COMMERCE 341

OPERATIONS MANAGEMENT
Project Management
Fall 2015
Geoff Pond

Project Management

Agenda

Introduction being successful at project management

Project Control
Measuring Project Value
PERT
CPM
Next class

What do PMs manage?

Activities (time)
Employees
Subcontractors
Equipment
Money (budgets)

Project Management is by no means trivial. It can be

an extraordinarily stressful responsibility.

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What do successful projects look like?

Milestones / completion met ON TIME

Project goals met ON BUDGET
Project deliverables meet quality objectives
Project deliverables meet customer expectations

If one of the corners of the project triangle slips,

sacrifices may be made in the other corners:

Project Management

How to get started Work Breakdown

Structure (WBS)
BEFORE even guessing what your required resources
might be, you must first drill down through the
expected activities constituting your project. This will
give you better insight into the projects scope.
Example: Level

Level
2

Level
3
Mathematical
Proof

Theoretical
Coded
Algorithm

Research
Program Optimization
Applied

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Location
Planning
Problem

Project Control Gantt Chart

Example

Survey
Crew
Drill Crew
Lab Techs
Geologist
s
Vertical Axis is
assigned
resource
(People /
Equipment /
Contractor)
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Activity A
Activity B

Activity C

Activity D
Activity
E
Hours or
Days
Horizontal Axis is a unit of TIME

Gantt Used as EVM Tool

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Gantt Used as EVM Tool

Is

the project progressing on-schedule?

Green is completion
Blue is remaining work
% completion written below the activity as Actual
% expected completion written beside it

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Gantt Used as EVM Tool

Budgeted Cost of Work Scheduled (BCWS)

Activity A 100% of $125K

$125K

Activity B 100% of $145K

$145K

Activity C 75% of $150K

$112.5
K
$6K

Activity D 10% of $60K

Total

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$388.
5

BCWS

Gantt used as EVM Tool

Budgeted Cost of Work Performed (BCWP)

Activity
A
Activity
B
Activity
C
Activity
D
Total
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100% of $125K

$125K

75% of $145K

$108.75
K
$75K

50% of $150K

BCWP
60% of $60K

$36K

$344.75

EVM - KPIs

Schedule Variance:
BCWP BCWS = $344.75K $388.5K = -$43.75K
Interpretation
A negative schedule variance suggests that the
project hasnt progressed as far as expected by the
assessment date. Of course this assumes that funds
are expended uniformly across the duration of the
activity (which is seldom the case).

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EVM - KPIs
Schedule Performance Index:
BCWP/BCWS = 344.75/388.5 = 0.89
Interpretation
This ratio is ideally greater than 1, which would
indicate that the project is progressing at or faster
than the expected pace. A ratio less than 1 suggests
that the project is behind schedule. This makes the
same assumption noted earlier.

Project Management

EVM - KPIs
Cost Variance
(for this example, lets suppose the actual cost is
$380K)
BCWP AC = $344.75K $380K = -$35.25K
Interpretation.
Naturally, a negative cost variance suggests that the
funds spent are less than the amount of funds
allocated. Or in other words, the project is progressing
under budget.

Project Management

EVM - KPIs
Cost Performance Index
BCWP/AC = 344.75/380 = 0.91
Interpretation
An index value less than 1 suggests that budgeted
cost is less than the actual cost. Or in other words,
that the project is spending more money than what
was anticipated. If the index value is greater than 1,
the opposite is true.

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EVM - KPIs

Overall
This project is behind schedule and experiencing cost
over-runs clearly it isnt being managed by a QSB
graduate.

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Critical Path Method (CPM)

Project Planning Tool used to answer the following
questions:
1) When will the project be complete?
2) What activities or tasks must start/finish on time
in order to avoid delays in project completion?
3) How much slack is available for each of the
remaining activities?

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Critical Path Method (CPM)

Well use nodes to develop a network precedence
model. Nodes look like:

where:
EFT stands for the Earliest Start
Time;
EFT stands for the Earliest Finish
Time;
LST stands for the Latest Start
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Critical Path Method (CPM)

Imagine the following project:

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Critical Path Method (CPM)

Step 1: Draw out network model according to the
precedence dictated by immediate predecessors

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Critical Path Method (CPM)

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Critical Path Method (CPM)

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Critical Path Method (CPM)

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Critical Path Method (CPM)

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Critical Path Method (CPM)

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Critical Path Method (CPM)

Step 2: Complete exhaustive forward passes throughout
the network

0+1=
1

0+3=
3
EST + Activity Time =
EFT

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Critical Path Method (CPM)

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Critical Path Method (CPM)

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Critical Path Method (CPM)

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Critical Path Method (CPM)

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Critical Path Method (CPM)

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Critical Path Method (CPM)

Step 3: Complete exhaustive backward passes
throughout the network

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Critical Path Method (CPM)

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Critical Path Method (CPM)

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Critical Path Method (CPM)

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Critical Path Method (CPM)

Step 4: Identify activities along the critical path (those with
no slack)

Slack is the amount of time between the EST and LST (or between
the EFT and LFT)
For Activity H, slack is 4 0 = 4 days. In other words, if Activity H
is delayed by as much as 4 days, there is no impact on the project
completion time.
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Critical Path Method (CPM)

Useful in estimating project completion time
and mapping out project network model.
Also useful in identifying critical activities
and available slack for all other activities.
Major weakness is the assumption of
perfect knowledge.
we can address this by using Program
Evaluation and Review Technique (PERT)

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Program Evaluation and Review Technique

(PERT)
You will have the luxury of only losing your job and
perhaps millions of dollars for your employer if you
screw up a project.
Imagine:
Late 1950s, Cold War is cranking up
Both Soviet and US nuclear programs are at full
speed
To gain a competitive advantage, US Navy embarks
on a program to develop a submarine-launchable
ballistic missile (which had never been done
before)
Thousands of contractors involved.
Youve got four years to get the job done, starting
with basic research & design.
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Program Evaluation and Review Technique

(PERT)

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Program Evaluation and Review Technique

(PERT)
I have directed prompt action to step up our Polaris
submarine program. Using unobligated ship-building
funds now (to let contracts originally scheduled for
the next fiscal year) will build and place on station--at
least nine months earlier than planned-substantially
more units of a crucial deterrent--a fleet that will
never attack first, but possess sufficient powers of
retaliation, concealed beneath the seas, to
discourage any aggressor from launching an attack
upon our security.

No Pressure,
Right?

John F. Kennedy
State of the Union Address
30 January 1961
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Program Evaluation and Review Technique

(PERT)
STEP 1: Develop optimistic, most probable, and
pessimistic activity times for each task:

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Program Evaluation and Review Technique

(PERT)
STEP 2: Obtain the expected activity time.
Nota bene: Expected Time Most Probable Time
Why? Because activity times will be modelled using
the Beta Distribution (which is not symmetric)

Project Management

Program Evaluation and Review Technique

(PERT)
STEP 2: Obtain the expected activity time.

where:

is the
is the
is the
is the

Example

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expected activity time;

most pessimistic activity time;
most probable activity time; and
most optimistic activity time

Program Evaluation and Review Technique

(PERT)
STEP 3: Obtain the variance around each expected
activity time.

where:

is the variance;
is the most pessimistic activity time;
and
is the most optimistic activity time

Example

Project Management

Program Evaluation and Review Technique

(PERT)
Complete table:
Activity
A
A
B
B
C
C
D
D
E
E
F
F
G
G
H
H
I
IJ
J
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Expected
1.08
()
1.08
1.17
1.17
1.42
1.42
1.83
1.83
5.17
5.17
2.17
2.17
2
2
3.33
3.33
1
1
1.08
1.08

Variance ()
0.06
0.06
0.11
0.11
0.34
0.34
0.11
0.11
2.25
2.25
0.25
0.25
0.11
0.11
0.25
0.25
0.03
0.03
0.03
0.03

Program Evaluation and Review Technique

(PERT)
STEP 4: Use the CPM to develop a project network
model but use the expected activity times identified
in the previous few slides

Project Completion Time is 10.58 weeks for this example. Critical

Path is A-C-D-E-J

Project Management

Program Evaluation and Review Technique

(PERT)
STEP 5: Add the variance for each of the activities
along the critical path:
Critical Path is A-C-D-E-J

Nota Bene: Although variance is additive, standard

deviation is NOT
...but
of course, we can use variance () to find standard
deviation ()

Project Management

Program Evaluation and Review Technique

(PERT)
STEP 6: by virtue of the CLT, the completion time of
the entire project can be modelled using the normal
distribution (despite having used the beta distribution
for individual activity times):

where:

is a test value;
is the expected value;
is the standard deviation; and
is a z-value used to find a
corresponding probability from a z-table

Project Management

Program Evaluation and Review Technique

(PERT)
Example

Suppose we were interested in knowing the probability of

completing the project used in the previous example (recall that
= 10.58 ) in 10 weeks.

Now go to the z-table to find the corresponding probability.

Project Management

Program Evaluation and Review Technique

(PERT)

The probability of completing the project in 10 weeks (or less) is

approximately 36%
Project Management

Before Next Class

Review this lecture and Chapter 5 of the textbook.

Try the following problems: Chapter 5, #3, #5, #10
Let me know if you have any questions.
Read Chapters 6 & 7 of the textbook in preparation
for the next class.

Introduction and Overview