Project Management And Appraisal Sitangshu Khatua, Associate Dean, Jyotirmoy School of Business, Kolkata
© Oxford University Press 2011. All rights reserved.
Chapter 2 Project Management – an Overview
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Learning Objectives • Explain the phases of project management and explain network diagrams AOA and AON as part of project scheduling process • Understand the concept of WBS and OBS, Gantt chart, bar bhart, line of balance (LOB), etc. • Understand different methods of project scheduling and networking like the critical path method (CPM) and program evaluation and review techniques(PERT) • Assimilate the concept of cost crashing of project network • Describe how to analyse project scheduling with constrained resources • Understand the concept of critical chain and buffer management approach • Understand the graphical evaluation and review techniques (GERT) • Understand project management software such as Microsoft Project 2010 © Oxford University Press 2011. All rights reserved.
Project Management and Appraisal by Sitangshu Khatua
Phases of Project Management The Concept Phase The Definition Phase
The Planning Phase The Scheduling Phase The Control Phase The Termination Phase © Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Project Scheduling Process Project scheduling is the basic concept of project (activity) network, the development of work breakdown and organizational breakdown structures and the network representation of activities and events.
Activity Networks
Activity – on – Arc (AOA) Network
Activity – on –Node Representation (AON)
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Activity Networks The Activity – on – Arrow or Activity – on – Arc (AOA) representation which uses the set of arcs or arrows A to represent the activities and the set of nodes N to represent events
The Activity – on – Node (AON) representation which uses the set of nodes N to denote the activities or events and the set of set arc or arrows A to represent the precedence relations.
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Example – AOA Network Following activities with their immediate predecessors are given, draw the corresponding AOA network diagram. Activity P Q R S T U V W X
Immediate Predecessor
P P P Q,R R, S, T U V
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Solution Activities R, S, T all are having immediate predecessor of P. then the above relationship can be depicted as follows.
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Activities U and V have the common activity R. Therefore, the common activity R would be followed by two dummy activities approaching in opposite direction. The exact relationship is shown in the figure
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Example – AON Network Draw the corresponding AON diagram for the following Relationship: Activity
Immediate Predecessor
a
b c
a
d
a
e
b,c
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AON Network Diagram
s – start , f- finish © Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
AOA vs AON Network The difference between AOA and AON network AOA Network
AON Network
In an AOA network diagram the activity is denoted by an arrow
In an AON network diagram each activity is represented by a node
Nodes are denoted by circles.
Nodes are denoted by arrow.
Each event is numbered
There is no need to number the events. AOA is more popular and widely It has a better visual aid because of used. its closer resemblance to the Bar chart.
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Work Breakdown Structure (WBS) The WBS defines the various project sub-activities in relation to the project result. The WBS creates a framework for project control and
provides the basis for insight in the time and cost status of a project through various management tools. © Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Organization Breakdown Structure (OBS) Organization Breakdown Structure (OBS) shows the break-up of organizational units that would work for execution of the project. OBS is actually the Organization Chart for a Project. It links the responsibilities of the organizational units to the various WBS levels. A particular unit in the OBS is assigned a specific task corresponding to a particular element in the WBS level.
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Gantt chart/Bar Chart
It is a means of displaying simple activities or events plotted against time. Gantt charts are most commonly used for exhibiting program progress or defining specific work required to accomplish an objective
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Bar Chart
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List of Activities Activity Number I II III IV V VI VII
VIII IX
Activity Name Tender notification Vender selection Agreement signed Inspection at sight Procurement Receiving of materials Material specifications Operation Scheduling Start production
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Advantages of the Gantt Chart It is simple to understand and easy to change. It is the simplest and least complex means of portraying
progress It can easily be expanded to identify specific elements
that may be either behind or ahead of schedule
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Disadvantages of Gantt Chart It doesn’t show the interdependencies of the activities, and therefore do not represent a network of activities. For example, whether the procurement activity (V) in the example require that the agreement be signed (III) before procurement can begin? It cannot show the result of an early or a late start in activities. How will a slippage of the operation scheduling activity (VIII) in the example affect the completion date of the program? It does not show the uncertainty involved in performing the activity and, therefore does not readily admit itself to sensitivity analysis. For instance, the longest time or shortest time or the average time that an activity might take © Oxford University Press 2011. All rights reserved.
Critical Path Method (CPM)
It is the scheduled technique which is used to plan, schedule and control a project consisting of number of inter-related activities. These techniques provide a framework which defines the job that is to be formed, integrates them in a logical sequence and provides a system of control over the progress of the plan.
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Features of CPM or Other Network Analysis Project 1. The
project to be planned by network technique should consist of clearly specific job called Activities. Activities are classified as: a.Critical activities b.Non-Critical Activities c.Dummy Activities
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Features of CPM or Other Network Analysis Project 2. These activities must have a definite start and finish. The start and finish of an activity is called event.
A = Activity, 1 = Tail event, 2 = Head event 3. Event must occur in a definite pattern and must be performed in a technological sequence 4. Network Diagram 5. In a sequential project work operations can be pre-operations which precede the operation under consideration, post-operations which succeed the operation under consideration and concurrent operations which can be started simultaneously
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Features of CPM or Other Network Analysis Project 6. Various times used in CPM: a. Earliest Start Time (EST): b. Earliest Finish Time (EFT): EFT = EST + duration of activity c. Latest Start Time (LST): LST = LFT – duration of the activity. d. Latest Finish Time (LFT):
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Features of CPM or Other Network Analysis Project
7. Float
or Slack = time available for completion of the activity –
time necessary to complete the same. Activity Float Safety Float Free Float Total Float 8. Critical Path 9. Forward Pass & Backward Pass © Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Basic scheduling Computation A programmable algorithm for basic scheduling computation is given where: D ij Ei Li ES ij EF ij LS ij LF ij S ij FS ij Ts
estimate of the mean duration time for activity i-j earliest occurrence time for event i latest allowable occurrence time for event i earliest start time for activity i-j earliest finish time for activity i-j latest allowable start time for activity i-j latest allowable finish time for activity i-j total slack (or float time) for activity i-j free slack (or float time) for activity i-j scheduled time for the completion of project or the occurrence of certain key events in the project
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Earliest and Latest event times Ej = maxi (Ei + Dij)
2 < J < t …………. (2.1)
Et = (expected) project duration, and Li = Et or Ts, the scheduled project completion time. Then, Li = minj (Li - Dij) 1 < i < t -1 …………… (2.2) Earliest and Latest Activity Start and Finish Times and Slack ESij = Ei EFij = Ei + Dij LFij = Lj LSij = Lj - Dij Sij = Lj - EFij
…………….. (2.3) …………….. (2.4) …………….. (2.5) …………….. (2.6) …………….. (2.7)
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Steps in Critical Path Method
Split the project into several activities
Assemble all the activities in the logical sequence considering the pre-operations, post operation and the concurrent operation
Construct the arrow diagram Codify all the events and activities Mark the activity times on the arrow diagram
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Calculate EST, LST, EFT, LFT for each activity
Compute total float for each activity
Identify the critical activities and mark the critical path on the arrow diagram
Determine the total project duration
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
An Example to Show the Critical Path Activity
Description
A(1-2) B (1-4) C (1-7) D (2-3) E (3-6) F (4-5) G (4-8) H (5-6) I (6-9) J (7-8) K (8-9)
Start earth work Vendor selection Start Handling Continue earth work Finish earth work Ordering raw material Excavation for drains Receiving raw material Base concreting Continue handling Laying drains
Duration in days 3 2 1 3 2 4 6 5 4 4 5
Draw the network diagram and trace the critical path of the network. What are the various time estimates and the total duration of the above project? © Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Solution EST (earliest start time) is calculated by preceding in the forward pass from the first event to the last event. It is calculated by starting from activity A i.e. from event 1 and given it a time zero. Now, ESTA= 0, ESTB = 0, ESTC = 0, ESTD = ESTA + Duration A = 0 + 3 = 3 ESTE = ESTD + Duration D = 3+3 = 6 Similarly, ESTs of other activities can be calculated. ESTF = 2, ESTG = 2, ESTH = 6, ESTI = 11, ESTJ = 1, ESTK = 8 Paths can be possible – either A-D-E-I( 12 days), B-F-H-I (15 days), B-F-G-K (13 days), C-J-K (10 days). Out of which B-F-H-I will be the longest duration hence that will be the critical path. Therefore total project duration = 15 days. LFT is calculated in the similar manner as EST but in the backward pass i.e. by preceding backward from the last event to the first event therefore LFTI = total project duration – Duration I = 15 – 4 = 11. © Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
LFTj = Duration of the project – Duration K = 15-5 = 10 LFTC = LFTj - Duration J = 10 - 4 = 6, LST is calculated by the relation, LST = LFT – Duration of that activity. For example, LSTC = LFTC – Duration C = 6 – 1 = 5 EFT is calculated by the relation, EFT = EST + Duration of that activity. For example, EFTD = ESTD +Duration D = 3 + 3 = 6 Similarly other LFTs, LSTs and EFTs will be calculated accordingly. Total Float = LST – EST or LFT – EFT. For example, Float B = 0 – 0 or 2 – 2 = 0 (critical activity) and FloatD = 6 - 3 or 9 – 6 = 3 (non - critical activity).
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
The following table shows the different estimated time for the given problem and the figure below shows the required network diagram for the given problem:
Activity Duration A (1-2) B (1-4) C (1-7) D (2-3) E (3-6) F (4-5) G (4-8) H (5-6) I (6-9) J (7-8) K (8-9)
3 2 1 3 2 4 6 5 4 4 5
EST
LST
EFT
LFT
Total Float
Remarks
0 0 0 3 6 2 2 6 11 1 8
3 0 5 6 9 2 4 6 11 6 8
3 2 1 6 8 6 8 11 15 5 13
6 2 6 9 11 6 10 11 15 10 15
3 0 5 3 3 0 2 0 0 5 2
Critical Critical Critical Critical -
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11/11
6/9
3/6
15/15
2/2 0/0 6/6
1/6
8/10
Network Diagram
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
PERT It is a probabilistic event oriented project scheduling technique. It is suitable in defense project, R&D project, where the activity time cannot be readily predicted. PERT can be applied in the following cases: Long – range planning Marketing Promotional Program R&D Projects Defense Projects Installation of Machinery Construction Programs Instituting Inventory control 8Designing Manufacturing prototype products.
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
PERT Estimated Time 1. Optimistic time (a):
2. Most likely time (m): 3. Pessimistic time (b): Estimated or Expected time = t = te = (a + 4m + b)/6 Variance of time = σt2 = [(b-a)/6]2
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PERT Probability Calculation Assume, the critical path consisting of n activities, and denoting the sum of their actual durations by T, this can be written as follows: T=
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PERT Probability Calculation Mean of t = Te =
Variance of T = σt2 =
Shape of distribution of T: normal probability of meeting schedule Ts
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Steps of Programme Evaluation and Review Techniques Steps 1, 2and 3
Step 4,5,6 and 7
• The project is divided into different activities • The activities are arranged in a logical sequence • The network diagram is drawn. Events and activities are numbered
• Using three times estimates the expected time for each activity is computed • Standard deviation and variance for each activity is computed • EST and LFT are evaluated and marked on the network diagram • Slack is calculated; critical path is identified and marked on the network diagram
• Length of critical path or total project duration is found out • Lastly, the probability that the project will finish at the scheduled date is estimated • Analyze the network from the point of view of resource utilization and if there is any deficit of Steps8, resources, find out alternative ways to complete the project within resource constraints. 9,10 and 11 • Device project Control methods
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Pert – An Example In an assembly line production following are the time estimate for the activities (per time estimates are given in weeks): Activity a m b (1,2) (2,3) (2,4) (3,5) (3,6) (3,7) (6,7) (4,7) (7,8) (8,9)
7 1 10 12 4 4 5 2 9 1
11 4 15 20 7 7 8 8 12 4
13 7 48 26 16 16 11 14 15 7
where, a = optimistic time, b = most likely time, c = pessimistic time © Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Pert – An Example 1. Find the expected time, Standard Deviation and variance for each activity.
2. Find the Standard Deviation and expected time for each event. 3. What is the expected time of completion of the project? 4. What is the probability of completing the project in 34 weeks? 5. What is the probability of the event no.7 to be completed in the 20th week?
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Solution 1.
Activity
a
m
b
te
SD
Variance
(1,2)
7
11
13
10.66667
1
1
(2,3) (2,4)
1 10
4 15
7 48
4 1 1 19.66667 6.333333 40.11111
(3,5)
12
20
26
19.66667 2.333333 5.444444
(3,6) (3,7) (6,7) (4,7) (7,8) (8,9)
4 4 5 2 9 1
7 7 8 8 12 4
16 16 11 14 15 7
8 8 8 8 12 4
2 2 1 2 1 1
4 4 1 4 1 1
te = expected or mean time = (a +4m +b)/6, SD = (b-a)/6, Variance = SD2 © Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Solution 2.
Event
Longest path to the event
Expected time
Variance
SD (Weeks)
2
1-2
10.66667
1
1
3
1-2-3
14.666.7
12 + 12 = 1
1
4
1-2-4
30.33334
41.1111
6.4111
5
1-2-3-5
34.33334
46.5555
6.8231
6
1-2-3-6
22.66667
6
2.4494
7
1-2-3-7
22.66667
6
2.4494
8
1-2-3-7-8
34.66667
7
2.6457
9
1-2-3-7-8-9
38.66667
8
2.8284
1
(iii) The expected time of completion of project is Σ te in the longest path (1-2-3-7-8-9) is 38.66667 = 39 weeks (approx.) © Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
(iv) The probability of the project being completed in 56 weeks for the longest path (1-2-37-8-9) is given by,
x is the given no. of weeks = 36, is the mean time = 39 and standard deviation of the longest path = 2.8284 =3 (approx.) = 1.667 Therefore, from standard normal distribution tables, Probability = 0.5 – 0.4525 = 0.0475 i.e. 45.75%. The probability of the event no.7 to be completed in the 40th week: Mean time (1-2-3-7)= 22.67 weeks i.e. 23 weeks, SD (1-2-3-7) = 2.4494 weeks, therefore
= (20 – 23)/2.4494 = - 1.223 Therefore, probability = 0.5 – 0.3907 = 0.1093 i.e. 10.93% © Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
PERT vs. CPM PERT CPM It is used where the emphasis on reducing It is used where the emphasis is on project execution time with out botheration optimizing resource allocation and for cost implication. minimizing overall cost for a given project execution time. A probabilistic model with uncertainty
A deterministic model with well known activity time based on past experience
Three time estimates (optimistic time, It uses single time estimate. most likely time and pessimistic time) are used to make allowances for uncertainties. An event oriented technique. An activity oriented technique The use of dummy activity is required for The use of dummy activity is not necessary depicting the proper sequence. for which diagram becomes slightly simpler. It is suitable in defense project, R&D It is suitable for problems in industrial where the activity time cannot be readily plant maintenance, civil construction predicted. projects etc. © Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Crashing of Project Network
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Terms Related to Crashing of project • • • • •
Normal Time (NT): Crash Time (CT): Normal Cost (NC): Crash Cost (CC): Cost slope:
=
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Network Cost Control
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Network Cost Control to– Time of update or Time Now tc – Scheduled project completion time tf – Forecasted project completion time ACWP – Actual cost of work in place at t0 BCWS – Budgeted Cost of Work Scheduled for Completion at t0 BCWP – Budgeted Cost of Work in Place at t0 Cost Variance at t0 = ( BCWP –ACWP)/(BCWP)100% Scheduled Variance at t0 = ((BCWP-BCWS)/BSWP ) 100% The cost variance gives the total percentage of project cost over (under) run upto time t0 and is used for the forecasting of the total project cost.
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Critical Chain and the Buffer Management Approach
Resource leveling: Resources Smoothing: Resource Allocation: Critical chain (CC): Project buffers: Feeding buffer:
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Terminology used in Earn Value Management Item
Equivalence
Meaning
BCWS = Budgeted Cost and Work Scheduled
PV = Planned Value
Sum of authorized budget (from start to status date)
BCWP = Budgeted Cost and Work Performed
EV = Earned Value
Sum of authorized budget for work actually performed
ACWP = Actual Cost of Work AC = Actual Cost Performed
Actual cost incurred, up to status date
BAC = Budget at Completion
BAC = Budget at Completion
The sum of all authorized budget for the project
CV = Cost Variance
CV = Cost Variance
CV = BCWP-ACWP (EV-AC)
SV = Scheduled Variance
SV = Scheduled Variance
SV = BCWP-BCWS (EV-PV)
CPI = Cost Performance Index CPI = Cost Performance Index
CPI = BCWP/ACWP
SPI = Scheduled Performance index
SPI = Scheduled Performance index
SPI = BCWP/BCWS
CR = Critical Ratio
CR = Critical Ratio
CR = CPI×SPI
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Projected completion time and cost at the end of the project
Formula
Logic
Formula
Logic
Cost at Completion Optimistic Likely Actual cost + (BAC – Actual cost + (BAC – BCWP) BCWP)/CPI ACWP + (BAC-BCWP) (BAC/ CPI) No further slippage will occur
Balance cost will be incurred at current efficiency Time at Completion Scheduled work that Actual time spent + time should have been remaining as per completed in elapsed schedule decided by SPI time + time remaining as per schedule Elapsed time/SPI + time Total scheduled time/ remaining as per SPI schedule Only current delay will Further delays will spill over, rest will be as discuss at current per schedule efficiencies © Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Pessimistic Actual cost + (BAC – BCWP)/(CPI× SPI) ACWP + (BAC-BCWP) /(CPI× SPI) There is a time/cost relation
Actual time spent + time remaining as per schedule decided by product of SPI + CPI Actual time spent + time remaining as per schedule/CR Cost efficiency may slow down work
Project S -curve
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Evaluation of Major Network Based Project Management Techniques Criterion
PERT/CPM
PERT/Cost
Project Phase Acceptability
Prime application to Same as basic one time projects, PERT/CPM largely design and development phase
LOB
GERT
VERT
Production only
Most value in concept phase; usable in all phases to some degree
Most value in concept phase; usable in all phases to some degree
Time oriented add on cost feature, analyzes time and cost
Fully treats time costs and various performance measures; analyzes risk in all three.
Parametric Focus Time oriented; treats performance and costs as objectives, constraints or by products
Add cost planning Time-Oriented and control feature schedule and to basic quantity PERT/CPM
Preparation Requirements
Cost estimating work packages and activity is significant addition to PERT preparation, but should be done anyway
Network and Time estimating is significant, but is planning which should be done anyway
Main requirement Networking is production requires special flow chart and familiarity; cycle time multitude of features add complexity
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Same comments as for GERT; use of optional features increases requirements
Evaluation of Major Network Based Project Management Techniques System Operating Cost
Programs easy Canned to use, main cost programs is effort of expand basic preparation and PERT; largest updating cost by far is preparation
Practically non-existent, especially if part of MRP or other system
Function of Same comment Database as for GERT; simulation to use requires additional multiple runs; features input increases cost preparation appreciable Comprehensiveness Limited to time Limited to time Limited to Accommodat Accommodates parameter and and cost repetitive es most types most types of non-repetitive parameter and situations only of activity activity plus activities non-repetitive numerous activities inputs Database By-product of Cost Requires only Direct Direct function preparation as is accumulation time and function of of the number quality of data and control quantity at the number of of features requires selected feature selected; large extensive data control points selected; large if fully utilized input if technique fully utilized © Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua
Evaluation of Major Network Based Project Management Techniques Flexibility
Handles deterministic situations only, no ability to accommodate decision
Ease of Update
Relatively simple, Theoretically Requires only a Appreciable, but requires discipline simple but major physical count of value of to ensure that future efforts in practice; cumulative technique of activities are re“estimating actual” production planning, rather evaluated. Actual cost data and than control times present little constant changes problem are problems Highlighting of Adds to PERT the Highlights Risk analysis critical activities ability to trade cost potential delivery focuses attention and problem areas problems to the schedule on hat is likely are strong point; source problem areas to occur and its forecasts status at probability completion
Focus Reporting
Deterministic only Deterministic , same as PERT situations only; fixed production cycle required; learning curve presents problem
Accommodates stochastic and deterministic activities
Significantly more optional input and output features than has budgeting capability Appreciable, but value of technique of planning, rather than control
Analyzes and highlights outcomes in time, costs, and performance; can be used in a non project strategic planning PERT: Program Evaluation and Review Techniques; CPM: Critical Path Method; LOB: Line of Balance; VERT: Venture Evaluation and Review Techniques; GERT: Graphical Evaluation and Review Techniques.
© Oxford University Press 2011. All rights reserved. Project Management and Appraisal by Sitangshu Khatua