INVENTORY MANAGEMENT  Speculative

Definitions  Lot Sizing or Cycle

 Inventory-physical resource that a firm holds in stock.  Mistakes
intent of selling it or transforming it into a more
valuable state How to Measure Inventory
 Inventory System- set of policies and controls and  Average Aggregate Inventory Value: how much of the
monitors levels of inventory company’s total assets are invested in inventory?
 Weeks of Supply  Order Timing : Reorder Point (ROP)
 Inventory Turnover (Turns) When inventory is depleted to ROP, order
replenishment of quantity EOQ
Reasons Against Inventory ROP = D X LT
Zero Inventory?  Non-value added costs D = Demand rate per period
 Reducing amounts of raw materials and purchased  Opportunity cost LT = lead time in periods
parts and subassemblies by having suppliers deliver  Complacency
them directly.  Inventory deteriorates, becomes obsolete, lost, stolen,
 Reducing the amount of works-in process by using just- etc.
in-time production.
 Reducing the amount of finished goods by shipping to Inventory Costs
markets as soon as possible.
Procurement costs Carrying costs Out-of-stock costs
Reasons for Inventories • Order processing • Capital • Lost sales cost
 Improve customer service • Shipping (opportunity) costs • Back-order cost
• Handling • Inventory risk costs Quantity Discount
 Economies of purchasing & production • Space costs
• Purchasing cost: 1. Write out the total cost equation
 Transportation savings c(x)= $100 + $5x • Inventory service
• Mfg. cost: costs 2. Solve EOQ at highest price and no discounts
 Hedge against future c(x)=$1,000 + $10x 3. If Qmin falls in a range with a lower price, recalculate EOQ
 Unplanned shocks (labor strikes, natural disasters,
assuming holding cost for that range. Call this Q2.
surges in demand, etc.) Independent Demand 4. Evaluate the total cost equation at Q2 at the next highest price
 To maintain independence of supply chain  items are finished products or parts that are shipped as break point.
end items to customers. OR Use a spreadsheet
Nature of Inventory  Forecasting plays a critical role
 Quality - inventory can be a “buffer” against poor  Due to uncertainty- extra units must be carried in Periodic Review Method
quality; conversely, low inventory levels may force high inventory  Q-system - each stock item reordered at different times
quality
- complex, no economies of scope or common
 Speed - location of inventory has gigantic effect on Dependent Demand prod./transport runs
speed  items are raw materials, component parts, or  P-system - inventory levels for multiple stock items
 Flexibility - location, level of anticipatory inventory both subassemblies that are used to produce a finished reviewed at same time - can be reordered together
have effects product.
 Cost - direct: purchasing, delivery, manufacturing  MRP systems Classifying Inventory Items : ABC Classification (Pareto Principle)
indirect: holding, stockout.
 A Items: very tight control, complete and accurate
HR systems may promote this-3 year postings Micro Issues
records, frequent review
Functional Roles of Inventory  Order Quantity : Economic Order Quantity (EOQ)  B Items: less tightly controlled, good records, regular
 Transit Q = 2DCo/Ch review
 Buffer D = annual demand  C Items: simplest controls possible, minimal records,
 Seasonal Co = ordering/setup costs large inventories, periodic review and reorder
 Decoupling Ch = cost of holding one unit of inventory

Anticipatory Inventory Control
 determine requirements by forecasting demand for the
next production run or purchase
 establish current on-hand quantities
 add appropriate safety stock based on desired stock
availability levels and uncertainty demand levels
 determine how much new production or purchase
needed (total needed - on-hand)
Response-Based System
 replenishment, production, or purchases of stock are
made only when it has been signaled that there is a
need for product downstream
 requires shorter order cycle time, often more frequent,
lower volume orders
 determine stock requirements to meet only most
immediate planning period (usually about 3 weeks)
Service Level Achieved
• Item fill rate (IFR): the probability of filling
an order for 1 item from current stock
• Weighted Average Fill Rate (WAFR): multiply
IFR for each stock item on an order weighted
by the ordering frequency for the item
JUST-IN-TIME/LEAN PRODUCTION
A repetitive production system in which the processing and
movement of materials and goods occur just as they are needed!
Pre-JIT: Traditional Mass Production
• Manufacturing planning and control
Process Design
• “Focused Factories”
• Group Technology
• Simplified layouts with little storage space
• Jidoka (Stop everything when something goes wrong- a
Tighter coordination along the supply chain
form of stopping quality problems at their source) and
Goods are pulled along- only make and ship what is needed
Poka-Yoke(failproofing: Examples are gasoline nozzles,
VCR cassettes (they are ejected if inserted incorrectly),
JIT Goals (throughout the supply chain)
inkjet cartridges, etc)
• Eliminate disruptions
• Minimum setups
• Make the system flexible
• Reduce setup times and lead times
Personnel and Organizational Elements
• Minimize inventory
• Workers as assets
• Eliminate waste
• Cross-trained workers
• Greater responsibility at lower levels
Waste
• Leaders as facilitators, not order givers
Waste is ‘anything other than the minimum amount of
• Classic Organizational View
equipment, materials, parts, space, and worker’s time, which are
absolutely essential to add value to the product.’
Forms of Waste:
• Overproduction
• Waiting time
• Transportation
• Processing
• Inventory
• Motion
• Product Defects
• JIT Organization View
Inventory as a Waste
• Requires more storage space
• Requires tracking and counting
• Increases movement activity
• Hides yield, scrap, and rework problems
• Increases risk of loss from theft, damage, obsolescence

Building Blocks of JIT

• Product design
 Standard parts
 Modular design Planning and Control Systems
 Quality • “Small” JIT
• Process design • Stable and level schedules
• Personnel and organizational elements – Mixed Model Scheduling
Post-JIT: “Lean Production”
• “Push” versus “Pull”
 – Kanban Systems (Uses simple visual signals to Objective :The degree of compliance of a process or its outcome approve, develop and implement product programs that
control production) with a predetermined set of criteria, which are presumed meet predetermined objectives.
– Examples: essential to the ultimate value it provides
 empty slot in hamburger chute • The basic premises for concurrent engineering
 empty space on floor • Formulation of a medication – all elements of a product’s life-cycle should be
 kanban card taken into careful consideration in the early
Subjective : The level of perceived value reported by the person
o Workcenter B uses parts produced by design phases
who benefits from a process or its outcome.
Workcenter A – The preceding design activities should all be
o When a container is opened by Workcenter occurring at the same time, or concurrently.
• Pain relief provided
B, its kanban card is removed and sent back • It allows for errors and redesigns to be discovered early
to Workcenter A. in the design process when the project is still in a more
Products and services
o Empty box sent back. Signal to pull another abstract stage.
• Product:-tangible items produced.
full box into Workcenter B. – Elements of a product’s life-cycle:
• Service :-refer to work done for clients or stakeholders
o How Many Kanbans? Functionality, Producibility, Assembly,
that does not result in the creation of tangible
Testability, Maintenance , Environmental
deliverables.
impact, Disposal and recycling
y = number of kanban cards
D = demand per unit of time Quality from engineering perspective
C. Value engineering (VE)
T = lead time To ensure quality, both product and process design should be
done efficiently.  is a systematic method to improve the "value" of
C = container capacity
goods or products and services by using an
X = fudge factor
Traditional engineering examination of function.
Short time to define the product  Value in VE is defined as the ratio of function to cost.
Implementing JIT
Long time to design and redesign the product  Value can therefore be increased by either improving
 Long overall design time the function or reducing the cost.
Function :- What something does not what something is
Key to shorten the overall design time – Began at General Electric Company during
• define the product better World War II.
• document the design process better – Problem
 Shorter overall design time • Shortage of skilled labor, raw
Putting the Squeeze on Resources materials and component parts
A. Traditional Product Development Cycle (PDCA) – Solution
• PLAN :- Design or revise business process components • Suitable replacements for skilled
to improve results. labor, raw material and components
• DO :- Implement the new processes. – Results achieved
• CHECK :- Measure the results of the new processes and • Reduced costs and/or improved
compare the results against the expected results to product quality
Function ( s)
ascertain any differences. Value 
• ACT :- Analyze the differences to determine their cause. Cost
INTRODUCTION TO QUALITY
Quality is a dynamic state associated with products, services, Decide where to apply changes.
DEFINITIONS OF QUALITY
people, environment, process that meets or exceeds customer General
expectation B. Concurrent Engineering
– No single definition
is a product development process in which appropriate
ISO 9000
Quality measurement disciplines are committed to work interactively to conceive,
 – ISO = the International Organization for
Standardization
– ISO 9000 = Set of standards for quality
management
– Quality should be defined relative to a set of
requirements
Joseph M. Juran
– Fitness for use where fitness is always defined
by the customer
Frederick Smith
– Performance to the standard expected by the
customer
– To the customer this means “ best value for
money”
– Example FEDEX
Attributes of Product Quality
(Garvin (1984) from Harvard University)
1. Performance - product's primary operating characteristics.
2. Features -Extra items added to the performance which
supplement their basic functioning
3. Reliability -The probability a product functions over time
(Measure of reliability: mean time to first failure)
4. Conformance-Conformance is the degree to which a product's
design and operating characteristics meet established standards.
5. Durability -It is a measure of product life. Lifespan before
replacement.
6. Serviceability-Serviceability is the speed, competence, and ease
of repair.
7. Aesthetics-How a product looks, feels, sounds, tastes, or smells, quality into the product in the first place.
etc. (It is a subjective dimension of quality)
8. Perceived Quality -Subjective perceptions based on brand
names, advertising, etc.
Attributes of Service Quality
1. Tangibles - physical elements of the service such as
facilities and equipment.
2. Service Reliability - dependability, accurate performance introduce variation.
3. Responsiveness - the willingness to help customers and 7. Improve leadership :-Deming makes a distinction between
provide prompt service.
4. Assurance - the ability to inspire trust and confidence
5. Empathy - the degree to which customers are treated
as individuals.
6. Availability :- services are easily accessible or obtainable organization's best interests.
7. Professionalism :- the skill, competence, or character
expected of a professional
8. Timeliness :- customers waiting time, completed on
time
9. Completeness :- customer get all they asked for
10. Pleasantness :- whether the service brings feelings of
pleasure, enjoyment, or satisfaction
QUALITY THEORIES AND TOOLS
William Edwards Demming
 Deming is perhaps the best-known quality pioneer.
 His approach to quality was statistically based,
 Early in his career, he worked at Western Electric’s,
 During World War II, he worked with U.S. defense
industries to improve the quality of military items
through statistical processes.
 After World War II, Deming went to Japan under
government sponsorship to assist with a population
census
W Edwards Deming 14 points for Management:
1. Create constancy of purpose towards improvement. Replace
short-term reaction with long-term planning.
2. Adopt the new philosophy :-The implication is that
management should actually adopt his philosophy, rather than
merely expect the workforce to do so.
3. Cease dependence on inspection to achieve quality. Build
4. End awarding business on the basis price tag. Move towards a
single supplier for any one item. Multiple suppliers mean variation
between feedstocks.
5. Constantly improve the system :-Constantly strive to reduce
variation.
6. Institute training on the job :-If people are inadequately
trained, they will not all work the same way, and this will
leadership and mere supervision. The latter is quota- and target-
based.
8.Drive out fear :- Management by fear is counter- productive in
the long term, because it prevents workers from acting in the
9. Break down barriers between departments :-the concept of the
'internal customer', that each department serves not the
management, but the other departments that use its outputs.
10. Eliminate slogan :- Eliminate exhortations for the workforce;
Instead, focus on the system morale.
11. Eliminate work standards :- Eliminate quotas for production. It
encourages delivery of poor-quality goods.
12. Remove barriers to pride :- Remove barriers that rob people of
pride of workmanship
13. Institute education and self-improvement
14. Put everybody to work :- Include every one in the company to
accomplish the transformation.
Deming deadly disease
1. Lack of constancy of purpose
2. Emphasis on short-term profits
3. Evaluation of performance, merit rating or annual
review
4. Mobility of management
5. Running a company on visible figures alone
6. Excessive medical costs for employee health care
7. Excessive costs of warrantees
Joseph M Juran
• Based on three processes.
• Control versus breakthrough
• Project-by-project improvement
* Pareto Law identified by Juran
* Pareto Law was named according to
Italian economist Vilfredo Pareto
• Philosophy: ‘Quality does not happen by accident, it has
to be planned.’
• The emphasis of his work is on
– planning
– organizational issues
– management’s responsibility for quality
– the need to set goals and targets for improvement
• ‘Management controllable defects account for over 80%
of the total quality problems’.
• Juran’s beliefs on quality can be derived from:
– management is largely responsible for quality
– quality cannot be consistently improved unless the
improvement is planned.
– planned improvement must be specific and
measurable
• He defines quality as ‘fitness for use or purpose’
– It is suggested that this definition is better than
conformance to specification’, since a dangerous product
could conform to all specifications but still be unfit for use.
1. Quality planning
– Identify who the customers are
– Determine the needs of those customers
– Translate those needs into our language
– Develop a product that can respond to those needs
– Optimize the product features so as to meet our needs
and customer need
2. Quality control
– Prove that the process can produce the product under
operating conditions with minimal inspection
– Transfer the process to Operations.
3. Quality improvement
– Develop a process which is able to produce the product
– Optimize the process
Pareto Principle
– is suggested by Juran and he named it after Italian
economist Vilfredo Pareto
– It states that, for many events, roughly 80% of the
effects comes from 20% of the causes
– It is first observed by the Italian economist • Assertions
Vilfredo Pareto that 80% of the land in Milan was – “Quality begins with education and ends with education”
owned by 20% of the population. – “The first step in quality is to know the requirements of
• The Pareto Principle p helps you realize that the the customer”
majority of results come from a minority of inputs – “The ideal state of quality control is when inspections is
no longer necessary”
A Pareto chart is a type of chart that contains both bars and – “95% of problems in a company can be solved by the 7
a line graph, where individual values are represented in tools of quality(data analysis tools):
descending order by bars, and the cumulative total is • Histograms, Pareto Charts, Cause and Effect Diagrams,
represented by the line Run Charts, Scatter Diagrams, Flow Charts/Process
• It is used to identify the vital factors that are causing Maps, Control Charts
most of the quality problems
• Concentrating improvement efforts on these few will Armand Feigenbaum
have a greater impact and be more cost effective than Wrote a TQC book and proposed a three step
process for quality improvement:
undirected efforts.
1 - Quality leadership
2- Quality technology
Koura Ishikawa
3- Organizational commitment
* Basic tool of quality
For quality improvement he outlined 19 steps
1. Quality begins with education and ends with education
of TQC with emphasis on organizational involvement.
2. The first step in quality is to know the requirements of the
customer
3. The ideal state of quality control is when inspections is no
• an American quality control expert and businessman
longer necessary • He originated the approach to quality known as Total
4. Remove the root causes, not the symptoms Quality Control (TQC)
5. Quality control is the responsibility of all workers and all • Philosophy
divisions For quality improvement
6. Do not confuse the means with the objectives – all functions in an organization should be involved in the
7. Put quality first and set your sights on long-term objectives quality process
8. Marketing is the entrance and exit of quality
– quality should be built into the product rather than
9. Top management must not show anger when facts are
failure being inspected out.
presented to subordinates
10. 95% of the problems in a company can be solved by the 7
tools of quality The overall method of Feigenbaum can be reduced to four
11. Data without dispersion information are false data. steps process
1. Set quality standards
• Commenced his career as a chemist, held a doctorate in 2. Appraise conformance to standards
engineering and was an emeritus professor at Tokyo 3. Act when standards are not met
University. 4. Plan to make improvements
• Believed that, “firms must make everyone responsible for
statistical analysis and interpretation” to be successful Philip Crosby
• Described by some as the ‘Father of Quality Circles’ and • Focuses on customer satisfaction as a measure of quality
as a founder of the Japanese quality movement control
• Zero Defect (ZD) = ““Do it right first time Do time””
• Also introduced 14 steps to improve quality, among
these:
– Make it clear management is committed to Q
– Form Q improvement teams with representatives from
each department
– Raise Q awareness among all staff
• Identify the problem
• Brain storm the causes of the problem
• Classify the causes by common factors into categories
• Use the fishbone diagram to illustrate the cause and
effect

Q improvement through Crosby’s 14 steps

1. Make it clear that management is committed to Q Two distinct processes with different centers.
2. From Q improvement teams with representatives from Identify between the two processes.
each department
3. Determine how to measure where current and potential
Q problem lie
4. Evaluate the cost of Q and explain it use as a
management Tool Histogram
5. Raise the Q awareness & personal concern of all
employees
6. Take formal actions to correct problems identified
through various steps
7. Establish a committee for zero defect program
8. Trains all employees to actively carry out their part of the
Process is ill defined
Q improvements
9. Hold a zero‐defect day to let all employees realize that
Run Chart
there has been a change
• Run charts display process performance over time
10. Encourage individuals to establish improvement goals
• It is easy to spot upward and downward trends, cycle,
for themselves and their groups
etc. easily using run charts
11. Establish a committee for zero defect program
• Run chats can also be used to track improvements that
12. Trains all employees to actively carry out their part of
have been put into place
the Q improvements
• An average line can be added to a run chart to observe
13. Establish quality councils to communicate on a regular
movement of data away from the average
basis.
14. Do it all over again.
Scatter plot
• Scatter plot is used to investigate a possible relationship
Fishbone Diagram
between two variables that relate to the same event
– It is a graphical technique for grouping ideas about
• A straight line of best fit is often included
the causes of a given quality problem
• Scatter plots can be used to determine the type of
– It helps to identify both the primary and secondary
relationships that occur in a process
causes of a problem
– Positive correlation
– Procedure for developing the fishbone diagram:
– Negative correlation
Flow chart
• Graphical representation of a process
• Steps in a process are shown with symbolic shapes and
the flow of the process is indicated with arrows connecting
the symbols.
• Flowcharts can help
– See whether steps of a process are logical
– Uncover miscommunication ( process problems)
– define boundaries of a process
– Develop common base knowledge about a process
Control Chart
• Control charts are used to identify “common‐cause” and
“special‐cause” variations in a process
• "common‐cause" is the usual, historical, quantifiable
variation in a system
• "special‐causes" are unusual, not previously observed,
non‐quantifiable variation.
• All control chart types have three basic components
– A centerline , usually the average of all the samples
plotted
– Upper and lower statistical control limits that define the
constraints of common cause variations
– Performance data plotted over time
• The basic rule of statistical process control is:
Variation from common‐cause systems should be left to
chance, but special causes of variation should be identified
and eliminated.
• Special causes can be identified using tests such as:
– Data point falling outside the control limit
– steadily increasing or decreasing data points
– Several data points in one side of the center line
– Fourteen or more points alternating up and down
Six Sigma
• Six Sigma is a business management strategy originally
developed by Motorola, it is used in many sectors of
industry.
• Six Sigma seeks to improve the quality of process outputs – Disseminate innovation
by identifying and removing the causes of defects and – Safeguard consumers and users in general, of products
minimizing variations using quality management tools. and services
• Sigma rating is used to measure the defect rate of a – Make life simpler by providing solutions to common
manufacturing process problems
• A six‐sigma process is one in which 99.99966% of the
products manufactured are statistically expected to be free In Malaysia, the department of standards Malaysia (DSM) is
of defects (3.4 defects per million). mandated by the y government of Malaysia to function as
the National Standards Body (NSB) as well as National
Accreditation Body (NAB)
The Main Objectives of DSM are:
– To promulgate, develop and promote national standards
– To manage the national accreditation schemes in
accordance to the international practices
– To maintain credibility, integrity and competency of the
national standardization and accreditation system
– To safeguard the interest of Malaysia at a regional and
international levels in the fields of standardization and
accreditation.
ISO Certification
Global Competitiveness
ISO 9000 is a family of standards developed to provide a
The Global Outlook
framework around which a quality management system
• Better quality products and services will ensure higher
can be effectively implemented.
recognitions in terms of global competitiveness
• ISO 9001:2000, the requirement standard, includes the
• International trade known no boundary but subject to
following main sections:
customers choice and demand plus other factors like
– Quality Management System
political matter. All of us are customers
– Management Responsibility
• “Global competition is played out by different rules and
– Resource Management
different stakes at each level” C.K. Prahalad and Gary
– Product Realization
Hamel
– Measurement Analysis and Improvement
• Customers groups set their own quality of product that
meet their need
Some Advantages of ISO certification
• Customers in Europe and in Asia request different quality
– Ensure that the development, manufacturing and supply
and different specification
of products and services are becoming more efficient, safer
• According to World Economic Forum (WEF) (2009),
and cleaner.
competitiveness can be defined as the set of institutions,
– Facilitate trade between countries and make it fairer
policies and factors that determine the level of productivity
– Provide governments with a technical base for health
of a country
safety and environmental legislation
• The twelve pillars of competitiveness
– Share technological advances and good management
practice
Inhibitors to Competitiveness
• Business/government related ‐7 deadly diseases by
Deming
• Education‐related factor –the higher the education the
faster they become productive employees
• Family‐related factor ‐the more motivated and
knowledgeable they are, the faster they learn and become
productive employees
Design for quality
• Requires answer to set of questions :
– What are the functions customer wants?
– What are the capabilities of current products?
– Are there better material available?
– How much the product cost for successful marketplace?
– What are critical attribute of performance?
– How much performance does customer want?
Design for Quality Products and Services
Design process
Design engineer need to brainstorm to generate ideas:
- e.g. marketing, management, R&D and employee
and customers
Projection of customers future needs
- Intel producing microprocessors to fit the explosion of
graphic programs on the net at a faster rate than the
competing microprocessor developer
Quality Functions Deployment
• Quality function deployment (QFD) is a planning tool used – Decreases midstream design changes
to fulfill customer expectations. It is a disciplined approach – Limits post introduction problems
to product design, engineering, and production and
provides in depth evaluation of a product.
• QFD focuses on customer expectations or requirements, •Promotes Teamwork
often referred to as the voice of the customer.
• It is employed to translate customer expectations, in
terms of engineering or technical characteristics, that can
deployed through:
– Product planning
– Part development
– Process planning – Is easy to assimilate
– Production planning – Adds structure to the information
– Service industries – Adapts to changes (a living document)
• When an organization decides to implement QFD, the – Provides framework for sensitivity analysis
project manager and team members need to be able to
commit a significant amount of time to it, especially in the Organization of Information
early stages. • Now, the customer expectations and needs have been
• There are two types of teams: identified and researched, the QFD team needs to process
– Designing a new product the information.
– Improving an existing product • Methods include:
• Time and inter‐team communication are two very – Affinity diagrams
important things that each team must use to their fullest – Interrelationship diagrams
potential – Tree diagrams
• Team meetings are very important in the QFD process. – Cause‐and‐effect diagrams
– The team leader needs to ensure that the meetings are • An Affinity Diagram should be used when:
run in the most efficient manner and that the members are – Thoughts are too widely dispersed or numerous to
kept informed. organize.
– Duration of the meeting will rely on where the team’s – New solutions are needed to circumvent the more
members are coming from and what needs to be traditional ways of problems solving.
accomplished. – Support for a solution is essential for successful
implementation.
Benefits of QFD • Constructing an affinity diagram requires four simple
•Improves Customer Satisfaction steps:
– Creates focus on customer requirements 1. Phrase the objective.
– Uses competitive information effectively 2. Record all responses
– Prioritizes resources 3. Group the responses
– Identifies items that can be acted upon 4. Organize groups in an affinity diagram
– Structures resident experience/information
•Reduces Implementation Time Conclusion
• QFD
– Effective management tool
– Avoids future application opportunities – Customer expectations are used to drive design process
– Surfaces missing assumptions or to drive improvement in service industries
– Based on consensus Advantages & Benefits
– Creates communication at interfaces • Orderly way of obtaining information & presenting it
– Identifies actions at interfaces • Shorter product development cycle
– Creates global view out of details • Considerably reduced start‐up costs
•Provides Documentation • Fewer engineering changes
– Documents rationale for design • Reduced chance of oversights during design process
• Environment of teamwork - Mechanism e.g : Hand-over Document, Defects List, Defects  Acting to bring expected cost overruns within
• Consensus decisions Liability/ Guarantee Period, Performance Bond, As-built Drawings acceptable limits
• Everything is preserved in writing
3.2 Control During Construction/Production
• Entire organization constantly aware of customer
 Control during this stage is most important
requirements
 Two types of control
• Marketing—specific sales points have been identified and  Time (Schedule) Control and
can be stressed  Cost Control
• Results in satisfied customers
Time or Schedule Control is concerned with
PROJECT CONTROL AND TERMINATION  Determining the current status of the project schedule
 Determining if the project schedule has changed
Control Definition  Influencing the factors that create schedule changes
 Measuring what is actually achieved in a project with  Managing the actual changes as they occur
regard to the OBJECTIVES (t, c, q), comparing it with a
“baseline” (referenced/original) performance and
monitoring and taking corrective measures should there
be unacceptable deviation from the baseline 3.3 Earn Value and S-Curve
 Or simply ”tracking, monitoring and steering” a project  Earn value analysis compares the cost value of work
so that the objectives will be met done with the value of work that should have been
done (i.e. the base-line)
3.1 Control systems throughout the project  Value of work done comprises of:
 Control systems / mechanisms must be provided at each  Indirect costs
stage of the project  Cost of materials delivered on sit
 Defining or Initiation Stage  Cost of actual physical work on site
- Needed for understanding of the business environment &  Earn value can also be presented in the form
making sure all necessary controls are incorporated into the of S-curve –simpler and more widely used
Project Time or Schedule Control: Progress Monitoring Using  S-curve examines and compares the value of work done
- Mechanism e.g. : Cos Benefit Analysis; Budget ; Project Comparison Bar Charts with the actual value or progress – in terms of time
Charter (wrt cost, time and quality)  Assume the progress of the activity as a direct linear (delays) or amount (over or under-achievement)
 Planning and Design Stage function of the elapsed time
- To ensure that the final product will satisfy the client and meet  Example: Road construction Important Terms
the specifications of the Project Charter • Time-now is the date when progress is measured
- Mechanism e.g. Benchmarking using models or prototypes or Cost Control • Budget at Completion (BAC) is the original cost estimate
mock structure  Influencing the factors that create changes to the cost indicating the funds required to complete work
 Execution (Construction / production) stage baseline • Percentage Complete (PC) (planned) is the planned
- To ensure all ‘Plans” are being executed and strictly followed  Recording and monitoring cost performance to detect work progress up to time-now
(Schedule Plan, Cost Plan, Quality Plan) and understand changes from the cost baseline • Percentage Complete (PC) (actual) is the actual work
- Mechanism e.g. Time control (Schedule Baseline, Progress  Assuring that potential cost overruns do not exceed the progress up to time-now
Comparison Bar Charts, Re-scheduling/ Updates, etc.); Cost authorized funding periodically and in total for the • Earned Value (EV) is the budgeted cost of work actually
control (Earn Value and S-curve); Resource leveling, Quality project. completed on that point of time (based on budgeted
Control Tests  Informing appropriate stakeholders of approved rates).
 Delivering stage changes EV = PC(actual) x BAC eg 25% x RM 2,500,000 =RM 625,000
- To check the efficiency or quality of the product delivered
 • Planned Value (PV) is the portion of cost of work  leveled i.e. distributed accordingly at the
planned to have been spent between start date and required time to avoid or minimize
time-now fluctuations in day-to-day use.
PV = PC (planned) x BAC  Resource Leveling (RL) makes use of “floats” or time
• Actual Cost (AC) is the total actual cost incurred tolerances in the schedule to re-schedule resources and
between the start date and time-now bring back any deviation of actual progress from
schedule to within acceptable limits
 RL applies to resources which are hired i.e. labour and
equipment as the need for these resources fluctuates
greatly as some activities start (requiring resources)
while other finish (releasing resources)
 RL improves efficiency and minimize project cost (by
optimizing labour usage and cost)
STEPS:
 Determine critical path and floats from network or other
techniques
 Identify key resource and produce bar chart using network
data
 Plot histogram of resource demand
 Reschedule timing of activities using float to obtain a more
even demand profile
 Redraw the resource profile
completed, or some repair work which, if carried out,
will not cause inconvenience to the user or occupier.
 The control mechanism used is “Certificate of Practical
Completion” issued to the contractor, together with a
list of outstanding works and defects observed in
project to be carried out or made good during a
“Defects Liability Period”
 DLP is a guarantee period during which the contractor
has to complete any outstanding works or carry out
repairs to any defects in the completed facility, failing
which the Performance Bond will be forfeited.
 Upon completion of the the project, a Handing Over
Document is prepared and signed by the client.This
starts the handing over of responsibility to the client for
the whole project.

S CURVE:
3.5 Control in Project Termination
 The Project Manager will continuously monitor, control
and manage the project to ensure the good progress.
 But if PM finds the performance is very unsatisfactory
and/or contractor is no longer capable of continuing the
project, then PM may recommend to S.O. Termination
of the project. Performance Bond of the contract will
also be forfeited.
 The procedure for issuing notice of termination must
follow conditions of contract e.g. adequate time given
for contractor to improve performance and adequate
notice or warning letters given to terminate the
contract.

3.6 Control in Project Completion and Handing Over

 If then project has been successfully completed, then
3.4 Resource Allocation and Leveling
PM must certify this
 Resources of a project need to be
 In construction projects, completion refers to ”Practical
 scheduled i.e. right amount of resources must
Completion” - a stage where the project constructed
be allocated to a given task at the required
has achieved its intended function, or can be occupied
time
or used despite some outstanding work to be