TEST BANK For Corporate Finance, 13th Edition By Stephen Ross, Randolph Weste...
Lecture 12 - Project Management (Lecturer).pptx
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Project Management
Operations and Supply Chain Management
Lecture 12
Project Structure
Critical Path Method (CPM) and Gantt Chart
This lecture and its associated materials have been produced by Dr. Pichawadee Kittipanya-ngam (PhD, Cambridge) of
iAcademy for the purposes of lecturing on the above described subject and the material should be viewed in this
context. The work does not constitute professional advice and no warranties are made regarding the information
presented. The Author and iAcademy do not accept any liability for the consequences of any action taken as a result of
the work or any recommendations made or inferred. Permission to use any of these materials must be first granted by
iAcademy.
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Summary: Week 11 Lecture
• Capacity is “the amount of resources inputs available
relative to output requirements over a particular period
of time”
• There are 3 capacity measures: input, output, utilization
rate
• MRP is a logical approach to the problem of determining
the number of parts, components, and materials needed
to produce/purchase for each end item.
• ERP or Enterprise Resource Planning is a business
process management software that integrates all
activities and data within an organization.
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• Examples of bad project management between
construction workers and engineers
Why is “project management”
important?
No windows
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• More examples of bad project management
between construction workers and engineers
Why is “project management”
important?
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What is Project Management?
• A project is a series of related tasks being directed
towards some major output and requiring a significant
period of time & resources to perform
• Example
– A project of building a house can be a series of the
following tasks
• Gathering the requirements of the house owner e.g. how
many bedrooms/bathrooms/kitchen/… in a house
• Conceptual Design
• Interior Design
• Construction & electricity wired
• Interior decoration & loose furniture decoration
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What is Project Management?
• Given the previous list of tasks in building a
house, the time and resources to complete
those tasks must be identified as well. Then, it
comes to the management activities of project
• Project Management involves planning,
directing, and controlling resources (people,
equipment, material) to meet the technical,
cost, and time constraints of a project.
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What is Project Management?
• Project Management (PM) differs from
Operations Management (OM) because
– PM is a temporary job with unique tasks or
activities, OM is an on-going job with repetitive
tasks.
– PM aims to finish the project and close it as soon as
possible whereas OM aims to sustain the business
as long as possible.
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Project Structure
• Before the project starts, senior management
must decide which of 3 organizational
structures will be used to tie the project to the
firm.
– Pure project structure
– Functional project structure
– Mixed project structure
• Let’s explore the 3 structures in details.
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1. Pure Project Structure
• This structure is often seen as small project-
oriented teams where the necessity for speed
and flexibility is required and that cannot be
achieved through hierarchical management
structure.
• Pure project structure assigns everyone to work
full time on the project and their work will be
done once the project is closed only.
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Example of a pure project structure
Every manager is only responsible for 1 project and each team
member (analysts, architect, developer, tester) also works full-
time for that particular project.
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1. Pure Project Structure
• Advantages of pure project structure are as
follow:
– Project manager has full authority over the project
as there is only 1 boss in this job
– Short communication & quick decisions can be
made easily due to the full time attention from
employees
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1. Pure Project Structure
• Disadvantages of pure project structure are as
follow:
– There is a duplication of resources as each project
requires similar supporting resources such as
finance officers, accountants, technicians, for
example.
– The objective of the project can misalign with the
firm’s strategy
– Project members feel unsecured of their job after
the project ends, resulting in project delays.
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2. Functional Project Structure
• This structure is completely different from the
pure project structure.
• The project is managed by different functional
division such as
– Purchasing manager
– Engineering team
– Manufacturing team
– Research and development team
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Example of functional project structure
• Each department (R&D, Engineering,
manufacturing) can be responsible for many
projects at a time and all of them are managed
by manager of each department.
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2. Functional Project Structure
• Advantages of functional project structure
– A member can work on many projects according to
their expertise, therefore, there is no duplication of
resources in this case
– There is a clear career path for each member, hence
there is no worry of losing jobs for each member
after the project ends
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2. Functional Project Structure
• Disadvantages of functional project structure
– Each member is involved in too many things due to
the cross-functional structure nature, therefore,
they do not have enough time to pay full attention
to each project, resulting in slow decision making.
– The motivation of the project team is weak because
each project member gets too distracted by too
many projects)
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3. Mixed Project Structure
• This structure attempts to blend properties of
functional and pure project structures.
• Each project utilizes people from different
functional areas.
• The project manager decided what tasks and
when they will be performed, but the functional
manager controls which people and
technologies are used.
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Example of Matrix Project Structure
Every project has a separate project manager cutting across
different department whereas each department can take
more than 1 project at a time.
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3. Mixed Project Structure
• Advantages of mixed project structure
– Project manager can focus on their own project
– The duplication of resources is minimised due to the
shared resources
– Communication across functions is enhanced as
there is a project manager to take care of this job
– Project members have no worries about the job loss
after the project ends
– Company’s strategy is followed accordingly
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3. Mixed Project Structure
• Disadvantages of mixed project structure
– There are 2 Bosses of each employee and that
creates confusions and conflicts. It depends on
“who give the promotion?”
– There is a high chance of failure if the project
manager doesn’t have a strong negotiation skill
because of the potential conflicts of interest
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Project Planning
• Project planning is the most critical activity in
project management and it gets the least
amount of our time.
• To plan a project, the work breakdown
structure (WBS) and critical path analysis are
required.
• What are the work breakdown structure (WBS)
and critical path analysis?
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Work Breakdown Structure (WBS)
• Let’s watch a video clip of work breakdown
structure (WBS)
– How To Make A Work Breakdown Structure
An example
of WBS
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Project Planning & Management
• To manage a project, product planning and
work break down structure are required.
• After having the list of all tasks from work
breakdown structure, then the timeline of the
project can be projected. One tool to help
managing the timeline of the project is called
“CPM (Critical Path Method)”, which will be
introduced to you in the next slides.
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Critical Path Method (CPM)
• What is CPM?
– CPM is a network diagramming technique used to
predict the total project duration using AoN (Activity
of Network) technique to map the project activities
• The purposes of CPM are
– To help calculate the project’s finished date
– To identify to what extent each activity can delay
without delaying the project completion
– To identify the activity with the highest risk that
cannot delay without changing the project finished
date
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Critical Path Method (CPM)
• To find a critical path in each project, drawing
the Activity Network Diagram helps depicting
the project details into small tasks with
timeline.
• Let’s see an example of how to draw an activity
network diagram for a project.
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Example of Activity Network
• This project is about the investment decision
process. This project requires 4 steps to
complete as follow
– Activity A: Select a company to invest in
– Activity B: Obtain annual report and perform ratio
analysis
– Activity C: Collect stock price data and perform
technical analysis
– Activity D: Review data and make a decision
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Example of Activity Network
• Step 2: Draw the second activity (Activity B)
with the time consumed after the Activity A
according to the condition stated as shown
below
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Example of Activity Network
• Step 3: Draw the third activity (Activity C) with
the time consumed after the Activity A
according to the condition stated as shown
below
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Example of Activity Network
• Step 4: Draw the forth activity (Activity D) with
the time consumed after the Activity B and C
according to the condition stated as shown
below
This is the activity
network diagram.
Next we need to find
the critical path of this
network to do
timeline management
of the project.
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Critical Path Method (CPM)
• To calculate the critical path, we need to first
calculate the following terms:
– ES = Early Start
– EF = Early Finish
– LS = Late Start
– LF = Late Finish
– Slack/Float Time
– Critical activities
The definition of each term is available in the next
slide.
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Critical Path Method (CPM)
• Float (Slack) Time = the amount of time the
activity can be delayed or lengthened
• Total Float Time = the amount of time the
activity can be delayed or extended without
extending the overall project’s completion time.
• Free Float Time = the amount of time the
activity can be delayed without delaying the
early start date of its subsequence tasks
• Critical Activities have the LEAST amount of
float (slack) time.
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Critical Path Method (CPM)
• Sometimes the symbol of an activity can be
written in many ways such as
Activity A (DR)
ES EF
LS LF
ES = Early Start
EF = Early Finish
LS = Late Start
LF = Late Finish
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Critical Path Method (CPM)
• Let’s watch a video clip of how to calculate the
critical path from an activity network diagram
– Critical Path Method (CPM)
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Benefits and Limitations of CPM
• Benefits of CPM
– It is useful when scheduling and controlling large
projects
– It is easy to apply in reality and can be used for a
wide variety of projects
– The graphical networks help to perceive
relationships among project activities
– Critical path and slack time analyses help pinpoint
activities that need to be closely watched
– It is useful in monitoring not only schedules but
costs as well
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Benefits and Limitations of CPM
• Limitations of CPM
– Project activities have to be clearly defined,
independent, and stable in their relationships
– Precedence relationships must be specified and
networked together
– Time estimates tend to be subjective and are
subject to fudging by managers
– There is an inherent danger of too much emphasis
being placed on the longest or critical path
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What is “Gantt Chart”?
• After the CPM analysis is completed, the
following phase is to construct the GANTT chart
and then to re-allocate resources and re-
schedule if necessary.
• GANTT charts have become a common
technique for representing the phases and
activities of a project work breakdown structure
(WBS)
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What is “Gantt Chart”?
• A type of chart that shows the Work
Breakdown Structure (WBS) in terms of the
start and finish dates of its components,
activities and sub-activities as shown below.
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Gantt Chart Details
• The bar in each row identifies the corresponding task
• The horizontal position of the bar identifies start and end times of
the task
• Bar length represents the duration of the task
• Task durations can be compared easily
• Good for allocating resources and re-scheduling
• Precedence relationships can be represented using arrows
• Critical activities are usually highlighted
• Slack times are represented using bars with doted lines
• The bar of each activity begins at the activity earliest start time
(ES)
• The bar of each activity ends at the activity latest finish time (LF).
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Brief history of the Gantt Chart
• It is developed by Henry Gantt
• Its first major use was during the First World
War, started as a simple scheduling tool
• Today there are many more complex but
powerful tools to apply the Gantt Chart concept
such as Gantt Microsoft Excel, or Microsoft
Project (MS Project)
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Why do we need a Gantt Chart?
• It can show the relationships between
components and activities.
which activities to do first so that the next
can be started
which activities can be done at the same
time to save time and cost
• It can also show current schedule status (what
has been completed as of today)
• It also can be used to plan strategies to meet
expected outputs
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How to construct a Gantt chart?
1. Schedule the critical tasks in the correct
position.
2. Place the time windows in which the non-critical
tasks can be scheduled.
3. Schedule the non-critical tasks according to their
earliest starting times.
4. Indicate precedence relationships between
tasks.
• Most of the time, the Gantt Chart is drawn from
the CPM chart.
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Benefits and Limitations of Gantt Chart
• Benefits of Gantt Chart
– It is simple to use
– It provides a good visual communication to others
– The task durations can be compared easily
– It is convenient for re-scheduling resources
• Limitations of Gantt Chart
– The dependencies between activities are more
difficult to visualise
– Only minor changes in data can cause major
changes in the chart
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Project Management Software
• There are a number of project management software
tools available to help in the planning and control of
large software development projects.
– E.g. MS Project is a CASE software tool for Project
Management
• Most tools include functions to plan, schedule and
control, but decision-making still has to be done by the
project manager.
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Summary: Week 12 Lecture
• There are 3 project structures can be used to tie
the project to the firm.
• CPM is a network diagramming technique used to
predict the total project duration using AoN
technique to map the project activities
• Gantt Chart is a chart that shows the Work
Breakdown Structure (WBS) in terms of the start
and finish dates of its components, activities and
sub-activities
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What to Expect: Week 12 Tutorial
• 1 Activity in this tutorial
– To solve problems of demand forecasting and its
errors using different forecasting techniques.
