Project Management and Entrepreneurship

Unit 11

Project Scheduling and Costing

Gantt chart
Henry L Gantt (1861 – 1919) around 1917 developed a system of bar charts for scheduling and
reporting progress of a project. These charts latter were known as Gantt Charts. It is a pictorial
representation specifying the start and finish time for various tasks to be performed in a project
on a horizontal time-scale. Each project is broken down to physically identifiable and
controllable units, called the Tasks. These tasks are indicated by means of a bar, preferably at
equi-distance in the vertical axis and time is plotted in the horizontal axis (Figure 1). In this
figure “Task A” is land preparation, “Task B” is procurement of inputs etc. Land preparation
(Task A) takes five days starting from day one. However in practice the time scale is
superimposed on a calendar i.e., if land preparation starts on 1st June it would be completed by
5th June.

A Gantt chart is a visual project plan that lists tasks and milestones on the vertical axis with time
plotted on the horizontal axis. Gantt charts are used in project management to schedule, track,
and communicate deliverables, deadlines, dependencies, and resource assignments.

Length of the bar indicates required time for the task whereas the width has no significance.
Though the bar chart is comprehensive, convenient, and very effective, it has the following
limitations:

• Like many other graphical techniques are often difficult to handle large number of tasks
in other words a complex project.
• Does not indicate the inter relationship between the tasks i.e., if one activity overruns
time what would be the impact on project completion.

A Gantt chart, commonly used in project management, is one of the most popular and useful
ways of showing activities (tasks or events) displayed against time. On the left of the chart is a
list of the activities and along the top is a suitable time scale. Each activity is represented by a
bar; the position and length of the bar reflects the start date, duration and end date of the activity.

In project management, Gantt charts are used to schedule, track, and communicate deliverables,
deadlines, dependencies, and resource assignments. They’re particularly helpful in managing
complex projects with interdependencies that a simple to-do list or Kanban board can’t handle.
Gantt charts help visualize various tasks and projects that occur simultaneously within an
organization, and how far along they have progressed. They are used by management to plan and
schedule such projects so that resources can be allocated in an optimal way and that projects that
are prioritized can finish before less important ones begin.

Benefits of Gantt chart

 The easiest way for planning projects including all the associated tasks, milestones,
relations, delays etc.
 The best visualization of the whole project or multiple project management
 Huge time savings during project planning phase
 Great overview of progress during project execution phase
 Broad customization abilities (filters, columns, timeline, custom views such as default,
baselines, critical path and resource management - requires separate plugin)
 Large involvement of drag & drop feature reduces the need for keyboard control (you can
move tasks, projects and milestones on a timeline and thus plan them, you can also create
relations between the entities just with your mouse)

Format and Method to Prepare

6 Steps to Make a Gantt chart

Step 1 - Review Scope Baseline

Gather the team and review the approved scope baseline, which consists of three components:
1) the Scope Statement, 2) the Work Breakdown Structure (WBS) and 3) the WBS Dictionary.
The project team member should confirm that the scope baseline addresses 100% of the project
scope.
Step 2 - Create Activities

Using a technique called Decomposition, the project team breaks down each WBS work package
into activities. Just like when creating the WBS work packages, the team needs to set rules for
creating schedule activities. The final schedule needs to be the one that is effective and efficient.
Too many activities can be as bad as too few. It is also important to identify deadlines and
milestones while decomposing the project.

Step 3 - Sequence Activities

Every activity is related to one or more other activities. Every activity, except the first and last,
has a relationship with a predecessor and a successor. Sequencing activities means placing the
activities in the right order using the right relationships. There are four types of relationships:

1. Finish to Start – Cannot start the successor activity until its predecessor is finished.
2. Start to Start – Cannot start the successor activity until its predecessor has started.
3. Start to Finish – Cannot finish the successor activity until its predecessor had started.
4. Finish to Finish – Cannot finish the successor activity until its predecessor has finished.

Relationships 1 and 2 are the most commonly used. Finish to Start is a sequential relationship
and Start to Start is typically a parallel or over-lapping relationship.
Step 4 - Estimate Resources

Before the durations can be estimated, resources must be identified and estimated. Resources
include labour, material and equipment. There are several estimating techniques used including
Analogous, Parametric, Three-Point and Bottom Up. Skills, competencies and technology are
key factors to consider in the basis of the estimate. After estimating the resources, they are
loaded in the schedule against the respective activities. A resource calendar is also created to
show when resources are needed and available.

Step 5 - Estimate Durations

Duration is the time between the start and end of an activity. Review the resources, relationships
and sequencing, then estimate the duration for each activity. The same estimating techniques
used for estimating resources can be used to estimate durations, but make sure you identify
constraints. Which are limitations or restrictions on an activity.

Step 6 - Develop Schedule

Create the Gantt chart by loading all information into a project management software tool.
Review the schedule and ensure that all schedule risks have been addressed. Check that response
plans and schedule contingencies have been included. A typical way to address schedule
contingencies is to add Buffers at the activity level, the project level or both. A Buffer is an
activity with no resources or scope to provide additional time and reduce schedule risks.
Resource optimization techniques, such as resource smoothing or levelling are used to create
realistic schedules. Review and approve the schedule. The approved Gantt chart schedule
becomes the schedule baseline.

CPM & PERT Analysis

Project management can be defined as a structural way of planning, scheduling, executing,
monitoring and controlling various phases of a project. To achieve the end goal of a project on
time, PERT and CPM are two project management techniques that every management should
implement. These techniques help in displaying the progress and series of actions and events of a
project.
CPM- Critical Path Method or CPM is a well-known project modelling technique in project
management. It is a resource utilizing algorithm that was developed in the 1950s by James Kelly
and Morgan Walker.

CPM is mainly used in projects to determine critical as well as non-critical tasks that will help in
preventing conflicts and reduce bottlenecks.

In essence, CPM is about choosing the path in a project that will help in calculating the least
amount of time that is required to complete a task with the least amount of wastage.

The Critical Path Method or CPM has been used in many industries starting from defense,
construction, software, aerospace, etc.

The critical path method (CPM) is a technique where you identify tasks that are necessary for
project completion and determine scheduling flexibilities. A critical path in project management
is the longest sequence of activities that must be finished on time in order for the entire project to
be complete. Any delays in critical tasks will delay the rest of the project.

CPM revolves around discovering the most important tasks in the project timeline, identifying
task dependencies, and calculating task durations.

Identification of the Critical Path and its Significance

CPM or the Critical Path Method is an algorithm used in project management that is used to
schedule project activities. The critical path refers to the longest stretch of the activities, and a
measure of them from start to finish.

With the help of CPM, we’ll be able to create a model that enables you to determine the
following:

a. Tasks required to complete the project

b. Dependencies between tasks
c. The duration required to complete an activity
Now, before we can get started with CPM or Critical Path Method, we’ll have to understand two
major concepts which are Events and Activities. To help understand them better, let’s have a
look at the network diagram (which is also the output) of the process.
This output represents some of the most important parts of the process: Events and Activities.

Event

It is a starting and end point of an activity. It can be said that a beginning and completion point
of a project. Events are represented by a circle and will occur at the start and end of an activity.
Event 1 is the tail event and Event 2 is the head event. In the case of our example, the events are
1, 2, 3, 4, 5, and 6. Taking into consideration, nodes 1 and 2, and the connection between them, 1
will be referred to as the tail event, and 2 will be referred to as the head event.

Similarly, for 2 and 3, 2 is the tail event, and 3 is the head event.

Activity

It is a distinct part of a project consuming some resources and time for its completion. Example
in mechanical unit drilling hole. Activities represent action and consumption of resources like
time, money, and energy required to complete the project. In the case of our example, A, B, C,
D, E, and F represent the activities taking place between their respective events.

Predecessor Activity

It is an activity that must occur before another activity in the project.

Successor Activity

It is the activity that must occur after another activity in the project.

Concurrent or Parallel Activity

Two or more activities can be started at the same time these are called the parallel activity.

Critical Activities

These are the activities on which over all projects completion time depends. A critical path in
project management is the longest sequence of activities that must be finished on time in order
for the entire project to be complete.

Dummy Activity

A dummy activity represents a relationship between two events. In the case of the example
below us, the dotted line represents a relationship between nodes 4 and 3.
The activity between these nodes will not have any value.
Merger

When two or more activities end with the common event, that event is referred as a merger.

Burst

When two or more activities start from a common event, that event is called a burst.

EPO- Earliest Possible Occurrence

It is also known as EFT that is Earliest Finish Time. It is obtained as Earliest Star Time (EST) +
Duration of that activity.

LPO – Latest Possible Occurrence

It is also known as LFT that is Latest Finish Time. It is obtained as LFT + Duration of that
activity.

Other rules to consider

 The network should have a unique starting and ending node. In the case of our example,
event 1 represents a unique starting point and 6 represents the unique completion node

 No activity can be represented by more than a single arc (the line with an arrow
connecting the events) in the network

 No two activities can have the same starting and ending node.
Draw Network Diagram for a real life project containing 10-15 activities,
computation of LPO and EPO. (Take maximum three example)
The objective of the question below is to determine the critical path, based on the information
available, like activity, immediate predecessor, and duration (which in this case, we’ll take as
months)

First, let’s analyze the activities and their immediate predecessors.

Activities A, B, and C don’t have any immediate predecessors. This means that each of them will
have individual arcs connecting to them. First, we’ll draw nodes 1 (which is the starting point)
and 2. We’ll add the activity on the arc, along with the duration. We’ll have to also keep in mind
that A acts as the immediate predecessor for both nodes E and F. Similarly, let’s draw the arcs
for nodes B and C.
Before we can draw the nodes for activity D, a quick look at the table will tell us that it is
preceded by activity B and that a combination of activities C and D act as immediate
predecessors for activities H and J. This means that both activities C and D have to connect at
some point. That’s why we’ll be drawing an arc from events 3 and 4.

So now, we’ve completed activities A, B, C, and D of the critical path method. Next, let’s take a
look at activity E.

Activity E is preceded by activity A and acts as the immediate predecessor for activity J. Since
this is an independent activity, we’ll be able to draw an arc like this.

If we have a look at activity F, it’s preceded by activity A, and a combination of F, G, and H act
as immediate predecessors for the activities K and L. So let’s wait before we take it up. Instead,
let’s shift our attention to activity G. It’s preceded by B. So, we’ll draw it like so.

Now, let’s take a look at activity H. It is preceded by both C and D and will act as the immediate
predecessor for K and L, along with F and G. So, we can connect node 4 to 6.

Now that we’ve done that, let’s go back to activity F. Now that we know where activities G and
H connect to, we can combine nodes 2 and 6, fulfilling the conditions required for activities K
and L.

Following this, we have an activity I. The activity I is preceded by activities C and D. It also acts
as an immediate predecessor to activity M. Since it’s an independent activity, we can draw it like
so.

Next, let’s take a look at activity J. Activity J is preceded by activity E. We can also see that a
combination of J and K will act as an immediate predecessor for activity N. We can then draw an
arc like this.

Let’s go on to activity K. Here we can see that K is preceded by F, G, and H. It also acts as an
immediate predecessor to activity N. So, we’ll connect nodes 6 to 8.
Next, let’s continue with activity L. The table now shows that L, M, and N don’t act as
immediate predecessors for any other activity. Hence it can be assumed that it’ll connect to the
final node.

L is preceded by activities by F, G, and H. The arc can be drawn like so.

We’ll now go to activity M. This activity is preceded by activity I. Similarly, we can connect an
arc from node 8 to 9 for activity N.

Now, the network is complete!

Now, to find the critical path. For this, we’ll need to find two values, Earliest Start Time (Es) and
Latest Completion Time (Lc).

The process of determining the Es for all events is called a forward pass.

The process of determining the Lc for all events is called a backward pass.

Let’s get into the forward pass. For this, first, we’ll need to create boxes at all nodes. These are
then divided into two. The lower half of the box represents the earliest start time of the node,
while the upper half represents the latest completion time.

For this, we’ll be using the formula, Esj = max (Esi + Dij)

Which when simplified, the earliest start time for the second node (head node), is the maximum
of the combination of the earliest start time of the tail node and the duration between the two
nodes.

So, for node 1, the earliest start time is always zero.

For node 2,
it would be, Es2 = 0 (earliest start time for node 1) + 3 (duration between 1 and 2) = 3

For node 3,

It would be, Es3 = 0(Es1) + 4(D1 to 3) = 4

For node 4, we can see that two arcs connect to it. This means that we’ll need to choose among
the larger of the two options available to us.

Es4 = 0(Es0) + 6 = 6 or

Es4 = 4(Es3) + 3 = 7

We’ll choose 7 since it’s larger.

Similarly, we have three options to choose from when it comes to node 6. Since three arcs
connect to it.

Es6 = 3(Es2) + 1(D2-3) = 4

Es6 = 4(Es3) + 4(D3-6) = 8

Es6 = 7(Es4) + 5(D4-6) = 12

Hence we’ll select the last option since it’s the largest among the three.

Now, for node 5. Since it’s directly connected to node 2, we can directly apply the formula.
Es5 = 3(Es2) + 9(D2-5) = 12

Let’s take node 8.

Es8 = 12(Es5) + 3(D5-8) = 15 or

Es8 = 12 (Es6) + 6(D6-8) = 18

We’ll choose Es8 as 18 since it’s the larger of the two.

Now for node 7. We can directly apply the formula to these nodes.

Es7 = 7(Es4) + 4(D4-7) = 11

Finally, we’ve got node 9.

It has 3 nodes connecting towards it. We’ll have to choose the maximum of the three.

Es9 = 18(Es8) + 9(D8-9) = 27

Es9 = 12(Es6) + 3(D6-9) = 15

Es9 = 11(Es7) + 6(D7-9) = 17

We’ll choose the arc from node 8 since it’s got the highest value.

Correction- For node 5 the Es value is 12 instead of 5

And like that, the forward pass is complete. Now, for the second part of the critical path method.
Let’s take up the backward pass. For that’ we will be using the following formula.
Lci = min (Lcj - Dij)

This, when put simply, means the latest completion time of the tail node is equal to the latest
completion time of the head node minus the distance between the two.

Let’s start from the final node, number 9.

The Lc for this node will always be equal to its Es.

So, Lc9 = 27.

Next, let’s have a look at the latest completion time for the 8th node. Since it’s directly
connected only to the 9th node, we can directly apply the formula mentioned earlier.

Lc8 = 27(Lc9) - 9(D9-8) = 18

Now, let’s have a look at the latest completion time for node 7. Since there’s a direct connection
between nodes 9 and 7.

Lc7 = 27(Lc9) - 6(D9-7) = 21

Let’s move on to node 6. As we can see in the diagram, there are two points extending to nodes 8
and 9 from node 6. So we have two options to choose from.

Lc6 = 18(Ls8) - 6(D6-8) = 12 or

Lc6 = 27(Ls9) - 3(D6-9) = 24

We’ll choose the Lc of node 6 as 12.

We’ll now go to node 5. Since it’s directly connected to the 8th node, we can directly apply the
equation.
Lc5 = 18(Lc8) - 3(D5-8) = 15

Next up, let’s find the latest completion time for node 4.

Since there are two connections extending from the node, to nodes 6 and 7 respectively, we’ll
need to select the minimum between the two.

Lc4 = 21(Lc7) - 4(D4-7) = 17

Lc4 = 12(Lc6) - 5(D4-6) = 7

We’ll choose 7 as the latest completion time for node 4.

Now for node 3.

Since there are two nodes connecting from node 3 to nodes 4 and 6. So, we’ll need to choose
between the 2.

Lc3 = 12(Lc6) - 4(D3-6) = 8 or

Lc3 = 7(Lc4) - 3(D3-4) = 4

We’ll choose 4 as the latest completion time for node 3.

Let’s now go to node 2. Again, since there are two connections made from 2 to node 5 and 6,
we’ll need to choose the minimum among the two.

Lc2 = 15(Lc5) - 9(D2-5) = 6

Lc2 = 12(Lc6) - 1(D2-6) = 11

We’ll choose the latest completion time of 2, as 6.

And finally, we have node 1.

Since there are connections to 2, 3, and 4 from 1, we’ll need to choose from the three.

Lc1 = 6(Lc2) - 3(D1-2) = 3

Lc1 = 4(Lc3) - 4(D1-3) = 0

Lc1 = 7(Lc4) - 6(D1-4) = 1

We’ll choose 0 as the latest completion time for the node.

And there we go! The backward pass is complete.

Now, for the final step of the critical path method. To determine the critical path, there are three
major criteria that need to be satisfied.

Esi = Lci

Esj = Lcj

Esj - Esi = Lcj - Lci = Dij

From the diagram, we can see that nodes that satisfy the requirements are: 1, 3, 4, 6, 8, and 9.

Hence the activities on the critical path are B - D - H - K - N.

Hence the critical path is B + D + H + K + N = 4 + 3 + 5 + 6 + 9 = 27.

And there we go! We’ve found the critical path.

Significance of Critical Path

Projects are made up of tasks that have to adhere to a schedule in order to meet a timeline. It
sounds simple, but without mapping the work, your project scope can quickly get out of hand
and you’ll find your project off track.

Using the critical path method is important when managing a project because it identifies all the
tasks needed to complete the project, then determines the tasks that must be done on time, those
that can be delayed if needed and how much float or slack you have.

When done properly, critical path analysis can help you:

 Identify task dependencies, resource constraints and project risks

 Accurately estimate the duration of each task

 Prioritize tasks based on their float or slack time, which helps with project scheduling and
resource allocation

 Identify critical tasks that have no slack and make sure those are completed on time
  Monitor your project progress and measure schedule variance

 Use schedule compression techniques like crash duration or fast tracking

Calculate Floats or Slacks

Project management float is the amount of time a given task can be delayed without causing a
delay in the entire project. Float helps tremendously with resource management, scheduling, and
keeping projects on track for a timely delivery. But float is also extremely valuable for project
management working with contractors and internal resource managers.

Determination of Floats and Slack Times

When the network diagram is completely drawn, properly labeled and earliest (E) and latest (L)
event times are computed, the next objective is to determine the floats and slack times defined as
follows.

Float of an activity is defined as the time by which an activity can be delayed without affecting
the scheduled completion time of the project.

In project management, float, sometimes also referred to as “slack,” is a number that indicates
the amount of time a task can be delayed without impacting subsequent tasks or the project’s
overall completion. It’s important to track when you are maintaining your project schedule.

Types of Floats

There are three kinds of floats as given below:

1. Total float
Total float is the amount of time a task or a project can be delayed without impacting the overall
project completion time. The amount of time by which the completion of an activity could be
delayed beyond the earliest expected completion time without affecting the overall project
duration time.

Total float is defined as the maximum time by which the starting or finishing of an activity can
be delayed without affecting the scheduled completion time of the project. It is the maximum
delay available for performing an activity. The total float affects the preceding as well as
succeeding activities.

It refers to the amount of free time associated with an activity which can be used before, during
or after the performance of this activity. This is the most important type of float because this is
concerned with the overall project duration. Total float on critical activities is always taken as
zero. The value of total floats for any activity is useful for drawing the following conclusions.
So, Total Float is about flexibility at the project level. It is about the flexibility that an activity
has in its execution without delaying the Project finish date.

To calculate total float, subtract the task’s earliest finish (EF) date from its latest finish (LF) date.
It looks like this: LF - EF = total float. Alternately, you can subtract the task’s earliest start (ES)
date from its latest start (LS) date, like this: LS - ES = total float. Both of these formulas will
give you the task’s total float.

2. Free float
Free float is the amount of time that a task can be delayed without impacting the subsequent task.
The time by which the completion of an activity can be delayed beyond the earliest finish time
without affecting the earliest start of a subsequent (succeeding) activity. This is that value of the
float which is consumable when the succeeding activities are started at their earliest starting
times.

Free float is an activity is the delay available for performing an activity without affecting the
succeeding activity i.e. the succeeding activity remains free from the influence of the concerned
activity. It is based on early start & early finish.

Therefore for all activities free float can take values from zero up to total float but will not
exceed total float. Free float is always useful for rescheduling the activities with minimum
disruption of earliest plan.

That formula looks like this: ES - EF = free float.

Free Float = ES (of successor) – EF (of current).

3. Independent Float (INDF)

The amount of time by which the start of an activity can be delayed without affecting the earliest
start time of any immediately following activities, assuming that the preceding activity has
finished at its latest finish time.

Independent float is defined the time by which the starting or finishing of an activity can be
delayed without affecting the preceding as well as successive activity. It is also defined as the
minimum delay available for performing an activity. It is based on start and early finish.

Independent Float (INDF) = Earliest Successors’ Early Start – Earliest Predecessors’

Late Finish – Activity’s duration.
Crashing
PERT
Program (Project) Evaluation and Review Technique (PERT) is an activity to understand the
planning, arranging, scheduling, coordinating and governing of a project. This program helps to
understand the technique of a study taken to complete a project, identify the least or minimum
time taken to complete the whole project. PERT was developed in the 1950s, with the aim of the
cost and time of a project.

Program Evaluation and Review Technique (PERT) is a project network analysis technique to
plan and control the projects by focusing on the time and the cost of each activity involved in the
project.

PERT is an approach that helps managers to evaluate and prioritize projects based on the
resources available and the expected outcomes. It is used for planning purposes and to determine
how much time should be spent on different aspects of a project.
The PERT technique focuses on the time and the cost of each activity takes. This will hence
influence the resultant time and the cost required for the completion of the entire project. This
network analysis technique helps to understand the performance of the work throughout the
course of the project.

Features of PERT

1. It is an important tool for effective project management.

2. It has acquired the shape of probabilistic model
3. It works with three time estimates: Optimistic, Most likely and Pessimistic
4. It is normally used conjunction with CPM
5. It estimates probability of project completion
6. It helps in decision making
7. It helps in planning and controlling the activity
8. It is helpful for planning the time and resources.

Advantages of PERT

1. Improving Inter-Departmental Coordination

PERT analysis improves planning and decision-making by integrating the presentation of data
across various departments. The qualitative and quantitative data collected from these various
sources can also help improve coordination of project activities and communication between
departments.

2. All Initiated Projects Assumed New Project

A project managed with PERT Chart will always be assumed to be a new project, with no
previous historical templates. Since templates were not taken into account in previous projects,
the completion time of certain jobs on this “new” project is probabilistic. This is because the
PERT method is oriented towards optimizing project completion time, not cost optimization.

3. Methods for Managing Uncertainty

One of PERT Chart’s capabilities is its ability to deal with uncertainty in a project. This method
estimates the time required for each activity in detail down to minutes, to hours to measure the
completion time of the activity. Although the calculations are subjective assumptions, PERT
charts can help project managers to see the entire project timeline and take into account various
aspects of it.

Disadvantages of PERT

1. The Results of Analysis are Subjective

The identification process in the PERT method is generally obtained from the inclusion of
project participants whose bias cannot be ascertained. So the estimate of the time required for
each activity is subjective and depends on assumptions. This then makes the PERT Chart raises
overly optimistic and possibly unrealistic time assumptions.

2. Low Flexibility Due To Focus on Time Chart

In PERT Chart, the time chart is the main determinant of the movement of each project activity.
The time network formed in the PERT Chart determines the need for labor, materials, and capital
equipment, team and individual activities, to project cost estimates. However, because all
activities are limited by the dynamics in the chart, making the type of project that requires an
agile management style cannot optimally manage its project with this method.

3. The Uncertain Method

In PERT Chart, all estimated times are the result of complex formula calculations, but their
nature is probability. Using the PERT Chart method is a trial & error endeavor. It is conceivable
that if you work with a project full of uncertainty, the critical path that is made is also uncertain,
and this also describes the PERT Chart as a method full of uncertainty risk.
The Project Evaluation Review Technique is depicted using a flowchart. The events are
represented by nodes, which indicate the beginning and finish of activities or tasks. The arrows
represent the sequence of the activities, while the directorial lines highlight the tasks that must be
done.

There are four different ways to define time:

 Optimistic time — the shortest time it is possible to perform a task.

 Pessimistic time — the amount of time it should take to perform a task in the worst-case
scenario.

 The best or most reasonable estimate of how long it should take to finish a task, assuming
there are no issues.

 Expected time – The best estimate of how long it will take to perform a task, assuming
there are no issues.

To use a PERT chart, follow these steps:

1. Determine the various tasks required to execute a project. Make sure they’re in the
appropriate order, and that you specify how long each task will take.

2. Make a schematic of the network. Use nodes to represent milestones and arrows to
represent actions.

3. Determine the critical path and any slack that may exist.
When to use a PERT Chart

Project managers use PERT charts to evaluate and complete a given project. But with so many
other methods to choose from, how does a PERT diagram compare?

For starters, a PERT chart is a good method when you’re looking to evaluate the timeline,
resources needed, and a project’s critical path. Let’s look at each of these a little closer.

 To determine the critical path: One of the key features of a PERT chart that sets it apart
from other methods is its ability to determine a project’s critical path. This is important
when visualizing the overall timeline of a project.
 To evaluate resources: With the unique features a PERT chart offers, you can easily
display which tasks require resources and which don’t. This saves both you and project
stakeholders’ time by having that information upfront and accessible.
 To estimate time: Since a PERT chart evaluates both individual task duration and overall
project duration, it’s a great tool when you need to understand the expected timeline
during the initial project planning phase.

For the given activities determine: Critical path using PERT.

Activity to tm tp

1-2 6 9 12

1-3 3 4 11

2-4 2 5 14

3-4 4 6 8

3-5 1 1.5 5

2-6 5 6 7

4-6 7 8 15

5-6 1 2 3

Solution:

Least Time- to

Greatest Time- tp

Most likely time- tm

Expected Time- te
Variance - V

First of all draw the network diagram for given data as shown below:

Here the time for completion of activities are probabilistic. So, using given values of time we
will find the expected time to completion the activities and variance.

For each given activity we will calculate the expected time as follows:
Now based on estimate time, we calculate the EST, EFT, LST and LFT for each activity to find
out critical path of project as shown below.

Here the critical path is along the activities 1-2, 2-4, 4-6. So the critical path is 1-2-4-6.
Following diagram is prepared to show critical path along with EST and LFT.

The critical path = 1-2-4-6 with time duration (tcp) of 24 days.

Applications of Network Analysis (PERT and CPM)
1. Research and Development Project (R and D Projects)

2. Equipment Maintenance and hauling

3. Construction Projects (Buildings, bridges, and Dams)

4. Setting up new industries

5. Planning and launching of new products

6. Design of plants, machines, and systems

7. Shifting the manufacturing location to another location

8. Control of production in large shops

9. Market penetration programs

10. The organization of big programs, conferences etc.

Difference between CPM and PERT

Abbreviation

PERT – Project Evaluation and Review Technique CPM – Critical Path Method

What does It Mean?

PERT – PERT is a popular project management CPM – CPM is a statistical algorithm which
technique that is applicable when the time required has a certain start and end time for a
to finish a project is not certain project

Model Type

PERT – PERT is a probabilistic model CPM – CPM is a deterministic model

Focus

PERT – The main focus of PERT is to minimize the CPM – The main focus of CPM is on a
time required for completion of the project trade-off between cost and time, with a
major emphasis on cost-cutting.

Orientation type
 PERT – PERT is an event-oriented technique CPM – CPM is an activity-oriented
technique

Time Cost Trade-off Analysis

The Time-Cost trade-off problem (TCTP) is one of the most important in project management.
This problem of-ten comes up when the duration of parts of a project needs to be reduced to
compensate for unexpected delays, or when it is necessary to complete a project before a
predetermined due date. The great importance of time and cost leads to the simultaneous
management of project completion time and total project cost. The objective of this problem is to
determine the optimal combination of activity durations and activity costs that leads to a balance
between the project completion time and the total project cost.

All existing patterns of the TCTP satisfy the objective function by reducing the duration of
activities. Several procedures (e.g., additional resource allocation, improvement in the
technology level, increase in the quality of materials, and the hiring of highly skilled workers)
are avail-able for expediting the completion of activities. The effect of these procedures can be
summarized to a unique cost function corresponding to each activity.

The objective of the time-cost trade-off analysis is to reduce the original project duration,
determined form the critical path analysis, to meet a specific deadline, with the least cost. In
addition to that it might be necessary to finish the project in a specific time to:

- Finish the project in a predefined deadline date.

- Recover early delays.

- Avoid liquidated damages.

- Free key resources early for other projects.

- Avoid adverse weather conditions that might affect productivity.

- Receive an early completion-bonus.

- Improve project cash flow

Reducing project duration can be done by adjusting overlaps between activities or by reducing
activities’ duration. What is the reason for an increase in direct cost as the activity duration is
reduced? A simple case arises in the use of overtime work. By scheduling weekend or evening
work, the completion time for an activity as measured in calendar days will be reduced.
However, extra wages must be paid for such overtime work, so the cost will increase. Also,
overtime work is more prone to accidents and quality problems that must be corrected, so costs
may increase. The activity duration can be reduced by one of the following actions:

- Applying multiple-shifts work.

- Working extended hours (over time).

- Offering incentive payments to increase the productivity.

- Working on weekends and holidays.

- Using additional resources.

In network scheduling models, managers often want to reduce critical path time, even if it costs
extra money to make the reduction. The two network methods explained above can be used to
reduce critical path time. The process of decreasing the duration of a projector activity is
commonly called crashing. There is value in crashing a project. In order to crash a project, we
must crash one or more activities. Crashing activity costs money. Deciding to crash an activity
requires us to compare the cost of crashing that activity with the value of the resulting reduction
in project length. This decision is frequently complicated by the fact that some negotiation may
be required between the party that incurs the cost of crashing the activity (e.g., the contractor)
and the party that enjoys the value of the crashed project (e.g., the customer).

An activity is typically crashed by applying more labour to it (e g., overtime or a second shift).
We might typically expect that using second-shift labour could cost 1.5 times as much per hour
as first-shift labour. We might expect third-shift labour to cost twice as much as first-shift labour.
Consider an activity that can be done in six days if only first-shift labour is used and has a labour
cost of $6,000. If we allow the use of second-shift labour and thus work two shifts per day, the
activity can be done in three days for a cost of 3 * 1000 + 3 * l000 * 1.5 = 7,500. If third-shift
labour is allowed, then the project can be done in two days by working three shifts per day and
incurring a total of : 2 * 1000 + 2 * 1000 * 1.5 + 2 * 1000 * 2 = $ 9,000.

The basic assumption in minimum-cost scheduling is that there is a relationship between activity
completion time and the cost of a project. On one hand, it costs money to expedite an activity; on
the other, it costs money to sustain (or lengthen) the project. The costs associated with expediting
activities are termed activity direct costs and add to the project direct cost. Some may be worker-
related, such as overtime work, hiring more workers, and transferring workers from other jobs;
others are resource-related, such as buying or leasing additional or more efficient equipment and
drawing on additional support facilities.

The costs associated with sustaining the project are termed project indirect costs: Overhead,
facilities, and resource opportunity costs, penalty costs or lost incentive payments. The goal of
any scheduling problem is essentially to find the project duration that minimises sum of direct
costs and indirect cost or in other words, finding the optimum point in a time-cost trade-off.

Prepare a CPM-type Network Diagram

For each activity this diagram should list

Normal Cost (NC)
The lowest expected activity costs.
Normal Time (NT)
The time associated with each normal cost.
Crash Time (CT)
The shortest possible activity time.
Crash Cost (CC)
The cost associated with each crash time.
Determine the Cost per Unit of Time (Assume Days) to Expedite each Activity
The relationship between activity time and cost may be shown graphically by plotting CC and
CT coordinates and connecting them to the NC and NT coordinates by a concave, convex, or
straight line or some other form, depending on the actual cost structure of activity performance.

For activity A we assume a linear relationship between time and cost. This assumption is
common in practice and helps us derive the cost per day to expedite because this value may be
found directly by taking the slope of the line using the formula

Slope = (CC – NC) / (NT – CT).

The calculations needed to obtain the cost of expediting the remaining activities.

Compute the Critical Path For the simple network we have been using.

This schedule would take 10 days. The critical path is A-B-D.

Shorten the Critical Path at the Least Cost

The easiest way to proceed is to start with the normal schedule, find the critical path, and reduce
the path time by one day using the lowest-cost activity. Then recomputed and find the new
critical path and reduce it by one day also. Repeat this procedure until the time of completion is
satisfactory, or until there can be no further reduction in the project completion time.

Project Cost Reduction Methods

A cost reduction program is a type of method which is to improve profitability of the
organization or by expected to get a good result that flow to the bottom line of the financial
statement and exempted from any serious damage to the organization itself. As this program is
much more about reducing cost or reducing expenses of the organization, so a good cost
reduction program is all about how to control the damage of an organization. Furthermore, a cost
reduction program is said to be improve the profitability of an organization because by reducing
expenses, profits are increased without making others changes.

Reducing project costs and budget management is an ongoing process for which a project
manager is always looking for innovative ways. An improper allocation of resources can
adversely affect the project’s profitability, because the project to go over budget compared to the
project baseline, and, in some cases, lead to project failure.

Sometimes, the project’s scope may suddenly change, which can disrupt the project plan, and
you may need to add more resources that were not initially considered.

The project manager needs to ensure that the budget is reviewed regularly and, more importantly,
in such a situation.

In addition, the project’s costs can be monitored by reviewing its progress during each stage and
making sure there are no discrepancies. But beyond that, here are some tips for reducing the cost
of a project.
 1. Allocate competent resources during the project start-up phase

Identifying and assigning the right resources during the start-up phase helps deliver the project
on time and budget. It also helps avoid allocating insufficient or overqualified – and therefore
expensive – resources to certain project activities. On the other hand, assigning underqualified
resources will cause delays in delivery and compromise the quality of results. Therefore, the
project manager must ensure that critical resources are acquired and allocated appropriately
before the project begins.

2. Look for cheaper resources

The resources used by a project can often be expensive and can reduce profit margins. There are
many instances of companies increasing the cost of the resources they offer when competing and
many projects wasting resources, which means you are paying higher costs than you should be.
However, there are many ways to reduce the amount and cost of resources used, such as
comparing pricing from multiple vendors and implementing streamlined processes.

3. Reduce project duration

Another way you can reduce the expense of a project is to shorten its duration. The longer a
project is, the more resources will need to be used, including materials, administrative costs,
energy, and employees, all of which will need to be paid. Project length is one of the main
reasons why companies fail to meet their original budgets. To shorten the critical path, you might
consider performing multiple tasks simultaneously, turning full dependencies into partial
dependencies that can run parallel.

4. Reduce project scope

If the project’s cost is a concern, one solution might also be to consider reducing the scope of the
project. Although the scope is determined during the initial planning stages, this can prove costly
and time-consuming if it is too broad. You can reduce the scope by reducing the number of tasks
that will be met simultaneously, limiting the project to only the most essential processes and
requirements.

5. Review workload estimates

Do resources need 8 hours a day to perform a task, or can some of them work fewer hours a day
on that given task? Not only should duration estimates be evaluated to shorten the program, but
also workload estimates. In case this could be a solution, this may require renegotiation with
some team members.

6. Manage your budget correctly

In addition to the aforementioned tips, it is also essential to implement a sustainable budget into
the project plan and for the project manager to be able to monitor progress and adjust it to needs
when necessary. Most budgets are relatively rigid because of budget approval early in the
planning phase, which often includes funding from project sponsors. Therefore, the project
manager must be able to work within these boundaries throughout the process. To do this, you
need to map your expenses before you start and use budget tracking tools to stick to them
throughout the project lifecycle.

7. Use agile management techniques

Agile management can be the perfect way to avoid wasting resources, leading to lower project
costs. Agile management uses short development cycles to advance and improve a project
continuously. This management technique can help improve the efficiency of a project which, as
a result, can lead to saving money.

8. Seek process improvements

Another solution might be to see if there are ways in which you can achieve your goals
differently. For example, is it possible to do work remotely instead of requiring office visits? Is it
possible to gather requirements in one day, through a joint design session, rather than in three
weeks using traditional methods? Is it possible to outsource some of the work at a lower cost
than doing it in-house? These and other questions can lead to money-saving process changes.

9. Use project management software

Although project management software often has a high upfront cost, using it can help reduce the
cost of a project. That’s because dedicated software can help reduce the cost of manual processes
and the extra time to be invested and allow employees to be more productive through automated
processes, resource optimization, the ability to meet deadlines, and the reduction of
administrative errors.

In conclusion, the main goal of cost management for a project is to eliminate unnecessary costs
without compromising the quality of the final results. However, this is an ongoing process within
project management and requires constant monitoring to try to maintain the project budget. Also,
determining discrepancies helps you take timely action and avoid going over budget. Often,
project managers reserve 10 to 20 percent of the budget for unforeseen circumstances and create
the project plan with the remaining budget so that there are no last-minute hiccups.