Project Management and Operations Project Management First Essay
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Project Management and Operations
Project Management First Essay on Project Management: 1697 – “An Essay Upon Projects” 1959 HBR Article – “The Project Manager” Air Force Manual 1964
Project Management In today’s global marketplace, complexity and speed are certainties. In such an environment, a good axiom for project management is, Do It Right, Do It Right Now. Creating clear direction, efficiency, timely response, and quality outcomes requires project managers who are agile -- adept at change. The associated disciplinary areas are clearly spelled out in the following PMI definition. “Project management is the application of knowledge, skills, tools, and techniques to a broad range of activities in order to meet the requirements of a particular project. Project management is comprised of five Project Management Process Groups – Initiating Processes, Planning Processes, Executing Processes, Monitoring and Controlling Processes, and Closing Processes. Source: Project Management Institute - http: //www. pmi. org/info/PP_About. Profession. Overview. asp? nav=0501
Elements of Project Management ü Project team ü Individuals from different departments within company ü Matrix organization ü Team structure with members from different functional areas depending on skills needed ü Project manager - Leader of project team ü Project Charter – high level description of what is to be accomplished in a project and delegates authority to project manager to implement actions to complete project
Project Planning ü Statement of work ü Written description of goals, work & time frame of project ü Activities require labor, resources & time ü Precedence relationship shows sequential relationship of project activities
Elements of Project Planning ü Define project objective(s) ü Identify activities ü Establish precedence relationships ü Make time estimates ü Determine project completion time ü Compare project schedule objectives ü Determine resource requirements to meet objective
Work Breakdown Structure ü Hierarchical organization of work to be done on a project ü Project broken down into modules ü Modules subdivided into subcomponents, activities, and tasks ü Identifies individual tasks, workloads, and resource requirements
Project Control ü All activities identified and included ü Completed in proper sequence ü Resource needs identified ü Schedule adjusted ü Maintain schedule and budget ü Complete on time
A Gantt Chart Around since 1914 ü Popular tool for project scheduling ü Graph with bar for representing the time for each task ü Provides visual display of project schedule ü Also shows slack for activities ü Amount of time activity can be delayed without delaying project
Gantt Charts Gantt described two principles for his charts: 1. measure activities by the amount of time needed to complete them 2. the space on the chart can be used the represent the amount of the activity that should have been done in that time. Gantt charts were employed on major infrastructure projects including the Hoover Dam and Interstate highway system and still are an important tool in project management.
A Gantt Chart 0 | 2 | Month 4 | 6 | 8 | Activity Design house and obtain financing Lay foundation Order and receive materials Build house Select paint Select carpet Finish work 1 Figure 6. 2 3 Month 5 7 9 10
Example of Gantt Chart Problem
CPM/PERT ü Critical Path Method (CPM) ü Du. Pont & Remington-Rand (1956) ü Deterministic task times ü Project Eval. & Review Technique (PERT) ü US Navy, Lockheed ü Multiple task time estimates
PERT/CPM Program Evaluation and Review Technique (PERT): developed in conjunction with the development of the Polaris missile program for submarines – developed by the US Navy with Lockheed as the lead contractor Critical Path Method (CPM): developed through a joint venture between the Du. Pont Corporation and the Remington Rand Corporation – the original purpose was to monitor and evaluate plant maintenance management projects.
Project Network for a House Lay foundation 1 3 Design house and obtain financing 2 3 2 Dummy 0 1 Order and receive materials 4 Select paint Build house 1 1 5 Figure 6. 4 6 3 Select carpet Finish work 1 7
Critical Path ü A path is a sequence of connected activities running from start to end node in network ü The critical path is the path with the longest duration in the network ü Project cannot be completed in less than the time of the critical path
The Critical Path 1 3 Lay foundation 2 3 Design house and obtain financing 2 Dummy Build house 0 1 Order and receive materials 4 Select paint Finish work 6 3 1 1 Select carpet 5 A: 1 -2 -3 -4 -6 -7 3 + 2 + 0 + 3 + 1 = 9 months B: 1 -2 -3 -4 -5 -6 -7 3 + 2 + 0 + 1 + 1 = 8 months C: 1 -2 -4 -6 -7 3 + 1 + 3 + 1 = 8 months D: 1 -2 -4 -5 -6 -7 3 + 1 + 1 = 7 months 1 7
The Critical Path 3 Lay foundation 2 3 1 Build house 0 1 2 Design house and obtain financing Dummy Order and receive materials 4 Select paint Finish work 6 3 1 1 7 1 Select carpet 5 Activity Start Times 3 Start at 5 months 2 1 3 2 0 1 4 6 3 1 1 Start at 3 months 5 Figure 6. 6 Finish at 9 months 1 7 Start at 8 months
Project Crashing ü Crashing is reducing project time by expending additional resources ü Crash time is an amount of time an activity is reduced ü Crash cost is the cost of reducing the activity time ü Goal is to reduce project duration at minimum cost
Time-Cost Relationship ü Crashing costs increase as project duration decreases ü Indirect costs increase as project duration increases ü Reduce project length as long as crashing costs are less than indirect costs
Life Cycle Management • Long term view of projects to guide decision making – solutions that provide life time success vice short term • Acquisition; development; production; introduction; sustainment; disposal • Links system costs to big picture; better use of resources; minimize total cost of ownership
Capacity and Aggregate Planning
Capacity Outputs: Examples
The goal of capacity planning decisions (1) The capacity of the firm to produce the service or good (2) The processes for providing the service or making the good (3) The layout or arrangement of the work space (4) The design of work processes to enhance productivity
Capacity • The max output that an organization be capable of producing • Measure a single facility: – Design vs. Effective capacity – Capacity Utilization: design vs. efficient utilization • For systems have more than one facility and flows of product – System capacity and bottleneck – Improve system capacity
Determinants of Effective Capacity • Facilities • Human considerations – Adding people – Increasing employee motivation • Operations – Improving operating rate of a machine – Improving quality of raw materials and components • External forces – Safety regulations
Capacity Utilization Measures how much of the available capacity is actually being used: – Always <=1(percentage of usage) – Higher the better – Denominator: • If effective capacity used: efficient utilization • If design capacity used: design utilization
Aggregate Planning • The process of planning the quantity and timing of output over the intermediate range (3 -18 months) by adjusting production rate, employment, inventory • Master Production Schedule: formalizes the production plan and translates it into specific end item requirements over the short to intermediate horizon
Capacity Planning • The process of determining the amount of capacity required to produce in the future. May be at the aggregate or product line level • Master Production Schedule anticipated build schedule • Time horizon must exceed lead times for materials
Capacity Planning • Look at lead times, queue times, set up times, run times, wait times, move times • Resource availability • Material and capacity - should be in synch • driven by dispatch list - listing of manufacturing orders in priority sequence - ties to layout planning • load profiles - capacity of each section
the capacity decisions: • • When to add capacity How much capacity to add Where to add capacity What type of capacity to add • When to reduce capacity
Capacity Planning • Rough Cut Capacity Planning process of converting the master production schedule into requirements for key resources • capacity requirements plan - timephased display of present and future capacity required on all resources based on planned and released orders
Capacity Planning • Capacity Requirements Planning (CRP) - process of determining in detail the amount of labor and machine resources required to meet production plan • RCCP may indicate sufficient capacity but the CRP may indicate insufficient capacity during specific time periods
Theory of Constraints • Every system has a bottle neck • capacity of the system is constrained by the capacity of the bottle neck • increasing capacity at other than bottle neck operations does not increase the overall capacity of the system
Theory of Constraints • What needs to be changed • What to change to • How to make the change happen
Theory of Constraints • • • Identify the constraint Subordinate Inertia Walk the process again inertia of change can create new bottle necks
Capacity Planning ü Establishes overall level of productive resources ü Affects lead time responsiveness, cost & competitiveness ü Determines when and how much to increase capacity
Capacity Expansion ü Volume & certainty of anticipated demand ü Strategic objectives for growth ü Costs of expansion & operation ü Incremental or one-step expansion
Sales and Operations Planning (S&OP) • Brings together all plans for business • performed at least once a month • Internal and external
Adjusting Capacity to Meet Demand 1. Producing at a constant rate and using inventory to absorb fluctuations in demand (level production) 2. Hiring and firing workers to match demand (chase demand) 3. Maintaining resources for high demand levels 4. Increase or decrease working hours (overtime and undertime) 5. Subcontracting work to other firms 6. Using part-time workers 7. Providing the service or product at a later time period (backordering)
Demand Management ü Shift demand into other periods ü Incentives, sales promotions, advertising campaigns ü Offer product or services with countercyclical demand patterns ü Partnering with suppliers to reduce information distortion along the supply chain
Remedies for Underloads 1. Acquire more work 2. Pull work ahead that is scheduled for later time periods 3. Reduce normal capacity
Remedies for Overloads 1. Eliminate unnecessary requirements 2. Reroute jobs to alternative machines or work centers 3. Split lots between two or more machines 4. Increase normal capacity 5. Subcontract 6. Increase the efficiency of the operation 7. Push work back to later time periods 8. Revise master schedule
Scheduling as part of the Planning Process
Scheduling • Scheduling is the last step in the planning process? • It is one of the most challenging areas of operations management. • Scheduling presents many day-to-day problems for operations managers because of – – Changes in customer orders Equipment breakdowns Late deliveries from suppliers A myriad of other disruptions
Objectives in Scheduling Ø Ø Ø Ø Ø Meet customer due dates Minimize job lateness Minimize response time Minimize completion time Minimize time in the system Minimize overtime Maximize machine or labor utilization Minimize idle time Minimize work-in-process inventory Efficiency
Sequencing Rules Ø Ø Ø Ø Ø FCFS - first-come, first-served LCFS - last come, first served DDATE - earliest due date CUSTPR - highest customer priority SETUP - similar required setups SLACK - smallest slack CR - critical ratio SPT - shortest processing time LPT - longest processing time
Critical Ratio Rule CR considers both time and work remaining time remaining work remaining due date - today’s date remaining processing time If CR > 1, job ahead of schedule If CR < 1, job behind schedule If CR = 1, job on schedule Ties scheduling to Gantt Chart or PERT/CPM
Chapter 12 Inventory Management
Why is Inventory Important to Operations Management? • The average manufacturing organization spends 53. 2% of every sales dollar on raw materials, components, and maintenance repair parts • Inventory Control – how many parts, pieces, components, raw materials and finished goods
Inventory Conflict • Accounting – zero inventory • Production – surplus inventory or “just in case” safety stocks • Marketing – full warehouses of finished product • Purchasing – caught in the middle trying to please 3 masters
Inventory ü Stock of items held to meet future demand ü Insurance against stock out ü Coverage for inefficiencies in systems ü Inventory management answers two questions ü How much to order ü When to order
Types of Inventory ü Raw materials ü Purchased parts and supplies ü In-process (partially completed) products ü Component parts ü Working capital ü Tools, machinery, and equipment ü Safety stock ü Just-in-case
Inventory Hides Problems Policies Inventory Accuracy Training Poor Quality Transportation Problems
Aggregate Inventory Management 1. 2. 3. 4. How much do we have now? How much do we want? What will be the output? What input must we get? • Correctly answering the question about when to order is far more important than determining how much to order.
Inventory Costs ü Carrying Cost ü Cost of holding an item in inventory ü As high as 25 -35% of value ü Insurance, maintenance, physical inventory, pilferage, obsolete, damaged, lost ü Ordering Cost ü Cost of replenishing inventory ü Shortage Cost ü Temporary or permanent loss of sales when demand cannot be met
ABC Classification System ü Demand volume and value of items vary ü Classify inventory into 3 categories, typically on the basis of the dollar value to the firm CLASS A B C PERCENTAGE OF UNITS 5 - 15 30 50 - 60 PERCENTAGE OF DOLLARS 70 - 80 15 5 - 10
Why ABC? • • Inventory controls Security controls Monetary constraints Storage locations
Economic Order Quantity
Assumptions of Basic EOQ Model ü Demand is known with certainty and is constant over time ü No shortages are allowed ü Lead time for the receipt of orders is constant ü The order quantity is received all at once
No reason to use EOQ if: • Customer specifies quantity • Production run is not limited by equipment constraints • Product shelf life is short • Tool/die life limits production runs • Raw material batches limit order quantity
EOQ Formula 2 Co. D EOQ = Cc Co = Ordering costs D= Annual Demand Cc = Carrying Costs Cost per order can increase if size of orders decreases Most companies have no idea of actual carrying costs
When to Order Reorder Point is the level of inventory at which a new order is placed R = d. L where d = demand rate period L = lead time
Forms of Reorder Points • • • Fixed Variable Two Bin Card Judgmental Projected shortfall
Why Safety Stock • • Accurate Demand Forecast Length of Lead Time Size of order quantities Service level
Inventory Control • • Cyclic Inventory Annual Inventory Periodic Inventory Sensitive Item Inventory
Vendor-Managed Inventory ü Not a new concept – same process used by bread deliveries to stores for decades ü Reduces need for warehousing ü Increased speed, reduced errors, and improved service ü Onus is on the supplier to keep the shelves full or assembly lines running ü variation of JIT ü Proctor&Gamble - Wal-Mart ü DLA – moving from a manager of supplies to a manager of suppliers ü Direct Vendor Deliveries – loss of visibility
Inventory Management: Special Concerns • Defining stock-keeping units (SKUs) • Increase in number of SKUs – 15% over past 3 years • Dead inventory • Deals • Substitute items • Complementary items • Informal arrangements outside the distribution channel • Repair/replacement parts • Reverse logistics
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