Project Management in Practice, 3rd Edition Solution Manual

Project Management in Practice, 3rd Edition By Samuel J. Mantel, Jack R. Meredith, Scott M. Shafer, Margaret M. Sutton

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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 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 1-page 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 Baggage-Handling 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).

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).

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Some readings appropriate to the subject of this chapter are: A.J. Shenhar et al. Mapping the Dimensions of Project Success (Project Management Journal, June 1997). An interesting paper that reviews 127 projects and distills four success dimensions that should be relevant for virtually all projects, though with varying weights of importance: project efficiency, customer impact, direct and business success, and future impact.

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 manger as well.

Answers to Review Questions 1. Use the characteristics of a project to differentiate it from a nonproject. o A project is temporary (specific start and stop), unique (a one-of-a-kind output or deliverable aimed at meeting a specific need of the client). o A non-project refers to the routine, repetitive work of the organization.

2. Contrast win-lose negotiations with win-win negotiations 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.

3. Identify the three goals of a project and describe how the project manager achieves them. What does it mean for a project to be “overdetermined?”

The three goals of a project are: o On time, o On budget, and 2

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o To specification (i.e., including “quality” and “client satisfaction”).

The project manager meets the goals by making “trade-offs.” For example, he/she can shorten the project duration by using more resources.

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.

4. 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.)

5. 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.

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

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

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

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

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

A program is a large generalized task made up of a 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.”

8. 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. This is merely a different way of understanding why projects should not be “overdetermined.”

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 following three following types of projects: breakthrough, platform, and derivative.

Suggested Answers to Discussion Questions 10. 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.

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

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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.

12. 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: o The project could be delayed … and the project manager could respond by contracting out some of the code writing to shorten the duration of that activity. o 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.

13. In Figure 1-12, 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 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: o 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 platform projects. o On the other hand, an organization that competes in relatively mature markets on the basis of costs may have a higher proportion of derivative projects.

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

14. 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: o o o o o o

Construction of a sports stadium.

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.

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

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15. For each of the projects identified in the answer to Question 14, is the life cycle for the project S-shaped or J-shaped?

Construction of a sports stadium – S shaped 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 – J shaped Conducting a census of the population – S shaped Organizing and holding a political convention – S shaped Conducting a bank robbery – J shaped 16. 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 o Production factors o Marketing factors o Financial factors o Personnel factors o Other factors

Energy requirements, time required for installation, changes in raw material usage.

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

Profitability, effect on cash flows, time until breakeven.

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

Impact on environment, meet 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: o

Customer service

Time to repair, cost to repair, and so on.

17. 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 contents.

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Solutions to Problems 18.

In order to answer this question, the student needs to discount to 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 formula on page 12 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)

19.

The spreadsheet from Problem 18 was modified in two ways: o o

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 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. The expected NPV is considerably different from the answer to Problem 18.

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

D

E

F

G

Assumption Cells

Forecast Cell

20.

To incorporate inflation, the spreadsheet developed for Problem 19 was modified by increasing the required rate of return by the expected rate of inflation or 4%.

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As shown in the spreadsheet below, the expected NPV decreases from $589 to -$5,746 and the probability that the NPV is positive declines from 59.6% to 0.5%.

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

D

E

Increased from 20% to 24%

10

F

G

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21.

This problem 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.

22. a. The spreadsheet shown in Problem 21 can be modified by changing the two weightings as follows: o The entry in cell B5 is changed from 10 to 25, and o 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. b. The spreadsheet shown in Problem 21 can be modified by changing the two evaluations as follows: o The entry in cell C7 is changed from 1 to 3, and o 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.

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c. The spreadsheet shown in Problem 21 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 250.

A 1 Category 2 Labor costs 3 Labor productivity 4 Labor supply 5 Union relations 6 Material supply 7 Transport costs 8 Infrastructure 9 Taxes 10 11 Score 12 13 14 15 16

B Weight 20 20 10 10 10 25 10 15

C A 1 2 2 3 2 1 2 3

D B 2 3 1 3 1 2 2 2

E C 3 1 3 2 1 3 2 1

220

250

250

F

=SUMPRODUCT($B2:$B9,C2:C9) copy to cells D11:E11

23. 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.

Note: while assigning different weights to Rent will result in different weighted scores, this will not alter the ranking of the options.

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

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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

24. Using the spreadsheet for Problem 23 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 3 locations are not impacted by this change, the overall recommendation (location 1) remains unchanged.

25. In the spreadsheet below assumption cells were defined for the inflows, outflows, and inflation based on the information provided in the problem.

Note: since inflation can vary from one year to the next, it was generated separately for each year. a. b. c.

Based on 1,000 trials using Crystal Ball, the expected NPV for the project was $5,909.

The range of NPVs based on the 1,000 trials was -$8,890 to $20,685.

The wide range of possible NPV values suggests much uncertainty and therefore high levels of risk.

There is, however, an 87.6% chance that the NPV will be positive. d.

With an 87.6% chance of having a positive NPV coupled with the high discount factor (20% return + 4% inflation), the authors would recommend undertaking the project. Since this is a judgment call, there is no correct answer. The key issue is whether the decision maker feels there is a reasonable return for the level of risk.

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A 1 Req Rate of Return 2 3 Year 4 0 5 1 6 2 7 3 8 4 9 Total 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

B 20.0%

C

D

E

Inflow

Outflow $65,000

Net Flow -$65,000 $21,667 $26,667 $28,333 $50,000

Inflation

$21,667 $26,667 $28,333 $50,000

4.0% 4.0% 4.0% 4.0%

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F Discount Factor 1.000 0.806 0.650 0.524 0.423

G

NPV -$65,000 $17,473 $17,343 $14,860 $21,149 $5,825

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26. a. The expected cost of the Windows based platform project is $512,175 compared to $496,213 for the Unix based platform. b. The probability that the Windows based project would exceed $575,000 is 15.10% while for the Unix project this probability is 13%. c. While the average cost of the Unix project is lower than the Windows project, it is also important to consider the risk associated with the projects. For the Windows project, the total cost ranged from $388,759 to $676,387. In contrast, the Unix project might cost as little as $356,753 or as much as $716,100. The wider range of possible costs associated with the Unix project is an indication of greater uncertainty and therefore greater risk. d. This is a difficult decision and there is no single right answer. On the one hand the Windows project has an expected cost that is almost $16,000 higher than the Unix project. On the other hand, the Windows project has less risk. The ultimate choice depends on the judgment of the decision maker regarding whether the expected lower cost sufficiently offsets the higher level of risk.

A 1 2 3 Hardware cost 4 Software conversion cost 5 Employee training 6 Total Project Cost 7 8 9 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

B C Windows Unix Platform Platform $141,667 $130,000 $358,333 $358,333 $11,333 $11,833 $511,333 $500,167

D

E

F

G

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H

I

J

K

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Incidents for Discussion Suggested Answers Incidents for Discussion Included in the Chapter 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.

Additional Incidents for Discussion Bouncing Garage Door Openers A large manufacturer of garage door openers designed an automated system to cut checks to vendors. The company was very pleased with the system. They have been using the automated system for three years. They average over 250 checks cut, 2 - 3 times per week. The system was designed to calculate how much was owed to each supplier, then electronically notify the bank to transfer the exact total amount needed form the company’s holding account to their clearing account. Once the money was transferred, the system printed the vendor’s checks which were manually mailed to the vendor.

Recently, two of the company’s checks bounced – returned marked “Insufficient Funds.” The president got wind of this and notified the Information Services Project Leader, Karen Kelso to stop everything, reprioritize all of her team’s projects, and redesign the automated check-cutting system to include safeguards so that this could never happen again. Karen knew the president had a tendency to panic, so she decided to investigate what had happened before beginning this project. She spoke to the bank and found out that twice someone had reproduced the company’s checks and cashed them for a greater amount than they were originally. This caused the checks to bounce because insufficient funds had been transferred to the clearing account to cover the increased value of the checks.

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The bank told Karen that they could help safeguard her computer system. They could create a Positive Pay Run. This was a system whereby the bank would verify every check that was cut against the checks that the vendors tried to deposit or cash. The bank would take all liability if a check got through that was not verified. To create this system Karen would need to have her people reprogram the current system to create a file for the bank containing each check number, vendor name, and check amount. The bank would then be able to provide Positive Pay Run verification. The bank charged a penny a check for this service. Karen thought it would take one of her people about a day to reprogram the system to create such a file.

Question: What should Karen do, follow the President’s instructions, follow the bank’s suggestion, or nothing?

Why? First of all, the company should not start this project without some cost benefit analysis of creating a new system and a thorough examination of the impact on other projects the firm is working on. The process has worked for the last three years, and over 100,000 checks have gone through the system without incident. Prior to changing the system a complete project plan should be created.

A penny a check seems like a small amount of money, but what will it cost the firm to reprogram the current process? What resources will be needed that are assigned elsewhere? What will it cost the organization to reprioritize current projects? Will deliverables to clients be affected? Can other monitors be put in the system that would not require such a major effort? All of these questions need to be answered before this project is approved.

Question: What information should Karen give the president to justify her decision?

At this stage, Karen should simply let the president know that she is currently conducting a cost benefit analysis to determine the optimal course of action.

Suggested Case Analyses and Solutions United Screen Printers Teaching Purpose: This case provides students with an opportunity to develop an aggregate project plan and evaluate the current mix of proposed projects. The case also facilitates relating the aggregate project plan to the project selection criteria. This provides the instructor an opportunity to reinforce the importance of selecting projects that support the organization’s overall business strategy. Finally, based on the analysis performed by the students, the case requires them to consider additional types of projects that should be considered and other information that would be useful in making project selection decisions.

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Question 1: Construct an aggregate project plan for USP. Extensive product changes

Minor product changes

Extensive process changes

6

2 5 1

Minor process changes

3

4

1 – New large press 2 – New headquarters 3 – ISO 9000 4 – Formal procedure for mixing inks 5 – 4-color positives 6 – Inkjet printers The aggregate project plan shows a clear bias towards derivative type projects. Indeed, projects 1 – 4 will have only a minor impact on the process and negligible if any impact on the product.

Question 2: What criteria would you recommend USP use in selecting its projects this year?

Perhaps the most important criterion to consider is the extent to which the projects support the organization’s overall business strategy. The only information given in this short case related to strategy is that the market seems to be shifting from decals with high levels of durability to greater emphasis being placed on price and lead times.

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Question 3: Based on your recommended criteria and the aggregate project plan, what projects would you recommend USP fund this year?

We assume that USP is willing to allocate up to 10% of sales for these projects or $700,000. Since smaller batch sizes translate into shorter lead times and since the inkjet printers are thought to be more economical for small orders, these printers would seem to be a good fit with the shift away from durability and toward shorter lead times. Likewise the new large press with its 50 percent to 100 percent faster processing times and the in-house production of four-color positives would also help USP reduce its lead times. Finally, the small expense and reasonably quick payback of the project to develop a formal procedure for mixing inks make it attractive and may also help reduce lead time. The cost of these four projects is $485,000.

Question: Are there any types of projects you would recommend USP pursue that were not proposed?

Since these four projects are all primarily derivative type projects, it would likely be worthwhile for USP to identify one or more platform or breakthrough projects for funding.

Question 4: What, if any, additional information would you want in making your recommendations? How would you go about obtaining this information?

As noted earlier, the most critical information would be information about USP’s strategy and its competitive environment. Sources for obtaining this information would include interviews with senior management, annual reports, and trade organizations. Once this information was obtained, the alternative projects could be evaluated in terms of how well they support USP’s overall strategy and its pursuit of a sustainable competitive advantage.

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. 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.

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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-orequal-to 1.1 million dollars. Likewise, a 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

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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 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.

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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.

R.J. DeFillippi and M.B. Arthur. Paradox in Project-Based Enterprise: The Case of Film Making (California Management Review, Winter 1998, p. 125-139). This paper addresses a fascinating paradox—in this age of core competencies and knowledgebased management, how can temporary projects consisting of floating pools of workers who make a film and then disband, possibly be successful. The paper questions many of the truisms we believe in as regards organization and management.

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.

B.Z. Pozner. What it Takes to be a Good Project Manager (Project Management Journal, March 1987). This article integrates two views about the requirements for good project managers. One view concerns the personal and managerial characteristics of PMs and their ability to lead a team, regardless of the project. The other view considers the critical problems in specific projects and the PM’s talents relative to these problems. A survey is first described and then the critical problems of specific projects are identified from the survey responses.

Next, the skills required of project managers, as indicated by the survey respondents, are detailed. Last, the details are related back to the critical project for problems for an integrated view of the requirements for a successful project manager.

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

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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.

Answers to Review Questions 1. 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 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. 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: o o o o

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.”

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3. 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: o

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

o

Stall as the project end nears.

Some key implications of projectitis include: o

Increased costs due to the delayed project completion.

o

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

o

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

4. Review the chapter and make a list of all the advantages and disadvantages of matrix project organization you can find. Then add to the list any additional advantages or disadvantages that may have occurred to you.

Advantages of a matrix project organization: o o o o o o o

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: o o o o

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.

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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.

5. 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: o o o

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.

6. 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.

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7. 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.

2.

3.

4.

5.

6.

7.

8.

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

Enhance flexibility.

Provide access to all of the organization’s technologies.

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

Functional experts could contribute their expertise to several ongoing projects.

Provides a strong focus on the project.

The close contact with functional groups mitigates projectitis.

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

8. Exactly why were projects in the pharmaceutical company mentioned at the end of Section 2.5 always late and over budget?

For their part, the project-manager scientists: o o o

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: o o

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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9. 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.

Suggested Answers to Discussion Questions 10. 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?

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: o o o o

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).

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11. 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 projects 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.

12. 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.”

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.

13. 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: o o o

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.

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14. 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.

15. 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.

16. 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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17. 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.

18. 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.

19. Give an example of 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: o o o

Weddings involve a large number of interrelated activities.

There is a clear due date, and [Typically] a clear budget.

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20. Explain the reasons for the growth and decay of each source of conflict in Table 2.2, and for the Total as well. o

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

o

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.

o

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.

o

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

o

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

o

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.

o

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.

o

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.

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Incidents for Discussion Suggested Answers Incidents for Discussion Included in the Chapter Samuel’s Approach to Project Management: The key points in this incident are that: o

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.

o

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

o

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.

o

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: o

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

o

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.

o

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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o

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.

Additional Incident for Discussion Frankson Inc.: Harold Frankson is the CEO of Frankson Inc., a privately owned, medium sized manufacturing company. The company is 17 years old, and until recently has experienced rapid growth. Mr. Frankson credits the depressed Asian economy with his company’s recent problems.

Six months ago Mr. Frankson hired Elizabeth Baresak as the director of corporate planning for the company. After reviewing the company’s financial statements and performance records for the last few years, Ms. Baresak came to the conclusion that the Asian economy was not the real problem impacting Frankson’s recent performance. Ms. Baresak felt that the Frankson Company’s products were out of date and the company had not done a good job of responding to their market. She found examples of the company not moving quickly enough when faced with a market threat or an opportunity.

Ms. Baresak met with Mr. Frankson and told him this, and added that she believed that the strong functional organization of the company impeded the kind of action required to fix problems.

Accordingly, she recommended that Mr. Frankson create a new position, Projects and Program Officer, to use and promote project management principals and techniques at Frankson. The new PPO would also act as project manager for several current critical projects.

Mr. Frankson was pleased that Ms. Baresak found something he could fix, but he did not care much for her solution. He believed that his functional department managers were capable professional people who should be able to work together efficiently and effectively. He thought that he should work with his management team to provide them with the direction they needed – what to do, when to do it, and who should do it. He would then put the functional manager most closely related to the problem in charge of the group. He was sure that a little directed push from himself would be just the thing to “get the projects rolling.”

Question: After this explanation by Mr. Frankson, Ms. Baresak is more convinced than ever that a separate, nonfunctional project manager is necessary. Is she right?

Baresak is correct in her assumptions. The functional managers are probably rewarded on the basis of their departmental performance rather than their contribution to the firm as a whole and hence have little incentive to work together.

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Question: If you were Ms. Baresak, how would you sell your idea to Mr. Frankson? If a new position is created, what other changes would you recommend making?

Baresak should point out to Frankson that strong functional managers cannot be strong interdisciplinary managers also, and that a special manager in charge of such team efforts should be appointed, at least on a trial or pilot basis. The existing incentive system should also be changed to provide support to the new project manager, as well as to provide incentive for working together.

Suggested Case Analyses and Solutions 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 website expansion 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 select to serve as project manager? Why? Andy Dover. Why? o

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.

o

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.

o

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.

o

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

o

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.

o

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? o

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.

o

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

o

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 trade-offs.

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: o o o o

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: o o o o o o o o

Education.

Years of experience.

Six Sigma ranking.

Six Sigma experience.

Number of Six Sigma projects.

Average project savings.

Hourly rate, and Project availability.

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):

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o o o o

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.

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Chapter 3 Planning the Project

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. Finally, the chapter is concluded with a discussion of multidisciplinary teams including the topics of integration management, concurrent engineering and the design structure matrix.

Cases and Readings Some cases appropriate to the subject of this chapter are: 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: L.M. Mallak et al. Planning for Crises in Project Management (Project Management Journal, June 1997). This article applies the planning tools from emergency management to projects with their inevitable crises. The application of risk analysis, contingency plans, logic charts, and tabletop exercises is discussed in terms of both planning for crises and managing them when they actually occur. Examples such as the 1996 Atlanta Olympic Games are used to illustrate the effectiveness of crisis planning tools.

Answers to Review Questions 1. What are some of the 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 the project. 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.

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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: o Getting their support early on. o Letting them hear first hand from senior management the importance of the project to the organization, and o [Perhaps] getting their input on more technical issues as the project’s scope is initially defined.

Major disadvantages include: o Not being able to identify all project team members at this early stage. o Getting too bogged down in technical details to the detriment of bigger picture issues, and o [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 do “self-directed teams” perform poorly? What can be done to improve their performance?

One reason why self-directed teams may perform poorly is because they may not have a good understanding of how their efforts are meant to support overall organizational objectives. In the absence of this understanding, the team will likely create its own objectives which will probably lead to suboptimization if the team’s objectives are only loosely related to broader organizational objectives.

The solution to this problem is to ensure that the team has a solid understanding of how its objectives and its work are meant to support broader organizational objectives.

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

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

6. What is the difference between the Resource column on the action plan (that would include 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.

7. 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: o Quite routine and frequent. In these cases the scope is likely well understood and the functional managers have well defined responsibilities, and o 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.

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

A limitation of traditional project management planning tools is they focus primarily on task precedence relationships.

In some projects (particularly new product development projects) another important aspect is what information does a task need from preceding tasks. The Design Structure Matrix addresses the issue of information flows within a project. When the matrix is complete, all the tasks that provide information needed to complete a given task can be determined by looking across that’s particular task’s row.

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Suggested Answers to Discussion Questions 9. For each of the nine components of a project master plan, discuss the problems that might be raised if the element was incomplete.

The elements required in a project plan fall into the following nine categories: o Overview:

o Objectives: o General approach:

o Contractual aspects: o Schedules:

o Resource requirements: o Personnel:

o Evaluation methods: o Potential problems:

An incomplete overview of the project could lead to overlooking key milestones. Typically, milestones correspond to important events of a project and it is particularly appropriate to assess the project’s performance at these times. If important milestones are not identified, opportunities to identify problems early on may be missed.

Inadequately defining the project’s objectives could lead to suboptimzation and missing important specifications.

Not thoroughly discussing the General approach could increase the number of ad-hoc decisions that have to be made as the project is completed and could also result in inconsistencies as different team members employ different approaches to address similar issues.

The consequences of incompletely defining contractual aspects include scope creep and major disputes between the client and the project team.

An incomplete schedule typically results in overlooked activities which subsequently translates into late project completions and/or cost overruns.

Similarly, an incomplete resource requirements section can result in failure to have required resources available when needed or omitted cost elements such as overhead.

An incomplete personnel section could result in overlooking important skill requirements or the need to provide the necessary training.

Not adequately specifying evaluation methods could lead to not capturing important project performance data which could impact the timely discovery of problems.

Finally, not adequately considering potential problems means that proactive contingency plans for problems that could have been anticipated are not available, forcing the project team into a more reactive mode.

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10. Give several examples of a type of project that would benefit from a template project action 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: o Constructing a house. o Taking a drug through clinical trials, and o Installing the same computer system in all of an organization’s manufacturing plants.

11. 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: o By starting very broadly and gradually adding more detail it is a logical and systematic process, and o It fits well with typical organizational hierarchies in the sense that senior and middlelevel 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.

12. What causes so much conflict on multidisciplinary teams? As a PM what would you try to do to prevent or reduce such conflict?

Probably the leading source of conflict on multidisciplinary teams occurs is the fact that team members tend to view problems only from their own functional perspective.

One way to avoid this problem is to recruit project team members that have an orientation to problem solving rather than a particular solution approach.

13. Of what help is a “map of interdependencies” to a PM who is managing a transdisciplinary team?

A map of interdependencies shows the interrelationships between various members of the project team across various functional areas.

Since the relationships between functional areas are likely to change as the project progresses, explicitly mapping out these relationships for each phase of the project can help ensure that the various areas are working together at the appropriate times.

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14. Develop an action plan 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 imaginary). Be sure to include precedences, task durations, resource requirements, and milestones. Enter the plan in MSP. 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.

History Term Paper

WBS 1 2 3 4 4.1 4.2 5 5.1 5.2 5.3

Task Name Select Topic Get Topic Approved Outline Paper Conduct Research Library Research Research Web Write-Up Report First Draft Proof First Draft Edit First Draft

Predecessor 1 2 3 3 4.1, 4.2 5.1 5.2

Estimated Duration 1 Week 1 Week 3 Days 3 Weeks 3 Weeks 2 Weeks 4 Weeks 2 Weeks 1 Week 1 Week

Resource Name Alex, Gary, Neil Professor Daniels Alex Gary and Neil Alex Alex, Gary, Neil Gary Alex, Gary, Neil Neil

15. Discuss the drawbacks of implementing a project plan without an LRC. A key drawback of not using a LRC (Linear Responsibility Chart) 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.

16. What are the potential ramifications of not utilizing integration management techniques or concurrent engineering while planning and implementing a project?

Important relationships across functional areas will likely be overlooked if integration management is not utilized. Not identifying these relationships will: o Reduce opportunities for concurrent engineering, as well as o Lead to disconnects between these functional areas.

In both cases the project schedule and budget are likely to suffer.

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17. List the advantages of using an “empowered team” for planning. What conditions must be met for these advantages to accrue?

Advantages of empowered teams include: o o o o o

High quality solutions.

Avoiding micromanagement.

More accountability.

A greater likelihood of obtaining a synergistic solution, and The availability of a tool for timely team evaluation and feedback.

The most important condition is that senior management must clearly spell out (a) the project’s goals and (b) be clear about the range of the team’s authority and responsibility.

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18. Pursuing a degree or certificate is a major project. Construct a brief “project plan” for this project that includes all 9 elements described in the chapter.

Following, as an example, is a project plan for a student aiming to earn his/her MBA: Overview:

The purpose of this project is to earn an MBA. The major milestones include completing the first year of core course work, obtaining a summer internship, completing the second year of course work, and obtaining a full time position at a leading consulting organization.

Objectives:

My goal is to increase my salary by 70 percent by obtaining full time employment with a leading consulting organization upon completing a two-year MBA. Long-term, my goal is to make partner of a consulting organization within seven years of graduation.

General: approach:

I will apply to the top public MBA programs in the Ohio, Indiana, and Michigan areas. I will visit each that I am accepted to assess the school’s culture. I will also research them to evaluate their success in placing graduates in top consulting organizations.

Contractual aspects:

I may be required to make a financial commitment to one school while still being on the waiting list of more desirable school.

Schedule: ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢ ➢

December 2005: take GMAT Exam January 2006: research schools February 2006: fill out admissions applications May 2006: Visit schools June 2006: Make decision July 2006: House hunting trip August 2006: Move August 2006 – May 2007: complete core June – August 2007: Summer internship August 2007 – May 2008: Complete second year and interview for full time consulting position

Resource I will use $50,000 from my savings and take out an estimated requirements: $25,000 in student loans.

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Personnel:

My brothers will help me move.

Evaluation methods:

Key performance metrics include my GPA and starting salary upon graduation.

Potential problems:

It has been six years since I have been in school and therefore my adjustment period may be longer than I expect. I may also encounter interpersonal conflicts with teammates. Finally, the cost of housing or tuition may be higher than I expect and/or my summer internship may pay less than I expect which would create the need to borrow more money.

19. 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 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 linear responsibility chart for this project.

The WBS for this project might be as follows:

End of chapter pedagogy materials

Review Questions 1.1

Discussion Questions 1.2

Problems

Cases

1.3

Incidents for Discussion 1.4

Chapter 1 1.1.1

Chapter 1 1.2.1

Chapter 1.3.1

Chapter 1 1.4.1

Chapter 1 1.5.1

Chapter 2 1.1.2

Chapter 2 1.2.2

Chapter 2 1.3.2

Chapter 2 1.4.2

Chapter 2 1.5.2

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20. You and your family and friends are planning to host a graduation party at the end of the school year. Construct an action plan for this party.

Task 1. Invitations 1.1 Make up list 1.2 Buy invitations 1.3 Mail invitations 1.4 Update RSVPs 2. Food 2.1 Buy cake 2.3 Buy drinks 2.4 Buy appetizers 2.5 Plates, forks, cups 3. Decorate 3.1 Purchase banner 3.2 Buy balloons 3.3 Napkins 3.4 Decorate house

Duration

Predecessor

Assigned To

1 hour 5 days 1 day 2 weeks

-1.1 1.2 1.3

Alec, Bob, Tia Tia Bob, Tia Bob

3 days 2 hours 2 hours 1 hour

-1.4 1.4 1.4

Tia Bob Alec Alec

1 hour 2 days 1 hour 1 day

--1.4 3.1, 3.2

Alec, Bob Tia Bob Alec, Bob, Tia

21. Construct an action plan for the project in Question 19.

Task

Duration

Predecessor

Assigned To

2 hours 2 hours 2 hours

-1.1 1.2

You You Subteam members Subteam leaders

2. Conduct project 2.1 Prepare drafts 2.2 Review drafts 2.3 Revise drafts 2.4 Review final drafts 3 Finalize project

4 weeks 2 weeks 2 weeks 1 day

1.3 2.1 2.2 2.3

Chapter leaders Subteam members Chapter leaders Subteam leaders

3.1 Combine chapter materials 3.2 Make final revisions 4 Submit materials 4.1 Meet with class instructor

2 days 1 day 1 hour 2 hours

2.4 3.1 3.1 3.2

Subteam leaders Subteam members You Project members

1. Organization 1.1 Establish subteams 1.2 Select subteam leaders 1.3 Assign chapters.

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22. 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.

23. Contrast the Project Plan, the Action Plan, and the Work Breakdown Structure. o

Project plan

The primary function of a project plan is to serve as a map of the route from 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.

o

Action plan

An action plan not only identifies the various task and their immediate predecessor tasks but also the estimated time duration, the estimated resources needed, and an identification of the individual(s) responsible for carrying out the task.

o

Work Breakdown Structure

The Work Breakdown Structure (WBS) is a set of all tasks in a project, usually arranged by task levels. It is sometimes presented as a tree, much like an organization chart.

Problems 24. Prepare an action plan using MSP with the steps that must be completed before Vern Toomey can contact outsourcing vendors. If Vern starts on August 1, 2005, how long will it take to get ready to contact outsourcing vendors?

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Based on the information in the Gantt chart it would be Tuesday, August 23, '05 before Vern would be able to contact vendors for the outsourcing proposals, 25. Develop a mind map for a nonprofit organization’s annual casino night charity event.

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26. 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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Incidents for Discussion Incidents for Discussion Included in the Chapter

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?

He should also ask for: o A specific action plan with deliverables, objectives, schedules, resource needs, etc. o A linear responsibility chart 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.

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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.

Additional Incidents for Discussion CompuDraw’s Re-engineering Project The president of CompuDraw, a large computer graphics publishing firm was presented with a proposal by his Chief Operating Officer to hire a re-engineering consulting firm to come in and help cut costs through work re-design. The proposal outlined the cost of the consultants and the projected savings the firm could expect after the consultants work was finished. The president was unclear about how the savings were determined and what would be the project specific deliverables.

Question: What is your recommendation for the president to do next?

The CEO should make no decision until he gets more information.

Question: What project planning tools would you suggest to ask the consultants to use to outline the project more specifically and address his concerns?

The COO must add a specific action plan with deliverables, objectives, schedules, resource needs, etc. He should also include a linear responsibility chart so they can tell what the consultants are responsible for and what CompuDraw is accountable to do to meet the targets.

This would help determine if and how the work re-design project would impact ongoing routine work or other ongoing projects.

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Movies of the Future Movie Design, a manufacturer of movies on video tape wants to get into the DVD business.

They feel they must move into the DVD market to remain competitive. They are planning to take their top 50 selling videotape movie titles and convert them to DVD. This is a new manufacturing process for them. The company would like to manufacture 10,000—20,000 DVD movies per year beginning within nine months. The company has already selected the project manager and the project team. The project manager is ready to begin; he is most concerned about the project schedule, resources, and personnel.

Question: If you were the project manager, which planning tools would you start with to resolve your concerns?

The project manager should first work up the project plan, carefully delineating the project’s objectives, general approach, schedules, resources, and personnel. Then the project manager can pick appropriate tools.

Question: Do these tools relate to each other? Explain.

The PM could begin with a work breakdown structure, linear responsibility chart, master schedule, and other such elements of the action plan.

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Suggested Case Analyses and Solutions St Dismas Assisted Living Facility -- 1 Teaching Purpose: The St. Dismas 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.

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: • •

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

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Question #3: Develop a level 1 action plan.

Outline the broad steps in the project, for example; Number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Step Start ALF project Building design Construction Define food service needs Define housekeeping needs Define staffing needs Develop policies and procedures Create budget for facility Create financial systems (payroll, accounting, etc) Identify telecommunications & information systems needs Develop marketing plan (including ground breaking event) Develop communications plan Define clinical services needed Develop management structure Identify all regulatory requirements Complete Project

Who Does COO Construction Manager COO COO COO COO CFO CFO Director Information Services Vice President of Business Development VP Business Development Rehab Medical Director Fred Splient Fred Splient

Question #4: Is Dr. Splient a good choice for project manager? Support your position.

Students can support both yes and no answers.

However, Fred Splient is not an appropriate project manager. Fred should function as the project champion. He can provide the necessary oversight and leadership without actually managing the project. He is the Chief Executive Officer of a major medical center; his role in the organization is not one of a project manager but an organizational leader. Fred is also far too busy to handle the day-to-day needs of managing a large project such as the planning and construction to open an assisted living facility. It has also not been identified that he has the necessary skills to manage a project.

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Key points for discussion: Why does Fred want to be project manager?

He wants control of the project, he wants to be sure the project gets done, he will have members of his Board of Trustees sitting on the project team, this is a highly visible project, to his customers, board and community members. This project is a major change from the regular business of St. Dismas.

What sort of systems can Fred set up so that he sees that the project gets managed without having to do it himself?

Fred needs to set up effective communications systems for the project. He could have the project manager report directly to him. Fred could still chair the project steering team.

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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.

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

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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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Chapter 4 Budgeting the Project

This chapter continues the topic of project planning and focuses specifically on project budgeting. 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 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.

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 offer 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: D.H. Hamburger. The Three Perceptions of Project Cost (Project Management Journal, June 1986). This article clearly describes the importance and impact of cost-related issues on a project. These issues can significantly alter the profitability and even success of a project. Costs are discussed from three viewpoints: that of the project manager, the accountant, and the controller. Not only are the amounts of expenditures and encumbrances important, but their timing is critical also. Perhaps most important is having a project cost system that accurately reports costs and variances in a way that can be useful for managerial decisions.

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

The main disadvantages of top-down budgeting are that: o Significant errors may be made for low-level tasks, o A lower level of budget acceptance is likely due to limited participation, and o It provides little training opportunities in budgeting for junior managers.

The main disadvantage of bottom-up budgeting is the risk of overlooking 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.

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 reduction in time or cost as output doubles. 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. How does a tracking signal improve budget estimates?

Calculation of the number called the tracking signal can reveal if there are systematic biases in cost and other estimates and whether or not these biases are positive or negative. Knowledge of such biases can: o Be used in preparing future estimates, and o Allows estimators to understand and correct their biases.

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5. 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, namely: o Errors made by the cost estimator with regard to how to achieve the tasks identified in the project plan. o Increased knowledge by either the team or the client as to the nature of the performance goal, and o 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.

6. Distinguish among highly probable risks, extremely serious risks, and highly vulnerable areas in risk identification. o Highly probable risks have a high probability or likelihood of occurring. The consequences of these risks can be negligible (a data entry person quits) to very serious (the drug fails in the Phase I clinical trial). o Extremely serious risks are risks that have very significant consequences although their probability of occurrence may be very low to very high. o Highly vulnerable areas refer to risks that are both highly probable and extremely serious.

Suggested Answers to Discussion Questions 7. 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 direction, 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.

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8. The chapter describes the problems of budgeting projects with S-shaped and exponential-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.

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

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’s action plan and simplifies the project manager problem of managing the budget and making trade-offs.

10. As a senior manager, you oversee a project with a total estimated cost of 245 engineer-months 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 th 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 Brook’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.

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

The purchasing manager’s assistant’s 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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12. Contrast simulation to other risk analysis tools. What are its advantages and disadvantages? If you were to do an important risk analysis, which tool would you prefer? o Simulation

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 can be used to determine the impact of whatever assumptions on wishes to make. On the negative side, the outcomes are determined by the parameters used in the model.

o Game theory

This approach assumes that competitors and the environment are enemies trying to do you in. The decision maker takes a pessimistic mind-set and selects a course of action that minimizes the maximum harm that can result irrespective of the probabilities. The advantage of this methodology is that it provides a specific worst case outcome as opposed to a distribution which may be simpler for many managers to understand. From a negative perspective, it doesn’t provide any measure or insights into the upside potential of the project.

o Expected value

This methodology can be used when probability information is available or can be estimated with the expected value being the value of the outcome multiplied by the probability of that outcome occurring. The advantage of this method is that it gives a specific value or outcome and can be used to test the sensitivity of the probability information. However, the projections are limited by the range of probabilities that the project manager sees as likely to occur.

Ideally, for a very important risk analysis, one would conduct all three approaches and compare and contrast the outcomes. In reality, ones choice will be determined by the availability of data and probability estimates.

Solutions to Problems 13. 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

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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.

14. In Fig. 4.3 the mean bias is 11.35% (0.908/8) and the MAR is 0.160.

For the new estimates based on the multiplicative model, see the Table below.

Period 1 2 3 4 5 6 7 8 Total

Estimate 179 217 91 51 76 438 64 170

Actual 163 240 67 78 71 423 49 157

(At/Et) - 1 |(At/Et) - 1| -8.9% 8.9% 10.6% 10.6% -26.4% 26.4% 52.9% 52.9% -6.6% 6.6% -3.4% 3.4% -23.4% 23.4% -7.6% 7.6% -12.9% 139.9%

MAR

Tracking Signal

0.098 0.153 0.247 0.211 0.181 0.189 0.175

0.170 -1.615 1.142 1.027 1.005 -0.276 -0.735

The mean bias is -1.61% (-0.129/8) and the MAR is 0.175. Thus, the new model is slightly less accurate, but has significantly less bias.

15. As shown in the table below, alternative d has the lowest expected cost and is thus the best alternative.

Alternative a b c d

Rainy 0.3 6 2 1 5

Cloudy 0.2 3 4 2 4

Sunny 0.5 4 5 7 3

Expected Cost 4.4 3.9 4.2 3.8

16. The worst possible outcomes for Alternatives a, b, c and d are 6, 5, 7 and 5 respectively.

Alternative a b c d

Rainy 0.3 6 2 1 5

Cloudy 0.2 3 4 2 4

Sunny 0.5 4 5 7 3

Worst Case 6 5 7 5

Alternatives b and d have the best (lowest) worst outcome.

17. In the spreadsheet shown below the project cost, nonengineering labor hours, material cost, and downtime hours were all modeled using a triangular distribution. The engineering labor hours were modeled using a uniform distribution over the range of 510 to 690 hours. As shown in the spreadsheet below, the project has a 92.37% chance of meeting the firm’s NPV hurdle.

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4/Budgeting the Project Hours Proj Cost Eng Labor Non Eng Labor Matl Downtime Total Cost

600 1633 112

Cost $1,033,333 48,000 57,167 130,000 55,833 1,324,333

Incidents for Discussion Suggested Answers Incidents for Discussion Included in the Chapter 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?

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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 bottom-up 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 St. Dismas Assisted Living Facility Project Budget Development -- 2 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: o o o o o o o o o

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.

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 43

4/Budgeting the Project

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

D

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F

G

H

I

J

K

L

M

N

O

P

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 on the following page 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. 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.

The Frequency Chart and Statistics views are shown below.

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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?

The average of the simulation was $1,423,668 which is relatively close to the expected value. However, the range of values observed in the simulation experiment varied from a loss of almost $65,000 to a profit of over $4.5 million. Thus, the simulation experiment demonstrates the uncertainty of the actual outcome of this project.

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Chapter 5 Scheduling the Project

This chapter covers the topic of scheduling, probably the most extensively covered 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.

Answers to Review Questions 1. How would a PM manager critical path tasks differently than noncritical 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 managed.

2. How is slack determined?

Slack for a particular task is calculated by: o Subtracting the earliest time the task can start from the latest time the task can start, o 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 can be delayed without delaying the completion of the project.

3. How do you determine the EST for an activity with two predecessors? How do you determine the LFT for an activity with two successors?

The earliest start time for an activity with two predecessors is equal to the later 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 latest start time of the two successors. If the larger were used, then the preceding task would be permitted to finish after the latest start time of the other successor.

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).

Note: As pointed out in Section 3.3, p.75, only immediate predecessors should be listed. (a) Task 4 is the only immediate predecessor of task 5. (b) Tasks 2 and 3 are both immediate predecessors of task 4. (c) Task 5 is the immediate predecessor of the network finish (F).

6. What is a dummy activity?

When two activities have the same beginning and ending nodes they do not have a unique identity in the project network. To solve this problem a new ending or starting node is created for one of the activities to provide them with a unique identity. Then a dummy activity or an 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 so do not need to be considered. They must take the same impact on both paths.

Note: We did consider the partial paths d-g-h and c-f.

8. What is meant by “project slack”?

If the promised delivery date for a project is greater than the 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 project completion time.

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?

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 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.

Are there dangers associated with not modifying the definition?

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 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 13. How might you use the network approach to help prepare cost estimate?

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 developing a cash flow schedule.

14. When would it be accurate to determine the probability of project completion by multiplying the probabilities of all the paths through the network together?

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

When would it not be accurate?

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 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.

15. Reconcile Question 14. If this approach is not accurate, would the probability of completion considering the critical path alone be more accurate?

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.

How might you estimate the correct probability without resorting to simulation?

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.

16. Why do you think most PMs use MSP’s Gantt chart format (see Figure 5-24) more commonly than the network format?

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

17. 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.

18. 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.

19. 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.

20. 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 the project team viability. Managing this second set of trade-offs is what is meant by managing the project team while the first set of goals refers to managing the project.

21. 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 quality 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. 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 effective that is, the more likely the later stages (i.e., performance and budgeting) will be.

Solutions to Problems 22.

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 weeks 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%.

23.

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 by the optimistic and pessimistic range. 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. 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%

24.

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}

25 a. Network diagram.

B

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b. Each activity’s EST, EFT, LST, and LFT. See following spreadsheet: Activity A B C D E F G H I

EST 0 4 4 8 10 10 8 15 19

EFT 4 10 8 10 14 15 11 19 21

LST 0 4 4 8 15 10 12 15 19

LFT 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 critical paths).

26.

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 MSP calendar, click “Tools,” and then click “Change working time.” On the calendar you will note that Saturdays and Sundays for June and July are shaded, i.e., nonworking time. Click on each of these days and then click on “Working time.”

Alternatively, you may highlight the entire months of June and July and then click on “Working time.”

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.)

d 2

i 5

a b

9

h

e 1

k

6

l 8

j

f

3

7

g

c 4

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-k b-e-i-k b-e-h-j-l b-f-j-l c-g-j-l

Duration 29 35 35 35 35 35

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

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

27.

a.

The spreadsheet below can be used to calculate the expected time and variance for each activity.

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:

f

d a c

b

g

e

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-c-eg 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.

28. a. The spreadsheet below was used to calculate the expected time and variance for each activity.

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 5 6 9 6.33 0.44 1.48 2.37 4 b 4 4 6 4.33 0.11 0.37 0.59 5 c 7 9 15 9.67 1.78 5.91 9.47 6 d 6 6 6 6.00 0.00 0.00 0.00 7 e 4 5 7 5.17 0.25 0.83 1.33 8 f 12 16 17 15.50 0.69 2.31 3.70 9 g 8 12 20 12.67 4.00 13.30 21.30 10 h 7 9 16 9.83 2.25 7.48 11.98 11 i 10 14 18 14.00 1.78 5.91 9.47 12 j 6 12 20 12.33 5.44 18.11 28.99 13 k 7 9 14 9.50 1.36 4.53 7.25 14 15 Expected 16 Paths Duration Variance Variance Variance 17 a-d-i 26.33 2.22 7.39 11.83 18 b-e-i 23.50 2.14 7.11 11.39 19 b-f-j 32.17 6.25 20.79 33.28 20 c-g-j 34.67 11.22 37.32 59.76 21 c-h-k 29.00 5.39 17.92 28.70 22 =NORMDIST(38,$E20,SQRT(F20),TRUE) 23 Prob of copy to cells G25:H25 24 Fin Path 25 c-g-j < 38 84.0% 70.7% 66.7% 26 27 90% Chance =NORMINV(0.9,$E20,SQRT(F20)) copy to cells G29:H29 28 of Fin path 29 c-g-j 39.0 42.5 44.6

b. The network

d a

i e b

c

f g

j k

h

c. As shown in the spreadsheet above, this project has five paths. Path c-g-j has the longest expected duration of 34.67 days although this path may turn out not to be the critical path given the uncertainty associated with the activity times.

d. As calculated in the above spreadsheet, the probability that path c-g-j will be completed in 38 days or less is 66.7%. e. Assuming the paths are independent, for a 38 day delivery, paths a-d-i and b-e-i have virtually no chance of delaying the project and therefore can be ignored.

The probabilities for paths b-f-i and c-h-k are .843 and .954 respectively. Given the probability that the nominal critical path is .667, the chance that all three paths will be completed in 38 days is the product of their individual probabilities or 53.5%. f. Column F in the spreadsheet above corresponds to the 99+ percent level. According to the calculations shown, there is an 84% chance that path c-g-j will be completed in 38 days or less.

The difference in probabilities is caused by the fact that the estimation of a and b at the 99+ percent level produces a distribution of activity times (and thus of path lengths) that is much smaller than the range produced by estimations at the 90 percent level. The greater uncertainty reduces that chance that any path will be completed in a specific time. g. As shown in the spreadsheet, if the estimates were made at the 99+ percent level, the project would have a 90 percent chance of being completed by day 39. On the other hand, if the estimates were made at the 90 percent level, the project would have a 90 percent chance of being completed within 44.6 days.

29.

The spreadsheet below as 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%. c. The 93% calculated here is extremely close to the 93.1% calculated in Problem 26.

30.

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 has the longest expected completion time of 19.34 weeks. However, 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 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.

31.

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

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%

I Activity H 10.67

J Activity I 14.00

K Activity J 12.67

L Activity K 10.00

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 weeks, respectively.

c. In part e of problem 27, it was determined that there was a 53.5% chance of completing the project in 38 weeks. In the current simulation, the probability was calculated to be 60% which is in the same ballpark. This difference may in part be due to the use of the triangular distribution.

Suggested Solution to Discussion Problem 32.

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.

There appear to be three activities that have no logical predecessors: o Organize the sales office. o Order stock from the manufacturer, and o Design the package.

Organize the office has three logical successors: select distributors, hire sales personnel, and select advertising agency. Given these relationships, the other predecessor-successor relationships are obvious.

Besides the need to manage the critical path carefully, there are only two managerial problems or opportunities readily apparent. If resources could be made available to speed up organization of the sales office, project slack would result. Second, selecting distributors is the only activity with low slack, 2 weeks. It bears watching.

Students may advise shifting resources from ordering stock from the manufacturer, but once the purchase order has been made out and sent, the 13 week duration is mostly waiting for delivery and there are no resource commitments involved.

A

D

H

Start B

L E

I

Finish

C F

J

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

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

B Description Design package Order stock from manf.

Org. sales office Set up packing facility Select distributors Hire sales personnel Select adv. agency Package initial stocks Sell to distributors Train sales personnel Plan adv. campaign Ship stock to distributors Conduct adv. campaign

C ES 0 0 0 2 6 6 6 13 17 10 8 23 12

D EF 2 13 6 12 15 10 8 19 23 17 12 29 22

E LS 5 4 0 7 8 6 13 17 17 10 15 23 19

F LF 7 17 6 17 17 10 15 23 23 17 19 29 29

G Slack 5 4 0 5 2 0 7 4 0 0 7 0 7

Incident for Discussion Suggested Answer Springville Fire Department: The scheduling techniques mentioned are not mutually exclusive, they are complementary and could be used together: o PERT/CPM serves well for planning and control. o 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: o 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. o Needs to educate Lee on the impact of the project on the organization. o 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: o 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.

Suggested Case Analyses and Solutions St. Dismas Assisted Living Facility Project Action Plan -- 3 Teaching Purpose: This installment of the St. Dismas 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.

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).

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:

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.

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

Abbreviation A B C D E

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

F G H I J K L M

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

B

F

C

H

G A

I

J

K

D L E

M

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, 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

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

Question 2: Simulate the completion of this project 100 times assuming that activity times follow a normal distribution. Estimate the mean and standard deviation of the project completion time.

Prior to simulating the project, the mean and standard deviation for each activity must be calculated. The spreadsheet shown below was developed to calculate these parameters.

A B C D E F G 1 Optimistic Most Pessimistic Expected Standard 2 Activity Time Likley Time Time Variance Deviation 3 A 3 12 24 12.500 12.250 3.500 4 B 1 2 12 3.500 3.361 1.833 5 C 0.25 0.5 1 0.542 0.016 0.125 6 D 0.2 0.3 0.5 0.317 0.003 0.050 7 E 0.2 0.3 0.6 0.333 0.004 0.067 8 F 2 3 6 3.333 0.444 0.667 9 G 8 12 24 13.333 7.111 2.667 10 H 0.5 2 4 2.083 0.340 0.583 11 I 1 3 12 4.167 3.361 1.833 12 J 0.25 0.5 1 0.542 0.016 0.125 13 K 0.25 0.5 1 0.542 0.016 0.125 14 L 0 1 2 1.000 0.111 0.333 15 M 0 1 4 1.333 0.444 0.667 16 17 Key Formulas: 18 Cell E3: =(B3+(C3*4)+D3)/6 {copy to cells E4:E15} 19 Cell F3: =((D3-B3)/6)^2 {copy to cells F4:F15} 20 Cell G3 =SQRT(F3) {copy to cells G4:G15}

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

1 2 3

A B C D E F G H I J K L M N O P Act Act Act Act Act Act Act Act Act Act Act Act Act Path Path Path A B C D E F G H I J K L M ABFGJKM ABFGJLM ABFIJKM 12.50 3.62 0.54 0.32 0.33 3.33 13.33 2.08 4.22 0.54 0.54 1.00 1.37 35.24 35.70 26.13

After generating the random numbers in the Assumption Cells, 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. Then, summary statistics for this column were calculated. One simulation of 1,000 replications of the project yielded an average project completion time of 35.85 months with a standard deviation of 4.69 months.

The maximum completion time was 50.83 months and the minimum completion time was 19.52 months.

Question 3: Develop a histogram to summarize the results of your simulation.

This histogram created by Crystal Ball is shown below.

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 10.2%:

The probability of the project taking more than 40 weeks is 19.0%:

The probability of the project taking 30 to 40 months is 70.8%:

6/Allocating Resources to the Project

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 overscheduling 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.

65

6/Allocating Resources to the Project

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 action plan. For example: o The action 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) needed. o The action plan may only specify how much of the resource is needed and precedence between the activities relationships, it may not specify exactly when the PM will need these resources. o Although the action 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.

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.

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6/Allocating Resources to the Project

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: o The resource’s availability (e.g., days in week available, total hours available per week, hours available each day). o Times the resource will not be available (e.g., lunch, weekends, holidays, vacations, scheduled maintenance), and o 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 an area) faces a much more daunting problem because a Walt is a scarce resource that is important to the project’s successful completion and there are no readily available substitutes for a Walt.

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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.

9. List and describe the three most common criteria by which to evaluate different resource allocation priority rules.

The three criteria are: o Schedule slippage … a measure of the delay suffered by projects as a result of the application of a resource allocation priority rule. o 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. o 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 tasks and activities which represent the jobs.

11. What is meant by the “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.

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Suggested Answers to Discussion Questions 12. 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 be necessary in terms of the completion time of other projects and perhaps the performance of this and other projects.

13. Discuss the advantages of “labor pools” in a project – oriented company.

The main advantages of “labor pools” versus dedicating workers to specific projects are: o Less waiting time for key resources. o The ability to level resource usage, and o The ability to substitute one worker for another should one become unavailable.

Are there any potential disadvantages with the use of pools?

Potential drawbacks include: o Workers who do not identify with a particular project. o Personnel who may not be well trained in specific tasks required by the assignment. o Fewer opportunities for job enlargement.

All of these may lead to lower levels of job satisfaction, as well as lower morale and motivation.

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14. 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. c. The minimum slack priority rule … is used to minimize the number of late activities.

15. 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, psuedoactivities are used to show the 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.

16. 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.

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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.

17. 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 a Type 1 life cycle. Project B’s life cycle is Type 2. From which (or both or neither) do you borrow the resource? Why? In this case it would be best to borrow from project A. According to Figure 6-20, as a Type 1 project, fewer resources will have little impact on project A’s performance as it nears completion. Conversely, as a Type 2 project, taking resources away from project B as it nears completion will dramatically reduce its performance.

18. 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 really push the team and 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).

19. Describe as many types of resource allocation problems as you can, based on the situations described in this chapter.

The chapter identifies three types of resource allocation problems: o o o

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

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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.

Solutions to Problems 20. 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: o Resource X is over utilized on the Friday of week 1, Monday of week 2, and Tuesday of week 3. o Resource W is over utilized on Tuesday or week 3.

d. After leveling the resources, the project duration is 17 days and the critical path is A-C-D-F-G.

e. If it is necessary to shorten the project duration without overallocating the resources then there are two options: o Adding an additional X resource would shorten the project by 2 days, o Leveling the W resource would be 15 days.

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The project duration is 13 days when the resources work weekends and after leveling.

21. 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 1

G

D

A

E

3

B

5

H

6

C F

2

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 74

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

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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: o Cell I14 was specified as the target cell to minimize. o The ranges H6:H13 and B18:B22 were specified as the changing cells.

The following constraints were added: o o o o o o o o o o o o

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.

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.

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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. f. See solutions to c – e above.

22. 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: 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.

23. 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

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a. Using the minimum slack rule: Activity D 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 LST of 8 and D has a LST of 7. In using this rule it only makes sense to assign the facility to the resource with the earliest LST or activity D.

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: o 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. o 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. o 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:

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o Redesign the project plan for this new job to include additional resources to complete the additional work. o 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.

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.

Additional Incidents for Discussion

PenquinNet Software Engineering Company Elizabeth Tertle is a senior programmer for PenquinNet, a midsize software engineering company. Elizabeth has been selected to manage the project of designing the next versions of their Web-searching tool. The current tool has been a great success for the business. The President of PenquinNet wants to move very quickly in launching this new version. Elizabeth did an action plan for the project and estimated it would take about five months to complete, using one experienced programmer who helped create the previous version and two junior programmers allocated full-time to the project. The President wants the project completed in four months.

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Elizabeth thinks she can cut time off the project, but at an increased cost. She decides to use the resource allocation versions of CPM. Question 1: What information must Elizabeth gather to use this method properly? How should she use this version of CPM to reduce the project time?

Elizabeth will need to know all the activities, their normal times and precedences, their resource requirements (by group, learning curve applied, and by time period), the resource capacity and availability, and the individual resource costs. She should then employ the CPM program in a simulation mode to see how the resource allocations will appear under normal circumstances (her original estimate). Then, she should check the performance if there are project delays, learning curve slow downs, etc. Next, she should see if moving resources among activities to level the resources might improve the project’s completion time.

Question 2: Discuss how the different types of resources (experienced programmer and junior programmer) and their experience affect the project’s completion time and the project’s costs.

Different types of resources will certainly affect the project’s completion date and the project’s costs and thus she should see if substituting more experienced additional resources will improve the project’s performance. She must also identify the additional cost for all the different circumstances.

Suggested Case Analyses and Solutions St. Dismas Assisted Living Facility Resource Usage – Part 4 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

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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.

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.

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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 2000 allows 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”.)

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.

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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.

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

6

8 e s t

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: o o o o o o o o o o o o

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

7/Monitoring and Controlling the Project

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: T.L. Fox et al. Tools of the Trade: A Survey of Project Management Tools (Project Management Journal, September 1998). The article reports the results of a survey of PMI members concerning the computer tools they employ. The results identify the tools they use, their level of use, what they are used for, satisfaction with the tools, training received on the tools, and the adequacy of the tools. Software beyond project management packages are included in the survey.

H.J. Thamhain et al. Criteria for Controlling Projects According to Plan (Project Management Journal, June 1986). This article reports on a study of hundreds of project managers and the challenges and barriers they perceived in successfully controlling projects. The potential problems leading to schedule slips and budget overruns are identified and compared to the directly observed reasons. Also, the general manager’s reasons for the slips and overruns are compared to the project managers’ reasons and significant differences are noted. Last, the criteria that seem to be important to control are listed and discussed.

The value of this article for managers is the insight it gives concerning what needs to be controlled to bring about successful projects. The major factors are defining a detailed project plan that includes all key project personnel, reaching agreement on the plan among the project team members and the customer, obtaining the commitment of management, defining measurable milestones, and detecting problems early.

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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: o These systems are often set up to report information at certain specific periods (e.g., the end of the month or quarter). The information required to control a project often does not conform to such rigid timetables. o 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? o Project selection and planning specify the goals for the project. The plan also details what activities and schedule must be met; things the project manager must control. o Project monitoring and control seek to ensure that the project is making progress toward the achievement of these goals.

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 of 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: o 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. o There is a tendency for recipients to ignore periodic 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 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 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 cost of a partially completed project.

A considerably more accurate approach is apt to be that of summing the costs of completed activities and a knowledgeable guess on the cost incurred on activities underway.

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Suggested Answers to Discussion Questions 8. 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.

9. 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: o 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. o Ensure that management become more involved in project planning and review project plans. o Modify the system used to review the performance of project managers to include project planning.

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10. 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 often take immediate action when I discover a problem.

11. How might one measure team morale?

There are a wide variety of instruments in the organizational behavior literature available for accessing team morale. Again, using a 5 or 7 point scale, team members could be asked to rate the extent of their agreement/disagreement to statements such as: o I enjoy working with my fellow team members. o I have confidence that our project team can satisfactorily resolve any issues that may arise. o I would welcome the opportunity to be assigned to another project team.

12. 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.

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13. 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: o The PM spends more time managing the electronic media (e.g., the project management software) than actually managing the project. o 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.

14. 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 Budgeted Cost of Work Performed (BCWP) and the Actual Cost of Work Performed (ACWP). If the ACWP is larger than the BCWP, 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 BCWP and the Budgeted Cost of Work Scheduled (BCWS). 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.

15. 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 a better way to proceed with an in-process cost estimation.

16. When would spending and schedule variances be more informative than ratios? When would ratios be better? o 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. o Ratios are more informative when trying to compare the performance across projects, project managers, or the progress of a project over time.

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17. How should a PM reconcile the dual purposes of control: conserving resources and regulating results through the use of resources?

The bottom line with control is that you don’t want the costs of the control systems to exceed the benefits.

18. Identify situations where each of the following control tools might be useful: earned value charts, benchmarking, critical ratios, control charts, variance analysis, trend projections. o Earned value charts are useful for monitoring the progress of in-process projects. o Benchmarking is useful in the project planning phase in helping determine project goals and resource requirements. Benchmarking can also be used to access an organization’s project management systems and procedures. o Critical ratios, control charts, and variance analysis are also 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. o 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.

19. 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.

20. “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.

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21. 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.

22. 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 accomplished.

The weekly progress meeting might be appropriate early in the project when coordination is required but team members are still getting to know each other and have not had an opportunity to develop informal communication channels.

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23. 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 that the standards set by the PMI is not that important, interpreting the number correctly and discussing the implications are.

24. 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 can be either the planned value or the earned value. If the planned value (i.e., the budgeted cost of the work scheduled) is used then it may be identical to actual cost (giving a value of 1) and thus may suggest that the project is on budget.

However, if the earned value (i.e., the budgeted cost of the work performed) is used then it may be considerably less than 1 showing that considerable work still needs to be done on the project resulting in a cost overrun.

Solutions to Problems 25. The project in this problem is in its 26th week.

Actual cost of work performed (ACWP) = $270,000 Budgeted cost of work performed (BCWP) = $272,000 Budgeted cost of work scheduled (BCWS) = $261,000 Cost/spending variance = BCWP – ACWP = $272,000 – 270,000 = $2,000 Schedule variance for the project = BCWP – BCWS = $272,000 – 261,000 = $11,000

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Schedule Performance Index (SPI) = BCWP/BCWS = $272,000/261,000 = 1.042 Cost Performance Index (CPI) = BCWP/ACWP = $272,000/270,000 = 1.007 In summary, less has been spent than the baseline plan, and given what has been spent, more progress has been made than was anticipated.

26. In this problem, the project has just completed the 87th item on its action plan.

Actual cost of work performed (ACWP) = $156,000 Budgeted cost of work performed (BCWP) = $162,000 Budgeted cost of work schedule (BCWS) = $168,000 Cost/spending variance = BCWP – ACWP = $162,000 – 156,000 = $6,000 Schedule variance = BCWP – BCWS = $162,000 – 168,000 = -$6,000 Schedule Performance Index (SPI) = BCWP/BCWS = $162,000/168,000 = 0.964 Cost Performance Index (CPI) = BCWP/ACWP = $162,000/156,000 = 1.038 In this case, less has been spent than the baseline plan. However, given what has been spent, less progress has been made than should have been.

27. The project being considered in this problem is in its 6th week.

Actual cost of work performed (ACWP) = $400 + 180 + 300 + 400 + 200 = $1480 Budgeted cost of work performed (BCWP) = $300 + 200 + 250 + .2(600) + .2(400) = $950 Budgeted cost of work scheduled (BCWS) = 300 + 200 + 250 + .8(600) + .5(400) = $1430 Cost/spending variance = BCWP – ACWP = $950 – 1,480 = -$530 Schedule variance = BCWP – BCWS = 950 – 1,430 = -$480 Schedule Performance Index (SPI) = BCWP/BCWS = $950/1,430 = 0.664 Cost Performance Index (CPI) = BCWP/ACWP = $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) = (BCWP/BCWS)(BCWP/ACWP) = ($950/1430)($950/1480) = 0.426 Budget at completion BAC) = $300 + 200 + 250 + 600 + 400 = $1,750 Estimated (remaining cost) to completion (ETC) = (BAC – BCWP)/CPI = ($1750 – 950)/0.642 = $1246.11 Projected (total cost) estimated at completion (EAC) = ETC + ACWP = $1246.11 + $1480 = $2726.11

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28. This assignment involves repeating problem 26 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

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percent complete. Enter the information that is provided in the case. The software will calculate the rest. Your spreadsheet/table should look as follows: 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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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.

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.

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

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fashion so that the entire project is not affected. This would also allow Alex to monitor the project more closely.

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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.

Additional Incidents for Discussion Carver Insurance Company Alex Franks joined Carver Insurance Company eight months ago. He is an experienced management information systems executive who has been given the task of improving the responsiveness of Carver’s information systems group to the end-user. After several months of investigation, Alex felt he understood the current situation clearly enough to proceed. First, approximately 90 percent of end-user requests came to Information Services (IS) in the form of a project, or, more commonly, one step of a project. Accordingly, Alex felt he should initially

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direct his efforts toward integrating IS’s approach to projects with the company’s formal project management system.

It has been Alex’s experience that most problems associated with IS projects suffer from poor project definition and inadequate participation by the end-user during the system design phase.

Typically, the end-user does not become heavily involved in the project until the new system is ready to install. At that point, a great deal of work is required to adapt the system to meet enduser requirements. Alex decided to institute a procedure that put end-user cooperation and participation on the front end of the project. The idea was to define the objective and design of the system carefully, making it consistent with the end-user’s need. If that was done, system implementation would be reasonably simple, rather than the always disturbing initial introduction to the end-user of “his or her new system.”

Alex also recognized that something had to be done to control the programming quality of IS’s output. A more effective front-end approach to IS projects would subject IS managers to more intense pressure to produce results within user’s needs, including time constraints. Alex was concerned that the quality of the IS output would deteriorate under those conditions, especially given the lack of technical expertise on the part of the end-users and outside project managers. To solve this problem, Alex recommended creation of an IS quality assurance (QA) manager who would approve the initial steps of the project and review each additional step.

The QA manager would have authority to declare any step or portion of the output inadequate and to send it back to be reworked.

Questions: Is this a good control system for IS? Why or why not? Does it represent a good control point for company projects using IS to accomplish one portion of the project objective?

What would be your answer if you were a non-IS project manager?

This is a good control system for improving the user responsiveness of IS but may be unresponsive to the larger needs of the firm, particularly if later activities depend on the completion of IS’s tasks. An external PM would be concerned about the delay on the IS activities as they strive for meeting internal quality requirements.

Suggested Case Analyses and Solutions St. Dismas Assisted Living Facility -- 5 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.

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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 2000c’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 2000c 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 2000c 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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Chapter 8 Evaluating and Terminating 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 terminated. 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 terminating a project, the types of project termination, and the termination 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.

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: F.R. Gulliver. Post-Project Appraisals Pay (Harvard Business Review, March-April 1987). This article points out the gross fallacy of ignoring the outcome of projects that had thousands of hours of planning invested in them. Without postproject appraisals, the organization learns nothing from the execution of the project, either in terms of how to do a better job in selecting and supporting projects in the future or in terms of what was learned from the project itself.

This article gives advice on how to organize and conduct postproject appraisals. In addition, it describes four major lessons the involved company learned from their appraisals.

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.

Answers to Review Questions 1. 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: o There is only one person conducting the termination itself and there is no "project selection" phase. o It is a process of distribution of resources and personnel rather than acquisition of them. o The tasks to be conducted are relatively standard or else specified in advance. o It is best conducted by someone without an emotional investment in the project, and o It is a completely administrative project with a single purpose.

2. 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. At times, projects that fail to meet their objectives are continued because they are accomplishing other things of value to the organization.

3. 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: o An inability to complete the work. o Not delivering the desired result. o Providing poor product support, etc.

4. 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 when outside auditors would report that the situation is not up to market standards based on industry experience.

5. 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 expertise is the key concern.

6. 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.

7. 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.

8. 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): o Poor practices that should be avoided in future projects, and o 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.

9. 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 detail and recommend solutions.

Suggested Answers to Discussion Questions 10. 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.

11. What might be some characteristics of a good termination manager?

Among some of the desirable characteristics are: o o o o

Having familiarity with the administrative requirements of project terminations.

Being objective and impartial.

Being calm under stress.

Being task rather than functionally oriented, and

o Having the ability to effectively and efficiently execute the eight termination tasks.

12. How should a committee determine which termination method to use?

As indicated in the text, there are four types of project terminations: o Project extinction … when the project is either successfully completed or the expectation of failure is high. o Termination-by-addition … when it is an “in-house” project which is successfully completed and institutionalized as a formal part of the organization. o Termination-by-integration … when the output of the project becomes a standard part of the operating systems of the sponsoring firm or client. o 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.

13. 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.

14. 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 expected project goals, always consistent with making them high enough to insure selection.

In spite of these dangers, the criteria for project selection is a good, but not sufficient, tool for evaluating completed projects and for helping to determine if a project should be terminated before completion.

15. 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.

16. 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 theoretical 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 must be accepted prior to initiating the project. Attempts to solve the problem when the project is completed are doomed.

17. 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 interestedly to all complaints, advice, etc., and proceed as if the co-opting had not occurred. Noncommittal is the best attitude for the auditors.

18. 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 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 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 allows 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 allows 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 recommendation that might apply to future projects.

19. 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 evaluated against a broader set of criteria including such factors as the project’s apparent “success” in terms of 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.

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: o Contact the client to resolve the problem. o Discipline the auditor for his breach of procedure.

How can a customer be assured of satisfactory project completion?

The customer should: o Include such an audit process in the contract, with results coming directly to them, and o 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.

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: o Conduct a thorough evaluation of the project. o Evaluate the project’s performance related to the initial plan and project objective. o 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. o Review any change orders to the specifications or steps that are documented. o Review the monitor and control systems that were in place for the project. o Examine any documented communications between the project team and the client. o 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.

Suggested Case Analyses and Solutions St. Dismas Assisted Living Facility -- 6 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.

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.

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: o 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. o Involved the team in developing the WBS. Had the team been involved, the need for a hinge system would probably have been identified. o Involved the manufacturing group earlier in the project. This would almost certainly have identified their inability to produce the notebook computer design. o Introduced a formal change request process. This would have helped with the VP’s request to redesign the computer to work with the new PDA. 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.

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.