1. PERT/CPMTechnical Issues • PERT & CPM Technical Issues: • Resource Loading & Leveling (Part 1) • Crashing the Network (Part 2) • Simulation (Part 3) Strategic Project Management SPM PERT/CPM Technical Issues - Part 2 1

2. Project Costs • The cost aspect of a project can be included by determining the cost-duration relationship for each activity. • This relationship usually includes only the direct costs associated with the activity • labor and material • Indirect costs (overhead) are generally applied (charged) to the project as a whole on a per day (or per time unit) basis. Strategic Project Management SPM PERT/CPM Technical Issues - Part 2 2

3. Project Costs(continued) • In many cases, the relationship between the direct cost and the duration for an activity is approximately linear. • A shorter activity duration usually costs more • both per unit time and in total • There is almost always a limit to how much the duration can be compressed • Taha Diagrams Page 5 Strategic Project Management SPM PERT/CPM Technical Issues - Part 2 3

4. Crashing the Network • After defining the cost-time relationships, the activities are assigned their normal durations. • The critical path is determined and the project cost is calculated. • Next, we consider reducing the duration of the project (crashing). • Taha Diagrams Page 6 and Page 7 Strategic Project Management SPM PERT/CPM Technical Issues - Part 2 4

5. Crashing the Network(continued) • A project duration reduction can be effected ONLY if the critical path is reduced. • Consider the example on Taha Diagrams Pages 8 and 9 • We will consider crashing only activities on the critical path • Crashing non-critical activities serves only to increase cost! Strategic Project Management SPM PERT/CPM Technical Issues - Part 2 5

6. Crashing the NetworkMethodology • Our goal is to achieve a time reduction at the least possible increase in cost. • Select the critical path activity with the smallest cost-time slope • Taha Diagrams Page 10 • slope=(Ccrash - Cnormal) / (Dnormal-Dcrash) • If this activity is at its crash time, consider the next smallest slope. Strategic Project Management SPM PERT/CPM Technical Issues - Part 2 6

7. Crashing the Network Methodology (continued) • If all activities on a critical path are crashed to their limits, no further reduction is possible. • If parallel critical paths (segments) exist, an activity on each path (segment) must be selected and the sum of the cost-time slopes for the activities must be considered. • Compress (crash) the selected activity(ies) by one time unit. Strategic Project Management SPM PERT/CPM Technical Issues - Part 2 7

8. Crashing the Network Methodology (continued) • Recalculate the critical path and project cost. • Repeat the this process until further crashing is not possible. • The end result will be a set of time-cost data which can be plotted to show the time-cost relationship for the project. • Taha Diagrams Pages 11 through 14 • Taha Diagrams Page 15 summarizes Strategic Project Management SPM PERT/CPM Technical Issues - Part 2 8

9. Minimum Project Cost • The last step is to add Indirect Costs to the analysis. • Indirect costs (overhead) generally increase as the project duration increases. • Frequently this will be a linearly (or nearly linear) relationship. • Total project cost is the sum of the direct and indirect costs for a given duration. Strategic Project Management SPM PERT/CPM Technical Issues - Part 2 9

10. Minimum Project Cost(continued) • A graph of these costs allows you to easily spot the minimum and to visualize the nature of the relationship between time and cost. • This was illustrated in Taha Diagrams Page 7 Strategic Project Management SPM PERT/CPM Technical Issues - Part 2 10