CPM model was developed for making risk free Projects. CPM approach is deterministic. In CPM analysis we work with single time estimates. The main focus on VPM analysis is on variations in activity times as consequences of changes in resource assignments. The major focus of CPM analysis is on time cost relationships and it seeks a project schedule that minimizes total cost.
Assumptions under lying CPM Analysis- 1. The costs associated with a project can be divided into two components. Direct costs and indirect costs. Direct costs are incurred on direct material and direct labor. Indirect costs consists of overhead items like indirect supplies, rent, insurance, managerial services, etc.2. Activates of the project can be expedited by crashing which involves employing more resources.3. Crashing reduces time but enhances direct costs because of factors like overtime payments, extra payments, and wastage. The relationship between time and direct activity cost can be reasonably approximated by a downward sloping straight line.
Direct cost of activity
DurationCrash TimeNormal TimeActivity
4. Indirect costs associated with the project increase linearly with project duration Indirect cost of project
Given above assumption, CPM analysis seeks to examine the consequences of crashing on total cost. Since the behavior of indirect project cost is well defined, the bulk of CPM analysis is concerned with the relationship between total direct cost and project duration. The procedure used in this is: 1. Obtain the critical path in normal network. Determine the project duration and direct cost.2. Examine the cost time slop of activities on the critical path obtained and crash the activity which has the least slope.3.Constrct the new critical path crashing as per step 3. Determine the project duration and cost.4.Repeat steps 2 and 3 till activities on the critical path are crashed.
2. Define risk management. What are the different types of risks that can affect a project?
Risk is the potential that a chosen action or activity will lead to a loss. Potential loss itself may also be called as “risks”. There are various definitions of risk that differ by specific application and context. Risk cab ne described qualitatively and quantitatively.
Types of Risks: there are various types of risk that can affect business project. While some of these risks can be controlled through a number of options, some of them simply have to be accepted and planned for any project environment.
Macro risk levels- A chance of a loss or injury is called risk. It has two components the systematic risk and unsystematic risk. Risks that are caused by factors external to particular organization and cannot be controlled by the company are termed as systematic risks. On other hand, in case of unsystematic risk the factors are unique, specific and related to particular industry or organization.
Systematic risk- A systematic risk cannot be controlled or foreseen in any manner, therefore it is almost impossible to predict or protect the organization or a project against type of risk.
Unsystematic risk- unsystematic risk is sometimes referred to as “specific risk” . It is unique and peculiar to affirm or an industry and can usually be eliminated through a process called diversification. Business risk and financial risks are unsystematic risks.
Micro risk levels- Micro types of risks are vital when talking about a business.
Project Risk- Project risk relates to the uncertain events or situations that have the potential to adversely affect a planned project, usually in terms of cost, schedule, and/or product quality. Project risk is a function of two components: likelihood and consequences.
Country Risk- Country risk, also referred to as political risk, is an important risk for investors today
Market Risk- The price fluctuations or volatility...