Mgt 3121 – Operations Management

Ch 1

 Matching supply and demand while making a profit is the goal

 Utility: measures your desire for a product or service
 Consumption Utility: measures how much you like a product or service, ignoring price and
inconvenience
o Comes from various attributes of a product or service
 Performance attributes: features of the product or service that most people
deem desirable
 Fit: not all consumers have the same utility functions (heterogenous
preferences) so they pick something with the best fit for them
o Price: total cost of owning a product
o Inconvenience of obtaining the product or service
 Location
 Timing
 Customers want to maximize their utility
 Capabilities: the dimensions of the customers utility function a firm is able to satisfy
o This leads a company to use trade offs
 Strategic trade offs: a firm must choose a set that excels in one dimension but
not others
 Pareto Dominated: the firms products and services are inferior to their competitors on all
dimensions (inefficient)
 Efficient Frontier: the firms that are not pareto dominated
 Inefficiencies
o Waste: all the consumption of inputs and resources that do not add value to the
customer. The customers do not want to pay for waste.
o Variability: changes in supply or demand over time
 Demand – customer arrivals, customer requests, and customer behaviors
 Supply – time to serve a customer, disruptions, defects
 Flexibility: the ability to react to variability
o Inflexibility: the inability to quickly and cheaply react to variability
 Market segments: customers with different preferences for the same type of good
 Inconvenience component: transaction costs
Ch 2
 Process: a set of activities that takes a collection of inputs, performs some work with those
inputs, and yields a set of outputs
 Resource: a group of people or equipment that transfomrs inputs into outputs
 Process scope: the set of activities included in the process
 Flow unit: the basic unit that moves through a process
o Choose a flow unit based on what you want to track and measure
 Process metric: something we can measure that informs us about the performance and
capability of a process
o Inventory: the number of flow units within a process
  Tells how much stuff is in the process
 Useful to know because it takes up space and costs money
o Flow rate: the rate at which flow units travel through a process
 Tells how much stuff moves through the process per unit of time
o Flow time: the time a flow unit spends in a process from start to finish
 How much time the stuff spends in the process
 Little’s Law: Inventory = flow rate * flow time

Ch 3

 Process analysis: provides a rigorous framework for understanding the detailed operations of a
business
o Identifies and analyzes all activities involved in serving one unit of demand
 Process flow diagram: a graphical way to describe the process
o Each step is an activity (boxes)
o The number of units in the process is inventory (triangles)
o When there are units in the process waited to be worked on they are know as buffer
inventory
o Resources help flow units move from being a unit of input to becoming a unit of output
(rectangular boxes)
o Directional arrows capture the flow unit’s journey from input to output
o Upstream: the beginning of the flow
o Downstream: the end of the process (customers of upstream resources)
o Processing time: how long us takes for a particular resource to complete one flow unit
o Capacity = 1/processing time
o Process capacity: determines the max flow rate a process can provide per unit of time
 Determines the max supply of the process
 Demand rate: the number of units a customer wants per unit of time
 Flow rate = minimum {demand, process capacity}
o Capacity constrained: demand exceeds supply and flow rate = process capacity
o the terms flow rate and throughput are identical
 Utilization: the ratio between how fast the process is currently operating and how cast the
process could be operating with sufficient demand
o Utilization = flow rate/capacity
 Cycle time = 1/flow rate
 Lead time and flow time are the same
 Time to make Q units = cycle time * Q
 Worker paced line: each worker is free to work at their own pace
o Time through empty worker paced system = sum of all processing times
 Machine paced process: all steps are connected through a conveyor belt and all steps work at
the same rate
o Time through an empty machine paced system = # of stations * cycle time
 Time to finish X units starting with an empty system = time through an empty process + [(X-
1)* cycle time]
Ch 5

 Product Mix: the combination of different flow units through a process

 We now use different arrows to indicated the different flow units (can use different colors or
use labels)
 Demand Matrix: for each resource, i, and for each flow unit of type j: D(i,j) = number of flow
units of type j that need to be processed at resource i
o Each row in a demand matrix corresponds to a resource and each column corresponds
to a flow unit type
o Input 0s when customer type j doesn’t need attention from resource i
 Once we have the demand matrix, we can find the total demand rate
o Total demand rate for resource i = ∑jD(i,j)
 Implied utilization: captures the mismatch between demand and capacity
o Implied utilization = total demand at the resource / capacity at the resource
o Can exceed 100% - any resource that goes over 100% means it cannot meet the demand
 If any one of the implied utilization levels is above 100 percent, we are capacity-constrained,
otherwise we are demand-constrained. If we are demand-constrained, we know that the flow
rates are given by the demand rates for each flow unit.
 How to find the bottleneck and flow rates in a process with multiple flow units

 Attrition losses: all flow units start at the same resource but then drop out of the process at
different points
 Scrapping: defective flow units that are eliminated from the process
 Rework: the repitition of activities that have been completed by a defective flow unit in order to
be restored into a good unit
 Yield: mearsure the percentage of good units that are processed at a resource
 o Yield = flow rate of good output at the resource / flow rate of input = 1 – (flow rate of
defects at the resource) / flow rate of input
o Process yield = flow rate of good output at the process / flow rate of input to the
process = 1 – (flow rate of defects at the process) / flow rate of input to the process
o Process yield = y1*y2*y3*……………..ym
 m is the number of resources in the sequence and yi is the yield of the ith
resource
 number of units to get Q good units = Q/process yield
 number of units to get Q good units out of the resource = Q/yield at resource
 capacity in good units per unit of time = 1 good unit per unit of time / implied utilization
 How to find the bottleneck and capacity in a process with attrition loss

 flow unit dependent processing times: each flow unit has a different processing time. This
causes issues in calculating capacity
o So capacity expressed in available time per hour at resource i = number of workers (i)
*60 [minutes / hours]
 Workload matrix = WJ (i,j) = number of flow units of type j that need to be processed by
resource i *processing time that resource i takes for customer type j
 Demand rate for resource j in minutes of work =∑jD(i,j)
 Implied utilization = demand rate in minutes of work / capacity in minuts of work
  How to find the bottleneck and flow rates in a process with flow unit dependent processing
times

 How to find the bottleneck and capacity in a process with rework

Ch 16

 Queues when Demand exceeds Supply

 Queue growth rate = demand – capacity
 Length of queue at time T = T * queue growth rate
 Time to serve Qth person in the group = Q/capacity
 Time to serve person arriving at time T = T*((Demand/capacity)- 1)
 Average time to serve a unit = (1/2)*T*((demand/capacity)-1)
o Demand/capacity is the implied utilization. The higher the implied utilization, the longer
a person has to wait
  Managing peak demand
o Peak-load pricing (adjust demand): charging more during your busiest times
 Customers will choose not to pay the higher price and will lower the demand.
 The customers that do pay the higher price compensates for the loss of revenue
by the customers who chose not to go
o Off peak discount (adjust demand): offering a discount during the nonbusy period in
order to attract customers for those times instead of the peak times
o Pre processing strategy (adjust capacity): reducing the amount of work needed to
process a customer during the peak period by moving it to do for the off peak period
 Arrival process: the flow of customers arriving to the system
o Interarrival time: the time between customer arrivals to the system
o a = average interarrival time
 Service process: the flow of customers when they are being served
o Processing time: the time a customer spends with a server
o p = average processing time
 Coefficient of variation: the ratio of standard devation to the average
o CVa= standard devation of arrival process/a
o CVp= standard devation of service process/p
 Queuing model: an abstract representation of the queue that enables us to predict waiting
times and other performance measures
 For single server
o Utilization = flow rate/capacity = p/a
o Average time a customer waits in the queue
 (Tq) = p * (utilization/(1-utilization)) * ((CVa2 + CVp2)/2)
o Predicting the number of customers waiting and in service
 Iq = R*Tq = Tq/a
 Ip = R * p = p/a
 For multiple servers (m = number of servers)
o Utilization = flow rate/capacity = (1/a)/(m/p) = p/(a*m)
o Predicting waiting time
 Tq = (p/m) * (utilization√2(m+1)-1/(1-utilization)) * ((CVa2 + CVp2)/2)
o Predicting number of customers waiting and in service
 Iq = R*Tq = Tq/a
 Ip = R * p = p/a
 Unstable queue: demand rate > capacity
 Stable queue: demand rate < capacity
 Pooled queue system: all demand is shared amongst all the servers
 Separate queue system: demand is immediately divided amongst servers and the customer is
served only by their designated server

Ch 12

 Economic order quantity model (EOQ): a model used to select an order quantity that minimizes
the sum of ordering and inventory holding costs per unit of time.
o Demand occurs at a constant rate, R
 o There is a fixed order cost, K, per order
o There is a holding cost per unit of time, h
o All demand is satisfied by inventory
o Inventory never spoils, degrades, or is lost
o Orders are delivered with a reliable lead time
o There is a purchase price per unit that is independent of the quantity purchased
 Ordering cost per unit of time = the sum of all ordering costs for a period of time = K * (R/Q)
 Holding cost per unit of time = the total cost to hold inventory for a period of time = (1/2) * h *
Q
 EOQ cost per unit of time = the sum of ordering and holding costs per unit of time = C(Q) =
(K*(R/Q)) + ((1/2)*h*Q)
 Purchasing cost = the cost to purchase inventory in a period of time
 Average inventory = order quantity/2 = Q/2
 Orders per unit of time = R/Q
 Optimal order quantity = Q*= √((2*K*R)/h)
 Processes with setup times are considered to exhibit economies of scale

Ch 14 – inventory management with frequent orders

 The order-up-to model: designed to manage inventory for a product that can be replenished
many times over a long horizon
o The order quantity in each period = the demand in the previous period
o On-order inventory: the number of units we ordered in previous periods that we have
not yet received but will eventually receive.
 not available to serve demand at the moment
o on-hand inventory: the number of units of inventory we have on hand
 available to serve demand at the moment
o backorder: the number of units back ordered  the total amount of demand that has
occurred and not been satisfied
o inventory position = on hand inventory + on order inventory – backorder
 needed to decide how much to order in each period
o order-up-to level: the desired inventory position after an order is submitted
 each periods order quantity = S – inventory position
 S = µ + (z * o)
 Pull system: production or replenishment of a unit is only initiated when a demand of another
unit occurs.
 Push system: initiates production or orders more inventory in anticipation of demand
 Expected demand over n periods = n * expected demand for 1 period
 Standard deviation of demand over n periods = √n *standard deviation of demand of 1 period
 Expected on-hand inventory: the avg amt of inv on hand at the end of each period
 Z= (S-µ)/standard deviation
 Stockout probability = 1- in stock probability
 In stock probability = probability demand over (L+1) period is S or lower
 Expected on order inventory/pipeline inventory: the avg amt of inv on order at any given time
 o = expected demand in one period * lead time
 Pipeline inventory: the avg amt of inv in the “pipeline” in the supply chain on its way to the
location where it can be used to serve demand
 Period: the time between 2 ordering opportunities
 Lead time, L, is measured in periods
 Tactical decisions: operational decisions that apply in the short term
 Strategic decisions: decisions about how a firm operates in the long run
 Location pooling: the strategy of combining the inv from multiple locations into a single location
 Coefficient of variation = 1/√mean
 Lead time pooling strategy: reduces demand uncertainty faced in a supply chain, while still
keeping inventory close to customers, by adding an immediate decision making point to delay
when a commitment is made to a particular product feature that leads to demand uncertainty.

Ch 13

 Salvage value: the value that can be obtained per unit for inventory at the end of the season
 Density function: a function that returns the probability of a given outcome occurs for a
particular statistical distribution
 Distribution function: a function that returns the probability of a random event is a certain level
or lower (bell curve)
 underage cost: the
cost of ordering too few units
 Overage cost: the cost
of ordering too much
 Demand forecast –
must give probabilities for all
possible outcomes of demand
 F(Q*) = Cu/(C0+Cu)
o Q* - the amount that
maximizes profit

(Pic is to find the order

quantity that maximizes profit)
  To convert standard normal distribution to any other normal distribution: Q = µ + (z*o)
o Z = quantity in standard normal distribution
o µ = the mean of the true demand distribution
o o = standard deviation of the true demand distribution
o Q = order quantity for true demand distribution

 Performance measures

o Expected inventory: the expected number of units not sold at the end of the season that
therefore must be salvaged.

 Convert to Z value  z = (Q-µ)/o

 Expected inv = o * I(z)

o Expected sales: the expected number of units sold during the season at the regular
price.

 Expected sales = Q – expected inventory

o Expected profit: the expected profit earned from the product, including the
consequences of inventory that needs to be salvaged.

 Expected profit = (Price * expected sales) + (salvage value * expected inventory)

– (cost per unit * Q)

o In-stock probability: the probability that enough inventory is available to satisfy all
demand. = F(Q) (find Z)

o Stockout probability: the probability that some demand was not able to purchase a unit;
that is, that demand experiences a stockout.

 Stockout probability = 1 – instock probability

 Maximum profit = expected demand * profit per unit sold

 Mistmatch costs: costs related to a mismatch in supply and demand
 Reducing demand uncertainty
o product pooling—reducing the variety offered to customers by combining, or pooling,
similar products

o This capability to respond to updated demand information is called quick response.

o reactive capacity—it is the capacity that allows the firm to react to changes in its demand
forecast.
 make to order
o In a make-to-stock system, the production of each item begins before the item’s eventual
owner is known.
o With a make-to-order system, the production of a unit only begins once a customer
commits to purchase it.
 Standard deviation of the normal standard deviation = 1

Ch 15
 Forecasting is the process of creating statements about outcomes of variables that presently are
uncertain and will only be realized in the future.
 Demand forecasting is thus the process of creating statements about future realizations of
demand.
 Time series analysis: the process of analyzing the old (demand) data y1. . .yt.
 time series—based forecast: a forecast that is based on nothing but old demand data.
o a form of extrapolation: estimating a value beyond the range of the original observations
assuming that some patterns in the data observed so far will also prevail in the future.
 regression analysis: the statistical process of estimating the relationship of one variable with
multiple variables that influence this one variable.
 we call the one variable that we try to understand the dependent variable (also called
the outcome variable)
 the variables influencing the dependent variable the independent variables.

 Automated forecasting: forecasts made without human involvement. computers find out what
variables best help make a good prediction.

 Expert panel forecasting: for forecasts where there is a lot at stake, automated forecasting is
typically augmented by expert panels. On such panels, a group of managers share their
subjective opinions and try to reach a consensus about a demand forecast

 Short-term forecasts: used to support decisions that are made for short time periods ranging
from the daily level to the monthly level.

o used to help decisions related to staffing and short-term pricing.

o used to predict waiting times and help with scheduling decisions.

 Mid-term forecasts: forecasts that are made from the monthly level to the yearly level.

o drive capacity-related decisions (recruiting, acquisition of machinery), but also are used
for financial planning.

 Long-term forecasts: forecasts that are made over multiple years.

o help with strategic decisions such as entering new markets, launching new products or
services, expanding capacity by investing in new facilities, or closing facilities.

 Forecast error in t = forecast for t – actual value for t

 unbiased forecast: forecast is, on average, correct.
o This is equivalent to having the average forecast error be zero.
o This is consistent with the average of her forecast errors being equal to zero.
 We define a forecast that is wrong, on average, as a biased forecast.
 Mean squared error = (∑t=1N FEt2) / N
o FE - forecasting error
 Mean absolute error = (∑t=1N I FEt2 I) / N
 Mean absolute percentage error = (∑t=1N I (FEt2)/yt I) / N
 We call this method of creating a forecast for the next period by just using the last realized value
the naïve forecasting method,
o Its main downside is that it ignores all other old data.
 the forecast is subject to a lot of statistical noise. We define the statistical noise in the demand
for a process as the amount of demand that is purely a result of randomness and that could not
have been forecasted even with the best forecasting methods.
 We define the moving average forecast as the forecast that is based on the average of the
last T periods, where we call the time of the T periods the forecast window.
o The moving average forecast assigns the same weight to all observations in the forecast
window.
o Moreover, the moving average forecast assigns zero weight to all observations outside
the forecast window.
 The idea of exponential smoothing is to put more weight on recent data and less weight on older
data.

o α is called the smoothing parameter, which is a number between zero and one.
 If α is small (say 0.1), we put little weight on the current demand and thus a lot of
weight on old data.
 In contrast, if α is large (say 0.9), we put a lot of weight on the current demand
and thus only a little weight on the old demand.
 α = 1, we are back to the naïve forecast.
 Trend: a continuing increase or decrease in a variable that is consistent over a long period of
time.
 Trend-based forecasts are often called momentum-based forecasts, to reflect the fact that there
exists an underlying process that has some momentum and hence will continue into the future.
 Forecast for t + 1 considering trend = forecast for (t+1) + forecast for trend in (t+1)
 double exponential smoothing method

o up to date forecast of trends

o Current realization of trends

 Seasonality: a significant demand change that constitutes a repetitive fluctuation over time.
 Seasonality index

 deseasonalization

 Reseasonalization

 Sometimes, you want to allow for human input into the forecasting method. In such case, we
speak about creating a subjective forecast.
o Forecast combination: Each forecaster will use different mental models to make a
forecast. Most likely, each of the forecasters will be wrong at least occasionally, creating
some forecast errors. The idea of forecast combination is to average the forecasts of
multiple forecasters in the hope that the forecast errors will at least partially average
themselves out.
 o Forecast with consensus building: Instead of just collecting the forecasts of several
experts and then averaging them, we can also ask each expert to explain how she
arrived at her forecast. This has the potential to facilitate information sharing:
 A common problem in such meetings is a phenomenon called groupthink—
where all the experts agree, although the outcome is fundamentally wrong and
unlikely. Groupthink can be a result of all experts using the same information
Oftentimes, groupthink also reflects fears of disagreement with more senior
managers.
 To counter this problem, we suggest the following:
o Have participating members first individually and independently
create their own forecasts. These data are then a starting point
for discussion. During the discussion, special attention should be
given to the highest and lowest values of the individual forecasts
with the request to the associated forecasters to explain the logic
behind their forecasts.
o Any discussion should start with the most junior experts in the
group. A senior executive is more likely to voice her own opinion.
A more junior manager is at bigger risk of feeling the pressure to
conform. So, by having the senior expert speak last, we get the
true beliefs of everybody.
 Prediction markets: Imagine you and your classmates go to a horse race but have no
knowledge about any of the participating horses. At the race you get asked, “Who is
going to win?” You could just ask each of your classmates to make a prediction about the
horses’ performance and then take some form of an average. This is the idea of the
forecast combination.
 subjective forecasts have the potential to be forward looking.
 most common biases to be aware of are:
o Overconfidence: we all overestimate how smart we are. As a result, we are overly
confident in succeeding and we are overly confident in being right in terms of our forecast
for the future.
o Anchoring: As human decision makers, we oftentimes pick a piece of information and
then have this piece dictate how we handle new information. That initial piece of
information sets a reference point.
o Incentive alignment: When asked for their forecast, forecasters know that the forecast
is used to make a decision. That decision will most likely impact their work. So, it is only
rational for these forecasters to start with the preferred outcome of that decision and then
work backward to the forecast that is likely to trigger that decision.

Ch 8

 Lean – the operations goal to reduce waste

 Waste of time at a resource: One type of waste reflects the perspective of the resource, in this
case the workforce or production equipment. Capacity is wasted because of idle time. But
capacity is also wasted by performing what we will define as waste and non-value-adding work.

 Waste of time of a flow unit: Another type of waste reflects the perspective of the flow unit.

 Non-value-added work he defined as those movements that do not add value in the eyes of the
customer but must be done under the current conditions of the process in order to complete a
unit. For example, a customer does not value a worker moving from one machine to another, but
this work is necessary given the present process.
  Value-added work, in contrast, is those movements valued by the customer as they are
absolutely required to transform the flow unit from its inputs to being the output the customer
wants.

 overall equipment effectiveness (OEE) framework, is to identify what percentage of a resource's

time is true, value-added time and what percentage is wasted. This provides a good estimate for
the potential for process improvement before engaging in waste reduction.

 seven sources of production waste:

o Waiting (time on hand): If a worker waits for input from the previous step in the process
flow, the worker is idle. Idle time and our measures of labor utilization are thus the most
obvious form of waste. A particular form of idle time that Ohno observed was operators of
machines waiting for the machine to complete its work (just like standing next to a printer
and watching the pages come out).
o Overproduction: The goal is to produce what the customer wants and when the customer
wants it, a principle known as just-in-time (JIT) production. Producing too much too
soon will waste capacity.
o Inventory: . An accumulation of inventory indicates that the JIT methods have not (yet)
been implemented correctly. Inventory is not only a sign of overproduction, it also leads
to additional waste in the form of extra demand for material handling, storage, and
transportation
o Transport: Processes should be laid out such that the physical layout reflects the
process flow to minimize the distances flow units must travel through a process
o Overprocessing or incorrect processing: A close analysis of activity times reveals that
workers often spend more time on a flow unit than necessary.
o Rework rework requires repeating a particular operation, which takes away time that
could be used for regular production.
o Unnecessary motions and movements: Every task should be carefully analyzed and
should be optimized using a set of tools that today is known as ergonomics. To do
otherwise is wasteful.

 pull system: the resource furthest downstream is paced by market demand.

 push system: flow units are allowed to enter the process independent of the current amount of
inventory in the process.
 Kaizen: continuous impreovement – analyzing a root problem on the shop floor
 Genchi genbutsu: problem solving begins by going out to the frontline and observing the
problem yourself
 Kanban: low cost and efficient to store; short lead time; controls inventory
 Made to order: expensive and difficult to store; customers willing to wait
 Poka-yoke: fool proofing an activity
 Detect-stop-alert: quality problems are exposed and fixed
 Mura: uneven work flow
 Jidoka: detecting quality problems, stopping the process, and alerting the operator

Ch 9

 natural form of variation as natural variation or common cause variation.(random variation)

  Assignable cause variation: Variation that occurs because of a specific change in input or in
environmental variables.
 Input variables: the variables under control of management
 Environmental variables: not under the control of management but can effect the system
 Outcome variables: measueres describing the quality of the output of the process
 Defective: not corresponding to the specifications of the process
 Set of specifications: a set of rules that determine if the outcome variable of a unit is defective
or not
 root cause: the variable that caused the defect.

 The goal of management ought to be to keep that variation small and design the process so that
this variation does not translate in large variations in outcome variables and ultimately defects.

 We define a process as robust if it is able to tolerate (common or assignable cause) variation in

input or environmental variables without leading to a large amount of variation in outcome
variables and ultimately to defects.

 statistical process control (SPC).

1. Measuring the current amount of outcome variation in the process and comparing how this variation
relates to the outcome specifications and thus the likelihood of making a defect. This determines the
capability of the process.

2. Monitoring this process and identifying instances in which the outcome variation is abnormal,
suggesting the occurrence of some assignable cause variation in input or environmental variables

3. Investigating the root cause of an assignable cause variation by finding the input or environmental
variable(s) that caused the variation.

4. Avoiding the recurrence in the future of similar assignable cause variations and/or changing the
process so that it is sufficiently robust to not have its quality be affected by such events in the future.

 Lower specification limit (LSL): the smallest outcome value that doesn’t trigger a defective unit
 Upper specification limit (USL): the largert outcome value that doesn’t trigger a defective unit
 Estimated variation in the process = δ
 Process capability index = Cp = (USL-LSL)/6δ
 To compute this defect probability, we perform the following calculations:
o Step 1: Find the probability that a unit falls below the lower specification limit, LSL.
 This can be achieved by entering NORM.DIST(LSL, Mean, Standard Deviation,
1) into Excel.
 Probability{part too small} = NORM.DIST(79.9, 79.95, 0.017291, 1) =
0.001915954
o Step 2: Find the probability that a unit falls above the USL. Do this by entering 1 −
NORM.DIST(USL, Mean, Standard Deviation, 1) into Excel.
 Probability{part too big} = 1 − NORM.DIST(80, 79.95, 0.017291, 1) =
0.001915954.
o Step 3: Add the results of step 1 and step 2 to get the defect probability
 Probability{part defective} = 0.001915954 + 0.001915954 = 0.003831908
 In addition to obtaining the defect probability, it is also common to express the number of units
expected to be defective out of one million units (also referred to as Parts per million, or ppm for
 short). To obtain the ppm number, simply multiply the defect probability by 1,000,000. In the case
of Xootr’s steer support part, we get

 Conformance analysis
o Control charts: plo data over time
o X bar charts: used to document trends over time and identify unexpected drifts (find
means)
o Upper control limit (UCL): above an upper limit
o Lower control limit(LCL): below a lower limit
o X double bar: finding the mean of means (center line of x bar chart)

 The first step in our exploration of root causes is to create a more careful diagram illustrating the
relationship between the outcome variable and the various input and environmental variables.
o fishbone diagrams
o Cause-effect diagrams, or Ishikawa diagrams
 Making a process more robust
o Overengineering: we make the process so that it can do well, even under very
exceptional conditions.

o Foolproofing: A large amount of the variation in input variables in a process comes from
mistakes committed by the (human) operators in the process. Human actions are prone
to variation, be it because of a “trembling hand” or mere forgetfulness. The idea of
foolproofing or standards and checklists is to change the work in such a way that the
operator attempting to make a mistake cannot complete the task, thereby realizing that
he has done something wrong.

o Early warning signs on input and environmental variables: It lies in the nature of a
process that there typically exists some time lag between the occurrence of variation in
input variables and environmental variables and the occurrence of the variation in the
outcome variable and the defect

Ch 19
 activity time: the amount of time it takes a resource to complete the activity once it has started to
work on it.
 precedence relationships: the dependency of activities on each other
 dependency matrix: colums represent activities that provide info while rows indicate activities
that receives info
 predecessor activity: Ai is the predecessor of Aj if it has to be completed before Aj
 sequentially dependent: successor depends on predecessor
 successor activities: Ai is the successor of Aj if it needs to be completed after Aj
 When executing a project with interdependent activities, we have to carefully coordinate the
activities. Such coordination can take two forms:
o Static coordination: getting the team members in charge of the interdependent activities
together and engaging them in a dialogue. Instead of one team member completing her
activity and then just “throwing it over the wall” to the other team member, static
coordination is an attempt to understand the objectives and constraints of other activities
when executing your own activity.
 o Dynamic coordination: It simply is not possible for one activity to already provide all
information to the other activity without actually engaging in some work. As a result, it is
necessary for the projects to iterate between the two interdependent activities.
 Iteration: we go forth and back from one activity to the other. The two activities
are carried out simultaneously, with both activities providing information to each
other. In product development projects, this practice is often referred to
as concurrent engineering
 Graph: a collectin of nodes connected by links
 Activity-on-node (AON) graph/activity network: a graph that captures the project sctivities and
its dependencies in which nodes correspond to project activities and arrows correspond to
precedence relationships
o We then work our way through the dependency matrix mimicking the evolution of the
project:

1. We create a node in the form of a box for the activity, including its name as well as its expected
activity time.

2. After creating the node for the activity, we consider the activity as done. Thus, all information provided
by the activity to its successor activities is now available. We can draw a line through the
corresponding column, and draw an arrow out of the activity for each dependency (for each “X”).

3. Next, we look for any other activity in the dependency matrix that has all its predecessor activities
completed and go back to step 1.

4. We continue steps 1–3 until we have worked ourselves to the last activity.

 Path: a sequence of nodes (activities) and directional arrows

 Critical path: the path with the longest duration
 Earliest start time (EST): the earliest time of the first activity is time zero
 Earliest completion time (ECT): the earliest start time + activity time
 More formally, we can define the following method to compute the ECT of the project. The
approach is similar to our method of coming up with the AON graph:

1. Start with the activity that has no information-providing activity and label that activity as the start. The
earliest start time of that activity is defined as 0. The earliest completion time is the activity time of this
activity.

2. Identify all activities that can be initiated at this point (i.e., have all information-providing activities
complete). For a given such activity i,compute the earliest start time as EST(Ai) = Max{ECT(Aj)} where
Aj are all activities providing input to Ai

3. Compute the earliest completion time of Ai as ECT(Ai) = EST(Ai) + Activity time(Ai)

4. Consider activity i as completed and identify any further activities that now can be initiated. Go back to
step 2.

 Slack time: wiggle room

o = LST – EST
o = LCT - ECT
 Late start schedule: the latest possible timing of all activities that still allows for an on time
completion of the overall project
 Latest start (LST) and latest completion time (LCT)
o LCT (Last activity) = ECT (Last activity)
o LST(last activity) = LCT(last activity) – Activity time (last activity)
 Gantt chart: a time line with the activities included as horizonatl bars
 Project managers typically pursue a combination of two additional objectives:

o Project cost: Just as a project needs to plan how it spends its time, it needs to plan how it
spends its money.

 The project budget outlines the main expenses associated with the project. In
most cases, these expenses are related to the resources required to carry out
the activities that constitute the project.

o Project scope: determines what must be accomplished in order for the project to be
complete. Beyond simply completing the project, of course, we want to complete the
project well. So the project scope should state a set of quality specifications that the
project needs to achieve.

o Project completion time

 Project management triangle – all of these goals
 Reducing project completion time
o Start the project early

o Manage the project scope: One of the most common causes of delay in projects is that
the amount of work that is part of the project changes over the course of the project.
Features are added and engineering change orders requested. If such changes occur
late in the project, they often cause significant project delays and budget overruns for
relatively little increased quality. For this reason, it is advisable to finalize the scope of the
project early on.

o Crash activities: Often, an increase in spending allows for a faster completion time of a
project. Contractors are willing to work overtime for a premium, and expensive equipment
might help further shorten activity time. As we discussed earlier, however, the concept
of crashing is a difficult one because spending more money is not a guarantee of making
things move faster.

o Overlap critical path activities: A central assumption underlying the dependency matrix
discussed earlier has been that an activity that is dependent on an information-providing
activity needs to wait until that activity is completed. However, it is often possible to allow
the dependent activity to start early—to overlap dependent activities–relying on
preliminary information from the information-providing activity.

 Organizing a project
o Defining the project includes defining and negotiating the three variables making up the
project triangle: project time, project budget, and project scope. You then should think
about the activities that are necessary to accomplish the project scope. You take the
scope and break it up into pieces of work. This is often referred to as the work
breakdown structure. Finally, you need to understand what resources you have at your
disposition. Finally, we find it helpful to document a set of assumptions about the project,
including how much time the resources will be available, technical feasibilities, and
environmental conditions such as weather, the competitive landscape, or macroeconomic
variables.
 o Planning the project starts once you have defined the project—it is time to think about
the execution of the work. This is when you create a dependency matrix, draw the activity
network, find the critical path, and ultimately create the Gantt chart. For each activity you
need to identify a person who is in charge of the activity (which might be you) and confirm
that the Gantt chart is feasible (the resources needed are available at the time).
o While the first two pieces of work happen before the project gets underway, the important
work of a project manager happens during the actual execution of the project. We refer to
this as controlling the project. As the project unfolds, your job is to track its progress.
This includes carefully tracking the Gantt chart to see that all activities take place as
planned. This also includes managing the interdependencies among the project activities.
For example, in the case of static coordination of interdependent activities, it is critical to
involve the activity owners of both activities early on so that one activity can provide early
input to the other instead of simply completing its work and then “throwing its output over
the wall” to the other activity.
o A common point of contention in the planning of projects, as well as during the controlling
of the project, relates to the availability of time from team members. We define
a dedicated project team as a project team in which the team members spend 100
percent of their work time on the project. The benefit of the dedicated team is that team
members are not distracted by their regular work. Dedicating team members to a project
tends to also reduce coordination needs.
o The organizational chart (also known as org chart) of the organization is a visual
representation of the reporting relationships in the organization. To use a military term,
the org chart shows the chain of command, with the general at the top of the org chart
and the foot soldier at the bottom.
o What is special about project management organization is that the organizational chart
might not neatly map out the organizational hierarchy that the project is embedded in.
Oftentimes, projects bring together members of a diverse set of organizational functions
to form a cross-functional team; So it is common that members of a project team report to
their “regular” boss (based on their usual position in the org chart) and to the project
manager. Such multiple reporting lines create what is called a matrix organization.
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