Lecture 09

Project Management

ISE Dept.-IU
Office: Room 508
 Chapter Outline
13.1 Introduction
13.2 Project Scheduling: PERT/CPM
Work Breakdown Structure (WBS)
Gantt Chart
PERT/CPM Terminology
PERT/CPM Procedure
Drawing PERT/CPM Network
Example (General Foundry)
Activity Times
How to Find Critical Path
Probability of Project Completion
13.3 Project Monitoring and Controlling: PERT/Cost
Budgeting
Controlling
Appendix: Normal Distribution Table
 Introduction
• Project: a combination of
• Resources
• Money
• Manpower etc.
to finish a set of pre-determined tasks in a specified
time.
• Project Management: set of principles and tools for
• Defining
• Planning
• Executing
• Controlling
• Completing a PROJECT
 Introduction
Why Project Management?
• Organize your approach
• Generate a credible schedule
• Track progress and control your project
• Identify where to focus your efforts
• Identify problems early – before they are crises
• Saves your TIME….MONEY
 Introduction
 The first step in planning and scheduling a project is to
develop the work breakdown structure
 Time, cost, resource requirements, predecessors, and people required
are identified for each activity
 Then a schedule for the project can be developed:
 the program evaluation and review technique (PERT
PERT) and
 the critical path method (CPM
CPM)
to help plan, schedule, monitor, and control projects
 PERT used three time estimates to develop a probabilistic
estimate of completion time
 CPM was a more deterministic technique
 They have become so similar they are commonly
considered one technique, PERT/CPM
 Historical Evolution
Gantt Chart
 Henry Laurence Gantt, (1861 - 1919): a mechanical engineer
and management consultant, developed the Gantt chart in the
1910s.
 Gantt charts were employed on major infrastructure projects
including the Hoover Dam and Interstate highway system
 Historical Evolution
CPM and PERT
 Critical Path Method (CPM,1957) was developed jointly by
representatives of Du Pont and Remington-Rand.
 Program Evaluation and Review Technique (PERT,1958) was
developed jointly by representatives of the United States Navy
and the management consulting firm of Booze, Allen, and
Hamilton.
The USS George Washington.
Ballistic Missile Project included more than:
 250 prime contractors
 9,000 subcontractors.
 70,000 different activities
PERT bringing the Polaris missile submarine to combat readiness approximately
two years ahead of the originally scheduled completion date
 Work Breakdown Structure

 1. Project

 2. Major tasks in the project

 3. Subtasks in the major tasks

 4. Activities (or work packages) to be

completed
 Gantt Charts
 Time on horizontal axis,
 Activities on vertical axis. Each bar per activity
 Length of bar = required activity time
 Left end of bar at Earliest Start Time
Activity
Activity 1
Activity 2
Milestone

day 1 day 2 day3 Time

 Terminology
 Activity
 A task or a certain amount of work required in the project
 Requires time to complete

 Dummy Activity
 Indicates only precedence relationships
 Does not require any time of effort

 Event
 Signals the beginning or ending of an activity
 Designates a point in time

 Network
 Shows the sequential relationships among activities using nodes and arrows

 Path
 A connected sequence of activities leading from the starting event to the
ending event

 Critical Path
 The longest path (time); determines the project duration

 Critical Activities
 All of the activities that make up the critical path
 Terminology
For an activity, there are 4 types of quantities must be considered
Begin at starting event and work forward
 Earliest Start Time (ES)
 The earliest that an activity can begin; assumes all preceding
activities have been completed
 ES = 0 for starting activities
 ES = Maximum EF of all predecessors for non-starting activities
 Earliest Finish Time (EF)
 EF = ES + activity time
Begin at ending event and work backward
 Latest Finish Time (LF)
 The latest that an activity can finish and not change the project
completion time
 LF = Maximum EF for ending activities
 LF = Minimum LS of all successors for non-ending activities
 Latest Start Time (LS)
 LS = LF - activity time
 PERT/CPM Procedure
Six Steps
1. Define the project and all of its significant activities or tasks
2. Develop the relationships among the activities and decide
which activities must precede others
3. Draw the network connecting all of the activities
4. Assign time and/or cost estimates to each activity
5. Compute the longest time path through the network; this is
called the critical path
6. Use the network to help plan, schedule, monitor, and control
the project

 The critical path is important since any delay in these

activities can delay the completion of the project
 Drawing the PERT/CPM Network

There are two common techniques for drawing

PERT/CPM networks

 Activity
Activity--on
on--node (AON
AON) where the nodes represent
activities
 One node represents the start of the project,
one node for the end of the project, and nodes
for each of the activities
 The arcs are used to show the predecessors for
each activity

 Activity
Activity--on
on--arc (AOA
AOA) where the arcs are used to
represent the activities
Drawing the PERT/CPM Network

AON Activity Relationships

S precedes T, which precedes U.

S T U S: predecessor of T
U: successor of T

S S and T must be
U completed before U
can be started.
T
Drawing the PERT/CPM Network

AON Activity Relationships

T
T and U cannot
S begin until S has
U been completed.

S U U and V can’t begin

until both S and T
have been completed.
T V
Drawing the PERT/CPM Network

AON Activity Relationships

U cannot begin until

S U both S and T have been
completed; V cannot
begin until T has been
T V
completed.

T and U cannot begin

S T V
until S has been
completed and V cannot
U begin until both T and U
have been completed.
 General Foundry Example of
PERT/CPM
 General Foundry, Inc.: to install air pollution control
equipment in 16 weeks
 Activities and immediate predecessors for G.F. Inc.
IMMEDIATE
ACTIVITY DESCRIPTION
PREDECESSORS
A Build internal components —
B Modify roof and floor —
C Construct collection stack A
D Pour concrete and install frame B
E Build high-temperature burner C
F Install control system C
G Install air pollution device D, E
H Inspect and test F, G
 Activity Times
• CPM assigns just one time estimate to each activity and
this is used to find the critical path

• PERT employs a probability distribution based on three time

estimates for each activity

 The time estimates in PERT are

Optimistic time (a
a) = time an activity will take if everything
goes as well as possible (a small
probability (say, 1/100) of this occurring)
Pessimistic time (b
b) = time an activity would take assuming
very unfavorable conditions. (a small
probability of this occurring)
Most likely time (m
m) = most realistic time estimate to complete
the activity
 Activity Times
 PERT often assumes time estimates follow a beta prob. distribution

 To find the expected activity time (tt), a  4m  b

the beta distribution weights the estimates: Mean t 
6

2
 To compute the dispersion or ba
variance of activity completion Variance   
time:
time  6 
 Activity Times
 Time estimates (weeks) for General Foundry

MOST EXPECTED
OPTIMISTIC, PROBABLE, PESSIMISTIC, TIME, VARIANCE,
ACTIVITY a m b t = [(a + 4m + b)/6] [(b – a)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25
Gantt Chart
 Find the Critical Path
 General Foundry’s network with expected activity times

ACTIVITY t
ACTIVITY IMMEDIATE
PREDECESSOR
EXPECT
ED TIME
ES EF
A — 2
LS LF

B — 3 A 2 C 2 F 3
C A 2

D B 4
E 4 H 2
E C 4 Start Finish
F C 3

G D, E 5 B 3 D 4 G 5
H F, G 2
 ES and EF Times ACTIVITY t
ES EF
Early Finish Time = Early Start Time + Activity Time LS LF

A 2 C 2

0 2 4

E 4

Starting 4 8
Activity

ES(G)= Max[EF(D), EF(E)]

D 4 G 5

3 7 13
ACTIVITY t LS and LF Times
ES EF
LS LF Late Start Time = Late Finish Time - Activity Time

C 2 F 3
2 4 4 7
2 4 10 13

LF(C)=Min[LS(E), LS(F)]
E 4 H 2
4 8 13 15 Finish

4 8 13

G 5
8 13
8 13
 How to Find the Critical Path
(General Foundry’s example)
Early Finish Time = Early Start Time + Activity Time ACTIVITY t
 At the start of the project we set the time to zero ES EF
 Thus ES = 0 for both A and B LS LF

A 2 C 2 F 3
0 2 2 4 4 7

E 4 H 2
Start 4 8 13 15 Finish

B 3 D 4 G 5
0 3 3 7 8 13

Project’s EF = 15
=> LF = 15
 How to Find the Critical Path
(General Foundry’s example)
ACTIVITY t LS and LF Times
ES EF
Late Start Time = Late Finish Time - Activity Time
LS LF

A 2 C 2 F 3
0 2 2 4 4 7
0 2 2 4 10 13

E 4 H 2
Start 4 8 13 15 Finish
4 8 13 15

B 3 D 4 G 5
0 3 3 7 8 13
1 4 4 8 8 13
 How to Find the Critical Path
 Slack time that each activity:
Slack = LS – ES, or Slack = LF – EF
Activities with no slack time are called critical activities and they are said to
be on the critical path

EARLIEST EARLIEST LATEST LATEST ON

START, FINISH, START, FINISH, SLACK, CRITICAL
ACTIVITY ES EF LS LF LS – ES PATH?
A 0 2 0 2 0 Yes
B 0 3 1 4 1 No
C 2 4 2 4 0 Yes
D 3 7 4 8 1 No
E 4 8 4 8 0 Yes
F 4 7 10 13 6 No
G 8 13 8 13 0 Yes
H 13 15 13 15 0 Yes
 How to Find the Critical Path
 General Foundry’s critical path

A 2 C 2 F 3
0 2 2 4 4 7
0 2 2 4 10 13

E 4 H 2
Start 4 8 13 15 Finish
4 8 13 15

B 3 D 4 G 5
0 3 3 7 8 13
1 4 4 8 8 13
 Probability of Project Completion
 The critical path analysis determine the expected project
completion time of 15 weeks

 But variation in activities on the critical path can affect overall

project completion
variances of activities on
Project variance = ∑ the critical path
ACTIVITY
A
VARIANCE
4/36
B 4/36
Project variance = 4/36 + 4/36 + 36/36 + 64/36 + 4/36 C 4/36
= 112/36 D 16/36
= 3.111 E 36/36
F 64/36
Project standard deviation   T  Project variance G 64/36
 3.11  1.76 weeks H 4/36
 We assume activity times are independent and total project
completion time is normally distributed
 Probability of Project
Completion
Determine the probability that a project is completed within a specified
period of time:
using standard normal distribution

x-
Z = 
where
 = tp = project mean time (or expected date of completion)
 = project standard deviation
x = proposed project time (or due date)
Z = number of standard deviations x is from mean
 What’s probability that project will finish before 16 weeks?
P(T<16) = P(z < (16 -15)/1.76) = P(z < 0.57) = 0.716

 From Appendix A we find the probability of 0.71566 associated with this

Z value
 That means there is a 71.6% probability this project can be completed in
16 weeks or less

 What’s probability that project will finish from 13 to 18 weeks?

P(13<T<18) = P((13 -15)/1.76 <z < (18 -15)/1.76)
= P(-1.136 <z < 1.7)
 What PERT Was Able to Provide
From PERT, G.F. Inc. knows
 The project’s expected completion date is 15 weeks

 There is a 71.6% chance that the equipment will be

in place within the 16-week deadline
 Five activities (A, C, E, G, H) are on the critical path

 Three activities (B, D, F) are not critical but have

some slack time built in
 A detailed schedule of activity starting and ending
dates has been made available
 PERT/COST
 PERT does not consider the very important factor of project: COST

 PERT/Cost allows a manager to plan, schedule, monitor, and control

cost and time
Budgeting:

The overall approach in the budgeting process of a project is to

determine how much is to be spent every week or month
• Four steps for budgeting
- Identifying the cost for each activity
- Creating work package (a logical collection of activities)
if available
- Converting cost per activity to cost per time period
- Determining how much spending for each time period in order
to finish project.
 Budgeting for General Foundry
Example 3 (text book – p. 534)
Consider General Foundry project. The data: expected processing
time, ES, LS, budget for each activity are given in the following Table

 Activity costs for General Foundry

EARLIEST LATEST TOTAL BUDGETED
START, START, EXPECTED BUDGETED COST PER
ACTIVITY ES LS TIME, t COST ($) WEEK ($)
A 0 0 2 22,000 11,000
B 0 1 3 30,000 10,000
C 2 2 2 26,000 13,000
D 3 4 4 48,000 12,000
E 4 4 4 56,000 14,000
F 4 10 3 30,000 10,000
G 8 8 5 80,000 16,000
H 13 13 2 16,000 8,000
Total 308,000
 Budgeting for General Foundry

 Early Start budgeted cost for General Foundry

WEEK
ACTIVITY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 TOTAL
A 11 11 22

B 10 10 10 30

C 13 13 26

D 12 12 12 12 48

E 14 14 14 14 56

F 10 10 10 30

G 16 16 16 16 16 80

H 8 8 16

308

Total per week 21 21 23 25 36 36 36 14 16 16 16 16 16 8 8

Total to date 21 42 65 90 126 162 198 212 228 244 260 276 292 300 308
 Budgeting for General Foundry

 Late start budgeted cost for General Foundry

WEEK
ACTIVITY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 TOTAL
A 11 11 22

B 10 10 10 30

C 13 13 26

D 12 12 12 12 48

E 14 14 14 14 56

F 10 10 10 30

G 16 16 16 16 16 80

H 8 8 16

308

Total per week 11 21 23 23 26 26 26 26 16 16 26 26 26 8 8

Total to date 11 32 55 78 104 130 156 182 198 214 240 266 292 300 308
 Using PERT/COST approach, we are easily to control
project implementation in terms of time and cost.

Example: at 6th week, project manager review the

progress and found that:

VALUE OF
TOTAL WORK
BUDGETED PERCENT OF COMPLETED
ACTIVITY COST ($) COMPLETION ($) Questions:
A 22,000 100 22,000 1. Project is on schedule?
B 30,000 100 30,000 2. What is value of work
C 26,000 100 26,000 completed?
D 48,000 10 4,800 3. Are there any cost
E 56,000 20 11,200 overrun?
F 30,000 20 6,000
G 80,000 0 0
H 16,000 0 0
Using these formula:
• Value of Work Completed = % of Work completed x activity budget
• Difference = Actual Cost – Value of Work completed
• If Difference > 0  Activity/Project is overrun
• If Difference < 0  Activity/Project is under control

The overall project is overrun budget now!

VALUE OF
TOTAL WORK ACTIVITY
BUDGETED PERCENT OF COMPLETED ACTUAL DIFFERENCE
ACTIVITY COST ($) COMPLETION ($) COST ($) ($)
A 22,000 100 22,000 20,000 –2,000
B 30,000 100 30,000 36,000 6,000
C 26,000 100 26,000 26,000 0
D 48,000 10 4,800 6,000 1,200
E 56,000 20 11,200 20,000 8,800
F 30,000 20 6,000 4,000 –2,000
G 80,000 0 0 0 0
H 16,000 0 0 0 0
Total 100,000 112,000 12,000

Overrun
 Project Crashing

 Projects will sometimes have deadlines

that are impossible to meet using normal
procedures
 By using exceptional methods it may be
possible to finish the project in less time
than normally required
 However, this usually increases the cost
of the project
 Reducing a project’s completion time is
called crashing
 Project Crashing
 Crashing a project starts with using the normal
time to create the critical path
 The normal cost is the cost for completing the
activity using normal procedures
 If the project will not meet the required deadline,
extraordinary measures must be taken
 The crash time is the shortest possible activity
time and will require additional resources
 The crash cost is the price of completing the
activity in the earlier-than-normal time
Four Steps to Project Crashing

1. Find the normal critical path and identify

the critical activities
2. Compute the crash cost per week (or
other time period) for all activities in the
network using the formula

Crash cost – Normal cost

Crash cost/Time period = Normal time – Crash time
Four Steps to Project Crashing

3. Select the activity on the critical path

with the smallest crash cost per week
and crash this activity to the maximum
extent possible or to the point at which
your desired deadline has been reached
4. Check to be sure that the critical path
you were crashing is still critical. If the
critical path is still the longest path
through the network, return to step 3. If
not, find the new critical path and return
to step 2.
 General Foundry Example
 General Foundry has been given 14 weeks
instead of 16 weeks to install the new equipment
 The critical path for the project is 15 weeks
 What options do they have?
 The normal and crash times and costs are shown
in Table 13.9
 Crash costs are assumed to be linear and Figure
13.11 shows the crash cost for activity B
 Crashing activities B and A will shorten the
completion time to 14 but it creates a second
critical path
 Any further crashing must be done to both critical
paths
 General Foundry Example
 Normal and crash data for General Foundry
TIME (WEEKS) COST ($) CRASH
COST PER CRITICAL
ACTIVITY NORMAL CRASH NORMAL CRASH WEEK ($) PATH?
A 2 1 22,000 23,000 1,000 Yes
B 3 1 30,000 34,000 2,000 No
C 2 1 26,000 27,000 1,000 Yes
D 4 3 48,000 49,000 1,000 No
E 4 2 56,000 58,000 1,000 Yes
F 3 2 30,000 30,500 500 No
G 5 2 80,000 86,000 2,000 Yes
H 2 1 16,000 19,000 3,000 Yes

Table 13.9
 General Foundry Example
 Crash and normal times and costs for activity B
Activity
Cost
Crash
Crash Cost – Normal Cost
$34,000 – Crash Cost/Week =
Normal Time – Crash Time
Crash
Cost $33,000 – $34,000 – $30,000
=
3–1
$32,000 – $4,000
= = $2,000/Week
2 Weeks
$31,000 –
Normal
$30,000 –
Normal
Cost –

| | | |
0 1 2 3 Time (Weeks)
Figure 13.11 Crash Time Normal Time
 Project Crashing with
Linear Programming

 Linear programming is another approach to

finding the best project crashing schedule
 We can illustrate its use on General
Foundry’s network
 The data needed are derived from the normal
and crash data for General Foundry and the
project network with activity times
 Project Crashing with
Linear Programming
 General Foundry’s network with activity times

A 2 C 2 F 3

Start E 4 H 2 Finish

B 3 D 4 G 5

Figure 13.12
 Project Crashing with
Linear Programming
 The decision variables for the problem are

XA = EF for activity A
XB = EF for activity B
XC = EF for activity C
XD = EF for activity D
XE = EF for activity E
XF = EF for activity F
XG = EF for activity G
XH = EF for activity H
Xstart = start time for project (usually 0)
Xfinish = earliest finish time for the project
 Project Crashing with
Linear Programming
 The decision variables for the problem are

Y = the number of weeks that each activity is

crashed
YA = the number of weeks activity A is crashed
and so forth

 The objective function is

Minimize crash cost = 1,000YA + 2,000YB + 1,000YC

+ 1,000YD + 1,000YE + 500YF
+ 2,000YG + 3,000YH
 Project Crashing with
Linear Programming
 Crash time constraints  This completion constraint
ensure activities are not specifies that the last event
crashed more than is allowed must take place before the
project deadline
YA ≤ 1
YB ≤ 2 Xfinish ≤ 12
YC ≤ 1
YD ≤ 1  This constraint indicates the
project is finished when
YE ≤ 2 activity H is finished
YF ≤ 1
YG ≤ 3
YH ≤ 1 Xfinish ≥ XH
 Project Crashing with
Linear Programming
 Constraints describing the network have the form
EF time ≥ EF time for predecessor + Activity time
EF ≥ EFpredecessor + (t – Y), or
X ≥ Xpredecessor + (t – Y)
For activity A, XA ≥ Xstart + (2 – YA) or XA – Xstart + YA ≥ 2
For activity B, XB ≥ Xstart + (3 – YB) or XB – Xstart + YB ≥ 3
For activity C, XC ≥ XA + (2 – YC) or XC – XA + YC ≥ 2
For activity D, XD ≥ XB + (4 – YD) or XD – XB + YD ≥ 4
For activity E, XE ≥ XC + (4 – YE) or XE – XC + YE ≥ 4
For activity F, XF ≥ XC + (3 – YF) or XF – XC + YF ≥ 3
For activity G, XG ≥ XD + (5 – YG) or XG – XD + YG ≥ 5
For activity G, XG ≥ XE + (5 – YG) or XG – XE + YG ≥ 5
For activity H, XH ≥ XF + (2 – YH) or XH – XF + YH ≥ 2
For activity H, XH ≥ XG + (2 – YH) or XH – XG + YH ≥ 2
Appendix:
Normal Distribution
Table