Project Management

Project Management, Management of Technological Innovation, KV Patri

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What is a ‘project’?

• “The entire process required to produce a new product, new system or other specific result.” [Archibald, 1992]

• A narrowly defined activity which is planned for a finite duration with a specific goal to be achieved.” [General Electric]


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Project Management


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Project Management


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Types of Projects

Derivitive Projects—involving small changes to existing products and systems (incremental innovation).

Breakthrough Projects—those which create new markets or products and require significant resources and a strategic view (e.g. digital camera).

Platform Projects —projects which involve significant incremental improvements but still linked to same basic platform (e.g. VCR)


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• R&D Projects—future oriented, speculative but exploring where the company might be in five years or more (NASA).

• Alliances—cross-company projects, designed to share costs and risks, but also posing problems of cooperation and coordination (e.g. Concord)


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LEARNING EFFECT

Total number ofunits produced (x)

1 2 4 8 16

Man-hours requiredfor last unit (y) 100 80 64 51.2 40.96

y = ax-b

where a and b are constants


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1

2

4 8 16 Output

Man-hours forlast unit Learning curve

On linear plot


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log (Output)

log(Man hours

for last unit)Learning Curve

log-log plot


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• Companies may exploit learning effect when launching innovations by setting the initial price below current production costs. They could then increase their market penetration.

• The method will succeed only if

- continuing learning improvements are maintained, and

- the anticipated sales are indeed realized (perform risk

analysis), and

- the continued exploitation of learning effects from a

successful product is not allowed to constrain

technological flexibility.


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Purchasing lead time distribution

Time of order placement

Timecomponentneeded

T t* Time, t


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Lead time cumulative distribution

T t* Time, t

100%


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periodper cost penalty P

periodper cost holding C

whereCP

P-T*)*F(t

where*T T optimum

shown that becan It

T)dt]-F(t-[1PT)dt-F(tMIN[Cfor T

Cost)] E(HoldingCost)lty MIN[E(Penafor T*t

T *t


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• C = Ct .Ch . awhere Ct = total project cost

Ch = holding cost proportion of total cost

a = proportion of purchased items contained in the total cost

• P = Ct . Cpwhere Cp = penalty cost proportion of total cost

Hence,

F(t*-T*) = Cp / (Cp + Ch . a)

= 1 / {1 + a . (Ch/Cp)}


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• In mass production, usually, a is very large (say, 90%). Hence we can assume that a = 1.

• Further, Ch is much larger than Cp.

• Hence F(t*-T*) approaches 0.

• Hence, in mass production, it is good practice to delay purchasing as much as possible. In other words, JIT is good in mass production.


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• In R&D, a is small, typically around 10%.• Hence, suppose, we assume that a is approaching

0.• Hence F(t*-T*) approaches 1.• This means that purchase orders must be placed at

the earliest possible opportunity (I.e. JIT is inadvisable).

• Hence, not surprisingly, managers in real-life R&D often feel that an order for a component should have been placed “yesterday”.


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Project Management Structures• Functional Structure—a traditional hierarchical

structure where communication between functional areas is largely handled by functional managers and according to standard and codified procedures.

• Lightweight Product Manager Structure —again a traditional hierarchical structure but where a product manager provides an overarching coordinating structure to the internal functional work (popular in HK).


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• Heavyweight Product Manager structure—essentially a matrix structure led by a product (project) manager with extensive influence over the functional personnel involved but also in strategic directions of the contributing areas critical to the project. By its nature this structure carries considerable organizational authority.

• Projection Execution Teams—A full time project team where functional staff leave their work areas to work on the project, under project leader direction.


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Professional Group

• An organizational unit concentrating human and capital resources that are specialized and dedicated to a specific professional activity (e.g. mechanical engineering, mechatronic engineering, design for manufacture, electronic circuit design).

• Permanent in nature.• The same specialists perform similar professional tasks for a

number of projects.• The structure enables accumulation of expertise and

experience, which in turn elevates the professional level of the group.


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Professional Groups

Gp 1

Project m

Gp nGp jGp 2

Project i

Project 2

Project 1

Matrix Organization

Many tasks in projects are not repetitive.Professional know-how is the most importantresource.


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R&D Project Steering Committee

Members (Senior Management)

Controlling/AccountingMarketing/SalesProduction/LogisticsQuality AssuranceR&DTechnical Services

Project Managers (Temporary)

To decide on

Prioritization of Projects

Major Project Decisions(e.g., Milestones/Gate

Go/No GoStart/Stop Project)

Conflicts between projectsMajor risks in projects


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4 Roles of a Project Team

Person to Give a Mission• Starts the project

• Defines a rough goal•Will benefit from the project

Person to Make Decisions• In-charge of resources

• Approves plans• Makes strategic decisions• Approves milestones/gates

• Relieves project teams at the end

Project Manager• In-charge of organizing, planning and coordinating all necessary tasks

to reach the project’s goals.

Member (Project Team)• Actively involve in the lay-outing and planning of the project

• In-charge of doing specific tasks in accordance with project objectives and plan• Brings departmental know-how to the project


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4 Views of a Project

R&DProject Team

Marketing & Sales• All features are needed• Immediately available

• Best possible price

Production• No-changes!

• Proven technologies• Day-to-day priorities

• No errors

R&D• Hi-tec

• Unlimited time/budget?• Changes are okay• “Good” mistakes

Controlling• Highest price• Lowest cost

• Lowest investments

Guidance• Freedom• Creativity

Guidance• Discipline • Regulations


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Composition of a Cross-Functional Team

ProjectManager

Core Team (4-6)

Sub-Team4-6

Sub-Team4-6


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Who does what, where, and when in a Cross-Functional Team?

The Team needs to have:

Cooperation RulesCommunication rulesDefinition of Phases and GatesandUnderstood and Agreed Project Goals


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Start Finish

Working Progressto be applicable

Random Conditionsto be met

INTERFACES IN A PRODUCT DEVELOPMENT PROCESS

Human Interfaces

Market Interfaces

Technology Interfaces

Process Interfaces

Time Lag

Pre-Resultsto be

available

P-R1

P-R3

P-R2

Input Output

Task


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Controller-PCB

Device Driver

Hard-Disk

Chip-set

WORK-BREAK DOWN STRUCTURE (e.g. Computer)


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Coomunication System

System Tasks

AntennaTasks

SpacePackaging

MicrowaveTasks

S1 A1 M1 P1S1 A1 M1 P1S1 A1 M1 P1

... ... ... ...

work packages

Work Distribution Structure: “A product oriented familytree composed of hardware, services and data which result fromproject wngineering efforts during the development andproduction of a product, and which completely defines theproject.” [US MIl-STD-881A]


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Simplified Program Evaluation and Review Technique

(PERT)

S1, A1, M3, etc.: Task duration times


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P(t)

Time, tP(t): the probability of finishing the task at time t

S1 is decided by the project team by guessing theprobability density from past experience.


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Simplified Program Evaluation and Review Technique

(PERT)

Task duration times in weeks

2


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Critical Path and Project Duration

• The Critical Path is the path through the network that requires the longest time.

• Most PERT software enable the determination of the critical path automatically once the PERT network has been encoded.

• Project duration should be set at at least the duration of the critical path.


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ExerciseHighlight the critical path and calculate the

minimum project duration.

2


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Project members must be made aware of the queuing problem

• Tasks are performed by individuals or machines at the request of others. Let us call the task as the service and the person requesting it as the customer.

• Consider a single service station. A customer arriving at the station is served immediately if the server is free. If the server is busy, the customer joins a queue.When the server finishes serving a customer, this customer leaves the service station and the next customer in line, if one is waiting, enters service.


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The Ideal Queue-less Situation• Suppose the customers arrive in a perfectly synchroinized

and deterministic way; that is, each customer arrives at the service station exactly at the moment the service has been completed for the previous customer. Clearly, there are no customers waiting in line and the server is always busy. No time is wasted by the customer or by the server.

• In mass production, this ideal situation may be achieved by careful line balancing (a popular IE task).

• In batch production, this is difficult. But, one can work towards the goal by applying the ‘Just In Time’ (JIT) technique.

• But, a project is a one off exercise.


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The situation with projects is non-deterministic.

Now suppose customers arrive, as they usually do, without prior coordination; that is, they arrive at the service station at random. Although arrival times vary randomly, the average arrival rate is arrivals per unit time. Similarly, the duration of service each customer gets varies randomly with an average service rate of customers served per unit time. Can you see that queues can be built up and their length can fluctuate randomly. The problem is not deterministic. We need to apply the Theory of Probability.


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Applying Probability Theory to the Queuing Problem

• Usually, arrival and service times are assumed to follow the Poisson Distribution:

f(x) = x exp(- )/x!

• Then the following expressions can be derived:


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• LF = loading factor

= ratio between the average arrival rate and the average

service rate = /

• L = the average number of customers in the station

= (/)/(1- /) = LF/(1-LF)

• W = the average amount of time customer spends

in the station

= 1/(- )

• Lq = length of queue

= the average number of customers waiting in line

= /(- )


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• Wq = the average amount of time a customer spends

waiting in line

= /(- )

• P0 = the probability of finding the server idle

= 1- / for = 1-LF

Note that

• arrival rate has to be smaller than the service rate .

• the bigger the loading factor, the larger will be the number of customers at the station, the longer will be the waiting lines and the waiting time.

• if the loading factor is smaller than 1, the server must remain idle for periods of time.


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Exercise

Suppose the mean arrival rate is 1 every 10 minutes, and the mean service rate is 1 every 8 minutes. Calculate

a. the number of customers at the station

b. the average amount of time a customer will stay in the station

c. the probability of finding the server idle

d. the magnitude of the probability of finding the server idle if we want on average only one customer in the station. (Ans.: 4, 40 min, 20%, 50%)


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Cost of Waiting in Line:The number of projects running in parallel in a high-

technology company during a given financial year was 30.

The average number of critical working packages (WP)s delayed per project in this period was 5.

On average the number of days a critical package had to wait in line during this period was 12.

The average cost per day suffered by idle project teams while waiting for critical work packages was 10 employees*8 hours/day*$200/hour = $16,000/day.

Calculate the cost of waiting line.


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SolutionThe average cost per project for waiting in line

= $16,000 per day*12 days*5 times = $960,000

The total cost added to the company by all the projects running in parallel during the year

= $960,000/project*30 projects= $28,800,000.


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Cost of Underutilization of Capacity: Exercise

The number of professional groups in a high technology firm is 20. The average hourly cost in 6 of the groups is high and amounts to $500. The average hourly cost in 6 of the groups is moderate and amounts to $200. The average hourly cost in 8 of the groups is low and amounts to $50. During the financial year approximately 600 work hours were wasted, on average, in each of the high-cost professional groups, because of periodic lack of adequate work load. The numbers for the moderate-cost and low-cost professional groups were 500 and 700, respectively.

Calculate the cost of underutilization of capacity.


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SolutionThe cost of underutilization of capacity in the high-cost

professional groups = $500*600*6=$1,800,000.

The cost of underutilization of capacity in the moderate-cost professional groups = $200*600*6=$600,000.

The cost of underutilization of capacity in the low-cost professional groups = $50*600*6=$320,000.

The total cost of underutilization of capacity = $2,920,000


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Cost of Delayed Projects: Case StudyIn a high-technology company running 30 projects

in parallel, the number of projects delivered after the promised date last financial year was 12. The contractual penalty for one of the projects was 0.1 per cent of the contract value of $30 million for each day of delay, with a ceiling of $500,000. This project was late 45 days and would have cost the company a direct penalty of $30,000/day*45 days = $1,350,000. Thanks to the ceiling clause in the contract, the direct penalty was limited to $500,000.


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Another project worth $10 million missed the due date for the end of the year hoilday season. The products were sold at a discount rate of 20 per cent, causing the company a loss of $2,000,000.

The average penalty and lost opportunity cost for the remaining 10 projects amounted to approximately $150,000 per project, giving a yearly cost of 10*150,000 =$1,500,000.

For the total company, the cost of delayed projects =$4,000,000.


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The queuing penalty is the most important cause for delays and cost overruns in multiproject/product, high technology organizations with substantial research and development content. Contrary to the accepted thinking that the cost and delivery of an R&D project are hard to predict because of the inherent uncertainty of the duration (and cost) of the individual work packages, the examples show that this kind of thinking is doubtful, if not completely wrong.

Date post:	24-Jun-2015
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Project Management

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