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5.1 Introduction
In the previous unit, we dealt with the concept of organisational structure,
the roles and responsibilities of a project leader, the relationship between
project manager and line manager, leadership styles for project managers,
the concept of conflict resolution, the concepts of team management and
diversity management, and the concept of change management. In this unit,
we will deal with the development of project network, time estimation,
determination of the critical path, PERT model, CPM model, and network
cost system.
Once a project gets selected, the entire focus will be on its implementation.
This involves the completion of numerous activities (project components) by
employing various resources – men, materials, machine, money, and time
so that a project blueprint gets translated into concrete reality.
The project activities have inter-relationships occurring from physical,
technical, and other considerations. For suitable planning, scheduling, and
control of the activities of a project, given their inter-relationships and
constraints regarding the availability of resources, network techniques are
found very useful. Note that financial institutions and the Government of
India insist that a network plan must accompany feasibility reports.
The two fundamental network techniques are: PERT and CPM. PERT, an
acronym for Programme Evaluation Review Technique was originally
developed to facilitate the planning and scheduling of the Polaris Fleet
Ballistic Missile Project of the US government. Designed to handle risk and
uncertainty, PERT is quite suitable for research and development
programmes, aerospace projects, and other projects relating to new
technology. In such projects, there exists variability in the time requirement
for completing different jobs or activities. Therefore, the orientation of PERT
is 'probabilistic'.
CPM, a short form for Critical Path Method, is similar to PERT. It was
developed in US by the DuPont Company in 1956-57 for solving industries
scheduling problems. CPM is principally concerned with the matter involving
cost and time. Its application is mainly to projects that use a fairly stable
technology and are quite risk free. Therefore, its orientation is 'deterministic'.
Extensively diverse projects are open to analysis by PERT and CPM, for
example launching a spaceship, research and development programme,
construction of a plant, building a river valley project, overhaul of an
organisation, training of manpower, starting a new venture, and adult
literacy programme. This unit discusses the basics of PERT, CPM, and
network cost system.
Objectives:
After studying this unit, you should be able to:
identify the network technique for project management
explain the characteristics of network technique
describe the time estimation
Send Invitation
Receive Guests
Prepare Dinner
Take Dinner
Fig. 5.1: Development of Project Network
3 2
1 2
P R
4 6 8
5 S 7 Q 9
Illustration
A building project consists of the following activities:
A = Lay foundation
B = Erect framework
C= Install millwork
D = Install wiring
E = Install plumbing
F = Plaster walls
G = Install siding
H= Decorate the interior
I = Finish the exterior
The interrelationship among these activities is as follows:
A should precede B.
B should precede C, D, E, F, and G.
C, D, E, and F should precede H.
G should precede I
C
Install Mill Work
Install Wiring
D
Lay Foundation
Erect Frame Install plumbing
1 2 3 E
A B Plaster Walls
F
Install Siding
C
4
G 8
Given the above interrelationship the network diagram for the project is
developed in several steps using the forward method as shown in figure 5.6.
3. The ____________ begins with the initial event, marking the beginning
of the project, and proceeds forward till the end event is reached.
4. The _____________ begins with the end event and works backwards
till the beginning event is reached.
following one path, there is a chance for the person giving the estimates
to add them mentally and compare them with a pre- conceived notion of
the time of the total path.
The estimates of to, tm, and tp must be defined independently of each
other for each activity (1-2, 1-3, 2-4, 3-4, 2-5, 4-5)
The time available for completing the project must not pressure the
estimates of to, tm and tp.
It must be considered that to, tm and tp are estimates and not schedule
commitments.
The estimates of to, tm and tp must comprise allowances for occurrences
which are usually considered as random variables (weather conditions,
administrative delays, etc.) but not for occurrences which are not
considered usually as random variables (flood, wars, etc.)
The expected time is calculated using the formula:
t e t o 4 tm tp
6
These expected times are then depicted in the network diagram, for
example., as shown in fig. 5.7.
Similarly, activity (3-4) cannot start unless event 3 occurs which sequentially
requires the completion of activity (1-3). Therefore, we establish that event
4 occurs when activities (1-2), (2-4), (1-3), and (3-4) are completed.
Alternatively we can say that, event 4 occurs when paths (1-2-4) and (1-3-4)
are completed.
The time when the event can be completed at the earliest is known as EOT
(earliest occurrence time). Looking at event 4, we locate that as the paths
leading to it, viz. (1-2-4) and (1-3-4) take 15 weeks and 20 weeks,
respectively, the EOT of event 4 is 20 weeks. In common terms, the EOT of
an event is the duration of the longest path (from the beginning event whose
EOT is set at 0) leading to that event. The EOTs of different events in our
illustrative project are shown in Figure 5.8. It is to be considered that in
Figure 5.8 and subsequent figures an event is depicted by a circle. The
upper half of the circle represents the event number, the left quarter in the
lower half represents the EOT, and the right quarter in the lower half
represents the Latest Occurrence Time (LOT).
2
13
15
13
1 2 5
0 28
12 2
3 8 4
12 20
The EOT of the end event depicts the minimum time required for project
completion. For getting, the EOT of various events we begin from the start
event and move forward towards the finish event. This procedure of
computation is known as the forward pass. For computation, we assume
that each activity starts instantly on the occurrence of the event earlier to it.
Therefore, the starting and finishing time for different activities obtained from
the computation are called Earliest Starting Time (EST) and Earliest
Finishing Time (EFT).
5.4.2 Calculate the Latest Occurrence Time (LOT) for each event
The LOT for an event depicts the latest allowable time by which the event
can occur, given the time that is allowed for the completion of the project
(occurrence of end event). Normally, the time allowed for the completion of
the project is set equal to the EOT of the end event. (In other words, the
project is supposed to be completed at the earliest possible time.) This
means that for the end event the LOT and EOT are set equal. The LOT for
various events is obtained by working backward from the end event. This
procedure is known as the backward pass. The LOT for event 4 in our
illustrative project, for instance, is equal to the LOT for event 5, the end
event, minus the duration of the activity (4-5) which connects event 4 with 5.
As the LOT for event 5 is 28 weeks and the duration of activity (4-5) is 2
weeks the LOT for event 4 is 26 weeks (28-2). This depicts the latest time
by which event 4 should occur to enable the project to be completed in 28
weeks. Similarly, the LOT for other events can be calculated by moving
backward. Figure 5.9 depicts the LOT for various events (in the right quarter
of the lower half of event nodes).
2
13
13
15
1 2 5
0
28
1
2 2
3 8 4
18 26
The difference between the LOT and EOT of an event is known as slack.
The slacks for different events of our illustrative project are shown in
Table 5.1.
5 28 28 0
4 26 20 6
3 18 12 6
2 13 13 0
1 0 0 0
Activity
The following table gives the activities of a construction project and
duration:
Duration 20 25 10 12 6 10
(days)
2
13 13
13 15
2
1 5
0 0 28 28
12
2
3 4
12 18 20 26
Total float of an activity is the additional time available to finish the activity if
the activity is started as early as possible without postponing the completion
of the project and is given by
TF(i,j)= LOT(j) – EOT(i) – d(i,j)
Where d is duration of the activity i-j
Therefore the total float for activity (2-4) is
TF(2,4)= LOT(4)-EOT(2)- d(2,4)
= 26-13-2
=11 weeks
Free float of an activity is the additional time available to finish the activity
when the activity is started at the EOT of its preceding event and completed
by the EOT of the succeeding event.
FF(i,j)= EOT(j) – EOT(i) – d(i,j)
Therefore the free float for activity (2-4) is
FF(2,4)= EOT(4)-EOT(2)- d(2,4)
=20-13-2
= 5 weeks
Independent float of an activity is the additional time available to finish the
activity when the activity is started at the LOT of its preceding event and
completed by the EOT of the succeeding event
IF(i,j)= EOT(j) – LOT(i) – d(i,j)
Therefore the independent float for activity (2-4) is
IF(2,4)= EOT(4)-LOT(2)- d(2,4)
= 20-13-2
= 5 weeks
Total float denotes the float under most positive conditions whereas
independent float denotes the float under most adverse conditions.
2
Activity tp to O=(tp-to)/6 Variance=O
(1-2) 21 9 2 5.00
-4 -3 -2 -1 0 1 2 3 4
Z
2.4 0.992
2.6 0.995
2.8 0.997
3.0 0.999
The above procedure may be illustrated for our project which has T = 28
and SD = 3.07. Table 5.4 depicts the probability of completing this project by
certain specified dates.
Table 5.4: Probability of Completing the Project
Probability of
Specified Z
completion by D
20 28
20 2.6 0.005
3.07
25 28
25 1.0 0.159
3.07
30 28
30 0.6 0.726
3.07
5.6.1 Assumptions
The usual assumptions underlying CPM analysis are:
1. The costs associated with a project can be divided into two components:
direct costs and indirect costs. Direct costs are incurred on direct
material and direct labour. Indirect costs consist of overhead items like
indirect supplies, rent, insurance, managerial services, etc.
2. Activities of the project can be expedited by crashing which involves
employing more resources.
3. Crashing reduces time but enhances direct costs because of factors like
overtime payments, extra payments, and wastage. The relationship
between time and direct activity cost can be reasonably approximated
by a downward sloping straight line. Figure 5.12 depicts a typical cost
time line.
Direct
cost of
Activity
Duration
Crash Time Normal Time Activity
4. Indirect costs associated with the project increase linearly with project
duration. Figure 5.13 depicts a typical line for indirect costs.
Indirect cost
of project
5.6.2 Procedure
Given the above assumptions, CPM analysis seeks to examine the
consequences of crashing on total cost (direct cost plus indirect cost). Since
the behaviour of indirect project cost is well defined, the bulk of CPM
analysis is concerned with the relationship between total direct cost and
project duration. The procedure used in this respect is generally as follows:
Step 1: Obtain the critical path in the normal network. Determine the project
duration and direct cost.
Step 2: Examine the cost time slope of activities on the critical path
obtained and crash the activity which has the least slope.
Step 3: Construct the new critical path after crashing as per step 2.
Determine project duration and cost.
Step 4: Repeat steps 2 and 3 till activities on the critical path (which may
change every time) are crashed.
Example: The above procedure may be illustrated with an example.
Table 5.4 depicts the activities, durations, and direct activity costs of a
project. The indirect cost is Rs. 2,000 per week.
Table 5.4: Normal and Crash Time and Cost
Activity Time in Weeks Cost Cost to Expedite
per Weeks
Normal Crash Normal Crash
45,200 70,400
9 3
2 4 6
10
8 5
6
7
1 9
3 5
5
7
The critical path in the all normal network is (1-2-4-6-7). The project duration
is 30 weeks and the total direct cost is Rs. 45,200.
Examining the time cost slope of activities on the critical path, we find that
activity (2-4) has the lowest slope; in other words, the cost to expedite per
week is the lowest for activity (2-4). Hence, activity (2-4) is crashed. Figure
5.15 depicts the project network after such a crashing.
6 3
4 6
2
8 10
5 6
1
7
9
5
3 7
5
As per Figure 5.15 the critical path is (1-2-5-6-7), with a length of 29 weeks,
and the total direct cost is Rs. 46,700.
Looking at the time cost slope of the activities on the new critical path (1-2-
5-6-7), we find that the activity (5-6) has the lowest slope. Hence, this
activity is crashed. Figure 5.16 depicts the project network after such
crashing, the critical path is (1-2-4-6-7) with a length of 27 weeks and the
total direct cost is Rs. 49,500.
6 3
2 4 6
10
8
5 2
1 7
9
5
7
3 5
Comparing the time cost slope of the non-crashed activities on the new
critical path (1-2-4-6-7), we find that the activity which costs the least to
crash is (1-2). Hence, this is crashed. Figure 5.17 depicts the project
network after such a crashing. As per Figure 5.17, the critical path is (1-3-5-
6-7) with a length of 24 weeks and the total direct cost is Rs. 52,500.
6 3
2 4 6
10
4
5 2
1 7
9
5
7
3 5
Looking at the time cost slope of the non-crashed activities on the new
critical path, (1-3-6-7), we find that activity (6-7) has the lowest slope.
Hence, it is crashed. Figure 5.18 depicts the project network after such a
crashing. As per Figure 5.18, there are two critical paths (1-3-5-6-7) and
(1-3-5-7), both with a length of 21 weeks, and the total direct cost is Rs.
55,200.
6 3
2 4 6
4 7
5 2
1 7
9
5 7
3 5
Considering the time cost slope of non crashed activities on critical paths
(1-3-5-6-7) and (1-3-5-7), we find that activity (3-5) which is common to both
the critical paths is the least costly to crash. Hence, it is crashed. Figure
5.19 depicts the project network after this crashing. As per Figure 5.19, the
critical path is (1-2-4-6-7) with a duration of 201/4 weeks and the total direct
cost is Rs. 56,400.
6 3
2 4 6
7
4
5 2
1 7
9
5
3 5 5
Looking at the new critical path (1-2-4-6-7), we find that the only non-
crashed activity is (4-6). Figure 5.20 depicts the project network given by
crashing this. As per Figure 5.20, the critical path again is (1-2-4-6-7) with a
duration of 191/2 weeks and the total direct cost is Rs. 57,600.
6 2
2 4 6
7
4
5
2
1 7
9
5
5
3 5
Since all the activities on the critical path (1-2-4-6-7) are crashed, there is no
possibility of further time reduction. Hence, let us now look at the time-cost
relationship. This is shown in Figure 5.20.
From table 5.5, we find that the total cost is minimised for the project
schedule represented by the activities crashed are (1-2), (2-4), (3-5), (5-6),
(6-7). The information provided in table 5.5 is useful for decision-making.
Table 5.5 depicts the project duration and total cost.
Table 5.5: Project Duration and Total Cost
Figure Activities Crashed Project Total Total Total
No. Duration in Direct Indirect Cost
Weeks Cost Cost
5.14 None 30 45,200 60,000 105,200
5.15 (2-4) 29 46,700 58,000 104,700
5.16 (2-4 and (5-6) 27 49,500 54,000 103,500
5.17 (1-2), (2-4) and 24 52,500 48,000 100,500
(5-6)
5.18 (1-2), (2-4), (5-6), 21 55,500 42,000 97,200
and (6-7)
5.19 (1-2), (2-4), (3-5), 20 56,400 40,000 96,400
(5-6), and (6-7)
1/2
5.20 (1-2), (2-4), (3-5), 19 57,600 39,000 96,600
(5-6), (4-6), and
(6-7)
If the objective is to minimise the total cost of the project, the pattern of
crashing suggested by Figure 5.19 is optimal. If the objective is to minimise
the project duration, then the pattern of crashing suggested by Figure 5.20
is optimal. In real life situations, however, both the factors may be important.
In addition, factors like strain on resources and degree of manageability are
also important. The final decision would involve a careful weighing and
balancing of these diverse factors, some quantitative and some qualitative.
Activity
The managing director of M/s Raj Kumari Manufacturing Company had
an opportunity to deal with a project. The project x is required to be
completed within 8 months at a cost of `1,00,000. The president received
a letter of intent in November. The managing director called production
manager Shri L.N. Gupta and the finance manager Shri. Srinivas Gupta
in the 1st week of December to finalise the appropriate time and cost
based on past jobs and new technology acquired in the organisation.
President needs positively the answer in the 3rd week of December, so
that project can be started, if profitable, from 1st January. Therefore,
production manager and finance manager have been requested to
determine profitability of the project on a 8 month basis. The time and
cost under normal conditions and crashing conditions has been
calculated as follows:
Activity Normal Crashing
Time Cost Time Cost
1–2 2 8,000 1 13,000
1–3 3 7,000 1 19,000
1–4 6 11,000 5 13,500
2–3 4 6,000 3 10,000
2–4 2 9,000 1 10,000
2–5 7 8,500 6 11,500
3–5 4 10,500 3 16,000
4–5 3 5,000 2 7,000
instance Common wealth games project for Delhi crossed the budgeted
costs by more than 40 % to meet the project deadlines in time. When work
on the project began in 2006 the mega budget was Rs. 22,000 crore. Four
years later the budget is Rs. 30,000 crore. It swell by nearly 40 per cent
forcing the Delhi government to increase taxes and roll back crucial
subsidies. The budget for 11 stadia was Rs. 1200 crore in 2004 and it rose
to Rs. 5000 crore . Also, construction was way behind the deadline. All
projects were delayed, including the Commonwealth Village sub-project,
which had a budget of Rs. 465 crore in 2004 and got completed with
Rs. 1400 crore. All this happened because of the lack of knowledge on
fundamentals of networking times and costs factors .
5.8 Summary
Let us recapitulate the important concepts discussed in this unit:
In order to properly plan, schedule, and control of the activities of a
project, given their interrelationships and constraints on the availability of
resources, network techniques are found reasonably helpful.
The two fundamental network techniques are PERT and CPM.
PERT is applied mainly to projects containing uncertainty; its orientation
is probabilistic.
CPM is useful to projects which are comparatively risk-free; its
orientation is deterministic. Extensively varied projects are open to
analysed by PERT and CPM.
The construction of network diagram is in terms of activities and events.
The activity in a project is defined as a definite task, job or function to be
performed.
A definite point of time indicating the beginning or end of one or more
activities is known as event. To make sure that each activity is uniquely
numbered it is required to introduce dummy activities.
5.9 Glossary
CPM: Critical Path Method
EFT: Earliest Finishing Time
EST: Earliest Starting Time
LOT: Latest Occurrence Time
PERT: Programme Evaluation Review Technique
5.11 Answers
Self Assessment Questions
1. Network diagram
2. Activities
3. Forward method
4. Backward method
5. False
6. False
7. True
8. EOT
9. LOT
10. Slack
11. True
12. False
13. Resource assignments
14. CPM analysis
15. Cost planning
16. Cost aspect
Terminal Questions
1. Basic to PERT as well as CPM is the network diagram. The network
diagram, also referred to as the project graph, shows the activities and
events of the project and their logical relationships. Refer to 5.2.
2. Once the logic and detail of the network have been established, time
estimates must be assigned to each activity. Refer to 5.3.
3. Once the network diagram with single time estimates has been
developed, the following computational procedure may be employed for
determining the critical path/s, event slacks, and activity floats. Refer
to 5.4.
4. For this purpose, we used single time estimates of activity duration
though initially three time estimates were developed for each activity.
Variability in PERT analysis is measured by variance or its square root,
standard deviation. Refer to 5.5.
5. The CPM model was developed for projects which are relatively risk-
free. Refer to 5.6.
6. To provide a vehicle for cost planning and control of projects, the
network cost system was developed. Refer to 5.7.
and also the machinery for spinning the fibre into yarn. The machinery
designed for the extraction of fibre from leaf performed well and came out
successful.
But, the discouraging factor was that the recovery rate of fibre from the leaf
was only around 2% to 3%. Moreover, in view of the very low fibre recovery
rate, the cost of pineapple leaf fibre was found to vary between 1.60 to 1.75
times the costs of cotton fibre. Since cotton, though a conventional fibre was
cheaper than pineapple leaf fibre and as cotton had all favourable qualities
for making a fabric suited for man, pineapple leaf fibre was not found
competitive and was found incapable of replacing cotton.
In order to improve the financial viability of the project, the research institute
explored the possibility of using the wastage recovered from the fibre
extraction machine for producing some other by-product. This was
considered essential since the waste material constituted about 97% to 98%
of the total raw material (i.e., pineapple leaf). Further research into the
above aspect yielded encouraging results. The pineapple leaf waste was
made useful for the manufacture of paper boards.
The paper board manufactured using pineapple waste was found to
possess the required physical properties. Since the leaf waste was used for
producing a by-product, the financial viability of the composite project
showed improvement. However, even after assuming that the boards
manufactured using pineapple leaf waste could be sold at a price on par
with the boards manufactured using other raw materials (like waste paper,
waste cloth, etc), the composite project was found to break-even only if the
pineapple leaf fibre could be sold at a price about 20% more than that of
cotton fibre. Hence, the research institute concluded that the fabric
produced out of pineapple leaf fibre could not replace cotton fabric as it
would not be price competitive, even if a composite project is opted for. The
institute hopes that the fabric produced using pineapple leaf fibre could be
exported to high-end markets by propagating it as a novel, eco-friendly, and
natural product.
The institute has also received enquiries from abroad for the procurement of
pineapple leaf fibre at a price that is nearly 40 times the price of cotton fibre,
These are, however, initial phases and full exploitation of commercial
References:
Clements/Gido, Effective Project Management, Publication: Thomson.
Gray, C. F. and Larson, E. W. Project Management, Publication: Tata
McGraw Hill.
Lock, D, Project Management, Ninth Edition, Publication: Gower
Nagarajan, K. Project Management, Third Edition, Publication: New Age
International.
Chandra, P, Projects-Planning, Selection, Financing, Implementation,
and Review, Sixth Edition, Publication: Tata McGraw Hill.
Rao, P.C.K. Project Management and Control, Publication: Sultan
Chand & Sons.
Desai, V, Project Management, Second Revised Edition, Publication:
Himalaya Publishing House.
E-References:
www.projectsmart.co.uk. retrieved on 21/01/2012
www.projectmanagement.com. retrieved on 22/01/2012
www.pmearth.com. retrieved on 23/01/2012