CH-6-7 Allocating Resources to the Project – Project Management in Practice : Book Guide

This Document Contains Chapters 6 to 7 Chapter 6 Allocating Resources to the Project This chapter extends the previous one on scheduling into the area of allocating resources among the activities of a project, or among multiple projects competing for the same resources. The chapter begins with a discussion of expediting project completion times and highlights that by selectively choosing which activities to crash and by how much, we can determine the minimum cost for all possible project completion time. The use of Excel’s Solver optimization routine to facilitate this analysis is also presented. Next, the chapter moves on to the topic of resource loading and in particular highlights the problems of over scheduling resources. The topics of resource leveling and resource allocation naturally follow in the subsequent sections. Finally, the chapter concludes with an overview of several of the concepts Goldratt raises in his provocative book Critical Chain. Cases and Readings A case appropriate to the subject of this chapter is: Harvard: 9-613-020 Space Constructors, Inc. This 3-page case involves a simple project where partial crashing has already been planned but more, and less, crashing is also to be considered. The network has some special characteristics that offer some worthwhile lessons for the student. 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? Answer: There can be a variety of reasons why resource allocation is of concern to the PM despite having a properly completed project plan. For example: • The project plan only lists general categories of resource requirements such as engineering, purchasing, marketing, and production. In these cases, the project manager must still arrange to get the specific resources (e.g., personnel, equipment) needed. • The project plan may only specify how much of the resource is needed and the precedence between the activities’ relationships; it may not specify exactly when the PM will need these resources. • Although the project plan specifies the amount of a resource needed for a particular project, there may not be a mechanism in use that balances the load of resources across multiple projects. This can lead to conflicts and the creation of bottleneck resources. 2. Explain the difference between a project that has a fixed delivery day and one that has a fixed limit on resource usage. Answer: 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. 2a. Why might a PM be interested in this difference? Answer: The reason this distinction is important is that it specifies which of the fundamental trade-offs 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? Answer: 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. 4. List as many things as you can think of that should be entered into a specific resource’s calendar. Answer: Information that should be entered into a resource’s calendar include: • The resource’s availability (e.g., days in week available, total hours available per week, hours available each day). • Times the resource will not be available (e.g., lunch, weekends, holidays, vacations, scheduled maintenance), and • Resource cost (e.g., cost per unit of usage, cost for overtime and overuse, known changes in future resource cost). 5. Explain why project-oriented firms require excess resource capacity. Answer: 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? Answer: 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.” Answer: The PM that is short of secretarial resources does not face that great of a problem as this type of resource is relatively abundant and not usually critical to the project’s ultimate success or failure. The PM that is short of a “Walt” (i.e., an individual with expertise and knowledge in a critical area) faces a much more daunting problem because a Walt is a scarce resource that is important to the project’s successful completion and there are no readily available substitutes for a Walt. 8. When allocating scarce resources to several different projects at the same time, why is it important to make sure that all resource calendars are on the same time base (i.e., hourly, daily, or weekly …)? Answer: One reason it is important to ensure the resource calendars are on the same time base is because task duration is not usually dictated by the number of labor hours required to complete the task, but rather by the calendar time required to complete it. This may involve waiting for materials (e.g., concrete, glue) to cure, or equipment to warm up, etc. 9. List and describe the three most common criteria by which to evaluate different resource allocation priority rules. Answer: The three major criteria are: • Schedule slippage … a measure of the delay suffered by projects as a result of the application of a resource allocation priority rule. • Resource utilization … a measure of the total resource cost (including costs such as the cost of hiring, firing, and maintaining resource inventories) under different allocation rules. • In-process inventory … a measure of the cost of unfinished work in the system. 10. Why is the problem of allocating scarce resources to a set of projects similar to the problem of scheduling a job shop? Answer: In a job shop allocating resources (equipment and workers) to jobs or orders is required. In projects, a similar allocation is required where specific resources must be allocated to various projects when they are needed, which represent the jobs. 11. What is meant by the term “student syndrome”? Answer: The “student syndrome” refers to situations in which people wait until the last possible minute to begin a task. Its name is derived from the belief that students often delay the start of an assignment until just before it is due. This isn’t necessarily a foolish or lazy decision since often the task will change at the last minute, thus invalidating much of the work that was earlier spent on it. 12. Describe in your own words what is meant by Goldratt’s critical chain. Answer: 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. 13. How does it work? Answer: The critical chain works by defining two sources that can delay the completion of the project. One source of delay is uncertainty in the tasks that comprise the critical chain. A project buffer is added to guard against these uncertainties. The second source of delay is uncertainty in the tasks external to the critical chain. A feeding buffer is added to these paths to help ensure they do not delay the tasks on the critical chain. Suggested Answers to Discussion Questions 1. Describe the fundamental trade-offs when deciding whether or not to crash a project. Answer: The fundamental trade-off in crashing a project is between schedule and budget. Specifically, crashing entails employing additional resources (cost) in order to reduce the project’s completion time. If the decision is made to crash, what additional trade-offs must be made? If it is decided to crash a project other trade-offs may then be necessary in terms of the completion time of other projects and perhaps the performance of this and other projects. 2. Discuss the advantages of “labor pools” in a project – oriented company. Answer: The main advantages of “labor pools” versus dedicating workers to specific projects are: • Less waiting time for key resources. • The ability to level resource usage, and • The ability to substitute one worker for another should one become unavailable. Are there any potential disadvantages with the use of pools? Potential drawbacks include: • Workers who do not identify with a particular project. • Personnel who may not be well trained in specific tasks required by the assignment. • Fewer opportunities for job enlargement. All of these may lead to lower levels of job satisfaction, as well as lower morale and motivation. 3. What purpose(s) might be served by using each of the following priority rules for allocating scarce resources? a. As late as possible. b. Shortest task duration time first. c. Minimum slack first. Answer: a. Starting a task as late as possible … preserves resources and delays cash flows as long as possible. b. Allocating resources to tasks with the shortest durations first maximizes the number of tasks that can be completed within a certain time period. This tends to get the little messy tasks out of the way so workers can give their full attention to the bigger, more important tasks. c. The minimum slack priority rule is used to minimize the number of late activities. 4. Linking a group of projects together with pseudo activities creates a sort of super project. What does this mean, and why would anyone want to do it? Answer: Just as a project consists of tasks and activities with precedence relationships, a super project can be thought of as consisting of a group of projects with precedence relationships. In the super project, pseudo activities are used to show any precedence relationships among the projects. These precedence relationships may be actual technological constraints (e.g., the product development project must be completed before the process development project) or simply a reflection of management’s priorities. The reason for creating a super project is to help identify important relationships and dependencies across the projects and use this information to better plan the usage of key resources. 5. Projects A and B are both nearing completion. You are managing a super important project C that requires an immediate input of resource being used by both projects A and B, but is otherwise unavailable. Project A has an S-shaped life cycle. Project B’s life cycle is J-shaped. From which (or both or neither) do you borrow the resource? Why? Answer: In this case it would be best to borrow from project A. In an S-shaped project, fewer resources will have little impact on project A’s performance as it nears completion. Conversely, in a J-shaped project, taking resources away from project B as it nears completion will dramatically reduce its performance. 6. Goldratt suggested that to avoid the student syndrome,” it is a good idea to set the activity durations so short that there is a high probability that the task will not be finished on time. On the other hand, it has long been known that setting up people for failure is strongly demotivating. What should the PM do? Answer: There is a delicate balance between setting goals that people believe are impossible to achieve and therefore result in demotivating the team versus stretch goals that serve to motivate the team. The project manager should not set goals that have extremely low probabilities of success, but may find it desirable to set goals that do have a reasonable chance of not being met (say 40 to 60 percent). 7. Describe as many types of resource allocation problems as you can, based on the situations described in the chapter. Answer: The chapter identifies three types of resource allocation problems: • Available resources (resource loading). • Scarce resources – single projects. • Scarce resources – multiple projects. Resource loading recognizes the existence of needed resources and ensures that they are allocated to the project when needed. An example would be a construction site where the electrical work is subcontracted to an external supplier. The main task is to determine that the external firm can have the necessary skilled work force on site at the appropriate time. Scarce resources are those with limited availability and the key elements of the project have to be scheduled around that availability of the resource - even if a firm has just a single project. An example of this situation would be the reliance of a construction site on a specific piece of equipment such as a crane. The allocation of scare resources becomes far more complex when the same resources are need on more than one project. In this case, the utilization of the resource on project A will also have an impact on project B (and, possibly, other projects). As indicated in the chapter, the company will need to apply one of the six priority rules to determine which project shall have the first use of the scarce resource. Solutions to Exercises 1. This project involves the landscaping of a building site. Answer: 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. c. Since each resource is assigned 100 per cent to each task, the resource constraints are: • Resource X is over utilized on the Friday of week 1, Monday of week 2, and Tuesday of week 3. • Resource W is over utilized on Tuesday of week 3. d. After leveling the resources, the project duration is 17 days and the critical path is A-B-C-D-E-F-G. Because of the scarcity of resources the critical path now includes all activities. e. If it is necessary to shorten the project duration without over allocating the resources then there are several options: • Since resource X is required by all activities, it makes the most sense to consider adding this resource first. Adding an additional X resource would shorten the project by 2 days which would allow tasks B and C to be done simultaneously. • Adding an additional X and W would shorten the project by 3 days. The extra X would allow tasks B and C to be done simultaneously and adding an extra W would further allow tasks E and F to be done simultaneously. • Adding an additional Y does not help reduce the time with any combination of additional X and W resources. • Other possibilities might involve relaxing the predecessor relationships, reducing the assigned resources to some of the tasks, and so on. The project duration is 13 weekdays when the resources work weekends and after leveling. 2. Provided are the predecessors, normal time, normal cost, crash time and crash cost for an eight activity (a to h) project. Answer: a. The network for this project is as follows: 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. 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). The optimal solution using Solver was found in the following way: • Cell I14 was specified as the target cell to minimize. • The ranges H6:H13 and B18:B22 were specified as the changing cells. The following constraints were added: • H6:H13 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 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. e. If all activities are crashed as much as possible, the project can be completed in 14 days. Entering 14 in cell B1 and resolving, it is discovered that the project can be completed in 14 days at a cost of $400 + $ 400 = $800. 3. Given the following AOA network, what is the first activity to be given extra resource? Answer: The following Table shows the activity, duration, successors, critical followers, and slack associated with each of the four activities: a. Using the shortest task first priority rule for the critical path: Task b has the shortest duration. b. Minimum slack first … Tasks b, c, and d all have zero slack. c. Most critical followers … Task b has the largest number of critical followers. d. Most successors … Task b has the largest number of successors. 4. Given the project shown in Figure 5-10 of Chapter 5 and the fact that the facility used by activities c and d is scarce, which activity would benefit from each of the rules? Answer: The following Table shows the activity, slack, critical followers, duration, and latest start time for activities c and d: 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 LS of 8 and d has a LS of 7. In using this rule it only makes sense to assign the facility to the resource with the earliest LS or activity d. 5. Consider the following activity information and the constraint that the project must be completed in 16 weeks. Answer: The above worksheet was used with Excel Solver to find the solution. Solver was set to minimize N11 by changing cells K4, K7, K9, and K10 subject to the constraints: • J19 = 16 • K4 ≥ L4 • K7 ≥ L7 • K9 ≥ L9 • K10 ≥ L10 6. Consider the project network below. Suppose the duration of both activities A and D can be reduced to 1 day, at a cost of $15 per day of reduction. Also, activities E, G, and H can be reduced in duration by 1 day, at a cost of $25 per day of reduction. What is the least-cost approach to crash the project 2 days? What is the shortest “crashed” duration, the new critical path, and the cost of crashing? Answer: 7. The network for shooting a TV commercial as shown in the table has a fixed cost of $90 per day, but money can be saved by shortening the project duration. Find the least-cost schedule. Answer: The critical path is 1-2-3-4 = 19 days Can crash 1-2 ($30) or 2-3 ($40) on critical path 1 day (3-4 cannot be crashed). Crashing 1-2 by 1 day cheapest option and results in net savings of $60 ($90-$30). Critical path is still 1-2-3-4 (18 days). Can crash 1-2 ($50) or 2-3 ($40) on critical path 1 day. Crashing 2-3 by 1 day cheapest option and results in net savings of $50 ($90-$40). Critical path is 1-2-3-4 (17 days) and 1-2-4 (17 days). Can crash 1-2 ($50) or 2-3 ($45) on first critical path by 1 day and crash 1-2($50) or 2-4($35) by 1 day on second critical path. Crashing 1-2 shortens both paths by 1 day and is cheaper than crashing 2-3 on first path and 2-4 on second path. Therefore cheapest option is to crash 1-2 and results in net savings of $40 ($90-$50). Critical path is 1-2-3-4 (16 days) and 1-2-4 (16 days). Can crash 1-2 ($70) or 2-3 ($45) on first critical path by 1 day and crash 1-2($70) or 2-4($35) by 1 day on second critical path. Crashing 1-2 shortens both paths by 1 day and is cheaper than crashing 2-3 on first path and 2-4 on second path. Therefore cheapest option is to crash 1-2 and results in net savings of $20 ($90-$70). Critical paths are 1-2-3-4, 1-2-4, and 1-3-4 (15 days). Can crash 2-3($45), 2-4($35), and 1-3($60) for total cost of $140. Since the cost of $140 exceeds savings of $90, crashing the project another day is not justified. 8. Given the network for an HR training project with normal times and crash times (in parentheses), find the cost duration history. Assume indirect costs for facilities and equipment are $100 per day. Answer: There are two paths: 1-2-4 (14 days) and 1-2-3-4 (17 days). At 17 days and $100 per day the normal cost of the project is $1,700. The options to crash the longer path are: 1-2($30), 2-3($80), and 3-4($25). Since it is least costly to crash, crash 3-4 by 1 day for savings of $75 ($100-$25). The durations of the two paths are now 1-2-4 (14 days) and 1-2-3-4 (16 days) and the cost of the project is $1,625 ($1,700 - $75). The options for crashing the longer path are: 1-2($30), 2-3($80), and 3-4($60). Since it is least costly to crash, crash 1-2 by 1 day for savings of $70 ($100-$30). Since 1-2 is on both paths, the durations of the two paths are now 1-2-4 (13 days) and 1-2-3-4 (15 days) and the cost of the project is $1,625 ($1,700 - $75). The options for crashing the longer path are: 1-2($50), 2-3($80), and 3-4($60). Since it is least costly to crash, crash 1-2 by 1 day for savings of $50 ($100-$50). Since 1-2 is on both paths, the durations of the two paths are now 1-2-4 (12 days) and 1-2-3-4 (14 days). The options for crashing the longer path are: 2-3($80) and 3-4($60). Since it is least costly to crash, crash 3-4 by 1 day for savings of $40 ($100-$60). The durations of the two paths are now 1-2-4 (12 days) and 1-2-3-4 (13 days). The only option for crashing the longer path is 2-3($80). Crashing 2-3 by 1 day creates savings of $20 ($100-$80). The durations of the two paths are now 1-2-4 (12 days) and 1-2-3-4 (12 days). Path 1-2-3-4 cannot be crashed and further and crashing 1-2-4 would not reduce the time to complete the project since both paths currently have a duration of the 12 days. The duration-cost history of this is summarized in the table below. Duration Cost 17 $1,700 16 $1,625 15 $1,555 14 $1,505 13 $1,465 12 $1,445 9. Given the following highway rerouting project Answer: a. Draw the network. b. Find the ESs. LSs, and slacks. Activity ES EF LS LF Slack A 0 4 3 7 4 B 0 6 0 6 2 C 4 6 7 9 2 D 6 12 6 12 6 E 6 9 9 12 3 F 6 9 9 12 3 G 12 17 12 17 5 c. Find the critical path. Critical path: B-D-G d. If the project has a 1 ½-year deadline for reopening, should we consider crashing some activities. Explain. Completing the project in 1.5 years or 18 months. The expected duration is 17 months. Since the expected duration is less than the deadline, crashing does not need to be considered at this time. 10. After entering the resource information, are there any problems with the resources being overloaded? If so, level the resources so that the resources are not overloaded. What impact does leveling the resources have on the expected project completion time? Answer: Mike and JR were assigned to the tasks in MSP’s Gantt Chart View as shown below: Using the Resource Graph view, it is discovered that Mike is overallocated in the first week: Using the “Level All” feature resolves resource overallocations. In the case, the overallocations can be resolved without increasing the duration of the project. Incidents for Discussion Suggested Answers Lab Results, Inc. Question 1: Do you think Sam’s plan is going to work? Why or why not? Answer: No, Sam’s plan of just adding this work to his current work load without any additional resources will not work for a number of reasons: • There is little or no excess capacity in the current operation. If Sam is paying overtime weekly, his current staff are working beyond normal capacity now. Adding additional work through this new project will only add to this. • Sam’s plan does not take into account vacation or sick time for his technicians. Four months is also a long time to ask the staff to work more overtime on top of what they are already working. • There is also no time built in to deal with any issues that may come up, such as increases in work load from his other clients, problems with equipment, etc. If he continues with this plan, quality and the ability to meet the scheduled delivery of results will suffer. How would you handle the bid on the new project? Among the steps one could take would be to: • Redesign the project plan for this new job to include additional resources to complete the additional work. • Use this as an opportunity to build excess capacity into the current system. Focusing on the costs associated with additional resources instead of paying overtime to already overworked staff would reduce the project cost and improve the chance of meeting the projects specification for quality and delivery. Question 2: Would Crystal Ball be useful in assessing Sam’s plan and changing it, if necessary? Answer: 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? Answer: 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? Answer: The interactions between these projects are important and must be accounted for by scheduling this as a multiproteic plan. Peak resource loads need to be determined in advance and levelled. The overall project schedule should be determined with the resource utilization of each area in mind. Suggested Case Analyses and Solutions Friendly Assisted Living Facility Resource Usage – Part 6 Teaching Purpose: In this instalment 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. Answer: The following is the Gantt chart of the action plan presented in the case. This Gantt chart was prepared using MSP with a resource calendar for Dr. Alison and Dr. Link with a workweek of Monday through Friday, and a daily schedule of 8 a.m. to 5 p.m. with an hour of non-working time for lunch. The resource calendar was applied using the “Change Working Time” under the “Tools” menu in MSP. (The issue of scheduling the “Test of the assessment tool…” will be addressed in answer #3 & #4). Note: the case stated to start the project on January 2, if students use the year 2000, the project will actually begin work on January 3rd, as January 2nd is a non-working day. If students use January 2, 2001 (or later), the project will start on January 2nd. 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. Question 2: How would you handle Dr. Alison’s resource problem? Answer: 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 overallocated Dr. Allison to get this task done within the time frame specified. There are several different ways to set a resource constraint on the “Test the tool” task, Step #4 in the action plan. MSP 2007allows you to create a specific calendar for a step in an action plan. Simply create a New calendar in the Tools menu, “Change working time” section. In the new calendar create a schedule that has its working time as Wednesdays, 8 a.m. to 12 p.m., and all other days as non-working. Then you apply this calendar to step 4 in the action plan. (This is done by selecting the task information box for Step #4, going to the “Advanced” tab, and selecting the new calendar you just created. These steps are all outlined in the Help section, under “Assigning a calendar to a task”.) 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? Answer: Based on Dr. Alison’s availability to complete the step “Test of the assessment tool”, Step #4 will now take from January 19, 2000 – January 26, 2000. Please note that the task’s duration remains at 6 hours, however with Dr. Alison only available to work on the step from 8 a.m. – 12 p.m. one day a week, the step will now take an extra calendar week to complete. Without the constraint the task could begin as soon as Step #3 was completed, January 14. However, with the constraint applied, Step #4 cannot begin until the following Wednesday when Dr. Alison is available, and he can only work 4 hours on that day, so another 2 hours the following Wednesday is necessary to complete the task. Question 4: Prepare a Gantt chart for Dr. Alison’s plan incorporating any changes you recommend. Answer: 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: 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? Answer: The network diagram shown below can be constructed from the information in the case. 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? Answer: 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). Using Solver required the following steps: ○ Cell I13 was specified as the target cell to minimize. ○ The changing cells included the ranges I6:I12 and B17:B23. In addition to specifying “Assume linear model” the following constraints were entered: • H6:H12 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) 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? Answer: 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? Answer: 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. Rand Contractors The PERT chart for the project is shown below: The figure below provides the Crystal Ball model that was created for the Rand Contractors mini case: 1. From the Crystal Ball (CB) above it can be seen that analyzing this situation in the usual way requires analyzing two paths (ABCEF and ABDEF). Assuming the activity times follow a Beta distribution and simulating the CB model 10.000 times yielded the following results: • Expected project completion time: 25.55 days • Minimum project completion time: 21.88 days • Maximum project completion time: 31.04 days 2. The following probabilities were found using the CB model: • The probability the project is finished in 25 days or less: 35.58% • The probability the project takes longer than 27 days to complete: 13.74% • The probability the project is finished between 24 and 26 days: 53.03% 3. The only difference between the two paths is whether the plumbing or electrical work gets done by Bruce first. Since Bruce does both of these activities, the duration of the project can be found by summing the durations of all five activities as is shown at the bottom of the figure above. Simulating the CB model 10,000 times yielded the following results: • Expected project completion time: 28.43 days • Minimum project completion time: 24.24 days • Maximum project completion time: 34.28 days 4. The following probabilities were found using the CB model: • The probability the project is finished in 25 days or less: 0.34% • The probability the project takes longer than 27 days to complete: 83.10% • The probability the project is finished between 24 and 26 days: 4.21% 5. When the actual resources that will be assigned to each activity are considered, the expected time of the project increases. The implication to project managers is that not considering the resources that will be allocated to the activities increases the chances that the project duration may be underestimated. 6. There are a number of different ways to address this. One way is to find a window for the project’s duration such that the project has a desired probability of finishing within this window. For example, there is almost a 95% chance the project will be finished between 26 and 32 days. Providing a window has the advantage of letting the next customer know the earliest and latest the project is likely to start. On the other hand, some customers may only be interested in what the latest the project start date might be. Using the CB model it can be determined that there is slightly more than a 95% chance the project will be finished in 31 days. Of course different desired probabilities could be used. 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 Inter A Act Project (A) and 9-193-014 (B) This 17-page (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. Harvard: 9-396-312 BAE Automated System (B): Denver International Airport Baggage-Handling System This 3-page follow-up to the (A) case (see Chapter 1) describes the control actions finally taken to address the airport baggage system problem. A 32 page teaching note for the (A) and (B) cases (5-399-099) is available. Some readings appropriate to the subject of this chapter are: 1. Besner, C. & Hobbs, B (2006) The Perceived Value And Potential Contribution of Project Management Practices to Project Success, (Project Management Journal, 37(3), 37-48) This reading presents the findings on the investigation of practitioner perceptions on the relative value of different project management practices and their potential to contribute to improved project performance. The report is based on a large-scale survey of 753 project management practitioners. Through the identification of the most valued practices, practitioners and organizations can identify their priorities when developing their project management competencies. This can also guide the profession in selecting priorities for future development. 2. Aiyer, J, Rajkumar, T. J. & Havelka, D. A, Staged Framework For The Recovery and Rehabilitation of Troubled IS Development Projects, (Project Management Journal, 36(4), 32-43, 2005) As pointed out throughout the text, many projects are delivered significantly behind schedule, drastically over budget and do not adequately meet customer specifications. The signs that these projects are in trouble are typically present long before completion. This article looks at the steps needed to recover from such troubled situations. A generic four stage, 12-step framework for recovery and rehabilitation is proposed. The four stages are recognition, immediate recovery, sustained recovery and maturity. The twelve steps in the four stages are detailed in the reading. Illustrative cases are used to discuss the applicability of the framework to differing situations. Although the article is based on information systems development projects, the ideas are applicable to most projects. Answers to Review Questions 1. Why can’t the PM use the organization’s current information system for project monitoring and reporting? Answer: There are two main reasons why the PM can’t use the organization’s current information system for project monitoring and reporting: • These systems are often set up to report information at certain specific periods (e.g., the end of the month or quarter). The information needed to control a project often does not align with such rigid timetables. • The organization’s system is usually structured to deal with the organization’s standard divisions, and departments. Projects rarely conform to these boundaries. 2. What does it mean to say that project monitoring and control are on the opposite sides of project selection and planning? Answer: • Project selection and planning specify the goals for the project at the start of activity. The plan also details what activities and schedule must be met; things the project manager must control. • Project monitoring and control seek to ensure that the project is making progress toward the achievement of these goals as activity is proceeding and all the way to the end. 3. The monitoring system is the direct connection between project planning and control. Why is this true? Answer: Project planning specifies the activities, resource usage, and the goals for the project while control seeks to ensure that the project is making progress toward the achievement of these goals. Monitoring is concerned with collecting and reporting information. As such, monitoring connects planning and control in that the plan specifies the types of data that need to be collected and the reporting becomes the basis for follow-on control. 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? Answer: It is probably a good idea for two reasons: 1. It is more appropriate to let schedules, milestones, scope changes, problems, and the project team’s general need for information dictate the timing of reports. 2. There is a tendency for recipients to ignore periodic, especially accounting, reports. 5. Aside from the obvious benefits for project control, what other benefits might result from a good project reporting system? Answer: Other benefits from a good project reporting system include: ○ Less wasted time reporting information that is not used. ○ Better informed team members and other stakeholders, and ○ 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? Answer: The need for information should dictate the report frequency. For projects, it is more appropriate to let milestones, scope changes, problems, and the project team’s general need for information dictate the timing of reports. 7. Using earned value analysis, explain how the total cost of a partially completed project can be estimated. Answer: The total cost of a partially completed project can be estimated by dividing the amount spent to date by the estimate of the project’s percentage completion. However, in general, this is not an effective way to estimate the final cost of a partially completed project. A possibly more accurate approach is summing the costs of completed activities and then making a knowledgeable guess on the costs expected for future activities depending on whether the team will stay on their current progress track (good or bad) or get back to the baseline activity costs. Suggested Answers to Discussion Questions 1. When making an estimate for the time and cost to execute a project, should the time and cost required to develop the planning, monitoring, and controlling systems be included as well? Should the actions required to monitor and control a project be included in the project’s action plan or WBS? Answer: Yes, the time and cost required to develop the planning, monitoring, and controlling systems should be included in the project’s budget. Similarly, the actions required to monitor and control the project should be included in the WBS. These are essential tasks for the successful completion of the project. 2. The chapter includes an example of a firm where the PM dispensed with all the planning formality because no one ever looked at it anyway. What did the PM think the purpose of such planning was in this firm? What should the firm do in the future to correct this problem? Answer: It appears the PM in this case believed that project planning was not important since no one looked at it. Therefore, the PM likely believed that project planning was a waste of time that distracted him/her from more important work. The result was a major loss of business. To correct this situation the company needs to: 1. Emphasize the importance of planning to the ultimate success of the project. This may require formal training programs, perhaps including case studies that demonstrate the types of problems encountered in projects that were inadequately planned. 2. Ensure that management becomes more involved in project planning and reviewing project plans, and then using these plans to monitor progress on the project at milestones and stage gates. 3. Modify the system used to review the performance of project managers to include project planning. 3. In such fields as psychology and sociology, verbal characterizations are frequently used to show the amount of some factor. How might one set up such a measure for a project management characteristic such as the “energy” of the project team? Answer: Team members could be asked to score on a 5 or 7 point scale the extent of their agreement/disagreement to statements such as: ○ I look forward to coming to work each day. ○ I find facing and resolving new challenges stimulating. ○ I take immediate action when I discover a problem. 4. How can the PM circumvent the problem that the monitoring system can only report on activities that have passed, thus telling the PM what has already gone wrong but not what will go wrong in the future? Answer: One way the project manager can use the monitoring system to predict future problems is to extrapolate trends in the data to the future and then compare this projection with the plan. Indeed, a better use of the monitoring system would be to use the information to anticipate future problems rather than reacting to them once they occur. Along these lines, the monitoring system could also include “lead indicators” as symptoms of problems. 5. How might using electronic media to report project information lead to problems with control? Answer: There are two main ways the use of electronic media could lead to problems with control: • The PM spends more time managing the electronic media (e.g., the project management software) than actually managing the project. • The speed that information can be transmitted can create problems. For example, an inaccurate entry could immediately trigger an exception report causing team members to shift their focus to an erroneous or irrelevant issue. 6. Explain how the earned value chart captures all three objectives of a project: performance, cost, and schedule. Answer: A cost variance is calculated as the difference between Earned Value (EV ) and the Actual Cost of Work Performed (AC). If the AC is larger than the EV, the variance is negative indicating that more was spent for the work performed than was budgeted. The schedule variance is calculated as the difference between the Earned Value (EV) and the Planned Value (PV) . A negative schedule variance indicates a behind schedule situation. In terms of performance, the earned value chart indicates whether progress is up to expectation, the “baseline” planned for this point in time. 7. Why isn’t there an earned value reporting convention that allows progress on a task to be credited when the task is half completed? Wouldn’t this be more accurate than giving credit only when the task is fully completed? Answer: It would be if, and only if, there was a reliable way to estimate the 50% completion point. Note: The answer to Question 7 notes another way to proceed with an in-process cost estimation. 8. When would spending and schedule variances be more informative than ratios? When would ratios be better? Answer: • Spending and scheduling variances are more informative when trying to understand the in-process performance for a given project at a particular point in time. • Ratios are more informative when trying to compare the performance across projects, project managers, or the progress of a project over time. 9. How should a PM reconcile the dual purposes of control: conserving resources and regulating results through the use of resources? Answer: The PM needs to be sensitive to the trade-offs among cost and scope/performance so that resources are used to maximum benefit in achieving performance on the project. The bottom line with control is that you don’t want the costs of the control systems to exceed the benefits. 10. Identify situations where each of the following control tools might be useful: earned value charts, benchmarking, critical ratios, control charts, variance analysis, trend projections. Answer: • Earned value charts are useful for monitoring the progress of in-process projects. • Benchmarking is useful in the project planning phase in helping determine project goals and resource requirements. Benchmarking can also be used to assess an organization’s project management systems and procedures. • Critical ratios, control charts, and variance analysis are all useful for monitoring the progress of in-process projects. In particular, the critical ratio is a single measure that includes performance, cost and schedule. Plotting the critical ratio on a control chart provides opportunities to spot patterns that may lead to problems. • Trend projections can be performed on any of the data collected by the monitoring and control system to estimate future values of the data and take corrective actions before the situation becomes a serious problem. 11. How might the existence of a change control system affect the behavior of a client, or a project team member, who desires to make a change in the project? Answer: By adding greater scrutiny, a change control system may reduce the number of change requests, particularly casual requests for changes. 12. “In order to manage for overall project success, control must be exercised at the detailed work level for each aspect of project performance or no significant change will occur.” Does this mean that the PM should micromanage the project? If not, what does it mean? Answer: It does not mean that the project manager should micromanage the project. Rather, it suggests that each project team member needs to monitor and control his or her own work. 13. Select a hypothetical project (e.g. designing and building a Web site, installing a new machine in an assembly line, or conducting a major inspection and repair of a passenger aircraft), and briefly describe an example of how each of the following types of control data might be used for project control: (a) Frequency counts (b) Raw numbers (c) Subjective numeric ratings (d) Indicator and surrogate measures Answer: Designing and building a new Web site, gave the following types of data control: (a) Frequency counts: Spelling errors per page, number of incorrect links, pages that take longer than 30 seconds to load. (b) Raw numbers: Time for pages to download, size of graphic files, number of lines of code. (c) Subjective numeric ratings Quality of webpages, ease of navigation, search capabilities. (d) Indicator and surrogate Time spent at a site could be used as a surrogate measures for user satisfaction. 14. Of all the rules for conducting meetings, the most difficult to enforce is the injunction against the weekly (or daily) standard project progress report (the “show and tell” meeting). Why is this, and under what circumstances do you think such meetings are justified? Answer: One reason it is hard to not have the weekly progress meeting is that people like to (a) report on the aspect(s) of the project with which they are familiar and (b) demonstrate what they have recently accomplished. The weekly progress meeting might be appropriate early in the project when coordination is required and team members are still getting to know each other and have not had an opportunity to develop informal communication channels. 15. If your project management software calculates earned value, or any other standard item to be reported, differently than the Project Management Institute suggests, should you deal with this matter in management reports? If so, how? Answer: The important thing about variances is that you understand what they mean and interpret them correctly in reports. Whether the sign is positive or negative when the cost is over budget or behind schedule is not that important as long as you understand what the calculation is telling you. Being able to properly interpret the variance and act accordingly is the critical task. Therefore, making a point in a report to note that the software package calculated a specific item differently than the standards set by the PMI is not that important, interpreting the number correctly and discussing the implications are. 16. Logically, when using earned value data in the critical ratio formula, should the “budgeted” cost be the planned value or the earned value? What problems occur with each choice? Answer: The critical ratio (CR) is the product of the schedule ratio times the cost ratio: CR = (actual progress/scheduled progress) x (budgeted cost/actual cost). The “budgeted cost” might logically be either the planned value or the earned value. If the planned value (i.e., the scheduled progress) is used then it effectively cancels out the denominator of the schedule ratio, leaving the CR as simply actual progress/actual cost, with no comparison to plan. However, if the earned value (i.e., the actual progress) is used then it uses the actual progress twice in the numerator of the CR, with the result being that the actual progress is compared to both the scheduled progress and the actual cost, but at least this way both actual progress and actual cost are compared to what was scheduled. Solutions to Exercises 1. The project in this problem is in its 26th week. Answer: Actual cost of work performed AC = $270,000 Budgeted cost of work performed EV = $272,000 Budgeted cost of work scheduled PV = $261,000 Cost/spending variance = EV – AC = $272,000 – 270,000 = $2,000 Schedule variance for the project = EV-PV = $272,000 – 261,000 = $11,000 Schedule Performance Index (SPI) = EV/PV = $272,000/261,000 = 1.042 Cost Performance Index (CPI) = EV/AC = $272,000/270,000 = 1.007 In summary, more has been spent than the baseline plan, but considerably more progress has been made than was either anticipated and even a bit more relative to what was spent. 2. In this problem, the project has just completed the 87th item on its action plan. Answer: Actual cost of work performed (AC) = $156,000 Budgeted cost of work performed (EV) = $162,000 Budgeted cost of work scheduled (PV) = $168,000 Cost/spending variance = EV-AC = $162,000 – 156,000 = $6,000 Schedule variance = EV-PV = $162,000 – 168,000 = -$6,000 Schedule Performance Index (SPI) = EV/PV = $162,000/168,000 = 0.964 Cost Performance Index (CPI) = EV/AC = $162,000/156,000 = 1.038 In this case, less has been spent than the baseline plan. However, even though progress has exceeded what has been spent, less progress has been made than should have been. 3. The project being considered in this problem is in its 6th week. It is helpful to draw the network to solve this problem. Answer: Actual cost of work performed (AC) = $400 + 180 + 300 + 400 + 200 = $1480 Budgeted cost of work performed (EV) = $300 + 200 + 250 + .2(600) + .2(400) = $950 (based on the information that d and e are 20% complete). Budgeted cost of work scheduled (PV) = 300 + 200 + 250 + .8(600) + .5(400) = $1430 (based on the figure showing that d should have finished 4 of its 5 days, or 80%, and we should be half finished). Cost/spending variance = EV – AC = $950 – 1,480 = -$530 Schedule variance = EV – PV = 950 – 1,430 = -$480 Schedule Performance Index (SPI) = EV/PV = $950/1,430 = 0.664 Cost Performance Index (CPI) = EV/AC = $950/1,480 = 0.642 In this instance, more has been spent than the baseline plan and, given what has been spent, less progress has been made than should have been. Critical ratio (CR) = (EV/PV)(EV/AC) = ($950/1430)($950/1480) = 0.426 Budget at completion BAC) = $300 + 200 + 250 + 600 + 400 = $1,750 Estimated (remaining cost) to completion (ETC) = (BAC – EV)/CPI = ($1750 – 950)/0.642 = $1246.11 Projected (total cost) estimated at completion (EAC) = ETC + AC = $1246.11 + $1480 = $2726.11 4. This assignment involves repeating Exercise 3 using MSP. Answer: Students should begin by inputting the original planned project data into MSP’s entry table as it appears in the problem. Only the activity names, predecessors, durations, can be entered in the Entry table. The Gantt chart would look as follows: The budgeted cost data is entered using the Cost Table. To enter this data you select the View menu, then Tables, then select Cost from the drop down list. Enter the budgeted cost information under the Fixed Cost section of the table. Fixed costs are assigned by activities as opposed to by resources. This problem is concerned about a cost of activity not a resource cost. The table will look as follows: Once the original data is in the action plan format, the students should save the Baseline data so that a comparison to actual can be calculated by MSP. To do this you need to go to the Tools menu, select Tracking, then select Save Baseline, then click OK so that you are saving the baseline for the entire project. Once the baseline has been saved, students need to enter the actual data provided in the problem. You next need to create a table to enter the actual costs and percent complete. By default MSP automatically calculates actual costs based on the percent an activity has been completed. In this example we need to turn off this feature. To do this you must select the Tools menu, then the Options line, then you select Calculations Tab. Next you deselect the option “Actual costs are calculated by MSP”. Once the automatic cost calculation is turned off, you select Table from the View menu and then select the Tracking table from the drop down menu to enter the information that you have on actual costs and percent complete. Enter the information that is provided in the case. The software will calculate the rest. Your spreadsheet/table should look as follows: 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. 5. Given an activity in a smartphone design project whose planned cost was $13,000 but actual cost to date is $12,000 so far, and whose value completed is only 80%, calculate the cost and schedule variances. Will the client be pleased or angry? Answer: EV = $13,000 (.80) = $10,400 PV = $13,000 Cost variance = EV – AC = $10,400 - $12,000 = -$1,600 Schedule variance = EV – PV = $10,400 - $13,000 = -2,600 The project is far behind schedule and over-budget for the amount of progress to date. The client will not be happy. 6. Resolve Exercise 3 using the 50-50 rule for planned value and earned value. Answer: The only thing that changes is the way earned value is calculated. Of course, everything that is calculated based on EV then also changes. Using the 50-50 rule, every activity that has finished continues to receive its full value while any activity that has started, but has not yet finished, receives 50 percent of its value. Actual cost of work performed (AC) = $400 + 180 + 300 + 400 + 200 = $1480 Budgeted cost of work performed (EV) = $300 + 200 + 250 + .5(600) + .5(400) = $950 = $1,250 Budgeted cost of work scheduled (PV) = 300 + 200 + 250 + .8(600) + .5(400) = $1430 Cost/spending variance = EV – AC = $1,250 – 1,480 = -$230 Schedule variance = EV – PV = $1,250 – $1,430 = -$180 Schedule Performance Index (SPI) = EV/PV = $1,250/1,430 = 0.664 Cost Performance Index (CPI) = EV/AC = $1,250/1,480 = 0.874 In this instance, slightly more has been spent than the baseline plan and less progress has been made than should have been, especially given what has been spent. Critical ratio (CR) = (EV/PV)(EV/AC) = ($1,250/$1,430)($1,250/$1,480) = 0.738 Budget at completion BAC) = $300 + 200 + 250 + 600 + 400 = $1,750 Estimated (remaining cost) to completion (ETC) = (BAC – EV)/CPI = ($1750 – $1250)/0.874 = $572 Projected (total cost) estimated at completion (EAC) = ETC + AC = $572+ $1480 = $2,052 7. Given the following information about a website design, which activities are on time, which are early, and which are behind schedule? Answer: We need the EV to find the schedule variance. We are given the critical ratio, PV, and AC but not EV. We can use algebra to find the formula for EV given this information. Once we have EV, we can calculate SV = EV – PV. Activity Budgeted Cost Actual Cost Critical Ratio Earned Value Schedule Variance A $300 $200 1.00 $245 -$55 B $125 $250 0.50 $125 $0 C $225 $150 1.50 $225 $0 D $100 $100 1.50 $122 $22 E $250 $250 0.67 $205 -$45 Activities A and E are late, B and C are on time, and D is early. 8. Design and plot a critical ratio chart for an advertising project that had planned constant, linear progress from 0 to an earned value of 400 over a 100-day duration. In fact, progress for the first 20 days has actually been: Answer: 4, 6, 8, 12, 14, 18, 24, 28, 30, 34, 40, 42, 42, 44, 48, 52, 54, 58, 62, 66 What can you conclude about this project? The planned schedule was for 400/100=4 units of progress each day, the straight line below. The project got off to a poor start and is becoming later as time progresses. 9. Given the following information, calculate the critical ratios and indicate which activities are on target and which need to be investigated. Comment on the situation for each of the activities. Answer: 10. Industrial Building, Inc., has two project teams installing virtually identical, 4-story commercial buildings for a customer in two separate cities. Both projects have a planned daily cost of 100 and a planned daily earned value of 100. The first six days for each team have progressed as follows: Answer: Compare the two projects in terms of general progress and according to critical ratios. The base data for the problem looks like this: Note that this data is incremental rather than cumulative. The cumulative data with CR calculations looks like this: It is interesting to note that while Team A has incurred more cost it has also achieved more progress. Therefore, based on the Critical Ratio, the teams are identical in their achievements to date. However, in both cases, their critical ratios are deteriorating and should be investigated for potential corrective actions. 11. At week 24 of a project to shoot a television commercial, the project manager is worried about her budget since costs have risen to $7,500. Is there a cost overage? If so, how much is it? Answer: Is the schedule ahead or -behind? Overall, does the project appear to be in control? Refer to figure below: PV = 900 + 1200 + 1200 + 1800 + (12/14)(1400) +0.6(1500) = 7200 EV = 900 + 1200 + 1200 + 1800 + 1400 +.4(1500) = 7100 AC = 7500 CPI = EV/AC = 7100/7500 = 0.947 SPI = EV/PV = 7100/7200 = 0.986 CSI = CPI (SPI) = 0.947 (0.986) = 0.934 Yes, there is a cost overage of $400. The schedule is slightly behind (20%) on task f, even though it is done with task e (14% ahead). But task f is slightly more expensive than task e, and f is further behind than we are ahead on task e, for a net result of being behind on schedule. Overall, costs are running about 5% high, but we are close to being on schedule, so although the project isn’t completely in control, it is doing fairly well. Incidents for Discussion Suggested Answers St. Margaret’s Hospital Question: what should Mary Lynn do? Answer: 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? Answer: 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. Answer: 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? Answer: Jeremy needs to be sure control systems for monitoring the project are incorporated into the plan. He should ask his project team to develop additional steps and processes throughout the life of the project to include more than an update of status. The controls should include a method to accurately report duration changes from the original estimate, resource utilization changes, etc. An earned value analysis during the project would be appropriate. This type of analysis would allow the team to make adjustments to the steps in the action plan in a timely fashion so that the entire project is not affected. This would also allow Alex to monitor the project more closely. The company should also develop a change control system for their work with clients. Such a system will minimize the impact of the scope creep that appears to happen at J. Z. Smith. They need a formal process to deal with changes to the original project plan. Jeremy can design this system to include his input. He can make sure that the budget and estimate of completion dates are adjusted if he and the client both agree on the cost and duration of any changes the client wants in the scope of the project. Cable Tech, Inc. Question: Does the monitoring and control method seem adequate? Answer: 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? Answer: Among some of the potential problems: ○ 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. ○ 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. ○ The employees were never consulted on the design of these policies and may reject their enforcement. ○ Although punishment is provided for, rewards for good attendance are not recognized so no positive motivation is being considered. Suggested Case Analyses and Solutions Friendly Assisted Living Facility -- 7 Teaching Purpose: This installment of the Assisted Living Facility case addresses issues related to project progress meetings and determining how much time has to be made up to get back to the original baseline schedule. Question 1: What do you think the construction project manager should have done when the Director of Security stopped attending the project meetings? Answer: 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. 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? Answer: 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. Question #4: Develop an action plan and draw a Gantt chart for the Parking Lot phase of the project. Answer Fred’s questions. Answer: 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 15th 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? Answer: 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. 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 Palm star’s profits, delaying the 2000HD’s introduction by 3 months or increasing the project’s budget by 30 percent? Answer: Delaying the launch of the product by 3 months would result in a loss of $18,000,000 (200,000 units  $450/unit  .2 contribution margin) in contribution to profit and overhead. Adding resources to complete the project on time would increase costs and therefore lower profits by $900,000 (30% of $3 million). Therefore, not launching the 2000HD on time would have a much larger impact on Palm star’s profits. Question 2: Are there other factors you would consider in addition to profit? Answer: There are a variety of other factors that should be considered including damage to Palm star’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 Palm star’s cost of capital. With this added information, a discounted cash flow analysis could have been undertaken. Question 3: What should Palmstar do? Why? Answer: Clearly, Palmstar should spend the extra $900,000 to launch the 2000HD on time. This will maximize its profits, help to enhance its reputation, and help preserve its competitive position. There is usually very little to be gained from being late to the market. Question 4: How generalizable do you think the results of your analysis in this particular case are to other situations? Answer: 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. Peak Lighting, Inc. Teaching Purpose: This case provides students with the opportunity to investigate a project where material costs outweigh labor costs significantly. Question 1: Calculate the schedule variance and cost variance for the Bullwhip project. Answer: The project is composed of 4 phases: Develop Sound Track (1 week), Order Material (4 weeks), Stage Construction and Software (3 weeks), and Testing (1 week). It is important to point out that no labor is required during the second phase. Therefore the total labor cost of $200,000 is incurred over 5 weeks (phases 1, 3, and 4). Assuming the labor costs are spread out evenly across phases 1, 3, and 4, 20% of the labor costs have been incurred to date. Thus the earned value was apparently calculated as 20% × $600,000 or the $120,000 generated by the report Eric refers to in the case. The actual costs incurred to date are $440,000 -- $40,000 labor in phase 1 (20% × $200,000) and $400,000 in material costs from phase 2. Assuming the labor cost is spread evenly across phases 1, 3, and 4, $440,000 would also be the planned value. Based on this, the cost variance and schedule variance can be calculated as follows: Cost Variance = $120,000 – $440,000 = $-320,000 Schedule Variance = $120,000 – $440,000 = $-320,000 Both variances are negative and are consistent with Eric’s concern. The table below demonstrates another way to calculate the planned value of each phase. Activity Length Cost Sound track 1 $40,000 Materials 4 $400,000 Construction 3 $120,000 Testing 1 $40,000 Further, since the project “had been underway for 5 weeks and all the materials had arrived” Earned Value can be calculated as : Activity Length Cost Percent Complete Earned Value Sound track 1 $40,000 100% $40,000 Materials 4 $400,000 100% $400,000 Construction 3 $120,000 0% $0 Testing 1 $40,000 0% $0 $440,000 Question 2: Does Jimmy’s point about the material costs have merit? If so, does this have any implications for the way the earned valued is calculated at Peak? Answer: Yes Jimmy’s point about the material costs has merit. Since materials represent two-thirds of the costs and they are incurred in the first half of the project, not accounting for this significantly distorts the Planned Value. Question 3: Who is right about the status of the project? Eric or Jimmy? Answer: Jimmy is correct. Eric’s error is in incorrectly estimating the percent complete based only on labor. Question 4: What advice, if any, would you offer Eric related to his new role of VP of Operations? Answer: First, it was great that he put a planning system in place. However, he should not put down people for not having formal knowledge of project management, but rather should recognize this as an important development opportunity. Eric also has to recognize that he is in a very different industry. Consulting is very labor intensive while at Peak Lighting material costs account for the majority of costs. Solution Manual for Project Management in Practice Jack R. Meredith , Scott M. Shafer , Samuel J. Mantel 9781119385622