Comprehensive Project Management & Risk Strategies for Teams

Statement of Work (SOW)

A written description of project objectives, scope, risks, costs, payment terms, resources, tasks, team, timeline, deliverables, and milestones.

Scope Statement

A statement of project inclusions, exclusions, deliverables, constraints, and limitations; often part of the SOW.

Risk

An uncertain factor or event that might interfere with successful project completion.

Contingency Plan

A backup plan created to handle project risks if they occur.

Scope Creep

Extra unapproved tasks being added to a project, which can hurt the schedule and budget.

Work Breakdown Structure (WBS)

The breakdown of a project into broader activities and detailed tasks/work packages.

Work Package

The smallest unit of work in a WBS; has a specific scope, timeline, resources, and cost.

Responsibility Assignment Matrix (RAM)

A matrix showing who is responsible for each work package; helps accountability, cost control, and timeliness.

Gantt Chart

A visual scheduling tool with bars that show task timing, duration, progress, and sequence.

Slack Time

The amount of time an activity can be delayed without delaying the project or a later activity.

PERT

Program Evaluation and Review Technique; a project scheduling method used when activity times are uncertain and three time estimates are used.

CPM

Critical Path Method; a project scheduling method used when activity times are known with certainty.

PERT vs. CPM

PERT uses probabilistic activity times with three estimates; CPM uses deterministic activity times with one estimate.

Node

A circle or point in a PERT/CPM network that represents an activity or task.

Precedence Relationship

The required order of activities; shows which tasks must happen before others can start.

Optimistic Time (OT)

The shortest possible activity time if everything goes right.

Most Likely Time (MT)

The most realistic activity time, allowing for normal problems.

Pessimistic Time (PT)

The longest possible activity time if things go wrong.

Expected Completion Time (ECT)

The weighted average project/activity time estimate in PERT; formula: ECT = (OT + 4MT + PT) / 6.

Earliest Finish (EF)

The earliest time an activity can finish; formula: EF = ES + ECT.

Latest Finish (LF)

The latest time an activity can finish without delaying project completion; equals the earliest/smallest LS of immediate successors.

Latest Start (LS)

The latest time an activity can start without delaying project completion; formula: LS = LF - ECT.

Slack Formula

LS - ES or LF - EF

Critical Path

The longest path through the project network; it determines the shortest possible project completion time.

Critical Activity

An activity on the critical path; it has zero slack and delays the whole project if delayed.

Critical Path Rule

The critical path has the largest total ECT, zero slack activities, and there can be more than one critical path.

Activity Variance

A PERT measure of uncertainty in an activity time; formula: variance = ((PT - OT) / 6)^2.

Critical Path Variance

The sum of the activity variances for activities on the critical path.

TE

The expected project completion time; sum of ECTs along the critical path.

Z-Score for Project Probability

A measure of how many standard deviations the deadline is from the expected completion time; formula: z = (T - TE) / critical path standard deviation.

Sprint

A small Agile work increment with minimal planning, often lasting up to four weeks.

Scrum

A popular Agile framework using customer-centered feedback and frequent team communication to complete deliverables faster.

Lowballing

Unethically underpricing a contract to win a bid, hoping to renegotiate later.

Bid Rigging

Colluding with bidders to fix prices, manipulate bids, or rotate winners.

Expense Account Padding

Falsely reporting time or expenses.

Bribery

Giving or receiving bribes or kickbacks.

Non-disclosure

Concealing important project information about safety, quality, cost, or outcomes.

False Status Reporting

Altering project status reports to hide delays, problems, or project failure.

Inventory

Items held by a company to meet customer demand, support production, or avoid shortages.

Inventory Management

Managing inventory levels to balance customer service with inventory costs.

High Inventory Argument

Higher inventory improves product availability, reduces stockouts/backorders/lost sales, lowers shipping per unit, may earn discounts, and improves labor/equipment use.

Low Inventory Argument

Lower inventory reduces interest/opportunity costs, storage/handling costs, taxes, insurance, shrinkage, obsolescence, and deterioration.

Stockout

When inventory is unavailable when needed, possibly causing backorders, lost sales, or expedited shipping.

Backorder

An order that cannot be filled immediately because inventory is not available.

Holding Cost

Cost of carrying inventory over time, including storage, handling, capital cost, taxes, insurance, shrinkage, and obsolescence.

Carrying Cost

Another name for holding cost.

Ordering Cost

Cost incurred when placing an order with a vendor, such as preparing orders, finding suppliers, evaluating bids, and clerical support.

Setup Cost

Cost to prepare a machine or process to produce an order, including changeover labor, cleaning, tools, fixtures, scrap, and rework.

Shrinkage

Inventory loss from theft, vendor fraud, administrative errors, obsolescence, or deterioration.

Obsolescence

Inventory becoming unusable or unsellable because of model, engineering, or market changes.

Deterioration

Physical spoilage or damage to inventory.

Average Inventory

The average amount of inventory held; formula: Average Inventory = (Beginning Inventory + Ending Inventory) / 2.

Average Inventory in EOQ

Formula: Average Inventory = Q / 2.

EOQ

Economic Order Quantity; the optimal order quantity that minimizes total annual inventory cost.

EOQ Model

A model that balances holding costs and ordering costs to minimize total inventory cost.

EOQ Objective

Minimize total annual inventory cost.

EOQ Point

The order quantity where total holding cost equals total ordering cost.

EOQ Formula

EOQ = square root of (2DS / H).

D in EOQ

Annual demand.

S in EOQ

Ordering cost per order, or setup cost per setup.

H in EOQ

Holding cost per unit per year.

Q in EOQ

Order quantity; in the EOQ model, Q and EOQ refer to the same optimal order quantity.

Total Holding Cost

The annual cost of holding inventory; formula: Total Holding Cost = (Q / 2)H.

Total Ordering Cost

The annual cost of placing orders; formula: Total Ordering Cost = (D / Q)S.

Total Annual Inventory Cost (TIC)

Total annual ordering cost plus total annual holding cost; formula: TIC = (D / Q)S + (Q / 2)H.

Number of Orders

The expected number of orders per year; formula: Number of Orders = D / Q.

Time Between Orders

The average time between orders; formula: Working days per year / Number of Orders.

Demand Rate per Period

Annual demand divided by the number of working days or weeks per year.

Reorder Point

The inventory level at which a new order should be placed; basic formula: Reorder Point = Demand rate per period x Lead time.

Lead Time in Inventory

The time between placing an order and receiving it.

EOQ Assumption: Demand

Demand is known, constant, and independent.

EOQ Assumption: Lead Time

Lead time is known and constant.

EOQ Assumption: Receipt

Inventory receipt is instantaneous and complete.

EOQ Assumption: Quantity Discounts

Quantity discounts are not possible.

EOQ Assumption: Variable Costs

Only holding costs and ordering/setup costs vary.

EOQ Assumption: Stockouts

Stockouts can be completely avoided.

Robust EOQ Model

The EOQ model still works fairly well even when demand, holding cost, or order cost estimates are not perfectly accurate.

Ordering Cost vs. Order Quantity

Ordering cost decreases as order quantity increases because fewer orders are placed.

Holding Cost vs. Order Quantity

Holding cost increases as order quantity increases because more inventory is held.

Ordering and Holding Cost Relationship

Total ordering costs and total holding/carrying costs have an inverse relationship.

Independent Demand

Demand for an item that is independent of demand for other inventory items; usually forecasted.

Dependent Demand

Demand for an item that depends on demand for another inventory item; scheduled using MRP.

Finished Product

A final item sold to customers; often has independent demand.

Raw Material

Basic input used to make a product; usually has dependent demand.

Subassembly

A partially assembled component used in a finished product; usually has dependent demand.

Material Requirements Planning (MRP)

An inventory control and production planning system that schedules the right materials, in the right quantity, at the right time/place, to reduce unnecessary inventory and cost.

MRP Goal

Schedule dependent-demand materials accurately to minimize inventory, waste, and cost.

MRP Best Fit

Best for dependent demand items, discrete demand items, complex products, batch production, and assemble-to-order environments.

MRP vs. EOQ

MRP schedules dependent demand components based on production needs; EOQ manages independent demand by balancing ordering and holding costs.

Discrete Demand

Demand that occurs in specific quantities at specific times, instead of continuously.

Master Production Schedule (MPS)

An MRP input showing how many finished products are needed and when they are needed.

MPS Purpose

Drives the MRP process by scheduling finished products.

MPS Quantity Meaning

What needs to be produced, not necessarily what can be produced.

Bill of Materials (BOM)

A database/list of all items, components, subassemblies, and raw materials that make up a product.

Product Structure Tree (PST)

A hierarchical tree created from BOM data that shows parent-child relationships among product components.

BOM vs. PST

BOM is the database/list of product components; PST visually shows the hierarchy and relationships.

Parent Item

An item above another item in the product structure tree.

Child Item

An item below another item in the product structure tree.

Level 0

The finished product level in a product structure tree.

Low-Level Code

The lowest level where an item appears in the BOM/PST; important when an item appears at multiple levels.