BSc in MIS, and MSc in ManagementIHRM

MIS2002L Project Management Module 2011

Post-Teaching Assignment - to be done in assigned groups.

PROJECT SCOPE STATEMENT PROJECT OBJECTIVE To organize and lead a five-day fly-fishing expedition down the Tikchik River system in Alaska from June 21 to 25 at a cost not to exceed $27,000.

DEUVERABlES Provide air transportation from Dillingham, Alaska, to Camp I and from Camp II back to Dillingham. Provide river transportation consisting of two eight-man drift boats with out­board motors. Provide three meals a day for the five days spent on the river. Provide four hours fly-fishing instruction. Provide overnight accommodations at the Dillingham lodge plus three four­man tents with cots, bedding, and lanterns. Provide four experienced river guides who are also fly fishermen. Provide fishing licenses for all guests.

MilESTONES I. Contract signed January 22. 2. Guests arrive in Dillingham June 20. 3. Depart by plane to Base Camp I June 21. 4. Depart by plane from Base Camp II to Dillingham June 25.

TECHNICAL REGUIREMENTS I.e. Fly in air transportation to and from base camps .

. 2. ,Boat transportation within the Tikchik River system. 3. Digital cellular communication devices. 4. Camps and fishing conform to state of Alaska requirements.

LIMITS AIliD EXCLUSIONS

1. Guests are responsible for travel arrangements to ~nd from Dillingham, Alaska.

2. Guests are responsible for their Own fly-fishing equlpnient and clothing. 3. Local air transportation to and from base camps wiilbe Outsourced. 4. Tour guides are not responsible for the number of King Salmon caught by

guests.

CUSTOMER REVIEW The president of BlueNote, Inc.

REQUIRED:

1. Brainstorm potential risks associated with this project. Each group should come up with at least ten possible risks.

2. Use a risk assessment form to analyze the identified risks. 3. Develop a risk response matrix to outline how you would deal with each of the

risks. 4. Prepare a report for management outlining a Risk Management plan that

involves to ensure that GAA will be properly positioned to assess, evaluate and control possible exposures and vulnerabilities for the company on the project. Be sure to indicate how the company might use techniques such as PERTto help them apply effective risk management processes.

Note: A detailed project network is not required for this assignment.

Word length: Approximately 3,000 words, excluding tables ..

Grade weighting: 20% of the module.

242 Chapter7 Managing Risk

LIMITS AN[i'ElQ~LUl)lONIS I. Perfonners resjpffi;>!ilble ~~rangi;m':nts to ang from XSU 2. Vendors contribute a ret-J2~'fC€:nf:age of sales. 3. Concert must be OV'!T-'JV

CUSTOMER R!;.vn:w The of XSU student body.

PERT and PERT Simulation PERT-PROGRAM EVALUATION AND REVIEW TECHNIOUE Iu 1958 the Special Office of the Navy and the Booze, Allen, and Hamilton con­sulting firm developed PERT (program evaluation and review technique) to sched­ule the more than 3,300 contractors of the Polaris submarine project and to cover uncertainty of activity time estimates.

PERT is almost identical to the critical path method (CPM) technique except it assumes each activity duration has a range that follows a statistical distribution. PERT uses three time estimates for each activity. Basically, this means each activ­ity duration can range from an optimistic time to a pessimistic time, and a weighted average can be computed for each activity. Because project activities usually repre­sent work, and because work tends to stay behind once it gets behind, the PERT developers chose an approximation of the beta distribution to represent activity durations. This distribution is known to be flexible and can accommodate empiri­cal data that do not follow a normal distribution. The activity durations can be skewed more toward the high or low end of the data range. Figure A 7.lA depicts a beta distribution for activity durations that is skewed toward the right and is rep­resentative of work that tends to stay late once it is behind. The distribution for the project duration is represented by a normal (symmetrical) distribution shown in Figure A 7.1 B. The project distribution represents the sum of the weighted aver­ages of the activities on the critical path(s).

Knowing the weighted average and variances for each activity allows the proj­ect planner to compute the probability of meeting different project durations. Fol-

FIGURE A7.1 Activity and Project Frequency Distributions

ACTIVITY

b

(A)

PROJECT

T. (8)

Chapter 7 i\,fallugtizg RL'Ik 243

low the steps described in the hypothetical example given next. (The jargon is difficult for those not familiar with statistics, but the process is relatively simple after working through a couple of examples.)

The weighted average activity time is computed by the following formula:

where

a+4m+b t = ' , 6 (7.1)

te = weighted average activity time

a = optimistic activity time (I chance in 100 of completing the activity earlier under normal conditions)

b = pessimistic activity time (I chance in 100 of completing the activity later under normal conditions)

m = most likely activity time

When the three time estimates have been specified. this equation is used to compute the weighted average duration for each activity. The average (deterministic) value is placed on the project network as in the CPM method and the early, late, slack, and project completion times are computed as they are in the CPM method.

The variability in the activity time estimates is approximated by the following equations: Equation 7.2 represents the standard deviation for the activity, Equa­tion 7.3 represents the standard deviation for the project. Note the standard devia­tion of the activity is squared in this equation; this is also called variance. This sum includes only activities on the critical path(s) or path being reviewed.

(T = (':...=.!!.) t, 6

(T'T' = ~ I:: I~

(7.2)

(7.3)

Finally, the average project duration (TE) is the sum of all the average activity times along the critical path (sum of tel, and it follows a normal distribution.

Knowing the average project duration and the variances of activities allows the probability of completing the project (or segment of the project) by a specific time to be computed using standard statistical tables. The equation below (Equation 7.4) is used to compute the "Z" value found in statistical tables (Z = number of stan­dard deviations from the mean), which, in turn, tells the probability of completing the project in the time specified.

where

(7.4)

T£ = critical path duration

Ts = scheduled project duration

Z = probability (of meeting scheduled duration) found in statistical TableA7.2

A HYPOTHETICAL EXAMPLE USING THE PERT TECHNUlUE The activity times and variances are given in Table A 7.1. The project network is presented in Figure A 7 .2. This figure shows the project network as AOA and AON. The AON network is presented as a reminder that PERT can use AON net­works as well as AOA.

-------------------~

244 Chapter 7 Managing Risk

TABLEA7.1 Activity Times and Variances

FIGUREA7.2 Hypothetic.1 Network

30

, , , 0 A 30 , ,

30

30

~".

B

AOANetwork

~\""

:~'~' .5 e"

rl'56 5~· ----. - 6 .• ~

20 .............6 ........... .' . TE::

4 '.'. .

AON Network

43 43D591' !

13

C 50 i

20 6 Jl ..,'*

The expected project duration (TE) is 64 time units; the critical path is 1-2-3-5-6. With this information, the probability of completing the project by a specific date can easily be computed using standard statistical methods. For example, what is the probability the project will be completed before a scheduled time (Ts) of 67? The normal curve for the project would appear as shown in Figure A7.3.

Using the formula for the Z value, the probability can be computed as follows:

Ts - TE Z = -"-==' ~

67 - 64 =~===:==

V25 + 9 + 1 + I +3

V36 = +0.50

P = 0.69

FIGUREA1.3 Possible Project Durations

TABLE A7.2 ZValuesand Probabilities

Chapte'r 7 Managing Risk 245

Reading from Table A7.2, a Zvalue of +0.5 gives a probability of 0.69, which is interpreted to mean there is a 69 percent chance of completing the project on or before 67 time units.

Conversely, the probability of completing the project by time period 60 is com­puted as follows:

60 - 64 Z = -:-Vr.2:=::5~+~9:=+~1 =+=='1

-4 =y'36

= -0.67 P = 0.26

From Table A7.2, a Z value of -0.67 gives an approximate probability of 0.26, which is interpreted to mean there is about a 26 percent chance of completing the project on or before 60 time units. Note that this same type of calculation can be made for any path or segment of a path in the network.

ZValue Probability PrObability

-3.0 .001 +0.0 :500 -2.8 .003 +0.2 .579 -2.6 .005 . +0.4 :655 -2.4 .008 +0.6 .726 -2.2 .014 +0.8 )88 -2.0 .023 .+1.0 .841 -1.8 .036 +1.2 .885 .. -1.6 .055 +1.4 .919 -1.4 .081 +1.6 .945 -1.2 .115 +1.8 .964 . -1.0 .159 +2.0 .977 -0.8 .212 +2.2 .986 -0.6 .274 +2.4 .992 -0.4 .345 +2.6 .995 -0.2 .421 +2.8 .997

246 Chapter 7 Managing Risk

Act.1D Description

1 Design package 2 Design product 3 Build package 4 Secure patent 5 Build product 6 Paint 7 Test market

When such probabilities are available to management, trade-off decisions can be made to accept or reduce the risk associated with a particular project duration. For example, if the project manager wishes to improve the chances of completing the project by 64 time units, at least two choices are available. First, management can spend money up front to change conditions that will reduce the duration of one or more activities on the critical path, A more prudent, second alternative would be to allocate money to a contingency fund and wait to see how the project is progressing as it is implemented.

EXERCISES I. Given the project information below, what is the probability of completing the

National Holiday Toy project in 93 time units?

Predecessor Optm.(a) Most likely (m) Pess. (b) Acttime Ie Variance Hb - aV6!' Critical

None 6 12 24 1 16 19 28 1 4 7 10 2 21 30 39 2 17 29 47 3.4.5 4 7 10 6 13 16 19

2. The Global Tea and Organic Juice companies have merged.

The following information has been collected for the "Consolidation Project."

Activity Description Predecessor aop! mml bpess

1 Codify accounts None 16 19 28 2 File articles of unification None 30 30 30 3 Unify price and credit policy None 60 72 90 4 Unify personnel policies None 18 27 30 5 Unify data processing 1 17 29 47 6 Train accounting staff 1 4 7 10 7 Pilot run data processing 5 12 15 18 8 Calculate P & L and balance sheet 6,7 6 12 24 9 Transfer real property 2 18 27 30

10 Train saJesforce 3 20 35 50 11 Negotiate with unions 4 40 55 100 12 Determine capital needs 8 11 20 29 13 Explain personnel policies 11 14 23 26 14 Secure line of credit 9.12 13 16 19 15 End 10.12.14 a a a

1. Compute the expected time for each activity. 2. Compute the variance for each activity.

Chapter 7 Mtmaging Risk 247

3. Compute the expected project duration. 4. What is the probability of completing the project by day 1l2? Within

116 days? 5. What is the probability of completing "Negotiate with Unions" by

day 90?

3. The expected times and variances for the project activities are given below. What is the probability of completing the project in 25 periods?

Variance 10 Description Predecessor t, [(b - a)/6]'

1 Pilot production None 6 3 2 Select channels of distrib. None 7 4 3 Develop mktg. program None 4 2 4 Test market 1 4 2 5 Patent 1 10 5 6 Full production 4 16 10 7 Ad promotion 3 3 2 8 Release 2.5.6.1 2

Interna \'onal Capital, Inc.-Part A

International ital, Inc. (IC), is a small investment banking firm that special­izes in securing ft ds for small- to medium-sized fim . C is able to use a stan­dardized project fon at for each engagement. 0 . activity times and unusual circumstances change t standard network. B Brown has been assigned to this client as project manager p tner and has mpiled the network information and activity times for the latest c1i t as fol

Activity Description

tory draft using template search client firm

Create "due diligence" rough draft Coordinate needs proposal with client Estimate future demand and cash flows Draft future plans for client company Create and approve legal documents Integrate all drafts into first-draft proposal line up potential sources of capital Check. approve, and print final legal proposal Sign contracts and transfer funds

Immediate Predecessor

A, B C C E C D. F, G G, F H I.J

What we have to do

Assessment 4 (worth 20% of total module grading)

This also is a group assignment, and requires each student group to complete a case assignment based

on the theme of Risk Management, bringing into play theories covered during the bloc session. The

submission date will be advised by the Programme Office.

Students are expected to complete all assignments ensuring that they are submitted by the specified

date. All submissions other than Powerpoint presentations, must be typed, be well laid out, written in

an academic style with appropriate headings (introduction, main part and concluding comments) and

sections.

Please ensure that all submissions are entirely your own work – for UCD’s policy on plagiarism click

on the link below (please see Appendix 2 for further information on Plagiarism and the policy on the

Late Submission of Coursework):

This assignment is intended to test your understanding of the project management process itself, and in

particular, the requirements of effective project risk management. It relates to a fly-fishing expedition

project, and is distributed to the class.

A written case submission is required from each group, and these counts for 20% of the overall grading.