Quantitative analysis for business decision- Program Evaluation and Review Technique (PERT)- MBA

1. QUANTITATIVE ANALYSIS
FOR
BUSINESS DECISION
First semester --- 2nd Mid PPT
IMMANI CHANDRA SHEKAR
REGD. NO. :19K61E0020
SUBJECT CODE :18MS01T5

2. Mid Topic:
Program Evaluation
and
Review Technique
(PERT)

3. What is Network Analysis?
Network analysis is the general name given to
certain specific techniques which can be used
for planning, management and control of
project.

4. Applications:
• Construction of a Residential complex,
• Commercial complex,
• Petro-chemical complex
• Ship building, Aircraft Manufacturing
• Satellite mission development
• Installation of a pipe line project etc...

5. 3. Objectives of Network Analysis
l) Minimization of Total Project Cost
2) Minimization of Total Project Duration
3) Trade-off between Time and Cost of Project
4) Minimization of Idle Resources
5) Minimize Production Delay, Interruptions and Conflicts

6. Techniques for Network analysis:
The two common techniques which are used in network analysis.
Critical Path Analysis and PERT are powerful tools that help you to
schedule and manage complex projects. They were developed in the
1950s to control large defence projects, and have been used routinely
since then.
1. Critical Path Method (CPM)
2. Program Evaluation and Review Technique (PERT)

7. Program Evaluation and Review
Technique(PERT):
A probabilistic model which is based in the Beta
Distribution is called PERT (Program Evaluation
and Review Technique). The probability of
occurrence is the basis of its estimates which is
derived in this technique.

8. Features of PERT:
For any activity three time estimates namely optimistic, normal and pessimistic
times are estimated with consideration of the presence of uncertainties.
• For each activity expected time is calculated with the use of three time
estimates.
• Critical path and slack time are computed. The sequence of activities which has
maximum expected time for the completion of the project determines the
critical path.
• The person who is incharge of the operation provides the three time estimates.
The judgement and experience of the person are the basis of the values of three
time estimates.
• It is assumed that these time estimates follow a beta distribution.

9. Steps involved in PERT
• Step l: Identify the various activities which are involved in the
project and drawn up in sequential manner that show which
activity follows what.
• Step 2: Estimate the activity time and note on the network.
• Step 3: Determine the critical activities of the project.
• Step 4: Calculate the variability of the project duration and
probability of the project completion in a given time period.

10. Probability Consideration in PERT :
The analysts of PERT technique have found that the beta-distribution
curve provides the satisfactory results for most of the activities. This
distribution curve is different from the normal curve and has a shape.
Expected Time: tei = (a+4m+b)6.
Where, tei= Expected time of the ith activity,
a = Optimistic time
m = Most likely, or modal time,
b = Pessimistic time.

11. • In a project network all earliest and latest times are
calculated with the use of expected activity time.
• The Standard deviation, σi of the completion time of
an activity is calculated as follows:
From this, the variance σi2= [(b-a)6]2
• Variance is a measure of the dispersion. If the
variance is large then the uncertainty will be greater
because it depends on the range (b — a).

12. 10. Problem On PERT
An R & D project has a list of tasks to be performed whose time estimates are given in
the Table, as follows.
Time estimates R & D project

13. 1 .Draw the project network.
2. Find the critical path.
3. Find the probability that the project is completed in 19 days. If the
probability is less than 20%, find the probability of completing it in
24days.
Solution:
1. Time expected for each activity is calculated using the formula:
Similarly, the expected time is calculated for all the activities.
tei = (a+4m+b)6 = (4+24+8)6 = 6 days
The variance of activity time is calculated using the formula:
Similarly, variances of all the activities are calculated.
The variance σi2= [(b-a)6]2 = [(8-4)6]2 = 0.444

14. Calculation of tei , σi2

15. 2. Construct a network diagram:

16. 3. From the network diagram Figure, the critical path is identified as
1-4, 4-6, 6-7, with a project duration of 22 days.
4. The probability of completing the project within 19 days is given
by, P (Z< Z0)
5. To find Z0 ,
6. We know, P (Z <Z Network Model 0) = 0.5 – z (1.3416) (from
normal tables, z (1.3416) = 0.4099) = 0.5 – 0.409 = 0.0901 =
9.01%.Thus, the probability of completing the R&D project in 19
days is 9.01%.
7. Since the probability of completing the project in 19 days is less
than 20% As in question, we find the probability of completing it in
24 days.

18. Advantages of PERT
• The expected time which is required for completing each activity is
determined.
• It helps in completion of project within an expected time period.
• It reduces the risk factor because it helps the management in
handling the uncertainties which are involved in the project.
• Detailed planning of activities is possible with the help of PERT
technique.
• It helps in taking correcting action for completing the project on
time.

19. Disadvantages of PERT
• In the absence of past data, it is very difficult to provide
realistic/correct time estimates for new activities.
• In this technique there is not any provision about the requirement
of resources at various activities.
• In PERT technique frequent updates and revision of calculations
are required for the effective control of project which is very costly.