Dwight E. Smith-Daniels

Maximizing the net present value of a project subject to materials and capital constraints

Abstract Large projects in a variety of industries must be scheduled subject to constraints on capital availability with the objective of maximizing their net present value. The effects of capital and materials costs and constraints have been discussed separately in the project management literature, but they have yet to be treated in an integrated fashion. A framework summarizing the previous research on resource constrained project scheduling is presented in this article and the limited role of monetary objectives in the previous research is illustrated. A new approach to the project scheduling problem is presented where the net present value of a project is maximized subject to capital and material constraints. The major benefit of this approach is that it allows managers to optimize the monetary objectives for a project. A series of examples illustrates the necessity of considering materials costs and constraints in project management. The inclusion of materials management factors in developing a project schedule is shown to lead to lower total project costs. It is demonstrated that the failure to consider materials in the initial planning of a project may lead to either unprojected delays in a project, higher costs, or both. Continued research on this problem is needed in a number of areas. Due to the computational complexity and importance of this problem in practice, it is necessary to develop heuristic approaches to derive project schedules. Future research should compare the results for the existing approaches that minimize project duration to those with monetary objective functions to determine the magnitude of the monetary difference between the former and the latter. Finally, the approach considered in this article should be extended to the multiproject environments where it is necessary to make capital allocation decisions among competing projects.

Constrained resource project scheduling subject to material constraints

Abstract Constrained resource project scheduling techniques schedule project activities subject to finite constraints on the availability of non-storable resources such as labor and equipment without consideration of constraints resulting from material requirements. Projects are frequently delayed and resources are wasted when project activities are delayed due to material shortages. A heuristic procedure is presented here for scheduling large projects subject to the availability of all necessary resources, including materials, manufactured components, facilities, equipment and labor as well as the acquisition lead times required by these resources. Results are listed for tests involving both benchmark and actual problems.

Heuristic scheduling of capital constrained projects

Abstract The movement to product and process development projects that involve joint ventures among strategic partners, as well as the increasing prevalence of projects within organizations has led to increased implementation of project scheduling methods. It is frequently the case that a capital constraint is placed on a project, thus limiting the number and value of activities that can be scheduled to occur simultaneously. However, the quantity of capital available to schedule activities can increase as additional cash is received as progress payments for completed activities. Since the project managerso objective is to maximize project Net Present Value (NPV), it is important for the manager to develop a schedule that balances the early receipt of progress payments (which improve NPV and increase the capital balance available), with the delay of particularly large expenditures. Due to the intractability of optimal methods, the use of heuristic methods is required to solve problems of practical size. This paper presents the first test of heuristic methods for solving this problem. We use information from a relaxed optimization-guided model that employs information from the unconstrained NPV-optimal problem in heuristic procedure for solving the capital constrained problem. An experimental design is employed to test the heuristics that includes multiple factor levels for a number of project characteristics, including capital utilization, frequency of progress payments, and project network structure. The results indicate very good relative performance for the optimization-guided procedures as compared to two benchmark heuristics.

Heuristic scheduling of resource-constrained projects with cash flows

Resource-constrained project scheduling with cash flows occurs in many settings, ranging from research and development to commercial and residential construction. Although efforts have been made to develop efficient optimal procedures to maximize the net present value of cash flows for resource-constrained projects, the inherent intractability of the problem has led to the development of a variety of heuristic methods to aid in the development of near-optimal schedules for large projects. This research focuses on the use of insights gained from the solution of a relaxed optimization model in developing heuristic procedures to schedule projects with multiple constrained resources. It is shown that a heuristic procedure with embedded priority rules that uses information from the revised solution of a relaxed optimization model increases project net present value. The heuristic procedure and nine different embedded priority rules are tested in a variety of project environments that account for different network structures, levels of resource constrainedness, and cash-flow parameters. Extensive testing with problems ranging in size from 21 to 1000 activities shows that the new heuristic procedures dominate heuristics using information from the critical path method (CPM), and in most cases outperform heuristics from previous research. The best performing heuristic rules classify activities into priority and secondary queues according to whether they lead to immediate progress payments, thus front loading the project schedule.

Optimal project scheduling with materials ordering

Abstract A mixed integer 0–1 programming formulation of a Project Scheduling-Materials Ordering Problem (PSMOP) is presented that provides an optimal schedule of project activities and materials orders. It is proven that an optimal solution may be found by decomposing the problem into the derivation of the project schedule and the subsequent derivation of materials lot sizes.

A Mixed Integer Programming Model for Lot Sizing and Sequencing Packaging Lines in the Process Industries

Abstract A mixed integer 0-1 programming formulation for the lot sizing and sequencing of packaging lines in process industries is presented. Results of tests of the model under a variety of operating conditions are listed and it is illustrated that the model may be useful for the solution of smaller practical problems. Implications are discussed for the development of heuristics that may be used to solve large problems.

Use of the net present value criterion in a random job shop where early shipments are forbidden

Abstract Both practitioners and researchers in the field of Operations Management have suggested that shop scheduling should be an integral component in both the strategic and tactical plans for an organizations assets. This paper examines the use of an accepted measure of return on assets, net present value (NPV), in a simulated shop scheduling environment where early shipment of jobs before their due dates is forbidden. In addition, early shipment of raw materials to the shop is also forbidden. This shop environment is consistent with the prevalent practice in industry of accepting orders only on a just-in-time basis to reduce purchased parts inventories. The NPV measure provides a means of balancing a variety of performance criteria that have been treated as separate objectives previously, including work-in-process inventory, finished goods inventory, mean flow time and mean tardiness, while also providing a means of measuring monetarily the value of various shop scheduling approaches. The NPV performance of priority scheduling rules and order release policies is measured in this research through the simulation of a random job shop under a variety of environmental conditions. It is found in a comparison of priority rules that use time-based information with those that use job value information that the Critical Ratio rule provides higher average performance than the three other rules used in the study. However, in some situations that are consistent with JIT practice, value-based priority rules also perform well. The use of a mechanism for delaying the release of jobs to each work center in the shop provided higher average NPV when shop utilization was set at a low level of 80%, while immediate release of work upon its arrival to the shop provided superior performance at a higher shop utilization level of 94%. While JIT materials delivery and costing yields higher NPV, it did not alter the relative ranking of priority rule/release policy combinations. In addition, it was found that environmental factors, including average job length, average number of tasks per job and level of tardiness penalty, resulted in greater variations in NPV performance than the institution of a JIT raw materials delivery policy.

System dynamics modeling applied to software outsourcing decision support

Requirements in the software market for reduced costs, reduced development cycle time, as well as shortages of software developers, have motivated software organizations to outsource product development processes or components. The primary objective of this research is to determine whether software organizations can improve their software outsourcing strategies and processes in response to these forces. This research utilizes simulation modeling to explore the dynamics of outsourcing relationships, including both positive and negative outcomes, as well as to provide potential decision support for strategic outsourcing decisions. The models current implementation, applicability and usefulness are demonstrated with an example use case and analysis of simulation results. We also present suggestions for future research directions on software outsourcing strategies and processes. Copyright

Managing the Impact of Customer Support Disruptions on New Product Development Projects

Knowledge-worker development projects are often performed where multiple projects are always in progress, and where preemption often occurs for solving time-critical customer service projects. The following nonlinear model for learning-intense situations demonstrates that the choice of preemption policy significantly impacts project completion times. Within this model, the authors identify policies that reduce the detrimental effects of preemption. The best policy preempts the activity that has the most slack and has been in progress the shortest time, and restarts the activity quickly with qualified resources as soon as possible.