CHAPTER 5

Project
Scheduling
Models
1
 5.1 Introduction
• A project is a collection of tasks that must be
completed in minimum time or at minimal cost.
• Objectives of Project Scheduling
– Completing the project as early as possible by
determining the earliest start and finish of each activity.
– Calculating the likelihood a project will be completed
within a certain time period.
– Finding the minimum cost schedule needed to complete
the project by a certain date.
2
 5.1 Introduction
• A project is a collection of tasks that must be
completed in minimum time or at minimal cost.
• Objectives of Project Scheduling
– Investigating the results of possible delays in activity’s
completion time.
– Progress control.
– Smoothing out resource allocation over the duration of
the project.

3
 Task Designate
• Tasks are called “activities.”
– Estimated completion time (and sometimes costs)
are associated with each activity.
– Activity completion time is related to the amount of
resources committed to it.
– The degree of activity details depends on the
application and the level of specificity of data.

4
5.2 Identifying the Activities of a
Project
• To determine optimal schedules we need to
– Identify all the project’s activities.
– Determine the precedence relations among activities.
• Based on this information we can develop managerial
tools for project control.

5
 Identifying Activities, Example

KLONE COMPUTERS, INC.

• KLONE Computers manufactures personal computers.

• It is about to design, manufacture, and market the

Klonepalm 2000 palmbook computer.

6
 KLONE COMPUTERS, INC

• There are three major tasks to perform:

– Manufacture the new computer.
– Train staff and vendor representatives.
– Advertise the new computer.
• KLONE needs to develop a precedence relations
chart.
• The chart gives a concise set of tasks and their
immediate predecessors.
7
 KLONE COMPUTERS, INC
Activity
Activity Description
Description
AA Prototype
Prototypemodel
modeldesign
design
BB Purchase
Purchaseofofmaterials
materials
Manufacturing
Manufacturing CC Manufacture
Manufactureofofprototype
prototypemodel
model
activities
activities DD Revision
Revisionofofdesign
design
EE Initial
Initialproduction
productionrun
run
FF Staff
Stafftraining
training
Training
Trainingactivities
activities GG Staff
Staffinput
inputononprototype
prototypemodels
models
HH Sales
Salestraining
training
Advertising
Advertisingactivities
activities II Pre-production
Pre-productionadvertising
advertising
campaign
campaign
JJ Post-redesign
Post-redesignadvertising
advertisingcampaign
campaign
8
 KLONE COMPUTERS, INC

From the activity description chart, we

can determine immediate
predecessors for each activity.

Activity A is an immediate predecessor

A B of activity B, because it must be competed
just prior to the commencement of B.

9
KLONE COMPUTERS, INC

Precedence Relationships Chart

Immediate Estimated
Activity Predecessor Completion Time
A None 90
B A 15
C B 5
D G 20
E D 21
F A 25
G C,F 14
H D 28
I A 30
J D,I 45
10
5.3 The PERT/CPM Approach for
Project Scheduling
• The PERT/CPM approach to project scheduling
uses network presentation of the project to
– Reflect activity precedence relations
– Activity completion time
• PERT/CPM is used for scheduling activities such
that the project’s completion time is minimized.

11
 KLONE COMPUTERS, INC. - Continued
• Management at KLONE would like to schedule the activities
so that the project is completed in minimal time.
• Management wishes to know:
– The earliest and latest start times for each activity which will not
alter the earliest completion time of the project.
– The earliest finish times for each activity which will not alter this
date.
– Activities with rigid schedule and activities that have slack in their
schedules.
12
 Earliest Start Time / Earliest Finish
Time
• Make a forward pass through the network as follows:

– Evaluate all the activities which have no immediate predecessors.

• The earliest start for such an activity is zero ES = 0.
• The earliest finish is the activity duration EF = Activity duration.

– Evaluate the ES of all the nodes for which EF of all the

immediate predecessor has been determined.
• ES = Max EF of all its immediate predecessors.
• EF = ES + Activity duration.

– Repeat this process until all nodes have been evaluated

• EF of the finish node is the earliest finish time of the project.
13
 Earliest Start / Earliest Finish –
Forward Pass
90,105 105,110 170
149,170
BB C
C E
E
15 5 21

110,124
0,90 90,115 115,129 129,149 177
149,177
A
A FF G
G D
D HH 194
90 25 14 20 28
EARLIEST FINISH
120,165
90,120 194
149,194

II JJ
30 45
14
 Latest start time / Latest finish time
• Make a backward pass through the network as follows:

– Evaluate all the activities that immediately precede the finish node.
• The latest finish for such an activity is LF = minimal project completion
time.
• The latest start for such an activity is LS = LF - activity duration.
– Evaluate the LF of all the nodes for which LS of all the immediate
successors has been determined.
• LF = Min LS of all its immediate successors.
• LS = LF - Activity duration.
– Repeat this process backward until all nodes have been evaluated.

15
 Latest Start / Latest Finish –
Backward Pass
149,170
105,110 173,194
90,105
B C 110,115 E
95,110 B C E
15 5 21

90,115 115,129 129,149 149,177

90, 115 129,149
115,129 129,149
153,173 166,194
5,95 0,90
F 129,149 146,166 H
A 0,90 F
G 129,149 D D H
A G 129,149 20 194
90 25 14 129,149 28
129,149
129,149
29,119
149,194
90,120
149,194
119,149
I J
I J
45
30
16
 Slack Times

• Activity start time and completion time may be

delayed by planned reasons as well as by
unforeseen reasons.
• Some of these delays may affect the overall
completion date.
• To learn about the effects of these delays, we
calculate the slack time , and form the critical path .

17
 Slack Times

– Slack time is the amount of time an activity can be delayed

without delaying the project completion date, assuming no
other delays are taking place in the project.

Slack Time = LS - ES = LF - EF

18
Slack time in the Klonepalm 2000 Project
Activity LS - ES Slack
A 0 -0 0
B 95 - 90 5
C 110 - 105 5
D 119 - 119 0 Critical
Criticalactivities
activities
E 173 - 149 24
must
mustbe
berigidly
rigidly
F 90 - 90 0
G 115 - 115 0 scheduled
scheduled
H 166 - 149 17
I 119 - 90 29
J 149 - 149 0
19
 The Critical Path
• The critical path is a set of activities that have no slack,
connecting the START node with the FINISH node.

• The critical activities (activities with 0 slack) form

at least one critical path in the network.

• A critical path is the longest path in the network.

• The sum of the completion times for the activities

on the critical path is the minimal completion time
of the project.
20
 The Critical Path

90,105 105,110 149,170

95,110 B C 110,115 173,194 E
B C E
15 5 21

0,90 90,115 115,129 129,149 149,177

0,90 90, 115 115,129 129,149 166,194
A F G D H
A F G D H
90 25 14 20 28

149,194
90,120
149,194
119,149
I J
I J
45
30 21
 Possible Delays
• We observe two different types of delays:
– Single delays.
– Multiple delays.

• Under certain conditions the overall project

completion time will be delayed.

• The conditions that specify each case are presented

next. 22
 Single delays

• A delay of a certain amount in a critical activity ,

causes the entire project to be delayed by the same
amount.

• A delay of a certain amount in a non-critical activity

will delay the project by the amount the delay exceeds
the slack time. When the delay is less than the slack,
the entire project is not delayed.
23
Multiple delays of non critical activities:
Case 1: Activities on different paths
ES=149
DELAYED START=149+15=164
B C LS=173 E
15 5 21

FINISH
A F G D H
90 25 14 20 28
Activity E and I are each delayed 15 days.
THE PROJECT COMPLETION TIME IS NOT
DELAYED I J
ES=90 30 45
DELAYED START=90+15 =105
LS =119 24
 90
105
90
115
A
15 129
B 5 194
149
C 20
D 194
Gantt chart demonstration of 21
E the (no) effects on the project 25 Activity E
F completion time when delaying
14
activity “I” and “E” by 15 days.
G 28
H
30
I Activity I 45
J
25
Multiple delays of non critical activities:
Case 2: Activities are on the same path,
separated by critical activities.
ES=90 ES=149
DELAYED START =94 DELAYED START=149+15 =164
LS =95 LS =173

B C E
15 5 21

FINISH
A F G D H
90 25 14 20 28
Activity B is delayed 4 days, activity E is delayed 15 days
THE PROJECT COMPLETION TIME IS NOT DELAYED
I J
30 45 26
Multiple delays of non critical activities:
Case 2: Activities are on the same path,
no critical activities separating them.
ES= 90 3 DAYS DELAY
DELAYED START =94 IN THE ENTIRE
DELAYED START= PROJECT
DELAYED FINISH =
109 + 4 =113;
94+15=109
B C LS =110 E
15 5 21

FINISH
A F G D H
90 25 14 20 28
Activity B is delayed 4 days; Activity C is delayed 4 days.

THE PROJECT COMPLETION TIME IS DELAYED 3 DAYS

I J
30 45 27
 5.4 A Linear Programming Approach
to PERT/CPM
• Variables
– Xi = The start time of the activities for i=A, B, C, …,J
– X(FIN) = Finish time of the project

• Objective function
– Complete the project in minimum time.

• Constraints
– For each arc L M a constraint states that the start time
of M must not occur before the finish time of its immediate
predecessor, L.
28
 A Linear Programming Approach

Define X(FIN) to be the finish time of the project.

The objective then is

Minimize X(FIN)

While this objective function is intuitive

other objective functions provide more
information, and are presented later.

29
 A Linear Programming Approach
Minimize X(FIN)
ST C
X(FIN) XE + 21 5
X(FIN) XH + 28
X(FIN) XJ + 45 F G
XD XG + 14 25
XE XD + 20 XG  X C+ 5
XH  XD + 20 XG XF+ 25
XJ  XD + 20 XI XD+ 90
XJ  XI + 30 XF  XA+ 90
XC  XB+ 15
All X s are
XD nonnegative
XG+ 14
XB XA+ 90 30
 A Linear Programming Approach

Minimize XA+XB+…+XJ
This objective function ensures that the optimal X
values are the earliest start times of all the
activities. The project completion time is
minimized.
Maximize XA+XB+…+XJ
S.T. X(FIN) = 194
and all the other constraints as before.

This objective function and the additional

constraint ensure that the optimal X values are
the latest start times of all the activities.
31
 5.5 Obtaining Results Using Excel
CRITICAL PATH ANALYSIS
MEAN 194
STANDARD DEVIATION* 0 * Assumes all critical activities are on one critical path
VARIANCE* 0 If not, enter in gold box, the variance on one critical path of interest.

PROBABILITY COMPLETE BEFORE =

Acitivty Node Critical    ES EF LS LF Slack

Design A * 90 0 90 0 90 0
Materials B 15 90 105 95 110 5
Manufacture C 5 105 110 110 115 5
Design Revision D * 20 129 149 129 149 0
Production Run E 21 149 170 173 194 24
Staff Training F * 25 90 115 90 115 0
Staff Input G * 14 115 129 115 129 0
Sales Training H 28 149 177 166 194 17
Preprod. Advertise I 30 90 120 119 149 29
Post. Advertise J * 45 149 194 149 194 0

32
 5.6 Gantt Charts

• Gantt charts are used as a tool to monitor and control the

project progress.
• A Gantt Chart is a graphical presentation that displays activities
as follows:
– Time is measured on the horizontal axis. A horizontal bar is drawn
proportionately to an activity’ s expected completion time.
– Each activity is listed on the vertical axis.
• In an earliest time Gantt chart each bar begins and ends at the
earliest startfinish the activity can take place.

33
Here‘s how we build
an Earliest Time Gantt Chart
for KLONEPALM 2000

34
 90
105
90 115
A 15 129
B 5 149 194
C 20
D Immediate Estimated 194
Activity Predecessor Completion Time 21
E 25
A None 90
F B A 15
14
C B 5
G 28
D G 20
H E D 21
F A 25 30
I G C,F 14 45
J H D 28
I A 30
J D,I 45
35
 Gantt Charts-
Monitoring Project Progress
• Gantt chart can be used as a visual aid for tracking the
progress of project activities.

• Appropriate percentage of a bar is shaded to document the

completed work.

• The manager can easily see if the project is progressing on

schedule (with respect to the earliest possible completion
times).
36
 Monitoring Project Progress
90
A 15
B 5 194
C 20
D
The shaded bars represent
21 194
completed work BY DAY 135.
E 25
F
14
G 28
Do not conclude that the
H
project is behind schedule. 30
I 45
J Activity “I” has a slack and
therefore can be delayed!!!
135 37
 Gantt Charts –
Advantages and Disadvantages
• Advantages.
– Easy to construct
– Gives earliest completion date.
– Provides a schedule of earliest possible start and finish times of
activities.

• Disadvantages
– Gives only one possible schedule (earliest).
– Does not show whether the project is behind schedule.
– Does not demonstrate the effects of delays in any one activity on the
start of another activity, thus on the project completion time.
38
5.7 Resource Leveling and Resource
Allocation
• It is desired that resources are evenly spread out
throughout the life of the project.
• Resource leveling methods (usually heuristics) are
designed to:
– Control resource requirements
– Generate relatively similar usage of resources over time.

39
 Resource Leveling – A Heuristic
• A heuristic approach to “level” expenditures
– Assumptions
• Once an activity has started it is worked on continuously until it is completed.
• Costs can be allocated equally throughout an activity duration.

Step 1: Consider the schedule that begins each activity at its ES.
Step 2: Determine which activity has slack at periods of peak
spending.
Step 3: Attempt to reschedule the non-critical activities performed
during these peak periods to periods of less spending, but
within the time period between their ES and LF. 40
 Resource Leveling –
KLONE COMPUTERS, Inc. - continued

• Management wishes to schedule the project such

that
– Completion time is 194 days.
– Daily expenditures are kept as constant as possible.

• To perform this analysis cost estimates for each

activity will be needed.

41
 Resource Leveling –
KLONE COMPUTERS, Inc. – cost estimates
Total Total Cost
Cost Time per
Activity Description (x10000) (days) Day
A Prototype model design 2250 90 25
B Purchase of materials 180 15 12
C Manufacture of prototype 90 5 18
D Revision of design 300 20 15
E Initial production run 231 21 11
F Staff training 250 25 10
G Staff input on prototype 70 14 5
H Sales traini ng 392 28 14
I Pre-production advertisement 510 30 17
J Post-production advertisement 1350 45 30
Total cost = 5,623 42
 Cumulative Daily Expenditure –
55 Earliest Times vs. Latest Times
50
Earliest Start-Earliest Finish
45 Budget
40
35
Feasible
30 t
g e Budgets
25 u d
l B
20 v e
15 Le
10 Latest Start-Latest Finish
5 Budget
Time
43
20 40 60 80 100 120 140 160 180 200
 Daily Expenditure of the ES Schedule
55 55
50
Cost Leveling
II I I I I I
ES = 90 45 LS = 110 H H
45 44
40 39
I E
H
35
30 32 H 30
I
27
25 25 E E
22 I J
20 C
I J
15 J J
J
15
B F
10 A I
F F D
5
G

44
20 40 60 80 100 120 140 160 180 200
 Cost Leveling
55 55
50
H H
45 44
40
I E
H H
35
30 32 H 30
I
27
25 25 E E
22 I J
20 C
I J
15 J J
J
15
B F
10 A I
F F D
5
G

45
20 40 60 80 100 120 140 160 180 200
 5.8 The Probability Approach to
Project Scheduling

• Activity completion times are seldom known with

100% accuracy.

• PERT is a technique that treats activity completion

times as random variables.

• Completion time estimates are obtained by the

Three Time Estimate approach
46
 The Probability Approach –
Three Time Estimates
• The T hree Time Estimate approach provides
completion time estimate for each activity.
• We use the notation:

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.

47
 The Distribution, Mean, and
Standard Deviation of an Activity
Approximations for the mean and the
standard deviation of activity
completion time are based on the Beta
distribution.
a + 4m + b
 = the mean completion time =
6
b -a
 = the standard deviation =
6

48
The Project Completion Time Distribution -
Assumptions

To calculate the mean and standard

deviation of the project completion time
we make some simplifying assumptions.

49
The Project Completion Time Distribution -
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
– The time to complete one activity is independent of the time to
complete any other activity.
• Assumption 3
– 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.
50
 The Project Completion Time
Distribution
The three assumptions imply that the overall project
completion time is normally distributed, the following
parameters:

Mean = Sum of mean completion times along

the critical path.
Variance = Sum of completion time variances
along the critical path.
Standard deviation = Variance 51
The Probability Approach –
KLONE COMPUTERS
Activity Optimistic Most Likely Pessimistic
A 76 86 120
B 12 15 18
C 4 5 6
D 15 18 33
E 18 21 24
F 16 26 30
G 10 13 22
H 24 18 32
I 22 27 50
J 38 43 60 52
 The Probability Approach –
KLONE COMPUTERS

• Management at KLONE is interested in

information regarding the completion time of the
project.
• The probabilistic nature of the completion time
must be considered.

53
 KLONE COMPUTERS –
Finding activities’ mean and variance
A = [76+4(86)+120]/6 = 90
 = (120 - 76)/6 = 7.33 A2 = (7.33)2 = 53.78

Activity   
A 90 7.33 53.78
B 15 1.00 1.00
C 5 0.33 0.11
D 20 3.00 9.00
E 21 1.00 1.00
F 25 2.33 5.44
G 14 2.00 4.00
H 28 1.33 1.78
I 30 4.67 21.78
54
J 45 3.67 13.44
 KLONE COMPUTERS –
Finding mean and variance for the critical
path

• The mean times are the same as in the CPM

problem, previously solved for KLONE.
• Thus, the critical path is A - F- G - D – J.
– Expected completion time = A +F +G +D +J=194.
– The project variance =A2 +F2 +G2 +D2 +J2 = 85.66
– The standard deviation =  
= 9.255

55
 The Probability Approach –
Probabilistic analysis
• The probability of completion in 194 days =

194

194 - 194
P(X  194) = P(Z  )  P(Z  0 )  0.5
9.255
56
 The Probability Approach –
Probabilistic analysis
• An interval in which we are reasonably sure the completion date
lies is   z 0.025 

.95


• The interval is = 194  1.96(9.255)  [175, 213] days.
• The probability that the completion time lies in the interval
[175,213] is 0.95.
57
 The Probability Approach –
Probabilistic analysis
• The probability of completion in 180 days =
0.0655

180 194 X
-1.51 0 Z

P(X 180) = P(Z  -1.51) = 0.5 - 0.4345 = 0.0655

58
 The Probability Approach –
Probabilistic analysis

• The probability that the completion time is longer

than 210 days =

?0.0418
.4582

194 210 X
0 1.73 Z

P(X  210) = P(Z  1.73) = 0.5 - 0.458 = 0.0418

59
 The Probability Approach –
Probabilistic analysis
• Provide a completion time that has only 1% chance
to be exceeded.
There is 99% chance that the project
is completed in 215.56 days.
.49 0.01

194 X0 X
0 2.33 Z

P(XX0) = 0.01, or P(Z X0 – )/ = P(ZZ0) = .01

P(Z  2.33) = 0.01; X0=+Z0 =194 + 2.33(9.255) = 215.56 days.
60
The Probability Approach –
Probabilistic analysis with a
spreadsheet

NORMDIST(194, 194, 9.255, TRUE)

NORMINV(.025, 194, 9.255)

NORMINV(.975, 194, 9.255)
NORMDIST(180, 194, 9.255, TRUE)

1 - NORMDIST(210, 194, 9.255, TRUE)

NORMINV(.99, 194, 9.255)

61
 The Probability Approach –
Critical path spreadsheet
CRITICAL PATH ANALYSIS
MEAN 194
STANDARD DEVIATION* 9.255629 * Assumes all critical activities are on one critical path
VARIANCE* 85.66667 If not, enter in gold box, the variance on one critical path of interest.
PROBABILITY COMPLETE BEFORE 180 = 0.065192

Acitivty Node Critical    ES EF LS LF Slack

Design A * 90 7.333333 53.77778 0 90 0 90 0
Materials B 15 1 1 90 105 95 110 5
Manufacture C 5 0.333333 0.111111 105 110 110 115 5
Design Revision D * 20 3 9 129 149 129 149 0
Production Run E 21 1 1 149 170 173 194 24
Staff Training F * 25 2.333333 5.444444 90 115 90 115 0
Staff Input G * 14 2 4 115 129 115 129 0
Sales Training H 28 1.333333 1.777778 149 177 166 194 17
Preprod. Advertise I 30 4.666667 21.77778 90 120 119 149 29
Post. Advertise J * 45 3.666667 13.44444 149 194 149 194 0

62
 The Probability Approach –
critical path spreadsheet
CRITICAL PATH ANALYSIS
MEAN A comment – multiple
189
critical paths
STANDARD DEVIATION* 9.0185 * Assumes all critical activities are on one critical path
In the case of multiple critical paths (a not unusual situation),
VARIANCE* 81.33333 If not, enter in gold box, the variance on one critical path of interest.
determine the probabilities for each critical path separately using its
PROBABILITY COMPLETE BEFORE 180 = 0.159152
standard deviation.
Acitivty However,
Node Criticalthe probabilities
  of interest
 (for
ES example,
EF P(XLS xcannot
LF Slack
Design be determined
A * by each 90 path alone.
7.333333 To find these
53.77778 0 probabilities,
90 0 check 90 0
Materials B * 15 1 1 90 105 90 105 0
Manufacture
whetherC
the *
paths are
5
independent.
0.333333 0.111111 105 110 105 110 0
Design Revision IfDthe paths
* are
20 independent
3 (no
9 common124 activities
144 among 124 the paths),
144 0
Production Run multiply
E the probabilities
21 of 1all the paths:
1 144 165 168 189 24
Staff Training F 14 0.666667 0.444444 90 104 96 110 6
Staff Input
[Pr(Completion
G *
timex)
14
= Pr(Path
2
1x)P(Path
4 110
2x)…Path
124
kx)]
110 124 0
Sales Training IfHthe paths are 28 dependent, the calculations
1.333333 1.777778 144 might
172 become161 very189 17
cumbersome,
Preprod. Advertise I in which
30 case running
4.666667 a computer
21.77778 90 simulation
120 seems
114 to144be 24
Post. Advertise J * 45 3.666667 13.44444 144 189 144 189 0
more practical. 63
 5.9 Cost Analysis Using the
Expected Value Approach

• Spending extra money, in general should decrease

project duration.

• Is this operation cost effective?

• The expected value criterion is used to answer this

question.

64
 KLONE COMPUTERS -
Cost analysis using probabilities

• Analysis indicated:
– Completion time within 180 days yields an additional profit
of $1 million.
– Completion time between 180 days and 200 days, yields
an additional profit of $400,000.
– Completion time reduction can be achieved by
additional training.
65
 KLONE COMPUTERS -
Cost analysis using probabilities

• Two possible activities are considered for training.

Which
– Sales personnel option
training:
should be
• Cost $200,000; pursued?
• New time estimates are a = 19, m= 21, and b = 23 days.
– Technical staff training:
• Cost $250,000;
• New time estimates are a = 12, m = 14, and b = 16.

66
 KLONE COMPUTERS -
Cost analysis using probabilities
• Evaluation of spending on sales personnel training.
– This activity (H) is not critical.
– Under the assumption that the project completion time is
determined solely by critical activities, this option
should not be considered further.

• Evaluation of spending on technical staff training.

– This activity (F) is critical.
– This option should be further studied as follows:
• Calculate expected profit when not spending $250,000.
• Calculate expected profit when spending $250,000.
• Select the decision with a higher expected profit. 67
 KLONE COMPUTERS -
Cost analysis using probabilities

– Case 1: Do not spend $250,000 on training.

• Let X represent the project’s completion time.
• Expected gross additional profit = E(GP) =
P(X<180)($1 million) + P(180<X<200)($400,000) + P(X>200)(0).
• Use Excel to find the required probabilities:
P(X<180) = .065192; P(180<X<200) = .676398; P(X>200) =.25841
• Expected gross additional profit = .
.065192(1M)+.676398(400K)+ .25841(0) = $335,751.20

68
 KLONE COMPUTERS -
Cost analysis using probabilities

– Case 2: Spend $250,000 on training.

• The revised mean time and standard deviation estimates for activity
F are:
F= (12 + 4 (14) + 16)/6 = 14
F= (16 -12)/6 =0.67
F= 0(.67)2 =0.44

• Using the Excel PERT-CPM template we find a new critical path

(A-B-C-G-D-J), with a mean time = 189 days, and a standard
deviation of = 9.0185 days. 69
 KLONE COMPUTERS -
Cost analysis using probabilities

– The probabilities of interest need to be recalculated.

From Excel we find:
• P(X < 180) = .159152;
• P(180 < X < 200) = .729561
• P(X > 200) = .111287
– Expected Gross Additional Revenue =
P( X<180)(1M)+P(180<X<200)(400K)+P(X>200)(0)
= .159152(!M)+ .729561(400K)+ .111287(0)
= $450,976.40
70
 KLONE COMPUTERS -
Cost analysis using probabilities

The expected net additional profit =

450,976-250,000 = $200,976 < $335,751

Expected additional net profit when Expected profit without

spending $250,000 on training spending $250,000 on training

Conclusion:
Conclusion: Management
Management should should not
not spend
spend money
money
on
on additional
additional training
training ofof technical
technical personnel.
personnel.
71
 5.10 Cost Analyses Using
The Critical Path Method (CPM)

• The critical path method (CPM) is a deterministic

approach to project planning.

• Completion time depends only on the amount of

money allocated to activities.

• Reducing an activity’s completion time is called

“crashing.”

72
 Crash time  Crash cost
• There are two crucial completion times to consider
for each activity.
– Normal completion time (TN).
– Crash completion time (TC), the minimum possible
completion time.
• The cost spent on an activity varies between
– Normal cost (CN). The activity is completed in TN.
– Crash cost (CC). The activity is completed in TC.

73
 Crash time  Crash cost –
The Linearity Assumption

• The maximum crashing of activity completion time

is TC – TN.
• This can be achieved when spending CN – CC.
• Any percentage of the maximum extra cost
(CN – CC) spent to crash an activity, yields the
same percentage reduction of the maximum time
savings (TC – TN).
74
 Normal
CN = $2000
Time TN = 20 days Total CostA= demonstration
$2600
20 …and save on Job time = 18 days
of the Linearity
18 completion
…and save time
more on
completion time
Assumption
16 Add 25% of the extra
14 Add totothe
Add more the cost...
normal
normal cost...cost...
12 … to save 25% of the
10 max. time reduction Crashing
8 CC = $4400
TC = 12 days
6
4
2

Cost ($100) 75
5 10 15 20 25 30 35 40 45
 Crash time/ Crash cost -
The Linearity Assumption

Additional Cost to get Max. Time Reduction

Marginal Cost =
Maximum Time reduction
= (4400 - 2000)/(20 - 12) = $300 per day

MM == E
R

76
 Crashing activities –
Meeting a Deadline at Minimum Cost

• If the deadline to complete a project cannot be met

using normal times, additional resources must be
spent on crashing activities.
• The objective is to meet the deadline at minimal
additional cost.

77
 Baja Burrito Restaurants –
Meeting a Deadline at Minimum Cost

• Baja Burrito (BB) is a chain of Mexican-style fast

food restaurants.
• It is planning to open a new restaurant in 19
weeks.
• Management wants to
– Study the feasibility of this plan,
– Study suggestions in case the plan cannot be finished
by the deadline.
78
 Baja Burrito Restaurants –

Without spending any extra When all the activities are crashed
money, the restaurant will open to the maximum, the restaurant
in 29 weeks at a normal cost of will open in 17 weeks at crash cost
$200,000. of $300,000.

Determined by the PERT.xls template 79

 Baja Burrito Restaurants –
Network presentation

E O

I K
B
A F G J M N
C
H
P
D L
80
Baja Burrito Restaurants –
Marginal costs

R = TN – TC = 5 – 3 = 2
E = CC – CN = 36 – 25 = 11
M = E/R = 11/2 = 5.5

81
 Baja Burrito Restaurants –
Heuristic Solution
• Small crashing problems can be solved
heuristically.

• Three observations lead to the heuristic.

– The project completion time is reduced only when
critical activity times are reduced.
– The maximum time reduction for each activity is limited.
– The amount of time a critical activity can be reduced
before another path becomes critical is limited.
82
 Baja Burrito Restaurants –
Linear Programming
• Linear Programming Approach
– Variables
Xj = start time for activity j.
Yj = the amount of crash in activity j.
– Objective Function
Minimize the total additional funds spent on crashing activities.
– Constraints
• No activity can be reduced more than its Max. time reduction.
• Start time of an activity takes place not before the finish time of all its
immediate predecessors.
• The project must be completed by the deadline date D.

83
Baja Burrito Restaurants –
Linear Programming
Min 5.5YA+10YB+2.67YC+4YD+2.8YE+6YF+6.67YG+10YH+
5.33YI+12YJ+4YK+5.33YL+1.5YN+4YO+5.33YP

Minimize total crashing costs

84
 Linear Programming
Min 5.5YA+10YB+2.67YC+4YD+2.8YE+6YF+6.67YG+10YH+
5.33YI+12YJ+4YK+5.33YL+1.5YN+4YO+5.33YP

ST
X (FIN )  19 YA  2.0
Meet the deadline YB  0.5
YC  1.5
YD  1.0 Maximum
time-reduction
YE  2.5
constraints
YF  0.5
YG 1.5
YH  0.5
……..
85
 Linear Programming
Min 5.5YA+10YB+2.67YC+4YD+2.8YE+6YF+6.67YG+10YH+
5.33YI+12YJ+4YK+5.33YL+1.5YN+4YO+5.33YP

XBXA+(5 – YA)
Baja Burrito Restaurants – -YA
Network presentation
A A
E O XA XA+5-YA XA+5

I K BBBBB
B XXBXBXBX
BB
A F G J M N
C
Activity can
H start only after all the
D L
P Predecessors are
84 completed.
86
 Linear Programming
Min 5.5YA+10YB+2.67YC+4YD+2.8YE+6YF+6.67YG+10YH+
5.33YI+12YJ+4YK+5.33YL+1.5YN+4YO+5.33YP

XBXA+(5 – YA)
XCXA+(5 – YA)
Baja Burrito Restaurants –
Network presentation XDXA+(5 – YA)
XeXA+(5 – YA) Activity can
XFXA+(5 – YA) start only after
E O
all the
XBXB+(1 – YB) predecessors
I K
B XFXC+(3 – YC) are completed.
A F G J M N XGXF+(1 – YF)
C ……..
H
P
D L X(FIN)XN+(3 – YN)
84
X(FIN)XO+(4 – YO)
X(FIN)XP+(4 – YP) 87
 Baja Burrito Restaurants –
Deadline Spreadsheet
CRASHING ANALYSIS
TOTAL PROJECT COST 248.75 PROJECT NORMAL COST 200
COMPLETION TIME 19 PROJECT CRASH COST 300
Completion Start Finish Amount Cost of
ACTIVITY NODE Time Time Time Crashed Crashing Total Cost
Revisions/Approvals A 3 0 3 2 11 36
Grade Land B 1 3 4 0 0 10
Purchase Materials C 1.5 3 4.5 1.5 4 22
Order Equipment D 2 3 5 0 0 8
Order Furniture E 4 12.5 16.5 0 0 8
Concrete Floor F 0.5 4.5 5 0.5 3 15
Erect Frame G 4 5 9 0 7.87637E-11 20
Install Electrical H 2 9 11 0 0 12
Install Plumbing I 2.5 9 11.5 1.5 8 21
Install Drywall/Roof J 2 11.5 13.5 0 0 10
Bathrooms K 2 13 15 0 0 8
Install Equipment L 1.5 13.5 15 1.5 8 22
Finish/Paint Inside M 1.5 15 16.5 1.5 8 18
Tile Floors N 2.5 16.5 19 0.5 0.75 6.75
Install Furniture O 2.5 16.5 19 1.5 6 14
Finish/Paint Outside P 4 13.5 17.5 0 0 18
88
 Baja Burrito Restaurants –
Operating within a fixed budget

• Baja Burrito has the policy of not funding more than 12.5%
above the “normal cost” projection.

Crash budget = (12.5%)(200,000) = 25,000

• Management wants to minimize the project completion time

under the budget constraint.

89
 Baja Burrito Restaurants –
Operating within a fixed budget
The crash funds become a constraint
Minimize X(FIN)
Minimize
5.5YA + 10YB + 2.67YC + 4YD + 2.8YE + 6YF + 6.67YG + 10YH + 5.33YI +
12YJ + 4YK + 5.33Y L+ 1.5YN + 4YO + 5.33YP
The completion time becomes the objective function
X(FIN)  19

5.5YA + 10YB + 2.67YC + 4YD + 2.8YE + 6YF + 6.67YG + 10YH + 5.33YI + 12YJ
+ 4YK + 5.33Y L+ 1.5YN + 4YO + 5.33YP  25

The other constraints of the crashing model remain the same.

90
 Baja Burrito Restaurants –
Budget Spreadsheet
CRASHING ANALYSIS
TOTAL PROJECT COST 225 PROJECT NORMAL COST 200
COMPLETION TIME 23.3125 PROJECT CRASH COST 300

Completion Start Finish Amount Cost of Total

ACTIVITY NODE
Time Time Time Crashed Crashing Cost
Revisions/Approvals A 5 0 5 0 0 25
Grade Land B 1 5 6 0 0 10
Purchase Materials C 1.5 5 6.5 1.5 4 22
Order Equipment D 2 5 7 0 0 8
Order Furniture E 4 16.3125 20.3125 0 0 8
Concrete Floor F 1 6.5 7.5 0 0 12
Erect Frame G 4 7.5 11.5 0 0 20
Install Electrical H 2 12 14 0 0 12
Install Plumbing I 2.5 11.5 14 1.5 8 21
Install Drywall/Roof J 2 14 16 0 0 10
Bathrooms K 2 14 16 0 0 8
Install Equipment L 1.5 16 17.5 1.5 8 22
Finish/Paint Inside M 2.8125 17.5 20.3125 0.1875 1 11
Tile Floors N 3 20.3125 23.3125 0 0 6
Install Furniture O 3 20.3125 23.3125 1 4 12
Finish/Paint Outside P 4 19.3125 23.3125 0 0 18
91
 7.11 PERT / COST
• PERT/Cost helps management gauge progress
against scheduled time and cost estimates.
• PERT/Cost is based on analyzing a segmented
project. Each segment is a collection of work
packages. PROJECT
PROJECT

Work Package 1 Work Package 3

Activity 1 Work Package 2 Activity 4
Activity 2 Activity 3 Activity 6
Activity 5
92
 Work Package - Assumptions

– Once started, a work package is performed

continuously until it is finished.

– The costs associated with a work package are spread

evenly throughout its duration.

93
 Monitoring Project progress
• For each work package determine:
– Work Package Forecasted Weekly cost =
Budgeted Total Cost for Work Package
Expected Completion Time for Work Package (weeks)

– Value of Work to date = p(Budget for the work package)

where p is the estimated percentage of the work package completed.

– Expected remaining completion time =

(1 – p)(Original Expected Completion Time)

94
 Monitoring Project progress
• Completion Time Analysis
Use the expected remaining completion time estimates,
to revise the project completion time.

• Cost Overrun /Underrun Analysis

For each work package (completed or in progress) calculate

Cost overrun =
[Actual Expenditures to Date] - [Value of Work to Date].

95
 Monitoring Project Progress –
Corrective Actions

• A project may be found to be behind schedule, and or

experiencing cost overruns.
• Management seeks out causes such as:
– Mistaken project completion time and cost estimates.
– Mistaken work package completion times estimates and cost
estimates.
– Problematic departments or contractors that cause delays.

96
 Monitoring Project Progress –
Corrective Actions

• Possible Corrective actions, to be taken whenever needed.

– Focus on uncompleted activities.

– Determine whether crashing activities is desirable.

– In the case of cost underrun, channel more resources to problem

activities.

– Reduce resource allocation to non-critical activities.

97
 TOM LARKIN’s MAYORAL
CAMPAIGN

• Tom Larkin is running for Mayor.

• Twenty weeks before the election the campaign

remaining activities need to be assessed.
• If the campaign is not on target or not within budget,
recommendations for corrective actions are required.
98
 MAYORAL CAMPAIGN –
Status Report
Work
Work Package
Package Expenditures
Expenditures ($)
($) Status
Status
AA Hire
Hirecampaign
campaignstaff
staff 2,600
2,600 Finish
Finish
BB Prepare
Prepareposition
positionpaper
paper 5,000
5,000 Finish
Finish
CC Recruit
Recruitvolunteers
volunteers 3,000
3,000 Finish
Finish
DD Raise
Raisefunds
funds 5,000
5,000 Finish
Finish
EE File
Filecandidacy
candidacypapers
papers 700
700 Finish
Finish
FF Prepare
Preparecampaign
campaignmaterial
material 5,600
5,600 40%
40% complete
complete
GG Locate/staff
Locate/staffheadquarter
headquarter 700
700 Finish
Finish
HH Run
Runpersonal
personalcampaign
campaign 2,000
2,000 25%
25% complete
complete
II Run
Runmedia
mediacampaign
campaign 00 0%
0% complete
complete
Work packages to focus on
99
 MAYORAL CAMPAIGN –
Completion Time Analysis
– The remaining network at the end of week 20.
H
15 20+15=35

Finish
(1-p)(original expected completion time)=(1-0.25)(20)=15
27.8+9=36.8.8
I
F 9
7.8
20+7.8=27.8

The remaining activities are expected to take

0.8 weeks longer than the deadline of 36 weeks. 100
 MAYORAL CAMPAIGN –
Es
tim
ate
Project Cost Control
dw
or k
va
Budgeted Values
lue
Work Totalto Total Percent Co EstimatedA ctual Cost
da st
te=
Package Time ( 13 Cost Completedo ve rrValue Value Ocerrun
,00 u
A 4 2000
0)( 100% n =2,000
56 2,600 600
0.4 00
B 6 3,000 0 ) = 100% 3,000 - 5 5,000 2000
$5 2 0 3,000
C 4 4,500 , 2 0 100% 4,500 0= -1500
0
D 6 2,500 100% 2,500 40
5,000 2,500
0
E 2 500 100% 500 700 200
F 13 13,000 40% 5200 5,600 400
G 1 1,500 100% 1,500 700 -800
H 20 6,000 25% 1,500 2,000 -500
I 9 7,000 0% 0 0 0
Total 40,000 20,700 24,600 3,900
101
 MAYORAL CAMPAIGN –
Results Summary
• The project is currently .8 weeks behind schedule
• There is a cost over-run of $3900.
• The remaining completion time for uncompleted work
packages is:
– Work package F: 7.8 weeks,
– Work package H: 15 weeks,
– Work package I: 9 weeks.
• Cost over-run is observed in
– Work package F: $400,
– Work package H: $500.
102
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103