There can be various environment types where facilities and clients are located, like continuous and discrete environment. Certain constraints related to environment are possible, such as governed as subset of upper environments, face the dynamic problems which includes time

dimension in environment and stochastic problems related to probabilities of environment parameters.

2) Facilities

Possible locations of facilities are analyzed as a subset of the global environment. The facilities are shown in the environment by points (vertices), lines, paths and cycles. The possible constraints are related to facility capacities, price and cost involved in locating the facility at as many as n facilities with a client coverage radius.
3) Clients

The clients locations are subset of environment in which the possible constraints is that every client has some demand and the facility has to meet that demand with the minimum possible cost.
4) Objective function There are different objectives for facility locations, which are listed as below:

Minimize number of newly located facilities Maximize number of covered clients and to satisfy the maximum demands Maximize average coverage distance

Aspects of Facility Location The following aspects of the facility locations must be addressed properly to optimize and strategize the location to gain competitive advantage: The type of facilities needed at location. The availability, ease and cost at the location. The capacity (size) of each aspect in the facility Its layout for smooth flow of material including work in process, information and manpower Need for selecting a suitable location The need for selecting a suitable location arises because of following situations Newly business has been started. Expansion of the existing business. Lease of the land has been expired. To minimize the cost by changing the location.

Steps in Location Selection

Step 1: Deciding on Domestic or International Location Step 2: Selection of the region

Availability of Raw materials Nearness to the market Availability of Power Transport facilities Suitability of climate Government policy Competition between states

Step 3: Selection of the locality or community Availability of skilled labour Civic amenities for workers Existence of complementary and competing industries Finance and research facilities Availability of water and fire-fighting facilities Local taxes and restrictions

Step 4: Selection of the site Soil, size and topography Disposal of waste

Location Models
Various models are available which help to identify the ideal location. Some of the popular models are: Factor Rating Method Point Rating Method Break-even Analysis Qualitative Factor Analysis Centre of Gravity Method

Factor Rating Method

S. No. 1 2 3 Factor Factor Rating 4 3 3 Location Product of Rating Rating Location A Location B Location A Location B 8 6 32 24 2 3 6 9 6 5 18 15

Tax Advantage Suitability of Labour skill Proximity to

4 5 6 7 8 9 10

customers Proximity to suppliers Adequacy of water Receptivity of community Quality of educational system Access to rail and air transportation Suitability of Climate Availability of power Total score

5 1 5 4 3 2 2

2 3 4 1 10 7 6

4 3 3 2 8 9 4

10 3 20 4 30 14 12 149

20 3 15 8 24 18 8 144

So, the best location is Location A.

Point Rating Method

S. No. 1 2 3 4 5 6 7 Factors Rated Max. Possible Points 300 200 100 250 30 50 150 1080 Points Assigned to Locations Location A 200 150 100 220 20 40 100 830 Location B 250 150 100 200 20 30 125 875

Future Availability of Fuel Transportation Flexibility and Growth Adequacy of water supply Labour availability Pollution regulations Site topography Living conditions Total Score

So, the best location is Location B.

Break-even Analysis
Illustration: Potential Locations A,B and C have the cost structures shown for producing a product expected to sell at Rs. 100 per unit. Find the most economical location for an expected volume of 2,000 units/year. Also determine the range of annual volume of production for which each of the locations A, B and C would be most economical. S. No. Location Fixed Cost/year (Rs.) Variable Cost per unit (Rs.) 1 A 25,000 50 2 B 50,000 25 3 C 80,000 15 To determine the most economical location for an expected annual volume of production of 2,000 units, calculate the total cost of production at each of the location for the annual production volume Q= 2,000 nos. Total Cost=Fixed cost per annum + (Variable cost per unit x Quantity Produced)

Total Cost at Location A, TCA= FCA+ (VCA x Q) =25000+ (50 x 2000) = Rs. 1,25,000 TCB=50000+ (25 x 2000) = Rs. 1,00,000 TCC=80000+ (15 x 2000) Rs. 1,10,000 So, Location B is best location. Graphical method

TC3 Cost (Rs.) TC2 TC1

FC1 FC2 FC3 V2-3 V1-3 V1-2 Volume (units)

Fig 10.3 Cost Volume (Break-Even) Analysis

Qualitative Factor Analysis Method

Illustration: XYZ Company is evaluating four locations for a new plant and has weighted the relevant scores as given below. Scores have been assigned with higher values indicative of preferred conditions. Using these scores, develop a qualitative factor comparison for the four locations. S. No. Relevant Factors Assigned Weight Scores for Locations A 50 70 Weighted Score for Locations A 17.5 17.5

1 2

Production Cost Raw Material

0.35 0.25

B 40 80

C 60 80

D 30 60

B 14.0 20.0

C 21.0 20.0

D 10.5 15.0

Supply 3 Labour 0.20 60 70 60 50 Availability 4 Cost of 0.05 80 70 40 80 Living 5 Environment 0.05 50 60 70 90 6 Markets 0.10 70 90 80 50 Total Score 1.00 Location C is preferred because of the highest weighted score.

12.0 4.0 2.5 7.0 60.5

14.0 3.5 3.0 9.0 63.5

12.0 2.0 3.5 8.0 66.5

10.0 4.0 4.5 5.0 49.0

Center of Gravity (COG) Method

It can be used for determining an individual location by considering existing locations, the distances between them, and the volume of products to be shipped. It is generally used for locating distribution warehouses. In this technique, companies plot their existing locations on a grid with a coordinate system. The main purpose is to identify the relative distances between locations. After the existing locations are placed on the grid, the center of gravity is determined by calculating the X and Y coordinates for the lowest transportation costs, by following relations. COGx = djx Q j Q j COGy = djy Q j Q j
COGx = x coordinate of center of gravity COYy = y coordinate of center of gravity djx = x coordinate of the jth location djy = y coordinate of the jth location Qj = Quantity of goods moved to or from jth Location Illustration Several automobile showrooms are located according to the following are located according to the following grid which represents coordinate locations for each showroom. What is the best location for a new mobile warehouse / temporary storage facility considering only distances and quantity sold per month? S.NO. Showroom Location X-Axis Y-Axis

1 2 3


150 300 700

250 550 900

S. No. 1 2 3 Step- I

Showroom Location A B C

No. of X Mobiles Sold per Month 1200 1500 1700

To begin, first identify the existing facilities on a two-dimensional plane and determine their co-ordinates.
(700,900) C

1000 900 800 700 600 500 400 300 200 100 0 (150,250) A

(413.64, 603.41)

B (300,550) *

100 200 300 400 500 600 700 800 900 1000

Fig 10.2 Coordinates of New Location Step-II It also requires volume information on the business activity at the existing facilities.

S.No 1 2 3 Step-III

Showroom location A B C

No. of X Mobiles Sold per month 1200 1500 1700

Now compute the new co-ordinates using the formulae : X- co-ordinate of COG = djx Qj Qj Y-co-ordinate of COG = djr Qj Qj X- Co-ordinate of COG = 150 x 1200 + 300 x 1500 + 700 x 1700 1200 + 1500 + 1700 =180000 + 450000 + 1190000 4400 = 18200 = 413.64 44 Y-Co-ordinate of COG = 250 x 1200 + 550 x 1500 + 900 x 1700 1200 + 1500 + 1700

=300000 + 825000 + 1530000 4400 =2655000 = 603.41 4400 So, New Co-ordinates of a mobile ware house is D (413.64, 603.41)

Plant Layout (Facility Layout) Introduction

Facility layout refers to the arrangement of materials and physical facilities such as machinery, equipment, furniture etc. with in the plant or factory building in such a manner so as to ensure steady flow of production with minimum cost. The plant layout techniques apply to a case, where several physical means to the production of goods or services have to be located in a certain area. Only the properly laid out plant can ensure the smooth and rapid movement of materials, from the raw material stage to the end product stage. The plant layout encompasses new layout as well as improvement in the existing layout. The objective of the chapter is not only to study the Plant Layout, but re-layout also (most common situation for a company). To carry out an appropriate plant layout, its important to take into account the business strategic and tactical objectives. Example: Space requirements cost per square meter in malls and accessibility/privacy in offices.

Facility Layout
The plant layout planning includes decisions regarding the physical allocation of the economic activity centers in a facility. An economic activity center is any entity occupying space for economic or commercial purpose. The objective of plant layout planning is more effective work flow at the facility, allowing workers and equipment being more productive. It involves a judicious arrangement of production facilities so that workflow is direct and smooth. Plant Layout is a technique of locating machines, processes and plant services within the factory so as to achieve the right quantity and quality of output at the lowest possible cost of manufacturing. It is the positioning of machineries and equipment of a plant for economic and better quality production. The plant layout process starts at an aggregate level, taking into account the different departments. As soon as we get into the details, the different issues arise and the original configuration may be changed through a feedback process.

Objectives of Facilities Layout

An ideal plant layout should provide an ideal relationship among output, floor area and manufacturing process as it facilitates the production process, minimizes material handling, time and cost, allows flexibility of operations, easy production flow, makes economic use of the building, promotes effective utilization of manpower, provides for employees convenience, safety, comfort at work, maximum exposure to natural light and ventilation. A good plant layout always results in comfort and satisfaction of workmen that automatically increase the productivity. An efficient plant layout is one that can be instrumental in achieving the following objectives: 1. To organize equipment and working areas in the most efficient way and at the same time, these should be safe and comfortable and reduce the risk of possible hazards for the workers involved. 2. To develop the sense of unity pursuing the same objective and to enhance the morale of the workers. 3. To minimize the movement of people, material and resources. 4. To ensure the safety in the movement of materials and personnel work flow.

5. To maintain the flexibility in designing the facility layouts considering the changes over short and medium terms in the production process and volumes. 6. To ensure proper and efficient utilization of available floor space, labour, machinery and equipment. 7. To ensure minimum delay in work proceeds from one point to another. 8. To reduce material handling costs as well as maintenance requirements. The layout should facilitate easy maintenance. 9. To match the requirements of required production capacity both in short and long term. 10. The layout should be such that supervision must be easy and coordination and communication with the manpower should be effective. 11. To increase in overall productivity of the organization. These objectives can only be achieved by taking care of following important facts: By reducing the congestion. By the elimination of unnecessary occupied areas. By reducing the administrative and indirect work. By improving the supervision for better adjustment to the changing conditions. With better utilization of the workforce, equipments and services. By reducing material handling activities and stock in process by reducing number of parts and quality risks. By reducing health hazards and increasing workers safety. By reducing delays and manufacturing time to increase the production capacity. To maintain a balance among these factors.

Inputs/ Factors to Facility Layout

The facility layout always depends on certain inputs and factors to achieve the above mentioned objectives. These factors though may vary from product to product and place to place, but generally dictate the layout more or less for each facility. These factors or inputs are listed as below:

The facility layout must supplement the specified objectives of the company and should meet the
respective criteria to evaluate the process design. The space required for any process corresponding to the technology adopted. Amount of space required between the two machines for avoiding any mishaps. The space required by the operator to handle the job and machine. The optimum distance to be travelled by the job between the elements of layouts so as, it should be sufficient for neither the job waiting for operation nor the time be insufficient that job may not be completed particularly in case of assembly lines. Processing requirements for number of operations and flow of jobs required in layout. Nature of products and type of production system also determines the type of facility layout. Interdependency of the work operations for manufacturing service operations also affects the relative position of work centers/ service centers. Material requirements for processing and storage during transit between the operations as well as storage requirements for raw material and finished products determine the type and space for layout.

Type of industry and type of transformation process determines the layout as it depends on
whether the production system is mass, continuous, process, intermittent or project type.

The location of the facilities also influences the layout because of size availability, available

mode of transportation, distances from suppliers and markets.

The management policies with respect to market share, inclination towards automation, policy
towards manufacturing or outsourcing, quality orientation, HR policies, procurement, etc. determines the facility layout because each factor influences the space and its type required. Designing the layout is a very cumbersome process and layout engineer has to consider all the above factors and from all the angles, so that well presentable layout can be achieved with minimum possible cost.

Principles of Facility Layout

After considering all the factors, the layout planner must keep certain basic principles in his/ her mind while designing the facility or plant layout. These principles are as follows: Flexibility: Layout should be sensitive enough to permit modifications with minimum possible cost and maximum ease. Travel: The operator, material and information should take minimum time and distance for traveling from one work station to another. Investment: The initial capital cost in deciding and implementation of layout should be minimum possible and should permit minimum installations and use of minimum resources. Safety: This is the most important principle that the operator as well as equipment should be quite safe while use and operation. Ease and Satisfaction: The operator should feel maximum ease in performing his assigned work and duties and thus bring out his/ her best in the productivity. That will result in better satisfaction to the operator and supervisor. Utilization of space: The space available in cities and metros is very limited and costly, so every inch of space should be utilized fully and in an optimum way. Sequence of workstations: The best possible layout is possible only if the sequence of operations is followed in designing the layout particularly in assembly lines. Integration: The layout should be well knit and integrated so that the whole production process should be carried out with minimum cost and should look like a compact unit of production.

If all these principles are considered while designing the layout, the very basic principles of production i.e. cost minimization, profit maximization and bulk production can be achieved and supplemented by facility layout.

Importance of Facility Layout

Better the layout, better is the ambience and efficiency at any working place. The above lines emphasize the importance of systematic planning of elements of the system at any facility for production of goods and services. The efficient layout can increase the efficiency of human

resources up to 20 to 25 percent and can helpful an increasing the productivity by 30 to 35 percent by reducing the travelling distance of job, worker and faster dissemination of information along with the reducing of idle waiting of job, machinery and worker. In the above paragraph of objectives of layout, highlight the important role played by efficient layout designs which is explained as below: If the layout is properly designed, the efficient material can reduce the manufacturing cost to substantial amount. The space available is effectively used by better designed layout systems, particularly when the facilities are established in urban and semi-urban areas. Better monitoring of quality of the product or service produced is possible if the quality control department easily supervise all sections of production unit. That is possible only by effective layout design. The assembly line is more productive if layout design takes care of balancing the line, where neither the job nor the worker waits for each other. The execution of orders can be faster because of reduced cycle time if the layout design minimizes the distance between two work stations. Supervision by the manager and supervisors becomes easy if compact layout is designed. Better utilization of labour and all other inputs is possible because of efficient layout. Employees and workers morale will be raised to higher level because the productivity, hence the incentive, will be increased due to better layout. Less number of accidents and better safety is ensured by layout designs.

The above points signifies the importance of better layouts in terms of higher productivity and efficiency, so better incentives, working conditions and high morale of whole of the organization.

When to Redesign the Layout

Any layout needs modifications and revisions with the changing needs of facility. The best and most economical layout design becomes obsolete with the change of technology, changing needs of the process and customer. The revision and modification is a dynamic and ever going process, otherwise it becomes difficult to meet the competition. The various reasons for redesigning are listed as under: Expansion and Diversification The volume of the products of the organization increases with the acceptability by the customers. So, the company has to go for expansion in terms of existing products, adding new products in the product line and diversifications of the product lines. Upgradation of Technology The technology is being upgraded at every point of time in every field which compels to change the machinery and equipments, raw materials, new processes, new power and energy

sources, etc. This all has been facilitated by industrial research which has even changed the products and services along with above mentioned changes. Few of technological changes are listed as below: o o o o o o Machines replace labour because of automation. New sources of power and energy have been developed. Processes have been improved. Materials composition and quality have become conducive to the process. Designs of product and process have changed. Information Technology has change the overall production scenario.

Layout Facilitates better Efficiency Because of the dynamic environment and competition, the improvement in efficiency and productivity is always required. So, the layout has to be change from time to time to take care of the following: o o o o o o Higher material handling costs. Congestion near the machinery and operators place. Slow processing of the jobs. Changing the quality of materials. Longer production cycle time. Change in customer needs.

Facility Layout Planning

Good facility planning ensures unidirectional flow of production operations, better working conditions and minimization of costs. The careful planning of facility layout can bring significant long-term benefits to the company's manufacturing and distribution activities. There are following main issues to create a sustainable growth plan:

Production Process Routings and Flows - This the major aspect facilitated by efficient layout planning, which increases the easy flow of job and information. Material Handling Methods and Equipment Requirements The main focus of layout is to decrease material handling and effective utilization of equipment and machinery. Product Mix and Volumes As each machine is capable to perform many operations as well as to produce multiple number of products in variable quantities, the product mix must be suitable to be produced as per the requirements of markets and the layout. Sales Growth Plan In the time of peak demands, seasonal and cyclic variations, and the layout should be in a position to meet the variable demands. Capacity Planning In the long run the demand of a product may increase, so the capacity of not only the machinery and equipment, but the whole facility should be capable to increase its capacity by adding the additional space for latest technology. Traffic, Aisles and Safety Requirements Facility Layout planning should takes care the aspect of minimum congestion because of the movement of job, machinery and worker to ensure the safety of each concerned.

Special Manufacturing Process Requirements Many a times, special processes and special machinery is to be annexed with the existing system while planning the layout not only for present but for the future also. Workforce and Supervisory Requirements Easy movements of workers and the supervisor should ne the aim of layout planning. Process Flexibility and Agility Requirements The layout should be capable to handle the changes in technology and so the process to manufacture the goods and to provide the services. Work-in-Process Flow and Storage Requirements The facility layout planning must take care of smooth flow of work in process and their storage if any delay. Part Size and Storage Requirement Characteristics The layout must be such that all the parts of any size must be accommodated while being operated as well as during material handling and storage. Building and Property Design Constraints The layout of shop floor, office building and the whole facility has to be considered while planning the facility for efficient production of goods and services.

Types of Facility Layout

The production process normally determines the type of layout to be applied to the facility: 1. Product oriented plant layout (Line Layout): In such type of layout machinery and Materials are placed according to the product path. 2. Process oriented plant layout (Functional Layout): In this layout machinery is placed according to what they do and how materials go to them. 3. Fixed position plant layout: In this type, product stays and resources move to it. 4. Cellular/ Group Technology Layout: In this type of layout certain machines are group together into the specified cells and the cells themselves work like a line layout within a bigger workshop designed as process layout. 5. Combined or Hybrid Layout: Mix of all or some of layouts as mentioned above are used in this type of layout. 6. Computerized Relative Allocation of Facility Technique (CRAFT): The importance of relative position of two or three machines or equipment or departments is considered and the layout is designed with the help of available computer software. Product Oriented Facility Layout/ Line-Processing or Flow-Line Layout In this type of layout, the machines and equipment are placed in such an order; they are used in making the product. This layout is also called as the line layout as the materials and machineries required are arranged in one line depending upon the sequence of operations required for the product. The materials move form one workstation to another sequentially without any backtracking or deviation. Under this, machines are grouped in one sequence. Therefore materials are fed into the first machine and semifinished goods from one machine travel automatically to another i.e., the output of one machine becomes input of the next, e.g. in a paper mill, bamboos are fed into the machine at one end and paper comes out at the other end. The raw material moves very fast from one workstation to other station with a minimum work in progress storage and material handling. This type of plant layout is useful when the production process is organized in a continuous or repetitive way.

Continuous flow: The correct operations flow is reached through the layout design and the equipment and machinery specifications. e.g. the different petroleum products come out while processing the crude oil in oil refineries. Repetitive flow (assembly line): The correct operations flow will be based in a line balancing exercise, in order to avoid problems generated by bottle necks. e.g. Car assembly or Computer assembly is an extension of product layout. The plant layout should be based in allocating a machine as close as possible to the next one in line, in the correct sequence to manufacture the product. A line layout for products is given below in figure:

Raw Materia l Raw Material Receiving & Storage

Additional Components if required


Storag e Finished Product

Heat Treatment
Turning Shaping Grinding Heat Treatment Plating/ Painting

Raw Material and semi finished goods moving from one point to other points.

Advantages of Product Layout

These are listed as below:
This reduces material handling as the process is automatic and continuous. Work-in-Process reduces, almost eliminated, as the manufacturing cycle is small. Because of reduction in the quantities of work in process, the easy and accurate scheduling of materials is possible in this type of layout so less manufacturing time is required. It simplifies production planning and control system due to less product variety. Due to simpler production planning and control and less variety, quality control becomes more effective. In this type of layout flow of production is also smooth as automatic or mechanical shifting of raw material or jobs is possible. As single line accommodated in one department or building to produce the products, so less floor area is required.

Early and easy identification of faults at the point of occurrence itself is possible as each workstation takes care of one operation only.

Disadvantages of Product Layout:

Following are the disadvantages of this layout: There is no flexibility in the production process if the nature of work is altered due to sequential placement of machinery and equipment. Low flexibility in the manufacturing times as the different operations are in serial and cannot be run parallel. High capital investment is involved in this type of layout as grouping of different machines at one place is not possible. Every workstation is critical to the process due to the lack of personnel or shut down of one machine stops the whole process. The machines may not be used to the fullest capacity because the speed of processing the job and delivery to the next workstation may vary from one workstation to another. The manufacturing cost increases if the volume of work increases as number of flow lines has to be increased if more products are to be produced simultaneously.

Process Oriented Facility Layout (Job Shop/ Functional Layout)

The layout in which all machines performing similar tasks, grouped together is called the process layout. It is also known as the functional layout as the materials and machinery required are grouped together depending on their functions e.g., machines performing drilling operations are arranged in the drilling department, machines performing casting operations be grouped in the casting department. The work, which has to be done, is allocated to the machines according to loading schedules with the objective of ensuring that each machine is fully loaded at all times. This type of plant layout is useful, when the production process is organized in batches. The personnel and equipment to perform the same function are allocated in the same area. The different items have to move from one area to another one, according to the sequence of operations previously established. The variety of products to produce will lead to a diversity of flows through the facility. The variations in the production volumes from one period to the next one (short periods of time) may lead to modifications in the manufactured quantities as well as the types of the product to be produced. This type of layout is best suited for intermittent type of production. Process layout is shown in the following figure.

Drilling (1) (2)

Shaping (2) (4)

Grinding (5) (5)

Figure: Process Layout/ Job Shop Layout

Advantages of Process Layout

The Process Layout provides the following benefits: Lower initial capital investment in machines and equipments. There is higher degree of man and machine utilization, as a machine is not blocked for a single product and single person can supervise many similar machines at a time, so the output supervised will be increased and in turn one can get better incentives. The overhead costs are relatively low due to fewer requirements of workers as one operator can supervise many similar machines in the same shop. The process layout is more flexible and can adapt to change in output and volume in as the big variety and quantity of products can be manufactured with this type of layout. Breakdown of one machine does not result in complete work stoppage as the work takes place independently in each shop where lot of similar machines are placed and work need not to wait for the completion for other operations on other machines. Supervision can be more effective and specialized as similar work to be supervised being done on similar machines in the same shop. There is a greater flexibility of scope for expansion as similar machines are being placed in the same shop and the whole product line is need not to be added to increase the capacity as in the case of product layout.

Disadvantages of Process Layout

The Process Layout suffers from the following drawbacks: Material handling costs are high due to backtracking and difficulty in movement of materials unlike the automatic and mechanical movement of materials and jobs in case of product layout. More skilled labour and specialized operator is required resulting in higher cost.

Time gap or lag in production is higher because of the movement of materials is required to distantly placed departments. Work in Progress inventory is high, so greater storage space is needed. Higher quality and production control costs are involved as more frequent inspections are required. More floor space is required due to more space needed to adjust the work in progress.

Fixed Position Layout

In this type of layout, the major product being produced/ repaired is fixed at one location. The equipment, labor and components are moved to that location. All facilities are brought and arranged around one work centre. The following figure shows a fixed position layout regarding shipbuilding or ship repair in yard.

Material Labor Equipment Finished Products (Ship)

Figure: Ship Building Yard

This type of layout is not relevant for small scale entrepreneurs. Some of the examples in this type of layout are flyovers, bridges, ship yards, aircraft assembly, sports complexes, railway tracks, Buildings, etc. where the tools and components are brought at the site of above mentioned products. Example The aircraft assembly is an example of fixed position layout. It is very much evident that all the tools, components and equipment go to the aircraft where final assembly is being done. The Boeing began final assembly on its third flight-test Boeing 787 Dreamliner. According to the sources of Boeing, this was the fifth 787 to be loaded into the first position of the Dreamliner production system. After it was assembled, the airplane was fitted with an interior to continue the flight-test program and certification process.

Advantages of Fixed Position Layout

The fixed position layout provides the following advantages: 1- It saves time and cost involved in the movement of work from one workstation to another as in case of product and process layout.

2- The layout is flexible as change in job design and/ or operations sequence can be easily incorporated. 3- It is more economical, when several operations on the job itself in different stages of progressive process can be executed simultaneously. 4- The better utilization of men and machine is possible because of all the operations are being done at the same place and the versatility of both men and machine can be utilized there itself. 5- As the workers work on the big project and they see the whole work being done they feel sense of pride as well as belongingness of the product. 6- Investment involved in the layout as in case of product and process layouts is avoided and is negligible in this case.

Disadvantages of Fixed Position Layout

The fixed position layout has following disadvantages: 1- As the production period is very long, so capital investment is very huge. 2- Very large space is required for storage of material and equipment near the product. 3- As several operations are often carried out simultaneously, there is possibility of confusion and conflicts among different workgroups.

Cellular/Group Technology layout

Group technology layout allows dissimilar machines into cells to work on products that have similar shapes and processing requirements as shown in figure. This type of layouts is used in assembly, metal fabrication and welding, electronic chip manufacturing etc. In this layout, the cells as having different machines for all types of operations and work like product layout and the cell itself is responsible for producing the individual component. Work Cells Work cells are the exclusive units or the group of equipment, machinery and workers that perform a sequence of operations over multiple units of an item or family of items. These are the key elements of cellular layout and used mainly to produce a component independently with the help of various machines and equipment placed in a single cell. The main advantages of product and process layouts are incorporated in this layout such as: Product oriented layout: Efficiency Process oriented layout: Flexibility

Principles of Groups Technology

The following principles are to be applied in manufacturing of tangible products: Grouping outputs with the same characteristics to same family and assigning groups of machines and workers for the production of each family. Sometimes these outputs will be final products or services and other times these need to integrate to a final product. In that case, the work cells would need to be located close to the main production line to facilitate the assembly of the components at the moment and place required.

Real Work Cells: The grouping of workers and equipment is a fact. At the same time for identifying family of products and grouping of equipment, its essential to perform an internal layout of the cell (by product, by process or a combination of both, but generally by product). Virtual Work Cells: Identifying and dedicating certain equipment to the production of certain families of outputs, but without grouping them physically within the cell. The only issue is the identification of equipment and families of products, without performing an internal layout of the cell. Residual Work Cells: These are used when there is a specific item that has not been associated to any family or specialized equipment and can not be included within a work cell due to its general use.

SPA-Main Assembly
5 3 3 1 2 1

SPA # 3 Part C

2 3

Part Y

3 2

2 1

Part B

1 4

Part X

SPA # 1

SPA # 2

Production Operation Part A SPA= Space Planning Area

Production or material flow

Figure: Cellular/Group Technology layout Implementation and Maintenance of Cellular Layout

The following steps are used in implementing and maintaining this layout: Select product families. Determine work cells. Detail the work cells internal organization or layout. For product grouping (The products to be produced at the same work cell), we need to determine the condition that allows such grouping. Once product families are determined, creating a work cell for each family might be the best solution. Although it is not always like that (sometimes its even impossible). Approaches used to identify families and work cells:

Classification and codification of all items to be manufactured and comparison among them are to be done to define families. After that, its required to identify the cells and equipment to manufacture the products of those families. Work cells are created by grouping of equipment. In this case, we still need to define the families. Definition of families by similar manufacturing routes. Simultaneous identification of families and cells, based on the similarity of products and their needs of equipment and vice versa. A component that does not use all machines within its work cell can be accepted, same is the case with a machine that does not process all components in its group. However, its essential to avoid that component or machine which interacts with other machine or component outside of its cell. If its not possible to avoid this situation, the solution will be duplicating the piece of equipment, or process the item in more than one cell. Sometimes a residual cell might be needed to absorb a component like this or to include a general type of equipment that we can not duplicate. In general, the steps to follow to reorganize the layout will be: Incompatible equipment must be located in separate cells. Each component should be produced only in one cell. Each type of equipment should be located only in one cell. Investment in duplicating equipment should be minimized. The work cell should be limited to a reasonable size.

Advantage of Cellular Layout: There are very important benefits of using this layout.
Lower production cost as the specific cells are responsible to produce the components, so not much movement of material from one place to another takes place. Better supply of work in progress as the product layout is followed in a particular cell. Prompt customer services as the bigger quantities can be produced because of the multiple numbers of cells are allocated to produce the bigger quantities of components simultaneously. Better flexibility of process layout as change in product mix or capacity can easily be adjusted due to multiple number of similar machines in different cells. Better efficiency of product layout as the movement of material is automatic on the mechanical material handling equipments and to run the line not much manpower is required.

Combined or Hybrid Layout

It is very difficult to adopt a specified layout in many of the industries because of the nature of product, constraints of production systems, availability of a particular technology and its continuous upgradation. So in most of the industries a combination of product and process layouts is to be followed with the predominance of many a times either of the layouts. In industries either the departments or the floors are separately or in a combination designed with separate layouts. In the industries involving fabrication of components, the process layout is followed and in the final assembly, the product layout is followed. e.g. in case of car components manufacturing ancillary units process layout is followed and in case of car assembly, like Maruti Suzuki, the product layout in a line is implemented. Same is the case with continuous process industries like ERW pipes, oil refinery and chemicals producing companies, the product layout or its extension is followed as shown in figure.

Gear Cutting

Soft Finishing


Hard Finishing Form Grinding

Final Testing

Solid Cutter Finish Rolling Oil Cutter Gear Rolling Dies

Heat Treatment

Raw Material

Inspection Heat Treatment Hard Shaving Forging Press

Process Layout

Carbide Cutter

Figure: Combined or Hybrid Layout To summarize in each and every case for designing the layout, the criteria of minimum cost, ease of operation and technical feasibility are followed. In totality the desired volume and quantity of the products should have been produced at minimum cost by the layout to be followed.

Computerized Relative Allocation of Facility Techniques

In the age of information technology various computerized programs have been developed from time to time in order to help devise good process layout. Among these, the most widely used technique is Computerized Relative Allocation of Facilities Technique (CRAFT). Example: Hospital layouts are designed through this technique, because the relative position of various departments in the hospital cannot be changed such as Anesthesia Department and Surgery/ Operation Theaters should be close to each other. Similarly, the relative location of Gynae and Pediatrics Departments should also be very close. CRAFT tries to improve the relative placement of the departments as measured by total material handling cost for the layout. It makes improvements by exchanging pairs of departments in an iterative manner until no further cost reductions is possible. The program calculates the effect on total cost by exchanging departments; if this yields a reduction, the exchange is made, which constitutes iteration.

Characteristics of CRAFT: Following are the main characteristics In the CRAFT, the optimum final layout will depend upon the initial position of layout. So it is based on the starting conditions. Various combinations of square modules are used to depict the department. This allows multiple departmental configurations, but, many a times results in strange departmental shapes that have to be modified manually to obtain a realistic layout. CRAFT can not be a guarantee for optimal solution every time. To handle multi-story layout problems, a modified version has been developed known as SPACECRAFT.

Facility Layout in Manufacturing

For the optimum and effective utilization, the design of the facility layout of a manufacturing system is critically important. 20 to 50 percent of the total operating expenses in manufacturing are attributed to material handling and layout related costs. Use of effective methods for facilities planning can reduce these costs often by as much as 30 percent, and sometimes more. In general, the facility layout problem has been formulated as a quadratic assignment problem (QAP). The QAP is to find the optimal assignment of n candidate facilities (departments, machines, workstations) to n candidate sites, for the goal of minimizing the total layout costs, which includes the material handling cost, expressed as the product of workflow and travel distance and a fixed cost associated with locating a facility at a specific location.

Layout for a Service Business

The plant layout concepts and techniques can be applied to any business including services. Examples: Line Balancing for Restaurant using self-services; Process oriented layout for Hospitals. As service Businesses are more directly customer oriented and therefore while taking a service business layout decision, the following important considerations have to be taken into account: The customer is required in the company to perform or deliver the service with specific requirement or the facility. Generally the layout is focused on the customer satisfaction rather than on the operations.

Those areas which are in direct contact with the customer are required to be made more attractive. The presence of the customer creates the work flow.

The work load forecast and the activities planning are more accurate in the manufacturing environment. While in the service industry, there is seasonal and heterogeneous demand and the execution time can be variable. The services are intangible and adjustment between demand and production can not be done through inventory management. Queues are formed by people and having higher implications for the layout.

Layout for an Office

The plant layout for an office in which material flows among departments and workstations can be done with the help of the information secured through: One to one and face to face conversations, Telephonic or computerized conversations, Mail and other physical documents, Electronic mail, Meetings and discussion groups, Interphones, The layout solution is dictated to workers and physical movements of documents and materials are done accordingly.

Layout for Commercial Outlets

The main objective while designing plant layout for commercial outlets, is to maximize the net benefit per square meter of shelves. If sales are directly related to the exposition of products to the customer, the objective will consist of exposing as many products as possible to the customers in the available space, so that the customer can choose the product according to his/her own requirement. While designing the layout, one has to plan for enough space for the movement between shelves, not making the layout uncomfortable for the customer. The following aspects must be kept in mind:

Allocate the daily consumption products and impulsive purchase and high profit margin products at prominent places and at the periphery. Eliminate aisles to have customers thorough and complete look on the products displayed on the shelves. Allocate the attractive products on both the sides of row and disperse them to increase the exposition of adjacent products. End row can be used as a place for exposition. Create the business image through a careful selection in the first section where the customers are getting into the facility.

Layout for a Warehouse

While selecting a plant layout for a warehouse, the objective should be the optimal relationship between space and material handling costs. Various aspects like cubic space utilization, storing equipment and methods, material protection, allocation of different parts, etc must be considered. A warehouse layout is more complicated when: The different customers order on account of a high number of references. There are frequent orders of low number of units for the same product. In these cases, the material handling costs for each round trip movement would be excessively high. Aggregation of units for several orders or establishment of optimal routes for each order can be the solution to this problem.

Work Study
It is a term for those techniques, particularly method study and work measurement, which are used in the evaluation of human work in all its contexts and lead systematically to the detailed investigation of all the factors affecting the efficiency and economy of the situation under consideration, in order to effect improvement.
Work study is a stream that deals with finding new ways of performing a job, better use of equipment and tools, simplifying the design and standardization of work methods. The techniques that resulted into simplified methods of doing jobs, easier job designs, better value addition at lesser cost and overall higher productivity constitute the new discipline named as work-study. Work study, in general, has further been divided into two disciplines as shown in fig 27.1 i.e., Method Study and Work-Measurement.

Work Study

Method Analysis

Work Measurement

Method Study This is also known as methods analysis. Method study is a systematic technique of observing, recording with certain scientific tools and critically evaluating and examining the present methods of doing a job or task, so as to develop improved, simpler, cheaper and more effective methods. The scope of method study includes all types of work processes, working environment, tools and equipment to perform the job. Work-Measurement Work measurement evaluates the contents of a job and the time taken by a worker to perform that job against pre-defined level of performance. The work-measurement is possible only after the standardization of job. The work measurement can be referred to establishing the job contents by determining the time required to complete a job against a predefined standard of performance by a qualified and normal worker.

Various Terms and their Definitions

The terms used in the chapter of work-systems are defined as below: Work-Study It consists of techniques like method study and work measurement to examine the human work in terms of ways and time consumed to make the work simpler and reduces the time consumed. Thus, increase the productivity with maximum efficiency. Time Study It is a technique to determine and measure the time required to carry out a given activity to the maximum accuracy from a limited number of observations with respect to predefined standard performance. Method Study

It is also known as Method Analysis or Operations Analysis. It is a technique of systematic recording, critical examination and evaluation of existing and proposed ways of doing work, so as to develop and implement simpler, effective and less costly methods. Work Measurement It is to measure the work time and thereby establishing the time for a qualified worker to performance a task at predefined pace of doing the same. Motion Study It is also known as Motion Analysis. It is a study of motions (manual or body) used to perform a task. This includes all types of activities performed by right hand or left hand or any other part of body. Work-Design It is an analysis of present work methods in order to devise simplified, easier, effective and more cost efficient methods to achieve the basic purpose of work design. Work Simplification It is improving present work methods or work flow patterns and to train the worker/ operator to make the work/ task simpler at reduced cost. Here the application of common sense is more important. Industrial Engineering It is a discipline of engineering that involves designing, improving, getting acceptance and installing the better systems related to men, materials, methods and machinery to improve productivity and efficiency.

Objectives of Work-Study
The work-study has gained lot of importance in the light of growing competition. The work study has following objectives: Systematic analysis of present method of doing a job. Measuring the job content with respect to time for a qualified worker and thus to establish standard time. Optimum use of man, machine, material and methods to achieve best quality of minimum cost. Increase of productivity and thus the morale of manpower. Thus improving the overall efficiency in the organization.

Significance of Work Study

The productivity can only be increased in long run, if the employees and workers are hard working and conscious about the importance of productivity. Managers must be concerned about minimizing the cost and should try to find out the ways to maximize the production in minimum time span, of course with better quality every time. All this can only be possible with the implementation of the principles and techniques of work-study. Work-study has, now-a-days, been termed as Industrial Engineering also.

Work Study Leads to Higher Productivity

Work study is a branch developed through time and motion study and initiated by F.W. Taylor and Gilbreth Couple respectively. Motion study ultimately lead to method study involving men, materials, machinery and methods, while time study or work measurement evaluates the effectiveness of the worker in terms of time.
Time Study (F.W. Taylor) Work Measurement Improving through effective utilization of men, materials, machinery and methods

Developing Simpler and faster methods

Work Design

Motion Study (Gilbreths)

Method Study

Improving efficiency of time by better planning, performance

Fig 27.2 Work Design-Synthesis of Time and Motion study, Manning and Evaluation Both studies further lead to work design as shown in figure 27.2 Work Study mainly involves time study and method study. It tries to find out better ways to perform the job in lesser period of time.

Work Study

Method Study

Work Measurement

1. Selecting the task/ work

1. Selecting the task/ work 2. Recording working and idle time in present working

2. Recording present method (necessary and unnecessary motions)

It tries to set the standards for performance with respect to time and improves the productivity as shown in figure 27.3 Both the techniques- Method Study and Work Measurement greatly contribute to development of simpler and cost effective methods in such a manner to increase the productivity in the business organization. Advantages of Work-Study Work Study increases the productivity, reduces the time taken to perform the job and thus overall viability of any business. The following benefits of work-study are listed as below: Production efficiency increases due to work study.

Higher productivity has been made possible Better and smooth materials and product flow. Better layout and reduced material handling. Lesser cost of production due to less time per job, which is the ultimate result of work-study. Manpower efficiency increases, hence worth and confidence of worker improve. Benchmarked and standard performance levels are established due to method study and work measurement. Better job-satisfaction and incentive scheme are possible due to work study.

The work study tries to find out the better method of performing the job with respect to simplicity, ease and productivity.

Method Study
Method study is a systematic approach to job design. It can be defined as the systematic recording and critical examination of existing and proposed methods of doing work, involving easier and more effective methods and reducing costs. Factors and Situations Responsible to Organize Method Study There are certain situation and factors prevailing in the organization, which instigate to conduct Method Study. These are listed as below: When production cost is high and management wants to reduce due to high competition. Due to generation of high cost and quantity of scrap and waste. Frequent and high level of materials movement and workers. Numbers of production problems are too much. Quantity complaints increase beyond limit. High cost of production and difficult to meet competition. Poor workmanship and working conditions are factors of conducting Method Study. Safety of workers and machines. Overheads increases due to excessive overtime.

The above factors create a situation, which method study becomes the necessity for survival and meeting the competition. Objectives of Method Study Method Study aims to many objectives, which are listed as below: To analyze existing and suggested method of doing a task or work. To find out new suggested method, how it is better to increase the productivity and to reduce the cost. The increase of productivity and reduction of cost is achieved by the way of reducing material handling and movements, thus reducing fatigue to workers. To achieve optimum utilization of inputs. To develop the new methods and thus standards of performance.

The above objectives must be achieved with detailed analysis and implementation of method study. Significance of Method Study The method study has got lot of advantages. It helps in increasing the overall profitability of the organization by enhancing the productivity. It provides the following: Work/ job/ tasks are made simple. Provides cost-effective methods. Less fatigue to the workers/ operators. The quality of product is improved. Better design of workplace and equipment. Better environment for working. Improved work flow due to smooth and cost effective material handling. Better utilization of resources, particularly of man-power. Safer work-conditions and better job satisfaction. Due to reduction in unproductive motions, production cycle time is reduced. Less wastages and scrap generation. Overall higher productivity is achieved.

All the above benefits increase the importance of Method Study.

Procedure of Method Study

The procedure involves the following six steps: 1. Selection of work to be studied. 2. Recording of all relevant facts of current method. 3. Critical examination of those facts. 4. Development of the most practical, economic and effective method. 5. Installation of new method. 6. Maintenance of new method and periodic checking.

1.) Selection of work to be studied

Generally operations consist of different discrete jobs or activities and it is required to select those jobs to be studied that will give the best returns for the time spent.

2.) Recording the present method

Method study employ formal techniques to record the sequence of activities, the time relationship between different tasks, the movement of materials and the movement of staff.

3.) Critical examination of the facts It is used to critically examine the current method by considering:

4.) Development of the most practical, economic and effective method.

The purpose is to identify possible actions for improvement and to subject these to develop a preferred solution.
5.) Installation of new method It needs project managing the changes and understanding of the changes involved by all concerned persons. 6.) Maintenance of new method and periodic checking

It means monitoring of the new method. Periodic checking of the new method leads to ensuring that overall efficiency is improving.

Recording Techniques of Method Study

There are two types of recording techniques, which are as follows: Process Charts Process Mapping

(I) Process Charts

The charting of work flows; working processes, systems and procedures is a way of recording the different aspects of a work situation for the purpose of analysis. Process Charts are one of the simpler forms of workflow charting. A variety of process charts has been designed according to the needs of a particular level or stage of analysis. Symbols Used in Process Chart The different kinds of process chart share a common set of symbols as shown in table 27.1.
Universal Symbol Activity Operation Activity Description Working on a job to add some value it includes change of shape, characteristics (physical or chemical), assembly etc. Checking the product for quality and conformance to pre-specified characteristics.



Keeping the product at a pre-decided and safe place.


Changing the place of the product form one point to another

Combined Operation and Inspection Delay

When two activities are done simultaneously at a time e.g., production of goods with quality at source as a concept. A worker produces the product with self inspection. Sometimes the product or machine has to wait for next operation or next job.

These symbols are linked together in a vertical manner representing the key stages in a process. The simplest form of process chart is known as an outline process chart which records an overview i.e. outline of a process. It is useful first step to identify key areas of concern before recording (part of) the process in more detail. In a "full" process chart, it is common to chart the process from of the material being processed, the worker carrying out the work or, less commonly, a piece of equipment. Process charts may also be used at a more micro level of analysis.

Types of Process Charts

Method Study records the data related to present method with the help of process charts. There are various types of process charts, which are listed as under:

Outline Process Chart It records the process flow in totality, but only the main steps in the sequence of process. It takes into account mainly operations, storage, transportation, delay, inspection and also the combinations. The symbols used in recording are followed universally and are given below: Process Chart This is also known as Operation Process Chart. It is a graphical plot of the points, where material/ jobs are processed or operated upon. The inspections, time taken for processes and information required are also represented in the process chart.

Flow Chart In these charts, the representations of events are recorded in the sequence of actual process. All the operations, delays, transportations, inspections, storage etc are shown in these charts. These are further categorized into the following: Main utilization process chart. Machine utilization process chart Material/ Product process chart

Multiple Activity Chart Here the multiple activities of more than one out of man, machine, material and product are recorded on a graph with same scale. Two limbs/ hands process chart The activities of a work with both hands or more than one limbs of the body are recorded in a time sequence. Man-Machine Chart This chart may also be known as worker-machine chart and it demonstrates the various activities like operation, delay, transportation etc. through various symbols. It shows the utilization of man and machine in a complete production cycle. Flow Diagram It shows the relative position and the sequence of operations performed over the machines and equipment, aisles and display the exact path followed by the job on the various work-centers. String Chart It is a plan, where the string is used to measure the path of workers, materials in the equipment for the sequence of events.

SIMO Cycle Chart The both handed motion in a process is simultaneously shown through SIMO Cycle Chart. The therblig is used for both hand movements.

(II) Process Mapping

Process mapping is a modern version of process chart. A process map bridges the gap between a 'traditional' process chart and a computer system flow chart. It acts as a basis for process improvement or re-engineering. It requires deep observation and focused interviewing skills of the 'mapper' to ensure that the map represents a true and exact reflection of the process.

Work Measurement
Work Measurement is another important technique of work study. It measures the jobs, tasks or sub-tasks in a selected work in terms of time taken to complete that job. This helps in increasing the productivity of a worker by measuring the speed of doing a job and thus establishing the rating of that worker. The measurement of job performance is always done against a pre-defined standard of performance of a qualified worker. A qualified worker is defined as who has the necessary physical and mental characteristics, also has required skill and knowledge to perform the given task to the normal standards of safety and performance in terms of output and quality. Here in the definition of a qualified worker, the following standard elements are taken into account: Time standard Work standard Labor standard Production standard

All above standards are predefined and are measured for a normal pace of performing a job with normal output in terms of quantity and quality. Objectives of Work Measurement The work measurement is conducted in any business organization with the following objectives: Better man-job fit i.e., suitable and qualified worker deployed on different jobs. Better and reliable labor performance can be achieved. To develop the criteria to control the labor cost. Better planning and control of various operations. To develop a sound and fair incentive scheme.

If the work measurement technique is applied in an organization in a fair manner, the overall performance of business can be improved to a greater extent.

Significance of Work Measurement As it is very clear that if above objectives are achieved with the help of work measurement, the business performance can be improved to a greater extent and can meet the competition in a better way. The work measurement helps the operations in the following way: The various alternatives developed in method study can be measured with respect to time taken and overall efficiency. Realistic work schedules can be prepared. Fair and standard performance levels can be set to measure the efficiency of a worker or a group of workers.

Normal and standard working conditions can be defined. The development of fair incentive scheme is made possible. It helps in cost calculation to find out the cost or price of a product or service, particularly the labor overhead. Helps in committing the delivery schedules.

Thus the work measurement helps the business not only to survive, but also to meet the competition in more effective way.

Recording Techniques of Work Measurement

Following are the main techniques:

Rating Allowances Standard Time

(I) Rating
Direct observation techniques include a process for converting observed times to times for the "qualified worker working at a defined level of performance." The commonest of these processes is known as rating. Rating technique involves the observer making an assessment of the worker's rate of working relative to the observer's concept of the rate corresponding to standard rating. It is based on the factors like effort, dexterity, speed of movement, and consistency. The assessment is made on a rating scale, the 0-100 scale. The rating is then used to convert the observed time to the basic time using the simple formula: Basic time = observed time x observed rating/standard rating Rating is a subjective assessment, and different observers may rate differently.

(II) Allowances
The practice to make an addition to the basic time is commonly referred to as an "allowance" which allows the worker to recover from fatigue and for personal needs. The amount an extent of the allowance depends on the nature of the work and the working environment. Hence, work design should include the design of an effective work-rest regime. The addition of allowances should never be used to compensate for an unsafe or unhealthy working environment. In many cases there are small amounts of work that may occur irregularly and inconsistently and an additional allowance in such case is known as a contingency allowance.

Types of allowances There are basically four types of allowances: 1) Relaxation allowance: It is an addition to the basic time intended to provide the worker with the opportunity to recover from the physiological and psychological effect of carrying out specified work under specified conditions. It is of two types: 1) Constant allowance: Personal Basic fatigue 2) Variable allowance: Standing allowance Abnormal position Use of muscular force or energy Bad light Atmospheric condition Close attention Noise level Mental strain Monitoring Tediousness

2) Contingency allowance: It is small allowance of time, included in a standard time to meet the legitimate and expected items of works or delays. 3) The personal allowance: Generally it is given to an operator for his personal needs. 4) Policy allowance: These are given in certain contingencies outside the work place, e.g. collection of pay, etc.

(III) Standard Time per unit

For this the steps involved are: Measure each element: observed time Defined level of performance: % rating Obtain normal tome= OT x % rating Add allowances

Standard time / unit= NT+ (NT x% allowances) Time (taken) available (mts.) ----------------------------------Standard time per unit

Standard output =

Illustration How many working minutes do you expect would take a worker to produce a part for which the time standard is 10 minutes, if the allowance of this work is 25% of the normal time and the worker is rated at 80%? Solution Here we have to calculate the Actual Time. Now Standard Time 10 =Normal Time (1+Allowance) =Normal Time (1+0.25) =8 minutes Actual Time x Performance Ratings Normal Time= 100 Actual Time x 80 = 100

8 x 100 Actual Time = 100 =10 minutes

Choosing a Measurement Technique

The selection of a measurement technique depends on a number of factors including:

The purpose of the measurement; The level of details required; The time available; The existence of available predetermined data; The cost.

In certain cases, techniques which derive times quickly may provide less detail and vice a versa. The results obtained from work measurement serve as the basis of the planning and scheduling of work, manpower planning, work balancing in team working, costing, labor performance measurement, and financial incentives. Time Study

Time study is a systematic process of directly observing and measuring human work to establish the time required for completion of the work. It follows the basic procedure of systematic work measurement of:

Analysis; Measurement; and Synthesis.

The observer first undertakes a pilot study to identify suitable elements, which can be clearly recognized on subsequent occasions and are convenient, in terms of their length, for measurement. Subsequent studies are taken during which the observer times each occurrence of each element. This assessment of rating is used to convert the observed time for the element into a basic time - a process referred to as "extension". A time study observer should be properly trained in the technique and especially in rating. Time study, involves the use of specific control mechanisms to ensure that timing errors are within acceptable limits. Time study is a very flexible technique, suitable for a wide range of work performed under a wide range of conditions. It is a direct observation technique, it considers specific and special conditions but it does rely on the use of the subjective process of rating.

Steps in taking a time study

The time study consists of the following steps: Select: The job to be studied. Record: All the relevant data regarding the job method of work Measure: Each element in terms of time over a sufficient no. of cycles of the activity. Examine: The recorded data and the element times critically so that unproductive or random elements are separated out from productive elements. Rating: The operators effective speed of work relative to the observers concept of normal pace or speed is called rating an it is denoted as below:

Performance Rating = Observed pace ----------------Normal pace


Motion Study
Motion Study is a technique to study the existing number of movements in completing a job and eliminating the wasteful and non-productive motions from the existing motions, so as to reduce the

fatigue, to increase the productivity of the task and labor and to reduce production cycle time. MotionStudy is further divided into two categories: Micro Motion Study Memo Motion Study

Micro-Motion Study In this study the analysis of minute and short activities in production cycle, which are highly productive in the long run due to rapid movements and of repetitive nature? The micro-motion study is very useful for repetitive jobs, assembly of small parts and components e.g. assembly of computers, garment and toys manufacturing. The following objectives are achieved due to its utility in job-study and analysis: To develop the relation between the job components. To install a long term method of doing a job and recording the same. To study and develop the relation between the job and machine. To develop the inter-relationship amongst the group members. To improve the productivity and reduce the fatigue by removing unnecessary and waste movements.

The micro-motion study is conducted by preparing a motion picture of operations in a sequence, analyzing and evaluating the film with the help various charts, symbols and diagrams. The micro-motion study is conducted with the help of SIMO chart and Therbligs and micro clock. The job is analyzed by breaking down into micro-motions of the worker/ operation in the control of three parts: When the start the motion. What is nature of motion? When to finish the motion.

Micro-motions are also known as Therblig. Certain movements of a worker or operator are/ may be denoted by the following symbols or abbreviations:

SearchingSr Finding out and searching for a job. Grasping G Picking up an object. Selecting St Deciding to pick up an object Holding (H) Keeping the article in hand after picking up. Releasing (R) Releasing the job from hand. Inspecting (In) Examining and checking the job for conformance

Planning (P) Planning before actual physical movement. Assembling (A) Joining two objects together Delaying (D) When the operation has to be delayed due to avoidable or unavoidable reasons. There are many more Therbligs other than mentioned as above. There must be a specified objective behind any movement or motion. Any motion must be associated with economy, ease and minimum fatigue. The basic principles of motion are: Effective use of operator, machine and tools. Layout should be such that movement must not be hindered. Safety of operator, machine and tools.

Different scientists have developed various categories of principles related to motion and their economy. Memo-Motion Study It is another type of micro-motion study, where the film is made in slow-motion using a special type of camera with varying speed like sixty, ninety, one hundred twenty frames per minute. The various applications of memo-motion study are as under: To study the materials flow. To work out to add new activities, motions or works, if required. To develop man-machine relationship. To regulate various activities in a task.

These types of memo-motion study are comparatively of low-film cost and allow reviews of sequence of activities. This study can be applied only in the reach of motion-picture camera at a single place. Steps in Work Measurement The various steps in work measurement are listed below: Breaking the job into subtasks or small elements. Recording the observed time for each element by any of the study. Converting observed time for each element into normal time by applying rating factor. Assess and add all types of relaxation allowances such as for personal needs, physical and mental fatigue, thus to reach work content. Finding the frequency of occurrence of each element in the work and multiply the work content by its frequency thus reaching to work content of the whole job. Add contingency allowance in work content of the job to reach at standard time of the job.

(Observed Time) O.T.

(Normal Time) N.T.

(Work content of each element) W.C.

(Work content of whole job) W.C.J.

(Standard Time) S.T.

Rating Factor

Add Relaxation

Multiply by

Add contingency

The standard time is derived from observed time in a step by step procedure as shown in above fig 27.4. Calculation of Normal, Standard and Allowed Time to do a Job The details of various allowances are described in the other paragraphs but are added one by on normal time or basic time, then reaches to standard time and total allowed time for a job as shown in below fig 27.5

Apply Work Rating (R) Variation Allowance (WCA) Calculation of Relaxation Actual Allowed Allowance Time for (RA) performing a job Contingence Allowance (CA) Special Allowance (SA)

Observed Time (OT)


Work Measurement Techniques

There are different work measurement techniques like Predetermined Motion Time Systems, Analytical Estimating, Activity sampling, etc. These are explained as follows: 1.) Predetermined Motion Time Systems (PMTS) Predetermined motion time systems (PMTS) are work measurement systems based on the analysis of work into basic human movements, categorized according to the nature of each movement and the conditions under which it is made. The first PMTS were designed to provide times for detailed manual work. "Higher level" systems have been devised, by combining fundamental movements into common, simple manual tasks. Such higher-level systems are designed for faster standard setting of longer cycle activity. PMTS have inability to provide data for movements made under "unnatural" conditions or for mental processes. Advantage of PMTS is that they require a detailed description of the working method. Many PMTS are proprietary systems. One of the major PMTS systems is MTM (Methods-Times Measurement), which is actually a 'family' of systems operating at different levels and and applicable to different types of work. MTM1 - the 'highest-level' or most detailed member of the family - was developed in the 1940s by analyzing large numbers of repetitive cycles of manual work on film. MTM2 is quicker to apply, but more suited to longer-cycle work.

2.) Analytical Estimating Analytical estimating is a systematic work measurement technique. It is an enhancement of estimating, in which the time needed to perform each component of a task at a defined rate of

working is estimated from knowledge and practical experience of the work and/or from synthetic data. For this whole job should be divided into smaller individual tasks. The Way of using Analytical Estimating Analytical estimating is generally used for assessing work over a reasonably lengthy period of time, for which it may be difficult and expensive to collect the information required by using other measurement techniques. In some cases the presence of an individual performing work measurement in the work place could be unacceptable. In such cases, analytical estimating is an appropriate method to use.. Advantages & Disadvantages The advantage of using analytical estimating is its speed of application and low cost. The second advantage is by using trained and experienced personnel process and measurement data can be assembled and applied quickly. The use of experienced judgement for determining the time necessary to perform a task is the technique's weakness. Technique should be used when a more precise and accurate alternative is a feasible and economic alternative otherwise effectiveness decreases.

3.) Activity Sampling

Activity Sampling is a statistical method for collecting data. It is a technique in which a large number of observations are made over a period of time. It is generally used for collecting information on the percentages of time spent on activities. It enables lengthy activities or groups of activities to be studied economically.

Fixed and Random Interval Sampling Activity Sampling can be done at random intervals or fixed intervals. In random activity sampling the intervals between observations are selected at random e.g. by using random numbers. In fixed interval activity sampling the same interval exists between observations. A fixed interval is applicable where activities are performed by a person or group of people having a degree of control. While random intervals are applicable for a series of automated tasks or activities as part of a process, to be performed in a pre established regular pattern. Confidence Levels

Activity sampling conforms to the binomial distribution a calculation to determine how many observations will be needed to operate within specified limits of accuracy.The formula for the number of observations is as below:= 4 x p x (100 - p) Where p is the estimated % time spent on the activity and L is the limit of error, expressed as a % After this the observations can begin and activities are recorded at the agreed time intervals. Finally calculation can be done to determine the error rate, as follows: Error Rate = 2 x (p x (100 - p))

Number of observations
In case of work sampling method, a large number of random observations are made to determine the steps in its normal performance. It provides more operational detail and reduces error. Illustration The following are the results of a work sampling study which took place over a 300 hour period during which the worker was observed while processing 27000 parts. No. of Observation 1600 400

Working Non-working

The worker when working was rated at 80% normal performance. For this type of work the usual allowances should be 10% of the total workday (8 hours). Find the standard number of units of the worker should process and hour. Solution During the period of observation the percentage time for working and idle state can be calculate in the following way: No. of observation State Working Idle Total % of age

1600 400 2000

1600/2000=80 400/2000=20

Now Actual working hours out of 300 hours = 80% of 300 = 80 x 300 = 240 hours

100 Actual Time x Performance Ratings So Normal Time = 100 240 x 80 So Normal Time = 100 Allowance are 10% of 8 hours day=48 minutes Hence the allowance in 300 hours = 48 x 300 = 1800 minutes 8 = 30 hours Hence then standard time = 192 + 30 = 222 Standard number of units produced per hour 4. Synthesis Method It is a technique to arrive at a time needed to perform or complete a job at a defined level of performance by summing up or synthesizing the time values of all the elements obtained through work measurement calculations of other similar job/ task elements or from standard data of studies already conducted. The standard data is normal time values of similar and different elements of job. These time values of different standard elements are complied in the form of catalogue. The different elements like turning, shaping or drilling are involved in various jobs. The new job congaing one or many similar jobs, then the different standard time values can be taken from previously organized studies or from the listed values in the catalogue. 27000 = 222 = 1222 parts per hour.

Advantages Synthesis Method is superior to many other methods, which are already explained. The various advantages of this method are: 1) 2) 3) 4) Reliable as standard data taken from large number of time studies. Economical and less costly as previous standard time values from other studies are considered. This method can provide easy and quick cost estimation for even new jobs. This method helps in quoting and estimating prices, committing delivery schedules for tenders and bids. 5) It helps in calculating the overall production time. 6) It is used in devising incentive schemes.

In general terms Productivity means the total output produced by the given inputs with the help of limited resources. Specifically speaking it means "volume of production" or "total sales value of production" per person employed. The first of these does not have much meaning in comparing the manufacture of similar products under widely different economic circumstances. Productivity may also be defined as physical units of output per many-day can be as high in factories in underdeveloped countries as anywhere else, where simple operations are involved, even in highly advanced technological fields. The rise in productivity, defined thus, result mainly from technical change and from economies of scale; and that the resulting economic gains are not distributed either to the operatives in the form of increased wages (since these are set by the general pattern of wages in the country), or as increased profits to the investor, but to consumers. The second definition does not give a usable or meaningful measurement in economic terms, since it includes the intrinsic value of the raw material, which may be very high or very low and may have to be imported.
Various perspectives of Productivity

We can not summarize the term productivity into a single definition .The definition of productivity varies according to the aspect being studied. G. D. Sardana and Prem Vrat (1987) have compiled 20 definitions of productivity relevant to the business. Generally, productivity is considered as an output-input relationship which is mostly concerned with a production system. It means an organization can be treated as a physical system. This concept is based on the model of causality which states that an input causes an output. But, in general there can be other economic as well as non-economic performance outputs, like acquiring a share of the markets, new product introduction, completion of schedules, societal goals, etc. These also utilize the input resources and should be in a model to measure productivity. Similarly, factorial productivity measures input factors such as labor, capital, etc. In general, measurement of productivity should be based on following issues: Reallocation of Resources: If resources can be reallocated properly and efficiently then it can lead to better productivity and also higher morale of employees. Identification of the potential areas of improvements: The purpose of measuring and enhancing the productivity is to find the areas, where improvement can be done. There can be so many areas like motivation, morale, leadership, working conditions, incentives, job enrichment, etc. Analysis of preplanned targets: Productivity and its measurement can be a basis on which achieving preplanned targets can be checked and analyzed. If there is any deviation then it will help in setting new targets.

Sardana and Prem Vrat use a broad definition of productivity that tells the observer how the measured organization is doing as a whole.

Types of Productivity Productivity can be classified on the basis of different inputs used. Basically there are following types of productivity. 1) Partial productivity: In this type of productivity the resource inputs are aggregated to find the ratio of output to one class of input among various factors of production. Examples of these are Labour productivity: Inputs are aggregated in terms of direct labour cost. These will affect the wage rate as well as changes in the labour mix. Direct labour cost productivity: The inputs are aggregated in terms of direct labor cost. Direct cost productivity: In this all items of direct cost associated with resources used are aggregated on a monetary value basis. Raw material productivity: It is calculated by dividing the product with the material consumed. Capital productivity: Resource inputs may be the charges during the period to depreciation. In other words, the inputs may be the book value of the capital investment. 2) Total factor productivity: This type of productivity is the ratio of net output to the sum of the associated labor and capital inputs. The net output means the output minus intermediate goods and services either purchased or produces in house, which were output for initial process but have acted as input for the final transformation process. 3) Total productivity: It means the ratio of total output to the sum of all input factors. Thus the total productivity measure reflects the joint impact of all inputs in procuring the output. Labor Productivity The productivity has many components such as capital, materials, power and energy, and labor. Labor productivity is very important part of productivity, which can be measured by the following formulae:

Output in a given period of time Labor Productivity (LP) = Labor hours used in that period of time

Here the output is measured in terms of labor used to produce that output. Another measure of labor productivity can be just reverse of the above i.e.

Labor hours used Labor Productivity (LP) = Output produced by the labor LP can also measured as the ratio of value addition to the wages provided i.e., Value Addition for the product Labor Productivity (LP) = Wages given to add that value

Measurement of productivity, partial productivity or labor productivity is possible only when both numerator and denominator are of same units i.e., either in momentary value or man -hours. The measurement formula must be selected very carefully to arrive at realistic indication of effectiveness of any input/ resource.

Scope of Productivity
Broadly speaking the purpose of business is to create new customers and to sustain existing customers. Business is not only about making profits. In a broader sense, the first valid purpose of business is to satisfy the needs of customer otherwise it is very tough for a company to survive in a global competitive world. It is the customer who determines what a business is. It is the customer alone whose willingness to pay for a good or service converts economic resources into wealth, things into goods. What the business thinks it produces is not of first importance-especially not to the future of the business and to its success. What the customer thinks he is buying, what he considers value, is decisive-it determines what a business is, what it produces, and whether it will prosper. And what the customer buys and considers value is never a product. It is always utility, that is, what a product or service does for him. A business converts economic resources into valuable output. It may do so well or poorly. At this level, productivity is the balance between all production factors that will give the greatest return for the least effort. Productivity at the organizational level is considered separately from productivity at lower levels. The customer buys utility and productivity associates outputs with inputs. Productivity, at the organization level, may be considered a measure of how well the company satisfies the customers' utility. Therefore, productivity measurement shows how well a company is doing. This does not, however, tell anything about why the company is performing the way it is. To discover why, productivity must first be examined at lower levels such as the work group, which are best suited for using productivity measures as an indication of change. The concept of productivity is often vaguely defined and poorly understood, although it is a widely discussed topic. Different meanings, definitions, interpretations and concepts have emerged as experts working in various areas of operations have looked at it from their own perspectives. But a different view is that the terms `performance' and `productivity' are used differently. Productivity is a fairly specific concept while performance includes many more attributes.

Measurement of Productivity
The productivity is a common measure of how well a company, industry, or firm using its resources. A productivity of production system is analogues to the efficiency of a machine. As it is desired to increase the efficiency of a machine, it is also to raise the productivity within the available resources. Productivity may be defined as a ratio between output and input. Output means the number of items produced and inputs are various resources like 6Ms. Productivity = Output Input Productivity what we call is a relative measure. Productivity comparison can be made by two ways: 1.) Company can compare with itself with similar operations within the company 2.) It can use industry data when such data are available.

Questions.1: A company is making 6000 batteries in a month by engaging 22 persons working for 24 days in a month in a shift of 8 hours per day. Calculate the productivity in terms of labour input? Solution: Quantity of standard price Productivity = Labour cost

6000 Productivity in terms of labour = 22 x 8 x 24

6000 = 4224

= 1.42 pieces of batteries/man-hour.

Question.2: If 200 pieces are produced at a standard price of Rs. 600 each, with a labour cost of Rs.5000, material cost of Rs.18,000 & overhead of Rs.11,000. Calculate the multifactor productivity?

Solution: Productivity =

Quantity of standard price

Labour cost + Material cost + Overhead

200 x 600 = 5000 + 18000 + 11000

120000 = 34000 Question.3: Find the partial productivity and total productivity for M/S ABC company for which the following data is available:= 3.53

Output = 500 Pcs worth Rs.15000/-, Material Input Rs. 3000,

Labour Input = 200 man-hours costing Rs.4500/-

Capital Input = Rs.4500/Other Input expenses = Rs.750/-

Energy Input = 600 kwhr costing Rs.1500/-,

Assume the above values are in constant rupees with respect to a base period.

Solution: Output Labour Productivity = = Labour Input 15000 = 3.3 4500

Output Material Productivity = = Material Input

15000 = 5.0 3000

Output Capital Productivity = Capital Input =

15000 = 3.3 4500

Output Energy Productivity = Energy Input =

15000 = 10.0 1500

Output Other Expenses Productivity = = Other expenses Input

15000 = 20.0 750

Net Output Total factor productivity =

(Labour + Capital) Input

Net Output = Output (Material Input + Capital Input + Energy Input + Other Expenses Input)

= 15000 (3000 + 4500 + 1500 + 750) =15000 9750 = Rs. 5250

Labour + Capital Input = (4500 + 4500) = Rs. 9000

5250 Total factor productivity = 9000 = 0.583

15000 Total productivity = 4500 + 3000 + 4500 + 1500 + 750 =



= 1.05


Products X and Y are being manufactured by a company using materials A and B. Both materials are equally suitable. Product X is expected to sell at Rs.75 per unit and product Y at Rs.35 per unit. The operating data is given below:


Material A

Material B



200 units 300 units

400 units 200 units

Quantity of raw material usage 1000 kg

1000 kg

Labour usage

300 man-hours

250 man-hours

Electric energy consumption

1000 kwhr

1500 kwhr

Cost of raw material/kg



Labour cost per man hour



Electric energy cost/kwhr



Compare the productivity of material, labour and electrical energy in using materials A & B. Comment on the relative advantage of using either of the materials.


Value of Output Productivity = Value of Input

Sales value of output with material A.

= Output of product in units X rate/unit of X + output of Y in units X rate/unit of Y = 200 x 75 + 300 x 35 = 15,000 + 10,500 = 25,500

Sales value of output with material B.

= 400 x 75 + 200 x 35 = 30,000 + 7,000 = 37,000

The partial productivity of different factors of production is as follows:

S. No. 1.


Material A

Material B

Productivity of Raw Materials = Sales value 25,500/1000 x 22 = 1.16 of output/Value of Raw Material Used Labour Productivity = Sales output/Value of labour used value of 25,500/300 x 10 = 8.5

37,000/1,000 x 33 = 1.12


37,000/250 x 10 = 14.80


Productivity of Energy = Sales value of 25,500/1000 x 2 = 12.75 output/Value of electrical energy used

37,000/1500 x 2 = 12.33

The productivities of (1) and (3) are nearly the same using either material A or B. If labour is the key factor, use of material B is better as it yields higher productivity 14.8 > 8.5

Factors Improving Productivity

Productivity is an indicator of efficiency of an organization. Hence to increase productivity, the following factors should be taken into consideration:

Capacity utilization Regulations imposed by the government Production volume Investment Skills of the workers Life of the plant and machinery Research and development Work ethics Energy cost

Forecasting refers to establishing the future trends and expectations by the analysis of past data, or the formation of opinions. The aim behind forecasting is to minimize the threats and challenges and to explicit the maximum benefits out of opportunities predicted. The Forecasting is an essential element of capital budgeting. The Capital budgeting requires the commitment of significant funds today in the hope of long term benefits. The role of forecasting is the estimation of these benefits.

Business Demand Forecast Its Need

The forecasting in each and every sphere of life plays very important role. The future is uncertain and full of risks. To minimize the risk, it is always desirable to take preventive actions and thus to minimize the uncertainty, planning comes into picture. In business, the production of goods and services is directly focused towards the need of consumers and is directly proportional to the quantity and quality required by the customer. The demand of the customer in terms of both quantity and quality is assessed by the sales-force or research and development team and then analyzed by the business planners and strategists. This demand is then forecasted in terms of various time horizons like short, medium and long range. These demand forecasts help the proper and accurate business plans in many ways. The need of business forecasts also arises with the same concept of minimizing the uncertainty and risks which can impact the business adversely. The demand forecasts plan the business in better and more efficient way. The forecast facilitate the new project planning and there after manpower scheduling and planning, funds requirement and financial planning, production and inventory planning and further business expansion and diversification planning.

Utility of a Forecast
The forecast has any real utility, when it is not totally reliable e.g., suppose an astrologer predicts that we will be killed, when we leave the house. If we know that the predictions are one hundred percent accurate, then we would be unable to alter the forecast. In other words, predictions only become useful when they are not completely reliable. The paradox exists only when we want the

future to be different than the prediction and when we believe that there is no way for us to adapt to or affect the forthcoming changes. The objective of forecasting is to be as accurate as possible. In the case of business demand forecasting, a more accurate forecast enables us to plan our resources in a more ecological and economical way fashion. We can minimize waste by adapting to our expectations of the future. In demand forecasting, the degree of over- and under-utilization of our resources is proportional to the difference between the actual and forecasted values. The usefulness of a forecast is not only the accuracy of quantification in a particular dimension, it also explains the complex relationships among many aspects such as the type of information being forecast, the confidence in the accuracy of the forecast, the magnitude of dissatisfaction with the forecast, and the versatility of ways that one can adapt to or modify the forecast. Each forecasting situation must be evaluated individually for its usefulness. One must strive to develop forecasts that are of maximum usefulness to planners. This means that each situation must be evaluated individually and type of forecasts that is most appropriate to the particular application.

Classification of Business Forecasts

The business forecasts can be of many types which are related to economical factors, customer demand and production schedules and possible technological up gradations. The various types of forecasts are as follows: 1. Economic / Commercial Forecasts: These forecasts are related to possible business conditions, economic service, inflation rates, tax rates, gross development product and gross national product and other economic and commercial indicatives. These forecasts also predicts about business growth related to industry in long range and intermediate period. These forecasts based on secondary data published in government bulletins and surveys. 2. Demand Forecasts: The research and development departments of the companies organize the surveys on the past demands, analyze the data and predict the future demands. On the basis of these predictions, the production capacities and schedules are planned. The demand forecast may be planned for short range, medium range and long range time horizons. These forecasts also facilitate financial, marketing and manpower planning. 3. Technological Forecasts: These types of forecasts are related to technology up-gradations. In todays scientific age, the technology is being improved day by day at very fast pace. These changes provide the companies with new raw materials and products. The products keep on changing with respect to their design, utility and is of use. The processes to manufacture the products or to produce the services are being improved day by day. To sum up technological forecasts have increased the quantity and quality of the product and services, so any plan lasts long for not a very long time.

Time Frame of Forecasts

A forecast is useful for the future time for which it is valid. In business terms, the demand forecast is made for three ranges of time horizons. On the basis of these time horizons, three types of forecasts are explained as under: 1. Long Range Demand Forecasts: This type of forecast is made for a time period more than three years and is useful for strategic planning, product planning, capacity and expansion planning, facility location, planning for research and development, etc. These type of forecasts impact the overall viability of the business in long run with respect to its competitors. 2. Medium Range Demand Forecasts: This forecast covers the time span of generally from three months to three years. These forecasts are applicable to production and layout planning, production control, aggregate planning, sales and marketing plans, annual, quarter or half yearly cash budgeting and other working and operating plans related to cash credit limits and working capital. 3. Short Range Demand Forecasts: These demand forecasts have validity for the time period ranging from one day to three months but may go up to one year in certain cases. These forecasts cover day to day purchase planning, inventory plan, job scheduling, workforce and employee planning, job assignment, etc. These type of plans generally made on weekly, monthly or quarterly basis.

Major Characteristics Applicable to Various Forecasts

The various forecasts techniques and their requirements and characteristics differ from each other. But there are certain common characteristics, which are applicable to most of the techniques, are listed as below: All the forecasting techniques consider that for a demand trend, there is some reason or cause which had been applicable in the past, can continue in the future also. Forecasts can never match the actual demands. Only coincident can match the both. There will always be certain inaccuracies, so the allowances are to be provided. The time horizon for which the forecast made if small, the accuracy will be more. When the product is of multiple parts and components, the forecasts accuracy will be less. Forecasts are made only in uncertain conditions. Essential Features of Good Forecasts The Demand Forecasts require certain parameters so that they can be as close to the actual demands as possible. These parameters are mentioned as below: Timely Forecasts: The sufficient time should be available to the planners, so that the impact of forecasts can be accumulated such as additional requirements of funds, manpower and capacity changes in terms of production and sales. Accurate Forecasts: This is very essential feature that forecasts should be very close to the real demands. Reliability: The forecasts have the real meaning only if they are consistent for accuracy for several times in the past. Then only the forecasts can be set to be reliable. Simple and Easy: The results of forecasts made by various techniques should be in the simple and written form, so that can be well understood and serve the basis for evaluation.

Meaningful: The information provided by forecasts can be meaningful only if it is with full details of units such as rupees or quantity of demand in kilograms or metric tonnes as well as thereby quantity and specifications of machines and manpower required. These above issues if well taken then the forecasts can serve the purpose in better way.

Objectives of Demand Forecasting

The main objectives of forecasting should be as accurate as the real situation may be in short, medium or long term. Accordingly the objectives of demand forecasting are classified in different categories:

Long Term Objectives are listed as under:

Strategic Planning of any business and the demand of its products can only be possible to determine through long term forecasting of the business, technological and economical situations, those would be prevailed in the long term.

Product Planning is to plan about the number of products to be supplied in the target market with respect to its competitors to capture the desired market share. This is also possible only when the organization can predict about long term demand for its potential products.

Capacity and Expansion Planning depends upon the market requirements in the long run to install the capacity of the process and technology so that the market and customer needs can be met appropriately.

Facility Location also impacts in the long term as the proximity of the production facility near to the customer base is an essential feature for the business viability.

Planning for Research and Development depends on long term possibilities to satisfy the customer in a better way. The research can decide about the possible features that should be in the product or service in a long term that customer will expect.

Medium Term Objectives are listed as under:

Production and Layout Planning is of the nature of medium term forecasts as any process or technology cannot be changed very frequently and any set up related to layout should be viable enough to meet the market demands atleast during the medium range of production planning and control.

Aggregate Planning describes the need of materials and labor for the required output planned for medium range. This is dependent on the accuracy of medium range forecasts. All Sales and Marketing Plans depend on the medium range forecasts, so this objective can only be met with accurate forecasts. Annual, Quarter or Half Yearly Cash Budgeting is possible when the company can determine the demand during the corresponding time period. All working and operating plans related to cash credit limits and working capital is the outcome of medium range or annual demand forecasts.

Short Term Objectives are listed as under:

Purchase Planning in any organization has to be done on weekly, monthly or quarterly basis to fill the gap of inventory and materials to produce the desired level of quantities of the product. Inventory Plan is also the part of short range demand forecasting objectives in which the output is matched with the Materials Requirement Planning (MRP). Job Scheduling should meet the objective of flexible plants. The flexibility of changing the production setup and assigning the jobs to different possible machines and work center is the part of short term demand forecasting objectives. Workforce and Employee Planning determines the required manpower of a particular skill level as per the forecasting demand for a week, month or quarter or even for a year.

Forecasting Procedure
The demand forecasting process involves number of systematic and sequential steps to make the forecasts more practical and accurate. These steps are as follows: Identify the need of forecast i.e. why the forecast is required, what objectives will the forecasts achieve are the questions to be answered in the first step. Identifying the products or services for which the demand is to be forecasted. It may be a group of product or services. The determination of time frame for a forecast is the next step to be evaluated. The suitable method or technique for the demand forecast has to be fixed up as per the nature of product or services. The data is collected and processed as per the method or technique select as above and also analysed by identifying any assumption or hypothesis before reaching to the final forecast. The formulation of final forecast by using the identifying technique. Evaluating the forecast with respect to the real demand and finding pout the gap if any between the two and then further adjusting the forecasts with the suitable correction factor. The various techniques are used for demand forecasting, but can be categorized into the two i.e. quantitative and qualitative methods.

Forecasting Techniques and Routes

There are various techniques and routes of forecasting. These techniques of forecasting are divided into two categories such as quantitative and qualitative. These techniques are explained in the following

paragraphs and shown in figure 11.1. The forecasting techniques are the methods and process to reach to the final forecast of the demands in future periods of times while the forecasting routes follow different paths i.e. the data and information flow is either top to down or from bottom to upwards. Here the technique is only a method, while route shows only the path of flow.






Top-down route Bottom-up route

Time Series Methods Trend Projection Methods Regression Analysis

Delphi Method Expert Judgment Scenario Writing Intuitive Approaches Consumer Survey Method Sales Force Composite Method

Fig. 11.1 Techniques and Routes of Forecasting

(I) Forecasting Techniques

The various techniques of forecasting as listed in the above figure 11.1, are mainly divided into two categories i.e. quantitative and qualitative. These are explained in the following paragraphs: (A) Quantitative Forecasting Techniques There are many quantitative forecasting techniques, which are explained in the following paragraphs: 1) Time Series Methods

In these types of forecasting methods, the past times are the best indicators of future trends. By reviewing historical data over a time period, we can better understand the pattern of past behavior of a variable and better predict the future behavior. A time series is a set of observations on a variable measured over successive periods of time. The objective of time series methods is to discover a pattern in the historical data and then extrapolate the trend into the future. The forecast is based solely on past values of the variable and/or past forecast errors. Time series forecasting methods are based on analysis of historical data. Time series refers to a set of observations measured at successive times or over successive periods. Here, the assumption is made that past patterns in data can be used to forecast future data points. Components of Time Series Demand In time series, there are certain elements required to be taken care to precast the demand: 1. Average: The mean of the observations over time period 2. Trend: Trend Component It represents a gradual shifting of a time series to relatively higher or lower values over time. Trend is usually the result of changes in the population, demographics, and technology and consumer preferences. 3. Seasonal influence: Predictable short-term cycling behavior due to time period of the day, week, month, season, year, etc. 4. Cyclical movement: Unpredictable long-term cycling behavior due to business cycle or product/service life cycle. It represents any recurring sequence of points above and below the trend line lasting more than one year. We assume that this component represents multiyear cyclical movements in the economy. 5. Irregular Component: There is an effect of various unpredictable variables. This effect may be irregular in its nature. It is the catch-all factor that accounts for the deviation of the actual time series value from what we would expect based on the other components. It is caused by the short-term, unanticipated and nonrecurring factors that affect the time series. 6. Random error: Remaining variation if any that cannot be explained by the above mentioned components Various Time series method are listed as below and shown in figure 11.2

Time Series Methods

Moving Averages

Exponential Smoothing

Multiplicative Seasonal Method

1. Moving Averages (simple moving average and weighted moving average): The forecast is based on arithmetic average of a given number of past data points 2. Exponential Smoothing (single exponential smoothing and double exponential smoothing): This is a type of weighted moving average that allows inclusion of trends, etc. 3. Multiplicative Seasonal Method: It is a method where seasonal effects in forecasting the demand are considered. The variation can range between seasons, months, weeks, days in the week and even variation during a single day or hour. (a) Moving Averages
The Moving Averages Methods are the parts of Time Series Methods, which have been further divided into simple moving and weighted moving average methods.

(i) Simple Moving Average Method Moving average techniques forecast demand by calculating an average of actual demands from a specified number of prior periods. Each new forecast drops the demand in the oldest period and replaces it with the demand in the most recent period. In this way, the data in the calculation moves over time simple moving average: At = Dt + Dt-1 + Dt-2 + ... + Dt-N+1 N Where N = total number of periods. The average forecast for period t+1: Ft+1 = At Key Decision: N - How many periods should be considered in the forecast? There is always a need to make a balance between smoothing and responsible.

Trade-off: Higher value of N - Greater smoothing, Lower responsiveness Lower value of N - Less smoothing, More responsiveness There are certain features to be considered which are as follows: The more periods (N) over which the moving average is calculated, the less susceptible the forecast is to random variations, but the less responsive it is to changes A large value of N is appropriate if the underlying pattern of demand is stable A smaller value of N is appropriate if the pattern is changing or if it is important to identify short-term fluctuations. (ii) Weighted Moving Average Method This method involves selecting weights for each of the data values and then computing a weighted mean as the forecast. A weighted moving average is a moving average where each historical demand may be weighted differently average: At = W1 Dt + W2 Dt-1 + W3 Dt-2 + ... + WN Dt-N+1 where: N = total number of periods in the average Wt = weight applied to period t's demand Sum of all the weights = 1 Forecast: Ft+1 = At = forecast for period t+1 (b) Exponential Smoothing It is a special case of the weighted moving averages method in which we select only the weight for the most recent observation. The weight placed on the most recent observation is the value of the smoothing constant. It has been further divided into two categories i.e. Single and Double Exponential Smoothing. (i) Single Exponential Smoothing The weights for the data values are computed automatically and become smaller at an exponential rate as the observations become older. Exponential smoothing gives greater weight to demand in more recent periods and less weight to demand in earlier periods average: At = a Dt + (1 - a) At-1 = a Dt + (1 - a) Ft Forecast for period t+1: Ft+1 = At where: At-1 = "series average" calculated by the exponential smoothing model to period t-1 a = smoothing parameter between 0 and 1 The larger the smoothing parameter, the greater the weight given to the most recent demand

(ii) Double Exponential Smoothing

This method takes care of trends as well as seasons. In double exponential smoothing, the trends are adjusted through Trend Adjusted / Corrected Exponential Smoothing Method, while seasons are taken care with the help for Multiplicative Seasonal Method.

Trend-Adjusted Exponential Smoothing

When a trend exists, the forecasting technique must consider the trend as well as the series average. Ignoring the trend will cause the forecast to always be below (with an increasing trend) or above (with a decreasing trend) actual demand. Double exponential smoothing smooth (averages) both the series average and the trend forecast for period. Forecast for the period t+1: Ft+1 = At + Tt Average: At = aDt + (1 - a) (At-1 + Tt-1) = aDt + (1 - a) Ft Average trend: Tt = B CTt + (1 - B) Tt-1 Current trend: CTt = At - At-1 Forecast for p periods into the future: Ft+p = At + p Tt Where: At = exponentially smoothed average of the series in period t Tt = exponentially smoothed average of the trend in period t CTt = current estimate of the trend in period t a = smoothing parameter between 0 and 1 for smoothing the averages B = smoothing parameter between 0 and 1 for smoothing the trend

Multiplicative Seasonal Method What happens when the patterns try to predict display seasonal effects? What is seasonality? - It can range from true variation between seasons, to variation between months, weeks, days in the week and even variation during a single day or hour. To deal with seasonal effects in forecasting two tasks must be completed:
1. A forecast for the entire period (i.e., year) must be made using whatever forecasting technique is appropriate. This forecast will be developed using whatever smoothing factor. 2. The forecast must be adjusted to reflect the seasonal effects in each period (i.e., month or quarter)

The multiplicative seasonal method adjusts a given forecast by multiplying the forecast by a seasonal factor. Step 1: Calculate the average demand per period for each year (y) of past data by dividing total demand for the year by the number of periods in the year Step 2: Divide the actual demand Dy,t for each period (t) by the average demand y per period (calculated in Step 1) to get a seasonal factor fy,t for each period; repeat for each year of data Step 3: Calculate the average seasonal factor t for each period by summing all the seasonal factors fy,t for that period and dividing by the number of seasonal factors Step 4: Determine the forecast for a given period in a future year by multiplying the average seasonal factor t by the forecasted demand in that future year.

2) Trend Projection Methods Equation for Linear Trend Tt = b0 + b1t where Tt b0 b1 t = trend value in period t = intercept of the trend line = slope of the trend line = time

Note: t is the independent variable. Computing the Slope (b1) and Intercept (b0) b1 = tYt - (t Yt)/n t2 - (t)2/n

b0 = (Yt/n) - b1t/n = Y - b1t where Yt = actual value in period t n = number of periods in time series

(3) Regression Analysis

In Regression Analysis one or more independent variables can be used to predict the value of a single dependent variable. The time series value that we want to forecast is the dependent variable. The independent variable(s) might include any combination of the following: Previous values of the time series variable itself Economic or demographic variables

Time variables There are two types of models used in Regression Analysis:

An autoregressive model is a regression model in which the independent variables are previous values of the time series being forecast.

A causal forecasting model uses other time series related to the one being forecast in an effort to explain the cause of a time series behavior.

For a function involving k independent variables, we use the following notation:

Yt = value of the time series in period t x1t = value of independent variable 1 in period t x2t = value of independent variable 2 in period t xkt = value of independent variable k in period t In forecasting sales of refrigerators, we might select the following five independent variables: x1t = price of refrigerator in period t x2t = total industry sales in period t - 1 x3t = number of new-house building permits in period t - 1 x4t = population forecast for period t x5t = advertising budget for period t The n periods of data necessary to develop the estimated regression equation would appear as:

Period (t)

Time Series Value of Independent Variables (Yt) (x1t) (x2t) (x3t) . . (xkt)






2 . . n

Y2 . . Yn

x12 . . x1n

x22 . .

x32 . . . .

. . . .

. . . .


x2n x3n


(B) Qualitative Forecasting Techniques

The qualitative approaches to forecasting are as follows:

1) Delphi Method In the Delphi Method, the following features are important: Advantages: The participants act both as expert and respondent. Delphi method is used for long range forecasts. This method can be used for demand and sales forecasts for new products also. Disadvantage: It may not be highly accurate as it involves opinion and no quantitative technique. This process generally involves long time period to forecast. The accuracy of questionnaire is very important otherwise vague and ambiguous results may appear and lead to false findings. It is an attempt to develop forecasts through group consensus. Group size generally ranges from 7 to 10. The goal is to produce a relatively narrow spread of opinions within which the majority of the panels of experts concur.

2) Expert Judgment Expert Judgment method has the following features: Advantages: The experts of various business fields of same industry get together, work on past trends, analyze and present their opinions individually and then coordinating team club together all the opinions and present the summarized conclusion as final forecast. Experts individually consider information that they believe will influence the variable; then they combine their conclusions into a forecast. No two experts are likely to consider the same information in the same way.

The rich and vast experience can create the accurate forecast to provide business viability and stability. These forecasts may even be applied to technological changes. New products demand forecasting can also be done by this method. Experts even can modify existing forecasts by taking unusual events into account. Disadvantages: It is very costly method as vast experienced people as experts are involved. Ego of varying natured experienced people may sometime delay in reaching the conclusion. Many a times, it is very difficult to club together all experts due to their busy schedule.

3) Scenario Writing The following procedure is followed in this method: Advantages: Most of the situations and possibilities are taken into account. It is a well balanced method to forecast in terms of accuracy and cost. Disadvantages: Long procedure and lengthy time to reach to the final forecast. It may also be possible no assumed scenario matching with the real situations. This procedure involves developing several conceptual scenarios, each based on a welldefined set of assumptions. The decision maker must decide how likely each scenario is and then make decisions accordingly.

4) Intuitive Approaches In this approach following procedure is adopted: Advantages: Many a times very fruitful results may appear due to working on all ideas even may or may not be relevant. It is a participative approach and easy to reach to the consensus. Disadvantages: Always it may not be possible to find out accurate forecast. May take long time because to work upon even on vague and irrelevant ideas. A committee or panel seeks to develop new ideas or work on complex circumstances through a series of brainstorming sessions. Individuals are free to present any idea without being concerned about criticism or relevancy.

5) Consumer Survey Method:

In this method, the demand queries are directly enquired from the customer and consumers and the procedure is described in the following points: Advantages: The questionnaire related to past and future demands is formulated by the experts of that industry. The consumer directly participates in the survey. The survey replies are critically analyzed by the marketing and production experts.

As consumers participates directly so no chance of communication gap. Real expectations of consumers with respect to quantity as well as attributes in the products are taken into account, so the quantity and quality demands can be met with. Disadvantages: Many a times, customer may not be known what he wants. This method is not suitable for new products. Customer may not know all the usable features of the products. This method is very costly due to involvement of large number workforce.

6) Sales Force Composite Method In this method, the opinion of sales people who are directly interact with the customers comes into picture with following features: The direct involvement of sales people who deals with the customer. The opinion of sales and marketing people is taken together at all levels. Opinions may be summarized through statistical tools.

Advantages: No communication gap like consumer survey method as each and every sales person is involve directly. The forecasts made are accurate as directly involved people opinion is taken into account. It is less costly method as sales force need not to take opinion of the consumers a fresh because they are already in touch with the customers and their requirements. Disadvantages: In this method the forecasts for new products may not be possible. Extra work load may be perceived by the sales force.

(II) Forecasting Routes

There are two routes of forecasting: Top-Down route Bottom-Up route

(A) Top-Down route is used where international and national events affect the future behaviour of local variables.

(B) Bottom-Up route is used where local events affect the future behaviour of local variables.

Measuring Forecast Errors

The various forecast errors are possible in the process due to the individual bias and thus accuracy in the forecast may be affected. To maintain the forecast accuracy the following concepts have to be understood:

Forecast Accuracy
During the process of making the business forecast, the following errors and deviations have to be calculated through statistical measures:

1) Mean Squared Error (MSE) It is the average of the sum of all the squared forecast errors.

2) Mean Absolute Deviation (MAD) It is the average of the absolute values of all the forecast errors. One major difference between MSE and MAD is that the MSE measure is influenced much more by large forecast errors than by small errors.

There are two aspects of forecasting errors to be concerned about - Bias and Accuracy Bias - A forecast is biased if it errs more in one direction than in the other. - The method tends to under-forecasts or over-forecasts.

Accuracy - Forecast accuracy refers to the distance of the forecasts from actual demand ignore the direction of that error.

Project Management
The project management may be referred to the activities such as planning, coordinating, organizing and implementing and controlling related to initiating and completing the new idea having long term impact. The successful management of a project is that it should be completed on time within the specified budget and must perform as per planning and to the satisfaction of the customer. The efficient management of the project can only be secure with the efficient manpower, so all the basic principle of general management are also applied to project management. The only difference in the approach of project management is related to its task orientation in which task must be completed in specified time and cost with the stated performance objectives. The project management and its elements are explained with the help of block diagram in the figure 9.2

Project plan Resources: Project Team Project Manager Management Information System (MIS) Internal Management, Managers and Executives, Human Resource at all levels, Project schedule Project Supervisor Procurement and Inventory

Project Execution

Project Executives

Figure 9.2 Elements of Project Management External Project Workers Suppliers, Agencies and Contractors

The various elements of project management work in synchronization to bring the better results of the project execution. The project team consisting of personnel at all levels work together to initiate a project with the initial step of planning the various activities of the project with the complete details of MIS within the specifications of time, budget, performance and targets. The various resources are categorized into external and internal and both are very important for the efficient project execution. The information related to various departments and functions of the company is also an important input to make the project worthwhile and viable. The external resources like suppliers, agencies and contractors can increase the pace of the project to a greater extent.

Project Management Activities

The various project management activities as shown in figure 9.3 and are explained in the following paragraph.

Planning Objectives Resources Work Break-Down Structure Organization

Scheduling Project Activities Start & end times Network

Project Management Activities

Controlling Monitor Compare Revise Action

Fig 9.3 Activities of Project Management

Planning Projects
In planning the projects, the following points are to be taken care: Tasks: Develop internal and external resource requirements and time-phase them to the project activities Means of Task Accomplishment: Activity descriptions, milestone charts, cash flow charts, CPM/PERT, engineering designs, time and cost estimates, material delivery plans, and so on. Timing of Tasks: Before project is begun, the timing of the tasks must be flexible and could be modified as required during project activities.

Scheduling Projects
While scheduling the projects, the following terms are to be considered: Tasks: Develop/revise detailed guides for each resource indicating quantity, quality, and timing Means of Task Accomplishment: Milestone charts for departments, subcontractors, and suppliers; cash flow schedule; CPM/PERT: begin-activity and complete-activity dates, and updated activity slack Timing of Tasks: Slightly before project is begun and continued throughout project.

Controlling Projects
In controlling the projects, the main points are emphasized as follows: Tasks: Sense noncompliance of resources with schedules, standards, and budgets; take corrective actions, shift resources, develop alternatives Means of Task Accomplishment: Department budget reports, activity cost reports, quality compliance reports, time performance reports Timing of Tasks: During the project, the main important issue is to control the timing of initiation and completion of the activity.

Major Decisions to be taken by Project Manager

The project manager has to take many decisions on short term and long term basis. The success of any project depends on various managerial decisions outline as below:

The Project: Decision about which project and nature of the project is to be taken. The idea to be implemented as a project to achieve business viability is important in this decision. The Key Person: Here the decision about key person i.e. Project Manager is important, who is responsible for initiating and completing the project. The Team: In this decision, manpower is finalized for working and responsible as members of the project team. How to fit the project tasks suitable to skill level of the staff and workers is very important in this decision? The Project Resources: Here the decisions about organizing, managing and controlling all the inputs required for the projects are taken i.e. what will be the project resources. Winding up the Project: Here the decision about the time and stage of completion or terminating the project in between i.e. when to wind up the project and if terminating in between then why are the key issues? Resettlement of Team Members: Resettlement of the project team after completion of the project is the key decision and very important for longevity of the team members from one project to another.

The above decisions are very crucial for the successful implementation of the project.

Importance of Project Management

In any business the project is the basic and starting point, by the virtue of which any profit venture starts and takes the bigger shape in terms of benefits to the mankind, profits to the stakeholders and products and services to the customers for satisfying their needs. Any organization initiates its first venture and thereafter the expansions and diversifications only through the newer projects. The need of projects also

arises due to ever changing technology, business environment and ever increasing demand of newer products and better services. The efficient project management ensures the following: Reduction of number of tasks and their simplifications. Elimination of overlapping of tasks. Maximum utilization of internal and external resources. The projects erected able to meet the customer requirements in terms of providing what they need. The tasks and works completion on time within estimated costs.

The scheduling is an important challenge in terms of project completion as well as timely production of the goods and the services. The delay in project completion may make the whole project unviable as large sum of money in contingency head can inflate the overall project. So the scheduling of starting and completing a project on or before time is also the outcome of efficient project management.

Project Organization
In any organization, the hierarchical chart can easily demonstrate the authority and responsibility of the manpower involved. The project manager or head shown in any organizational chart as shown figure 9.4, is also a responsible and authoritative executive in the management of an organization and is placed in parallel to top executive in any business function.

General Manager (Project)

Project Coordinator

Manager (Business Analysis)

Manager (Engineering)

Manager (Implementation)

Manager (Procurement)

Internal Team

Networking Team

Software Development Team


Internal Team

The organization structure for the project team as shown in above figure very clearly indicates the hierarchical responsibility and line of command. In this structure various managers combine together with the internal and supplier teams work in synchronization for the project with the objectives of minimum cost and time with the best possible performance of the equipment installed. Basically the Project General Manager works in close coordination with the Chief Executive Officer of the organization.

Duties and Responsibilities of Project Manager

Though lot of activities, functions and decisions are to be taken by the project manager in due course of project completion, but few major duties and responsibilities which a project manager has to fulfill and discharge are given below separately:

Project Manager Duties

To supervise and coordinate all the project activities. To ensure that the task is performed to the maximum efficiency. To chalk out an organizational structure to enable the smooth flow of the task and information. To suggest policies and amendments to reform the nature of work and to make the work completion easier. To participate in meetings, site visits and workshops to make any contingent plan if required. To prepare bids and tenders for the potential clients to promote the business. To provide complete information to the finance and accounts department and auditors to remove the difficulty if any. To identify and organize all the resources required for the completion of project on time. To prepare and present the status reports to higher authorities for their approval.

Responsibilities of Project Manager

To deliver the performance with objective success rate. To exploit the best of potential from the colleagues and subordinates. To maintain confidentiality of the work and documents, wherever required. To motivate the subordinates for easy and smooth communication among employees and with authorities. He should have the capability to solve the contingent and emergent problems of his team members. To inculcate the team spirit which can not only defined but also brings the success to the company and sense of pride to the employees.

Abilities of a Successful Project Manager

The successful Project Manager should have not only project related qualifications, but also he should have certain abilities and skill set and should be able to do the following tasks: Make proper cost benefit analysis. Get the work done at right place and right time. Motivate his team. Manage time of the project. Demonstrate leadership and adapt to the dynamic project environment, changing goals, updated technology and changing workforce. Measure the performance of the team members and reimburse accordingly. Enforce ethics and values in overall management of the project.

These abilities of the project manager not only make the project successful, but also open the doors for growth of his team members.

Project Management Techniques

Project management techniques are also known as Project Scheduling Techniques There is various techniques which can be used for project management. Some are as below: Gantt chart Network Planning Techniques o Critical Path Method (CPM) o Program Evaluation & Review Technique (PERT)

Gantt Chart

Gantt chart is used to organize and justify actual and intended use of resources within a time schedule. In these charts, time is shown horizontally with activity listed on vertical axis. The management has to use the Gantt chart for trial-and-error schedules to get the impact of different possible configurations.

There are a number of different types of Gantt charts, but the most common are the load chart and schedule chart. A load chart indicates the engaged and idle times for machines or workstations; this shows the start and finish time of jobs. It also indicates the expected idle time. The Gantt chart for airport construction project is shown in figure 9.9 as below. This figure helps the planner to carry on the exercise of scheduling and rescheduling of activities till the optimum combination is achieved. A schedule chart is used to monitor job progress and it finds out the gap between planned and actual performance if any. The Gantt chart uses both load and schedule charts in combination to work out the optimum solutions.

Time Time
Phases of Project

Q1 F

Q2 M

Q3 A

Q4 N

Design Building Model Executing Project Testing

Figure 9.9 Gantt Chart for Airport Construction Project

Network Planning Techniques

These are the Network planning methods that generate:

Relationship between activities Project duration Critical path Slack for non critical activities Crashing (cost / time trade-offs) Resource usage

Critical Path Method (CPM)

It is a networking method of project management designed to provide intense and minute level control. It provides periodic reports as the project progresses for dynamic executing system. The figure 9.10 shown below explains the sequential procedure for critical path method:

Requirements for CPM Description of Project activities Precedence relationship among various activities Estimate of each activitys time duration

CPM Process

OUTPUTS Critical time duration of project Identification of critical path and critical activities Slack for each activity

Fig 9.10 Procedure for Critical Path Method

Objectives of CPM
Critical path method in project management has its own place and serves many purposes which are listed as below: CPM helps objectively and logically to plan, schedule and control project activities. Projects can be planned with a long term perspectives. Review of periodic reports in due course of project completion becomes easy. CPM helps in finding out the crucial activities in project in an analytical way. The objectives can be very well achieved, if the project manager understands and implements the whole projects in a systematic and logical manner.

CPM Terminology
In the CPM, various terms are used. Different terms are explained as below:-

1. Activity A task or a certain amount of work required in the project Requires time to complete Represented by an arrow 2. Dummy Activity Indicates only precedence relationships Does not require any time of effort 3. Event Signals the beginning or ending of an activity Designates a point in time Represented by a circle (node) 4. Slack or Float The slack time is the maximum possible time by which an event can be delayed without increasing the time duration of critical path or completing the whole project. The slack is also known as float for delaying the activity without increasing the project completion time. 4. Network Shows the sequential relationships among activities using nodes and arrows A connected sequence of activities leading from the starting event to the ending event 5. Critical Path The longest path, with respect to time, determines the project duration 6. Critical Activities All of the activities that make up the critical path 7. Earliest Start (ES) The earliest that an activity can begin; assumes all preceding activities have been completed 8. Earliest Finish (EF) EF = ES + activity time 9. Latest Start (LS) The latest that an activity can begin and does not change the project completion time

10. Latest Finish (LF) LF = LS + activity time

Steps in CPM
Sequential steps required for CPM are as under: Draw the CPM network A graphic view of the relationships among the required activities Analyze the paths through the network Determine the length of each path (the time required to complete each path) Starting at the beginning of the network and working toward the end (from left to right), determine the ES and the EF for each activity Path analysis (continued) Identify the critical path(s) (the longest path[s] through the network) The critical path(s) determines how long the project will take Determine the slack for each activity Working from the end of the project network (from right to left), find the LF and the LS for each activity Compute the activitys slack Slack = LS - ES = LF - EF Slack is the maximum amount of time that an activity can be delayed in its completion before it becomes a critical activity, i.e., delays completion of the


CPM Structure Formulation

The complete structure of CPM has to be formulated in such a manner that all concerned should be very clear about the happening of the activities. There are basically three steps in preparing the structure of CPM listed as below: Identifying all the required activities and preparing the list. Formulation of network consisting of all the activities should be carried out in more systematic way with following precedence relationship and should address the following issues: o Which activity will follow and which will precede? o Which, when and how many activities can be started independently? o Can the activities be further broken into sub activities? Making a network diagram by defining all the activities and events by their start and end times as well as earliest and latest start and finish times.

Draw the precedence diagram and find out the critical path along with the slack and float times by finding out earliest start and finish times, latest start and finish times of various events. The details of constructing a sports complex are given below in the table 9.2:






Location finalization after its survey Planning layout and construction planning Choose administrative and sports staff Interviewing and Selecting administrative and sports staff

Finalization of gym equipment and other B sports items Construction of complex Adding required utilities B F


48 10 2

Procuring the equipment and items for the E & F complex Installation of Equipment and related F & H

accessories J K Training of sports and support staff D, G & I 3 2

Handing over the sports complex to J concern authorities

I. Draw the precedence diagram for CPM network as shown in figure 9.11:

H1 2 H2 8


5 F

A 6

4 48

2 I2 9 4 J1 3 7

G 10

J2 3

D 4 4

J3 3



Fig 9.11 Precedence Diagram with Critical Path

The graphical view of the relationships among the required activities and events along with the duration activity has been shown in the above figure by analyzing the various paths to complete the whole project the network paths are given in the table below.

Path. No. 1 2 3 4 5


Expected Time (Weeks)


26 69 67 73 (Critical path) 17

Table 9.3 Finding out Critical Path

In the table 9.3 the length of each possible path to complete the project is given. The path number 4 i.e. A-B-F-G-J-K is critical path as it takes longest time duration to complete the project as shown in figure 9.12:


10 15 6 10 0 6 0 6 A 6 START C 8 0 8 B 4 6 10 E 5 F 48 10 58 10 58 G 10 57 62

H1 2 H2 6 I2 2 58 68 58 68

58 60 62 64 4 I1 60 64 5 64 68

3 J1 J2 3 68 71 68 71

The Earliest Start (ES) and Earliest Finish (EF) times are calculated by starting at the beginning of the network and working toward the end (from left to right) as shown in figure 9.12. If the working is done from the end of the project network (from right to left), the Latest Start (LS) and Latest Finish (LF) for each activity can also be calculated as shown in table 9.4:





Slack (LS ES)






6 4 8 4 5 48 10 2 4 3 2

0 6 0 8 10 10 58 58 60 68 71

0 6 56 64 57 10 58 62 64 68 71

0 0 56 56 47 0 0 4 4 0 0

6 10 8 12 15 58 68 60 64 71 73

6 10 64 68 62 58 68 64 68 71 73

0 0 56 56 47 0 0 4 4 0 0

Table 9.4 Calculation of Slack Time

Now for determining the slack for each event, the following formula is to be applied: Slack = LS - ES = LF - EF Slack is the maximum amount of time that an event can be delayed before the corresponding activity becomes critical i.e., without any delay in completion of the project. The values of Slack in various events have been calculated and shown in above table.

Program Evaluation and Review Technique (PERT)

The technique is based on the assumption that an activitys duration follows a probability distribution instead of being a single value. The probabilistic information about the activities is translated into probabilistic information about the project.

PERT Terminology

Three time estimates are required to compute the parameters of an activitys duration distribution: Pessimistic Time (tp ) The time, the activity would take considering the things may not go well.

Most Likely Time (tm ) The consensus- the best estimate of the activitys duration.

Optimistic Time (to ) The time, the activity would take considering the things will go well.

Probability Distribution Parameters

The following are the probability distribution parameters: o Mean or Expected Time (Te) Expected time is the most probable time by which the project will be completed. In this the weightage of most likely time is four times the weightage of pessimistic or optimistic time. Te = ( to + 4tm + tp ) / 6

Standard Deviation or Variance (Vt ) Standard deviation is the variance of time can be calculated by the following formula: Vt = [( tp to ) / 6 ]2

Steps in PERT

PERT is a network method consisting of following sequential steps-

Identify and decide about the tasks and activities to be completed and the events for their start and finish to complete the project. The accurate sequence of activities in terms of which activities can be started independently and which activities depend on the completion of some other activities. Draw the network. Analyze the paths through the network and find the critical path. The length of the critical path is the mean of the project duration probability distribution which is assumed to be normal. Calculating the standard deviation of the project duration by probability distribution and is computed by adding the variances of the critical activities (all of the activities that make up the critical path) and taking the square root of that sum

Probability computations can now be made using the normal distribution table.

Illustration: Manufacturing a Car

Find out the variance and the probability for completing the project in 150, 153, 156 days. The data is given in the table 9.5.

Activity No.


Preceding Activity if any

Optimistic Time (Hours)

Most Likely Time (Hours)

Pessimistic Time (Hours)

Expected Time (Hours)

Variance (Hours)

A (0-1) B (0-2) C (1-3)

Manufacturing a Chassis Manufacturing the Engine Loading the Chassis on conveyor belt Fitting the steering wheel in the chassis Joining the main body with the chassis Shifting from manufacturing shop and assembling the engine with the chassis Assembling the engine with the chassis on conveyor belt Painting and finishing the car After assembling engine, adding the other parts like suspension, wheels, etc. After painting and finishing outer parts, adding the other parts like suspension, wheels, etc.


18 65 1.5

20 70 2

22 73 2.5

20 69.67 2

0.45 2.67 0.03

D (3-4)




E (3-5)


F1 (2-6)




F2 (3-6)



G (6-7) H1(6-8)


45 18

48 20

50 22

47.83 20

0.69 0.44








Inspection of assembled steering D wheel in the chassis Inspection of main body in the assembly Inspection of other parts of assembly and final finish Branding and preparing the final documents Dispatch to the stockyard E





















The critical path can be found out as shown in table 9.6.

Path. No. 1 2 3 4 5 6 A-C-E-I2-J-K A-C-D-I1-J-K


Expected Time (Hours) 41 44.92 106.57 60.91 153.33 (Critical Path) 107.67

A-C-F2-G-H2-I3-J-K Table 9.6 Finding out Critical Path A-C-F2-H1-I3-J-K B-F1-G-H2-I3-J-K B-F1-H1-I3-J-K

Probability that the project will be completed within hours Vpath = V(B) + V(F1)+ V(G) + V(H2)+ V(I3)+ V(J)+ V(K) = 2.67 + 0.06 + 0.69 + 0.25 + 0.06 + 0.03 + 0.03 = 3.79

Standard Deviation () = (Variance of Path)

= (3.79) = 1.95

Probability of Completion by a Specific Date The critical path as shown in above table at path no. 5 takes 153.33 hours i.e. 154 hours. This is the expected time calculated by critical path and also most likely time by which a car can be manufactured and assembled on an assembly line. In this example, this value (T) i.e. mean value of time. The following formula is to be applied to find Z:

Z =DT ------

Where D = A specific date or time period for completing a project T = Expected Mean Value of time by which the project is completed. = Standard Deviation from the mean in Normal Distribution

To calculate the probability completion of car assembly can be shown in the table below:

S. No.

Specified Duration (D) (Hours)

Probability of Completion by Specified Time (D)

1 2 3

150 153 156

(150 154) / 1.95 = - 2.05 (153 154) / 1.95 = - 0.513 (156 154) / 1.95 = - 1.03

0.021 0.305 0.845

Table 9.7 Probability of Completing the assembly within the specified duration

To demonstrate the calculation in table 9.7 at S. No. 1, we calculate the probability of the car to be assembled within 150 hours:

From the Standard Normal Distribution table: P (Z < -2.05) = 0.021

Similarly for other specified durations the values of Z can be calculated and corresponding value of Probability can be seen from the Standard Normal Distribution table.

1 A 0

D E F2

4 I1 5 I2

9 J

B F1

G H1

7 H2 8


10 K


Fig 9.13 Precedence Diagram

Assumption and Analysis of CPM/ PERT

There are different aspects of CPM/ PERT, which are as following:

Activities are assumed to be independent. It is assumed that there is a precise breaking point where one activity ends and another begins. Initially-critical activities might not receive the attention they deserve until it is too late. Activity time estimates might be biased. The cost of CPM/PERT might not be justified by the value of the information it provides. Personnel might not understand the statistical underpinnings of PERT.

When to Use CPM and PERT When there is complete certainty about time consumption of various activities, the Critical Path Method is best used in those types of projects. For example, the bridge construction projects implemented by the many years experienced Construction Company, because of past experience the time estimates are quite accurate for each activity. For projects that have a higher degree of uncertainty, such as Research and Development Projects for improving the manufacturing of existing products, use of the PERT Network is recommended. Similarly most software projects will face a high-degree of uncertainty.

Difference between CPM and PERT

The differences and comparison between CPM and PERT on various issues are given below in table 9.8:

S. No. 1

CPM CPM is a deterministic tool, with only single time estimate of various activities.

PERT PERT is a probabilistic tool used with three time estimates for completion of task or activities in the project.

In CPM, clear estimates of time and costs are made explicitly on various activities in the critical path and a tradeoff between cost and time is achieved. Therefore CPM can control both time and cost.

PERT is basically used for planning and control of time but in this also cost control is possible by reducing the time of the activity through research and development efforts.

CPM is best suited for routine projects and the estimate of duration can be accurately calculated.

PERT is more suitable for R & D related projects where time and cost estimates are uncertain.

In this case more involvement of the deterministic factor, so values or outcomes may be exact.

The probability factor is major in PERT outcomes, so are generally on estimate basis and may be unrealistic.

PERT and CPM have their applications in the extended forms also and allow the user to analyze other resources also along with time and money. The user has to trade off all the resources and their costs. He has to analyze various schedules of deployment of resources and has to balance the optimum use of all the resources.

Evaluation of CPM and PERT

The CPM and PERT are very important techniques in managing the projects. But the critical evaluation of PERT and CPM throw a significant light on various advantages and disadvantages of these techniques.


Both the techniques are very useful in scheduling and monitoring the big projects of longer duration. The concept of both the techniques are not very difficult to understand and not very tedious and complicated. The techniques establish the relationship among the activities and integrate all of them. The critical path and slack time put sufficient emphasis where the tight control is required and where some leverage can be provided. Control the time and cost factors. Both the techniques can be implemented mostly to all the projects of varying nature. Disadvantages The activities if not clearly defines and explained can create lot of ambiguity. The relationship between the activities is important to be established otherwise chaos can be created. Estimate of time is subjective and so slack time is difficult to estimate. Critical path becomes the only point of emphasis and the activities on other paths may be ignored in spite of their importance. If the disadvantages are taken care fully, both the techniques can be proved ideal for project formulation and implementation.

Scheduling of Service Projects

Any organization has to plan, schedule and monitor its activities to compete in the buyers market and to beat the competitors. The service organizations have also to plan its activities particularly when of large time consuming. For example, translating a foreign language book, computerization of any organization and running a big hospital which can be termed as big service projects, PERT and CPM techniques can be applied to make all the activities systematic. The relationship between the activities has to be established logically and objectively. All the activities have to be planned, scheduled and monitored with the help of these types of statistical and mathematical techniques. The best way to manage the service organizations is also to develop a project network before the start of implementation of project activities.