Chapter 1 Introduction to Operations and Supply Chain Management



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A Gantt chart (also called a bar chart) was developed by Henry Gantt, a pioneer in the field of industrial engineering, at the artillery ammunition shops of the Frankford Arsenal in 1914. The Gantt chart has been a popular project scheduling tool since its inception and is still widely used today. It is the direct precursor of the CPM/PERT technique, which we will discuss later.

Gantt chart:

a graph or bar chart with a bar for each project activity that shows the passage of time.

The Gantt chart is a graph with a bar representing time for each activity in the project being analyzed. Figure 9.4 below illustrates a Gantt chart of a simplified project description for building a house. The project contains only seven primary activities, such as designing the house, laying the foundation, ordering materials, and so forth. The first activity is “design house and obtain financing,” and it requires three months to complete, shown by the bar from left to right across the chart. After the first activity is finished, the next two activities, “lay foundation” and “order and receive materials,” can start simultaneously. This set of activities demonstrates how a precedence relationship works; the design of the house and the financing must precede the next two activities.



Precedence relationship:

the sequential relationship of project activities to each other.

The activity “lay foundation” requires two months to complete, so it will be finished, at the earliest, at the end of month 5. “Order and receive materials” requires one month to complete, and it could be finished after month 4. However, observe that it is possible to delay the start of this activity one month until month 4. This delay would still enable the activity to be completed by the end of month 5, when the next activity, “build house,” is scheduled to start. This extra time for the activity “order materials” is called slack. Slack is the amount by which an activity can be delayed without delaying any of the activities that follow it or the project as a whole. The remainder of the Gantt chart is constructed in a similar manner, and the project is scheduled to be completed at the end of month 9.



Slack:

the amount of time an activity can be delayed without delaying the project.

Figure 9.4 A Gantt Chart



The Gantt chart provides a visual display of the project schedule, indicating when activities are scheduled to start, when they will be finished, and where extra time is available and activities can be delayed. The project manager can use the chart to monitor the progress of the activities and see which ones are ahead of schedule and which ones are behind schedule. The Gantt chart also indicates the precedence relationships between activities; however, these relationships are not always easily discernible. This problem is one of the disadvantages of the Gantt chart method, and it sometimes limits the chart's use to smaller projects with relatively few activities. The CPM/PERT network technique does not suffer this disadvantage.

PROJECT CONTROL

Project control is the process of making sure the project progresses toward a successful completion. It requires that the project be monitored and progress be measured so that any deviations from the project plan, and particularly the project schedule, are minimized. If the project is found to be deviating from the plan—that is, it is not on schedule, cost overruns are occurring, activity results are not as expected, and so on—then corrective action must be taken. In the rest of this section we will describe several key elements of project control, including time management, quality control, performance monitoring, and communication.

TIME MANAGEMENT

Time management is the process of making sure the project schedule does not slip and it is on time. This requires the monitoring of individual activity schedules and frequent updates. If the schedule is being delayed to an extent that jeopardizes the project success, then the project manager may have to shift resources to accelerate critical activities. Some activities may have slack time, and resources can be shifted from them to activities that are not on schedule. This is referred to as time-cost tradeoff. However, this can also push the project cost above budget. In some cases, the work may need to be corrected or made more efficient. In other cases, original activity time estimates upon implementation may prove to be unrealistic, with the result that the schedule must be changed and the repercussions of such changes on project success evaluated.

COST MANAGEMENT

Cost management is often closely tied to time management because of the time-cost tradeoff occurrences that we mentioned previously. If the schedule is delayed, costs tend to increase in order to get the project back on schedule. Also, as the project progresses, some cost estimates may prove to be unrealistic or erroneous. As such, it will be necessary to revise cost estimates and develop budget updates. If cost overruns are excessive, then corrective actions must be taken.

QUALITY MANAGEMENT

Quality management and control are an integral part of the project management process. The process requires that project work be monitored for quality and that improvements be made as the project progresses just the same as in a normal production or manufacturing operation. Tasks and activities must be monitored to make sure that work is done correctly and that activities are completed correctly according to plan. If the work on an activity or task is flawed, subsequent activities may be affected, requiring rework, delaying the project, and threatening project success. Poor-quality work increases the risk of project failure, just as a defective part can result in a defective final product if not corrected. As such, the principles of quality management and many of the same techniques for statistical analysis and statistical process control discussed in earlier chapters for traditional production processes can also be applied to the project management process.

PERFORMANCE MANAGEMENT

Performance management is the process of monitoring a project and developing timed (i.e., daily, weekly, monthly) status reports to make sure that goals are being met and the plan is being followed. It compares planned target dates for events, milestones, and work completion with dates actually achieved to determine whether the project is on schedule or behind schedule. Key measures of performance include deviation from the schedule, resource usage, and cost overruns. These reports are developed by the project manager and by individuals and organizational units with performance responsibility.



Earned value analysis (EVA) is a specific system for performance management. Activities “earn value” as they are completed. EVA is a recognized standard procedure for numerically measuring a project's progress, forecasting its completion date and final cost, and providing measures of schedule and budget variation as activities are completed. For example, an EVA metric such as “schedule variance” compares the work performed during a time period with the work that was scheduled to be performed. A negative variance means the project is behind schedule. “Cost variance” is the budgeted cost of work performed minus the actual cost of the work. A negative variance means the project is over budget. EVA works best when it is used in conjunction with a work breakdown structure (WBS) that compartmentalizes project work into small packages that are easier to measure. The drawbacks of EVA are that it's sometimes difficult to measure work progress and the time required for data measurement can be considerable.

Earned value analysis (EVA):

a standard procedure for numerically measuring a project's progress, forecasting its completion date and cost and measuring schedule and budget variation.

COMMUNICATION

Communication needs for project and program management control in today's global business environment tend to be substantial and complex. The distribution of design documents, budget and cost documents, plans, status reports, schedules, and schedule changes in a timely manner is often critical to project success. As a result, more and more companies are using the Internet to communicate project information, and are using company intranet project Web sites to provide a single location for team members to access project information. Internet communication and software combined with faxing, videoconferencing systems, phones, handheld computers, and jet travel are enabling transnational companies to engage in global project management.

ALONG THE SUPPLY CHAIN Reconstructing the Pentagon after 9/11

On September 11, 2001 at 9:37 A.M. American Airlines Flight 77, which had been hijacked by terrorists, was flown into the west face of the Pentagon in Arlington, Virginia. More than 400,000 square feet of office space were destroyed, and an additional 1.6 million square feet were damaged. Almost immediately the “Phoenix Project” to restore the Pentagon was initiated. A deadline of one year was established for the project completion, which required the demolition and removal of the destroyed portion of the building followed by the building restoration including the limestone facade. The Pentagon consists of five rings of offices (housing 25,000 employees) that emanate from the center of the building; ring “A” is the innermost ring, while ring “E” is the outermost. Ten corridors radiate out from the building's hub bisecting the rings and forming the Pentagon's five distinctive wedges. At the time of the attack, the Pentagon was undergoing a 20-year, $1.2 billion renovation program and the renovation of Wedge 1 that was demolished in the attack was nearing completion. As a result, the Phoenix Project leaders were able to use the Wedge 1 renovation project structure and plans as a basis for its own reconstruction plan and schedule, saving much time in the process. Project leaders were in place and able to assign resources on the very day of the attack. The project included over 30,000 activities and a 3,000-member project team and required 3 million man-hours of work during the project duration. Over 56,000 tons of contaminated debris were removed from the site, 2.5 million pounds of limestone were used to reconstruct the facade (using the original drawings from 1941), 21,000 cubic yards of concrete were poured, and 3,800 tons of reinforcing steel were placed. The Phoenix Project was completed almost a month ahead of schedule and nearly $194 million under the original budget estimate of $700 million.



The project planning process for the reconstruction of the Pentagon began virtually on the day of the September 11 attack. The project was completed a month ahead of schedule and $194 million under budget.

Building construction is one of the main applications of project management; discuss some of the unique factors associated with the Pentagon project had that made it different from other, more typical, construction projects.



Source: N. Bauer, “Rising from the Ashes.” PM Network, Vol. 18, no. 5 (May 2004): 24-32.

ENTERPRISE PROJECT MANAGEMENT

In many companies, project control takes place within the larger context of a multiple project environment. Enterprise project management refers to the management and control of a company-wide portfolio of projects. In the enterprise approach to managing projects, a company's goals are achieved through the coordination of simultaneous projects. The company grows, changes, and adds value by systematically implementing projects of all types across the enterprise. The aggregate result of an organization's portfolio of projects becomes the company's bottom line. As such, program management is a managerial approach that sits above project management. Whereas project management concentrates on delivering a clearly defined, tangible outcome with its own scope and goals within a specified time frame, in a program management environment the company's goals and changes are achieved through a carefully planned and coordinated set of projects. Programs tend to cut across and affect all business areas and thus require a higher degree of cross-business functional coordination than individual projects.

CPM/PERT


In 1956, a research team at E. I. du Pont de Nemours & Company, Inc., led by a du Pont engineer, Morgan R. Walker, and a Remington-Rand computer specialist, James E. Kelley, Jr., initiated a project to develop a computerized system to improve the planning, scheduling, and reporting of the company's engineering programs (including plant maintenance and construction projects). The resulting network approach is known as the critical path method (CPM). At the same time, the U.S. Navy established a research team composed of members of the Navy Special Projects Office, Lockheed, and the consulting firm of Booz, Allen, and Hamilton, led by D. G. Malcolm.



The Lafayette, the nuclear-powered ballistic missile submarine shown here, is a direct descendent of the USS George Washington, the first nuclear submarine of this type. In the late 1950s the Polaris Fleet Ballistic Missile Project included more than 250 prime contractors and 9000 subcontractors. The Navy Department credited PERT with bringing the Polaris missile submarine to combat readiness approximately two years ahead of the originally scheduled completion date.

They developed a similar network approach for the design of a management control system for the development of the Polaris Missile Project (a ballistic missile-firing nuclear submarine). This network scheduling technique was named the program evaluation and review technique, or PERT. The Polaris project eventually included 23 PERT networks encompassing 3000 activities.

Both CPM and PERT are derivatives of the Gantt chart and, as a result, are very similar. There were originally two primary differences between CPM and PERT. With CPM a single estimate for activity time was used that did not allow for any variation in activity times—activity times were treated as if they were known for certain, or “deterministic.” With PERT, multiple time estimates were used for each activity that allowed for variation in activity times—activity times were treated as “probabilistic.” The other difference was related to the mechanics of drawing the project network. In PERT, activities were represented as arcs, or arrowed lines, between two nodes, or circles, whereas in CPM activities were represented as the nodes or circles. However, over time CPM and PERT have been effectively merged into a single technique conventionally referred to as CPM/PERT.

The advantage of CPM/PERT over the Gantt chart is in the use of a network to depict the precedence relationships between activities. The Gantt chart does not clearly show precedence relationships, which is a disadvantage that limited its use to small projects. The CPM/PERT network is a more efficient and direct means of displaying precedence relationships. In other words, in a network it is visually easier to see the precedence relationships, which makes CPM/PERT popular with managers and other users, especially for large projects with many activities.

CPM/PERT uses a network to depict the precedence relationships among activities.

THE PROJECT NETWORK

A CPM/PERT network consists of branches and nodes, as shown in Figure 9.5. When CPM and PERT were first developed, they employed different conventions for constructing a network. With CPM the nodes, or circles in Figure 9.5, represented the project activities. The arrows in between the nodes indicated the precedence relationships between activities. For the network in Figure 9.5, activity 1, represented by node 1, precedes activity 2, and 2 precedes 3. This approach to network construction is called activity-on-node (AON). With PERT the opposite convention was taken. The branches represented the activities, and the nodes in between them reflected events, or points in time such as the end of one activity and the beginning of another. In this approach, referred to as activity-on-arrow (AOA), the activities are normally identified by the node numbers at the start and end of an activity; for example, activity 1-2 precedes activity 2-3 in Figure 9.5. In this book, we will focus on the AON convention, but we will also provide an overview of AOA networks.

Activity-on-node (AON):

nodes represent activities, and arrows show precedence relationships.

Activity-on-arrow (AOA):

arrows represent activities and nodes are events for points in time.

Events:

completion or beginning of an activity.

Figure 9.5 Network Components

Figure 9.6 The AOA Project Network for Building a House



AOA NETWORK

To demonstrate how these components are used to construct the two types of network, we will use our example project of building a house used in the Gantt chart in Figure 9.4. The comparable AOA CPM/PERT network for this project is shown in Figure 9.6. The precedence relationships are reflected in this network by the arrangement of the arrowed (or directed) branches in Figure 9.6. The first activity (1-2) in the project is to design the house and obtain financing. This activity must be completed before any subsequent activities can begin. Thus, activities 2-3, laying the foundation, and 2-4, ordering and receiving materials, can start only when node 2 is realized, indicating the event that activity 1-2 is finished. (Notice in Figure 9.6 that a time estimate of three months has been assigned for the completion of this activity). Activity 2-3 and activity 2-4 can occur concurrently; neither depends on the other, and both depend only on the completion of activity 1-2.

When the activities of laying the foundation (2-3) and ordering and receiving materials (2-4) are completed, then activities 4-5 and 4—6 can begin simultaneously. However, before discussing these activities further, notice activity 3-4, referred to in the network as a dummy.

A dummy activity is inserted into the network to show a precedence relationship, but it does not represent any actual passage of time. Activities 2-3 and 2-4 have the precedence relationship shown in Figure 9.7a. However, in an AOA network, two or more activities are not allowed to share the same starting and ending nodes. Instead, activity 3-4 is inserted to give two activities separate end nodes and, thus, two separate identities as shown in Figure 9.7b. Notice, however, that a time of zero months has been assigned to activity 3-4. The dummy activity shows that activity 2-3 must be completed prior to any activities beginning at node 4, but it does not represent the passage of time.

Dummy:

two or more activities cannot share the same start and end nodes.

Figure 9.7 Concurrent Activities



Returning to the network in Figure 9.6, we see that two activities start at node 4. Activity 4-6 is the actual building of the house, and activity 4—5 is the search for and selection of the paint for the exterior and interior of the house. Activity 4—6 and activity 4-5 can begin simultaneously and take place concurrently. Following the selection of the paint (activity 4-5) and the realization of node 5, the carpet can be selected (since the carpet color depends on the paint color). This activity can also occur concurrently with the building of the house (activity 4—6). When the building is completed and the paint and carpet are selected, the house can be finished (activity 6-7).

Figure 9.8 AON Network for House Building Project

AON NETWORK



Figure 9.8 shows the comparable AON network to the AOA network in Figure 9.6 for our house building project. Notice that the activities and activity times are on the nodes and not on the activities as they were previously with the AOA network. The branches or arrows simply show the precedence relationships between the activities. Also, notice that there is no dummy activity; dummy activities are not required in an AON network since two activities will never be confused because they have the same start and end nodes. This is one advantage of the AON convention, although each has minor advantages and disadvantages. In general, both of the two methods accomplish the same thing, and the one that is used is usually a matter of individual preference. However, for our purposes the AON network has one distinct advantage—it is the convention used in the popular Microsoft Project software package, and because we want to demonstrate how to use this software, we will use the AON convention in this chapter.

ALONG THE SUPPLY CHAIN British Airport Authority's Terminal 5 Project at Heathrow Airport

British Airport Authority's (BAA) terminal five (T5) at Heathrow Airport in London, completed in March 2008, was one of Europe's largest construction projects taking 5.5 years to complete the construction and 60,000 people. Located between two runways in a space equal in size to Hyde Park in London, T5 has the largest single-span roof in Europe— made up of six sections and requiring 10 months to lift into place—and 11 miles of baggage conveyor belt. The facility, which cost 4.3 billion British pounds to build, provides Heathrow (and British Airways) with 47 additional aircraft stands and increases Heathrow's capacity by 35 million annual passengers. For the first time in a project of this size and complexity, off-site prefabrication was used extensively. This involved assembling components in off-site modules (2,800 in all) and then transporting them to the building site where they were bolted together, thus reducing on-site construction time and disruption and construction traffic at the airport. Key clients worked collaboratively through integrated teams. A Web-based system was created to provide an effective communication vehicle for all project participants so that they could collaborate effectively. The Internet enabled the diverse off-site project module manufacturers in Dover and Scotland to be coordinated though a database system, or “virtual factory.” The supply of material, equipment, and work flows could all be monitored through one integrated system. All project participants could see when modules were in production, completed, delivered, and stored. The database system included a “lessons learned” component where lessons learned were recorded for all participants to see and learn from. The system was especially important for planning and coordinating deliveries between suppliers because of the high volume of deliveries and the limited on-site space involved. The modules in particular required wide-load deliveries and roads had to be closed for delivery. The collaborative nature of this project combined with the “virtual factory” Web-based computer system facilitated the performance of the integrated project teams resulting in a reduction in construction times, a safer working environment, and better quality.

Discuss some of the unique problems that you think might exist for a project like this one that involves a facility with daily, heavy public usage.



Source: John Summers, “The Virtual Factory.” Quality World, vol. 31, no. 10, (October 2005): 24-28; and Patricia Curmi. “Terminal Velocity.” Quality World, vol. 33. no. 8, (August 2007): 17-21.

THE CRITICAL PATH

A network path is a sequence of connected activities that runs from the start to the end of the network. The network in Figure 9.8 has several paths through it. In fact, close observations of this network show four paths, identified as A. B, C. and D:

A: 1-2-4-7

B: 1-2-5-6-7

C: 1-3-4-7

D: 1-3-5-6-7

The project cannot be completed (i.e., the house cannot be built) sooner than the time required by the longest path in the network, in terms of time. The path with the longest duration of time is referred to as the critical path.



Critical path:


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