Copyright 2013 John Wiley & Sons, Inc.

Chapter 6:

Project Management and

the Transformation System

6-2

Overview

6-3

Décor Cabinets

• Décor Cabinets adopted a goal of 100 percent on time delivery– Long-term customer loyalty

– Enhance profitability

• Having clear objective helped them assemble a project portfolio focused on that goal

• Meant declining some seemingly profitable project ideas

6-4

“Big Dig”

• Boston’s “Big Dig” highway/tunnel project is one of the largest, most complex, and technologically challenging highway projects

• Original cost estimate was $3 billion• Final cost was over $14 billion

1. Major underestimate of initial scope2. Lack of cost control

• Estimated benefit is $500 million per year• Expected to have a 78 year payback

6-5

Mississippi Power and Hurricane Katrina

• Primary and secondary storm center knocked out

• Third location had no electricity or running water

• Within days, had 11,000 repairmen• Needed housing, beds, food, water, 5,000

trucks, 140,000 gallons of fuel a day, 8,000 tetanus shots and much more

• Directing was a massive project

6-6

Introduction

• Project management concerned with managing organizational activities

• Often used to integrate and coordinate diverse activities

• Projects are special types of processes

6-7

Defining a Project

• Projects are a special type of process• Projects are a set of activities that, taken

together, produce a valued output• Each project is unique with a clear beginning

and end• They are performed infrequently and ad hoc,

with a clear specification of the desired objective

• Limited budget• Extremely important to the organization

6-8

Examples of Projects

• Constructing highways, bridges, tunnels and dams

• Building ships, planes, rockets, or a doghouse• Erecting skyscrapers, steel mills, and homes• Locating and laying out amusement parks,

camping grounds, and refuges• Organizing conferences and conventions• Managing R&D projects• Running political campaigns, war operations,

and advertising campaigns

6-9

Reasons for Growth in Project Operations

1. More Sophisticated Technology

2. Better-Educated Citizens

3. More Leisure Time

4. Increased Accountability

5. Higher Productivity

6. Faster Response to Customers

7. Greater customization for customers

6-10

Planning the Project

• Planning is probably the single most important element in the success of the project

• Will discuss:– Project portfolio– Project team– Actual project planning tools

6-11

The Project Portfolio

• Long-term purpose of projects is to achieve the organization’s goals

• Accomplished through the project portfolio– Also know as the aggregate project plan

• It is vital to consider the interactions among various projects

• Must manage projects as a set

6-12

Four Categories of Project

1. Derivative projects– Seek to make incremental improvements in the

output and/or process2. Breakthrough projects

– Seek the development of a new generation of outputs

3. Platform projects– Fall between derivative and breakthrough projects

4. R&D projects– Entail working with basic technology to develop

new knowledge

6-13

The Aggregate Project Plan

Figure 6.1

6-14

An Example of Aggregate Project Plan

Figure 6.2

6-15

The Project Life Cycle

• Project progress is rarely uniform• Tend to be either stretched or

exponential• With stretched, the project starts slow

but gathers speed during implementation• With exponential, there is continuous

activity but no output until everything comes together

6-16

Two Project Life Cycles (a) Stretched-S and (b) Exponential

Figure 6.3

6-17

Projects in the Organizational Structure

• In a functional organization, projects are frequently housed in the department with a major interest in its success– More generic projects might report to a vice

president

• Some organizations are structured by projects– Called projectized organizations

• Some firms use a matrix structure to get the benefits of both structures

6-18

Organizing the Project Team

• A team is required to run a project• Some team members report directly to the

project manager– Those having long-term relationship with project

– Those needing to communicate closely with project manager

– Those with necessary skills

• Not common for project manager to have reward authority

6-19

Four Major Attributes for Project Managers

1. Credibility

2. Sensitivity– To both politics and personalities

3. Leadership, ethics, and managerial style

4. Ability to handle stress

6-20

Project Plans

• Initiation of a project should include the development of a project charter– Also known as the project plan

• Elements form the basis for more detailed planning– Budgets

– Schedules

– Work plan

– General management

6-21

Elements of Project Charter

• Overview– A short summary of what the client expects from

the project• Goals, or scope

– Contains a more detailed statement of the general goals

• Business case– Describes the justification for the project

• General approach– Describes both the managerial and the technical

approaches

6-22

Elements of Project Charter (Continued)

• Contractual Aspects– Includes a complete list and description of all

reporting requirements, customer-supplied resources, liaison arrangements, and so on

• Schedule and milestones– This outlines the schedule and lists milestone

events

• Resources– The project budget and cost

6-23

Elements of Project Charter (Continued)

• Personnel– The project team, approvers, and other involved

departments

• Risk management plan– This covers potential problems that could affect the

project

• Evaluation method– Every project should be evaluated against

standards

6-24

Three Project Objectives

Figure 6.4

6-25

Work Breakdown StructureWork Breakdown Structure

Figure 6.5

6-26

Project Baseline Schedule

Figure 6.6

6-27

Complexity of Scheduling Project Activities

1. Large number of activities

2. Precedence relationships

3. Limited time of the project

6-28

Tasks Involved in Planning and Scheduling Projects

• Planning– Determining what must be done and which tasks

must precede others

• Scheduling– Determining when the tasks must be completed

– When they can and when they must be started

– Which tasks are critical to the timely completion of the project

– Which tasks have slack and how much

6-29

Scheduling the Project

• Schedule based on activities that must be conducted to achieve the project goals

• The Length of time each activity requires

• Order in which they must be completed

6-30

Terminology

• Activity– One of the project operations

• Event– Completion of an activity

• Network– Set of all project activities shown

graphically

6-31

Terminology (Continued)

• Path– A series of connected activities from start to

end

• Critical path– Any path that delayed will delay project

• Critical activities– The activities on the critical path

6-32

Project Scheduling with Certain Activity Times

• Inputs– List of the activities that must be completed – Activity completion times– Activity precedence relationships

• Outputs– Graphical representation of entire project– Time to complete– Critical path or paths with critical activities– Slack time– Early and late start/end times

6-33

Data for a Mortgage Refinancing Project

Figure 6.1

6-34

Network Diagram for Process Improvement Project

Figure 6.8

6-35

Activity Slack Time

TES = earliest start time for activity

TLS = latest start time for activity

TEF = earliest finish time for activity

TLF = latest finish time for activity

Activity Slack = TLS - TES = TLF - TEF

6-36

Project Scheduling with Uncertain Activity Times

• Inputs– Optimistic (to), most likely (tm), and pessimistic (tp)

time estimate for each activity

– Activity precedence relationships

• Outputs– Graphical representation of project

– Expected activity and path completion times

– Variance of activity and path completion times

– Probability project completed by specified time

6-37

Expected Activity Time and Variance of Activity Time

tt t t

t t

eo m p

p o

4

6

62

2

6-38

Six Sigma Activity Times

Table 6.2

6-39

Probability of Project Being Completed on or Before Time 23

Figure 6.9

6-40

Simulating Project Completion Times

Figure 6.10

6-41

Spreadsheet for Simulating The Network

Figure 6.11

6-42

Simulation Results

Figure 6.12

6-43

Project Management Software Capabilities

• A wide range of software packages are available

• Selection depends on project needs and cost

• Bigger projects need more powerful software

• More powerful software takes longer to learn

6-44

Microsoft Project’s Gantt Chart

Figure 6.13

6-45

PERT Chart Generated by Microsoft Project

Figure 6.14

6-46

Calendar of Activities Created by Microsoft Project

Figure 6.15

6-47

Goldratt’s Critical Chain

• In Critical Chain, Eliyahu Goldratt applies his theory of constraints to project management

• He focuses on three phenomena that bias completion times:

1. Inflated activity time estimates

2. Activity time variability with path interdependencies

3. Resource dependence

Slide on each of these

6-48

Inflated Activity Time Estimates

• Workers inflate time estimates• Inflated time estimates tend to create

even more problems1. Inflating the time estimate has no impact

on the actual probability distribution2. Workers remain silent when finish early3. Work tends to fill available time4. Workers may delay start of activity

6-49

Activity Time Variability with Path Interdependencies

• With random shocks and series activities, early completions offset late completions

• With random shocks and parallel activities, early completions cannot offset late completions

• Most projects a combination of these

6-50

Resource Dependence

• Some activities need the same scarce resource

• If this happens, then one activity must wait

• As a result, resource dependency can seriously delay a project

6-51

Goldratt’s Approach

• The amount of safety time needed for the critical path is less than the sum of the individual safety times– Same idea as with inventory

• Goldratt suggests reducing activity safety time and using some fraction as a project buffer

• Treats longest chain of consecutively dependent tasks as the critical chain

6-52

Project and Feeder Buffers

Figure 6.16

6-53

Controlling the Project: Earned Value

• One common control system for projects is the cost variance report

• Cost standards are determined through engineering estimates– They become the target cost

• Actual costs are then monitored• Feedback is provided to the project

manager

6-54

Cost-Schedule Reconciliation Charts

Figure 6.17

6-55

Earned Value Chart

Figure 6.18