Project Management

By:- Kumar Ratnesh

CHAPTER-1

Concept of Project
A project is a temporary endeavor undertaken to create a unique product or service. It implies
a specific timeframe a budget unique specifications working across organizational boundaries

Project Management
Project management is about creating an environment conducive to getting critical projects done! Project management is about changing peoples behavior

Why Project Management?

Todays complex environments require ongoing implementations Project management is a method and mindseta disciplined approach to managing chaos Project management provides a framework for working amidst persistent change

Why Projects Fail

Failure to align project with organizational objectives Poor scope Unrealistic expectations Lack of executive sponsorship Lack of project management Inability to move beyond individual and personality conflicts Politics

Why Projects Succeed!

Project Sponsorship at executive level Good project charter Strong project management The right mix of team players Good decision making structure Good communication Team members are working toward common goals

Why this matters to YOU

Most of us get to where we are by some technical or specific set of skills If you want to get things done, you need a good blend of
Business knowledge People management Knowledge of organizational politics AND an area of technical expertise

Those are the people that make things happen!

What is Project
Objective Activities Outputs Duration BudgetInput) Resources (Input)
An undertaking for the purpose of achieving established objectives, within a given budget and time period.

CONCEPT
The dictionary meaning of project is speculative meaning . It deal with three dimensions :-innovation , risk , and vision. Gilliner:- defines it as the whole complex of activities involved in using recourses to gain benefits.

CHARACTERISTICS OF A PROJECT
Investment pattern Expected result Time limit Location

PROJECT MANAGEMENT
Project management is the modern context is a highly sophisticated and fast developing concept and practice. It has been defined as The process of planning directing a project from its inception to its completion in a given cost to generate a given results.

PHASES OF PROJECT MANAGEMENT

Identification Formulation Appraisal Selection Implementation Management

ROJECT CLASSIFICATION
Quantitative & non-quantitative project Sectoral project Techno- Economic project Financial institution classification

CHAPTER-2

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PROJECT IDENTIFICATION
It is concerned with the collection, completion and analysis of economic data for the eventual purpose of locating possible opportunity for investment and with the development of the characteristics of such opportunity.

CONSTRAINTS IN PROJECT IDENTIFICATION

Internal constraints External constraints

TECHNIQUES OF PROJECT IDENTIFICATION

Desk research Techno-Economic survey

CRITERIA FOR PROJECT SELECTION

Investment size Location Technology Equipment Marketing

STAGES OF PROJECT FORMULATION

Feasibility Analysis Techno-economic analysis Project design and network analysis Input analysis Financial analysis Pre-investment analysis

PROJECT FEASIBILITY
The methods are as follows:Economic analysis Financial analysis Market analysis Technical assessment Managerial competence

TOOLS OF PROJECT APPRAISAL

Financial appraisal Economic appraisal Technological appraisal Socio-economic appraisal Managerial appraisal

What is Project Cycle ?

Project identification Project formation Appraisal Implementation Monitoring Plan revision Evaluation Feedback

Project Cycle Management

Evaluation
PDM

Planning

Implementation

Do

See

We are in this stage.

Plan

Do
Plan

See

Do
Plan

See

Project Design MatrixPDM

Narrative Objectively Summary Verifiable Indicators Overall Goal Project Purpose Outputs
Activities Inputs
Pre-conditions

Means of Important Verification Assumptions

PDM Vertical Logic

Project Purpose
Objectives that the project should achieve within the project duration

Overall Goal
Direction that the project should take next

Outputs
Strategies for achieving the Project Purpose

Activities
Specific actions taken to produce Outputs

Important Assumptions
Conditions important for project success, but that cannot be controlled by the projects. Whether these conditions develop or not is uncertain.

PDM Horizontal Logic

Objectively Verifiable Indicators
Standards for measuring project achievement.

Means of Verification
Data sources from which indicators are derived.

Inputs
Personnel, materials, equipments, facilities and funds required by the project.

Preconditions
Conditions that must be fulfilled before a project gets underway

Characteristics of PCM
Participatory Approach

Logicality

Transparency

Consistency

ProblemSolving

Development of PCM Method

Late 1960s Early 1980s Logical Framework (USAID) ZOOP (GTZ)
International Agencies introduce the Logframe

Objectives-Oriented Project Planning European countries adapt the ZOPP

Early 1990s

PCM(FASID)

JICA begins full-scale introduction of the PCM

Participants in the Workshop

Moderator

Recipient country implementing agency Recipient country government al agency

Other organization

Resident of the community

Expert in a related issue

Personnel of the donor agency

PCM Workshop
Analyzing step by step

Consensus

Cards &Board

Moderator

Working as a team
Brainstorming

Visualizing ideas

8 Rules
1. 2. 3. 4. 5. Write down your own statement on a card. Write only one idea on a card. Make your statement specific. Express your statement in a concise sentence. Stick to the facts and avoid abstractions and generalizations. 6. Make it a rule to write cards before beginning discussions. 7. Do not remove a card from the board before a consensus is obtained. 8. Do not ask who wrote a particular card.

7 Steps in PP
Analysis Stage Stakeholders Analysis Problems Analysis Objectives Analysis

We are practicing by this stage.

Project Selection Planning Stage

PDM

Appraisal

Plan of Operation

STEP1 Stakeholders Analysis

Identify the issues, problems, and current conditions of the target area through analyzing the area and local residents targeted for assistance, related groups, related organizations and agencies. Focus on people and organization.

Tentatively select a target group.

STEP2 Problems Analysis

Problems Analysis visually represents the causes and effects of existing problems in the project area, in the form of a Problem Tree. It clarifies the relationships among the identified problems.

STEP3 Objectives Analysis

Objective Analysis clarifies the means-ends relationship between the desirable situation that would be attained one problems have been solved and the solution for attaining it. This stage also requires an Objective Tree.

STEP4 Project Selection

Project Selection is a process in which specific project strategies are selected from among the objectives and means raised in Objectives Analysis, based upon selection criteria.

STEP5 Formation of the PDM

The project design Matrix (PDM) is formed through elaborating the major project components and plans based on the approach selected. The format of PDM is similar to that of the Logical Framework, and therefore can be commonly used worldwide.

STEP6 PDM Appraisal

The PDM Appraisal is conducted by an aid agency to ensure the project plan. It is composed of the following stage: (1) Examination of the details of the PDM elements; (2) review of the PDM formation process; (3) examination from the perspective of the five evaluation criteria.

STEP7 Plan of Operations

The Plan of Operation is prepared by the project implementers, based on the PDM and other information. It is an effective tool for project implementation and management, and provides important data for monitoring and evaluation of the project.

Rules for Writing Problems

1. Write in a Sentence. Make Clear Subject and Object. 2. Avoid No Solution. 3. Avoid Generalization. Be Specific. 4. Dont Write a Cause and Effect in One Card. 5. Be Specific Whose problem.

Example: Format of Plan of Operation

Activities Expected Results Schedule Person in Charge Implementer Materials and Equipment Cost Remarks

1-1 1-1-1 1-1-2

2-1 2-1-1 2-1-2

Monitoring and Evaluation

The Five Evaluation Criteria 1. Efficiency 2. Effectiveness 3. Impact 4. Relevance 5. Sustainability

 Efficiency
The productivity in project implementation. The degree to which Inputs have been converted into Outputs.

Effectiveness
The degree to which the Project Purpose has been achieved by the project Outputs.

Impact
Positive and negative changes produced, directly or indirectly, as a result of the Implementation of the project.

Relevance
The validity of the Overall Goal and Project Purpose at the evaluation stage.

Sustainability
The durability of the benefits an and development effects produced by the project after its completion.

Laws of Project Management

No major project is ever installed on time, within budget, or with the same staff that started it. Yours will not be the first. Projects progress quickly until they become 90% complete, then they remain at 90% complete forever. When things are going well, something will go wrong. When things just cannot get any worse, they will.

 When things appear to be going better, you have overlooked something. No system is ever completely debugged. Attempts to debug a system inevitably introduce new bugs that are even harder to find. A carelessly planned project will take three times longer to complete than expected A carefully planned project will take only twice as long. Project teams detest progress reporting because it vividly manifests their lack of progress.

Core Project Management Tools

Project Charter Work Breakdown Structure (WBS) Project Schedule Project Budget

Project Charter
What must be done?
What are the required resources? What are the constraints? What are the short and long term implications?

Why do it? When must it be done? Where must it be done? Who does what?
Who is behind the project? Who is funding the project? Who is performing the work of the project?

Project Charter
Project Goal & Objective Sponsor Stakeholders Timeline Resources required Deliverables Decision making Assumptions Risks Business process changes Project manager Project team Budget Signatures

Assumptions
Opportunity to put it all out there
Challenges facing the project Implications Organizational history Political implications Impact to traditional power Requirements of decision-making

Write down what cannot be said

Keep it objective

Project Schedule Tools

Many tools available
Microsoft Project Many more specialized softwar Excel

Most important
Monitor tasks Gantt views of project
one page views for executives rollout and more complex views for work teams

Critical Paths Inputs from multiple teams that roll up to project manager Dependencies Resources assigned to tasks

Project Budget
Direct Costs Indirect Costs Ongoing costs

Project Budget
Year 1 Year 2 Year 3

Direct Costs
Hardware Software Contractor fees
Estimated hours Hourly Rates per contractor Various contractor rates

Indirect Costs
Your peoples time and effort
Estimated time on project Estimated cost based on hourly rate Others time and effort Opportunity cost What projects or tasks are NOT going to get done in order to get this project done?

Training Fanfare Other TOTALS

Managing the Project

Triple Constraint Five Stages Project Manager Role Decision Making Structure Communication Plan Meeting Management Team Development Navigating Organizational Politics

Five Stages of Project Management

Project Management (in our industry) is divided into five parts: 1.Project charter development 2.RFP Development and Process 3.Planning & Design
Project team creation Project kick-off Planning (WBS, schedule) Budget

4.Implementation/construction 5.Project termination, hand-off to operations mgt.

Project Managers Role

Lead

Communicate
Define Plan Monitor Complete

Communicate
Re-Plan

Project Managers Role

Leadership Organization Communication Finance Technical savvy Politicking Team building Praising Punishing

Traditional Organization
President VP Academics VP Student Affairs VP Finance VP Development

Project Management is Change

Project methodology is really about managing change
Change in current practices Developing new practices Getting people to change their behaviors
How they do their work How they work together How they get the work of the project done Avoidance of paving the cowpaths

PM is a mindset, a discipline, that can help your organization increase effectiveness and put order to chaos

Limitations of Project Management

PM works when there is buy-in for the methods and process It does not work when
buy-in is lacking or there is not support for the methods by executives end arounds are tolerated influential players operate project business outside the project decisions made by project teams are not supported charters, schedules and other work products of the team are not supported

Project Portfolio Management

More common in disciplined IT organizations Manages projects that are
Proposed Approved In progress

Requires organizational buy-in

Project Finance

How is most corporate investment organized?

In corporations
Debt is usually recourse to entire organizations assets Leverage is usually modest (obvious exceptions)

What is project finance?

Refers to a wide range of financing structures. These financing structures usually have one thing in common --- the financing is not primarily dependent on the credit support (credit quality) of the sponsors or the value of the assets involved. Instead, debtholders (banks, public lenders) place a substantial degree of reliance on the performance (I.e., cash flows) of the project itself Non-recourse (or at least limited resource) financing Project finance is both a financial structure and a corporate governance structure aimed at resolving capital market imperfections and efficiently allocating risk.

What types of projects?

Somewhat arbitrary, but
Single purpose capital investment Stand alone entity Finite and long life Large in size

Project finance versus conventional financing

Modigliani Miller still holds if its assumptions are true
if there were no taxes or transactions costs no costs of financial distress no agency conflicts no information costs THEN PROJECT FINANCE WOULD ADD NO VALUE RELATIVE TO CONV. FIN.

Project finance is very costly

Transactions costs very large Contracts: very complex organizational structure, not much flexibility Long negotiations, long time to close Fees (0.6% of deal size, similar to M&A) DISADVANTAGE RELATIVE TO CONVENTIONAL FINANCE

Costs of distress/bankruptcy
Risk of default and allocation of this risk very different than conventional debt Less risk contamination with other parts of firm Less co-insurance benefit Rearranges states in which default occurs Trade-off, clearly

Agency costs
High leverage, dedicated cash flows, very specific contractual terms for repayment and contingencies
May limit opportunities for risk shifting May limit cross subsidization incentives May replace managerial incentives of a publicsector project with a for-profit venture, contracts used to enhance incentives

May improve economics

MM theorem assumes the investment is fixed
It may be that the investment itself is improved by the structure
Walt Disney got huge tax and governmental relief by setting up EuroDisney as a project structure rather than owning outright

Tax, govt. reg.s may be reduced

Outside guarantees
Project finance is usually high leverage and non recourse to project sponsors
even with its possible benefits, this usually leads to high risk debt, which is often illiquid, costly and sometimes simply not available

Often a guarantee or credit support is offered by

Governments/international agency (IFC/World Bank)/Sponsors/etc.

Different contractual relationships

Contracts needed:
Management/shareholder agency relationship Intercorporate agency relationship Government/corporate agency relationship Bondholder stockholder relationship

Definition of the organization (corporation) is a nexus of these contracts

CHAPTER-3

74

PROJECT APPRAISAL
INTRODUCTION PROJECT APPRAISAL:
1. Technique to analyse if the project is feasible or not. 2. It helps in recognizing needs and problems, and their early analysis 3. A tool for decision making 4. Identifying input, output parameters and criteria for evaluating systems. 5. Evaluating feasibility in terms of technical, financial and economic practicability. 6. Developing and implementation of system so designed in terms of - Engg. Calculations
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Specification of finalization Production, manufacturing Installation and commissioning

SALIENT ASPECTS OF PROJECT APPRAISAL

a. Need - New or improved b. Realisability - Cost/benefit terms c. Practicability - Technically, Financially economically viable. d. Optimality: Project to be best alternative e. Uncertainty : Probability of risk and cost of information to achieve greater certainty f. Controllability - Needs a feed back loop to review update and keep system on rough track.
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Feasibility Study:
It involved creating, identifying, brain storming feasibility of ideas and then selecting to prove further one or more feasible solutions. - Then prilimary design, optimal design (best alternatives) - Detailed design (a complete description of projects for its implimentation. - Lastly planning for production:

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Preliminary Practical Analysis

Feasibility Study: A Schematic Diagram

Generation of Ideas Initial Screening

Is the Idea Prima Facie Promising ?

Yes
Plan Feasibility Analysis

No

Terminate

Conduct Market Analysis

Conduct Technical Analysis Basic and functional feasibliity

Conduct Financial Analysis Risk./ Return

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Conduct Economic and Ecological Analysis Social & Political Realisability

Is the Project Worthwhile?

Prepare Funding Proposal

Yes

NO

Terminate

Including optimality and controllability

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Key issues in Project Analysis Potential Market Market Analysis Market Share Technical Viability Technical Analysis Sensible Choices Risk Financial Analysis Return Benefits and Costs in Shadow Prices Economic Analysis Other Impacts Environmental Damage Ecological Analysis Restoration Measure 80

Feasibility Study has following sequence of events (Parts) Need Analysis: Define objectives of the projects. New or improves. Project Identification: Quantifies input, output, design parameters.

a. Project Inputs: (i) Purposeful Controllable - Uncontrollable Controllable: Man hours, Capital Inflow, Activity Analysis: Uncontrollable: Cost of Raw Material, Reliability of Technology, Availability of Power, Govt. & Political Interference.
81

(ii) Environment (Business) Interest, Insurance, Legal, Regulatory, Pollution. b. Project Output (i) Desired (ii) Undesired (i) Desired: Desired could involved physical quantities of products how much, how many, could also involve value judgment status, comfort, Aesthetic Appeal (Keeping user in view undesired) (ii) Undesired: Undesired Pollution, Waste material, Waste Energy, Danger (Bhopal Gas Tragedy, Nuclear Explosion). Discomfort to people living in vicinity. c. Design Parameters: Like features attributes that would affect behavior and performance. Most common 82 are physical size, weight, etc.

d. Constraint Specification: on input, output, design parameters which could be essential to evaluate the alternative solutions. Measure of the values indicate range of acceptable values. e. Evaluation Criteria: Total revenue operating cost gross/ net profit, ROI/ EOI etc.

3. Practicability Analysis: Idea to eliminate the concepts that are not feasible. Are these operational financeable, Economical, Physically realizable, Politically acceptable ,
Physically Realizable which alternatives needs the solutions within the specified parameters.

Financial Realizability: (i) required come as per time frame.

Will the money

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(ii) Sources of Capital Inflow who where from: 4. Economic Practicality : (i) Even a financially feasible may not be economically practical. (ii) Economic Feasibility Study of alternative solutions by constraints operating cost, Maintenance and Spare part expenditure. (iii) Total revenue that would accrue over the operational life of systems, (i.e. what is the break even point or optimum point of economic operations of the project) We will consider those alternative solutions to be economically feasible that meet the specified rates of return on investment.
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5. Social and Political Realizeability : The project may be physically, Financially, Economically feasible, but may encounter social at political obstacles. Normally in case of large projects, there are additional considerations of health (Polio Campaign, Malaria, TB, CNG Buses) education (private and foreign universities) Welfare (METRO RAIL, Realignment over the range area, Civil Nuclear Technology).

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Technical Appraisal
By technical appraisal of project, we mean an assessment of its basic technical and functional feasibility of project (Road under/over bridge) Besides costs and schedules, the project performance depends on how well the project is meeting the technical requirements of the end project (connect village to stadium)

THREE STAGES OF TECH APPRAISAL

(i) Detailed technical Appraisal Which include describing the details of the assignment and the key property.
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 It also includes describing the deficiencies of particular acclamation. The detailed technical appraisal method helps in commenting on the reviewers action, analysis and conclusions.

(ii) Exceptional Technical Appraisal

appraisal reviews records only significant and exceptional findings and action take by the reviewer. The exceptional review is often used for high level reviews within an organization when the first level review is a narrative report.

(iii)Form Technical Appraisal

In form review, further abbreviates the documentation associated with reviewing an appraisal report. Forms are developed for specific institutional or agency needs and the Standard Appraisal Review87

Report from is becoming more widely accepted by many users. Factors Effecting Technical Appraisal (i) Layout:- Layout of the project includes description of the project in terms of what they represent and when they occur, who has authorized it, number of people who will handle. It also states where quality control will be exercised. A description and explanation of the methods of that will be used to monitor progress e.g. bar charts could be used. For Example Weekly progress meeting to exercise control over the project. 88

(ii) Location:- The nine key factors that influence location of a project are: (keep NANO Car Project In Mind) Costs Infrastructure around the location Labour Characteristics Wage rates Motivation of workers Telecommunication systems Government stability and industrial relations laws Protection of patents A availability of management resources and specific skills and system and integration costs. These factors have an impact on management decisions and governments policies.
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 Government policies: Regulatory barriers may preclude the use of innovative technologies e.g. some reservation for SME Sector (Now only 3s items) Types of equipment or processes: Equipments are basically of two types temporary and permanent equipments. (Olympic stadium in China) The availability and quality of equipments affect the technical appraisal. Appropriateness of Local Conditions: The project should be adaptable to local technical and environmental conditions, such as voltage, dust, temperature, humidity, etc. The appropriate supply of material and equipments for keeping the project working should be available in proximity.
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 Impact of Environment: The potential impact of the project on the human and physical environment is examined to make sure that nay adverse effects can be controlled or minimized e.g. pollution. Approach Followed: Procedures for obtaining engineering, architectural, or other professional services are examined. Risk Factor: It is necessary to identify the risks associated with the project and estimate the scale of risk. There should also be contingency plans in place to minimize the risk of project failure or of a major gap between whats promised and whats delivered. Cost Estimated: Technical appraisal is a review of the cost estimates of the engineering and maintaining the project. Cost estimates also determine whether technical 91

Environmental Appraisal A systems approach is a holistic approach to problem solving that involves formal considerations of the following parameters: 1. The total objectives of the project and, ore specifically, the performance measures of the whole project. 2. The projects environment or the fixed constraints. 3. The resources or inputs to the projects. 4. The components of the project, their activities, goals, and measures of performance. 5. The management of the project, or the organization or various components and their interactions. The next aspect to consider in the system approach is the projects environment.
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 This can be viewed as whatever lies outside the project, but that which can affect and be affected by the operations of the project. In project parlance the environment means much more than just the weather. For example, for automobile environment, we can consider the roads and highways; petrol pumps and servicing stations, etc. need to be included in our definition of the automobile system. When we say that something lies outside the project, and hence constitutes its environment, we mean that the project can do relatively little about its environments characteristics or behaviour. Identification of the environment depends on the answers to the following two questions. 1. Can I do anything about it? 93

2. Does it affect my situation or objectives? If the answer to the first is No, and that do the second is Yes, then it is the environment.

Characteristics of the Environment

The environment provide, given or fixed inputs to the project. It is also affected, directly or indirectly, by the outputs from the project; Hence, it has a dynamic influence on the project or by the project. However, less attention is paid on environment because of two reasons (a) Firstly : The environment is outside the project and hence of little direct interest to us. 94

(b). Secondly, by definition, the environment is something that we cannot control, and hence it is fixed. Of course we could consider the effects of the output of a project on its environment. (METRO NO Pollution Less Noise, Dev of Area) This is what is referred to as Environmental Impact Assessment (EIA), which would be a part of the feasibility study for most projects, especially for large industrial projects. (e.g. Refinery , Chemical plant, Nuclear plant)

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Managerial Appraisal
One of the main preoccupations of management in any organization and in project organization is the allocation of scarce resources. These resources include manpower, materials, facilities, and financial resources. For every project being planned, the project manager must ask the following two questions: - Are the resources required for the given project available ? - Is this the best use to which these resources can be put ? Most project are subjected to an evaluation before they are given the go-ahead. An essential part of his evaluation is the financial 96

appraisal. Traditionally, this has been aimed at deciding whether or not a project will be profitable and selecting the one project out of several competing projects that appears the most profitable. The project manager should understand the processes so that he can benefit from them. (Difference between private public Social Benefit projects).

It is with this intention that we present the various techniques of managerial evaluation, which consist of the technical, economic, financial, social and political appraisal and assessment of a project.
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Project Selection
Project selection is the process of evaluating individual projects or groups of projects, and then choosing to implement some set of them so that the objectives of the parent organization will be achieved Managers often use decision-aiding models to extract the relevant issues of a problem from the details in which the problem is embedded Models represent the problems structure and can be useful in selecting and evaluating projects
Chapter 2-1

Criteria for Project Selection Models

Realism - reality of managers decision

Capability- able to simulate different scenarios and optimize the decision

Flexibility - provide valid results within the range of conditions Ease of Use - reasonably convenient, easy execution, and easily understood Cost - Data gathering and modeling costs should be low relative to the cost of the project Easy Computerization - must be easy and convenient to gather, store and manipulate data in the model

Chapter 2-2

Risk Versus Uncertainty

Analysis Under Uncertainty - The Management of Risk
The difference between risk and uncertainty Risk - when the decision maker knows the probability of each and every state of nature and thus each and every outcome. An expected value of each alternative action can be determined Uncertainty - when a decision maker has information that is not complete and therefore cannot determine the expected value of each alternative
Chapter 2-7

Risk Analysis
Principal contribution of risk analysis is to focus the attention on understanding the nature and extent of the uncertainty associated with some variables used in a decision making process Usually understood to use financial measures in determining the desirability of an investment project
Chapter 2-8

Risk Analysis
Probability distributions are determined or subjectively estimated for each of the uncertain variables The probability distribution for the rate of return (or net present value) is then found by simulation Both the expectation and its variability are important criteria in the evaluation of a project

Chapter 2-9

Risk Analysis

Chapter 2-10

Information Base for Selections

Accounting Data Measurements
Subjective vs. Objective Quantitative vs. Qualitative Reliable vs. Unreliable Valid vs. Invalid

Technological Shock
Chapter 2-11

CHAPTER-4

105

In Nut Shell ! Project Scheduling

Project Scheduling
Understanding Project plan

Scheduling activities Managing time

Essential methodologies

Overcoming time constraint Effective project scheduling

Project Scheduling
Project planning and Project Scheduling Project scheduling involves,
Estimated start time Required completion time WBS (Work Breakdown Structure) Scheduling the activities Allocating owners and resources

Scheduling Activities
Activity duration
An estimate

Influence
Estimated start time Required completion time
Activity Description Activity Number Duration Estimate

Owners

Time
Key concepts
Earliest start time (ES) Earliest finish time (EF) EF = ES + Duration Latest finish time (LF) Latest start time (LS) LS = LF - Duration
Earliest start Estimated Duration Activity Number Activity Description Latest start Latest Finish Earliest Finish

Total Slack

Falling behind ?
Activities and entire Project Total slack (Float)
Difference
All activities EF and Project required completion time

Positive result
Activity can be delayed without any hassle

Negative result
Activity work needs to be accelerated

Free slack ??

Critical Path Analysis

What is critical path analysis?
Understanding its Effect

Calculating,
Critical path Noncritical path Most critical path

Using calculated information

Advantages

Scheduling a challenge
Scheduling in Information System
A random process

Figures need to be realistic

Identifying requirements allocating resources

Project scheduling software an advantage Perfection comes with practice and experience

Project Scheduling Models

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5.1 Introduction
A project is a collection of tasks that must be completed in minimum time or at minimal cost. Objectives of Project Scheduling
Completing the project as early as possible by determining the earliest start and finish of each activity. Calculating the likelihood a project will be completed within a certain time period. Finding the minimum cost schedule needed to complete the project by a certain date.
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5.1 Introduction
A project is a collection of tasks that must be completed in minimum time or at minimal cost. Objectives of Project Scheduling
Investigating the results of possible delays in activitys completion time. Progress control. Smoothing out resource allocation over the duration of the project.

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Task Designate
Tasks are called activities.
Estimated completion time (and sometimes costs) are associated with each activity. Activity completion time is related to the amount of resources committed to it. The degree of activity details depends on the application and the level of specificity of data.

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5.2 Identifying the Activities of a Project

To determine optimal schedules we need to
Identify all the projects activities. Determine the precedence relations among activities.

Based on this information we can develop managerial tools for project control.

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5.3 The PERT/CPM Approach for Project Scheduling

The PERT/CPM approach to project scheduling uses network presentation of the project to
Reflect activity precedence relations Activity completion time

PERT/CPM is used for scheduling activities such that the projects completion time is minimized.
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Earliest Start Time / Earliest Finish Time

Make a forward pass through the network as follows:
Evaluate all the activities which have no immediate predecessors.
The earliest start for such an activity is zero ES = 0. The earliest finish is the activity duration EF = Activity duration.

Evaluate the ES of all the nodes for which EF of all the immediate predecessor has been determined.
ES = Max EF of all its immediate predecessors. EF = ES + Activity duration.

Repeat this process until all nodes have been evaluated

EF of the finish node is the earliest finish time of the project.
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Earliest Start / Earliest Finish

Forward Pass
90,105 B B 15 105,110 C C 5 110,124 115,129 G G 14 170 149,170 E E 21

0,90
A A 90

90,115
F F 25

129,149 D D 20

177 149,177 H H 28

194

EARLIEST FINISH 90,120 I I 30

120,165 194 149,194

J J 45
120

Latest start time / Latest finish time

Make a backward pass through the network as follows:
Evaluate all the activities that immediately precede the finish node.
The latest finish for such an activity is LF = minimal project completion time. The latest start for such an activity is LS = LF - activity duration.

Evaluate the LF of all the nodes for which LS of all the immediate successors has been determined.
LF = Min LS of all its immediate successors. LS = LF - Activity duration.

Repeat this process backward until all nodes have been evaluated.
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Latest Start / Latest Finish

Backward Pass
105,110 110,115
149,170 173,194 E E 21

90,105
95,110 B B 15 90,115 90, 115 F F 25 C C 5

5,95
A A 90 29,119

0,90 0,90

129,149 149,177 115,129 129,149 115,129 129,149 153,173 166,194 129,149 129,149 D 146,166 H G D H G 129,149 20 28 14 129,149 129,149 129,149

194

90,120 119,149
I I 30

149,194 149,194

J 45
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Slack Times
Activity start time and completion time may be delayed by planned reasons as well as by unforeseen reasons. Some of these delays may affect the overall completion date. To learn about the effects of these delays, we calculate the slack time, and form the critical path.
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Slack Times
Slack time is the amount of time an activity can be delayed without delaying the project completion date, assuming no other delays are taking place in the project.

Slack Time = LS - ES = LF - EF

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Slack time in the Klonepalm 2000 Project

Activity A B C D E F G H I
J

LS - ES 0 -0 95 - 90 110 - 105 119 - 119 173 - 149 90 - 90 115 - 115 166 - 149 119 - 90 149 - 149

Slack 0 5 5 0 24 0 0 17 29 0

Critical activities must be rigidly scheduled

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The Critical Path

The critical path is a set of activities that have no slack, connecting the START node with the FINISH node. The critical activities (activities with 0 slack) form at least one critical path in the network. A critical path is the longest path in the network.

The sum of the completion times for the activities on the critical path is the minimal completion time of the project.
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The Critical Path

90,105 95,110

B B 15 90,115 90, 115 F F 25

C C 5

105,110 110,115

149,170 173,194

E E 21 149,177 166,194 H H 28

0,90 0,90
A A 90

115,129 115,129 G G 14

129,149 129,149 D D 20

90,120 119,149 I I 30

149,194 149,194
J J 45
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Possible Delays
We observe two different types of delays:
Single delays.

Multiple delays.

Under certain conditions the overall project completion time will be delayed. The conditions that specify each case are presented next.

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Single delays
A delay of a certain amount in a critical activity, causes the entire project to be delayed by the same amount.
A delay of a certain amount in a non-critical activity will delay the project by the amount the delay exceeds the slack time. When the delay is less than the slack, the entire project is not delayed.
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Multiple delays of non critical activities: Case 1: Activities on different paths

ES=149
DELAYED START=149+15=164

B 15

C 5

LS=173

E 21

A 90

F 25

G 14

D 20

H 28

Activity E and I are each delayed 15 days.

THE PROJECT COMPLETION TIME IS NOT J DELAYED I

ES=90 LS =119 30 45
DELAYED START=90+15 =105
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90
105 90 A B C D 15 5 20 115 129 149 194

E
F G

Gantt chart demonstration of the (no) effects on the project completion time when delaying activity I and E by 15 days.

21 25

194

Activity E
14

28
30

H
I J

Activity I

45

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Multiple delays of non critical activities: Case 2: Activities are on the same path, separated by critical activities.
ES=90 DELAYED START =94 LS =95 ES=149

DELAYED START=149+15 =164 LS =173

B 15

C 5

E 21

A 90

F 25

G 14

D 20

H 28

THE PROJECT COMPLETION TIME IS NOT DELAYED

I 30 J 45
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Activity B is delayed 4 days, activity E is delayed 15 days

Multiple delays of non critical activities: Case 2: Activities are on the same path, no critical activities separating them.
ES= 90

DELAYED START =94 DELAYED START= DELAYED FINISH = 109 + 4 =113; 94+15=109 LS =110 B C

3 DAYS DELAY IN THE ENTIRE PROJECT

15

E 21

A 90

F 25

G 14

D 20

H 28

Activity B is delayed 4 days; Activity C is delayed 4 days.

THE PROJECT COMPLETION TIME IS DELAYED 3 DAYS

I 30 J 45
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5.6 Gantt Charts

Gantt charts are used as a tool to monitor and control the project progress. A Gantt Chart is a graphical presentation that displays activities as follows:
Time is measured on the horizontal axis. A horizontal bar is drawn proportionately to an activity s expected completion time. Each activity is listed on the vertical axis.

In an earliest time Gantt chart each bar begins and ends at the earliest start/finish the activity can take place.

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Heres how we build an Earliest Time Gantt Chart for KLONEPALM 2000

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90
105 90 A B C D E 15 5 20 115 129 149 194

F
G H I J

Immediate Estimated Activity Predecessor Completion CompletionTime Time A None 90 B A 15 C B 5 D G 20 E D 21 F A 25 G C,F 14 H D 28 I A 30 J D,I 45

21 25

194

14
28 30 45

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Gantt ChartsMonitoring Project Progress

Gantt chart can be used as a visual aid for tracking the progress of project activities.
Appropriate percentage of a bar is shaded to document the completed work. The manager can easily see if the project is progressing on schedule (with respect to the earliest possible completion times).
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Monitoring Project Progress

90 A B C D E 15 5 194 20 21 194

The shaded bars represent completed work BY DAY 135.

25

F
G H I J

14

Do not conclude that the project is behind schedule. 30 Activity I has a slack and therefore can be delayed!!!
135

28

45

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Gantt Charts Advantages and Disadvantages

Advantages.
Easy to construct Gives earliest completion date. Provides a schedule of earliest possible start and finish times of activities.

Disadvantages
Gives only one possible schedule (earliest). Does not show whether the project is behind schedule. Does not demonstrate the effects of delays in any one activity on the start of another activity, thus on the project completion time.
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5.7 Resource Leveling and Resource Allocation

It is desired that resources are evenly spread out throughout the life of the project.

Resource leveling methods (usually heuristics) are designed to:

Control resource requirements Generate relatively similar usage of resources over time.
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Resource Leveling A Heuristic

A heuristic approach to level expenditures
Assumptions
Once an activity has started it is worked on continuously until it is completed. Costs can be allocated equally throughout an activity duration.

Step 1: Consider the schedule that begins each activity at its ES. Step 2: Determine which activity has slack at periods of peak spending. Step 3: Attempt to reschedule the non-critical activities performed 141 during these peak periods to periods of less spending,

5.8 The Probability Approach to Project Scheduling

Activity completion times are seldom known with 100% accuracy.

PERT is a technique that treats activity completion times as random variables. Completion time estimates are obtained by the Three Time Estimate approach
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The Probability Approach

Three Time Estimates

The Three Time Estimate approach provides completion time estimate for each activity. We use the notation:
a = an optimistic time to perform the activity. m = the most likely time to perform the activity. b = a pessimistic time to perform the

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The Distribution, Mean, and Standard Deviation of an Activity

Approximations for the mean and the standard deviation of activity completion time are based on the Beta distribution.
a + 4m + b = the mean completion time = 6 b -a = the standard deviation = 6

144

The Project Completion Time Distribution Assumptions

To calculate the mean and standard deviation of the project completion time we make some simplifying assumptions.

145

The Project Completion Time Distribution Assumptions

Assumption 1
A critical path can be determined by using the mean completion times for the activities. The project mean completion time is determined solely by the completion time of the activities on the critical 2 path. Assumption The time to complete one activity is independent of the time to complete any other activity.

Assumption 3
There are enough activities on the critical path so that the distribution of the overall project completion time can be approximated by the normal distribution.
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The Project Completion Time Distribution

The three assumptions imply that the overall project completion time is normally distributed, the following parameters:

Mean = Sum of mean completion times

along the critical path.

Variance = Sum of completion time

variances path. along the critical
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5.10 Cost Analyses Using

The Critical Path Method (CPM)
The critical path method (CPM) is a deterministic approach to project planning. Completion time depends only on the amount of money allocated to activities.
Reducing an activitys completion time is called crashing.

148

Crash time/Crash cost

There are two crucial completion times to consider for each activity.
Normal completion time (TN). Crash completion time (TC), the minimum possible completion time.

The cost spent on an activity varies between

Normal cost (CN). The activity is completed in TN. Crash cost (CC). The activity is completed 149 in

Crash time/Crash cost

The Linearity Assumption
The maximum crashing of activity completion time is TC TN. This can be achieved when spending CN CC. Any percentage of the maximum extra cost (CN CC) spent to crash an activity, yields the same percentage reduction of the maximum time savings (TC TN).
150

Crash time/ Crash cost The Linearity Assumption

Marginal Cost

Additional Cost to get Max. Time Reduction = Maximum Time reduction (4400 - 2000)/(20 - 12) = $300 per day

M=

E R
151

Crashing activities
Meeting a Deadline at Minimum Cost
If the deadline to complete a project cannot be met using normal times, additional resources must be spent on crashing activities. The objective is to meet the deadline at minimal additional cost.

152

7.11 PERT/COST
PERT/Cost helps management gauge progress against scheduled time and cost estimates. PERT/Cost is based on analyzing a segmented project. Each segment is a collection of work PROJECT packages.
Work Package 1 Activity 1 Activity 2 Work Package 2 Activity 3 Activity 5 Work Package 3 Activity 4 Activity 6
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Work Package - Assumptions

Once started, a work package is performed continuously until it is finished. The costs associated with a work package are spread evenly throughout its duration.

154

Monitoring Project progress

For each work package determine:
Work Package Forecasted Weekly cost = Budgeted Total Cost for Work Package Expected Completion Time for Work Package (weeks) Value of Work to date = p(Budget for the work package)
where p is the estimated percentage of the work package completed.

Expected remaining completion time = (1 p)(Original Expected Completion Time)

155

Monitoring Project progress

Completion Time Analysis
Use the expected remaining completion time estimates, to revise the project completion time.

Cost Overrun/Underrun Analysis

For each work package (completed or in progress) calculate

Cost overrun = [Actual Expenditures to Date] - [Value of Work to Date].

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Monitoring Project Progress

Corrective Actions
A project may be found to be behind schedule, and or experiencing cost overruns. Management seeks out causes such as:
Mistaken project completion time and cost estimates.
Mistaken work package completion times estimates and cost estimates. Problematic departments or contractors that cause delays.

157

Monitoring Project Progress

Corrective Actions
Possible Corrective actions, to be taken whenever needed.
Focus on uncompleted activities. Determine whether crashing activities is desirable. In the case of cost underrun, channel more resources to problem activities. Reduce resource allocation to non-critical activities.
158