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PROGRAM EVALUATION AND REVIEW TECHNIQUE (PERT) AND CRITICAL PATH

METHOD (CPM): A CASE STUDY

Method · April 2021

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PROGRAM EVALUATION AND REVIEW TECHNIQUE (PERT)
AND CRITICAL PATH METHOD (CPM): A CASE STUDY

Prepared by:
Md Jonaidul Islam
Department of Finance
University of Dhaka

Prepared in:
April, 2021
EXECUTIVE SUMMARY:
Project management is sometimes so critical that a slight dispersion from standard may cost a lot
to a project management authority. Any project is a combination of different interrelated activities.
The number of activities may range from a lower number to a huge numbers. Among all these
activities of a project, each one is not equally important. There are some tasks which are done just
for smoothing the completeness of the project. But there are other tasks that are very crucial for
the whole project. Delay in any of these tasks may cause the whole project to delay. A project
manager most often wants to know which tasks are critical among all the tasks. Different
mathematical and algorithmic methods have been evolved to help managers to solve such kinds of
problems. Program Evaluation and Review Techniques (PERT), Critical Path method (CPM) are
two mostly used methods. We have taken the case of Sangu Construction and Builders Company,
operating in Chattogram, Bangladesh thinking of completing a four bed hose construction project.
We have shown how the company can use PERT, CPM to come up with different valuable
decisions. With the different data available about the activities like days and costs needed to
complete the activities, to how many days they could be crashed, so increase in costs, we have
used the different procedures to solve the uncertain problems using PERT and CPM. We also
pictured the situations visually using project network, normal probability distribution. We have
determined how many days it will require to complete the project within normal time and crashed
time and how much it will cost.
Contents:
INTRODUCTION: ......................................................................................................................... 2
PART A .......................................................................................................................................... 3
PERT & CPM (THEORITICAL ASPECTS): ............................................................................ 4
PART B .......................................................................................................................................... 6
THE CASE: ................................................................................................................................ 7
SOLUTION TO THE CASE: ..................................................................................................... 9
I. Determining the Critical Path: ......................................................................................... 9
II. Calculating Time Requirement to Complete the project:............................................... 10
III. Determining the Probability: ...................................................................................... 11
IV. Crashing the Project: .................................................................................................. 13
CONCLUSION: ............................................................................................................................ 15

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INTRODUCTION:
Background of the report:
This report is a partial requirement of the Operations Research , F-409 course of BBA curriculum
at Department of Finance, University of Dhaka. This report is prepared on the topic assigned by
our course instructor, Shabnaz Amin Auditi (SAA), Associate Professor, Department of Finance,
University of Dhaka. The topic of the Report is “Program Evaluation and Review Technique
(PERT) and Critical Path Method (CPM): A case Study”. In order to prepare this report, we had
to analyze project details and every other relevant paper of the Sangu Construction and Builders
Company, its industry and the economy its blooming in.
Objective of the report:
The main objective of the report is,
• To evaluate the real tasks of a construction firm
• Analyze its future decisions.
• Appraising the project completion options
• Projecting future possibilities
• Estimating fund requirements
• Comparing alternatives

Data collection method and sources:

For accuracy, we followed some rules and instructions. We have looked into the other project
details of the company. We also collected information about the project costs in different territory.
We have talked with some project management specialists.
Limitation:
There was an absence of some information on the web and also, we carried out such a report for
the first time, so inexperience is one of the constraints of the report.

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PART A

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PERT & CPM (THEORITICAL ASPECTS):
A project can be defined as a set of a large number of activities or jobs that are performed in a
certain sequence determined logically or technologically and it has to be completed within a
specified time and cost whilst meeting the performance standards. The project could be the
development of a software program, the building of a house or an office building, development of
a new drug, a marketing campaign for a new product, and many others.
Network models are conventional means of finding the most skillful way to link a number of
activities directly or indirectly in order to satisfy supply and demand requirements at different
activity locations and project scheduling. For many years, two approaches that have been proven
to be useful for planning, scheduling and controlling construction projects have been the Critical
Path Method (CPM) and the Project Evaluation and Review Technique (PERT).These techniques
enables project managers to evaluate the early and late times at which activities can start and finish,
calculate activity float (slack), define critical activities, and evaluate the impact of changes in
duration, logical relations and cost on the overall project duration. Both CPM and PERT are
network based techniques and therefore help in programming and monitoring the progress of the
stages involved so that the project is completed within the deadline. In doing this, it specifies the
part of the project that are crucial which if delayed beyond the normal time would increase the
completion time of the project as a whole. It further assists in allocating resources, such as labor
and equipment and thus helps to make the total cost of the building project a minimum by finding
the optimal trade-off between various costs and time involved.
Although PERT and CPM differ to some extent in terminology and in the construction of the
network, their objectives are the same. Furthermore, the analysis used in both techniques is very
similar. The major difference is that, in CPM activity times are assumed proportional to the amount
of resources allocated to them, and by changing the level of resources the activity times and the
project completion time can be varied. Thus CPM assumes prior experience with similar projects
from which the relationships between resources and job times are available. On the other hand,
PERT incorporates uncertainties in activity times in its analysis. It determines the probabilities of
completing various stages of the project by specified deadlines. It also calculates the expected time
to complete the project. An important and extremely useful by product of PERT analysis is its
identification of various bottlenecks‖ in a project. In other words, it identifies the activities that
have high potential for causing delays in completing the project on schedule. Thus, even before
the project has started, the project manager knows where he or she can expect delays. The manager
can then take the necessary preventive measures to reduce possible delays so that the project
schedule is maintained.
Actually, both techniques, PERT and CPM, were developed almost simultaneously. Project
managers often encounter the problem of having to shorten the scheduled completion time in order
to expedite the execution of a project. Reducing the project duration can be achieved by adding
more resources to the performance of the activity in the form of overtime, resources or by assigning
additional labor. This managerial decision of additional resources, overtime and labor will
however increases the overall cost of the project thus trimming down the project duration of
activities on critical path. This concept of project management which involves investment of extra

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budget in order to minimize the duration to meet the targeted date is known as crashing. The
objective of expediting project by crashing total project duration is helpful so that delays can be
recovered and liquidated damages can be avoided. The aim is always to strike balance between the
cost and time and to obtain an optimum schedule.
Areas of discussion under PERT, CPM are network, expected time, critical paths, crash time, crash
costs, etc. A project manager gradually comes into his/her final decisions following multistep
tasks. He/she first draws a network to get a clear visual picture of the activities and critical paths.
He/she determines the critical path looking at the slacks. Then, focuses on the activities which
must be done within time. Also with further information of crash time crash costs he/she can
determine within how much shorter time period he can complete the project with minimum
increase in costs.
Here are the differences between PERT and CPM:
PERT CPM
Works with fixed probabilistic time Works with fixed deterministic time

Useful for non-repetitive and complex Useful for repetitive and noncomplex
projects with an uncertain degree of time projects
estimates
Restricted to time variable Includes time-cost trade off

Used for research and development CPM is basically for construction

programs projects

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PART B

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 THE CASE:
In spite of advances in the field of project management today, most projects in Bangladesh today
face cost and time over-runs which increases with the increase in complexity of the project
involved. A large number of factors contribute to delays that comprise primarily of contractor
delays, client delays, consultant delays, labor related delays and various other external delays.
These delays in long run causes time overrun, cost overrun, dispute, arbitration, total abandonment
and litigation. This is because some project activities are critical in the sense that delay in their
commencement will delay the overall project completion time. Therefore proper planning and
scheduling of project is important to overcome this problem.
The Sangu Construction & Builders Company is a well renowned construction company in
Chattogram which have completed lots of construction projects since its inception. It is considering
to complete a new 3-bed room house project at Khulsi, Chattogram. With primary inspection,the
company has determined what activities are to be performed to complete the project and how many
days will those activities require. Exhibit 1 shows the break down description of activities involved
for the construction process of a 3-bed room house atKhulshi, Off the GEC circle, Chattogram.
The construction activity begins with activity A and ends with activity N and shows the distribution
of the project activities relative to the actual number of days to complete individual activity and
their respective cost implication in terms of BDT of 3-bed room building. The costs are basically
labour costs based on the assumption that materials are already available for use. This is because,
once the materials are available, the reduction in number of days to complete a particular activity
will only be affected by the cost of hiring additional labour.
Exhibit 1: Description of activities involved for the construction process of a house by Sangu
Construction & Builders Company:
Activity Activity Description Normal Immediate Estimated
Code Cost (BDT) Predecessors Duration
A Site clearing 18,415 - 2 days
B Foundation 12,643 A 4 days
C Block Laying 52,811 B 10 days
D Roofing 41,658 C 6 days
E Plumbing 50,179 C 4 days
F Electrical work 52,681 E 5 days
G Plastering 63,894 D 7 days
H Fixing up of doors and windows 35,905 E,G 9 days
I Ceiling 40,997 C 7 days
J Flooring 42,394 F,I 8 days
K Interior Fixtures 47,643 J 4 days
L Exterior fixtures 33,887 J 5 days
M Painting 41,539 H 2 days
N Landscaping 36,913 K,L 6 days
The company knows that all activities to be done to complete the project are not equally important.
To know which activities are critical that is which activities are to be done must within time, the

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company uses techniques like Program Evaluation and Review Technique (PERT), Critical Path
method. The company wants to know:
I. Which activities are critical to complete the project.
II. How many days it will require to complete the project.
III. How probable is that the critical path will be completed in less than 47 days (Required data
are given in Exhibit 2).
IV. How much costs it will incur to crash the project to a certain level (Required data are given
in Exhibit 3).
As an operation project management consultant team what do you think, how can Sangu
Construction & Builders Company come up with the answers of the questions?

Exhibit 2: Days estimation to complete Exhibit 3: Normal Cost, Crash Cost

the project: Schedule:
Normal Crash
Activity Optimistic Most Likely Pessimistic Days Cost Days Cost
Code Estimate Estimate Estimate (BDT) (BDT)
A 1 2 3 2 18,415 1 24,333
B 2 3.5 8 4 12,643 2 21,137
C 6 9 18 10 52,811 7 70,498
D 4 5.5 10 6 41,658 4 49,967
E 1 4.5 5 4 50,179 3 55,972
F 4 4 10 5 52,681 3 69,786
G 5 6.5 11 7 63,894 4 82,814
H 5 8 17 9 35,905 6 53,522
I 3 7.5 9 7 40,997 5 49,876
J 3 9 9 8 42,394 6 53,161
K 4 4 4 4 47,643 3 52,218
L 1 5.5 7 5 33,887 3 47,092
M 1 2 3 2 41,539 1 47,806
N 5 5.5 9 6 36,913 3 49,682

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 SOLUTION TO THE CASE:

I. Determining the Critical Path:

Critical path consists of those activities in a project which can not be delayed anyhow. If any
activity of the path is delayed then the whole project will be delayed. So project managers should
identify the critical path first to avoid such kind of project delay. Using critical path method (CPM),
Sangu Construction & Builders Company Can determine which tasks lie on critical path while
completing the project. It can take help of the project network. So, At first let’s draw the network
consisting of the activities of the project:

Graph: Network
Here, two rectangles mean the starting and finishing point of the project. The circles are called
nodes each of which connects two or more activities showed as arrows. Dash arrows are dummy
activities.
It is showed in the network that A→B→C→E→F→J→L→N is the path which is the longest
among other paths. So, it is the critical path.
We can also determine whether an activity is critical through looking at its slack. Slack time is the
difference between the earliest start time and the latest start time (which in turn is equal to the
difference between the latest start time and the latest finish time), i.e. Slack = LS-ES = LF-EF.
Earliest start is the earliest possible time that an activity can begin. Latest start is the latest time
that an activity can begin and not delay the completion time of the overall project. The activities
which have zero slacks are said critical activities. We showed the details calculations in the table:
Table 1: Critical path calculation
Activity Earliest Earliest Latest Latest Slack Critical
Code Start (ES) Finish (EF) Start (LS) Finish (LF) (LS-ES)
A 0 2 0 2 0 Yes
B 2 6 2 6 0 Yes

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 C 6 16 6 16 0 Yes
D 16 22 20 26 4 No
E 16 20 16 20 0 Yes
F 20 25 20 25 0 Yes
G 22 29 26 33 4 No
H 29 38 33 42 4 No
I 16 23 18 25 2 No
J 25 33 25 33 0 Yes
K 33 37 34 38 1 No
L 33 38 33 38 0 Yes
M 38 40 42 44 4 No
N 38 44 38 44 0 Yes

So looking at the final column of the table above, we can say that A→B→C→E→F→J→L→N
is the critical path.

II. Calculating Time Requirement to Complete the project:

From the previous solution we got A→B→C→E→F→J→L→N is the critical path. Where, A,
B, C, E, F, J, L, N require 2, 4, 10, 4, 5, 8, 5, 6 days respectively. These activities must be
compoleted within the time stated. So these tasks require 44 days in total. Sangu Construction &
Builders Company will require 44 days to complete the project.

Page | 10
III. Determining the Probability:
In CPM, all the activities time estimates are single values with the assumption that activity time
are known with certainty by using a single activity time estimate. In reality however, because of
uncertainties in carrying out each activity, the activity time estimate cannot be certain . Therefore,
using PERT probabilistic method which follows beta distribution, three time estimates were
subsequently used to estimate the expected time (mean) and variance of the distribution. Expected
time is the weight average of the three time estimates (optimistic (a), pessimistic (b) and most
likely time (m). Then, it becomes necessary to know how realistic this will be by estimating the
probability of achieving this scheduled date. Table below shows the variations in the estimates as
the affect the construction activities:
Table 2: Variance calculation

Activity Optimistic Most Likely Pessimistic Mean Variance

Code Estimate (a) Estimate (m)
A 1
B 2
C 6
D 4
E 1
F 4
G 5
H 5
I 3
J 3
K 4
L 1
M 1
N 5
Estimate (b) (𝒂 + 𝟒𝒎 + 𝒃) (𝒃 − 𝒂)𝟐
𝟔 𝟔𝟐
2 3 2 .11
3.5 8 4 1
9 18 10 4
5.5 10 6 1
4.5 5 4 .44
4 10 5 1
6.5 11 7 1
8 17 9 4
7.5 9 7 1
9 9 8 1
4 4 4 0
5.5 7 5 1
2 3 2 .11
5.5 9 6 .44

Now using the variances we have got in the table, we can calculate standard deviation. Here,
variance of the noncritical activities will not impact project completion time. So, they are not
included while calculating standard deviation.

Standard Deviation = √𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒𝑠 𝑜𝑓 𝑐𝑟𝑖𝑡𝑖𝑐𝑎𝑙 𝑎𝑐𝑡𝑖𝑣𝑖𝑡𝑖𝑒𝑠

= √. 11 + 1 + 4 + .44 + 1 + 1 + 1 + .44

= √9
=3
So, standard deviation of the critical activities is 3. With the assumption of the distribution to be
normal probability distribution, we can use the normal standard table to come up with the decision

Page | 11
of determining the probability of a certain z value. To have the z score we will use the formula
given below:

𝑇𝑎𝑟𝑔𝑒𝑡𝑒𝑑 𝑑𝑎𝑦𝑠−𝑒𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑑𝑎𝑦𝑠

𝑧=
𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛
47−44
=
3

z=1
We use the standard normal table to know the probability of a z score of 1. It shows that at z =1,
the table value is .8413. So the probability is 84.13%. We can show it graphically.

Graph: Normal Probability distribution

The graph above shows the graphical positions of the stated situations. Here, mean days of project
completion is 44 days. So, it lies exactly at the middle of the distribution. Now we have to
determine how far the days 47 is from the mean. We measure it by z value. A z value of 1 means
that 47 lies on standard deviation + 1 far from the mean. The area covered with gray color is the
total probability of the stated days. From standard normal table this value is .8413.
So, it is 84.13% probable that the project will be completed in less than 47 days.

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 IV. Crashing the Project:
We now investigate how much it would cost to reduce the expected project duration further down
from 44 days. The assumed deadline for the construction company and the maximum duration the
company is able to increase its resources for the project is 28 days. The question that any operation
research analyst will ask is, if extra money is spent to expedite the project, what is the optimal way
of attempting to meet the target of the completion time. CPM provides an excellent procedure for
investigating time–cost trade-offs, so we will use this approach. This special measure may include
using overtime, hiring additional workers, using special time-saving materials, special equipment,
and so forth. Table 3 shows the project activity, days (normal and crash), cost (normal and cash)
and the computations of the crash cost for each activities.
Table 3: Normal cost, Crash Cost Schedule
Activity Normal Crash Increase in
Code Days Cost Days Cost cost per day
(BDT) (BDT)
A 2 18,415 1 24,333 5,918
B 4 12,643 2 21,137 4,247
C 10 52,811 7 70,498 5,896
D 6 41,658 4 49,967 4,155
E 4 50,179 3 55,972 5,793
F 5 52,681 3 69,786 8,553
G 7 63,894 4 82,814 6,307
H 9 35,905 6 53,522 5,872
I 7 40,997 5 49,876 4,440
J 8 42,394 6 53,161 5,384
K 4 47,643 3 52,218 4,575
L 5 33,887 3 47,092 6,603
M 2 41,539 1 47,806 6,267
N 6 36,913 3 49,682 4,256

Here, the procedure is to crash the activities with the lowest cost first which lie on the critical path.
Of course, crashing activities one by one will gradually increase the costs. Here, our objective is
to determine the crashed time at minimum crash cost. For example, the activity B which lies on
the critical path A→B→C→E→F→J→L→N will result in lowest possible increase in cost. So,
we have crashed the activity B by 2 days. This action will increase our project cost by BDT 8,494.
Still A→B→C→E→F→J→L→N is the critical path. The next least expensive activity is N. So,
we will reduce it by 3 days. We have repeated the procedure to crash further activities. Our all
actions are listed in the table below:
Table 4: Actions taken to crash the project
Activity Should be Increase in
reduced by cost
B 2 8,494
N 3 12,768

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 J 2 10,768
D 2 8,310
E 1 5,793
H 3 17,616
C 3 17,688
A 1 5,918
L 2 13,206
K 1 4,575
M 1 6,267
F 2 17,106
I 1 4,440
132,949

Total Cost = 571,613 + 132,949 = BDT 704,562

Thus crashing the project will enable the Sangu Construction & Builders Company to complete
the project within 28 days. But it will increase the total cost of the project to BDT 704,562 instead
of BDT 571,613.

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 CONCLUSION:
From all the tasks available to be done the four bed house construction, the Sangu Construction
and Builders Company should focus mainly on the critical activities. With our solutions, we have
come to know that A→B→C→E→F→J→L→N is our critical path. So, these activities can not
be delayed anyhow. It will take 44 days to complete the whole project. There is 84.13% probability
that the project will be completed within 47 days. If the Sangu Construction and Builders Company
wants to crash the project to 28 days, it will incur BDT 132,949 extra costs. So the total costs
would be then BDT 704,562.

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