Solution Manual for Project Management: Processes, Methodologies, and Economics, 3rd Edition

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- 1 -CHAPTER1. INTRODUCTION1.1(a) This is a mass production example. Standard windows are manufactured by specialpurpose equipment arranged according to the production process. The flow ofmaterial on the production line follows the routing of the product and each worker onthe line performs the same operation on each unit of the product.(b) This is a batch-oriented example. The one time order of 150 window assemblies is abatch that requires a special set up of the machines. In addition, the workers on theline will be performing specific operations in accordance with the unique designcharacteristics of the window subassemblies.(c) This is a project-oriented example. The project is to design and build a facility thatcan supply 1,000 window assemblies per month throughout the year at minimum costwhile meeting advertised quality standards.1.2Stage IDefine location, food types, style (project)Stage IIDefine goals and their relative importance: size, customer types, prices,opening hours, number of workers, cost, opening date (project)Stage IIIDefine performance measures: cooking time, serving time, cleaning time(project)Stage IVa–Develop scheduleb–Develop budgetc–Design and planCooking processServing processCleaning processDesign restaurant interior (division into kitchen area, serving area, etc.)Furniture and décorDecide on equipmentDecide on types of supplies and quantitiesPlan advertisementThese are all part of aprojectStage VIntegrate into project plan (project)Stage VIDevelop implementation plan: find location, begin interior construction; hirestaff and train them; acquire equipment, furniture, décor; contract suppliers;develop advertising strategy (project)

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Chapter 1. Introduction2Stage VIIMonitor and control cost, schedule and technical process (project)Stage VIII Run trials and evaluate (batch production)Stage IXOpen and run on daily basis (mass production)1.3Products:1.Building blocks–needed by buildersAlternatives: Wood, stone, metal.2.Window drapes–privacy, blocks lightAlternatives: blinds, shutters, tinted glass.Services:1.Express mail–communicationsAlternatives: messengers, fax, email2.Buses–travelAlternatives: private car, taxi, train, airplane1.4Assumptions1)The delivery company and driver have experience, both in delivery and predictingarrival times.2)There are 2 drivers.3)The truck will travel at an average speed of 41.7 mph MI/48 hr, including rest stops.4)All roads from the origin and house are in good condition.5The truck will not encounter any traffic jams.6)The truck is in good condition, and no mechanical failures will occur.7)The truck will not be involved in an accident, etc.If all of the above assumptions are true, then the truck will arrive on time.If assumption 2 is false, then the arrival time will probably double.If any of assumptions 3-7 are false, then there is no way to predict the arrival time.If the shipment was by rail the assumptions are:a) The material will be loaded on time.b) The train will travel by continuously.c) The truck traveling from the unloading point to the house will travel continuously.Generally, the rail option increases the probability of on time arrival.

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Chapter 1. Introduction31.5There are 3 factors affecting price:1) Cost of materials2) Cost of equipment3) Cost manual workI.If the house plans are available, then the cost of materials and equipment are known.The only uncertainty is manual work time. If the plumber is unable to predict this,then he lacks experience. Do not accept his proposal.II.If the plans are not available then the plumber cannot predict the material, equipmentand manual work time needed. In this case a $2000 reserve for unseen expenses isreasonable.1.6The following data were collected in 10 trials.Trail,nDriving time (min),t172931548596771081199107Mean,= 9.2Standard deviation,= 2.44Coefficient of variation,/= 0.2151.7(a) Technological–availability of information; scheduling–time required to collect andprocess the information.(b) Technological–availability of information and equipment, scheduling, requiredactivities and the duration of activities; cost–equipment, labor and transportation.(c) Scheduling–traffic jams, mechanical problems, driving conditions.(d) Cost–price not predictable; technological–quality and performances of the item.

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Chapter 1. Introduction41.8School of Business AdministrationThe projects in this structure are research-oriented and undertaken by teams of professorsfrom the various departments. The product is knowledge and the publication of researchresults. There are several customers including the students, the local and nationalbusiness community, and funding agencies.1.9The functional structure is identical to the structure depicted in the solution to Exercise1.8 for the different departments in a business school.1.10Job descriptionAppropriate educationPrevious management experienceCommunication and negotiation skills for dealing with the community, localauthorities, contractors, suppliers, experts, and workersA member of the community (desirably a parent)CriteriaRelevant college degree5 years of experience in a related areaA good interviewCandidate1Mechanical engineer3 years of experience in mechanical engineeringMember of the communityNo childrenHobbies: Basketball, hiking, stamp collectingOrganizationalbehaviorMathematicsComputerscienceManagementMarketingAccountingFinanceStatisticsOperationsresearch

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Chapter 1. Introduction5Candidate2Aeronautical engineer7 years of experience managing in various computer-oriented small projects involvingsoftware developmentA parentMember of the communityHobbies: gardening, building model planesCandidate3Industrial engineer5 years experience in the car industry managing R&D projectsA parentNot a member of the communityHobbies: skiing, musicEvaluation of candidates:Candidate1:Besides being a member of the community, this candidate’s backgrounddoes not match the rest of the job description. This candidate is notchosen.Candidate2:Although this candidate is qualified in most areas, the weak point iseducation and project management experience. The types of projects thiscandidate participated in did not involve communication negotiation andcontracting skills. This candidate is not chosen.Candidate3:This candidate is not a member of the community and has not beeninvolved in similar project. But his communication, negotiation andcontracting skills will enable him to manage the experts needed and tocarry out the project successfully. This candidate seems to be the best ofthe three.1.11The work content: Preparation of a thesis on the success of project managementtechniques including:a. literature review (about 100 articles and 20 books) and preparation of researchhypothesis (about 10)b. preparation of a questionnaire (50 questions) based on hypothesisc. interviews (200 managers in all 50 states)d. statistical analysis of results (hypothesis testing ANOVA)e. presentation of results to the customer (3 presentations)f. preparation of a mailing questionnaire (to 100 companies)g. distribution of mailing questionnaire (to 100 companies)h. follow up phone calls (about 200 calls)

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Chapter 1. Introduction6i.analysis of resultsk. write up of thesis (about 100 typed pages, 30 tables and 20 figures)l.revisions (3 major revisions, 10 minor revisions)m.final productionRelevant criteria (and performance measure)a. Ph.D degree in a related area (grade achieved)b. at least 5 publications in related areas (number of publications)c. good connections with industry (number of organization contacts)d. high grades in English, writing (grades)e. high grades in statistics (grades)f. good knowledge of MS Word or a similar word processor (subjective evaluation)g. living close by (distance)h. has a computer and a laser printer at home (1 for both, 0.5 for computer only, 0 fornone)i.successfully completed other theses in the past (number of previous theses)Required scheduleTaskStart time from projectinitiation, (months)End time from projectstart, (months)a01b12c25d36e46f57g68h79i810j911k1011l1012m1112

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Chapter 1. Introduction71.12The best proposal will be selected based on a subjective evaluation of each candidate withrespect to the relevant criteria and subjective weight given to each criteria. Each criteriawill be measured on a scale from 0 (poor) to 5 (excellent). The weighted sum of scoreswill be the aggregate measure used for selection:CandidateCriteriaWeight123a10%343b5%422c15%442d15%422e20%353f5%224g20%143h5%244i5%422100%Weighted score =272925Best candidate is number 2.1.13Conceptual design phase(project initiation selection and definition)Design a projectEstimating the life cycle costGetting customer’s approval for the designAdvanced development(analysis of activities)Developing the networkAdvanced development(project scheduling)Development of a calendarEstimating activity durationAdvanced development(project budgeting)Development of a budgetDetailed design phase(project organization)Selecting participating organizationsDeveloping the WBSEstablishing the milestonesProduction phase(project execution and control)Execution of activitiesManaging the configurationMonitoring actual performanceDevelopment of corrective plansTermination phaseRecommending improvement steps

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Chapter 1. Introduction81.14(a)1. Learning car mechanics in order to be able to repair my car.2. Bicycling to school(b)1. Building my own house2. Repairing my old air conditioner(c)1. Getting a pilot's license2. Buying a new car(d)1. Buying an apartment2. Having a child1.151.Development of a new robotic lab in the engineering school–this project is in theproduction phase. Most of the equipment has been purchased and installed, althoughsome is still on order.2.Moving to a new house–this project is at the conceptual design phase. The decisionto move was made but the new house has yet to be selected.1.16NASA's Moon Landing ProjectRisks(cost): Because many new and specialized devices were used, there were not alarge number of suppliers to choose from. Also, because some of the technology wasbeing developed at the time, it was impossible to pin down all the cost––the devices,components and subassemblies had not yet been made.Technology: Much of the equipment was being developed and there had been relativelyfew manned space flights, and even fewer where the astronauts ventured outside thevehicle. Also, technology was not shared between the U.S. and the U.S.S.R. furtherreducing the knowledge base.Schedule: Early in the program, the schedule was dependent on the adequatedevelopment of technology to enable a successful launch, landing, and re-entry of thespacecraft. After reaching a satisfactory technological level, a suitable window forlaunch was dependent on the position of the moon and the weather at Cape Canaveral.From the inception of the program, there was also an urgency brought on by politicalpressure to achieve these goals before the Soviets.Resources: NASA had to choose how to divide its fixed budget to develop thetechnology for this mission as opposed to others, such as the development of a "spaceplane," which was shelved, only to be reincarnated years later as the space shuttle.Also, materials and systems, such as boasters, capsules, lunar landers, and fuel had tobe designed, built, and paid for all within the available budget.

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Chapter 1. Introduction9Uncertainties: NASA, as a government agency, has to have annual approval of its budgetby Congress -- a political body whose membership is constantly changing. Questionssuch as: Would the technologies work? Would the weather cooperate? Would theastronauts perform adequately? all lend an element of uncertainty to the program.Other projects:1.The logistics operation before Iraqi Freedom–the objective of this project was totransfer the required USA forces to Saudi Arabia before Desert Storm. This goal wassuccessfully achieved.2.The election campaign of George Bush–the objective of this project was to get Mr.Bush elected as the US president; the goal was successfully accomplished in 2000 and2004.1.17Some examples are:1.The “Spruce Goose” –In 1942, industrialist Henry Kaizer and the pilot and innovatorHoward Hughes won a government contract for a fleet of giant flying boats to be builtout of wood. World War II ended and the contract expired before the prototype wascompleted. Hughes continued with his own money and in November 1947, the $28million plane flew about a mile above Long Beach Harbor on its first and finalvoyage. This project failed because the end of the war marked the end of the flyingboat era. In addition, advances in metallurgy and engine performance superceded theneed for light-weight wood aircraft.2.In 1980, Israel Aircraft Industries began to develop the Lavi fighter. This project wasmostly financed by the U.S. government, and,by 1984,when the first prototypewasready, the Israeli government halted the project primarily for political reasons.TheU.S. government withdrew financing because it felt that the Lavi would eatinto thebusiness of U.S. companies such as Boeing and Lockheed.The Israeligovernment, an annual recipient of U.S. foreign aid, was persuaded not to continueon its own.3.Ballistic missile defense or “Star Wars” –This huge and costly project was initiatedby Ronald Reagan in the late 1980s with the goal of protecting the U.S. from anuclear attack by the former Soviet Union. The underlying technology wasenormously complex, requiring lasers to be stationed on Earth-orbiting satellites andto be controlled through a sprawling computerized network of ground stations. Theproject was halted in the early 1990s when the U.S. congress failed to allocate fundsfor further development. Several reasons contributed to that decision including thecollapse of the Soviet Union, widespread protests from respected experts who sawlittle hope of the system working, pressure to spend the funds elsewhere, and thefailure of initial tests to achieve even a modicum of success. Nevertheless, in theearly 2000s, President Bush reinitiated the project hoping to capitalize on newtechnologies and a favorable political mood in the congress.

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- 1 -CHAPTER2. PROCESS APPROACH TO PROJECT MANAGEMENT2.1The project selected for this discussion is the Darwin Alice Springs Railway project.(a) The major stakeholders are:1.The citizens of Australia2.The Northern Territory government3.The South Australian governments4.The government of Australia (the commonwealth government)5.The Australasia railway corporation (established in 1997 by the Northern Territoryand South Australian governments)6.Contractors, subcontractors and suppliers7.Workers on the project(b) This was an external project performed for Australia (a joint venture between thenorthern Territory and the South Australian government) by the Australasian railwaycorporation.(c) The most important resources used in the project were human resources, machines,measuring devices, and some raw materials.1.Human resources. Because of the complex nature of the project, an exceptionalneed existed for licensed individuals and other experts. Although there was no lackof labor in the area, highly motivated and capable workers can make the differencebetween project success and failure.2.Raw material needed for the project (e.g., 146,000 tons of steel rail, 2 millionconcrete sleepers, 2.8 million tons of ballast, 100,000 cubic meters of pre-stressedconcrete and much more.)3.Special machines. The machines played an important role because the sleepers andthe steel rails were too heavy to be carried by men. The machines are the "commonworker" here and workers only operate them.4.Accurate measuring devices. If a line were one degree off from its plannedbearings its terminal point would be 2.5 km inland with respect to the port ofDarwin, the desired terminal point, or 2.5 km out at sea.(d) The needs of the stakeholders:1.The citizens of Australia2.The Northern Territory government3.The South Australian governments4.The government of Australia (the commonwealth government)

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Chapter 2. Process Approach to Project Management2The Northern Territory economy is small. It relies on world demand for mining,farming,and tourism (though domestic tourism is more important thaninternational). But the Northern Territory also has a solid base of defense andgovernment employment, with the defense presence notably built up in the pastdecade.Due to its size and its exposure to export markets, the Northern Territory's economicperformance is volatile, but,on average,the past decade has seen it outperform thewider Australian economy in both output and job growth. That strong performance wasled by mining and related activities (including some offshore), the defense build up, andthe fact the Northern Territory is at an earlier stage of development, and so benefitsfromextra capital works (such as the Darwin-Alice railway). Recent Northern Territoryeconomic growth has been modest, with the Defense build up moderating and tourismstagnating. The resultant slower population growth has meant little housingconstruction for three years. Nevertheless, other projects are expected to pick up thecommercial construction slack, the global economy is recovering, and so too is theoutlook for tourism.The railway is expected to reduce the transport costs for goods from the inlands to therapidly growing markets of East Asia and bring tourism into the inland. It is the onlyrail connection between South Australia and the north. Given the fact that groundtransportation is less expensive than air and given the rapidly growing markets in thenorth, for Australia this railway has to become a success story, at least from aneconomic point of view.1.The Australasian railway corporation (established in 1997 by the Northern Territoryand South Australian Governments) holds exclusive rights to operate the entire linefor the next 50 years.2.Contractors, subcontractors and suppliers. These are for profit firms for which theproject is a source of income and expertise.3.Workers on the project. The workers are looking for good jobs that pay well andwill allow them to develop their skills.(e) The alternatives for the project are:1.The road system which is already built and functional;2.Using the sea as a transportation platform (combined with the road system forinlanders);3.Using the airways, again combined with roads.All three are cheaper in the short run–mainly because they already exist–but inthe long run each has disadvantages that limit the volume and weight of goods thatcan be transported. Slower transportation rates ultimately mean higher costs.Another alternative istodesign a high-speed railway system that would increasethroughput but be far more expensive to build and maintain. In the view of the

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Chapter 2. Process Approach to Project Management3planners, however, the conventional railway system is expected to satisfactorilymeet the needs of the region (mainly industrial needs).(f) The northern territory government ordered a comparison between the road option andthe rail option and obtained the following results.For trucks:i. The average truck operating cost within the corridor is estimated at 3.26cents/ntk (net tonnes-kilometer).ii. The average truck operating cost for operations outside of the corridor isestimated at 3.70 cents/ntk.For rail:i. rail operating costs were estimated using the Booz·Allen rail cost model at1.82 cents/ntk for the operations within the corridor.ii. 2.75 cents/ntk for operations outside of the corridor.In both cases, the operating costs are projected to decline by 1.5% per annum for 30years due to (1) improvements related to economies of scale and future productivitygains, (2) changes in the fleet mix leading to increased capacity and improvements infuel efficiency, and (3) better technology leading to better maintenance of the roadvehicles, which include the following truck types: articulated 6-Axle, B-double,double road train, and triple road train.In addition, the following savings in externalities are expected:Savings in road infrastructure costs is 0.770 cents/ntk for trucks operating withinthe Adelaide to Alice Springs corridor and 0.901 cents/ntk for trucks operatingoutside the corridor. The estimates are based on the Travers Morgan report.Savings in road accidents are estimated to be 0.183 cents/ntk for trucks operatingwithin the corridor and 0.319 cents/ntk for trucks operating outside the corridor.These values were derived from the latest ARRB Accident costs for articulatedvehicles.Savings from the reduction in greenhouse gas emissions is based on work byVTES (1994) on CO2 vehicle emissions and Moffet (1991) cost estimates. Thecosts related to greenhouse gases for this analysis are 0.05 cents/ntk for rail and0.10 cents/ntk for road.Based on the analysis conducted during the study, the rationale for the selectedalternative is as follows.The port connected to this rail is the closest one to the designated markets. Thisgives it an important role in Australian economy especially in the "global era" andin light of mining activities, which support the local economy.The existence of the line will play a key role in unlocking the developmentpotential of the Northern Territory’s largely untapped mineral reserves.The project makes Darwin a gate for tourism and the rail will make it easier totravel within Australia. Given the vast distances, rail is a better and more

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Chapter 2. Process Approach to Project Management4comfortable way of travel than road or air for both people. It is also moreeconomical for goods.For the inland cities that will gain a gate towards the sea, the project is definitely abig boost; for the rail company it is a "win-win" situation.In the short run this may seem to be an expensive project,but according to theanalysis,it will pay for itself in a few years and remain a major asset for the stateand citizens.The results of a 50-year economic evaluation using a discount rate of 5% aresummarized in the table below.Results of Economic EvaluationProject case($M)Measure926Capital costs (present value)1,737Benefits (present value)811Net present value0.88NPV/capital costs9.2Internal rate of return (%)1.88Benefit / costWith an initial capital cost of $926 million (PV), the project yields a net benefit of $811million, giving a benefit-to-cost ratio of 1.88 and an internal rate of return of 9.2%.The table below provides a breakdown of the various sources of project benefits.Source of project benefitsProject case ($M)%Operating costs improvements91353Accident costs avoided18110Avoidance of intermodal transfer costs151Road infrastructure cost savings57433Greenhouse gas savings543Total1,737100The primary source of benefits is the savings in operational cost for tonnage diverted tothe new rail link. The reduction in road infrastructure costs due to the diversion offreight from to rail is the next major benefit source.Sensitivity Analysis: A number of sensitivity tests were conducted and the resultsshown in the following able.

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Chapter 2. Process Approach to Project Management5Sensitivity measuresNPV ($M)NPV/CB/CIRRBaseline evaluation8110.881.889.2%Project rail operating costs: +10%7130.771.778.8%Project rail operating Costs:–0%9100.981.989.7%Rail task: +10%9080.981.989.7%Rail task:–10%5980.651.658.3%Rail task:–20%4320.471.477.5%Project construction costs: +10%7180.711.718.5%Project construction costs:–10%9031.082.0810.1%Road operating costs: 0% annual decline14251.542.5411.2%Road operating costs:–3% annual decline3960.431.437.5%7% discount rate3100.351.359.2%3% discount rate17141.782.789.2%The results show that the NPV ranges from $310 million to $1,714 million with thebenefit-to-cost ratio (B/C) ranging from 1.35 to 2.78. Moreover, the internal rate ofreturn (IRR) ranges from 7.5% to 11.2%, indicating that under all scenariosinvestigated the NPV of the project is positive at the selected discount rate of 5%.(g) The risks of this project are of two types:Risks that may hamper the completion of the projectRisks that might make the project to “a white elephant”:(h) The following list of risks is arranged by severity and phase.Pre-construction1.Inability to acquire the lands needed for the rail as planned.2.Lack of cash.3.Design and Over-investment–building an “overqualified” line for a fastertrain with the entire infrastructure involved.4.Subcontractor failure (bankruptcy).5.Insufficient raw material (mainly sleepers, steel rail and ballast)6.Opposition of the public due to environmental damage.Post-construction. While the Northwest Territory is projected to be a fast growingeconomy in comparison to the rest of Australia, its small size and resource strengthsalso point to it being a more volatile one. As a consequence, its past may notaccurately reflect its future. Additional risks include:

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Chapter 2. Process Approach to Project Management67.High maintenance costs.8.The $A rising beyond current expectations. This would have the effect ofmaking some projects uncompetitive, putting at risk the strong investmentoutlook, and weakening the outlook for tourism and education exports.9.Darwin's proximity to potentially unstable Asian trouble spots ofterroristactivities. This has diverted tourists from the Asia-Pacific and may continueto do so.10.The global recovery stuttering. While current signs are good, if globaldemand were to stagnate again the effect on the NT‘s resources and tourismsectors would be strongly negative.11.“Acts of God” –cyclones (and other natural phenomena) may be a higherrisk for Darwin than for other Australian capital cities.(i) The following steps were taken to mitigate the risks.Land and environmental risks. While the Austral Asia Railway Corporationcoordinated the tender process and negotiations, the Northern Territory governmenthad primary responsibility for negotiating with aboriginal Land Councils andpastoralist regarding acquisition of the corridor (with compensation payments of $A22 million). Environmental and heritage issues had to be addressed and fencing thecorridor was required.A draft environmental impact statement was released in 1983 and updated with anew environmental management plan in 1997. At that time, the project receivedenvironmental approval from the Northern Territory and from the commonwealthgovernments.The Northern Territory obtained Sacred Sites avoidance certificates in accordancewith the Northern Territory Aboriginal Sacred Sites Act for an area of extending 200meters on either side of the railway centre line and for the identified ballast sitesoutside the corridor. Various reports were commissioned to determine the likelyimpact of the railway on sites of archaeological and historical significance.The Aboriginal Areas Protection Authority has pegged all Aboriginal sites ofsignificance and good working relationship between the Authority, Adrail andAboriginal organizations is ensuring close cooperation throughout the project.The area of the Gouldian Finch Wet Season Feeding Habitat affected by constructionof the railway has been reestablished using plants from a nursery set up prior to theconstruction.Adrail, with assistance from Greening Australia and the Kybrook Farm communityat Pine Creek, have completed the required rehabilitation on the site at YinberrieHills.The railway will have no impact on the heritage values of any declared heritage site;however, certificates have been obtained where the railway passes close to threedeclared heritage sites on the route of the old North Australian Railway line.

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