Chapter 6: Project Management/

Network Analysis

Quantitative Analysis for Business

Decision Making
by
By: Getachew Gobena (Asst. Prof.)
 Learning Objectives
 Describe project management objectives
 Describe the project life cycle
 Diagram networks of project activities
 Estimate the completion time of a project
 Compute the probability of completing a
project by a specific time.
 Learning Objectives – con’t

 Determine how to reduce the length of a

project duration effectively (Crashing
project activities).

 Describe the critical path approach to

project management.
 6.1.Introduction to Project Mgt and
Network Concepts
 What is a project?
 Project is any unique endeavor:
o with specific objectives

o With multiple activities

o With defined precedent relationships

o With a specific time period for completion

 Examples
 A major event like a wedding
 Any construction project (dam, road, railway, school,
etc.)
 Designing a political campaign
Project Life Cycle
 Conception: identify the need
 Feasibility analysis or study: costs
benefits, and risks
 Planning: who, how long, what to do?
 Execution: doing the project
 Termination: ending the project
 Network Concept
 Networks:
 Networks illustrate the way in which the parts of the
project are organized.
 They can be used to determine the time duration of the
projects.
 The network techniques that are used for project
analysis are PERT and CPM.
 PERT stands for Project Evaluation and Review
Technique, whereas CPM is an acronym for Critical
Path Analysis.
 6.2. PERT and CPM and Diagram
Construction
 Program Evaluation & Review Technique (PERT):
 Developed to manage the project duration

 Many tasks pushed the boundaries of science &

engineering (tasks’ duration = probabilistic)

 Critical Path Method (CPM):
 The longest path in which the minimum length of

time is required for the completion of the project.

 A complex undertaking, but individual tasks are

routine (tasks’ duration = deterministic)

Both PERT and CPM
 Graphically display the precedence
relationships & sequence of activities.
 Estimate the project’s duration.
 Identify critical activities that cannot be
delayed without delaying the project.
 Estimate the amount of slack associated with
non-critical activities.
 Network Diagrams
 Activity-on-Node (AON):
 Uses nodes to represent the activity (a rectangular box or a circular)
 Uses arrows to represent precedence relationships

© Wiley 2007
 PERT & CPM Cont’d

 The arrows represent the dependencies

between the different activities and the
specific sequence in which the estimated
tasks must be accomplished.

 The length and the slope of these arrows do

not provide any information about operational
hours, workload etc.
 Activity Identification

 Short description: example, Lay

foundation, erect frame, etc.
 Alphabetic or numeric code: example, A,
B, C, etc., or 100, 101, 108 etc.
 Using tail and head event numbers:
example, 1-2, 2-3, 3-4, 3-6, etc------this is
for ‘Activity on arrow’
 Activity On Node Network
Technique

 Define the relationships of each activity in the project

context.
 Which activities must be finished before starting this

one?
 Which activities can directly start after finishing this

one?
 Which activities can be done in parallel to this one?

 Predecessor, successor and parallel relationships for each

task.
 Dummy Activity
 Dummy activity: is an activity that does
not consume time or resources.
 It shows merely the dependencies or
proper relationship between activities.
 A dotted arrow represents dummy.
 Dummy Activity
3
Lay Dummy
foundation

2 0
Finish
Build work 7
3 house 6
1 1
1 2 4 3
1
Order
Design house &
materials 1
obtain financing
Select Select
paint carpet
5
 Network Drawing
 Exercise:
 Draw a network for Construction of House by using Activity on
Arrow
Activity Description Immediate Duration in
Predecessor week
A Design a house ____ 3
B Lay foundation A 3
C Obtain Finance A 2
D Order materials B&C 1
E Paint select D 4
F Select Carpet E 1
G Start house construct D 1
H Finish Work G &F 1
 Importance of Network
diagram
 To answer:
 What is the total time to complete the project?
 What are the scheduled start and finish dates for
each specific activity?
 Which activities are critical and must be completed
exactly as scheduled to keep the project on
schedule?
 How long can noncritical activities be delayed
before they cause an increase in the project
completion time?
 AON Diagrams
Order & relationships are shown as arrows
Any activity may either:
Succeed (follow) – task B succeeds task A
Precede (go before) – task A precedes task B

TASK A TASK B
 AON Diagrams
Any activity may:
Be performed concurrently – Task C can be performed at
the same time as Task D

TASK C

TASK D TASK E
 AON Diagrams –Rules
Direction
Arrows should always go forward
 The flow of work is from left to right


TASK C
TASK C 
TASK D TASK E
TASK D TASK E
 AON Diagrams –Rules
 Arrows should only go from one node to
another node.
 TASK C

TASK C

TASK D TASK E
TASK D TASK E
 AON Diagrams –Rules
 Avoid overlapping arrows

TASK C
TASK C

TASK D TASK F
TASK D TASK E

TASK E
 AON Diagrams –Rules
 If overlapping can not be avoided, use
bridges
TASK C

TASK D TASK E

TASK D
 AON Diagrams –Rules
 There should be one starting node (Start
Project) and one finishing node (Project
Complete) for each activity.
TASK C TASK D
TASK Start TASK Finish

TASK D TASK E
 AON Diagrams –Rules
 In a CPM network, two or more activities
are not allowed to share the same starting
and ending nodes at the same time.

Lay
foundation

4
2

Order
materials
 AON Diagrams –Rules

 When two or more tasks start from the same

starting point, dummy activity is inserted to give
two activities different nodes.
3 Dummy
Lay foundation

0
2
1
4
2
Order
materials
 AON Diagrams –Rules
 An AON diagram should not contain more
than 50 nodes.

 For large projects break the project into

sub-projects to make it easier to manage.
 6.3. Network Drawing

 Preparing AON:
 Identify the order that tasks must be done

 Prepare AON on scrap paper

 Check your diagram

 Revise your diagram to remove overlapping arrows

 Check your diagram

 Revise your diagram to reflect resource restrictions and preferable task

order.
 6.4. Basic steps in Network diagram----
CPM &PERT

Step 1: Define activities

 The project & all of its significant activities or tasks
 Efficient tool: WBS
 The WBS represents a logical decomposition of the work to
be performed.

(Example: What are the activities that are needed

to build a house? to conduct a research?)
 Finding these activities is a brainstorming
activity
 Basic steps in Network diagram----CPM
&PERT Cont’d

Step 2: Define Activity interdependencies

 The relationship among activities

 Decide which activities must precede and follow

others.
 It demands the understanding of the whole project
and the knowledge of applied technologies.
 Result: preceding or succeeding activity list
 Basic steps in Network diagram----
CPM &PERT Cont’d
 Step 3: Draw the Network
• Network connecting all of the activities
 Result: the network itself
Step 4: Assign time and /or resource
• Activity by activity
Time estimation methods:
 CPM: the use of normal duration: only one activity duration
 PERT estimation: three activity duration times

• For each task, estimate the lowest (optimistic), most likely, and
highest (pessimistic) durations, then use:
• estimated Average time = (low + high + 4*most likely)/6
• steps 1 to 4 are also known as the planning phase
Basic steps in Network diagram----
CPM &PERT Cont’d

 Step 5: Compute the longest time path through

the network
• this is called the critical path
 Key questions:
 What is the expected duration of the project?
 What are the earliest start and finish dates for each activity?

 What are the latest start and finish dates for each activity

that does not interfere with the project completion time?

 Analyzing these times in order to find the critical

activities & the amount of float in the non-critical

ones. This step is scheduling
Basic steps in Network diagram---
-CPM &PERT Cont’d

 Step 6: use the network to help plan,

schedule, monitor, and control the
project.
Step 1-Define the Project and identify the activities: Cables
manufacturing company is bringing a new product on line to be
manufactured in their current facility in existing space. The owners have
identified 11 activities and their precedence relationships. Develop an AON
for the project.

Immediate Duration
Activity Description
Predecessor (weeks)
A Develop product specifications None 4
B Design manufacturing process A 6
C Source & purchase materials A 3
D Source & purchase tooling & equipment B 6
E Receive & install tooling & equipment D 14
F Receive materials C 5
G Pilot production run E&F 2
H Evaluate product design G 2
I Evaluate process performance G 3
J Write documentation report H&I 4
K Transition to manufacturing J 2
Step 2- Diagram the Network for
Cables By manufacturer
Step 3 (a)- Add Deterministic Time
Estimates and Connected Paths
 Step 3 (a) (Con’t): Calculate
the Project Completion Times
Paths Path duration
ABDEGHJK 40
ABDEGIJK 41
ACFGHJK 22
ACFGIJK 23
 The longest path (ABDEGIJK) limits the project’s
duration (project cannot finish in less time than
its longest path).
 ABDEGIJK is the project’s critical path.
 6.5. Some Network Definitions

 All activities on the critical path have zero slack.

 Slack defines how long non-critical activities can be
delayed without delaying the project.
 Slack = the activity’s late finish minus its early finish
(or its late start minus its early start)
 Earliest Start (ES) = the earliest finish of the immediately
preceding activity.
 Earliest Finish (EF) = is the ES plus the activity time
 Latest Start (LS) and Latest Finish (LF) = the latest an
activity can start (LS) or finish (LF) without delaying the
project completion.
 6.6. Critical path determination

 The path with the longest duration is

the critical path (and the project duration)
 If any tasks on the critical path are delayed, the
overall project completion will be delayed.
 Tasks not on the critical path may have a non-
zero amount of slack or float, which is the
amount of duration they can sleep without
affecting the project.
 Critical Path Determination Cont’d

 A manager might add resources to tasks

on the critical path, if that will actually
help finish them sooner.

 This technique can be called expediting or

crashing the project.
Critical Path Determination Cont’d

 Critical Path: –
o The series of activities all of which must finish
on time for the whole project to finish on time.

o Sometimes described as the longest path

through a network, hence the shortest project
time.
 6.7 Earliest and latest start and
finish time

Earliest start and finish time:

 Calculate the Forward Pass by adding the durations
along each path in your network to:

 establish the earliest start (ES) and finish (EF) dates

for each activity on the network.
 Earliest and latest start and finish
time Cont’d
 A formula for computing Earliest start time:
o ESj = Maximum (EFi j)
Where i is the starting node number of all activities ending at Node j
or for activity i j.
 For example: If we compute the earliest start time at
node 4 (j=4) and if its activities start from preceeding
nodes, (i= 2 & 3), the computation will be as follows:
 ES 4 = Maximum (EF2 , EF3 )
= Maximum (3, 5)
= 5 months ( which is the earliest start time at node 4).
 Earliest and latest start and
finish time Cont’d
 A formula for computing Earliest Finish time:
o EFj = Maximum (EFi + tij)
Where i is the starting node number of all activities ending at Node j
and tij is the time for activity i j.
 For example: If we compute the earliest finish time (EF)
at node 6 (j=6) and if its activities start from preceeding
nodes, (i= 4 & 5), the computation will be as follows:
 EF 6 = Maximum (EF5 + t56, EF4 +t46)
= Maximum (6+1, 5+3)
= Maximum ( 7, 8)
= 8 months ( which is the earliest time at node 6)
ES, EF Network
 Earliest and latest start and finish time
Cont’d

 Latest start and finish time:

 A backward pass is made through the network to
compute the latest start and latest finish times for
each activity in the network.
 Formula For computing Latest start time (LS):
o LSi = Minimum ( LS j – ti)
o Where i is the starting node number of all activities
ending at Node j or for activity i j.
 Earliest and latest start and finish time
Cont’d

 Formula for Computing the Latest finish time:

 The latest finish time (LF) at node i is computed as follows:
 LFi = Minimum (LFj - tij)

 Where j is the ending node number of all activities starting at

node i and tij is the time for activity i j.

 Example: We will compute the latest finish time at node 4 (i.e.,

i=4).
 LF 4 = Minimum ( LF6 – t46, LF5- t45)

= Minimum (8-3, 7-1)

= Minimum (5, 6)
= 5 months ( the latest finish time at node 4).
LS, LF Network
 6.8. Activity Slack/Float Time

 Activity slack/Float time:

 Slack/float is the amount of time an activity can be delayed
without affecting the overall project duration.
 It is extra time available for completing an activity.
 For events on the critical path, the earliest finish (EF)
time and latest finish (LF) time are equal. This means
that these events on the critical path must start exactly on
time and cannot be delayed at all.
 In order to determine critical path, we can simply see at which
nodes the earliest finish and latest finish times are equal.
 Activities on the critical path have no slack.
 Activity Slack/Float Time Cont’d

 As a general rule, the critical path encompasses those

activities in the network that have no slack.
 In general, activity slack can be determined as follows:
 Slack/float time for activity i = Latest finish time (Activity i) - Earliest
finish time (activity i)
 Example: Slack for activity 5 = LF5 – EF5( Assume LF5=7 & EF5=6)

= 7-6
= 1 Month (This means activity 5 can
be delayed 1 month without delaying the project.
 Calculating Slack
Late Early Slack
Activity
Finish Finish (weeks)
A 4 4 0
B 10 10 0
C 25 7 18
D 16 16 0
E 30 30 0
F 30 12 18
G 32 32 0
H 35 34 1
I 35 35 0
J 39 39 0
K 41 41 0
 6.9. Probabilistic Time Estimates
 As an alternative to CPM, PERT ( Project Evaluation and Review
Technique) uses probabilistic activity time.

 In probabilistic activity time we determine three time estimates for

each activity which enable us to estimate the mean and variance
for a beta distribution of the activity times.

 The three time estimates for each activity are the most likely time,
the optimistic time, and the pessimistic time.
 Probabilistic Time Estimates Cont’d

 The most likely time is the time that would most

frequently occur if the activities were repeated many
times.
 The optimistic time is the shortest possible time within
which the activity could be completed if everything went
right.
 The pessimistic time is the longest possible time the
activity would require to be completed assuming
everything went wrong.
Probabilistic Time Estimates
Cont’d

 The three time estimates can subsequently be used to estimate

the mean and variance of a beta distribution. If we let:
a= optimistic time estimate
m= most likely time estimate
b = pessimistic time estimate
Then mean and variance are computed as follows:
Mean ( Expected time): t = a+4m+b
6
Variance: 2 = b-a/6)2
 Revisiting Cables Production company
Using Probabilistic Time Estimates
Optimistic Most likely Pessimistic
Activity Description
time time time
A Develop product specifications 2 4 6
B Design manufacturing process 3 7 10
C Source & purchase materials 2 3 5
D Source & purchase tooling & equipment 4 7 9
E Receive & install tooling & equipment 12 16 20
F Receive materials 2 5 8
G Pilot production run 2 2 2
H Evaluate product design 2 3 4
I Evaluate process performance 2 3 5
J Write documentation report 2 4 6
K Transition to manufacturing 2 2 2
 Using Beta Probability Distribution to
Calculate Expected Time Durations
 A typical beta distribution is shown below, note that it has
definite end points
 The expected time for finishing each activity is a weighted
average

optimistic  4most likely  pessimistic

Exp. time 
6
 Calculating Expected Task Times
optimistic 4most likely  pessimistic
Expected time 
6
Optimistic Most likely Pessimistic Expected
Activity
time time time time
A 2 4 6 4
B 3 7 10 6.83
C 2 3 5 3.17
D 4 7 9 6.83
E 12 16 20 16
F 2 5 8 5
G 2 2 2 2
H 2 3 4 3
I 2 3 5 3.17
J 2 4 6 4
K 2 2 © Wiley 2007 2 2
Network Diagram with
Expected Activity Times
 Estimated Path Durations through
the Network
Activities on paths Expected duration
ABDEGHJK 44.66
ABDEGIJK 44.83
ACFGHJK 23.17
ACFGIJK 23.34

 ABDEGIJK is the expected critical path &

the project has an expected duration of
44.83 weeks
 Estimating the Probability of
Completion Dates
 Using probabilistic time estimates offers the advantage of predicting the
probability of project completion dates.
 We have already calculated the expected time for each activity by making
three time estimates.
 Now we need to calculate the variance for each activity
 The variance of the beta probability distribution is:
2
po
σ 2
 
 6 
 Where p=pessimistic activity time estimate
o=optimistic activity time estimate
Project Activity Variance
Activity Optimistic Most Likely Pessimistic Variance
A 2 4 6 0.44
B 3 7 10 1.36
C 2 3 5 0.25
D 4 7 9 0.69
E 12 16 20 1.78
F 2 5 8 1.00
G 2 2 2 0.00
H 2 3 4 0.11
I 2 3 5 0.25
J 2 4 6 0.44
K 2 2 2007
© Wiley 2 0.00
Variances of Each Path through
the Network
Path Activities on Path Variance
Number Path (weeks)
1 A,B,D,E,G,H,J,k 4.82

2 A,B,D,E,G,I,J,K 4.96

3 A,C,F,G,H,J,K 2.24

4 A,C,F,G,I,J,K 2.38
 Calculating the Probability of Completing
the Project in Less Than a Specified Time
 When you know:
 The expected completion time

 Its variance

 You can calculate the probability of completing the project in “X”

weeks with the following formula:

specifiedtime  path expectedtime  DT  EF P 

z   
path standard time  σP 
2

Where DT = the specified completion date

EFPath = the expected completion time of the path
σPath 2  variance of path
 Example: Calculating the probability of
finishing the project in 48 weeks
 Use the z values in Appendix of Beta curve to determine probabilities
e.g. probability for path 1 is  48 weeks  44.66 weeks 
 z     1.52
 4.82 

Path Activities on Path Path Variance z-value Probability of

Number (weeks) Completion
1 A,B,D,E,G,H,J,k 4.82 1.5216 0.9357
2 A,B,D,E,G,I,J,K 4.96 1.4215 0.9222
3 A,C,F,G,H,J,K 2.24 16.5898 1.000

4 A,C,F,G,I,J,K 2.38 15.9847 1.000

 Calculating Probability

Example:
 Suppose that the cable manufacturing company

manager told customers that the order

processing system will be completely installed in
46 weeks or below. What is the probability that
it will be in fact ready by that time?
 Calculating Probability

 In order to compute probability we have to use normal

distribution curve with the given mean time, and standard
deviation.
 The mean expected value of the critical path activities is
44.83 weeks.
 We will calculate standard deviation from the variances of
critical path activities as follows:
 Standard deviation () =  Variance (2 )
  = 0.44 + 1.36+0.69+1.78+0+0.25+0.44+0
= 2.2 Weeks
 Calculating Probabilities

 Find the number of standard deviations that the scheduled

date is away from the expected duration.
Z = 46 weeks – 44.83 weeks = 0.53 weeks (see normal curve values)
2.2 weeks
 A Z value of 0.53 corresponds to a probability of 0.2019 in
normal curve area table. This means that there is a
70.19% (0.5000+0.2019) probability of completing the
project below or in 46 weeks.
Normal Distribution Curve: Probabilities @ Z-value
 6.10.Project Crashing and Time-Cost Trade
off/Reducing Project Completion Time

 Project completion times may need to be shortened or reduced

because:
 Different deadlines

 Penalty clauses

 Need to put resources on a new project

 Promised completion dates

 Reduced project completion time is called “crashing”.

 The decision to reduce the project duration must be based on
analysis of the trade-off between time and cost.
 Project crashing is a method of shortening the project duration
by reducing the time of one or more of the critical project
activities to a time that is less the normal activity time.
Reducing Project Completion
Time – con’t

 Crashing a project needs to balance:

 Shorten a project duration

 Cost to shorten the project duration

 Crashing a project requires you to know:

 Crash time of each activity

 Crash cost of each activity

 Project direct cost- time relationship

 Normal cost: The costs associated with a normal

time estimate for an activity.
 Crash cost: they are caused by extra wages,
overtime premiums and extra facility costs.
 Crash time: the minimum possible time that an
activity is planned to take. Applying extra
resources usually brings this about.

70
 Cost slope

 Cost slope: this is the average cost of

shortening an activity by one time unit.
CrashCost NormalCost
CostSlope 
NormalTime  CrashTime

 Least cost scheduling or crashing: The

process by which we can find the least cost
method of reducing the overall duration of a
project.
71
 Reducing the Time of a Project (crashing)
Activity Normal Normal Crash Crash Max. weeks Reduce cost
Time (wk) Cost ($) Time Cost ($) of reduction per week
A 4 8,000 3 11,000 1 3,000
B 6 30,000 5 35,000 1 5,000
C 3 6,000 3 6,000 0 0
D 6 24,000 4 28,000 2 2,000
E 14 60,000 12 72,000 2 6,000
F 5 5,000 4 6,500 1 1500
G 2 6,000 2 6,000 0 0
H 2 4,000 2 4,000 0 0
I 3 4,000 2 5,000 1 1,000
J 4 4,000 2 6,400 2 1,200
K 2 5,000 2 © Wiley 2007
5,000 0 0
 Reducing Project Completion
Time – con’t
 The objective of crashing is to reduce the project duration while
minimizing the cost of crashing.
 Since the project completion time can be shortened only by
crashing activities on the critical path, it may turn out that not all
activities have to be crashed.
 As activities crashed, the critical path may change, requiring
crashing of previously non-critical activities to further reduce the
project completion time.
 We can start crashing process by looking at the critical path and
seeing which activity has the minimum crash cost per week.
 Reducing Project Completion Time –
con’t
 We can reduce activities on critical path to the point
where another path becomes critical.
 When two paths simultaneously become critical,
activities on both must be reduced by the same amount.
 If we reduce the activity time beyond the point where
another path becomes critical, we may be incurring an
unnecessary cost.
 Crashing Example: Suppose the Cables
manufacturing project manager wants to reduce
the new product project from 41 to 36 weeks.

 Crashing Costs are considered to be linear

 Look to crash activities on the critical path
 Crash the least expensive activities on the critical path first
(based on cost per week)
 Crash activity I from 3 weeks to 2 weeks $1000
 Crash activity J from 4 weeks to 2 weeks $2400
 Crash activity D from 6 weeks to 4 weeks $4000
 Recommend Crash Cost $7400

 Question: Will crashing 5 weeks return more in benefits than

it costs?
Crashed Network Diagram
Crashing Network Example : Using the following
activities, crash the project activities for given crashing time.

Time Cost Max. Reduce

Preceding
Activity Normal Crash Normal Crash weeks of cost per
Activity
reduction week
A - 4 2 150 350 2 100
B A 8 6 100 200 2 50
C A 2 1 50 90 1 40
D B 10 5 100 400 5 60
E B 3 1 100 200 2 25
F C, E 3 1 80 100 2 10
G D, F 2 2 50 50 0 0
Total Cost 630
 Crashing Network Exercise

 Solution:
 Step 1: Draw the network and determine the critical path.

C (2)
F (3)

A (4)
E (3)

G (2)
B (8)

D (10)
 Crashing Network Exercise

 Step 2: The first is to determine the normal costs and normal

durations of the project.
 The critical paths are A, B, D and G

 Normal project duration = 24 weeks

 Total normal Cost = Birr 630

 Step 3: Reduce the least cost Critical Activity B by two weeks

(NB: you have to identify the new critical paths in each of the
following steps).
 The critical paths : Path A, B, D and G (Not changed).

 Project duration = 22 weeks

 Total project cost = normal cost + crash cost = 630+ (2x50) = Br 730
 Crashing Network Exercise

 Step 4: Since we have fully used the crash time for B, now
crash critical activity D by four weeks (NB we can’t crash
activity D by more than four weeks because the four weeks
crash on activity D has made activities E and F to be on critical
paths).
 Two Critical paths: The first is A, B, D & G and new

critical path ABEFG emerged.

 Project duration = 18 weeks

 Total project cost = Cost of step 3 + crash cost =

730+(60*4=240) = Br 970
 Crashing Network Exercise

 Step 5: One crashing week remain from activity D. We select one

either E or F with the least cost slope to crash it together with
activity D. Therefore, we can crash one week of activity D and
only one week of Activity F. (NB: whenever you crash, check if
the non-critical activities become critical activities).
 Two Critical paths: The first is A, B, D and G; and the
second is A, B, E F and G.
 Project duration = 17 weeks

 Total project cost = Cost of step 4 + crash cost (crash cost of

D + Crash cost of F) = Br 970 + (60+10)*1 days = Br 1040.

 Crashing Network Exercise

 Step 6: We can further crash activity A by two weeks but not activity F
(Activity F can be crashed for one more week, but if we crash it, the critical path
A, B, E, F and G will be lost. When activity A is crashed by two weeks, the
following will be the result of crashing :
 Two Critical paths: The first is A, B, D and G; and the second is A, B, E, F

and G (The existing critical paths were not changed

 Project duration = 15 weeks

 Total project cost = Cost of step 5 + crash cost (crash cost of A) = Birr1040

+ (100)*2 weeks = Birr1240.

 Conclusion:

 The student should note that the total project cost

starts to increase at step 6 when compared to step 5.
Thus, the optimal solution for this project crashing is
the values of step 5 as follows:
 Project duration = 17 weeks;

 Total project cost = Birr 1040

83
Example 2: Given the information below, find the maximum length of the
schedule and the minimum cost schedule when the indirect cost is Birr70 per
day.

Preceding Time Cost

Activity
Activity Slope *
Normal Crash Normal Crash
A - 4 2 150 350 100
B - 8 6 100 200 50
C A 2 1 50 90 40
D B 10 5 100 400 60
E B 5 1 100 200 25
F C, E 3 1 80 100 10
Total Direct Cost 580

* Average cost of shortening an activity by one time unit

84
 2

4 13
C (2)
A (4) 4
F(3)
0 5
13 15
18 18
0 0 E (5)

B (8) 3 D (10)

8 8

The critical paths are B and D

Normal project duration is 18 days

85
 Example Cont’d

Step 1: The first is to determine the normal costs and

normal durations of the project.
 The critical paths are B and D

 Normal project duration is 18 days

 Direct Cost = Birr580

 Indirect cost = 70X18= 1260

 Total project cost = Birr1840

86
 Example Cont’d

Step 2: Reduce the least cost slope critical activity B

by two days
 The critical paths B and D (Not changed)

 Project duration 16 days

 Direct cost = normal cost + crash cost =

580+100 = 680
 Indirect Cost = 70X16 = 1120

 Total project cost = 1120 + 680 = 1800

87
 Example Cont’d

Step 3: Since we have fully used the crash time for B, now crash
critical activity D by two days
 Two Critical paths: the first is B and D; and the second

is B, E and F.
 Project duration 14 days

 Direct cost = Cost of step 2 + crash cost =

680+(60*2=120) = 800
 Indirect Cost = 70X14 = 980

 Total project cost = 980 + 800 = 1780

88
 Example Cont’d

Step 4: Three crashing days remain from activity D. We select

one either E or F with the least cost slope to crash it together
with activity D. Therefore, we can crash two days of activity D
and only two days of Activity F.
 Two Critical paths: the first is B and D; and the second

is B, E and F.
 Project duration is 12 days

 Direct cost = Cost of step 3 + crash cost (crash cost of

D + Crash cost of F) = 800 + (60+10)*2 days = 940

 Indirect Cost = 70X12 = 840

 Total project cost = 940 + 840 = 1780

89
 Example Cont’d

Step 5: We can further crash by one more day activity D

and E but not activity F
 Two Critical paths. The first is B and D; and the

second is B, E and F.
 Project duration is 11 days

 Direct cost = Cost of step 4 + crash cost (crash cost

of D + Crash cost of E) = 940 + (60+25)*1 days =

Birr1025
 Indirect Cost = 70X11 = 770

 Total project cost = 1025+ 770 = 1795.

90
 Example Cont’d

 Conclusion: The student should note that the total

project cost starts to increase at step 5 when
compared to step 4. Then the optimal solution for
this project is the values of step 4 as follows:
 Project duration = 12 days; Total project cost =
1780

91
 6.11.The advantages of network technique

 It can effectively handle inter relationships among

project activities.
 It identify the activities which are critical to the
completion of the project on time and indicate the float
(spare time ) for other activities.
 It can handle very large and complex projects and
 It can be easily computerized and updated.
6.12. Drawbacks of network technique

 Being more complicated than the traditional bar

chart, it is not easily understood by the project
personnel, and

 It does not define an operational schedule

which tells who does what and when.