Accounting Question

You will put together an organized front and back cheat sheet using the slides provided.

All pertinent formulas, information tables, and scratch sheets will be included in the
test packages. Students may bring a double
–
sided (8.5″x11″) Note Sheet to each exam. The student’s name and
RedID must be on their Note Sheet
. The handwritten or typed Note Sheets c
ould
include any information EXCEPT
screen shots of Lecture PowerPoint slides or Textbook pages. Each student must create her/his own note sheet.

Operations Strategy
in a Global Environment
1
2
Growth of World Trade
2
Boeing’s Global Supply-Chain Strategy
Some of the International Suppliers of Boeing 787 Components
SUPPLIER
HEADQUARTERS
COUNTRY
COMPONENT
Latecoere
France
Passenger doors
Dassault
France
Design and PLM software
Thales
France
Electrical power conversion system
Diehl
Germany
Interior lighting
Cobham
UK
Fuel pumps and valves
Rolls-Royce
UK
Engines
BAE Systems
UK
Electronics
Alenia Aeronautica
Italy
Upper center fuselage & Stabilizers
Toray Industries
Japan
Carbon fiber for wing and tail units
Fuji Heavy Industries
Japan
Center wing box
Chengdu Aircraft Group
China
Rudder
Hafei Aviation
China
Parts
Korean Airlines
South Korea
3
Wingtips
Reasons to Globalize
1. Improve the Supply Chain (Unique Recourses: Human Expertise,
Low-cost Labor / Raw Material (Auto-styling studios So. Cal, etc.)
2. Reduce Costs (Regulation compliance, Taxes, Tariffs, etc.)
3. Improve Operations (Reduced response time to customer)
4. Understand Markets (New opportunities from local stakeholders)
5. Improve Products (GM, Daimler, Nissan cooperation on Hybrid Cars)
6. Attract and Retain Global Talent
4
Cultural and Ethical Issues
➢ Cultures can be quite different
➢ Attitudes can be quite different towards:
►
Punctuality
►
Child labor
►
Lunch breaks
►
Thievery
►
Environment
►
Bribery
►
Intellectual Property
5
Companies Need To Consider
➢ National Literacy Rate
►
Work Ethic
➢ Rate of Innovation
►
Tax Rates
➢ Rate of Technology Change
►
Inflation
➢ Number of Skilled Workers
►
Availability of Raw
Materials
►
Interest Rates
►
Population
►
Number of Miles of
Highway
►
Telecomm Infrastructure
➢ Political Stability
➢ Product Liability Laws
➢ Export Restrictions
➢ Variations In Language
6
Let’s Match Product & Parent Co’s
►
Firestone Tires
►
Godiva Chocolate
1. Volkswagen
►
Braun Household
Appliances
2. Bridgestone
Haagen-Dazs Ice
Cream
4. Tata Motors Limited
►
►
Jaguar Autos
►
MGM Movies
►
Lamborghini Autos
►
Alpo Petfoods
3. Campbell Soup
5. Proctor and Gamble
6. Nestlé
7. Pillsbury
8. Sony
7
Match Product & Country
►
Firestone Tires
►
Godiva Chocolate
►
Braun Household
Appliances
1. Great Britain
Haagen-Dazs Ice
Cream
3. Japan
►
►
►
2. Germany
4. United States
Jaguar Autos
5. Switzerland
MGM Movies
►
Lamborghini Autos
►
Alpo Pet foods
6. India
8
Developing Missions and Strategies
Mission Statements
tell an organization where it is going.
The Strategy tells the organization
how to get there.
9
Factors Affecting Mission
Philosophy
and Values
Profitability and
Growth
Environment
Mission
Customers
Public Image
Benefit to
Society
10
Strategy
►
Strategies are “Action Plans” to achieve Mission
►
Strategies are Tactical Approaches for
achieving Mission
►
Strategies exploit Opportunities and Strengths,
neutralize and avoid Threats and Weaknesses
►
A company’s strategy is its action plan for
outperforming its competitors and achieving
superior Market Position
11
How Strategy is Shaped
Mission
Internal
External
Strengths
Opportunities
Analysis
Internal
External
Weaknesse
s
Threats
STRATEGY
12
Strategy Development Process
Organization’s
Mission & Strategies
Functional Area
Missions & Strategies
Marketing
Operations
13
Finance/
Accounting
Mission & Strategies
Cascade, Superordinated,
Through the Organization
Strategic Unity and Alignment is Imperative!
14
14
Strategies for Competitive Advantage
1. Differentiation: Better, or at least Different
2. Cost Leadership: Cheaper
3. Response: More Responsive or Flexible
15
1. Competing on Differentiation
Uniqueness can go beyond the Physical
Characteristics and Service Attributes to
encompass everything that impacts Customer’s
“Perception of Value”
➢ Apple Products: Unique Product Interface
Experience
➢ Walt Disney Magic Kingdom: Experience
Differentiation!
➢ Hard Rock Café: Unique Dining Experience!
16
2. Competing on Cost
Provide the Maximum Value , “As Perceived by
Customer.” (Does not imply low quality!)
►
Southwest Airlines – Secondary Airports, No
Frills Service, Efficient Utilization of Equipment
►
Walmart – Low Overhead, Shrinkage, and
Supply Chain Costs
17
3. Competing on Response
➢ Flexibility is matching market changes in
Design Innovation and Volumes
➢ Reliability is meeting schedules
–
German machine industry
➢ Timeliness is quickness in Design, Production,
and Delivery
–
Johnson Electric
18
The Operations Managers’ Job
Implement an OM Strategy to Provide Competitive
Advantage, and Increase Productivity
➢ Identify Key Success Factors in:
➔
Product
➔
Quality
➔
Process
➔
Location
➔
Layout
➔
Human Resource
➔
Supply chain
➔
Inventory
➔
Scheduling
➔
Maintenance
19
Strategies for Competitive Advantage
Strategies
Cost
Differentiation
Response
Product Design
Off-the-shelf recipe
Experiment with
new recipes
Use “Quick-to-Make or
Customized” recipes
Inventory
Minimum Inventory
Location
Near Cheap Resources
Near Creative Talent
Nearest to Customers
Technology &
Process
Lowest Cost
Most Versatile
Fastest Output
Supply Chain
Lowest Cost Providers
Providers with
knowledge of the latest
trend in customer taste
Fastest, most flexible
providers
Maintenance
As needed (Band-Aid)
Preventative
Maintenance Plan
Preventative
Maintenance Plan
Human Resource
Lowest Cost
Most Innovative
Fastest, most reliable
Service Delivery
Customer pickup
Most differentiated way
Deliver to customers
Low Inventory, as recipes Large Inventory to cover
change often
all possible orders
20
Company Strategy / Issues
Key Success Factors and Product Life Cycle
Introduction
Growth
Maturity
Decline
Increase Market
Share
Establish Price or
Quality Image
Compete on
Costs & Feature
Cost Control
Critical
R&D Engineering
Strengthen Niche
Defend Market
Position
Maximize Profit
is Critical
Internet Search Engines
Drive-through
Restaurants
Xbox 360
iPods
DVDs
Boeing 787
SALES
3-D game
players
Drones
3D printers
Analog
TVs
Electric vehicles
22
Strategic Planning,
Core Competencies, and Outsourcing
▪ Outsourcing – Transferring activities that
traditionally been Internal to External Suppliers
▪ Accelerating due to:
➢ Increased Technological Expertise
➢ More Reliable and Cheaper Transportation
➢ Rapid development and ubiquity of global
Telecommunication Network
23
Theory of Comparative Advantage
➢ If an external provider can perform an activity more
productively than the purchasing firm, then the
external provider should do the work!
➢ The purchasing firm should focus on its
Core Competencies!
24
Advantages & Risks of Outsourcing
Potential Advantages and Disadvantages of Outsourcing
ADVANTAGES
DISADVANTAGES
Cost Savings
Increased Logistics and Inventory Costs
Gaining Outside Expertise
Loss of Control (Quality, Delivery, Etc.)
Accessing Outside Technology
Potential Creation of Future Competition
Improving Operations & Service
Negative Impact on Employees
Maintaining a Focus on Core
Competencies
Risks May Not Manifest Themselves for
Years
25
Rating Outsourcing Providers
➢ Insufficient analysis most common reason for
failure
➢ Methodical Analytical Approach Needed:
1. Determine Factor Ratings
2. Points and Weights assigned for each factor
26
Supplier Selection:
Weighted Average Rating
Potential Suppliers Ratings
Factors / Criterion
Importance
Weights
Company
A
Company
B
Company
C
Costs
35%
3
3
5
Quality
30%
3
4
3
Reliability
25%
4
5
3
Technology
10%
5
4
2
TOTALS
100%
27
Global Operations Strategy Options
Cost Reduction Priority
High
Low
Import / Export or License
Existing Product
International Strategy
(e.g., Harley-Davidson)
Differentiation & Response Priority
28
High
Global Operations Strategy Options
Cost Reduction Priority
High
Production at
Low Cost Locations
Standardize Product and
use Economies of Scale
Low
Differentiation & Response Priority
Global Strategy
(e.g.,Caterpillar;
Texas Instruments)
29
High
Global Operations Strategy Options
Cost Reduction Priority
High
Low
Customizing Product
& Marketing for
differing National conditions
Multi-domestic
Strategy
(e.g., The Body Shop; Pizza Hut’s
“Tandoori Treat” in India and,
“Escargot Pizza” in China)
Differentiation & Response Priority
30
High
Global Operations Strategy Options
Cost Reduction Priority
High
Low
Production & Marketing
at Low Cost Locations
based on Differing
National Conditions
Transnational Strategy
(e.g., Coca-Cola, Nestlé)
Differentiation & Response Priority
31
High
Please Answer the Polling Question
Firm’s export strategy of Maximizing Local Representation and
Minimizing Cost is called:
A.
Internal Strategy
B.
Global Strategy
C.
Multi-Domestic Strategy
D.
Transnational Strategy
E.
Not Sure
32
Global Operations Strategy Options
Cost Reduction Priority
High
Low
Differentiation & Response Priority
33
High
The Network of Global Trade
CIS= Commonwealth of Independent States ; The Old Soviet Block
34
Global GDP 2022 ($100 Trillion)
35
The 20 Largest Economies in the World
Rank
Country
GDP
Rank
Country
GDP
#1
United States
$25.3T
#11
Russia
$1.8T
#2
China
$19.9T
#12
South Korea
$1.8T
#3
Japan
$4.9T
#13
Australia
$1.7T
#4
Germany
$4.3T
#14
Iran
$1.7T
#5
UK
$3.4T
#15
Spain
$1.4T
#6
India
$3.3T
#16
Mexico
$1.3T
#7
France
$2.9T
#17
Indonesia
$1.3T
#8
Canada
$2.2T
#18
Saudi Arabia
$1.0T
#9
Italy
$2.1T
#19
Netherlands
$1.0T
#10
Brazil
$1.8T
#20
Switzerland
$842 B
➢ The US has been the World’s Largest Economy since 1871
➢ China’s GDP is projected to surpass that of the US by 2030
36
Global Corruption Ranking
Most
Corrupt
Least
Corrupt
37
G-20 Corruption Index
Least to
Most
Country
Singapore
1
Switzerland
2
Netherlands
3
Germany
4
United Kingdom
5
Canada
6
Australia
7
Japan
8
France
9
United States
10
South Korea
11
Spain
12
Italy
13
Saudi Arabia
14
China
15
South Africa
16
India
17
Argentina
18
Brazil
19
Indonesia
20
38
(2021)
Where will the next 1000 babies be Born?
Estimated for 2022
39
Project Management
1
3
Project Management
➢ One of the most useful tools for managers
➢ Fairly easy to Learn, Master and get Certified
➢ An important employment differentiator
2
Traditional Organization Structures
Eng.
3
Prod. Mktg/
Finance
/ Mfg. Sales
The New iPhone 14 Project
✓Super Retina XDR OLED, HDR10, Dolby
Vision, 800 nits (HBM), 1200 nits (peak)
✓1290 x 2796 pixels, 19.5:9 ratio (~460 ppi
density)
✓Wide color gamut True-tone
✓Battery lasting 1 hrs more than iPXR
✓2,000,000:1 contrast ratio
✓Pro 12MP camera system:
✓Ultra Wide, Wide, and Telephoto cameras
Projects & Analyzes 30K dots
✓Studio-quality lighting effects
• Release Date: ~10/16/2022
• Cost: ~$530
• Features / Specifications:
4
✓Animoji based in 50 facial muscle
movements
✓Bionic augmented reality experiences in
games and apps.
▪ Etc.
Additional Considerations for 9/12 Release
➢ Hardware Design:
⚫
⚫
⚫
⚫
Surgical-grade stainless steel
Most durable smartphone glass
Wireless charging, no charging cable required
Water and dust resistance
➢ Software Compatibilities & Backward Integration
➢ Packaging & Promotional Material
➢ Carrier Contracts & Promo Coordination
➢ Marketing & Advertisement
➢ Etc.
5
A Matrix Organization Structure
President
Human
Resources
6
Marketing
CPO
Finance
Design
Quality
Mgt
Product’n
Project
No. 1
Project
Manager
Mechanical
Engineer
Test
Engineer
Technician
Project
No. 2
Project
Manager
Electrical
Engineer
Computer
Engineer
Technician
Role of A Project Manager
Highly Visible Position
➢ The focal point of the project;
➢ Leads the project’s:
1) Planning, 2) Executing, and 3) Controlling;
➢ Ensures the project team receives Motivation,
Direction, and Information;
Project
Managers should be:
➢ Responsible for the
project:
✓ Schedule ► Good Coaches
✓ Budget
✓ Results
7
►
Good Communicators
►
Able to Organize Activities
from a Variety of Disciplines
The Definition of a “Project”
✓ Projects are Unique and Non-routine activities
✓ A problem with a known solution scheduled for
completion
✓ A specific, finite “task” to be accomplished
➢ Task: Set of activities that comprise a Project
➢ Work Packages: Division of Tasks
➢ Work Units: Division of Work Packages
8
Project’s Stakeholders
Stakeholders
Information
➢ Sponsor (including Customers’ Reps.)
➢ Steering Committee
➢ Project Manager
➢ Project Team Members
Information
➢ Subject Matter Expert
➢ Functional Managers
➢ Customers
➢ Suppliers
PM
Information
PROJECT ROLES
Executive Roles
9
Managerial Roles
Associate Roles
Steering Team
Project Manager
Core Team Member
Chief Project Officer
Functional Manager
Subject Matter Expert
Sponsor
Sr. Customer Rep.
Suppliers Rep.
Project Phases & Activities
1
Planning /
Scheduling
Initiation
▪ Project Charter
3
2
4
Execution
▪ Scope & Goal Setting ▪ KPIs
▪ Project Initiation ▪ Budget
▪ Work Breakdown
Structure
Control
▪ Deliverables
5
Closure
▪ Punch List Report
▪ Cost Tracking ▪ Lessons Learned
▪ Forecasts
▪ Status & Tracking ▪ Performance
▪ Quality
▪ Gantt Chart
Measurement
▪ Revise Action
▪ Communication Plan
▪ Risk Management Plan
Activity Level
Executing
Planning
Initiating
Controlling
Project Start
Closing
Project Finish
Project’s Key Elements & Tradeoffs
Project’s Risk Areas:
Scope
Required Performance
Objective
➢Scope/Deliverables
➢Technology
➢Financials
➢People/Team
➢Org. Strategy
➢External Factors
Cost
Budget Limit
Due Date
(Schedule)
Time
11
Projects’ Risk / Cost
High
Cost of Changes
(Spec., Cost, Schedule)
(Spec., Cost, Schedule)
High
R
I
S
K
C
O
S
T
Low
Low
Start
12
Risk of Changes
Project Life Cycle
End
1) Project Planning
►
Establishing Goals / Objectives
►
Defining Project
►
Creating Work Breakdown Structure (WBS)
►
Determining Needed Resources
►
Selecting and Forming Team
Work Breakdown Structure
➢ WBS is a hierarchical decomposition of the
project into:
➢ Phases
➢ Deliverables
➢ Work Packages
➢ It is a Tree Structure, which shows a subdivision
of effort required to achieve an objective.
14
Project’s WBS
Project
Task 1
Task 2
Task 3
Sub-Task
1.1
Sub Task
2.1
Sub Task
3.1
Work package
Work package
Work package
1.1.1
2.1.1
3.1.1
Work Breakdown Structure (WBS) Example
Lemonade for 1000
Graduating Students
Level 1
Level 2
Purchase
Material
Level 3
Select, Pay and
Load Up Items
1.1
1.1.1
1.1.1.1
1.0
Prepare
Lemonade
2 .1
Serve
Lemonade
3.1
Mix Lemon Juice,
Sugar & Water
2 .1.1
Fill 1000
Cups
3.1.1
Measure
Ingredients Per
Recipe
2 .1.1.1
Setup Tables 3.1.1.1
Pickup Tables
3.1.1.1.1
from SDSU
Office
Level 4
Trip to Store
Level 5
Estimate Cost
1.1.1.1.1
Cut & Juice
Lemons
2 .1.1.1.1
Level 6
Prepare Shopping
List
1.1.1.1.1.1
Wash Lemons
2 .1.1.1.1.1
Project: Graduation Party Refreshments
➢ Scope:1000 Cups of Lemonade
➢ Time: 5:00pm Tomorrow
➢ Budget: $100 Budget
“Work Packages”
with assigned:
Resource, Time & Cost
2) Project Scheduling & Execution
➢ Considerations:
1.
2.
3.
4.
Ensure that all activities are planned for,
Order of performance of all activities accounted for,
All activities’ time estimates are recorded,
The overall project time is developed.
➢ Techniques:
– Gantt Chart,
– CPM (Critical Path Method),
– PERT (Program Evaluation and Review Technique)
A Simple Gantt Chart
6 am 7am 8 am 9 am10 am 11 am 12 pm 1pm 2 pm 3 pm 4 pm 5 pm
11Hours
A- Prepare WBS (60 min)
B- Estimate Cost (45 min)
C- Pickup Tables, SDSU Office (150 min)
D- Setup Tables (60 min)
E- Trip to Store (30 min)
F- Select & Pay for items (60 min)
G- Load up Items (30 min)
H-Trip Back & Unload Items (60 min)
I- Wash Lemons (80 min)
J- Cut & Juice Lemons (150 min)
K- Measure Ingredients Per Recipe (30 min)
L- Mix Lemon Juice, Sugar & Water (40min)
M- Fill 1000 Cups (60 min)
Project: Graduation Party Refreshments
➢ Scope:1000 Cups of Lemonade
➢ Time: 5:00pm Tomorrow
➢ Budget: $100 Budget
18
3) Project Controlling
►
Monitoring: Resources, Costs, Quality, Budgets
►
Feedback enables Revising the Project Plan and
Shift Resources
►
{For the Earned Value & Variance Management see
posted “Supplemental Lecture Notes”}
3 – 19
CPM & PERT Network Techniques Steps:
1. Define the Project and prepare its Work Breakdown
Structure,
2. Determine relationships among the activities –
e.g., which activities Must Precede and which Must
Follow others,
3. Draw the Network connecting all of the activities,
4. Assign Time and Cost Estimates to each activity,
5. Compute the longest time path of sequence of activities
through the network (this is called the Critical Path),
6. Use the network to Plan, Schedule, Monitor, and
Control the project.
20
Network Conventions
(Activity on Node Method)
Activity
A comes before
B, which comes
before C
A and B must both
be completed
before C can start
Activity on Node
(AON))
A
C
B
A
C
B
B
B and C cannot
begin until A is
completed
21
A
C
Network Conventions,
Activity on Node Method
Activity
C and D cannot
begin until both
A and B are
completed
C cannot begin until
both A and B are
completed
D cannot begin until
B is completed
22
Activity on Node
(AON))
A
C
B
D
A
C
B
D
Network Conventions,
Activity on Node Method
23
Activity
Activity on Node
(AON))
B and C cannot
begin until A is
completed;
D cannot begin
until both B and C
are completed
B
A
D
C
AON Example
Milwaukee Paper Manufacturing’s Activities and Predecessors
Activity
Description
Immediate
Predecessors
Time
(Weeks)
A
Build Internal Components
—
2
B
Modify Roof and Floor
—
3
C
Construct Collection Stack
A
2
D
Pour Concrete and Install Frame
A, B
4
E
Build High-temperature Burner
C
4
F
Install Pollution Control System
C
3
G
Install Air Pollution Device
D, E
5
H
Inspect and Test
F, G
2
3 – 24
AON Network for Milwaukee Paper
3
2
2
A
C
F
4
2
E
Start
25
H
3
4
5
B
D
G
Determining the Project Schedule
Perform the “Critical Path Analysis”
➢
➢
The Critical Path is the Shortest Time in which
the project can be completed.
➢
Any delay in Critical Path activities delays the
project.
➢
26
The Critical Path is project’s Longest Sequence
of activities from beginning to its end.
Critical Path Activities have no “Slack” time.
Thanksgiving Dinner Project
ACTIVITIES:
A. Purchase Ingredients
B. Roast Turkey
C. Prepare Stuffing
D. Prepare Mash Potato
E. Prepare Gravy
F. Prepare Cranberry Sauce
G. Setup Table & Serve
27
DURATION:
1.0 hour
4.0 hours
0.5 hours
1.0 hour
0.5 hours
0.5 hours
0.5 hours
Minimum time required for this diner project is?
Thanksgiving Dinner Gantt Chat
Time
11 am 12 pm 1 pm 2pm 3 pm 4 pm 5 pm
A- Purchase Ingredients (1 hrs.)
B- Roast Turkey (4.0 hrs.)
C- Stuffing (0.5 hrs.)
D- Mash Potato (1.0 hrs.)
E- Gravy (0.5 hrs.)
F- Cranberry Sause (0.5 hrs.)
Critical Path:
A-B-G
G- Set-up Table & Serve (0.5 hrs.)
Activities with Slack:
C, D, E & F
is:1hr.
1hr. ++ 4hr.
4hr. + 0.5hr.)
0.5hr.) = 5.5 hrs.
The minimum time for preparing and serving the dinner is
The Critical Path for the Thanksgiving dinner project is A-B-G.
28
Determining the Project Schedule
Perform a Critical Path Analysis
Earliest Start (ES) = Earliest time that an activity can start, after
completion of all predecessor activities
Earliest Finish (EF) = Earliest time that an activity can be finished
Latest Start (LS) = Latest time that an activity can start, without
delaying the completion of the entire project
Latest Finish (LF) = Latest Time that an activity has to be finished,
without delaying the completion of the entire project
30
Determining the Critical Path
1. Perform a “Forward Pass” to find the Earliest Start (ES)
& Earliest Finish (EF) of all activities and the project.
2. Perform a “Backward Pass” to find the Latest Start (LS)
& Latest Finish (LF) of all activities
3. Activities with the same (ES) and (LS) and, the same
(EF) and (LF) are on the “Critical Path”
4. All others have a “Slack”
31
Forward Pass
Begin at Starting Event and Work Forward
Earliest Start Time Rule:
ES = Max of EF of all immediate predecessors
32
Determining the Project Schedule
Activity Format
Activity Name
or Symbol
Earliest
Start
ES
Latest
Start
LS
A
EF
LF
2
Earliest
Finish
Latest
Finish
Activity Duration
33
Determining the Project Schedule
Total time in weeks
34
25
The estimated time to complete the Milwaukee project is:
A. 4 weeks
B. 25 weeks
C. Depends how fast everyone works
D. Won’t know until calculating its Critical Path
E. Have no idea!
35
ES/EF Network for Milwaukee Paper
EF of A =
ES of A + 2
ES
of A
0
Start
0
A
0
2
0
2
36
ES/EF Network for Milwaukee Paper
0
A
2
ES
of B
2
0
Start
0
B
0
3
0
3
37
EF of B =
ES of B + 3
ES/EF Network for Milwaukee Paper
0
A
2
2
0
Start
2
0
0
0
B
3
38
2
C
3
4
ES/EF Network for Milwaukee Paper
0
A
2
2
0
Start
2
C
4
2
0
= Max (2, 3)
0
D
3
0
B
7
3
3
4
39
ES/EF Network for Milwaukee Paper
0
A
2
2
2
0
Start
C
2
7
3
0
4
0
E
8
13
4
0
B
3
40
4
4
F
3
3
D
4
7
H
2
G
8
13
5
15
LS/LF Times for Milwaukee Paper
0
A
2
2
2
0
Start
C
2
7
3
0
4
0
E
8
13
13
4
0
B
3
41
4
4
F
3
3
D
4
7
H
2
15
15
G
8
13
5
LS = LF – Activity Time
LF = EF
of Project
LS/LF Times for Milwaukee Paper
LF = Min(LS of following activity)
0
A
2
2
2
0
Start
C
10
2
0
4
4
0
0
B
3
42
4
4
3
3
D
4
7
E
4
F
3
7
13
8
13
8
13
G
8
13
8
13
5
H
2
15
15
LS/LF Times for Milwaukee Paper
LF = Min(LS of following activity)
LF = Min (4, 10)
0
A
2
2
2
0
Start
2
C
2
4
4
4
10
0
4
4
0
0
B
3
43
3
3
D
4
7
E
4
F
3
7
13
8
13
8
13
G
8
13
8
13
5
H
2
15
15
LS/LF Times for Milwaukee Paper
Slack
0
0
0
0
Start
0
2
2
2
2
2
C
2
4
4
4
10
0
4
0
4
0
1
44
A
B
3
3
3
4
4
D
4
E
4
F
3
7
13
8
13
8
13
G
7
8
13
8
8
13
5
H
2
15
15
LS/LF Times for Milwaukee Paper
Slack
0
0
0
0
Start
0
2
2
2
2
2
C
2
4
4
4
10
0
4
0
4
0
1
45
A
B
3
3
3
4
4
D
4
E
4
F
3
7
13
8
13
8
13
G
7
8
13
8
8
13
5
So, Project’s Critical Path is: A-C-E-G-H
H
2
15
15
Example, Project Management Problem
A-B-D with
The Critical Path for the network activities shown below is ________
11
Duration ________.
Immediate
Activity
Duration
Predecessors
A
2
-B
5
A
C
2
A
D
4
B,C
Paths:
Critical path!
A-B-D => 2 + 5 + 4 = 11
A-C-D => 2 + 2 + 4 = 8
47
Longest path!
Start
A
2
B
5
C
2
D
4
Please Answer the Polling Question
➢ What is the minimum duration of this project?
48
A.
11
B.
12
C.
13
D.
14
E.
Not Sure
Example, Project Management Problem
A-D-E with
The Critical Path for the network activities shown below is ________
13
Duration ________.
Immediate
Activity
Duration
Predecessors
A
4
–B
2
A
C
7
-D
4
A
Paths:
E
5
B,C,D
C-E => 7+ 5 =12
A-D-E => 4 + 4 + 5 = 13
A-B-E => 4 + 2 + 5 = 11
Longest path!
0
A
4
Start
B
2
D
4
C
7
49
E
5
Variability in Activity Times
50
►
In CPM we assumed a fixed time estimate for each
activity with no variability in times.
►
In practice, activity times vary based on many factors
►
PERT uses a Probability Distribution for Activity Times
to allow for variability.
Variability in Activity Times
Three time estimates are required:
51
►
Most Likely Time (m) – Most Realistic Estimate
►
Optimistic Time (a) – If everything goes according to plan
►
Pessimistic Time (b) – Assuming unfavorable conditions
Variability in Activity Times
Assumption:
Time Estimate follows beta distribution
Expected Time:
Variance of Times:
52
(
a
+
4m
+
b)
t=
6
v=
(b – a)
6
2
Computing Variance
Time Estimates (in weeks) for Milwaukee Paper’s Project
ACTIVITY
OPTIMISTIC
a
MOST
LIKELY
m
PESSIMISTIC
b
EXPECTED TIME
t = (a + 4m + b)/6
VARIANCE
[(b – a)/6]2
A
1
2
3
2
0.11
B
2
3
4
3
0.11
C
1
2
3
2
0.11
D
2
4
6
4
0.44
E
1
4
7
4
1.00
F
1
2
9
3
1.78
G
3
4
11
5
1.78
H
1
2
3
2
0.11
15
Weeks
3.11
Weeks
Estimated
Total Time:
53
Probability of Project Completion
PERT makes two more assumptions:
1. Total project completion times follow a
Normal Probability Distribution
2. Activity times are Statistically Independent
54
Probability of Project Completion
Project Variance: The sum of the Variances
of Critical Path (ACEFH) activities
Project Variance:
s2 = .11 + .11 + 1.00 + 1.78 + .11 = 3.11
A Var
C Var
E Var
G Var
Project Standard Deviation:
s =
=
55
Project Variance
3.11 = 1.76 weeks
H Var
Probability of Project Completion
Standard Deviation (σ) = 1.76 weeks
-3σ
99%
-2σ
12
+2σ
95%
50% 68%
-1σ
11
+3σ
13
14
+1σ
15
16
Weeks
17
18
(Expected Completion Time)
56
19
A Quick Review
(s)
x- µ
Z=
σ

σ
x- µ
57
x
Reading the Z – Table
Z
Z Value is between:
0.00 and 3.49
(0.00 < Z < 3.49) The first decimal is located in the Left Column 94% .9418 The second decimal is located in the Top Row 98% • So, Z of 0.00 is equal to: • Z of 1.57 is equal to: • Z of 2.04 is equal to: Probability of Project Completion What is the Probability that the Milwaukee Paper Mfg. project can be completed on or before the 17 week deadline? 60 Probability of Project Completion What is the Probability this project can be completed on or before the 17 week deadline? Z= Z= Due Date - Expected Date s 17 weeks – 15 weeks 1.76 Z = 1.14 61 Appendix I: Cumulative Probability, Normal Distribution Z = 1.14 62 .8729 Probability of Project Completion Z = 1.14 Probability of project Completion in 17 weeks or less is Standard deviations 87.3% 15 63 17 Probability of project taking more than 17 weeks to complete is 100% - 87.3% = 12.8% weeks Determining Project Completion Time With 99% confidence, when would the project be completed? Probability of 99%  s = 15 = 1.76 x- µ Z= σ Due Date (x) = s Z + Expected Date From the Z table 64 => Z for 99% = ?
X
Appendix I: Cumulative Probability, Normal Distribution
0.3
2.3
65
Determining Project Completion Time
With 99% confidence, when would the project be completed?
Probability of 99%

s
X
= 15
= 1.76
x- µ
Z=
σ
Due Date (x) = s Z + Expected Date
From the Z Table
Z for 99% = 2.33 Std. Dev.
Due Date = 2.33 x 1.76 = 4.1 Weeks
66
>>> 15 + 4.1 = 19.1 Weeks
What have we learned about Milwaukee
Paper Mfg. project so far…
1. The project’s Expected Completion time is 15 weeks
2. There is a 87.3% chance the pollution control system
will be in place by the 17 week deadline
3. Five activities (A, C, E, G, and H) are on the Critical Path
4. Three activities (B, D, F) are not on the critical path and
have Slack Time
5. A detailed schedule is available
67
Cost–Time Trade-Offs and Project
Crashing
It is not uncommon to face the following
situations:
►
The project is behind schedule
►
The completion time has been moved forward
Project Crashing:
Shortening the duration of the project
68
Steps in Project Crashing
1. Compute the Crash Cost per Time Period:
(Crash Cost – Normal Cost)
Crash Cost
per Period = (Normal Time – Crash Time)
2. Find the Critical Path / Critical Activities
69
Steps in Project Crashing
3. If there is only one critical path, then select the
activity on this critical path that:
A.
B.
Can still be crashed,
Has the smallest crash cost per period.
If there is more than one critical path,
then select one activity from each critical path such that:
A. Each selected activity can still be crashed, and
B. The total crash cost of all selected activities is the
smallest.
4. Update all activity times. If the desired due date
has been reached, stop. If not, return to Step 2.
70
Crashing The Project
Normal and Crash Data for Milwaukee Paper Manufacturing
TIME (WEEKS)
71
COST ($)
ACTIVITY
NORMAL
CRASH
NORMAL
CRASH
CRASH COST
PER WEEK ($)
CRITICAL
PATH ?
A
2
1
22,000
22,750
750
Yes
B
3
1
30,000
34,000
2,000
No
C
2
1
26,000
27,000
1,000
Yes
D
4
2
48,000
49,000
500
No
E
4
2
56,000
58,000
1,000
Yes
F
3
2
30,000
30,500
500
No
G
5
2
80,000
84,500
1,500
Yes
H
2
1
16,000
19,000
3,000
Yes
Critical Path and Slack Times for
Milwaukee Paper
0
0
0
0
12
C
12 12
12 2 34
10
Slack = 0
Slack = 0
B
D
0
0
3
7
13
E
Slack = 6
Slack = 0
G
34
78
34 4 78
3
34
4
8
3
7
4
13
12
78
8
13
7
12
5
Slack = 1
Slack = 1
Slack = 0
3
7
F
3
01
72
12
4
0
Start
A
34
0
H
13
15
14
12
13
15
14
12
2
Slack = 0
Total Cost of Crashing a Project
Normal and Crash Data for Milwaukee Paper Manufacturing
TIME (WEEKS)
ACTIVITY
NORMAL
CRASH
NORMAL
CRASH
CRASH COST
PER WEEK ($)
CRITICAL PATH ?
A
2
1
22,000
22,750
750
Yes
B
3
1
30,000
34,000
2,000
No
C
2
1
26,000
27,000
1,000
Yes
D
4
2
48,000
49,000
500
No
E
4
2
56,000
58,000
1,000
Yes
F
3
2
30,000
30,500
500
No
G
5
2
80,000
84,500
1,500
Yes
H
2
1
16,000
19,000
3,000
Yes
Project’s Normal Total Cost =
73
COST ($)
$308,000
+
$750
Project’s Total Cost After Crashing =
$308,750
Example, Network Critical Path
The critical path for the network activities shown below is ________
A-B-E-F with
13
duration _____.
Activity Duration
A
2
B
3
C
2
D
3
E
5
F
3
Immediate Predecessors
–A
A
B
B,C
D,E
B
3
C
2
A
2
74
A-B-D-F=11
A-B-E-F=13
A-C-E-F=12
D
3
E
5
F
3
Example, Network Critical Path (cont.)
What is the total cost of crashing a project by 3 weeks given, the following
activity network and activity crashing cost per week?
Activity Duration
A
2
B
3
C
2
D
3
E
5
F
3
A
2
$350
Immediate Predecessors
–A
A
B
B,C
D,E
B
2
3
D
3
$250
$300
C
2
E
43
5
$300
$200
Crash Cost Per Week ($)
$350
$250
$300
$300
$200
$300
A-B-D-F=11 10
A-B-E-F=13 12 11 10
A-C-E-F=12 11 10
F
3
$300
1: E-1 $200
2: E-1 $200
3: B-1 $250
Total Crash Cost $650
75
Example, Network Critical Path (cont.)
What is the total cost of crashing a project by 3 weeks given, the following
activity network and activity crashing cost per week?
Activity Duration
A
2
B
3
C
2
D
3
E
5
F
3
A
2
$350
77
Immediate Predecessors
–A
A
B
B,C
D,E
Crash Cost Per Week ($)
$350
$250
$300
$30
$200
$300
B
3
D
2
3
$250
$30
A-B-E-F=13 12 11 10
C
2
E
43
2
5
A-C-E-F=12 11 10 9
$300
$200
A-B-D-F=11 10
F
3
$300
1: E-1 $200
2: E-1 $200
3: D-1 $30
E-1 $200
Total Crash Cost $630
Project Management Software
►
There are several popular packages for
managing projects
►
MacProject
►
HP Project
►
MindView
►
Fast Track
►
Microsoft Project
❖ SDSU students can have free access to MS Project through their
SDSUID
78
Using Microsoft Project
79
Using Microsoft Project
80
Appendix I
MS Project
Vides Tutorials
81
MS Project Videos and Tutorials
➢ Microsoft Project – Overview Tutorial for Beginners – 15 Mins
➢ MS Project Tutorial 1, Project Manage any Project Using MS Project – 27 Min
➢ MS Project Tutorial 2 Basics on setup and calendars – 28 Mins
➢ MS Project Tutorial 3 How to Maneuver Screens and Tables – 27 Min
➢ MS Project Tutorial 4 How to apply Resources & Costs to a schedule – 40 Min
➢ Project 2019 Beginner Tutorial – 111 MINS
82
MS Project Videos and Tutorials
BEGINNER
Get started with Project
In this 15 minute webinar, you’ll learn the very basics: adding tasks and linking tasks. You’ll also learn
how to add holidays to the project calendar so that you can plan for days off.
Assigning resources in Project
In this webinar, we’ll assign people to tasks and use the Resource Sheet to track people in your project.
Plus, we’ll learn how to add vacation days–and adjust the project accordingly so that we make our
deadline.
Create a timeline in Project
This webinar will get your project ready for kickoff. You’ll learn how to make milestones, summary tasks,
and subtasks. Plus, we’ll show you how to create a graphical timeline you can share with stakeholders.
Tracking progress in Project
This webinar tutorial will show you how to track progress once a project starts. We’ll show you how to
mark tasks complete, and we’ll run some reports that can give you an idea of what’s on time and what’s
not. We’ll also explain a couple of key concepts on the way too: critical tasks and baselines.
Microsoft Project – Full Tutorial for Beginners [+Overview] – 13 MINS
Microsoft Project 2016 Course for Project Management – Learn MS Project 2016 Tutorial – Part 1
Microsoft Project 2016 Course for Project Management – Learn MS Project 2016 Tutorial – Part 2
Microsoft Project 2016 Course for Project Management – Learn MS Project 2016 Tutorial – Part 3
Microsoft Project 2016 Course for Project Management – Learn MS Project 2016 Tutorial – Part 4
83
Appendix II
A Real World Example,
Project Management
84
Appendix III
Project Management’s
Soft Skills
85
Appendix IV
Additional Preparation
Notes For
PMP Certification Exam
86
Project Management
Supplemental Notes
3
MS Project Videos and Tutorials
➢ Microsoft Project – Overview Tutorial for Beginners – 15 Mins
➢ MS Project Tutorial 1, Project Manage any Project Using MS Project – 27 Min
➢ MS Project Tutorial 2 Basics on setup and calendars – 28 Mins
➢ MS Project Tutorial 3 How to Maneuver Screens and Tables – 27 Min
➢ MS Project Tutorial 4 How to apply Resources & Costs to a schedule – 40 Min
➢ Project 2019 Beginner Tutorial – 111 MINS
3
Appendix II
A Real World Example,
Project Management
A Real World Example: Step By Step
Step 1: Defining the Project:
A company is developing a new product line to be manufactured at their facility.
The PM has identified 11 activities and their precedence relationships.
Develop an AON Network for the project.
Activity
Description
A
B
C
D
E
F
G
H
I
J
K
Develop product specifications
Design manufacturing process
Source & purchase materials
Source & purchase tooling & equipment
Receive & install tooling & equipment
Receive materials
Pilot production run
Evaluate product design
Evaluate process performance
Write documentation report
Transition to manufacturing
Immediate Duration
Predecessor (weeks)
None
4
A
6
A
3
B
6
D
14
C
5
E&F
2
G
2
G
3
H&I
4
J
2
Step 2- Diagram the Network
B
D
E
H
G
A
C
Immediate Duration
Activity
Description
Predecessor (weeks)
s
A
Develop
Noneproduct specifications
4
s
B
DesignAmanufacturing
6 process
C
SourceA& purchase materials
3
equipment
D
SourceB& purchase tooling
6
& equipment
uipmentE
Receive
D & install tooling
14 & equipment
F
Receive
C materials 5
G
PilotEproduction
&F
run 2
H
Evaluate
G product design
2
e
I
Evaluate
G process performance
3
J
WriteHdocumentation
&I
4report
K
Transition
J to manufacturing
2
F
Immediate Duration
Predecessor (weeks)
None
4
A
6
A
3
B
6
D
14
C
5
E&F
2
G
2
G
3
H&I
4
J
2
J
I
K
Step 3 – Add Time Estimates
B
B
(6)
D
D
(6)
H
H
(2)
G
G
(2)
A
A
(4)
C
C
(3)
Immediate
Activity
Predecessor
None A
A
B
A
C
B
D
D
E
C
F
E & FG
G
H
G
I
H & I J
J
K
E
E
(14)
F
F
(5)
J
J
(4)
K
K
(2)
Immediate
Predecessor
None
A
A
B
D
C
E & F
G
G
H & I
J
Duration
(weeks)
4
6
3
6
14
5
2
2
3
4
2
I
I
(3)
Duration
Description
(weeks)
Develop
4
product specifications
Design
6
manufacturing process
Source
3
& purchase materials
Source
6
& purchase tooling & equipment
Receive
14
& install tooling & equipment
Receive
5
materials
Pilot2production run
Evaluate
2
product design
Evaluate
3
process performance
Write
4 documentation report
Transition
2
to manufacturing
Connection Paths:
1. A, B, D, E, G, H, J, K
2. A, B, D, E, G, I, J, K
3. A, C, F, G, H, J, K
4. A, C, F, G, I, J, K
Step 4- Calculate Project Completion Times
Paths
A- B-D-E-G-H-J-K
A-B-D-E-G-I-J-K
A-C-F-G-H-J-K
A-C-F-G-I-J-K
Duration
40
41
22
23
➢ The longest path (A-B-D-E-G-I-J-K) limits the
project’s duration (project cannot finish in less
time than its longest path)
➢ ABDEGIJK is the project’s Critical Path
Finding the Critical Path and Slack
(Forward
Pass)
ES, EF Network
ES = 4
EF = 10
ES = 10
EF = 16
ES = 16
EF = 30
ES = 32
EF = 34
B
(6)
D
(6)
E
(14)
H
(2)
A
(4)
ES = 0
EF = 4
C
(3)
F
(5)
ES = 4
EF = 7
ES = 7
EF = 12
G
(2)
J
(4)
K
(2)
ES = 30
EF = 32
ES = 35
EF = 39
ES = 39
EF = 41
I
(3)
ES = 32
EF = 35
Finding the Critical Path and Slack
ES = 4
EF = 10
LS = 4
LF = 10
ES = 10
EF = 16
LS = 10
LF = 16
ES = 16
EF = 30
LS = 16
LF = 30
ES = 32
EF = 34
LS = 33
LF = 35
B
(6)
D
(6)
E
(14)
H
(2)
A
(4)
ES = 0
EF = 4
LS = 0
LF = 4
C
(3)
F
(5)
ES = 4
EF = 7
LS = 22
LF = 25
ES = 7
EF = 12
LS = 25
LF = 30
Critical Path is
A-B-D-E-G-I-J-K
LS, LF Network
(Backward
Pass)
G
(2)
J
(4)
K
(2)
ES = 30
EF = 32
LS = 30
LF = 32
ES = 35
EF = 39
LS = 35
LF = 39
ES = 39
EF = 41
LS = 39
LF = 41
I
(3)
ES = 32
EF = 35
LS = 32
LF = 35
Activities with Slack / Float
C&F&H
Calculating Slack
Activity
A
B
C
D
E
F
G
H
I
J
K
Late
Finish
4
10
25
16
30
30
32
35
35
39
41
Early
Finish
4
10
7
16
30
12
32
34
35
39
41
Slack
(weeks)
0
0
18
0
0
18
0
1
0
0
0
Project’s Probabilistic Time Estimates
Optimistic + 4(Most Likely) + Pessimistic
Exp. Time =
6
Activity
Description
A
B
C
D
E
F
G
H
I
J
K
Develop product specifications
Design manufacturing process
Source & purchase materials
Source & purchase tooling & equipment
Receive & install tooling & equipment
Receive materials
Pilot production run
Evaluate product design
Evaluate process performance
Write documentation report
Transition to manufacturing
Optimistic
time
2
3
2
4
12
2
2
2
2
2
2
Most likely
time
4
7
3
7
16
5
2
3
3
4
2
Pessimistic
time
6
10
5
9
20
8
2
4
5
6
2
Calculating Expected Task Times
Optimistic + 4(Most Likely) + Pessimistic
Expected Time =
6
Activity
A
B
C
D
E
F
G
H
I
J
K
Optimistic
time
2
3
2
4
12
2
2
2
2
2
2
Most likely
time
4
7
3
7
16
5
2
3
3
4
2
Pessimistic
time
6
10
5
9
20
8
2
4
5
6
2
Expected
time
4
6.83
3.17
6.83
16
5
2
3
3.17
4
2
Estimated Path Durations in Network
Activities on Paths
A- B-D-E-G-H-J-K
A-B-D-E-G-I-J-K
A-C-F-G-H-J-K
A-C-F-G-I-J-K
Expected Duration
44.66
44.83
23.17
23.34
The Expected Project Completion Time = 44.83 weeks
Gantt Chart of Activities on the Critical Path
and with Slack (Floating)
Activity
A
B
C
uipment
D
mentE
F
G
H
I
J
K
Immediate Duration
Description
Predecessor (weeks)
Noneproduct specifications
Develop
4
DesignAmanufacturing
6 process
SourceA& purchase materials
3
SourceB& purchase tooling
6
& equipment
D & install tooling
Receive
14 & equipment
C materials 5
Receive
&F
PilotEproduction
run 2
G product design
Evaluate
2
G process performance
Evaluate
3
WriteHdocumentation
&I
4report
Transition
J to manufacturing
2
Immediate Duration
Predecessor (weeks)
None
4
A
6
A
3
B
6
D
14
C
5
E&F
2
G
2
G
3
H&I
4
J
2
Project Activity Variance
Activity
Activity
Optimistic
Optimistic
A
A
B
B
2
2
3
3
Most
Most
Likely
Likely
4
4
7
7
E
E
F
12
12
2
G
Pessimistic
Pessimistic
Variance
Variance
6
6
10
10
0.44
0.44
1.36
1.36
16
16
5
20
20
8
1.78
1.78
1.00
2
2
2
0.00
0.00
H
2
3
4
0.11
I
J
2
2
3
4
5
6
0.25
0.25
0.44
0.44
K
K
2
2
2
2
2
2
0.00
0.00
C
C
D
D
2
2
4
4
3
3
7
7
5
5
9
9
0.25
0.25
0.69
0.69
3 – 16
Variance of The Critical Path = A+B+D+E+I+G+J+K
Probability of Project Completion
Project Variance: The Sum of the Variances
of Project’s Critical Activities (A+B+D+E+I+G+J+K)
Project Variance:
s2 = .44 +1.36+ 0.69+1.78 +0+.25+.44 = 4.82
A Var
B Var
D Var
E Var
I Var J Var K Var
Project Standard Deviation:
s =
Project Variance
=
4.82 = 2.2 weeks
Probability of Project Completion
Standard Deviation = 2.2 weeks
Exp. Time
44.66 weeks
38 39 40 41 42 43 44 45 46 47 48 49 50 51
Weeks
(Expected Completion Time)
Probability of Project Completion
What is the Probability that project can be
completed on or before 48 week?
Standard Deviation = 2.2 weeks
Exp. Time
44.66 weeks
38 39 40 41 42 43 44 45 46 47 48 49 50 51
Weeks
Probability of Project Completion
What is the Probability this project can be
completed on or before the 48 week deadline?
Due
Expected Date
Z = Date – of Completion /s
Z = (48 weeks – 44.66 weeks) / 2.2
= 1.52
Normal Distribution Cumulative Probability
Probability
of Z = 1.52 ?
Probability
is 93.57%
.9357
Appendix III
Project Management
Soft Skills
Project Team Development Process
Forming
Storming
“Norming”
Performing
Adjourn
Team is set.
Members
assume roles
Team members
setting pecking
orders/
boundaries
Ground rules
are set and
everyone tries
to go along
Most productive
stage. Focused
and efficient
toward goal
Document “
Lessons Learned.”
Members leave with
positive feelings
23
Key Guidelines for Managing
Cross-Functionally
1. Set clear goals and get buy-in from members
2. Create a critical mass of leadership
3. Make sure members are accountable for performance
4. Select as small a team as possible, but no smaller
5. Update the team regularly with relevant information
6. Train members in Teamwork & Process Management
7. Clarify expectations
8. Encourage thinking outside of functional roles
24
Team Member Styles
COMMUNICATOR:
“Team Process” has High Priority.
Believe they are the “Interpersonal Glue”
Display Collaborative / Human Relations.
Competencies:
•Listening Well,
•Providing Feedback
•Help Resolve Conflicts
Commu
nicator
Chall
enger
CHALLENGER:
Courageous and questioning the Status Quo.
Pushing the team to be “Creative” in
problem solving
Display Create / Open System.
Competencies:
• Innovative Approaches
•Flexibility
• Measured Risk Taking
• Insisting on High Ethical Standards
Contri Collabo
rator
butor
CONTRIBUTOR:
“Problem Solving” has high priority.
Believe they are provider of “information”
Freely provide Skills and Knowledge
Display Control / Internal Process
Competencies:
•High-Quality Outputs
•Ensures Proper Task Distribution
•Provide Technical Trainings
COLLABORATOR:
“Goal Directed” and focused on Results.
Display Compete / Rational Goal
Competencies:
•Long-Range Goals
•Hard Working
•Help team focus on Short and
Long-term goals.
Effective Communication Rules
1. Be Clear on who the Receiver is & what is the Receiver’s state of mind?
What assumptions does the Receiver bring? What is she/he feeling in this situation?
2. Know what your objective is?
What do you want to accomplish be sending the message?
3. Analyze the Climate.
What will be necessary to help the receiver relax and be open to the communication?
4. Review the message in your head before saying it.
Think about the message from receiver’s point of view. Clarify points if need be!
5. Communicate using words and terms familiar to the other person.
Use examples and illustrations that come from the world of the receiver.
6. If the receiver seems not to understand, clarify the message.
Ask questions. Use different words, if needed.
7. Do not react defensively, if the response is seemingly critical.
Try to understand what the receiver is thinking. Why she/he is acting negatively? Ask
clarifying questions.
Strategies for Encouraging Compliance
⚫Reward
➢Punitive
➢Approach assumes individuals have the Ability to Comply,
➢Otherwise Carrots & Sticks are ineffective.
➢PM must Clearly Describe the Desired & Undesired Behaviors
Changing the Opportunities for Compliance…
⚫Preventative
⚫Cognitive
⚫Generative
⚫Normative
➢Enlightenment of the self-Interest approach (e.g., Wearing of Safety Glasses)
➢Conversion Often related to changing team’s norms; Takes Longer often e.g., TQM
Project Manager Power and
Leadership
➢ PMs often have less legitimate power than other
managers.
➢ Stimulating work is a powerful reward.
➢ The PM’s reputation for success may encourage
hard work.
➢ Share information promptly and accurately
➢ Project Managers can use the power of the
Sponsor when necessary.
Sources of Power
✓Position (Formal Role and Authority; Legitimate Power e.g., Your Boss; Police Officer)
✓Opportunity (Being at the Right Place at the Right Time e.g., Best Hockey Players
Born in Jan-Mar; 1st Born vs. 2nd Child, etc.)
✓Wealth (e.g.,Power of Purse; Power of Purse and Position is same in most Org.)
✓Expertise (e.g. Knowledge, A Researcher / Designer’s Power in the organization)
✓Relationships (“Who We Are” can open doors, e.g., Charming, Funny,
Charisma, Trustworthy, etc.; “Who We Know” can expend the network of our contacts)
29
Influence: Strategies & Tactics
➢Position, Wealth & Opportunity
Legitimate Authority (e.g., Giving direction with expectation that they will be done)
Upward Appeal (e.g., Giving direction and indicating that the “higher up” want it so!)
Co-optation (e.g., Including the reluctant individual in the decision making team)
Bargaining / Exchange (e.g., Offering reward or Incentive for compliance)
Pressure / Coercion (e.g., Threatening punishment for not following directions)
➢ Relationships
▪ Inspirational Appeal (e.g., Appealing to core values to encourage cooperation)
▪ Personal Appeal (e.g., Appealing to personal relationship for cooperation)
▪ Ingratiation (e.g., Trying to increase positive feelings toward us to increase influence:
e.g., Flattery; Agreement=Matching body language , Reusing their words; Help; SelfPresentation= Dress/ Speak/ Listen Well, Knowledgeable but not arrogant; )
▪ Coalition Formation (e.g., Gathering additional stakeholders to support proposal)
➢ Expertise
▪ Rational Persuasion (e.g. Experts use of Logical Arguments to justify cooperation)
30
Influencing Up, Down, and Sideways
Supervisor:
▪Encourage them to share their problems
▪Try to find ways to solve their problems (including doing you job perfectly!)
▪Show appreciation for their help solving your problems
▪Point out new ways Supervisors can use your skills
▪Be loyal, at all times!
Supervisor
Peers:
▪Find ways to help them reach their goals & feel Successful
ME!
YOU
▪Understand their Problems and share useful Information
▪Look for Common goals you can mutually pursue
▪Be honest in your approach
Direct
Direct
Report
Team Members/Direct Reports:
Peer
Report
▪Cultivate trust by listening to concerns and their ideas
▪Make sure performance expectations are clearly understood
▪Provide tools & training for them to be successful
▪Provide increasing more challenging assignments to stretch their capabilities
▪Recognize their success
▪Be honest at all times (e.g.,” Help me, I don’t know this?”)
31
▪Regularly provide feedback and constructive performance appraisals
Types & Sources of Project Conflict
➢ Conflict over how to proceed
➢ Conflict over how to complete a project
➢ Competition for ideas
➢ Personal conflict
➢ Deal with conflict on promptly—or even
proactively.
➢ Relationship conflict
➢ Task conflict
Appendix IV
FYI
Additional Notes For The
PMP Certification Exam Preparation
PMBOK® Knowledge Areas
(For PMP Certification Exam)
1. Integration Management – “processes and activities to
identify, define, combine, unify, and coordinate the various
processes and project management activities”
2. Scope Management – “processes to ensure that the
project includes all the work required, and only the work
required, to complete the project successfully”
3. Time Management – “processes to manage timely
completion of the project”
4. Cost Management – “processes involved in planning,
estimating, budgeting, financing, funding, managing, and
controlling costs so that the project can be completed within
the approved budget”
PMBOK® Knowledge Areas
(For PMP Certification Exam)
5. Quality Management – “processes and activities of the
performing organization that determine quality policies,
objectives, and responsibilities so that the project will
satisfy the needs for which it was undertaken”
6. Human Resources Management – “processes that
organize, manage, and lead the project team”
7. Communications Management – “processes to ensure
timely and appropriate planning, collection, creation,
distribution, storage, retrieval, management, control,
monitoring, and ultimate disposition of project information”
PMBOK® Knowledge Areas
(Definitions
for Certification
PMP Certification
(For PMP
Exam)Exam)
8. Procurement Management – “processes to purchase or
acquire products, services, or results from outside the project
team”
9. Stakeholder Management – “processes to identify the
people, groups, or organizations, that could impact or be
impacted by the project, analyze their expectations and
impact, and develop strategies for engaging them and
managing conflicting interests”
10. Risk Management – “processes of conducting risk
management planning, identification, analysis, response
planning, and control…to increase the likelihood and impact
of positive events and decrease the likelihood and impact of
negative events in the project”
Project Success
(For PMP Certification Exam)
➢ Deliverables include all agreed upon features
➢ Outputs please customers
➢ Customers use the outputs effectively
➢ Completed on schedule and on budget
➢ Completed without heroics
➢ Learn new and/or refine skills
➢ Organizational learning
➢ Reap business-level benefits
Why Projects Fail
(For PMP Certification Exam)
➢ Inadequate project planning & execution
➢ Not enough resources available
➢ Not enough time given to the project
➢ Project expectations are unclear
➢ Changes in the scope not understood or
agreed upon
➢ Stakeholders disagree on expectations
Controlling Issues of Scope
➢ Unexpected Technical Problems
➢ Insurmountable Technical Difficulties
➢ Quality or Reliability Problems
➢ Client Requirement Changes
➢ Technological Breakthroughs
➢ Inter-functional Complications
➢ Market Changes (Increasing or Decreasing Project Value)
11-39
Controlling Issues of Cost
➢ Inadequate Budget
➢ Initial Bid Too Low
➢ Input Price Change
➢ Poor Reporting
➢ Corrective Actions not Effective or On-time
➢ Project Issues, need more resources
➢ Scope Increase
11-40
Controlling Issues of Time
➢ Issues Took Longer than planned to Solve
➢ Initial Estimates, too optimistic
➢ Activity Sequencing, Incorrect
➢ Preceding Tasks, Incomplete
➢ Resources, Unavailable
➢ Change Orders
➢ Supplier Delay
➢ Governmental Regulations change
➢ Environmental or Economical Conditions
change
11-41
Earned Value Analysis
➢ Earned Value Analysis is a Project Analysis Technique for
Measuring Project Performance and Progress.
➢ It has the ability to combine measurements of:
Scope, Schedule and Costs
➢ Essential features of EVA implementation include:
–
A Project Plan that identifies work to be accomplished,
–
A Valuation of Planned Work, called Planned Value (PV) or
Budgeted Cost of Work Scheduled (BCWS),
–
Pre-defined “Earning Rules” (Metrics) to quantify the
“accomplishment” of work, called Earned Value (EV) or
Budgeted Cost of Work Performed (BCWP).
Earned Value Management
➢ A Valuation of Planned Work, called Planned Value (PV) or
Budgeted Cost of Work Scheduled (BCWS),
➢ Pre-defined “Earning Rules” (Metrics) to quantify the
accomplishment of work, called Earned Value (EV) or
Budgeted Cost of Work Performed (BCWP).
Planned Value (PV)
Earned Value (EV)
Actual Cost (AC)
EV
AC
PV
The Earned Value Chart and Calculations
➢ Actual Cost against Baseline Cost ignores the
amount of work accomplished
➢ Earned Value is based on Work Accomplished
➢ Multiply the Estimated Percent Work Complete for
each task by the Planned Cost
➢ for tasks Currently in progress, only need “Percent
Complete” estimate
10-44
..
The Earned Value Chart
Cost
Scheduled Project End
EAC (Earned Activity Cost)
($) Dollars
BAC (Base Activity Cost)
ETC (Estimate Cost to Complete)
Actual
Cost
Cost-Schedule Plan
(Baseline)
Spending Variance
Or Cost Overrun
PV
EV
AT
ST
$ Spent
to date
1
Schedule
Variance
Value
Completed
Time Variance
(e.g. 10 days)
2
Months
Time
3
Variances
➢Variances can help analyze a project performance
A Negative Variance indicates going on the wrong
direction (need for Corrective Acton)
2. Cost and Schedule Variances are calculated as the
Earned Value minus some other measure
1.
➢More Common Variances are:
➢ Cost Variance (CV)
➢ Schedule Variance (SV)
➢ Time Variance (TV)
10-46
Cost Variance (CV)
➢ CV = EV – AC (Earned Value– Actual Cost)
➢ Negative Variance indicates a Cost Overrun
➢ Magnitude depends on the actual cost levels
10-47
Schedule Variance (SV)
➢ SV = EV – PV (Earned Value – Planned Value)
➢ Negative variance indicates project behind
schedule (in terms of money spent)
➢ Measured using costs (e.g. Spending $100K, the first
phase should have been completed)
10-48
Time Variance (TV)
➢ TV = ST – AT (Scheduled Time – Actual Time)
➢ Negative variance indicates we are behind
schedule (in terms of time spent)
10-49
Indices
⚫ Cost Performance Index
CPI = EV/AC (Earned Value / Actual Cost)
⚫ Schedule Performance Index
SPI = EV/PV (Earned Value / Planned Value)
⚫ Time Performance Index
TPI = ST/AT (Scheduled Time / Actual Time)
⚫ Cost Schedule Index
CSI = EV2/(AC)(PV) (Earned Value2 / Actual Cost x Planned Value)
𝐴𝑐𝑡𝑢𝑎𝑙 𝑃𝑟𝑜𝑔𝑟𝑒𝑠𝑠 (%)
⚫ Critical Ratio Index =
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐶𝑜𝑠𝑡
x
𝑃𝑙𝑎𝑛𝑛𝑒𝑑 𝑃𝑟𝑜𝑔𝑟𝑒𝑠𝑠 (%)
Actual Cost
Other Indices: ETC and EAC
Estimated Cost to Complete
ETC = (BAC – EV) / CPI
AC = Budget at Completion
EV = Earned Value
CPI = Cost Performance Index
Estimated Cost at Completion
EAC = ETC + AC ( Amount Expended to Date)
Example: Critical Ratio Control Charts
𝐴𝑐𝑡𝑢𝑎𝑙 𝑃𝑟𝑜𝑔𝑟𝑒𝑠𝑠 (%)
Critical Ratio =
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐶𝑜𝑠𝑡
x
𝑃𝑙𝑎𝑛𝑛𝑒𝑑 𝑃𝑟𝑜𝑔𝑟𝑒𝑠𝑠 (%)
Actual Cost
Task #1
Critical Ratio =
50% Done X $100,000 => 2 X 3 = 1
2
3
$ 66,667
75% Done
Task #2
50% Done X $ 66,667 => 2 X 2 = 0.44%
Critical Ratio =
3
$100,000
3
75% Done
0.44
11-52
Forecasting
4
1
What is Forecasting?
❖ Process of predicting a future event!
❖ Underlying basis of all business decisions:
➢
Inventory
➢
Personnel
➢
Production
➢
Facilities
2
Forecasts Time Horizon Types
➢ Short-range forecast
Quantitative
Methods
– Usually < 3 months ➢ Job Scheduling, Worker Assignments ➢ Medium-range forecast Detailed Use of System – 3 months to 2 years ➢ Sales / Production Planning ➢ Long-range forecast – > 2 years
➢ New Product or Operations Planning
Design
of the
System Qualitative
Methods
Forecasting During the Life Cycle
Introduction
Growth
Qualitative Models
– Executive Judgment
– Delphi Method
– Survey of Sales Force
– Market Research
Maturity
Decline
Quantitative Models
– Time Series Analysis
– Regression Analysis
Sales
Time
Qualitative Forecasting Methods
1. Jury of Executive Opinion
Pool opinions of high-level experts, sometimes
augment by statistical models
2. Delphi Method
Panel of experts, queried iteratively
3. Sales Force Composite
Estimates from individual salespersons are
reviewed for reasonableness, then aggregated
4. Market Survey
Ask the Customer!
5
Quantitative Forecasting Methods
Quantitative
Forecasting
Time Series
Models
1. Naïve
2. Moving
Average
a) Simple
b) Weighted
Associative Models
Regression
Models
3. Exponential 4. Trend
Projection
Smoothing
Components of Time-Series Data
Trends
Seasonalities
(Gradual Upward or Downward
movement of data over time)
(Repeating Data Pattern after
Days, Weeks, Months, Years)
Cycles
Randomness
(Multi-year Data Patterns, related
(Unpredictable Data Anomalies,
with Indiscernible Pattern)
to Unpredictable Business Cycles)
7
Trend Component
►
Persistent, overall Upward or Downward pattern
►
Changes due to Population, Technology, Age,
Culture, Social Norms, etc.
►
Typically Several Years Duration
(e.g., Trend in health-consciousness; low-sugar intake, etc.)
Demand
Time
8
Seasonal Component
►
Regular pattern of Up and Down Fluctuations
►
Due to Weather, Customs, Social Norms, etc.
►
Occurs within a single year
Period Length
“Season” Length
Number of “Seasons”
In Pattern
Day
Week
Month
Month
Year
Year
Year
Hour
Day
Week
Day
Quarter
Month
Week
24
7
4
30
4
12
52
9
Examples of Demand Seasonality?
Your examples of demand seasonality?
A.
Day
Hour
?
B.
Week
Day
?
C.
Month
Week
?
D.
Month
Day
?
E.
Year
Quarter ?
F.
Year
Month ?
G.
Year
Week
?
Cyclical Component
►
Repeating Up and Down movements
►
Multiple Years duration (e.g., Military spending resulting in
cyclical growth of a local economy)
►
Affected by Business Cycle, Political, and
Economic factors
0
5
10
15
20 Years
11
Random Component
►
Erratic and Unsystematic
►
Fluctuations due to Random Variation or
Unforeseen Events
►
Short Duration and Nonrepeating
M
T
W
T
F
12
Time-series Forecasting Models:
1- Naive Approach
►
Assumes “demand” in next period is the
same as “demand” in most recent period
(e.g., If our Sept. sales were 680 cups of lemonade, then the forecast for
Oct. sales would be 680 cups)
►
Fast, Cost Effective and Efficient
►
Can be a good starting point
13
Naive Forecast Example
Home Depot Garden Supply
Forecasting
Storage Shed Sales
Period
Actual
Value
Naïve
Forecast
Jan.
10
–
Feb.
12
10
2
Mar.
16
12
4
Apr.
13
16
-3
May
17
13
4
Jun.
19
17
2
Jul.
15
19
-4
Aug.
20
15
5
Sept.
22
20
2
Oct.
19
22
-3
Nov.
21
19
2
Dec.
19
21
Average:
Error
-2
0.8
Simple Moving Average
➢ Assumes an average of the past is a good
estimator of future behavior
– Used if little or no trend
– Used for smoothing
Demand in Previous n Periods

Moving Average =
n
Example, Simple Moving Average
As the Manager in Amazon’s Electronics Department,
you want to forecast iPhone sales for April to June, using a
3-month moving average.
 Demand in Previous n Periods
Moving Average =
n
Month
Jan
Feb
Mar
Apr
May
Jun
Actual Sales
(000)
4
6
5
Moving Average Forecast
(n=3)
NA
NA
Example, Simple Moving Average
What if iPod sales were actually 3 in month 4;
Forecast for Month 5?
Month
Jan
Feb
Mar
Apr
May
Jun
Actual Sales
(000)
Moving Average Forecast
(n=3)
4
6
5
3
NA
NA
NA
Example, Simple Moving Average
What if iPod sales were actually 7 in month 5;
Forecast for Month 6?
Month
Jan
Feb
Mar
Apr
May
Jun
Actual Sales
(000)
Moving Average Forecast
(n=3)
4
6
5
3
7
NA
NA
NA
Moving Average Example
➢ Lemonade Inc. sold:
▪
▪
▪
▪
100 cups of lemonade last week,
80 cups 2 weeks ago,
120 cups 3 weeks ago and,
140 cups 4 weeks ago.
➢ What is the Forecast for Next Week’s Sales using the
4-Weeks Moving Average Method?
19
Weighted Moving Average
►
Used when some trend might be present
(Older data usually less important)
►
Weights based on “Experience” and “Intuition”
Weighted
Moving
Average
Forecast
((Weight for Period n)(Demand in Period n))

=
 Weights
20
Example, Weighted Moving Average
Weights = 3, 2 & 1
Month
Sales
(000)
1
2
3
4
5
6
4
6
5
3
7
Weighted
Moving Average
Forecast
NA
NA
NA
Weighted Moving Avg. Forecasting Example:
➢ Lemonade Inc. sold:
•
•
•
•
100 cups of lemonade last week,
80 cups 2 weeks ago,
120 cups 3 weeks ago and,
140 cups 4 weeks ago
➢ What is the Forecast for the next week’s sales, using
the four weeks weighted moving average method?
(Most recent to oldest weights: 4, 3, 2 and 1)
22
Exponential Smoothing
New Forecast = Last Period’s Forecast +
% of Last Forecast’s Error
Error
Ft = Ft – 1 + a (At – 1 – Ft – 1)
Where:
Ft = New Forecast
Ft – 1 = Previous Period’s Forecast
a = Smoothing Constant or Weighting (0 ≤ a ≤ 1)
At – 1 = Previous Period’s Actual Demand
23
Exponential Smoothing Example
Our Forecast for this month was sale of 1000 cups,
we actual sold 1200 cups, what is the Forecast for our
next month’s sales?
(Given: we use a “Smoothing Constant” of (a =0.50),
24
Exponential Smoothing Sample Problem
Lemonade Inc.’s sales forecast for January was 20,000 cups, and it actually sold 24,000
cups in January. Using an exponential smoothing forecasting method with smoothing
constant of (α= 0.50), what would be the forecast for the next month’s sales?
Effect of Smoothing Constants
As a increases…
older values become less significant so,
forecast becomes more sensitive!
26
Demand (Cups of Lemonade)
Impact of Different a
5000 –
Forecast Errors
Actual Demand
4000 –Forecast with
a = .5
3000 –
Forecast with
a = .1
|
|
|
|
|
|
|
2000 – |
1
2
3
4
5
6
7
8
► Low values of a chosen when underlying average is stable
|
9 Qtrs.
High values of a chosen when underlying average is likely to change
►
27
Common Measures of Forecast Error:
(Measuring the Forecast Accuracy)
et
n
 A -F
a. MAD = Mean Absolute Deviation
t
t
t=1
MAD =
n
et
2
(
)
A
F
 t t
n
b. MSE = Mean Squared Error
MSE = t =1
n e
t
 100 A − F / A
n
c. MAPE = Mean Absolute Percent Error MAPE =
Ideal Values =0 (i.e., No forecasting error)
t =1
t
n
t
t
Common Measures of Error:
(Measuring the Forecast Accuracy)
(1) Mean Absolute Deviation (MAD)
Actual – Forecast
å
MAD =
n
29
An Example of a Forecasting Problem (a)
Suppose that the last four months of sales were 8, 10, 15, and 9 units,
respectively. Suppose further that the last four forecasts were 5, 6, 11, and 12
units, respectively. What is the Mean Absolute Deviation (MAD) of these
forecasts?
Actual – Forecast
å
MAD =
n
Common Measures of Error:
(Measuring the Forecast Accuracy)
(2) Mean Squared Error (MSE)
(Forecast Errors )

MSE =
2
n
31
An Example of a Forecasting Problem (b)
Suppose that the last four months of sales were 8, 10, 15, and 9 units,
respectively. Suppose further that the last four forecasts were 5, 6, 11, and 12
units, respectively. What is the Mean Square Error (MSE) of these forecasts?
MSE =
∑(forecast errors)2
n
Common Measures of Error:
(Measuring the Forecast Accuracy)
(3) Mean Absolute Percent Error (MAPE)
n
å100 Actual -Forecast / Actual
MAPE = i=1
i
i
i
n
[The % of Mean Absolute Error is used when the magnitude of the item
being forecast is too large, not suitable for the MSE and MAD methods]
33
An Example of a Forecasting Problem (c)
Suppose that the last four months of sales were 8, 10, 15, and 9 units,
respectively. Suppose further that the last four forecasts were 5, 6, 11, and 12
units, respectively. What is the Mean Absolute Percentage Error (MAPE) of
these forecasts?
MAPE =
∑|forecast errors|/Actual
n
Example of a Forecasting Problem
Sample HW Problem
6
35
Forecasting, A Quick Review
❖ Forecasting, a must for managing business operations
❖ Three quantitative methods of forecasting:
• Moving Average,
• Weighted Moving Average
• Exponential Smoothing (most accurate)
❖ MAD, MSE and MAPE are 3 measures of the
Exponential Smoothing forecasting error
❖ When a trend is present in an actual date (demand or
sales, etc.), there would be an increasing “lag” in our
forecast and, the Exponential Smoothing must be
adjusted for the trend!
❖ Exponential Smoothing with Trend Adjustment is
used in those cases.
36
Seasonal Variations In Data
The Multiplicative Seasonal Model can adjust
trend data for Seasonal Variations in Demand
5 Steps in the Process for Monthly Seasons:
1.Compute the historical Average Demand for All Periods.
2. Find historical Average Demand for each Period of Interest
(e.g., Hour, Week, Month, Quarter, etc.)
3.Compute the Ratio or the “Seasonal Index” for each
period of interest.
4.Forecast the next Total Demand and Demand / Period
5.Multiply the Demand / Period forecast by the Seasonal
Index of the period of interest.
37
Example: Seasonal Index
Demand
Month
Year
1
Year
2
Year
3
Jan
80
85
105
Average
Monthly
Demand
94
Feb
70
85
85
Mar
80
93
Apr
90
May
Average
Demand / Month
Seasonal
Index
90
(90/94) 95.7%
94
80
(80/94 ) 85.1%
82
94
85
(85/94) 90.1%
95
115
94
100
(100/94) 106.0%
113
125
131
94
123
(123/94) 131.0%
June
110
115
120
94
115
(115/94) 122.0%
July
100
102
113
94
105
(105/94) 112.0%
Aug
88
102
110
94
100
(100/94 ) 106.0%
Sept
85
90
95
94
90
(90/94) 95.7%
Oct
77
78
85
94
80
(80/94) 85.1%
Nov
75
82
83
94
80
(80/94) 85.1%
Dec
82
78
80
94
80
(80/94) 85.1%
38
Example: Seasonal Index
The forecast for next year’s demand 2400 units.
So, the Monthly Average Forecast is 2400 ÷12 = 200 units per month.
The Seasonal Forecast of demand then is:
Month
Seasonal
Index
Next Year‘s
Monthly Forecast
Jan
95.7%
200 x 0.957 = 192
Feb
85.1%
200 x 85.1% = 170
Mar
90.1%
200 x 90.1% = 180
Apr
106.0%
200 x 106.0% = 212
May
131.0%
200 x 131.0% = 262
June
122.0%
July
112.0%
200 x 112.0% = 224
Aug
106.0%
200 x 106.0% = 212
Sept
95.7%
200 x 95.7% = 192
Oct
85.1%
200 x 85.1% = 170
Nov
85.1%
200 x 85.1% = 170
Dec
85.1%
200 x 85.1% = 170
39
A Multiple Choice Question
Given next year’s sales forecast of 24000 units and, seasonal indexes for the
first to fourth quarter of 0.98,0.95,0.93 and 1.14 respectively, what is next
year’s 3rd quarter sales forecast?
➢ Annual Forecast 24000 to Seasonal Average
24000 / 4= 6000 Forecast for Average Season Sales
4. Trend Projections
Fitting a Trend Line to historical data points to project into
the Medium to Long-range
Linear Trends can be found using the Least Squares
technique:
y^ = a + bx
^
Where: y= Computed value of variable to be predicted (Dependent Variable)
a= y-axis Intercept
b= Slope of the Regression Line
x= Independent Variable
41
Values of Dependent Variable (y-values)
Least Squares Method
Actual observation
(y-value)
Deviation7
Deviation5
Deviation6
Deviation3
Deviation4
Deviation1
(error)
Deviation2
Best fit or Trend line, ^
y = a + bx
|
|
|
|
|
|
|
1
2
3
4
5
6
7
Time period
42
Least Squares Method
Equations to calculate the Regression Variables
ŷ = a + bx
xy – nxy
å
b=
å x – nx
2
2
a = y – bx
43
Example: Forecasting with Least
Squares
YEAR (x)
ELECTRICAL
POWER DEMAND (y)
1
74
2
79
3
80
4
90
5
105
6
142
7
122
?
44
Example: Forecasting with Least
Squares
xy – nxy
å
b=
ŷ = a + bx
a = y – bx
x
nx
å
2
YEAR (x)
ELECTRICAL POWER
DEMAND (y)
2
x2
xy
1
74
1
74
2
79
4
158
3
80
9
240
4
90
16
360
5
105
25
525
6
142
36
852
7
122
49
854
Σx = 28
Σy = 692
Σx2 = 140
Σxy = 3,063
45
Example: Forecasting with Least
Squares
YEAR (x)
ELECTRICAL POWER
DEMAND (y)
x2
xy
1
74
1
74
2
79
4
158
3
80
9
240
4
90
16
360
5
105
25
525
6
142
36
852
7
122
49
854
Σx = 28
Σy = 692
Σx2 = 140
Σxy = 3,063
åyy = 692
x å x28 28
692
å
å
x
=
=
=
4
y
=
==98.86
x=
=
=4
y=
=
98.86
n
n 7 7
nn
77
46
Power demand (megawatts)
Example: Forecasting with Least
Squares
Trend line,
y^ = 56.70 + 10.54x
160 –
150 –
141
140 –
130 –
120 –
110 –
100 –
90 –
80 –
70 –
60 –
50 –
|
1
|
2
|
3
|
4
|
5
Year
|
6
|
7
|
8
|
9
47
Using Excel for Linear Regression
Forecasting
=FORECAST(X, Known Y’s, Known X’s)
X’s
1
2
3
4
5
6
7
8
Y’s
74
79
80
90
105
142
122
141
48
5. Associative Forecasting
Used when changes in one or more Independent
Variables can be used to predict the changes in
the Dependent Variable
Most common technique is Linear Regression
Analysis
We apply this technique just as we did
in the Time-series example
49
Associative Forecasting
Forecasting an outcome based on predictor
variables using the least squares technique
^
y = a + bx
Where:
y^ = Value of the Dependent Variable (in our example, Sales)
a = y-axis Intercept
b = Slope of the Regression Line
x = The Independent Variable
50
Example: Associative Forecasting
Area Payroll
(In $ Billions), x
2.0
1
3.0
3
2.5
4
2.0
2
2.0
1
3.5
7
ŷ = a + bx
4.0 –
Store’s Sales
(in$ millions)
Store’s Sales
(In $ Millions), y
Y3
3.0 –
Y2
Y1
2.0 –
1.0 –
|
0
1
|
2
x1
|
3
x2
|
|
4
5
x3
|
6
|
|
7
Area Payroll (in $ billions)
51
Example: Associative Forecasting
xy – nxy
å
b=
ŷ = a + bx
a = y – bx
x
nx
å
2
SALES, y
Σy =
2
PAYROLL, x
x2
xy
2.0
1
1
2.0
3.0
3
9
9.0
2.5
4
16
10.0
2.0
2
4
4.0
2.0
1
1
2.0
3.5
7
49
24.5
15.0
Σx =
18
Σx2 =
80
Σxy =
51.5
52
Example: Associative Forecasting
xy – nxy
å
b=
ŷ = a + bx
a = y – bx
x
nx
å
2
SALES, y
Σy =
2
PAYROLL, x
x2
xy
2.0
1
1
2.0
3.0
3
9
9.0
2.5
4
16
10.0
2.0
2
4
4.0
2.0
1
1
2.0
3.5
7
49
24.5
15.0
Σx =
18
Σx2 =
80
Σxy =
51.5
53
Example: Associative Forecasting
SALES, y
PAYROLL, x
2.0
3.0
1
Store’s Sales
(in$ millions)
2.5
2.0
2.0
4
3.0 –
3.5
Σy =
15.0
1.0 – Σx =
6
1
2
9.0
1
1
2.0
7
49
24.5
Sales = 1.75
4 + .25(payroll)
4.0
Σx2 =
18
|
80
2
3
4
5
6
6
6
Area Payroll (in $ billions)
6
2
Σxy =
51.5
| y |
|
å
15 |
y=
=
= 2.5
xy – nxy 51.5 – (6)(3)(2.5)
å
b=
=
= .25
80 – (6)(3 )
å x – nx
2
2.0
10.0
x | 18 |
å
x=
=
=3
0
1
16
2
2.0 –
xy
9
ŷ = 1.75
+ .25x
3
4.0 –
x2
7
a = y – bx = 2.5 – (.25)(3) = 1.75
54
Example: Associative Forecasting
If area payroll next year is estimated to be, what is
our sales forecast?
55
Associative Forecasting Example
If payroll next year is estimated to be $6 billion,
then:
Store’s Sales
(in$ millions)
4.0 –
3.25
3.0 –
Regression line,
yˆ = 1.75 + .25 x
2.0 –
Sales (in$ millions) = 1.75 + .25(6)
1.0 –
= 1.75 + 1.5 = 3.25
|
0
1
|
|
|
|
|
2
3
4
5
6
Sales
= $3,250,000
Area Payroll
(in $ billions)
|
7
56
Probability Distribution of the Estimate
►
A forecast is just a point estimate of a future value
►
This point is actually the Mean of a Probability
Distribution
Store’s Sales
(in$ millions)
4.0 –
3.25
3.0 –
Regression line,
yˆ = 1.75 + .25 x
2.0 –
Sales (in$ millions) = 1.75 + .25(6)
1.0 –
= 1.75 + 1.5 = 3.25
|
0
1
|
|
|
|
|
2
3
4
5
6
Sales
= $3,250,000
Area Payroll
(in $ billions)
|
7
57
Standard Error of the Estimate
S y,x =
2
y
å – aå y – bå xy
n-2
39.5 -1.75(15.0) – .25(51.5)
=
6-2
= .09375
= .306 (in $ millions)
With Sale Estimate of $3.25 M
and Error Std. Dev. of $0.3 M…
➢ 68% confidence $2.9 M to $3.6 M
4.0 –
3.25
Store’s Sales
(in$ millions)
The Standard Deviation of the
estimate error is $0.306 M
3.0 –
2.0 –
1.0 –
➢ 95% confidence $2.6 M to $3.9 M
➢ 99% confidence $2.3 M to $4.2 M
0
|
1
|
2
|
3
|
4
|
5
|
6
|
7
Area Payroll (in $ billions)
58
Correlation
►
How strong is the Linear Relationship between
the Variables?
►
Correlation does not necessarily imply causality!
►
Coefficient of Correlation, r, measures degree of
association (r values range from -1 to +1)
59
Correlation Coefficient
r = -1.0
r =1.0
y
y
r = 0.5
r = -0.5
x
(a) Perfect negative
y
correlation
x
(e) Perfect positive
correlation
y
r = 0.0
x
(b) Negative correlation
x
(d) Positive correlation
y
x
(c) No correlation
High
Moderate
|
|
|
–1.0
–0.8
–0.6
|
Low
|
Low
Moderate
|
High
|
|
|
–0.4
–0.2
0
0.2
0.4
Correlation coefficient values
0.6
0.8
1.0
60
Correlation Coefficient Calculation:
r=
n xy −  x y
n x − ( x) n y − ( y) 
2
2
2
2
61
Using Excel for Correlation Coefficient
and Coefficient of Determination
=CORREL(y data, x data)
X’s Y’s
1
2
3
4
2
1
7
3
2.5
2
2
3.5
r
0.901
63
Correlation
►
Coefficient of Determination (r2) measures
the percent of change in y predicted by the
change in x
Values range from 0 to 1
► Easy to interpret
►
For the Store example:
r = .90
r2 = .81
Store’s Sales
(in$ millions)
4.06
4.0 –
3.25
3.0 –
2.0 –
1.0 –
0
|
1
|
2
|
3
|
4
|
5
|
6
|
7
Area Payroll (in $ billions)
64
Multiple-Regression Analysis
If more than one Independent Variable is to be
used in the model, Linear Regression can be
extended to Multiple Regression to
accommodate several independent variables
< y = a + b1 x1 + b2 x2 + b3 x3+… + bn xn Generally done on computers 65 Tracking Signal Tracking = Signal = Cumulative Error MAD å(Actual demand in period i -Forecast demand in period i) å Actual -Forecast n 66 Midterm Exam Review (Chapters 1, 2, 3 & 4) 67 Midterm Exam ✓ Pertinent formulas will be provided ✓ One double-sided note sheet and a scratch paper (8.5” x 11”) is allowed ✓ 35 multiple-choice questions, 70 minutes ✓ Quantitative ~55% - Qualitative ~45% ✓ Two tiers of questions in each chapter 68 Chapter 1 Sample Problem The ACME Inc. produces 1,000 units in two 8-hour shifts. To meet a 100% increase in demand, they have to operate in three 8-hour shifts instead. What has happened to productivity? Chapter 2 Sample Problem An operations manager is performing a factor-rating analysis to help him choose an outsourcing provider. He is focusing on three factors: A, B and C, using a weight of 40% for factor A, 35% for factor B and 25% for factor C. He has scored five different potential providers on all factors, using a scale of 1-5, with 5 representing the BEST score. Based on the scores provided in the table below, which provider should be chosen? Provider Factor A Alpha 1 Beta 3 Gamma 2 Phi 2 Omega 3 Factor B 4 1 1 2 2 Factor C 2 2 3 4 1 Chapter 3 Sample Problem What is the expected time for activities, A, B and C detailed in the table below: Activity Optimistic Time Probable Time Pessimistic Time Expected Time A B C 7 2 8 9 2 12 14 8 16 ? ? ? Chapter 3 Sample Problem 72