Engineering Finance
Lessons




A project involves a collection of activities that must be performed to accomplish some goal. An example might involve the construction of a building. A builder has the task of constructing a building to meet the specifications of a design provided by an architect. The builder identifies a set of activities that must be formed to accomplish this goal such as clear the land, lay access roads, pour the foundation, erect the walls and so on. Each of the activities requires time, money and resources. Often there are precedence relations that require that before some activity may begin, others must already be completed. For example, the erection of the walls cannot begin before the foundation is ready.

Before the project begins, the builder needs to schedule the activities involved. Some purposes of a schedule are to:

  • predict when the project will be completed
  • predict when a subcontract should be let to perform an activity
  • determine when limited resources should be obtained
  • predict the cash flow over time for project expenditures and revenue

After the project begins, it is necessary to track the performance of the various activities to assure that the project is on schedule and on budget. Some activities may require more time than originally estimated, while others may require less. Resources thought to be available may be delayed. Any change from projected values might require new schedules to be prepared or corrective actions to be taken.

These and many other considerations comprise the subject of project scheduling. There is a great deal of literature on the subject. Our textbook Project Management by Shtub, Bard and Globerson, 2nd edition, published by Pearson, Prentice Hall in 2005, surveys some of these considerations. The book Critical Chain by Eliyahu M. Goldratt, published by North River Press in 1997, provides a practical critique on the Project Management methods with special attention to the misleading assumptions used by traditional analysis.

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  • The Model
    This lesson describes the model we use for project scheduling. The model includes a list of activities that comprise the project, lists of the immediate predecessors for each activity and estimates of the time required for each activity. The model may also describe the resources and cash flows associated with the activities.
  • Critical Path
    This lesson describes methods to find the critical time, the minimum time required to complete the project. We also discover the critical path, the set of activities that must be performed in strict sequence to finish the project a soon as possible. The process of finding the critical time and path determines two schedules, the earliest schedule and the latest schedule.
  • Uncertainty
    There are many reasons for uncertainty with regard to the project scheduling model. This lesson recognizes uncertainty in activity times by describing the times with continuous probability distributions. Using several approximations with regard to the critical path, the normal distribution is used to provide probability estimates about the duration of the project. Simulation is used when the normality assumption is not appropriate.

 

 

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Engineering Finance
by Paul A. Jensen
Copyright 2005 - All rights reserved

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