# Operations - Aon and Crash Exercise

Topics: Project management, Generally Accepted Accounting Principles, Gross profit margin Pages: 2 (337 words) Published: June 20, 2013
1. Convert the project network to an Activity-on-node (AON) representation. What is the project completion time and critical path for this project ?

Critical path is A-B, B-D, D-E

3. Suppose that activity AD were delayed by 2 weeks (takes 8 weeks versus 6). What is the new project completion time and critical path?

A-D already has 2 hours of slack time, therefore if it becomes delayed by 2 hours it will have no impact on the finish time.

4. Suppose that you have extra resources available, but at a cost. Assuming that you can only improve the activity time for a single activity, which activity would you apply these resources to (if any) and how much would you apply (i.e. how many weeks of crash time)? How much profit would SCI earn if you did this? (Assume activity AD takes 6 weeks again).

Apply the crash to activity B-D, since it’s a node on the critical path and the lowest one cost wise to crash. It is also the best in terms of lowering the finish time. Applying 2 weeks of crash time would allow for the project to decrease to 10 weeks instead of 12. 10 weeks seems to be the absolute level allowed that would still improve the overall finish time. Profit would be \$3,000.

Normal cost of project (\$61,000) – penalty (\$18,000) – Revenue (\$9,000) – crash cost (\$8,000) = Profit (\$3,000)

5. Now assume that SCI can apply resources to any activities according. What’s the most profit SCI could earn?

Reduce one week of AB, one week of BD and one week of DE, that way you'd get a completion time of 9 weeks are are able to make a profit of \$4,000.

Revenue (\$90,000) - Fixed Cost (\$61,000) = Gross Profit Margin (\$29,000)

Gross Profit Margin (\$29,000) - Savings on AB (\$5,000) - Savings on BD (\$4,000) - Savings on DE (\$7,000) - Penalty (\$9,000) = Profit (\$4,000)