Ch. 4: Projects
A project is a set of connected tasks aimed at a major output and spread over a considerable amount of time. Project management means planning, directing and controlling resources (people, equipment, material) so that the project meets its technical, cost and time constraints. Employee time is frequently the most important resource, and people skills such as motivating others and settling conflicts count as much as technical methods.
Senior management ought to pick a portfolio of projects that backs the strategy. A project may be breakthrough (creating whole new markets), platform (basic improvements to current products) or derivative (small incremental changes), and every project belongs to one of four areas: process change, product change, alliance and partnership, or research and development.
Organizing the project team
| Structure | Advantages | Disadvantages |
|---|---|---|
| Pure project: self-contained team works full time | PM has full authority; one boss; short communication lines, fast decisions; high pride and commitment | Duplication of resources; organizational goals ignored; functional knowledge weakens; worry about life after the project delays termination |
| Functional project: project housed in a functional division, members stay in their units | Members work on several projects; expertise stays in the function; a home after the project; critical mass of specialists | Non-functional aspects shortchanged; weak motivation; client needs handled slowly |
| Matrix project: PM decides what and when, functional managers decide who and which technology | Better communication between functions; PM accountable; little duplication; functional home; parent policies followed | Two bosses; needs a PM with strong negotiating skills; suboptimization when PMs hoard resources |
A matrix can be weak, balanced or strong depending on how much authority the PM has relative to functional managers. In every structure the PM is the primary contact with the customer.
Organizing project tasks
A project starts with a statement of work (SOW): objectives, work to be done, schedule, budget, milestones and reports. It is divided into tasks, subtasks and work packages (a group of activities assignable to one organizational unit, with its own schedule, budget and measures). A project milestone is a specific event, such as completion of the design. The work breakdown structure (WBS) is the hierarchy of tasks, subtasks and work packages; the level of detail depends on where responsibility can be assigned and where cost data are collected. Activities are pieces of work that consume time (even waiting for paint to dry). A Gantt chart (bar chart) shows the time and sequence of activities; milestone charts, cost charts and labor-hour charts support control.
Earned value management (EVM)
Comparing actual cost with budget alone is misleading, because it ignores how much work has been done. EVM combines scope, schedule and cost.
BCWS (budgeted cost of work scheduled, planned value) = sum of (planned percent complete x activity budget). BCWP (budgeted cost of work performed, earned value) = sum of (actual percent complete x activity budget). AC = actual cost from accounting.
Schedule variance SV = BCWP - BCWS; Schedule performance index SPI = BCWP / BCWS.
Cost variance CV = BCWP - AC; Cost performance index CPI = BCWP / AC.
SV and CV above 0, or SPI and CPI above 1, are good (ahead of schedule, under budget).
Example 4.1: BCWS = 18 + 10 + 16 + 6 = $50K, BCWP = 18 + 8 + 14 + 0 = $40K, AC = $45K. SV = -10K, SPI = 0.8 (behind schedule); CV = -5K, CPI = 0.89 (over budget: about $1.13 spent per $1 of work).
Critical path method (CPM)
CPM (DuPont maintenance, known times) and PERT (Polaris missile, uncertain times) date from the 1950s; the book uses the term CPM for both. The critical path is the longest chain of activities through the network; it has zero slack, and any delay on it delays the whole project. There can be several critical paths.
- Identify activities and estimate durations.
- Determine the sequence using immediate predecessors and draw the network.
- Find the critical path (longest path).
- Compute early start/finish (forward pass: ES = latest EF of predecessors, EF = ES + t) and late start/finish (backward pass: LF = earliest LS of successors, LS = LF - t).
Slack = LS - ES (= LF - EF): the time an activity can be delayed without delaying the project. Critical activities have zero slack.
Simple example: A(1), B(2) and C(1) after A, D(1) after B and C. Paths A-B-D = 4 weeks and A-C-D = 3 weeks, so A-B-D is critical and C has 1 week of slack. An early start schedule starts every activity as soon as possible; a late start schedule starts each as late as possible, postponing costs.
Three time estimates
Expected time ET = (a + 4m + b) / 6 (a = optimistic, m = most likely, b = pessimistic; based on the beta distribution).
Variance σ^2 = ((b - a) / 6)^2.
Z = (D - TE) / √(sum of σ^2 on the critical path), where D is the due date and TE the expected completion time; look up the probability of finishing by D in the normal table.
Activity times are assumed independent, so by the central limit theorem the path time is approximately normal with mean equal to the sum of ETs and variance equal to the sum of variances. With several critical paths, use the one with the largest variance (conservative). In the book's example, Z = (35 - 38) / √11.89 = -0.87, giving about a 19 percent chance, and the true chance is even lower because other paths might become critical.
Time-cost models and crashing
Crashing shortens a project by spending more on activities. Activity direct costs (overtime, extra workers, equipment) rise as the project is shortened, while project indirect costs (overhead, facilities, penalties) fall. The goal is the duration that minimizes total cost.
Cost per day to expedite = (CC - NC) / (NT - CT), with normal cost NC, crash cost CC, normal time NT and crash time CT (assuming a linear relationship).
Procedure: draw the network with NC, NT, CT, CC; compute cost per day for each activity; find the critical path; shorten it one day at a time using the cheapest critical activity (for parallel critical paths, shorten both together); repeat and plot direct, indirect and total cost to find the minimum-cost schedule. In Example 4.4 the minimum is an 8-day schedule costing $40 ($30 direct + $10 indirect).
Project management information systems
Packages such as Microsoft Project and Primavera schedule tasks, allocate and level resources across competing projects, hold several baselines, and produce tracking Gantt charts and slipping filters to spot deviations (management by exception).