Essay, 7 pages (1800 words)

Critical path method

This project examines the project scheduling of a contract to supply a portal frame steel building to be done by Engineering & Construction Incorporated. This turnkey operation encompasses the entirety of the project, from the purchase of the raw materials to the delivery and erection of the finished product on site. The project was evaluated using the program evaluation and review technique (PERT) and the critical path method (CPM. ) The analysis found that the expected total project time would be 290. 9 days and time required for 95% probability of paying no liquidated damages is 314.2 days.

The contract time for the project was 291 days, including time variations requested by the contractor (ECI. ) This resulted in a shortfall of 23 days. A time cost analysis found that the per day cost of crashing the project exceeded the per day cost of liquidated damages. So the recommendation given was to accept the liquidated damages for 23 day, which was calculated to be $955,000. It is important to note that there is a fifty percent chance the project will finish on or before the contract deadline.

The Board accepted this recommendation for the reasons above along with the knowledge that the cost savings on the steel with longer delivery times was greater than the total liquidated damages. INTRODUCTION Engineering & Construction Incorporated (ECI) of Guyana South America, specializes in the design, fabrication and installation of heavy metal structures. In mid 2002, ECI bid for the supply of a building to replace the Rose Hall Sugar Estate Mill House. The Rose Hall Estate is operated by the Guyana Sugar Corporation (Guysuco), which solicited and evaluated the bid.

Approval was granted for the project in September of 2002. However, due to budgetary constraints the project was placed on hold by Guysuco until January of 2003, when the contract was signed. The project was immediately delayed due to the volatility of the steel market. The large steel members were originally slated to come from The United States. In the four months since the bid, the price of North American Steel had risen thirty percent. The bid price is fixed after it is approved. In order to maintain profitability, steel was ordered from Eastern Europe at a price equivalent to the original quote the bid was based on.

Additionally, for similar reasons, steel fasteners originally ordered from North America, were sourced from China. A sixty day time variation was requested by ECI in order to accommodate this delay. At present Guysuco has given verbal approval of the variation, but no written verification has been received. The analysis assumes that the variation has been granted. This project will involve ordering the large steel members from Eastern Europe, fasteners from The Far East, and welding materials and consumables from North America, and shipping these to the fabrication plant just outside of Georgetown Guyana.

In the plant, the raw steel members will be fabricated to form the portal frame, and then partially assembled for inspection by The Employer (Guysuco) as a condition of the contract. Once the building is complete and inspected, it will be transported across two rivers with no bridge access, which would require in country barging of the semi assembled structure. This project includes not only the portal frame but roof, decking and cladding as well. As a result of these factors the project network is more complex than usual jobs of this type.

Due to the above the board of ECI was concerned about the project schedule and timeline. As the plant was operating at capacity, the board required the latest start time of the project with a 95% chance of paying no liquidated damages. If the project was slated to go over time, they requested an analysis of the time cost relationships to find the most cost effective course of action. BACKGROUND Abridged History Of The Companies Involved Engineering and Construction Inc. (ECI) was formed by a group of former colleagues, incorporated under the Companies Act Of Guyana on the nineteenth of May, nineteen ninety-eight.

A board composed of the founding directors manages the Company. Each member of the board is a shareholder, who is by default employed by the company. As a result, ECI is owned and operated by its key administrative and technical personnel. The board consists of engineering, accounting and upper echelon management of the corporation itself. The work scope of ECI was defined to be structural steel fabrication, engineering consulting, construction and machinery equipment supplies. Upon the foundation of the company, work was commenced on two operational locations.

The machinery and equipment division was tasked with the sales of industrial and power generating units, inboard and outboard marine engines, as well as the Carrier air conditioning distributorship. This location, which also serves as a head office, is in Regent Street, Georgetown, the central business sector of Guyana. The other location, constructed inFriendshipEast Coast Demerara, is a nineteen thousand square foot manufacturing facility, which houses the structural steel fabrication and power unit assembly division.

Both locations were completed in 1998 and are fully operational. The basic modus operendi of ECI is “turnkey” service. The company maintains the organic expertise and ability to fabricate the structural steel, erect the building and complete the cladding and interior internally. They offer complete industrial, marine or commercial solutions, complete with engineering consulting, assembly and installation. ECI is able to design and install a custom job based on the particular needs of the customer. From the inception of the company, the Guyana Sugar Corporation was the largest client.

In 1976, the government of Guyana nationalized and merged the sugar estates operated by Booker Sugar Estates Limited and Jessels Holdings to form the Guyana Sugar Corporation, also known as Guysuco. The corporation operates five sugar estates and eight factories, four in Demerara on both banks of the Demerara River in the area surrounding Georgetown and four in the east of the country on the banks of the Berbice and Corentyne Rivers. The geographic locations are better depicted in the map of estate locations (Diagram 1) below. Diagram 1 The main business of Guysuco is the cultivation of sugar cane and the production of sugar.

With sugar accounting for approximately 20% of the Gross Domestic Product and 40% of agricultural production of the country, the Guyana Sugar Corporation is the largest single contributor to the national economy. The Guyana Sugar Corporation contributes significantly to the country’s economy and society to such an extent that national economic fortunes are inextricably linked with that of the sugar industry. In year 2000, Guysuco net foreign exchange earnings reached US$88 million. (Source Guysuco web page cp. 2002) Rose Hall Estate The Rose Hall Sugar Estate is located in the country of Berbice on the eastern bank of the Canje River.

The largest structure in the estate is the sugar factory mill and boiling house building. In the mill chopped sugar cane is crushed to yield sugar rich juice. The juice is then purified and transferred to the boiler, where it is concentrated by evaporation, the first process in the manufacture of sugar crystals. The current mill building is constructed of wood. Decay and pest infestation over three decades has prompted Guysuco to replace it with a steel structure. As a result a tender was conducted, leading to the contract which this project examines.


PERT / CPM Method Large projects present several difficulties for managers. These are complex to the extent that all the planning, scheduling and progress information cannot be seen nor tracked without tools and techniques to assist him or her. In projects with numerous tasks, the program evaluation and review technique (PERT) along with the critical path method (CPM) can be used to plan, schedule and control by a manager. This method is especially efficient in determining the critical path i. e. the progression of tasks from start to finish that will take the longest time.

This succession is important to the manager as any delay in tasks along the critical path with delay the overall completion time. Non-critical tasks have slack, which is the amount of time that the activity can be delayed without affecting the overall project completion time. If any non critical activity is delayed beyond the slack, then it will become critical and delay the overall project. The vast majority of PERT/CPM analysis are now done by computer, with specific software applications designed for project management, whereas this project is done manually to illustrate the processes involved.

It will follow these basic steps: 1. Define the project and all of its significant activities 2. Determine the precedence relationship between activities 3. Estimate time needed to complete each activity 4. Draw project network chart 5. Compute longest time path (critical path) through the network 6. Use the network for calculations to plan schedule and control the project. In the project the significant tasks and their relationships are clearly defined, since they are physical activities determined by the project itself, following a simple chronological order.

In reality, no task has a definite time of completion, but we can compensate for this by obtaining optimistic, pessimistic and most likely times for each task. The information on expected times is contained in Table 1 which follows in the analysis. In the manual method, the most important part of the process is the laying out of the information in graphical chart form. This not only provides an intuitive visual representation of the project, but is the basis for calculating all the characteristic values of the project. The chart for this project is designated Diagram 2 in the analysis.

The critical path determination and critical path calculation are in the analysis which follows. Charting Program evaluation and review technique (PERT) charts depict task, duration, and dependency information on a specific set of related tasks with a project. Each chart starts with an initiation node from which the first task, or tasks, originates. If multiple tasks begin at the same time, they are all started from the node or branch, or fork out from the starting point. Each task is represented by a table which states its activity designation, its duration as well as the latest and earliest start and finish times for that task.

Each task is connected to its successor tasks in this manner forming a network of nodes and connecting lines. The chart is complete when all final tasks come together at the “Finish” node. Critical Path Method (CPM) charts are similar to PERT charts and are sometimes known as PERT/CPM. In a CPM chart, the critical path is indicated. A critical path consists of that set of dependent tasks (each dependent on the preceding one) which together take the longest time to complete. Tasks which fall on the critical path should be noted in some way, so that they may be given special attention.

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