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    Pert-Cost Analysis and Project Cost Control

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    1921 Vishwanath Pakhare
    1) PERT/Cost analysis is a tool for planning, scheduling, and controlling project costs. It involves estimating costs for work packages, predicting cash flows, and monitoring actual costs against budgets. 2) The prediction of cash flows is a 5-step process that involves determining the critical path, estimating activity costs, and calculating monthly expenditures assuming earliest and latest start times to determine a cost range. 3) An example is provided to illustrate the 5 steps: work packages and costs are estimated, a critical path is identified, data is entered into tables, and monthly expenditures are calculated based on earliest and latest starts to arrive at a projected cost range.

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    Pert-Cost Analysis and Project Cost Control

    Uploaded by

    1921 Vishwanath Pakhare
    986 views7 pages
    1) PERT/Cost analysis is a tool for planning, scheduling, and controlling project costs. It involves estimating costs for work packages, predicting cash flows, and monitoring actual costs against budgets. 2) The prediction of cash flows is a 5-step process that involves determining the critical path, estimating activity costs, and calculating monthly expenditures assuming earliest and latest start times to determine a cost range. 3) An example is provided to illustrate the 5 steps: work packages and costs are estimated, a critical path is identified, data is entered into tables, and monthly expenditures are calculated based on earliest and latest starts to arrive at a projected cost range.

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    PERT-COST ANALYSIS AND PROJECT COST CONTROL

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    1) PERT/Cost analysis is a tool for planning, scheduling, and controlling project costs. It involves estimating costs for work packages, predicting cash flows, and monitoring actual costs against budgets. 2) The prediction of cash flows is a 5-step process that involves determining the critical path, estimating activity costs, and calculating monthly expenditures assuming earliest and latest start times to determine a cost range. 3) An example is provided to illustrate the 5 steps: work packages and costs are estimated, a critical path is identified, data is entered into tables, and monthly expenditures are calculated based on earliest and latest starts to arrive at a projected cost range.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    986 views7 pages

    Pert-Cost Analysis and Project Cost Control

    Uploaded by

    1921 Vishwanath Pakhare
    1) PERT/Cost analysis is a tool for planning, scheduling, and controlling project costs. It involves estimating costs for work packages, predicting cash flows, and monitoring actual costs against budgets. 2) The prediction of cash flows is a 5-step process that involves determining the critical path, estimating activity costs, and calculating monthly expenditures assuming earliest and latest start times to determine a cost range. 3) An example is provided to illustrate the 5 steps: work packages and costs are estimated, a critical path is identified, data is entered into tables, and monthly expenditures are calculated based on earliest and latest starts to arrive at a projected cost range.

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    © All Rights Reserved
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    of 7

    PERT-COST ANALYSIS AND PROJECT COST CONTROL

    INTRODUCTION
    Every Project Manager has 2 major problems when managing a large project
    i.e.,
    1. Time & Schedule aspect of the project (PERT/CPM can be a very useful
    tool for scheduling and continually monitoring the schedule).
    2. Cost budgets of the project.
    PERT/Cost: The Network Cost Accounting System
    PERT/Cost can be used to Planning, Scheduling & Controlling the cost of
    the project.
    Specifically, once the various work packages have been identified in the
    WORK BREAKDOWN STRUCTURE (WBS) & their costs have been
    estimated, the project manager must predict the cash flow for the project.
    In addition, the project manager must periodically review expenditures to
    determine if actual costs are exceeding budgeted cost so that he or she can take
    the necessary corrective action to reduce or eliminate cost overruns.
    The PERT/Cost analysis has been divided into 2 sections:
    1. The prediction of cash flows.
    2. The monitoring and control of project costs.
    The estimation of a project cash flow using PERT/Cost is a 5-step process as
    depicted below: (*Assuming the unit of time is a Month below)
    Step 3
    Step 2
    Step 1 Calculate Monthly*
    Using PERT/CPM,
    For each work package, expenditures assuming each
    Find the critical path for the
    estimate the cost activity starts at its Earliest
    project
    start tiime

    Step 4
    Step 5
    Calculate Monthly*
    Calculate the range of
    expenditures assuming each monthly* cash flows using data
    activity starts at its Latest calculated in step 3 and step 4
    start tiime

    EXAMPLE:
    Table 1: Project Table
    Time (Months)
    Activity Immediate Predecessors
    (1)*
    A 2 -
    B 3 -
    C 3 A
    D 2 A
    E 2 B
    F 7 B
    G 4 C
    H 3 D,E
    I 2 H
    J 4 G,I

    Table 2: Project Budget


    Total Estimated Cost Estimated Monthly Cost
    Activity (Rs) (Rs)
    (2)* (2/1)*
    A 10,000 5,000
    B 24,000 8,000
    C 30,000 10,000
    D 20,000 10,000
    E 40,000 20,000
    F 140,000 20,000
    G 160,000 40,000
    H 90,000 30,000
    I 100,000 50,000
    J 100,000 25,000
    Total = 714,000

    NETWORK
    = Critical Path (B-E-H-I-J)

    C
    G
    A
    D

    H I J

    E
    B
    F

    Table 3: Data for the Network Algorithm

    Time
    Activity ES EF LS LF Slack
    (1*)
    A 2 0 2 1 3 1
    B 3 0 3 0 3 0
    C 3 2 5 3 6 1
    D 2 2 4 3 5 1
    E 2 3 5 3 5 0
    F 7 3 10 7 14 4
    G 4 5 9 6 10 1
    H 3 5 8 5 8 0
    I 2 8 10 8 10 0
    J 4 10 14 10 14 0

    From above the Critical Path is B-E-H-I-J


    STEP 3:
    Calculate the expected monthly expenditure based on the assumptions that each
    activity starts as soon as possible and that cost expenditures are at a uniform
    rate.
    TABLE 4: Budgeted Monthly Cash Expenditures Assuming the Earliest
    Start Time
    Month (Expenditure in x1000) from (1*), (2/1)* and ES from
    Activity Table 3
    1 2 3 4 5 6 7 8 9 10 11 12 13 14
    A 5 5
    B 8 8 8
    C 1 10 10
    0
    D 1 10
    0
    E 20 20
    F 20 20 20 20 20 20 20
    G 40 40 40 40
    H 30 30 30
    I 50 50
    J 25 25 25 25

    Monthly 1 1 2 60 50 90 90 90 11 70 25 25 25 25
    Cost 3 3 8 0

    Accumulat 1 2 5 11 16 25 34 43 54 61 63 66 68 71
    ed 3 6 4 4 4 4 4 4 4 4 9 4 9 4
    Project
    Cost
    STEP 4:
    Calculate the expected monthly expenditure based on the assumptions that each
    activity starts at their latest starting times and that cost expenditure are at a
    uniform rate.
    TABLE 5: Budgeted Monthly Cash Expenditures Assuming the Latest
    Start Time
    Month (Expenditure in x1000) from (1*), (2/1)* & LS from Table 3
    Activity
    1 2 3 4 5 6 7 8 9 10 11 12 13 14
    A 5 5
    B 8 8 8
    C 10 10 10
    D 10 10
    E 20 20
    F 20 20 20 20 20 20 20
    G 40 40 40 40
    H 30 30 30
    I 50 50
    J 25 25 25 25

    Monthly 8 13 13 40 40 40 70 90 110 110 45 45 45 45


    Cost

    Accumulate 8 21 34 74 114 15 224 314 424 534 57 624 669 714


    d 4 9
    Project Cost
    Step 6:
    The final step in predicting the monthly cumulative cash required for a project
    is to examine the range between the expected monthly cumulative cash outflow
    assuming the earliest start time and the expected monthly cumulative cash
    outflow assuming the latest start time.
    Table 6:

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