SRI SHARADA INSTITUTE OF INDIAN MANAGEMENT-RESEARCH (A unit of Sri Sringeri Sharada Peetham, Sringeri) Approved by AICTE Plot No.

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THE PROJECT REPORT ON

PERT/CPM FOR OPTIMIZING FOR PROJECT TIME & COST

SUBMITTED TO Prof S.N.Nandi

SUBMITTED BY Kavitaamit Prasad (20100138) Geetanjali Kumar (20100137) PGDM-2nd YEAR

DECLARATION
We hereby declare that the project on PERT/CPM FOR OPTIMIZING FOR PROJECT TIME & COSTof PGDM to Sri Sharada Institute of Indian Management Research is my own original work for the fulfillment of the requirement for nay course of the study. We also declare that no chapter of the manuscript in whole or part is lifted and incorporated in this report from any other work done by me or others.

Place: Date:

Acknowledgement It is said, the most important single word is WE and the zero important single word is I. This true even in todays modern era .It is absolutely impossible for a single individual to complete the assigned job without help and assistance from others. We would like to acknowledge sincere gratitude to our CMT& MD Rev. Swami ji (Dr.) Parthasarathy and our project guide Prof. S.N.Nandi for helping us in this project work. We are thankful to all our friends and batch metes for their help in completing this project work. Kavitaamit Prasad (20100138) Geetanjali Kumar (20100137) PGDM (2010-2012) Sri Sharada Institute Of Indian Management- Research

Contents: Introduction  Critical Path Method (CPM) and the Project Evaluation and Review Technique (PERT)  PERT  CPM  PERT/CPM network components and precedence relationship  Project Cost  Project Time.  Conclusion.

Introduction
The management of large projects requires analytical tools for scheduling activities and allocating resources. This note describes a set of tools that has proven to be consistently valuable to project managers. The tools are collectively known as the Project Evaluation and Review Technique (PERT) and the Critical Path Method (CPM). PERT was developed by the U.S. Navy and its consultants for the Polaris Missile Project, while the Critical Path Method was created by DuPont and the Remington Rand Corporation for the management of large chemical plants. Applications of these tools are pervasive, from construction to software development. These include the construction of network diagrams, the calculation of feasible project schedules, determining the effect of uncertainty on project schedules, and adjusting schedules to conform to time and resource constraints. The tools are important for planning a project and for keeping it on track once it has begun. A project network is a graph (flow chart) depicting the sequence in which a project's terminal elements are to be completed by showing terminal elements and their dependencies.

The work breakdown structure or the product breakdown structure show the "part-whole" relations. In contrast, the project network shows the "before-after" relations. The most popular form of project network is activity on node, the other one is activity on arrow.The condition for a valid project network is that it doesn't contain any circular references. Project dependencies can also be depicted by a predecessor table. Although such a form is very inconvenient for human analysis, project management software often offers such a view for data entry. An alternative way of showing and analyzing the sequence of project work is the design structure matrix. A project such as construction of abridge, highway, power plant, repairand maintenance of an oil refinery or an air plane design, development and marketing a new product, research and development etc., may be defined as a collection of inter-related activities (or tasks) which must be completed in a specified time according to a specified sequence and require resources such as personnel, money, materials, facilities etc.

Project management balances competing demands (scope, time, cost, quality, requirements, expectation of various stakeholders, etc.) throughout the project lifecycle and involves the interaction of three elements: a. People People perform the work and determine the success or failure of a project. b. Processes Processes specify products or deliverables required for the project and identify who will perform the work and when . c. Tools People use predefined tools and techniques to manage the project .International Journal of Engineering & Technology. Benefits of Project Management Project management fulfills two purposes: (1) It provides the technical and business documentation to communicate the plan and, subsequently, the status that facilitates comparison of the plan against actual performance, and (2) it supports the development of the managerial skills to facilitate better management of the people and their project [6]. In addition, project management helps the project manager bring project in on time, on target, and within budget by defining projects outcome, accurately estimating the time and resources necessary to complete project successfully, scheduling tasks and resources to avoid conflicts, and planning about anticipated problems Process of project management Projects are composed of processes. A process is a series of actions bringing about a result. [8] Project Management Institute organizes project management processes into five groups, these groups are initiating processes, planning processes, executing processes, controlling processes, and closing processes. The process groups are linked by the results they producethe result or outcome of one often becomes an input to another. Among the central process groups, the links are iterated planning provides executing with a documented project plan early on, and then provides documented updates to the plan as the project progresses.

In addition, the project management process groups are not discrete, one time events; they are overlapping activities that occur at varying levels of intensity throughout each phase of the project.

Tools of project management

Analysis (a) Priority-driven goal statement: In the project initiating phase, project manager should answer what the goal of the project is and what the client wants. One of the most common reasons projects fail is a lack of clarity regarding the expected outcomes. It is crucial that all key players in a project have a clear understanding of what the project will produce. Project manager also set the priority of the project. That is, project manager should answer what the most important elements of this goal are. Johnson mentioned time, target, budget, and purpose as project elements. (b) The Four Cs of an Effective Plan: When project manager plan the project, Johnson recommended the four Cs; clarifies objectives, codifies requirements, contains contingencies, and commits to paper. (c) Work Breakdown Structure: Any project is easier to manage when broken into smaller task. The work breakdown structure is a checklist of every activity that must be performed to create the end product. (Knutson, 1991) To develop a schedule, the successful project manager must break the project down into small work components. (Ghattas & Mckee, 2001) Johnson recommended to write each task on a sticky note, group tasks in clusters that have common factors, identify tasks, subtasks, and sub subtasks, and arrange them in hierarchical order. (d) Task Analysis Worksheet: Project manager identify the resources to accomplish the project goal and plan to use them best. To do this, using task analysis worksheet, project manager identify the dependency, duration, schedule and cost of tasks. (e) Crash Path Analysis: Johnson mentioned about crash path analysis in his video lecture; as a project progresses, it is more than likely that things will go wrong. Deliveries from vendors arrive late or need to be returned because of quality or design problems. Clients often

change their minds about what they want. Many times, your own organizations priorities change, causing your boss to insist that the deadline for your project is moved up. At these times, it is helpful to have an accurate understanding of the ratio between adding resources to your project to accelerate its completion and the cost of those resources. (f) To ensure timely completion of the project, project manager should examine the what if that could derail its implementation. What if a delivery of materials is delayed? What if a key member of the team resigns? What if the suppliers union strikes? What if? It helps to have a strategy for dealing with the most likely what ifs. A what if analysis can help. To conduct a what if analysis: Identify the critical tasks of the project, and use the Pareto principle to select those tasks that will have the greatest likelihood of occurrence and the severest impact on the project.

Chart
(a) Flow Chart: A flowchart is a graphical representation of a process. It represents the entire process from start to finish, showing inputs, pathways and circuits, action or decision points, and ultimately, completion. It can serve as an instruction manual or a tool for facilitating detailed analysis and optimization of workflow and service delivery. (b) Network Chart: The work breakdown structure defines the tasks of the project and then network chart provides the sequence of the tasks visually. The objective of the network is to portray visually the relationship of work activities to each other. A PERT chart is a network of circles, or nodes, (representing events) connected by arrows (representing tasks). The arrangement of these circles and arrows illustrates flow of work toward project completion, dependent relationship between tasks, and parallel tasks. CPM (Critical Path Method): This project charting technique was developed by the Dupont Company. It is identical to PERT except PERT places tasks on the arrows of the network while CPM places the tasks within the circles. (c) Gantt Chart: A Gantt chart is a bar chart that is a visual representation of the sequencing and duration of activities on any given project. It consists of a list of activities, a time scale, and a bar for each activity.

Critical Path Method (CPM) and the Project Evaluation and Review Technique (PERT)
PERT/CPM are two traditional closely related operations research techniques, PERT (program evaluation and review technique) and CPM (critical path method), are available to assist the maintenance project manager in carrying out their responsibilities. Among their responsibility is scheduling of a large number of activities during shutdown and overhauling, since shutdown and overhauling provide unique opportunities to a maintenance department not normally available during standard operation and relatively during a short periods of time. Moreover, the best way to guarantee success of any type of maintenance project is to have a strong, experienced project manager and strong, experienced business analyst. While dealing with maintenance projects, these two individuals, working together from the beginning of the project, set the stage for success by accurately planning and clearly defining the expected outcomes. To be on time, it is required to complete the maintenance project within the predetermined deadline to keep cost at lowest possible level by a reliable technique than to rely on a trial and error approach. The deadline to be achieved, some projects require to minimize their completion time by crashing their critical activities. This would direct managers to encounter a decision situation about which activities of the project will be crashed to minimize the total cost of crashing project, since crashing a project represents additional costs, crashing decisions need to be made in a cost-effective way. The concepts and ideas behind effective project management are however constantly been undergoing modification and improvement. A Dupont engineer, Morgan R. Walker and a Remington-Rand computer expert, James E. Kelly, Jr, initially conceived the Critical Path Method (CPM). At approximately the same time, the U.S. Navy initiated a project called PERT (Program Evaluation Research Task) in order to provide naval management with an effective manner by which they could periodically evaluate the information of the new Fleet Ballistic Missile. Moreover, PERT/CPM is effective tool for project planning. PERT stands for Program Evaluation Review Technique. Even though these techniques were develop for defense applications they are useful for many maintenance projects. The conventional "Bat Chart" is adequate for a small straight forward jobs having around 200 activities. But for larger maintenance projects such as plant shut down and overhaul jobs where activities are many PERT/CPM techniques help us to ascertain the logistics of different resources. PROJECT EVALUATION REVIEW TECHNIQUE (PERT) AND CRITICAL PATH METHOD (CPM) Project Evaluation Review Technique and Critical Path Method (CPM) are scheduling techniques used to plan, schedule, budget and control the many activities associated with projects. Projects are usually very large, complex, custom products that consist of many interrelated activities to be performed either concurrently or sequentially. The planning horizon for PERT/CPM typically extends beyond the six-month time frame of traditional short-range planning used in the other production processes. Utilizing PERT/CPM involves breaking the total project down into many different individual activities with identifiable time requirements. Each activity must be accomplished as part of the total work to be done. Custom products (made to customer specification) are produced with a project process;

therefore, the customer's desired completion date is the focal point for scheduling. The time to begin work on the project is determined by working backward from the customers desired completion date. Project managers must coordinate each of the activities so the project can be completed at the desired date and with minimal costs. The PERT/CPM schedule allows for converting the project plans 2into an operating timetable; thus, provides direction for managing the day-to-day activities of projects. Although application of both PERT and CPM follow the same steps and use network diagrams to schedule and control projects, the primary difference between these two techniques is that PERT is probabilistic where CPM is deterministic. The terms PERT and CPM will be used together or interchangeably in this paper to present the basic principles behind the application of these techniques. In addition, deterministic activity times in this paper will be used to illustrate the techniques. STEPS INVOLVED IN PERT/CPM There are six steps involved in PERT/CPM that should be completed in chronological order: 1. Identify activities required by the project. 2. Identify the precedence relationships among the activities. 3. Determine the expected time requirements for each activity. 4. Develop a network diagram of activities (arrows) and events or nodes (circles) showing precedence relationships. 5. Determine the earliest and latest feasible event times. 6. Identify the critical path (the minimum time to complete the project).

PERT
A PERT chart is a project management tool used to schedule, organize, and coordinate tasks within a project. PERT stands for Program Evaluation Review Technique, a methodology developed by the U.S. Navy in the 1950s to manage the Polaris submarine missile program. A similar methodology, the Critical Path Method (CPM) was developed for project management in the private sector at about the same time. Since PERT was developed in connection with an R and D work, therefore it had to cope with the uncertainties which are associated with R and D activities. In PERT, total project duration is regarded as a random variable and therefore associated probabilities are calculated so as to characterise it. It is an event-oriented network because in the analysis of network emphasis is given an important stages of completion of task rather than the activities required to be performed to reach to a particular event or task.

A PERT chart presents a graphic illustration of a project as a network diagram consisting of numbered nodes (either circles or rectangles) representing events, or milestones in the project linked by labelled vectors (directional lines) representing tasks in the project. The direction of the arrows on the lines indicates the sequence of tasks. In the diagram, for example, the tasks between nodes 1, 2, 4, 8, and 10 must be completed in sequence. These are called dependent or serial tasks. The tasks between nodes 1 and 2, and nodes 1 and 3 are not dependent on the completion of one to start the other and can be undertaken simultaneously. The PERT chart is sometimes preferred over the Gantt chart, another popular project management charting method, because it clearly illustrates task dependencies. On the other hand, the PERT chart can be much more difficult to interpret, especially on complex projects. Frequently, project managers use both techniques. Program (Project) Evaluation and Review Technique (PERT)(G) is a project management tool used to schedule, organize, and coordinate tasks within a project. It is basically a method to analyze the tasks involved in completing a given project, especially the time needed to

complete each task, and to identify the minimum time needed to complete the total project. PERT planning involves the following steps:  Identify the specific activities and milestones.  Determine the proper sequence of the activities.  Construct a network diagram.  Estimate the time required for each activity.  Determine the critical path.  Update the PERT chart as the project progresses.

How to use PERT Charts

The first step in developing a PERT chart is to identify the activities that are needed to complete a project. A project group may be needed to discuss which activities are necessary for project completion. The second step is to determine the time requirements needed for each activity of the project. There are two widely accepted methods of assessing time requirements for an activity. The first is through an expert. An expert could be anyone who works with the activity in question, and he/she gives their best judgment as to how long the activity will take based on their best judgment. The other method is based on calculations. Once again, people in the field assess their opinions of how long the activity will last. Instead of taking only one opinion, the calculation comes from adding the optimistic activity completion time, plus four times the realistic activity completion time, plus the pessimistic activity completion time, all divided by six to arrive at the estimated activity completion time. ET = ( O + 4R + P ) /6 The next step is to physically construct the PERT chart. This can be done easily through software such as Microsoft Project. The sequence of activities are mapped out by etermining precedence relationships and inter-relationships among activities. The final step is to etermine the critical path for the project. The critical path is represented by the set of sequentially connected activities that take the least amount of time from start to finish. A delay in an activity on the critical path results in a delay of the overall project. Those activities not on the critical path can be delayed to a certain extent. These activities have slack time. Calculating slack time is a sub-step of critical path determination. To calculate slack time, first determine the earliest and latest expected completion times for each activity. To find the earliest completion time, take the expected time for each preceding activity, starting from left to right, and sum those times. The latest completion time is the latest time an activity can be completed without delaying the project. The latest completion time for each activity can be found by taking the finish time at the last activity, and working from right to left, and subtracting the estimated time from each activity. Activities on the critical path always have a slack time of zero. Activities that are not on the critical path have a slack

time equal to the late finish time minus the early finish time. Slack time is the amount of time that activity can be late without affecting the completion time of the entire project. PERT CHART EXAMPLE PERT charts and the critical path method can be used in virtually all types of businesses. This simple example illustrates how PERT charts and critical path scheduling can assist a manufacturing firm. Joes Widget Company is in the business of producing widgets. Each widget consists of two parts, the upper and lower section of the widget. Both sections are then produced separately. The upper section is then painted to various colors while the lower section is stamped with Joes seal of approval for widget quality. Finally, both sections are taken to final assembly where they are then packaged and shipped to customers. The accompanying PERT chart shows all of the following steps: 1. Upper sub-assembly production 2. Lower sub-assembly production 3. Stamping of lower section 4. Painting of upper section 5. Final assembly Each of the preceding steps are labeled in the accompanying chart accordingly, with the estimated amount of time (in days) required to produce a batch at each step. Those steps with a shaded border are on the critical path.

CPM
The Critical Path Method (CPM) is one of several related techniques for doing project planning. CPM is for projects that are made up of a number of individual "activities." If some of the activities require other activities to finish before they can start, then the project becomes a complex web of activities. CPM can help you figure out:
y y

how long your complex project will take to complete which activities are "critical," meaning that they have to be done on time or else the whole project will take longer

If you put in information about the cost of each activity, and how much it costs to speed up each activity, CPM can help you figure out:
y y

whether you should try to speed up the project. what is the least costly way to speed up the project.

CPM analysis starts after you have figured out all the individual activities in your project.The critical path refers to the way the diagram shows those activities that must be completed, and complete in a specific order, so that the project can be completed successfully and on time. A series of lines and circles visually depict the critical path. Each circle represents an activity that needs to be completed and each line shows the relationship between two activities. The critical path will be the longest path through the diagram, and will show how long a project is expected to take if the scope does not change and everything goes according to plan.The Critical Path Method (CPM) is one of several related techniques for doing project planning. CPM is for projects that are made up of a number of individual "activities." If some of the activities require other activities to finish before they can start, then the project becomes a complex web of activities.

CPM Analysis Steps, By Example

Example 1: Activities, precedence, and times This first example involves activities, their precedence (which activities come before other activities), and the times the activities take. The objective is to identify the critical path and figure out how much time the whole project will take.CPM analysis starts when you have a table showing each activity in your project. For each activity, you need to know which other activities must be done before it starts, and how long the activity takes. Here's the example:

Step 1: List the activities Activity A B C D E F G H I J Description Product design Market research Product model Sales brochure Cost analysis Product testing Sales training Pricing Project report Required Predecessor (None) (None) A A C D B, E H F, G, I Duration 5 months 1 2 3 2 3 4 2 1 1

Production analysis A

Step 2: Draw the diagram Draw by hand a network diagram of the project that shows which activities follow which other ones. This can be tricky. The analysis method we'll be using requires an "activity-onarc" (AOA) diagram. An AOA diagram has numbered "nodes" that represent stages of project completion. You make up the nodes' numbers as you construct the diagram. You connect the nodes with arrows or "arcs" that represent the activities that are listed in the above table.

Some conventions about how to draw these diagrams:

y y

All activities with no predecessor come off of node 1. All activities with no successor point to the last node, which has to have highest node number

This example, A and B are the two activities that have no precedessor. They are represented as arrows leading away from node 1.J is the one activity that has no successor, in this example. It therefore points to the last node, which is node 8. If there were more than one activity with successor, all of those activities' arrows point to the highest number node.

Project scheduling by PERT-CPM

It consists of three basic phases: planning, scheduling and controlling. 1. Project Planning: The various steps involved during this phase are given below: i) Identify various activities (task or work elements) to be performed in the project. ii) Determining requirement of resources such as men, materials, machines etc., for carrying out activities listed above. iii) Estimating costs and times for various activities. iv) Specifying the inter-relationship among various activities. v) Developing a network diagram showing the sequential inter-relationships between the various activities. 2. Scheduling: Once the planning phase is over, scheduling of the project, is when each of the activities required to be performed, is taken up. The various steps involved during this phase are listed below: y y Estimating the durations of activities, taking into considerations the resources required for these execution in most economic manner. Based on these time estimates, preparing a time chart showing the start and finish times for each activity, and hence calculation of total project duration by applying network analysis techniques such as forward (backward) pass and floats calculation; identifying the critical path;

3. Project Control: Project control refers to revaluating actual progress against the plan. If significant differences are observed then re-scheduling must be done to update and revise the uncompleted part of the project.

PERT/CPM Network Components And Precedence Relationship

PERT/CPM networks consists of two major components as discussed below: a) Events: An event represents a point in time that signifies the completion of some activities and the beginning of new ones. The beginning and end points of an activity are thus described by 2 events usually known as the Tail and head events. Events are commonly represented by circles (nodes) in the network diagram. They do not consume time and Resource b) Activities: Activities of the network represent project operations or task to be conducted. An arrow is commonly used to represent an activity, with its head indicating the direction of progress in the project. Activities originating from a certain event cannot start until the activities terminating at the same event have been completed. They consume time and Resource. Events in the network diagram are identified by numbers. Numbers are given to events such that arrow head number must be greater than arrow tail number. The rules for constructing the arrow diagram are as follows: 1. Each activity is represented by one and only one arrow in the network. 2. No two activities can be identified by the same head and tail events. 3. To ensure the correct precedence relationship in the arrow diagram, questions must be answered as every activity is added to the network: Network Diagrams and Critical Paths The information in the table may also be represented by a network diagram in which rectangles, or nodes, signify activities. The relationships between activities are represented by arrows between the nodes. For the InterTrust project, activities B and E may begin only after activity A has ended, a relationship represented by:
B

the following

All arrows to a node begin at the nodes immediate predecessors, indicating that the activity cannot be started until all activities prior to that node in the network are completed. Activity A must be completed before activities B and E are started. Activity F cannot be started until both activities C and E are completed. Since the project itself cannot be completed until all activities are complete created a dummy node, END, with immediate predecessors D and H. One might also create a dummy BEGIN node if multiple activities could start the project in parallel. Since all activities along this path must be completed, the duration of the project must be at least the length of the longest path. Since all other paths are shorter, the duration of the project must be the length of the longest path. For InterTrust, the longest path from Ato END may be found easily by trying all paths (how many are there?) and choosing the longest. For this relatively simple project, there were only a few paths to compare. For larger

projects with thousands of activities, finding the longest paths is difficult unless a structured method is used. The method described here is one such structured method, and along the way it derives much useful information besides the length of the project.

Critical Path Calculations The application of PERT/CPM should ultimately yield a schedule specifying the start and completion time of each activity. The arrow diagram is the first step towards achieving that goal. The start and completion times are calculated directly on the arrow diagrams using simple arithmetic. The end result is to classify the activities as critical or non critical. An activity is said to be critical if a delay in the start of the course makes a delay in the completion time of the entire project. A non-critical activity is such that the time between its earliest start and its latest completion time is longer than its actual duration. A non-critical activity is said to have a slack or float time. Determination of the Critical Path A critical path defines a chain of critical activities that connects the start and end events of the arrow diagram. In other words, the critical path identifies all the critical activities of the project. The critical path calculations include two phases. The first phase is called the Forward Pass where all calculations begin from the start node and move to the end node. At each node a number is computed representing the earliest occurrence time of the corresponding event. Activity Slack, Critical Activities, and Critical Paths The activity slack for each node may be easily calculated: Activity Slack = SLACK = LS - ES = LF - EF In any network, there will be activities with zero slack. Any delay to these activities will produce a delay in the completion of the project as a whole. We call these tasks critical

activities, and a path through the network made up of critical activities is called a critical path. There will always be at least one critical path, and there may be more than one For this project, the critical path is A-B-C-F-H-END. As we expected, the critical path is the longest path through the network, and its duration is equal to the duration of the project. Some activities, such as D, E, and G, have slack greater than zero. The start times of these activities may be delayed without affecting the length of the entire project. The durations of these activities may also be extended without pushing back the project completion time. However, if delays and extensions exhaust the size of the activity slack, these activities become critical activities.

Resource Constraints
An invaluable method for shortening the duration of a project is the ability to run multiple activities in parallel. For example, the InterTrust project allows both activities B and E to run in tandem from week four to week eight. If all InterTrust activities were to occur in series, the project would last 36 weeks rather than 22. A Gantt chart, such as the one shown in Figure 4, displays the degree of parallelism in the project. The chart displays the activities beginning at their earliest start times, as well as the number of analysts needed for each activity

PROJECT COST
The total project cost comprises direct and indirect costs. The direct costs are associated with the individual activities such as manpower loading, equipment utilized, materials consumed directly, etc., in respect of various activities. The indirect costs are those expenditures which can not be allocated to individual activities of the project. These may include administration or supervision costs, loss of revenue, fixed overheads etc. For technical reason, it may not be possible to indefinitely reduce the duration of an activity. The crash time represents the fully expedited or the minimum activity duration time that is possible, and any attempts to further crash would only raise the activity direct costs without reducing the time. The activity cost corresponding to the crash time is called the crash cost which equals the minimum direct cost required to achieve the crash performance time. These are in contrast to the normal time and normal cost of the activity. The normal cost is equal to the absolute minimum of the direct cost required to perform an activity. The corresponding activity duration is known as the normal time. The cost curve is non-linear and asymptotic but for the sake of the simplicity it can be approximated by a straight line with its slope given by Cost Slope = (Crash cost Normal cost)/(Normal time Crash time)

The cost slope represents the rate of increase in the cost of performing the activity per unit decrease in time and is called the cost/time trade-off. It varies from activity to activity. After assessing the direct as well as indirect project costs, the total costs can be found out. The total project cost is the sum total of the project direct and indirect costs. Figure 4.3 shows the both the direct and the indirect project costs. As these two curves have been plotted against the same time scale, at each ordinate, the project direct and indirect costs can be added to obtain the various points on the graph, indicating the total project cost corresponding to the various project durations.

Direct and Indirect Costs

Time-Cost Optimization Algorithm

The process of shortening a project is called crashing and is usually achieved by adding extra resources to an activity. The steps involved in the project crashing are the following Step 1 Schedule a project with all its activities at their normal duration as well as identify the critical path and critical activities Step 2 Calculate the cost slope for the different activities and rank the activities in the ascending order of the cost slope Step 3 Crash the activities on the critical path as per the ranking, i.e., activity having lower cost slope would be crashed first to the maximum extent possible Step 4 As the critical path duration is reduced by crashing in Step 3, other paths may also become critical. Step 5 Crashing as per Steps 3 and 4, one reaches a point when further crashing is either not possible or does not result in the reduction of crashing of project duration Step 6 Compute the total project cost by adding corresponding fixed cost to the direct cost, which is obtained by adding the crashing cost cumulatively to the normal cost The following examples will be helpful to understand the time-cost optimization algorithm. Example 1 The following table gives data on normal time-cost and crash time-cost for a project

Table 4.1: Normal time-cost and Crash time-cost for a Project The indirect cost per day is INR 100.

Example 1

Example 1 Problem Diagram (i)As per the Critical Path Method 1 -2- 4- 6 7 (ii) The normal project duration is 22 days. The associated total cost will be as follows Direct Cost = Rs. (600 + 600 + 500 + 450 + 900 + 800 + 400 + 450) = Rs. 4700 Indirect Cost = Rs. 100 X 22 = Rs. 2200 Total Cost = Rs. 6900 (iii) For the optimum cost schedule, we first compute the cost slope (incremental cost of crashing) as follows Critical Activity 12 24 46 67

Crash Cost Slope (1000-600)/(6-4) = 200 (1500-500)/(5-3) = 500 (3000-800)/(8-4) = 550 (800-450)/(3-2) = 350 Example 1

Critical Activity and Crash Cost Slope

Crashing of Activities Since the activities lying on the critical path control the project duration, we crash the activities lying on the critical path. Step 1 Activity (1, 2) on the critical path gives the lowest cost-slope. Therefore, we shall crash this activity by one day at an additional cost of Rs. 100 X 1 = Rs. 100

Example 1 Problem Diagram With crashing activity 12, the total project cost corresponding to 21 days = Rs. 4700 + Rs. 200 X 1 + Rs. 100 X 21 = Rs. 7000. Step 2 In the network given in Figure there are two parallel critical paths, namely

Now the least cost slope is for activity 67, therefore we shall crash this activity by one day and then crash activity (4, 6) by four days. The additional cost will be Rs. 350 X 1 + Rs. 550 X 4, i.e., Rs. 2550

Problem Diagram With crashing of activities 46 and 67, the total project cost corresponding to 16 days will be equal to Rs. 7000 + Rs. 2550 Rs. 100 X 5 = Rs. 9050. Step 3 We now crash activities 12 and 34 by one day each at additional cost of Rs. 550 X 1 + Rs. 200 X 1, i.e., Rs. 750. Next, we crash activities 24 and 34 by one day each at additional cost of Rs. 500 X 1 + Rs. 550 X 1, i.e., Rs. 1050.

Problem Diagram

In the network in Figure after crashing the activities (1, 2) by one day, (2, 4) by one day and (3, 4) by two days, the total project cost corresponding to 14 days is equal to Rs. 9050 + Rs. 750 + Rs. 1050 Rs. 100 X 2 = Rs. 10650. Step 4 Next we crash activities (1, 3) and (2, 4) by one day each at additional cost of Rs. 700 X 1 + Rs. 500 X 1, i.e., Rs. 1200.

Problem diagram After crashing activities (1, 3) and (2, 4), the total project cost corresponding to 13 days = Rs. 10650 + Rs. 1200 Rs. 100 X 1 = Rs. 11750. Shows the three critical paths:

Also, no further crashing being possible, the minimum duration of the project is 13 days with associated cost of Rs. 11750.

PROJECT TIME
A Social Project manager is faced with a project with the following activities: Activity-id 1-2 1-3 3-4 2-4 Activity - Description Social Work Team to live in Village Social Research Team to do survey Analyse results of survey Duration 5 Weeks 12 Weeks 5 Weeks

Establish Mother & Child Health 14 Weeks Program Establish Rural Credit Programme Carry out Immunisation of Under Fives 15 Weeks 4 Weeks

3-5 4-5

Research & Development projects, or in Social Projects which are defined as "Process Projects", where learning is an important outcome, the cause-effect relationship is not so well established .In such situations, the PERT approach is useful, because it can accommodate the variation in event completion times, based on an experts or an expert committees estimates. For each activity, three time estimates are taken
  

The Most Optimistic The Most Likely The Most Pessimistic Duration of an activity is calculated using the following formula:

The

Where te is the Expected time, to is the Optimistic time, tm is the most probable activity time and tp is the Pessimistic time. It is not necessary to go into the theory behind the formula. It is enough to know that the weights are based on an approximation of the Beta distribution. The Standard Deviation, which is a good measure of the variability of each activity is calculated by the rather simplified formula:

The Variance is the Square of the Standard Deviation.

Calculations for the Social Project

In our Social Project, the Project Manager is now not so certain that each activity will be completed on the basis of the single estimate he gave. There are many assumptions involved in each estimate, and these assumptions are illustrated in the three-time estimate he would prefer to give to each activity.

In Activity 1-3, the time estimates are 3,12 and 21. Using our PERT formula, we get:

The Standard Deviation (s.d.) for this activity is also calculated using the PERT formula We calculate the PERT event times and other details as below for each activity: Event to 1-3 3-5 1-2 2-4 3 6 2 5 tm 12 15 5 14 tp 21 30 14 17 te 12 16 6 13 ES 0 12 0 6 EF 12 28 6 19 LS 0 12 5 11 LF 12 28 11 24 TF 0 0 5 5 s.d. 3 4 2 2 Var. 9 16 4 4

3-4 4-5

2 1

5 4

8 7

5 4

12 19

17 23

19 24

24 28

7 5

1 1

1 1

Estimating Risk Having calculated the s.d. and the Variance, we are ready to do some risk analysis. Before that we should be aware of two of the most important assumptions made by PERT.
 

The Beta distribution is appropriate for calculation of activity durations. Activities are independent, and the time required to complete one activity has no bearing on the completion times of its successor activities in the network. The validity of this assumption is questionable when we consider that in practice, many activities have dependencies.

Expected Length of a Project

PERT assumes that the expected length of a project (or a sequence of independent activities) is simply the sum of their separate expected lengths. Thus the summation of all the te's along the critical path gives us the length of the project. Similarly the variance of a sum of independent activity times is equal to the sum of their individual variances.In our example, the sum of the variance of the activity times along the critical path, VT is found to be equal to (9+16) = 25. The square root VT gives us the standard deviation of the project length. Thus, ST= 25=5. The higher the standard deviation, the greater the uncertainty that the project will be completed on the due date. Although the te's are randomly distributed, the average or expected project length Te approximately follows a Normal Distribution. Since we have a lot of information about a Normal Distribution, we can make several statistically significant conclusions from these calculations.A random variable drawn from a Normal Distribution has 0.68 probability of falling within one standard deviation of the distribution average. Therefore, there is a 68% chance that the actual project duration will be within one standard deviation, ST of the estimated average length of the project, te. In our case, the te = (12+16) = 28 weeks and the ST = 5 weeks. Assuming te to be normally distributed, we can state that there is a probability of 0.68 that the project will be completed within 28 5 weeks, which is to say, between 23 and 33 weeks. Since it is known that just over 95% (.954) of the area under a Normal Distribution falls within two standard deviations, we can state that the probability that the project will be completed within 28 10 is very high at 0.95.

Probability of Project Completion by Due Date

Now, although the project is estimated to be completed within 28 weeks (te=28) our Project Director would like to know what is the probability that the project might be completed within 25 weeks (i.e. Due Date or D=25).For this calculation, we use the formula for calculating Z, the number of standard deviations that D is away from te. By looking at the following extract from a standard normal table, we see that the probability associated with a Z of -0.6 is 0.274. This means that the chance of the project being completed within 25 weeks, instead of the expected 28 weeks is about 2 out of 7. Not very encouraging.

On the other hand, the probability that the project will be completed within 33 weeks is calculated as follows: The probability associated with Z= +1 is 0.84134. This is a strong probability, and indicates that the odds are 16 to 3 that the project will be completed by the due date.

If the probability of an event is p, the odds for its occurrence are a to b, where:

Conclusion

In order to include the cost aspects in project scheduling, it is very much important to first understand and define appropriate cost-duration relationships for various activities in the project. The total project cost comprises of the direct as well as the indirect cost. While indirect costs allocated to a project goes up with the increase in project duration, direct costs go high as the time for individual activity is reduced. Such deliberate reduction of activity times by putting an extra effort is called crashing the activity. The crashing activity, i.e., the process of shortening a project can be achieved by adding extra resources to an activity. Time-cost algorithm is a useful means for that. A project generally consists of large number of activities resulting in a number of constraints. Therefore, it is sometimes desirable to formulate the problem in a linear programming format. The problems may consist of any one of the following situations (a) There are n activities associated with normal duration, crash duration and cost-slope of certain project. It is required to determine the duration of each activity so that in a fixed project duration in time, total cost is minimum. (b) There are n activities associated with normal and crash times, cost slope and indirect cost of the project. It is required to determine the optimum project duration so as to make the total cost a minimum. After the planning and scheduling of a project, when the actual execution starts, it may be observed that some of the activities take less than anticipated, while others may take more time than estimated. There may be a number of reasons for this, such as the non-availability of the resources, breakdown of machinery, labour strikes, and availability of additional labour during the progress of work. In addition, the planner may feel it desirable to re-estimate duration times of operations not yet undertaken. The process of incorporating the changes and rescheduling or replanning the project is called updating. Critical Path computations are quite simple, yet they provide valuable information that simplifies the scheduling of complex projects. The result is that PERT-CPM techniques enjoy tremendous popularity among practitioners in the field. The usefulness of the techniques is further enhanced by the availability of specialized computer systems for executing, analyzing and controlling network projects.