P.E.R.T. & C.P.M.

and Replacement
Model
 Drawing Networks
Identifying Critical Path (CPM)
Probability of completing the project
within given time (PERT)
 Project Crashing
Optimum Cost and Optimum Duration
Replacement models
Single Replacement
Group replacement.
 Project Management
CPM and PERT are also called as Network
Optimization Techniques
Network Optimization Techniques (PERT/CPM)
plays an important role in analyzing the project
management.
Project means “Planning, scheduling and
controlling a number of interrelated activities in
a sequential order before the entire task is
completed within the available resources”
Ex: Construction of a House, Launching of a
New Product, Construction of an Aircraft etc..
 Phases of project
management
Planning
Objectives, activities to be performed, time, cost
etc..
Scheduling
Scheduling each activity along with the time and
cost
Controlling
Comparison of actual performance with the
scheduled performance
 Network
Network is a diagrammatical or
graphical representation of a Project
A network is a diagrammatical or
graphical representation of connection
of interrelated activities, which are to
be executed in an order or sequence
before the entire task is completed
Objectives of Network analysis
Minimization of total project cost
Minimization of total project duration
Trade - off between the time and cost
of a project.
Minimization of idle resources of
project.
Minimization of project delay,
interruptions and conflicts.
Merits of Network Analysis
Network Analysis is valuable for planning,
scheduling and controlling of operations of
large projects.
To Evaluate the level of performance by
comparing actual performance with the
standards.
Provides coordination and communication
between the various activities of a project.
Determines the Time Cost trade-off .
Easily oriented towards computers.
 Limitations of Network Analysis
Construction of network for complex type
of projects with too many activities is
difficult.
The time cost trade-off is not suitable for all
projects.
The estimation of reliable and actual
duration of various activities is very
difficult.
With too many activities of a project,
analysis become complex.
 Applications of Network Analysis
Various fields which implementing network
analysis for evaluation of various projects are
 Construction industry.
 Manufacturing industry.
 Research and development.
 Administration.
 Marketing.
 Inventory planning.
 Engineering. Etc..
 Components of Network
Various components of a
network can be classified as
Activity
Node or Event
Logical Sequencing
 ACTIVITY
Activity is a task or a work to be done in
the project.
Activity consumes some Cost and Time.
Activity represented by an arrow

Types of activities
Predecessor Activity.
Successor Activity.
Dummy Activity.
•Predecessor Activity
•Activity conducted for the first time
•Successor Activity
•Activity conducted after the predecessor activity
•Dummy Activity
•Activity used to maintain the continuity in the project

Predecessor
Successor 3
1
0
Dummy
Successor
2
 Node or Event
An event or node can be represented as the starting
and ending of an activity.
A node can be represented by a circle.

i j
Starting or Ending or
Tail Node Head Node
Types of nodes

Merge Nodes
i
Burst Nodes

Merge and Burst Nodes j

i
 Logical sequence
An activity can be began only after a certain
other activity is completed.
If A<B Then activity B started only after the
completion of activity A.
Errors in logical sequencing
Looping 3
1

2
2

Dangling 4
1
3
Rules for constructing a Network
diagram
Each activity must be represented by only one
Arrow.
Each activity must be identified by its starting
and ending node.
Nodes should be numbered to identify an
activity uniquely.
Between any pair of nodes there should be only
one arrow.
Arrows should be straight line but not bent or
curve.
Arrows should be logically sequenced, the
dummy activities are introduces if necessary.
Rules for numbering the nodes
Each node must be identified by a number.
Each node must be numbered uniquely.
Numbering should be carried out on a
sequential basis from left to right.
The initial node which has all outgoing
arrows and no incoming arrow is numbered
0 or 1.
The head node should have a number
higher than the tail node.
 Types of Network Diagrams
Various types of network diagrams can be
classified as
Activity - on - Node Diagram (AON)
 Node itself represents an Activity
 Activities 1 and 2 can be represented by AON as
Activity 1 Activity 2
1 2
Activity - on - Arrow Diagram (AOA)
 Arrow represents an activity

 Activities 1 and 2 can be represented by AOA as

i 1 j
2 k
 AOA AON
Activity A A A
0 1

A B
B follows A 0 1 2 A B

A B 2 B
B and C follows A 0 1 A
C C
3

0
A A
C follows A and B C
2 3 C

B B
1
Activity Duration
1-2 100
1-3 30
2-3 20
2-4 15
3-4 10 AON
3-5 60 Network
4-5 50 Diagram
2 15
4
100 50
20 10
1 5
30 3 60
Activity Duration
1-2 1
1-3 7
1-4 5
2-4 6
2-5 3 AON
3-4 4 Network
3-6 3
4-5 8
Diagram
4-6 10
5-6 5
3 5
2
8
1 6
5 4 5
1 10
4
7 6
3 3
Activity Predecessor Duration
Activity

A --- 1
B A 7
C --- 5 AOA
D B 6 Network
E C,D 3
Diagram
F B 4
G E,F 3

B(7) 3
2 F(4)
A(1)
D(6) G(3) 6
1
5
C(5) 4 E(3)
Activity Predecessor Duration
Activity
A --- 2
B --- 4
C --- 3 AOA
D A 1
E B 6
Network
F C 5 Diagram
G D,E 7
H F,G 2

3 E(6)
B(4)
G(7) H(2)
D(1) 5 6 7
A(2) 2
1
F(5)
C(3) 4
 Critical Path Method (CPM)
CPM deals with the project management involves the
deterministic time estimates.
The critical path can be obtained for a network by the
following steps
StepI: Compute Earliest Event Time or
Forward Pass for each activity or node by using
the relation.
Ej=Max(Ei+tij) ; where tij is the Duration
Step II: Compute Latest Allowable Time or
Backward Pass for each activity or node by using
the relation
Li=Min(Lj-tij); where tij is the Duration
Step III: If Ej=Li, then such Activity or Node
is called critical activity . On joining these
activities, critical path can be obtained.
Also the Critical Path provides the Project
Completion time.
Critical path is the longest path in the
Network Diagram.
CPM also analysis the Non-Critical activities
by calculating the Float or Slack as follows
 Float or Slack
Float or Slack is the free time of a non-
critical activity that delayed or extended
without extending the total project
duration.
Float = Li-Ei or Lj-Ej
Ei= Earliest Start,
Ej= Earliest Finish= Ei+tij
Li= latest start =Lj-tij,
Lj= latest finish
Types of Floats
Total Float: Delay in an activity if all its
previous activities are completed within the times
TFij = (Lj-Ei)-tij
Free Float: Delay in an activity if all its
successor activities are completed within the times
FFij = (Ej-Ei)-tij
Independent Float: Delay in an activity if
all its previous and successor activities are
completed within the times
IFij = (Ej-Li)-tij
 Project Evaluation and Review
Technique (PERT)
PERT is used to analyse whether the project
duration can be reduced.
PERT finds the probability that the project will be
completed before its completion time
PERT deals with the project management involves
the probabilistic time estimates.
 Optimistic Time(a or to): Execution of an activity
goes extremely good.
 Pessimistic Time(b or tp): Execution of an activity
goes extremely bad.
 Most likely Time(m or tm): Execution of an activity
goes normal or average.
The Mean and variance of probabilistic
time estimates can be obtained by the
following formulae

Mean (expected time): te = tp + 4 tm + to

6
2
Variance: Vt =2 =
tp - to
6
 Project Crashing
•The crashing is employed to reduce the project
duration by spending extra resources like labour, cost,
machinery etc..
• the relation between normal time, cost and crash time,
cost can be represented graphically as
Crash Crash
cost Point
Slope (bj) = Increase in cost by
Crash
cost reducing task by one time unit

Normal
Point
Normal
cost

Time
Crash time Normal time
Crash Normal
Time time
Procedure for Project Crashing
The project crashing procedure consists of
following steps
Calculate the cost slope and the number of days
allowed for crashing for each activity using
Crash cost – normal cost
Cost slope =
Normal time – crash time

No. of days allowed for crashing = Normal Time –

Crash Time
Identify the different paths and their durations in
the network diagram.
Determine the critical path. Ie,, longest duration
path.
 Crash the critical activity having minimum cost slope
by one period up to the allowed crashing.
 Crashing of an activity stops when the normal time
and crash time of the activity become same.
 By crashing the activities on critical path, other paths
will become critical and are called parallel paths. In
this case, crash the duration of the activities
simultaneously on the parallel paths.
 Project crashing stops when all the activities of
critical path are fully crashed and no further crashing
is possible.
 Find the optimal cost and duration for the crashed
project.
Total cost = normal cost + indirect cost + crash cost
 REPLACEMENT ANALYSIS
The literal meaning of Replacement is “
changing an existing product with a new or
a related product”
The study of replacement analysis
concerned with the situations that arises
when some items such as men, products,
machinery etc.. Need to be replaced due to
their deteriorating efficiency, failure or
break down.
The failure of an item is gradual or sudden.
Definition ”The replacement model is to formulate
a most economic replacement policy for replacing
faulty units or to take remedial action to restore
the efficiency of deteriorating units”.
Ex:
 The maintenance of a machine is more expensive
after a number of years.
 An electric bulb fails all of a sudden.
 A pipe line may blocked.
 An employee losses his job etc.
Situations under the replacement is done
 The old item has failed and does not work at all.
 The old item is expected to fail shortly.
 The old item is having deteriorating efficiency,
and require expensive maintenance.
 A better design of equipment has been improved
due the changes in technology.
 To enter into the competitive world.
 Failure mechanism of a product
The failure mechanism of a product is nothing
but the process of failure of a product.
The failure mechanism of a product can be
represented by the following classifications.
Gradual Failure
 Progressive Failure
 Retrogressive Failure

Sudden Failure
 Random failure

Bath-Tub Failure
 Gradual Failure
The gradual failure means the failure of
an item is slow and progressive as the
life an item is increases.
Due to the gradual failure, the
efficiency of the item decreases and
which results in decreased productivity,
increased operating costs and finally
decrease in the value of the product.
Ex: machinery and tires etc..
Progressive Failure
Under this failure mechanism, the probability of
failure is increases with the increase the life of a
product.
Ex: products, machines etc..
Progressive failures can be graphically
represented as

Probability
of failure

Life time of item

Retrogressive Failure
Under this failure mechanism, the probability of
failure is decreases with the increase the life of a
product.ie.. Certain items are having more probability
of failure in the beginning. As the life time increases,
the probability of failure will decreases
Ex: newly introduced machines and technologies
Retrogressive failures can be graphically represented
as

Probability
of failure

Life time of item

 Sudden failure
Some items in which they failed ultimately after a period
of usage.
These items are failed suddenly without having the
progressive or retrogressive failures.
Ex: bulbs.
Random failures
Under this mechanism, the failure of an item is purely
based on the random factors such as physical shocks,
floods, fluctuations etc.. Can be represented as

Probability
of failure

Time period
 Bath-Tub Failure
Bath-Tub failure is the combination of
both Retrogressive and progressive
failure rates.
Some products in which, initially the
failure rate is high as the time goes the
failure decreases, then the failure rate is
constant for some time and finally the
failure rate is increases.
Ex: human being.
Probability
of failure
Bath-Tub
failure Curve

Time period
Replacement Decisions
Various decisions taken in Replacement
Analysis are
 The time to Replace
 How much to Replace
 How to Replace
 Avoidance of Failures or acceptance of
Failures
 Determination of costs of replacement.
Assumptions of Replacement Policy
Various assumptions consider under
replacement decisions are
 The Quality of the out put remains constant.
 The replacement and maintenance costs
remains constant.
 The operational efficiency of the equipment
remains constant.
 The technology is remains constant under
the replacement.
 Replacement policies
Various replacement policies take under the
Replacement analysis are
Individual Replacement Policy
Under this policy, the items are replaced
individually immediately after its failure.
Group Replacement Policy
Under this policy, all items of same kind are
replaced between certain intervals of time.
In this policy, group of items are replaced even
though some of the items in the group are not failed
Replacement policy when the value of
money doesn’t change with the time
Generally the cost of maintenance is
increases with the life of a product.
It is advisable to change the item where the
cost of maintenance is high.
The main aim of this policy is to determine
the optimum replacement period of an
item whose maintenance cost is increases
with the time and the value of money
remains constant during that period.
Let C= Capital cost of equipment
S= Scrap value of the equipment
n= Number years of working.
f(t)=Maintenance cost function
A(n)= Average total annual cost
then
Total Cost=capital cost-scrap value + maintenance cost
n
TC  C  S  
t 0
f (t )

The average annual cost A(n) = TC/n

n
1
 [C  S   f (t )]
n t 0
The replacement is made at the end of a period
whose average annual cost is minimum
 Replacement Policy when the value of Money
change with the time
When the change in money value is considered for
different time periods, we shall assume
 The equipment has no scrap or salvage value.
 The maintenance costs are increased for different periods.

Let C= Cost of Equipment

Rn= Maintenance cost
1
V= Discount Rate  (1  r )
Then the weighted average cost Wn is
n 1
C  R0  VR1  V 2 R2  ......  V Rn 1
Wn 
1  V  V 2  .......  V n 1
n 1
C   RtV t 1 The replacement is made at
Wn  t 0
n 1 the end of a period whose
 V t 1

t 0
weighted average cost is low
 Group Replacement
A system consists of a large number of
identical and low cost items which are likely
to fail in the same time.
Group Replacement deals with the economic
replacement policy of replacing all such
items at fixed intervals.
 Ex: the replacement of street bulbs, transistors in
T.V Etc..
In group Replacement policy, all items are
replaced even though some of the items are
not failed
Let N= Total number of items in the system.
Nt= Number of items that fails during the time t.
C(t)= Total cost of group replacement after time t.
C1 = The cost of replacing all items
C2 = The cost of replacing individual items on failure
Pt = Probability of failure of an item at time t
Then , the total cost of group replacement is
 C(t) = C1N+C2[N1+N2+………+Nt-1]
The average cost per unit time is
 A(t) = C(t)/t.
Then the group replacement time (t) will be the time
period which minimizes the average cost per unit time.
ie.., replacement is made at the end of t if its average
cost is minimum.