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CBMEC 1

OPERATIONS MANAGEMENT AND TQM

MODULE 6
Monday

PURSUIT OF EXCELLENCE IN ORGANIZATIONS

Organization has as its objective, optimizing a system where “cost is a function of


performance, time, and scope”.
o By determining the network and the critical path, the scope of the project
has been completely defined, as the assumption in developing the CPM
network has been that resources are available.
 However, once you have determined that the end date can
somehow be met, you must see whether your unlimited resource
assumption has overloaded your available resources.

When you assess your resources, remember that nobody is available to do


productive work more than 80 per cent of a workday.
o You lose 20 per cent to personal time, fatigue, and delays.
o You also need to examine the network to keep project costs at acceptable
levels.
o This is almost always as important as meeting schedule dates.

There are always Time-Cost Trade-offs


o If you want to schedule within the available float, it is called time-critical
resource leveling, because time is of essence for your project.
 If you minimize resources and continue sliding tasks over until
resources become available, even if it means slipping the end date,
it is called resource-critical leveling.

o Example 1
 A project can often be completed earlier than scheduled by hiring
more workers or running extra shifts or using additional equipment.
 Such actions could be advantageous if savings or additional
revenues accrue from completing the project early.
 There are three areas to examine.
 You should first see whether any task has enough float to
allow it to be delayed until resources become available.

Source: Neha Tikko, Neha (Editor). Production and Operations Management. Excel Books Private
Limited.
https://ebooks.lpude.in/Management/Bba/Term_4/Dmgt206_Production_And_Operations_Manageme
nt.Pdf
 You should also ask whether you can reduce scope, change
the time limit, or reduce performance.
 Usually performance is not negotiable, but the other areas may be.

o Example 2
 Sometimes you can reduce scope, and the project deliverable will
still be acceptable to the client.
Cost to Crash
Total project costs are constituted of direct costs, indirect costs, and penalty
costs.
o The sum of these costs is the total project cost.
o These costs depend on activity times and project completion time.

Direct costs
o Direct costs include labor, materials, equipment and any other costs
directly related to project activities.

Indirect costs
o Indirect costs include administration, depreciation, financial costs, and
other variable overheads.
o Indirect costs can be avoided by reducing total project time.

The shorter the duration of the project, the lower will be the indirect costs.
o Penalty clauses are often part of project contracts if the project extends
beyond some specific date.
o Sometimes a bonus may be provided for early completion.
o Some activities can be expedited to reduce overall project completion time
and total project costs.
Normal Activity Time-Cost-Point
It is the lowest point on a time-cost graph and represents the absolute minimum
cost for accomplishing the activity in normal time.
o Normal time is the shortest time to perform the activity within the
constraint of minimum direct cost.
Feasible Activity Time-Cost Trade-Off Points
It represents the various combinations of minimum direct costs and their
corresponding least timings for one individual activity only.

Source: Neha Tikko, Neha (Editor). Production and Operations Management. Excel Books Private
Limited.
https://ebooks.lpude.in/Management/Bba/Term_4/Dmgt206_Production_And_Operations_Manageme
nt.Pdf
o There can be few or several of these points and they can be best
represented on a graph showing cost versus timings:
 The project duration is too long.
 The customer wants to know the additional costs for saving part of
the project completion time.
 The company may like to minimize the sum of direct and indict
project costs without disturbing the stipulated duration time.

o Because the project indirect costs can be easily determined through


existing accounting practices, Time-Cost Trade-off procedures. are mostly
used for minimizing direct costs for the given project duration times only.
Feasibility Activity Time Cost Trade-off
The procedure for ‘Feasible Activity Time Cost Trade-off’ consists in collecting
first cost data for the network and rescheduling of all the critical and near critical
activities, again collecting second cost data and rescheduling the new critical or
sub-critical activities and so on.
o Starting with the bottom activity, the method makes comparisons between
the sums of squares of daily resource requirements and selects the one
with minimum sum.
o The target always being toward reducing the project duration time with
minimum increase
Direct Costs
The process is continued till a step is reached when increase in Direct Cost is
less than the decrease in Indirect Costs.
o That means no further decrease in Total Costs is possible.
o This method of choosing the schedule, leads to the least variation in
resource requirements.
Using Project Software
For large projects, assistance of computer software is essential.
o The software creates a project schedule by superimposing project
activities, with their precedence relationships and estimated duration time,
on a time line.
 It provides information on the specific tasks, and milestones to
know whether the project is on target, headed in the right direction,
and on time.

Source: Neha Tikko, Neha (Editor). Production and Operations Management. Excel Books Private
Limited.
https://ebooks.lpude.in/Management/Bba/Term_4/Dmgt206_Production_And_Operations_Manageme
nt.Pdf
o People doing the work will find it much easier to see when they are
supposed to start and finish their jobs if you give them a bar chart
compared to the arrow diagram.

Source: Neha Tikko, Neha (Editor). Production and Operations Management. Excel Books Private
Limited.
https://ebooks.lpude.in/Management/Bba/Term_4/Dmgt206_Production_And_Operations_Manageme
nt.Pdf

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