Thinking in Project Management Terms – Basic Methods and Calculations

By Bob Hugg

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In Unit 1 Project Management (PM) was discussed as a management philosophy. Within that philosophy there are many methods and techniques; most are industry specific and are designed to provide performance metrics meaningful to that industry. This unit will discus the three chief methods in wide use with the most focus paid to the most commonly used technique, PERT/CPM. PERT and CPM, though separate techniques, are commonly used in tandem because together they provide a stronger tool and will be discussed accordingly in this chapter.

A central weakness of both PERT and CPM is the inability to deal with resource dependencies As discussed in chapter 1, resource dependencies are those that concern the availability of resources whether they are human, mechanical or fiscal (PERT/CPM considers only causal dependencies, the completion of a prior task). PERT/CPM also assumes that additional resources can be shifted to a project as required. Because, in the real world, all projects have finite resources to draw on the estimates and expectations are frequently skewed. Because of this weakness, a significant portion of the PM community believes that PERT/CPM creates unrealistic expectations, at best. As a result, management of projects using only PERT/CPM can be difficult and frustrating for worker, Project Managers and stakeholders alike.

A newly emerging (within the last 10 years) methodology is Critical Chain Project Management (CCPM), also referred to as Theory of Constraints. In essence, CCPM focuses on managing constraints, the relationship between tasks within a project and resources within project. By actively managing these “hotspots” it is believed that CCPM decreases project conflict and tension and provides a more balanced expectation. Though an interesting theory, CCPM is largely unproven and appears to be most applicable in projects concerning highly dynamic tasks that can be grouped in modules. Module structure groups tasks where the completion of a module delivers some degree of function that can be used regardless of the status of the remainder of the project. An example would be software development, where a subroutine that is common to many applications can be completed and useful without the entire project is completed. Because the relationship between modules is not as critical, the modules themselves can be re-planned and re-scheduled as necessary, adding a degree of efficiency and decreasing conflict within a project or between projects. CCPM also focuses on overall project progress instead of individual task progress. A perceived strength of CCPM is that it is based on an absence of multi-tasking; a single resource is only assigned to a single task/project. A relatively humanistic approach, CCPM calculations also account for the inconsistent nature of human performance (good days, bad days, sick time, training needed, etc). CCPM estimates are much broader (50% probability, 90% probability, etc) and deal exclusively with a single “normal” completion date of the project as a whole. As such, it is believed that by identifying and grouping tasks and limiting constraints the project becomes more manageable while providing incremental value. Critics of CCPM argue that its assumptions (absence of multitasking, tasks may be grouped into semi-independent yet value-filled groups) create unrealistic expectations. In any event, CCPM seems applicable only in those industries where incremental progress can deliver incremental value or function. Clearly, only completing one wing of an airplane, 2 walls of a house or 1/3 of a city-wide traffic risk assessment would provide little value, so CCPM has found little acceptance outside of very specific hi-tech business areas.

The second method in use is a variation of PERT called Earned Value Method, introduced by the Department of Defense in the mid 60s. In the business world this method is synonymous with ROI (Return On Investment).Simply put, it examines the relationship between the cost of doing something and the value received by doing it. Earned value does not concentrate on probability of completion at a specific time, nor does it deal with a specific time or range of times, though a by –product of the analysis is a constantly moving completion projection. It tracks tasks and the project as a whole in terms of money by analysis that answers 3 specific questions:

1) How does the cost of work performed compare to the value of the work performed?

2) What is the value (in dollars) of work performed so far?

3) How does the amount of money spent so far on a project compare to what should have been spent?

Using answers to those questions, Earned Value Method generates a variety of productivity indices that can be used to forecast a project completion date. Because Earned Method focuses on work performance in terms of cost and value, it is used extensively throughout the Department of Defense in contracts administration and in industries where significant amounts of work are performed either under contract or through contractors. It is not commonly used in Social and Behavioral sciences or technical production (software development, healthcare, etc) because, in those disciplines, the tangible value of the process and result is much more difficult to identify. Earned Value Method employs many fundamentals of WBS and PERT and is commonly found as an analysis tool in most mainstream PM software packages, including MS Project.

By far, the most common method used is PERT/CPM. The remainder of this unit will focus on introducing basic methods and calculations in use. As discussed in Unit 1, PERT is based on a beta distribution that is useful in real-world planning because it accounts for a degree of randomness (that all humans bring to the table). Based on its theoretical model, PERT delivers a task or project completion estimate based on pessimistic, optimistic and most likely estimates provided by the user. PERT also provides a probability of completion on any date selected by the user. PERT calculations are simple and straightforward, but tend to get lengthy when many tasks are used. Before the task calculations can be made, however, 2 steps must be taken in any project planning:

1) Define the goal of the project and the tasks required to complete it

2) Place tasks in a logical order and determine the critical path (it is helpful to diagram the tasks)

a. The critical path is the longest time path through the network of tasks

When these steps are complete, generate a set of duration estimates for each task; each set should contain a pessimistic, most likely and optimistic estimate. To keep the estimates straight, it is useful to label pessimistic estimates as T_P, optimistic estimates as T_O and most likely estimates as T_L (any labeling system can be used, but these are fairly intuitive).For each task, calculate the PERT derived expected duration (T_E) based on a formula, (T_P + 4 T_L + T_O) / 6 = T_E

1) Read this formula as the sum of pessimistic plus 4 times likely plus optimistic divided by 6 equals the expected duration

2) Compete this calculation for all tasks; making sure to group tasks on the critical path separately

a. The critical path is the longest time path through the network of tasks

b. The sum of duration of tasks on the critical path will determine the project duration

A second set of calculations are necessary to determine information that will be useful later in the process. These calculations will yield the Standard Deviation (SD) and Variance (V) for each task duration. The SD is the average deviation form the estimated time; as a general rule, the higher the SD is the greater amount of uncertainty exists. The V reflects the spread of a value over a normal distribution. The SD and V will be useful in determining the probability of the project meeting a desired completion date. The formulae for calculating SD and V are:

1) SD=(TP-T0)/6 {read as (pessimistic-optimistic)/6}

2) V=SD² (Standard Deviation squared)

3) Compete this calculation for all tasks; making sure to group tasks on the critical path separately

c. The critical path is the longest time path through the network of tasks

d. The sum of duration of tasks on the critical path will determine the project duration

Since most projects involve several tasks, it is helpful to construct a table to stay organized. A table might look like:

CRITICAL PATH TASKS (Longest Duration)
TASK	TO	TL	TP	TE	SD	V
TOTAL
OTHER PROJECT TASKS
TASK	TO	TL	TP	TE	SD	V
TOTAL

Table 1, Sample table of estimates

Consider a sample project, planting flowers and trees. This project could involve 8 tasks; when diagramed it would look like:

Figure 1, PERT Diagram for sample project

For this sample project a table would be helpful in getting organized, and would yield more usable information than the PERT diagram.. This sample project, with 8 tasks, complete with optimistic, pessimistic and likely estimates could then populate the table. When PERT expected durations and SD and V are added using the formulae, the table would look like:

CRITICAL PATH TASKS (Longest Duration)
TASK	TO	TL	TP	TE	SD	V
1	1	3	5	3	.67	.44
2	2	4	7	4.17	.83	.69
5	1	3	6	3.17	.83	.69
6	1	3	5	3	.67	.44
8	1	2	4	2.17	.5	.25
TOTAL	7	15	28	15.51	3.5	2.51
OTHER PROJECT TASKS
TASK