Q1. (a) Consider a project with following details.

Use crashing or project compression

technique to reduce project duration by 3.
Activity Preceding NT NC CT CC
A 4 33 3 34
B 6 37 5 44
C A 5 13 4 17
D A, B 12 61 12 61
E C 11 35 8 53
F D, E 6 37 5 39
G D 8 37 8 37
H E 9 58 8 64
I F, G 6 13 4 31
J F, H 12 25 10 45
K I, J 10 23 8 43

Solution:
Activity Preceding NT NC CT CC
A 4 33 3 34
B 6 37 5 44
C A 5 13 4 17
D A, B 12 61 12 61
E C 11 35 8 53
F D, E 6 37 5 39
G D 8 37 8 37
H E 9 58 8 64
I F, G 6 13 4 31
J F, H 12 25 10 45
K I, J 10 23 8 43
∑𝑁𝐶 = 372

Draw Network diagram:

Critical Path: 𝐴 − 𝐶 − 𝐸 − 𝐸𝐷𝑢𝑚𝑚𝑦 − 𝐻 − 𝐽 − 𝐾

Normal duration: 4 + 5 + 11 + 0 + 9 + 12 + 10 = 51
Crash Duration: 3 + 4 + 8 + 0 + 8 + 10 + 8 = 41
Path Analysis and Rounds:
Paths Normal Time R1 R2 R3 Crash Time
𝑨 − 𝑪 − 𝑬 − 𝑬𝑫 − 𝑯 − 𝑱 − 𝑲 51 50 49 48 41
𝐴−𝐶−𝐸−𝐹−𝐼−𝐾 42 41 40 39
𝐴 − 𝐶 − 𝐸 − 𝐷𝐷 − 𝐺 − 𝐼 − 𝐾 36 35 34 33
𝐴 − 𝐴𝐷 − 𝐸𝐷 − 𝐻 − 𝐽 − 𝐾 47 46 46 46
𝐴 − 𝐴𝐷 − 𝐹 − 𝐼 − 𝐾 38 37 37 37
𝐴 − 𝐴𝐷 − 𝐷𝐷 − 𝐺 − 𝐼 − 𝐾 40 39 39 39
𝐵 − 𝐷 − 𝐸𝐷 − 𝐻 − 𝐽 − 𝐾 49 49 49 49
𝐵−𝐷−𝐹−𝐼−𝐾 40 40 40 40
𝐵 − 𝐷 − 𝐷𝐷 − 𝐺 − 𝐼 − 𝐾 42 42 42 42
Cost and time Crashing Analysis
No. of days ∑𝑁𝐶 Rounds Cumulative Cost slope Indirect cost Grand total
51 372 - - - 372
50 372 R1 34 - 406
49 372 R2 34+17+43=111 - 483
48 372 R3 111+53=164 - 536

Q1 (b). A company will launch new product with life of 3 years. All units produced are sold in
same year. Sales quantity for year 1 is 10000 units which will increase by 1000/year. Selling
Price for year 1 is 200 and it will increase by 7/year. Operating cost/unit for year 1 is 23 which
will increase by 2/unit each year. Project is financed by Equity 12 lakh and Term Loan 12 lakh
which carries interest at rate 8% per year and loan is to be repaid in 3 years by Equal Annual
Instalment. Interest for the year will be charged on Opening balance of loan of that year. The
Project assets are Land 2 lakh and depreciable FA 22 lakh. Depreciation is charged at 20% per
year by Written Down Value (WDV) method. Income tax is 35 %. Calculate Debt Service
Coverage Ratio (DSCR) and Interest Coverage Ratio (ICR) for all 3 years.
Solution:
List of Formulae:
• Rate of Interest = ROI
• Interest = Opening Balance of term loan × ROI
• Principle = EAI (EMI) -Interest
ROI ROI n
Principle× ×(1+ )
• Debt Service (EAI or EMI) = Interest + Principal Repayment = 100
rate n
100
(1+ ) −1
100
• Depreciation Amount: Capital (Assets) × rate of depreciation
• EBIT (Earned before interest and tax) = Revenue – Operating Expenses -Depreciation
• PBT (Profit before taxes) = EBIT-Interest
 • Tax = PBT × Rate of Tax
• Net Operating Income (NOI) = Revenue - Tax – Operating Expenses
𝑁𝑂𝐼
• Debt Service coverage ratio (DSCR)= 𝐷𝑒𝑏𝑡 𝑆𝑒𝑟𝑣𝑖𝑐𝑒
𝑁𝑂𝐼
• Interest coverage ratio (ICR)= 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡

Initial Liabilities:

Term loan: 12,00,000

Loan Repayment:

EAI: equal annual instalments at ROI=8% interest on opening balance for n=3 year

ROI ROI n 8 8 3
Principle× ×(1+ ) 12,00,000× ×(1+ )
100 100 100 100
EAI = rate n
= 8 3
= 4,65,640
(1+ ) −1 (1+ ) −1
100 100

Initial Assets:

Equity Capital: 12,00,000

Land Asset: 2,00,000

Fixed asset: 22,00,000

Depreciation: Written Down Value (WDV) method, 20% per year.

Year Depreciation
1 22,00,000 22,00,000 × 20% = 4,40,000 22,00,000-4,44,000=17,60,000
2 17,60,000 17,60,000 × 20% = 3,52,000 17,60,000-3,52,000=14,08,000
3 14,08,000 14,08,000 × 20% = 2,81,600 14,08,000-2,81,600=11,26,400

Calculation of Revenue and operating cost of 3 years:

Year-1 Year-2 Year-3

Unit cost 10000 10000+1000=11000 11000+1000=12000
Number of units 200 200+7=207 207+7=214
Revenue 200 × 10000 207 × 11000 214 × 12000
= 20,00,000 = 22,77,000 = 25,68,000
Operating cost/unit 23 23+2=25 25+2=27
Operating Expenses 23 × 10000 25 × 11000 27 × 12000
= 2,30,000 = 2,75,000 = 3,24,000
Calculation of EAI:
𝑟𝑎𝑡𝑒 𝑟𝑎𝑡𝑒 𝑛
𝑃𝑟𝑖𝑛𝑐𝑖𝑝𝑙𝑒× ×(1+ ) 𝑝×𝑟×(1+𝑟)𝑛 12,00,000×0.08×(1+0.08)3
EAI (EMI)= 100
𝑟𝑎𝑡𝑒 𝑛
100
= (1+𝑟)𝑛 −1
= (1+0.08)3 −1
= 465640
(1+ ) −1
100
Calculation of Debt service:
Year-1 Year-2 Year-3
Opening Balance 12,00,000 8,30,359 4,31,148
EAI 4,65,640 4,65,640 4,65,640
Interest Amount 12,00,000 × 8% 8,30,359 × 8% 4,31,148 × 8%
= 96,000 = 66,429 = 34,492
Principal=EAI-Interest 4,65,640-96,000 4,65,640-66,429 4,65,640-34,492
=3,69,640 =3,99,211 =431148
Closing Balance 12,00,000 − 3,69,640 8,30,359 − 3,99,211 4,31,148-4,31,148
= 8,30,359 = 4,31,148 =0
Debt Service 4,65,640 4,65,640 4,65,640
=Principal +Interest

Calculation of EBIT, PBT and NOI:

Year 1 2 3
EBIT=Rev-OE-Dep 13,30,000 16,50,000 19,62,400
PBT = EBIT-Interest 12,34,000 15,83,571 19,27,908
Taxes=PBT×rate of tax 3,70,200 4,75,071 5,78,372
NOI=Revenue-OE-Taxes 13,99,800 15,26,928 16,65,627
Calculation of DSCR and ICR:
Year 1 2 3
𝑁𝑂𝐼 13,99,800 15,26,928 16,65,627
DSCR= 𝐷𝑒𝑏𝑡 𝑆𝑒𝑟𝑣𝑖𝑐𝑒 4,65,640
=3 = 3.27 = 3.57
4,65,640 4,65,640
𝑁𝑂𝐼 13,99,800 15,26,928 16,65,627
ICR= 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 14.58 = 22.98 = 48.29
96,000 66,428 34,492

Q2 (a) A new product is to be released in the market. Activities involved in a product launch
and their interdependence and probabilistic time estimates are given below.
Activity Predecessor 𝑡𝑜 𝑡𝑚 𝑡𝑝
A 1 1 7
B A 3 6 9
C A 3 6 9
D C 2 2 2
E B, C 4 7 10
F B, C 2 5 8
G D, E 3 5 13
H D, E 4 4 4
I F, G 4 6 8
A). What are the chances that product will be launched before the end of 29.8 weeks?
B). What should be the launch date if you want to be 90% sure?
C). What are the chances that product will be launched with delay of 5.27 weeks?
𝒕𝒐 +𝟒𝒕𝒎 +𝒕𝒑
Solution: To find Duration: 𝟔
 Activity Predecessor 𝑡𝑜 𝑡𝑚 𝑡𝑝 Duration 𝑡𝑝 − 𝑡𝑜 𝜎𝑝2
𝜎𝑝 =
6
A 1 1 7 2 1 1
B A 3 6 9 6 1 1
C A 3 6 9 6 1 1
D C 2 2 2 2 0 0
E B, C 4 7 10 7 1 1
F B, C 2 5 8 5 1 1
G D, E 3 5 13 6 10/6=1.67 2.78
H D, E 4 4 4 4 0 0
I F, G 4 6 8 6 4/6=0.67 0.44

Draw Network Diagram:

Critical path: 𝐴 − 𝐵 − 𝐸 − 𝐺 − 𝐼 𝑜𝑟 𝐴 − 𝐶 − 𝐶𝑑𝑢𝑚𝑚𝑦 − 𝐸 − 𝐺 − 𝐼

Duration: 27
𝜇 = 27

2 10 2 4 2
𝜎𝐶𝑃𝑀 = 𝜎𝐴2 + 𝜎𝐵2 + 𝜎𝐸2 + 𝜎𝐺2 + 𝜎𝐼2 = 12 + 12 + 12 + ( 6 ) + (6)
2
𝜎𝐶𝑃𝑀 = 6.22
𝜎𝐶𝑃𝑀 = 2.49
A). What are the chances that product will be launched before the end of 29.8 weeks?
The chances that product will be launched before the end of 29.8 weeks
= 𝑃(𝑥 ≤ 29.8)
29.8−𝜇
= 𝑃 (𝑥 ≤ )
𝜎𝐶𝑃𝑀

29.8−27
= 𝑃 (𝑧 ≤ )
2.49

= 𝑃(𝑧 ≤ 1.12)
= 𝑃(−∞ ≤ 𝑧 ≤ 1.12)
= 𝑃(−∞ ≤ 𝑧 ≤ 0) + 𝑃(0 ≤ 𝑧 ≤ 1.12)
= 0.5 + 0.3686
= 0.8686
= 86.86%
B). What should be the launch date if you want to be 90% sure?
let x be the Number of days for completion of 90% of project
90
Since, 𝑃(𝑧 ≤ 𝑧1 ) = 90% = 100 = 0.90

Find value of 𝑧1 by using data sheet of normal curve at value of 0.4000

𝑧1 = 1.28
𝑋−𝜇
Since, 𝑧 = 𝜎

X be the Number of days for completion of 85% of project for Critical path 𝐴 → 𝐷 → 𝐺
∴ X = 𝑧 × 𝜎 + 𝜇 = 1.28 × 2.49 + 27 ≈ 30 days.
C). What are the chances that product will be launched with delay of 5.27 weeks?
The chances that product will be launched with delay of 5.27 weeks
= 𝑃(𝑥 ≤ 27 + 5.27)
= 𝑃(𝑥 ≤ 32.27)
32.27−𝜇
= 𝑃 (𝑥 ≤ )
𝜎𝐶𝑃𝑀

32.27−27
= 𝑃 (𝑧 ≤ )
2.49

= 𝑃(𝑧 ≤ 2.11)
= 𝑃(−∞ ≤ 𝑧 ≤ 2.11)
= 𝑃(−∞ ≤ 𝑧 ≤ 0) + 𝑃(0 ≤ 𝑧 ≤ 2.11)
= 0.5 + 0.4821
= 0.9821
= 98.21%
Q 3. Answer any 2 from below:
The following are details of project when performance is measured at end of 15.
Activity Preceding NT NC or BC % activity by AC by 15
15
A 8 24 100 25
B 7 12 100 10
C 3 20 100 22
D A 6 29 100 30
E A 8 26 80 20
F B, D 6 34 20 7
G B, D 4 27 20 6
H C 14 34 85 28
I F, H 6 18 0 0
J E, F, G 8 20 0 0
(a) Calculate Cost Performance Index (CPI).
(b) Calculate Schedule Performance Index (SPI)

Solution: Draw network diagram:

 Critical path: A-D-F-FDummy-J
Duration: 8+6+6+0+8=28

BCWP=NC*%
EST % Actual
Activity Prece NT NC AC OF BCWS for 15
(E- at Tail) completion
Completion
A - 0 8 24 10 100 24 24
B - 0 7 12 22 100 12 12
C - 0 3 20 30 100 20 20
D A 8 6 29 20 100 29 29
E A 8 8 26 7 80 20.8 22.75
F B, D 14 6 34 6 20 6.8 5.67
G B, D 14 4 27 28 20 5.4 6.75
H C 3 14 34 0 85 28.9 29.17
I F, H 20 6 18 0 0 0 0
J E, F, G 20 8 20 25 0 0 0
Total BC=244 ACWP=148 BCWP=146.9 BCWS=149.34
(a).Calculate cost performance index and schedule performance index.
BCWP 146.9
CPI = ACWP = = 0.99
148

(b). Calculate cost performance index and schedule performance index.

BCWP 146.9
SPI = BCWS = 149.34 = 0.98

(c) Find Revised Project Duration and Revised Project Cost.

Schedule Duration 28
Revised Duration = = 0.98 ≈ 28 days.
SPI
Budget 244
Revised cost = = 0.99 ≈ 246
CPI

Detail Explanation to find BCWS: (No need to write in exam)

For Activity A:
Since, the schedule of A is 8 days,
And project duration for A is 15-0=15
That means A is completed successfully within a dead line of 15days
Therefore, BCWS = normal cost = 24
For Activity B:
Since, the schedule of B is 7 days,
And project duration for B is 15-0=15
That means B is completed successfully within a dead line of 15 days
Therefore, BCWS = normal cost = 12
For Activity C:
Since, the schedule of C is 3 days,
And project duration for C is 15-0=15
That means C is completed successfully within a dead line of 15 days
Therefore, BCWS = normal cost = 20
For Activity D:
Since, the schedule of D is 6 days,
And project duration for D is 15-8=7
That means D is completed successfully within a dead line of 7 days
Therefore, BCWS = normal cost = 29
For Activity E:
Since, the schedule of E is 8 days,
And project duration for D is 15-8=7
That means E is not completed within a dead line of 7 days.
Since, normal cost of E for 8 days is 26
26
Therefore, normal cost of E for 1 day is 8
26 91
Therefore, normal cost of E for 7 days is ×7= = 22.75
8 4

Therefore, BCWS = 22.75

For Activity F:
Since, the schedule of F is 6 days,
And project duration for F is 15-14=1
That means F is not completed within a dead line of 1 day
Since, normal cost of F for 6 days is 34
34
Therefore, normal cost of F for 1 day is = 5.67
6

Therefore, BCWS = 5.67

For Activity G:
Since, the schedule of G is 4 days,
And project duration for G is 15-14=1
That means G is not completed within a dead line of 1 day
Since, normal cost of G for 4 days is 27
27
Therefore, normal cost of G for 1 day is = 6.75
4

Therefore, BCWS = 6.75

For Activity H:
Since, the schedule of “H” is 14 days,
And project duration for “H” is 15-3=12
That means H is not completed within a dead line of 12 day
Since, normal cost of H for 14 days is 34
34
Therefore, normal cost of H for 1 day is 14 = 2.42
34
Therefore, normal cost of H for 12 days is 14 × 12 = 29.17

Therefore, BCWS = 29.17

For Activity I:
Since, the schedule of I is 6 days,
And project duration for I is 15-20=-5
That means I is not yet started
Therefore, no cost is involved
Therefore, BCWS = 0
For Activity J:
Since, the schedule of J is 8 days,
And project duration for J is 15-20=-5
That means J is not yet started
Therefore, no cost is involved
Therefore, BCWS = 0
Q 4. Answer any two of the below:
The past demand for 6 months is given of a product
Month 1 2 3 4 5 6
Demand 132 129 127 136 134 132

(a) Calculate Mean Squared Error and forecast for month 7 using Moving Average method
with period 3.
(b) Calculate estimated sales for month 7 using exponential smoothing method with
smoothing constant 0.1. Assume forecast for month2 as initial value of 132.
(c) Explain Mean Absolute Percentage Error as a measure of accuracy in forecasting
Solution:
(a) Calculate Mean Squared Error and forecast for month 7 using Moving Average method
with period 3.
Month Demand 𝐹𝑡 𝐸𝑟𝑟𝑜𝑟 = 𝐸 𝐸2
1 132
2 129
3 127
4 136 129.33 6.67 44.44
5 134 130.67 3.33 11.11
6 132 132.33 -0.33 0.11
134 ∑𝐸 2 = 55.67

∑𝐸 2 55.67
Mean Squared Error= = = 18.55
𝟑 3

Forecast for 7th Month = 134

(b) Calculate estimated sales for month 7 using exponential smoothing method with
smoothing constant 0.1. Assume forecast for month2 as initial value of 132.
Month 𝐴𝑡 𝐹𝑡+1 = 𝐹𝑡 + 0.1(𝐴𝑡 − 𝐹𝑡 )
1 𝐴1 = 132 𝐹1 = 𝐴2 = 129
2 𝐴2 = 129 𝐹2 = 𝐹1 + 0.1(𝐴1 − 𝐹1 ) = 129.30
3 𝐴3 = 127 𝐹3 = 𝐹2 + 0.1(𝐴2 − 𝐹2 ) = 129.27
4 𝐴4 = 136 𝐹4 = 𝐹3 + 0.1(𝐴3 − 𝐹3 ) = 129.04
5 𝐴5 = 134 𝐹5 = 𝐹4 + 0.1(𝐴4 − 𝐹4 ) = 129.74
6 𝐴6 = 132 𝐹6 = 𝐹5 + 0.1(𝐴5 − 𝐹5 ) = 130.16
𝐹7 = 𝐹6 + 0.1(𝐴6 − 𝐹6 ) = 130.35

Forecast for 7th Month =130.35

(c) Explain Mean Absolute Percentage Error as a measure of accuracy in forecasting
Definition: MAPE is calculated by taking the average of the absolute percentage errors
between the forecasted and actual values.
1 𝐴𝑡 −𝐹𝑡
The formula is: 𝑀𝐴𝑃𝐸 = 𝑛 ∑𝑛𝑖=1 | | × 100
𝐴𝑡

where:
• n is the number of observations.
• 𝐴𝑡 is the actual value at time t.
• 𝐹𝑡 is the forecasted value at time t.
Steps to Calculate MAPE
1. Calculate the Error: Subtract the forecasted value from the actual value to get the error
for each observation.
2. Calculate the Absolute Percentage Error: Divide the error by the actual value to get
the percentage error, and take the absolute value.
3. Average the Errors: Sum up all the absolute percentage errors and divide by the
number of observations.

Q 5. Answer any two of the below:

Details of a small project are given below.
Activity Preceding Duration
A - 5
B - 10
C - 15
D B 4
E B 5
F A, D 5
G A, D 2
H A, D 6
J A, C, D, E 10
K F 10
L G, K 3
(a) Determine project duration.
(b) Determine critical path.
(c) Calculate total float for each activity.
Solution:
Draw network Diagram:

(a) Determine project duration. Project Duration = 32

(b) Determine critical path. Critical Path: B-D-F-K-L
(c) Calculate total float for each activity.

Start FINISH Float

Activity Duration EST (E) LST EFT LFT(L) TOTAL
E on Tail LFT-DURATION EST+ DURATION L at Head (LST-EST)
A 5 0 9 5 14 9
B 10 0 0 10 10 0
C 15 0 7 15 22 7
D 4 10 10 14 14 0
E 5 10 17 15 22 7
F 5 14 14 19 19 0
G 2 14 27 16 29 13
H 6 14 26 20 32 12
J 10 15 22 25 32 7
K 10 19 19 29 29 0
L 3 29 29 32 32 0
Q 6. Answer any 2 from below:
(a) Explain different phases of Project Life Cycle.
(b) Explain how uncertainties are handled in PERT approach to project planning.
(c) Explain Matrix type of project Organization.
Q 7. Answer any 2 from below each carrying 5 marks.
A project has initial investment of 20. Expected net returns from this project for next 5 years
are 2, 6, 8, 12 and 15.
(a) Calculate Normal Payback period in months.
(b) Calculate discounted payback period at 10% in months of this project.
(c) Calculate NPV assuming rate of discounting is 10% per annum.
Solution:
Capital: 20.
(a) Calculate Normal Payback period in months.
Year CIF Cumulative CIF
1 2 2
2 6 8
3 8 16
4 12 28
5 15 43

The initial investment of ₹20 is recovered sometime in the 4th year, as the cumulative cash
inflow at the end of Year 3 is ₹16, and at the end of Year 4 is ₹28.

Let's calculate the exact month within the 4th year:

Amount needed at the beginning of year 4 =20-16=4

Since, Annual Cash inflow during year 4 =12

12
Thus, monthly Cash inflow during year 4 = 12 = 1

4
Number of months to recover Rs 4/- = 1 = 4 months
Thus, the payback period = 3 year and 4 months.
(b) Calculate discounted payback period at 10% in months of this project.
Year CIF Discounting Factor Discounted CIF or PV Cumulative PV
1 2 0.91 1.82 1.82
2 6 0.83 4.96 6.78
3 8 0.75 6.01 12.79
4 12 0.68 8.20 20.98
5 15 0.62 9.31 30.30
∑𝑃𝑉 = 30.30

The initial investment of ₹20 is recovered sometime in the 4th year, as the cumulative cash
inflow at the end of Year 3 is ₹12.79, and at the end of Year 4 is ₹20.98.

Let's calculate the exact month within the 4th year:

Amount needed at the beginning of year 4 =20-12.79=7.21

Since, Annual Cash inflow during year 4 =8.20

8.20
Thus, monthly Cash inflow during year 4 = = 0.68
12

7.21
Number of months to recover Rs 4/- = 0.68 ≈ 11 months
Thus, the discounted payback period = 3 year and 11 months.

(c) Calculate NPV assuming rate of discounting is 10% per annum.

NPV = ∑PV − Capital = 30.30 − 20 = 10.30
NPV = 10.30