Solution Manual For Project Management in Practice, 7th Edition Meredith

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Solution Manual for Project Management in Practice, 7th Edition Meredith Chapter 1-8

Chapter 1 The World of Project Management

This chapter introduces the topic of project management. Projects are defined as temporary endeavors undertaken to create a unique product or service. The chapter points out that recent interest in project management is based on a recognition that many organizational tasks do not fit neatly into business-as-usual. The significant differences between project management and general management are overviewed. The chapter points out that the two primary roles of the project manager are managing trade-offs among the three interrelated project objectives and managing risk. The three interrelated objectives of budget, schedule, and specifications are also introduced. In addition, two alternative project life cycles are presented and the importance of understanding this distinction is discussed. Also included in the chapter is a discussion of project selection including both non-numeric and numeric selection methods. The chapter concludes with a discussion of the aggregate project plan and an overview of the organization of the remainder of the text.

Cases and Readings Some cases appropriate to the subject of this chapter are: Harvard: 9-688-040 Boeing 767: From Concept to Production (A); 9-688-041 (B) 9-888-519 Videotape. This 19 page best-selling case shows how a massive corporation manages the evolution of an enormously complex and risky project from conception to manufacture. The 1page B case is a supplement update about whether Boeing needs to change the way they manage such projects. The video shows the assembly process of an airplane, compressing 10 weeks of work into ten minutes. Good introductory case to the idea of large-scale projects. An 18 page teaching note is available for this case (9-689-027).

Harvard: 9-396-311 BAE Automated System (A): Denver International Airport BaggageHandling System. This 15-page case describes the difficult, continually-delayed Denver airport project from the viewpoint of one of the contractors. Includes issues of budgeting, scheduling, planning, contracting, and other managerial aspects of this large project. There is also a (B) case, described in Chapter 7: Monitoring and Controlling the Project. A 32 page teaching note is available for this case (5-399-099).

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Harvard: 9-692-083 BMW: The 7-Series Project (A); 9-695-013 (B). This 20-page best-selling case describes the situation of a manufacturer with a high-quality product trying to select among two processes for producing its new model. The proposed project for initiating a new production process promises to eliminate start-up production problems and improve quality but may be less flexible for downstream product improvements. A 13 page teaching note is available for this case (5-692-094).

Harvard: 9-689-073 Plus Development Corp. (B) (Abridged); 9-693-064 (C). These two cases, normally meant to follow the (A) case (see Chapter 2), describe the need for this corporation to select between alternative methods of product development. The situation is exacerbated by competitors’ aggressive actions in the market and mixed results with current development procedures. A 21 page teaching note is available(5-690-093).

Some readings appropriate to the subject of this chapter are: J.K. Pinto et al. Lessons for an Accidental Profession (Business Horizons, March-April 1995).

This reading describes the common occurrence of someone suddenly being appointed a project manager and finding he or she has been inadequately trained for the task. Based on the authors’ own experiences and interviews with dozens of senior project managers, they distill twelve guidelines for new project managers. The guidelines run the gamut from project initiation, through planning, to execution, to close-out. Some are technical, some are uncommon sense, and many are philosophical, and sometimes political. But they are sage advice, not only for the novice but for the experienced project manager as well.

1. Cooke-Davies (2002). The real success factors on projects (International Journal of Project Management, vol. 20, #3, pp 185-190).

This reading uses three questions to question on which factors are critical to project success. The questions are: ‘‘What factors lead to project management success?’’, ‘‘What factors lead to a successful project?’’ and ‘‘What factors lead to consistently successful projects?’’ This paper is based on empirical research from more than 70 large multi-national or national organizations It i identifies 12 factors that are, in one way or another, critical to project success.

2. Thomas, G & Fernández, W. (2008), Success in IT projects: A matter of definition?

(International Journal of Project Management, 26, 733-742). This reading investigates how project management success is defined and measured within companies in different industries. The study was done in Australia and provides an international perspective on project success. The authors suggest that when success criteria are formally defined and then measured, IT project outcomes are improved and project resources are better utilized.

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Answers to Review Questions 1. What is the primary role of a project manager? How are the primary roles related to one another?

The primary roles of the project manager are managing the tradeoffs among the three project goals (cost, scope, time) and managing risk. The primary roles are related to one another in that to some extent they can be traded-off for one another. For example, managing risk is about managing uncertainty. One uncertainty is whether the project will be completed on time. One way to manage the uncertainty associated with the project being completed on time is to pad the project due date.

2. Contrast a project from a nonproject.

The difference between a project and a nonproject is not always crystal clear. At base, however, projects are unique, have a specific deliverable, and have a specific due date while nonprojects usually do not have all these characteristics.

3. Contrast win-lose negotiation, lose-lose negotiation and win-win negotiation and explain why the latter is so important in project management.

Win-lose negotiation is like a zero-sum game. Anything one side wins is a loss for the other side. In win-win negotiation, the outcome is such that both parties gain something from the interchange.

Win-lose negotiating is dangerous for project managers who will have to deal with the same parties over and over again. The project manager who forces a functional manager to lose will have created a permanent enemy.

4. Identify the three goals of a project. What does it mean for a project to be “overdetermined?”

The three goals of a project are: 1. On time, 2. On budget, and 3. To specification (i.e., including “quality” and “client satisfaction”).

An overdetermined project is one that has a fixed budget, fixed delivery time, and fixed specifications (i.e., all three goals are fixed). In reality, projects must have some flexibility to allow for chance events. In the case of an overdetermined project, there is no allowance for any such events.

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5. Contrast the two types of project life cycle and discuss why it is important to know which type the current project is following.

The traditional project life cycle (the S-shaped curve) is concave to the baseline during the last stages in the project life (i.e., the curve runs parallel to the x-axis). Some projects, however, have a life cycle curve that is convex to the baseline at the end of the project life (i.e. the curve runs parallel to the y-axis). This is known as a J-shaped curve).

The main reason one should understand the difference is that resource allocation for the two types is quite different. (Cf. Chapters 4 and 6.)

6. How does the weighted scoring approach avoid the drawbacks of the NPV approach? Can the two approaches be combined? How? What weights would be appropriate if they were combined?

The weighted scoring model allows the introduction of nonmonetary and even qualitative elements into the selection criteria. It also allows long-run benefits and risks to be considered.

The two approaches can be combined by including NPV as a criterion in the scoring model.

Criteria weights are always selected with the approval of the organization’s senior policy makers, but typically the weight on NPV will be quite high if not the highest.

7. Why is it suggested that factors with less than 2 percent or 3 percent impact not be considered in this approach?

Dealing with criteria with such small impact on the final choice uses considerable amount of the decision makers’ time and effort and contributes little to the choice.

8. Draw a distinction between a project and a program. Why is the distinction important?

A program is a large generalized effort consisting of a coherent, often integrated set of projects.

The distinction is important because to accomplish a program, it is critical to manage its constituent projects so that they make an optimum contribution to the overall program.

This is the basic principal behind the creation of a “project portfolio.”

9. Why are R&D projects in a company’s Aggregate Project Plan significantly different in type from the firm’s Derivative, Breakthrough, and Platform projects?

R&D projects seek to develop new knowledge which hopefully will become the basis for one or more of the other three types of projects: breakthrough, platform, and derivative.

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Suggested Answers to Discussion Questions 1. Contrast the three types of nonnumeric project selection methods. Could any specific case combine two of them, such as the sacred cow and the operating necessity, or the comparative benefits and the competitive necessity?

The three types of non-numeric selection models are quite similar in that they have set a single criterion for choice. They differ in that the criteria are different.

An example of using a combination of the sacred cow and the competitive necessity criteria might be a case where a project is set up to find a new and more effective advertising campaign to improve sales for a product suggested by the CEO. A combination of comparative benefits and the competitive necessity models might be used to choose the appropriate extensions for an application software program that seems too limited in its current level of development to maintain its place in the market.

2. What errors in a firm’s project portfolio might the Wheelwright and Clark aggregate project plan graphically identify?

The method will allow senior management to identify the absence or over/under representation of any of the four types of projects; derivative, platform, break through, and R&D. Management can then control the number and direction of each of the types as well as the types as a set or portfolio. The representation might not just be limited to the number of projects but also the resource size of the projects, or their timing.

3. You are the project manager of a team of software specialists working on a project to produce a piece of application software in the field of project management. Give some examples of things that might go wrong on such a project and the sorts of trade-offs you might have to make.

Some of the things that might go wrong would include: 



The project could be delayed … and the project manager could respond by contracting out, at a higher cost, some of the code writing to shorten the duration of that activity.

The project could exceed its budget … and the project manager could respond by negotiating for the removal of some of the less-important program capabilities, that is, reducing the scope.

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4. In Figure 1- 5, what distribution of large and small circles and squares across the four boxes would characterize a strong, well-positioned product development business? A weak business?

A well-positioned product development business would generally be characterized by an appropriate mix of R&D, breakthrough, platform, and derivative projects. Generally speaking, a strong product development company will have a mix of all four types of projects with the appropriate mix determined by the organization’s overall business strategy. For example:  

Organizations that compete by offering a continuous stream of new products based on the latest technology would likely have a high proportion of breakthrough and R&D projects, some platform projects, and very few, if any, derivative projects.

On the other hand, an organization that competes in relatively mature markets on the basis of costs may have a lower proportion, or no, R&D projects and a higher proportion of derivative projects.

A weak and poorly-positioned product development business is generally characterized by too large a proportion of simple derivative projects and a mix of projects that are weakly linked to its overall business strategy.

5. Give several examples of projects found in your city, region, or country – avoiding those used as examples in the chapter.

Some projects which might be given as examples include: 1.

2.

3.

4.

5.

6.

7.

8.

9.

Construction of a sports stadium.

Offering a New Parents Workshop at a church.

Building of a large mall or shopping center.

Repaving of streets and highways.

Organizing the homecoming at a local college.

Organizing and conducting a military training exercise.

Conducting a census of the population.

Organizing and holding a political convention, and, Conducting a bank robbery.

6. For each of the projects identified in the answer to Question 5, is the life cycle for the project S-shaped or J-shaped?  

Construction of a sports stadium – S shaped New Parents Workshop — S or J shaped 3-6

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      

Building of a large mall or shopping center – S shaped Repaving of streets and highways – S shaped Organizing the homecoming at a local college – J shaped Organizing and conducting a military training exercise – S or J shaped Conducting a census of the population – S shaped Organizing and holding a political convention – S or J shaped Conducting a bank robbery – J shaped

7. Construct a list of factors, conditions, and circumstances you think might be important for a manufacturing firm to evaluate during the project selection process. Do the same for a computer repair shop.

Manufacturing firm     

Production factors: Energy requirements, time required for installation, raw material usage.

Marketing factors: Potential market size, probable market share, time till target market share is acquired, estimated life of product.

Financial factors: Profitability, effect on cash flows, time until breakeven.

Personnel factors: Labor requirements, availability of appropriate labor, impact on working conditions.

Other factors: Impact on environment, meeting government safety standards, patent protections, impact on our image in the industry.

Similar factors could be identified for the computer repair shop as well as others such as: 

Customer service: Time to repair, cost to repair, reputation.

8. How might you use project management in doing a major school work assignment?

The strong emphasis on planning and scheduling will increase the likelihood of finishing a term project or paper on time. The planning also improves the chance that the project will be well-structured and have the appropriate content.

9. What advantages are lost if the sum of the weights in a weighted scoring approach does not add to 1.0?

If the weights in a scoring model are normalized to sum to 1.0, each individual weight becomes the percent contribution that criterion makes to the score of whatever is being

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considered. This makes it simple and quick to see the relative value of that criterion against the others.

10. Why is it important for a project to have “flexibility”?

Flexibility is needed in every project because projects are carried out in an uncertain world which often impedes one or more of the project’s goals. This is why projects should not be “over determined.”

Solutions to Exercises 1. A four-year financial project is forecast to have net cash inflows of $20,000; $25,000; $30,000; and $50,000 in the next four years. It will cost $75,000 to implement the project, payable at the beginning of the project. If the required rate of return is 0.2, conduct a discounted cash flow calculation to determine the NPV. In order to answer this question, the student needs to discount the cash flows in years 1 through 4 ($20,000, $25,000, $30,000 and $50,000 respectively) to the present using a 30% discount rate and compare this value with the initial outflow of $75,000. Using the NPV Excel formula gives the following analysis:

A B 1 Req Rate of Return 20.0% 2 3 Year Cash Flow 4 0 -$75,000 5 1 $20,000 6 2 $25,000 7 3 $30,000 8 4 $50,000 9 NPV $502

C

D

E

=B4+NPV(B1,B5:B8)

2. A company has established a project team to identify a location for a new manufacturing facility. Use a weighted scoring model to analyze three candidate locations (A, B, C) for setting up the new factory. The relative weights for each criterion are shown in the following table. A score of 1 represents unfavorable, 2 satisfactory, and 3 favorable.

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This exercise requires that the student set up a matrix as indicated below: A 1 Category 2 Labor costs 3 Labor productivity 4 Labor supply 5 Union relations 6 Material supply 7 Transport costs 8 Infrastructure 9 10 Score 11 12 13 14

B Weight 20 20 10 10 10 25 5

C A 1 2 2 3 2 1 2

D B 2 3 1 3 1 2 2

E C 3 1 3 2 1 3 2

165

210

225

F

=SUMPRODUCT($B2:$B8,C2:C8) copy to cells D10:E10

As shown in the spreadsheet above, location C is the best location based on the weighted scores (i.e., it has the highest value).

Note: These weights happen to sum to 100 but this is not necessary. Of course, when the weights are normalized they must sum to 100 except for rounding errors.

3. (a) Compare your answer in Exercise 2 to the answer you would have found if you had used an unweighted, 0-1 scoring model. Assume that a score of 1 means does not qualify and a 2 or 3 means it does qualify.

As shown below, that would result in a score of five for all three projects.

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Category Labor costs Labor productivity Labor supply Union relations Material supply Transport costs Infrastructure

A

Count

x x x x

Location B x x

C x

x

x x

x

x x

x x

5

5

5

(b) Next, revise the unweighted model by deleting all categories that, as recommended, have a weight of less than 20 percent. Compare to your answer to (a) above and also Exercise 2.

Which method seems best?

Deleting all categories that have a weight of less than 20 percent result in selecting B with a count of three, as shown below.

Category Labor costs Labor productivity Transport costs

A

Count

1

x

Location B x x x 3

C x x 2

4. Using a spreadsheet for Exercise 2, find the following: (a) What would be your recommendation if the weight for the transportation cost went down to 10 and the weight for union relations went up to 25?

The spreadsheet can be modified by changing the two weightings as follows:  

The entry in cell B5 is changed from 10 to 25, and The entry in cell B7 is changed from 25 to 10.

The result of these changes is changes results in location A having a score of 195, location B a score of 225, and location C a score of 210. Location B, therefore, is the preferred location.

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(b) Suppose location A received a score of 3 for transport cost and location C received a score of 2 for transport cost. Would your recommendation change under these circumstances?

The spreadsheet can be modified by changing the two evaluations as follows:  

The entry in cell C7 is changed from 1 to 3, and The entry in cell E7 is changed from 3 to 2.

Making these changes results in location A having a score of 215, location B a score of 210, and location C a score of 200. Location A is, therefore, the preferred location. (c) The VP of Finance has looked at your scoring model and feels that tax considerations should be included in the model with a weight of 15. In addition, the VP has scored the locations on tax considerations as follows: A-3, B-2, and C-1. How does this affect your recommendation?

The spreadsheet shown in Exercise 2 can be modified as shown below by adding a new row for tax considerations. According to the results shown below, including tax considerations results in locations B and C both having an identical score of 240.

23. Nina has been asked to lead a team that has been tasked with finding a new location for a boutique concept her company would like to test. The team has identified four candidate shopping centers to locate the new boutique in. Some cater to a higher class of clientele than others, some are in an indoor mall, some have a much greater volume than others, and, of course, rent varies considerably…

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Based on the information provided, Nina believes that Clientele is the most important factor. We therefore somewhat arbitrarily assign this factor a weight of 100. Next, Rent is estimated to be 90% as important as Clientele so it is assigned a weight of 90 (100  .90).

The weights for Indoor mall and Volume are 85.5 (90  .95) and 72 (90  .80), respectively, and are calculated in a similar fashion.

According to the results shown in the spreadsheet below, Nina should select Location 1 since it has the highest score.

A B C 1 2 3 Weight 1 4 Clintele 100 2 5 Rent 90 3 6 Indoor 85.5 3 7 Volume 72 3 8 9 Score 942.5 10 11 12 =SUMPRODUCT($B4:$B7,C4:C7) copy to cells D9:F9 13 14

D

E

F

2 3 2 1 2

3 1 1 3 3

4 3 3 1 1

709.5

662.5

727.5

Location

6. Using a spreadsheet for Exercise 5, determine how Nina’s ability to negotiate a lower rent at location 3, thereby raising its ranking to “good,” will affect the overall rankings of the four locations.

Using the spreadsheet for Exercise 5 and changing cell E5 from 1 to 3 increases the score of Location 3 from 662.5 to 842.5 and thus from having the lowest score to the second highest score.

Note: since the scores for the other three locations are not impacted by this change, the overall recommendation (location 1) remains unchanged.

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Incidents for Discussion Suggested Answers Broken Welds Question: What information does Alison need to determine the probable impact of Kelsey’s proposed project on the other projects in the department?

Alison needs the following information to estimate the cost/benefits of starting Kelsey’s project, namely: o An estimate of the rework charges for failed welds and the estimated number of welds that will have to be redone. Kelsey’s project may stop these costs. o A rough estimate of the time and resources required to carry out Kelsey’s proposed project. o The impact the immediate use of these resources will have on the department’s other projects over the estimated life of Kelsey’s project.

Question: Should her findings affect her decision about Kelsey’s project? How? For any current projects delayed, the projects’ benefits may be delayed and this is also a cost assignable to Kelsey’s project. These costs and benefits should immediately be shown to the Chief Engineer before proceeding with Kelsey’s project though Kelsey may do some informal initial planning.

Suggested Case Analyses and Solutions Friendly Assisted Living Facility – 1 Teaching Purpose: The Friendly Assisted Living Facility cases comprise a set of cases beginning in this chapter and are all associated with the same project – the planning, building, and marketing of an assisted living facility for people whose state of health makes it difficult for them to live independently, but who are not yet ill enough to require nursing home care. In this initial installment of the case, students address issues related to the project deliverables, project constraints and assumptions, the development of an action plan, and the selection of a project manager.

1. Identify as well as you can the three iron triangle constraints for this project: cost, time, and scope.

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Cost: $11 million; Time: start after Nov 20X6, finish by July 20X7; Scope: construct a project plan, purchase land, purchase furnishings, purchase materials and contract labor to construct building and connection, and train staff in the new facility services.

2. Identify the expected benefits of this project for Friendly Medical Center.     

A profit program for the Center but under their control that would gain net cash flow of $1.5 million/year; Improve the local image of Friendly Medical Center; Gain additional referrals to the Center’s outpatient therapy programs; Increase the census in the hospital’s inpatient units, and Provide better care for the community in terms of reimbursable preventive and wellness programs.

3. Comment on the strategic initiatives resulting from the Board’s major strategic planning retreat. Would you consider this a productive retreat?

The outcomes of the retreat were rather shallow. Better would have been to have come up with these two initiatives at a special board meeting and then collect data to decide at the retreat what areas to focus on for improving the cost effectiveness of patient care delivery and what alternatives to explore in more detail for new programs and services that would capitalize on their excellent staff and reputation.

4. What “project selection” procedure was used here? How common do you think this is?

How wise do you think it is?

This was basically a “sacred cow” approach by the CEO, probably not that uncommon. Although the idea sounds like it could be a success, we don’t see any risk analysis being considered, or the consideration of other alternatives that might have been even more promising.

Handstar Inc. Teaching Purpose: This case requires students to rank a number of candidate projects using both the NPV approach and the weighted scoring model approach. The case demonstrates how the NPV approach can be combined with the weighted scoring approach in evaluating projects.

Question 1: Which projects would you recommend Handstar pursue based on the NPV approach?

The spreadsheet bellow summarizes the NPV calculations for the six projects assuming the development costs are incurred at the end of year zero and each product has a three year life.

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Since the six projects require a total of 13,025 development hours and only 10,000 hours are available, one or more projects will need to be postponed or eliminated from further consideration.

If we start with the project with the highest NPV, the Browser project would be selected first requiring 1,875 hours of development time. Next, the Trip Planner would be selected requiring an additional 6,250 hours of development time. The project with the next highest NPV is the Spreadsheet project. However, this project requires 2,500 hours and only 1,875 hours are available after selecting the Browser and Trip Planner projects. The project with the next highest NPV is the Calendar/Email project which requires 1,250 hours of development time leaving 625 hours available. Of the remaining projects, the Portfolio Tracker requires too many hours while the Expense Report project can be completed with the hours available. Thus, Browser, Trip Planner, Calendar/Email, and the Expense Report projects would be selected based on the NPV approach.

For students that have been exposed to optimization and Solver, a better approach for solving this problem is to set it up as an optimization model where the objective function is to maximize the total NPV subject to the available hours.

A B C D E F G 1 Discount Rate 12.0% 2 Hourly Rate $52.00 130000 3 4 Calendar/ Expense Portfolio Trip 5 Email Report Tracker Spreadsheet Browser Planner 6 Growth Rate -10.0% 5.0% 5.0% 10.0% 15.0% 5.0% 7 Development Time 1250 400 750 2500 1875 6250 8 Development Cost $65,000 $20,800 $39,000 $130,000 $97,500 $325,000 9 10 Year 0 Cash Flows -$65,000 -$20,800 -$39,000 -$130,000 -$97,500 -$325,000 11 Year 1 Cash Flows $750,000 $250,000 $500,000 $1,000,000 $2,500,000 $1,300,000 12 Year 2 Cash Flows $675,000 $262,500 $525,000 $1,100,000 $2,875,000 $1,365,000 13 Year 3 Cash Flows $607,500 $275,625 $551,250 $1,210,000 $3,306,250 $1,433,250 14 15 NPV $1,406,389 $542,734 $1,087,789 $2,233,058 $6,053,481 $2,628,610

Question 2: Assume the founders weigh a project’s NPV twice as much as both obtaining/retaining a leadership position and use of the Internet. Use the weighted factor scoring method to rank these projects. Which projects would you recommend Handstar pursue?

Data is available for the six projects on these three criteria. Based on the information given in the question, we will assign a weight of 0.5 to NPV and 0.25 to both obtaining/retaining a leadership position and use of the Internet. In terms of scoring the options on NPV, a score of 1 was assigned to the projects with NPVs less-than-or-equal-to 1.1 million dollars. Likewise, a

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score of 2 was assigned to projects with NPVs that were greater than 1.1 million dollars but less-than-or-equal-to 2.5 million dollars. Projects with NPVs greater than 2.5 million dollars were assigned a score of 3. For the other two criteria, projects with low probabilities were assigned a score of 1, moderate probabilities a score of 2, and high probabilities a score of 3. A spreadsheet for calculating the weighted scores is shown below.

The only difference with the weighted scoring model is that the Calendar/Email project moves ahead of the Spreadsheet project. However, the same set of projects will be selected.

1 2 3 4 5 6 7 8 9

A

B NPV 0.5

Calendar/Email Expense Report Portfolio Tracker Spreadsheet Browser Trip Planner

2 1 1 2 3 3

Weight

C D Leaderhip Internet 0.25 0.25 2 3 3 2 1 1

2 1 2 1 3 3

E Score

2 1.5 1.75 1.75 2.5 2.5

Question 3: In your opinion, is hiring an additional software development engineer justified?

After selecting the Browser, Trip Planner, Calendar/Email, and the Expense Report projects, a total of 225 hours would be available. Hiring an additional software engineer would increase the number of available hours to 2,725. Since the Spreadsheet project has a higher NPV and higher score than the Expense report project it would be the next project to select. Given that its NPV of $2,233,058 greatly exceeds the $133,000 ($52/hour  2500 hours/year) incremental cost of the new software development engineer, hiring an additional software engineer is justified. Indeed, the Expense Report’s NPV in excess of $500,000 would appear to justify hiring a second software development engineer as well.

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Chapter 2 The Manager, the Organization, and the Team

This chapter overviews the roles of the project manager and contrasts these roles with those of the traditional manager. The chapter emphasizes the need to adopt the systems approach to managing decisions and discusses the problem of suboptimization. The chapter also overviews the PM’s responsibilities to the project as well as important criteria to consider in selecting a project manager, and project management as a profession. In terms of fitting projects into the parent organization, the chapter discusses pure project organizations, functional project organizations, and matrix project organizations. Finally, the chapter concludes with a discussion of the project team including the characteristics of effective team members and sources of intrateam conflict.

Cases and Readings

Some cases appropriate to the subject of this chapter are: Harvard: 9-687-001 Plus Development Corp. (A) This 17-page case highlights the difficulty of managing a fast-paced, high-technology development project that includes international elements and intense competitors. The project manager must lead an American-Japanese development project where the procedures and cultures of each side are in dramatic conflict.

Harvard: 9-483-098 Mat MacGregor (A) In this case, a marketing-engineering project is in trouble with many conflicts and a new project manager must be found.

Harvard: 9-192-151 Concordia Casting Co. This 12-page case describes the change in leadership of a major information systems conversion project that is found to be a year behind schedule. Involves issues of organizational change, conflict, management style, and human resource policies

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Harvard: 9-195-141 Oticon A/S: Project 330 This 17-page case describes the reorganization of a Danish hearing aid manufacturer around projects, knowledge, and personal development.

Details the implementation process and threats from early losses.

Harvard: 9-689-035 Honeywell Residential Control Division: New Product Development This long (38-page) case illustrates the organization of three different product development projects in the Residential Controls Division. Considerable information on the different approaches to product development depending on the market and environment. Also discusses the issue of evolutionary change versus cold-turkey change in organizations and procedures.

Harvard: 9-390-012 Fan Pier This 19-page case concerns an entrepreneurial start-up involving fraud and how to resolve the problem. Includes conflicts with bureaucracy and public relations problems.

Harvard: 9-181-018 Pathfinder Engineering and Construction Co. This case concerns a new project manager in a bid estimating group beset with multiple conflicts.

Some readings appropriate to the subject of this chapter are:

H.K. Bowen, et al. Make Projects the School for Leaders (Harvard Business Review, Sept.-Oct. 1994, pp. 131-140). Relates the role of leadership to outstanding product development projects. Many examples of where leadership made a difficult project successful. Stress is on top management’s support for the project manager’s role more than on the characteristics or actions of the project manager.

M.A. Cusumano. How Microsoft Makes Large Teams Work Like Small Teams (Sloan Management Review, Fall 1997, p. 9-20). Describes Microsoft’s approach to software development. This approach keeps the team creativity and autonomy typical of small groups through synchronizing and stabilizing continuous design changes.

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J.R. Adams and L.L. Adams. The Virtual Project: Managing Tomorrow’s Team Today (PM Network, January 1997). This article addresses a new phenomenon in the increasingly global competitive environment – geographically dispersed project teams. The competitiveness of global firms is often facilitated by new electronic technologies and these technologies are also useful to the success of globally dispersed project teams. Other aspects of such dispersed teams are more problematic, however, and this article illustrates these, as well as approaches used by project managers for circumventing them. Finally, some of the advice given in the article should be useful as well for project teams that are not geographically dispersed.

R.J. Burke. Methods of Resolving Interpersonal Conflict (Personnel Administration, July-August 1969). This classic article describes a number of methods for negotiating and handling conflicts.

Effective and ineffective methods are identified ranging from withdrawal to forcing. Each method is illustrated with a number of examples. Finally, the most effective method, Confrontation-Problem Solving, is described in terms of its many characteristics.

Kaulio, M. Project leadership in multi-project settings: Findings from a critical incident study.

(International Journal of Project Management, 26, 338-347, 2008.)

This reading identifies and analyzes critical incidents that project leaders who are working in multi-project settings encounter on an almost daily basis. The most frequent issues that leaders deal with are: technical difficulties, dyadic leadership and group dynamics, followed by consultant, client, and peer relations.

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Answers to Review Questions 1. Why is it important for the project manager to adopt the systems approach?

Projects are systems composed of tasks (subsystems) and also are part of larger systems (e.g., programs and organizations). As is the case for all systems, effective management requires an understanding of how the parts of the system are interrelated. Failure to recognize these interdependencies can lead to suboptimization of the overall system as each subsystem is managed and optimized independently.

2. What is “micromanagement?”

Micromanagement occurs when a supervisor too closely supervises and over-controls the activities of his or her direct reports.

3. What is a virtual project?

A virtual project is one where the project teams are geographically dispersed.

4. Explain what is meant by the project manager having credibility.

Credibility means the PM is believable. The two areas where the PM must be believable are technical credibility and administrative credibility.

5. Contrast pure project organizations, functional project organizations, and matrix project organizations.

In pure project organizations work is organized on the basis of projects and employees from a variety of functional areas are dedicated to the project. In a functional project organization, projects are housed within a given functional department. In a matrix project

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organization, resources are assigned from the functional departments to support project work.

6. What are the advantages and disadvantages of a matrix project organization?

Advantages:      

Flexibility to access all of parent organization’s technology Can tap resources from all functional areas Functional departments can support projects in a way that is most efficient for the department Less duplication of expertise Strong focus on the project Advantages of pure and functional projects

Disadvantages    

Violation of the Unity of Command principle (project team members having two bosses) Political infighting among project managers for resources (which can further lead to suboptimization) Intrateam conflict may be especially contentious given nature of transdisciplinary team Team members have other commitments beyond the project

7. What is the project management office (PMO) and what purpose does it serve?

The PMO is like a functional group or center of excellence. The PMO may act as staff to some or all of an organization’s projects. It may also handle some or all of the budgeting, scheduling, reporting, compliance with corporate governance, and risk management. It also serves as a repository for project documents and histories.

8. What are the important characteristics of project team members? 

Technically competent

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   

Politically sensitive Strong problem orientation Goal orientation High self-esteem

9. Explain why the systems approach is necessary to manage projects.

Projects are systems composed of tasks (subsystems) and also are part of larger systems (e.g., programs and organizations). As is the case for all systems, effective management requires an understanding of how the parts of the system are interrelated. Failure to recognize these interdependencies can lead to suboptimization of the overall system as each subsystem is managed and optimized independently.

10. Explain the meaning and implications of “projectitis.”

Projectitis occurs when project team members form strong attachments to the project and the project begins to take on a life of its own. In such situations, the team members may:

 

Actually become more loyal to the project and other team members than to the sponsoring organization.

Stall as the project end nears.

Some key implications of projectitis include:

  

Increased costs due to the delayed project completion.

The delay of other projects that depend on the afflicted project.

Subordination of overall organizational goals to the goals of the project.

11. Review the chapter and make a list of all the advantages and disadvantages of matrix project organization you can find.

Advantages of a matrix project organization:

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      

Flexibility.

Access to all of the organization’s technologies.

Functional departments able to optimize their contributions to any project.

The ability to share expertise with several projects during a limited time period.

A strong focus on the project.

Close contact with functional groups (which mitigates projectitis), and The ability to balance time, cost and performance across several projects.

Disadvantages of the matrix organization include:

   

Project team members having to report to two bosses.

The difficulty in carefully managing the full set of projects.

Possible infighting between project managers as they battle for key resources, and [Perhaps] more intrateam conflict.

Additional advantages of the matrix form would be the potential to use the matrix structure as a stepping stone or intermediate step to a permanent process-centered organizational structure and also to preserve an organization’s ability to develop competencies in particular areas.

12. What is meant by “micromanagement?” Why is it such a managerial sin?

Micromanagement occurs when a supervisor too closely supervises and over-controls the activities of his or her direct reports. This causes a number of problems:

  

It gives people the impression that they are not to be trusted or are not capable of performing the work.

It eliminates opportunities to develop the workforce through delegation, and It takes away from time the micromanager has to do his or her own job.

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13. List five reasons to organize a new product development project as a functionally organized project in the parent firm’s Marketing Department.

The Marketing Department would/will be: 1.

2.

3.

4.

5.

In better touch with the customer than other functions and thus know their needs.

A good liaison between R&D and manufacturing.

Best know the opportunity window for product launch.

In the best position to deliver sales of the new product to appropriate customers.

Have the depth of skills needed on a new product development project.

As a result, the drawbacks of pure, cross-functional projects (such as projectitis) will be avoided.

14. List five reasons to organize a new product development project as a transdisciplinary, matrix-organized project.

Among the reasons for organizing a new project development project as a transdisciplinary, matrix-organized project would/will be:

1. The task of developing a new product requires input and impacts multiple functional areas.

2. Enhance flexibility.

3. Provide access to all of the organization’s technologies.

4. Provides the functional departments with the opportunity to optimize their contributions to the project.

5. Functional experts could contribute their expertise to several ongoing projects.

6. Provides a strong focus on the project.

7. The close contact with functional groups mitigates projectitis.

8. Facilitates balancing time, cost, and performance across several projects.

Suggested Answers to Discussion Questions 1. The Chapter mentions that regular functional managers are moving from their classic authoritarian style to a facilitative, participative style because it is more effective. Do you think it took managers 200 years to learn this, or is something else driving the change?

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Historically, managers have used the style of management appropriate to the environment of the time. However, in many if not all industries, the marketplace is becoming increasingly competitive as markets become increasingly global and the pace of technological advancements accelerates. As a result, managers are beginning to realize that techniques that worked well in the past are not as effective in these more dynamic environments.

One of the areas where this is particularly evident is the shift in style of management.

Much of this shift is related to:

   

The trend toward flatter organizations.

A recognition of the critical flaws associated with the traditional functional organizational structure.

The need for flexibility in more dynamic environments.

The increased mobility of labor which makes it necessary to use a managerial style that is consistent with high labor retention (e.g., participative management).

2. There is a danger in letting the client “visit” the project operation too frequently, not the least of which is “scope creep” or informal changes to the project’s performance specifications. What other dangers might arise? How might the danger of scope creep be monitored and controlled?

Other dangers include micromanagement by the client and delays in completing the project due to the continuous interruptions.

One way scope creep can be monitored is by tracking the number of change orders to the project and summarizing these change orders by the source of the request for the change.

3. How should a PM decide which problems (or potential problems) deserve being reported to management and which are not worth the trouble when attempting to “never surprise the boss.”

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Any problem that will likely impact the project’s completion date, budget, or performance should be reported to management.

However, problems that can be resolved internally by the project manager and project team that will not impact the project’s completion date, budget or performance need not be reported formally.

4. Discuss how you would go about getting competent staff from a functional department.

When negotiating with functional managers for competent staff, it is important to look at it from the functional manager’s point of view and point out how releasing key personnel will benefit the functional manager and his or her department. Such benefits may include:

  

Increased visibility with senior management.

Professional development of the employees, and [Perhaps] more work for the department if the project succeeds.

It may also be worthwhile to communicate to the functional manager the importance of the project to the overall organization and the relationship between the overall organization’s health and the functional manager’s department.

5. Another trade-off PMs have to make is between team process and progress – the purpose being to keep the peace, give the team an occasional rest, protect the larger organization or other projects, and so on. What might happen if the PM does not anticipate these trade-offs?

Project managers that do not appropriately trade-off process and progress often end up with burnt out teams. We are all familiar with the fable of the man who killed the golden goose. Moreover, teams need some variety and breaks from a hectic schedule which, if not recognized, can lead to projectitis, personality conflicts, arguments with other project teams over resources and personnel, and other such dysfunctional behavior.

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6. Usually projects involving high levels of technological uncertainty are quite complex. Yet Shenhar says to use a flexible management style with high-uncertainty projects, but a formal style with complex projects. Explain.

Professor Shenhar found that as the level of technological uncertainty of a project went from “low tech” to “very high tech, the appropriate management style (while being fundamentally participative) went from “firm” to “highly flexible.” In addition, he found that the complexity of the project, ranked from “simple” to “highly complex” called for styles varying from “informal” to “highly formal.”

So, this suggests that projects which (a) involve high levels of technological uncertainty and (b) are also complex require a project manager that is not only open to new ideas and experimentation but who can also provide a relatively structured environment that is important in keeping uncertain, complex projects on track. For simpler projects where the requirements are clear, the formality of close monitoring and control works fine.

7. In many project-oriented organizations, even routine processes are treated as projects.

Why do you think this happened? How is it accomplished?

In the early 1990s proponents of reengineering argued that functional organizational structures be abandoned in favor of organizing work on the basis of specific value-creating processes. From this process perspective, it becomes clear that most projects are actually processes that are executed on an ad-hoc basis.

The reason for treating routine processes as projects is that it facilitates the formation of cross-disciplinary teams and is often easier than implementing a true process-centered organization. Thus, one way routine processes can be treated as projects is through the formation of cross-disciplinary teams.

Another explanation is that top management liked the results of project management in terms of schedule and budget. Thus, they started applying it to normal activities by creating artificial deadlines and budgets.

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8. A matrix organization is difficult to manage all by itself. What do you think the problems would be in managing mixed organizational systems?

Mixed organizational systems (i.e., functional, matrix and pure project) would have all the problems of the organizational systems used in addition to the problems of managing and coordinating a diverse set of organizational systems.

9. Can you think of any circumstances where deferring conflict might be a wise course of action?

It might be wise to defer conflict when emotions are high and a cooling-off period would allow a more rational discussion of the issues.

10. Give an example of a case in which project management could be important in your personal life. Explain why, as well as how and why you might organize such a project.

Planning a wedding is a typical example given by students. Project management is particularly appropriate for planning a wedding because:

 Weddings involve a large number of interrelated activities.  There is a clear due date, and  [Typically] a clear budget.

Other examples might include finding a new job, having a baby, or going back to graduate school.

11. Explain the reasons for the growth and decay of each source of conflict in Figure 2.6, and for the Total as well. 

Project priorities … these are highest in the start and early phases due to arguments over the priorities of key elements of the project. They decline somewhat in the

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main and late stages but continue to be a major area of conflict throughout the project. 

Administrative procedures … these conflicts are also highest during the first two phases. However, most such issues have been resolved by the beginning of the main phase and relatively few occur during the late phase.



Technical trade-offs … these conflicts are relatively limited in the start and late phases. However, more conflicts occur in the early and main phases when decisions with regard to these trade-off issues have to be resolved.



Staffing … the conflicts over staffing tend to remain largely constant over the life of the project, when staff come and go, especially in situations where staff is being drawn from functional areas.



Support cost estimates … these tend to be a relatively minor source of conflict and remain relatively constant throughout the project.



Schedules … this is the number one source of conflicts. Scheduling conflicts increase to a peak in the main phases of the project and remain high through the late phase as there is continual pressure (and thus conflict) to ensure that the project moves forward and meets its due date.



Personalities … to the extent that the same individuals are involved in all stages of the project, the number of conflicts (as one would expect) remain relatively constant throughout the project.



Total … scheduling is the major source of conflict throughout the project’s life with project priorities a close second, particularly in the first two stages of the project’s life. Staffing and technical trade-offs are the next major sources of conflict. The largest number of conflicts occur in the early stage of a project and the smallest number during the late phase by which time many of the sources of conflict have been resolved.

12. What are the potential ramifications of not utilizing integration management techniques or parallel tasking while planning and implementing a project?

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Team members will not recognize their dependencies on each other and being co-members of a team is not sufficient to cause them to associate with one another. Without integration management techniques, the team is unlikely to function as a team. Without parallel tasking, the project will probably miss its due date.

13. Can you think of any other desirable characteristics for team members than those listed in Section 2.6?

In addition to being technically competent and politically sensitive, and having a strong problem orientation, goal orientation, and high self esteem, other desirable characteristics include being:

   

Team players rather than individuals.

Oriented to communication among peers, both speaking and listening.

Comfortable in a social group, extroverted, good followers.

Flexible, can “roll with the punches.”

14. Exactly why were projects in the pharmaceutical company mentioned in Section 2.5 in the PMO subsection always late and over budget?

For their part, the project-manager scientists:

  

Had no information about budgets and schedules.

No responsibility for any aspect of their projects except scientific results, and.

Thus had no incentive to manage either schedules or budgets but did have a strong incentive to extend their projects in any way they thought might yield better or more extensive scientific results.

On the other hand, the project office:

 

Had no authority to control any aspect of project design or scope, and Therefore, had no way of exerting any control over budget or schedule.

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15. Why would the members of a “NOT” work independently if they were members of a designated team? What does independently” mean in this context?

Members of a “NOT” (Name-Only Team) would work independently primarily because they are discipline oriented and the only person from their discipline or team on the project.

Thus, they find no one else to talk to and work with.

In this context, it means not coordinating your efforts with others on the team to complete the project. Any project requires some independent work but it must be coordinated with the team efforts in both performance and time.

16. Why do so many “self-directed teams” perform poorly? What can be done to improve their performance?

The research tends to show that the success or failure of empowerment teams probably has more to do with the way in which the team program is implemented than with the team itself. When empowerment team programs are implemented with a well-designed plan for involvement in solving actual problems, and when the teams have full access to all relevant information plus full support from senior management, the results seem to be quite good.

When those conditions are not present, the results are mediocre at best.

Some students will give answers based on their personal experience in teams, like conflicts between the team members, but the answer from the book will illustrate that personality discord is not the usual reason for failure. This gives the instructor an opportunity to emphasize the four common reasons: well-designed, actual problem, support of administration, and data.

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Incidents for Discussion Suggested Answers

Samuel’s Approach to Project Management: The key points in this incident are that: 

Six weeks after the project is underway, Joe will probably feel pleased since he has assigned defined objectives and tasks for each member of the project team.



From the perspective of the team members, they have been given work assignments and agreed to try to do it – that’s all.



Joe has not really used any of the empowerment approaches in this project (i.e., involving the team members in deciding how to attack the task and solve it) … and certainly does not have the commitment of the team members.



His new approach (i.e., individual “contracts” for each team member as opposed to being the overall baby-sitter) will be no more successful that his previous approach.

HardTech, Inc.: The key points in this incident are that: 

Even though the executives are more comfortable with the traditional functional organizational structure, this is not the best structure for the three new projects.



Ryan’s points are well taken. Each department would work separately on each piece of the project and there is no guarantee of communications across the departments. The department’s priority would not likely be the projects. The departments have had one product and one client since they started up. It would be more appropriate to set up project teams to complete the new projects.



The firm is too small and it would be too costly to set up a pure project structure. When a project staff was not assigned to a task, they could be idle. A matrix project structure would be most appropriate. The firm could assign project teams for each initiative, while keeping them in their home departments. This way the development, design and sales people could work together from beginning to end on the project instead of working separately on each piece.

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

Also, when a resource has down-time on the project, they could be assigned to other work in their home department. This would enable optimizing the entire project as opposed to suboptimizing each task.

Suggested Case Analyses and Solutions

Friendly Assisted Living Facility – 2 1. Comment on the pros and cons of the CEO, Dr. Splient, as the Project Manager.

The good aspects of the CEO as Project Manager is the commitment he will have to making the project a success. He'll also be able to provide the resources and the loyalty of his upper managers to foster the project in times of trouble. However, as CEO he has many other important duties and his attention may be distracted at critical times in the project. And he may not react well to evidence that later appears indicating this was not a good idea, or that major changes in the project are needed. Bear in mind that the project was selected as a sacred cow.

2. Who is the funder of the project? Who is the sponsor? Who is the project owner?

Friendly Medical Center is the funder and Dr. Splient is currently both the project owner and sponsor of the project. It may well happen that Splient will have to appoint someone else as project owner who has the time, knowledge, and skills to take on this responsibility. Since this is mostly an internal project, the project owner would probably also be the sponsor, but there may also be an external sponsor in the construction firm overseeing the physical building of the facility.

3. List all the potential stakeholders in this project?

Clearly, the Board of the Center, Dr. Splient, and the Project Steering Committee are active stakeholders. The contractors involved in building the facility, the Friendly staff involved in the project, the Friendly staff whose duties will change due to the new facility, potential new employees of the Center, the future patients and residents of the new facility, and the local community are all potential stakeholders.

4. This initiative consists of a variety of separate efforts from a lot of different groups and individuals. What are the advantages and disadvantages of structuring it as a program consisting of a set of separate projects? Would you recommend this, under the circumstances?

This could be set up as a program with individual projects concerning the staffing, the building, the grounds, the financing, etc. but the timeline is tight and except for the 3-33

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construction subcontractor, the major stakeholders are all associated with the Center, so keeping it as a project with Splient as the project owner probably makes the most sense.

Quantum Bank Teaching Purpose: This case provides students with the opportunity to apply the selection criteria discussed in the chapter for a project manager to oversee a mobile app enhancement project. Given the technical nature of this project, a key point of discussion is related to the issue of how much technical expertise the project manager needs to effectively manage this project.

1.

Who would you recommend Stacey Thomas select to serve as project manager? Why? 

The only dimension that Bill Fence would seem to dominate on is the technical expertise. However, from the case, it appears that Andy has sufficient expertise to manage the project. Given the backgrounds of the two candidates, it is likely that Bill would focus more on technical issues while Andy’s focus would likely be on the bigger picture, particularly given his MBA and the fact that he spent a year rotating through various departments at the bank. Of course, Bill’s tenure at the help desk likely exposed him to a variety of departments, but at a different level.



In terms of the criteria listed in the book, Bill would obviously have strong technical credibility, while Andy would likely have adequate technical credibility.

Furthermore, the description of Bill’s desk and the fact that Andy was always seen carrying his planner suggests that Andy would likely have more administrative credibility.



Also, the description of Andy suggested the requisite sensitivity required of a PM. Finally, Andy’s experience with large process improvement projects, his natural tendency toward viewing things as systems, and his solid communication skills would serve him well as the PM of this project.

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2.

How would you recommend this project be organized? Functional project? Pure project? Matrix? Why? Matrix. Why?

3.



Because this project would require input beyond the IS department, organizing it as a functional project would not be appropriate.



On the other hand, most of the work associated with this project falls into the hands of the IS department, and there would probably not be sufficient work to keep members from other functional areas busy over the entire project.



Therefore, a matrix structure would be most appropriate where members from other functional departments could contribute to this project on an as needed and part-time basis.

Do you agree with Stacey’s decision that the project should be staffed internally?

What are the major advantages of staffing the project with Quantum employees? Are there any advantages to utilizing the services of an outside consulting firm? 

Given the likely strategic significance of the bank’s online presence, staffing the project internally makes sense. Furthermore, staffing the project with internal employees ensures that all the learning associated with the project stays with Quantum.



If the project was staffed externally, Quantum’s competitors could develop similar capabilities simply by hiring the same consulting firm.



Of course there are advantages to utilizing the services of outside consultants including perhaps their greater expertise, larger staffs, different perspectives, and so on.

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Case: Southern Care Hospital Teaching Purpose: This case provides students with an opportunity to experience the hands-on role of a project manager. Not only do they need to decide on their overall approach to the project but also how they are going to select their resources and handle the inevitable tradeoffs.

Question 1: Explain how you would execute your roles as project manager of this project?

The chapter identifies a number of roles that a PM can play:    

Facilitator … as opposed to a supervisor.

Systems approach … as opposed to micromanager.

Communicator, and Convener and chair of meetings.

Given the expertise of the prospective team members (ten Green Belts and two Black Belts), your role as project manager should be one of facilitation rather than supervision. You should aim to employ a system’s approach rather than falling into the trap of micromanagement.

Further, you must provide the critical role as a communicator between both (a) the team members and (b) between the team and senior management. Finally, you need to act as the convener and chair of meetings (when essential to the progress of the project).

Question 2: As the project manager, how would you handle trade-offs?

As project manager, you are the key figure in making trade-offs between project cost, schedule, and performance. How you handle these trade-offs will depend on many factors having to with the project, the client, and the parent organization.

Of the three project goals, performance (specification and client satisfaction) is usually the most important so you are likely to emphasize these factors. However, in many projects, the schedule is critically important to the client and thus trade-offs (in terms of project costs and performance) may have to be made. In those situations where funding is strictly constrained, the client may place primary emphasis on the costs and thus trade-offs will have to be made in terms of both the schedule and performance.

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Question 3: How would you recommend this project be organized? Functional project? Pure project? Matrix? Why? Given that the proposed team members represent three different departments (radiology, special projects, and staffing), a purely functional project would seem to be impractical … especially given the fact that the success of the project (in terms of the turnaround time) involves different departments.

A pure project organization would have the benefit that the team members could focus solely on the task of reducing the turnaround time. However, as shown in Table 1, the availability of potential team members ranges from 20% to 50% (i.e., none are available full-time) so none can relinquish their existing departmental responsibilities.

A matrix organization would appear to be the optimal structure for this project since it enables you to combine the functional skills (albeit it on a part-time basis) with the focus on the project itself.

Question 4: What criteria would you use in selecting resources to serve on you project team?

The Hospital’s steering committee has granted you permission to select up to four team members from the available resource pool to staff the project. Furthermore, you are aware that conflict occasionally arises when more than one Black Belt is assigned to the same task.

However, you have identified twenty distinct tasks so you should be able to use two Black Belts provided you keep them involved on separate tasks. They certainly provide the greatest average project savings.

Table 1 provides you with a number of criteria, namely:        

Education.

Years of experience.

Six Sigma ranking.

Six Sigma experience.

Number of Six Sigma projects.

Average project savings.

Hourly rate, and Project availability.

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No specific budget has been assigned to your project so the hourly rate of individual would not appear to be a major criterion. Nor, from the description of the project, does education background appear critical. You may decide that availability is a critical factor along with Six Sigma experience, ranking, and average project savings (i.e., the following criteria):    

Project availability.

Six Sigma experience.

Six Sigma ranking.

Average project savings.

Question 5: From the available resource pool, who would you select to be on your project team? Why? Student answers will depend on (a) whether or not they decide to utilize both Black Belts on the project and (b) the criteria they use to select from the available Green Belts.

If, for example, they decide to select one Black Belt and three Green Belts) then they need to determine whether (according to their selected criteria) Nick Rogers or Peggy Moss is the better choice. Likewise, they will need to choose three of the Green Belts from the ten member pool.

Having made their initial selection, students will then need to utilize the estimated resource proficiency data given in Table 2. The range of proficiencies is quite wide (from a high of 98 to a low as 61) and thus students may wish to review their choices against the data for each task with the goal of maximizing the overall proficiency.

Chapter 3 Project Activity and Risk Planning

This chapter begins by discussing the nine key elements of the project plan. The following two sections address the planning process in greater detail with considerable emphasis placed on the project launch meeting and the hierarchical planning process by which parts of the plan are sequentially broken down into finer levels of detail. This provides a natural transition to the creation of the Work Breakdown Structure.

Cases and Readings

Some cases appropriate to the subject of this chapter are:

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Harvard: 9-692-058 Taco Bell Corp. This 31-page best-selling case describes a project to implement a new strategic plan involving major changes in layout, staffing, quality, product design, and information systems. The coordination and integration of all these project activities is what makes the plan successful, and hard for competitors to imitate. Two teaching notes are available for this case: 5-692-091 (20 pages) and 5-196-073 (12 pages).

Harvard: 9-694-059 Hardcard Project: Plus Development Corp. (A1); 9-694-060 Hardcard Project: Plus Development Corp. (A2) This 10-page (12-pages for A2) case allows the students to evaluate, using Microsoft Project software, the time line, resource allocations, and other aspects of a major project concerned with developing a hard disk drive. The perspective is from that of the VP of engineering. The (A2) case updates the project and the students have to determine whether a specific market introduction date will be feasible for the project. (Note: this case duplicates some of the information in the Plus Development Corp. case suggested for Chapter 2.)

Harvard: 9-193-013 American Airlines: The InterAAct Project (A) and 9-193-014 (B) This 17page (and 11-page) set of cases describes the design and implementation of an extensive knowledge information system project. The implementation is in trouble in the (A) case and must be reassessed. The (B) case describes the outcome of the successful implementation. A 17 page teaching note (5-194-095) is available.

Harvard: 9-390-010 Grosvenor Park This case describes a very successful project involving the development of a condominium.

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A reading appropriate to the subject of this chapter is:

Hallgren, M & Wilson, T. L., The nature and management of crises in construction projects: Projects-as-practice observations (International Journal of Project Management, 830-838, 2008). Crises are inherent in projects because of the uniqueness of projects. This reading reviews the nature of crises and the associated disruptions that threaten the progress of the projects as well as the organizations themselves. The paper reviews the crises that have interfered with project progress of an international construction company and their remedies.

Fifteen crises were studied and the report includes a characterization of the nature of these crises and how they were managed.

Answers to Review Questions 1. What are some benefits of setting up a project plan for routine, frequent projects?

One key benefit of setting up a project plan for routine, frequent projects is that the project plan can be used as a template for similar projects in the future. Having such a template can greatly simplify future projects – just filling in the blanks, while at the same time can ensure that important steps or activities are not overlooked.

Furthermore, the project plan can be continuously improved and enhanced as the organization gains additional experience with these projects.

2. Discuss the reasons for inviting the functional managers to a project launch meeting rather than their subordinates who may be actually doing the work?

The reason for inviting the functional managers to the project launch meeting is that it is important to get their buy-in and support for the project and understanding the load on their subordinates. The functional managers can have a significant impact on the degree to which the project succeeds or fails based on their willingness to assign key subordinates to

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the project for the required duration. Clearly, if they are convinced up-front of the importance of the project and perhaps even have input into the project’s scope, their cooperation is more likely in later stages of the project.

Another important reason for including functional managers in the project launch meeting is to get their commitment to help develop the initial plan.

3. Discuss the pros and cons of identifying and including the project team at the project launch meeting.

Some of major advantages to identifying and including project team members in the project launch meeting would be:

  

Getting their support early on.

Letting them hear first hand from senior management the importance of the project to the organization, and *Perhaps+ getting their input on more technical issues as the project’s scope is initially defined.

Major disadvantages include:

  

Not being able to identify all project team members at this early stage.

Getting too bogged down in technical details to the detriment of bigger picture issues, and [Perhaps] less involvement from the functional managers if they feel their department is adequately represented by project team members from their respective departments.

4. Why is participatory management beneficial to project planning? How does the process of participatory management actually work in planning?

Participatory management (i.e., including project team members in the planning process) is beneficial in that it helps ensure that:

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 

Important issues are not overlooked, and Team members are committed to the project.

Furthermore:



Team members can be asked to identify the tasks required to complete the project along with their estimates of time and other resource requirements.

5. What is the difference between the Resource column on the WBS (including personnel needed by the project) and the Assigned To column?

The Resources column is more general and simply lists the type of human, material, and machine resources needed.

The “Assigned to” column is more specific and identifies the particular person who has responsibility for completing the activity.

6. Under what circumstances is it sensible to do without a project launch meeting?

While holding a project launch meeting is always a sensible step, it may not be essential or required in cases where the project is:

 

Relatively straightforward and frequent. In these cases the scope is likely well understood and the functional managers have well defined responsibilities.

To be completed entirely within one functional department. In this case, the functional manager involved can ensure the appropriate resources are assigned to the project as well as clearly define and articulate the project's scope.

7. Distinguish among highly probable risks, extremely serious risks, and highly vulnerable areas in risk identification.

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This thinking question is not directly answered in this chapter. The only thing the textbook says about this is:

Beyond this, a close analysis of the project plan, the WBS, and the RACI Matrix, as well as the PERT chart (Chapter 5) will often identify highly probable risks, extremely serious risks, or highly vulnerable areas, should anything go wrong.

The answer the student gives is going to be subjective and based on their own experience but hopefully informed by the discussion on FMEA.

  

Highly probable risks have a high probability or likelihood of occurring but the consequences can vary from negligible (e.g., a data entry person quits) to very serious (an important R&D drug fails in the Phase I clinical trial).

Extremely serious risks are risks that have very significant consequences although their probability of occurrence may be very low to very high.

Highly vulnerable areas refer to risks that are both highly probable and extremely serious (high FMEA value).

8. What limitation associated with traditional project management techniques like Gantt charts and precedence diagrams does the Design Structure Matrix overcome?

Traditional project management planning tools such as Gantt charts and precedence diagrams were developed primarily to coordinate the execution of tasks. DSM is designed to overcome this.

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9. Contrast the traditional waterfall approach to project management with Agile Project Management.

10. Contrast the project plan and the work breakdown structure.

Project plan

The primary function of a project plan is to serve as a map of the route from project start to finish. It should contain sufficient information that, at any time, the project manager knows what remains to be done. It is a comprehensive summary of the project.

Work Breakdown

The Work Breakdown Structure (WBS) is a set of all tasks in a

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Structure

project, usually arranged by task levels. It is sometimes presented as a tree, much like an organization chart.

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Suggested Answers to Discussion Questions 1. Give several examples of a type of project that would benefit from a template project plan being developed.

Projects that are completed routinely would benefit from a template project action plan. In addition to routine system maintenance projects, examples of such projects include:

a. Constructing a house. b. Taking a drug through clinical trials, and c. Installing the same computer system in all of an organization’s manufacturing plants.

2. Why is the hierarchical planning process useful for project planning? How might it influence the plan if the hierarchical planning process was not used?

The hierarchical planning process is useful for project planning for a number of reasons:

a. By starting very broadly and gradually adding more detail it is a logical and systematic process, and b. It fits well with typical organizational hierarchies in the sense that senior and middle-level managers can focus on the top level items and then delegate the specification of these details to the people that will be responsible for completing these tasks.

A key problem with not using hierarchical planning is that important tasks may be overlooked which may ultimately delay the project and/or result in cost overruns.

3. Develop a WBS with at least two levels for a project you are personally familiar with (e.g., moving away to college, registering for class, cleaning out a garage). (Hint: the plan will be more useful as a learning exercise if you have a subordinate or two – real or

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imaginary). Be sure to include precedences, task durations, resource requirements, and milestones.

The following example describes a project involving the development of a history term paper. It involves three students (Alex, Gary and Neil) and their instructor, Professor Daniels.

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History Term Paper Estimated Task Name WBS

Predecessor

Duration

Resource Name

1 Week

Alex, Gary, Neil

1

Select Topic

2*

Get Topic Approved

1

1 Week

Professor Daniels

3

Outline Paper

2

3 Days

Alex

4*

Conduct Research

3 Weeks

Gary, Neil, Alex

4.1

Library Research

3

3 Weeks

Gary and Neil

4.2

Research Web

3

2 Weeks

Alex

5*

Write-Up Report

4 Weeks

Alex, Gary, Neil

5.1

First Draft

4.1, 4.2

2 Weeks

Gary

5.2

Proof First Draft

5.1

1 Week

Alex, Gary, Neil

5.3

Edit First Draft

5.2

1 Week

Neil

*Milestones

4. Discuss the drawbacks of implementing a project plan without a RACI matrix.

A key drawback of not using a RACI matrix is that required communications or tasks may fall through the cracks as no one took responsibility for completing them, assuming they were someone else’s responsibility.

5. Assume that your class instructor appointed you project manager to lead a dozen of your classmates in writing up the end-of-chapter pedagogy materials (i.e., Review Questions, Discussion Question, Problems, Incidents for Discussion, and Cases) as an Instructor’s Guide for this book. You plan to form subteams to work on each of these elements, each

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headed by a subteam leader. Of course, all the subteam materials will need to be integrated into the final Instructor’s Guide at the end. Construct a WBS and RACI matrix for this project.

The WBS for this project might be as follows. The RACI matrix could divide the classmates either among the chapters (e.g., 1-2 per chapter doing all the 5 elements) or among the elements (e.g., 2-3 per element with 1 person being subteam leader) and then a couple of people to integrate all the materials into the final Instructor’s Guide.

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End of chapter pedagogy materials

Review Questions

Discussion Questions

Problems

Incidents for

Cases

Discussion

Chapter 1

Chapter 1

1.1.1

1.2.1

Chapter 2

Chapter 2

1.1.2

1.2.2

Chapter 1.3.1

Chapter 1

Chapter 1

1.4.1

1.5.1

Chapter 2

Chapter 2

Chapter 2

1.3.2

1.4.2

1.5.2

6. You and your family and friends are planning to host a graduation party at the end of the school year. Construct a WBS for this party.

Task

Duration

Predecessor

1. Invitations

3-50

Assigned To

3/ Project Activity and Risk Planning

1.1 Make up list

1 hour

--

Alec, Bob, Tia

1.2 Buy invitations

5 days

1.1

Tia

1.3 Mail invitations

1 day

1.2

Bob, Tia

1.4 Update RSVPs

2 weeks

1.3

Bob

2.1 Buy cake

3 days

--

Tia

2.3 Buy drinks

2 hours

1.4

Bob

2.4 Buy appetizers

2 hours

1.4

Alec

2.5 Plates, forks, cups

1 hour

1.4

Alec

3.1 Purchase banner

1 hour

--

Alec, Bob

3.2 Buy balloons

2 days

--

Tia

3.3 Napkins

1 hour

1.4

Bob

3.4 Decorate house

1 day

3.1, 3.2

Alec, Bob, Tia

2. Food

3. Decorate

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7. Construct a WBS for the project in Question 3.5.

Task

Duration

Predecessor

1. Organization

Assigned To

You

1.1 Establish subteams

2 hours

--

You

1.2 Select subteam leaders

2 hours

1.1

Subteam members

1.3 Assign chapters.

2 hours

1.2

Subteam leaders

2.1 Prepare drafts

4 weeks

1.3

Chapter leaders

2.2 Review drafts

2 weeks

2.1

Subteam members

2.3 Revise drafts

2 weeks

2.2

Chapter leaders

2.4 Review final drafts

1 day

2.3

Subteam leaders

3.1 Combine chapter materials

2 days

2.4

Subteam leaders

3.2 Make final revisions

1 day

3.1

Subteam members

4 Submit materials

1 hour

3.1

You

4.1 Meet with class instructor

2 hours

3.2

Project members

2. Conduct project

3 Finalize project

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8. Consider one or more projects (from this course or elsewhere) that you understand reasonably well. Identify situations where information learned from a later task of the project becomes important to an earlier task.

As an example, one can consider the construction of a new house. Initially the homeowners work with an architect to develop the plans for the house and, as part of the plans, the dimensions for the kitchen are specified. Later in the process the homeowners go out and actually select the cabinets and appliances for the kitchen. At this stage, it may be discovered that the original dimensions are not optimal given the cabinets and appliances the homeowners actually select.

9. Consider the differences between Agile Project Management and the traditional waterfall approach summarized in Table 3-4. Which practices associated with the APM approach do you see as having the greatest potential to compliment the traditional waterfall approach?

As is noted in the chapter, many of the tenants of APM can easily be incorporated in more traditional approaches to project management. For example, there is nothing that prevents increasing customer involvement in the traditional waterfall approach. Likewise, there is nothing inherent to traditional project management that prohibits greater experimentation. This suggests that nothing precludes a PM from adopting a subset of APM best practices.

Exercises 1. Find the best alternative given the cost outcomes below. The probability of rain is 0.3, clouds is 0.2, and sun is 0.5.

Alternative

State Expected Sunny Value

Rainy

Cloudy

a

6

3

4

4.4

b

2

4

5

3.9

c

5

4

3

3.8

d

5

4

3

3.8

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Probability

0.3

0.2

0.5

Options c and d have the lowest expected cost.

2. In Exericse 1, base your decision instead on the worst possible outcome for each alternative. Now consider a decision based on the best possible outcome. When might both of these give you the same decision?

These are costs so a higher number is worst. The worst for each alternative are a(6), b(5), c(5), and d(5). Given this, the answer is a three-way tie: b, c, and d.

The best for each alternative are a(3), b(2), c (3), and d(3). Given this, the answer is b has the best possible (lowest-cost) option.

When a particular option had both the highest and lowest cost, that option would be selected using both rules.

3. Laptops-R-Me keeps detailed data on their laptop sales. In the last 300 days the number of laptops sold was as shown in the table … a. The frequency distribution of sales is:

Number Sold

Frequency

0

5%

1

10%

2

29%

3

47%

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4

9%

b. The average number of laptops sold daily is:

0(.05) + 1(.1) + 2(.29) + 3(.47) + 4(.09) = 2.45 laptops

c. The yearly profit is:

2.45 laptops sold per day × 50 weeks/yr × 5 days/week × $65 profit/laptop = $39,812.50

4. You are offered the chance to play a dice game at $10 per toss of 2 die. If the sum of the two dice tossed is 4, you will receive $100. Should you play or not?

Dice 2 Dice 1

1

2

3

4

5

6

1

2

3

4

5

6

7

2

3

4

5

6

7

8

3

4

5

6

7

8

9

4

5

6

7

8

9

10

5

6

7

8

9

10

11

6

7

8

9

10

11

12

As shown in the table above, a sum of for the two die occurs 3 times out of 36 times or 8.33% of the time (3/36). Therefore the expected value of the game is $100 × 0.0833 = $8.33. Since the expected value of $8.33 is less than the $10 it costs to play, you should not play.

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5. A marketing firm is trying to win a major contract from a large retail company and is concerned with four major threats. (1) Competition: the probability of very competitive bids is high at 0.6, and the potential impact would be substantial at a value of 5 on a scale of 1–7 (where a 7 is a major negative impact and a 1 is slight). (2) Economy: probability of a recession is 0.4 and its impact would be 7 since the company would probably decide not to advertise. (3) Chance of a loss: a small probability of only 0.3 with a negative impact of 4. (4) Personnel loss (head of marketing is being courted by a competitor): probability of loss is 0.5 but negative impact is only 3. Use the FMEA technique to prioritize the risks.

A few points about this problem. First, all the examples in the textbook use a 10 point scale.

That is not a requirement so having impact measured on a 1-7 point scale and probability on a 0-1 scale is not a problem. Second, need to be sure that a higher number corresponds to a worse outcome. Here, competition, recession, loss, and personnel loss are all negative outcomes so a higher impact and probability is worse.

Third, the textbook shows FMEA as severity x likelihood x detectability. All three are not required and some situations may have more than three. The point is to include all the factors that matter for a particular situation.

Impact Probability

FMEA

Competition

5

0.6

3.0

Economy

7

0.4

2.8

Chance of a loss

4

0.3

1.2

Personnel loss

3

0.5

1.5

Based on the above, competition is likely to have the largest impact and the economy the second highest and both far exceed the other two so both should be monitored closely.

6. A marketing analyst has investigated each of the four threats in Exercise 3.5 in terms of NOT being able to ameliorate them and has come up with the following values (again, on a 7 point scale) for each of the threats: #1: 1, #2: 6, #3: 3, #4: 4. Recalculate the RPN and

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determine which risks are now critical and which can be ignored. How has this changed from before? Does this new ranking seem more realistic?

S

L

D

RPN

Competition

5

6

1

30

Economy

7

4

6

168

Chance of a loss

4

3

3

36

Personnel loss

3

5

4

60

The new data greatly changes the ranking and makes the economy the riskiest. This seems much more realistic.

7. Prepare a WBS using MSP with the steps that must be completed before Vern Toomey can contact outsourcing vendors. If Vern starts on August 1, 2016, how long will it take to get ready to contact outsourcing vendors?

Based on the information in the Gantt chart it would be Friday, August 16, 2013 before Vern would be able to contact vendors for the outsourcing proposals.

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8. Develop a mind map for a nonprofit organization’s annual casino night charity event.

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9. In addition to your regular responsibilities, your supervisor has just assigned you to be in charge of your organization’s annual golf tournament. It is expected that 100 to 150 employees will enter the tournament. In addition to organizing the event, you are also responsible for promoting it. Your budget for the event is $25,000. Develop a mind map for the golf tournament project.

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10. Enter the tasks and task durations into the Gantt Chart View in Microsoft Project.

Incidents for Discussion

Plymouth Zoo’s Re-engineering Project

Question: what should Avery Mitchell do next?

Avery Mitchell should make no decision until he gets more information.

What information should he ask the consultants for before accepting their proposal?

He should ask for references, examples of other work redesign jobs the consultants have done, and he should ask about the relationship they had with the former CEO of the zoo.

What project management tools would you suggest Avery ask the consultants to use to outline the project more specifically and address his concerns?

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He should also ask for:

 

A specific project charter with deliverables, objectives, schedules, resource needs, etc.

A RACI matrix so that Zoo officers can identify what the consultants are responsible for and what the Zoo is accountable to do to meet the targets.

These pieces of information would help Avery determine if and how the work re-design project would impact ongoing work or other projects going on. Also, this information would enable him to see how the consultants propose to carry out the project. He can then determine the impact of the project on the Zoo’s everyday operations. This would also enable him to see where and how the cost savings were determined and whether they would be sufficient to meet the Zoo’s profit projections.

Time is Fleeting

Question: if you were the President, how would you handle this problem?

The president could ask the IT and HR department heads each to outline a project plan for the approach they favored.

It might be better, however, if he asked them to work together to prepare action plans for each of their recommended solutions to the current problem with the time clocks. The two department heads could then be asked to plan cost benefit studies of both plans. They should carefully delineate the objective of each project. Acting together, they could choose the best alternative, based on the cost/benefit studies. Then they could jointly outline the implementation project plan for the solution that they choose.

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Suggested Case Analyses and Solutions Friendly Assisted Living Facility -- 3 Question #1: Define the project deliverables.

Deliverables of the project are:

 

Construction of a 100 unit facility Provide a positive return on investment and contribute to overall business

Project outcomes that will be measured to determine project effectiveness are:

  

Increase utilization of existing hospital outpatient services Develop more services focused on wellness and preventative medicine Increase census of inpatient units

Question #2: Define project constraints and assumptions.

Project assumptions are:

   

For-profit subsidiary of St. Dismas Free standing apartment construction design Facility will be constructed to provide easy access to St. Dismas’ services such as kitchen area, outpatient therapy areas, etc.

100 units, some designed for heavy-assisted, and most light-assisted.

Project constraints are:

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 

Construction cannot begin until after November 1999 Open facility in July 2000

Question #3: Develop a level 1 WBS.

Outline the broad steps in the project, for example;

Number

Step

1

Start ALF project

2

Building design

3

Construction

4

Define food service needs

5

Define housekeeping needs

6

Define staffing needs

7

Develop policies and procedures

8

Create budget for facility

9

Create financial systems (payroll, accounting, etc)

10

Identify telecommunications & information systems needs

11

Develop marketing plan (including ground breaking event)

12

Develop communications plan

13

Define clinical services needed

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14

Develop management structure

15

Identify all regulatory requirements

16

Complete Project

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Question #4: Develop the RACI matrix for this project based on the Level 1 WBS.

Step COO

CFO

Fred Splient

Rehab Medical Director

Construction Manager

Director Info Services

VP Business Dev

Start ALF project

R, A

C

C

I

C

I

I

Building design

R, A

C

C

C

C

C

C

Construction

C

C

C

I

R, A

I

I

Define food service needs

C

C

C

R, A

Define housekeeping needs

C

C

C

R, A

Define staffing needs

C

C

C

Develop policies and procedures

C

C

C

Create budget for facility

C

R, A

C

Create financial systems (payroll, accounting, etc)

C

R, A

C

C

Identify telecommunications &

C

C

C

R, A

C

R, A

C

R, A C

C

3-1

C

C

3/ Project Activity and Risk Planning

information systems needs Develop marketing plan (including ground breaking event) Develop communications plan

C

C

C

Define clinical services needed

C

R ,A

C

R, A

C

R, A

Develop management structure

C

C

R, A

C

Identify all regulatory requirements

C

C

R, A

C

Complete Project

R, A

C

C

I

3-2

C

C

C

C

C

C

I

I

4/Budgeting the Project

Question #5: Would a Project Charter have been useful here?

Consider the list of items to include in a charter shown in Section 3.1. Out of this list, it would have been useful to:      

Clarify the assumptions underlying the project concerning future health levels, state of the economy, patient preferences, etc.

Constraints facing the Center on this project (staff, money, etc.)

High-level risks Milestones for control phase gates to review and reconsider project progress Identify key stakeholders such as the local community, regulatory agencies, etc Boundaries as to what is out of scope on the project.

John Wiley & Sons Teaching Purpose: This case requires students to use their creativity and develop a WBS for a website development project.

Question #1: Develop a mind map for this project.

Digitize Videos Online Links

Online Self-Test

Chapter Summary

Develop Report

Chapters 1-8

Online Cases

Code Web

Develop Website

4-3

Benchmark State-of-

Visit Other NonTextbook

4/Budgeting the Project

Test/Debu g

4-4

Visit Other Textbook Sites

4/Budgeting the Project

Question #2: Convert your mind map into a WBS.

Develop Website

Benchmark State-of-Art

Visit Other Textbook Sites

Code Web Pages

Visit Other Non-Textbook Sites

Chapter 1

Chapter Summary

Online Links

Develop Report

Test/Debug

Code Pages

Chapter 2

Digitize Videos

Chapter 8

Online SelfTest

4-5

Online Cases

4/Budgeting the Project

Question #3: Discuss how your mind map might be used to facilitate other project planning activities such as resource allocation, schedule development, and risk analysis.

The mind map can be utilized to develop what additional resources (human) can be allocated, and for what portion of the project. It would also facilitate the development of a schedule for each component of the website and determine where risks might be encountered within the project, where the pitfalls might be encountered as you develop the website.

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4/Budgeting the Project

Samson University Teaching Purpose: This case reinforces issues related to effective launch meetings, the development of mind maps and WBS, and risk assessment..

Question #1: Critique the launch meeting. Are there aspects you think are worth emulating?

Are there aspects you would do differently?

Opinions will naturally vary on this question. Positive aspects might include:

   

Project was introduced by Dean Ryan, the project sponsor within Samson University.

Dean Ryan thanked the team members for participating and explained the strategic importance of the project.

Professor Scott, the project manager, took over after Dean Ryan’s introduction.

All of the team members seemed to participate in the meeting and were mostly positive about the project.

Negatives might include:

  

As Professor Lee points out, the goals of the project were not well founded at the launch meeting.

Other than Professor Scott coming up with a draft schedule and sending out a poll, no one else left the meeting with any responsibilities.

A number of ideas were thrown out at the meeting (benchmarking, faculty related issues, online survey, resources in career center, and curriculum) but there was no plan from the meeting to follow up on any of these.

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4/Budgeting the Project

Question #2: Develop a mind map for this project using the ideas shared in the meeting and other ideas that occur to you.

It is important to emphasize that the purpose of the mind map is to identify the work that needs to be done to complete the project. It is not the purpose to identify or address the goals of the project.

Theme?

Program Structure?

Hard/Soft Skill Split?

Faculty Capacity?

Students

Does Faculty Have Skills

Faculty

Dev Skills Matrix?

Get Stakeholder

Develop Curriculum

Recruiters Hands-On Experience?

Create Online Survey

Develop New PM Program

4-8

Benchmark Other

4/Budgeting the Project

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4/Budgeting the Project

Question #3: Convert your mind map into a WBS. The figure below illustrates the process of converting the mind map to a WBS down to level 2.

The process is continued for the level 3 and 4 tasks.

Question #4: Review your mind map and identify risky potential failure points. Which are the most serious? Which are the most likely? Determine the most critical failure points by calculating all their RPNs. For each of the most critical failure points you identify, develop a contingency plan.

FMEA begins by identifying ways the project might fail. Next, each potential failure is evaluated in terms of the severity of the failure, the likelihood of the failure, and the detectability of the failure. Finally, the RPN is calculated as the product of these three parameters. The Figure below illustrates failure points students might identify for this project. According to this analysis, the task with the greatest risk is Determine the Goal of the Program and suggests the need for a solid contingency plan for this task.

Chapter 4 Budgeting the Project

This chapter continues the topic of project planning and focuses specifically on project budgeting and its risks. With the technical aspects of project planning discussed in the previous chapter, this chapter addresses the need to develop a budget in order to obtain the resources needed to accomplish the project’s objectives. The chapter begins with an overview of budgeting methods and discusses both the top-down and bottom-up approaches. In comparing these approaches, it is noted that top-down budgeting is usually accurate overall but may include significant errors for low-level tasks. Bottom-up budgeting, on the other hand, is usually accurate for low-level tasks but risks overlooking tasks. Following this overview of

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4/Budgeting the Project

budgeting methods, the chapter next addresses the issues of cost estimation and improving cost estimates. The need for PMs to thoroughly understand the organization’s accounting system is emphasized. Also the issue of budget cuts is addressed. In terms of improving cost estimates, techniques such as the use of learning curves and tracking signals are presented.

Finally, the chapter concludes with a discussion of budget uncertainty and risk management via the use of simulation.

Cases and Readings Some cases appropriate to the subject of this chapter are: Harvard: 9-193-071 Porsche AG This 20-page case illustrates how traditional cost measurement systems operate in an R&D department but offers little information for managing projects.

Harvard: 9-690-051 Campbell Soup Co. This 23-page case describes the cost-justification of a new engineering project to develop a microwavable package and product for the growing convenience foods market segment. A 28 page teaching note (5-690-094) is available for this case.

A reading appropriate to the subject of this chapter is: P. Armour. Ten UnMyths of Project Estimation (Communications of the ACM, 45(11), 2002). This reading discusses some commonly accepted “unmyths” about estimating project costs. An “unmyth”, according to the author, is something that appears to be true but when looked at closely, is not true. The author draws attention to some accepted practices associated with estimating project costs, duration, productivity, resource needs and so on and suggests ways of treating these estimates.

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Answers to Review Questions 1. Contrast the disadvantages of top-down budgeting and bottom-up budgeting.

The main disadvantages of top-down budgeting are that:   

Significant errors may be made for low-level tasks, A lower level of budget acceptance is likely due to limited participation, and It provides little training opportunities in budgeting for junior managers.

The main disadvantage of bottom-up budgeting is the risk of overlooking some important, and possibly expensive, tasks.

2. What is the logic in charging administrative costs based on total time to project completion?

Charging administrative costs based on total project completion time is based on the assumption that administrative costs increase in proportion to the length of the project. In other words, longer projects are expected to require more administrative resources than shorter projects, which may or may not be true for individual projects.

3. Would you expect a task in a manufacturing plant that uses lots of complex equipment to have a learning curve closer to 70 percent or 95 percent?

The learning rate corresponds to the new amount of time or cost when the output doubles, relative to the previous amount of time or cost. Therefore, a lower learning rate actually translates into a faster rate of learning. Generally speaking, people have the ability to learn while machines do not.

Thus, if we assume by complex we mean automated, then the plant would have a slower learning rate of perhaps 95 percent. On the other hand, if by complex it is assumed that workers need a great deal of skill to operate the equipment, then a faster learning rate of 70 percent would be expected.

4. Are there other kinds of changes in a project in addition to the three basic types described in Section 4.4? Might a change be the result of two types at the same time?

The three basic causes of changes listed in Section 4.4 are:  

Errors made by the cost estimator with regard to how to achieve the tasks identified in the project plan.

Increased knowledge by either the team or the client as to the nature of the performance goals.

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

The passage of a new law, standard, or policy.

These three causes would appear to capture the vast majority of change in projects.

As the question hints, however, two or more of these causes may occur at the same time. For example, new knowledge of a competitor’s new product may change the performance goal of a project and also require a change in how the tasks are achieved.

Suggested Answers to Discussion Questions 1. Given the tendency of accountants to allocate a project’s estimated costs evenly over the duration of the task, what danger might this pose for a project manager who faces the following situation? The major task for a $5 million project is budgeted at $3 million, mostly for highly complex and expensive equipment. The task has a six month duration, and requires the purchase of the equipment at the beginning of the task to enable the project team to conduct the activities required to complete the task. The task begins December 1.

The accountant would likely assume that the $3,000,000 is to be allocated evenly over the six month duration of the task or $500,000 per month. However, most of the $3,000,000 will likely be incurred at the beginning of the task when the equipment must be acquired and paid for.

The problem for the PM is that the accountant will expect a $500,000 charge in the first month of this task but will see an expenditure of close to $3,000,000! Based on this the accountant and top management may become alarmed in terms of the project being completed on budget.

2. The chapter describes the problems of budgeting projects with S-shaped and J-shaped life cycle curves. What might be the budget problems if the life cycle of a project was just a straight diagonal line from 0 at project start to 100 percent at project completion?

A straight-line project life cycle means that the impact of a budget cut would be constant throughout the project’s life. A slope greater than 45 degrees means a change in the budget would have a proportionally larger impact on the project’s completion. Conversely, a slope less than 45 degrees means a change in the budget would have a proportionately lesser impact on the project’s completion.

Of course it is unlikely in reality to observe a straight-line life cycle.

3. If a firm uses program budgeting for its projects, is an activity budget not needed? If it is, then of what value is the program budget?

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Activity budgets segregate costs by types of expenditures - phone, labor, etc. - whereas program budgets group costs according to the task or job that uses resources of all types to accomplish that task.

Program budgets, therefore, relate expenditures directly to the project plan and simplify the project manager problem of managing the budget and making trade-offs.

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4. As a senior manager, you oversee a project with a total estimated cost of 245 engineermonths of effort. Three months ago, however, the project had fallen behind by about 25 engineer-months so you authorized the hiring of three additional engineers, which you felt should more than make up for the delay in the remaining year of the project (3 x 12 months = 36 engineer-months). You have just received the latest quarterly project status report and are surprised to learn that the project is now 40 engineer-months behind schedule! Your first reaction is to calculate how many more engineers need to be hired to make up for the increased delay. Using Brooks’s concept of the “mythical man month,” explain what might be happening here.

According to the “mythical man month” effect, the three new engineers hired would be unlikely to hit the ground running. They would almost certainly require training. This training would likely take time away from other members of the project team. Thus, the extra capacity created by adding these three engineers was likely more than used up by the other engineers who spent some of their time now training the new team members.

Depending on the amount of training needed, the next quarter may show some catching up or falling even further behind, but if more engineers are hired again, the project will undoubtedly fall further behind.

5. So what went wrong with the assistant purchasing manager’s solution (outlined in Section 4.3) to the problem of having an inadequate supply of hard-to-obtain parts?

The assistant purchasing managers’ solution (i.e., including a 10 percent allowance for additional, hard to obtain parts in every cost proposal) only addressed the symptom of the problem. It did not focus on the cause (i.e., why the company was short in the first place).

Furthermore, the solution created another problem, namely, that the organization was no longer cost competitive.

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6. Contrast simulation to other risk analysis tools discussed in Chapter 3 such as decision tables, FMEA, logic charts, and contingency planning. What are its advantages and disadvantages? If you were to do an important risk analysis, which tool would you prefer?

A simulation involves the use of a model of a system to analyze the expected behavior or performance of the system. Most simulations are based on some form of Monte Carlo analysis which simulates a model’s outcomes many times to provide a statistical distribution of the calculated results. The advantages of this methodology are that it gives a graphic picture of the results and their probabilities, and can be used to determine the impact of whatever assumptions one wishes to make. On the negative side, the outcomes are determined by the parameters used in the model.

Decision tables employ the probabilities of various events happening and the outcomes of different decisions/policy choices when each of those events occur, so in some ways it is like a simplified simulation of each decision/policy, but the result is usually expressed as a single number, the expected value. Although the extreme values can be seen in the various outcomes with their probabilities, these aren’t usually checked.

FMEA is a structured approach similar to the scoring methods discussed in Chapter 1 to help identify, prioritize, and better manage risk. A risk priority number is calculated as severity times likelihood times undetectability. The advantages of this methodology are its ability to rank risks and it includes the probability of occurrence. Its disadvantage is that very large scores on any one scale can overwhelm modest scores on the other scales.

Logic charts show the flow of activities once a backup plan is initiated. They force managers to think through the critical steps that will need to be accomplished in a crisis, and provide an overview of the response events and recovery operations. The advantage is that once an event occurs, everyone knows what to do. The disadvantage is it does not give any indication of the probability of the event or its impact if it happens.

A contingency plan is a backup for some emergency or unplanned event, often referred to colloquially as “plan B.” The contingency plan includes who is in charge, what resources are available to the person, where backup facilities may be located, who will be supporting the person in charge and in what manner, and so on. Its advantages and disadvantages are identical to logic charts.

Simulations provide the most detail but are the most difficult to prepare. FMEA provides many of the advantages of a simulation but is much easier to prepare. Generally, logic charts or a contingency plan would be used to plan for important risks identified by either simulation or FMEA.

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Solutions to Exercises Note to instructor: All Crystal Ball solutions are simulations. As such, every answer will be different, although the results will be similar to those shown. Note too that each time a student runs the simulation, they will get a slightly different answer.

1. Your firm designs PowerPoint slides for computer training classes, and you have just received a request to bid on a contract to produce the slides for an 8-session class. From previous experience, you know that your firm follows an 85 percent learning rate. For this contract it appears the effort will be substantial, running 50 hours for the first session.

Your firm bills at the rate of $100/hour and the overhead is expected to run a fixed $600 per session. The customer will pay you a flat fixed rate per session. If your nominal profit margin is 20 percent, what will be the total bid price, the per session price, and at what session will you break even?

As can be seen from the following Table, the number of hours needed to prepare the slides (given an 85% learning rate) would be 50 hours in session 1, 42.5 hours in session 2, 36.1 hours in session 4, and 30.7 in session 8. This enables the total cost per session to be calculated … and thus the total for the eight sessions.

Session 1 2 3 4 5 6 7 8 Total

Hours 50 42.5 38.6 36.1 34.3 32.8 31.7 30.7

V.C. $5,000 $4,250 $3,865 $3,613 $3,428 $3,285 $3,168 $3,071

Fixed Cost Total Cost Cum Cost Cum Rev $600 $5,600 $5,600 $5,172 $600 $4,850 $10,450 $10,344 $600 $4,465 $14,915 $15,516 $600 $4,213 $19,127 $20,688 $600 $4,028 $23,155 $25,860 $600 $3,885 $27,040 $31,032 $600 $3,768 $30,809 $36,204 $600 $3,671 $34,479 $41,376 $34,479

The total cost for the eight sessions is $34,479 to which your firm adds a 20 percent profit margin to give a bid price of $41,375. The per-session price, therefore, is $5,172.

Comparing the cumulative revenue with the cumulative cost, your firm will break even in the third session.

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2. If unit 1 requires 200 hours to produce and the labor records for an Air Force project of 50 units indicates an average labor content of 63.1 hours per unit, what was the learning rate?

Calculation of learning rate: First begin be calculating the total labor hours required to complete the contract of 50 units as follows: 50 units × 63.1 average hours = 3,155 hours.

Next, set up a spreadsheet like the one shown in the Media One Consultants example in the chapter as shown below.

Finally, using a trial and error approach, plug in alternative values of the Learning Rate to get a cumulate time for the first 50 units as close as possible to 3,155 hours. A 75% learning rate yields a cumulative time of 3155.2 hours.

What total additional number of labor-hours would be required for a follow-on Air Force Contract of 50 units? What would be the average labor content of this second contract? Of both contracts combined?

Using the spreadsheet, the total time for the first 100 units would be 4,836 hours. Subtracting out the 3,155 hours for the first contract of 50 yields 1,681 hours for the second 50. The average labor content of the second contract is thus 33.62 hours (1,681/50).

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The average labor content of both contracts combined is 48.36 hours (4,836/100).

If labor costs the vendor $10/hour on this second contract and the price to the Air Force is fixed at $550 each, what can you say about the profitability of the first and second contracts, and hence the bidding process in general?

At a labor rate of $10/hour, the first 50 cost $631 each so they lose money. The second contract of 50 cost $336.20 each and thus make money. Between both contracts, they cost $483.60 each, on average, so the net result is a profit of $550 – 484 = $66 each or a total profit of $6,600.

One implication is to bid under cost to get a contract and then make a profit on follow-on contracts. Indeed, if this strategy is not pursued, the organization may never get the first contract and not have the opportunity to move down the learning curve.

3. The IT unit of a company has been asked to prepare a budget for a special software package project. The group has considerable experience with similar tasks and submits the costs in the following table. The group also thinks that the distribution of the hours worked for each phase is normal. The wage rate for the software engineers employed on each phase is $60 per hour. Using simulation, find the distribution of total engineering costs for all the phases. What is the average engineering cost? Also, find the probability that the total engineering cost will be less than $85,000.

The Crystal Ball simulation for completion time is shown below. The mean is 1,313 hours, the standard deviation is 126.7, and the distribution is close to normal.

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The Crystal Ball simulation for cost is shown below. The mean is $79,398 and the standard deviation is $7,544.

As part of the simulation, a count of the number of times that the cost was below $85,000 was made.

Out of 1,000 simulations, the cost was below $85,000 770 times, giving it a 77 percent chance of being below $85,000. That Crystal Ball simulation is shown below.

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4. Reconsider the following exercise from Chapter 1: A four-year financial project is forecast to have net cash inflows of $20,000; $25,000; $30,000; and $50,000 in the next 4 years. It will cost $75,000 to implement the project, payable at the beginning of the project. If the required rate of return is 0.2, conduct a discounted cash flow calculation to determine the NPV. Now, however, assume that the net cash inflows are probabilistic variables. Further assume that each forecast net cash inflow is normally distributed with standard deviations of $1,000, $1,500, $2,000, and $3,500, respectively. Given a required rate of return of 0.2, find the mean forecast NPV using Crystal Ball®. What is the probability that the actual NPV will be positive?

The NPV is calculated using Excel as follows:

Note that the NPV is calculated two different ways. The first is cell B9 which uses the Excel NPV formula and is “=B4+NPV(B1,B5:B8)”. The second approach calculates the discounted value of each individual cash flow and then sums those individual discounted values to obtain the NPV. The formula in cell C4 is “=B4/(1+$B$1)^A4” and that value is copied down through C8. The formula in cell C9 is “=SUM(C4:C8)”.

To handle variation, the spreadsheet was modified in two ways:  

Cells B5 through B8 were defined as assumption cells. Cell B5 was defined as an Assumption Cell with a normal distribution with a mean of 20,000 and standard deviation of 1,000, and so on for the other cells.

Cell B9 was defined as a Forecast Cell.

The results of simulating this situation 1,000 times in Crystal Ball are shown below. According to the results, the expected NPV is $589 while there is a 59.6% probability that the NPV will be positive. Of even greater importance, the distribution of potential NPVs is generated with the simulation approach providing the decision maker with insight into the uncertainty and risk

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associated with the situation. In this case, we see the NPV ranges from a low of -$6,742 to a high of $8,935.

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5. What would happen to the NPV of the above project if the inflation rate was expected to be 4 percent in each of the next 4 years? You may use either Excel® or CB to determine your answer.

Using Excel, and ignoring variability, the inflation changes the calculation to the following:

Here, we simply used the spreadsheet developed before and increased the discount rate from 20 percent to 24 percent. When risk is included, as shown in the spreadsheet below, the probability that the NPV is positive declines from 59.6% to 0.5%.

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A B 1 Req Rate of Return 24.0% 2 3 Year Cash Flow 4 0 -$75,000 5 1 $20,000 6 2 $25,000 7 3 $30,000 8 4 $50,000 9 NPV -$5,729 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45

C

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Increased from 20% to 24%

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6. Information about the cash flows for a four-year financial project are listed in the following table. The cash flows are assumed to follow a triangular distribution. The cost of implementing the project is expected to be between $60,000 and $70,000, with all values in this range being equally likely. Analysis of changes in the Consumer Price Index suggests that the annual rate of inflation can be approximated with a normal distribution with a mean of 4 percent and standard deviation of 1.5 percent. The organization’s required rate of return is 20 percent. Develop a model in CB to analyze this situation and answer the following questions.

To analyze this problem the Crystal Ball model shown in the Figure below was created.

The results are replicating the CB model 10,000 times are shown below:

a. According the results shown above, the expected NPV of the project is $5,892. b. Based on the results shown above, the range of NPV for the project was $-13,374 to

$24,960.

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c. Using CB, it can be determined that there is approximately a 12.5% of the NPV being

negative. This suggests a moderate amount of risk. d. Based on an expected NPV of $5,892 with an after inflation 20% discount rate and only a 12.5% of losing money, this project appears to be investing in. Of course the risk profile of the decision maker must also be considered.

7. Server Farm Inc. (SFI) needs to upgrade its server computers. Company management has identified the following two options: (1) shift to a Windows-based platform from its current Unix-based platform, or (2) stick with a Unix-based platform. It is standard practice at SFI to use a triangular distribution to model uncertain costs.

The basic worksheet is shown below.

Cell B18 calculates the total Windows cost for the simulation while cell C18 does the same for the Unix cost. For Windows, the results are shown below:

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For Unix, the results are shown below:

(a) What is the expected cost of each project?

The expected cost for Windows is $511,063 and the expected value for Unix is $498,915. (b) What is the probability that each project’s cost will exceed $575,000?

There is a 14.96 percent chance that Windows will exceed $575,000 and a 15.30 percent for Unix.

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(c) Which project would you consider to be the most risky?

The probability of exceeding $575,000 is slightly higher for Unix and the standard deviation is slightly higher for Unix as well (66,477 for Unix versus 54,287 for Windows) so the Unix project is slightly riskier. (d) Which project would you recommend SFI undertake? Why? While the Unix project is slightly riskier, it has a lower expected value and the company has experience with Unix so I would recommend the Unix project (although, students could make a strong case for the Windows project based on risk).

8. A light manufacturing firm has set up a project for developing a new machine for one of its production lines. The most likely estimated cost of the project itself is $1,000,000, but the most optimistic estimate is $900,000 while the pessimists predict a project cost of $1,200,000. The real problem is that even if the project costs are within those limits, if the project itself plus its implementation costs exceed $1,425,000, the project will not meet the firm’s NPV hurdle. There are four cost categories involved in adding the prospective new machine to the production line: (1) engineering labor cost, (2) nonengineering labor cost, (3) assorted material cost, and (4) production line down-time cost.

The spreadsheet used for this simulation is shown below:

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All five variables were defined using a triangular distribution using the data shown. The simulated values were stored in cells B9:B13. Costs were used directly in cells B16:B20 while hours were multiplied times the appropriate hourly rate. The project total was calculated in cell B21. The results of this simulation are shown below:

The expected value is $1,324,003 and there is a 92.83 percent chance that this project will come in under $1,425,000.

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Incidents for Discussion Suggested Answers

A Budgeting Novice Question: What do you think Alex should show to his boss, so that the boss would feel more comfortable letting Alex determine and monitor the project’s budget?

Since the precedent has been set that a top-down approach to budgeting is used at this company, Alex should do the same.

In the past, Alex has had autonomy to manage both performance and schedule, but has not been permitted to develop the budget. Thus, it might be helpful for Alex to share documents with his boss that demonstrate his competency in handling both schedule and performance (assuming his boss is not familiar with these). In addition to documenting his previous experience, it would be useful for Alex to share with the boss his WBS and demonstrate how this drove his cost estimates. Finally, Alex might find it useful to share with his boss how having responsibility for only schedule and performance and not budget, limits his effectiveness as a project manager. Another advantage for Alex’s boss is that more of his or her time would be freed up if Alex were permitted to work on budget issues with clients.

Question: What should Alex say to persuade his boss?

Alex could approach his boss with sound estimates and assure the boss that he has involved all the experts in preparing the budget. Most likely, the boss will still re-work the numbers, but he should be more comfortable that Alex did his homework in preparing it. Alex must make timely communications to the boss on the project status, including thorough budget reports.

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Stealth Electronics Question: What should the CFOP do?

This is a difficult situation due to the lack of experience with building the systems. The only information the CFO has available is the costs of building the prototype.

The CFO needs to: o Put more certainty into the estimate of costs and the schedule of the project this will decrease the risk of cost overruns. o Make sure that the learning curve is taken into account for each of the steps involved in the project. The time taken for each should be reduced by a learning rate. o Work with the project manager to conduct three-time estimates for the durations and costs of each task in the project. o Be sure that uncertainty was accounted for in the project … and, based on that information, conduct a risk analysis. o Examine various outcomes and determine the probability of what will happen. Crystal Ball would be a good tool for the CFO to use to conduct a thorough risk analysis.

General Sensor Company Question: Under these circumstances, would Justin be wise to pursue a top-down or a bottomup budgeting approach?

Justin should combine the top-down approach with selected bottom-up inputs and checks on the 50% of cost stage. He is experienced and comfortable with a top-down approach and this makes sense for the majority of the project. Selective inputs from lower level workers involved in the tasks would confirm his estimates, or indicate where more information is needed.

Why? What factors are most relevant?

The most relevant factors are the seriousness of the error, Justin’s experience, and the fact that only one stage is affected, but it represents 50% of the cost.

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Suggested Case Analyses and Solutions Friendly Assisted Living Facility Project Budget Development -- 4 Teaching Purpose: This installment of the St. Dismas case requires students to address issues related to identifying and dealing with cost uncertainty Question 1: The cost per square foot for the units is given in the text together with its standard deviation. What other areas of cost or revenue are likely to have cost uncertainty?

Other areas of cost and revenue that are likely to be uncertain are the:         

Contingency allowances.

Marketing costs.

Personnel replacement costs.

Resource costs.

General services and administration (GS&A) costs.

Overhead allocation to budget.

Influences such as weather on the construction.

Cost increases for equipment or furniture, and Labor cost increases.

Question: How should these uncertainties be handled?

To handle the uncertainty, the estimators need to gain more knowledge of the areas of uncertainty and clearly define all the assumptions that were used to determine the budget.

Furthermore, they need to review the project plans thoroughly to identify areas of risk. Finally, they should ensure that they have an effective change order process in place in case there are the [inevitable] changes during the project.

Assuming cost or revenues are normally distributed, statistical and probability theory could be used to gain additional insights. Of course, it is important that the project manager, working with the accounting department, closely monitors all of the project costs.

Question 2: How would you suggest the team handle the issue of Dr. Link’s supposedly inflated medical equipment costs?

Since these are expensive items, the CFO should recommend using a bottom-up approach to budgeting. The CFO should set up a team consisting of both experts and the differing doctors to determine the actual equipment needs and costs. This would (a) enable buy-in from both parties and (b) ensure a more accurate estimate of needs. If there is sufficient data, the CFO can also include a tracking signal to identify if bias is in the estimates.

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Question 3: Once the overall budget is agreed upon, what will need to be changed in it for the project to commence?

The budget will have to be broken down by project time period and task in the project plan.

Later on, we will use this project budget to monitor and control the project.

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Photstat Inc. Teaching Purpose: This case provides students with an opportunity to analyze the risk of a project with several uncertain parameters. Students are asked to simulate the completion of this project 1000 times and create a risk profile for the project. Based on this, students are asked to comment on the implications of using an average value versus the risk profile. Case should be analyzed using Crystal Ball.

Question 1: What is the expected value of the project?

The spreadsheet below was created to calculate the expected value for this project. It is worth noting that one simplification was made. Namely, only the cash flows for the first six years as opposed to the first six-and-a-half years were discounted in calculating the NPV of the project.

According to the spreadsheet, the expected value of this project is $1,221,361 (see cell P5). The expected value would be perhaps $100,000 to $200,000 higher had the cash flows for the first half of the seventh year also been included.

Expected Value Calculation B 1 2 3 4 5

C

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Market Selling Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Size Price Market Market VC Equip Useful Year Year Year Year Year Year 10.00% Year 1 Year 1 Share Growth Year 1 Inflation Cost Life 1 2 3 4 5 6 NPV 100,000 $12.50 30.00% 10.00% $3.00 3.00% $500,000 6.5 -$215,000 $322,905 $365,851 $414,510 $469,639 $532,101 $1,221,361

Question 2: Simulate this project 1000 times and compute the average profit over the 1000 replications. Plot a histogram of the outcomes of the 100 replications.

The use of Crystal Ball can greatly speed up the development and analysis of the simulation model for this case. To illustrate this, the spreadsheet shown above was created.

With Crystal Ball, values for the random parameters are generated by defining cells as Assumption Cells rather than using Excel’s Random Number Generation tool. In this particular case, cells B5 to I5 were defined as assumption cells. For example, cell B5 corresponds to the market size in the first year of the product’s introduction. From the case, it is estimated that the market size follows a normal distribution with a mean of 100,000 units and standard deviation of 10,000 units. To define cell B5 as an Assumption Cell, first the cursor was placed in this cell. Next, the Define Assumption button was selected. Then the Normal distribution was selected from the Distribution Gallery that appeared. In the next window, 100,000 was entered in the Mean field and 10,000 was entered in the Std Dev field and the OK button selected. Cells C5 to H5 were specified in a similar fashion.

Cell I5 was a little different in that the useful life of the equipment does not follow a continuous distribution. In this case, the Custom distribution was selected from the Distribution Gallery.

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Next 3 was entered in the Value field and .1 entered in the Prob. field and the Enter button clicked. In a similar fashion, 6 was then entered in the Value field, .8 in the Prob. field and the Enter button clicked. This was repeated for the probabilities of 8 year and 10 year useful lives, respectively. After all this information was entered, OK was clicked.

Finally, cell P5 was defined as the Forecast Cell. NPV was entered as a descriptive name in the Forecast Name field and Dollars in the Units field. The formulas in cells J5:O5 are the same as was previously discussed. To run the simulation, the Start Simulation button was selected.

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The Frequency Chart and Statistics views are shown below.

Crystal Ball’s Frequency Chart View

Crystal Ball’s Statistics View

Question: How does the average of the simulation compare to the expected value you calculated? What are the managerial implications of this difference?

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The average of the simulation was $1,231,918 which is relatively close to the expected value.

However, the range of values observed in the simulation experiment varied from $241,763 to over $2.4 million. Thus, the simulation experiment demonstrates the uncertainty of the actual outcome of this project.

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Building the Geddy’s Dream House – Solution To analyze the Crystal Ball model shown below was created. In the model cells E2:E25 are assumption cells based on the Triangular distribution and the parameters in columns B:D. Cell E26 was defined as a forecast cell.

1. The sum of the most likely cost estimates is $350,000 and exactly matches what the couple would like to spend.

2. Given the randomness inherent in simulation analysis, student results will vary. One replication of the Crystal Ball model where the project was simulated 10,000 times yielded an average cost of $370,716. The result obtained from the simulation analysis is higher than what was obtained from the more static analysis of simply summing up the most likely cost estimates. The reason for the difference is that in this case the costs are not symmetrical around the mean and typically the distance between the most likely and pessimistic cost is greater than the distance between the optimistic and most likely cost estimates. Because the simulation analysis incorporates more information, students should have more confidence in it.

3. In the Crystal Ball Model that simulated the project 10,000 times the minimum cost was $332,868 and the maximum cost was $412,773. Again, student answers will vary.

4. Based on the results obtained from the Crystal Ball model, there is a 96.94% chance the cost of the house will exceed $350,000 and a 64.95% chance the cost of the house will be less than or equal to $375,000. There is a 61.89% chance the cost of the house will be between $350,000 and $375,000. It is almost certain the cost of the house will exceed the couple’s desired cost but

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almost a 65% chance the house will cost less than the couple’s upper limit. Nevertheless, with a 35% chance of the house exceeding the couple’s upper limit, they should be quite concerned.

5. Adding the services of an interior designer increases the expected cost of the house to $373,983 (or an increase of $3,267). Note that the expected increase in the house is larger than the most likely value for the interior designer. Also note that this analysis assumes that utilizing the services of an interior designer does not impact the cost estimates in the other areas which in some cases may not be valid.

Chapter 5 Scheduling the Project

This chapter covers the topic of scheduling, probably the most extensively researched and published subject dealing with project management. In addition to the usual PERT and CPM networks, Gantt charts, etc., the subject of project uncertainty and risk management is also discussed. The use of computer simulation and Crystal Ball to generate the approximate distribution of project completion times to help better understand the implications associated with schedule uncertainty is also discussed.

Cases and Readings A case appropriate to the subject of this chapter is: Harvard: 9-613-021 Arrow Diagramming Exercise This 3-page case describes the marketing campaign for a newly developed industrial hardware item. Over two-dozen activities are noted and described. The case asks for the network diagram and critical path.

A reading appropriate to the subject of this chapter is: L.P. Leach. Critical Chain Project Management Improves Project Performance (Project Management Journal, June 1999, p. 39-51). This article explains the procedures developed by E. Goldratt in his Critical Chain approach to project management. Includes a discussion of project and feeder buffers. Projects using the critical chain often report significantly improved schedule, cost, and scope performance.

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Answers to Review Questions

1. What is a critical path?

By definition, a critical path is the path with the longest duration. It is critical in the sense that if it is delayed the completion of the entire project will be delayed.

2. How is slack determined?

Slack for a particular task is calculated by:  

Subtracting the earliest time the task can start from the latest time the task can start, Subtracting the earliest time the task can finish from the latest time the task can finish.

Both calculations result in the same slack and indicate a window in which the task can be started and finished without delaying the entire project.

The slack for a particular path is calculated by subtracting the path’s duration from the critical path’s duration and provides an indication of how much the path (i.e., all activities in total on that path) can be delayed without delaying the completion of the project.

3. How do you determine the ES for an activity with two predecessors? How do you determine the LF for an activity with two successors?

The earliest start time for an activity with two predecessors is equal to the later (larger) earliest finish time of the two predecessors since both predecessors must be completed for the task to begin.

The latest finish time for an activity with two successors is equal to the smaller (earlier) latest start time of the two successors. If the larger were used, then the preceding task would be permitted to finish after the latest allowable start time of the other successor.

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4. Will all activities on a noncritical path have the same slack? Why or why not?

No, all activities on the same non-critical path will not necessarily have the same slack.

This is because a particular activity may be on multiple paths. When an activity is on more than one path, its slack is determined by the path with the least amount of slack.

5. For the following project, (a) List all predecessors of task 5. (b) List all predecessors of task 4. (c) List all predecessors of the network finish (F).

(a) Task 4 is the only immediate predecessor of task 5; other predecessors are 1, 2, and 3. (b) Tasks 2 and 3 are both immediate predecessors of task 4 the other predecessor is 1. (c) Task 5 is the immediate predecessor of the network finish (F); the others are 1-4.

6. What is a “dummy” activity?

This type of activity only is seen in activity-on-arrow diagrams. When two activity arrows have the same beginning and ending nodes they do not have a unique identity in the project network. To solve this exercise a new ending or starting node is created for one of the activities to provide them with a unique identity. Then, using a dashed arrow, a dummy activity with no duration is added to preserve the precedence relationship.

7. Consider Figure 5-14. Paths a-b-c and a-b-d converge at activity f, but we ignore this potential merge problem in the text. Why? Activities a and b are common to both paths and make the same impact on both paths, so do not need to be considered. Also, activity f is not on the critical path, so is less likely to delay the project.

8. What is meant by “project slack”?

If the promised delivery date for a project is greater than the critical path time required to complete the project, the project is said to have “project slack.”

The amount of the project slack is equal to the delivery time minus the expected project completion time.

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9. When using AON networks, how does one indicate an event such as a project milestone?

A milestone could be added as a node to the AON network with zero duration.

10. A probabilistic network has a critical path of 21 days and a .95 probability of completing this path in 24 days. Therefore, the project has a .95 chance of being finished by the end of the 24th day. True or False? Briefly explain your answer.

False.

Only the path claimed to be critical has a 95 percent chance of being completed within 24 days. However, there may be one or more other paths that also have a chance of taking longer than 24 days.

If we are comfortable making the assumption that the paths are independent of one another, then the probability the project will be completed in 24 days or less can be calculated as the product of the probabilities that each path is finished on or before day 24.

11. “Not uncommonly, the Gantt chart is deceptive in its apparent simplicity.” Briefly explain.

Because the Gantt chart is so easy to construct and read, people may use this tool with little project management training and no technical knowledge about the project. One danger is drawing conclusions and making decisions based on the relatively simple information displayed in the chart.

12. When activity times are known with certainty, the critical path is defined as the set of activities on a path from the project’s start event to its finish event that, if delayed, will delay the completion date of the project. Why must this definition be modified in situations where the activity times are not known with certainty? Are there dangers associated with not modifying the definition?

In cases where the activity times are not known with certainty, it is not possible to determine the actual duration of each path. Therefore, it is not possible to determine the critical path a priori.

A path that is determined to be critical at the beginning of the project based on expected activity durations may turn out not to be critical when the project is, say, half completed, perhaps as a result of the extra management attention this path received. Indeed, it is common for the status of various paths to alternate between being critical and not being critical as the project is completed.

One danger is that what is thought to be the critical path at the beginning of the project consumes all of management’s attention only to have other paths fall behind and actually

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end up delaying the project. The implication is that all paths that have the potential to delay the project should be appropriately managed.

Suggested Answers to Discussion Questions 1. Should a PM manage critical path tasks differently than noncritical path tasks?

By definition, critical tasks are those tasks that if delayed will delay the completion of the entire project. Therefore, these tasks should be managed more closely than non-critical tasks.

In cases where the activity times are not known with certainty, the tasks assumed to be critical at the beginning of the project may turn out not to be so critical. Therefore, when tasks times are uncertain, all tasks that may reasonably delay project completion must be carefully monitored.

2. How might you use the network approach to help prepare cost estimates?

One way to use the network approach to prepare cost estimates would be to simply estimate the cost of each task in the diagram and then sum these costs up. The time estimates for the activities would likely be of significant help in estimating some of the costs (particularly when human labor is required), and then developing a cash flow schedule. To get a more accurate cost estimate of the project, you could develop three-point estimates for the costs, just like was done for the completion times, and then simulate the project taking both cost variations and schedule variations (when schedule changes would impact the activity cost) into consideration.

3. When would it be accurate to determine the probability of project completion by multiplying the probabilities of all the paths through the network together? When would it not be accurate?

It would be accurate to multiply the probabilities together when the paths are independent of one another.

In reality, the paths are not likely to be truly independent because the paths have activities in common and common resources are shared across paths. This latter point is particularly noteworthy as the network diagram only shows technological precedence relationships and most often does not include information about how the resources will be allocated.

In many textbooks it is common to argue that while true independence across the paths is rarely met, statistical independence is achieved for large network diagrams with only a few violations. Of course, the typical homework-type problems assigned are not large enough

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to justify the independence assumption and the calculations required for realistically-sized network diagrams would be far too tedious for most managers. That is why simulation is the recommended approach in this text. However, it is important to note that understanding the statistical approach facilitates understanding the simulation approach.

4. Reconcile Question 5.3. If this approach is not accurate, would the probability of completion considering the critical path alone be more accurate? How might you estimate the correct probability without resorting to simulation?

No, the probability would not be more accurate if only the critical path were considered unless this one path was much longer than all the other paths. In this case the other paths would have virtually no chance of delaying the entire project. When activity times are uncertain, properly calculating the probability that the project is completed by a certain date requires considering the probability that all paths are completed by the specified date.

If the assumption of path independence is reasonable then the product of the probability of each path completing by the specified time can be calculated. Otherwise, simulation must be used. If the project is large, a reasonable estimate can be obtained by identifying those paths that appear to be potential possibilities of becoming the critical path at some point of the project due to the variability of both their time and variance. (That is, a time close to the critical time and a large variance.)

5. Why do you think most PMs use MSP’s Gantt chart format (see Figure 5-20) more commonly than the network format?

It is much more intuitive, easier to read, and may contain much more information relevant to the project.

6. Which of the linkages in precedence diagramming do you think is most commonly used?

Why? As noted in the chapter, the finish-to-start is the most commonly used linkage because typically certain activities must be completed before other activities can start.

The start-to-start and finish-to-finish linkages are occasionally applicable. In these cases certain activities must either be started or finished at the same time. The start-to-finish linkage is probably used the least frequently.

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7. In the calculation of variance for optimistic and pessimistic activity duration estimates made at the 95 or 90 percent level, the denominator of the fraction that approximated the standard deviation of the time distribution changes from the traditional (b - a)/6 to (b - a)/3.3 for 95 percent and to (b - a)/2.6 for 90%. Where did the 3.3 and the 2.6 come from?

The 3.3 corresponding to 95 percent is based on a z-value of 1.645 which has 5 percent of the area in the upper tail. Doubling this yields the 3.3 given in the text. Note that the 3.3 is appropriately used when management specifies an optimistic time estimate that has a 95 percent chance of being achieved and a pessimistic time estimate that has only a 5 percent chance of being exceeded.

The 2.6 corresponding to 90 percent is based on a z-value of 1.28 which has 10 percent of the area in the upper tail. Doubling 1.28 yields the 2.6 given in the book. Again, the 2.6 is appropriately used when management specifies an optimistic time estimate that has a 90 percent chance of being achieved and a pessimistic time estimate that has only a 10 percent chance of being exceeded.

8. Given all the estimating done to determine the duration of project activities, what does it mean to say that “only after the fact do we know which path was actually the critical path”?

When activity times are uncertain, we can only estimate how long they will actually take.

This means that we can only estimate the duration of the paths also. Since these are only estimates, we will not know for certain which path actually took the longest to complete until the project is complete.

9. It was noted that “the PM must manage the project team as well as the project.” Explain why.

There are actually two sets of trade-offs project managers must make. Most commonly, we talk about making trade-offs between cost, schedule, and performance. However, there is often another set of trade-offs the project manager must deal with.

Project managers must often make trade-offs between achieving the project goals and maintaining the health and viability of the project team. Managing this second set of tradeoffs is what is meant by managing the project team while the first set of goals refers to managing the project.

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10. Why do you think scheduling has been the major focus of effort throughout the history of project management rather than performance or budgeting?

Performance … the performance of a project is measured by three criteria: is it on time? Is it on budget? And does it meet the agreed-upon specifications? These are outcomes which depend, to a large extent, on the effectiveness of the planning process which, in turn, depends on the accuracy of the scheduling.

Budgeting … as pointed out at the beginning of the chapter, one cannot prepare a budget without knowing the specifics of each task and the time period(s) during which the task must be undertaken both for access to scarce resources and for resources whose cost depends on the duration of their use. The effectiveness of the budgeting process therefore depends on the accuracy of the scheduling.

Thus, both performance and budgeting rely on the scheduling … and the more accurate and effective that is, the more likely the later stages (i.e., performance and budgeting) will be.

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Solutions to Exercises Note to instructor: All Crystal Ball solutions are simulations. As such, every answer will be different; although, the results will be similar to those shown. Note too that each time a student runs the simulation, they will get a different answer.

1. Refer to the network in Figure 5-14. What is the probability that path a-b-c-f will interfere with the promised project completion of 50 days? Recall that the critical path, a-b-d-g-h, had a probability of .86 for a 50-day completion. What is the probability that both paths will be complete in 50 days?

The expected duration and variance of path a-b-c-f are 44.5 (10 4/6 + 12 1/6 + 12 2/6 + 9 2/6) and 6.47 (1.78 + .25 + 4.00 + .44) respectively.

The probability that this path will take longer than 50 days and therefore interfere with the project completion can be calculated as follows:

z

50  44.5 6.47

 2.17

From Appendix A, the area in the upper tail for a z-value of 2.17 can be easily calculated as 1.5%. This means there is a 98.5% chance that this path will not interfere with the project being completed in 50 weeks.

The probability that both paths finish by time 50 (assuming the paths are reasonably independent of one another) is .985  .86 = 84.71%. NB: Since both paths have activities a and b common to them, we are counting their variance twice, so our probability of 84.71% is more pessimistic than needed and the true probability is probably slightly greater than this, say 85%.

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2. Refer to Table 5-4 and Figure 5-14. Recalculate the variance for each activity on the assumption that the optimistic and pessimistic estimates were made with a 95 percent probability. Recalculate the probability that the critical path will be completed in 50 days.

Occasionally, students make the assumption that by 95% we mean that there is a 95% probability that the task will be completed within the range defined between the optimistic and pessimistic range. However, in these cases, (b-a) should be divided by 3.92, rather than 3.3.

The spreadsheet below provides the solutions for the 99+ percent probability estimates, as well as the 95% estimates using both the 3.92 and 3.3 interpretations. Students may find the use of 3.92 more intuitive. Using this factor, the probability that path a-b-d-g-h finishes on or before time 50 is 76.5%.

A B C D E F G H 1 Opt. Norm.

Pess.

Var. Var. Var. ((b-a)/6)2 ((b-a)/3.92)2 ((b-a)/3.3)2 2 Activity a m b TE 3 a 8 10 16 10.67 1.78 4.16 5.88 4 b 11 12 14 12.17 0.25 0.59 0.83 5 c 7 12 19 12.33 4.00 9.37 13.22 6 d 6 6 6 6.00 0.00 0.00 0.00 7 e 10 14 20 14.33 2.78 6.51 9.18 8 f 6 10 10 9.33 0.44 1.04 1.47 9 g 5 10 17 10.33 4.00 9.37 13.22 10 h 4 8 11 7.83 1.36 3.19 4.50 11 12 a-b-d-g-h 47.00 7.39 17.31 24.43 13 Std Dev 2.72 4.16 4.94 14 Prob 86.5% 76.5% 72.8% 15 16 Key Formulas 17 Cell E12 =E3+E4+E6+E9+E10 {copy to cells F12:H12} 18 Cell F13 =SQRT(F12) {copy to cells G13:H13} 19 Cell F 14 =NORMDIST(50,47,F13,TRUE) {copy to cells G14:H14}

If students follow the text and make the assumption that there is a 5% chance of completing the tasks faster than the optimistic time estimates and there is a 5% chance that completing the tasks takes longer than the pessimistic time estimates, then the probability of path a-b-d-g-h finishing on or before time 50 is 72.8%

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3. Refer to Table 5-4 and Figure 5-14. Recalculate the variance for each activity on the assumption that the optimistic and pessimistic estimates were made with a 90 percent probability. Again, recalculate the likelihood that the critical path will be finished in 50 days.

If students assume that by 90% we mean that there is a 90% probability that the task will be completed with the range defined by the optimistic and pessimistic range then (b - a) should be divided by 3.29, rather than 2.6.

The spreadsheet below provides the solutions for the 99+ percent probability estimates, as well as the 90% estimates using both the 3.29 and 2.6. Students may find the use of 3.29 more intuitive. Using this factor, the probability that path a-b-d-g-h finishes on or before time 50 is 72.7%. If students follow the text and make the assumption that there is a 10% chance of completing the tasks faster than the optimistic time estimates and there is a 10% chance that completing the tasks takes longer than the pessimistic time estimates, then the probability of path a-b-d-g-h finishing on or before time 50 is 68.4%

A B C D E F G H 1 Opt. Norm.

Pess.

Var. Var. Var. ((b-a)/6)2 ((b-a)/3.29)2 ((b-a)/2.6)2 2 Activity a m b TE 3 a 8 10 16 10.67 1.78 5.91 9.47 4 b 11 12 14 12.17 0.25 0.83 1.33 5 c 7 12 19 12.33 4.00 13.30 21.30 6 d 6 6 6 6.00 0.00 0.00 0.00 7 e 10 14 20 14.33 2.78 9.24 14.79 8 f 6 10 10 9.33 0.44 1.48 2.37 9 g 5 10 17 10.33 4.00 13.30 21.30 10 h 4 8 11 7.83 1.36 4.53 7.25 11 12 a-b-d-g-h 47.00 7.39 24.57 39.35 13 Std Dev 2.72 4.96 6.27 14 Prob 86.5% 72.7% 68.4% 15 16 Key Formulas 17 Cell E12 =E3+E4+E6+E9+E10 {copy to cells F12:H12} 18 Cell F13 =SQRT(F12) {copy to cells G13:H13} 19 Cell F 14 =NORMDIST(50,47,F13,TRUE) {copy to cells G14:H14}

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4. Given the information in the following table:

a. Network diagram.

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b. and d.

Each activity’s ES, EF, LS, and LF. Also slack.

See following spreadsheet: Activity A B C D E F G H I

ES 0 4 4 8 10 10 8 15 19

EF 4 10 8 10 14 15 11 19 21

LS 0 4 4 8 15 10 12 15 19

LF 4 10 8 10 19 15 15 19 21

Slack 0 0 0 0 5 0 4 0 0

c. Alternative paths … and the critical path: Path a-b-e-i a-b-f-h-i a-c-d-f-h-i a-c-g-h-i

Duration 16 21 21 17

Critical?

No Yes Yes No

There are, therefore, two critical paths. d. Each activity’s slack.

See spreadsheet above (section b). e. The length of time to complete the project.

The project will take 21 (units of time) to complete (i.e., the length of time of the two critical paths).

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5. In the following table, task durations are given in weeks. The estimates were made at the 95 percent level (see Section 5.2, Calculating Probabilistic Activity Times subsection).

a.

The spreadsheet below can be used to calculate the expected time and variance for each activity. (See our note on the use of 3.92 in Exercise 3.)

A 1 2 Activity 3 a 4 b 5 c 6 d 7 e 8 f 9 g 10 11 12 Paths 13 a-d-f 14 a-c-e-g 15 b-e-g 16 17 Prob Path Fin by 23 18 a-d-f 19 a-c-e-g 20 b-e-g 21 22 Prob Project Fin by 23 23 24 Key Formulas: 25 Cell B13 26 Cell B14 27 Cell B15 28 Cell C18 29 Cell C22

b.

B Opt. a 2 3 4 4 4 3 3

C Norm. m 4 5 5 6 5 4 5

D Pess. b 6 9 7 10 7 8 8

E

F Var. ((b-a)/6)2 0.44 1.00 0.25 1.00 0.25 0.69 0.69

TE 4.00 5.33 5.17 6.33 5.17 4.50 5.17

G H Var. Var. ((b-a)/3.92)2 ((b-a)/3.3)2 1.04 1.47 2.34 3.31 0.59 0.83 2.34 3.31 0.59 0.83 1.63 2.30 1.63 2.30

Expected Variance Variance Variance Duration Column F Column G Column H 14.83 2.14 5.01 7.07 19.50 1.64 3.84 5.42 15.67 1.94 4.56 6.43

100.0% 99.7% 100.0%

100.0% 96.3% 100.0%

99.9% 93.4% 99.8%

99.7%

96.3%

93.1%

=E3+E6+E8 {copy to cells C13:E13} =E3+E5+E7+E9 {copy to cels C14:E14} =E4+E7+E9 {copy to cells C15:E15} =NORMDIST(23,$B13,SQRT(C13),TRUE) {copy to cells D18:E18 and C19:E20} =PRODUCT(C18:C20) {copy to cells D22:E22}

The precedence diagram using an AOA (Activity on Arrow) network is as follows:

d

f

a c

g b

e

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The critical path is a-c-e-g since it has the longest expected duration of 19.5 weeks.

Note: although this path has the longest expected duration, given the uncertainty associated with the activity times, it may not be the path with the longest actual duration. c.

Referring to column H in the spreadsheet above, the probability of completing path a-ce-g in 23 weeks or less is 93.4%.

d.

Both of the other two paths have virtually a 100% chance of being completed by week 23.

e.

As shown in the spreadsheet, there is a 93.1% probability of completing the entire project by week 23.

6. Given an auditing project with the following activities:

For this problem, activities not on the critical path can be ignored (not enough information is given to draw a PERT chart). Those activities on the critical path are used to calculate TE and the project variance.

Activity A C E G H Total

Duration 2 4 1 4 2 13

Std. Dev. Variance 2 4 0 0 1 1 2 4 0 0 9

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Therefore the critical path expected time is 13 weeks and path standard deviation is 3 weeks.

Using this information gives the following probabilities for parts a-c: Completion Probability Time Less Than 12 0.37 NORM.DIST(12,13,3,TRUE) 13 0.50 NORM.DIST(13,13,3,TRUE) 16 0.84 NORM.DIST(16,13,3,TRUE)

d. The number of weeks required to assure a 92.5 percent chance of completion, as guaranteed by the auditing firm.

Z

D



D  13 1.44  3 D  17.32

Or NORM.INV(0.925,13,3)

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7. Resolve the previous exercise using computer simulation and compare your answers.

Explain any differences you observe. Which methodology do you have more confidence in and why?

A model using Crystal Ball was created to simulate the completion of the critical path as shown below:

The expected duration and standard deviation were entered in rows 3 and 4, respectively.

Assumption cells were entered in row 5 using the normal distribution since we have the mean and standard deviation (and not the optimistic, most likely, and pessimistic time estimates).

Also note that activities c and f are known with certainty and therefore are constants in row 5.

Finally, cell B6 sums up the simulated activity times generated by Crystal Ball in row 5 and was defined as the Forecast cell.

The distribution of the completion time of the critical path is shown below based on 10,000 replications:

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A comparison of the results using the analytical method and simulation is shown below in the table.

Question a b c d

Analytical Approach .37 .50 .84 17.32

Simulation .38 .50 .84 17.24

The results are very similar. Thus in the case of estimating probabilities for a single path, both the simulation and analytical approach yield similar results. In more realistic situations where the goal is to estimate the probability of the entire project being completed by a specified time, simulation will yield more accurate results due to the assumptions underlying the analytical approach.

8. Referring to the previous two questions, modify your simulation model to develop distributions for the slack time of each path. What do these distributions tell you?

In Exercise 6a it was noted that the client desired a completion time of 12 weeks. The spreadsheet created for Exercise 7 was modified to calculate the path slack from 12 weeks:

More specifically, cell B7 contains the formula =12-B6. The distribution of slack is shown below based on 10,000 replications of the simulation model.

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The average slack was 0.99 (standard deviation of 2.97) implying on average the project finished almost one week earlier than the desired 12 weeks. The minimum and maximum slack were -9.75 and 12.81, respectively.

9. Given the following information regarding a project involving an initial public offering (IPO): a.

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b.

EARLIEST LATEST EARLIEST LATEST CRITICAL ACTIVITY START START FINISH FINISH SLACK ACTIVITY ---------------------------------------------------------------------------a b c d e f g h

0 0 3 3 1 1 6 6

1 0 4 5 3 1 7 6

3 1 6 7 5 6 8 9

4 1 7 9 7 6 9 9

1 0 1 2 2 0 1 0

YES

YES YES

---------------------------------------------------------------------------CRITICAL PATH: b-f-h c.

PROJECT COMPLETION TIME = 9 weeks

d. e has two weeks of slack so a one or two week delay does not delay the project, but a two week delay will create another critical path. Delaying e three weeks creates a one week delay and replaces the previous critical path.

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10. Enter the following information into an Excel spreadsheet. The time estimates were made at the 90 percent level (see Section 5.2, Calculating Probabilistic Activity Times subsection). All activity times are in days. a. Draw the network

b. Calculate the expected time and variance for each activity.

Recall that since the estimates were made at 90 percent, you must divide by 2.6 to get the standard deviation and then square that number to get the variance.

Activity a b c d e f g h i j k

Optimistic 5 4 7 6 4 12 8 7 10 6 7

Normal 6 4 9 6 5 16 12 9 14 12 9

Pessimistic 9 6 15 6 7 17 20 16 18 20 14

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Expected Standard Time Deviation 6.33 1.5385 4.33 0.7692 9.67 3.0769 6.00 0.0000 5.17 1.1538 15.50 1.9231 12.67 4.6154 9.83 3.4615 14.00 3.0769 12.33 5.3846 9.50 2.6923

Variance 2.3669 0.5917 9.4675 0.0000 1.3314 3.6982 21.3018 11.9822 9.4675 28.9941 7.2485

c. Using the expected times, find the critical path and critical time. ***

ACTIVITY SCHEDULE

***

EARLIEST LATEST EARLIEST LATEST CRITICAL ACTIVITY START START FINISH FINISH SLACK ACTIVITY ---------------------------------------------------------------------------a b c d e f g h i j k

0.00 0.00 0.00 6.33 4.33 4.33 9.67 9.67 12.33 22.33 19.50

8.33 2.50 0.00 14.67 15.50 6.83 9.67 15.33 20.67 22.33 25.17

6.33 4.33 9.67 12.33 9.50 19.83 22.33 19.50 26.33 34.67 29.00

14.67 6.83 9.67 20.67 20.67 22.33 22.33 25.17 34.67 34.67 34.67

8.33 2.50 0.00 8.33 11.17 2.50 0.00 5.67 8.33 0.00 5.67

YES

YES YES

---------------------------------------------------------------------------CRITICAL PATH: c-g-j EXPECTED PROJECT COMPLETION TIME = 34.67 VARIANCE OF PROJECT COMPLETION TIME = 9.4675 + 21.3018 + 28.9941 = 59.7633 STANDARD DEVIATION = 7.7307

d. Find the probability that the critical path will be completed in 38 days or less.

Z

38  34.67  0.4308 7.7307

A Z value of 0.4308 yields a probability of 66.67 percent.

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e. Are there any serous sources of merge bias?

There are a number of mergers, all at the last activity. Computing the expected completion time, standard deviation, and probability of exceeding 38 days for each path yields the following:

a-d-i b-e-i b-f-j c-g-j c-h-k

Expected Path Time Variance 26.33 11.83 23.50 11.39 32.17 33.28 34.67 59.76 29.00 28.70

Path Standard Deviation 3.4401 3.3750 5.7692 7.7307 5.3571

P<38 0.9997 1.0000 0.8440 0.6668 0.9535

To find the probability of the project taking less than 38 days and assuming independence among the activities, we multiply these probabilities together. That yields a probability of 0.5365. However, half the activities lie on multiple paths, so the activities are not independent relative to the paths and our estimate is probably too pessimistic. Looking at the times and variances of the various paths, only path b-f-j seriously threatens critical path c-g-j, but it’s variance and standard deviation are much less than that of c-g-i: multiplying these two path probabilities together gives us a more reasonable value of 0.5628 f. Assume that the times in the table were made on the 99 + percent level. Recalculate the activity variances with this assumption and find the probability that the critical path will be complete in 38 days.

This time, the variance is computed directly using the formula ((b-a)/6)2:

Activity a b c d e f g h i j k

Optimistic 5 4 7 6 4 12 8 7 10 6 7

Normal 6 4 9 6 5 16 12 9 14 12 9

Pessimistic 9 6 15 6 7 17 20 16 18 20 14

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Expected Time 6.33 4.33 9.67 6.00 5.17 15.50 12.67 9.83 14.00 12.33 9.50

Variance 0.4444 0.1111 1.7778 0.0000 0.2500 0.6944 4.0000 2.2500 1.7778 5.4444 1.3611

Z

38  34.67  0.9940 3.3500

A Z value of 0.9940 yields a probability of 84 percent. The higher confidence limits for the two extreme values has correspondingly resulted in higher confidence for the expected value of the critical path, with less chance of exceeding the 38 day limit. g. How many days are required for the critical path to have a .9 probability of completion?

Using the previous confidence values of 90 percent: X  Z



X  34.67 7.7307 1.2827.7307   X  34.67 34.67  1.282(7.7307)  X X  44.58 1.282 

11. Given the project in Exercise 5.6, simulate the completion of the project 1000 times, assuming that the activity times follow a normal distribution and that the time estimates are made at the 95 percent level.

The spreadsheet below was developed to simulate this project using Crystal Ball. Cells A12:G12 are Assumption Cells for the activity times based on a normal distribution with the means in cells E2:E8 and standard deviations in cells G2:G8. Cells L12:O12 were defined as Forecast Cells.

A B 1 Activity Opt 2 A 2 3 B 3 4 C 4 5 D 4 6 E 4 7 F 3 8 G 3 9 10 Activity Activity 11 A B 12 4.00 5.34

C Most Likely 4 5 5 6 5 4 5

D Pess 6 9 7 10 7 8 8

E F G Expected Variance Std Dev 4.00 1.47 1.21 5.33 3.31 1.82 5.17 0.83 0.91 6.33 3.31 1.82 5.17 0.83 0.91 4.50 2.30 1.52 5.17 2.30 1.52

Activity C 5.17

Activity D 6.33

Activity E 5.17

Activity F 4.51

H

I

J

K

L

M

N

O

Activity Path Path Path Finish A-D-F A-C-E-G B-E-G Finished G A-D-F A-C-E-G B-E-G Time Critical? Critical? Critical? 23 Weeks?

5.17 14.84 19.51 15.68 19.51 0 1 0 1

a. Based on 1000 replications of the simulation model, path a-d-f had the longest duration in 7% of the replications. Similarly, paths a-c-e-g and b-e-g had the longest durations in 89% and 4% of the simulation replications, respectively.

This demonstrates the difficulty in determining which path will be the critical path when activity times are uncertain. b. The probability of the project being completed in 23 weeks or less was 93%.

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c. The 93% calculated here is extremely close to the 93.1% calculated in Exercise 5.

12. The project referred to in Exercise 5.11 has been partially completed. Task a required 4 weeks, task b 9 weeks, task c 4 weeks, and task d 5 weeks. Update the simulation model you developed for Exercise 5.11 and calculate the probability that the project will be finished in 23 weeks. Explain why the probability of completing the project in 23 weeks has changed.

Since the times for activities are now known for activities a - d, updating the simulation model simply requires replacing the Assumption Cells in cells A12:D12 with the known times.

After making these changes, the revised probability of the project being completed by week 23 increases to 98%. With the updated information, path b-e-g now has the longest expected completion time of 19.34 weeks. Also, the expected completion time for the other two paths decreases and these paths have virtually no chance of taking longer than 23 weeks to complete. Furthermore, while task b is now known to take its maximum duration, even if tasks e and g take as long as possible, the path would only take at most 24 weeks to complete. Therefore, delaying the project beyond 23 weeks requires that both tasks e and g go about as poorly as possible, which is not very likely.

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13. Given the project in Exercise 5.11, simulate the completion of the project 1000 times, assuming that the activity times are at the 99 + level and follow a triangular distribution.

The spreadsheet below was developed to simulate this project using Crystal Ball. Cells B3:L3 (excluding cell E3) are Assumption Cells for the activity times based on the triangular distribution and the optimistic, most likely, and pessimistic times given in the problem.

Cells B8:F8 and B10:B12 were defined as Forecast Cells.

A 1 2 3 Duration 4 5 6 7 Duration 8 Critical?

9 10 P( < 32) 11 P( < 34) 12 P( < 38)

B Activity A 6.67

C Activity B 4.67

D Activity C 10.72

E Activity D 6.00

F Activity E 5.33

G Activity F 15.00

Path ADI 26.67 0

Path BEI 24.00 0

Path BFJ 32.33 0

Path CGJ 36.72 1

Path CHK 31.39 0

Project Duration 36.72

H Activity G 13.33

I Activity H 10.67

J Activity I 14.00

K Activity J 12.67

L Activity K 10.00

0 0 1

a. Probability of each path becoming the critical path.

Path a-d-i b-e-i b-f-j c-g-j c-h-k

Probability of Being Critical Path 1% 0% 6% 83% 10%

b. Based on 1,000 replications of the model there is an 8%, 20%, and 60% chance that the project can be completed in 32, 34, and 38 days, respectively. c. In part e of Exercise 10, it was determined that there was a 56+% chance of completing the project in 38 weeks. In the current simulation, the probability was calculated to be 60%, so our estimation method wasn’t too far off.. The slight difference may in part be due to the use of the triangular distribution.

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Suggested Solution to Discussion Problem

14. Additional task precedence information about the Textbook Revision Project described in Exercise 5.10 in Chapter 3 is now available. JR and Mike are preparing to revise their project management textbook. The project of revising the book begins with developing a revision plan. Developing a revision plan includes four activities that each take one week to complete. First the authors go over the reviews provided by a sample of current adopters of the book. The second task involves benchmarking other project management books. Benchmarking other books can either be done in parallel with going over the reviews or done after the reviews have been studied. After both the reviews have been gone over and the benchmarking is completed, the changes to make to the book are decided on. The final step in developing the plan is allocating the work between the authors. The work can be allocated once the authors finalize the changes to be made to the book. After the plan has been developed, the book is revised which is expected to take 24 weeks. Once all the chapters have been revised, the page proofs are reviewed which is expected to take 8 weeks. After the page proofs have been reviewed, the index for the book is created which takes 2 weeks. Finally, after the book has been revised, the supplements to the book can be updated which takes 8 weeks. Update the information previously entered to include the precedence relationships among the tasks. Assuming the project begins on March 7, 2016, when is its expected completion date?

The information was entered into MSP as shown below:

As can be seen, the project is expected to be completed on Friday 1/13/2017.

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15. Given the information in the following table, draw the AOA network. Using the same information, enter the data into MSP assuming a 7-day workweek. (To change the calendar in MSP from its 5-day week default click “Help,” type “calendar change,” and follow directions.) Develop the appropriate AON network and Gantt chart. Using any method you wish, find the critical path and critical time for the network. Then find the slack for all activities.

Note to instructor: In order to familiarize student with MSP’s “Help” facilities, we have not given precise instructions in the text for changing MSP’s project calendars, and for using MSP to find slack. If you wish to make these available, they follow: The MSP calendar must be reset to a 7-day work week from its usual default of a 5-day work week. To reset the calendar in MS Project 2010 select the Project ribbon. In the Project ribbon select the Change Working Time. In the field at the top select Standard (Project Calendar) to change the default calendar. Next click on the Work Week tab in the middle of the dialog box, then details, and then change the working times for Saturday and Sunday (e.g., 8:00 am to 12:00 pm and 1:00 pm to 5:00 pm). The resulting Gantt chart is shown below.

To show slack or float in MSP, click on “View,” then on “More views,” on “Detail Gantt,” and “Apply.” Activity slack will be shown on the Gantt chart. Then click on “View,” “Table,” and then “Schedule.” Drag the divider bar to the right, and you will find “Total slack” and “Free slack” listed in the MSP table. (For these instructions to take effect, project activity data must have been entered into MSP.)

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One way the critical path can be determined is by identifying all paths and calculate their duration. As shown below, this project has six paths and path b-e-h-j-l is the critical path with a duration of 40.

Path a-d-i-k a-d-h-j-l b-e-i-k b-e-h-j-l b-f-j-l c-g-j-l

Duration 29 35 34 40 31 26

Critical?

No No No Yes No No

The slack for each task is calculated as follows:

Activity a b c d e f g h I j k l

ES 0 0 0 5 7 7 4 16 16 22 24 31

EF 5 7 4 11 16 13 8 22 24 31 34 40

LS 5 0 14 10 7 16 18 16 22 22 30 31

LF 10 7 18 16 16 22 22 22 30 31 40 40

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Slack 5 0 14 5 0 9 14 0 6 0 6 0

Solution for Discussion Exercise 1. The following activities were listed during a brainstorming session on product development. Find the appropriate predecessor-successor relationships and then construct an AON network to reflect the project using the activity duration times given in the information table. Assume a 5-day workweek. Find the critical path and time for the project. Find the slack for all activities.

Note: If students use MSP to generate the AON network, and if they use a “Start” node to begin the project, the Start node will be numbered “1.” This will increase by one all the task numbers used in the problem statement. This is a common source of confusion in reality as well as in the classroom.

This problem intentionally leaves some of the precedence relationships subject to interpretation to force students to think through the precedence relationships. This is in contrast to most problems that clearly state what the precedence relationships are which in turn leaves little room for students to develop skills in determining precedence relationships. Thus, this problem points out the important reality that people can disagree about what the precedence relationships are, and that when people try to explain something this can often leave a lot of room for interpretation. This reinforces the need for people to be very careful in their description of the tasks comprising the project.

There appear to be two activities that have no logical predecessors:  

Organize the sales office.

Design the package.

The critical path is 7-8-10-9-13 with a time of 37 weeks.

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11

1

2

9

10

8

7

12

13

3 End

Start

4

5

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6

Incident for Discussion Suggested Answer Springville Fire Department: The scheduling techniques mentioned are not mutually exclusive, they are complementary and could be used together:  

PERT/CPM serves well for planning and control.

A Gantt chart would provide the ease of use, showing durations, monitoring and ongoing analysis.

It might also be noted that CPM has traditionally been favored by the construction industry.

Question: If you were the project manager, which method would you use, and why?

If only one technique must be used, the modified PERT/CPM method, plotted on a time scale, would probably be the best choice.

Attack of the Killer Worm Question: How would you recommend they reach a consensus on the action plan for the project?

Andy and Lee need to set up a win-win negotiation of the steps in the action plan.

Andy needs to:   

Acknowledge that by his using a bottom-up approach to his budget for this project the staff actually doing the work may have overestimated the time it takes to ensure that the work gets done and/or may have wanted to increase their overtime pay.

Needs to educate Lee on the impact of the project on the organization.

Explain how his staff are closer to the users and can estimate how the PC or system downtime will affect their customer’s work processes.

Lee needs to realize that: 

Andy and his team have a much better idea of how long it will take to check the machines and make any necessary repairs.

Together they can work to make sure that each other’s point of view is taken into consideration for the steps of the project.

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Suggested Case Analyses and Solutions Friendly Assisted Living Facility Project Plan -- 5 Teaching Purpose: This installment of the Friendly case provides students with an opportunity to further develop their skills in creating and using Gantt charts.

Question 1: Draw a Gantt chart for the construction phase of the project. What is the completion date if construction starts in March? What is the completion date of the project if construction is started in November?

The following is the Gantt chart using MSP with a March 1, 2000 start date. This was entered using the standard calendar defaults used by MSP of a Monday through Friday 8 am to 5 pm workday with an hour off for lunch. The project completion date is 7/30/01.

Note: Start and finish milestones were added to the action plan for ease in identifying the project’s start and finish dates.

The following is the Gantt chart using MSP with a November 9, 1999 start date. This start date was chosen because one of the constraints placed on the project was that it does not begin until after the elections in November. Elections are usually held the first Tuesday in the month of November. The case stated that one to two months was estimated as needing to be added to the project schedule to allow for bad weather conditions during the outside construction phases of the project (30 - 60 working days). Days of work need to be added to the duration of each of the steps where work takes place outside if it will happen during the winter months.

Note: The authors chose to add 30 days to each of the steps affected, step # 4 and #5. Step #6 is also work done outside, but with the changes made to #4 and #5, step #6 will not start until the month of April. Students may also change the calendars to let the workers off for the holidays of 1999 in addition to those allowed for in 2000. The new ending date is May 18, 2001. The project will take a total of 30 additional days to complete. By adding 30 days of working time to each of the steps possibly affected by the weather, we only ended up adding 30 days total to the project.

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This is a good discussion point of how the tasks affected by the increased durations were not both on the critical path - only Step #4 extended the length of the project. However, the student’s must keep in mind resource availability and the increased cost of the project extension.

Question 2: Why is it not possible to meet the scheduling constraints set by the Board? What is your recommendation to handle the scheduling problem?

The case outlined two specific constraints that the Board placed on the project: o The project should not start until after the elections in November, and o The building must be ready for occupancy by July of the following year since the board wanted to target occupancy for the summer months.

The constraint of the building opening by July of the year following construction beginning cannot be met. No matter when the project begins it takes longer than one year to complete.

If the project begins immediately after the November 1999 elections it will be completed by May 18, 2001, if the project begins in March of 2000 (as recommended by the construction manager) it will be completed by July 30, 2001.

The constraint of construction beginning after the November elections can be met without any affect on the project. Meeting the July complete occupancy constraint is possible only if the project is started in the winter months, this would add cost and time to the project. It would also make the first units available in April, which is before the targeted “summer” occupancy.

Recall that the case stated that research showed that most people shopped for assisted living facilities during the summer months. A summer occupancy could be met by starting the project March 1, 2000, without additional time or cost added to the original estimated project action plan. 45 units would be available for occupancy as early as June 25, 2001 (see step #9 of Gantt chart with 3/1/00 start date).

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Question 3: When will the project be completed based on your recommendation?

If students chose to start the project on: o March 1, 2000 … the entire project will be completed by July 31, 2001. o February 1, 2000 … without any schedule changes due to weather conditions, the project would be completed by June 29, 2001.

By using MSP to change the project’s start date, students can easily choose various new start dates and see the associated project end date.

Question 4: Draw a Gantt Chart of the Marketing Plan and Implementation Phase of the Project. Determine the start date of the Marketing Plan phase of the project in order to meet your recommended facility ready for occupancy date?

Note: We assumed a March 1, 2000 start date for the project.

Below is the Gantt chart for the steps in the Marketing Plan and Implementation phase of the St. Dismas Assisted Living Project. The action steps were taken directly from the Marketing plan developed and implemented section of the broad marketing plan that was presented in the case.

To determine the project’s start date, you must first determine the start date of the final step in the project action plan, “Implementation of the Marketing Plan”. This must be started 5 months prior to the building being ready for occupancy so that marketing has time to find residents to move in when the facility is available. The marketing plan must be implemented based on the date that the first 45 units are ready for residents. This date is June 25, 2001.

In order to determine the start date of the Implementation task, Step #7, one can schedule this project backwards, we know the completion date, we do not know when to start. Once we enter the projects completion date, MSP will determine when each step of the project should take place. First enter all of the tasks names, precedences, and their durations, as shown below:

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Next, we must enter this project’s overall finish date, using the project information dialog box, found in the “Project” menu on the tool bar.

Enter an end date of 6/25/01, and select “Schedule from the project finish date”. MSP will automatically determine each step’s start and end date to meet the constraint you set. See below:

Question 5: What is the next step the team members must take in order to complete their action plans?

Each member of the project steering team needs to prepare final action plans, including dates and resources. The team must also determine the predecessors from outside their specific plan that link to their plans; for example if a step cannot be completed on the marketing phase of the project until Legal has completed a step in their project plan, this must be noted on the action plan. This will enable a complete overall integrated project action plan to be tied to the project budget, monitored and controlled.

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Nutristar Teaching Purpose: The purpose of this case is to reinforce students’ skills in analyzing projects with probabilistic time estimates. The case also provides students with an opportunity to use spreadsheets to simulate the completion of the project and use the results of the simulation to perform standard probability calculations.

Question 1: Draw a network diagram for this project. Identify all the paths through the network diagram.

The following abbreviations will be used for the activities.

Activity Description Concept Development Plan Development Define project scope Develop broad schedule Detailed cost estimates Develop staffing plan Design and Construction Detailed engineering Facility construction Mobilization of construction Employees Procurement of equipment Start-up and Turnover Pre-startup inspection Recruiting and training Solving start-up problems Centerlining

Abbreviation A B C D E F G H I J K L M

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Using these abbreviations and the information provided in the case, the following AOA network diagram can be constructed.

B

F G

A

C

H

I

J

K

D L

M

E

There are 32 paths through the network as follows A, B, F, G, J, K, M A, B, F, G, J, L, M A, B, F, I, J, K, M A, B, F, I, J, L, M A, B, H, G, J, K, M A, B, H, G, J, L, M A, B, H, I, J, K, M A, B, H, I, J, L, M

A, D, F, G, J, K, M A, D, F, G, J, L, M A, D, F, I, J, K, M A, D, F, I, J, L, M A, D, H, G, J, K, M A, D, H, G, J, L, M A, D, H, I, J, K, M A, D, H, I, J, L, M

A, C, F, G, J, K, M A, C, F, G, J, L, M A, C, F, I, J, K, M A, C, F, I, J, L, M A, C, H, G, J, K, M A, C, H, G, J, L, M A, C, H, I, J, K, M A, C, H, I, J, L, M

A, E, F, G, J, K, M A, E, F, G, J, L, M A, E, F, I, J, K, M A, E, F, I, J, L, M A, E, H, G, J, K, M A, E, H, G, J, L, M A, E, H, I, J, K, M A, E, H, I, J, L, M

Question 2: Simulate the completion of this project 1,000 times assuming that activity times follow a betaPert distribution. Estimate the mean and standard deviation of the project completion time.

As demonstrated in the textbook, one approach to simulate the completion of a project is to dedicate a column to each activity and then generate random activity times. Thus, in the

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spreadsheet developed for this case, columns A - M were dedicated to activities A - M, respectively. Then random numbers were generated for the activities using Crystal Ball and defining cells A3:M3 as Assumption Cells. A portion of the simulation model is shown below.

After generating the random numbers in the Assumption Cells using the betaPert distribution, one column is dedicated to each path and formulas are entered to calculate the path completion time based on the random activity times generated. Entering the formulas is very straightforward since the letters used to label the activities correspond directly to the column labels. To illustrate, the formula for path A - B - F- G - J - K - M in row three is: =A3+B3+F3+G3+J3+K3+M3.

To determine the time to complete the project, a final column was entered that calculates the maximum path completion time across all paths in the spreadsheet. The average of this column was next defined as a Forecast cell. One simulation of 1,000 replications of the project yielded an average project completion time of 35.6 months with a standard deviation of 5.3 months. The maximum completion time was 51.1 months and the minimum completion time was 22.5 months.

Question 3: Develop a histogram to summarize the results of your simulation.

This histogram created by Crystal Ball is shown below.

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Question 4: Calculate the probability that the project can be completed within 30 months.

What is the probability that the project will take longer than 40 months? What is the probability that the project will take between 30 and 40 months?

The probability of completing the project in 30 months or less is 14.89%:

The probability of the project taking more than 40 weeks is 19.64%:

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The probability of the project taking 30 to 40 months is 65.47%:

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Question 5: What path has the longest expected time? What is the probability that this path will be the critical path?

Path A B F G J L M has the longest expected time. To determine the probability that this path is in fact the critical path the following formula was entered into a cell and defined as a Forecast cell: =IF(Path A B F G J L M’s Duration >= Max Path Duration, 1, 0) Thus when the path is the longest path the Forecast cell takes on a value of 1, otherwise it is assigned a 0. The average of the Forecast cell is the percent of times the path is the longest path or the critical path. Based on simulation the model 10,000 times, it is estimated that this path has a 74% chance of being the critical path. Given this, there is a 24% chance that other paths will be the critical path which reinforces the need to monitor all paths that can potentially delay the project’s completion.

Launching E-Collar Question 1: The activities, paths, and times are shown below:

Questions 2 and 3: The results will vary given the randomness inherent in simulation analysis.

Below are the results from 3 different replications of the Crystal Ball model. Note that each replication below is based on simulating the project 1,000 times.

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Replication 1 2 3

Mean and Std Dev of Completion Time 412.46; 67.53 413.71; 66.99 414.32; 66.39

Mean and Std Dev of Amount Client Billed $91,034; $19,324 $91,074; $18,939 $91,434; $18,874

Probability of Costs < $100,000 69.96% 70.22% 68.20%

Probability Project will Take Between 350 to 450 Hours 51.71% 53.07% 53.46%

Question 4: Providing an estimate for the project cost and duration depends on the certainty level desired. The table below summarizes the cost and duration such that you have the probability specified of not exceeding the estimates (estimates in the table are based on Replication 3 above). For example, there is a 90% probability that the costs and duration of the project will be less than or equal to $116,442 and 502.76 hours, respectively. Note that because the data is skewed, the 50% estimates in the table below differ from the means in the table above.

Probability of Not Exceeding Costs and Duration 50% 60% 70% 80% 90% 95% 99%

Costs $90,730 $95,502 $100,756 $107,097 $116,442 $124,013 $139,818

Duration (hours) 410.88 430.42 449.70 471.72 502.76 523.99 576.73

Below is sample of the way the Crystal Ball model can be set up with assumption cells shaded green and the forecast cells shaded in blue.

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Chapter 6 Allocating Resources to the Project

This chapter extends the previous one on scheduling into the area of allocating resources among the activities of a project, or among multiple projects competing for the same resources.

The chapter begins with a discussion of expediting project completion times and highlights that by selectively choosing which activities to crash and by how much, we can determine the minimum cost for all possible project completion time. The use of Excel’s Solver optimization routine to facilitate this analysis is also presented. Next, the chapter moves on to the topic of resource loading and in particular highlights the problems of over scheduling resources. The topics of resource leveling and resource allocation naturally follow in the subsequent sections.

Finally, the chapter concludes with an overview of several of the concepts Goldratt raises in his provocative book Critical Chain.

Cases and Readings A case appropriate to the subject of this chapter is: Harvard: 9-613-020 Space Constructors, Inc. This 3-page case involves a simple project where partial crashing has already been planned but more, and less, crashing is also to be considered.

The network has some special characteristics that offer some worthwhile lessons for the student.

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Answers to Review Questions 1. Given the fact that a project’s resource requirements are clearly spelled out in the project’s action plan, why are PMs so concerned with resource allocation?

There can be a variety of reasons why resource allocation is of concern to the PM despite having a properly completed project plan. For example: 

 

The project plan only lists general categories of resource requirements such as engineering, purchasing, marketing, and production. In these cases, the project manager must still arrange to get the specific resources (e.g., personnel, equipment) needed.

The project plan may only specify how much of the resource is needed and the precedence between the activities’ relationships; it may not specify exactly when the PM will need these resources.

Although the project plan specifies the amount of a resource needed for a particular project, there may not be a mechanism in use that balances the load of resources across multiple projects. This can lead to conflicts and the creation of bottleneck resources.

2. Explain the difference between a project that has a fixed delivery day and one that has a fixed limit on resource usage.

A project with a fixed delivery date can vary the level of resources used to meet a firm project completion date.

A project with a fixed limit on resource usage cannot obtain additional resources but can possibly delay the project completion date.

Why might a PM be interested in this difference?

The reason this distinction is important is that it specifies which of the fundamental tradeoffs the project manager can exercise. In the case of projects with fixed delivery dates, only performance and cost (resource usage) can be varied. In projects with fixed resource usage levels, only schedule and performance can be varied.

3. What does it mean to “fast track” a project?

Fast-tracking is a technique whereby key stages of the project are overlapped.

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In the construction industry, this might entail beginning construction before the design and planning are finished. In the pharmaceutical industry this may entail developing the production process as the new drugs are being developed and tested.

4. List as many things as you can think of that should be entered into a specific resource’s calendar.

Information that should be entered into a resource’s calendar include:   

The resource’s availability (e.g., days in week available, total hours available per week, hours available each day).

Times the resource will not be available (e.g., lunch, weekends, holidays, vacations, scheduled maintenance), and Resource cost (e.g., cost per unit of usage, cost for overtime and overuse, known changes in future resource cost).

5. Explain why project-oriented firms require excess resource capacity.

In project oriented firms there is much more uncertainty about the timing of resource needs since the resources primarily move between projects rather than moving between projects and a functional department. Therefore, extra resource capacity is needed as a buffer given the greater level of uncertainty present.

6. The arrival and departure times of commercial aircraft are carefully scheduled. Why, then, is it so important to have excess capacity in the airport control tower?

Although the arrival and departure times may be carefully scheduled, we all know that actual arrivals and departures often deviate significantly from these schedules. Therefore, a significant amount of uncertainty is present and greatly complicates the ability of the airport control system to handle arrivals and departures.

Indeed unplanned events (e.g., weather delays, equipment malfunctions, late flight crews, and so on) often cascade through the system further compounding the problem. Therefore, excess capacity in control towers is needed as a buffer given this level of uncertainty.

Clearly, the cost of not having this capacity greatly exceeds the cost of some idle capacity.

7. Explain the difference in the problems faced by a PM who is short of secretarial resources and one who is short of a “Walt.”

The PM that is short of secretarial resources does not face that great of a problem as this type of resource is relatively abundant and not usually critical to the project’s ultimate success or failure. The PM that is short of a “Walt” (i.e., an individual with expertise and knowledge in a critical area) faces a much more daunting problem because a Walt is a 1-86

scarce resource that is important to the project’s successful completion and there are no readily available substitutes for a Walt.

8. When allocating scarce resources to several different projects at the same time, why is it important to make sure that all resource calendars are on the same time base (i.e., hourly, daily, or weekly …)?

One reason it is important to ensure the resource calendars are on the same time base is because task duration is not usually dictated by the number of labor hours required to complete the task, but rather by the calendar time required to complete it. This may involve waiting for materials (e.g., concrete, glue) to cure, or equipment to warm up, etc.

9. List and describe the three most common criteria by which to evaluate different resource allocation priority rules.

The three major criteria are:   

Schedule slippage … a measure of the delay suffered by projects as a result of the application of a resource allocation priority rule.

Resource utilization … a measure of the total resource cost (including costs such as the cost of hiring, firing, and maintaining resource inventories) under different allocation rules.

In-process inventory … a measure of the cost of unfinished work in the system.

10. Why is the problem of allocating scarce resources to a set of projects similar to the problem of scheduling a job shop?

In a job shop allocating resources (equipment and workers) to jobs or orders is required. In projects, a similar allocation is required where specific resources must be allocated to various projects when they are needed, which represent the jobs.

11. What is meant by the term “student syndrome”?

The “student syndrome” refers to situations in which people wait until the last possible minute to begin a task. Its name is derived from the belief that students often delay the start of an assignment until just before it is due. This isn’t necessarily a foolish or lazy decision since often the task will change at the last minute, thus invalidating much of the work that was earlier spent on it.

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12. Describe in your own words what is meant by Goldratt’s critical chain.

Traditionally, in project management the concept of the critical path is used. More specifically, the critical path is defined as the path(s) that if delayed will delay the completion of the entire project.

One shortcoming of the critical path approach is that it only considers task precedence information and does not consider issues related to resource usage. The critical chain addresses this concern and considers both technical precedence relationships as well as the resources that will be used to complete the tasks. Therefore, the critical chain refers to the longest chain of consecutively dependent events including both technological as well as resource dependencies.

How does it work?

The critical chain works by defining two sources that can delay the completion of the project. One source of delay is uncertainty in the tasks that comprise the critical chain. A project buffer is added to guard against these uncertainties. The second source of delay is uncertainty in the tasks external to the critical chain. A feeding buffer is added to these paths to help ensure they do not delay the tasks on the critical chain.

Suggested Answers to Discussion Questions 1. Describe the fundamental trade-offs when deciding whether or not to crash a project.

The fundamental trade-off in crashing a project is between schedule and budget.

Specifically, crashing entails employing additional resources (cost) in order to reduce the project’s completion time.

If the decision is made to crash, what additional trade-offs must be made?

If it is decided to crash a project other trade-offs may then be necessary in terms of the completion time of other projects and perhaps the performance of this and other projects.

2. Discuss the advantages of “labor pools” in a project – oriented company.

The main advantages of “labor pools” versus dedicating workers to specific projects are:   

Less waiting time for key resources.

The ability to level resource usage, and The ability to substitute one worker for another should one become unavailable.

Are there any potential disadvantages with the use of pools?

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Potential drawbacks include:   

Workers who do not identify with a particular project.

Personnel who may not be well trained in specific tasks required by the assignment.

Fewer opportunities for job enlargement.

All of these may lead to lower levels of job satisfaction, as well as lower morale and motivation.

3. What purpose(s) might be served by using each of the following priority rules for allocating scarce resources? a. As late as possible. b. Shortest task duration time first. c. Minimum slack first. a. Starting a task as late as possible … preserves resources and delays cash flows as long as possible. b. Allocating resources to tasks with the shortest durations first maximizes the number of tasks that can be completed within a certain time period. This tends to get the little messy tasks out of the way so workers can give their full attention to the bigger, more important tasks. c. The minimum slack priority rule is used to minimize the number of late activities.

4. Linking a group of projects together with pseudoactivities creates a sort of superproject.

What does this mean, and why would anyone want to do it?

Just as a project consists of tasks and activities with precedence relationships, a superproject can be thought of as consisting of a group of projects with precedence relationships. In the superproject, pseudoactivities are used to show any precedence relationships among the projects. These precedence relationships may be actual technological constraints (e.g., the product development project must be completed before the process development project) or simply a reflection of management’s priorities.

The reason for creating a superproject is to help identify important relationships and dependencies across the projects and use this information to better plan the usage of key resources.

5. Projects A and B are both nearing completion. You are managing a super important project C that requires an immediate input of resource being used by both projects A and B, but is otherwise unavailable. Project A has an S-shaped life cycle. Project B’s life cycle is J-shaped. From which (or both or neither) do you borrow the resource? Why? 1-89

In this case it would be best to borrow from project A. In an S-shaped project, fewer resources will have little impact on project A’s performance as it nears completion.

Conversely, in a J-shaped project, taking resources away from project B as it nears completion will dramatically reduce its performance.

6. Goldratt suggested that to avoid the student syndrome,” it is a good idea to set the activity durations so short that there is a high probability that the task will not be finished on time. On the other hand, it has long been known that setting up people for failure is strongly demotivating. What should the PM do?

There is a delicate balance between setting goals that people believe are impossible to achieve and therefore result in demotivating the team versus stretch goals that serve to motivate the team.

The project manager should not set goals that have extremely low probabilities of success, but may find it desirable to set goals that do have a reasonable chance of not being met (say 40 to 60 percent).

7. Describe as many types of resource allocation problems as you can, based on the situations described in the chapter.

The chapter identifies three types of resource allocation problems:   

Available resources (resource loading).

Scarce resources – single projects.

Scarce resources – multiple projects.

Resource loading recognizes the existence of needed resources and ensures that they are allocated to the project when needed. An example would be a construction site where the electrical work is subcontracted to an external supplier. The main task is to determine that the external firm can have the necessary skilled work force on site at the appropriate time.

Scarce resources are those with limited availability and the key elements of the project have to be scheduled around that availability of the resource - even if a firm has just a single project. An example of this situation would be the reliance of a construction site on a specific piece of equipment such as a crane.

The allocation of scare resources becomes far more complex when the same resources are need on more than one project. In this case, the utilization of the resource on project A will also have an impact on project B (and, possibly, other projects). As indicated in the chapter, the company will need to apply one of the six priority rules to determine which project shall have the first use of the scarce resource.

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Solutions to Exercises 1. This project involves the landscaping of a building site. a. The Gantt chart for the project.

b. Assuming a five day week, the critical path is: A-C-D-E-G and the project duration is 14 days.

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c.

Since each resource is assigned 100 per cent to each task, the resource constraints are:  

Resource X is over utilized on the Friday of week 1, Monday of week 2, and Tuesday of week 3.

Resource W is over utilized on Tuesday of week 3.

d. After leveling the resources, the project duration is 17 days and the critical path is A-B-C-D-E-F-G. Because of the scarcity of resources the critical path now includes all activities.

e. If it is necessary to shorten the project duration without overallocating the resources then there are several options:    

Since resource X is required by all activities, it makes the most sense to consider adding this resource first. Adding an additional X resource would shorten the project by 2 days which would allow tasks B and C to be done simultaneously.

Adding an additional X and W would shorten the project by 3 days. The extra X would allow tasks B and C to be done simultaneously and adding an extra W would further allow tasks E and F to be done simultaneously.

Adding an additional Y does not help reduce the time with any combination of additional X and W resources.

Other possibilities might involve relaxing the predecessor relationships, reducing the assigned resources to some of the tasks, and so on.

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The project duration is 13 weekdays when the resources work weekends and after leveling.

2. Provided are the predecessors, normal time, normal cost, crash time and crash cost for an eight activity (a to h) project. a. The network for this project is as follows:

4 a

1

g

d e

3 b

5

h

6

c

2

f

The critical path is b-c-e-h. The project duration and cost for the all normal level of project activity is 20 days and $400, respectively. b. The crash costs per day for all activities are shown in column F.

A 4 5 6 7 8 9 10 11 12 13

Activity a b c d e f g h

B Normal Time 5 4 7 2 3 8 5 6

C Normal Cost $50 $40 $70 $20 $30 $80 $50 $60 1-93

D Crash Time 3 2 6 1

E Crash Cost $150 $200 $160 $50

F Crash Cost/Day 50 80 90 30

5 4 3

$290 $100 $180

70 50 40

c. The spreadsheet below was created to find the optimal way of getting to an 18-day delivery time. As shown, the total normal cost is $400 (cell C14) and the total crash cost is $80 (cell I14) for a total project cost of $480 (cell B2). The 18 day duration was achieved by crashing activity h 2 days (cell H13).

A 1 Deadline: 2 Total Cost: 3 4 5 Activity 6 a 7 b 8 c 9 d 10 e 11 f 12 g 13 h 14 Total 15 16 17 Node 18 2 19 3 20 4 21 5 22 6

B 18 $480

C

D

E

Normal Time 5 4 7 2 3 8 5 6

Normal Cost $50 $40 $70 $20 $30 $80 $50 $60 $400

Crash Time 3 2 6 1

Crash Cost $150 $200 $160 $50

5 4 3

$290 $100 $180

F

G

H

I

Crash Max Crash Amt Crashing Cost/Day Amt to Crash Cost 50 2 0.0 0.0 80 2 0.0 0.0 90 1 0.0 0.0 30 1 0.0 0.0 0 0.0 0.0 70 3 0.0 0.0 50 1 0.0 0.0 40 3 2.0 80.0 $80

J

Actual Time 5 4 7 2 3 8 5 4

Event Time 4 11 13 14 18

The optimal solution using Solver was found in the following way:  

Cell I14 was specified as the target cell to minimize.

The ranges H6:H13 and B18:B22 were specified as the changing cells.

The following constraints were added:            

H6:H13 < G6:G13 (maximum amount each activity can be crashed) B18 > J7 (node 2) B19 > B18 + J8 (node 3) B19 > J6 (node 3) B20 > B19 + J9 (node 4) B21 > B18 + J11 (node 5) B21 > B19 + J10 (node 5) B22 > B20 + J12 (node 6) B22 > B21 + J13 (node 6) B22 < B1 (node 6 – project deadline) 6:H13 > 0 and B18:B22 > 0 (all decision variables must be > 0) The “Assume linear model” check box was also selected.

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d. The optimal 16-day project duration can be found by entering 16 in cell B1 and then resolving using Solver. The optimal solution calls for crashing activity h 3 days, b 1 day, and d 1 day. The cost of completing the project in 16 days is $400 + $230 = $630. e. If all activities are crashed as much as possible, the project can be completed in 14 days.

Entering 14 in cell B1 and resolving, it is discovered that the project can be completed in 14 days at a cost of $400 + $ 400 = $800.

3. Given the following AOA network, what is the first activity to be given extra resource?

The following Table shows the activity, duration, successors, critical followers, and slack associated with each of the four activities: Activity Duration Successors Critical Followers Slack a b c d

4 3 7 5

d c,d d None

d c,d d None

6 0 0 0

a. Using the shortest task first priority rule for the critical path: Task b has the shortest duration. b. Minimum slack first … Tasks b, c, and d all have zero slack. c. Most critical followers … Task b has the largest number of critical followers. d. Most successors … Task b has the largest number of successors.

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4. Given the project shown in Figure 5-10 of Chapter 5 and the fact that the facility used by activities c and d is scarce, which activity would benefit from each of the rules?

The following Table shows the activity, slack, critical followers, duration, and latest start time for activities c and d: Activity Slack Followers Critical Followers Duration Latest Start Time c d

3 2

f,i g,h,j

None h,j

3 4

8 7

a. Using the minimum slack rule: Activity dD has the least amount of slack and therefore would get the facility first using this rule. b. Most followers … d has the most followers and would get the facility first. c. Most critical followers … d has the most critical followers and would get the facility first. d. Shortest task first … c has a smaller duration and would get the facility first. e. With the “as late as possible” priority rule, the latest start times are used. In this case activity c has a LS of 8 and d has a LS of 7. In using this rule it only makes sense to assign the facility to the resource with the earliest LS or activity d.

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5. Consider the following activity information and the constraint that the project must be completed in 16 weeks.

The above worksheet was used with Excel Solver to find the solution. Solver was set to minimize N11 by changing cells K4, K7, K9, and K10 subject to the constraints:     

J19 = 16 K4 ≥ L4 K7 ≥ L7 K9 ≥ L9 K10 ≥ L10

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6. Consider the project network below. Suppose the duration of both activities A and D can be reduced to 1 day, at a cost of $15 per day of reduction. Also, activities E, G, and H can be reduced in duration by 1 day, at a cost of $25 per day of reduction. What is the least-cost approach to crash the project 2 days? What is the shortest “crashed” duration, the new critical path, and the cost of crashing?

Activity

Normal Crash Time Time

Δ Time

Slope $

A B C D E F G H I J

4 3 1 5 4 1 3 5 2 1

3 0 0 4 1 0 1 1 0 0

$15 $$$15 $25 $$25 $25 $$-

1 3 1 1 3 1 2 4 2 1

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Least-Cost Crash Options Activity

New Time

Crash Costs

A1,D1

11

$30

A2

11

$30

D2

11

$30

Least-Duration Crash Activity

New Time

Crash Costs

A1,D2,E1,G1,H1

5

$120

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7. The network for shooting a TV commercial as shown in the table has a fixed cost of $90 per day, but money can be saved by shortening the project duration. Find the least-cost schedule.

4

1

2

3

The critical path is 1-2-3-4 = 19 days Can crash 1-2 ($30) or 2-3 ($40) on critical path 1 day (3-4 cannot be crashed). Crashing 1-2 by 1 day cheapest option and results in net savings of $60 ($90-$30).

Critical path is still 1-2-3-4 (18 days). Can crash 1-2 ($50) or 2-3 ($40) on critical path 1 day. Crashing 2-3 by 1 day cheapest option and results in net savings of $50 ($90-$40).

Critical path is 1-2-3-4 (17 days) and 1-2-4 (17 days). Can crash 1-2 ($50) or 2-3 ($45) on first critical path by 1 day and crash 1-2($50) or 2-4($35) by 1 day on second critical path. Crashing 1-2 shortens both paths by 1 day and is cheaper than crashing 2-3 on first path and 2-4 on second path. Therefore cheapest option is to crash 1-2 and results in net savings of $40 ($90-$50).

Critical path is 1-2-3-4 (16 days) and 1-2-4 (16 days). Can crash 1-2 ($70) or 2-3 ($45) on first critical path by 1 day and crash 1-2($70) or 2-4($35) by 1 day on second critical path. Crashing 1-2 shortens both paths by 1 day and is cheaper than crashing 2-3 on first path and 2-4 on second path. Therefore cheapest option is to crash 1-2 and results in net savings of $20 ($90-$70).

Critical paths are 1-2-3-4, 1-2-4, and 1-3-4 (15 days). Can crash 2-3($45), 2-4($35), and 1-3($60) for total cost of $140. Since the cost of $140 exceeds savings of $90, crashing the project another day is not justified.

8. Given the network for an HR training project with normal times and crash times (in parentheses), find the cost duration history. Assume indirect costs for facilities and equipment are $100 per day.

There are two paths: 1-2-4 (14 days) and 1-2-3-4 (17 days). At 17 days and $100 per day the normal cost of the project is $1,700. The options to crash the longer path are: 1-2($30), 2-3($80), and 3-4($25).

Since it is least costly to crash, crash 3-4 by 1 day for savings of $75 ($100-$25). The durations of the two paths are now 1-2-4 (14 days) and 1-2-3-4 (16 days) and the cost of the project is $1,625 ($1,700 $75).

The options for crashing the longer path are: 1-2($30), 2-3($80), and 3-4($60). Since it is least costly to crash, crash 1-2 by 1 day for savings of $70 ($100-$30). Since 1-2 is on both paths, the durations of the 1-100

two paths are now 1-2-4 (13 days) and 1-2-3-4 (15 days) and the cost of the project is $1,625 ($1,700 $75).

The options for crashing the longer path are: 1-2($50), 2-3($80), and 3-4($60). Since it is least costly to crash, crash 1-2 by 1 day for savings of $50 ($100-$50). Since 1-2 is on both paths, the durations of the two paths are now 1-2-4 (12 days) and 1-2-3-4 (14 days).

The options for crashing the longer path are: 2-3($80) and 3-4($60). Since it is least costly to crash, crash 3-4 by 1 day for savings of $40 ($100-$60). The durations of the two paths are now 1-2-4 (12 days) and 1-2-3-4 (13 days).

The only option for crashing the longer path is 2-3($80). Crashing 2-3 by 1 day creates savings of $20 ($100-$80). The durations of the two paths are now 1-2-4 (12 days) and 1-2-3-4 (12 days). Path 1-2-3-4 cannot be crashed and further and crashing 1-2-4 would not reduce the time to complete the project since both paths currently have a duration of the 12 days. The duration-cost history of this is summarized in the table below.

Duration 17 16 15 14 13 12

Cost $1,700 $1,625 $1,555 $1,505 $1,465 $1,445

9. Given the following highway rerouting project a. Draw the network.

A

C

E

F G

B

D

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b. Find the ESs. LSs, and slacks.

Activity A B C D E F G

ES 0 0 4 6 6 6 12

EF 4 6 6 12 9 9 17

LS 3 0 7 6 9 9 12

LF 7 6 9 12 12 12 17

Slack 4 2 2 6 3 3 5

c. Find the critical path.

Critical path: B-D-G d. If the project has a 1 ½-year deadline for reopening, should we consider crashing some activities.

Explain.

Completing the project in 1.5 years or 18 months. The expected duration is 17 months. Since the expected duration is less than the deadline, crashing does not need to be considered at this time.

10. After entering the resource information, are there any problems with the resources being overloaded? If so, level the resources so that the resources are not overloaded. What impact does leveling the resources have on the expected project completion time?

Mike and JR were assigned to the tasks in MSP’s Gantt Chart View as shown below:

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Using the Resource Graph view, it is discovered that Mike is overallocated in the first week:

Using the “Level All” feature resolves resource overallocations. In the case, the overallocations can be resolved without increasing the duration of the project.

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Incidents for Discussion Suggested Answers Lab Results, Inc. Question 1: Do you think Sam’s plan is going to work? Why or why not?

No, Sam’s plan of just adding this work to his current work load without any additional resources will not work for a number of reasons:   

There is little or no excess capacity in the current operation. If Sam is paying overtime weekly, his current staff are working beyond normal capacity now. Adding additional work through this new project will only add to this.

Sam’s plan does not take into account vacation or sick time for his technicians. Four months is also a long time to ask the staff to work more overtime on top of what they are already working.

There is also no time built in to deal with any issues that may come up, such as increases in work load from his other clients, problems with equipment, etc.

If he continues with this plan, quality and the ability to meet the scheduled delivery of results will suffer.

How would you handle the bid on the new project?

Among the steps one could take would be to:  

Redesign the project plan for this new job to include additional resources to complete the additional work.

Use this as an opportunity to build excess capacity into the current system.

Focusing on the costs associated with additional resources instead of paying overtime to already overworked staff would reduce the project cost and improve the chance of meeting the projects specification for quality and delivery.

Question 2: Would Crystal Ball be useful in assessing Sam’s plan and changing it, if necessary?

If Sam has data on the ebb and flow of demand on this work force across time, he can use Crystal Ball to simulate the amount of overtime his workforce will be expected to work if he wins the contract. Further, he can find the amount of system capacity consistent with any given level of overtime.

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Southern Kentucky University Bookstore Question 1: Is the minimum slack rule a reasonable way to schedule resources of the Textbook division? Why or why not?

No. The projects are not combined and the minimum slack on one may receive resources when its slack is more than the minimum slack on another project.

Question 2: What complication is added by making this project four separate projects?

The interactions between these projects are important and must be accounted for by scheduling this as a multiproject plan. Peak resource loads need to be determined in advance and leveled. The overall project schedule should be determined with the resource utilization of each area in mind.

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Suggested Case Analyses and Solutions Friendly Assisted Living Facility Resource Usage – Part 6 Teaching Purpose: In this installment students are required to develop Gantt charts for the resources and prepare a resource calendar using MSP. Question 1: Prepare a Gantt chart with resources for the action plan Dr. Alison submitted.

Begin this project on January 2. Prepare a resource calendar for Dr. Alison.

The following is the Gantt chart of the action plan presented in the case. This Gantt chart was prepared using MSP with a resource calendar for Dr. Alison and Dr. Link with a workweek of Monday through Friday, and a daily schedule of 8 a.m. to 5 p.m. with an hour of non-working time for lunch.

The resource calendar was applied using the “Change Working Time” under the “Tools” menu in MSP. (The issue of scheduling the “Test of the assessment tool…” will be addressed in answer #3 & #4). Note: the case stated to start the project on January 2, if students use the year 2000, the project will actually begin work on January 3rd, as January 2nd is a non-working day. If students use January 2, 2001 (or later), the project will start on January 2 nd. The start date used in these examples is January 2, 2000, to coincide with the year that the case started.

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The following is the standard resource calendar used for Dr. Alison for all of the tasks defined by the action plan. Since the case outlined that a resource scheduling conflict would only pertain to the task of “Testing the assessment tool”, it is not appropriate to constrain Dr. Alison on the project for any other tasks. Note: The following printout excerpt was prepared using the Reports feature in MSP. The issue of how to handle the specific scheduling constraint will be addressed in answer #3 below.

Question 2: How would you handle Dr. Alison’s resource problem?

The resource issue that Dr. Alison has should be handled by adjusting the project schedule to allow for the scheduling constraints.

The case states that Dr. Alison can perform all of the project steps within his 8 a.m. to 5 p.m. normal work week, however he will only be able to perform the “Test of the assessment tool” during his administrative time on Wednesday’s from 8 a.m. to 12 p.m. Since that step is important to the success of the project, it is necessary to adjust the project plan to reflect Dr. Alison’s scheduling conflict. It is not appropriate to add another resource, or overallocate Dr. Allison to get this task done within the time frame specified.

There are several different ways to set a resource constraint on the “Test the tool” task, Step #4 in the action plan. MSP 2007allows you to create a specific calendar for a step in an action plan. Simply create a New calendar in the Tools menu, “Change working time” section. In the new calendar create a schedule that has its working time as Wednesdays, 8 a.m. to 12 p.m., and all other days as non-working. Then you apply this calendar to step 4 in the action plan. (This is done by selecting the task information box for Step #4, going to the “Advanced” tab, and selecting the new calendar you just created. These steps are all outlined in the Help section, under “Assigning a calendar to a task”.)

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Once you apply the new calendar, MSP will automatically adjust the Gantt chart to reflect the changes in the schedule. Note: If students are using MSP98, the schedule constraint can be incorporated into the project by adjusting Dr. Alison’s resource calendar for only the time period that this step takes place (Jan 19 – Jan 26).]

Question 3: Given Dr. Alison’s availability, how long will it take to complete testing of the assessment tool?

Based on Dr. Alison’s availability to complete the step “Test of the assessment tool”, Step #4 will now take from January 19, 2000 – January 26, 2000. Please note that the task’s duration remains at 6 hours, however with Dr. Alison only available to work on the step from 8 a.m. – 12 p.m. one day a week, the step will now take an extra calendar week to complete. Without the constraint the task could begin as soon as Step #3 was completed, January 14. However, with the constraint applied, Step #4 cannot begin until the following Wednesday when Dr. Alison is available, and he can only work 4 hours on that day, so another 2 hours the following Wednesday is necessary to complete the task.

Question 4: Prepare a Gantt chart for Dr. Alison’s plan incorporating any changes you recommend.

The Gantt chart below shows the scheduling changes adjusted for the availability of Dr. Alison to complete step #4 in the action plan.

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Or with a more detailed view of the calendar:

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Charter Financial Bank Teaching Purpose: This case provides students with opportunity to evaluate alternative crashing strategies.

Question 1: What is the cost of completing this project if no overtime is used? How long will it take to complete the project?

The network diagram shown below can be constructed from the information in the case.

Test

5

DB

1

Benchmarking

2

Pla n

3

Design

4

Pages

Forms

8

6 7

The time to complete the project at a normal level of activity is 43 days and the cost is $100,650.

Question 2: What is the shortest amount of time in which the project can be completed?

What is the cost of completing the project in the shortest amount of time?

When all the activities are crashed their maximum amount, the project is completed in 30 days.

In the spreadsheet below, Solver was used to find the least costly way to crash the project such that it was finished in 30 days. Column H details the amount each activity was crashed. The incremental cost required to shorten the project these 13 days is $26,250 (cell I13).

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A B C D E F G H I J 1 Deadline: 30 2 Total Cost: $126,900 3 4 Normal Normal Crash Crash Crash Max Crash Amt Crashing Actual 5 Activity Time Cost Time Cost Cost/Day Amt to Crash Cost Time 6 Benchmark 10 $15,000 7 $18,750 1250 3 3.0 3750.0 7 7 Plan 5 $3,750 3 $4,500 375 2 2.0 750.0 3 8 Design 15 $45,000 10 $58,500 2700 5 5.0 13500.0 10 9 Database 10 $9,000 7 $11,250 750 3 2.0 1500.0 8 10 Webpages 10 $15,000 8 $19,500 2250 2 2.0 4500.0 8 11 Forms 7 $8,400 7 0 0.0 0.0 7 12 Test 3 $4,500 2 $6,750 2250 1 1.0 2250.0 2 13 Total $100,650 $26,250 14 15 Event 16 Node Time 17 2 7 18 3 10 19 4 20 20 5 28 21 6 28 22 7 27 23 8 30

Using Solver required the following steps: o Cell I13 was specified as the target cell to minimize. o The changing cells included the ranges I6:I12 and B17:B23.

In addition to specifying “Assume linear model” the following constraints were entered:            

H6:H12 < G6:G12 (limit on the amount each activity can be crashed) B17:B23 > 0 & H6:H12 > 0 (nonnegativity constraints) B17 > J6 (node 2) B18 > B17 + J7 (node 3) B19 > B18 + J8 (node 4) B20 > B19 + J9 (node 5) B20 > B21 (node 5) B20 > B22 (node 5) B21 > B19 + J10 (node 6) B22 > B19 + J11 (node 7) B23 > B20 + J12 (node 8) B23 < B1 (deadline specified)

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Question 3: Suppose that the benchmarking study actually required 13 days as opposed to the 10 days originally estimated. What actions would you take to keep the project on a normal schedule?

The spreadsheet presented in question 2 can be modified such that the benchmarking study’s normal and crash times are now 13 days implying that this task can no longer be crashed. Then the spreadsheet can be resolved using Solver and specifying a deadline of 43 days. As shown in the spreadsheet, below the project can still be completed in 43 days by crashing the Plan task by 2 days and the Test task by 1 day. The cost of crashing these two tasks will increase the project cost by $3,000.

Question 4: Suppose the President wanted the website launched in 35 days. What actions would you take to meet this deadline? How much extra would it cost to complete the project in 35 days?

The spreadsheet presented in question 2 can again be modified. This time 35 is entered in cell B1 and the problem resolved with Solver. Column H in the spreadsheet below details the amounts the various activities should be crashed to meet the 35-day deadline. The extra cost of reducing this project 8 days (43 – 35) is $12,150.

A B C D E F G 1 Deadline: 35 2 Total Cost: $112,800 3 4 Normal Normal Crash Crash Crash Max Crash 5 Activity Time Cost Time Cost Cost/Day Amt 6 Benchmark 10 $15,000 7 $18,750 1250 3 7 Plan 5 $3,750 3 $4,500 375 2 8 Design 15 $45,000 10 $58,500 2700 5 9 Database 10 $9,000 7 $11,250 750 3 10 Webpages 10 $15,000 8 $19,500 2250 2 11 Forms 7 $8,400 7 0 12 Test 3 $4,500 2 $6,750 2250 1 13 Total $100,650 14 15 Event 16 Node Time 17 2 7 18 3 10 19 4 23 20 5 33 21 6 33 22 7 30 23 8 35

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H

I

J

Amt Crashing Actual to Crash Cost Time 3.0 3750.0 7 2.0 750.0 3 2.0 5400.0 13 0.0 0.0 10 0.0 0.0 10 0.0 0.0 7 1.0 2250.0 2 $12,150

Rand Contractors The PERT chart for the project is shown below:

The figure below provides the Crystal Ball model that was created for the Rand Contractors mini case:

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1. From the Crystal Ball (CB) above it can be seen that analyzing this situation in the usual way requires analyzing two paths (ABCEF and ABDEF). Assuming the activity times follow a Beta distribution and simulating the CB model 10.000 times yielded the following results:  Expected project completion time: 25.55 days  Minimum project completion time: 21.88 days  Maximum project completion time: 31.04 days 2. The following probabilities were found using the CB model:  The probability the project is finished in 25 days or less: 35.58%  The probability the project takes longer than 27 days to complete: 13.74%  The probability the project is finished between 24 and 26 days: 53.03% 3. The only difference between the two paths is whether the plumbing or electrical work gets done by Bruce first. Since Bruce does both of these activities, the duration of the project can be found by summing the durations of all five activities as is shown at the bottom of the figure above. Simulating the CB model 10,000 times yielded the following results:  Expected project completion time: 28.43 days  Minimum project completion time: 24.24 days  Maximum project completion time: 34.28 days 4. The following probabilities were found using the CB model:  The probability the project is finished in 25 days or less: 0.34%  The probability the project takes longer than 27 days to complete: 83.10%  The probability the project is finished between 24 and 26 days: 4.21% 5. When the actual resources that will be assigned to each activity are considered, the expected time of the project increases. The implication to project managers is that not considering the resources that will be allocated to the activities increases the chances that the project duration may be underestimated.

6. There are a number of different ways to address this. One way is to find a window for the project’s duration such that the project has a desired probability of finishing within this window. For example, there is almost a 95% chance the project will be finished between 26 and 32 days. Providing a window has the advantage of letting the next customer know the earliest and latest the project is likely to start. On the other hand, some customers may only be interested in what the latest the project start date might be. Using the CB model it can be determined that there is slightly more than a 95% chance the project will be finished in 31 days. Of course different desired probabilities could be used.

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Chapter 7 Monitoring and Controlling the Project

This chapter addresses issues related to monitoring and controlling the project. Monitoring refers to collecting, recording and reporting information about the project while controlling uses this information to bring actual performance into agreement with the plan. The chapter begins with an overview of the plan-monitor-control cycle. Emphasis is given to the importance of designing the planning-monitoring-controlling process. Next the issue of data collection and reporting is discussed including the topics of data collection and types of data, data analysis, types of reports, and meetings. Following this, the earned value approach is presented. As the chapter notes, earned value represents a way to capture both in-process performance and cost on a certain date as measured against budget or schedule. Finally the chapter concludes with a discussion of project control, the design of the control system, and scope creep.

Cases and Readings Some cases appropriate to the subject of this chapter are: Harvard: 9-193-013 American Airlines: The InterAAct Project (A) and 9-193-014 (B) This 17page (and 11-page) set of cases describes the design and implementation of an extensive knowledge information system project. The implementation is in trouble in the A case and must be reassessed. The (B) case describes the outcome of the successful implementation. A 17 page teaching note (5-194-095) is available.

Western Ontario: 9-91-E009 Riverview Children’s Hospital This 14-page case concerns an upcoming audit while in the middle of an information system changeover that is in difficulty.

The manager has to decide whether to go ahead with the implementation or wait until the audit is over, either alternative having serious negative consequences.

Harvard: 9-681-091 Corning Glass Works: The Z-Glass Project This excellent, 15-page case shows how a project can get into trouble on many fronts: strategically, technically, and behaviorally. Involves a turn-around project for a new production process that is getting worse instead of better. Involves issues of monitoring, control, strategy, organization, and behavior.

Lots of data to work with. A 14 page teaching note (5-683-045) is available.

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Harvard: 9-396-312 BAE Automated System (B): Denver International Airport BaggageHandling System This 3-page follow-up to the (A) case (see Chapter 1) describes the control actions finally taken to address the airport baggage system problem. A 32 page teaching note for the (A) and (B) cases (5-399-099) is available.

Some readings appropriate to the subject of this chapter are: 1. Besner, C. & Hobbs, B (2006) The Perceived Value And Potential Contribution of

Project Management Practices to Project Success, (Project Management Journal, 37(3), 37-48) This reading presents the findings on the investigation of practitioner perceptions on the relative value of different project management practices and their potential to contribute to improved project performance. The report is based on a large-scale survey of 753 project management practitioners. Through the identification of the most valued practices, practitioners and organizations can identify their priorities when developing their project management competencies. This can also guide the profession in selecting priorities for future development.

2. Aiyer, J, Rajkumar, T. J. & Havelka, D. A, Staged Framework For The Recovery and

Rehabilitation of Troubled IS Development Projects, (Project Management Journal, 36(4), 32-43, 2005) As pointed out throughout the text, many projects are delivered significantly behind schedule, drastically over budget and do not adequately meet customer specifications.

The signs that these projects are in trouble are typically present long before completion.

This article looks at the steps needed to recover from such troubled situations. A generic four stage, 12-step framework for recovery and rehabilitation is proposed. The four stages are recognition, immediate recovery, sustained recovery and maturity. The twelve steps in the four stages are detailed in the reading. Illustrative cases are used to discuss the applicability of the framework to differing situations. Although the article is based on information systems development projects, the ideas are applicable to most projects.

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Answers to Review Questions 1. Why can’t the PM use the organization’s current information system for project monitoring and reporting?

There are two main reasons why the PM can’t use the organization’s current information system for project monitoring and reporting: 



These systems are often set up to report information at certain specific periods (e.g., the end of the month or quarter). The information needed to control a project often does not align with such rigid timetables.

The organization’s system is usually structured to deal with the organization’s standard divisions, and departments. Projects rarely conform to these boundaries.

2. What does it mean to say that project monitoring and control are on the opposite sides of project selection and planning? 

Project selection and planning specify the goals for the project at the start of activity. The plan also details what activities and schedule must be met; things the project manager must control.



Project monitoring and control seek to ensure that the project is making progress toward the achievement of these goals as activity is proceeding and all the way to the end.

3. The monitoring system is the direct connection between project planning and control.

Why is this true?

Project planning specifies the activities, resource usage, and the goals for the project while control seeks to ensure that the project is making progress toward the achievement of these goals.

Monitoring is concerned with collecting and reporting information. As such, monitoring connects planning and control in that the plan specifies the types of data that need to be collected and the reporting becomes the basis for follow-on control.

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4. Why is it probably a good idea to avoid periodic reports, except in specific cases such as reports tied to the organization’s accounting system?

It is probably a good idea for two reasons: 1. It is more appropriate to let schedules, milestones, scope changes, problems, and the project team’s general need for information dictate the timing of reports.

2. There is a tendency for recipients to ignore periodic, especially accounting, reports.

5. Aside from the obvious benefits for project control, what other benefits might result from a good project reporting system?

Other benefits from a good project reporting system include: o Less wasted time reporting information that is not used. o Better informed team members and other stakeholders, and o A better record of the project that can be used to facilitate future project planning.

6. If the calendar should not dictate reporting frequency, what should?

The need for information should dictate the report frequency. For projects, it is more appropriate to let milestones, scope changes, problems, and the project team’s general need for information dictate the timing of reports.

7. Using earned value analysis, explain how the total cost of a partially completed project can be estimated.

The total cost of a partially completed project can be estimated by dividing the amount spent to date by the estimate of the project’s percentage completion. However, in general, this is not an effective way to estimate the final cost of a partially completed project.

A possibly more accurate approach is summing the costs of completed activities and then making a knowledgeable guess on the costs expected for future activities depending on whether the team will stay on their current progress track (good or bad) or get back to the baseline activity costs.

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Suggested Answers to Discussion Questions

1. When making an estimate for the time and cost to execute a project, should the time and cost required to develop the planning, monitoring, and controlling systems be included as well? Should the actions required to monitor and control a project be included in the project’s action plan or WBS? Yes, the time and cost required to develop the planning, monitoring, and controlling systems should be included in the project’s budget. Similarly, the actions required to monitor and control the project should be included in the WBS. These are essential tasks for the successful completion of the project.

2. The chapter includes an example of a firm where the PM dispensed with all the planning formality because no one ever looked at it anyway. What did the PM think the purpose of such planning was in this firm? What should the firm do in the future to correct this problem?

It appears the PM in this case believed that project planning was not important since no one looked at it. Therefore, the PM likely believed that project planning was a waste of time that distracted him/her from more important work. The result was a major loss of business.

To correct this situation the company needs to: 1. Emphasize the importance of planning to the ultimate success of the project. This may require formal training programs, perhaps including case studies that demonstrate the types of problems encountered in projects that were inadequately planned.

2. Ensure that management becomes more involved in project planning and reviewing project plans, and then using these plans to monitor progress on the project at milestones and stage gates.

3. Modify the system used to review the performance of project managers to include project planning.

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3. In such fields as psychology and sociology, verbal characterizations are frequently used to show the amount of some factor. How might one set up such a measure for a project management characteristic such as the “energy” of the project team?

Team members could be asked to score on a 5 or 7 point scale the extent of their agreement/disagreement to statements such as: o I look forward to coming to work each day. o I find facing and resolving new challenges stimulating. o I take immediate action when I discover a problem.

4. How can the PM circumvent the problem that the monitoring system can only report on activities that have passed, thus telling the PM what has already gone wrong but not what will go wrong in the future?

One way the project manager can use the monitoring system to predict future problems is to extrapolate trends in the data to the future and then compare this projection with the plan. Indeed, a better use of the monitoring system would be to use the information to anticipate future problems rather than reacting to them once they occur. Along these lines, the monitoring system could also include “lead indicators” as symptoms of problems.

5. How might using electronic media to report project information lead to problems with control?

There are two main ways the use of electronic media could lead to problems with control:  

The PM spends more time managing the electronic media (e.g., the project management software) than actually managing the project.

The speed that information can be transmitted can create problems. For example, an inaccurate entry could immediately trigger an exception report causing team members to shift their focus to an erroneous or irrelevant issue.

6. Explain how the earned value chart captures all three objectives of a project: performance, cost, and schedule.

A cost variance is calculated as the difference between Earned Value (EV ) and the Actual Cost of Work Performed (AC). If the AC is larger than the EV, the variance is negative indicating that more was spent for the work performed than was budgeted. The schedule variance is calculated as the difference between the Earned Value (EV) and the Planned Value (PV) . A negative schedule variance indicates a behind schedule situation. In terms of performance, the earned value chart indicates whether progress is up to expectation, the “baseline” planned for this point in time.

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7. Why isn’t there an earned value reporting convention that allows progress on a task to be credited when the task is half completed? Wouldn’t this be more accurate than giving credit only when the task is fully completed?

It would be if, and only if, there was a reliable way to estimate the 50% completion point.

Note: The answer to Question 7 notes another way to proceed with an in-process cost estimation.

8. When would spending and schedule variances be more informative than ratios? When would ratios be better?  

Spending and scheduling variances are more informative when trying to understand the in-process performance for a given project at a particular point in time.

Ratios are more informative when trying to compare the performance across projects, project managers, or the progress of a project over time.

9. How should a PM reconcile the dual purposes of control: conserving resources and regulating results through the use of resources?

The PM needs to be sensitive to the trade-offs among cost and scope/performance so that resources are used to maximum benefit in achieving performance on the project.

The bottom line with control is that you don’t want the costs of the control systems to exceed the benefits.

10. Identify situations where each of the following control tools might be useful: earned value charts, benchmarking, critical ratios, control charts, variance analysis, trend projections.   



Earned value charts are useful for monitoring the progress of in-process projects.

Benchmarking is useful in the project planning phase in helping determine project goals and resource requirements. Benchmarking can also be used to assess an organization’s project management systems and procedures.

Critical ratios, control charts, and variance analysis are all useful for monitoring the progress of in-process projects. In particular, the critical ratio is a single measure that includes performance, cost and schedule. Plotting the critical ratio on a control chart provides opportunities to spot patterns that may lead to problems.

Trend projections can be performed on any of the data collected by the monitoring and control system to estimate future values of the data and take corrective actions before the situation becomes a serious problem.

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11. How might the existence of a change control system affect the behavior of a client, or a project team member, who desires to make a change in the project?

By adding greater scrutiny, a change control system may reduce the number of change requests, particularly casual requests for changes.

12. “In order to manage for overall project success, control must be exercised at the detailed work level for each aspect of project performance or no significant change will occur.”

Does this mean that the PM should micromanage the project? If not, what does it mean?

It does not mean that the project manager should micromanage the project. Rather, it suggests that each project team member needs to monitor and control his or her own work.

13. Select a hypothetical project (e.g. designing and building a Web site, installing a new machine in an assembly line, or conducting a major inspection and repair of a passenger aircraft), and briefly describe an example of how each of the following types of control data might be used for project control: (a) Frequency counts (b) Raw numbers (c) Subjective numeric ratings (d) Indicator and surrogate measures Designing and building a new Web site, gave the following types of data control: (a) Frequency counts: (b) Raw numbers: (c) Subjective numeric ratings (d) Indicator and surrogate measures

Spelling errors per page, number of incorrect links, pages that take longer than 30 seconds to load.

Time for pages to download, size of graphic files, number of lines of code.

Quality of webpages, ease of navigation, search capabilities.

Time spent at a site could be used as a surrogate for user satisfaction.

14. Of all the rules for conducting meetings, the most difficult to enforce is the injunction against the weekly (or daily) standard project progress report (the “show and tell” meeting). Why is this, and under what circumstances do you think such meetings are justified?

One reason it is hard to not have the weekly progress meeting is that people like to (a) report on the aspect(s) of the project with which they are familiar and (b) demonstrate what they have recently accomplished.

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The weekly progress meeting might be appropriate early in the project when coordination is required and team members are still getting to know each other and have not had an opportunity to develop informal communication channels.

15. If your project management software calculates earned value, or any other standard item to be reported, differently than the Project Management Institute suggests, should you deal with this matter in management reports? If so, how?

The important thing about variances is that you understand what they mean and interpret them correctly in reports. Whether the sign is positive or negative when the cost is over budget or behind schedule is not that important as long as you understand what the calculation is telling you. Being able to properly interpret the variance and act accordingly is the critical task.

Therefore, making a point in a report to note that the software package calculated a specific item differently than the standards set by the PMI is not that important, interpreting the number correctly and discussing the implications are.

16. Logically, when using earned value data in the critical ratio formula, should the “budgeted” cost be the planned value or the earned value? What problems occur with each choice?

The critical ratio (CR) is the product of the schedule ratio times the cost ratio: CR = (actual progress/scheduled progress) x (budgeted cost/actual cost).

The “budgeted cost” might logically be either the planned value or the earned value. If the planned value (i.e., the scheduled progress) is used then it effectively cancels out the denominator of the schedule ratio, leaving the CR as simply actual progress/actual cost, with no comparison to plan. However, if the earned value (i.e., the actual progress) is used then it uses the actual progress twice in the numerator of the CR, with the result being that the actual progress is compared to both the scheduled progress and the actual cost, but at least this way both actual progress and actual cost are compared to what was scheduled.

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Solutions to Exercises

1. The project in this problem is in its 26th week.

Actual cost of work performed AC = $270,000 Budgeted cost of work performed EV = $272,000 Budgeted cost of work scheduled PV = $261,000 Cost/spending variance = EV – AC = $272,000 – 270,000 = $2,000 Schedule variance for the project = EV-PV = $272,000 – 261,000 = $11,000 Schedule Performance Index (SPI) = EV/PV = $272,000/261,000 = 1.042 Cost Performance Index (CPI) = EV/AC = $272,000/270,000 = 1.007 In summary, more has been spent than the baseline plan, but considerably more progress has been made than was either anticipated and even a bit more relative to what was spent.

2. In this problem, the project has just completed the 87th item on its action plan.

Actual cost of work performed (AC) = $156,000 Budgeted cost of work performed (EV) = $162,000 Budgeted cost of work scheduled (PV) = $168,000 Cost/spending variance = EV-AC = $162,000 – 156,000 = $6,000 Schedule variance = EV-PV = $162,000 – 168,000 = -$6,000 Schedule Performance Index (SPI) = EV/PV = $162,000/168,000 = 0.964 Cost Performance Index (CPI) = EV/AC = $162,000/156,000 = 1.038 In this case, less has been spent than the baseline plan. However, even though progress has exceeded what has been spent, less progress has been made than should have been.

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3. The project being considered in this problem is in its 6th week. It is helpful to draw the network to solve this problem.

0

a-2

Day 6 2 d-5

8

c-2 e-4

b-3 4

Actual cost of work performed (AC) = $400 + 180 + 300 + 400 + 200 = $1480 Budgeted cost of work performed (EV) = $300 + 200 + 250 + .2(600) + .2(400) = $950 (based on the information that d and e are 20% complete).

Budgeted cost of work scheduled (PV) = 300 + 200 + 250 + .8(600) + .5(400) = $1430 (based on the figure showing that d should have finished 4 of its 5 days, or 80%, and e should be half finished).

Cost/spending variance = EV – AC = $950 – 1,480 = -$530 Schedule variance = EV – PV = 950 – 1,430 = -$480 Schedule Performance Index (SPI) = EV/PV = $950/1,430 = 0.664 Cost Performance Index (CPI) = EV/AC = $950/1,480 = 0.642 In this instance, more has been spent than the baseline plan and, given what has been spent, less progress has been made than should have been.

Critical ratio (CR) = (EV/PV)(EV/AC) = ($950/1430)($950/1480) = 0.426 Budget at completion BAC) = $300 + 200 + 250 + 600 + 400 = $1,750 Estimated (remaining cost) to completion (ETC) = (BAC – EV)/CPI = ($1750 – 950)/0.642 = $1246.11 Projected (total cost) estimated at completion (EAC) = ETC + AC = $1246.11 + $1480 = $2726.11

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4. This assignment involves repeating Exercise 3 using MSP. Students should begin by inputting the original planned project data into MSP’s entry table as it appears in the problem. Only the activity names, predecessors, durations, can be entered in the Entry table.

The Gantt chart would look as follows:

The budgeted cost data is entered using the Cost Table. To enter this data you select the View menu, then Tables, then select Cost from the drop down list. Enter the budgeted cost information under the Fixed Cost section of the table. Fixed costs are assigned by activities as opposed to by resources. This problem is concerned about a cost of activity not a resource cost. The table will look as follows:

Once the original data is in the action plan format, the students should save the Baseline data so that a comparison to actual can be calculated by MSP. To do this you need to go to the Tools menu, select Tracking, then select Save Baseline, then click OK so that you are saving the baseline for the entire project.

Once the baseline has been saved, students need to enter the actual data provided in the problem. You next need to create a table to enter the actual costs and percent complete.

By default MSP automatically calculates actual costs based on the percent an activity has been completed. In this example we need to turn off this feature. To do this you must select the Tools menu, then the Options line, then you select Calculations Tab. Next you deselect the option “Actual costs are calculated by MSP”. Once the automatic cost calculation is turned off, you select Table from the View menu and then select the Tracking table from the drop down menu to enter the information that you have on actual costs and percent complete. Enter the information that is provided in the case. The software will calculate the rest. Your spreadsheet/table should look as follows:

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Note: The start and finished dates will be based on the dates that you start the project, in this example the project was started on January 15, 2001. If you choose not to enter a start date, MSP will default to using “today’s date.”+

Once you have entered the actual data, MSP will calculate the information needed to answer questions #27 based on the date of comparison, in this problem, that is the end of the sixth week. Using the start date of January 15th, the end of the sixth week would be February 23, 2001. (No matter what your start date is, it is easy to see in MSP when the end of the sixth week would be.)

You must first enter that date for the comparison, to do that you go to the Project Menu, select Project Information and enter the date under Current Date. Next, you are ready to view the earned value information for this project. Select the View menu, then Table, then More Tables, from this drop down menu select Earned Value table and click Apply. The following is the chart that should appear:

By adding or subtracting the totals of the columns you can determine the total project variances as outlined in Problem #26. Note: Please recall that MSP reverses the calculations.

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5. Given an activity in a smartphone design project whose planned cost was $13,000 but actual cost to date is $12,000 so far, and whose value completed is only 80%, calculate the cost and schedule variances. Will the client be pleased or angry?

EV = $13,000 (.80) = $10,400 PV = $13,000

Cost variance = EV – AC = $10,400 - $12,000 = -$1,600 Schedule variance = EV – PV = $10,400 - $13,000 = -2,600 The project is far behind schedule and over-budget for the amount of progress to date. The client will not be happy.

6. Resolve Exercise 3 using the 50-50 rule for planned value and earned value.

The only thing that changes is the way earned value is calculated. Of course, everything that is calculated based on EV then also changes. Using the 50-50 rule, every activity that has finished continues to receive its full value while any activity that has started, but has not yet finished, receives 50 percent of its value.

Actual cost of work performed (AC) = $400 + 180 + 300 + 400 + 200 = $1480 Budgeted cost of work performed (EV) = $300 + 200 + 250 + .5(600) + .5(400) = $950 = $1,250 Budgeted cost of work scheduled (PV) = 300 + 200 + 250 + .8(600) + .5(400) = $1430 Cost/spending variance = EV – AC = $1,250 – 1,480 = -$230 Schedule variance = EV – PV = $1,250 – $1,430 = -$180 Schedule Performance Index (SPI) = EV/PV = $1,250/1,430 = 0.664 Cost Performance Index (CPI) = EV/AC = $1,250/1,480 = 0.874 In this instance, slightly more has been spent than the baseline plan and less progress has been made than should have been, especially given what has been spent.

Critical ratio (CR) = (EV/PV)(EV/AC) = ($1,250/$1,430)($1,250/$1,480) = 0.738 Budget at completion BAC) = $300 + 200 + 250 + 600 + 400 = $1,750 Estimated (remaining cost) to completion (ETC) = (BAC – EV)/CPI = ($1750 – $1250)/0.874 = $572 Projected (total cost) estimated at completion (EAC) = ETC + AC = $572+ $1480 = $2,052

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7. Given the following information about a website design, which activities are on time, which are early, and which are behind schedule?

We need the EV to find the schedule variance. We are given the critical ratio, PV, and AC but not EV. We can use algebra to find the formula for EV given this information.

EV 2  EV  EV  CR      PV  AC  PV  AC 1 PV  AC  CR EV 2 EV 2  CR PV  AC  EV  CR PV  AC  Once we have EV, we can calculate SV = EV – PV.

Activity A B C D E

Budgeted Cost $300 $125 $225 $100 $250

Actual Cost $200 $250 $150 $100 $250

Critical Ratio 1.00 0.50 1.50 1.50 0.67

Earned Schedule Value Variance $245 -$55 $125 $0 $225 $0 $122 $22 $205 -$45

Activities A and E are late, B and C are on time, and D is early.

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8. Design and plot a critical ratio chart for an advertising project that had planned constant, linear progress from 0 to an earned value of 400 over a 100-day duration. In fact, progress for the first 20 days has actually been: 4,6,8,12,14,18,24,28,30,34,40, 42,42,44,48,52,54,58,62,66 What can you conclude about this project?

The planned schedule was for 400/100=4 units of progress each day, the straight line below.

100 80 60

Budget

40

Actual

20 0 1

2 3 4 5 6 7 8

9 10 11 12 13 14 15 16 17 18 19 20

The project got off to a poor start and is becoming later as time progresses.

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9. Given the following information, calculate the critical ratios and indicate which activities are on target and which need to be investigated. Comment on the situation for each of the activities.

Activity A B C D

Actual 2 4 1 3

Schedule 2 6 3 2

Budget 40 30 50 25

Actual 35 40 70 25

CR 1.14 0.50 0.24 1.50

Comment Favorable, OK Unfavorable, Investigate Unfavorable, Investigate Favorable, Investigate

10. Industrial Building, Inc., has two project teams installing virtually identical, 4-story commercial buildings for a customer in two separate cities. Both projects have a planned daily cost of 100 and a planned daily earned value of 100. The first six days for each team have progressed as follows:

Compare the two projects in terms of general progress and according to critical ratios.

The base data for the problem looks like this:

Note that this data is incremental rather than cumulative. The cumulative data with CR calculations looks like this:

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It is interesting to note that while Team A has incurred more cost it has also achieved more progress. Therefore, based on the Critical Ratio, the teams are identical in their achievements to date. However, in both cases, their critical ratios are deteriorating and should be investigated for potential corrective actions.

11. At week 24 of a project to shoot a television commercial, the project manager is worried about her budget since costs have risen to $7,500. Is there a cost overage? If so, how much is it? Is the schedule ahead or -behind? Overall, does the project appear to be in control?

Refer to figure below: PV = 900 + 1200 + 1200 + 1800 + (12/14)(1400) +0.6(1500) = 7200 EV = 900 + 1200 + 1200 + 1800 + 1400 +.4(1500) = 7100 AC = 7500

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CPI = EV/AC = 7100/7500 = 0.947 SPI = EV/PV = 7100/7200 = 0.986 CSI = CPI (SPI) = 0.947 (0.986) = 0.934 Yes, there is a cost overage of $400.

The schedule is slightly behind (20%) on task f, even though it is done with task e (14% ahead). But task f is slightly more expensive than task e, and f is further behind than we are ahead on task e, for a net result of being behind on schedule.

Overall, costs are running about 5% high, but we are close to being on schedule, so although the project isn’t completely in control, it is doing fairly well.

Incidents for Discussion Suggested Answers St. Margaret’s Hospital Question: what should Mary Lynn do?

Mary Lynn needs an aggregate measure of project performance for the three projects in question. An earned value analysis would be an effective tool to see if the projects are on schedule, behind, etc. She would be able to determine the expected completion dates for the projects. Milestones should also be built into the project plans so that she could measure clearly along those progress points, for each project.

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Stoneworth Paving Company Question: if you were Preston, what characteristics would you be looking for in a new control system?

For the future, Preston needs a control system that will better identify and report on supplier constraints and dates, staffing, and quality. If the project is to be expedited in order to catch up with the schedule, a control system that is oriented toward a high-pressure, time-critical projects will be required. Monitoring of the proper measures will also be critical.

Will a new control system be adequate for the problem? Explain.

A new control system is needed, but will not solve all of the problems, or keep this project from being late.

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Happy Customers Question: what do you suggest Jeremy Smith do?

Jeremy needs to be sure control systems for monitoring the project are incorporated into the plan. He should ask his project team to develop additional steps and processes throughout the life of the project to include more than an update of status. The controls should include a method to accurately report duration changes from the original estimate, resource utilization changes, etc. An earned value analysis during the project would be appropriate. This type of analysis would allow the team to make adjustments to the steps in the action plan in a timely fashion so that the entire project is not affected. This would also allow Alex to monitor the project more closely.

The company should also develop a change control system for their work with clients. Such a system will minimize the impact of the scope creep that appears to happen at J. Z. Smith. They need a formal process to deal with changes to the original project plan. Jeremy can design this system to include his input. He can make sure that the budget and estimate of completion dates are adjusted if he and the client both agree on the cost and duration of any changes the client wants in the scope of the project.

Cable Tech, Inc. Question: Does the monitoring and control method seem adequate?

No, the monitoring and control method is not adequate. Jean will not be able to take effective action from headquarters, being removed from the site.

What are the potential problems?

Among some of the potential problems: o Jean is located at headquarters … and any delays in getting reports to her will leave too long a period between occurrence of the attendance problem and a response. o The policies themselves are also in question. There is no flexibility in the policies for differences in reasons between sites. In many cases the problem may be the company’s fault, beyond the control of the employee. o The employees were never consulted on the design of these policies and may reject their enforcement. o Although punishment is provided for, rewards for good attendance are not recognized so no positive motivation is being considered.

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Suggested Case Analyses and Solutions Friendly Assisted Living Facility -- 7 Teaching Purpose: This installment of the Assisted Living Facility case addresses issues related to project progress meetings and determining how much time has to be made up to get back to the original baseline schedule.

Question 1: What do you think the construction project manager should have done when the Director of Security stopped attending the project meetings?

The construction project manager has set up a very good communications system to keep the project team informed, even if they were not able to attend the meetings. Kyle Nanno should deliver the CEO’s message to the Director of Security, if he does not respond within the deadline date that Kyle sets, Kyle should have Fred and the other members of the project team give their input into the security panel location decision. Fred needs to take appropriate disciplinary action against the Director of Security for not fulfilling his job duties as a member of the project team.

Question 2: Do you think it is an effective communications tool to send the construction project meeting minutes to the ALF steering team and the President? Support your answer.

It is an effective means of communications to send project team meeting minutes on this project to the construction team, especially as the project nears completion and a great number of details need to be followed up on. However, the Steering Team and the President do not necessarily need the level of detail that they are given. If details of a project are provided, most people will want to comment on it and be involved in any decisions that need to be made. If this is not appropriate, then those people should only be provided with information about what directly affects their area and told that their input is important to the success of the project.

Question 3: How much time has to be made up for the original, baseline schedule to be met?

The Gantt chart in the case has been updated as of 4/11/01. The project shows a finish date variance of 14 days. The project as a whole is 14 days behind schedule. They ran 15 days late on Phase 1 of the project. The project was 14 days early on both Phase 2 and Phase 3 of the project.

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Question #4: Develop an action plan and draw a Gantt chart for the Parking Lot phase of the project. Answer Fred’s questions.

If everything goes as scheduled the Gantt chart for the Parking Lot construction would look as follows:

If St. Dismus did not hear from the city until May 1, 2001, the Gantt chart would be adjusted as follows: (New end date for the project would be 6/12/01.)

The latest date to be notified by the city to meet the June 15 th deadline is May 7th. This would make the end date of the project June 15th.

Question 5: What information does Fred need to make a decision about building a hair salon?

This is an example of scope creep. The building of the hair salon was not in the original project plan. Fred must determine, first if he wants to build a hair salon for residents, he should have the COO and VP of marketing do a complete business plan with a cost benefit analysis/return on investment for this endeavor. After that is done, Fred must determine the impact that this would have on the construction project. He must identify the additional costs, changes necessary to the design and schedule.

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Palmstar Enterprises, Inc. Teaching Purpose: This case provides students with the opportunity to investigate the trade-off of introducing a product late but staying on budget versus increasing the budget to complete the project on schedule.

Question 1: What has a larger impact on Palmstar’s profits, delaying the 2000HD’s introduction by 3 months or increasing the project’s budget by 30 percent?

Delaying the launch of the product by 3 months would result in a loss of $18,000,000 (200,000 units  $450/unit  .2 contribution margin) in contribution to profit and overhead. Adding resources to complete the project on time would increase costs and therefore lower profits by $900,000 (30% of $3 million).

Therefore, not launching the 2000HD on time would have a much larger impact on Palmstar’s profits.

Question 2: Are there other factors you would consider in addition to profit?

There are a variety of other factors that should be considered including damage to Palmstar’s reputation and loss of market share. The analysis could also be enhanced had information been available on how rapidly unit prices decline in this market and Palmstar’s cost of capital.

With this added information, a discounted cash flow analysis could have been undertaken.

Question 3: What should Palmstar do? Why? Clearly, Palmstar should spend the extra $900,000 to launch the 2000HD on time. This will maximize its profits, help to enhance its reputation, and help preserve its competitive position.

There is usually very little to be gained from being late to the market.

Question 4: How generalizable do you think the results of your analysis in this particular case are to other situations?

Very generalizable.

Companies often focus too much on the added cost of completing a project on time but fail to investigate the benefits of getting a product to the market sooner. The benefits of getting to market sooner increase as the intensity of competition increases, as product life cycles shorten, and as pricing pressure increases. These characteristics are all common in today’s globally competitive marketplace.

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Peak Lighting, Inc. Teaching Purpose: This case provides students with the opportunity to investigate a project where material costs outweigh labor costs significantly.

Question 1: Calculate the schedule variance and cost variance for the Bullwhip project.

The project is composed of 4 phases: Develop Sound Track (1 week), Order Material (4 weeks), Stage Construction and Software (3 weeks), and Testing (1 week). It is important to point out that no labor is required during the second phase. Therefore the total labor cost of $200,000 is incurred over 5 weeks (phases 1, 3, and 4). Assuming the labor costs are spread out evenly across phases 1, 3, and 4, 20% of the labor costs have been incurred to date. Thus the earned value was apparently calculated as 20% × $600,000 or the $120,000 generated by the report Eric refers to in the case. The actual costs incurred to date are $440,000 -- $40,000 labor in phase 1 (20% × $200,000) and $400,000 in material costs from phase 2. Assuming the labor cost is spread evenly across phases 1, 3, and 4, $440,000 would also be the planned value.

Based on this, the cost variance and schedule variance can be calculated as follows: Cost Variance = $120,000 – $440,000 = $-320,000 Schedule Variance = $120,000 – $440,000 = $-320,000 Both variances are negative and are consistent with Eric’s concern.

The table below demonstrates another way to calculate the planned value of each phase.

Activity Length Cost Sound track 1 $40,000 Materials 4 $400,000 Construction 3 $120,000 Testing 1 $40,000 Further, since the project “had been underway for 5 weeks and all the materials had arrived” Earned Value can be calculated as :

Activity Sound track Materials Construction Testing

Length Cost 1 $40,000 4 $400,000 3 $120,000 1 $40,000

Percent Earned Complete Value 100% $40,000 100% $400,000 0% $0 0% $0 $440,000

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Question 2: Does Jimmy’s point about the material costs have merit? If so, does this have any implications for the way the earned valued is calculated at Peak?

Yes Jimmy’s point about the material costs has merit. Since materials represent two-thirds of the costs and they are incurred in the first half of the project, not accounting for this significantly distorts the Planned Value.

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Question 3: Who is right about the status of the project? Eric or Jimmy?

Jimmy is correct. Eric’s error is in incorrectly estimating the percent complete based only on labor.

Question 4: What advice, if any, would you offer Eric related to his new role of VP of Operations?

First, it was great that he put a planning system in place. However, he should not put down people for not having formal knowledge of project management, but rather should recognize this as an important development opportunity. Eric also has to recognize that he is in a very different industry. Consulting is very labor intensive while at Peak Lighting material costs account for the majority of costs.

Chapter 8 Evaluating and Closing the Project

This chapter discusses the issue of appraising the progress of a project and its performance and describes the various ways that projects can be closed. Project evaluation criteria are listed and discussed. Also, the formal process of auditing a project is overviewed including the information that should be contained in the audit report. Guidelines for when to consider closing a project, the types of project closure, and the closure process itself are also discussed.

The chapter concludes with a discussion of the project final report.

Cases and Readings Some cases appropriate to the subject of this chapter are: Harvard: 9-696-083 Biogen, Inc.: rBeta Interferon Manufacturing Process Development This 18-page case concerns a biotech firm that is wrapping up a new manufacturing process project for a newly developed drug. One of the senior scientists is charged with performing an evaluation of the project to document the lessons learned and provide guidance for future projects.

Harvard: 9-692-069 Motorola, Inc.: Bandit Pager Project This 17-page case places the student in the role of conducting an evaluation of an automated production process for radio pagers.

Although considered a major success by the company, there appear to be some difficulties in marketing and production that need more attention. A 19 page teaching note (5-692-069) is available.

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Harvard: 9-175-184 Northeast Research Laboratory (B) This excellent 17-page retrospective case describes a client’s unexpected cancellation of what was thought to be a successfully ongoing project. Involves issues of control, auditing, evaluation, termination, behavior, leadership, and organization.

Some readings appropriate to the subject of this chapter are: B.M. Staw et al. Knowing When to Pull the Plug (Harvard Business Review, March-April 1987).

This article has already become a classic on the psychological basis for continuing a project invariably headed for disaster. The authors clearly point out the dangers of certain personality types in project managers matching the needs profile of certain organizations. In these all-toofrequent situations, projects are continued way past the point where common sense would have called for their termination.

Royer, I., Why Bad Projects are So Hard to Kill, (Harvard Business Review, February, 2003, 4956). This reading asks the fundamental question of why managers keep pushing forward on a project even when faced with mounting evidence that success is pretty well unachievable. The article suggests that it’s not managerial incompetence or entrenched bureaucracy that makes projects hard to kill, but “a fervent and widespread belief among managers in the inevitability of their projects’ ultimate success.” This belief of success can spread from the project champion all the way up to top management and can lead to irrational behavior when it comes to project decisions. The reading offers suggestions to avoid the “blind faith” that is sometimes associated with failing projects.

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Answers to Review Questions 1. What are some of the commonly used project evaluation criteria?

Commonly used project evaluation criteria include:  

Original criteria for selecting and funding the project Success to date (schedule and budget efficiency, customer impact/satisfaction, and business success)

2. What are the measurement challenges associated with using a multivariate model such as a scoring model?

Multivariate models often include some subjective criteria which may be more difficult to measure.

3. Contrast project audits with financial audits.

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4. What are the typical steps in a project audit?

The typical steps in a project audit are:    

Familiarize the audit team with the requirements of the project, including its basis for selection and any special changes by upper management.

Audit the project on-site.

Write up the audit report in the required format.

Distribute the report.

5. What information should be included in a project audit?

At a minimum the audit report should contain the following:      

Introduction Current status Future project status Critical management issues Risk analysis and risk management Final comments

6. What are the types of project closure?

The types of project closure include:    

Project extinction Closure by addition Closure by integration Closure by starvation

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7. What are the main duties of the closure manager?

8. What issues should be addressed in the project final report?

The following issues should be addressed in the project final report:     

Project performance Administrative performance Organizational structure Project teamwork Project management techniques

9. What are the major purposes served by an after-the-fact project evaluation?

The major value of a post-project audit is to discuss (and inform senior management):  

Poor practices that should be avoided in future projects, and Beneficial practices that should be adopted by future projects.

An after-the-fact evaluation may be required by a customer who wishes to manage future relationships with the firm.

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Suggested Answers to Discussion Questions 1. How should an audit team handle an audit where it is explicitly restricted from accessing certain materials and/or personnel?

For an effective audit, the team must have access to all project records and personnel, as well as all functional and other organizational area records and personnel. Only access to the customer should be limited to require prior clearance from top management.

If access is denied by team members, the audit team may have to appeal to the project manager. If the project manager is the cause for the problem, the audit team may have to appeal to senior management.

In cases where full access is not provided, the results of the audit must be qualified noting the lack of access.

2. What might be some characteristics of a good closure manager?

Among some of the desirable characteristics are:      

Having familiarity with the administrative requirements of project terminations.

Being objective and impartial.

Being calm under stress.

Being personable.

Being task rather than functionally oriented, and Having the ability to effectively and efficiently execute the eight termination tasks.

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3. How should a committee determine which closure method to use?

As indicated in the text, there are four types of project closures:    

Project extinction … when the project is either successfully completed or the expectation of failure is high.

Termination-by-addition … when it is an “in-house” project which is successfully completed and institutionalized as a formal part of the organization.

Termination-by-integration … when the output of the project becomes a standard part of the operating systems of the sponsoring firm or client.

Termination-by-starvation … when it is politically unacceptable to terminate the project so it is left to wither until it is a project in name only.

The termination method selected will depend primarily on what is to happen with the project. For example, if it is to be an ongoing entity, addition or integration is best. If its job is complete, then extinction is best. Termination-by-starvation is not an ideal method since it leaves the project on the books.

4. What steps might be taken to reduce the anxiety of project team members facing an audit?

The focus of the audit must be positive with the reports kept constructive, unemotional, and professional. Pre-release discussions and a formal "appeal" procedure for disagreements are also helpful.

5. What are the dangers of evaluating a project based on the reason(s) it was selected (such as being a competitive necessity), rather than the goals and objectives in the project proposal or contract?

The reasons for project selection are often more general in nature while the project’s goals are much more specific. One danger of evaluating the project based on the reason it was selected is that a change or shift in the project’s specific goals could go undetected. This could result in a situation where project’s goals become out of sync with broader organizational goals. It might also lead to project proposals written in such a way as to minimize project goals or expectations, yet high enough to insure selection.

In spite of these dangers, the criterion for project selection is a good, but not sufficient, tool for evaluating completed projects as well as for helping to determine if a project should be terminated before completion.

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6. It is frequently suggested that items that will become potential problems later in the project life be decided up front, such as how to allocate revenues or dispose of project assets. How can this wisdom be used for project problems that cannot be foreseen?

Major risks associated with the project and their potential impact on the project’s schedule, cost, or performance should be identified. If alternative courses of action exist that may change future risks, they should also be identified. The parent organization should also insist on proper ethical standards of behavior from the project manager, team, and all functional managers connected with the project. A large majority of the problems referred to in this question concern credit-for-success and blame-for-failure. If a project succeeds or fails, the success or failure belongs to the entire team.

7. Can you think of any acceptable ways of assigning credit for profits (or responsibility for costs) resulting from a project on which several departments worked?

There is no theoretically correct way of dealing with these problems. Any method of sharing costs and/or profits that is acceptable to the several functional managers is acceptable. The method of cost/profit sharing should be accepted prior to initiating the project. Attempts to solve the problem when the project is completed are doomed.

8. How might an audit team deal with an attempt to co-opt the team?

“Co-opt” means “to appropriate as one’s own.” This is a common tactic for parties being audited. Passive resistance is advised. The audit team should listen with interest to all complaints, advice, etc., and proceed as if the co-opting had not occurred. A noncommittal attitude is best for auditors.

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9. In Section 8.2, subsection The Audit Report, six elements are listed that should be included in every audit report. For each element, explain why its inclusion is important. o Introduction:

o Current status:

o Future project status:

o Critical management issues:

o Risk analysis and risk management:

o Final comments:

This is the key to all that follows. It is important to make sure that all parties are in agreement with the statement of project direct goals and objectives.

It is also important that all parties agree about the current status of the project. All direct costs and the actual state of work on the project should be detailed in this section.

This serves as the basis for many of the report’s recommendations.

Based on the current status section of the report, this section describes what must be done to complete the project, including any required changes in budget, schedule, scope, and other goals of the project. This serves as a major input in the decision to continue the project without modification of the plan, continue it with modifications, or to terminate the project.

This section helps senior management to exercise control over any aspects of the project or its management that seem to be desirable. Senior management may also consider alteration of any project management policies that appear to be dysfunctional. Management may also install new project management policies.

This helps senior managers to reassess the risks associated with the project given its current state. This assessment would include both technological and monetary risk.

This section provides information to senior managers about the underlying assumptions made during data collection as well as the statistical reliability and validity of the data if such an assessment can be made. The section may also be used to collect any recommendations that might apply to future projects and any qualifications to the report.

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10. Referring to the “Evaluation Criteria” subsection of Section 8.1, how do you reconcile the difference between the goals and objectives of the project as given to the project manager in Chapter 1 and these criteria by which she or he is now judged?

The initial goals and objectives set for a project are determined prior to the start of the project. While they are, as indicated, often changed during the project’s life (and relative to other similar projects) they are generally associated with the initial criteria.

However, with the passage of time and the completion of the project, other factors come into play and, as a result, the PM is often evaluated against a broader set of criteria including such factors as the project’s apparent “success” in terms of the project’s efficiency in meeting the budget and schedule, the level of customer impact/satisfaction, its business/direct success, and future potential. None of these four criteria could have been established prior to the start of the project. There are, in fact, post hoc criteria.

11. If the actual termination of a project is a project in itself, how is it different from other projects?

The termination project is similar to any other project except that:     

There is only one person conducting the termination itself and there is no "project selection" phase.

It is a process of distribution of resources and personnel rather than acquisition of them.

The tasks to be conducted are relatively standard or else specified in advance.

It is best conducted by someone without an emotional investment in the project, and It is a completely administrative project with a single purpose.

12. What are some reasons that a failing project might still not be terminated?

There are often political, psychological, and other reasons why projects are continued when they should be terminated. Sometimes, though rarely, projects that fail to meet their objectives are continued because they are accomplishing other things of value to the organization.

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13. What might make a project unsuccessful during the termination process?

Any aspect of termination may cause an otherwise successful project to become a failure such as:   

An inability to complete the work.

Not delivering the desired result.

Providing poor product support, etc.

14. Who would make the best auditors: outside unbiased auditors or inside auditors who are more familiar with the organization, its procedures, and the project? Why? There are pros and cons to both options.

Inside auditors would probably be more efficient and less expensive. However, they would not be as objective and they may not be familiar with how other firms or organizations operate and could not make accurate comparisons.

External auditors would be more expensive. However, they would probably be able to better compare the outcome of the project with that of other firms in the industry.

For example, internal auditors may positively evaluate a situation that appears favorable from the company’s perspective when outside auditors would report that the situation is not up to market standards based on industry experience.

15. Under what circumstances would you change your answer to the previous question?

Students who initially selected external auditors based on perhaps higher objectivity might note that in situations when cost or time is critical, internal auditors might be preferred.

Students who favored internal auditors might recognize the need for external auditors when objectivity or external market expertise is the key concern.

16. Would frequent brief evaluations be best, or would less frequent major evaluations be preferred?

Frequent, brief evaluations have a better chance of finding problems as they are developing and can thus be solved easier and quickly. The frequent, low level evaluations are also less disruptive to the project team. Because of their frequency, they would also better lend themselves to use as a control device.

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17. Should the results of an evaluation or audit be shared with the project team?

Except for any confidential personnel items, the project team members should have access to the full report. Without feedback, the team members are limited in their growth possibilities and could be demotivated to work on future projects.

18. Under what circumstances is a detailed audit apt to be useful?

When a general audit exposes a serious problem in the project or in the methods by which the project was conducted, a detailed audit may be required to study such problems in greater depth and recommend solutions.

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Incidents for Discussion Suggested Answers General Construction Company Question: If you were the project manager, how would you handle the situation?

The member of the auditing team is not following appropriate procedure in contacting the customer directly. The PM should immediately inform top management of both the technical problem with the contract and of the breach of audit procedure. Then the PM should:  

Contact the client to resolve the problem.

Discipline the auditor for his breach of procedure.

How can a customer be assured of satisfactory project completion?

The customer should:  

Include such an audit process in the contract, with results coming directly to them, and Require that the audit be conducted by their own people, or an external entity.

Lexi Electronics Question: which of the three methods would you recommend, and why?

The case specifies three methods: extinction, addition, and integration. Since the project has been successfully completed, addition is the method of choice. The project team members should be utilized to lead, at least initially, the production of the new phone. They have the most familiarity with the process and the product.

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The Shocking Machine Question: what do you suggest Mr. Lament do, if anything, to begin his preparation for defending or settling this potential lawsuit?

As the corporate attorney for Lithotropic, Mr. Lament needs to:       

Conduct a thorough evaluation of the project.

Evaluate the project’s performance relative to the initial plan and project objective.

Review the minutes of any project meetings with the client, this should cover the entire history of the project from the original launch meeting until the end of the project.

Review any change orders to the specifications or steps that are documented.

Review the monitor and control systems that were in place for the project.

Examine any documented communications between the project team and the client.

Meet with the project manager to see if a project diary was kept on this project.

Once he has fully familiarized himself with the history of the project through this evaluation process he will know better how to proceed if the hospital actually sues the Lithotropic Corporation.

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Suggested Case Analyses and Solutions

Friendly Assisted Living Facility -- 8 Teaching Purpose: This installment concludes the St. Dismas case. Issues include estimating the final construction budget, addressing a work slowdown, revising the Gantt chart, and the reporting of staff expenses.

Question 1: Estimate the final construction budget.

Budgeted

Estimated Actual at Completion

Remaining $

6,743,000.00 674,300.00 600,000.00 405,000.00

$6,743,000.00 $674,300.00 $600,000.00 $405,000.00

$0.00 $0.00 $0.00 $0.00

400,000.00 347,000.00 202,000.00 135,000.00 125,000.00 30,000.00 30,000.00 9,691,300.00

$400,000.00 $347,000.00 $202,000.00 $135,000.00 $147,655.00 $30,000.00 $23,776.00 $9,707,731.00

$0.00 $0.00 $0.00 $0.00 -$22,655.00 $0.00 $6,224.00 -$16,431.00

Organizational Costs: Legal and accounting Initial marketing Project consultant Follow-up Market survey Total

25,000.00 250,000.00 80,000.00 20,000.00 375,000.00

$0.00 $0.00 $0.00 $0.00 $0.00

$25,000.00 $250,000.00 $80,000.00 $20,000.00 $375,000.00

Total

10,066,300.00

$9,707,731.00

$358,569.00

Construction Costs: Building Contingency Land Program development & equipment costs Furniture A&E Fees @ 5% Financing costs Capitalized interest Site improvements Phone & IS system Kitchen equipment Total

The organizational costs cannot be reflected in the final budget until the CFO explains when and how the expenses will be allocated back to the project’s budget for the expenses incurred by the parent organization. The above reflects the information provided in the case.

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Question 2: What should they do about the work slowdown?

The work slowdown is probably being caused by the construction crew because they have not been informed of their next assignment. They are concerned about the lack of work after the facility is completed. The project manager needs to urge the contractor to inform his crew of their next assignment. Kyle also needs to insist that no additional slowdowns be allowed, and that tighter controls are put on the system to monitor that the project stays on schedule during the last few months.

Question 3: Create a Gantt chart with the revisions to the duration of the interiors step.

When will the project be completed?

According to this revised Gantt chart, the project will be completed 8/1/01.

Question 4: What is the importance of the fact that the Hospital staff expenses were not reported under the project budget?

The importance of the omission of expenses on the project is significant. The CFO should have provided the PM with the overhead allocations at the beginning of the project. Those expenses can and will affect the project’s budget and need to be included in the overall project. The PM may not have control over the expenses but they affect his bottom line and the success of the project in meeting its budget. This late in the project there is little anyone, include the CEO, can do to have an impact on the success of the project budget without knowing these costs.

Question 5: Write a one-page audit report of the project.

The following is a sample audit report that follows the format of Figure 8.2.

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AUDIT REPORT Author: Student Name Date of Audit: July 4, 2018 Project Audited: Friendly Assisted Living Facility Project Project Manager: Dr. Splient INTRODUCTION The Friendly Assisted Living Facility Project involves the planning, building, and marketing of an assisted living facility for people whose state of health makes it difficult for them to live independently, but who are not yet ill enough to require nursing home care. Anticipated benefits of the project include net cash flow of $1.5 million/year, improved local image, additional referrals to the Center’s outpatient therapy programs, and increased census in the hospital’s inpatient units.

CURRENT STATUS There is some evidence that the medical equipment cost were inflated. Since these are expensive items, it is recommend that the estimates be revised using a bottom-up approach.

FUTURE PROJECT STATUS The Board placed the constraint on the project that the building must be ready for occupancy by July of the following year in order to target occupancy for the summer months. Unfortunately this constraint for the building opening by July of the year following construction beginning cannot be met. No matter when the project begins it takes longer than one year to complete.

CRITICAL MANAGEMENT ISSUES During the project selection an adequate assessment of risk was not undertaken. For example, to handle the uncertainty associated with the budget, the estimators needed more knowledge of the areas of uncertainty and needed to clearly define all the assumptions that were used to determine the budget.

Assuming cost or revenues are normally distributed, statistical and probability theory could have been used to gain additional insights. Also during the project selection phase, there was no consideration of other alternatives that might have been even more promising.

There are also both pros and cons associated with the CEO serving as the project manager. Key pros are the commitment he will have to making the project a success, the clout to provide the needed resources, and the loyalty of the senior management team to foster the project in times of trouble. However, as CEO he has many other important duties and his attention may be distracted at critical times in the project.

Furthermore he may not be open to evidence indicating this was not a good idea, or that major changes in the project are needed.

FINAL COMMENTS As the project is now underway, it is imperative to ensure that an effective change order process is in place. The construction project manager has set up a very good communications system to keep the project team informed that serve as the foundation for the change order process.

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Datatech’s Audit Teaching Purpose: This case illustrates how many of the topics discussed in previous chapters can contribute to project failure and perhaps the need to terminate the project early.

Question 1: To what extent were the problems facing the notebook computer development project avoidable?

All of the problems noted in the case were avoidable.

What could have been done to avoid these problems?

Steve could have taken the following steps to avoid these problems. He could have:     

Begun by doing some project planning. His failure to do so reflected the fact that he didn’t recognize the significant differences between a minor product line extension project and a more substantial new product line development project.

Involved the team in developing the WBS. Had the team been involved, the need for a hinge system and other unanticipated activities would have likely been identified.

Involved the manufacturing group earlier in the project. This would almost certainly have identified their inability to produce the notebook computer design.

Introduced a formal change request process. This would have helped with the VP’s request to redesign the computer to work with the new tablet computer.

Not agreeing to the project deadline without doing some initial planning.

Question 2: Would it make sense to apply a project selection model such as the weighted scoring model to the project to determine if it should be terminated?

Absolutely. Project selection models can be used to determine if a project should be continued.

When used in this fashion, updated information can be entered into the model and a decision can be made regarding whether it makes sense to continue this project, particularly in light of new opportunities the organization may have.

Question 3: In your opinion, are the types of problems that arose in this situation typical of other organizations? If so, what can organizations in general do to avoid these types of problems?

These problems are indeed common. In some organizations, project managers that spend little time planning a project are referred to as “cowboys.” Besides the problem of inadequate planning, the problems of little team involvement, little cross-functional integration, and lack of processes to control change are also all too common.

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As discussed above, the solution of these problems is to ensure adequate project planning is carried out, that there are adequate levels of involvement both within the team and across functions, and to manage the scope of the project.

Ivory Tower Systems Teaching Purpose: The big issues are should the project be continued, if so, how to manage the project going forward, and, if not, how to shut down the project.

Question 1: Do you have any concerns about the audit process at ITS? If so, what are they and what changes to their auditing process would you recommend for the future?

There are several concerns: First, there does not appear to be a formal audit process. In the present case, the audit was not initiated until two months prior to the projects deadline. The usefulness of audits is severely diminished if they are not conducted at points in the project where there is time to take corrective measures.

Second, the auditor failed to follow up when Mr. Gilbert failed to provide requested documentation. Mr. Gilbert may have refused to provide them because they did not exist, as the auditor assumed, or he may be hiding more serious problems or even embezzlement.

Without perusing the requested documents, the auditor cannot tell for sure.

Third, the comment by one team member that Mr. Gilbert spends all his time on technical issues and little or none to managing the project was not followed up with other team members or by a conservation with Mr. Gilbert. This is superficial at best.

Finally, the recommendation for senior management to consider terminating the project is a good one but without more data on the status of the project and the cost to continue, senior management will be unable to make an informed decision.

The entire audit seems to be superficial at best. The auditor either needs additional training or needs to be replaced by someone able to dig deeper.

Question 2: Critique the audit report. What are its strengths and weaknesses? 

Perhaps the most serious criticism of the audit report is its tone. As is mentioned in the chapter, audit reports should be written in a constructive tone. Likewise, negative comments about individuals are to be avoided and comments made in confidence should not be included.



The current status section mentions that several significant technical challenges remain to be resolved but none are enumerated. Likewise, it hints of future problems that are also not enumerated. Ideally the audit would facilitate a comparison between planned

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and actual results. 

The future project status section states there is virtually no chance the project will be on time but does not provide any estimate of a new completion date.



As mentioned above, the critical management issues section points out a management problem with Mr. Gilbert but does not dig deep into the issue. Additionally, no effort was made to obtain the documents that Mr. Gilbert refused to provide or to ascertain why he would not provide them.



As mentioned above, the final comments section recommends that senior management consider terminating the project without giving the information they would need to make that decision.

Question 3: What are the pros and cons of using an external auditor in this situation?

Pros: 

An external auditor can dig deep and press for answers without affecting the relationships between coworkers; although, it does not appear that this auditor tried to dig for answers.



An external auditor can bring expertise to the audit that the organization does not have; although, this auditor does not demonstrate the required level of expertise.



An external auditor can do the work without interfering with the other projects. That is, the organization does not have to pull someone off another project to perform the audit.

Cons 

Workers may not confide in an external auditor the way they would someone they knew and trusted. The fact that only one worker complained about Mr. Gilbert would seem to indicate this.



An external auditor may not know the personalities and politics involved. In this case, the external auditor does not know for sure that the one worker who complained about Mr. Gilbert is reliable.



An external auditor may not know the types of information that senior management might want before making a tough call.

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Which type of auditor would you recommend for this project?

In this case, the project is in serious trouble. Given that, an external auditor might be best; although, one with more skills and experience than the one used. However, since a big issue is the performance of Mr. Gilbert, a case can be made for using an internal auditor who mike know his strengths and weaknesses and know alternative ways of obtaining the needed documents.

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