Chapter 3

Project Management

Chapter 2

2007 Pearson Education

Projects
A project is an interrelated set of activities with a definite
starting and ending point, which results in a unique outcome
for a specific allocation of resources.
The three main goals of project management are
1. Complete the project on time or earlier.
2. Do not exceed the budget.
3. Meet the specifications to the satisfaction of the customer.

2007 Pearson Education

Project Management 1
Chapter 3

Project Management
Project management is a systemized, phased approach to defining,
organizing, planning, monitoring, and controlling projects.
A collection of projects is called a program, which is an interdependent
set of projects with a common strategic purpose.
A cross-functional effort: Even though a project may be under the overall
purview of a single department, other departments likely should be
involved.
Furthermore, each project is unique, even if it is routine, requiring new combinations of
skills and resources in the project process. For example, projects for adding a new branch
office, installing new computers in a department, or developing a sales promotion may be
initiated several times a year.
2007 Pearson Education

Project Manager
Selecting the right project manager is critical and specific skills are
needed. The qualities of a good project manager:
Facilitator: Able to resolve conflicts, have leadership skills and a systems view.
Communicator: Ability to keep senior management informed, communicate
progress, and work with team members.
Decision Maker: Able to organize members and make difficult decisions.

Team members need to be technically competent, dedicated, and able to

work well with other team members.

2007 Pearson Education

Project Management 2
Chapter 3

Project Team
Selecting the project team is just as important as the selection of the
project manager. Several characteristics should be considered.
Technical Competence: Team members should have the technical
competence required for the tasks to which they will be assigned.
Sensitivity: All team members should be sensitive to interpersonal
conflicts that may arise. Senior team members should be politically
sensitive to help mitigate problems with upper-level management.
Dedication: Team members should feel comfortable solving project
problems that may spill over into areas outside their immediate
expertise. They should also be dedicated to getting the project done, as
opposed to maintaining a comfortable work schedule.
2007 Pearson Education

Planning Projects
After the project is defined and organized, the team must
formulate a plan that identifies the specific work to be
accomplished and a schedule for completion. Planning projects
involves five steps:
1. Defining the work breakdown structure -- a statement of all work
that has to be completed.
2. Diagramming the network -- a graphical network
3. Developing the schedule -- specifying start times for each activity
4. Analyzing cost-time trade-offs
5. Assessing risks
2007 Pearson Education

Project Management 3
Chapter 3

Defining The Work Breakdown Structure

A Work Breakdown Structure is simply a statement of all work that has to
be completed.
Major work components are identified and then broken down into smaller
tasks by the project team.
This process may involve a hierarchy of work levels.

An Activity is the smallest unit of work effort consuming both the time and
resources that the project manager can schedule and control.
Task Ownership: Each activity must have an owner who is responsible for
doing the work.

2007 Pearson Education

A Work Breakdown Structure (three levels)

for a new business

2007 Pearson Education

2007 Pearson Education

Project Management 4
Chapter 3

Diagramming the Network

A Network Diagram visually displays the interrelated activities using
nodes (circles) and arcs (arrows) that depict the relationships between
activities.
Two network planning methods (PERT & CPM) were originally
distinctive, but today the differences are minor and will be jointly
referred to as PERT/CPM.
PERT (Program Evaluation and Review Technique) was utilized when activity
times involved risk.
CPM (Critical Path Method) was used when activity times were certain.

2007 Pearson Education

Precedence Relationships

Diagramming the project network involves establishing precedence

relationships and estimating activity times.

Precedence relationships determine a sequence for undertaking

activities, and specify that any given activity cannot start until a preceding
activity has been completed. Activity On Node approach
In the AON approach, the nodes (circles) AON
represent activities, and the arcs represent the
precedence relationships between them.
S T U

S precedes T which
2007 Pearson Education precedes U

Project Management 5
Chapter 3

St. Adolfs Hospital

Example 3.1

Immediate
Activity Description Predecessor(s) Responsibility

A Select administrative and medical staff. Johnson

B Select site and do site survey. Taylor
C Select equipment. A Adams
D Prepare final construction plans and layout. B Taylor
E Bring utilities to the site. B Burton
F Interview applicants and fill positions in A Johnson
nursing, support staff, maintenance,
and security.
G Purchase and take delivery of equipment. C Adams
H Construct the hospital. D Taylor
I Develop an information system. A Simmons
J Install the equipment. E,G,H Adams
K Train nurses and support staff. F,I,J Johnson

2007 Pearson Education

St. Adolfs Hospital

Diagramming the Network
Immediate
Predecessor
I
A
B
C A A F K
D B
E B
F A
G C Start C G Finish
H D
I A
J E,G,H
K F,I,J
B D H J

2007 Pearson Education

Project Management 6
Chapter 3

St. Adolfs Hospital

The critical path is the

longest path! I

Path Time (wks) A F K

A-I-K 33
A-F-K 28 Start C G Finish
A-C-G-J-K 67
B-D-H-J-K 69
B-E-J-K 43 B D H J

Project Expected
E
Time is 69 wks.
2007 Pearson Education

Application 3.1

2007 Pearson Education

Project Management 7
Chapter 3

Application 3.1
Solution

2007 Pearson Education

Developing the Schedule

Activity slack is the maximum length of time that an activity can be

delayed without delaying the entire project.

2007 Pearson Education

Project Management 8
Chapter 3

Project Schedule
The typical objective is to finish the project as early as possible as determined
by the critical path. The project schedule is specified by the start and finish times for
each activity. For any activity, managers can use the earliest start and finish times, the
latest start and finish times.

Earliest Start Time (ES) for an activity is the earliest finish time of the immediately
preceding activity. For activities with more than one preceding activity, ES is the latest of
the earliest finish times of the preceding activities.
Earliest Finish Time (EF) is an activitys earliest start time plus its estimated duration.
Latest Finish Time The latest finish time (LF) for an activity is the latest start time of
the activity that immediately follows. For activities with more than one activity that
immediately follow, LF is the earliest of the latest start times of those activities.
Latest Start Time (LS) is the latest finish time minus the activitys estimated duration.

2007 Pearson Education

What AON Nodes look like

Determined by the earliest finish
Slack is the difference, if any,
time of the precedent activity. If
between the earliest start and latest
there are two or more precedent
start times (or the earliest finish and
activities, this time is the same as
latest finish times).
precedent activity with the latest
Earliest Finish time. S = LS ES or S = LF EF
Slack
The earliest you can complete
an activity -- determined by
Activity
adding the activity time to the
Earliest Earliest
Start Finish
earliest start time.
This is the Latest
Latest Latest
Finish time minus Finish
Start Activity The latest you can finish an
the activity time.
Duration activity without delaying the
project completion date. It is the
same as the Latest Start time of
the next activity. If there are two
or more subsequent activities,
this time is the same as the
2007 Pearson Education
earliest of those Latest Start
2007 Pearson Education
times.

Project Management 9
Chapter 3

Earliest Start and Earliest Finish Times

12
I 27

Earliest start time

15 Earliest finish time

0 A 12 12 F 22 63 K 69
12 10 6

12
C 22 22
G 57
Start Finish
10 35

0
B 9 9
D 19 19
H 59 59
J 63

9 10 40 4

Example 3.2 9 E 33
24
2007 Pearson Education
2007 Pearson Education

Earliest Start and Earliest Finish Times

12
I 27 The Critical Path
15 takes 69 weeks

A K 69
0 12 12 F 22 63
12 10 6

12
C 22 22
G 57
Start Finish
10 35

0
B 9 9
D 19 19
H 59 59
J 63
Critical Path 9 10 40 4

Example 3.2 9 E 33
24
2007 Pearson Education
2007 Pearson Education

Project Management 10
Chapter 3

Latest Start and Latest Finish Times

12
I27
48 15 63

A
0 12 12 F 22 Latest 63 K 69 Latest
2 12 14 53
10 63 start 63 6 69
finish
time time
C
12 22 22 G 57
Start Finish
14 10 24 24 59
35

0
B 9 9
D
19 19
H 59 59
J 63
0 9 9 9 10 19 19 59 59 4 63
40

Example 3.2 9 E 33
35 24 59

2007 Pearson Education

2007 Pearson Education

Earliest start time I Earliest finish time

12 27
48 15 63 Latest finish time
Latest start time

A K
0 12 12 F 22 63 69
53 63 6 69
2 12 14 10 63

C
12 22 22 G 57
Start Finish
14 10 24 24 59
35

0
B 9 9
D
19 19
H 59 59
J 63
0 9 9 9 10 19 19 59 59 4 63
40

Example 3.2 9 E 33
35 24 59

2007 Pearson Education

2007 Pearson Education

Project Management 11
Chapter 3

Time estimation procedure

2007 Pearson Education

2007 Pearson Education

Project Management 12
Chapter 3

2007 Pearson Education

Project Schedule
A Gantt Chart is a project schedule, usually created by the project
manager using computer software, that superimposes project
activities, with their precedence relationships and estimated duration
times, on a time line.
Activity slack is useful because it highlights activities that need close attention.

Free slack is the amount of time an activitys earliest finish time can
be delayed without delaying the earliest start time of any activity that
immediately follows.
Activities on the critical path have zero slack and cannot be delayed without
delaying the project completion.

2007 Pearson Education

Project Management 13
Chapter 3

Node Duration ES LS Slack

A 12 0 2 2 Activity Slack Analysis

B 9 0 0 0
C 10 12 14 2
I
D 10 9 9 0 12 27
E 24 9 35 26 48 15 63
F 10 12 53 41
G 35 22 24 2
H 40 19 19 0 A K 69
0 12 12 F 22 63
I 15 12 48 36
J 4 59 59 0 2 12 14 53 63 63 6 69
10
K 6 63 63 0

C
12 22 22 G 57
Start Finish
14 10 24 24 59
35

0
B 9 9
D
19 19
H 59 59
J 63
0 9 9 9 10 19 19 59 59 4 63
40

Example 3.3 9 E 33
35 24 59
2007 Pearson Education
2007 Pearson Education

Analyzing Cost-Time Trade-Offs

There are always cost-time trade-offs in project management.
You can completing a project early by hiring more workers or running
extra shifts.
There are often penalties if projects extend beyond some specific date,
and a bonus may be provided for early completion.
Crashing a project means expediting some activities to reduce
overall project completion time and total project costs.

2007 Pearson Education

Project Management 14
Chapter 3

Project Costs
The total project costs are the sum of direct costs, indirect costs, and
penalty costs.
Direct costs include labor, materials, and any other costs directly
related to project activities.

Indirect costs include administration, depreciation, financial, and other

variable overhead costs that can be avoided by reducing total project
time.
The shorter the duration of the project, the lower the indirect costs will be.

2007 Pearson Education

Cost to Crash

To assess the benefit of crashing certain activities, either from a cost or a schedule
perspective, the project manager needs to know the following times and costs.
Normal time (NT) is the time necessary to complete and activity under normal
conditions.
Normal cost (NC) is the activity cost associated with the normal time.
Crash time (CT) is the shortest possible time to complete an activity.
Crash cost (CC) is the activity cost associated with the crash time.

2007 Pearson Education

Project Management 15
Chapter 3

Cost to Crash per Period

CC NC
NT CT

Crash Cost Normal Cost

The Cost to Crash per Period =
Normal Time Crash Time

2007 Pearson Education

St. Adolfs Hospital

Cost-Time Relationships in Cost Analysis

8000
Crash cost (CC)
7000
Direct cost (dollars)

Linear cost assumption

6000
Estimated costs for
5200 a 2-week reduction,
5000 from 10 weeks to
8 weeks
4000

3000 Normal cost (NC)

0 | | | | | |
5 6 7 8 9 10 11
(Crash time) (Normal time)
2007 Pearson Education
Time (weeks)

Project Management 16
Chapter 3

Assessing Risks
Risk is a measure of the probability and consequence of not
reaching a defined project goal.
A major responsibility of the project manager at the start of a
project is to develop a risk-management plan.
A Risk-Management Plan identifies the key risks to a
projects success and prescribes ways to circumvent them.

2007 Pearson Education

Project Management 17