NETWORK MODELS PART 1
The complexity of the nature of
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 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.
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.

Markov Analysis Assumptions The matrix of transition

1. The process has a finite number probabilities provides more useful
of discrete states, meaning once a information.
state has been entered, it cannot
be removed. An equilibrium condition or
2. The process' condition or state steady state happens when in the
in any given period depends only long run, the process has
on its condition in the previous stabilized.
period and on the transition
probabilities. A stabilized system occurs when
3. The transition probabilities the shares do not change.
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.
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 3. The rewards or outcomes
single-player games against of all possible combination
nature. In this game, the player of strategies are known to
does not completely control the both decision-makers.
outcomes as the game also
depends on nature, which is 4. Both players are rational,
considered the "second player." which means that their
ultimate goal is to
Games of Strategy are games maximize their own
with two or more players, nature is payoffs.
not included, wherein each of the
players has partial control over the 5. There will be no
outcomes. bargaining among players.
The strategy selected by
A. Zero-sum Games. This is competing parties is
a strictly competitive game simultaneously chosen,
as the winner receives the without knowing the choice
entire amount of payoff or made by the other party.
reward as contributed by
the losing party. Zero-sum Nonzero-sum games. In nonzero-
games with two players sum games, the gains of one
are termed as "two- competitor are not equal to the
person, zero-sum games." losses of the other player. This
The requirements are as type of game sometimes involves
follows: cooperation and is not strictly
competitive.
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.