Pinky Dey Batch 17th PM Assignment

1. A project’s total cost is Rs.500 K and expected period of completion is 12 months. A review is
taken at the end of every three months. It is observed that for the 3 month period from January
to March 2011, the overall % of completion of the phase relating to the 3 month period is
only 80%. Primary measures are given in the following table:
(Rs. In ‘000)
Particulars January 2011 February 2011 March 2011 Total

BCWS or PV 20 30 50 100

ACWP or AC 18 30 44 92

BCWP or EV 16 24 40 80

Ascertain :

Cost variance (CV) = EV-AC

Jan 2011 Feb 2011 Mar 2011

Monthly Cv -2 -6 -4
Cumulative Monthly CV -2 -8 -12

(i) Schedule variance (SV) = EV-PV

Jan 2011 Feb 2011 Mar 2011

Monthly SV -4 -6 -10
Cumulation SV -4 -10 -20

(ii) Cost performance index (CPI) = EV/AC

January 2011 February 2011 March 2011

Monthly CPI 0.889 0.800 0.909

Cumulative CPI 0.889 0.833 0.870

(iii) Schedule performance index (SPI)

January 2011 February 2011 March 2011

Monthly SPI 0.800 0.800 0.800
Pinky Dey Batch 17th PM Assignment

Cumulative SPI 0.800 0.800 0.800

(iv) Estimate cost at completion and (ECAC)

Total Cost budgeted (BAC Cost) = Rs 500 K.
CPI after 3 months = 0.870
ECAC = 500/0.870
= Rs 574.71 K
(v) Estimate time at completion (ETAC)
Total Time budgeted (BAC Time) = 12 months.
SPI after 3 months = 0.800
ETAC = 12/0.800 = 15 months

CASE STUDY
2. ABC Ltd., have a manually operated machine which has a scrap value of Rs.28,000. They wish to replace
it a new automatic machine at a cost of Rs.70,000, to reduce costs and thereby increase their profits at
least in the first three years after its installation. Cost of capital is 15%.However, due to uncertainty in the
expected demand for their product, the cash flows can not be accurately estimated. Following are the
details of expected cash flows and their probabilities, for the 3 years immediately after the installation of
the automatic machine.

YEAR 1 YEAR 2 YEAR 3

Cash flow (Rs) Probability Cash flow (Rs) Probability Cash flow (Rs) Probability

10,000 .3 10,000 .1 10,000 .3

15,000 .4 20,000 .2 20,000 .5

20,000 .3 30,000 .4 30,000 .2

--- --- 40,000 .3 --- ---

P V Factor @ 15% for three years is as follows:

Year PV Factor
1 .870
2 .756
3 .658
Pinky Dey Batch 17th PM Assignment
(i) Ascertain the NPV of the automatic machine and advise the company
on its purchase.
Expecte Expecte Expected
d cash d cash cash
YEAR 1 flow YEAR 2 flow YEAR 3 flow
Cash flow Probability Cash Flow Cash flow Probability Cash Blow Cash flow Probability CasH FLOW
(Rs) (Rs) (Rs)

10,000 .3 3000 10,000 .1 1000 10,000 .3 3000

15,000 .4 6000 20,000 .2 4000 20,000 .5 10000

20,000 .3 6000 30,000 .4 12000 30,000 .2 6000

--- --- 40,000 .3 12000 --- ---

Total 1500- 29000 19000

Year Cash Flow NPV@15 NPV

1 15000 .870 13050
2 29000 .756 21924
3 19000 .658 12502
Total 47476

Net cash flow = 47476 +2800-70000 =5476

(ii) On the basis of the random numbers given below, apply the Monte Carlo simulation to
decide upon the purchase of the automatic machine.
RANDOM NUMBERS

YEAR SET 1 SET 2 SET 3 SET 4 SET 5

1 4 7 6 5 0

2 2 4 8 0 1

3 7 9 4 0 3

Year 1 Range Year 2 Range Year 3 Range

Cash Flow Lower Upper Cash Flow Lower Upper Cash Flow Lower Upper
10,000 0 2 10,000 0 0 10,000 0 2
15,000 3 6 20,000 1 2 20,000 3 7
20,000 7 9 30,000 3 6 30,000 8 9
40,000 7 9
Pinky Dey Batch 17th PM Assignment
Set 1 (4, 2, 7) Set 2 (7, 4, 9)
Cash PV Factor Cash PV Factor
Year Flow @15% NPV Year Flow @15% NPV
Year 1 15,000 0.870 13,050 Year 1 20,000 0.870 17,400
Year 2 20,000 0.756 15,120 Year 2 30,000 0.756 22,680
Year 3 20,000 0.658 13,160 Year 3 30,000 0.658 19,740
Total NPV of Future Cash Inflows 41,330 Total NPV of Future Cash Inflows 59,820
Scrap value (Cash Inflow) 28,000 Scrap value (Cash Inflow) 28,000
Total Cash Inflow 69,330 Total Cash Inflow 87,820
Total Cash Outflow 70,000 Total Cash Outflow 70,000
Net Cash Flow (670) Net Cash Flow 17,820

Set 3 (6, 8, 4) Set 4 (5, 0, 0)

Cash PV Factor Cash PV Factor
Year Flow @15% NPV Year Flow @15% NPV
Year 1 15,000 0.870 13,050 Year 1 15,000 0.870 13,050
Year 2 40,000 0.756 30,240 Year 2 10,000 0.756 7,560
Year 3 20,000 0.658 13,160 Year 3 10,000 0.658 6,580
Total NPV of Future Cash Inflows 56,450 Total NPV of Future Cash Inflows 27,190
Scrap value (Cash Inflow) 28,000 Scrap value (Cash Inflow) 28,000
Total Cash Inflow 84,450 Total Cash Inflow 55,190
Total Cash Outflow 70,000 Total Cash Outflow 70,000
Net Cash Flow 14,450 Net Cash Flow (14,810)

Set 5 (0, 1, 3) Looking at the net c/f from the 5 simulation sets;
Mean of net c/f (µ) = Rs 5,874
Cash PV Factor
Standard Deviation (σ) = Rs 12,099
Year Flow @15% NPV
Year 1 10,000 0.870 8,700
From z-table, for above µ & σ, the probability of
Year 2 10,000 0.756 7,560
net cash flow > 0 is 0.86.
Year 3 20,000 0.658 13,160
Total NPV of Future Cash Inflows 29,420 Hence, based on the Monte Carlo simulation, the
Scrap value (Cash Inflow) 28,000 firm will make profit 86% of times and hence it is
Total Cash Inflow 57,420 advisable to invest in the new automatic
Total Cash Outflow 70,000 machine.
Net Cash Flow (12,580)

The following information is available about a project’s activities. All times are in months. ( 3
point estimates)

Act.       Predecessor Opt Most          Pess

  Likely
Pinky Dey Batch 17th PM Assignment

A - 2 5 6

B - 4 6 9

C A 4 6 7

D A 4 7 10

E B, C 5 6 10

F D 3 5 8

G E 4 6 8

What are the expected time and variances for each activity?

Expected Est. Std Dev, σ =

Predecesso Most = 1/6*(O + SQRT Variance
Activity r Optimistic Likely Pessimistic 4M + P) (1/6*(P - O) = σ2
A - 2 5 6 4.667 0.667 0.444
B - 4 6 9 6.167 0.833 0.694
C A 4 6 7 5.833 0.500 0.250
D A 4 7 10 7.000 1.000 1.000
E B, C 5 6 10 6.500 0.833 0.694
F D 3 5 8 5.167 0.833 0.694
G E 4 6 8 6.000 0.667 0.444

Draw the AOA or AON network and find the critical path and time of
completion.

Routes Completion Time Std Deviation

A-D-F 16.83 months 1.462
A-C-E-G 23 months 1.354
B-E-G 18.67 months 1.354
Pinky Dey Batch 17th PM Assignment

Which activities will you concentrate on for resource leveling and for reducing project
completion time?

 For Resource Leveling, we’ll concentrate on activities B, D & F

 For Crashing (reducing project time), we’ll concentrate on activities A, C, E & G

What is the probability of completing the project in 30 months?

 Since 30 > µ + 3.2σ; (30> 23 + 3.2*1.354), hence the probability of project

completing in 30 months is 100%

If you do not want to have any chance of a time over run at all, what will be your report to
the board on the expected project completion time?

 If we do not want any time run-over, the minimum completion time will be given by µ +
3.2σ
= 23 + 3.2*1.354
= 27.33 months.
= 27 months and 10 days
4. Information on the activities of a project is given below. All times are in days and all costs are
in Thousands of Rupees. Indirect costs are calculated@ Rs 50,000 per day. All activities can be
partially crashed.

Act Predecessor Normal Time Normal Cost Crash Time Crash Cost
Pinky Dey Batch 17th PM Assignment

A - 5 50 3 250
B - 4 40 2 200
C B 7 70 6 160
D A, C 2 20 1 50
E A, C 3 30 - -
F B 8 80 5 350
G D 5 50 4 100
H E, F 6 60 3 280

Crash Cost
Ac Predecesso Norma Norma Crash Crash per Day Crashabl
t r l Time l Cost Time Cost Cost e Days
A - 5 50 3 250 100 2
B - 4 40 2 200 80 2
C B 7 70 6 160 90 1
D A, C 2 20 1 50 30 1
E A, C 3 30 - -
F B 8 80 5 350 90 3
G D 5 50 4 100 50 1
H E, F 6 60 3 280 73.33 3

Draw the network and find the critical path and project duration and project cost for normal
levels of project activities.

Critical path: B-C-E-H.

For Normal level,
Pinky Dey Batch 17th PM Assignment
- Project duration = 20 days
- Project cost = 400,000 + 20 * 50,000 = Rs 1,400,000

Which activities will you be focusing on to reduce the project duration?

What is the optimal project duration and Cost?
 To reduce project duration, we’ll focus on critical activities, i.e., B, C, E & H.
Find the optimal way of completing the project in 16 days. What is the project
cost?

If you are asked of your opinion about an estimate for the earliest project
completion time, what will be your report?
 Optimal way to complete the project in 16 days is to crash the critical path activities by 4 days,
starting from the activity having the least Crashing Cost per Day

 1st Day crash
 Activity with lowest CC per day in critical path is H. We’ll crash it by 1 day.



Ac Normal Normal Crashing Days New New Total Cost after 1 day
t Time Cost Cost per Day Crashed Time Cost crashing
A 5 50 100 5 50 50+40+70+20+30+80+
B 4 40 80 4 40 50+133.33+50x19
C 7 70 90 7 70
2 20 = 473.33k + 950k
D 2 20 30
E 3 30 3 30
= Rs 1,423,333
F 8 80 90 8 80
Pinky Dey Batch 17th PM Assignment

G 5 50 50 5 50
H 6 60 73.33 1 5 133.33

2nd Day crash

 After crashing activity H by 1 day, the critical path is still B-C-E-H.

 Activity with Lowest CC per day in critical path is still H. We’ll crash it by 1 more day.

Ac Normal Normal Crashing Days New New Total Cost after 2

t Time Cost Cost per Day Crashed Time Cost days crashing
A 5 50 100 5 50 50+40+70+20+30+80+
B 4 40 80 4 40 50+206.67+50x18
C 7 70 90 7 70
2 20 = 546.67k + 900k
D 2 20 30
E 3 30 3 30
= Rs 1,444,667
F 8 80 90 8 80
G 5 50 50 5 50
H 6 60 73.33 2 4 206.67

3rd Day crash

 After crashing the activity H by 2 days, we observe that there are 2 critical paths: B-C-D-G & B-C-
E-H.
 Instead of focusing on lowest crash cost per day activity, we’ll focus on activity that is common
across both critical paths and we’ll crash the common activity with lowest crashing cost per day.
 Activity common across the 2 critical paths and lowest crashing cost per day is B. We’ll crash it
by 1 day.
Pinky Dey Batch 17th PM Assignment

Ac Normal Normal Crashing Days New New Total Cost after 3 days
t Time Cost Cost per Day Crashed Time Cost crashing
A 5 50 100 5 50 50+120+70+20+30+80+
B 4 40 80 1 3 120 50+206.67+50x17
C 7 70 90 7 70
2 20 = 626.67k + 850k
D 2 20 30
E 3 30 3 30
= Rs 1,447,667
F 8 80 90 8 80
G 5 50 50 5 50
4 206.6
H 6 60 73.33 2 7
4th Day crash

 After crashing the activity H by 2 days and activity B by 1 day, we observe that there again are 2
critical paths: B-C-D-G & B-C-E-H.
 We’ll focus on activity that is common across both critical paths and we’ll crash the common
activity with lowest crashing cost per day.
 Activity common across the 2 critical paths and lowest crashing cost per day is again B. We’ll
crash it by 1 more day.

Ac Normal Normal Crashing Days New New Total Cost after 4 days
t Time Cost Cost per Day Crashed Time Cost crashing
Pinky Dey Batch 17th PM Assignment

A 5 50 100 5 50 50+200+70+20+30+80+
B 4 40 80 2 2 200 50+206.67+50x16
C 7 70 90 7 70
2 20 = 706.67k + 800k
D 2 20 30
E 3 30 3 30
= Rs 1,506,667
F 8 80 90 8 80
G 5 50 50 5 50
4 206.6
H 6 60 73.33 2 7
Optimal Project cost of completing the project in 16 days is Rs 1,506,667.

The following information is available about a project’s activities. All durations are in days.

Act Predecessor Duration Resource Used

A - 4 X, Y

B A 2 X

C A 2 X

D B, C 4 X, Y

E D 5 W, X

F D 3 W, X, Y

G E, F 2 X, Y

Draw a Gantt Chart. (Use graph sheet)

Pinky Dey Batch 17th PM Assignment

Find the critical path and the project duration in days.

Given that each resource is assigned 100% to each task, identify the resource constraints.
Pinky Dey Batch 17th PM Assignment

Which activities will you be focusing on to level the resources?

Here’s the resource calendar from Microsoft Project. Also presented is the leveled-out resource usage
from Microsoft project.

Resource Calendar
Assuming a 5 day week, prepare the resource calendar( Graph Sheet ). Level the resources.

Leveled-out Resource Usage

Pinky Dey Batch 17th PM Assignment