Quantitative Analysis for Management

Thirteenth Edition, Global Edition

Chapter 11
Project Management

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

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Chapter Outline
11.1 PERT/CPM
11.2 PERT/Cost
11.3 Project Crashing
11.4 Other Topics in Project Management

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Introduction (1 of 2)
• 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 (WBS)
– Identify activities that must be performed and their
beginning and ending events
– Identify time, cost, resource requirements,
predecessors, and people responsible for each activity
– A schedule for the project then can be developed

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Introduction (2 of 2)
• The program evaluation and review technique (PERT)
and the critical path method (CPM) are two popular
quantitative analysis techniques for complex projects
– PERT uses three time estimates to develop a
probabilistic estimate of completion time
– CPM is a more deterministic technique
– They are so similar they are commonly considered as
one technique, PERT/CPM

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Six Steps of PERT/CPM (1 of 2)
1. Define the project and all of its significant activities or
tasks.
2. Develop the relationships among the activities. 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.

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Six Steps of PERT/CPM (2 of 2)

The critical path is important since any

delay in these activities can delay the
completion of the project

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PERT/CPM (1 of 2)
• Questions answered by PERT
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 noncritical 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 (2 of 2)
• Questions answered by PERT
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 (1 of 2)
• 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 (2 of 2)
TABLE 11.1 Activities and Immediate Predecessors for
General Foundry, Inc.

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 pollution control system C
G Install air pollution device D, E
H Inspect and test pollution control system F, G

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Drawing the PERT/CPM Network (1 of 2)
• Two common techniques for drawing PERT networks
– Activity-on-node (AON) – nodes represent activities
– Activity-on-arc (AOA) – arcs 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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Drawing the PERT/CPM Network (2 of 2)
FIGURE 11.1 Network for General Foundry, Inc.

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Activity Times (1 of 7)
• In some situations, activity times are known with certainty
– 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

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Activity Times (2 of 7)
• 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 (3 of 7)

PERT often assumes time

estimates follow a beta
probability distribution

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Activity Times (4 of 7)
FIGURE 11.2 Beta Probability Distribution with Three Time
Estimates

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Activity Times (5 of 7)
• 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
2
b – a
Variance =  
 6 

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 Activity Times (6 of 7)
TABLE 11.2 Time Estimates (Weeks) for General Foundry, Inc.
MOST EXPECTED TIME,
OPTIMISTIC, LIKELY, PESSIMISTIC, VARIANCE,
ACTIVITY a m b t = [(a + 4m + b)÷6] [(b − a)÷6]2
2
 3  1 4
A 1 2 3 2  6   36
 
2
42 4
B 2 3 4 3  6   36
 
2
 3  1 4
C 1 2 3 2  6   36
 2
 6  2  16
D 2 4 6 4  6   36
 
2
 7  1 36
E 1 4 7 4  6   36
 
2
 9  1  64
F 1 2 9 3  6   36
 
2
 11  3  64
G 3 4 11 5  6   36
 
2
 3  1  4
H 1 2 3 2  6   36
 

Blank Blank Blank Blank 25 Blank

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Activity Times (7 of 7)
FIGURE 11.3 General Foundry’s Network with Expected
Activity Times

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How to Find the Critical Path (1 of 11)
• We accept the expected completion time for each task as
the actual time
• The total of 25 weeks does not take into account 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 (2 of 11)
• To find the critical path, determine the following quantities
for each activity
1. Earliest start (ES) time: the earliest time an activity
can begin without violation of immediate predecessor
requirements
2. Earliest finish (EF) time: the earliest time at which
an activity can end
3. Latest start (LS) time: the latest time an activity can
begin without delaying the entire project
4. Latest finish (LF) time: the latest time an activity can
end without delaying the entire project

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How to Find the Critical Path (3 of 11)
• Activity times are represented in the nodes
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 (4 of 11)
• At the start of the project we set the time to zero
• Thus ES = 0 for both A and B

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How to Find the Critical Path (5 of 11)
FIGURE 11.4 General Foundry’s Earliest Start (ES) and
Earliest Finish (EF) Times

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How to Find the Critical Path (6 of 11)
FIGURE 11.4
General Foundry’s
Earliest Start (ES)
and Earliest Finish
(EF) Times

Use a forward pass through the network

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How to Find the Critical Path (7 of 11)
• Compute latest start (LS) and latest finish (LF) times for
each activity by making a backward pass through the
network
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 (8 of 11)
FIGURE 11.5 General Foundry’s Latest Start (LS) and Latest
Finish (LF) Times

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How to Find the Critical Path (9 of 11)
• Once ES, LS, EF, and LF have been determined, find the
amount of slack time for each activity
Slack = LS − ES, or Slack = LF − EF
• 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 (10 of 11)
TABLE 11.3 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

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How to Find the Critical Path (11 of 11)
FIGURE 11.6 General Foundry’s Critical Path (A–C–E–G–H)

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Probability of Project Completion (1 of 6)
• The critical path analysis helped determine the expected
project completion time of 15 weeks
– Variation in activities on the critical path can affect
overall project completion
– 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 (2 of 6)
• From Table 11.2 we know
CRITICAL
ACTIVITY VARIANCE
A 4÷36
C 4÷36
E 36÷36
G 64÷36
H 4÷36

• Hence, the project variance is

P roje ct va ria nce  4 4  36  64 4  112  3.111

36 36 36 36 36 36

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Probability of Project Completion (3 of 6)
• We know the standard deviation is the square root of the
variance, so

Project standard deviation   T  Project variance

 3.111  1.76 weeks

• We assume activity times are independent and that total

project completion time is normally distributed

• A bell-shaped curve can be used to represent project

completion dates

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Probability of Project Completion (4 of 6)
FIGURE 11.7 Probability Distribution for Project Completion
Times

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Probability of Project Completion (5 of 6)
• 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 Project Completion (6 of 6)
FIGURE 11.8 Probability of General Foundry’s Meeting the
16-Week Deadline

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What PERT Was Able to Provide
1. The project’s expected completion date is 15 weeks
2. There is a 71.6% chance that the equipment will be in
place within the 16-week deadline
3. Five activities (A, C, E, G, H) are on the critical path
4. Three activities (B, D, F) are not critical but have some
slack time built in
5. A detailed schedule of activity starting and ending dates
has been made available

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Using Excel QM (1 of 2)
PROGRAM 11.1A
Probability of General
Foundry’s Meeting the
16-Week Deadline

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Using Excel QM (2 of 2)
PROGRAM 11.1B
Excel QM Input
Screen and
Solution for
General Foundry
Example with 3
Time Estimates

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Sensitivity Analysis and Project
Management (1 of 3)
• 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
– Exact impact depends on the relationship between the
various activities

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Sensitivity Analysis and Project
Management (2 of 3)
• 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
• A parallel activity is one that does not directly depend on
the given activity
– Once these have been defined, we can explore the
impact that an increase (decrease) in an activity time
for a critical path activity would have on other activities
in the network

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Sensitivity Analysis and Project
Management (3 of 3)
TABLE 11.4 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

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PERT/COST
• PERT is an excellent method of monitoring and controlling
project length but 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

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Four Steps of the Budgeting Process (1 of 2)
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. If you are dealing with a large project, several activities
can be combined into larger work packages. A work
package is simply a logical collection of activities. Since
the General Foundry project we have been discussing is
small, each activity will be a work package.

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Four Steps of the Budgeting Process (2 of 2)
3. Convert the budgeted cost per activity into a cost per
time period. To do this, we assume that the cost of
completing any activity is spent at a uniform rate over
time. Thus, if the budgeted cost for a given activity is
$48,000 and the activity’s expected time is 4 weeks, the
budgeted cost per week is $12,000 ($48,000/4 weeks).
4. Using the earliest and latest start 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 (1 of 6)
• The Gantt chart below illustrates this process
• Determine how much will be spent on each activity during
each week and fill these amounts into a chart in place of
the bars
FIGURE 11.9 Gantt Chart for General Foundry Example

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Budgeting for General Foundry (2 of 6)
TABLE 11.5 Activity Cost 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
Blank Blank Blank Total 308,000 Blank

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Budgeting for General Foundry (3 of 6)
TABLE 11.6 Budgeted Cost ($1,000s) 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
Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank

B 10 10 10 30
Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank

C 13 13 26
Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank

D 12 12 12 12 48
Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank

E 14 14 14 14 56
Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank

F 10 10 10 30
Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank

G 16 16 16 16 16 80
Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank

H 8 8 16
Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank

Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank Blank
308

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

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

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Budgeting for General Foundry (4 of 6)
• Budgeting using the earliest start time gives a result that
resembles the Gantt chart shown previously
• If latest start times and used expenditures are delayed until
the latest possible time
• Any budget between these two ranges may be chosen

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 Budgeting for General Foundry (5 of 6)
TABLE 11.7 Budgeted Cost ($1,000s) 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
blank blank blank blank blank blank blank blank blank blank blank blank blank

B 10 10 10 30
blank blank blank blank blank blank blank blank blank blank blank blank

C 13 13 26
blank blank blank blank blank blank blank blank blank blank blank blank blank

D 12 12 12 12 48
blank blank blank blank blank blank blank blank blank blank blank

E 14 14 14 14 56
blank blank blank blank blank blank blank blank blank blank blank

F 10 10 10 30
blank blank blank blank blank blank blank blank blank blank blank blank

G 16 16 16 16 16 80
blank blank blank blank blank blank blank blank blank blank

H 8 8 16
blank blank blank blank blank blank blank blank blank blank blank blank blank

blank blank blank blank blank blank blank blank blank blank blank blank blank Blank Blank Blank
308

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

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

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Budgeting for General Foundry (6 of 6)
FIGURE 11.10 Budget
Ranges for General
Foundry

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Monitoring and Controlling Project Costs (1
of 3)

• Ensure the project is progressing on schedule

• Cost overruns are kept to a minimum
• Status of the entire project should be checked periodically
– Is the project on schedule?
– What is the value of work completed?
– Are there any overruns?

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Monitoring and Controlling Project Costs (2
of 3)

• The value of work completed, or the cost to date for any

activity
Value of work completed = (Percentage of work complete)×(Total activity
budget)

• The activity difference

Activity difference = Actual cost − Value of work completed

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Monitoring and Controlling Project Costs (3
of 3)

TABLE 11.8 Monitoring and Controlling Budgeted Cost

TOTAL VALUE OF ACTIVITY

BUDGETED PERCENT OF WORK ACTUAL DIFFERENCE
ACTIVITY COST ($) COMPLETION COMPLETED ($) 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 0
26,000 26,000

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 Overrun
0 0 0
H 16,000 0 0 0 0
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Blank Blank
Total
100,000 112,000 12,000
Project Crashing (1 of 2)
• 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
• Costs usually increase
• Reducing a project’s completion time is called crashing

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Project Crashing (2 of 2)
• Start by 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 of 2)
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.

Cra s h cos t  Norma l cos t

Cra s h cos t / Time pe riod =
Norma l time  Cra s h time

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Four Steps to Project Crashing (2 of 2)
3. Select the activity on the critical path with the smallest
crash cost per week. 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. Often, a reduction in activity time along the
critical path causes a noncritical path or paths to become
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 3.

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General Foundry (1 of 3)
• Suppose
– General Foundry has been given 14 weeks instead of
16 weeks to install the new equipment
– A bonus was on the line if equipment is installed in 12
weeks or less
• The critical path for the project is 15 weeks
• What options does the firm have?

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General Foundry (2 of 3)
TABLE 11.9 Normal and Crash Data for General Foundry,
Inc.
CRASH
TIME Blank Blank COST PER CRITICAL
ACTIVITY (WEEKS) COST ($) WEEK ($) PATH?
Blank NORMAL CRASH NORMAL CRASH Blank Blank
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

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General Foundry (3 of 3)
FIGURE 11.11 Crash and Normal Times and Costs for
Activity B

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Project Crashing with Linear Programming
(1 of 5)

• Linear programming can be used to find the best project

crashing schedule
• Decision variables for General Foundry
XA = EF for activity A XE = EF for activity E
XB = EF for activity B XF = EF for activity F
XC = EF for activity C XG = EF for activity G
XD = EF for activity D XH = EF for activity H
Xstart = start time for project (usually 0)
Xfinish = earliest finish time for the project
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
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Project Crashing with Linear Programming
(2 of 5)

FIGURE 11.12 General Foundry’s Network with Activity

Times

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Project Crashing with Linear Programming
(3 of 5)

Objective function
Minimize crash cost = 1,000YA + 2,000YB + 1,000YC + 1,000YD + 1,000YE
+ 500YF + 2,000YG + 3,000YH

Crash Time Constraints Project Completion Constraint

YA ≤ 1 YE ≤ 2
YB ≤ 2 YF ≤ 1 Xfinish ≤ 12

YC ≤ 1 YG ≤ 3
YD ≤ 1 YH ≤ 1

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Project Crashing with Linear Programming
(4 of 5)

Constraints Describing the Network

EF time ≥ EF time for predecessor + Activity time
EF ≥ EFpredecessor + (t − Y), or X ≥ Xpredecessor + (t − Y)

For activity A, XA ≥ Xstart + (2 − 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 X F − X C + YF ≥ 3
For activity G, XG ≥ XD + (5 − YG)or X G − XD + YG ≥ 5
For activity G, XG ≥ XE + (5 − YG)or X G − XE + YG ≥ 5
For activity H, XH ≥ XF + (2 − YH) or X H − X F + YH ≥ 2
For activity H, XH ≥ XG + (2 − YH)or X H − X G + YH ≥ 2
H finished Xfinish ≥ XH
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Project Crashing with Linear Programming
(5 of 5)

PROGRAM 11.2 Solution to Crashing Problem via Solver in

Excel

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Other Topics in Project Management
• Subprojects
– For extremely large projects, an activity may be made of several
smaller subactivities
• Milestones
– Major events in a project are often referred to as milestones
• Resource Leveling
– Adjusts the activity start away from the early start so that resource
utilization is more evenly distributed over time
• Software
– Numerous project management software packages
– They can be used to develop budget schedules, adjust future start
times, and level resource utilization

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