CE401 Naser Sir

8/10/2019 CE401 Naser Sir

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CE 401 Project Planning and Management

Abu Naser Chowdhury PhD

How to find me

Contact info: Email: [email protected]

Website:

http://www.naserchowdhury.com

Mobile: +8801753850339

Office hours: By appointment Available normally:

9.00am1.00pm

Text Book available at

Sumon Library

169 New Market Dhaka 1205

Phone : 8614561

1. Project Management - Rajeev M. Gupta

2. PMBOK (pdf)

3. Principles of Construction Safety (pdf)

4. Project Management - R.B. Khanna

Format:Combination of lectures and in-class exercises

Course Overview


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Grading

Group Assignment (20%) Random assignment to group

Demonstrate engagement with the course material

Watch video and assessment

Mid-term (20%) Multiple-choice questions; short questions

Final exam (50%) Descriptive, critical thinking

Class Attendance (10%)

What I expect of you

Attendance. I expect you to attend every class

Participation. Strongly encouraged Group work. Presentation and active participation

Assignments.

What to expect from me

Exams will be based on text and lecture notes; so even if wedont review it in the lecture, if it is in the text, it is fair game

Available after class or by appt.

Use practical examples to highlight relevance of theories

Expectations


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What is the objective ofshowing those pictures?

?

Todays reality...

Construction is complex and challenging

Delays, changes, disputes, accidents cost more

than ever

Owners dont have the expertise or the staff to

stay on top

Success demands collaboration... and

leadership!

Construction Management is aprofessional service thatapplies effective management techniques to the planning,

design and construction of a project from inception to

completion for the purpose of controlling time, cost and

quality

Construction Management

Construction Management Values

Construction Management is a

discipline and management

system specifically created to

promote the successful

execution of capital projects for

owners

These projects can be highly

complex. Few owners maintain

the staff resources necessary to

pay close, continuing attention

to every detail; yet these details

can make or break a project


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The planning, organizing, leading, and

controlling of human and other resources to

achieve organizational goals effectively and

efficiently

Management

Basic resources

workforce

subcontractors

equipment

construction plant

material

information

time

money

Optimize the three attributes of: quality, cost, and

time

Principle objective of a construction manager is to complete

each project on time and within budget, while maintaining

acceptable levels of safety and risk

Project Management

Safety

Time Cost

ualit

CM

4 Functions of Management


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Planning

Process of identifying and selecting

appropriate organizational goals and courses

of action

Deciding which goals the organization will pursue

Deciding what courses of action to adopt to attain

those goals

Deciding how to allocate organizational resources

Steps in Planning

Video Time!

Organizing

Task managers perform to create a structure of

working relationships that allow organizational

members to interact and cooperate to achieve

organizational goals

Involves grouping people into departments according to the

kinds of job-specific tasks they perform Managers lay out lines of authority and responsibility

Decide how to coordinate organizational resources

Articulating a clear organizational vision for itsmembers to accomplish, and energize and enable

employees so that everyone understands the partthey play in achieving organizational goals

Leading

Leadership involves using power, personality, and

influence, persuasion, and communication skills

Outcome of leadership is highly motivated and committed

workforce


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Controlling

Task of managers is to evaluate how well an

organization has achieved its goals and to take

any corrective actions needed to maintain or

improve performance

The outcome of the control process is the ability to

measure performance accurately and regulate

organizational efficiency and effectiveness

Levels of Management

First line managers - Responsible for daily supervision of thenon-managerial employees who perform many of the specific

activities necessary to produce goods and services

Middle managers - Supervise first-line managers.Responsible for finding the best way to organize human and

other resources to achieve organizational goals

Top managers - Responsible for the performance of alldepartments and have cross-departmental responsibility and

ultimately responsible for the success or failure of an

organization

CEO - is companys most senior and important manager,concerns about creation of a smoothly functioning top-

management team

4 Managerial Functions

4 Managerial Functions


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Elements of a legal contract

offer

acceptance

consideration

legal in every respect

requires a meeting of the minds

offer + acceptance = binding obligation

Construction Contracts

Video Time!

Why do we need written contracts?

1. Basic lack of trust

2. Clearly establishes the risks and obligations of each party

3. Provides means by which performance can be assessed

and measured

4. Provides means by which breaches can be identified

5. Provides means by which default can be established

6. Establishes the owners means of control

7. Establishes the contractors scope of work

A written contract provides the document by which risks,obligations, and relationships of both parties are clearly

established, thus ensuring the performance of these elements

in a disciplined manner.

What does a written contract do for us?

Types of Construction Contract

Lump Sum Contract: features include -

all the risks are taken care off by the contractor

Higher markup can be asked in order to take care of unforeseen

contingencies

if the actual cost of the project is underestimated, the underestimated cost

will reduce contractor s profit by that amount

But overestimate may reduce the chance of being a low bidder

Unit Price Contract: features include -

Risk of inaccurate estimation of uncertain quantities for some key tasks has

been removed in this contract

Some contractors may submit an unbalanced bid when i t discovers large

discrepancies between its estimates and the owner s estimates of quantities.

Owner may disqualify the contractor if it appears to be heavily unbalanced.


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Types of Construction Contract

Unit Price Contract: features include -

To the extent of an underestimate or overestimate, neither error will

effect the contractors profit beyond the markup in the unit prices.

Cost Plus Percentage Fee: features include -

Only in compelling reasons, such as urgency or emergency time

Contractor will receive the actual direct job cost plus a fixed percentage

Owner may disqualify the contractor if the bid appears to be heavily

unbalanced.

The Owner knows the actual cost of the project before it

begins

Contractor required to achieve the project at theBid/Negotiated Contract Value

Minimize the risk for the Owner if the project is well

estimated, contractual documents accurate, and project clearly

defined

1. Lump Sum or Fixed Price Contract

High risk for the Contractor in case of many unforeseen.Usually a high incentive to finish early at low cost

Agreement on the price charged per unit by the Contractor to

the Owner

Contractor overhead must be integrated in the Units Prices

The lowest bidder is normally selected

Necessity of an Owner presence on site to measure the actual

quantities

2. Unit Price Contract

Highly dependant on the accuracy of the estimation of the

quantities given by the Owner/Designer

Difficult to accurately quantify the work necessary

Contractor can make a more profit because payment is basedon actual quantities but he can also lose money in the same

way

The total cost for the Owner can be greater than planned

Unit Price: Example

Activities:

Footings 80 $/sq ft

Columns 1,550 $/unit

Scheduled quantities:

Footings 100 sq ft

Columns 9 units

Contract initial value:

80 * 100 + 1,550 * 9 = 14,750 $


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Advertisement for bids

Information for bidders

Bid form

General notices

Notice of award

Notice to proceed

Bid bond

Performance bond

Contract form or agreement

General conditions or provisions

Supplemental and/or specialconditions

Plans

Specifications

Construction Contract Documents

Documents forming Contract

The following documents forming the contract shall be

interpreted in the following order of priority:

The Signed Contract Agreement

The notification of Award (NOA)

Completed Tender and acceptance of tender

Particular Conditions of Contract (PCC)

General Conditions fo Contract (GCC)

Tender Specifications

General Specifications

Drawing

Bill of Quantities (BOQ)

Any other documents listed in PCC

Examples of GCC and PCC

GCC 25.1 Instructions: The contractor shall carry out all the

instructions of the PM that comply with the applicable law

GCC 28.1 Working hours: The contractor shall not perform any work

on the site on the weekly holidays or during the night or outside the

normal hours or on any religious holiday, without the prior written

approval from the PM

GCC 41.1 Completion of works: The contractor shall carry out the

works in accordance with the programme of works submitted by the

contractor and as updated with the approval of the PM

GCC 43.3 Programme of works: If the contractor dose not submit

an updated programme at an intervals stated in the PCC, the PM may

withhold an amount as stated in the PCC

PCC: The Contractor shall submit a programme for the works within

7 (seven) days of singing the contract.

bidders are required to:

examine all portions of the contract documents examine the physical conditions of the site

determine legal requirements affecting the work

complete these investigations prior to bidding

Construction Contract


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Standard, supplemental, and special provisions

02 types of specifications:

method specification dictates equipment and

procedures

performance specification specifies only the desired

end result or product

Specification

copies of subcontracts

shop drawings and support calculations

catalog cuts

material or equipment samples

schedule(s)

certified payrolls

certificates of insurance

environmental test reports

material test reports & certifications

Submittals required in Contracts

CE401 Project Planning and ManagementAbu Naser Chowdhury PhD


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Video Time!

A project is a temporary endeavor involving a connected sequenceof activities and a range of resources, which is designed to achievea specific and unique outcome and which operates within time,

cost and quality constraints and which is often used to introducechange.

A unique, one-time operational activity or effort

Requires the completion of a large number of interrelated

activities

Established to achieve specific objective

Resources, such as time and/or money, are limited

Typically has its own management structure

Need leadership

Project and its Characteristics

Characteristic of a project

Project Stakeholders

Project stakeholders are individuals and organizations that

are actively involved in a project or whose interest may be

+ve/-ve ly affected as a result of project execution or project

completion.

Key Stakeholders are:

Project Manager

Customer

Performing Organization

Project Team members

Sponsor

Examples of Project

Can this be a project?


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Most realistic projects are large and complex

Tens of thousands of steps and millions of dollars may be

involved

Managing large-scale, complicated projects effectively is a

difficult problem and the stakes are high

The first step in planning and scheduling a project is to

develop the work breakdown structure (WBS)

Time, cost, resource requirements, predecessors, and

people required are identified for each activity

Then a schedule for the project can be developed

Project and its Characteristics cont

Project Life cycle and its Phases

A project has 4 phases

Overall 85% effort and 40% time of the overall project is consumed

during the implementation phase, whereas planning phase consume 9%

efforts and 30% of time.

1. Concept Phase

2. Planning Phase

3. Implementation Phase

4. Termination Phase

C D E F

Definition Planning Execution/Impl./Control Closeout

LevelofEffort

Selection

Charter

Goals

Specs

Tasks

Responsi

bilities

Estimates

Schedules

Sequencing

Budgets Resources

Risks

Staffing

Status Reports

Changes

Quality

Forecasts

Training

Transfer

Documents

ReleaseResources

Lessons

Learned

Project Life Cycle and its phases

Influence of Change Vs Cost of Change

Risky aspects of a project. As the project progress, the cost to make

change increases drastically and value addition becomes difficult


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Classification of Projects

On the basis of duration, quantum of investment, ownership

nature and risk involvement.

Figure: Project Classification Based on risk

Reasons for Project Failure

In general but not limited to the following list:

1. Poorly defined scope/objectives

2. Underestimated time and cost

3. Large project planning

4. Improper technology selection

5. Defective planning process

Work Breakdown Structure

Work Breakdown Structure (WBS)

A method of breaking down a project into individual elements

It defines tasks that can be completed independently of othertasks, facilitating resource allocation, assignment ofresponsibilities and measurement and control of the project

It is the foundation of project planning

It is developed before identification of dependencies andestimation of activity durations

Project must be divided into manageable tasks and then logically

order

The definition of tasks and their sequences is referred as the Work

Breakedown Structure (WBS)WBS is essential in Planning and executing the Project.


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WBS Work PackageLevel of Detail

WHO will be the responsible individual or organization?

How much TIME will the activity take?

What COST is associated with accomplishing the activity?

Can PROGRESSbe tracked easily?

All the questions need clear answers for proper project

planning.

It is nothing more (or less) than knowing what

the status of a project is:

when it should be done

how much (and if) it has slipped from theoriginal schedule

what the bottlenecks are

what you might drop to save some time

Project Management

Project Management Models History

One of the earliest techniques was the Gantt chart(used by US Navy).

This type of chart shows the start and finish timesof one or more activities, as shown below:

Before Project

Project Planning:1. Setting goals.

2. Defining the project.

3. Tying needs into timed project activities.4. Organizing the team.

Project Scheduling:1. Tying resources to specific activities.

2. Relating activities to each other.

3. Updating and revising on regular basis.

Project Controlling:

1. Monitoring resources, costs, quality andbudgets.

2. Revising and changing plans.

3. Shifting resources to meet demands.

During Project

Project Planning, Scheduling & Controlling


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Resource Availability and/or Limits

Due date, late penalties, early completion

incentives

Budget

Activity Information

Identify all required activities

Estimate the resources required (time) to complete

each activity

Immediate predecessor(s) to each activity neededto create interrelationships

Project Planning

Gantt Chart

Critical Path Method (CPM)

Program Evaluation and Review Technique (PERT)

Project Scheduling and Control

Techniques

Theprogram evaluation and review technique (PERT)

and the critical path method (CPM) are two popular

quantitative analysis techniques to help plan, schedule,

monitor, and control projects

They were developed because there was a critical

need for a better way to manage.

Originally the approaches differed in how they estimated

activity times

PERT used three time estimates to develop a

probabilistic estimate of completion time

CPM was a more deterministic technique They have become so similar they are commonly

considered one technique, PERT/CPM

PERT and CPM

From project networks, we determine

The project duration

The critical path

Tasks on the critical path Tasks not on the critical path

Slack or float associated with non-criticaltasks

Earliest start, earliest finish, latest startand latest finish times


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1. Define the project and all of its significant activities or

tasks

2. Develop the relationships among the activities and decide

which activities must precede others

3. Draw the network connecting all of the activities

4. Assign time and/or cost estimates to each activity

5. Compute the longest time path through the network; this is

called the critical path

6. Use the network to help plan, schedule, monitor, and

control the project

Six Steps of PERT/CPM

The critical path is important since any delay in theseactivities can delay the completion of the project

Q?

Given the large number of tasks in a project, it is easyto see why the following questions are important

1. When will the entire project be completed?

2. What are the critical activities or tasks in the project,that is, the ones that will delay the entire project ifthey are late?

3. Which are the non-critical activities, that is, the onesthat can run late without delaying the entire projectscompletion?

4. If there are three time estimates, what is theprobability that the project will be completed by aspecific date?

5. At any particular date, is the project on schedule,

behind schedule, or ahead of schedule?

6. On any given date, is the money spent equal to, less

than, or greater than the budgeted amount?

7. Are there enough resources available to finish the

project on time?

8. If the project is to be finished in a shorter amount of

time, what is the best way to accomplish this at the

least cost?

Q?

Drawing the PERT/CPM Network

There are two common techniques for drawing PERT

networks

Activity-on-node (AON) where the nodes representactivities

Activity-on-arc (AOA) where the arcs are used to represent

the activities

The AON approach is easier and more commonly found in

software packages

One node represents the start of the project, one node for

the end of the project, and nodes for each of the activities

The arcs are used to show the predecessors for each

activity


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Use of nodes and arrows

Arrows An arrow leads from tail to head directionally

Indicate ACTIVITY, a time consuming effort that is required to

perform a part of the work.

NodesA node is represented by a circle

Indicate EVENT, a point in time where one or more activities start

and/or finish.

Activity

A task or a certain amount of work required in the project

Requires time to complete

Represented by an arrow

Dummy Activity

Indicates only precedence relationships

Does not require any time of effort

Drawing the PERT/CPM Network(some Basics)

Drawing the PERT/CPM Network(some Basics)

Event

Signals the beginning or ending of an activity

Designates a point in time

Represented by a circle (node)

Network

Shows the sequential relationships among activities using

nodes and arrowsActivity-on-node (AON)

nodes represent activities, and arrows showprecedence relationships

Activity-on-arrow (AOA)

arrows represent activities and nodes are events forpoints in time

A must finish before either B or C

can start

Both A and B must finish before C

can start

Both A and b must finish before

either of C or D can start

A must finish before B can startboth A and C must finish before D can

start

A

C

B

D

Dummy

AB

CA

B

C

D

C

B

A

Situations in Network Diagram

Activity-on-Node (AON):

Uses nodes to represent the activity

Uses arrows to represent precedence relationships

Situations in Network Diagram


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Interpreting Network into Bar Chart

ANC, Inc. has long been trying to avoid the expense of

installing air pollution control equipment

The local environmental protection group has recently giventhe foundry 16 weeks to install a complex air filter system on

its main smokestack

ANC was warned that it will be forced to close unless the

device is installed in the allotted period

They want to make sure that installation of the filtering system

progresses smoothly and on time

ANC

Example of PERT/CPM

ACTIVITY DESCRIPTIONIMMEDIATEPREDECESSORS

A Build internal components

B Modify roof and floor

C Construct collection stack A

D Pour concrete and install frame B

E Build high-temperature burner C

F Install control system C

G Install air pollution device D,E

H Inspect and test F,G

Activities and immediate predecessors for ANC Inc.

ANC

Example of PERT/CPM

A

Build InternalComponents

H

Inspectand Test

E

Build Burner

C

Construct CollectionStack

Start

F

Install ControlSystem

Finish

G

Install PollutionDevice

D

Pour Concrete andInstall Frame

B

Modify Roofand Floor

Network for ANC Inc.

ANC

Example of PERT/CPM


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The time estimates in PERT are

Optimistic time (a) = time an activity will take ifeverything goes as well aspossible. There should be only asmall probability (say, 1/100) of thisoccurring.

Pessimistic time (b) = time an activity would takeassuming very unfavorableconditions. There should also beonly a small probability that theactivity will really take this long.

Most likely time (m) = most realistic time estimate tocomplete the activity

Time Activity

PERT often assumes time estimates follow a beta probability

distribution

The beta probability distribution is often used when there is no

solid historical data upon which to activity time base estimates Found to be appropriate in many cases for determining an

expected value and variance for activity completion times

MostPessimisticTime

(b)

MostLikelyTime

(m)

MostOptimisticTime

(a)

Probability

Activity Time

Probability of 1 in 100of aOccurring

Probability of 1 in 100of bOccurring

Time Activity

2

6

Variance

ab

To find the expected activity time (t), the beta distribution

weights the estimates as follows

6

4 bmat

To compute the dispersion or variance of activitycompletion time, we use the formula

Time Activity

ACTIVITYOPTIMISTIC

a

MOSTPROBABLE

mPESSIMISTIC

b

EXPECTEDTIME,

t= [(a + 4m +b)/6]

VARIANCE[(b a)/6]2

A 1 2 3 2 4/36

B 2 3 4 3 4/36

C 1 2 3 2 4/36

D 2 4 6 4 16/36

E 1 4 7 4 36/36

F 1 2 9 3 64/36

G 3 4 11 5 64/36

H 1 2 3 2 4/36

25

Time estimates (weeks) for ANC Inc.

Time Activity


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We accept the expected completion time for each task as the

actual time for now

The total of 25 weeks in Table does not take into account the

obvious fact that some of the tasks could be taking place at the

same time

To find out how long the project will take we perform the

critical path analysis for the network

The critical path is the longest path through the network

How to find Critical Path?

ANCs network with expected activity times

A 2 C 2

H 2E 4

B 3 D 4 G 5

F 3

Start Finish


To find the critical path, need to determine the following

quantities for each activity in the network

1. Earliest start time (ES): the earliest time an activity can begin

without violation of immediate predecessor requirements

2. Earliest finish time (EF): the earliest time at which an activity can

end

3. Latest start time (LS): the latest time an activity can begin without

delaying the entire project

4. Latest finish time (LF): the latest time an activity can end without

delaying the entire project


Earliest start = Largest of the earliest finish times ofimmediate predecessors

ES = Largest EF of immediate predecessors

Earliest finish time = Earliest start time+ Expected activity time

EF = ES + t

In the nodes, the activity time and the early and late start

and finish times are represented in the following manner

ACTIVITY t

ES EF

LS LF

Earliest times are computed as



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At the start of the project we set the time to zero

Thus ES = 0 for bothA andB

Start

A t= 2

ES = 0 EF = 0 + 2 = 2

B t= 3

ES = 0 EF = 0 + 3 = 3

ACTIVITY

OPTIMISTICa

MOST

PROBABLE

m

PESSIMISTIC

b

EXPECTED

TIME,t= [(a+ 4m+

b)/6]

VARIANCE

[(b a)/6]2

A 1 2 3 2 4/36

B 2 3 4 3 4/36

C 1 2 3 2 4/36

D 2 4 6 4 16/36

E 1 4 7 4 36/36

F 1 2 9 3 64/36

G 3 4 11 5 64/36

H 1 2 3 2 4/36

25

ACTIVITY

OPTIMISTICa

MOST

PROBABLE

m

PESSIMISTIC

b

EXPECTED

TIME,t= [(a+ 4m+

b)/6]

VARIANCE

[(b a)/6]2

A 1 2 3 2 4/36

B 2 3 4 3 4/36

C 1 2 3 2 4/36

D 2 4 6 4 16/36

E 1 4 7 4 36/36

F 1 2 9 3 64/36

G 3 4 11 5 64/36

H 1 2 3 2 4/36

25


ANCs ES and EF times

A 2

0 2

C 2

2 4

H 2

13 15

E 4

4 8

B 3

0 3

D 4

3 7

G 5

8 13

F 3

4 7

Start Finish

ACTIVITY

OPTIMISTIC

a

MOST

PROBABLE

m

PESSIMISTIC

b

EXPECTED

TIME,

t= [(a+ 4m+

b)/6]

VARIANCE

[(b a)/6]2

A 1 2 3 2 4/36

B 2 3 4 3 4/36

C 1 2 3 2 4/36

D 2 4 6 4 16/36

E 1 4 7 4 36/36

F 1 2 9 3 64/36

G 3 4 11 5 64/36

H 1 2 3 2 4/36

25

ACTIVITY

OPTIMISTIC

a

MOST

PROBABLE

m

PESSIMISTIC

b

EXPECTED

TIME,

t= [(a+ 4m+

b)/6]

VARIANCE

[(b a)/6]2

A 1 2 3 2 4/36

B 2 3 4 3 4/36

C 1 2 3 2 4/36

D 2 4 6 4 16/36

E 1 4 7 4 36/36

F 1 2 9 3 64/36

G 3 4 11 5 64/36

H 1 2 3 2 4/36

25


LS = LFt= 152 = 13 weeks

Latest times are computed as

Latest start time = Latest finish timeExpected activity time

LS = LFt

Latest finish time = Smallest of latest start timesfor following activities

LF = Smallest LS of following activities

ACTIVITY

OPTIMISTICa

MOST

PROBABLE

m

PESSIMISTIC

b

EXPECTED

TIME,t= [(a+ 4m+

b)/6]

VARIANCE

[(ba)/6]2

A 1 2 3 2 4/36

B 2 3 4 3 4/36

C 1 2 3 2 4/36

D 2 4 6 4 16/36

E 1 4 7 4 36/36

F 1 2 9 3 64/36

G 3 4 11 5 64/36

H 1 2 3 2 4/36

25

ACTIVITY

OPTIMISTICa

MOST

PROBABLE

m

PESSIMISTIC

b

EXPECTED

TIME,t= [(a+ 4m+

b)/6]

VARIANCE

[(ba)/6]2

A 1 2 3 2 4/36

B 2 3 4 3 4/36

C 1 2 3 2 4/36

D 2 4 6 4 16/36

E 1 4 7 4 36/36

F 1 2 9 3 64/36

G 3 4 11 5 64/36

H 1 2 3 2 4/36

25

For activity H

A 2

0 2

C 2

2 4

H 2

13 15

E 4

4 8

B 3

0 3

D 4

3 7

G 5

8 13

F 3

4 7

Start Finish

A 2

0 2

A 2

0 2

C 2

2 4

C 2

2 4

H 2

13 15

H 2

13 15

E 4

4 8

E 4

4 8

B 3

0 3

B 3

0 3

D 4

3 7

D 4

3 7

G 5

8 13

G 5

8 13

F 3

4 7

F 3

4 7

Start Finish

A 2

0 2

0 2

C 2

2 4

2 4

H 2

13 15

13 15

E 4

4 8

4 8

B 3

0 3

1 4

D 4

3 7

4 8

G 5

8 13

8 13

F 3

4 7

10 13

Start Finish

ACTIVITY

OPTIMISTIC

a

MOST

PROBABLE

m

PESSIMISTIC

b

EXPECTED

TIME,

t= [(a+ 4m+

b)/6]

VARIANCE

[(b a)/6]2

A 1 2 3 2 4/36

B 2 3 4 3 4/36

C 1 2 3 2 4/36

D 2 4 6 4 16/36

E 1 4 7 4 36/36

F 1 2 9 3 64/36

G 3 4 11 5 64/36

H 1 2 3 2 4/36

25

ACTIVITY

OPTIMISTIC

a

MOST

PROBABLE

m

PESSIMISTIC

b

EXPECTED

TIME,

t= [(a+ 4m+

b)/6]

VARIANCE

[(b a)/6]2

A 1 2 3 2 4/36

B 2 3 4 3 4/36

C 1 2 3 2 4/36

D 2 4 6 4 16/36

E 1 4 7 4 36/36

F 1 2 9 3 64/36

G 3 4 11 5 64/36

H 1 2 3 2 4/36

25


ANCs LS and LF times


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Probability of Project

Completion

ACTIVITY VARIANCE

A 4/36

B 4/36

C 4/36

D 16/36

E 36/36

F 64/36

G 64/36

H 4/36

Hence, the project variance is

Project variance = 4/36 +4/36 +

36/36 +64/36 +

4/36 =112/36 = 3.111

ACTIVITY

OPTIMISTIC

a

MOST

PROBABLE

m

PESSIMISTIC

b

EXPECTED

TIME,

t= [(a+ 4m+

b)/6]

VARIANCE

[(b a)/6]2

A 1 2 3 2 4/36

B 2 3 4 3 4/36

C 1 2 3 2 4/36

D 2 4 6 4 16/36

E 1 4 7 4 36/36

F 1 2 9 3 64/36

G 3 4 11 5 64/36

H 1 2 3 2 4/36

25

ACTIVITY

OPTIMISTIC

a

MOST

PROBABLE

m

PESSIMISTIC

b

EXPECTED

TIME,

t= [(a+ 4m+

b)/6]

VARIANCE

[(b a)/6]2

A 1 2 3 2 4/36

B 2 3 4 3 4/36

C 1 2 3 2 4/36

D 2 4 6 4 16/36

E 1 4 7 4 36/36

F 1 2 9 3 64/36

G 3 4 11 5 64/36

H 1 2 3 2 4/36

25

We assume activity times are independent and total projectcompletion time is normally distributed

varianceProjectdeviationstandardProjectT

weeks1.76113 .

Probability of Project Completion

The projects expected completion date is 15 weeks.

Assume that the total project completion time follows a normalprobability distribution

Chart tells us that there is a 50% chance of completing the entireproject in less than 15 weeks and a 50% chance it will exceed 15weeks

Standard

Deviation = 1.76

Weeks

The standard normal equation can be applied as follows

T

Z

completionofdateExpecteddateDue

570weeks1.76

weeks15weeks16.

From Probability Distribution Table we find the probabilityof 0.71566 associated with thisZ value

That means there is a 71.6% probability this project can becompleted in 16 weeks or less


Probability of ANC Inc meeting the 16-week deadline

0.57 Standard

Deviations

Expected Time is15 Weeks

Probability(T 16 Weeks)is 71.6%

Time15

Weeks16Weeks



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CPM PERT

It defines Critical Path Method It denotes Programme Evaluation

and Review Technique

It was first developed by DuPont

for its Chemical Plant Project

It was first developed by NASA

for its ballistic missiles project

It uses deterministic time

approach

It uses probabilistic time

approach

It is based on assumption that

exact time of any activity is

known

It uses three time estimates.

Optimistic, most likely and

pessimisticIt does not consider any

probabilistic aspect

It can measure the probability of

project completion in some

practical time

Summary of CMP and PERT

Network:Network is a diagrammatic representation of

various activities showing their interdependencies and

dependencies, without drawing on scale. Network is the

most commonly used tool for planning and controlling anyproject.

Critical Activities: The activities which are crucial for

completion of a project on schedule time.

Project Duration: A project is said to be completed only

when all the activities involved are completed.

Some Definitions

Exercise

Activity Precedence Activity Duration (days)

a - 8

b - 9

c a 9

d a,b 4

e a 6

f c 5

g c,d,e 7

Find the critical path of those activities. Also find the

total float and free float of those

Video Time!


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Video Time!

Forward Pass

Backward Pass

Forward and Backward Pass

Free Float: The amount of time that a schedule activity can

be delayed without delaying the early start date of any

immediately following schedule activities

Total Float: The total amount of time that a schedule

activity may be delayed from its early start without delaying

the project finish date, or violating a schedule constraint.

Practical Definition:

Slack or Floatprovide flexibility in the project schedule. When

leveraged properly, project managers can shift activities and

resources to meet the project objectives and priorities. It is the

amount of time an activity can be delayed without impacting other

activities or the project end date and changes over the course of the

project implementation

Free Float and Total Float

It is the amount of time a task can be delayed without delaying the

project end date. Total F loat = LSES or LF -EF

Fr ee Fl oat = ESs

EFp -Lag


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Free Float and Total Floatcont.

Free Float Example

Slack and Float are the same thing. We differentiate between

Total Float and Free Float to understand the amount of delay

we can tolerate without impacting the project schedule and

successor activities, respectively.

The concept and use of float helps us keep our project on

schedule and use resources more efficiently as the project

progresses. The lack of float or its disappearance gives us

clear indication our project is out of control and corrective

measures must be taken. Additionally, by using what-if

scenarios, we can understand impacts to the project.

Understanding float and its use is one industry trick of

successful project managers.

Summary of Float

Activity Duration (mins) Predecessor

Make Menu 30 -

Shop for Ingredients 60 Make Menu

Prepare Ingredients 60 Shop for Ingredients

Prepare Appetizers 60 Shop for Ingredients

Cook Food 30 Prepare Ingredients

Wash Tableware 45 Make Menu

Set Table 15 Wash Tableware

Serve Dinner 0 Set Table, Cook Food, Prepare Appetizers

CPM Exercise

Find the completion time and critical path.


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Principle: Unless you know both cost and schedule, you

have absolutely no idea where your project actually is.

Keeping the Project on Track - Control

Two things to know: (1)Where you suppose to be and

(2) where you are

C =f(P, T, S)

C = Cost

P = Performance

T = Time

S = Scope

Although PERT is an excellent method of monitoring and

controlling project length, it does not consider the very

important factor of project cost

PERT/Cost is a modification of PERT that allows a

manager to plan, schedule, monitor, and control cost as well

as time

PERT/Cost is an accounting information system that helps

management gauge progress against scheduled time and

cost estimates

It is a project oriented system that is based on analyzing a

segmented project

Each segment is a collection of work package

When discrepancies are found between the actual progress

and the expected progress, corrective action can be taken.

PERTa cost accounting system


Assumptions:

Once started a work package is performed continuously until it

is finished

The cost associated with a work package are spread evenly

throughout its duration

Value of Work to Date = p x [Work Package Budget]

Expected Remaining Completion Time =

(1-p) x Original Expected Completion Time

Cost Overrun/Underrun Analysis

For each work package (completed or in progress)

we calculate

Cost Overrun =

[Actual Expenditures to Date] - [Value of Work to Date]

Corrective Actions:

If a project is found to be

Behind the schedule and or

Experiencing cost overruns



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Management seeks out the causes for these problems -

Correct the project completion time or cost estimates.

Reassess work package completion times and cost estimates.

Identify departments or contractors that cause delays.

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 noncritical activities

PERT a cost accounting system

ACTIVITY DESCRIPTIONIMMEDIATEPREDECES

SORS

Expenditure(Actual) Status

A Build internal components 2600 Finish

B Modify roof and floor 5000 Finish

C Construct collection stack A 3000 Finish

DPour concrete and installframe

B 5000 Finish

EBuild high-temperatureburner

C 700 Finish

F Install control system C 5600 40%

G Install air pollution device D,E 700 Finish

H Inspect and test F,G 2000 25%

Work packages to focus on

Project Completion time = 15 weeks

At the end of 10 weeks a progress assessment is made

A 2

0 2

0 2

C 2

2 4

2 4

H 2

13 1 5

13 1 5

E 4

4 8

4 8

B 3

0 3

1 4

D 4

3 7

4 8

G 5

8 13

8 13

F 3

4 7

10 13

Start Finish

A 2

0 2

0 2

A 2

0 2

0 2

C 2

2 4

2 4

C 2

2 4

2 4

H 2

13 1 5

13 1 5

H 2

13 1 5

13 1 5

E 4

4 8

4 8

E 4

4 8

4 8

B 3

0 3

1 4

B 3

0 3

1 4

D 4

3 7

4 8

D 4

3 7

4 8

G 5

8 13

8 13

G 5

8 13

8 13

F 3

4 7

10 13

F 3

4 7

10 13

Start Finish

Work

Package

Percentage

Complete

Estimated

ValueActual

Vaule

Cost

Overrun

Time Cost

A 2 2000 100% 2000 2600 600

B 3 3000 100% 3000 5000 2000

C 2 4500 100% 4500 3000 -1500

D 4 2500 100% 2500 5000 2500

E 4 500 100% 500 700 200

F 3 13000 40% 5200 5600 400G 5 1500 100% 1500 700 -800

H 2 6000 25% 1500 2000 500

Budgeted Values

Project Cost Control Cost Analysis

Value of Work to Date = p x [Work Package Budget]

Cost Overrun = [Actual value to date] [Estimated value]

CE401 Project Planning and Management



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The totality of features and

characteristics (attributes) of a product

or service that bear on its ability to

satisfy a given need

Quality:

The process of measuring,

examining, testing, gauging or

otherwise comparing one morecharacteristics of a product/service

with specified requirements

Inspection:

Quality and Inspection

Quality Control:

The actions which provide a mean

to control and measure thecharacteristics of an item, process or

facility to established requirements

Quality Assurance:

All those plans and systemic actions

necessary to provide adequate

confidence that an item or facility

will perform satisfactory in service

Quality Control and Assurance

Quality Assurance

An overall

management plan to

guarantee the

integrity of data

(The system)

Quality Control

A series of

analytical

measurements used

to assess the

quality of the

analytical data

(The tools)

Quality Control and Assurance

Product features

Characteristics

that result fromdesign

Functional andaestheticfeatures thatappeal to thecustomer

Grade

Freedom fromDeficiencies

Product does what itis supposed to do

Product is absent ofdefects and out-of-tolerance conditions

2 Aspects of Quality in Design and

Manufacturing


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Aspects of Quality: Product Features

Design configuration, size, weight

Function and performance

Distinguishing features of the model

Aesthetic appeal

Ease of use

Availability of options

Reliability and dependability

Durability and long service life

Serviceability

Reputation of product and producer

First Class Brick:

Size

Weight

Strength:

Water absorption:

Color:

Aspects of Quality:

Freedom from Deficiencies

Absence of defects

Conformance to specifications

Components within tolerance No missing parts

No early failures

Quality Responsibilities

Product features are the aspect of quality for which the

design department is responsible

Product features determine to a large degree the price that a

company can charge for its products

Freedom from deficiencies is the quality aspect for

which the manufacturing departments are responsible

The ability to minimize these deficiencies has an important

influence on the cost of the product

These are generalities

The responsibility for high quality extends well beyond the

design and manufacturing departments

Typical management principles and practices:

Customers are external to the organization

The sales and marketing department areresponsible for customers

Company is organized by functional departments

Inspection department is responsible for quality

Inspection follows production

Knowledge of Statistical Quality Control techniquesresides only in the minds of the QC experts in theorganization

Traditional Quality Control


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Modern View of Quality Control

High quality is achieved by a combination of:

Good management three objectives of total

quality management

Achieving customer satisfaction

Continuous improvement

Encouraging involvement of entire work force

Good technologytraditional statistical tools

combined with modern measurement and

inspection technologies

Total Quality Management (TQM)

Typical management principles and practices:

Quality is focused on customer satisfaction

Internal customers and external customers Quality goals are driven by top management

Quality control is pervasive in the organization

Quality must be built into the product, not inspected inafterward

Production workers must inspect their own work


A never ending chase to design and produce betterproducts

Six Sigma

A quality-focused program that utilizes

worker teams to accomplish projects aimed at

improving an organizations operational

performance

Started at Motorola Corp in 1980s

Started by Mikel Harry at Motorola in 1970s

Encouraged by CEO Robert Galvin

Motorola wins Malcolm Baldrige Award, 1988

Subsequently adopted by other companies,including GE

GE claims savings in $billions

General Goals of Six Sigma 6

Better customer satisfaction

High quality products and services Reduced defects

Improved process capability through reduction

in process variations


Cost reduction through more effective and

efficient processes


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ISO 9000

ISO = International Organization for Standardization

U.S. representative to ISO 9000 is ANSI/ASQC

ISO 9000 is a standard for the systems and procedures

used by a facility that affect the quality of the products

and services provided by the facility

It is not a standard for the products and services

ISO 9000 is generic, not industry specific

It can be applied to any facility producing any

product or providing any service

2 Ways to Apply ISO 9000

Implement the standards simply for the sake of

improving a firms quality systems

ISO 9000 Registrationformal certification

that the facility satisfies the standard

Benefits:

Reduce frequency of quality audits by customer firms

Qualify for business partnerships with companies that

require ISO 9000 registration (especially in Europe)

It is an improvement methodology

Developed by Walter Shewhard in 1939

Known as Shewhard Cycle. In Japan it is known as

Deming Cycle because Dr. Deming introduced it first in

1950.

It is quite straight forward, but not intuitive.

Quality Improvement Methodology

Plan: Select the process for

improvement. Analyze it

and plan a change that willhave beneficial effect.

Do: Apply the change to small

scale.a test. It is critical step

and the hallmark for the

approach. Look for desiredeffect to further quality

improvement.

Check: Observe the effect of change. More than casual

observation. Study the resultswhy the occurred, how

they affect the process/ system.

Act: If results are as expected,

change the system. Otherwise, go to

the plan step to revisit the process to

analyze it again a prepare a new plan

Quality Improvement Methodology cont


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1. Quality involves product, defect, process, customer and

system

2. Quality is the ability of a set of inherent characteristics

of a product, system or process to fulfill requirements of

customers and other interested parties.

3. Quality is the forth among equals in relation to the

project triple constraint of time, cost and scope

4. Quality is not an expensive process, an expensive

product or time consuming

5. Quality benefits include customer satisfaction, reduced

costs, increased profits and increased competitiveness.

QualitySummary

Quality Assurance Plan

Work breakdown structure (WBS) reference number for the task

concerned

A statement of requirement

A statement of the specification that is specific and measurable

A description of the assurance activity

Schedule information

Designation of the responsible entityProject Quality Assurance Plan

Paretos Law

Vilfredo Pareto, Italian Economist

Wealth seems to be distributed in populations according to an

80/20 rule: 80 percent of the wealth is controlled by 20

percent of the population

The rule is also valid for defects in administration and

production process; 80% of the defects are caused by

20% of the possible source of error

Pareto chart forces to consider the data and go after the

things that have the most effect on the process

Paretos Law

Where to focus/concentrate for actionfor effective action, not

trail and error


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Collaboration


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CE 401 Project Planning and Management


as a Construction Manager

Complete project on time and within budget What effect does accident/injury have on company?

Workers Compensation

Property damage

Loss of time due to accident investigation

Employee morale

Employee safety Moral obligation (humanitarian concerns)

Economic terms ( financial concerns)

Then & Now

1970

56 million workers

3.5 million worksites

14,000 + deaths

2.5 million workersdisabled by accidents &injuries

10 times as manyperson-days lost from

job related disabilitiesas from strikes

300,000 newoccupational diseasecases

2000

105 million workers

6.9 million worksites 5,915 deaths

Workplace deaths havebeen more than cut inhalf

Occupational injury andillness rates havedeclined by 40%


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Occupational Safety and Health Administration (OSHA)

Created by OSH Act of 1970

Also known as Williams-Steiger OSH Act of 1970

Signed into law December 29, 1970 by Richard Nixon

Imposed nationwide safety standards

General industry

Construction

Strict employee S & H standards

Covered employees

Enforce same standards for inspections,investigations, record-keeping requirements, and

enforcement procedures

OSHA

The Most Frequent Causes of Deaths in

Construction

OSHA has found that 90% of all construction fatalities

result from 4 types of construction accidents:

Falls from elevation 33% Struck by equipment/falling object 22%

Caught in/between 18%

Electrical shock 17%

Statistics show that new employees on the job for one

month or less account for 25% of all construction

accidents

Overexertion

Struck by an object

Falls from elevation

The Most Common Type of Construction injury:

The Most Affected Area of the Body by injury:

Back 21% Lower extremities 12%

Torso and fingers 10%

The Most Common injuries in Construction

Construction Safety

Safety is the control of recognized

hazards to attain an acceptable level ofrisk

A hazard is anything in the workplace that

has the potential to harm people. Hazards can

include objects in the workplace, such as

machinery or dangerous chemicals.

Safety is the absence of danger


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Construction Safety

A probability or threat of damage, injury,

liability, loss or any other negative occurrence

that is created by external or internal

vulnerabilities

What is vulnerability then?

Risk is the probability of loss

Video Time!

Personal Protective Equipment (PPE) on

Site

Most construction sites require at least:

Hard hat

Safety Boots

Hi-viz jacket

Safety Glasses

Wear them always for safety

General Contractor as Prime

Meet general duty clause

Keep workers informed

Know mandatory OSHA standards

Comply with all regulations, rules, standards

Inspect workplace

Minimize or eliminate potential hazards

Warn employees of potential hazards


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Provide training per OSHA standards

Provide employees with proper equipment

Provide medical examinations as needed

Report fatalities (within 8 hours)

Report hospitalizations ( more than 3 employees,

within 8 hours)

General Contractor as Prime cont.

Keep OSHA-required records

Post required records

Post OSHA poster

Provide employee access to OSHA records

Employee medical and exposure records

Ethical use of rights under OSHA

Comply with OSHA standards

Follow employer mandated safety program

Use correct PPE

Report hazardous/dangerous conditions

Report job-related injury or illness

Cooperate with OSHA inspection

Employee Responsibility

Common Mistakes in Construction Site

Common Mistakes in Construction Site


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Accident?

Mishap or Near Miss

Injury?

Accident that Hurts Someone

Many Accidents Occur

Most Cause No Injuries

Most are not Reported

Accident Vs Injury

Because We Dont Know Which Accidents will Cause

Injuries

The Goal is to Prevent All Accidents

Which Accidents will Cause

Injuries?

We Dont Know!

Accidents!

Accidents are Opportunity to:

Recognize Hazard And Take 3 Steps

Step 1: Reporting Accidents

Step 2: Investigating Accidents

Step 3: Eliminating Accidents

Accidents!

Realize that it Happened:

Practice Incident Recall

Report Accidents Immediately

Any Free Warnings Today?

Step 1: Reporting Accidents


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Step 2: Investigating Accidents

Determine the Cause:

2% - Acts of God

10% - Unsafe Conditions

88% - Unsafe Acts of People

Examples of unsafe act:

Inattentiveness

Carelessness

Creating Unsafe Conditions

Eliminate the Causes:

Removing Unsafe Conditions

Changing Unsafe Behavior

Step 3: Eliminating Accidents

7 Principles to prevent accident!

Strategies for control and management of Health and Safety

at work in Construction industry:

1. Avoid a ri sk altogether by eliminating hazards

2. Tackle risks at source

3. Adapt work to the individual when designing work areas and

selecting method of works

4. Use technology to improve conditions

5. Give priority to protection for the whole workplace rather than to

individuals

6. Ensure everyone understands what they have to do to be safe and

healthy at work7. Make sure that Health and Safety Management is accepted by

everyone

if followed accident prevention is more likely to achieve

All accidents are preventable.

No job is worth getting hurt for

Every job will be done safely

Incidents can be managed

Safety is everyones responsibility


Safety as a way of life for 24 hours/day

All individuals have the responsibility and accountabilityto identify eliminate or manage risks associated with theirworkplace

Legal obligations will be the minimum requirements forour health & safety standards

Individual will be trained and equipped to have the skillsand facilities to ensure an accident free workplace

Basic Safety Philosophy for Success


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Contract Close-out

Contract close-out is the final project procurementmanagement process. It includes:

Product verification to determine if all work wascompleted correctly and satisfactorily.

Administrative activities to update records to reflectfinal results.

Archiving information for future use.

Procurement audits are often undertaken during contractclose-out to identify lessons learned in the procurement

process.

It is very important to prepare contracts with great care andexpert assistance. It is equally important to initiate andfollow effective contract administration procedures.

Tendering/Bidding Method

Open Tendering Method (OTM)

Limited Tendering Method (LTM)Request For Quotation Method (RfQM)

Public bidding, resulting in low prices Published in newspapers Quotations must be sent in the specific forms that aresold, before the time &date mentioned in the tender

form

In technical items, two packets or two bins system isfollowed. Offers are given in two separate packets. Technical bid Financial bid

Open Tendering Method (OTM)

A bidding process that is open to all qualified bidders

and where the sealed bids are opened in public for

scrutiny and are chosen on the basis of price and

quality

First technical bid is opened & short listed

Then financial bid of selected companies are opened &

lowest is selected

Delayed tenders & late tenders are not accepted. But if, in

case of delayed tenders, if the rate quoted is very less, then it

can be accepted.

Quotations are opened in presence of indenting department,

accounts & authorized persons of party

Validity of tendersgenerally 90 days

Open Tendering Method (OTM) .Cont.


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Material Management

PURPOSE OF MATERIAL MANAGEMENT

To gain economy in purchasing

To satisfy the demand during period of replenishment

To carry reserve stock to avoid stock out

To stabilize fluctuations in consumption

To provide reasonable level

of client services

Objective of MM

Right price

High turnover

Low procurement

storage cost

Continuity of supply Consistency in quality

Good supplier relations

Development of personnel

Good information system

Objective of material management

PrimaryRight price

High turnoverLow procurement

& storage cost

Continuity of supply

Consistency in quality

Good supplier relations

Development of

personnel

Good information

system

SecondaryForecasting

Inter-departmental

harmony

Product improvement

Standardization

Make or buy decision

New materials & products

Favorable reciprocal

relationships

Four basic needs of Material management

1. To have adequate materials on hand when needed

2. To pay the lowest possible prices, consistent with quality and value

requirement for purchases materials

3. To minimize the inventory investment

4. To operate efficiently

Elements of material management

1. Demand estimation

2. Identify the needed items

3. Calculate from the trends in Consumption during last 2 years.

4. Review with resource constraints

Material Management

The underlying spectrum is to provide effectiveness to a function that

must start fromplanning stage and will end when the finishedproduct is

finally distributed:

1. Planning sets the Goal and indicates the available sources offinance.2. Scheduling specifies the requirements, the quantum and the delivery

schedules.

3. Purchasing and Procurement select and retain vendors; and contracts

with them.

4. Inspection and Quality control conduct test checks forconformance to

specifications.

5. Stores and Inventory control determine inventory status, undertake

maintenance and upkeep.

6. Material Handling controls physical movement at any stage the

material is.

7. Distribution Logistics controls flow and distribution, and finally,

traffic, shipment and despatch conclude with final delivery.

Spectrum of Control


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Inventory

Typically Inventory implies a list of items held in stock.Stockimplies the Quantity ofaparticularitem on hand.

Inventory is a stock of Materials used to facilitateProduction orto satisfy Customerdemands. It include Raw-materials, Work-in-progress and Finished goods.

Inventory acts as abufferbetween the demand and supplyrates ofdifferent nature.

Inventories are vitalto the successful functioningofManufacturing &Retailing organisations.

Raw Material and Production Inventories: These are rawmaterials and other supplies, parts and components whichenter into the product during the production process and

generally form part of the product. In-process Inventories: These are semi-finished materials,and partly finished products formed at various stages of

production. Also named as Decoupling Inventories todecouple or disengage different parts of the productionsystem. MRO Inventories: Maintenance, repairs and operatingsupplies which are consumed during the production processand generally do not form part of the product itself arereferred to as MRO Inventories. e.g. oils and lubricants,machinery and plant spares, tools and fixtures etc.

Type of Inventory

Lot-size Inventories: It is a commonpractice to buy some

raw materials in Large quantit ies than are necessary for

immediate need in order to avail quantity discounts and

lowering down costs of buying, receiving, inspection,

transport and handling. It is also termed as Cycle inventories.

Fluctuation Inventories: In order to cushion against

unpredictable fluctuation in demand these are maintained. The

generalpractice ofserving the customerwell is the reason for

holding such Inventories. But they are not absolutely essential

in the sense that such stocks are always uneconomical.

Type of Inventory

Anticipation Inventories: In case ofseasonal variations in the

availability of some raw materials, it is convenient and also

economical to build up stocks where consumption patternsmaybe reasonably uniform andpredictable. Such inventories

are carried to meetpredictable changes in demand.

Type of Inventory

6 types of inventory


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Inventory control system is either Manual or Computerized or a

combination of two. It performs following functions:

1. Transaction Accounting: Every Inventory system requires a

method of record keeping, which must support the accounting

needs of the organization and the inventory management

function.

It requires the Perpetual (never ending or changing) records be

kept by recording every disbursement and receipt. In some other

cases, periodic counts e.g. annual of the inventory may be

required.Whatever the exact method used, every Inventory control system

requires a suitable transaction accounting to follow with.

Inventory Control System

2. Inventory Decision Rules: A decision system is to be developed

regarding when and how much to order

3. Exception Reporting: A reporting system so as to alert

Management to changing assumptions e.g. Stockouts, Excessive

Inventory, Forecasting not meeting demand schedules

4. Forecasting: Judgment plays a Vital role in forecasting,

however, to modify Quantitat ive forecasts for unusual events

5. Top Management Reporting: The reports should include (a)

costs of operating the Inventory, (b) Investment levels at a time

compared with other periods, (c) the Service levels provided to

customers etc.

Inventory Control System

ABC Inventory Classification: The rationale of ABCclassification is the impracticality of giving an equally highdegree of attention to the record of every inventory item, dueto limited information- processing capacity

But, in a modern computerized well-implemented planningsystem, every item, irrespective of its cost and volume, canreceive the same degree of care and attention

ABC analysis leads to classification of Inventory items on the

basis of their USAGE in monetary terms

AHigh consumption value items .BModerate consumption value items.

CLow consumption value items.

Selective Inventory Control (SIC)

A B C

% age of items 10-20 20-30 60-70

% age of value 70-85 10-25 5-15

Where should we focus? Concentrate?

FSN Analysis: FSN Study may be made to weed out

(discard/remove) unwanted materials and parts. It is based on the

Consumption pattern of items

F - stands for Fast

S - stands for Slow moving

N - stands for non-moving materials and parts

This speed classification helps in the arrangement of stocks in the

stores and in determining the distribution and handling patterns



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VED Analysis: VED Analysis is also the same in principle.

The only difference is that it finds out which materials and

parts are valuable, which are essential, and which are desirable.

Inventory items are classified on the basis of their criticality to

the production process or other services.

V Vital items without which the production process would

come to a standstill

EEssential items whose stock-out might cause temporary

losses in production.

DDesirable items which are required but do not immediately

cause a loss of production.This is also essentially meant for a sizeable reduction in

inventory


HML Analysis: Similar to the ABC analysis except that the items

are classified on the basis of Unit Cost rather than their Usage

value.

H stands for High cost per unit.M stands for Medium cost per unit.

L stands for low cost per unit.

SDE Analysis: SDE Analysis works on the criteria of availability

of items.

S stands for Scarce items

D stands for Difficult to obtain

E stands for Easily available

S-OS Analysis: This analysis is based on the nature of Supplies.

S stands for Seasonal items

OS stands for Off-seasonal items


GOLF Analysis: This analysis is based on the Source of Supplies

G stands for Government Sources

O stands for Ordinary Sources

L stands for Local Sources

F stands for Foreign Sources

This is meant for deciding Procurement of materials from different

sources.

XYZ Analysis: XYZ analysis is based on the criteria of Closing

Inventory value of different items.

XItems whose Inventory value is high.

YItems whose Inventory value is neither too high nor too low.

ZItems with Low investments in them.Summary: The various types of analysis are not mutually exclusive.

They can be, and often are, used jointly to ensure better control over

MATERIALS


TITLE BASIS MAIN USES

ABC Analysis Usage value To control on the Significant few &the Insignificant many

FSN Analysis Consumption patternof the Component To control Obsolescence

VED Analysis Criticality of theComponent

To determine the Stocking Levels ofSpare parts

HML Analysis Unit Price of theMaterial

To control purchases

SDE Analysis Problems faced inProcurement

Lead-time analysis and PurchasingStrategies

SOS Analysis Natureof Suppl ies Procurement/ Holding Strategies for Seasona l i tems l ike Agricu lturalproducts

GOLF Analysis Sourceof mater ial Procurement Strategies

XYZ Analysis Value of items inStorage

To review the Inventories and theirUses at Scheduled intervals

Summary of SIC


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CE401 Project Planning and Management


Engineering Economy

It deals with the concepts and techniques of analysis

useful in evaluating the worth of systems, products, and

services in relation to their costs

Engineering Economy:

Basic Concepts

Cash flow

Interest Rate and Time value of money

Equivalence technique

Cash Flow

Engineering projects generally have economic consequences

that occur over an extended period of time

For example, if an expensive piece of machinery is

installed in a plant were brought on credit, the simple

process of paying for it may take several years

The resulting favorable consequences may last as long as

the equipment performs its useful function

Each project is described as cash receipts or disbursements

(expenses) at different points in time

First cost: expense to build or to buy and install

Operations and maintenance (O&M): annual expense,

such as electricity, labor, and minor repairs Salvage value: receipt at project termination for sale or

transfer of the equipment (can be a salvage cost)

Revenues: annual receipts due to sale of products or

services

Overhaul: major capital expenditure that occurs during

the assets life

Categories of Cash Flows


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Cash Flows Examples

Time Value of Money

Money has value

Money can be leased or rented

The payment is called interest

If you put $100 in a bank at 9% interest for one

time period you will receive back your original

$100 plus $9

Original amount to be returned = $100

Interest to be returned = $100 x .09 = $9

Copyright Oxford University Press 2009

Should the existing equipment be retained or replaced?

The Defender is the existing equipment.

The Challenger is the best available replacement

equipment.

If the defender proves more economical, it will be

retained. If the challenger proves more economical, it

will be installed.

Replacement Analysis

Reasons for Replacement

Deterioration

Higher O&M costs; less reliability than anticipated

Requirement change

Consumer wants more/less/different

Technology

New technology provides new challengers

Financing

Better interest rates

Use to determine whether an existing assetshould be replaced with a new asset


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The objective is to address the question of whether a currently

owned asset should be kept in service or immediately

replaced

Replacement Studies

What to do with an existing asset?

Keep it

Abandon it (do not replace)

Replace it, but keep it for backup purposes

Augment the capacity of the asset Dispose of it, and replace it with another

The second and third reasons are sometimes referred

to as different categories of obsolescence.

Three reasons to consider a change.

Physical impairment (deterioration)

Altered requirements

New and improved technology is now available.

Replacement Studies

When examining whether to continue using(economically) an existing process or product(equipment), the calculation is called a replacementstudy

Any of the basic methods will work for comparison,but the annual cost method is most common

Existing equipment is sometimes called thedefenderand the new is the challenger

Salvage in replacement studies is an estimate of

future value (F)

Replacement Studies

Economic life- when the cost to keep an asset (O & M)

exceeds the value (revenue) it can produce.

Cost to keep is sum of amortized initial cost (decreasewith time) PLUS the operating cost (increase with time)

Summation of amortization and operation produces a

U-shaped curve

$

operation

amortization

time

$

Economic lifetime

$

Economic lifetime

$

Economic life

Replacement Studies

time


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Acme owns a CNC machine that it is considering

replacing. Its current market value is $25,000, but it can

be productively used for four more years at which time

its market value will be zero. Operating and maintenance

expenses are $50,000 per year

Acme can purchase a new CNC machine, with the same

functionality as the current machine, for $90,000. In four

years the market value of the new machine is estimated to

be $45,000. Annual operating and maintenance costs will

be $35,000 per year.

Should the old CNC machine be replaced using a before-

tax MARR of 15% and a study period of four years?

Replacement Studiesexample 1

PW of the challenger is greater than PW of the defender

(but it is close).

Challenger

Defender


An asset purchased 2 years ago for $40,000 is harder to maintainthan expected. It can be sold now for $12,000 or kept for amaximum of 2 more years, in which case its operating cost will be$20,000 each year, with a salvage value of $9,000 two yearsfrom now. A suitable challenger will have a first cost of $60,000with an annual operating cost of $4,100 per year and a salvagevalue of $15,000 after5 years. Determine the values ofP, A, n, and S for the defender and challenger for anAW analysis.Interest rate is 10%. What is the decision?


Defender: P = $-12,000; A = $-20,000; n = 2; S = $9,000

Challenger: P = $-60,000; A = $-4,100; n = 5; S = $15,000

An asset purchased 2 years ago for $40,000 is harder to maintainthan expected. It can be sold now for $12,000 or kept for amaximum of 2 more years, in which case its operating cost will be$20,000 each year, with a salvage value of $10,000 after 1 yearor $9000 after two years. A suitable challenger wi ll have anannual worth of $-24,000 per year. At an interest rate of 10% peryear, should the defender be replaced now, one year from now,or two years from now?


Solution: Defender AW

AWD1 = -12,000(A/P,10%,1) 20,000 + 10,000(A/F,10%,1) = $-23,200

AWD2 = -12,000(A/P,10%,2) 20,000 + 9,000(A/F,10%,2) = $-22,629

ESL is n = 2 years; AWD = $-22,629

AWD2 = -12,000(A/P,10%,2) 20,000 + 9,000(A/F,10%,2) = $-22,629

ESL is n = 2 years; AWD = $-22,629

Challenger AW = $-24,000 Replace defender in 2 years


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Video Time!


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