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MANAGEMENT
Introduction to theory of probability & statistics
PERT Networks
Probabilistic time estimation of activities
Analysis of PERT network
Determination of critical path
Calculation of SLACK
INTRODUCTION TO THEORY OF PROBABILITY &
STATISTICS
Quotes from you and me
Chances of you getting a handsome job will improve if you
obtain a masters degree
Probably, collections jump in this month
Most probably, ERP implementation will be done by September
Odds are greater for a better thesis review this time???
Winning a soccer match against Manchester City in the Premier
League is not impossible but is highly improbable
Defects from new machines are unlikely
INTRODUCTION TO THEORY OF PROBABILITY &
STATISTICS
Each statement involves uncertainty
Chances = Odds = Likelihood = PROBABILITY
Real life is usually full of uncertainty
Almost nothing is for sure
In such situations, we cannot “PROVE” anything
ALL WE CAN DO IS ASSIGN A PROBABILITY TO
EACH OF THE DIFFERENT POSSIBLE OUTCOMES
INTRODUCTION TO THEORY OF PROBABILITY &
STATISTICS
What are your chances of getting a handsome job
after masters?
How much you are confident about the collection
percentage rise this month?
What are your odds that your thesis review will be
better this time?
What is the possibility of winning a cricket match
against Manchester City in the Premier League?
What is the probable number of times the new
machine would churn out good production?
INTRODUCTION TO THEORY OF PROBABILITY &
STATISTICS
PROBABILITY THEORY PROVIDES TOOLS TO
DECISION MAKERS TO QUANTIFY
UNCERTAINTIES
HOW ABOUT IN PROJECT MANAGEMENT??
TIME ESTIMATES TYPES
Deterministic Approach
Non-deterministic/Probabilistic Approach
INTRODUCTION TO THEORY OF PROBABILITY &
STATISTICS
Assigning Probabilities
Classical Approach – assumes equally likely outcomes
(card games, dice games, tossing coins etc)
Relative Frequency Approach – uses relative
frequencies of past occurrences as probabilities
(decision problems in the process of management,
delay in delivery of product)
Subjective Approach – Guess based on past experience
or intuition (at higher level of managerial decisions
for important, specific and unique decisions)
Classical Approach
Relative Frequency Approach
Making use of relative experiences of the past
Example of attrition rate in an organization every
year coz of better prospects
Subjective Approach
Based on personal judgments
Uses individual’s experience and familiarity of the
facts
Example could be the share prices fluctuation over
the past few months
PERT PROBABILITY APPROACH
Activity completion times are seldom known with
certainty
PERT is a technique that treats activity completion
times as “random” variables
Completion time estimates can be estimated using
the “Three Time Estimate Approach”
In this approach, three time estimates are required
for each activity (PROBABILISTIC APPROACH)
a = an optimistic time to perform the activity
m = the most likely time to perform the activity
b = a pessimistic time to perform the activity
PERT PROBABILITY APPROACH
With three time estimates, the activity completion
time can be approximated by a “beta distribution”
Beta distribution can come in varied shapes:
MEAN & SD FOR ACTIVITY COMPLETION TIMES
The best estimate for the mean is a weighted average
of the three time estimates with weights 1/6, 4/6,
1/6 respectively on a, m and b
Since most of the area is with the range from a to b
(b-a) and since most of the area lies 3 standard
deviations on either sides of the mean, then the SD is
approximated by Range/6
PERT ASSUMPTIONS
• Assumption 1
– A critical path can be determined by using the mean
completion times for the activities.
– The project mean completion time is determined
solely by the completion time of the activities on the
critical path.
Assumption 2
There are enough activities on the critical path so that
the distribution of the overall project completion time
can be approximated by the normal distribution.
• Assumption 3
– The time to complete one activity is independent of
the completion time of any other activity.
PERT TIME ESTIMATES
Taking uncertainties into account…
Optimistic Time Estimate
Shortest possible time in which an activity can be completed,
under IDEAL CONDITIONS
Represents the time in which we could complete the activity if
everything went along perfectly with no problems or adverse
conditions
Better than normal conditions are assumed to prevail
Represented by to or a
PERT TIME ESTIMATES
Taking uncertainties into account…
Pessimistic Time Estimate
Best guess of the max time that would be required to complete
the activity
Represents the time it might take to complete a particular
activity if everything went wrong and abnormal situations
prevail
Does not include possible effects of highly unusual
catastrophes such as EQ, floods, fires etc.
Represented by tp or b
PERT TIME ESTIMATES
Taking uncertainties into account…
Most Likely Time Estimate
Also the most probable time – the time in the mind of the
estimator, representing the time the activity would most often
required if normal conditions prevail
Lies between the optimistic and pessimistic time estimates
Reflects a situation where conditions are normal, things are as
usual and there is nothing exciting
Represented by tm or m
FREQUENCY DISTRIBUTION
Time estimates are difficult to ascertain – needs some
guidance based on experience or past/available
information
Plot a graph with the three time estimates
The way in which the time estimates behave!!!
What we get is a “unimodal curve” which is
symmetrical
Also called “normal curve”
Not necessary that all the times it may be “normal”
Some may have to “skew” due to which it is not
symmetrical
FREQUENCY DISTRIBUTION
FREQUENCY DISTRIBUTION
FREQUENCY DISTRIBUTION
So, what do we infer???
“…A WIDE RANGE IN TIME ESTIMATES REPRESENTS
GREATER UNCERTAINTY AND HENCE LESS
CONFIDENCE IN OUR ABILITY TO CORRECTLY
ANTICIPATE THE ACTUAL TIME THAT THE ACTIVITY
WILL REQUIRE…”
MEAN, VARIANCE & STANDARD DEVIATION
Whatever be the form of the curve, the
following aspects of the characteristics of the
distribution are important:
Mean time or average time
Deviation
Variance
Standard Deviation
MEAN, VARIANCE & STANDARD DEVIATION
Mean: defined by the algebraic sum of time
durations taken by various jobs divided by the
number of jobs
Deviation: difference between the time under
consideration and the mean time. Difference
may be either positive or negative
MEAN, VARIANCE & STANDARD DEVIATION
Variance: is the mean of squared deviation.
Expressed by σ2
Variance is calculated in the following steps:
Obtain the mean of the distribution
Determine the deviation of each time from the mean
Find square of these individual deviations
Find the mean of the squared deviations
To note: deviations may be negative but their squares will
always be positive. Hence, VARIATION WILL ALWAYS BE
POSITIVE. Cannot have zero value unless each individual
deviation is zero
Variance is commonly used in statistics as a measure of
variability of distribution
MEAN, VARIANCE & STANDARD DEVIATION
Standard Deviation: the square root of the
variance. SD is denoted by σ
PROBABILITY DISTRIBUTION
BETA Probability Distribution
PERT ANALYSIS
SLACK
The difference between the two times (TL & TE =
Expected time)of an activity indicates the range between
which the occurrence time of an event can vary
Slack may be simply defined as the difference
between the latest allowable time and the earliest
expected time of an event
S = TL - TE
PERT ANALYSIS TE=15
SLACK
30
TL=15 tE=4
tE=10
tE=7
TE=0 TE=5 TE=22 TE=27
10 20 50 60
tE=5 tE=12 tE=5
TL=0 TL=5 TL=22 TL=27
tE=8
TE=13 tE=8
40
TL=19
PERT ANALYSIS
SLACK
Event No TE TL S = TL-TE
10 0 0 0
20 5 5 0
30 15 15 0
40 13 19 6
50 22 22 0
60 27 27 0
PERT ANALYSIS TE=15
SLACK
30
TL=15 tE=4
tE=10
tE=7
TE=0 TE=5 TE=22 TE=27
10 20 50 60
tE=5 tE=12 tE=5
TL=0 TL=5 TL=22 TL=27
tE=8
TE=13 tE=8
40
TL=19
PERT ANALYSIS
SLACK
Positive Slack – when TL is more than TE for an event.
An indication that the event is ahead of schedule
Negative Slack – when the scheduled time Ts (and
hence TL is less than TE and its an indication that the
event is behind the schedule
Zero Slack – is obtained when TL = TE for an event. It
is an indication that it is an on schedule condition
PERT ANALYSIS
Exercise 1
Determine the CP for the network:
20
tE=23.7
tE=9.8 tE=0
40 tE=10.2 60
PERT ANALYSIS
TE=9.8
20
TL=12.3 tE=23.7
tE=9.8 tE=0
TE=0 TE=12.3 TE=30.3 TE=33.8 TE=42
40 tE=10.2 60
TL=12.8
TL=23
PERT ANALYSIS
Event No TE TL S = TL-TE
10 0 0 0
20 9.8 12.3 2.5
30 12.3 12.3 0
40 11.7 12.8 1.1
50 30.3 30.3 0
60 21.9 23.0 1.1
70 33.8 33.8 0
80 42.0 42.0 0
PERT ANALYSIS
Exercise 2
The expected time of completion (in days) for each activity of a
network is shown in. Determine the CP. It is given that the
scheduled completion time is 21 days.
2 6
1 5 7 9
3 4 8
PERT ANALYSIS
TE=4 TE=10
2 tE=6
6
TL=10
TL=4
tE=3
TE=0 tE=4 TE=14 TE=22
TE=11
1 5 tE=3
7 tE=6
9
tE=6 TL=10 TL=13
TL=-1 tE=2 tE=3 TL=21
TE=5
tE=5
TE=8 TE=17 tE=5
3 tE=3
4 tE=6
8
TL=16
TL=8
TL=4
Event Earliest Event Time Latest Event Time Slack
No
1 - - 0 0 2 4 0 -1 -1
3 5 -1
2 1 4 4 4 6 6 4 4 0
3 1 5 5 5 4 3 5 4 -1
5 6 4
4 3 3 8 8 5 2 8 8 0
8 6 10
5 3 6 11 11 7 3 10 10 -1
4 2 10
6 2 6 10 10 7 3 10 10 0
7 5 3 14 14 8 3 13 13 -1
6 3 13 9 6 15
8 4 6 14 17 9 5 16 16 -1
7 3 17
9 7 6 20 20 - - 21 21 -1
8 5
PROBABILITY OF MEETING SCHEDULED DATE
After calculating TL, TE and critical path???
An unanswered question!!!
WHAT IS THE PROBABILITY OF MEETING THE
SCHEDULED TIME???
Apply probability theory to the network analysis
Things to discuss:
CP – time wise, the longest path along a number of activities
Three time estimates
Time estimates having beta distribution
Computation of tE assuming beta distribution
tE is such that there is a 50-50 completion chance
PROBABILITY OF MEETING SCHEDULED DATE
Summation of ΣtE of all activities along the CP is
equal to TE of the last event
tE of individual activities has random probability
distribution (β) and the variation of TE for the
project, as a whole has a ND for practical purposes
CENTRAL LIMIT THEOREM
This theorem states that if there are n activities, each
having its own β – distribution with means µ1, µ2, µ3….., µn
and SD σ1, σ2, σ3,….., σn respectively, then the distribution
of time for the project as a whole will be approximately be a
ND curve. ND curve will have a mean µ and variance σ2 given
by
µ = µ1+µ2+µ3+…..+µn
σ2 = σ21+σ22+σ23+…..+σ2n
PROBABILITY OF MEETING SCHEDULED DATE
Procedure
Properties of ND curve and the % probability
distribution table can be used only if the random
curve obtained from a particular network is reduced
to normalized form
Obtained by making TE value for the end event
coincide with the modal value of the ND curve
Following procedure is adopted for determining the
probability of meeting the scheduled completion
time:
PROBABILITY OF MEETING SCHEDULED DATE
Procedure
Determine the SD (σ) appropriate to the CP for the
network, using the relations
σ = √Sum of variances along the CP (or)
σ = √Σσ2ij, where σ2ij = variance for activity i-j along the CP
= (tijp – tijo/6)2
Knowing the scheduled completion time (ts) and EET
of completion (TE), find the time distance TS- TE and
express it in terms of probability factor Z by the
relation:
Z = (TS - TE)/σ or Z = (TS - TE )/ √Σσ2ij
PROBABILITY OF MEETING SCHEDULED DATE
Procedure
= 4x (-0.25) + 50 = 49 Weeks
Linear Interpolation
4-10-22
1 4 5
3
Solution
Determine the expected time of completion (tE) an variance σ2
for each activity using the relations
1 - - 0 0 2 10 0 0 0
3 9 2
2 1 10 10 10 4 9 10 10 0
5 7 23
3 1 9 9 9 4 8 11 11 2
5 5 25
4 2 9 19 19 5 11 19 19 0
3 8 17
5 2 7 17 30 - - 30 30 0
3 5 1
4 11 30
CP = 1-2-4-5 = 30 days
Solution
TE=10
tE=11
1 4 5
TL=11
Solution
Now, deviation along the CP is given by σ = √Σσ2ij
Where Σσ2ij = sum of variances along the CP
= σ21-2 + σ22-4 +σ24-5
= 4 + 9 + 9 = 22
σ = √Σσ2ij = √22 = 4.69
Z = (TS - TE)/σ, where Ts = 35 days
= (35 – 30)/4.69 = 1.066
From table, for Z=1.066, using linear interpolation, P≈ 85.7%
3-5-13 2-4-6
3 7 8
2-3-10
2-5-8 4-7-16 7-10-13
1 2 4 6
5
Solution
Activity to tL tp tE σ2
1-2 2 5 8 5 1
2-3 8 11 20 12 4
3-4 0 0 0 0 0
2-4 4 7 16 8 4
2-5 4 9 20 10 7.11
4-6 7 10 13 10 1
5-6 3 7 17 8 5.44
3-7 3 5 13 6 2.78
6-7 2 3 10 4 1.77
7-8 2 4 6 4 0.44
Event Earliest Event Time Latest Event Time Slack
No
1 - - 0 0 2 5 0 0 0
2 1 5 5 5 3 12 5 5 0
4 8 9
5 10 9
3 2 12 17 17 7 6 25 17 0
4 0 17
4 2 8 13 17 6 10 17 17 0
3 0 17
5 2 10 15 15 6 8 19 19 4
6 4 10 27 27 7 4 27 27 0
5 8 23
7 3 6 23 31 8 4 31 31 0
6 4 31
8 7 4 35 35 - - 35 35 0
CP = 1-2-3-4-6-7-8 = 35 days
Solution
TE=31
TE=17 TE=35
3-5-13 2-4-6
3 7 8
TL=31
2-3-10
TL=35
TE=0 TE=5 TL=17 TE=17 TE=27
2-5-8 4-7-16 7-10-13
1 2 4 6
TL=17
TL=0 TL=5 TL=27
TE=15
TL=19
Solution
Now, deviation along the CP is given by σ = √Σσ2ij
Where Σσ2ij = sum of variances along the CP
= σ21-2 + σ22-3 +σ23-4 + σ24-6 + σ26-7 +σ27-8
= 1+4+0+7.11+1.77+0.44 = 14.32
σ = √Σσ2ij = √14.32 = 3.78
Z = (TS - TE)/σ, where Ts = 40 days
= (40 – 35)/3.78 = 1.32
From table, for Z=1.32, using linear interpolation, P≈ 90.64%
HENCE THERE IS 90.64% PROBABILITY OF COMPLETING THE PROJECT
IN 40 DAYS
For P = 95%, we have Z≈ 1.65
Ts = σZ + TE
= (3.78 x 1.65) + 35 = 41.2 days
A project consists of 16 activities having their predecessor
relationship as follows:
A is the first activity of the project
B,C & D follow A and can be done concurrently
E & G cannot begin until C is completed and can be performed
simultaneously
F is the immediate successor to activities B & E
H & K run in parallel and both succeed G
L succeeds F & H
I & J are immediate successor activities to activity D
M & N are immediate successor to I & K. However, both M & N can
be performed concurrently
Activities O & P are the last activities. Activity O is the immediate
successor to N & L. Activity P is the immediate successor to M & J
DRAW THE NETWORK AND NUMBER THE EVENTS
A project consists of eight activities M, N, O, P, Q, R, S & T.
Draw the network and number the events if,
Activities M,N & Q can start concurrently
Activities O & P are concurrent and depend on the completion of
both M & N
Activities R & S are concurrent and depend on the completion of O
Activity T depends upon the completion of P, Q & R
A project consists of eight events having predecessor
relationships as under. Draw the network.
Event Predecessor Event Predecessor
1 - 5 3,4
2 1 6 3,5
3 1 7 6
4 2,3 8 4,7