orm2b14-3 - session 11
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Operations Management II – ORM2B14-3
Session 11 Project Management +
Constrained Process
Dipankar Bose - XLRI
ORM2B14-3 – Syllabus and Tentative
Evaluation (Session 11 to 15)
Syllabus
Project Management Basics
Theory of Constraints (TOC)
Critical Chain Project Management (CCPM)
Scheduling and Sequencing
Total Productive Maintenance (TPM)
Tentative Evaluation
Quiz – 15 Marks (Open Book, date will be given on
AIS)
End-term component – 10 marks (Open Book)
Dipankar Bose - XLRI
Topic: Project Management
Dipankar Bose - XLRI
Project Management
Project
A unique set of activities meant to produce a defined
outcome within an established time frame using
specific allocation of resources.
A project is a temporary endeavor undertaken to
provide a unique product or service or result – PMBOK
Guide
Project management
Project management is a process of developing
substantive, systematic data about each parameter in
order to maximize the effectiveness of tradeoff decision.
Parameters Time/ Resource/ Result
Dipankar Bose - XLRI
Project Management – Steps
Define and organize the project
Establish the project organization
Define the project parameters
Plan the project framework
Assemble the project definition document
Contract specification
Plan the project
Develop Work Breakdown Structure (WBS)
Develop the schedule
Analyze resources
Optimize tradeoff
Develop risk management plan
Track, manage and close the project
Dipankar Bose - XLRI
Stage 1 – Define and Organize the
Project
Establish the project organization
Roles and responsibilities RACI matrix
Designate Project manager – Skill-sets
Knowledge about Application area, standards and
regulations
Soft skills like general management and
interpersonal skill
Knowledge about project environment
Develop „Team Roster‟
Define the project parameters
Project Objective Statement – Scope/Schedule/Resource
Major deliverables – „Is/Is Not‟ issues, Target dates
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Stage 1 – Define and Organize the
Project – Contract Specification
Fixed price or lump sum
Cost-plus fixed fee
Cost-plus incentive fee
Fixed price incentive fee
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Cost-Plus-Incentive-Fee (CPIF)
Contract – Example
Total fee may be limited between maximum and minimum
fee
Contract Agreement:
Cost estimate = Rs. 100,000
All allowable costs will be reimbursed
Target Fee = Rs. 10,000
Minimum Fee = Rs. 5,000
Maximum Fee = Rs. 15,000
Target Price = 110,000
Gain Sharing Ratio = 70/30
Dipankar Bose - XLRI
CPIF Contract – Example – Continued
Contractor‟s
Cost
70,000 80,000 90,000 100,000 110,000 120,000
Fee Min
(19000,
15000)
= 15000
Min
(16000,
15000)
= 15000
Min
(13000,
15000)
= 13000
Min
(10000,
15000)
= 10000
Max
(7000,
5000)
= 7000
Max
(4000,
5000)
= 5000
Final Price 85,000 95,000 103,000 110,000 117,000 125,000
Profit % 21.43% 18.75% 14.44% 10% 6.36% 4.16%
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Fixed-Price-Incentive-Fee (FPIF)
Contract
Puts Price Ceiling and Price Floor
Point of total assumption
Contractor assumes all liability for additional cost
Example – Contract Agreement:
Cost estimate = 100,000
Fee = 10,000
Target price = 110,000
Gain Sharing Ratio = 70/30
Minimum and Maximum payable by client
including fee and reimbursement
Price Floor = 75,000
Price Ceiling = 125,000
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FPIF Contract – Example – Continued
Point of total assumption (PTA) = ((Ceiling Price – Target
Price)/Buyer's Share) + Cost Estimate
Contractor‟s
Cost 40,000 60,000 100,000 121,428 125,000 140,000
Estimated
Profit
28000 22000 10000 3572 3572 –
(125000
–
121428)
3572 –
(140000
–
121428)
Final Price Max
(68000,
75000) =
75000
Max
(82000,
75000) =
82000
Max
(110000,
75000) =
110000
125000 125000 125000
Actual Profit
% 87.5% 36.67% 10% 2.94% 0% – 10.71%
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Stage 2 – Plan the project – WBS
Components
Clear, comprehensive Statement of Work (SOW)
Resource requirements
Time
Cost
Responsibility
Outcomes
Inputs
Quality assurance
If any of the properties can not be defined
The task is too broad
Must be broken down further
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Stage 2 – Plan the project – Develop
the Schedule
Input WBS
Identify all the dependencies
Finish – Start (FS)/ Start – Start (SS)
If required Add new tasks or identify redundant tasks
Go back to WBS step to include/exclude task
Create Network diagram
Assign duration for each task
May be expressed with range
Critically examine if time requirement is long or can
not be identified
Identify „Milestones‟
Create “Gantt Chart”
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Network Diagramming Method –
Example
Activity Duration Predecessor
A 2 --
B 2 --
C 1 --
D 4 A
E 5 B
F 8 B
G 3 C
H 1 D
I 4 E
J 5 F, G
K 3 H, I
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Network Diagramming Method –
Activity on Arc
Node Number
Early Start Time
Late Start Time
Predecessor Successor
Duration, Resource
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Network Diagramming Method –
Solution
1 3
4
2 5
6 8 9
7
A, 2
D, 4
B, 2
C, 1
E, 5
F, 8
G, 3
I, 4
H, 1
J, 5
K, 3
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Early Start and Late Start
Early Start (ES) Rule Forward pass
For “one arrow” entering the Node Early time =
Early time at previous Node + Activity time
For “multiple arrows” entering the Node Early time
= Max {Early time} considering all entering arrows
Late Start (LS) Rule Backward pass
Last Node time = “Completion Date” from ES Rule
For “one arrow” exiting the Node Late time = Late
time at next Node – Activity time
For “multiple arrows” exiting the Node Late time =
Min {Late time} considering all exiting arrows
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Solution – Problem – ES and LS
Which one is critical path?
0 0
1
2 2
3
1 7
4
2 7
2
6 11
5
7 8
6
11 12
8
15 15
9
10 10
7
A, 2
D, 4
B, 2
C, 1
E, 5
F, 8
G, 3
I, 4
H, 1
J, 5
K, 3
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Example – Gantt Chart with ES
Act 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
A
B
C
D
E
F
G
H
I
J
K
Dipankar Bose - XLRI
Project Risk Management
External (and uncontrollable)
Unpredictable
Regulatory/Natural hazard/Deliberate
Predictable
Market risk/Exchange rate/Inflation/Taxation
Internal (and controllable)
Non-Technical
Management/Schedule/Cost/Cash flow
Technical
Design/Technology/Performance
Legal (and controllable)
Licenses/Patent rights/Contractual difficulty/Lawsuit
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Topic: Constrained Process
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Constrained Process
Product A
Profit = Rs. 80/unit
Demand = 100/week
Production = 0.4 hours/unit
Product B
Profit = Rs. 50/unit
Demand = 200/week
Production = 0.2 hours/unit
Total available time = 60 hours/week
What will be maximum profit?
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Constrained Process – Another
Example
Product A
Profit = Rs. 80/unit; Demand = 100/week
Production = 0.4 hours/unit
Storage space = 4/unit
Product B
Profit = Rs. 50/unit; Demand = 200/week
Production = 0.2 hours/unit
Storage space = 5/unit
Total available time = 60 hours/week
Total available space = 800
What will be maximum profit?
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