Late Start

->-NORMAL COST

(1000'S)

FIGURE 12-20. CPM network with slack.

12.10 PERT/CPM PROBLEM AREAS _

PERT/CPM models are not without their disadvantages and problems. Even the largest organizations with years of experience in using PERT and CPM have the same ongoing problems as newer or smaller companies.

Many companies have a difficult time incorporating PERT systems because PERT is end-item oriented. Many upper-level managers feel that the adoption of PERT/CPM removes a good part of their power and ability to make decisions. This is particularly evident in companies that have been forced to accept PERT/CPM as part of contractual requirements.

In PERT systems, there are planners and doers. In most organizations PERT planning is performed by the program office and functional management. Yet once the network is constructed, the planners and managers become observers and rely on the doers to accomplish the job within time and cost limitations. Management must convince the doers that they have an obligation to the successful completion of the established PERT/CPM plans.

Unless the project is repetitive, there is usually little historical information on which to base the cost estimates of most optimistic, most pessimistic, and most likely times. Problems can also involve poor predictions for overhead costs, other indirect costs, material and labor escalation factors, and crash costs. It is also possible that each major functional division of the organization has its own method for estimating costs. Engineering, for example, may use historical data, whereas manufacturing operations may prefer learning curves. PERT works best if all organizations have the same method for predicting costs and performance.

PERT networks are based on the assumption that all activities start as soon as possible. This assumes that qualified personnel and equipment are available. Regardless of how

FIGURE 12-21. Using PERT for work package control.

well we plan, there are almost always differences in performance times from what would normally be acceptable. For the selected model, time and cost should be well-considered estimates, not spur-of-the-moment decisions.

Cost control problems arise when the project cost and control system is not compatible with company policies. Project-oriented costs may be meshed with non-PERT-controlled jobs in order to develop the annual budget. This becomes a difficult chore for cost reporting, especially when each project may have its own method for analyzing and controlling costs.

Many people have come to expect too much of PERT-type networks. Figure 12-21 illustrates a PERT/CPM network broken down by work packages with identification of the charge numbers for each activity. Large projects may contain hundreds of charge numbers. Subdividing work packages (which are supposedly the lowest element) even further by identifying all subactivities has the advantage that direct charge numbers can be easily identified, but the time and cost for this form of detail may be prohibitive. PERT/CPM networks are tools for program control, and managers must be careful that the original game plan of using networks to identify prime and supporting objectives is still met. Additional detail may mask this all-important purpose. Remember, networks are constructed as a means for understanding program reports. Management should not be required to read reports in order to understand PERT/CPM networks.

12.11 ALTERNATIVE PERT/CPM MODELS_

Because of the many advantages of PERT/time, numerous industries have found applications for this form of network. A partial list of these advantages includes capabilities for:

• Trade-off studies for resource control

• Providing contingency planning in the early stages of the project

• Visually tracking up-to-date performance

• Demonstrating integrated planning

• Providing visibility down through the lowest levels of the work breakdown structure

• Providing a regimented structure for control purposes to ensure compliance with the work breakdown structure and the statement of work

• Increasing functional members' ability to relate to the total program, thus providing participants with a sense of belonging

Even with these advantages, in many situations PERT/time has proved ineffective in controlling resources. In the beginning of this chapter we defined three parameters necessary for the control of resources: time, cost, and performance. With these factors in mind, companies began reconstructing PERT/time into PERT/cost and PERT/performance models.

PERT/cost is an extension of PERT/time and attempts to overcome the problems associated with the use of the most optimistic and most pessimistic time for estimating completion. PERT/cost can be regarded as a cost accounting network model based on the work breakdown structure and capable of being subdivided down to the lowest elements, or work packages. The advantages of PERT/cost are that it:

• Contains all the features of PERT/time

• Permits cost control at any WBS level

The primary reason for the development of PERT/cost was so that project managers could identify critical schedule slippages and cost overruns in time to correct them.

Many attempts have been made to develop effective PERT/schedule models. In almost all cases, the charts are constructed from left to right.11 An example of such current attempts is the accomplishment/cost procedure (ACP). As described by Block12:

ACP reports cost based on schedule accomplishment, rather than on the passage of time.

To determine how an uncompleted task is progressing with respect to cost, ACP compares

(a) cost/progress relationship budgeting with (b) the cost/progress relationship expended for the task. It utilizes data accumulated from periodic reports and from the same data base generates the following:

• The relationship between cost and scheduled performance

• The accounting relationships between cost and fiscal accounting requirements

• The prediction of corporate cash flow needs

Unfortunately, the development of PERT/schedule techniques is still in its infancy. Although their applications have been identified, many companies feel locked in with their present method of control, whether it be PERT, CPM, or some other technique.

11. See Gary E. Whitehouse, "Project Management Techniques," Industrial Engineering, March 1973, pp. 24-29, for a description of the technique.

12. Reprinted by permission of Harvard Business Review. From Ellery B. Block, "Accomplishment/Cost: Better Project Control," Harvard Business Review, May-June 1971, pp. 110-124. Copyright © 1971 by the Harvard Business School Publishing Corporation; all rights reserved.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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