Decision Science Chapter 09 Project Management Models What

Decision Science Chapter 09 Project Management Models

What is a Project?

a temporary process, with a clearly defined start and end time, a set of tasks, and a budget, to achieve a well-defined objective.

Examples

• Constructing oil pipelines, houses • Developing software • Developing new shipping system • Planning concert, football games • Introducing new products into market

Project Characteristics

• Limited by budget, schedule, and resources • A clear goal oriented • Customer-focused • Provide a strategy for change • Entail crossing functional and organization boundaries • Terminated upon successful completion

Financial Models Based on the time value of money principal • • Payback period Net present value Internal rate of return Options models All of these models use discounted cash flows

Payback Period Determines how long it takes for a project to reach a breakeven point Cash flows should be discounted Lower numbers are better (faster payback)

Payback Period Example 1 A project requires an initial investment of $200, 000 and will generate cash flow of $75, 000 each year for the next five years. What is the payback period? Payback = Investment / Cash flow = 200, 000 / 75, 000 = 2, 67 years

Payback Period Example 2 Which of the following projects is the best to start? Project Investment Cash flow A 200, 000 40, 000 B 500, 000 100, 000 C 100, 000 25, 000 D 400, 000 50, 000

Payback Period Example 2 Projec t A B C D Investment (I) 200, 000 500, 000 100, 000 400, 000 Cash flow (F) 40, 000 100, 000 25, 000 50, 000 Payback (I/F) 5 years 4 years 8 years The best project to start with is C

Network for House Building Project Lay foundations Build house 4 3 2 2 Start Finish work 7 1 1 3 Design house and obtain financing 3 1 Order and receive materials 5 1 Select paint 6 1 Select carpet

A Sample Set of Project Activities and Precedences

Stage 1 of a Sample Network

A Completed Sample Network

Critical Path d 3 b 2 Start g 1 a 3 c 1 A: B: C: D: a-b-d-g 3 + 2 + 3 + 1 = 9 months a-b-e-f-g 3 + 2 + 1 + 1 = 8 months a-c-d-g 3 + 1 + 3 + 1 = 8 months a-c-e-f-g 3 + 1 + 1 = 7 months e 1 f 1 • Critical path – Longest path through a network

Exercise 1 Draw the following network and find the critical path

Exercise 2 Given the following network, find the critical path 10 21 18 30 15