SCM – 302

OPERATIONS
MANAGEMENT
Project Management
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Agenda for This Module

• Learning Objectives
1. Why is effective project management important?
Examples.
2. Describe the three major project management
activities.
3. Construct a Gantt Chart.
4. Construct an Activity-On-Node Diagram.
5. Complete a forward and backward pass for a
project. Compute ES, EF, LS, LF, slack.
6. Compute project completion time. Find the critical
path.
7. Crash a project. What is meant by crashing a
project? What are the steps?
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Industry Question
• Bechtel Project Management
• Largest project manager in US.
• $37.9 billion in revenue (2012)
• 53,000 workers on project in nearly 50 countries
• List of Projects
• Rail line from London to Chunnel ($4.6 billion)
• Oil pipeline Caspian Sea to Russia ($850 million); Thailand gas pipeline ($700 million)
• Dubai Airport ($600 million); Miami Airport ($2 billion)
• New subway for Athens, Greece ($2.6 billion)

• What would be greatest challenges working as a project manager for firm

such as Bechtel?

• What would be the greatest rewards?

• What do you find most difficult when working on a project?

1. My teammates don’t work hard enough.
2. Never enough time.
3. I am a last minute person and I always finish projects in a rush.
4. They are too challenging and beyond my capability.
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Delay! Delay! Delay!

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Some Examples of Project Cost Overruns

Project Initial Estimate Final Cost

The Chunnel $6.2 billion $15 billion

Alaska Oil Pipeline $8 billion $14.2 billion

The Big Dig $2.5 billion $22 billion

(estimated)

Denver Airport $1.5 billion $6 billion

"In the end,

Sydney Opera House instead of three
years, it took 14
years," ... "Instead
of $7 million it
cost $102 million."
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What is a project?
Projects are Everywhere but Typically on a Much Smaller Scale

• Series of related tasks directed toward

a well-defined set of end results.
• Can divide into subtasks required to
achieve the project goals
• Complexity: subtasks require careful
coordination and control in terms of
timing, precedence, cost and performance
• Difficult production planning and
inventory control
• Some elements unique to that project
• High labor skills

• Most people in business work on one

or more projects at any given time.
• The better you are at managing projects the
more successful you’ll be.
• And the more free time you’ll have!
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Project Management Activities

Planning

•Time/cost estimates •CPM/PERT

•Budgets •Gantt charts
•Engineering diagrams •Milestone charts
•Cash flow charts •Cash flow schedules
•Material availability

Budgets
Delayed activities report
Slack activities report
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Project Planning
• Project organization: formed to ensure that programs
(projects) receive the proper management and attention.
• Often temporary. Permanent structure: matrix organization
• Work breakdown structure: specialists throughout company
• Headed by project manager, responsible for:
• Monitoring schedule and budget
• Meeting quality goals
• Directing employees

• What qualities would you look for in a project manager?

• What ethical issues do project managers face?

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A Sample Project Organization

President

Human Quality
Resources Marketing Finance Design Production
Mgt

Project Project Mechanical Test

Technician
No. 1 Manager Engineer Engineer

Project Project Electrical Computer

Technician
No. 2 Manager Engineer Engineer

Figure 3.2
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Work Breakdown Structure

Develop Windows 8
Project Level 1
Operating System 1.0

Major Software Cost Management System

Level 2 1.1 1.2 1.3
tasks Design Plan Testing

Develop Design Cost Module

Subtasks Level 3
GUIs 1.1.1
Tracking Reports
1.2.1 Testing 1.3.1

Ensure Compatibility Develop Defect

with Earlier Versions 1.1.2 Cost/Schedule 1.2.2 Testing 1.3.2
Interface

Compatible with
Activities Level 4
Windows 7 1.1.2.1
(Work packages)
Compatible with
1.1.2.2
Windows Vista

Compatible with Figure 3.3

Windows XP 1.1.2.3
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Project Scheduling
• Purposes of Project Scheduling
1. Show relationships between activities and with
whole project.
2. Identify precedence relationships among activities
3. Set realistic time and cost estimates for each
activity
4. Better utilize resources by identifying critical
bottlenecks

• Project Scheduling Techniques

• Gantt chart
• Critical Path Method (CPM)
• Program Evaluation and Review Technique (PERT)
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Gantt Chart: Service For a Delta Jet

Deplaning
Passengers
Baggage claim
Baggage Container offload
Pumping
Fueling
Engine injection water
Cargo and mail Container offload
Main cabin door
Galley servicing
Aft cabin door
Lavatory servicing Aft, center, forward
Drinking water Loading
First-class section
Cabin cleaning
Economy section
Cargo and mail Container/bulk loading
Galley/cabin check
Flight services
Receive passengers
Operating crew Aircraft check
Baggage Loading
Passengers Boarding
0 10 20 30 40
Time, Minutes
Figure 3.4
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Project Controlling
• Closely monitor resources, costs,
quality, budgets
• Feedback: revise plan and shift
resources
• Reports from computerized tools
1. Detailed cost breakdowns for each task
2. Total program labor curves
3. Cost distribution tables
4. Functional cost and hour summaries
5. Raw materials and expenditure forecasts
6. Variance reports
7. Time analysis reports
8. Work status reports
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Two Analytical Techniques

• Critical Path Method (CPM)
• A graphical and analytical technique for representing a project and
determining start and completion times for project activities
• Originally developed at DuPont in 1957
• Project Evaluation and Review Technique (PERT)
• Essentially extends CPM to allow uncertainty in activity times
• Originally developed to plan and monitor the Polaris missile project

• PERT/CPM technique used to determine

1. When will the entire project be completed?
2. What are the critical activities or tasks in the project?
3. Slack time of non-critical activities
4. Start and finish times of each step
5. Probability the project will be completed by specific date
6. Is project on schedule, behind schedule, ahead of schedule?
7. Money spent ≤ budget?
8. If project must be finished in shorter time, what is the way to accomplish
this at least cost?
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Steps for Project Analysis

1. Define project, prepare work breakdown structure
2. Identify relationships among the activities
3. Draw network connecting activities
4. Assign time and/or cost estimates to each activity
5. Compute critical path (longest time path) through the network
• Critical path: shortest time in which the project can be completed
• Any delay in critical path activities delays the project
• Critical path activities have no slack time
6. Use network to plan, schedule, monitor, and control the project

• A project consists of a series of interdependent tasks

• Each task has an expected duration time
• Each task may have one or more immediate predecessors
• Some tasks can be done in parallel, others sequentially
• Precedence relationships used to create a project network
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Represent Projects
 Activity-on-Node (AON)
 Nodes represent activities
 Arcs represent precedence relationship
A B C

**Note sometimes you see Activity-On-Arrow (AOA). Comparison of two conventions

http://techsci.msun.edu/wilke/BUS%20Courses/BUS%20360%20PM%20-
%20BMGT%20422/AON.pdf
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Building a House
Activity Predecessor Duration

A Foundation - 14
B Steel work A 5
C 1st Floor B 6
D 2nd Floor B 4
E Roof B 6
F Exterior Walls C 12
G Interior partitions F, E, D 10
H Paint G 8
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Representing the Project: Network

Diagram
C F

A B D G H

Hmm… what is the minimum time for project completion?

Need all paths to be completed for project completion
=> Project completion time = Max { path completion times}
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Paths Through the Network

Path A-B-E-G-H
C F

A B D G H

14 5 days 10 8 days
days days

E 6 days

Total Time for Path A-B-E-G-H = 43 days

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Paths Through the Network

Path A-B-D-G-H
C F

A B D G H

14 5 days 4 10 8 days
days days days

Total Time for Path A-B-D-G-H = 41 days

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Paths Through the Network

Path A-B-C-F-G-H
C F
6 days 12
days

A B D G H

14 5 days 10 8 days
days days

Total Time for Path A-B-C-F-G-H = 55 days

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Minimum Project Completion Time

Total Time for Path A-B-E-G-H = 43 days

Total Time for Path A-B-D-G-H = 41 days

Critical Total Time for Path A-B-C-F-G-H = 55 days
Path
All of the paths need to be completed for project completion

Minimum project completion time

= max {43, 41, 55}= 55 days

Minimum project completion time is

determined by the longest path!!

The path with the longest total time = critical path

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Example: Software Development

Activity Predecessor Duration
A Perform market survey - 3
B Determine product specs A 6
C Design architecture A 2
D Design user interface B 6
E Code Module 1 B,C 5
F Code Module 2 B,C 3
G Code Module 3 E 7
H Code Module 4 E,F 5
I Integrate modules D,G,H 2
J Testing, Fixing and Release I 6

Develop a network diagram for this project

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Building a House
Activity Predecessor Duration

A Foundation - 14
B Steel work A 5
C 1st Floor B 6
D 2nd Floor B 4
E Roof B 6
F Exterior Walls C 12
G Interior partitions F, E, D 10
H Paint G 8
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Performing a Critical Path Analysis

Earliest start (ES) = earliest time at which an activity can

start, assuming all predecessors have
been completed
Earliest finish (EF) = earliest time at which an activity can be
finished
Latest start (LS) = latest time at which an activity can start
so as to not delay the completion time of
the entire project
Latest finish (LF) = latest time by which an activity has to be
finished so as to not delay the
completion time of the entire project
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Forward Pass
• Begin at starting event and work forward

• First activity:
• Earliest Start, ESActivity = 0
• Earliest Finish, EFActivity = ESActivity+ tActivity

• Other activities, denoted by n

• Earliest Start, ES = maximum Earliest Finish of the activities
immediately preceding activity n
e.g. ESG = max{EFD, EFE, EFF}
• Earliest Finish, EFActivity = ESActivity+ tActivity
e.g. EFG = ESG + tG
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Step 1: Earliest Start and Earliest Finish

C F
6 days 12 days

A B D G H
14 5 days 4 days 10 8 days
days days

E 6 days

Proceed Left to Right

A B C D E F G H
Earliest Start 0 14 19 19 19 25 37 47
Earliest Finish 14 19 25 23 25 37 47 55
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Step 2: Latest Finish and Latest Start

C F
6 days 12 days

A B D G H
14 5 days 4 days 10 8 days
days days

E 6 days

Proceed Right to Left

A B C D E F G H
Latest Finish 14 19 25 37 37 37 47 55
Latest Start 0 14 19 33 31 25 37 47
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Backward Pass
• Begin with the last event and work backwards

• Last activity
• Latest Finish, LFActivity = Earliest Finish
• Note: often will just have one final activity
• Latest Start, LSActivity = LFActivity- tActivity

• Other activities, denoted by n

• Latest Finish, LFn = minimum Latest Start of the activities immediately
following activity n
• e.g. LFB = min{LSC, LSD, LSE}
• Latest Start, LSActivity = LFActivity- tActivity
• e.g. LSB = LFB - tB
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Earliest Start & Earliest Finish

Latest Start & Latest Finish

Earliest Earliest
Start Finish
Time Time
ESj
ESi EFi
i j
LSi LF
LSj
i

Latest EF = ES +t Latest
Start Finish
Time LS = LF –t
Time
t = duration
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Step 3: Compare Latest Start and Earliest

Start C F
6 days 12 days

A B D G H
14 5 4 days 10 8
days days days days
E 6 days

A B C D E F G H
Earliest Start 0 14 19 19 19 25 37 47
Earliest Finish 14 19 25 23 25 37 47 55
Latest Finish 14 19 25 37 37 37 47 55
Latest Start 0 14 19 33 31 25 37 47
Slack = LS-ES 0 0 0 14 12 0 0 0
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All Zero Slack Activities Are On the

Critical Path
C F
C F
ES:19 EF:25 ES:25 EF:37
LS:19 LF:25 LS:25 LF:37

A B D G H
D
G H
A B ES:19 EF:23
ES:37 EF:47 ES:47 EF:55
ES:0 EF:14 ES:14 EF:19 LS:33 LF:37
LS:37 LF:47 LS:47 LF:55
LS:0 LF:14 LS:14 LF:19
E
E
ES:19 EF:25
LS:31 LF:37
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Activity Format

Activity Name
or Symbol
A Earliest
Earliest ES EF Finish
Start

Latest LS LF Latest
Start 2 Finish

Activity Duration
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True or False?

• A project can have only one critical path.

• Any critical path node has zero slack.

• Any path of nodes which all have zero slack is a critical

path.
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Cost–Time Trade-Offs: Project Crashing

• Following situations not uncommon:
• Project is behind schedule
• Completion time moved forward
• Shortening project duration is called
project crashing
• Factors to consider when crashing
• Is crashing amount for activity permissible
• Taken together, do shortened activity
durations enable finishing project by due
date
• Is total cost of crashing as small as possible?
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Steps in Project Crashing

1. Compute the crash cost per time period*. If crash costs are linear
over time:
𝐶𝑟𝑎𝑠ℎ 𝐶𝑜𝑠𝑡 − 𝑁𝑜𝑟𝑚𝑎𝑙 𝐶𝑜𝑠𝑡
𝐶𝑟𝑎𝑠ℎ 𝐶𝑜𝑠𝑡 𝑃𝑒𝑟 𝑃𝑒𝑟𝑖𝑜𝑑 =
𝑁𝑜𝑟𝑚𝑎𝑙 𝑇𝑖𝑚𝑒 − 𝐶𝑟𝑎𝑠ℎ 𝑇𝑖𝑚𝑒
2. Find the critical path.
• Identify the critical activities using current activity times
3. Find the critical path activity with the lowest crash cost and
crash this activity by 1 time unit
• E.g. Crash by 1 day, week, month
• Examine only critical path activities that can be crashed (i.e. max crash
possible > 0)
• If there are multiple critical paths, crash multiple activities at the same
time or crash one activity that is common to all the critical paths. Choose
the strategy that gives the lowest overall cost.
4. Update all activity times. If the desired due date has been
reached, stop. If not, return to Step 2.

*Sometimes Step 1 is already given to you. Read table carefully.

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Software Development
Activity Predecessor Normal Normal Crash Crash Crash Max
Time Cost Time Cost Cost Crash
Per Period Possible
A - 3 $14,000 3 $14,000
B A 6 $40,000 5 $50,000
C A 2 $20,000 2 $20,000
D B 6 $12,000 4 $15,000
E B,C 5 $8,600 3 $13,000
F B,C 3 $18,700 2 $21,000
G E 7 $20,000 2 $30,000
H E,F 5 $13,000 3 $18,000
I D,G,H 2 $9,000 2 $9,000
J I 6 $10,400 4 $18,800
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Step 1: Calculate Crashing Cost Per Period

Activity Predecessor Normal Normal Crash Crash Crash Max
Time Cost Time Cost Cost Crash
Per Period Possible
A - 3 $14,000 3 $14,000 - 0
B A 6 $40,000 5 $50,000 $10,000 1
C A 2 $20,000 2 $20,000 - 0
D B 6 $12,000 4 $15,000 $1,500 2
E B,C 5 $8,600 3 $13,000 $2,200 2
F B,C 3 $18,700 2 $21,000 $2,300 1
G E 7 $20,000 2 $30,000 $2,000 5
H E,F 5 $13,000 3 $18,000 $2,500 2
I D,G,H 2 $9,000 2 $9,000 - 0
J I 6 $10,400 4 $18,800 $4,200 2
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Step 2: Find Critical Path

6 weeks B D
6 weeks

A E G I J
3 weeks 7 weeks
5 weeks 2 weeks 6 weeks

C F H
2 weeks 3 weeks 5 weeks

A B C D E F G H I J
Earliest Start 0 3 3 9 9 9 14 14 21 23
Earliest Finish 3 9 5 15 14 12 21 19 23 29
Latest Finish 3 9 9 21 14 16 21 21 23 29
Latest Start 0 3 7 15 9 13 14 16 21 23
Slack = LS-ES 0 0 4 5 0 3 0 2 0 0
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Step 3: Determine which activity to crash

• Which Activity to Crash First?

• Would you crash Activity D?

• It is the cheapest

• No, it is not on the critical path

• It already has slack
• Any reduction in time has no impact on the project
length
• Any reduction will just increase the slack for this
activity
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Step 3: Find the Critical Path Activity With

Lowest Crash Cost
• Critical path
• Any reduction WILL reduce project length

• Lowest crash cost (among critical path activities)

• Getting the biggest bang for your buck

Activity G in this Example

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Crash Activity G by 1 week

6 weeks B D
6 weeks

A E G I J
3 weeks 6 weeks
5 weeks 2 weeks 6 weeks

C F H
2 weeks 3 weeks 5 weeks

(Critical path before crashing)

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Step 4: After crashing, update the table

6 weeks B D

Note: The only purpose of 6 weeks

updating the table is to identify
the new critical path. A E G I J
Changes are in bold.
3 weeks 5 weeks 6 weeks 2 weeks 6 weeks

C F H
2 weeks 3 weeks 5 weeks

A B C D E F G H I J
Earliest Start 0 3 3 9 9 9 14 14 20 22
Earliest Finish 3 9 5 15 14 12 20 19 22 28
Latest Finish 3 9 9 20 14 15 20 20 22 28
Latest Start 0 3 7 14 9 12 14 15 20 22
Slack = LS-ES 0 0 4 5 0 3 0 1 0 0
Critical path:
A-B-E-G-I-J (3+6+5+6+2+6=28 weeks)
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Crash Activity G by 1 more week

6 weeks B D
6 weeks

A E G I J
3 weeks 5 weeks
5 weeks 2 weeks 6 weeks

C F H
2 weeks 3 weeks 5 weeks

(Critical path before crashing)

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After crashing update the table

6 weeks B D

6 weeks

A E G I J

3 weeks 5 weeks 5 weeks 2 weeks 6 weeks

C F H
2 weeks 3 weeks 5 weeks

A B C D E F G H I J
Earliest Start 0 3 3 9 9 9 14 14 19 21
Earliest Finish 3 9 5 15 14 12 19 19 21 27
Latest Finish 3 9 9 19 14 14 19 19 21 27
Latest Start 0 3 7 13 9 11 14 14 19 21
Slack = LS-ES 0 0 4 4 0 2 0 0 0 0
Now we have two critical paths:
A-B-E-G-I-J (3+6+5+5+2+6=27 weeks)
A-B-E-H-I-J (3+6+5+5+2+6=27 weeks)
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Repeat: Which Activity Would you Crash Next?

6 weeks B D

6 weeks

A E G I J

3 weeks 5 weeks 5 weeks 2 weeks 6 weeks

C F H
2 weeks 3 weeks 5 weeks

Two critical paths:

A-B-E-G-I-J (3+6+5+5+2+6=27 weeks)
A-B-E-H-I-J (3+6+5+5+2+6=27 weeks)
• Two options
• Crash an activity common to both critical paths
• Crash A,B,E,I or J
• Crash a different activity on each path simultaneously
• Crash G and H together
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Advantages & Limitations of PERT/CPM

Advantages Limitations

1. Schedule large projects

1.Assume activities and
2. Straightforward concept
3. Graphical networks highlight relationships are clearly
relationships
4. Pinpoint activities to monitor closely
defined, independent,
5. Monitor schedules and costs stable
6. Document who is responsible for
various activities 2.Subjective time estimates
7. CPM and PERT are extremely
widely used. 3.Too much emphasis
• There is software to automate this
scheduling methodology (e.g. MS Project).
placed on critical path
• One should have a good understanding of
the basic CPM / PERT logic to use
software and interpret its output.
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In-class Exercise #1 (3.6)

Activity Predecessor(s) Time (Days)
A - 2
B - 5
C - 1
D B 10
E A, D 3
F C 6
G E, F 8

a. Draw a Gantt chart for this project. Develop an AON

network.
b. What are the ES, EF, LS, LF and slack for each activity?
c. What is the critical path?
d. What is the project completion time?
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In-class Exercise #2
Activity Duration (in weeks) Immediate Predecessor(s)
A 2 -
B 8 A
C 4 A
D 5 A
E 2 C
F 3 C,D
G 1 E,F
H 2 B,G
a. Draw a Gantt chart for this project. Develop an AON network.
b. What are the ES, EF, LS, LF and slack for each activity?
c. What is the critical path?
d. What is the project completion time?
e. Which activities are non-critical? Explain why.
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In Class Exercise #3 (3.25)

• Clark Products makes pizza ovens for commercial use. Michael Clark,
CEO, is contemplating producing smaller ovens for use in high
school and college kitchens. The activities necessary to build an
experimental model and related data are given in the following table.
Activity Predecessor Normal Normal Crash Crash Crash Max
Time Cost Time Cost Cost Crash
Per Period Possible
A - 3 1,000 2 1,600
B - 2 2,000 1 2,700
C - 1 300 1 300
D A 7 1,300 3 1,600
E B 6 850 3 1,000
F C 2 4,000 1 5,000
G D, E 4 1,500 2 2,000
a. What is the project completion date?
b. Crash the project to 10 weeks at the least cost
c. Crash this project to 7 weeks at least cost