Operations Management II – ORM2B14-3

Session 11 Project Management +

Constrained Process

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ORM2B14-3 – Syllabus and Tentative

Evaluation (Session 11 to 15)

Syllabus

Project Management Basics

Theory of Constraints (TOC)

Critical Chain Project Management (CCPM)

Scheduling and Sequencing

Total Productive Maintenance (TPM)

Tentative Evaluation

Quiz – 15 Marks (Open Book, date will be given on

AIS)

End-term component – 10 marks (Open Book)

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Topic: Project Management

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Project Management

Project

A unique set of activities meant to produce a defined

outcome within an established time frame using

specific allocation of resources.

A project is a temporary endeavor undertaken to

provide a unique product or service or result – PMBOK

Guide

Project management

Project management is a process of developing

substantive, systematic data about each parameter in

order to maximize the effectiveness of tradeoff decision.

Parameters Time/ Resource/ Result

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Project Management – Steps

Define and organize the project

Establish the project organization

Define the project parameters

Plan the project framework

Assemble the project definition document

Contract specification

Plan the project

Develop Work Breakdown Structure (WBS)

Develop the schedule

Analyze resources

Optimize tradeoff

Develop risk management plan

Track, manage and close the project

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Stage 1 – Define and Organize the

Project

Establish the project organization

Roles and responsibilities RACI matrix

Designate Project manager – Skill-sets

Knowledge about Application area, standards and

regulations

Soft skills like general management and

interpersonal skill

Knowledge about project environment

Develop „Team Roster‟

Define the project parameters

Project Objective Statement – Scope/Schedule/Resource

Major deliverables – „Is/Is Not‟ issues, Target dates

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Stage 1 – Define and Organize the

Project – Contract Specification

Fixed price or lump sum

Cost-plus fixed fee

Cost-plus incentive fee

Fixed price incentive fee

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Cost-Plus-Incentive-Fee (CPIF)

Contract – Example

Total fee may be limited between maximum and minimum

fee

Contract Agreement:

Cost estimate = Rs. 100,000

All allowable costs will be reimbursed

Target Fee = Rs. 10,000

Minimum Fee = Rs. 5,000

Maximum Fee = Rs. 15,000

Target Price = 110,000

Gain Sharing Ratio = 70/30

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CPIF Contract – Example – Continued

Contractor‟s

Cost

70,000 80,000 90,000 100,000 110,000 120,000

Fee Min

(19000,

15000)

= 15000

Min

(16000,

15000)

= 15000

Min

(13000,

15000)

= 13000

Min

(10000,

15000)

= 10000

Max

(7000,

5000)

= 7000

Max

(4000,

5000)

= 5000

Final Price 85,000 95,000 103,000 110,000 117,000 125,000

Profit % 21.43% 18.75% 14.44% 10% 6.36% 4.16%

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Fixed-Price-Incentive-Fee (FPIF)

Contract

Puts Price Ceiling and Price Floor

Point of total assumption

Contractor assumes all liability for additional cost

Example – Contract Agreement:

Cost estimate = 100,000

Fee = 10,000

Target price = 110,000

Gain Sharing Ratio = 70/30

Minimum and Maximum payable by client

including fee and reimbursement

Price Floor = 75,000

Price Ceiling = 125,000

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FPIF Contract – Example – Continued

Point of total assumption (PTA) = ((Ceiling Price – Target

Price)/Buyer's Share) + Cost Estimate

Contractor‟s

Cost 40,000 60,000 100,000 121,428 125,000 140,000

Estimated

Profit

28000 22000 10000 3572 3572 –

(125000

–

121428)

3572 –

(140000

–

121428)

Final Price Max

(68000,

75000) =

75000

Max

(82000,

75000) =

82000

Max

(110000,

75000) =

110000

125000 125000 125000

Actual Profit

% 87.5% 36.67% 10% 2.94% 0% – 10.71%

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Stage 2 – Plan the project – WBS

Components

Clear, comprehensive Statement of Work (SOW)

Resource requirements

Time

Cost

Responsibility

Outcomes

Inputs

Quality assurance

If any of the properties can not be defined

The task is too broad

Must be broken down further

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Stage 2 – Plan the project – Develop

the Schedule

Input WBS

Identify all the dependencies

Finish – Start (FS)/ Start – Start (SS)

If required Add new tasks or identify redundant tasks

Go back to WBS step to include/exclude task

Create Network diagram

Assign duration for each task

May be expressed with range

Critically examine if time requirement is long or can

not be identified

Identify „Milestones‟

Create “Gantt Chart”

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Network Diagramming Method –

Example

Activity Duration Predecessor

A 2 --

B 2 --

C 1 --

D 4 A

E 5 B

F 8 B

G 3 C

H 1 D

I 4 E

J 5 F, G

K 3 H, I

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Network Diagramming Method –

Activity on Arc

Node Number

Early Start Time

Late Start Time

Predecessor Successor

Duration, Resource

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Network Diagramming Method –

Solution

1 3

4

2 5

6 8 9

7

A, 2

D, 4

B, 2

C, 1

E, 5

F, 8

G, 3

I, 4

H, 1

J, 5

K, 3

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Early Start and Late Start

Early Start (ES) Rule Forward pass

For “one arrow” entering the Node Early time =

Early time at previous Node + Activity time

For “multiple arrows” entering the Node Early time

= Max {Early time} considering all entering arrows

Late Start (LS) Rule Backward pass

Last Node time = “Completion Date” from ES Rule

For “one arrow” exiting the Node Late time = Late

time at next Node – Activity time

For “multiple arrows” exiting the Node Late time =

Min {Late time} considering all exiting arrows

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Solution – Problem – ES and LS

Which one is critical path?

0 0

1

2 2

3

1 7

4

2 7

2

6 11

5

7 8

6

11 12

8

15 15

9

10 10

7

A, 2

D, 4

B, 2

C, 1

E, 5

F, 8

G, 3

I, 4

H, 1

J, 5

K, 3

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Example – Gantt Chart with ES

Act 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

A

B

C

D

E

F

G

H

I

J

K

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Project Risk Management

External (and uncontrollable)

Unpredictable

Regulatory/Natural hazard/Deliberate

Predictable

Market risk/Exchange rate/Inflation/Taxation

Internal (and controllable)

Non-Technical

Management/Schedule/Cost/Cash flow

Technical

Design/Technology/Performance

Legal (and controllable)

Licenses/Patent rights/Contractual difficulty/Lawsuit

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Topic: Constrained Process

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Constrained Process

Product A

Profit = Rs. 80/unit

Demand = 100/week

Production = 0.4 hours/unit

Product B

Profit = Rs. 50/unit

Demand = 200/week

Production = 0.2 hours/unit

Total available time = 60 hours/week

What will be maximum profit?

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Constrained Process – Another

Example

Product A

Profit = Rs. 80/unit; Demand = 100/week

Production = 0.4 hours/unit

Storage space = 4/unit

Product B

Profit = Rs. 50/unit; Demand = 200/week

Production = 0.2 hours/unit

Storage space = 5/unit

Total available time = 60 hours/week

Total available space = 800

What will be maximum profit?