PERT/CPM Models for Project

Management
 Agenda
 What is Project Management
 Discuss PERT/CPM

 Motivating Case Study: The Reliable

Construction Company
 Ways of Finding the Critical Path

 Considering Time-Cost Trade-Offs

 What is Project Management
 Project management can be defined as the
coordination of activities with the potential use of
many organizations, both internal and external to
the business, in order to conduct a large scale
project from beginning to end.
 There are two management science techniques that
are used for project management:
– Program and Evaluation Review Technique (PERT)
– Critical Path Method (CPM)
 PERT/CPM
 PERT
– PERT was designed to examine projects from the
standpoint of uncertainty.
 CPM
– CPM was designed to examine projects from the
standpoint of costs.
 PERT and CPM techniques have been combined
over time.
 PERT and CPM both rely heavily on the use of
networks to help plan and display the coordination
of all the activities for a project.
 The Reliable Construction
Company
 Reliable has just secured a contract to construct a
new plant for a major manufacturer.
 The contract is for $5.4 million to cover all costs
and any profits.
 The plant must be finished in a year.
– A penalty of $300,000 will be assessed if Reliable does
not complete the project within 47 weeks.
– A bonus of $150,000 will be paid to Reliable if the
plant is completed within 40 weeks.
 Needed Terminology
 Activity
– A distinct task that needs to be performed as
part of the project.
 Start Node
– This is a node that represents the beginning of
the project.
 Finish Node
– This node represents the end of the project.
 Needed Terminology Cont.
 Immediate Predecessor
– These are activities that must be completed by no later
than the start time of the given activity.
 Immediate Successor
– Given the immediate predecessor of an activity, this
activity becomes the immediate successor of each of
these immediate predecessors.
– If an immediate successor has multiple immediate
predecessors, then all must be finished before an
activity can begin.
 Activity List for Reliable Construction
Immediate Estimated
Activity Activity Description Predecessors Duration (Weeks)
A Excavate — 2
B Lay the foundation A 4
C Put up the rough wall B 10
D Put up the roof C 6
E Install the exterior plumbing C 4
F Install the interior plumbing E 5
G Put up the exterior siding D 7
H Do the exterior painting E, G 9
I Do the electrical work C 7
J Put up the wallboard F, I 8
K Install the flooring J 4
L Do the interior painting J 5
M Install the exterior fixtures H 2
N Install the interior fixtures K, L 6
 Questions Needed to be
Answered
 How can the project be displayed graphically?
 How much time is required to finish the project if
no delays occur?
 When is earliest start and finish times for each
activity if no delays occur?
 What activities are critical bottleneck activities
where delays must be avoided to finish the project
on time?
 Questions Needed to be
Answered Cont.
 For non bottleneck activities, how much can an
activity be delayed and yet still keep the project on
time?
 What is the probability of completing the project
by the deadline?
 What is the least amount of money needed to
expedite the project to obtain the bonus?
 How should costs be monitored to keep the project
within budget?
 Project Network
 A project network is a network diagram that
uses nodes and arcs to represent the
progression of the activities is a project
from start to finish.
 Three pieces of information needed:

– Activity information
– Precedence relationship
– Time information
 Project Network Cont.
 Two types of project networks
– Activity-on-Arc (AOA)
• On this diagram, the activity is represented on an
arc, while a node is used to separate an activity from
its immediate predecessors.
– Activity-on-Node (AON)
• On this diagram, the activity is represented by the
node, while the arc is used to showed the
precedence relationship between the activities.
 
START 0 Activity Code 

A. Excavate 
A 2
B. Foundation 
C. Rough wall 

B 4 D. Roof 
E. Exterior plumbing 

10 F. Interior plumbing 
C
G. Exterior siding 

H. Exterior painting 

D 6 E 4 I 7 I. Electrical work 
J. Wallboard 
K. Flooring 
L. Interior painting 
G 7 F 5 M. Exterior fixtures 
N. Interior fixtures

J 8

H 9

K 4 L 5

M 2
N 6

FINISH 0
Microsoft Project Visual
Diagram: Gantt Chart
 Scheduling Using PERT/CPM
 A path through a project network is a route
that follows a set of arcs from the start node
to the finish node.
 The length of a path is defined as the sum of

the durations of the activities of the path.

– What are the paths and their corresponding
lengths for Reliable?
 Critical Path
 This is the path that has the longest length
through the project.
 The shortest time that a project can

conceivably be finished is the critical path.

– Why?
 More Terminology
 Earliest start time of an activity (ES)
– The time at which an activity will begin if there are no
delays in a project.
 Earliest finish time of an activity (EF)
– The time at which an activity will finish if there are no
delays in a project.
 Latest start time of an activity (LS)
– The latest possible time that an activity can start
without delaying the project.
 More Terminology Cont.
 Latest finish time of an activity (LF)
– The latest possible time that an activity can be
completed without delaying the project.
 Forward pass
– The process of moving through a project from
start to finish to determine the earliest start and
finish times for the activities in the project.
 More Terminology Cont.
 Backward pass
– The process of moving through a project from finish to
start to determine the latest start and finish times for the
activities in the project.
 Slack for an activity
– The amount of time that a particular activity can be
delayed without delaying the whole project.
– It is calculated by taking the difference between the
latest finish time with the earliest finish time.
 More Terminology Cont.
 Earliest start time rule
– The earliest start time for an activity is equal to
the largest of the earliest finish times of its
immediate predecessors.
 Latest finish time rule
– The latest finish time is equal to the smallest of
the latest start times of its immediate
successors.
Procedure for Obtaining Earliest
Times
 Step 1: For the activity that starts the project,
assign an earliest start time of zero, i.e., ES=0.
 Step 2: For each activity whose ES has just been
obtained, calculate its earliest finish time as ES
plus duration of the activity.
 Step 3: For each new activity whose immediate
predecessors have EF values, obtain its ES by
using the earliest start time rule.
Procedure for Obtaining Earliest
Times Cont.
 Step 4: Apply step 2 to calculate EF.
 Step 5: Repeat step 3 until ES and EF have

been obtained for all activities including the

finish node.
 Procedure for Obtaining Latest
Times
 Step 1: For each of the activities that
together complete the project, set its latest
finish time equal to the earliest finish time
of the finish node.
 Step 2: For each activity whose LF value

has just been obtained, calculate its latest

start time as LS equals LF minus the
duration of the activity.
 Procedure for Obtaining Latest
Times Cont.
 Step 3: For each new activity whose
immediate successors now have LS values,
obtain its LF by applying the latest finish
time rule.
 Step 4: Apply step 2 to calculate its LS.

 Step 5: Repeat step 3 until LF and LS have

been obtained for all activities.

 
S = (0, 0) 
START 0 F = (0, 0)

2 S = (0, 0) 
A F = (2, 2)

S = (2, 2) 
B 4 F = (6, 6)

10 S = (6, 6) 
C F = (16, 16)

S = (16, 16) 
D 6 S = (16, 20)  E 4 F = (20, 20) I 7 S = (16, 18) 
F = (22, 26) F = (23, 25)

G S = (22, 26)  F 5 S = (20, 20) 
7 F = (29, 33) F = (25, 25)

S = (25, 25) 
J 8 F = (33, 33)
S = (29, 33) 
H 9 F = (38, 42)

K 4 S = (33, 34)  L 5 S = (33, 33) 
F = (37, 38) F = (38, 38)

M 2 S = (38, 42) 
F = (40, 44)
N 6 S = (38, 38) 
F = (44, 44)

FINISH 0 S = (44, 44) 
F = (44, 44)
 Ways of Finding the Critical
Path
 Examine all the paths and find the path with
the maximum length.
 Calculate the slack for an activity.

– If the slack is zero, it is on the critical path.

– If the slack is positive, it is not on the critical
path.
 Time-Cost Trade-Offs
 Reliable had an incentive bonus of
$150,000 to finish the project in 40 weeks.
– Is it worth while for Reliable to speed-up the
project?
 Crashing
 Crashing an activity refers to taking on
extra expenditures in order to reduce the
duration of an activity below its expected
value.
 Crashing a project refers to crashing a

number of activities to reduce the duration

of the project.
 CPM Method of Time-Cost
Trade-Offs
 This is a method concerned with whether it
is worthwhile to crash activities to reduce
the anticipated duration of the project to a
desired value.
 This assumes that there is a trade-off

between time and cost that has an inverse

relationship.
 More Terminology
 Normal Point is the time and cost of an
activity when it is performed in a normal
way.
 Crash point show the time and cost when

the activity is fully crashed.

Graph of Normal and Crash
  Points
Activity 
cost

Crash
Crash cost

Normal cost Normal

Crash time Normal time Activity duration

 Marginal Cost Analysis
 It is a method of using the marginal cost of
crashing individual activities on the current
critical path to determine the least
expensive way of reducing the project
duration to an acceptable level.
 This method requires you to calculate the

cost per desired time unit and compare each

cost with the other costs.
 Time (weeks) Cost Maximum Crash Cost
Reduction per Week
Activity Normal Crash Normal Crash in Time (weeks) Saved
A 2 1 $180,000 $280,000 1 $100,000
B 4 2 320,000 420,000 2 50,000
C 10 7 620,000 860,000 3 80,000
D 6 4 260,000 340,000 2 40,000
E 4 3 410,000 570,000 1 160,000
F 5 3 180,000 260,000 2 40,000
G 7 4 900,000 1,020,000 3 40,000
H 9 6 200,000 380,000 3 60,000
I 7 5 210,000 270,000 2 30,000
J 8 6 430,000 490,000 2 30,000
K 4 3 160,000 200,000 1 40,000
L 5 3 250,000 350,000 2 50,000
M 2 1 100,000 200,000 1 100,000
N 6 3 330,000 510,000 3 60,000
 Marginal Cost Analysis Cont.
 Once the marginal cost for crashing each
activity has been conducted, you next want
to choose the crashing that has the smallest
marginal cost.
 Next, calculate the effect that the crash has

on each path.
– Note: Crashing can potentially cause another
path to become a critical path.
 Solving Crashing Problems
Using LP
 There are three decisions to be made:
– The start time of each activity
– The reduction in each activity due to crashing
– The finish time of the project
 LP model will be examined in class.