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CHAPTER FOUR
1. DECISION THEORY/ANALYSIS

Unit objective:
After completing this unit, the learner should be able to:
 Describe the basic characteristics of decision theory problems
 Differentiate between decision analysis under certainty and uncertainty.
 Describe the different approaches (criteria) to decision making under complete uncertainty.
1. Maximamax
2. Maximix
3. Minimax regret
4. Hurwicz
 Use decision tree as decision making tools.
5.1. Characteristics of Decision Theory
Decision theory problems are characterized by the following:
1. List of alternatives: are a set of mutually exclusive and collectively exhaustive decisions that
are available to the decision maker (some times, not always, one of these alternatives will be
to “do nothing”.)
2. States of nature: - the set of possible future conditions, or events, beyond the control of the
decision maker, that will be the primary determinants of the eventual consequence of the
decision. The states of nature, like the list of alternatives, must be mutually exclusive and
collectively exhaustive.
3. Payoffs: - the payoffs might be profits, revenues, costs, or other measures of value. Usually
the measures are financial. Usually payoffs are estimated values. The more accurate these
estimates, the more useful they will be for decision making purposes and the more likely, it is
that the decision maker will choose an appropriate alternative. The number of payoffs depends
on the number of alternative/state of nature combination.

4. Degree of certainty: - the approach often used by a decision maker depends on the degree of
certainty that exists. There can be different degrees of certainty. One extreme is complete
certainty and the other is complete uncertainty. The later exists when the likelihood of the
various states of nature are unknown. Between these two extremes is risk (probabilities are
unknown for the states of nature). Knowledge of the likelihood of each of the states of nature
can play an important role in selecting a course of active.
5. Decision criteria: - the decision maker’s attitudes toward the decision as well as the degree of
certainty that surrounds a decision. Example; maximize the expected payoffs.
5.2. THE PAYOFF TABLE
A payoff table is a device a decision maker can use to summarize and organize information
relevant to a particular decision. It includes a list of alternatives, the possible future states of
nature, and the payoffs associated with each of the alternative/state of nature combinations. If
probabilities for the states of nature are available, these can also be listed. The general format of
the table is illustrated below:

States of nature
S1 S2 S3
A1 V11 V12 V13
Alternatives A2 V21 V22 V23
A3 V31 V32 V33
where:
Ai = the ith alternative
Sj = the jth states of nature
Vij = the value or payoff that will be realized if alternative i is chosen and event j
occurs.
Decision situations can be categorized in to three classes: Situation of certainty, Situations where
probabilities can not be assigned to future occurrences and Situations where probabilities can be

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assigned to future occurrences. In this chapter we will discuss each of these classes of decision
situations separately.

5.3. DECISION MAKING UNDER CERTAINTY

The simplest of all circumstances occurs when decision making takes place in an environment of
complete certainty. When a decision is made under conditions of complete certainty, the attention
of the decision maker is focused on the column in the payoff table that corresponds to the state of
nature that will occur. The decision maker then selects the alternative that would yield the best
payoff, given that state of nature.
EXAMPLE
The following payoff table provides data about profits of the various states of nature/alternative
combination.
S1 S2 S3
A1 4 16 12
A2 5 6 10
A3 -1 4 15

5.4. DECISION MAKING UNDER COMPLETE UNCERTAINTY (With out probabilities)

Under complete uncertainty, the decision maker either is unable to estimate the probabilities for
the occurrence of the different state of nature, or else he or she lacks confidence in available
estimates of probabilities, and for that reason, probabilities are not included in the analysis.
A decision making situation includes several components- the decision themselves and the actual
event that may occur future, known as state of nature. At the time the decision is made, the
decision maker is uncertain which state of nature will occur in the future, and has no control over
them.

Decisions made under these circumstances are at the opposite end of the spectrum from the
certainty case just mentioned. Once the decision has been organized in to a payoff table, several
criteria are available making the actual decision. There are several approaches (criteria) to
decision making under complete uncertainty. Some of these discussed in this section include:
maximax, maximin,minimax regret, Hurwicz, and equal likelihood.

5.4.1. MAXIMAX
With the maiximax criterion, the decision maker selects the decision that will result in the
maximum of the maximum payoffs.( In fact this is how this criterion derives its name- maximum
of maximum). Tha maximax is very optimistic. The decision maker assumes that the most
favorable state of nature for each decision alternative will occur. For example, the investor would
optimistically assume that good economic conditions will prevail in the future. The best payoff
for each alternative is identified, and the alternative with the maximum of these is the designated
decision.
For the previous problem:
S1 S2 S3 Row Maximum
A1 4 16 12 16*maximum
A2 5 6 10 10
A3 -1 4 15 15
Decision: A1 will be chosen.
Note: If the pay off table consists of costs instead of profits, the opposite selection would be
indicated: The minimum of minimum costs. For the subsequent decision criteria we
encounter, the same logic in the case of costs can be used.
5.4.2. Maximum Criteria
This approach is the opposite of the previous one, i.e. it is pessimistic. This strategy is a
conservative one; it consists of identifying the worst (minimum) payoff for each alternative,

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and, then, selecting the alternative that has the best (maximum) of the worst payoffs. In effect, the
decision maker is setting a floor on the potential payoff by selecting maximum of
the minimum; the actual payoff can not be less than this amount. It involves selecting best of the
worst.
For the previous problem:

S1 S2 S3 Row minimum
A1 4 16 12 4
A2 5 6 10 5*maximum
A3 -1 4 15 -1

Note: If it were cost, the conservative approach would be to select the maximum cost for each
decision and select the minimum of these costs.
5.4.3. MINIMAX REGRET
Both the maximax and maximin strategies can be criticized because they focus only on a single,
extreme payoff and exclude the other payoffs. Thus, the maximax strategy ignores the possibility
that an alternative with a slightly smaller payoff might offer a better overall choice. For example,
consider this payoff table:
S1 S2 S3 Row Max.
A1 -5 16 -10 16*max
A2 15 15 15 15
A3 15 15 15 15

An approach that does take all payoffs in to consideration is Minimax regret. In order to use this
approach, it is necessary to develop an opportunity loss table. The opportunity loss reflects the
difference between each payoff and the best possible payoff in a column (i.e., given a state of
nature). Hence, opportunity loss amounts are found by identifying the best payoff in a column
and, then, subtracting each of the other values in the column from that payoff. Therefore, this
decision avoids the greatest regret by selecting the decision alternative that minimizes the
maximum regret.

EXAMPLE:
S1 S2 S3
A1 4 16 12
A2 5 6 10
A3 -1 4 15

opportunity loss table:

S1 S2 S3
A1 5-4=1 16-16=0 15-12=3
A2 5-5=0 16-6=10 15-10=5
A3 5-(-1)=6 16-4=12 15-15=0

The values in an opportunity loss table can be viewed as potential “regrets” that might be suffered
as the result of choosing various alternatives. A decision maker could select an alternative in such
a way as to minimize the maximum possible regret. This requires identifying the maximum
opportunity loss in each row and, then, choosing the alternative that would yield the best
(minimum) of those regrets.
S1 S2 S3 Max. Loss
A1 5-4=1 16-16=0 15-12=3 3*minimum
A2 5-5=0 16-6=10 15-10=5 10
A3 5-(-1)=6 16-4=12 15-15=0 12

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Decision: A1 will be chosen.
Although this approach makes use of more information than either Maximin or Maximax, it still
ignores some information, and, therefore, can lead to a poor decision.
EXAMPLE:
Opportunity loss table
S1 S2 S3 S4 Max. Loss
A1 0 0 0 24 24
A2 15 15 15 0 15*minimum
A3 15 15 15 0 15*minimum

5.4.4. PRINCIPLE OF INSUFFICIENT REASON/ Equal likelihood/ Laplace

The Minimax regret criterion’s weakness is the inability to factor row differences. Hence, sometimes
the minimax regret strategy will lead to a poor decision because it ignores certain information.
The principle of insufficient reason offers a method that incorporates more of the information. It
treats the states of nature as if each were equally likely, and it focuses on the average payoff for each
row, selecting the alternative that has the highest row average.

EXAMPLE
S1 S2 S3 S4 S5 Row Average
A1 28 28 28 28 4 23.2*maximum
A2 5 5 5 5 28 9.6
A3 5 5 5 5 28 9.6
Decision: A1 is selected
The basis for the criterion of insufficient reason is that under complete uncertainty, the decision
maker should not focus on either high or low payoffs, but should treat all payoffs (actually, all states
of nature), as if they were equally likely. Averaging row payoffs accomplishes this.
[Link] Hurwitz Criterion
The Hurwitz criterion strikes a compromise between the maximax and maximin criterion. The
principle underlying this decision criterion is that the decision maker is neither totally optimistic, nor
totally pessimistic. With Hurwitz criterion, the decision payoffs are weighted by a coefficient of
optimism, a measure of a decision maker’s optimism. The coefficient of optimism, which is defined
as, is between zero and one (0< <1). If  = 1, then the decision maker is said to be completely
optimistic, if = 0, then the decision maker is completely pessimistic. Given this definition, if  is
coefficient of optimism, 1- is coefficient of pessimism.
The Hurwitz criterion requires that for each alternative, the maximum payoff is multiplied by  and
the minimum payoff be multiplied by 1-.
Example: If  = 0.4 for the above example,

A1 = (0.4x16) + (0.6x4)
= 8.8
A2 = (0.4x10) + (0.6x5)
=7
A3 = (0.4x15) – (0.6x1)
= 5.4
Decision: A1 is selected

A limitation of Hurwicz criterion is the fact that  must be determined by the decision maker.
Regardless of how the decision maker determines, it is still a completely a subjective measure of the
decision maker’s degree of optimism. Therefore, Hurwicz criterion is a completely subjective
decision making criterion.
5.5. DECISION MAKING UNDER RISK (WITH PROBABILITIES)

Dear learner, the decision making criteria just presented were based on the assumption that no
information regarding the likelihood of the states of the nature was available. Thus, no probabilities

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of occurrence were assigned to the states of nature, except in the case of the equal likely hood
criterion.
It is often possible for the decision maker to know enough about the future state of nature to assign
probabilities to their occurrences. The term risk is often used in conjunction with partial uncertainty,
presence of probabilities for the occurrence of various states of nature. The probabilities may be
subjective estimates from managers or from experts in a particular field, or they may reflect historical
frequencies. If they are reasonably correct, they provide the decision maker with additional
information that can dramatically improve the decision making process.
Given that probabilities can be assigned, several decision criteria are available to aid the decision
maker. Some of these are discussed below.

5.5.1. EXPECTED MONETARY VALUE (EMV)

The EMV approach provides the decision maker with a value which represents an average payoff for
each alternative. The best alternative is, then, the one that has the highest EMV. The average or
expected payoff of each alternative is a weighted average:
k
EMVi = Σ [Link]
i=1
Where:
EMVi = the EMV for the ith alternative
Pi = the probability of the ith state of nature
Vij = the estimated payoff for alternative i under state of nature j.
Note: the sum of the probabilities for all states of nature must be 1.

EXAMPLE:

Probability 0.20 0.50 0.30

S1 S2 S3 Expected payoff
A1 4 16 12 12.40*maximum
A2 5 6 10 7
A3 -1 4 15 6.30
Decision: A1 will be chosen.

Note that it does not necessarily follow that the decision maker will receive a payoff equal to
the expected monetary value of a chosen alternative. Similarly, the expected payoffs for either of
the other alternatives do not equal any payoffs in those rows. What, then, is the interpretation of
the expected payoff? Simply a long-run average amount; the approximate average amount one
could reasonably anticipate for a large number of identical situations.

5.5.2. Expected Opportunity Loss (EOL)

The table of opportunity loss is used rather than a table of payoffs. Hence, the opportunity losses
for each alternative are weighted by the probabilities of their respective state of nature to compute
a long run average opportunity loss, and the alternative with the smallest expected loss is selected
as the best choice.
EOL (A1) = 0.20(1) + 0.50(0) + 0.30(3) = 1.10 *minimum
EOL (A2) = 0.20(0) + 0.50(10) + 0.30(5) = 6.50
EOL (A3) = 0.20(6) + 0.50(12) + 0.30(0) = 7.20
Note: The EOL approach resulted in the same alternative as the EMV approach
(Maximizing the payoffs is equivalent to minimizing the opportunity losses).

5.5.3. Expected Value of Perfect Information (EVPI)

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It can some times be useful for a decision maker to determine the potential benefit of knowing for
certain which state of nature is going to prevail. The EVPI is the measure of the difference between
the certain payoffs that could be realized under a condition involving risk.
If the decision maker knows that S1 will occur, A2 would be chosen with a payoff of $5. Similarly
for S2 $16 (for A1) and for S3, $15 (with A3) would be chosen.
Hence, the expected payoff under certainty (EPC) would be:
EPC = 0.20(5) + 0.50(16) + 0.30(15) = 13.50
The difference between this figure and the expected payoff under risk (i.e., the EMV) is the expected
value of perfect information. Thus:
EVPI = EPC – EMV
= 13.50 – 12.40 = 1.10
Note: The EVPI is exactly equal to the EOL. The EOL indicates the expected opportunity loss due
to imperfect information, which is another way of saying the expected payoff that could be achieved
by having perfect information.
Note: The expected value approach is particularly useful for decision making when a number of
similar decisions must be made; it is a long-run approach. For one-shot decisions, especially major
ones, other methods (perhaps, maximax or maximin) may be preferable. In addition, non monetary
factors, although not included in a payoff table, may be of considerable importance. Unfortunately,
there is no convenient way to include them in an expected value analysis.

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CHAPTER FIVE
Net works and Project Management

Unit Objectives
After completing this chapter you should be able to:
 Define what a project is.
 Describe the different types of networks
 Use CPM to evaluate project’s time
 Discuss the use of PERT in solving problems of project
 Describe the concept of crashing
6.1. Introduction
It is essential to identify the various activities involved in the execution of Projects. The large and
complex projects of any organization involve a number of interrelated activities, which might be
performed independently, simultaneously, or one after the other. Modern management has designed a
network models approach to solve the problem associated with the allocation of scarce resources of
manpower, material, money and time to these interrelated activities.

A project can be defined as being a series of activities designed to achieve a specific objective, and
which has a definite beginning and a definite end. For network analysis to be of use, the project must
be capable of being split into a number of discrete activities, which relate together in a logical and
well-defined manner.
Network analysis involves the breaking down of a project into its constituent activities, and the
presentation of these activities in diagrammatic form.
Networks are one of the important tools of management science which easily solve problem by
presenting in visual formats. The shortest route problem, minimum spanning tree and maximal flow
models are useful for solving problems associated with allocation of scarce resources,
time, cost, and material consumption. Moreover, CPM and PERT, which we will discuss later on also
contributed a lot for complex projects management under different situations.

Planning and Scheduling with Gantt chart

It is a popular tool for planning and scheduling simple projects. It enables a manager to initially
schedule project activities and, then, to monitor progress over time by comparing planned progress to
actual progress.
In order to prepare the chart, first identify the major activities that would be required. Next, time
estimates for each activity were made, and the sequence of activities was determined. Once they were
to occur.
The obvious advantage of Gantt chart is its simplicity, and this accounts for its popularity. However,
it fails to reveal certain relationships among activities that can be crucial to effective project
management.
Consequently, Gantt charts are most useful for simple projects; say where activities are simultaneous
or where a string of sequential activities is involved. On more complex projects, Gantt charts can be
useful for initial project planning, which then gives way to the use of network diagrams.
6.2 NETWORK DIAGRAMS
Drawing a logic diagram is a skill requiring practice and ingenuity, and for major projects may
require two or three attempts before a satisfactory network or diagram is completed correctly.
Computer packages are often used to carry out this process, cutting drastically the time taken.

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6.2.1. Basic Components of Network Diagram
i) Network
It is the graphic representation of logically and sequentially connected arrows and nodes representing
activities and events of a project. Networks are also called arrow diagram.
ii) Activity
An activity represents some action and is a time consuming effort necessary to complete a particular
part of the overall project. Thus each and every activity has a point where it ends.
It is represented in the network by an arrow.
A
Here A is called an activity.

The straight lines connecting the circles represent a task that takes time or resources; these lines are
called activities. The arrow heads show the direction of the activity.
The beginning and end points of an activity are called events or nodes. Event is a point in the line and
does not consume any resource. A numbered circle represents it. The head event has always a number
higher than the tail event.
Activity

Tail Head
Merge and burst events
It is not necessary an event to be the ending event of the only one activity but can be the ending event
of two or more activities. Such event is defined as a Merge event.

Merge event

If the event happened to be the beginning event of two or more activities, it is defined as a Burst
event.

Burst event

iii) Preceding, succeeding and concurrent activities

Activities, which must be accomplished before a given event can occur, are termed as preceding
activities. Activities, which cannot be accomplished until any event has occurred, are termed as
succeeding activities. Activities that can be accomplished concurrently are known as concurrent
activities.
This classification is relative, which means that one activity can be proceeding to a certain event, and
the same activity can be succeeding to some other event or it may be a concurrent activity with one or
more activities.
iv) Dummy Activity
Certain activities, which neither consume time nor resources but are used simply to represent a
connection or a link between the events, are known as dummies. It is shown in the network by a
dotted (broken) line.
The purpose of introducing dummy activity is:
 To maintain uniqueness in the numbering system as every activity may have
distinct set of events by which the activity can be identified.
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 To maintain a proper logic in the network.


A D
Dummy
B

v) Numbering the Events C

After the network is drawn in a logical sequence, every event is
assigned a number. The number sequence must be in such a way that it should reflect the flow
of the network. In event numbering, the following rules should be observed:
i. Event numbers should be unique.
ii) Event numbering should be carried out a sequential basis from
left to right.
iii) The initial event, which has all outgoing arrows with no incoming arrow, is
numbered 0 or 1.
iv) The head of an arrow should always bear a number higher than the one assigned at
the tail of the arrow.
v) Gaps should be left in the sequence of event numbering to accommodate subsequent
inclusion of activities, if necessary.
6.2.2. Rules for drawing a network
 A complete network should have only one point of entry -the start event, and one point of exit
-the finish event.
 Every activity must have one preceding event -the tail, and one following event - each activity
has one head.
 Several activities may use the same tail event, and the same head event, but no two activities
may share the same head and tail events.
 Time flows from left to right.
 An activity must be completed in order to reach the end-event.
 Dummy activities should only be introduced if absolutely necessary.

6.2.3. Convention for Drawing Networks

In addition to the rules described above, certain conventions are followed for the sake of clarity and
uniformity. There are two slightly different conventions for constructing the net work diagrams.
Under one convention, the arrows are used to designate activities, where as under the other
convention, the nodes are used to designate activities. These conventions are referred to as activity-
on-arrow (A-O-A) and activity – on- node (A-O-N) respectively. In order to avoid confusion, the
discussion here focuses primarily on activity- on- arrow convention. When we use this convention:
 Networks proceed from left to right -the start event is at the left hand side of the diagram and
the end event at the right hand side
 Networks are not drawn to scale.
 Arrows representing activities should have their head to the right of their tail unless it is
impossible to draw the network in that way.
 Events or nodes should be numbered so that an activity always moves from a lower numbered
event to a higher one. This convention is relatively easy to accomplish in a simple network
but in a complex network it may be necessary to number in tens to allow for extra activities to
be added without the need for a complete renumbering of the whole diagram
 Lines that cross should be avoided if possible

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 The start event may be represented as a line instead of a circle, particularly when several
activities may begin at the start point.
6.2.4. Common Errors in Drawing Networks
There are three types of errors, which are most common in network construction. These are:
a) Formation of a loop: If an activity were represented as going back in time, a closed loop would
occur. In a network diagram looping error is also known as cycling error. Cycling (looping) in a
network can result through a simple error or while developing the activity plans, one tries to show the
repetition of an activity before beginning the next activity.
A closed loop would produce an endless cycle in computer programmers with a built- in routine for
detection or identification of the cycle. Thus one property of a correctly constructed network
diagram is that it is non-cyclic.

B
A

b) Dangling: No activity should end without being joined to the end event. If it is not so, a
dummy activity is introduced in order to maintain the continuity of the system. Such
end-events other than the end of the project as a whole are called dangling events. All
activities must contribute to the progression of the network or be discarded as
irrelevant.

B
A E

D
C
F
c) Redundancy: Danglin If a dummy activity is the only activity emanating
from an event, it can be eliminated.

Dummy D F

6.3. TYPES OF
NETWORK
A
MODELS
Section C objective:
Up on completion of this section, the E learner will be able
B
to:
 Identify the three models of network
 Explain their importances
 Distinguish among the three models of network
6.3.1. The Shortest Route Problem
The objective of this network model is to obtain the shortest path in which one can minimize
distance, time or costs involved form the origin to destination.

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If we have “n” location in the network, the total steps required to solve the shortest route problem will
be n-1. The determination of shortest route involves labeling procedure in which each node is
assigned with two numbers where by the 1 st label represent distance from the original (source) node
and the 2nd number refers the node that immediately precede the labeled node. The labeling procedure
begins with the original node where the label will be (O, S) to indicate the distance is zero and it is
starting point.

In the shortest route algorithm nodes are labeled either permanently to indicate the final labeling or
temporary labeling to indicate that the labeling might be revised. Labels remain temporary until it can
be ascertained that no shorter route to a node exists.
6.3. PROJECT MANAGEMTN AN OVERVIEW
Section objectives:
Up on completion of this section, the learner will be able to:
 Define project management and related concepts
 Explain elements of project management
 Describe phases in project management and tools used
 Identify techniques used in project management

Being able to create an effective specification, supported by the analysis, design and implementation
stages of the project development, and to deliver a system to the required standards and within the
time and cost constraints imposed depends on the effective management of the entire development
process.

Effectiveness and Efficiency

The primary objectives underlying any process of project management -whether related to
investments in information systems or to some other capital expenditure project -may be encapsulated
under two headings:
Effectiveness: ensuring that the project:
 Meets the required needs of the users or the other objectives that have been established
 Is produced to specified quality standards to satisfy user needs
 Can be integrated within existing organizational information systems, structures and processes
 Is sufficiently flexible to respond to changes in the environment in which the system will
operate, or to the changing requirements of users -which may only become articulated and
refined during the development process itself
 Provides appropriate support to decision makers at all levels: operational, tactical and
strategic.
Efficiency: ensuring that the development of the project -including development, delivery,
installation and final implementation -is
 Undertaken within the manpower resources, costs and time targets or constraints specified at
the outset
 Efficient in exploiting the resources of the project team members' and the users' time as fully
as possible, avoiding unnecessary idle time, delays or time wasted in undertaking unnecessary
tasks or activities
 Effective in integrating the activities of those within the project team, and also those
interactions and dependencies with other parties outside the project team, including users,
suppliers, consultants, or managers

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 Capable of delivering the resources on time -neither too late nor too early to cause problems
of storage, loss of value due to deterioration, unexpected fluctuations in planned cash flows,
or loss of benefits from training due to excessive time required for the user to apply the
knowledge or skills acquired.
In practice, the project management process may involve the management of either a small team of
one or two internal systems staff, to cover all aspects of the project development, or, at the other
extreme, a large group of both internal and external staff, many of whom will be specialists in limited
features of the system during its development. Irrespective of the scale or complexity of the project,
the issues concerned are broadly similar and the practices used to ensure improved effectiveness and
efficiency may be applied equally well in all situations.
6.4.1. Project Management Elements

The terms effectiveness and efficiency, as defined above, may be expressed in terms of the key
elements of any project, namely:
 Time
 Resources
 Costs
 Quality.

The term 'efficiency' relates primarily to the elements of time, resource utilization and costs
(measuring the value of the output produced against the costs and time taken to produce the system).

'Effectiveness' is concerned more with the quality of the system in terms of the required performance
standards and objectives. Let us look at these project elements in detail.
[Link]. Time
The time factor represents a key parameter in the project management process: Typically, the
objectives of the project will stipulate either a target time for completing the development of the
project, or the date by which the system should be fully operational. Other intermediate dates or
targets may also be specified for completing particular component elements or phases in the
development process. Failure to meet these prescribed target completion dates may have both direct
and indirect consequences if the organization, some of which may be highly significant. For example:
 Losses of potential financial returns reduced operational efficiency and lost competitive
advantage from the system operation itself.
 Reduced benefits and potential opportunities if other organizational development is tied to the
project -for example, the launch of a new product involving (expensive promotional
campaign).
 Resources remaining idle: specific staff recruited and not utilized, and environment facilities
all arriving ahead of requirement and increasing the organization’s risk of loss, damage or
deterioration.
 Delays that may require either the extension of contracts negotiated with specific
programmers or analysts hired only for the duration of the project (possibly increased rates),
or the use of overtime working to recover lost time (at higher rates)
 The retention of existing computing equipment beyond the anticipated time necessitating the
extension of maintenance contracts and often incurring high maintenance costs than the new
equipment. This may also apply to staffing costs particularly if significant reductions are
anticipated as a result of the developments.
 Unplanned cash flow effects from either early or delayed purchasing or delivery).

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 The impact on other project developments, either concurrent with the delayed project or
utilizing part of the current system project or the staff employed in its development.

[Link]. Resources
For these purposes, the term resources relates to both material and human resources. Material
resources will include consumable materials and support services. Although the acquisition and
management of material resources improve demanding, the management of human resources is
usually the key element. The staffs involved are likely to differ in terms of their specialization skills
and experience (There will also be differences in personality and attitudes. Generally, the
management of resources involves:
 evaluating alternative suppliers of tangible products and services; negotiating prices
(economy), quality standards and delivery times; and progressing orders placed
 recruiting and training the staff for the project
 Planning workloads for individual staff, scheduling and co-coordinating the work, the project
team, establishing performance targets, and regular monitoring and appraisal of individual
staff performance.

[Link]. Costs

Management priorities for both the time and resource elements will be reflected in the project costs.
A key performance indicator used by senior management to assess the project during its development
phase is the level of expenditure incurred relative to the budgeted expenditure. Managing the costs of
a project involves the following:
 Forecasting and estimating the costs of the project in total so that the level of anticipated
expenditure can be established for each month or quarter. These costs will normally be
subdivided into a variety of sub-headings relating to capital and revenue expenditures, and
costs associated with staff, materials and overheads. (Total expenditure approach )—
Engineers estimates.
 Monitoring the actual expenditure in total and under each of the sub-headings within the
budget. This will allow the project team to assess the degree to which actual expenditure
matches budgeted expenditure. In cases where there are significant variances, the project team
will be required to establish the cause and the consequences for the total project costs.--
Variance Analysis
 Significant overspending on a project may require the project manager and the organization to
review either the subsequent stages of the development process or the initial system objectives
and performance standards, with the intention of modifying the more expendable elements to
meet budget limits.—Feedback and feed forward decisions.
[Link]. Quality
The task of managing quality differs from that of managing the elements of time, resources and costs,
which are concerned primarily with the inputs, processes and activities involved in developing a
system. Quality management is primarily focused on the output of the development process as an
operational system. It may be more difficult to measure quality than the three other elements, because
it may be assessed against more subjective criteria. Thus, the perception of quality may differ,
depending on the position or role of the individual in relation to the project. While different
perceptions of quality exist, the important assessment of quality relates to the project’s ability to meet
the users' requirements and expectations. Generally, the management of quality Incorporates

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 Establishing quality and performance standards for the project at the outset and developing
methods for measuring these less tangible elements
 Establishing procedures and methods of working which will assist in assuring the
achievement of the standards in the final system
 Monitoring the project regularly against the desired standards and ensuring that the necessary
procedures are being observed.

6.4.2. Project Initiation Document

The Project Initiation Document (PID), sometimes called a 'statement of work' or ‘project charter',
is a formal document listing the goals, constraints and success criteria for the project -the rules of the
game. The PID, once written, is subject to negotiation and modification by the various stakeholders
of the project. Once they formally agree its content, it becomes the document that is referred to in the
case of any disagreement later as to precisely what the project was intended to achieve.

According to Eric Verzuh, a PID should contain at least the following sections:

Purpose statement: This explains why the project is being undertaken.

Scope statement: This puts boundaries to the project by outlining the major activities of the
project. It is important to include this section in order to prevent 'scope creep', where
additional activities are added during the project, and making achievement of the cost and
time objectives totally impossible.

Deliverables: What are the main outcomes expected from the project? The focus on what
makes the success of the project easier to measure. Deliverables tend to be tangible elements
of the project, such as reports, assets and other outputs.

Cost and time estimates: Even at this early stage, it is a good idea for the project team to
have some feel for the organization’s expectations in terms of the project budget. These
estimates will necessarily be modified later in the project, but are necessary to give a starting
point for planning.

Objectives: A clear statement of the mission, critical success factors and milestones of the
project

Stakeholders: A list of the major stakeholders in the project and their interest in the project.

Chain of command: A statement (and diagram) of the project organization structure

6.4.3. Levels of Managing the Project
1) Strategic. This level involves taking a broad view of the total project and of all the major stages
involved. The aim is to integrate and co-ordinate the contributions, both direct and indirect, from each
area of the organization and from outside it. While the decision making is inevitably concerned with
the issues of time, resources, costs and quality, the perspective adopted is to view these issues in
aggregate terms -say, the total capital expenditure or staffing costs incurred on the project to date in

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relation to the budgeted levels. Reporting at this level will generally be directed towards the
organization’s senior management, and in addition to being in a summarized form, it is also likely to
be on a monthly or quarterly timescale to allow the planning, monitoring and control activities to
focus on broad issues of performance, timescales or costs.
2) Tactical This level is concerned with viewing and managing the project on a short- to medium-
term timescale. The actual time horizon of planning, decision making and control will depend on the
total scale of the project in terms of resources and time, but it would be usual to review both the work
in hand and the work to be undertaken in each of the main activity areas of the project over the
coming one or two months. In larger projects, separate teams of development staff may be given
specific responsibility for monitoring and controlling the main activity areas. While still concerned
with the four basic elements of time, resources, costs and quality, the information used for this
purpose is likely to be more detailed and the reporting period will probably be shorter. For example,
the performance of a particular team of staff during the previous week may be evaluated to measure
the progress made and to identify any problems and the appropriate corrective action.
3) Operational Management: activities at this level are concerned with the more detailed aspect of
supervising and controlling the ongoing operations of the development. This will tend
to focus on the problems associated with a particular activity and on the direct supervision of staff.
The main tasks are resolving any
Specific technical difficulties encountered, ensuring the maintenance of: appropriate standards,
motivating the staff and trouble-shooting. While the priority remains the maintenance of effectiveness
and efficiency, this is now directly related to specific activities and to individual members of the
project team. One of the more important consequences is that the management process at this level
will involve less formalized reporting systems; the style usually depends upon a more direct and
frequent method of monitoring performance and greater emphasis on interpersonal relationships.
6.4.4. Duties of Project manager
The project manager may be required to interface with all three levels (strategic, tactical and
operational) at different times, although, in the larger projects, the team or group leaders would be
responsible for the operational level management of the activities and personnel within their team.
The project manager's primary responsibility is to ensure effectiveness and efficiency across the
complete project, which involves the following action at each level:
1) Strategic: At this level, the manager should:
 evaluate and analyze strategic impact of each proposed system on the organization’s
operations, in promoting competitive advantage, and on the other existing or proposed
information systems within the organization
 report to senior management on the results of the strategic evaluation and quantify the
potential costs and benefits that may be derived from each system development
 contribute to the strategic decision-making process of the organization in terms of the
information resource
 review and evaluate the strategic consequences of the progress achieved in developing the
system at regular intervals.
2) Tactical: At this level, the manager's responsibility is to
 convert the objectives, targets and performance standards agreed for the project into
operational plans
 develop the outline and detailed plans for the project, identifying the time, resource and cost
parameters, and producing a schedule of activities for the project staff

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 monitor the performance of the project against the agreed plans, budgets and quality
performance standards, and report progress to both the steering committee and the
management sponsor
 liaise with management and staff in the user departments, to ensure an effective interface in
terms of integration and co-operation between the users and the project development staff
 facilitate a similar level of co-operation with project staff and outside agencies - either with
suppliers or distributors for the company's main business, or with the specialist agencies
supporting the system development project itself
 analyze deviations from planned performance, evaluating alternative solutions and
recommending appropriate control changes to future plans or targets
 develop appropriate information systems to provide the necessary Information to monitor and
control the project.
3) Operational: At this level, the manager should:
 manage and control the daily activities of the project team members, either directly or through
the project team leaders
 conduct regular progress meetings with the project staff and team leaders to identify and
resolve existing and potential difficulties
 appraise the performance of individual members of the project development staff and seek to
assure the achievement of the required quality standards throughout the project development.

The project manager plays a key role in the effective management of system development and
(although other participants may contribute significantly to this process) fulfils the major role of
integrating all the various contributions.

PLANNING TOOLS

Having completed the work breakdown structure, it will be possible to construct a project network.
[Link].2. Gantt chart

The Gantt chart is a timeline chart. It clearly shows when each task is to begin, the time it will take to
complete each task, and which tasks will be going on simultaneously. You may want to use more than
one level of Gantt chart.
A Gantt chart, named after its inventor, shows the activities of a project, the same as CPA. However,
these activities are presented as a bar chart with the start and finishing times clearly identified.

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[Link].3. Critical Path Method

This is a diagrammatic representation which shows the various activities in a project. The aim of the
CPA is to identify how those activities link together and to show the critical path or the sequence of
activities where a delay will result in the overall project being delayed. An activity is said to be
critical if a delay in its start will cause a further delay in the completion of the entire project.
The sequence of critical activities in a network is called the critical path. It is the longest path in the
network from the starting event to the ending event and defines the minimum time required to
complete the project. In the network it is denoted by double line. This path identifies all the critical
activities of the project. Hence, for the activity (i,j) to lie on the critical path, following condition
must be satisfied.
a) ESi= LSi
b) EFi = LFj
c) ESj- ESi = LFj- LFi = tij.
ES i, EF j, are the earliest start, and finish time of the event j and i. LS i, LF j, are the latest start,
finish time of the event j and i.
The procedure of determining the critical path
Step 1. List all the jobs and then draw arrow (network) diagrams. Each job indicated by an arrow
with the direction of the arrow showing the sequence of jobs. The length of the arrow has no
significance. The arrows are placed based on the predecessor, successor, and concurrent
relation within the job.
Step2. Indicate the normal time ( tij) for each activity ( i,j) above the arrow which is deterministic.
Step 3. Calculate the earliest start time and the earliest finish time for each event and write the
earliest time Ei for each event i. Also calculate the latest finish and latest start times.
Step 4. Indurate the various times namely normal time, earliest time and latest time on the arrow
diagram.
Step 5. Determine the total float for each activity by taking the difference between the earliest start
and the latest start time.

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Step 6. Identify the critical activities and connect them with the beginning event and the ending
event in the network diagram by double line arrows. This gives the critical path.
Step 7. Calculate the project duration.
Example:
A small maintenance project consists of the following jobs whose precedence relationship is given
below.
Job 1-2 1-3 2-3 2-5 3-4 3-6 4-5 4-6 5-6 6-7
Duration 15 15 3 5 8 12 1 14 3 14
( days)
Required:
a) Draw an arrow diagram representing the project.
b) Find the total float for each activity.
c) Find the critical path and the total project duration.
Solution:
i) The network diagram that represents the project is as follows

5 5
15
2

1 1 3
3 4 7
14
15 14
8
3 12
6

ii) The total float for each activity

To determine the total float first the earliest start and finish; late start and finish are computed.
Forward pass calculation
In this we estimate the earliest start and the earliest finish time.
ESj given by:
ESj= Max (ESj, tij)
Where Esi is the earliest time and tij is the normal time for the activity (i,j).
ES1=0
ES2= ES1 + t15= 0 + 15=15
ES3= Max ( ES 2 + t23, Es1 + 13)
= Max ( 15 +3, 0+15) = 18
ES4= ES3+ t34 = 18+8 = 26
ES5 = Max ( ES 2 + 25, ES4 + t45)
= Max ( 15 +5, 26+1) = 27
ES6 = Max ( ES3+t36, ES4+ t46, ES5+t56)
= Max ( 18+12, 26+24, 27+3)
= 40
ES7 = ES6 + t67 = 40 +14 = 54
Backward pass Calculation

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In this we calculate the earliest finish and latest start time Lfi, given by LFi = Min ( LFj-tij) where
LFj is the latest finish time for the event j.
LF7 = 54
LF6= LF7 = t67 = 54-14 = 40
LF5= LS 6-t56= 40-3 = 37
LF4 = Min ( LS5-t45, LS6-t46)
= Min ( 37-1, 40-14) = 26
LF3 = Min ( LF4-t34, LF6-t35)
= Min ( 26-8, 40-12) = 18
LF2 = Min ( LF5 - t25, LF3-t23)
= Min ( 37-5, 18-3) = 15
LF 1 = Min ( LF3-t13, LF2-t12)
= Min ( 18-15, 15-150=0
The following table given the calculation for critical path and total float.

Earliest Latest
Normal Total float LFj-
Activity Start Finisgh Start Finish
time ESj or LFi-ESi
ESi ESj LFi LFj
1-2 15 0 15 0 15 0
1-3 15 0 15 3 18 3
2-3 3 15 18 15 18 0
2-5 5 15 20 32 37 17
3-4 8 18 26 18 26 0
3-6 12 18 30 28 40 10
4-5 1 26 40 26 40 0
5-6 3 27 30 37 40 10
6-7 14 40 54 40 54 0

iii)The critical path

From the above table we observe that the activities 1-2, 2-3, 3-4, 4-6, 6-7 are the critical activities.
The critical path is given by, 1-2-3-4-6-7
The total projection is given by 54 days.
[Link].4. Project Evaluation and Review Technique (PERT)
PERT is a time-oriented technique designated to cater for projects where it is not possible to estimate
the exact duration of the activity. It uses statistical theory to estimate how long a project is likely to
last, and the probability of completing the project by a particular date.
PERT involves four key activities
PERT
PERT is a further development of the CPA approach which deals with the influence of changes in
time on the cost of a project. In summary, the approach involves four key activities:
1. Estimating the normal duration for an activity and the normal cost associated with this time
period.
2. Estimating the extent to which this normal duration may be reduced and the additional costs
of doing so. The additional costs may arise from the hiring of additional systems staff or the
overtime worked by existing staff. However, the additional costs do not always relate to
human resources and may, for example, involve additional payments to secure faster methods
of delivering the supplies required. Further, not all activities are capable of being reduced in

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terms of time, and for those where reductions may be achieved, the costs may rise more
steeply as successively more time is saved on the activity. In this, the reductions usually
plateau at a lower limit in terms of duration and it proves impossible to secure further
reductions.
3. Addressing those activities on the critical path, so that each activity is ranked in terms of the
cost of saving one week of time. Starting with the activity that costs least to save a week, and
moving down the list in terms of the ranking, produces an assessment of the time that it is
possible to save on the total project time and the consequent increase in total costs for each
incremental week saved. The process is complicated by the fact that initial changes in the
duration of activities on the critical path may result in a change in the direction of the critical
path requiring the consideration of the time/cost trade-off of other activities.
4. The project managers assessing the potential benefits of saving time on the project against the
incremental costs of doing so. The application of the time/cost trade-off is not only useful
before the start of a project, but can become a useful aid to the project manager in controlling
the project, as it will indicate the costs associated with proposed changes in future activities
and the time that may be saved.
Formulation of PERT Network
The project under consideration can be presented graphically as a network. Such a
presentation is based on the following assumptions: Turban (1991: 520-521)
1. The project can be subdivided into a set of predictable, independent activities, each of
which has a clear beginning and an end.
2. Each activity can be sequenced on to its predecessors or successors. An activity cannot
start until all its predecessors are completed.
3. The network is not cyclical, that is, each activity is executed one and only once during the
life of the project. Any repeating activity is considered a different activity.
4. Activity times may be estimated, either as a single- point estimate (CPM) or as a three-
point estimate (PERT).
5. The duration of the activities is independent of each other.

Computing Algorithm for PERT (Network and Activity Slack Time, Earliest and Latest
Activity Times)
In managing the activities of a project, it is some times useful to know how soon or how late an
individual activity can be started or finished without affecting the scheduled completion date of the
total project.
Four symbols are commonly used to designate the earliest and latest activity times.
ES= The earliest start time for an activity. The assumption is that all predecessor activities are started
at their earliest starting time.
EF= The earliest Finish the time for an activity. The assumption is that the activity starts on its ES
and takes its expected time, T.
Therefore,
EF= Es + t
LF= The latest finish in time for an activity without delaying the project. The assumption is that
successive activities take their expected time.
LS= The latest start time for an activity without delaying the project.
LS= LF - t

The process of calculating ES and EF times involves calculations in sequence from left to right ( in
the network) and is some times referred to as a forward pass of calculations. Thus, the ES of an

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activity can be determined by summing the times of all preceding activities where two paths converge
at node the, longest path (time wise) govern.

The process of calculating ES and EF times involves calculations in sequence from left to right (in the
network) and is some times referred to as a forward pass of calculations. Thus, the ES of an activity
can be determined by summing the times of all preceding activities where two paths converge at
node, the longest path (time wise) governs.

Example 1: Computation of earliest start and latest start times for the activities in the net work
model for 2 simple data collection project.

Sequence Activity
1-2 Design questionnaire
2-3 Prepare questionnaire
3-4 Prepare Time Table
3-5 Select interviewers
3-6 Select target respondents
4-5 Arrange facilities
4-6 Notify the respondents
5-6 Train the interviewers
6-7 Undertake the interview
7-8 Organize the collected data

Computation of Activity Slack Time

Example:
Time estimates for the activities are shown in days on the diagram.

6 6 5
7
7 8
5 8 4
1 2 3 4
4

6
5
Required:
a) Determine the critical path
b) How much slack time is available in the path containing notifying the respondents
Solution Time
a. 1-2 -3-5-6-7-8 36 days
b. 1-2-3-4-5-6-7-8 38 days
c. 1-2-3-4-6-7-8 32 days
d. 1-2-3-6-7-8 31 days

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The length of any path can be determined by summing the expected times of the activities on that
path. The path with the longest time is of particular interest because it determines the projects
completion time. If there are any delays along the longest path, here will be corresponding delays in
project completion time. So to shorten the project completion time one must focus on the longest
path. This longest path is so called the critical path and its activities are referred to as critical
activities.
Thus, one the above example, the critical path corresponds to path B with a time requirement of 38
days.
A path slack is the difference between the length of a given path and the length of the critical path.
Thus, the slack corresponding to path C is;
Slack = Time for critical path - Time for = 38 - 32 = 6 days
Thus, slacks for the paths can be:
Path Slack
A 38-36 2
B 38-38 0
C 38-32 6
D 38-31 7
In conclusion, the expected length of the project is 44 days.
With regard to identification of the earliest start, earliest finish, latest start and latest finish times,
observing the following diagram is instrumental.
Activity ES EF LS LF Activity Slack ( LS-ES)
1-2 0 5 0 5 0-0=0
2-3 5 13 5 13 5-5=0
3-4 13 17 13 17 13-13=0
3-5 13 19 15 21 15-13=2
3-6 13 19 20 26 20-13=7
4-5 17 21 17 21 17-17=0
4-6 17 20 23 26 23-17=6
5-6 21 26 21 26 21-21=0
7-8 31 38 31 38 31-31=0

The computation of earliest times involves "forward pass" through the network and the computation
of the latest times involves a "back-ward pass" through the network. Hence for finding the LS and
LF, we must begin with the earliest finish time of the last activities (i.e. the project length) and use
that time as latest finish time for the last activity.
PERT Under Probabilistic Time Estimates
PERT develops both a measure of central tendency (a mean) and a measure of dispersion ( a standard
deviation) of the time required to complete each activity of a project. Having been provided with
these two parameters of the completion time distributions for a project probabilities of finishing the
project in any specified lessen or greater time than the mean time can be readily determined.
Probabilistic time estimates can be made with the help of the following three estimates.
1. Optimistic time estimate (to)
It is a time required for the completion of an activity under optimum conditions.
2. Pessimistic time (tp)
It is a time estimate under worst conditions.
3. The most likely time estimate (tm)
It is the most probable amount that will be required.
Thus by making use of the above, one can estimate project completion times as;
Expected time = te = to + 4tm + tp, Where t is time

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6
Standard deviation =  = tp-t0
6
Variance =  = ( tp - to)
2 2

36
Example: Estimated duration:
Activity Optimistic Most likely Pessimistic
1-2 3 5 7
2-3 4 8 12
3-4 2 4 6
3-5 3 6 9
3-6 3 6 9
4-5 2 4 6
4-6 1 3 6
5-6 2 5 8
6-7 2 5 14
7-8 4 7 10

Having been provided with this information, let us try to find the following facts;
a) Find the expected duration and variance of each activity
b) Find the expected duration of the project.
c) Calculate the variance and standard deviation of project length and what is the probability that
the project will be completed:
1. at least 4 days earlier than expected?
2. no more than 4 days later than expected?
d) If the project due date is 41 days what is the probability of meeting the due date.

Solution
2
Path Activity ( ) Ze
path  Path
Expected path
1-2-3-5-6-7-8
Paths 1-2
Activity to tm tp/9
83 To+4tm+tp length ( E the S2
2-3 6 path)
1-2-3-5-6-7-8 3-5
1-2 3 5 7 5 37 4
/9
5-6
2-3 4 8 12 8 16/9

6-7
3-5 3 6 9 6 1
7-8
5-6 2 5 8 5 1
1-2-3-4-5-6-7-8 1-2
6-7 2 5 14 6 4
2-3
7-8 4 7 10 7 1
1-2-3-4-5-6-7-8 3-4
1-2 3 5 7 5 39 4
/9
82
4-5
2-3 4 8 12/ 9 8 Critical path 16
/9
5-6
3-4 2 4 Project
6 4variance 4
/9
6-7
4-5 2 4 6 4 4
/9
7-8
5-6 2 5 8 5 1
1-2-3-4-6-7-8 1-2 285/
36
2-3
3-4
4-6
6-7
7-8
1-2-3-6-7-8 1-2 74/9
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2-3
3-6
6-7
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Thus, project variance is 82/9 and standard deviation of . To assist our calculations, let us
approximate the values as: Variance = 9 and standard deviation as 3.
To respond to last questions the application of Poisson probability distribution is mandatory. Thus;
The Poisson formula: Z = x-µ where X = specified time
δ

µ = expected time
δ = standard time

Therefore, to find the probability that the project will be completed at least 4 days earlier than
expected;

Z= X-N = Z= 35-39 = -1.33

δ 3

So, p (Z<-1.33)
= p(X< 35)
= 0.0918
= 9.18%
Z -1.33 0

And the probability that the project will be completed at a no more than 4 days later than expected is ;

Z= 43-39 = 4/3 = 1.33

3

P= ( X<43) = P(Z<1.33)
= 0.9082
= 90.82%

N 1.33

In responding to requirement E, the probability of meeting the due date is;

Z= 41-39 = 2/3 = 0.67

3
p ( X< 41) = p (Z< 0.67)
= 0.7486
= 74.86%
N 0.67

Activity:

1. Given the following information:

Activity Description Immediate Tim

predecessor e

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Select office site - 3
A
B Create organizational and financial plan - 5
C Determine personnel requirement B 3
D Design facility A and C 5
E Construct interior material D 6
F Select personnel to move C 3
G Hire new employees F 2
H Move records, key personnel F 1
I Make financial arrangements with B 4
institution & selected sight
J Train new personnel H,E,G 2

Determine:
a)Critical path and Critical activities
b) Duration of the project
c) Slack time of activities

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