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BA 339 – Operations Management. Chapter 3, Project Management (PM) Modern PM Aligning Projects with Organization Strategy Organization: Structure & Culture Defining the Project Estimating Project Times & Costs Developing the Project Plan Managing Risk Scheduling Resources.

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BA 339 – Operations Management

  • Chapter 3, Project Management (PM)

    • Modern PM

    • Aligning Projects with Organization Strategy

    • Organization: Structure & Culture

    • Defining the Project

    • Estimating Project Times & Costs

    • Developing the Project Plan

    • Managing Risk

    • Scheduling Resources


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Chapter 3 – Project Management

  • Modern Project Management

    • Projects in ancient times – Pyramids, Great Wall of China, Medieval Cathedrals

    • Current – most common in construction, IT, DOD contracts, Hollywood films, and large consulting firms

    • Characteristics of a project:

      • Established objective

      • Defined lifespan with a beginning & end

      • Usually involves several departments & professionals

      • Typically involves do something that’s never been done before

      • Specific time, cost and performance requirements


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Chapter 3 – Project Management

  • Modern Project Management

    • Project lifecycle

      • Definition/Identification – goals, specifications, tasks, responsibilities

      • Planning – Schedules, budgets, resources, risks, staffing

      • Execution – Status reports, changes, quality, forecasts

      • Delivery – transfer documents/ownership, train customer, release resources, reassign staff, lessons learned

    • PM & OM

      • PM usually involves one or more areas of OM and affects one or more areas


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Chapter 3 – Project Management

  • Modern Project Management

    • Importance of project management

      • Compression of product lifecycle (hi-tech = 1.5-3 yrs. Vs. 10-15 yrs. 30 years ago)

      • Global competition – quality management involves project management; more work is being “projectized” (especially product development)

      • Knowledge explosion – increase complexity

      • Corporate downsizing – PM replacing middle management

      • Increased customer focus – customized products and maintaining lucrative customer relationships

      • Rapid development of 3rd world and closed economies

      • Small project represent big problems – cumulative impact of many small project problems


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Chapter 3 – Project Management

  • Modern Project Management

    • PM & maturity levels

      • Level 1 – absence of a process for developing a project plan that includes cost, schedule & performance

      • Level 2 – Repeatable processes used primarily on large mission-critical projects

      • Level 3 Well-defined processes that are integrated with organizational processes

      • Level 4 – Seamless, integrated, holistic project systems and processes that include strategic decisions that take into account selection, plans, performance & lessons learned

      • Level 5 – Continuous improvement by archiving and using lessons learned to improve PM learning


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Chapter 3 – Project Management

  • Modern Project Management

    • Technical & socio-cultural dimensions

      • Technical – scope, WBS, schedules, resource management, budgets, status reports

      • Socio-cultural – leadership, problem solving, teamwork, negotiations, politics, customer expectations


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Chapter 3 – Project Management

  • Aligning Project with Organization Strategy

    • Strategic management process

      • Review & define the organizational mission

      • Set long-range goals & objectives

      • Analyze and formulate strategies to reach objectives (“SMART” characteristics)

      • Implement strategies through OM and projects

    • Projects should reflect a balanced approach for achieving goals & objectives; requires a consistent method for this

    • Alignment between strategic goals and projects often affected by:

      • Implementation gap

      • Organizational politics

      • Resource conflicts and multi-tasking


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Chapter 3 – Project Management

  • Organization: Structure & Culture

    • PM structures

      • Functional organization – traditional “stovepipe”

        • Advantages:

          • Project completed within existing organization structure,; no alteration of operations

          • Maximum flexibility in use of staff

          • If scope narrow, in-depth expertise can of functional unit can be applied

          • Normal career paths are within functional divisions are maintained

        • Disadvantages

          • Project often lack focus and commitment

          • Poor integration across functional units

          • Generally takes longer to complete

          • Motivation of team members often limited


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Chapter 3 – Project Management

  • Organization: Structure & Culture

    • PM structures

      • Dedicated project teams – operate separately from rest of the parent organizations

        • Advantages:

          • Relatively simple way to complete projects; does not disrupt ongoing operations

          • Get done more quickly

          • High level of motivation and dedication

          • High level of cross-functional integration (if staffed properly)

        • Disadvantages:

          • Expensive; loss of economies of scale

          • Projectitis – we-they divisiveness

          • Inhibits maximization of technological expertise

          • What to do with personnel when project is complete


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Chapter 3 – Project Management

  • Organization: Structure & Culture

    • PM structures

      • Matrix management – hybrid that overlays PM structure on functional hierarchy (can have functional, balanced, or project matrix)

        • Advantages:

          • Share resources (more cost efficient)

          • Stronger project focus by having assigned PM

          • Access to larger reservoir of talent (homeport return helps with economies of scale & technological expertise)

          • More flexible utilization of resources

        • Disadvantages:

          • Tensions between PMs and functional organizations can breed conflicts (need to be managed)

          • Resource sharing can lead to conflict/competition

          • Violates unity of command (two bosses)

          • Decision making can get bogged down


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Chapter 3 – Project Management

  • Organization: Structure & Culture

    • Factors in PM Structure Selection

      • Size of project

      • Strategic importance

      • Novelty & the need for innovation

      • Need for integration (number of departments)

      • Environmental complexity (external interfaces)

      • Budget & time constraints

      • Stability of resource requirements

      • *** Higher the levels of these seven factors, the more autonomy & authority the PM & team require >> matrix or dedicated teams are preferred


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Chapter 3 – Project Management

  • Organization: Structure & Culture

    • Characteristics of organizational culture and their relationship to PM

      • Member identity – job vs. organization

      • Team emphasis – individual vs. group

      • Management focus – task vs. people

      • Unit integration – independent vs. interdependent

      • Control – loose vs. tight

      • Risk tolerance – low vs. high

      • Reward criteria – performance vs. other

      • Conflict tolerance – low vs. high

      • Means-end orientation – means vs. ends

      • Open-system focus – internal vs. external


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Chapter 3 – Project Management

  • Defining the Project

    • Step 1 – Defining the Project Scope

      • Project objectives

      • Deliverables

      • Milestones – significant events

      • Technical requirements

      • Limits & exclusions

      • Reviews with customers/stakeholders


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Chapter 3 – Project Management

  • Defining the Project

    • Step 2 – Establishing Project Priorities

      • Meeting customer/stakeholder expectations in terms of (triple constraints):

        • Cost

        • Schedule

        • Performance (scope, technical, quality)

      • Tradeoffs can be done by using a priority matrix >> for each of the triple constraints, determine whether to:

        • Enhance

        • Constrain

        • Accept


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Chapter 3 – Project Management

  • Defining the Project

    • Step 3 – Creating the Work Breakdown Structure

      • Once scope & deliverables have been determined >> project is successively subdivided into smaller & smaller work elements

      • Hierarchical – Project > Task > Subtask > Deliverable > Work Package

      • Provides basis for scheduling, resourcing, and budgeting

      • Each work package:

        • Defines work (what)

        • Identifies time to complete (how long)

        • Identifies a time-phased budget to complete (cost)

        • Identifies resources needed to complete (how much)

        • Identifies single person responsible for work (who)

        • Identifies monitoring points for measuring progress


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Chapter 3 – Project Management

  • Defining the Project

    • Step 4 – Integrating the WBS with the Organization (creating the OBS)

      • Creates a matrix between the WBS and the organizational resources required to perform the work

    • Step 5 – Code the WBS for the Info. System

      • Provides the “structure” for tracking and controlling work, information, costs, etc.

        • 1.0 - Project

          • 1.1 – Task

          • 1.1.1 - Subtask


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Chapter 3 – Project Management

  • Defining the Project

    • Process Breakdown Structure (PBS)

      • Used for process-oriented projects (such as business process improvement or organizational re-engineering efforts

    • Responsibility Matrices

      • Involves taking the OBS to a lower level and identifying specific individuals who will perform work identified in work packages


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Chapter 3 – Project Management

  • Estimating Project Costs & Times

    • Estimating – process of forecasting or approximating the time and cost of completing project deliverables

    • Unique to the organizations – there is no off the shelf process

    • 2 types:

      • Macro: top-down – derived by analogy or mathematical relationships (parametric)

        • Most useful for strategic decision making, high uncertainty, small, internal projects, unstable scope

      • Micro: bottoms-up – based on estimates of elements found in the WBS

        • Most useful when cost/time are important, fixed price contracts and when customers want details

    • Accuracy increase with time spent – e.g., they cost $$$

    • Cost, time, & budget estimates are the lifeline to controlling projects


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Chapter 3 – Project Management

  • Estimating Project Costs & Times

    • Factors influencing quality of estimates

      • Planning horizon

      • Project duration

      • People

      • Project structure & organization

      • Padding estimates

      • Organizational culture

      • Non-project factors – equipment downtime, holidays, legal limits, etc.


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Chapter 3 – Project Management

  • Estimating Project Costs & Times

    • Macro (parametric) approaches

      • Ratio method – used in the concept (“need”) phase. Ex. - $110/SF. x 2,700 SF = $297,000

      • Apportion method – extension of ratio method; based on past projects/costs; require good historical accuracy to ensure accuracy. Ex. – Construction loan payouts – 3% for foundation, 25% for framing, 15% for plumbing/heating, etc. Can apportion costs to WBS deliverables based on history.

      • Function Point Methods for SW and IT projects – function points are weighted macro variables or major parameters such as no. of inputs/outputs, number of inquiries, data files and interfaces. Usually adjusted for complexity and added. Provide basis for estimating labor.

      • Learning Curves – used for repetitious projects of similar scope. Recognize that learning occurs with repetition. “Each time the output quantity doubles, the unit labor hours are reduced at a constant rate.” 60% = significant improvement; 100% = no improvement.


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Chapter 3 – Project Management

  • Estimating Project Costs & Times

    • Micro approaches

      • Template methods – uses past, similar projects as a starting point and then adjusted for differences. Permits development of schedule, cost and budget estimates in a short period of time.

      • Parametric methods applied to specific tasks – similar to parametric techniques, but applied to WBS tasks. Ex. – Wallpaper estimate ($5/SY paper x $2SY installation = $7SY)

      • Detailed estimates for WBS work packages – based on experience of personnel doing the work. If significant uncertainty exist, often use low, avg. & high estimates

      • Phase estimating (hybrid) – begins with macro estimate and refines it for phases of the project. Breakdowns may include concept definition, design production, deliverables, work package definition, etc.


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Chapter 3 – Project Management

  • Estimating Project Costs & Times

    • Budget estimates

      • Not the same as cost estimates.

      • Cost estimate becomes a budget when it is time-phased.

      • WBS work packages require time=phased budgets

      • Includes duration and start/end dates

      • Types of costs include: direct labor, materials, equipment, overhead, G&A


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Chapter 3 – Project Management

  • Estimating Project Costs & Times

    • Estimating guidelines

      • Responsibility –at work package level, should be done by person most familiar with work

      • Use several people to estimate – all should have relevant experience

      • Normal conditions – should be based on normal conditions, efficient methods and normal level of resources (Ex. – 8 hours for shift work)

      • Time units – all time estimates need consistent time units

      • Independence – should assume independence of tasks

      • Contingencies – should not include allowances for contingencies (should be estimated separately at a higher level)

      • Add risk assessments to estimates to avoid surprises – new technology vs. proven process. Use optimistic, most likely and pessimistic estimates.


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Chapter 3 – Project Management

  • Developing the Project Plan

    • Project Network Terminology

      • Activity – element that requires time (may or may not include resources). Usually represent one or more tasks from a work package

      • Merge activity – activity that has more than one activity immediately preceding it (e.g., more than one dependency arrow)

      • Parallel activity – activities that take place at the same time

      • Path – sequence of connected dependent activities

      • Critical path – longest path through the network; if an activity on the critical path is delayed, the project will be delayed by the same amount

      • Event – point in time where an activity is started or completed

      • Burst activity – activity with more than one activity immediately following it


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Chapter 3 – Project Management

  • Developing the Project Plan

    • Rules for Developing Project Networks

      • Networks typically flow right to left

      • An activity cannot begin until all preceding connected activities have been completed

      • Arrows on networks indicate precedence and flow; they can cross over each other

      • Each activity should have a unique identification number

      • An activity identification number must be larger that than of any activities that precede it

      • Looping is not allowed


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Chapter 3 – Project Management

  • Developing the Project Plan

    • Approaches to Developing Networks

      • Activity-on-Node - AON (precedence diagram method)

        • Activity represented by box; dependencies depicted by arrows

        • 3 basic relationships for activities

          • Predecessor activities – which activities must be completed before the activity

          • Successor activities – which activities must immediately follow the activity

          • Current/parallel activities – which activities can occur while the activity is taking place

      • Activity-on-Arrow – AOA: same as AON except that activities are represented by the arrow


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Chapter 3 – Project Management

  • Developing the Project Plan

    • Networks Computations

      • Forward pass (earliest times – start/complete):

        • Starts with the first project activities and traces each path through the network to the last project activities.

        • Activity times are added as you trace through the path.

        • Longest path denotes project completion time for the plan & is called the critical path (CP)

      • Backward pass (latest times – start/complete)

        • Starts with the last project activities and traces backward on each path to the first project activities.

        • Activity times are subtracted as you trace through the path.

        • Before computed, the last project activity must be selected.

      • Slack (float) – used to determine which activities can be delayed. Is simply the difference between LS and ES or LF and EF.


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Chapter 3 – Project Management

  • Managing Risk

    • Project risk is highest at the beginning and decreases as the project progresses

    • Cost to fix the risk event is lowest at the beginning and increases as the project progresses.

    • For new products, the cost to fix increase geometrically as you move through the product lifecycle (concept definition, design, production, delivery, installation)

    • “A god solution to a well-posed decision problem is almost always a smarter choice than an excellent solution to a poorly posed one.”


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Chapter 3 – Project Management

  • Managing Risk

    • The Risk Management Process

      • Multiple risk management models – FAA, GAO, DOE, COSO, AS/NZ 4360

      • All models typically include the following process steps:

        • Risk identification – involves generating a list of all possible risks that could affect a project

        • Risk assessment – involves assessing risk based on impact severity, probability/likelihood of occurring, and controllability (includes scenario analysis and probability/impact matrices)

        • Risk response – involves developing a response strategy and contingency plans (usually includes mitigation, transfer, avoidance, sharing, and acceptance)

        • Risk response control – involves implementing the risk strategy, monitoring and adjusting, and change management


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Chapter 3 – Project Management

  • Managing Risk

    • Classification

      • Many classification systems; project risk can be classified based on the following impacts (often referred to as the triple constraints):

        • Cost

        • Schedule

        • Technical/quality


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Chapter 3 – Project Management

  • Scheduling Resources

    • “Project network times are not a schedule until resources have been assigned”

    • Key ??

      • Will assigned labor/equipment be adequate and available for the project?

      • Will outside contractors have be used?

      • Do unforeseen resource dependencies exist? Is there a new critical path?

      • How much flexibility do we have in using resources?

      • Is the original deadline realistic?

      • If another project or additional work is added, will it cause delays in the project?


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Chapter 3 – Project Management

  • Scheduling Resources

    • Constraints

      • Technical or logic constraints – usually address sequence in which activities must occur.

        • Example: Design > code > test

        • Example: Pour foundation > frame > roof

      • Resource constraints – absence or shortage of resources (can alter technical constraints)

        • People

        • Materials

        • Equipment

        • Capital

      • Physical constraints


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