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Lecture Day 9

PERT/Cost

Specialized Linear Programming Models

Greedy Method

PERT / Cost

and controlling the cost of a project.

Once the various work packages have been

identified in the WBS and their costs have

been estimated, the project manager must

predict the cash flow for the project. In

addition, the project manager must periodically

review expenditures to determine if actual

costs are exceeding budgeted costs so that he

or she can take the necessary corrective

action to reduce or eliminate cost overruns.

status of the various work packages to ascertain

the actual expenditure to date and the work

package's percentage completion. This

information, together with the original detailed

budget for the project, allows the project manager

to identify cost overruns and underruns.

Step 1: For each work package, estimate the cost.

In most applications, the cost of a

assumed to be linear (constant).

Step 1: For each work package, estimate the cost.

Activity

A

B

C

D

E

F

G

H

I

J

Immediate

Estimated

Time

Total

Predecessor (months) Estimated Cost Monthly Cost

2

P 5,000

P 10,000

3

24,000

8,000

A

3

30,000

10,000

A

2

20,000

10,000

B

2

40,000

20,000

B

7

140,000

20,000

C

4

160,000

40,000

D, E

3

90,000

30,000

H

2

100,000

50,000

G, I

4

100,000

25,000

P714,000

Step 2: Using PERT/CPM, find the critical path for

the project.

Activity Immediate

Estimated

Time

Total

Predecessor (months) Estimated Cost Monthly Cost

A

2

P 5,000

P 10,000

B

3

24,000

8,000

C

A

3

30,000

10,000

D

A

2

20,000

10,000

E

B

2

40,000

20,000

F

B

7

140,000

20,000

G

C

4

160,000

40,000

H

D, E

3

90,000

30,000

I

H

2

100,000

50,000

J

G, I

4

100,000

25,000

P714,000

G=4

H=3

I=2

J=4

ES = 5

EF = 9

G=4

ES = 5 EF = 8

H=3

ES = 10 EF = 14

I=2

ES = 8

EF = 10

J=4

LS = 6

ES = 5

G=

EF = 9

4 LF = 10

LS = 5 LF = 8

ES = 5 EF = 8

H=3

LS = 10 LF = 14

ES = 10 EF = 14

I=2

ES = 8

LS = 8

EF = 10

LF = 10

J=4

1

LS = 6

ES = 5

G=

EF = 9

4 LF = 10

0

0

LS = 5 LF = 8

ES = 5 EF = 8

H=3

1

0

LS = 10 LF = 14

ES = 10 EF = 14

I=2

ES = 8

LS = 8

0

J=4

EF = 10

LF = 10

0

Step 3: Calculate monthly expenditures assuming

each activity starts at its earliest start time.

Activity Immediate

Estimated

Time

Total

Predecessor (months) Estimated Cost Monthly Cost

A

2

P 5,000

P 10,000

B

3

24,000

8,000

C

A

3

30,000

10,000

D

A

2

20,000

10,000

E

B

2

40,000

20,000

F

B

7

140,000

20,000

G

C

4

160,000

40,000

H

D, E

3

90,000

30,000

I

H

2

100,000

50,000

J

G, I

4

100,000

25,000

P714,000

Step 4: Calculate monthly expenditures assuming

each activity starts at its latest start time.

Activity Immediate

Estimated

Time

Total

Predecessor (months) Estimated Cost Monthly Cost

A

2

P 5,000

P 10,000

B

3

24,000

8,000

C

A

3

30,000

10,000

D

A

2

20,000

10,000

E

B

2

40,000

20,000

F

B

7

140,000

20,000

G

C

4

160,000

40,000

H

D, E

3

90,000

30,000

I

H

2

100,000

50,000

J

G, I

4

100,000

25,000

P714,000

Step 5: Calculate the range of monthly cash flows

using data calculated in steps 3 and 4 and

decide whether to begin the project

according to its earliest start time or latest

start time.

Specialized

Linear Programming

Models

Transportation Model

Transshipment Model

Assignment Model

The three special LP models fall into the category of

network models that could be used in determining

least cost ways of distributing products from sources

to destinations.

The transportation and transshipment

the best distribution or allocation of a

product from origin to destination.

Transportation Model

Transshipment Model

Assignment Model

The three special LP models fall into the category of

network models that could be used in determining

least cost ways of distributing products from sources

to destinations.

The assignment model is a special case of the

concerned with the one-to-one assignment of

one set of objects to another. It is useful in the

matching of workers to jobs, jobs to machines,

sales representatives to territories, etc.

Example:

The Cordoba Company is now faced with the problem of how to

distribute its electrical components from plants to regional warehouses.

The company has plants located in Cavite, Laguna, and Batangas while

regional warehouses are located in Baguio, Cebu, Davao, and Iloilo.

This month, the company has available 50 units in Cavite, 80 units in

Laguna, and 120 units in Batangas. To meet predicted demand,

Cordoba Company must ship 90 units to Baguio, 70 to Cebu,

40 to Davao, and 50 to Iloilo. Relevant per unit transportation costs for

each component as well as demand and supply data are as follows:

Shipping Costs:

To Warehouse

From Plant Baguio

Cebu Davao Iloilo Supply

Cavite

P 8

P 9

P 11

P 16

50

Laguna

12

7

5

8

80

Batangas

14

10

6

7

120

Demand

90

70

40

50

The Cordoba Company wants to determine the shipping pattern

that meets all demand at minimum transportation cost.

linear programming problem, that can be formulated as

follows:

Let xij = amount to be shipped from plant i to warehouse j

Where: i = 1, 2, 3 and j = 1, 2, 3, 4

Minimize:

+ 12x21 + 7x22 + 5x23 + 8x24

+ 14x31 + 10x32 + 6x33 + 7x34

Subject to:

x21 + x22 + x23 + x24 = 80

x31 + x32 + x33 + x34 = 120

x11 + x21 + x31 = 90

x12 + x22 + x32 = 70

x13 + x23 + x33 = 40

x14 + x24 + x34 = 50

xij > 0; i = 1, 2, 3; j = 1, 2, 3, 4

We may interpret any situation in which a

homogeneous product is available in the amounts of

a1, a2, . . . , am at m sources 1,2, . . . , m, respectively,

wherein demands b1, b2, . . . , bn are present at n

destinations 1,2, . . . , n, respectively.

The transportation cost per unit from the ith source

to the jth destination is a known constant, cij,

which is directly proportional to the amount shipped.

Letting xij represent the amount shipped from source i

to destination j, we obtain the general transportation

model:

m n

Minimize:

Z = S S cij xij

i=1 j=1

Subject to:

S xij = ai, i = 1, 2, . . . , m

j=1

m

S xij = bj, j = 1, 2, . . . , n

i=1

j = 1, 2, . . . , n

From

To

Warehouse

A

Warehouse

B

Warehouse

C

Plant

Capacity

Plant W

Plant X

Plant Y

Project

Requirements

Total

From

To

Warehouse

A

Warehouse

B

Warehouse

C

Plant

Capacity

Plant W

A

Plant X

Plant Y

Project

Requirements

Total

From

To

Warehouse

A

Warehouse

B

Warehouse

C

Plant

Capacity

Plant W

A

Plant X

Plant Y

Project

Requirements

Total

From

To

Warehouse

A

Plant

Capacity

Warehouse

B

Warehouse

C

Plant W

A

Plant X

Plant Y

Project

Requirements

Total

From

To

Warehouse

A

Plant

Capacity

Warehouse

B

Warehouse

C

Plant W

A

Plant X

Plant Y

Project

Requirements

Section D. Requirements/demand

of each destination.

Total

From

To

Warehouse

A

Plant

Capacity

Warehouse

B

Warehouse

C

Plant W

A

Plant X

Plant Y

Project

Requirements

source-to-destination assignments

that could be made.

Total

From

To

Warehouse

A

Plant

Capacity

Warehouse

B

Warehouse

C

Plant W

A

Plant X

Plant Y

Project

Requirements

to a destination.

Total

Example:

The Cordoba Company is now faced with the problem of how to

distribute its electrical components from plants to regional warehouses.

The company has plants located in Cavite, Laguna, and Batangas while

regional warehouses are located in Baguio, Cebu, Davao, and Iloilo.

This month, the company has available 50 units in Cavite, 80 units in

Laguna, and 120 units in Batangas. To meet predicted demand,

Cordoba Company must ship 90 units to Baguio, 70 to Cebu,

40 to Davao, and 50 to Iloilo. Relevant per unit transportation costs for

each component as well as demand and supply data are as follows:

Shipping Costs:

To Warehouse

From Plant Baguio

Cebu Davao Iloilo Supply

Cavite

P 8

P 9

P 11

P 16

50

Laguna

12

7

5

8

80

Batangas

14

10

6

7

120

Demand

90

70

40

50

The Cordoba Company wants to determine the shipping pattern

that meets all demand at minimum transportation cost.

Warehouse

To

From

Baguio

Cavite

Laguna

Batangas

Demand

90

Cebu

Supply

Davao

Iloilo

11

16

12

14

10

70

40

50

50

80

120

250

A heuristic is a rule-of-thumb procedure that

determines a good, but not necessarily optimal,

solution to a problem.

The simplex method is not a heuristic since it is an

optimization technique that guarantees an optimal

solution, provided that one exists.

Heuristic solutions are usually obtained much faster

and thus at lower cost. However, heuristics cannot

be considered as accurate as optimization

techniques since an optimal solution is not

guaranteed.

A good heuristic is generally within 10% of

optimality, but the great disadvantage of using a

heuristic is that the amount of error is not known.

Greedy Method

Row-Minimum Method

Vogels Approximation Method

The northwest corner rule requires that we start in the

upper left-hand cell (or northwest corner) of the

transportation tableau and allocate units to routes

as follows:

1. Exhaust the supply of each row before moving down

to the next row.

2. Exhaust the demand/requirements of each column

before moving to the next column on the right.

Warehouse

To

From

Cavite

Laguna

Batangas

Demand

Baguio

Cebu

50

40

14

Iloilo

11

12

40

Davao

Supply

16

X

5

10

X

6

50

80

40

30

40

50

120

90

90

70

40

50

250

40

30

transportation cost

50

Greedy Method

With the greedy method, we begin by identifying

the square with the lowest possible cost per unit,

and we assign as many units to it as we can.

With this methods focus on least cost, it would

generally provide a lower initial overall shipping/

transportation cost than the northwest corner rule.

is that it is myopic; it is unable to look beyond

a single target.

Warehouse

To

From

Cavite

Laguna

Batangas

Demand

Baguio

Cebu

50

40

14

Iloilo

11

12

Davao

Supply

16

X

5

40

10

X

6

40

30

50

90

70

40

50

40

30

transportation cost

50

80

120

250

40

70

40

Like the greedy method, the row minimum method

gives particular focus on the cost component

of the transportation problem.

This heuristic proceeds by trying to assign

shipments to the minimum-cost cell in each row,

as follows:

allocate as much supply as possible to this.

2. Proceed to the next row and find the

minimum-cost cell. Again, make an allocation

and delete the appropriate row or column.

3. Repeat Step 2 until all supply is exhausted

and all demand is satisfied.

Warehouse

To

From

Cavite

Laguna

Batangas

Demand

Baguio

Cebu

50

40

14

Iloilo

11

12

Davao

Supply

16

X

5

40

10

X

6

50

80

40

40

30

50

120

70

90

70

40

50

250

40

30

transportation cost

40

VAM is based upon the concept of minimizing

opportunity costs, defined as the difference between

the lowest-cost and the second-lowest-cost alternative.

In other words, if we fail for some reason to achieve

the lowest cost, by how much will costs increase

if we take the second-best alternative?

VAM looks at the opportunity cost of not assigning

to the minimum-cost cell in a row or column

of the transportation tableau.

Assignment is made to the minimum-cost cell

in the row or column that has the highest potential

opportunity loss. If we view the opportunity loss

as a possible penalty, the idea is to avoid a high

penalty.

Steps Involved:

1. For each row and column, calculate the potential

opportunity loss as the difference between the

minimum-cost cell and the next lowest-cost cell.

from among all rows and columns then find

the minimum-cost cell associated with that row

or column.

If a tie exists in opportunity losses among

to the minimum-cost cell in Step 2; this will delete

a row or column. Reduce the supplies and

demands accordingly.

Steps Involved:

4. If a row has been deleted, recalculate the column

opportunity losses. If a column has been deleted,

recalculate the row opportunity losses.

5. If all allocations have been exhausted, stop.

Otherwise, begin another iteration by returning to

Step 2.

Warehouse

To

From

Cavite

Baguio

8

50

Laguna

Batangas

Demand

Cebu

90

Davao

Supply

Iloilo

11

16

12

14

10

70

40

50

40

50

80

120

250

Warehouse

To

From

Cavite

Baguio

8

50

Laguna

Batangas

Demand

Cebu

90

Davao

Supply

Iloilo

11

16

12

14

10

70

40

50

40

50

80

120

250

Warehouse

To

From

Cavite

Baguio

8

50

Davao

Iloilo

11

12

Laguna

16

X

5

70

14

Batangas

Demand

Cebu

Supply

10

X

90

70

40

50

40

50

80

10

120

250

2

1

Warehouse

To

From

Cavite

Baguio

8

50

Davao

Iloilo

11

12

Laguna

16

X

5

70

14

Batangas

Demand

Cebu

Supply

10

X

90

70

40

50

40

50

80

10

120

250

3

1

Warehouse

To

From

Cavite

Laguna

Batangas

Demand

Baguio

Cebu

50

70

14

Iloilo

11

12

Davao

Supply

16

X

5

10

10

X

6

40

30

50

90

70

40

50

40

30

50

80

10

120

250

90

3

1

40

is satisfied with obtaining a good heuristic

solution that is not necessarily optimal.

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