Chapter 9 Project Managament Subjet

Chapter 9 REDUCING PROJECT DURATION

Chapter Outline 1. Rationale for Reducing Project Duration 2. Options for Accelerating Project Completion A. Options When Resources Are Not Constrained i. Adding Resources ii. Outsourcing Project Work iii. Scheduling Overtime iv. Establish a Core Project Team v. Do It Twice—Fast and Correctly B. Options When Resources Are Constrained i. Fast-Tracking ii. Critical-Chain iii. Reducing Project Scope iv. Compromise Quality 3. Project Cost-Duration Graph 4. Constructing a Project Cost-Duration Graph A. Determining the Activities to Shorten B. A Simplified Example 5. Practical Considerations A. Using the Project Cost-Duration Graph B. Crash Times C. Linearity Assumption D. Choice of Activities to Crash Revisited E. Time Reduction Decisions and Sensitivity 6. What if Cost, Not Time, Is the Issue? A. Reduce Project Scope B. Have Owner Take on More Responsibility Chapter 9 Reducing Project Duration

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C. Outsourcing Project Activities or Even the Entire Project D. Brainstorming Cost Savings Options 7. Summary 8. Key Terms 9. Review Questions 10. Exercises 11. Case: International Capital, Inc.—Part B 12. Case: Whitbread World Sailboat Race 13. Case: Nightingale Project—A 14. Case: Nightingale Project—B 15. Case: The “Now” Wedding—Part A 16. Case: The “Now” Wedding—Part B Chapter Objectives    

To understand how to use the critical path to reduce project duration To explain alternative methods for crashing activities To explain the risks associated with compressing or crashing a project To recognize when a project manager should try for the optimum cost-duration. Review Questions

1. What are five common reasons for crashing a project? Reasons given could include:       

Imposed deadline in which disfavor will be earned by not meeting superior’s deadline Time to market competitive advantage Realize benefits from incentive contracts To make up for lost time and avoid contract penalties Save extensive overhead costs Free up resources to work on other projects Exceed customer expectations.

2. What are the advantages and disadvantages of reducing project scope to accelerate a project? What can be done to reduce the disadvantages? Reducing the scope of the project can lead to big savings both in time and costs. It typically means the elimination of certain tasks. At the same time scaling down the scope may reduce the value of the project such that it is no longer worthwhile or fails to meet critical success parameters. The key is reassessing the project requirements to determine which are essential and which are optional. This requires the active involvement of all key stakeholders. More intense re-examination of requirements

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may actually improve the value of the project by getting it done more quickly and for a lower cost. 3. Why is scheduling overtime a popular choice for getting projects back on schedule? What are the potential problems for relying on this option? Scheduling overtime is popular because if it involves salary workers and no direct costs are added to the project. Even if it involves additional costs, you avoid Brook’s law and minimize additional coordination and training costs. The disadvantages are the additional time and half costs associated with hourly overtime and stress and fatigue that come with working long hours which can lead to accidents, inferior performance, and turnover. 4. Identify four indirect costs you might find on a moderately complex project. Why are these costs classified as indirect? Indirect (overhead) costs are costs that cannot be attributed to a specific activity or work package. Examples of indirect costs are supervision, consultants, debt interest charges, machinery common to several activities, accounting and information processing, public relations, penalties or incentives for early or late completion. In practice it is amazing how many project compression decisions are made without serious consideration of indirect costs. 5. How can a cost-duration graph be used by the project manager? Explain. A cost-duration graph is useful to the project manager for comparing alternatives. Any alternative that moves the project duration away from the optimum cost-duration point will increase costs. Additionally, incentives and penalties can be evaluated against the total, low cost point. 6. Reducing the project duration increases the risk of being late. Explain. Compressing the project duration means slack (float) on noncritical activities will be reduced. When slack of noncritical activities is reduced, the chance of new critical paths occurring increases; hence, the risk of the project becoming late increases. In addition, compressing will have the following other impacts on managing the project:     

Reduces flexibility by using slack Can increase number of critical activities Can increase interdependencies of paths Makes resource scheduling tighter (critical) May increase costs.

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7. It is possible to shorten the critical path and save money. Explain how. The only way to shorten the critical path and save money is to have indirect costs which are greater than the additional direct costs of shortening the critical path one unit of time. The difference is a savings. Exercises Note: Use the procedure presented in the chapter example to compute exercises; that is, compress one time unit per move using the least-cost method. 1. Draw a project network from the following information. Activity A B C D E F G H I J

Predecessor None A A A B C C, D E, F G H, I

Duration 2 4 3 2 3 6 5 6 5 5

Activities B and H can be shortened to a minimum of 2 weeks. Which activity would you shorten to reduce the project duration by 2 weeks? Why?

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2. Assume the network and data that follow. Compute the total direct cost for each project duration. If the indirect costs for each project duration are $400 (19 time units), $350 (18), $300 (17), and $250 (16), compute the total project cost for each duration. Plot the total direct, indirect, and project costs for each of these durations on a cost-time graph. What is the optimum cost-time schedule for the project? What is this cost?

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The optimum duration is 17 time units at a cost of $840.

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3. Given the data and information that follow, compute the total direct cost for each project duration. If the indirect costs for each project duration are $90 (15 time units), $70 (14), $50 (13), $40 (12), and $30 (11), compute the total project cost for each duration. What is the optimum cost-time schedule for the project? What is this cost?

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4. If the indirect costs for each duration are $1,200 for 16 weeks, $1,130 for 15 weeks, $1,000 for 14 weeks, $900 for 13 weeks, $860 for 12 weeks, $820 for 11 weeks and $790 for 10 weeks, compute the total costs for each duration. Plot these costs on a graph. What is the optimum cost-time schedule? Note: The duration for this schedule is weeks and students should be told only to crash the network one week at a time (not days).

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For duration 14, B is chosen over D & E because it is the earliest task. If problems occur, you can crash D or E.

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5. If the indirect costs for each duration are $300 for 27 weeks, $240 for 26 weeks, $180 for 25 weeks, $120 for 24 weeks, $60 for 23 weeks, and $50 for 22 weeks, compute the direct, indirect and total costs for each duration. What is the optimum cost-time schedule? The customer offers you $10 dollars for every week you shorten the project from your original network. Would you take it? If so for how many weeks? Note: The duration for this schedule is weeks. Students should be reminded that they crash the schedule one week at a time (not divide the week into days).

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6. Use the information contained below to compress one time unit per move using the least cost method. Reduce the schedule until you reach the crash point of the network. For each move identify what activity(s) was crashed, the adjusted total cost, and explain your choice if you have to choose between activities that cost the same. Note: Crash point of the network is the point in which the duration cannot be reduced any further. Activity ID A B C D E F G H I

Slope $40 40 40 40 40 30 30 -

Direct Costs Normal Crash Maximum Crash Time Time Cost Time Cost 0 4 $50 0 3 5 70 2 $190 1 5 80 4 120 2 4 40 2 120 2 5 60 3 140 1 5 50 4 90 1 4 70 3 160 1 4 80 3 110 0 3 50 0 Total direct normal costs— $550

Caution: There is an error in the text – the “crash” cost for Activity C should be 120, not 40. This should not be a problem for most students since the slope is correctly listed as $40, but we encourage you to point this out before assigning this exercise.

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Case International Capital, Inc.—Part B See Teacher’s Manual, Chapter 7 Appendix Case for Part A of problem. Part A suggests that the project would have to be compressed down to 61 days to reach the 95% chance of meeting the average. Compressing follows the steps listed below. Start at 73 workdays Cut A 3 days $1,500 Cut K 6 days 6,000 Cut J 1 day 1,000 Cut H 1 day 2,000 Cut D 1 day 3,000 TOTAL $13,500

70 days 64 days 63 days 62 days 61 days

However, when these data are plotted with the indirect costs, the picture changes slightly. The optimum time/cost tradeoff is 70 days. See chart below. Clearly, the risk of being late has increased. Activities A&B are parallel and have added a critical path. Compressing D one day reduces slack for Activities E&F to one day. Brown and the project review committee have a trade off decision themselves. To get to 61 days will cost $5,700 ($159,200 – 153,500). Duration 60 61 62 63 64 65 66 67 68 69 70* 71 72 73 74

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Project Overhead 42,700 43,400 44,100 44,800 45,500 46,200 46,900 47,600 48,300 49,000 49,700 50,400 51,100 51,800

Normal Direct Total Direct Costs Crash Costs Direct Costs 103,000 103,000 103,000 103,000 103,000 103,000 103,000 103,000 103,000 103,000 103,000 103,000 103,000 103,000

13,500 10,500 8,500 7,500 6,500 5,500 4,500 3,500 2,500 1,500 1,000 500 -

116,500 113,500 111,500 110,500 109,500 108,500 107,500 106,500 105,500 104,500 104,000 103,500 103,000 103,000

Total Costs 159,200 156,900 155,600 155,300 155,000 154,700 154,400 154,100 153,800 153,500 153,700 153,900 154,100 154,800

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Case Whitbread World Sailboat Race This is a fairly difficult case in which students have to create a project schedule and then use the time-cost method to determine whether it is possible to meet the 45 week deadline and $3.2 million budget limit. Students also have to factor in indirect costs in the form of a hammock for the additional cost of keeping vessels in service. Whitbread Project (Costs in $000) Activity

A B C D E F G H I J K L M N O P Q R S

Normal Time

Design Build hull Install ballast tanks Order mast Order sails Order accessories Build deck Coat hull Install accessories Install mast and sails Test Sea trials Select crew Secure housing Select crew equipment Order crew equipment Routine sail/maintenance Crew maintenance Train Initial sail training Total direct cost

6 12 2 8 6 15 5 3 6 2 5 8 6 3 2 5 15 10 7

Normal Cost

$

40 1,000 100 100 40 600 200 40 300 40 60 200 10 30 10 30 40 100 50 $2,990

Crash Time

4 10 2 7 6 13 5 3 5 1 4 7 5 3 2 5 12 9 5

Crash Cost

Slope

$ 160 1,400 100 140 40 800 200 40 400 80 100 450 20 30 10 30 130 340 350

60 200 40 100 100 40 40 250 10 30 240 150

Hammock (Indirect costs): Costs for keeping old vessel in service = $4,000/week for 25 weeks = $100,000 Cost for keeping new vessel in service for training = $6,000/week for 19 weeks = $114,000 Total hammock indirect costs = $214,000 Normal costs for 50-week plan: Normal direct costs Indirect costs (hammock) Total costs

$2,990,000 214,000 $3,204,000

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Compressed to 45 Weeks: Costs for keeping old vessel in service = $4,000/ week for 21 weeks = $84,000 Cost for keeping new vessel in service for training = $6,000/week for 19 weeks = $114,000 Total hammock indirect costs = $198,000 Compressed Activities: A 2 weeks = 60,000+60,000 = B 2 weeks = 200,000+200,000 = R 1 week = 240,000 =

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$120,000 400,000 (Reduce hammock 2 weeks) 240,000 $760,000 2,990,000 198,000 (21x4,000=84,000) + (19x6,000=114,000) $3,948,000

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Upon working the problem, students should advise Bjorn that yes it is possible to complete the project in 45 weeks but that the cost is estimated to be $3.948 million. This is $748,000 more than Bjorn’s $3.2 million. This begs the question of priorities. When asked what the priorities of the project are most students will rightly indicate: Whitbread Project Priority Matrix

Constrain

TIME X

Enhance

PERFORMANCE

COST X

X

Accept Students will point out that both time (45 weeks) and budget ($3.2 million) are constrained. However, based on their analysis it is impossible to meet both constraints. Given that performance (victory) is the primary goal, one should argue that Bjorn should seek additional funding and accept cost over-run. This is an important lesson. Often projects begin with similar constraints but are forced to make a trade off in the final analysis.

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Case Nightingale Project—Part A This case, along with Part B, is designed to have the students use the tools and concepts introduced in Chapters 6 and 9 to answer some basic questions concerning the schedule of the Nightingale Project. It is an excellent vehicle for training students to use project management software to create a network and assess alternative courses of action. At our college the students have access to MS Project and we have found that students are capable of completing this assignment by simply following the Tutorial contained within the program and on the CD-Rom. Note: The answers provided are based on a January 1, 2010 start date which due to holidays means the project begins on January 4, 2010. We suggest you tell students to use this start date to insure consistency in answers. Students should submit a project schedule similar to the one presented in computer output below to support their answers.

1. Will the project as planned meet the October 25th deadline? No, the scheduled completion date is 12/21/10. 2. What activities lie on the critical path? Architectural decisions  Feature specifications  Database  Review design  Integration  Procure prototype components  Assemble prototypes  Lab test

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prototype  Field test prototypes  Adjust design  Order stock parts  Assemble first production unit  Test unit  Produce 30 units  Train sales representatives. 3. How sensitive is the network? The text defines sensitivity as the likelihood that the critical path may change during the course of the project. Sensitivity results from the number of critical paths and the amount of slack available to non-critical activities. Based on the information provided, this project is a fairly insensitive network. Most non-critical activities have between 20-37 days of slack, exceeding their estimated duration times. The lone exceptions are Price components which has only 5 days of slack and Order custom parts which has 8 days of slack. However, given the nature of these tasks it is unlikely that they will take more than 5 days beyond their estimated duration time to complete. It should also be noted that, after an initial burst of activities, there are only two non-critical activities (Document design and Order custom parts) during the second half of the project. Case Nightingale Project—Part B

Students should assess the suggestions presented in Part B and prepare a short memo to respond to the questions presented at the end of the case.

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1. Is it possible to meet the deadline? Yes, it is possible. The revised schedule has a projected completion date of October 25th, right before MedCON. 2. If so, how would you recommend changing the original schedule (Part A) and why? Assess the relative impact of crashing activities versus introducing lags to shorten project duration. While crashing activities will reduce project duration, introducing the suggested startto-start lags has the biggest impact on schedule with the added bonus of no additional costs. The completion date was 11/10/10 after introducing all of the start-to-start lags. Implement:     

Document design could begin 5 days after the start of the review design. Adjust design could begin 15 days after the start of field test prototypes. Order stock parts could begin 5 days after the start of adjust design. Order custom could begin 5 days after start of adjust design. Training sales representatives could begin 5 days after the start of test unit and completed 5 days after the production of 30 units.

To meet the October 25 deadline, three critical activities need to be crashed. Crash activities:   

Creation of database from 40 days to 35 days at a cost of $35,000. Procure prototype components from 20 days to 15 days at a cost of $30,000. Order stock parts from 15 days to 10 days at a cost of $20,000.

These three activities are on the critical path and would reduce the project duration by 15 working days at a cost of $85,000. Neither External specifications, Document design, nor Voice recognition are on the critical path so, crashing these activities would have no impact on project duration. 3. What would the new schedule look like? Students should present a revised schedule similar to the table above. 4. What other factors should be considered before finalizing the schedule? The team needs to review the suggested revisions and make sure they are feasible. When crashing activities, there is always the danger that quality may be compromised; they need to take steps so that this doesn’t happen. The team needs to

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assess the impact of these changes on the sensitivity of the network. A quick assessment of the slack available to noncritical activities suggests that the sensitivity of the network has not changed significantly, which enhances the chances of the project meeting the deadline. Introducing start-to-start lags may create resource conflicts if the same people are working on both activities. The team needs to check and make sure there are adequate resources available to avoid this problem. Finally, there is no slack between the estimated completion date and MedCON. The team should consider contingency plans if critical activities slip. One plan would be to have funds ready if it is necessary to crash production of the prototypes which occurs at the tail end of the project. Assignment Variation Part A could be assigned after completing Chapter 6 and Part B could be assigned for Chapter 9. Case The “Now” Wedding—Part A This is a great case for a class exercise. Students enthusiastically enter into the case and have fun. The case can be used several ways. First, the case can be used as a small team/group assignment. Second, the case can be used as suggested in the text—as an in-class exercise. Starting with the yellow sticky approach will get you past the many differences of opinion on how the network is developed. Careful reading of the case should bring the group around to the network suggested in the attached exhibits.

Development of the original network suggests that the wedding cannot make the January 21 deadline. It would take until January 26 and be too late for Connor’s ship out date of January 30.

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However, two tasks can be shortened at an additional cost and the deadline reached.  Activity 8, Order material, can be cut from 8 days to 5 days at a cost of only $20.  Activity 11, Sew dress, can be cut from 11 days to 9 days at a cost of $96 ($48x2). Activity 16, Mail invitations, must go out 10 days before the wedding.  Reduce Activity 12, Order and receive invitations, from 7 days to 6 days. The cost is $20.  Reduce Activity 13, Address invitations, from 3 days to 1 day. The cost is $80 ($40x2). Total costs = $216

The deadlines are met. The wedding can take place January 21 and have a seven-day honeymoon. Connor can leave on January 30. Case The “Now” Wedding—Part B Part B presents some unknown risk events. Given these events, students will attempt to shorten Activity 11 and revise durations for Activity 7 and 12.   

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Activity 11, Sew dress. Cut from 9 to 6 days at a cost of $144 ($48 x 3). Activity 7, Guest list. Add 3 days for the flu. Now duration is 7 days. Activity 12, Order and receive invitations. Add 1 day for press breakdown; now the duration is 7 days.

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Conclusion: Deadlines cannot be reached! The notice of the loss of dress material (Activity 8) in transit received January 10 kills the January 21 deadline. Reordering on January 11 won't do it! Although students are disappointed, give them an opportunity to suggest some alternatives. We find two suggestions almost always come up quickly. 1. Buy the material locally and pay the price. 2. Buy a ready-made wedding dress.

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TRANSPARENCIES (for exercises)

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Exercise 2 (a)

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Exercise 2 (b)

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Exercise 2 (c)

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Exercise 3 (a)

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Exercise 3 (b)

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Exercise 3 (c)

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Exercise 4 (a)

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Exercise 4 (b)

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Exercise 4 (c)

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Exercise 4 (d)

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Exercise 5 (a)

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Exercise 5 (b)

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Exercise 5 (c)

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Exercise 5 (d) with graph

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Exercise 6

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