Chapter 12

Project Management

To accompany
Quantitative Analysis for Management, Eleventh Edition,
by Render, Stair, and Hanna
Power Point slides created by Brian Peterson

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 Learning Objectives
After completing this chapter, students will be able to:
1. Understand how to plan, monitor, and control
projects with the use of PERT and CPM.
2. Determine earliest start, earliest finish, latest
start, latest finish, and slack times for each
activity, along with the total project
completion time.
3. Reduce total project time at the least total
cost by crashing the network using manual
or linear programming techniques.
4. Understand the important role of software in
project management.
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 Chapter Outline

12.1 Introduction
12.2 PERT/CPM
12.3 PERT/Cost
12.4 Project Crashing
12.5 Other Topics in Project
Management

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 Introduction
 Managing large-scale, complicated projects
effectively is a difficult problem and the stakes are
high.
 The first step in planning and scheduling a project
is to develop the work breakdown structure.
 Time, cost, resource requirements, predecessors,
and people required are identified for each activity.
 A schedule for the project then can be developed.

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 Introduction
 The program evaluation and review technique
(PERT)
PERT and the critical path method (CPM)
CPM are two
popular quantitative analysis techniques to help
plan, schedule, monitor, and control projects.
 Originally the approaches differed in how they
estimated activity times.
 PERT used three time estimates to develop a
probabilistic estimate of completion time.
 CPM was a more deterministic technique.
 They have become so similar they are commonly
considered one technique, PERT/CPM.

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 Six Steps of PERT/CPM
1. Define the project and all of its significant activities
or tasks.
2. Develop the relationships among the activities and
decide which activities must precede 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.
The critical path is important since any delay in
these activities can delay the completion of the
project.
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 PERT/CPM
Given the large number of tasks in a project, it is
easy to see why the following questions are
important:
1. When will the entire project be completed?
2. What are the critical activities or tasks in the project,
that is, the ones that will delay the entire project if they
are late?
3. Which are the non-critical activities, that is, the ones
that can run late without delaying the entire project’s
completion?
4. If there are three time estimates, what is the probability
that the project will be completed by a specific date?

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 PERT/CPM
5. At any particular date, is the project on schedule,
behind schedule, or ahead of schedule?
6. On any given date, is the money spent equal to, less
than, or greater than the budgeted amount?
7. Are there enough resources available to finish the
project on time?

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 General Foundry Example of
PERT/CPM
 General Foundry, Inc. has long been trying to
avoid the expense of installing air pollution control
equipment.
 The local environmental protection group has
recently given the foundry 16 weeks to install a
complex air filter system on its main smokestack.
 General Foundry was warned that it will be forced
to close unless the device is installed in the
allotted period.
 They want to make sure that installation of the
filtering system progresses smoothly and on time.

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 General Foundry Example of
PERT/CPM
Activities and immediate predecessors for General
Foundry

IMMEDIATE
ACTIVITY DESCRIPTION
PREDECESSORS
A Build internal components —
B Modify roof and floor —
C Construct collection stack A
D Pour concrete and install frame B
E Build high-temperature burner C
F Install control system C
G Install air pollution device D, E
H Inspect and test F, G
Table 12.1

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 Drawing the PERT/CPM Network

 There are two common techniques for drawing

PERT networks.
 Activity-on-node (AON)
AON where the nodes
represent activities.
 Activity-on-arc (AOA)
AOA where the arcs are used to
represent the activities.
 The AON approach is easier and more commonly
found in software packages.
 One node represents the start of the project, one
node for the end of the project, and nodes for
each of the activities.
 The arcs are used to show the predecessors for
each activity.
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 General Foundry Example of
PERT/CPM
Network for General Foundry

Figure 12.1
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 Activity Times
 In some situations, activity times are known with
certainty.
 The CPM assigns just one time estimate to each
activity and this is used to find the critical path.
 In many projects there is uncertainty about activity
times.
 PERT employs a probability distribution based on
three time estimates for each activity, and a
weighted average of these estimates is used for the
time estimate and this is used to determine the
critical path.
 PERT often assumes time estimates follow a beta
probability distribution.
distribution

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 Activity Times
The time estimates in PERT are:

Optimistic time (a) =time an

activity will take if everything goes
as well as possible. There should be
only a small probability (say, 1/100) of
this occurring.
Pessimistic time (b) =time an
activity would take assuming very
unfavorable conditions. There
should also be only a small
probability that the activity will really
take this long.
Most likely time (m) =most
realistic time estimate to complete
the activity
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 Activity Times
Beta Probability Distribution with Three Time Estimates

Figure 12.2
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 Activity Times
To find the expected activity time (t), the beta
distribution weights the estimates as follows:

a  4m  b
t
6

To compute the dispersion or variance of activity

completion time,
time we use the formula:
2
ba
Variance   
 6 

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 Activity Times
Time estimates (weeks) for General Foundry

MOST EXPECTED VARIANCE,

OPTIMISTIC, PROBABLE, PESSIMISTIC, TIME,
ACTIVITY a m b t = [(a + 4m + b)/6] [(b – a)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25

Table 12.2

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 How to Find the Critical Path
 We accept the expected completion time for each
task as the actual time for now.
 The total of 25 weeks in Table 12.2 does not take
into account the obvious fact that some of the
tasks could be taking place at the same time.
 To find out how long the project will take we
perform the critical path analysis for the network.
 The critical path is the longest path through the
network.

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 How to Find the Critical Path
General Foundry’s Network With Expected Activity Times

Figure 12.3
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 How to Find the Critical Path
To find the critical path, we need to determine the
following quantities for each activity in the network.
1.Earliest start time (ES):
ES the earliest time an activity
can begin without violation of immediate
predecessor requirements.
2.Earliest finish time (EF):
EF the earliest time at which
an activity can end.
3.Latest start time (LS):
LS the latest time an activity
can begin without delaying the entire project.
4.Latest finish time (LF):
LF the latest time an activity
can end without delaying the entire project.

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 How to Find the Critical Path
In the nodes, the activity time and the early and late
start and finish times are represented in the
following manner.
ACTIVITY t
ES EF
LS LF

Earliest times are computed as:

Earliest finish time =
Earliest start time
+ Expected activity time
EF = ES + t
Earliest start = Largest of the earliest finish times of
immediate predecessors
ES = Largest EF of immediate predecessors
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 How to Find the Critical Path
 At the start of the project we set the time to zero.
 Thus ES = 0 for both A and B.

A t=2
ES = 0 EF = 0 + 2 = 2

Start

B t=3
ES = 0 EF = 0 + 3 = 3

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 How to Find the Critical Path
General Foundry’s Earliest Start (ES) and Earliest
Finish (EF) times

Figure 12.4

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 How to Find the Critical Path
Latest times are computed as
Latest start time =Latest
finish time
– Expected activity time
LS = LF – t
Latest finish time = Smallest of latest start times
for following activities
LF = Smallest LS of following activities
For activity H:
LS = LF – t = 15 – 2 = 13 weeks

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 How to Find the Critical Path
General Foundry’s Latest Start (LS) and Latest Finish (LF)
times

Figure 12.5

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 How to Find the Critical Path
 Once ES, LS, EF, and LF have been determined, it
is a simple matter to find the amount of slack time
that each activity has:
Slack = LS – ES, or Slack = LF – EF
 From Table 12.3 we see activities A, C, E, G, and H
have no slack time.
 These are called critical activities and they are said
to be on the critical path.
 The total project completion time is 15 weeks.
 Industrial managers call this a boundary timetable.

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 How to Find the Critical Path
General Foundry’s Schedule and Slack Times

EARLIEST EARLIEST LATEST LATEST ON

START, FINISH, START, FINISH, SLACK, CRITICAL
ACTIVITY ES EF LS LF LS – ES PATH?
A 0 2 0 2 0 Yes
B 0 3 1 4 1 No
C 2 4 2 4 0 Yes
D 3 7 4 8 1 No
E 4 8 4 8 0 Yes
F 4 7 10 13 6 No
G 8 13 8 13 0 Yes
H 13 15 13 15 0 Yes

Table 12.3

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 How to Find the Critical Path
General Foundry’s Critical Path

Figure 12.6
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 Probability of Project Completion

 The critical path analysis helped determine the

expected project completion time of 15 weeks.
 But variation in activities on the critical path can
affect overall project completion, and this is a
major concern.
 If the project is not complete in 16 weeks, the
foundry will have to close.
 PERT uses the variance of critical path activities
to help determine the variance of the overall
project.

Project variance = ∑ variances of activities

on the critical path

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 Probability of Project Completion
 From Table 12.2 we know that

ACTIVITY VARIANCE
A 4/36
C 4/36
E 36/36
G 64/36
H 4/36

 Hence, the project variance is

Project variance = 4/36 + 4/36 + 36/36 + 64/36 + 4/36 = 112/36 = 3.111

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 Probability of Project Completion

 We know the standard deviation is just the

square root of the variance, so:

Project standard deviation   T  Project variance

 3.11  1.76 weeks
 We assume activity times are independent and
that total project completion time is normally
distributed.

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 Probability Distribution for Project
Completion Times

Figure 12.7

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 Probability of Project Completion
The standard normal equation can be applied as follows:

Due date  Expected date of completion

Z
T
16 weeks  15 weeks
  0.57
1.76 weeks
 From Appendix A we find the probability of
0.71566 associated with this Z value.
 That means the probability this project can be
completed in 16 weeks or less is 0.716.

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 Probability of General Foundry
Meeting the 16-week Deadline

Figure 12.8

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 What PERT Was Able to Provide
 PERT has been able to provide the project
manager with several valuable pieces of
information.
 The project’s expected completion date is 15
weeks.
 There is a 71.6% chance that the equipment will
be in place within the 16-week deadline.
 Five activities (A, C, E, G, H) are on the critical
path.
 Three activities (B, D, F) are not critical but have
some slack time built in.
 A detailed schedule of activity starting and
ending dates has been made available.
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 Using Excel QM in the General
Foundry Example
Excel QM Initialization Screen for General Foundry Example with
Three Time Estimates

Program 12.1A

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 Using Excel QM in the General
Foundry Example
Excel QM Input Screen and Solution for General Foundry Example
with Three Time Estimates

Program 12.1B

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 Sensitivity Analysis and
Project Management
 The time required to complete an activity can
vary from the projected or expected time.
 If the activity is on the critical path, the
completion time of the project will change.
 This will also have an impact on ES, EF, LS, and
LF times for other activities.
 The exact impact depends on the relationship
between the various activities.
 A predecessor activity is one that must be
accomplished before the given activity can be
started.
 A successor activity is one that can be started
only after the given activity is finished.
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 Sensitivity Analysis and
Project Management
Impact of an Increase (Decrease) in an Activity Time
for a Critical Path Activity

SUCCESSOR PARALLEL PREDECESSOR

ACTIVITY TIME ACTIVITY ACTIVITY ACTIVITY
Earliest start Increase (decrease) No change No change

Earliest finish Increase (decrease) No change No change

Latest start Increase (decrease) Increase (decrease) No change

Latest finish Increase (decrease) Increase (decrease) No change

Slack No change Increase (decrease) No change

Table 12.4

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 PERT/COST
 Although PERT is an excellent method of
monitoring and controlling project length, it does
not consider the very important factor of project
cost.
 PERT/Cost is a modification of PERT that allows
a manager to plan, schedule, monitor, and control
cost as well as time.
 Using PERT/Cost to plan, schedule, monitor, and
control project cost helps accomplish the sixth
and final step of PERT.

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 Planning and Scheduling Project Costs:
Budgeting Process
 The overall approach in the budgeting
process of a project is to determine how
much is to be spent every week or month.
 This can be accomplished in four basic
budgeting steps:

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 Four Steps of the Budgeting Process

1. Identify all costs associated with each of the

activities then add these costs together to get
one estimated cost or budget for each activity.
2. In large projects, activities can be combined into
larger work packages. A work package is simply
a logical collection of activities.
3. Convert the budgeted cost per activity into a
cost per time period by assuming that the cost of
completing any activity is spent at a uniform rate
over time.
4. Using the ES and LS times, find out how much
money should be spent during each week or
month to finish the project by the date desired.
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 Budgeting for General Foundry

 The Gantt chart in Figure 12.9 illustrates this

process.
 The horizontal bars shown when each activity will
be performed based on its ES-EF times.
 We determine how much will be spent on each
activity during each week and fill these amounts
into a chart in place of the bars.
 The following two tables show the activity costs
and budgeted cost for the General Foundry
project.

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 Budgeting for General Foundry
Gantt chart General Foundry project

Figure 12.9

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 Budgeting for General Foundry
Activity costs for General Foundry, Inc.
EARLIEST LATEST TOTAL BUDGETED
START, START, EXPECTED BUDGETED COST PER
ACTIVITY ES LS TIME, t COST ($) WEEK ($)
A 0 0 2 22,000 11,000
B 0 1 3 30,000 10,000
C 2 2 2 26,000 13,000
D 3 4 4 48,000 12,000
E 4 4 4 56,000 14,000
F 4 10 3 30,000 10,000
G 8 8 5 80,000 16,000
H 13 13 2 16,000 8,000
Total 308,000

Table 12.5

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 Budgeted Cost (Thousands of Dollars) for
General Foundry, Inc., Using Earliest Start
Times

WEEK
ACTIVITY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 TOTAL
A 11 11 22

B 10 10 10 30

C 13 13 26

D 12 12 12 12 48

E 14 14 14 14 56

F 10 10 10 30

G 16 16 16 16 16 80

H 8 8 16

308

Total per week 21 21 23 25 36 36 36 14 16 16 16 16 16 8 8

Total to date 21 42 65 90 126 162 198 212 228 244 260 276 292 300 308

Table 12.6

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 Budgeting for General Foundry

 It is also possible to prepare a budget based on

the latest starting time.
 This budget will delay the expenditure of funds
until the last possible moment.
 The following table shows the latest start budget
for the General Foundry project.
 The two tables form a budget range.
 Any budget can be chosen between these two
values depending on when the company wants to
actually spend the money.
 The budget ranges are plotted in Figure 12.10

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 Budgeted Cost (Thousands of Dollars) for
General Foundry, Inc., Using Latest Start
Times

WEEK
ACTIVITY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 TOTAL
A 11 11 22

B 10 10 10 30

C 13 13 26

D 12 12 12 12 48

E 14 14 14 14 56

F 10 10 10 30

G 16 16 16 16 16 80

H 8 8 16

308

Total per week 11 21 23 23 26 26 26 26 16 16 26 26 26 8 8

Total to date 11 32 55 78 104 130 156 182 198 214 240 266 292 300 308

Table 12.7

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 Budget Ranges for General
Foundry

Figure 12.10

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 Monitoring and Controlling
Project Costs
 Costs are monitored and controlled to ensure the
project is progressing on schedule and that cost
overruns are kept to a minimum.
 The status of the entire project should be
checked periodically.
 The following table shows the state of the project
in the sixth week.
 It can be used the answer questions about the
schedule and costs so far.

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 Monitoring and Controlling
Budgeted Cost

VALUE OF
TOTAL WORK ACTIVITY
BUDGETED PERCENT OF COMPLETED ACTUAL DIFFERENCE
ACTIVITY COST ($) COMPLETION ($) COST ($) ($)
A 22,000 100 22,000 20,000 –2,000
B 30,000 100 30,000 36,000 6,000
C 26,000 100 26,000 26,000 0
D 48,000 10 4,800 6,000 1,200
E 56,000 20 11,200 20,000 8,800
F 30,000 20 6,000 4,000 –2,000
G 80,000 0 0 0 0
H 16,000 0 0 0 0
Total 100,000 112,000 12,000

Table 12.8 Overrun

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 Monitoring and Controlling
Project Costs
The value of work completed, or the cost to date for
any activity, can be computed as follows:
Value of work (Percentage of work complete)
=
completed x (Total activity budget)

The activity difference is also of interest:

Activity difference = Actual cost
– Value of work completed

A negative activity difference is a cost underrun and

a positive activity difference is a cost overrun.

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 Project Crashing
 Projects will sometimes have deadlines
that are impossible to meet using normal
procedures.
 By using exceptional methods it may be
possible to finish the project in less time
than normally required at a greater cost.
 Reducing a project’s completion time is
called crashing.

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 Project Crashing
 Crashing a project starts with using the normal
time to create the critical path.
 The normal cost is the cost for completing the
activity using normal procedures.
 If the project will not meet the required deadline,
extraordinary measures must be taken.
 The crash time is the shortest possible activity time and
will require additional resources.
 The crash cost is the price of completing the activity in
the earlier-than-normal time.

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 Four Steps to Project Crashing

1. Find the normal critical path and identify

the critical activities.
2. Compute the crash cost per week (or
other time period) for all activities in the
network using the formula:

Crash cost – Normal cost

Crash cost/Time period =
Normal time – Crash time

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 Four Steps to Project Crashing

3. Select the activity on the critical path

with the smallest crash cost per week
and crash this activity to the maximum
extent possible or to the point at which
your desired deadline has been reached.
4. Check to be sure that the critical path
you were crashing is still critical. If the
critical path is still the longest path
through the network, return to step 3. If
not, find the new critical path and return
to step 2.
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 General Foundry
 Suppose that General Foundry has been given 14
weeks instead of 16 weeks to install the new
equipment.
 The critical path for the project is 15 weeks.
 What options does the firm have?
 The normal and crash times and costs are shown in
Table 12.9.
 Crash costs are assumed to be linear and Figure 12.11
shows the crash cost for activity B.
 Crashing activities B and A will shorten the
completion time to 14 but it creates a second
critical path.
 Any further crashing must be done to both
critical paths.
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 General Foundry
Normal and Crash Data for General Foundry, Inc.
TIME (WEEKS) COST ($)
CRASH
COST PER CRITICAL
ACTIVITY NORMAL CRASH NORMAL CRASH WEEK ($) PATH?
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
Table 12.9

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 General Foundry
Crash and Normal Times and Costs for Activity B

Figure 12.11

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 Project Crashing with
Linear Programming
 Linear programming is another approach
to finding the best project crashing
schedule.
 The data needed are derived from the
normal and crash data for General
Foundry and the project network with
activity times.

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 Project Crashing with
Linear Programming
General Foundry’s Network With Activity Times

Figure 12.12

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 Project Crashing with
Linear Programming
The decision variables for the problem are:

XA = EF for activity A
XB = EF for activity B
XC = EF for activity C
XD = EF for activity D
XE = EF for activity E
XF = EF for activity F
XG = EF for activity G
XH = EF for activity H
Xstart = start time for project (usually 0)
X finish
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 Project Crashing with
Linear Programming
 Additional decision variables for the problem are:

Y =the number of weeks that each activity

is crashed.
YA =the number of weeks activity A is
crashed and so forth up to YH.

 The objective function is

Minimize crash cost = 1,000YA + 2,000YB + 1,000YC

+ 1,000YD + 1,000YE + 500YF
+ 2,000YG + 3,000YH

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 Project Crashing with
Linear Programming
 Crash time constraints  This completion
ensure activities are constraint specifies
not crashed more than that the last event
is allowed. must take place before
the project deadline:
YA ≤ 1
YB ≤ 2 Xfinish ≤ 12
YC ≤ 1  This constraint
YD ≤ 1 indicates the project is
YE ≤ 2 finished when activity
H is finished:
YF ≤ 1
YG ≤ 3 Xfinish ≥ XH
YH ≤ 1
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 Project Crashing with
Linear Programming
Constraints describing the network have the form:
EF time≥ EF time for predecessor +
Activity time
EF≥ EFpredecessor + (t – Y), or
X≥A,Xpredecessor
For activity XA ≥ Xstart++ (t
(2 –
– Y)
YA) or XA – Xstart + YA ≥ 2
For activity B, XB ≥ Xstart + (3 – YB) or XB – Xstart + YB ≥ 3
For activity C, XC ≥ XA + (2 – YC) or XC – XA + YC ≥ 2
For activity D, XD ≥ XB + (4 – YD) or XD – XB + YD ≥ 4
For activity E, XE ≥ XC + (4 – YE) or XE – XC + YE ≥ 4
For activity F, XF ≥ XC + (3 – YF) or XF – XC + YF ≥ 3
For activity G, XG ≥ XD + (5 – YG) or XG – XD + YG ≥ 5
For activity G, XG ≥ XE + (5 – YG) or XG – XE + YG ≥ 5
For activity H, XH ≥ XF + (2 – YH) or XH – XF + YH ≥ 2
For activity H, X ≥ X + (2 – Y )
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or X –X +Y ≥2 12-65
 Solution to Crashing Problem Using
Solver in Excel

Program 12.2

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 Other Topics in Project Management

 Subprojects
 For extremely large projects, an activity may
be made of several smaller sub-activities
which can be viewed as a smaller project or
subproject of the original .
 Milestones
 Major events in a project are often referred to
as milestones and may be reflected in Gantt
charts and PERT charts to highlight the
importance of reaching these events.

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 Other Topics in Project Management

 Resource Leveling
 Resource leveling adjusts the activity start
away from the early start so that resource
utilization is more evenly distributed over time.
 Software
 There are many project management software
packages on the market for both personal
computers and larger mainframe machines.
 Most of these create PERT charts and Gantt
charts and can be used to develop budget
schedules, adjust future start times, and level
resource utilization.

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 Copyright

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Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-69