Project Management

PERT • CPM
 Projects

 The three main goals of project management

are…
1. Complete the project on time or earlier.
2. Complete the project on or under budget.
3. Meet the specifications to the satisfaction
of the customer.
Project Management Techniques
PERT • CPM

Program Evaluation and Review Technique

◦ PERT (Program Evaluation and Review Technique) is
utilized when activity times are uncertain (involved
risk).

Critical Path Method

◦ CPM (Critical Path Method) is used when activity
times are known and certain.
 Project Management Steps
1. Describe the Project (Defining all the tasks
that must be completed, and in what
sequence.)
2. Develop a Graph Model (diagram the
network showing task relationships)
3. Develop an activity Schedule (Determine
the time estimates for each task)
4. Analyzing cost-time trade-offs
(Determine the cost of each task.)
5. Assess Risks (Probability analysis)
 Step 1
Describe the project
 What is the project?
 When does the project start and end?
 What activities make up the project?
◦ Activities are defined as the smallest units of
work that a project manager is expected to
schedule and control.
“...a manager’s project description should reflect only
the level of detail that he or she needs in order to
make scheduling and resource allocation decisions.”
 Task Ownership: Each activity must have
an owner who is responsible for seeing
that the work is accomplished.
Step 2
Develop a Network Model

 A Network Diagram visually displays the

interrelated activities using nodes (circles)
and arcs (arrows) that depict the relationships
between activities.
 It is a graphical diagram.
◦ For very large projects it may only be a numerical
arrangement of activities rather than graphical.
 Two types of Graphical Network Models
◦ Activity On Arc (AOA)
◦ Activity On Node (AON) (We will use AON)
 St. Adolf’s Hospital
(A sample project)
Immediate
Activity Description Predecessor(s) Activity Times

A Select administrative and medical staff. — 12

B Select site and do site survey. — 9
C Select equipment. A 10
D Prepare final construction plans & layout. B 10
E Bring utilities to the site. B 24
F Interview applicants and fill positions in A 10
nursing, support staff, maintenance,
and security.
G Purchase and take delivery of equipment. C 35
H Construct the hospital. D 40
I Develop an information system. A 15
J Install the equipment. E,G,H 4
K Train nurses and support staff. F,I,J 6

*We won’t assigning “Responsibility” data, but it is important in project management.

 St. Adolf’s Hospital
Diagramming the Network
Activity
Times (wks)
Immediate I
Predecessors

A – 12 A F K
B – 9
C A 10
D B 10 Start C G Finish
E B 24
F A 10
G C 35 B D H J
H D 40
I A 15
J E,G,H 4 E
K F,I,J 6
 St. Adolf’s Hospital
Activity Paths

I
Paths are sequences of
activities between a
project’s start and finish. A F K

Path Time (wks)

Start C G Finish

A-I-K 33
A-F-K 28
B D H J
A-C-G-J-K 67
B-D-H-J-K 69
B-E-J-K 43
E
 St. Adolf’s Critical Path
The longest path is the
critical path! I

Path Time (wks) A F K

A-I-K 33
A-F-K 28 Start C G Finish
A-C-G-J-K 67
B-D-H-J-K 69
B-E-J-K 43 B D H J

Project Expected
E
Time is 69 wks.
 Activity Time Estimates
PERT or CPM ?
 CPM (Critical Path Method) Activity times are
certain, so only one time estimate for each
activity is needed.
◦ Decision making under Certainty
 PERT (Program Evaluation and Review
Technique) is used when activity times are
uncertain. (Decision making under risk)
◦ It requires three time estimates for each activity.
(Best case, most likely time, and worst case)
 PERT’s
Three time-estimates
 OPTIMISTIC TIME: Best time if everything goes
perfectly when doing the activity.
 REALISTIC TIME: Most likely time for the activity
 PESSIMISTIC TIME: A worst-case situation
B + 4M + P
Expected Time = -------------------
6
In this example, the most likely time is given a weight of four, and the
other two times (pessimistic and optimistic) are each given weights of
one.

Risky activity times make the project length risky, so there is a need
for risk assessment based on the probability distribution of times.
(Standard deviation and variance are computed by the software.)
 Activity Slack
Activity slack is the maximum length of time that an
activity can be delayed without delaying the entire
project.
◦ It is the difference between the earliest time we
can start an activity and the latest time we can
start the activity without delaying the project.
◦ The critical path activities have zero slack.
◦ For the St. Adolf’s Hospital project, 69 weeks is the
project length because 69 weeks is the longest
path.
◦ Project delays beyond the projected completion date
often involve penalties.
Activity Start and Finish Times
 Earliest Start Time (ES) for an activity is the earliest finish
time of the immediately preceding activity.
 Earliest Finish Time (EF) for an activity is its earliest start
time plus how long it takes to do it (activity time).
 Latest Start Time (LS) is the latest you can finish the activity
minus the activity’s estimated duration.
 Latest Finish Time (LF) is the latest start time plus the
activity time.
◦ The latest finish time is the same as the latest start time of the activity activity
which follows it. (Latest start and finish times for each activity are computed
starting at the project’s last activity completion time and working forward.)
 Slack is the difference between the Earliest Start and Latest
start times for an activity (or earliest finish and latest finish
times.)
 Earliest Start and Earliest Finish Times

12
I 27

Earliest start time

15 Earliest finish time

0 A 12 12 F 22 63
K 69

12 10 6

12
C 22 22
G 57
Start Finish
10 35

0
B 9 9
D 19 19
H 59 59
J 63

9 10 40 4

9 E 33
24
© 2013 Lew Hofmann
 Earliest Start and Earliest Finish Times
Path Time (wks)
12
I 27 The Critical Path
A-I-K 33 15 takes 69 weeks
A-F-K 28
A-C-G-J-K 67
A K 69
B-D-H-J-K 69 0 12 12 F 22 63
B-E-J-K 43 12 10 6

12
C 22 22
G 57
Start Finish
10 35

0
B 9 9
D 19 19
H 59 59
J 63
Critical Path 9 10 40 4

9 E 33
24
© 2013 Lew Hofmann
 Latest Start and Latest Finish Times
(You start with the last activity and work toward the first activity)

12
I 27
48 15 63

A K
0 12 12 F 22 Latest 63 69 Latest
2 12 14 53 10 63 start 63 6 69
finish
time time
C
12 22 22 G 57
Start Finish
14 10 24 24 59
35

0
B 9 9
D 19 19
H 59 59
J 63
0 9 9 9 10 19 19 40 59 59 4 63

9 E 33
35 24 59

© 2013 Lew Hofmann

Nod Duratio ES LS Slack
e n Slack is the difference between
A 12 0 2 2 LS and ES or EF and LF
B 9 0 0 0
C 10 12 14 2
12
I 27
D 10 9 9 0
E 24 9 35 26 48 15 63

F 10 12 53 41

G 35 22 24 2
A
H 40 19 19 0 0 12 12 F 22 63 K 69
I 15 12 48 36 2 12 14 53 10 63 63 6 69
J 4 59 59 0

K 6 63 63 0
C
12 22 22 G 57
Start Finish
14 10 24 24 59
35

0
B 9 9
D 19 19
H 59 59
J 63
Activity Slack 0 9 9 9 10 19 19 40 59 59 4 63

Analysis
9 E 33
35 24 59
© 2013 Lew Hofmann
 Analyzing
Cost-Time Trade-Offs.
 There are always cost-time trade-offs in
project management.
◦ You can completing a project early by hiring more
workers or running extra shifts.
◦ There are often penalties if projects extends
beyond some specific date, and a bonus may be
provided for early completion.
 Crashing a project means finishing the
project early by expediting one or more
activities.
◦ Not all activities can be shortened.
 Project Costs
Total Project Costs =
direct costs + indirect costs + penalty costs
 Direct costs include labor, materials, and any other
costs directly related to project activities.
 Indirect costs include administration, financial, and
other variable overhead costs.
◦ These can be reduced by reducing total project
time.
◦ The shorter the duration of the project, the lower the
indirect costs will be.
 Penalty costs are essentially late fees incurred for
going over the projected due date.
 Minimizing Costs
 We do cost analysis to determine the project
schedule that minimizes total project costs.
 When crashing an activity or project, extra money
is spent on direct costs, but money is saved on
indirect costs and possible penalties.
 A minimum-cost schedule is determined by
starting with the normal project time schedule and
shortening activities along the critical path until
the costs of crashing (direct costs) start to exceed
the savings in indirect costs and penalty costs.
◦ New critical paths usually appears while doing this.
 St. Adolf’s Hospital
Minimum Cost Schedule
a. Determine the project’s critical path(s).
b. Find the activity or activities on the critical path(s)
with the lowest cost of crashing (shortening) per
week.
c. Reduce the time for this activity until…
a. it cannot be further reduced,
b. or another path becomes critical,
c. or the increase in direct costs exceed the savings that
result from lower indirect costs.
d. Repeat this process until the total project costs are
no longer decreasing.
 Sophisticated project management software will do
this.
 Of the five critical-path activities, the
contractor says D and H cannot be
I shortened. J is the least costly to
12 27
48 15 63
shorten at $1000 a week. Contractor
says it can be shortened to 1 week.

A K
0 12 12 F 22 63 69
2 12 14 53 10 63 63 6 69

C
12 22 22 G 57
Start Finish
14 10 24 24 59
35

B 9 D 19 H 59 J 63 Shorten from 4
0 9 19 59 weeks to 1 week
19
0 9 9 9 10 19 40 59 59 4 63

The project manager must now

9 E 33 compare the cost of shortening J by 3
35 24 59 weeks ($3,000 in additional direct
costs) with savings in indirect costs,
to see if the total cost is lower.
© 2012 Lew Hofmann
 ANALYZING PROBABILITIES

 What is the probability that our sample

project will finish in 69 weeks as scheduled?
100% (Why?)
◦ Because we used CPM!
 (This means we were certain of all of our activity
times.)
◦ If we weren’t certain, we should have used PERT
 You only do risk analysis if you use PERT
 PERT and PROBABILITIES

 With PERT’s three time-estimates, we get a

mean (average) time and a variance for each
activity and each path.
◦ We also get a project mean time and variance.
 In order to compute probabilities (assuming a
normal distribution) we need the activity means
and variances.
◦ Most computer packages calculate this for you.
 Probability
of Project Completion
 The probability of a project being completed by a
given date is a function of the mean activity times
and variances along the critical path(s).
 The probability of a specific activity being completed
by a given date is a function of the mean activity
times and variances along the longest path leading
up to that activity.
 If you have more than one critical path, focus on the
path with the greatest variance.
◦ A near-critical path may also be a problem,
depending on the mean and variance of it’s activities.
 Distributions & Probability
 A Beta distribution is often used for the three
estimates of each activity
◦ This allows skewed distributions.
Optimistic------Most likely -----------------------Pessimistic
(3 ------------- 5 ---------------------------------- 11)
 Normal distributions are needed for probabilities.
 A distribution of activity-means is a normal
distribution, even though each activity time may
be a beta distribution.
 Beta Distribution

Each activity may have its three time

estimates skewed (Beta Distribution), but
the path along which this activities lie has a
normal distribution and thus a mean and
variance.
Probability

a m b Time
Optimistic Mean Pessimistic
 Figuring Probabilities
 Assume a PERT project critical path takes 40 days, and that
the variance of the critical path is 2.147
◦ You wish to know the probability of the project going over 42
days.
 Compute the standard deviation of the critical path.
◦ The square root of the variance of 2.147 = Std. Dev. = 1.465
◦ POM/QM software gives you the variance of the critical path.
 Compute the Z value: Z = (absolute time difference) / Std.
Dev.
In this example, Z = (42 days - 40 days) / 1.465 = 1.365
 Look up the Z value of 1.365 in a Normal Distribution table
to get the probability of the project taking 42 days.
 Subtract it from 100% to get the probability of going over 42.
 .9139

Look up the Z value (1.365) in the table of normal distribution.

(In this case you need to interpolate between the Z values of .9313 and .9147)
.9139 or 91.39% is the probability of the project taking 42 days.
Thus the probability of going over 42 days is 100 - 91.39 = 8.61%
 Normal distribution of variances
Project Length along the critical path. Sum of
(critical path) its variances = 2.147
is 40 weeks Std. Dev. = 1.465 weeks

Probability of
completing Probability of
the project in exceeding 42
42 weeks is weeks is 8.61%
91.39%

40 42
Project duration (weeks)
 St. Adolf’s Hospital
A 69-week Project

What is the Probability of it taking 72 weeks?

Critical Critical Path = B - D - H - J – K = 69 weeks
Path
Variance T = 72 weeks C = 69 weeks
T–C
 =  (variances of activities along critical path) z =
2
2
2 = 1.78 + 1.78 + 2.78 + 5.44 + 0.11 = 11.89

z = 72 – 69 z= 3
11.89 3.44818
Z = 0.870 Look up Z value in normal distribution table
Look up the Z value (0.870) in the table of normal distribution.
.8078 or 80.78% is the probability of the project taking 72 wks.
Going over 72 weeks would be 100 – 80.78 = 19.22%
 St. Adolf’s Hospital
Probability of Completing Project On Time

Normal distribution:
Length of Mean = 69 weeks;
critical path is  = 3.45 weeks
69 weeks
Probability of
taking 72 weeks Probability of
is 0.8078 or exceeding 72
80.78% weeks is 0.1922
or 19.22%

69 72
Project duration (weeks)
 PERT / CPM
ADVANTAGES

 Enables Resource Management &

Allocation
◦ You can move slack resources to critical points
 Focuses on your critical activities
 Visualize relationships (The big picture)
 Enables Cost analysis
 PERT / CPM PITFALLS

 Can be complex to set up relationships in

large project
 Time estimates are often biased.
 Near critical paths are easily overlooked.