NETWORK MODELS PART 1

Network management tools:

Critical Path Method (CPM)
- 1957, Morgan R. Walker of Du Pont and James E. Kelly of Remington
Rand.
- Finding ways to reduce the time required to perform tasks, such as
construction work and plant maintenance.
- To determine the optimal tradeoff of cost and time was the goal of the
originators of CPM.

Program Evaluation and Review Technique (PERT)

- Developed in 1958 by US Navy Special Projects Office in conjunction
with the consulting firm Booz, Allen, and Hamilton.
- The US Navy, at that time, was faced with the challenge of developing
Polaris submarine missile project at the soonest possible time.
- PERT was the tool used to plan and control the duration of this
project.

Characteristics of Project Management

1. The time of completion of the project can take weeks, months, or even
years.
2. The complexity of the nature of the project involves many activities or
events.

3. Delays in the project may require the payment of penalty fees.

4. The sequential nature of projects means that some activities cannot begin
until a certain condition or event had taken place.

5. Projects are carefully planned activities that involve a unique undertaking.

Activity. Activity refers to an effort that needs resources and time to

accomplish a goal or a project.

Event. A goal that has been completed at a certain period is considered an

event. An event can also be called as a milestone as it happens after all
activities that precede it must be accomplished.

Project. Series of events and activities with a definable beginning and a

definable end, which is the goal.
Network. Activities and events that are arranged in a logical and chronological
order and presented graphically that demonstrate the relationships among the
different activities and events that will lead to the completion of a project.

Critical Activity. An activity that has a strong impact on project completion.

Path. Represents a collection of activities that connects one event to another

Critical Path. A path that is comprised of a sequence of critical activities that

occur from the start of a project until full completion. It is the longest path
throughout the project network.

Immediate Predecessors. These are activities that must be accomplished

before the start of an activity in question.

Activity Slacks. Also termed as float activity, it is the length of time that a task
is allowed to be delayed as it will not cause a delay for the entire project.

PERT usually requires three estimates to calculate the weighted average of

the expected completion date of the project based on the probability
distribution of time of completion.
PERT is a tool mainly focused on planning and controlling time.
PERT is a probabilistic tool

CPM is a deterministic tool.

CPM needed only one estimate of project duration.
CPM includes an explicit estimate of the cost

Minimum information that PERT/CPM can provide:

1. Activities that are critical
2. Activities that are noncritical
3. The slack time per noncritical activity
4. Other information as needed by management

Solving CPM

"solution" is the second phase of PERT/CPM, which necessitates the

construction of a network.

Forward pass aims to determine the earliest start and earliest finish time of
each activity by going forward on the network.

Backward pass - identifies the latest start and latest finish time of each
activity through the network.
NETWORK MODELS PART 2

Program/Project Evaluation and Review Technique (PERT)

- is a network technique that is used for project planning and scheduling
that applies probabilistic activity times.
- used for dealing with uncertain activity times.

Two PERT categories:

Stochastic PERT used for activity times that are of probabilistic nature

Deterministic PERT where the activity time is assumed to be known with

certainty.

Three Estimates of Activity Time

1. Optimistic estimate (to). An estimate of the shortest possible duration of
an activity reaching its completion.

2. Most likely estimate (t). The estimate of the duration would occur most
often if the activity is repeated under exactly the same conditions several
times.

3. Pessimistic estimate (t). The longest time that an activity will be completed
"when everything went wrong.”

PERT is more than a planning and control tool as it can also be used to give
management an indication of possible delay in the completion of a project.
With the use of PERT, management can predict whether the project will be
completed on before, or after the scheduled dates.

Cost-Time Relationships

"Crashing." - this can be done by adding resources by a process

"Crashing the project." - this process of expediting the execution of a project

to a time below the normal

Crash duration - is the term for the minimum possible duration for an activity.

These are the steps in the process of crashing a project:

1. Determine the normal completion time and cost.

2. Determine the crash schedule and the cost.
3. Compute the cost required to expedite all activities from a normal time and
crash time.
4. Identify the least-cost plan for the crash time schedule.
MARKOV ANALYSIS

Markov analysis
- is an analytical tool that uses the current state and movement of a variable to
predict future states and movement of said variable.
- It was developed by Andrei A. Markov, a Russian mathematician, who was
able to use this procedure to predict the behavior of particles of gas in a
closed container.

Markov Analysis Assumptions

1. The process has a finite number of discrete states, meaning once a state
has been entered, it cannot be removed.
2. The process' condition or state in any given period depends only on its
condition in the previous period and on the transition probabilities.
3. The transition probabilities become constant over time.
4. Changes in the process happen only once in every period.
5. All time duration is equal in length.
6. The market size remains constant in all periods.

1. Present Market Share. The percentage of the market accounted for by

each of the companies.
2. Retention Rate. The likelihood of a company's present customers to buy
from the same company.

3. Switching-out Rate. The likelihood of a company's present customers to

buy from another company in the next period.

4. Switching-in Rate. The likelihood of a competitor's customers to buy from

the company in the next period.

The matrix of transition probabilities provides more useful information.

An equilibrium condition or steady state happens when in the long run, the
process has stabilized.

A stabilized system occurs when the shares do not change.

DYNAMIC PROGRAMMING

Dynamic programming
- is a very powerful technique that is based on the "principle of optimality."
- A principle that can be summarized simply as "Every optimal policy consists
only of optimal sub- policies."
- It is a variant of the "divide and conquer" method as the solution to the
problem is derived from previous solutions of sub-problems.
- is a problem-solving approach that performs computations of similar simpler
sub- problems that would later build up the solution for a more complex
problem.
- The method was invented by American mathematician Richard Bellman in
the 1950s to solve optimization problems.

Philosophy of Dynamic Programming

What distinguished dynamic programming from the "divide and conquer"

method is that the problem to be solved should have overlapping sub-
problems.

Optimal substructure - optimal solution must contain an optimal sub-

solutions.

Overlapping sub-problems - manifest when a recursive algorithm visits the

same sub-problems repeatedly
Solution by Dynamic Programming

The dynamic programming method starts with the segmentation of the given
problem into smaller problems termed as stages.

State - is referred to as a condition in which a process or a problem is in a

particular stage.

Rollback analysis - means that the end of the problem is analyzed ahead of
the other problems.

Six major terms

Stages. A stage is defined as a particular decision point on the course of the

solution.

States. In the example, the traveler moved along bus stations from Manila to
Ilocos Norte. Each bus station is equivalent to a state.

Decision Process. The decision process in a dynamic programming solution

is done by moving from one stage to another. Directions can either go forward
or backward.

Reward. The reward in the example is the "hours of travel." There are three
types of reward:

1. Immediate Reward. The result or payoff from moving between two

adjacent stages is referred to as the immediate reward. It is shown under the
column "Distance to Stage No._.”

2. Total Reward. The total reward is equivalent to the sum of the immediate
reward and the optimal reward obtained from the previous stage.

3. Optimal Total Reward. The optimal reward is the best of all rewards in
each state, for each given stage. In the example, it is the shortest route from
one bus station going to the destination.

Recursive Relation. Recursive relation is the function that binds the

immediate reward, the total reward, and the optimal total reward. It is a
relationship that is based on the principle of optimality.

Policy. In dynamic programming, policy is about a predetermined plan for

making a decision.
GAME THEORY

Game theory
- is defined as a theory of independent and interdependent decision-making.
- It involves strategies of two or more autonomous players, in which no single
player has full control of the outcome of the game.
- Decision-makers with conflicting objectives make the decision complex for
mathematical analysis.
- has evolved as a mathematical process that results in optimal solutions for
problems under competition or conflict.
- John Von Neumann, a Hungarian mathematician, was the founding father of
game theory.
- In 1926, Neumann was able to develop the "minimax theory."

Presentation of Game Theory

The normal form of presentation is in a tabular format, and the entire
sequence of decisions for the game must be consolidated in a single strategy.
Such format is limited to games with two players only.

Assumptions of Game Theory

1. The number of participants or "players" is an element. A game can have a

single player or a group of individuals with one goal. In other cases, & game
can have two, three, four, or more players.

2. There should be conflicting goals from each party.

3. A payoff or reward is the consequence of the decisions made by opposing

parties. The average payoff per play is identified as the value of the game. A
game with zero value is termed as a fair game.

4. Decisions of each party are made simultaneously. It means that one party
cannot wait for the decision of the other before making their own move.
5. The availability of information to both parties is important.

Classification of Games

Games of Skill - involves only one player who has the complete control of the
game's outcome. An example of this is a person who is taking an examination.
The type of game is not really classified as a game at all because of the
absence of interdependence.

Games of Chance - are also single-player games against nature. In this

game, the player does not completely control the outcomes as the game also
depends on nature, which is considered the "second player."

Games of Strategy are games with two or more players, nature is not
included, wherein each of the players has partial control over the outcomes.

Zero-sum Games. This is a strictly competitive game as the winner receives

the entire amount of payoff or reward as contributed by the losing party. Zero-
sum games with two players are termed as "two-person, zero-sum games."
The requirements are as follows:

1. Composed of two players only. Each player can choose one of the
definable sets of strategies.

2. "Zero-sum," as the term implies, states that any gain by one player is
exactly equal to the loss of the other player.

3. The rewards or outcomes of all possible combination of strategies are

known to both decision-makers.

4. Both players are rational, which means that their ultimate goal is to
maximize their own payoffs.

5. There will be no bargaining among players. The strategy selected by

competing parties is simultaneously chosen, without knowing the
choice made by the other party.

Nonzero-sum games. In nonzero-sum games, the gains of one competitor

are not equal to the losses of the other player. This type of game sometimes
involves cooperation and is not strictly competitive.