COMPARATIVE CHARACTERISTICS OF PERT AND CPM

PERT
1. 2. For management of new projects Model under uncertainty Time Event oriented 1. 2. 3. 4.

CPM
For management of repetitive projects. Model under certainty Time versus cost trade-off Activity oriented.

3. 4.

NETWORK TECHNIQUES
PERT: PROGRAM EVALUATION AND REVIEW TECHNIQUE

CPM:

CRITICAL PATH METHOD

GERT: GRAPH EVALUATION AND REVIEW TECHNIQUE PDM: PRECEDENCE DIAGRAMMING METHOD

DCPM: DECISION CRITICAL PATH METHOD

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

A GANTT MILESTONE CHART

JOB A

JOB B

JOB C

M T

REVIEW

LIMITATIONS
1. 2. FAILURE TO SHOW INTER-RELATIONS FAILURE TO PREDICT THE LIKELIHOOD OF MEETING THE DUE DATE.

1 3 5
TIME

2 4 6

JOB A

JOB B

JOB C

1
STAGE I

2
3 5
TIME

JOB A

4 6

JOB B

JOB C

1
STAGE II

2 3 5
TIME

4 6
2

1
3

2
3 1

STAGE III

3
2

4
5 6 2

STEPS INVOLVED IN USING THE NETWORK TECHNIQUES

1.

2. 3. 4. 5. 6.

Divide the given project into independent activities. Estimate their times/and costs. Identify the immediate predecessor(s). Check and remove redundant predecessor(s). Draw the network. Analysis and calculations.

MAKING A DINING TABLE

ACTIVITY IDENTIFICATION a b c d e f

ACTIVITY DESCRIPTION CUT THE TOP MAKE THE LEGS LAMINATION MAKE THE STAND FINAL ASSEMBLY FINAL POLISHING ETC.

IMMEDIATE PREDECESSOR{S} a b c,d e

AON DIAGRAM a
START

c e f
FINISH

AN ARROW DIAGRAM

2 3

1
b d

BUDGETING PROJECT ABC COMPANY

JOB IDENTIFICATION a b c JOB DESCRIPTION FORECASTING SALES PRICING PREPARING PRODUCTION SCHEDULES COSTING THE PRODUCTION PREPARING THE BUDGET IMMEDIATE PREDECESSOR(S) a a

d e

c b,d

c 1 a 2 b

3 d 4 e 5

BUDGETING PROJECT (REVISED)

JOB IDENTIFICATION a a/

JOB DESCRIPTION
FORECASTING SALES

IMMEDIATE PREDECESSOR(S) -

SURVEYING COMPETITIVE PRICING PRICING PREPARING PRODUCTION SCHEDULES COSTING THE PRODUCTION PREPARING THE BUDGET

b c

a,a/ a

d e

c b,d

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

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

a 1 a'

2 D1 3

c b

4 5

d D2

c 2 a a D1 3

4 b

5 e

a b c

2 D1 d 3 D2 4 e

5 6

a b c

2 D1 d 3 D2 e 4

a b c

3 D1 2 D2 4

d
5 e

T-3 T-4 T-5 T-6 T-7 T-8 T-9 T-10 T-11 T-12 T-13 T-14

(6, 4) (18, 3) (13, 1) (16, 3) (17, 3) (14, 1) (20, 1) (21, 3) (10, -) (21, 6) (15, 5) (16, 3)

8 1 1
5 7

3
13 13
0 0

1 1

1 1

6 8 9. 9

2 6 5 4
6 6

48

LEGEND/KEY
T TE
L

CRITICAL PATH IS 1 2 4 7 8

EV.NO

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

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

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

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

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

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

3 2 4 1
te = 7

6 8

COSTS ASSOCIATED WITH A PROJECT

CRASH

NORMAL

JOB DURATION

INDIRECT COSTS PROJECT DURATION INDIRECT COSTS 1. 2. 3. 4. 5. MANAGERIAL SERVICES EQUIPMENT RENTALS ALLOCATION OF FIXED COSTS UTILITY COSTS STORAGE COSTS

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

EVENT

PRECEDING EVENT

NORMAL ________________ TIME COST (WEEKS) (RS.)

CRASH ________________ TIME COST (WEEKS) (RS.)

4 2 3 4 3 5 5 5

1 1 1 2 2 2 4 3

2 3 6 4 2 7 4 3

8,000 7,000 11,000 6,000 9,000 8,500 10,000 5,000

1 1 5 3 1 6 3 2

13,000 19,000 13,000 10,000 10,000 11,000 16,000 7,000

FOR THE FOLLOWING PROJECT

ACTIVITY IDENTIFICATION PREDECESSOR NORMAL ACTIVITIES ________________ TIME COST (DAYS) (RS.) CRASH ________________ TIME COST (DAYS) (RS.)

a b c d e f g h i

a,b b,c c d g,e,f h

2 4 4 4 8 2 6 12 6

30 50 40 35 75 60 40 160 100

1 3 2 4 6 1 4 7 4

50 70 100 35 150 90 90 260 200

INDIRECT COST PER DAY IS RS.30.

DETERMINE THE OPTIMAL TIME VERSUS COST SCHEDULE.

LIMITATIONS OF NETWORK TECHNIQUES.

1.

2.

3. 4.

BREAKING THE PROJECT INTO INDEPENDENT ACTIVITIES. TECHNIQUES ARE BASED ON NON-CYCLIC NETWORKS I.E. CAN NOT ACCOUNT FOR FAILURES. ACTIVITY TIME ESTIMATES ARE ASSUMED TO BE INDEPENDENT. NO RESOURCE LIMITATION.

10/10 0/0 A 10 B 6 5 E

D 4

25/25

3
15/15

10

B 6

9 days

1 A 10

2 V C 5

3 V E 10

4 V

D 4 11 DAYS

BASIC CONCEPTS OF NETWORK COST SYSTEMS THE BASIC CONCEPT OF PERT AND CPM COST SYSTEMS (PERT/COST) IS THAT THE COSTS ARE TO BE MEASURED AND CONTROLLED PRIMARILY ON A PROJECT BASIS RATHER THAN ACCORDING TO THE FUNCTIONAL ORGANISATION OF A FIRM. INDIVIDUAL ACTIVITIES OR GROUPS OF ACTIVITIES FORM MICRO COST CENTRES FOR ACCOUNTING AND MANAGEMENT CONTROL PURPOSES, RATHER THAN ORGANISATIONAL UNITS, i.e. DIVISIONS, DEPARTMENTS, SECTIONS ETC.

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

In planning a project to introduce a new product in the market, a company lists the various activities, their normal times and costs and their crash times and costs as shown in the table below:
Activity Description Immediate predecessor(s) Normal Time (weeks) Cost (Rs.) Crash Time Cost (weeks) (Rs.)

Product 5 1000 4 1200 design B Market 2 600 2 600 research C Product A 4 800 3 1000 analysis D Product A 4 1000 3 1500 model E Sales A 3 1100 1 1600 brochure F Cost C 1 700 1 700 accounting G Product D 4 800 2 1260 testing H Sales B,E 5 900 3 1200 survey I Price an H 2 850 2 850 demand report J Project F,G,I 3 750 2 1000 report If the indirect cost per week is Rs.400, determine the optimal project duration.