UNIT – III

Project Management

PERT and CPM

Objectives:
 To study how the total project cost can be minimized.
 To examine how a trade off can be achieved between time and cost of project.
 To understand how Network Techniques ( CPM/ PERT) can be effectively used project
management
 To know how to minimize the total project duration.

Net work analysis: It is refers to a number of techniques for the planning and control of
complex projects. The basis of network planning is the representation of sequential
relationships between activities by means of a network of lines and circles. The idea is to
link the various activities in such a way that the overall time spent on the project is kept
to a minimum.
Features of Network Analysis:
Logical base of planning: Network analysis is highly applicable at several stages of
project management right from early planning stage of selecting right option from various
alternative to scheduling stage and operational stage.
Simple in nature: Net work analysis is straightforward in concept and can be easily
explained to any laymen. Data calculations are simple and for large projects computers
can be used.
Improves coordination and communication: The graphs generated out of network analysis
display simply and direct way the complex nature of various sub- divisions of project
may, quickly perceive from the graph
Wider application: The network analysis is applied to many types of projects. Moreover,
they may be applied at several levels within a given project from a single department
working on a sub-system to multi-plant operations within corporation.
Gantt’s bar chart: Before PERT and CPM were developed, Gantt charts and mile stone
charts were used tools to monitor the project progress in complex projects. Gantt chart is
a bar chart, which was developed by Henary Gantt around 1900.
It is consists of two coordinate axes, one represents the time and the other jobs or
activities performed.
 5 days
A
5 days
B

Activities in C
job x 4 days

D 7 days

E 3 days

Duration of time

The above figure shows job x which contains five activities ABCDE the different
time durations activity A is an independent activity followed by activities B, activity B is
followed by activity C, activities D, E have no such sequence. Activities C,D and E reach
completion together. However the total number o day taken for completing the job is 14
days.
Limitation of Gantt Chart:
1. This Gantt bar charts not useful for big projects, consisting of large number of
complex activities
2. It does not show the relationship between various operations. It is very difficult to
find the sequence of various operations on the Gantt chart or the most probable
date of completion.
3. Does to indicate the progress of work
4. It cannot reflect uncertainty or tolerance in the duration time estimated for various
activities
5. It simply a scheduling technique, but not effective planning tool.
Milestone chart: Milestone chart is an improvement over Gantt chart. It has becomes a
good line between Gantt chart and PERT and CPM network. Every task represented by a
bar in Gantt’s bar chart, is subdivided in terms event or point in time.
 A
1 2 5 days

B 3 5 days

Activities in C 5 6 3 days
job x
D 7 8 7 days

E 10 11 4 days

Duration of time

In the Gantt’s bar charts bar representing an activity is divided into certain
milestones. They are identified with a major event, and consecutively numbered such a
breakdown enhances the awareness about the inter dependencies among all milestones.
Network analysis undergone several changes and many variants exist, which
evaluate the randomness due to imperfection in all human and physical systems. PERT
and CPM continue to be very popular, in handling the basic factors like time, cost,
resources, probabilities and combinations of all these factors.
PERT AND CPM:
PERT: Programme evaluation and review technique (PERT) is a tool to evaluate a given
programme and review the progress made in it from time to time. A programme is also
called a project. A project is defined as a set of activities with a specific goal occupying a
specific period. It may be a small or big project, such as construction of a college
building, roads, marriage, picnics etc.
It is concerned with estimating the time for different stages in such a programme
or a project and find out what the critical path is, which consumes a maximum resources.
CPM: Critical path method assumes that the time required to complete an activity can be
predicted fairly accurately, and thus, the costs involved can be quantified once the critical
path has been identified. Since time is an important factor, CPM involves a trade-off
between costs and time. It involves determining an optimum duration for the project, that
is, a minimum duration that involves the lowest overall costs.
Application of PERT and CPM:
 Construction of projects such as building, highways, houses or bridges
 Preparation of bids and proposals for large projects such as multipurpose projects
 Maintenance and planning of oil refineries, ship repairs and other such as large
operations
 Development of new weapon systems and new products and services
 Manufacture and assembly of large items such as aeroplanes or ships repairs and
other such as large operations
 Simple projects such as home remodeling house keeping or painting and so on.
PERT Basic Terminology:
Event: A event is specific instant of time which indicates the beginning or end of the
activity event is also known as a junction or node. It is represented by a circle and the
event number is written with in the circle.
 Tail event Head event

Predecessor event Successor event

Activity: Every project consists of number of job operations or tasks which are called
activity.

Ex: Start machine installation - An event

Machine installation - An activity
Completion of machine - An event
Classification of activities:
1) Critical activity
2) Non-Critical activity
3) Dummy activity
Critical activity: In a network diagram critical activities are those which if consume more
than their estimated time, the project will be delayed. It shown with thick arrow.

Non-critical activity: Such activities have a provision of float or slack so that, even if they
consume a specified time over and above the estimated time.
Dummy activity: When two activities start at the same instant of time like A and B the
head event are joined by dotted arrows and this is known as dummy activity.

Dummy Activity
1

3 4 5
CPM Basic terminology:
Critical Path: Critical path is that path which consumes the maximum amount of time or
resources. It is that path which has zero slack value.
Slack: Slack means the time taken to delay a particular event without affecting the
project completion time. If a path has zero slack that means it is the critical path.
Slack = LFT – EFT
Earliest Start Time (EST): It is the earliest possible time at which an activity can start,
and is calculated by moving from first to last event in the network diagram.

Earliest Finish Time (EFT): It is the earliest possible time at which an activity can finish
EFT = EST + Duration of activity
Latest Start Time (LST): It is the latest possible time by which an activity can start
without delaying the date of completion of the project.
LST = LFT – Duration of the activity
Latest Finish Time (LFT): It is the latest time by which the activity must be completed.
So that the scheduled date for the completion of the project may not be delayed. It is
calculated by moving backwards.
Float: Floats in the network analysis represent the difference between the maximum
time available to finish the activity and the time required to complete it.
The basic difference between slack and float times is a slack is used with
reference to event, float is use with reference to activity.
Floats are three types:
1) Total float 2) Free float 3) Independent float
1) Total float: It is the additional time which a non critical activity can consume without
increasing the project duration. However total float may affect the floats in previous and
subsequent activities.
Total float = LST – EST or LFT – EFT
2) Free float: Free float refers to the time by which an activity can expand without
affecting succeeding activities.
Free float = EST of Head Event – EST of Tail Event – Activity duration
3) Independent float: This the time by which activity may be delayed or extended without
affecting the preceding or succeeding activities in any away.
Independent float = EST of Head event – LFT of Tail event – Activity duration
Problems:
1) A small engineering project consists of 6 activities namely ABCDE & F with
duration of 4, 6, 5, 4, 3 and 3 days respectively. Draw the network diagram and calculate
EST, LST, EFT, LFT and floats. Mark the critical path and find total project duration.
Activity A B C D E F
Preceding
- A B A D C,E
activity
Duration 4 6 5 4 3 3

Solution:
10 10 EST LFT

3
B C
0 0 4 4 15 15 18 18
5 F
6
4
1 2 5 6
3
A 3
4
DE
4

8 12

Critical path = A-B-C-F

Project duration = 18 days
 Total Free Independent
Activity Duration EST LST EFT LFT
float float float
A 4 0 0 4 4 0 0
B 6 4 4 10 10 0 0
C 5 10 10 15 15 0 0
D 4 4 8 8 12 4 0
E 3 8 12 11 15 4 4
F 3 15 15 18 18 0 0

Note: LST = LFT – activity duration

LFT = EST + activity duration
Total float = LST – EST or LFT – EFT
Free float = EST of Head Event – EST of Tail Event – Activity duration
Independent float = EST of Head event – LFT of Tail event – Activity duration
2) A small engineering project consists of six activities. The three time estimates in
number days for each activity are given below.
Activity to tm tp
1-2 2 5 8
2-3 1 1 1
3-5 0 6 18
5-6 7 7 7
1-4 3 3 3
4-5 2 8 14

Find out:

Calculate the values of expected time (te), S.D, Variance of each activity.
1. Draw the network diagram and mark te on each activity
2. Calculate EST and LFT and mark them on the network diagram
3. Calculate total slack for each activity
4. Identify the critical path and mark on the network diagram
5. Probability of completing project in 25 days.

Z -2 -1 0 1 2

P% -2.28 15.87 50 84.13 97.72

Solution:

t + 4t + t σ =tp-t0/6_ σ2
Activity to tm tp o m p
t 
e
6
(Duration)
1-2 2 5 8 5 1  1
2-3 1 1 1 1 0  0
3-5 0 6 18 7 3  9
5-6 7 7 7 7 0  0
1-4 3 3 3 3 0 0
4-5 2 8 14 8 2 4
 6 6 EST LFT
5 55

3
2 1
0 0 13 13 20 20
7
5
1
5 6
3 8 7

5
3

Activity EST LFT LST EFT Slack

1-2 0 5 0 5 0
2-3 5 6 5 6 0
3-5 6 13 6 13 0
5-6 13 20 13 20 0
1-4 0 5 2 3 2
4-5 3 13 5 11 2

Critical path = 1-2-3-5-6 = 20 days

Probability for completing project in 25 days:

t t
Z= s- e

√∑σ 2

Here ts= 25 days, te = 20 days,

1  0  9  0 = 10 =3.162

25-20
Z =________
3.162
 1(X1) 84.13(Y1)

1.58(X) P%(Y)

2(X2) 97.72(Y2)

From the table value (z = 1.58) = 92.01%

 PROJECT MANAGEMENT – II

Project crashing: In this chapter, we will discuss the concepts of direct and indirect
costs, the relationship between project time and project cost, the concept of cost slope and
how the optimum cost and optimum duration are ensured for a given projects while
crashing.
Project costs: Costs associated with any project can be classified into two categories a)
Direct cost b) Indirect cost
a) Direct cost: These costs are those, which are directly proportional to the number of
activities involved in the project Ex: Raw material cost

Direct cost

Crash time Normal time

b) Indirect cost: Indirect costs are those costs that are determined per day. Some of
examples for indirect costs are supervisory personnel salary, supplies, rent, interest,
borrowings, ads, depreciation. These costs are directly proportional to the number of days
of the duration of the project. If the project duration is reduced the indirect cost also
comes down.

Project cost
Indirect cost

Project duration
 Normal cost (Nc): It is the lowest cost of completing an activity in the minimum time,
employing normal means i.e. not using overtime or other special resource.

Normal time (NT): It is the minimum time required to achieve the normal cost.

Crash cost (CC): It is the least cost of completing an activity by employing all possible
means like overtime, additional machinery, proper materials etc.
Crash time (CT): It is the absolute minimum time associated with the crash cost.
Cost Slope: Cost Slope is the amount that has to be spent over and above the normal direct cost
for reducing the duration by one unit of time (day, week etc.). Cost slope is defined as the
additional cost for reducing one unit of time, assuming a given rate of increase in direct cost
with a decrease in one unit of time.
Crash cost  Normal cos
Cost
t slope 
Normal time  Crash CC
Activity Cost
time

CC N NC
S N - CC T
T- T CT N

Activity time

Crashing of Network: After identifying the critical path, it is necessary to identify the
priority to crash the activities by calculating the cost slope.
For reducing the duration extra expenditure to be incurred, but to save resources,
organizations keep this extra expenditure at a minimum.

CT = Crash Time
Total Cost (A+B)
OT = Optimum Time O
NT = Normal Time

Project Cost Indirect Cost (B)

Direct Cost (A)

CT OT NT

Project duration
 When the direct cost (A) decrease with an increase in time, as the project duration
increase, the indirect cost (B) like overheads, depreciation, insurance etc. increases. The
total cost (A+B) curve is a flat U-shaped curve, with implies that only up to a particular
point (O) the crashing is economical, not beyond. The time duration, which involves the
least total cost, is the optimum duration at optimum cost. Crashing the duration of a
project may not be possible beyond a particular point.
Problems:
1) Given the following data, work out the minimum duration of the project and
corresponding cost.
Normal Crashing Normal Crashing
Activity Job
time time cost cost
A 1-2 10 6 400 600
B 1-3 4 2 100 140
C 2-4 6 4 360 440
D 3-4 8 4 600 900
E 2-5 8 6 840 1100
F 4-6 6 2 200 300
G 5-6 10 8 1200 1400

Solution:

Normal Crashing Normal Crashing CC - N C

Cost Slope 
Activity Job time time cost cost NT- C T Priorities
(NT) (CT) (NC) (CC)
A 1-2 10 6 400 600 50 1
B 1-3 4 2 100 140 20
C 2-4 6 4 360 440 40
D 3-4 8 4 600 900 75
E 2-5 8 6 840 1100 130 3
F 4-6 6 2 200 300 50
G 5-6 10 8 1200 1400 100 2

EST 10 18
LFT 10 18
8
2 5
10
0 0 6
10 6 6
1
8 28 28
4 16 22

4
14
 Critical path is 1-2-5-6 and Duration is 28 days
Total cost is = Direct cost + Indirect cost
= (10+4+6+8+8+6+10) + 0 = 52/-
1-2 activity crashing by 4 days:

EST LFT 6 6 14 14

8
2 5
10
0 0 6
6 6 6
4
1
8 24 24
4 12 18

4 10

Critical path is 1-2-5-6 and Duration is 24 days

Total cost is = Direct cost + Indirect cost
= (52 + (4 x 50) + 0) = 252/-

5-6 activity crashing by 2 days:

EST LFT 6 6 14 14

8 5
2
8
0 0 6
6 6 6
4
1
8 22 22
4 12 18
3

4 10

Critical path is 1-2-5-6 and Duration is 22 days

Total cost is = Direct cost + Indirect cost
= (252 + (2 x 100) + 0) = 452/-
2-5 activity crashing by 2 days:

EST LFT 6 6 12 12

6
2 5
8
0 0 6
6 6 6
4
1
8 20 20
4 12 14
3

4 6

Critical path is 1-2-5-6 and Project Duration is 20 days

Total cost is = Direct cost + Indirect cost

= (452 + (2 x 130) + 0) = 712/-

Optimum cost = 712/-

Optimum Duration = 20 days

2) The following table gives the information relating to a project. By using the given
data calculate the optimum duration of the project. Where indirect cost is estimated Rs.2,
000 per day.
Normal Crash
Activity
Time(days) Cost(Rs.) Time(days) Cost(Rs.)
1-2 4 1000 3 2000
1-3 2 1500 1 3500
2-4 2 500 1 900
2-5 5 1000 3 4000
3-4 3 1000 1 2000
4-5 2 800 1 1000

Solution:

Normal Crash
C  NC
Activity Time Cost Time Cost Cost Slope  C Priorities
N T  CT
(days) (Rs.) (days) (Rs.)
1-2 4 1000 3 2000 1000 1
1-3 2 1500 1 3500 1000
2-4 2 500 1 900 400
2-5 5 1000 3 4000 1500 2
3-4 3 1000 1 2000 500
4-5 2 800 1 1000 200
Total direct cost 5800

EST 4 9
LFT 4 9

2 5
2 5
0 0
4 4 2
1
3 6 7
2

4
2
Critical path is 1-2-5 and Project Duration is 9 days
Total cost is = Direct cost + Indirect cost
= 5800 + (2000x9)
=23,800/-
1-2 crashing by 1 day:

EST LFT 3 3 8 8

2 5
2 2 5
0 0
3 4 2
1
3 5 6
2

3
3

Critical path is 1-2-5 and Project Duration is 8 days

Total cost is = Direct cost + Indirect cost
= (5800+ (1x1000)) + (2000x8)
=22,800/-
2-5(a) crashing by 2 days:

EST LFT 3 3
7 7
2
Critical paths are 1-2-4-5 and 1-3-4-5 and duration is 7 days only. Total
cost = Direct cost + Indirect cost
= (6800+ (2x1500)) + (2000x7)
= 23,800/-
Here project crashed by 2 days and total cost incurred by the firm is 23,800/- but
duration is reduced by only one day. So it is suggested to crash the network by only one
day, it can help to reduce the cost. So that 2-5 activity crashing by only 1 day.
2-5(b) activity crashing by 1 day only

EST LFT 3 3
7 7
2 4
2 5
0 0
3 4 2
1
3 5 5
2

2 2

Duration is 7 days
Total cost = Direct cost + Indirect cost
= (6800+ (1x1500)) + (2000x7)
= 8300 + 14000
= 22,300/-
All activities comes under the critical activities, the priority are changed
according to the cost slope 4-5 activity having minimum cost slope. So that it is possible
to crash out 4-5 activity by one day only and 2-5 by one day simultaneously.
4-5 activity crashing by 1 day and 2-5 crashing by 1 day only:

EST LFT 3 3
2
6 6
2 3
2 5
0 0
2
 Duration is 6 days
Total cost = Direct cost + Indirect cost
= (8,300+ (1x1500) + (1x200)) + (2000x6)
= (8300 + 1700) + (12000)
= 22,000/-
This network diagram not possible to crashing further, So that the project duration
is 6 days and optimum cost is Rs.22, 000/-
Optimum cost = 22,000/-
Optimum Duration = 6 days

Descriptive Questions
1. Write the difference between PERT and CPM. List out the rules for constructing a network diagram.
2. Explain and illustrate what you understand by network analysis. How would you compare PERT with CPM?
3. Explain how you determine the probability of meeting the schedule date Completion of time?
4. Explain the uses of variance & expected time in relation to critical paths in a PERT network.
5. What do you mean by crashing a network? State step by step procedure of crashing.
6. A project has the following times schedule
Activity 1-2 1-3 2-4 3-4 3-5 4-9 5-6 5-7 6-8 7-8 8-9 8-10 9-10
Time in weeks 4 1 1 1 6 5 4 8 1 2 1 8 7
Construct Network diagram and compute.
a) Earlier Time and Latest Time for each event.
b) Critical path and its duration.