LECTURE NOTES ON PROJECT

MANAGEMENT
Ramun Prasad†*
(Lecture No. - 41,42 & 43)

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Recapitulate

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Learning Outcomes
After this session students will be able to:

- Explain the term ‘Project Management’.

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- List the core components of Project Management.

- Explain the Critical Path Method (CPM).

- Explain the Programme Evaluation & Review Technique (PERT).

- Differentiate between CPM & PERT.

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- Explain the Concept of Break-Even-Analysis (BEA).

- Construct a network diagram.

- Determine the critical path.

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1 Project Management (No Numerical)

Projects are backbone of any economy. The range of activities is so wide that it almost
encompasses all economic activities. These days project management is fast emerging as
a new profession. Project managers are required in a construction project, R& D project,
urban/rural development project, setting up a new factory for manufacture of some goods,
etc.
* Lecturer,Department of Humanity (Economics), Government Polytechnic, Gaya, Bihar
†
E-mail: ramuncup@gmail.com, Homepage: https://ecoramun.wordpress.com/
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©Govt. Polytechnic, Gaya

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Unit-07: Project Management Ramun Prasad

1.1 Introduction & Meaning of Project Management

Project management is the discipline of organizing and managing resources in such a way
that these resources deliver all the work required to complete a project within defined scope,
time, and cost constraints.
A successful project management can therefore be defined as having achieved the project
objectives like; within the time limit, within estimated cost, desired performance/technology
level, and utilized the assigned resources effectively and efficiently.

Project management is a tool of management for planning and control.The objective of

which has been defined as an attempt to make the most efficient and effective use of re-
sources, viz.: manpower, equipment, facilities, materials, money,technology and informa-

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tion, so that the organization’s objectives and goals can be achieved within budget, on sched-
ule and at the desired performance/technology level, while adhering to the ever changing
environmental input factors, like legal, social, political, economical and technological.

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Project management can be defined as the planning, organizing, directing and controlling
of company resources for a relatively short-term objective that has been established to com-
plete specific goals and objectives.

1.2 Definitions of Project Management

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Project management is the application of processes, methods, knowledge, skills and experi-
ence to achieve the project objectives.

According to Project Management Institute (PMI): “Project Management is the application

of knowledge, skills, tools and techniques to project activities in order to meet or exceed
stakeholder needs and expectations”.
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A project is a temporary and one time endeavor undertaken to create a unique product or
service.

1.3 Result Expected from Project Management

Following results are expected from Project Management:

• Attainment of project objectives in a timely manner within budget.

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• Progress reports with deviations from plan highlighted.

• Significant decisions from top management for approval.

1.4 Role & Responsibilities of Project Manager

The basic role & Responsibility of a Project manager are as under:

1. Organize and implement diverse and scattered activities to achieve time, cost and
performance goals.

2. Develop project execution plan.

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3. Organize for execution of the plan. He should show his commitment to this plan.

4. He should inculcate enthusiasm, team spirit, confidence and reputations for excel-
lence.

5. Develop systems and procedure for accomplishment of project objectives.

6. Direct, coordinate and control the project activities.

7. Guiding and Problem solving.

8. Satisfaction of customers, government and public.

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9. He should be an entrepreneur.

1.5 Tools & Techniques for Project Management

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Following are the important tools and techniques for effective project management.

1. Project selection techniques.

(a) Cost-benefit analysis.
(b) Risk and sensitivity analysis.
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2. Project implementation (execution) planning techniques.
(a) Work break down structure (WBS)
(b) Project implementation plan.
(c) Project responsibility matrix.
(d) Project management manuals.

3. Project scheduling techniques.

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(a) Line of Balance (LOB)

(b) Bar Charts
(c) Network Techniques (CPM/PERT).

4. Project monitoring techniques.

(a) Progress measurement technique.
(b) Performance monitoring technique.
(c) Updating, reviewing and reporting technique.
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5. Project cost and productivity techniques

(a) Value engineering.
(b) Budgetary control.
(c) Cost/WBS.

6. Project communication techniques.

(a) Computerized information system.
(b) Control room.
(c) MIS.

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Unit-07: Project Management Ramun Prasad

1.6 Project Formulation

“Project Formulation” is the systematic development of a project idea for arriving at an
investment decision. Project Formulation involves the following elements:-
a) Feasibility analysis
b) Techno-Economic analysis
c) Project Design and Network analysis
d) Input analysis
e) Financial analysis
f) Social Cost-benefit analysis
g) Project appraisal.

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1.7 Phases/Stages of Project Management

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Source: https://researchadmin.asu.edu/themes/rtdoked/images/pmo-process.png
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2 Introduction to CPM & PERT Technique

Program Evaluation and Review Technique (PERT) and Critical Path Method (CPM) are
two most widely used techniques in project management. The objectives of project man-
agement can be described in terms of a successful completion of project on time within the
budgeted cost and adhering to technical specifications which satisfy the end users. A project
is any human undertaking with a clear beginning and a clear ending.
These techniques have been created out of the need of Western industrial and military estab-
lishments to plan, schedule and control the complex projects.
Prior to the development of PERT and CPM, the most popular technique for project schedul-
ing was the Bar or Gantt Chart developed by Henry L. Gantt in around 1900. These Charts
show a graphic representation of work on a time scale.

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2.1 Introduction to Programme Evaluation Review Technique (PERT)

• PERT was first used in 1957 as a method of planning and controlling the Polaris Mis-
sile Programme by Booz, Allen and Hamilton together with U.S. Nawal department.
The aim was to finish the project two years in advance. PERT describes basic network
technique which includes planning, monitoring and control of projects.

• PERT is a very important technique in the field of project management. It is com-

monly employed for conducting the initial review of a project.

• PERT, actually, developed as a research and development planning tool where activity
timings could not be estimated with enough certainty.

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• PERT can be employed at those places where a project can not be easily defined in
terms of time or resources required.

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• PERT is mainly concerned with event and thus it is an event-oriented system.

• The basic tools used in PERT technique is the network or flow plan. Network consists
of series of related events and activities.

The PERT planning technique consists of the following steps:

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1. The project is broken down into different activities.

2. Activities are arranged in logical sequence.

3. The network diagram is drawn. Events and activities are numbered.

4. Using three times estimate, the expected time for each activity is calculated.
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5. Standard deviation and variance for each activity are computed.

6. Earliest starting times and Latest finishing times are calculated.

7. Expected time, earliest starting time, and latest finishing times are marked on the
network diagram.

8. Slack is calculated.
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9. Critical path(s) are identified and marked on the network diagram.

10. Length of critical path or total project duration is found out.

11. Lastly, the probability that the project will finish at due date is calculated.

All activity arrows must begin and end with event nodes. It is shown in the following figure:

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Diagram of Project Network (PERT)

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Source:https://www.researchgate.net

2.2 Introduction to Critical Path Method (CPM)

• The E. I. Du Pont de Nemours Company (USA) in the year 1958 while overhauling
a chemical plant emloyed a technique is called Critical Path Method to schedule and
control the project and experienced a good amount of saving.
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• Unlike PERT, CPM developed in civilian business and engineering industry where
activity timings were relatively well known.

• CPM is applicable to both large and small projects, taking from space programmes to
wedding or horse shows. It is widely recognized and is the most versatile and potent
management planning technique.

• CPM is a technique, used for planning and controlling the most logical and economic
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sequence of operations for accomplishing a project. The project is analyzed into dif-
ferent activities whose relationship, as in PERT, are shown on the network diagram.
The network is then utilized for optimising the use of resources, progress and control.

The CPM employs the following steps for accomplishing a project planning:

1. Break down the project into various activities systematically.

2. Label all activities.

3. Arrange all the activities in logical sequence.

4. Construct the arrow diagram.

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5. Number all the nodes (events) and activities.

6. Find the time of each activity.

7. Mark the activity times on the arrow diagram.

8. Calculate early and late, start and finishing times.

9. Tabulate various times and marks Earliest Start Time (EST) and Latest Finished Time
(LFT) on the arrow diagram.

10. Calculate total float for each activity.

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11. Identify the critical activities and mark the critical path on the arrow diagram.

12. Calculate the total project duration.

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13. If it is intended to reduce the total project duration, crash the critical activities of the
network.

14. Optimise the cost

15. Update the Network.

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16. Smooth the network resources.

Diagram of Project Network (CPM)

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Source: http://www.pmknowledgecenter.com/

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2.3 Difference between PERT & CPM

There is not much difference between PERT & CPM. In fact both were developed simul-
taneously and independently for the similar requirements. The only difference lies in the
‘event’ or ‘activity’ on which network is constructed. The ‘activity’ stands for the time-
consuming parts of the project. It represents a job; on the other hand, an ‘event’, also called
‘node’ either beginning or an end of a job. The CPM analysis is activity-oriented and PERT
is event-oriented.
1. The CPM is a kind of technique commonly known for its use in constructions project;
whereas PERT mostly used in R & D projects like the projects considered being a
kind of non-repetitive nature.

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2. Both techniques have different concept of working like CPM uses deterministic con-
cept for its work whereas probabilistic concept is used by PERT.

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3. Networking approach also varies in both techniques like CPM uses networking that
based upon activity oriented; on contrary PERT uses networking that based on event.

4. In PERT technique, an estimation of time for different activities is not perfect and
accurate whereas in CPM activities duration are estimated with the quality of accuracy.
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5. Both of the techniques used for same purpose but the nature of their working is dif-
ferent and some can do their work efficiently with CPM and some can do same with
PERT.

6. The most important thing to solute is to minimize time so that they can get good result
for their cost factor. In PERT, time is said to be a controlling factor.

7. CPM has one-time estimate while PERT has three time estimates.
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8. Unpredicted activities are managed with the help of Program Evaluation and Review
Technique (PERT), whereas CPM is used for dealing those projects that have some
alarmed activities. These two techniques said to be a key element for the management
of any project.

3 Concept of Break-Even-Analysis
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The Break-Even-Analysis (BEA) is used to determine the level of operation at which a firm
makes no profit and incurs no loss. At this stage, its profit level is zero. This analysis will
enable an entrepreneur to ascertain this minimum production level so that he can meet all lia-
bilities without incurring a loss. Break-Even-Analysis (BEA) uses Fixed cost (FC), Variable
Cost (VC), Total Cost (TC) and Total Revenue (TR) curves to demonstrate the Break-Even-
Point.
Fixed Cost (FC): Fixed costs are those costs which do not vary with the level of output in
the short term. For Example: Rent, Office salaries, Advertising, Insurance, Depreciation,
etc.
Variable Cost (VC): A variable cost is that cost which varies with the level of production. It
directly related to the quantity of output. If output doubles, then the variable cost would dou-
ble. If output halved, the variable costs would halve. If output were zero, then no variable

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costs would be incurred. For Example: Direct labour Cost, Raw materials and components,
Packaging costs, Royalties, etc.
Total Cost (TC) = Fixed Costs + Variable Costs

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Source: https://images.app.goo.gl/m3HVoXfEdSmfMNvN8

Total Revenue (TR): Total Revenue in economics refers to the total receipts from sales
of a given quantity of goods or services. It is the total income of a business and is calculated
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by multiplying the quantity of goods sold by the price of the goods.
A break-even analysis is that point at where revenues equal expenses. It can be demonstrated
with help of following graph:
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Unit-07: Project Management Ramun Prasad

As given in the the above diagram, the break- even point is reached where TR equals TC
(TR=TC = BEP). Prior to this stage, the TC is above TR and the firm is making losses. It
starts earning profits after the break- even point.

Margin of Safety: In break-even analysis, the term margin of safety indicates the amount
of sales that are above the break-even point. In other words, Margin of safety shows how far
sales can fall before losses made.

3.1 Importance of Break-Even-Analysis:

1. BEA helps to take important investment decision.

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2. It helps in production decision making.

3. BEA is an important tool for product pricing. Once BEP is known, the ex-factory

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price can be determined very easily. It also helps to decide whether or not to allow
any discount on bulk purchases, and if so, how much discount could be allowed.

4. Helps to make ‘Price or Buy’ decision: In case there is an increased demand for the
product, BEA helps in making correct decision whether to produce more to meet the
demand or buy the product from another unit and meet the demand.
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Sometimes buying the product from another unit may be cheaper than producing more
in the firm.

5. BEA also helps to ascertain profitability at various levels of production.

3.2 Limitation of Break-Even-Analysis:

1. For the calculation of break- even point, all costs need to be clearly categorized in
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fixed and variable costs, which may not be possible every time.

2. For the multiple- product or joint- product operations, it is difficult to apply the break-
even analysis.

3. The computation of break- even point is based on the historical information. If this
information is not relevant, the analysis can not be applied usefully.
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4 Conclusion
During this session, we have discussed about the introduction to Project Management, CPM
& PERT Techniques and the concept of Break-Even-Analysis and learned that : -

• Projects are backbone of any economy. Because, now-a-days project management is

fast emerging as a new profession. Which raised the demand of project manager for
the projects like construction project, R& D project, urban/rural development project,
setting up a new factory for manufacture of some goods, etc. And a project can be
called successful if its objectives would be achieved within the stipulated time and
estimated cost, using the assigned resources effectively and efficiently.

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Unit-07: Project Management Ramun Prasad

• PERT & CPM are two of the most widely used techniques in project management. The
objectives of project management can be described in terms of a successful completion
of project on time within the budgeted cost and adhering to technical specifications
which satisfy the end users.
These techniques have been created out of the need of Western Industrial and Military
establishments to plan, schedule and control the complex projects. But now- a- days
it is extended to each and every areas of project management.

• The Break-Even-Analysis (BEA) is that analysis which used Fixed cost Variable Cost
to determine the level of operation at which a firm makes no profit and incurs no
loss. Further, BEA also helps an entrepreneur to take investment decision, production

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decision, and product pricing decision.

5 Questions for Self-Assessment

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1. Explain the term ‘Project Management’.

2. List the core components of Project Management.

3. Explain the Critical Path Method (CPM).

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4. Explain the Programme Evaluation & Review Technique (PERT).

5. Differentiate between CPM & PERT.

6. Explain the Concept of Break-Even-Analysis (BEA).

7. Construct a network diagram.

8. Determine the critical path.

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9. What are the elements of project formulation?

10. List the stages of project management.

11. Explain the term “Margin of Safety”

12. What is Fixed Cost and Variable cost? Explain with the help of graph.
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6 Glossary
Project: A project is an individual or collaborative enterprise that is carefully planned to
achieve a particular aim.

Activity: A clearly definable portion of a project that requires for its completion, the con-
sumption of resources and time in particular. (i.e. Activity is the actual performance of task.)

Critical Activity: An activity becomes critical, if delay in its estimated time duration delays
the whole project to that extent.

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Unit-07: Project Management Ramun Prasad

Critical Path: The longest path through the network, consisting of critical activities. The
length of the critical path is the shortest time allowable for project completion.

Event: An event refers to start or completion of task. It is represented by circle and do

not consume time and resources.

Successor Event: It is the event or events that immediately follows another event.

Predecessor Event: It is the event which comes immediately before another event.

Earliest Expected Time: The earliest time that an event can occur is on the latest com-

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pletion of an activity.

Slack: It is the difference between Latest Allowable Time (TL ) and Earliest Expected Time

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(TE ) i.e. slack = TL - TE .

Margin of Safety: This is shown on the chart by the distance between B.E.P. and Out-
put being produced. It shows that if this distance is short then a small decrease in output or
sales will reduce the profit greatly. If distance is long it means the business could still be
making profit after a great reduction in output.
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Sales at Full Capacity - Sales of B.E.P.
Margin of Safety = × 100
Sales at Full Capacity

Fixed Cost
Break-Even-Point =
Selling Price - Variable Cost Per Unit

References
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[1] Banga T.R. & Sharma S.C. (2015), Industrial Organization & Engineering Economics,
Khanna Publishers, New Delhi. (Chapter-28, 29 & 69)

[2] Khanna O. P. (1999) Industrial Engineering. & Management, Dhanpal Rai & Sons New
Delhi. (Chapter-10)
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[3] Gupta A. K. (2010) Engineering Management, S. Chand, New Delhi. (Chapter-12)

[4] G. Pratibha (2015) Production & Operation Management, Kataria & Sons, New Delhi.
(Chapter-18)

[5] E. Gordon & K. Natarajan (2017) Entrepreneurship Development, Himalaya Publishing

House, Mumbai (Chapter-11)

[6] Singh R. (2010), Principles of Engineering Economics & Management, Kataria & Sons,
New Delhi. (Chapter-19)

[7] (http://www.ignouhelp.in/ignou-study-material/)

[8] (https://www.manage.gov.in/studymaterial/PM.pdf)

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APPENDIX
I. Graphical representation of different types of costs:

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Source: https://images.app.goo.gl/aGJxtsAfZdJmt6t87

II. Factors influencing Break- Even Point:

1. Changes in Price
Changes in price affect the total revenue from sales and hence the break- even point. An
increase in price will prepone the break- even point while a fall in price postpones it. This
can be explained with the help of the following diagram:

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Unit-07: Project Management Ramun Prasad

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In this diagram, an increase in price has brought about a shift in the TR curve and has
preponed the break even point. The converse is true in case of a fall in the price of the
commodity.
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Self-Assessment Questionnaires (SAQ)
If a firm X in the example solved above finds a rise in price to Rs. 12 what will be its break-
even sales and if the price falls to Rs. 6, what will the break- even sales be?
2. Changes in fixed cost:
An increase in the fixed cost increases the break- even point while a fall in the fixed cost will
reduce the break- even point.
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In this diagram, an increase in fixed cost has brought about a shift in the TC curve and has
increased the break even point. The converse is true in case of a fall in the fixed cost.
Self-Assessment Questionnaires (SAQ)
If a firm X in the example solved above finds a rise in the fixed cost to Rs. 7000 what will be
its break- even sales and if the fixed cost falls to Rs. 3000, what will the break- even sales
be?
3. Changes in variable cost per unit
An increase in the variable cost per unit increases the break- even point while a fall in the
variable cost will reduce the break- even point.

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In this diagram, an increase in variable cost has brought about a shift in the TC curve and
has increased the break even point. The converse is true in case of a fall in the variable cost.
Self-Assessment Questionnaires (SAQ)
If a firm X in the example solved above finds a rise in the variable cost per unit to Rs. 8
what will be its break- even sales and if the variable cost per unit falls to Rs. 3, what will
the break- even sales be?

III. Advantages and Disadvantages of PERT and CPM:

Advantages of PERT

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1. It determines the expected duration of activities and consequently of the the project
duration.

2. It helps the management in handling the uncertainties involved in the project and thus
reduces the risk element in the object.

3. In enables the management to make optimum allocation of limited resources.

4. It process for the right action, at the right point and the right times in the organization.

5. It determines the most economical schedule for fixed project duration.

Disadvantages of PERT

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1. The time estimates to perform activities constitutes a major limitation of this tech-
nique. If the estimates are not satisfactory then the network will be highly unrealistic.

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2. The probability distribution of total time is assured to be normal, which in real life
situation may not be true.

3. The simple PERT technique does not consider the resources required at various stages
of the project. If a certain resource may be used to perform more than one activity
and at the same time, it can be used for only one activity at a time, then the network
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diagram will become infeasible.

4. Use of this technique for active control of a project requires frequent updating and
revision of PERT calculations and this proves quite a costly affair.

Advantages of CPM

1. It helps in ascertaining the time schedule of activities having sequential relationships.

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2. It makes the control function of the management.

3. It makes better and detail planning possible.

4. It identifies the most critical elements in the project. Thus, the management is kept
alert and prepared to pay due attention to the critical activities of the project.
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Disadvantages of CPM

1. CPM fails to incorporate statistical analysis in determining the time estimates.

2. It operates on the assumption that there is a precise known time that each activity in
the project will take. It may not be true in reality.

3. It can not be used as a controlling device since any change introduced will change the
entire structure of the network. Thus, CPM can not be used as a dynamic controlling
device.

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