COMPARATIVE CHARACTERISTICS OF PERT AND CPM

PERT

1. For management of new projects

2. Model under uncertainty

3. Time

4. Event oriented

CPM

1. For management of repetitive projects.

2. Model under certainty

3. Time versus cost trade-off

4. Activity oriented.

DEFINITION : These are the methods to minimize trouble spots such as production bottlenecks, delays, interruptions etc. by identifying the key/critical activities before they occur so that the over-all project can be coordinated more effectively.

NETWORK TECHNIQUES

PERT: PROGRAM EVALUATION AND REVIEW TECHNIQUE

CPM: CRITICAL PATH METHOD

GERT: GRAPH EVALUATION AND REVIEW TECHNIQUE

PDM: PRECEDENCE DIAGRAMMING METHOD

DCPM: DECISION CRITICAL PATH METHOD

A GANTT MILESTONE CHART

JOB A

JOB B

JOB C

M T W T F S S M T W T F S

REVIEW

LIMITATIONS

1. FAILURE TO SHOW INTER-RELATIONS

2. FAILURE TO PREDICT THE LIKELIHOOD OF MEETING THE DUE DATE.

1 2

3 4

65

1 2

4

65

3

1 2

4

65

3

JOB A

JOB B

JOB C

STAGE I

STAGE II

1 2

4

65

3

2

3 3

1

2 6 5

2

STAGE III

TIME

TIME

JOB A

JOB B

JOB C

TIME

STEPS INVOLVED IN USING THE NETWORK TECHNIQUES

1. Divide the given project into independent activities.

2. Estimate their times/and costs.

3. Identify the immediate predecessor(s).

4. Check and remove redundant predecessor(s).

5. Draw the network.

6. Analysis and calculations.

ACTIVITY ACTIVITY IMMEDIATEIDENTIFICATION DESCRIPTION PREDECESSOR{S}

a CUT THE TOP -

b MAKE THE LEGS -

c LAMINATION a

d MAKE THE STAND b

e FINAL ASSEMBLY c,d f FINAL POLISHING ETC. e

MAKING A DINING TABLE

START

a

b

fe

d

cFINISH

3

254 6

e f

AN ARROW DIAGRAM

a

b

c

d1

AON DIAGRAM

BUDGETING PROJECT – ABC COMPANY

JOB JOB IMMEDIATE

IDENTIFICATION DESCRIPTION PREDECESSOR(S)

a FORECASTING SALES -

b PRICING a

c PREPARING PRODUCTION a SCHEDULES

d COSTING THE PRODUCTION c

e PREPARING THE BUDGET b,d

4 5

2

3

1a

b

cd

e

BUDGETING PROJECT – (REVISED)

JOB JOB IMMEDIATE IDENTIFICATION DESCRIPTION PREDECESSOR(S)

a FORECASTING SALES -

a/ SURVEYING COMPETITIVE - PRICING

b PRICING a,a/

c PREPARING PRODUCTION a SCHEDULES

d COSTING THE PRODUCTION c

e PREPARING THE BUDGET b,d

Whenever there are two or more jobs which have some but not all their predecessors in common, the use of dummy activity/activities will be necessitated.

Two or more jobs cannot start and end at the same events respectively.

3

76

5

1

aa'

c

bD1

D2

d e

3

65a

a’ b

d ec

1

2

2 4

4D1

3

a

b D1

ec

2

1

4

2 5

ab

d

ec

3

1

5

6D2

d

3

a

b

ec

2

1

4

5D2

dD1

D1

D2

4

T-3 (6, 4)

T-4 (18, 3)

T-5 (13, 1)

T-6 (16, 3)

T-7 (17, 3)

T-8 (14, 1)

T-9 (20, 1)

T-10 (21, 3)

T-11 (10, -)

T-12 (21, 6)

T-13 (15, 5)

T-14 (16, 3)

2

62

3

11

4

5

8

5

4

7

1

1

3

3½

2 ½

1½ 0 0

5 7

13½

8 11

1 ½ 13½

49.½ 9½

4 7 8

CRITICAL PATH IS

6½ 8½

6 6

LEGEND/KEY

TE

TL

EV.NO

1 1

EARLIEST EVENT TIME AT AN EVENT IS THE EARLIEST TIME AT WHICH THE WORK ON THE ACITIVITY/ACTIVITIES ORIGINATING FROM THAT EVENT CAN BE STARTED.

LATEST EVENT TIME AT AN EVENT IS THE LATEST TIME AT WHICH THE WORK ON THE ACTIVITY/ ACTIVITIES CONVERGING AT THAT EVENT MUST BE FULLY ACCOMPLISHED.

TOTAL FLOAT IS THE MAXIMUM DURATION BY WHICH A NON-CRITICAL ACTIVITY CAN BE EXTENDED WITHOUT DELAYING THE PROJECT.

FREE FLOAT (EARLY) IS THE LEEWAY AVAILABLE TO A NON-CRITICAL ACTIVITY IF EVERY OPERATION IN THE PROJECT IS BEING SCHEDULED AT THE EARLIEST POSSIBLE POINT IN TIME.

INDEPENDENT FLOAT MAY BE DEFINED AS MINIMUM ACTIVITY FLOAT OR FLOAT AVAILABLE UNDER WORST CONDITIONS.

FREE FLOAT (LATE) IS THE LEEWAY AVAILABLE TO A NON-CRITICAL ACTIVITY IF EVERY OPERATION IN THE PROJECT IS BEING SCHEDULED AT THE LATEST POSSIBLE POINT IN TIME.

4

62

3

1

5

7

8t e = 4

t e = 2 t

e = 3

te = 1

te = 7

t e = 10

te = 2

t e = 9te = 6

t e =

5

v t =

1

v t = 1 v

t = 1

vt = 1

v t = 1

vt = 1

v t = 16

vt= 8

vt = 2 v t =

5

COSTS ASSOCIATED WITH A PROJECT

CRASH NORMAL

JOB DURATION

INDIRECT COSTS

1. MANAGERIAL SERVICES2. EQUIPMENT RENTALS3. ALLOCATION OF FIXED COSTS4. UTILITY COSTS5. STORAGE COSTS

PROJECT DURATION

IND

IRE

CT

CO

ST

SD

IRE

CT

CO

ST

OF

JO

B

THE PRESIDENT OF ABC MANUFACTURING COMPANY HAS AN OPPORTUNITY TO PARTICIPATE IN A PROJECT THAT HAS A SALES PRICE OF RS.90,000 BUT IT MUST BE COMPLETED WITHIN 8 WEEKS. THE LETTER OF INTENT WAS RECEIVED FRIDAY AFTERNOON. BOTH THE PRODUCTION MANAGER AND THE COST ACCOUNTANT CAME IN ON SATURDAY AND COMPLETED THE APPROPRIATE TIME AND COST FOR YOU BASED UPON PAST JOBS. SINCE THE PRESIDENT NEEDS AN ANSWER AT 8:30 A.M. ON MONDAY (START OF THE 8 WEEKS), YOU HAVE BEEN REQUESTED TO DETERMINE THE PROFITABILITY OF THE PROJECT ON AN 8 WEEKS BASIS. AN ANSWER AT 8:30 A.M. ON MONDAY ALLOWS THE FIRM TO START THE PRODUCTION ORDER AT 10:00 A.M. IN ORDER TO STAY WITHIN THE 8 WEEKS DEMANDED BY THE CUSTOMER. THE TIME AND COST UNDER NORMAL CONDITIONS WITHOUT CRASHING THE PROJECT IS BASED UPON ON 11 WEEKS BASIS. WHAT ANSWER SHOULD THE PRESIDENT GIVE TO THE CUSTOMER ON MONDAY MORNING? A TABLE OF TIMES AND COSTS IS AS FOLLOWS:

PRECEDING NORMAL CRASHEVENT EVENT ________________ ________________

TIME COST TIME COST (WEEKS) (RS.) (WEEKS) (RS.)

4 1 2 8,000 1 13,000 2 1 3 7,000 1 19,000 3 1 6 11,000 5 13,000 4 2 4 6,000 3 10,000 3 2 2 9,000 1 10,000 5 2 7 8,500 6 11,000 5 4 4 10,000 3 16,000 5 3 3 5,000 2 7,000

INDIRECT COST PER DAY IS RS.30.

DETERMINE THE OPTIMAL TIME VERSUS COST SCHEDULE.

FOR THE FOLLOWING PROJECT

ACTIVITY PREDECESSOR NORMAL CRASHIDENTIFI- ACTIVITIES ________________ ________________CATION TIME COST TIME COST

(DAYS) (RS.) (DAYS) (RS.)

a - 2 30 1 50 b - 4 50 3 70 c - 4 40 2 100 d a,b 4 35 4 35 e b,c 8 75 6 150 f c 2 60 1 90 g d 6 40 4 90 h g,e,f 12 160 7 260 i h 6 100 4 200

LIMITATIONS OF NETWORK TECHNIQUES.

1. BREAKING THE PROJECT INTO INDEPENDENT ACTIVITIES.

2. TECHNIQUES ARE BASED ON NON-CYCLIC NETWORKS I.E. CAN NOT ACCOUNT FOR FAILURES.

3. ACTIVITY TIME ESTIMATES ARE ASSUMED TO BE INDEPENDENT.

4. NO RESOURCE LIMITATION.

3

5A

BE

D

1

2

10

4

10/10

0/0

15/15

25/25

6

105 C

9 daysB

6

12 3

A C E

10 5 10

4

D

11 DAYS

4

V VV

BASIC CONCEPTS OF NETWORK COST SYSTEMS

THE BASIC CONCEPT OF PERT AND CPM COST SYSTEMS (PERT/COST) IS THAT THE COSTS ARE TO BE MEASURED AND CONTROLLED PRIMARILY ON A PROJECT BASIS RATHER THAN ACCORDING TO THE FUNCTIONAL ORGANISATION OF A FIRM.

INDIVIDUAL ACTIVITIES OR GROUPS OF ACTIVITIES FORM MICRO COST CENTRES FOR ACCOUNTING AND MANAGEMENT CONTROL PURPOSES, RATHER THAN ORGANISATIONAL UNITS, i.e. DIVISIONS, DEPARTMENTS, SECTIONS ETC.

PROJECT MANAGERS AND SUB-MANAGERS ARE ORDINARILY CHOSEN FOR SUPERVISING ACTIVITIES OR GROUPS OF ACTIVITIES. THE RATIONALE BEING THAT RESPONSIBILITY FOR EXPENDITURE SHOULD COINCIDE WITH RESPONSIBILITY FOR MANAGING WHICH GIVES RISE TO THE EXPENDITURE AND SINCE THEY ARE RESPONSIBLE FOR SEEING THAT ACTIVITIES ARE COMPLETED ON SCHEDULE, THEY SHOULD ALSO BE RESPONSIBLE FOR CONTROLLABLE COSTS ASSOCIATED WITH ACTIVITIES.

COST OVERRUNS ARE MORE EASILY DETECTED AND CORRECTIVE ACTION MORE READILY TAKEN.

If the indirect cost per week is Rs.400, determine the optimal

project duration.

NEW PRODUCT LAUNCH

In planning a project to introduce a new product in the market, a company lists the various activities, their normal times and costs and their crash times and costs as shown in the table below:

Activity Description Immediate Normal Crash predecessor(s)

Time Cost Time Cost (weeks) (Rs.) (weeks) (Rs.)

A Product - 5 1000 4 1200design

B Market - 2 600 2 600research

C Product A 4 800 3 1000 analysis D Product A 4 1000 3 1500

model E Sales A 3 1100 1 1600

brochure F Cost C 1 700 1 700

accounting G Product D 4 800 2 1260

testing H Sales B,E 5 900 3 1200

survey I Price an H 2 850 2 850

demand report J Project F,G,I 3 750 2 1000

report