Project Management

Unit 5

Unit 5

PERT and CPM

Structure:
5.1 Introduction
Objectives
5.2 Development of Project Network
5.3 Time Estimation
5.4 Determination of the Critical Path
Calculate the Earliest Occurrence Time (EOT) for each event
Calculate the Latest Occurrence Time (LOT) for ach event
Calculate the slack for each event
Obtain the critical and slack paths
Compute the activity floats
5.5 PERT Model
Measures of variability
Probability of completion by a specified date
5.6 CPM Model
Assumptions
Procedure
5.7 Network Cost System
5.8 Summary
5.9 Glossary
5.10 Terminal Questions
5.11 Answers
5.12 Case Study

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.

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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
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identify the Critical Path

describe the term PERT and CPM model
explain the network cost system

5.2 Development of Project Network

The network diagram is basic to PERT and CPM. The network diagram,
also known as project graph, depicts the project activities and events and
their logical relationships. Figure 5.1 depicts a simplified network diagram
for a dinner project.

Send Invitation
Receive Guests

Prepare Dinner
Take Dinner
Fig. 5.1: Development of Project Network

Activities and events are used to construct network diagram An activity is a

specific task, job, or function to be carried out in a project. For example,
'prepare dinner' (see Figure 5.1) is an activity. An activity is symbolised by
an arrow. The head of the arrow depicts the completion of the activity and
the tail of the arrow depicts its beginning. (There is no significance of length
and 'compass' direction of the arrow.) The event is a specific point in time
representing the beginning or end of one or more activities. It stands for a
milestone and does not consume time or resources.
It is essential to detail all the activities of the project because activities are
the basic building blocks of a network diagram. For this reason, it is useful to
break the project into some steps. The number of steps in a project depends
upon its magnitude and complexity. For industrial projects, usually, a twostep procedure is sufficient. In the primary step, there is identification of
major parts of the project and in the next step the activities of each major
part are defined. Activities must be so defined that they are distinct, logically
uniform tasks for which time and resource requirement can be estimated.
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After specification of activities, it is essential to define for each activity, the

activities which precede it, the activities which succeed it, and the activities
which can take place simultaneously. After getting this information, the
network diagram is developed through forward method or backward method,
showing the logical relationship among activities and events.
The forward method starts with the initial event, showing the beginning of
the project, and proceeds forward till the end event is accomplished. The
backward method starts with the end event and works backwards till the
beginning event is reached.
Rules for network construction
The rules to be observed in constructing the network diagram are discussed
below:
Every activity must have a preceding and a succeeding event. An activity is
numerically represented by the pair of preceding and succeeding events. In
the dinner project, for instance, the activity send invitations is designated
as (1-2).
1. Each event must have a distinct number. The number specified to an
event can be chosen in any way, provided this condition is fulfilled. In
practice, yet, events are numbered in the manner that the number at the
head of the arrow is greater than that at its tail.

2
Fig. 5.2: A Network Diagram

2. There must not be any loops in the project network; a situation similar to
the one shown in Figure 5.2 is not permissible.
3. The preceding and succeeding events are not same for more than one
activity. This signifies that every activity is represented by a uniquely

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numbered arrow and a situation depicted in Figure 5.3 is not

permissible.
Figure 5.3 depicts a loop.

Fig. 5.3: A Loop

To make sure that each activity is uniquely numbered, at times it is

necessary to introduce dummy activities. A dummy activity is an imaginary
activity that can be completed in zero time and it does not consume
resources. It is symbolised by a dashed arrow. Figure 5.4 shows a variant of
Figure 5.3 with a dummy activity (3-2) introduced to conform to the rules of
network construction.

Fig. 5.4: A Dummy Activity

A dummy activity is also be used for representing a constraint, obligatory to

show proper relationship between activities. Figure 5.5 shows part of a
network diagram having a dummy activity (dotted arrow line).
In Figure 5.5, X, represented as (7-6), is a dummy activity showing a certain
logical relationship. According to this figure, activities P (4-6) and Q (5-7)
must be completed before activity R (6-8) can start.

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Fig. 5.5: A Dummy Activity

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

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Figure 5.6 depicts the network diagram for the project.

Lay Foundation
1

Erect Frame
2

B
C
Install Mill Work
Install Wiring
D

Lay Foundation

Erect Frame

Install plumbing
E
Plaster Walls

F
Install Siding

4
Lay Foundation
1

Decorate the interior

Erect frame
3

Install Wiring
7
Install plumbing

Plaster walls
5

E
Install siding
G

Finish the
Exterior

6
8

Fig. 5.6: Network Diagram for the Project

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.
Self Assessment Questions
1. The ________________, also referred to as the project graph, shows
the activities and events of the project and their logical relationships.
2. __________ must be so defined that they are distinct, logically uniform
tasks for which time and resource requirement can be estimated.

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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.

5.3 Time Estimation

After establishing the logic and detail of the network, time estimates must be
assigned to each activity. Usually, three time values are obtained for each
activity:
Optimistic time (to)
Most likely time (tm)
Pessimistic time (tp)
If no hurdles or complications happen, the time required is known as
optimistic time (to). The time in which the activity is most likely to be
completed is called most likely time (tm). The most likely time considers
normal circumstances and makes allowance for some foreseen delays. The
time required in case abnormal complications and, or unforeseen difficulties
arise is known as pessimistic time (tp ). We shall use figure 5.7 that depicts a
network design to explain the aspects of PERT.

Fig. 5.7: Network Design

Obtaining time estimates

The PERT planner must obtain time estimates from the persons who are
accountable for estimation. The following points must be kept in mind while
obtaining time estimates:
Time estimates must be obtained by skipping around the network
instead of following a specific path. In case, estimates are obtained by
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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.
Self Assessment Questions
5. The pessimistic time, to, is the time required if no hurdles or
complications arise. (True/False)
6. The optimistic time, tp, is the time required if unusual complications
and, or unforeseen difficulties arise. (True/False)
7. Time estimates should be obtained by the PERT planner from persons
who are responsible for estimation. (True/False)

5.4 Determination of the Critical Path

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.
5.4.1 Calculate the Earliest Occurrence Time (EOT) for each event
After completion of all leading activities, an event occurs. In the network
diagram shown in Figure 5.8, for example, event 4 occurs when activities
(2-4) and (3-4) are completed. Clearly activity (2-4) cannot begin unless
event 2 occurs, which sequentially requires the completion of activity (1-2).
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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
0

28
12

12

4
20

Fig. 5.8: EOT

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.
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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

28

1
2

2
3

18

4
26

Fig. 5.9: LOT

5.4.3 Calculate the slack for each event

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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.

Table 5.1: Event Slack

Event

LOT

EOT

(In weeks)
Slack
= LOT
= EOT

28

28

26

20

18

12

13

13

5.4.4 Obtain the critical and slack paths

The critical path starts with the starting event, terminates with the last event,
and is marked by events which have a zero slack. This is the path on which
there is no slack, no cushion. Other paths are slack paths with some
cushion. The critical path is (1-2-5) for our illustrative project. It is specified
by doubled arrows in Figure 5.10.
The critical path is the longest path from the start event to the end event.
The project is completed, only when this longest path is crossed, Critical
path duration is the minimum time required for completing the project. The
duration on the critical path of the project is 28 weeks; this is the least time
required for completing the project. (It is previously indicated by the EOT of
event 5, the end event.)
Activity
The following table gives the activities of a construction project and
duration:
Activity

12

13

23

24

34

45

Duration
(days)

20

25

10

12

10

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(i) Draw the network for the project.

(ii) Find the critical path.

5.4.5 Compute the activity floats

Activity floats are calculated from the estimates of activity time and event
slacks. The three measures of float are: (i) total float; (ii) free float; and (iii)
independent float. For illustrating these measures, let us consider activity
(2-4) of our illustrative project. Activity (2-4) is shown in Figure 5.10.

2
13 13
13

15

28 28

0 0

12
2

12 18

20 26

Fig. 5.10: Computing the Activity Floats

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)
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= 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.
Self Assessment Questions
8. The _____________ of an event refers to the time when the event can
be completed at the earliest.
9. The ___________ for various events is obtained by working backward
from the end event. This procedure is known as the backward pass.
10. The ________ for an event is the difference between its LOT and EOT.

5.5 PERT Model

So far, the analysis was focused on the determination of the critical path,
event slacks, and activity floats. For this purpose, we used single time
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estimates of activity duration though initially three time estimates were

developed for each activity. Now we consider the variability of project
duration.
5.5.1 Measures of variability
Variability in PERT analysis is measured by variance or its square root, i.e.
standard deviation. Variance of a set of numbers is the average squared
difference of the numbers in the set from their arithmetic average. A simple
example may be given to illustrate the calculation of variance. Let us take a
series that consist of numbers 4, 6, and 8. The average of this series is 6.
The differences of various numbers in the series from this average are -2, 0,
and 2. Squaring them we get 4, 0, and 4. Hence, the variance the average
of squared difference is 8/3 and standard deviation is 8/3.
The steps involved in calculating the standard deviation of the duration of
critical path are as follows:
Step 1: Determine the standard deviation of the duration of each activity on
the critical path.
Step 2: Determine the standard deviation of the total duration of the critical
path on the basis of information obtained in step 1.
In order to determine the standard deviation of the duration of an activity, we
require the complete probability distribution of the activity distribution. We,
though, have just three values from this distribution: tp, tm, and to. In PERT
analysis, a simplification is used for calculating standard deviation. It is
calculated by the formula:
Standard deviation = (tp - to)/6
Where,

tp = pessimistic time
to = optimistic time

Variance is obtained by squaring standard deviation.

The standard deviation and variance of the activities on the critical path of
our illustrative project are shown in the following table 5.2:
Table 5.2: Standard deviation and variance of the activities
Activity

tp

to

O=(tp-to)/6

Variance=O

(1-2)

21

5.00

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24

10

2.33

5.43

Assuming that the probability distribution of various activities on the critical

path is independent, the variance of the critical path duration is obtained by
adding the variance of activities on the critical path.
In real life projects which have a large number of activities on the critical
path, we can sensibly presume that the critical path duration is around
normally distributed, with mean and standard deviation attained.
A normal distribution looks like a bell shaped curve as shown in Figure 5.11.
It is symmetric and single peaked and is fully described by its mean and
standard deviation. The probability of values lying within certain ranges is as
follows:
Range

Probability

Mean One standard deviation

0.682

Mean Two standard deviations

0.954

Mean Three standard deviations

0.998

Standard Normal Distribution

Mean =0, Std Dev=1

-4

-3

-2

-1

Z
Fig. 5.11: Normal Distribution

Figure 5.11 depicts a normal distribution curve.

5.5.2 Probability of completion by a specified date
Armed with information about mean (T) and standard deviation (a) for critical
path duration, which is normally distributed, we can compute the probability
of completion by a specified date (D) as follows:

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Find Z = (D T) / S.D, where Z is known as standard normal variate with

mean and variance
Obtain cumulative probability up to Z by looking at the probability
distribution of the standard normal variate.

Table 5.3 depicts the cumulative probability up to Z for standard normal

distribution.
Table 5.3: Cumulative Probability up to Z for Standard Normal Distribution
z

Cumulative probability

3.0

0.001

2.8

0.003

2.6

0.005

2.4

0.008

2.2

0.014

2.0

0.023

1.8

0.036

1.6

0.055

1.4

0.081

1.2

0.115

1.0

0.159

0.8

0.212

0.6

0.274

0.4

0.345

0.2

0.421

0.0

0.500

0.2

0.579

0.4

0.655

0.6

0.726

0.8

0.788

1.0

0.841

1.2

0.885

1.4

0.919

1.6

0.945

1.8

0.964

2.0

0.977

2.2

0.986

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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

Specified

Probability of
completion by D

20

20 28
2.6
3.07

0.005

25

25 28
1.0
3.07

0.159

30

30 28
0.6
3.07

0.726

Self Assessment Questions

11. Variability in PERT analysis is measured by variance or its square root
and standard deviation. (True/False)
12. Standard deviation is obtained by squaring variance. (True/False)

5.6 CPM Model

For projects considered uncertain, the PERT model was developed and for
projects which are comparatively risk-free the CPM model was developed.
Both the approaches start with the development of the network and a focal
point on the critical path. Tthe PERT approach is 'probabilistic' while the
CPM approach is 'deterministic'. This does not, however, mean that in CPM
analysis we work with single time estimates. Actually the main focus of CPM
analysis is on variations in activity times as a consequence of changes in
resource assignments. These variations are planned plus related to
resource assignments as well as are not caused by random factors outside
the control of management as in the case of PERT analysis. The major
focus of CPM analysis is on time cost relationships and it seeks a project
schedule that minimises total cost.
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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

Fig. 5.12: A Typical Cost Time Line

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

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Fig. 5.13: Indirect Costs

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

Normal Crash

Normal Crash

Cost to Expedite
per Weeks

1-2

3,000

6,000

450

1-3

4,000

8,000

2,000

2-4

4,000

5,500

500

3-5

2,000

3,200

600

2-5

8,000

12,000

1,000

4-6

1/2

10,000 11,200

2,400

5-6

4,000

6,800

700

6-7

10

6,000

8,700

900

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5-7

4,200

9,000

1,200

45,200 70,400

Figure 5.14 depicts the project network with normal duration.

9

6
10

5
6

Fig. 5.14: Project Network (1)

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

6
10

8
5

1
7
9
5

Fig. 5.15: Project Network (2)

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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 (1-25-6-7), 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

6
10

8
5

1
9
5
7

Fig. 5.16: Project Network (3)

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 (1-3-56-7) with a length of 24 weeks and the total direct cost is Rs. 52,500.
6

6
10

4
5

1
9
5

Fig. 5.17: Project Network (4)

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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

6
7

4
2

1
9
5

Fig. 5.18: Project Network (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

6
7

1
9
5

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Fig. 5.19: Project Network (6)

Looking at the new critical path (1-2-4-6-7), we find that the only noncrashed 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

6
7

5
2

1
9
5

Fig. 5.20: Project Network (7)

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
No.

Activities Crashed

Project
Duration in
Weeks

Total
Direct
Cost

Total
Indirect
Cost

Total
Cost

5.14
5.15

None

30

45,200

60,000

105,200

(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

(5-6)

24

52,500

48,000

100,500

5.18

(1-2), (2-4), (5-6),

and (6-7)

21

55,500

42,000

97,200

5.19

(1-2), (2-4), (3-5),

(5-6), and (6-7)

20

56,400

40,000

96,400

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5.20

(1-2), (2-4), (3-5),

(5-6), (4-6), and
(6-7)

Unit 5

19

1/2

57,600

39,000

96,600

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.
Self Assessment Questions
13. CPM analysis is on variations in activity times as a result of changes in
________________ .
14. _____________seeks to examine the consequences of crashing on
total cost (direct cost plus indirect cost).

5.7 Network Cost System

The techniques of PERT and CPM discussed above are essentially time
oriented. They seek to answer questions like:
What is the most desirable time schedule of activities?
How much time would it take, on an average, to complete the project?
What is the probability of completing the project in a specified time?
Such analysis largely overlooks the cost aspect which is usually as
important as the time aspect and sometimes even more. To provide a
vehicle for cost planning and control of projects, the network cost system
was developed. This represents a very useful supplement to the traditional
time-oriented network analysis. Let us look at cost projection and cost
analysis and control under the network cost system.

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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

2
3
6
4
2
7
4
3

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

1
1
5
3
1
6
3
2

13,000
19,000
13,500
10,000
10,000
11,500
16,000
7,000

12
13
14
23
24
25
35
45

Main issues involved are:

1. What suggestions should be given to managing director for
undertaking the project?
2. After having long discussions with the general manager, who is the
second in command in the organisation, the management some how
feels that during implementation of the project, it will not be possible
to crash the activity 2 4 from its normal time. If so, how will the
production manager and finance manager respond?
Projected costs or budgeted costs assists in analysing variances while
balancing actual costs incurred on the project from time to time and keeps a
proper check on the overall budget. Budgeted costs also happen to be an
indicator of the extent the project can be crashed in case of emergency. For
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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 .
Self Assessment Questions
15. To provide a vehicle for ______________ and control of projects, the
network cost system was developed.
16. PERT and CPM analysis largely overlooks the _____________ which
is usually as important as the time aspect and sometimes even more.

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.

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A dummy activity is imaginary activities that can be completed in zero

time and does not consume resources. A dummy activity is utilised to
depict a constraint needed to show the correct relationship among
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

5.10 Terminal Questions

1. Define activity, event, and path as used in network development. What
is a dummy activity?
2. Discuss the time estimation.
3. What do you mean by determination of the critical path?
4. Define PERT model.
5. Describe the CPM model. Briefly explain.
6. Explain network cost system.

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
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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 riskfree. 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.

5.12 Case Study

Unconventional Fibres
A project for identifying the use of unconventional fibres for the manufacture
of fabric was sponsored by a known Indian organisation and a leading
research institute in North India was entrusted with the task. The research
institute decided to explore the scope for extracting fibre from pineapple leaf
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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

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potential is yet to be ascertained. The technology is available with the

research institute.
1. Analyse the case. Can a promising entrepreneur opt for the composite
project? If so, what are his or her prospects and problems?
Hint: A leading research institute in North India explore the scope for
extracting fibre from pineapple leaf and also the machinery for spinning
the fibre into yarn. The cost of pineapple leaf fibre was found to vary
between 1.60 to 1.75 times the costs of cotton fibre. The research
institute explored the possibility of using the wastage recovered from the
fibre extraction machine for producing some other by-product (paper
boards.).
Source: Mishra Rajendra (2012), Project Management: Excel Books,New Delhi

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

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