OPERATIONS RESEARCH

What is PERT/Cost?
A further important features of network analysis is concerned with the cost of activities and
of the project as a whole. This is sometimes known as PERT / COST.

The primary object of network cost analysis is to be able to calculate the cost of various
project durations. The normal duration of a project incurs a given cost and by more labour,
working overtime, more equipment etc., the duration could be reduced but at the expense
of higher costs. Some ways of reducing the project duration will be cheaper than others and
network cost analysis seeks to select the cheapest way of reducing the overall duration.

A common feature of many projects is a penalty clause for delayed completion and / or a
bonus for earlier completion. In examination questions, network costs analysis often
combined with a penalty and / or bonus situation with the general aim of calculating
whether it is worthwhile paying extra to reduce the project time so as to save penalty.

(a) Normal Cost :

The costs associated with a normal time estimate for an activity. Often the “normal” time
estimate is set at the point where resources (men, machines etc.) are used in the most
efficient manner.

(b) Crash Cost :

The cost associated with the minimum possible time for an activity. Crash costs, because of
extra wages, overtime premiums, extra facility are always higher than normal costs.

(c) Crash time :

The minimum possible time that an activity is planned to take. The minimum time is
invariably brought about by the application of extra resources, e.g. more labour or
machinery.

(d) Cost slope :

This is the average cost of shortening an activity by one time unit (day, week, month as
appropriate). The cost slope is generally assumed to be linear and is calculated as follows :

Cost Slope = Crash Cost – Normal Cost / Normal Time – Crash Time

(e) Activity direct costs :

The cost of materials, equipment and direct labour (payroll, overtime, hiring and firing costs)
required in performing an activity is called its direct cost. If the activity in question is
subcontracted and is being performed in its entirety by a contractor then the activity direct
cost is equal to the price of the subcontract. The sum total of the direct costs of all the
activities of a project is the project direct cost.

(f) Project indirect costs :

The project indirect costs imply the overhead charges related to the project which include
the supervision and other charges, late completion penalties and awards for early
completion, and so on.

The project indirect costs are generally a function of the time the project takes to complete.
Thus the shorter the period the lesser the overhead charges. However it may also be
recognised that the direct cost of performing an activity would tend to increase if we desire
to perform it in a time shorter than what it requires. Thus, if a project is set to be performed
in a shorter time, then the direct costs would be larger and we can economise on the
indirect costs. Similarly, a slower pace of work might, to some extent, mean lower direct
costs, coupled with higher indirect costs.

OPERATIONS RESEARCH

Numerical on PERT
(PERT)

1. A project has the following activities and other characteristics :

Activity A B C D E F G H I

Preceding
– – A A C D B E,F G
Activity

O 4 1 6 2 5 3 3 1 4
TIME
Estimates M 7 5 12 5 11 6 9 4 19
(in weeks)
p 16 15 30 8 17 15 27 7 28

Draw a network and estimate the earliest and the latest event times for all nodes and hence
derive critical path and estimate the expected duration of the project and corresponding
variance.

(a) What is the probability that the project duration will exceed 60 days?

(b) What is the chance of completing the project between 45 and 54 days?

(c) What is the probability of completing of completing the project within 30 days?
2. A small project consists of seven activities. Optimistic, most likely and pessimistic
time estimates are given for each activity.

Time (Days)
Preceding
Activity
Activity
Optimistic Most Likely Pessimistic

A – 2 5 8

B – 2 5 14

C A 4 6 14

D A 5 7 15

E B, C 2 3 10

F D 3 3 3

G E 1 2 3

(1) Draw the PERT network and find expected completion time of project.

(2) What is the probability that the project will be completed in?

(3) If the project manager wants an assurance of 95% that the project is completed on
time, how many days before the scheduled date he should start the project.

3. As the Project Manager of a construction company, you are involved in drawing

PERT network for a new project. The relevant 3 point time estimates for all activities of the
project are given in the following table :

Time Estimates in Weeks

Event
Optimistic Time Most Likely Time Pessimistic Time

1–2 4 6 8

2–5 8 10 12

2–3 6 10 14

3–4 0 0 0

2–4 4 8 12
 4–5 2 4 6

5–6 2 6 10

(i) Construct the PERT network for the project and determine the critical path and the
expected project completion time.

(ii) What duration will have 95% confidence for project completion?

(iii) If there is huge penalty for exceeding the project completion deadline of 27 weeks,
what is the probability of not being penalized?

4. A project manager has made following 3 point time estimates for various activities of
a project.

Estimates Duration (weeks)

Event
Optimistic Most Likely Pessimistic

1–2 2 2 14

1–3 2 8 14

1–4 4 4 16

2–5 2 2 2

3–5 4 10 28

4–6 4 10 16

5–6 6 12 30

6–7 2 4 6

(i) Draw a PERT network and find out the expected project completion time.

(ii) What project completion will have 90% confidence of completion?

(iii) If there is a huge penalty for exceeding the project completion deadline of 44 weeks,
what is the probability of being panellized?

5. Details of nine activities of a project are as follows :

Activity Time in days

 Optimistic Most Likely Pessimistic

1–2 2 5 14

1–6 2 5 8

2–3 5 11 29

2–4 1 4 7

3–5 5 11 17

4–5 2 5 14

6–7 3 9 27

5–8 2 2 8

7–8 7 13 31

 Draw the network diagram and determine various paths and their durations.
 Calculate the probability of completion of the project in 38 days.
 Calculate the project duration if the probability of project completion is to be 94.5.
 6. Nagaria and Associates are preparing for laying the foundation of state
computer centre to be inaugurated by the Chief Minister by the end of August 2004.
Following are the abbreviated activities and their predecessor activities with their
three time estimates of completion time.

Activities A B C D E F G H I J K

Predecesso C, F,
– – A B C C E I H
r Activities D G

Optimistic
1 1
Time 2 8 7 6 9 6 4 3 1
0 1
Estimate

Presumptiv
1 1 1 1 1
e Time 4 8 6 6 5 1
1 1 8 1 4
Estimate

Most Likely
1 1 1 1
Time 3 8 9 6 5 4 1
0 4 1 0
Estimate

 (a) Draw the PERT network diagram.

  (b) Compute the slack for each activity and determine the critical path.
 (c) As per the contract a penalty of ` 5000/- is to be charged for any delay beyond
37 weeks. What is the probability that Nagaria & Associates will have to pay a
maximum penalty of ` 15000/-?

(Note : Area under standard normal variate z = 0 to z = 1.4795 is 0.4306)