Topic 15

Project Management: Network Models

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 Project Management: Network Models
Project: A primarily non-repetitive set of interrelated activities whose
combined performance accomplishes desired objectives:
- may involve hundreds of organizational units and thousands of
different activities,
- may need a few decades or longer to complete.
Project Management: Planning, Scheduling, Controlling process to
meet project objectives under given constraints. Great efforts in
coordination/cooperation are needed for a successful project.

Why Is Project Management Important?

Complexity - a great number of various organizational units and
project activities involved and the interactions and the
interdependence among the different units and activities.
Dynamics & Uncertainty - uncertainties in system environment
may result in unexpected changing in system constraints.
External Factors: short life-cycle of product & technology/Rapid
Changing in Marketplace/High Competition/......
Internal Factors: Huge Investment/Pressure on Time &
Cost/Budget Limitations/Resources Constraints/.....

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 Project Management Characteristics

Characteristics Factors Symptoms

Uniqueness Uncertainty Cost overruns
Extended duration Uncontrollable Schedule slippage
Complexity Need for coordination Insufficient technical
performance
Significant outside Need for priorities Contact problems
participation
Extensive Difficult planning Communication
interactions difficulties, finger
pointing
Multiple High visibility Uncoordination, foul-ups
dependencies
High risk Attention by top Big failure, public
management attention, anxiety
High profit potential Attention by top Competition, external
management interest

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 Project: Objectives and Constraints
Major Objectives of Project Management:
* Time: To complete the project on the scheduled time.
* Cost/Budget: Within the budget or minimize the total cost.
* "Quality": To meet the specifications and requirements.
* ..............................

Major Constraints in Project Management:

* Resource Limitation: Manpower/Material/Equipment/....
* Timing Restriction: on activity Start Time/Completion Time/...
* Technical Requirements: Activity sequence must follow a specific
order or a given precedence relationship.
* Others: Weather/Accidents/.....................

Major Issues in Project Management:

* Failure to complete activities in scheduled time.
* Activities are proceededpreceded out of the desired sequences.
* Overrun of the project total cost/budget.
* Overrun of the project scheduled completion time.

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 Project Network Models

Major Elements in Project Network Models:

Activity: A task that consumes certain time and resources.
- Activity List: the list of all activities in a specific project and the
precedence relationships among the activities.
Event: a time point (milestone) at which an activity starts/ends.
Path: a sequence of connected activities that leads from the starting
point to the completion point.
Critical Path: the longest time-consuming path in a network.
Critical Activity/Event: activities/events on the critical path are
"critical activities/events" for the project.

Major Project Network Models: representing a project through

graphical networks: Gantt Chart and CPM/PERT Models.
Gantt Chart (Bar Chart): show activities on a time-scaled chart.
(simpleSimple, easy to use, but not show activity precedence
relationships.)
Network Modeling (Graph Theory): show activity precedences
through a network (arrows/arcs and nodes) and identify the critical
path by a forward/backward scheduling approach.

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 Constructing A Network: CPM and PERT
Construct A Network: (Activity-Oriented vs. Event-Oriented)
1. Activity-on-Node/Event-on-Arc: easy to construct, focus on
activities, used in CPM where activity times are relatively certain,
no dummy activity are needed.
2. Event-on-Node/Activity-on-Arc: focus on events, used in PERT
where activity times are relatively uncertain, dummy activities may
be needed to show complex precedence relationships.

CPM (Critical Path Method): All activity times are known with a
higher certainty (deterministic), so that cost/time analysis and
tradeoffs can be conducted.

PERT (Program Evaluation & Review Technique): All activity times

are estimated in a probabilistic form. Primary concern is focused
on the uncertainty in terms of the variation and probability of the
activity project completion time. Cost/time analysis is not
considered in PERT.

In practice, CPM and PERT are used in a combined way.

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Questions That May Be Addressed by PERT and CPM

When will the project be completed?

What are the critical activities or tasks in the project?
Which are the noncritical activities?
What is the probability that the project will be completed by a
specific date?
Is the project on schedule, ahead of schedule, or behind schedule?
Is the project over or under cost budget?
Are there enough resources available to finish the project on
time?
If the project must be finished in less that the scheduled amount
of time, what is the way to accomplish this at least cost?

The Six Steps Common to PERT and CPM

1. Define the project and all of its significant activities or tasks.

2. Develop relationships among activities. Decide which activities
must precede and which must follow others.
3. Draw the network connecting all of the activities.
4. Assign time and/or cost estimates to each activity.
5. Compute the longest time path through the network. This is
called the critical path
6. Use the network to help plan, schedule, monitor and control the
project.

Network Relationships

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PERT network for the Response 1000 introduction

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Project Planning Procedure
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1. Identify all activities in the Project.
2. Determine the sequence and precedence of activities.
3. Ascertain the time estimate for each activity.
4. Ascertain the cost estimate for each activity.
5. Establish the major objectives and tradeoffs.
6. Select project scheduling techniques.
7. Construct the network for the project.
8. Forward/Backward scheduling: identify the critical path and
critical activities and determine the project completion time.
9. Evaluate the solution: cost/time analysis - Meet objectives? Need
change? What changes should be made?
10. Monitoring and Controllingcontrolling the project progress:
reevaluation and adjustments.

Planning and Schedulingscheduling procedures for CPM and PERT

are similar with different focuses and orientations. Excellent
computer software packages are available in the marketplace.
Most of these computer programs can handle 1000+ events and
activities.

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 Estimating Activity Duration

Resource Loading Activity Direct Cost (Person-Days)

(People) Duration (Days)
1 120 120
2 50 100
3 28 84
4 20 80
5 17 85
6 15 90
7 14 98
8 14 112
9 15 135
10 16 160

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 Estimating Activity Times

Example: Painting Your House for A Big Party

People Hired Estimated Time Direct Cost ($)

(Hours)
1 120 600
2 50 500
3 28 420
4 20 400
5 17 425
6 15 450
7 16 560
8 18 720

Normal Activity Time: the time that results the lowest activity cost.
Normal Activity Cost: the lowest activity cost.

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Critical Path Method- Computation Procedure

1. Problem Definition: Identify deterministic times for each activity

2. Forward Pass: Move forward through the network, computing

early start and early finish times for each activity. Initiate
procedure with starting activity in network. Early start time for
this first activity is assumed to be 0 unless otherwise defined.
Define early finish time for activity as early start time plus
activity work time. Early start time for following activities is
computed as the maximum of early finish for all immediately
preceding activities.

3. Reverse Pass: Move backward through the network computing

late start and late finish times for each activity. Initiate process
with last activity. Assign late finish time equal to early finish for
this last network activity unless information is otherwise
provided. For last network activity, late start time is equal to late
finish time minus activity time. Moving backward through the
network, late finish times are equal to the minimum of the late
start times of all immediately succeeding activities. Last start
times for the activity isLast start times for the activity are equal
to the late finish time for the activity minus activity time.

4. Define Critical Path and Slack: Those activitiesactivities, in

which early start and last start times (or early finish and late
finish times) are equal, are defined as being on the critical path.
Slack for each activity is defined as the late start time minus the
early start time (or late finish times minus early finish time).

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 Basic Terms in Project Network Models
For each activity: (in CPM) (ti - activity time)
ES: Earliest Start time (under precedence requirements).
EF: Earliest Finish time (EF = ES + ti).
LS: Latest Start time (under precedence requirements).
LF: Latest Finish time (LF = LS + ti).
Slack: the time difference between LS and ES (or LF & EF).
Slack = LS - ES = LF - EF
For each Node: (in PERT)
ET: Earliest Event time (under precedence requirements).
LT: Latest Event time (LT = ET + ti).
Slack = LT - ET - ti
All activities that on the critical path have "zero" slack times.

Slack: Total Slack vs. Shared Slack vs. Free Slack

Total Slack: (St) the time that an activity can be delayed from its
earliest start time without delaying the project completion time.
Shared Slack: the total slack time which shared by all activities on
a non-critical path and can be allocated among those activities
based on managerial priority considerations.
Free Slack: (Sf) the time that an activity can be delayed from its
earliest start time without delaying the earliest start time of any
immediately following activity.
(Free slack is a part of total slack, Sf <= St )
[Sf = (Earliest ET among all successor event) - (EF of activity)]

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A) Compute the early start and finish times and the late start and finish times
for each activity in the CPM network above. Place your answer in the boxes
provided.
(B) What is the length on the critical path through the network?____________
(C) Darken in arrows connecting activities on the critical path.
(D) What is the total slack for activity B?____For activity F?__________
(E) What is the free slack for activity B?________ For activity F?___________

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 Time/Cost Analysis and Tradeoffs in CPM

In general, an activity can be completed in different time lengths at

different costs. Assuming a linear relationship between the activity
times and activity costs, the CPM Time/Cost analysis provides
insights to answer the following managerial questions:
* Which activity/activities should be speeded up at the minimum
cost - if project needs being completed earlier than scheduled?
(Higher costs are traded for shorter completion time.)
* Which activity/activities should be slowed to maximize cost
savings - if project budget is less and the given delay in project
completion time is acceptable?
(Longer completion times are traded for reduced project cost.)

Time/Cost Analysis: (Crashing: reducing activity time at a given cost)

Normal Time: Activity time that requires minimum activity cost.
Normal Cost: The cost required to achieve the Normal Time.
Crash Time: the minimum time for the activity.
Crash Cost: the cost required to achieve the Crash Time.
Maximum Crash Time (MCT): (Normal Time - Crash Time)
Maximum Crash Cost (MCC): (Crash Cost - Normal Cost)
Marginal Crash Rate: MCC/MCT = Cost/(per Crash-Time unit)

In general, activities selected for crashing are those that on the

"current" critical path and with the largest Marginal Crash Rate.
Actual crashing process may be complex due to the change in
current critical path. LP can be used in such an analysis.

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 Time and Cost Information

Normal Crash
Activity Time Cost Time Cost Cost
Slope
A 5 $100 4 $140 40
B 9 200 7 300 50
C 7 250 4 340 30
D 9 280 7 340 30
E 5 250 2 460 70
F 11 400 7 720 80
G 6 300 4 420 60
I 8 80 6 140 30
Total $1,860 $2,860

Calculation of the cost of crashing the catch basin pro

Project Crashing with CPM

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Activity Time Cost ($) Crash Critical
(Weeks) Cost Path?
Normal Crash Normal Crash per
Week
A 2 1 $22,000$23,000$1,000 Yes
B 3 1 30,000 34,000 2,000 No
C 2 1 26,000 27,000 1,000 Yes
D 4 3 48,000 49,000 1,000 No
E 4 2 56,000 58,000 1,000 Yes
F 3 2 30,000 30,500 500 No
G 5 2 80,000 86,000 2,000 Yes
H 2 1 16,000 19,000 3,000 Yes

Crash and Normal Time and Costs

PERT: Project with Time Uncertainty

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Estimation of Activity Time under Uncertainty:
*Three-point Average Approach: [ te = (to+4tm+tp)/6 ]
te = Expected Activity Time
to = Optimistic Estimate (shortest possible time - a )
tm = Most likely Estimate (most possible time - m)
tp = Pessimistic Estimate (longest possible time - b)
Standard deviation of activity time: = (tp - to)/6
The variance of activity time: 2= [(tp - to)/6]2
The variance of a (critical) path: i 2= i [(tp - to)/6]2
(When te = to = tm = tp, deterministic case: PERT CPM )

Identify ET/LT/Slack of Event in a PERT Network:

*Use Te as activity time, similar to CPM.
*Slack of event = LT - ET ( = 0 "critical" or >= 0 non-critical)
*Slack of Activity = LT - ET - Te (total slack)
*Critical Path: the path through critical events and activities.

In practice, the LT of "ending event" may be set different from the

ET, thenand then critical events/activities are those that with
Minimum slacksslack.

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 Probability Analysis:
Project Completion Time in PERT
Due to the variations in activity time estimates, the project completion
time is a "random variable" in PERT model. That is, the actual
project completion time will be different (earlier or later) from the
"expected" that is calculated based on "expected" activity times.
In practice, knowing the probability of project completion time is
of great interest to project management.

Under Two General Assumptions:

* Activity times are independent to each other, and
* Activity times follow the Normal Distribution.
Based on the variance of the Critical Path, [Var(CP) = i 2 ], the
probability that the project will be completed by any given time
(before/after the desired time) can be calculated: Prob {T D}
*What is the probability that the project can notcannot be
completed by desired time? Or
*What should be the Var(CP) if the project must be completed by
the scheduled time under a desired probability (95%)?

The Prob {T D} is calculated based on the variance of critical path.

However, in a PERT model, which path is real "critical"?
*A non-critical path with a shorter expected path but a larger
variance ?variance? (more "critical" to management ?) Or,
*The "calculated" critical path with a longer expected path time
but a smaller variance?

Problem Description/ The PERT/CPM Network

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 Activity time estimated in weeks

Formulas for Expected Activity Times and Variances

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15-24
 Determination of Critical Path/
Results of Forward and Backward Pass

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Project Network Models: Managerial Insights
*Project network models (CPM/PERT) help project management to
focus attentions on critical path and activities:
- Transferring resources from non-critical activities to critical ones.
- Making tradeoffs between activity times and activity costs.
- Allocate additional resources to the critical activities so that the
whole project completion time can be reduced.

*A "negative" slack of the last activity/event indicates that the desired

project completion time is unachievable, therefore:
-Some critical activities must be "speeded up", or
-Some activity time estimations may be "wrong".

*A (partial) "critical" path to any given event can also be identified

for partial project progress concerns.

*Multiple critical paths may exist for a network requiring some

special attentions.

*When one (or more) activity time(s) on the "original" critical path is
reduced, another path may become "critical".
*There may be more than one "Starting" event and more than one
"Ending" event in a network.

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 Project: Monitoring and Controlling
*Budget/Resources allocation among competing activities that require
same resources at the same time period. (Bar Chart)

*Project Cost Controlling: (PERT/Cost System)

- Earliest Time Cost vs. Latest Time Cost (Feasible Budget)

*Monitoring/Controlling Cost and Time: (Trend Analysis)

-How to adjust project cost/time estimation from the actual project
cost/time performance.

*Project Cost/Time Performance Analysis:

-Budgeted Cost vs. Actual Cost
-Scheduled Work vs. Completed Work
- Planned Performance vs. Actual Performance

*Managing multiple projects that require competing resources

(manpower/machine/capital/.....) during the same time period.

*Project scheduling with actual weekend/holiday considerations.

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Project Management Cost Analysis

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Cumulative Budget Demands vs. Time

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Trend Analysis

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 Application of Project Network Models
*CPM/PERT techniques have been widely used in almost all types of
project management.

* Limitations on CPM/PERT models: there are too much uncertain

factors and variables in real world applications. CPM/PERT
techniques are usually used together with other techniques.

* Effective Project Management - Much more than CPM/PERT

models:
- Clarify responsibility among project team members.
- Update project progress report accurately and on-time.
- Prepare for unexpected changes.
- Motivate all project team members.
- Coordination and cooperation among all activities/members.

* Other Network Models:

- Minimize Spanning Tree (e.g. telephone company)
- Shortest Route (e.g., delivery schedule problem)
- Maximize Network Flow (e.g., traffic control)

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Maximal Flow

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Minimal Spanning Tree

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Shortest Route

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 Network for General Foundry, Inc.

General Foundrys Latest Start (LS) and

Latest Finish (LF) Times

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Results of PERT Activities Alongalong Critical
Path

Activities Alongalong Critical Path

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 PERT and Budgeting

Budget Ranges for General Foundry, Inc.

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 Advantages of PERT/CPM
Useful at several stages of project management
Straightforward in concept, and not mathematically complex
Uses graphical displays employing networks to help user
perceive relationships among project activities
Critical math and slack time analyses help pinpoint activities
that need to be closely watched
Networks generated provide valuable projects documentation
and graphically points out who is responsible for various project
activities
Applicable to a wide variety of projects and industries
Useful in monitoring not only schedules but costs as well

Limitations of PERT/CPM

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 Project activities must be clearly defined, independent, and
stable in their relationships
Precedence relationships must be specified and networked
together
Time activities in PERT are assumed to follow the beta
probability distribution- this may be difficult to verify
Time estimates tend to be subjective, and are subject to fudging
by managers
There is inherent danger in too much emphasis being placed on
the critical path

Problems
1. The following event completion times have been estimated by a contracting firm:

Activity Optimistic Likely Pessimistic te Expected 2

a-b 3 6 9
a-c 1 4 7
c-b 0 3 6
c-d 3 3 3
c-e 2 2 8
b-d 0 0 6
b-e 2 5 8
d-f 4 4 10
d-e 1 1 1
e-f 1 4 7

Draw the network.

1. The critical path is:
a. a-b-c-e-f b. a-b-d-f c. a-b-d-e-f d. a-c-d-e-f e. a-c-b-e-f

2. The earliest time that this project can be completed is:

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 a. 10 b. 12 c. 14 d. 16 e. None of these

3. The probability if completing this project in 14 weeks or less is approximately

(percent):
a. 16 b. 34 c. 66 d. 84 e. 100

4. The probability of completing this project in 17 weeks or earlier is (in %):

a. 15 b. 30 c. 50 d. 60 e. None of these

2. Given a projects data (in weeks), draw the network.

Activity Time Draw the network here

ab 3
ac 1
bd 3
bf 4
cd 4
ce 5
df 2
ef 3
1. The number of critical paths is:
a. 0 b. 1 c. 2 d. 3

2. A critical path is:

a. a-c-e-f b. a-c-d-f c. a-b-d-c-e-f e. None of these

3. The earliest time that the entire project can be completed if activity cd takes two extra weeks
is:
a. 7 b. 9 c. 10 d. 11 e. 12

4. The critical path leading to event (node) d is:

a. a-b-d b. a-c-d c. Both a and b

5. The earliest time that the entire project can be completed is:
a. 7 b. 8 c. 9 d. 10 e. 11

6. Suppose activity cd takes two extra weeks; by how much will the earliest date of completion
be delayed?
a. 0 b. 1 c. 2 d. 3

3. Given the following project, draw the network.

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 Times (weeks)
Activity to tm tp te
Optimistic Likely Pessimistic Expected
ab 5 11 11 10
ac 10 10 10 10
Dummy ad 2 5 8 5
bf 1 7 13 7
cf 4 4 10 5
cg 4 7 10 7
ce 2 2 2 2
dc 0 0 0 0
de 0 6 6 5
eg 2 8 14 8
fg 1 4 7 4

1. The critical path is:

a. a-c-g b. a-c-f-g c. a-b-f-g d. a-d-c-e-g e. Two critical paths exist
2. The variance of critical path is (approximately):
a. 2.43 b. 3.58 c. 4 d. 5 e. 6

3. The earliest time for the entire project to be completed is:

a. 17 b. 19 c. 20 d. 21 e. 22

4. The probability of completing this project by 19 weeks (in %) is:

a. 0 b. 21 c. 29 d. 50 e. 71

4. The events of the project below are designated as 1, 2, and so on.

a. Draw the network.
b. Find the critical path by complete enumeration.
c. Find, for all events, the earliest and latest dates.
d. Find the slacks on all the events and activities.
e. Find the critical path, using the TES.

Activity Preceding Event Succeeding te Preceding

Event (Weeks) Activities

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 a 1 2 3 None
b 1 3 6 None
c 1 4 8 None
d 2 5 7 a
e 3 5 5 b
f 4 5 10 c
g 4 6 4 c
h 5 7 5 d, e, f
i 6 7 6 g

5. Given the following schedule for a liability work package done as part of an
accounting audit in a corporation:
Activity Duration (Days) Preceding Activities
a. Obtain schedule of liabilities 3 None
b. Mail confirmation 15 a
c. Test pension plan 5 a
d. Vouch selected liabilities 60 a
e. Test accruals and amortization 6 d
f. Process confirmations 40 b
g. Reconcile interest expense to debt 10 c, e
h. Verify debt restriction compliance 7 f
i. Investigate debit balances 6 g
j. Review subsequent payments 12 h, i

(Draw the network.)

a. Find the critical path.
b. Find the slack time of f (processing confirmation).
c. Find the slacks time on c (Test pension plan).
d. Find the slack time on h (Verify debt restriction compliance).

6. Given the following information regarding a project:

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 Activity te (Weeks) Preceding Activities
a 3 None
b 1 None
c 3 a
d 4 a
e 4 b
f 5 b
g 2 c, e
h 3 f

a) Draw the network.

b) What is the critical path?
c) What will the scheduled (earliest completion) time for the entire
project be?
d) What is the critical path to event 4 (end of activities c and e)? What
is the earliest time that this event can be reached?
e) What is the effect on the project if activity e takes an extra week?
Two extra weeks? Three extra weeks?

7. Given the following project:

Times (Weeks)
Activity Optimistic Most Likely Pessimistic
1-2 5 11 11
1-3 10 10 10
1-4 2 5 8
2-6 1 7 13
3-6 4 4 10
3-7 4 7 10
3-5 2 2 2
4-5 0 6 6

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 5-7 2 8 14
6-7 1 4 7

a) Find all earliest dates, including project completion (TES for all
events).
b) Find all latest dates (TLS for all events).
c) Determine the critical path and the event slack values.
d) What is the critical path leading to event 5?
e) What will happen if activity 4-5s actual time slips to 9?
f) What will be the slack on activity 3-5 if activity 4-5 slips to 9 weeks
and activity 5-7 takes 6 weeks?
g) Find the probability of finishing the project in 19 weeks. In 17
weeks, Inin 24 weeks.
h) What is the probability of completing event 5 by5 by 9 weeks?
i) If management wants to be 80 percent sure that the project will be
completed by a guaranteed date, what date should be quoted?
8. Given a PERT network:
Find:

a. The estimated project completion time.

b. The critical path.

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c. The slack in events 2 and 3.
d. The slack on activities 1-4 and 2-5.
e. The probability the project will be completed in 20 weeks or less.
f. The probability the project will be completed in 30 weeks or less.
g. The number of weeks required to complete the project with 95
percent certainty.

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