A STUDY ON PROJECT EVALUATION REVIEW TECHNIQUE AND CRITICAL PATH METHOD

CHAPTER 1

INTRODUCTION TO OPERATIONS RESEARCH:Operations Research (also known as quantitative methods, management science, decision etc.,) provides a quantitative technique or a scientific approach to the executives for making better decisions for operation under their control. In other words, the operations research provides a scientific approach to problem-solving for executive management.Operations Research is assuming an increasing degree of importance in theory and practice of management. Some of the factors which are responsible for this development are:i. Decision problems of modern management are so complex that only a systematic and scientifically based analysis can yield realistic solutions.ii. Availability of different types of quantitative models for solving these complex managerial problems.iii. Availability of high-speed computers has made it possible both in terms of time and cost to apply quantitative models to all real-life problems in all types of organisations such as business, industry, military, government, and health and so on.

Operations Research is not a fixed formula which can be applied to all types of problems. This requires that the problems be defined, analysed and solved in a rational, logical, systematic and scientific manner based on data, facts, information and logic and not on intuition and subjective judgement. Operations Research is useful only if quantitative models can be built upon, and modified by the experience and creative insights of the decision-maker.

EVALUATION OF OPERATIONS RESEARCH:

During World War II, Britain was having very limited military resources; an urgent need was felt to allocate the scarce resources in an effective manner to the various military operations and to the activities within each operation. Therefore the British and the American military management invited large number of scientists including physicists, biologists, statisticians, mathematicians and psychologists to apply a scientific approach to the many strategic and tactical problems. Their efforts were instrumental in winning the Air battle of Britain, Battle of the North Atlantic, and the Island Campaign in the Pacific. The success of this team of scientists in Britain encouraged United States, Canada and France to start with such teams. The name Operations Research (O.R) came directly from the context in which it was used and developed, viz., Research on Military Operations.

As the discipline of Operations Research developed, many names like Operational Analysis, System Analysis, Cost Benefit Analysis, Management Science, Decision Science, etc., were assigned to it.

After the War, the apparent success of the military team attracted the attention of the industry, which was seeking solutions to problems caused by increasing complexity and specialization in organizations. This resulted in complex decision problems and the business organizations were thus prompted to use the formal tools of Operations Research.

At the end of World War II, the scientists of this group moved to different sectors, e.g., transportation, health, education, etc. Each of them carried with him a conviction that the operations under the control of management can be analysed scientifically and the optimum method for carrying out the operations can be investigated. This resulted in categorisation of Operational Research into different techniques and its recognition as an important subject for decision-making.

In India Operations Research originated during the last phase of World War II. Initially, an O.R centre was formed at the Air Headquarters to tackle problems relating to radar. It is believed that O.R in India started in 1949 with the opening of a unit at the Regional Research Laboratory, Hyderabad for using Operations Research in planning and organizing Research. Ahmadabad Textile Industry Research Association organized an O.R group for their industrial problems.

In 1953, an O.R unit was formed at the Indian Statistical Institute, Calcutta with a view to apply O.R techniques to national planning under the guidance of Prof. Mahalanobis. The publication of the journal OPSEARCH by ORSI in 1964 further added to the growth of O.R activities in India.DEFINITIONS OF OPERATIONS RESEARCH:The September 1962 issue of the Operational Research Quarterly (London), the journal of O.R society of U.K. carried out the following definition:Operational Research is the application of the methods of science to complex problems arising in the direction and management of large systems of men, machines, materials, and money in industry, business, government and defence. The distinctive approach is to develop a scientific model of the system, incorporating measurements of factors such as chance and risk, with which to predict and compare the outcomes of alternative decision strategies and controls. The purpose is to help management, determine its policy and actions scientifically. James Lundy writes, O.R. is the sophisticated name given to a multi disciplinary problem oriented approach to the top management problems. It involves the description of the scientific methods in situations where executives require description, prediction and comparison for the purpose of making decisions. Morse & Kimble define O.R. as, a scientific method of providing executive departments with a quantitative basis for decisions regarding the operations under their control.Jagjit Singh states, Operations Research is a management activity pursued in two complementary ways One half by the free and bold exercise of commonsense untrammelled by any routine, and the other half by the free and bold exercise of commonsense untrammelled by any routine, and the other half by the application of a repertoire of well established pre created methods and techniquesAccording to Miller and Starr, O.R. is an applied decision theory. It uses any scientific, mathematical or logical means to attempt to cope with the problems that confront the executive when he tries to achieve a thorough going rationality in dealing with his decision problems. O.R. Society of America gave the following definition of Operations Research:O.R. is an experimental and applied science devoted to observing understanding and predicting the behaviour of purposeful man machine systems; and Operations Research workers are actively engaged in applying this knowledge to practical problems in business, government and society

Churchman, Ackoff and Arnoff have defined Operations Research in the following manner: Operations Research is the application of scientific methods, techniques and tools to operations of system with optimal solutions to the problems.CHARACTERISTICS OF OPERATIONS RESEARCH:1. O.R. approaches problem solving and decision making from the total systems perspective. O.R. does not experiment with the system itself but constructs a model of the system upon which to conduct experiments.2. O.R. is not necessarily using interdisciplinary teams, but it is interdisciplinary; it draws on techniques from sciences such as biology, physics, chemistry, mathematics, and economics and applies the appropriate techniques from each field to the system being studied.3. Model building and mathematical manipulation provide the methodology which has been the key contribution of O.R.4. Operation Research is for operations economy.5. The primary focus is on decision making and computers are used extensively.

LIMITATIONS OF OPERATIONS RESEARCH:Operations Research has certain limitations. However these limitations are mostly related with the time and money factors involved in its applications rather than its practical utility. These limitations are as under:1. Magnitude of computation:

O.R tries to find out the optimal solution taking all the factors into account. In the modern society these factors are enormous and expressing them in quantity and establishing relationships among these requires voluminous calculations which can only be handled by computers.

2. Absence of Quantification: O.R. provides solution only when all the elements related to a problem can be quantified. Intangible factors such as human relations, etc., cannot be quantified. It may be noted that these factors, which cannot be quantified, find no place in O.R. Also models in O.R. do not take into account qualitative factors or emotional factors which may be quite important.

3. Conventional thinking: O.R. is a new discipline which is quantitative in nature. There has been resistance from the employees of Indian organisations, to the proposals suggested by O.R. experts. Due to conventional thinking, even the executives doubt about the utility of O.R., models towards the improvement of profits.4. Distance between managers and Operations Research: The application of O.R. techniques requires good knowledge of mathematical and statistical tools. Thus, the business executives who are entrusted with the job of implementing O.R. techniques are expected to have this background in addition to business expertise.5. Money and Time costs: When the basic data are subjected to frequent changes, incorporating them into the O.R. models is a costly affair. Moreover, a fairly good solution at present may be more desirable than a perfect O.R. solution available after sometime.6. Implementation: Implementation of decisions is a difficult and delicate task. It must take into account the complexities of human relations and behaviour. Sometimes resistance is offered only due to psychological factors.NETWORK THEORY (an overview):Most of the projects that may be handled by public sector, private sector, or governments are usually delayed significantly due to lack of proper management, their improper scheduling and controlling. Network analysis enables managers to cope with such complexities involved in projects and suggests a way to overcome them. The use of Critical Path Method (CPM) and Project Evaluation Review Technique (PERT) which are network techniques is extremely useful for the purpose of planning, analysing, scheduling and controlling the progress and completion of one time and repeated projects. The application of these techniques will significantly reduce the time of their completion and will also cut down the unnecessary costs of such projects. These techniques are quite useful for qualified Management Consultants as well as Chartered Accountants to schedule and control their various tasks in the areas of Income-tax, Audit, Sales-tax and Management Consultancy.INTRODUTION TO PROJET MANAGEMENT:A project (such as construction of a flyover, power plant, research and development work, repair and maintenance of an airplane, marketing of a new product, etc.) may be defined as a collection of inter-related tasks (or activities which must be completed in a specified time according to a specified order (or sequence) and require resources such as money, materials, manpower, facilities, space, etc. Normally for any project, one may be interested in answering questions such as:i. When do we expect the project management to be completed? ii. If any activity is delayed, what effect will this have on the overall completion time of the project?iii. If there are additional funds available to reduce the time to perform certain activities, how should they be spent?iv. What is the probability of completing the project by the scheduled date?

The main objectives of project management can be described in terms of a successful project which has been finished on time, within the budgeted cost and to technical specifications which satisfy the end users. Planning, scheduling and controlling the work during any worth-while project is the main task for any project manager as explained in the following diagram:PROJECT PLANNINGPROJECT SCHEDULEPROJECT CONTROL

Objectives Team organisation Project definition Performance criteria: Time Cost Requirement of resources Developing a network diagram Resources availabilityHumanMaterialFinancial Estimation the duration(s) of activities Managerial technique NetworksCPM, PERT) Monitoring Revision and updating Rescheduling measures or reallocation of resources

NETWORK ANALYSIS: The operations research techniques used for planning, scheduling and controlling large and complex projects are referred to as Network Analysis or network planning and scheduling techniques. A network is a graphical diagram consisting of a certain configuration of arrows and nodes for showing the logical sequence of various tasks (or activities) to be performed to achieve project objectives. Network analysis is quite useful for designing, planning, co-ordinating, controlling and decision-making so that the project could be economically completed in the minimum possible time with the limited available resources. Two most popular form of this technique now used in many scheduling situations are the Critical Path Method (or simply CPM) and the Programme Evaluation Review Technique (or popularly known as PERT). Critical Path Method was developed in 1957 by J.E. Kelly of Remington Rand and M.R. Walker of DuPont to aid in the scheduling of routine plant overhaul, maintenance and construction work. This method differentiates between planning and scheduling. Planning refers to the determination of activities that must be accomplished and the order in which such activities should be performed to achieve the objectives of the project. Scheduling refers to the introduction of time into the plan thereby creating a time table for the various activities to be performed. CPM uses two time and two cost estimates for each activity (one time-cost estimate for the normal situation and the other estimate for the crash situation). CPM operates on the assumption that time taken by each activity in the project is already known precisely. Programme Evaluation Review Technique was developed in the late 1950s by the US Navy Special Projects office in cooperation with the management consulting firm of Booz, Allen and Hamilton. The technique received substantial favourable publicity for its use in the engineering and development program of the Polaris missile, a complicated project that had 250 prime contractors and over 9,000 sub-contractors. But now this technique is very popular in the hands of project planner and controller of various departments in government and in industry. In PERT, we usually assume that the time to perform each activity is uncertain and as such three time estimates (the optimistic, the pessimistic and the most likely) are used. Indeed, in actual implementation, the distinctions between PERT and CPM have become blurred as firms have integrated the best features of both systems into their own efforts to manage projects effectively.FEW MANAGEMENT APPLICATIONS OF NETWORK MODELS (PERT AND CPM): Critical Path Method and Programme Evaluation Review Technique has n number of applications, some of which are listed below, Construction of buildings, bridges, factories, highways, stadiums, Irrigation projects, etc. Budget and auditing procedures. Missile development programmes. Installation of complex new equipment such as computers or large machinery. Advertising programmes and for development and launching of new products. Planning of political campaigns. Strategic and tactical military planning. Research and development of new products. Finding the best traffic flow patterns in a large city. Maintenance and overhauling complicated equipment in the chemical, power plants, and steel and petroleum industries. Long-range planning and developing staffing plans. Organization of big conferences, public works, etc. Shifting of manufacturing plant from one site to another. Preparation of bids and proposals for projects of large size. Launching space programmes.