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"G" in it must include the longer of "A-B-C" or "A-F." Here, "A-B-C" is the longer. The
critical path then is "A-F-G-K-M-L" which is 18 days. Note, I included the length of "A-
B-C" in calculating the critical path.
Since "A-F" takes 5 days and "A-B-C-D" takes 12 days. "A-F" is said to possess 7 days
of "slack." Slack is the amount of time which a path can be delayed without increasing
the total length of the project.
GANTT
GANTT is a bar chart of activity times. It provides a graphical expression of how long
each component takes and the total project.
Unlike the PERT/CPM diagram, you are not able to see the interrelation. It does give
a better appreciation for the time span. Better understanding of the project comes from
using BOTH PERT and GANTT to graphically depict the project. Below is the GANTT
chart for the same project for which we drew the PERT diagram.
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Total Quality Management
Activity 2 4 6 8 10 12 14 16 18 20
Frame walls ___
exterior ___ _
run electrical ___ _
insulate __ ___ __
sheetrock __ ___
frame roof _ __ _
roofing _ __ ___
install fix. __
tile bath _ _
driveway ___
windows __ _
carpeting _
paint ___ __
landscape ___ ___
Financial Considerations
A key element in TQM and JIT philosophy is measuring what is important. When
tracking WIP time it helps to establish financial measures tied to WIP. Financial
allocation of overhead is important as outsourcing and vendor-partnering occurs.
Take the following as an example:
Item A
high tech component 300.00
low tech parts 100.00
time in shop 1.00 day (no queue time)
Labor @ 20/hour 160.00
560.00
Item B
Low tech parts 200.00
time in shop 5.00 days (3 days queue time)
Labor @ 10/hour 160.00
360.00
Accounting has determined a 1:4 ratio of direct to indirect costs in your company.
Therefore, you must add 4 times your direct cost in order to absorb your "fair" share of
overhead.
Therefore, our Item A carries an overhead burden of $2,240.00. Item B carries an
overhead burden of $1,440.00. If the market sales price is $2000 each, what is the
logical outcome of demand and what will happen to WIP, cost of carrying, MIS cost,
etc.?
Consider the same set of items but allocating overhead based on the throughput time.
Our mythical company has determined that overhead is really a function of the
length of stay -- the "motel allocation method." Our company has determined that this
week's output will equal some 5000 units and overhead equals $10,000,000 for the
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Lesson Ten - Project Management
week -- rent, heat, lights, indirect cost payroll and benefits, WIP handling equipment,
damage, reworks, etc. Therefore, overhead equals (10,000,000/5000) / (5) days = $400
dollars per unit per WIP day.
Now our item A carries an overhead burden of $400.00 and a total cost of $960.00,
while Item B carries an overhead burden cost of $2,000.00 and a total cost of $2,360.00.
With a sales price of $2000, what will be the expected high and low sales items? What
will happen to WIP, cost of goods sold, number of units sold per day and change in
overhead (remember to analyze overhead as to its components listed above)?
The objective of a cost management system is to measure the cost of resources
consumed in performing significant activities of the business. Reporting must be
sufficient to satisfy internal and external requirements, such as making strategic
business decisions, planning and controlling routine operations, and determining
income and financial position.
The cost of non-value-added production and support activities should be identified to
provide the visibility and basis for their reduction and elimination. Holding assets
(like inventory) represents important non-value-added costs. These assets must be
financed with internal cash or external debt. The cost can be calculated as an imputed
cost for management reporting purposes.
The usefulness of cost information is directly related to the accurate traceability of the
costs to management reporting objectives. The intent is to capture them directly to the
projects, processes and products that use them . Accurate direct traceability demands
that all fixed and variable costs be assigned. Separating costs into fixed and variable
components is not meaningful for routine decisions. This becomes easier as JIT allows
more staff functions to decentralize and move to the outlying departments. Cross-
training allows people to handle multiple activities which were previously handled in
a central office. Significant activities can be identified and separated by the
organizational units that perform them. The same activity may be performed in
several cost centers, but the activity transactions will be collected once for the
individual cost center performing the work.
A company should measure the progress in meeting established target costs. This
feedback is critical if a company expects to reduce cost over the period allotted to
achieve the target cost.
The objectives of performance measurement are (1) to measure how well business
activities are being performed in relation to specific goals and objectives developed in
the strategic planning process, and (2) to support elimination of waste. A company
requires both financial and non financial information to measure performance. The
information must be consistent if it is to be meaningful. In other words, performance
improvement (such as reduced lead times) should be understandable in financial
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