MBA General - Project Management

Lecture 4,5 & 6

Network Analysis
 Learning Objectives
When you complete this chapter, you should
be able
 to identify or define:
– Critical path
– AOA Networks
– Forward and Backward Passes
– Variability in Activity Times
– Cost and Networks (Crashing the Network)
 Learning Objectives - Continued
 to describe or explain:
– Describe how a PERT network analysis works
– Critical path method (CPM)
– Variability in Activity Times
• Three Time Estimates in PERT
• Probability of Project Completion
– Determining the Project Schedule
• Forward Pass
• Backward Pass
• Calculating Slack Time and Identifying the
Critical Path(s)
 Managing Projects with Networks
Managing projects with networks usually
involves four steps:
1. Describing the project
2. Diagramming the network
3. Estimating time of completion
4. Monitoring project progress
 Objectives of network analysis

1. Minimisation of total project cost

2. Minimisation of total project duration
3. Minimisation of idle resources
4. Minimise production delays,
interruptions and conflicts
 Management of Large Projects
 Planning - goal setting, project definition,
team organisation
 Scheduling - relating people, money, and
supplies to specific activities and activities to
one and other
 Controlling - monitoring resources, costs,
quality, and budgets; revising plans and
shifting resources to meet time and cost
demands
 Project Planning
Project planning is the process of identifying
all the activities necessary to successfully
complete the project. . It consists of :
 Establishing objectives
 Defining project
 Creating work breakdown structure
 Determining resources
 Forming organisation
 Project Scheduling
Project scheduling is the process of
determining the sequential order of the planned
activities, assigning realistic durations to each
activity, and determining the start and finish
dates for each activity.
 Identifying precedence relationships
 Sequencing activities
 Determining activity times & costs
 Estimating material & worker requirements
 Determining critical activities
 Purposes of Project Scheduling
 Shows the relationship of each activity to
others and to the whole project.
 Identifies the precedence relationships among
activities.
 Encourages the setting of realistic time and
cost estimates for each activity.
 Helps make better use of people, money, and
material resources by identifying critical
bottlenecks in the project.
 Project Planning, Scheduling, and
Controlling
Project Planning
Time/cost estimates
1. Setting goals
Budgets
2. Defining the project
Cash flow charts
3. Tying needs into timed project
Material availability details
activities
4. Organizing the team
Project Scheduling
1. Tying resources to specific CPM/PERT
activities Gantt charts
2. Relating activities to each other Cash flow schedules
3. Updating and revising on a
regular basis
Project Controlling
Reports
1. Monitoring resources, costs, quality,
• budgets
and budgets
• delayed activities
2. Revising and changing plans
• slack activities
3. Shifting resources to meet demands

Before Project During Project

 Describing the Project
 Activity
– the smallest unit of work effort consuming
both time and resources that the project
manager can schedule and control
 Precedence Relationship
– determines a sequence for undertaking
activities; it specifies that one activity
cannot start until a preceding activity has
been completed.
 Diagramming the Network
 Activity-On-Arc (AOA) network
uses arcs (arrows) to represent activities and nodes to
represent events
 Event - is the point at which one or more
activities are to be completed and one or more
other activities are to begin
– an event consumes neither time nor resources.
– A-O-A emphasises activity connection points
– Here, precedence relationships require that an event
not occur until all preceding activities have been
completed
 Activity-On-Node (AON) Network
– nodes represent activities and the arcs
indicate the precedence relationships
between them.
– the approach is activity oriented
– here, the precedence relationships
require that an activity not begin until
all preceding activities have been
completed.
 Project Management Techniques
 Gantt chart

 Critical Path Method (CPM)

 Program Evaluation & Review

Technique (PERT)
 GANTT CHART
Gantt Chart
A Gantt Chart is a simple technique that can be
used to attach a time scale and sequence to a
project. Gantt charts, also commonly known as
milestone plans, are a low cost means of assisting
the project manager at the initial stages of
scheduling.
Example of Gantt Chart
 Time Period
Activity
J F M A M J J
Design
Build
Test
 PERT and CPM
• Network techniques
• Developed in 1950’s
– CPM by DuPont for chemical plants (1957)
– PERT by Booz, Allen & Hamilton with the U.S.
Navy, for Polaris missile (1958)
• Consider precedence relationships and
interdependencies
• Each uses a different estimate of activity times
• Method to analyse the tasks involved in completing a
given project, especially the time needed to complete
each task, and identifying the minimum time needed to
complete the total project.
Program Evaluation and Review Technique (PERT)
– A flow chart diagram that depicts the sequence of
activities needed to complete a project and the time or
costs associated with each activity.
 Events: Endpoints for completion
 Activities: time require for each activity
 Slack time: The time that a completed activity
waits for another activity to finish so that they can
begin jointly on another activity
 Critical path: the longest path of activities that
allows all tasks to be completed,
 Probabilistic Time Estimates
 Optimistic time (O): the minimum possible time required to
accomplish a task, assuming everything proceeds better than
is normally expected
 Pessimistic time (P): the maximum possible time required to
accomplish a task, assuming everything goes wrong (but
excluding major catastrophes).
 Most likely time (M): the best estimate of the time required
to accomplish a task, assuming everything proceeds as
normal.
 Expected time (TE): the best estimate of the time required to
accomplish a task, assuming everything proceeds as normal
(the implication being that the expected time is the average
time the task would require if the task were repeated on a
number of occasions over an extended period of time).
TE = (O + 4M + P) ÷ 6
 In the following example there are seven tasks,
labeled a through g. Some tasks can be done
concurrently (a & b) while others cannot be done
until their predecessor task is complete (c cannot
begin until a is complete). Additionally, each
task has three time estimates:
 the optimistic time estimate (a),
 the most likely or normal time estimate (m), and
 the pessimistic time estimate (b).
The expected time (TE) is computed using the
formula
TE = (a + 4m + b)/6.
 Probabilistic Time Estimates
With three time estimates, the manager has
enough information to estimate the probability
that the activity will be completed in the
scheduled amount of time.

To do so, the manager must first calculate the

mean and variance of a probability distribution
for each activity.
Mean of the beta distribution can be estimated
as
a  4m  b
t
6
Variance of the beta distribution for each
activity is
2
b  a
 
2

 6 
 Critical Path Method - CPM
 Critical Path Method - CPM
The Critical Path Method, abbreviated CPM, is a
mathematically based algorithm for scheduling a set of
project activities. It is a very important tool for effective
project management. It was developed in the 1950's in a
joint venture between DuPont Corporation and
Remington Rand Corporation for managing plant
maintenance projects. Today, it is commonly used with
all forms of projects, including construction, software
development, research projects, product development,
engineering, and plant maintenance, among others. Any
project with interdependent activities can apply this
method of scheduling.
The Six Steps Common to PERT and
CPM
 Define the project and prepare the work breakdown
structure.
 Develop relationships among the activities. (Decide
which activities must precede and which must follow
others).
 Draw the network connecting all of the activities.
 Assign time and/or cost estimates to each activity.
 Compute the longest time path through the network.
This is called the critical path
 Use the network to help plan, schedule, monitor, and
control the project.
 CPM
CPM Diagram
 Questions which may be addressed
by PERT & CPM
 Is the project on schedule, ahead of schedule,
or behind schedule?
 Is the project over or under cost budget?
 Are there enough resources available to finish
the project on time?
 If the project must be finished in less than the
scheduled amount of time, what is the way to
accomplish this at least cost?
 Advantages of PERT/CPM
• Especially useful when scheduling and controlling
large projects.
• Straightforward concept and not mathematically
complex.
• Graphical networks aid perception of relationships
among project activities.
• Critical path & slack time analyses help pinpoint
activities that need to be closely watched.
• Project documentation and graphics point out who is
responsible for various activities.
• Applicable to a wide variety of projects.
• Useful in monitoring schedules and costs.
 Limitations of PERT/CPM
• Assumes clearly defined, independent, &
stable activities
• Specified precedence relationships
• Activity times (PERT) follow beta distribution
• Subjective time estimates
• Over-emphasis on critical path
 Network Conventions
The diagram below illustrates the kinds of situation
we can represent in network diagrams.
Network Conventions
a
b
c a

c
b

a c
a c

b Dummy
activity
b d
 Errors and logical sequence
Three types of errors in logic may arise when
drawing network, particularly when it is a
complicated one. These are known as
• Looping: Normally in the network, the arrow points
from left to right. This convention is to be strictly
adhered, as this would avoid the illogical looping, as
shown wrongly below.

1 2 3 4
• Dangling: The situation represented by the
following diagram is also at fault, since the
activity represented by the dangling arrow 7-8 is
undertaken with no result.

6 7 9

8
• Duplicate activities: consider the following
figure
A

6 7 8

6 8

B
7
 Dummy Arrows
Dummy arrows are used to transfer logic
from one event node to another in the net
work. They are represented by broken
arrows. A dummy arrow has zero
duration and does not represent an
activity. These symbols are used to
represent the relationships among the
activities.
Question 1
Show by representation, through arrows and nodes, the partial
situations described below; "the letters in each case are to be
taken” as an activity description.
1. Z is controlled by T, i.e. (Z depends on T).
2. T is controlled by P and Q.
3. T controls Y and Z.
4. Y and Z are controlled by S and T.
5. Y is controlled by S and T. with Z controlled by T.
6. S and T control X, whilst T and U control Y.
7. S and T control X, T controls Y, with T and U controlling Z.
8. S controls X and Y. whilst U controls Y and Z.
9. S controls X and Y. T and U control Y with Z depending on
U.
(Hint: Prepare dependency table to facilitate solution)
Question 2
Draw a network for the following conditions:
1. U and R can be performed concurrently and are the start
of the project.
2. K must follow E.
3. X is dependent on both Q and K.
4. Neither F nor G can start before R is finished but F and
G can be performed concurrently.
5. U must precede E and Q.
6. Q must precede J.
7. C is dependent on both F and G.
8. F and Q can be done concurrently.
9. H can begin only after C, X and J are completed.
10. H is the last operation.
Analysis of the project normally involves:
• Determining the Critical Path. The critical path is
the group of activities in the project that have a
slack time of zero. This path of activities is
critical because a delay in any activity along it
would delay the project as a whole.

• Calculating the total project completion time, T.

This is done by adding the activity times of those
activities on the critical path.
 Critical Path Analysis
 Provides activity information
– Earliest (ES) & latest (LS) start
– Earliest (EF) & latest (LF) finish
– Slack (S): Allowable delay
 Identifies critical path
– Longest path in network
– Shortest time project can be completed
– Any delay on critical path activities delays
project
– Critical path activities have 0 slack
 The objective of critical path analysis is to determine times
for the following:
 ES = Earliest Start Time (Earliest Event Time, EET): This is
the earliest time an activity can be started, allowing for the
fact that all preceding activities have been completed.
 LS = Latest Start Time: This is the latest time an activity
can be started without delaying the start of following
activities which would put the entire project behind
schedule.
 EF = Earliest Finish Time: The earliest time an activity can
be finished.
 LF = Latest Finish Time (Latest Event Time, LET): The
latest time that an activity can finish for the project to
remain on schedule.
 S = Activity Slack Time. The amount of slippage in activity
start or duration time which can be tolerated without
delaying the project as a whole.
 Critical Path Analysis
 Estimating Time of Completion
1.  Earliest Start and Earliest Finish Times
– Earliest Finish Time (EF) = ES + t
– Earliest Start Time (ES) = Latest EF of the
immediately preceding task
Begin with the start node and work your
way to the finish node, Forward Method.
 Estimating Time of Completion
2.  Latest Start and Latest Finish Times
– Latest Finish Time (LF) = Earliest LS of
subsequent activities
– Latest Start Time (LS) = LF – t
  Work backward from the finish node,
Backward Method.
 Estimating Time of Completion
3.  Determining the Critical Path
 Activity Slack = LET – EET
– The critical path is the sequence of activities
between the project’s start and finish that takes the
longest time to complete.
– Thus, the activities along the critical path
determine the completion time of the project; that
is, if one of the activities along the critical path is
delayed, the entire project will be delayed.
 Latest Start and Finish Steps

Name
Activity
Earliest Earliest
Start ES EF
Finish

Latest LS
Duration
LF
Start Activity Latest
Finish
• Typical Network diagram

Earliest
Event
Activity
Time
Label
Event Direction
Label

Latest
Event
Time
Example 1
Complete the network diagram including the EET and LET.
2

B 3 E
6

A C 3 F 5 H 6
0 1
5 7 8
4

G
D 5
5

4
Example 2
A company has decided to redesign its electronic component. The
project involves several activities which are listed below:

Activity Description of activity

Predecessor Time
(week)
A Finish component development - 5
B Design marketing program A 4
C Design production system A 7
D Select advertising media B 8
E Initial production run C 9
F Release component to market D, E 4

Construct the network of these activities.

Example 3
Consider the following data for activities in a given project.

Activity Description Immediate Time

predecessor (days)
A Prepare bill of material - 2
B Prepare assembly charts A 4
C Order and wait delivery of material A 8
D Organize production run B 3
E Specify inspection procedure B 2
F Set-up inspection stations D, E 3
G Train workers D 4
H Assemble product C, F, G 8

Construct the network of these activities.

 Advantages of PERT/CPM
 Especially useful when scheduling and controlling
large projects.
 Straightforward concept and not mathematically
complex.
 Graphical networks aid perception of relationships
among project activities.
 Critical path & slack time analyses help pinpoint
activities that need to be closely watched.
 Project documentation and graphics point out who is
responsible for various activities.
 Applicable to a wide variety of projects.
 Useful in monitoring schedules and costs
 Limitations of PERT/CPM
 Assumes clearly defined, independent, &
stable activities
 Specified precedence relationships
 Activity times (PERT) follow beta
distribution
 Subjective time estimates
 Over-emphasis on critical path
 Costs & Networks
• A further important feature of network analysis is
concerned with the costs of activities and of the project
as a whole. Sometimes known as the PERT/COST.

• Cost analysis objectives: 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.
 Basic Definitions
a. Normal cost: the costs associated with a normal time
estimate for an activity.
b. Crash cost: the costs associated with the minimum possible
time for an activity. Crash costs, because of extra wages,
overtime premiums, extra facility costs 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 (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 an calculated as
follows:
Cost slope = (crash cost-normal cost)/(normal time-crash time)
e. Least cost scheduling or “crashing”: the
process which finds the least cost method of
reducing the overall project duration, time
period by time period.
 Least Cost Scheduling Rules
• The basic rule of least cost scheduling is as
follows:
Reduce the time of the activity on the critical
path with the lowest cost slope and progressively
repeat this process until the desired reduction in
time is achieved.
 D E

Crash
cost

COST

F
Normal
cost
C

O B A
DURATION FOR THE JOB
Crash Normal
Time Time
• Let OA represent the normal duration of completing a job and
OC the normal cost involved to complete the job. Assume that
the management wish to reduce the time of completing the job
to OB from normal time OA. Therefore under such a situation
the cost of the project increases and it goes upto say OD (Crash
Cost). This only amounts to saving that by reducing the time
period by BA the cost has increased by the amount CD. The
rate of increase in the cost of activity per unit decrease in time
is known as cost slope and is described as follows.
Activity cost slope = CD OD  OC

AB OA  OB

Crash cos t  NormalCost

Normaltime  Crashtime