Specialty Contractors, Inc. In early 1993, Specialty Contractors, Inc. (SCI) received a fixed price contract to construct a telecommunications relay station from the Nebraska Broadcasters’ Association (NBA). Using network diagramming, the contract coordin

CPM Problem 1.docx

Problem 1: Specialty Contractors, Inc. In early 1993, Specialty Contractors, Inc. (SCI) received a fixed price contract to construct a telecommunications relay station from the Nebraska Broadcasters’ Association (NBA). Using network diagramming, the contract coordinator, Mr. Harris, determined that the project could begin on August 6 and still be completed prior to the October 26 deadline (12 weeks) imposed by the NBA. The network of the project is shown in Exhibit 1, with the activity durations (Normal Time) indicated in weeks on the table on Exhibit 2. As the August 6th date approached, Mr. Harris learned that a fire in SCI’s regional office would delay the start of the project by four weeks. He was noticeably disturbed, as he recalled the penalty clause in the contract: For each week or part of a week beyond the October 26th completion deadline, the contract pice would be reduced by $9,000 from the original fixed price of $90,000. Since Mr. Harris’ original network diagram included no overtime or expediting costs, he felt it might be possible to reduce the length of the overall project to avoid some of the penalty costs. He began his analysis by determining the minimum time duration (Crash Time in weeks) required to complete each activity in the network if the maximum amount of overtime and expediting were employed for the project. He also calculated the total cost of the project for completion within this minimum time. He further determined the crashing cost (the cost required to reduce an activity by one week) for each activity. His data is summarized in Exhibit 2.

Mr. Harris then wondered how to determine which activities should be decreased in duration and by how much. He felt the crashing features of the Critical Path Method (CPM), could help him reach a logical decision about the NBA project. What is the optimal strategy for Mr. Harris?

Original Schedule was 12 weeks with Project price of $90,000.

As project is 4 weeks delayed, Penalty will be 4*$9000 = $36,000

So by doing CPM analysis, We find that crashing cost of 4 weeks is $28,000. This is less than Penalty of $36,000 by $8000. So by Crashing the project activities as per below table, Harris will get $90,000 - $28,000 = $62,000. Had he not crashed the project, his Pay-off would be $90,000-$36,000 = $54,000.

Excel sheet is attached.

			Results
Data				Normal time	12		Minimum crash cost to meet project goal	$ 26,000
Project goal	8			Minimum time	7						Project time	8
					Immediate Predecessors (1 per column)		Intermediate Computations
Activity	Normal Time (weeks)	Crash Time (weeks)	Normal Cost	Total Cost with Crashing	Immediate Predecessor (s)	Pred 2	Pred 3	Pred 4		Crash weeks	Crash cost / week	Crash limit
A	3	2	$5,000	$10,000						1	5000	1
B	2	1	$3,000	$6,000						0	3000	1
C	6	4	$14,000	$26,000						0	6000	2
D	5	3	$10,000	$18,000	A					1	4000	2
E	7	5	$11,000	$17,000	A					1	3000	2
F	2	2	$8,000	$8,000	B					0	0	0
G	4	2	$10,000	$24,000	C	D	F			2	7000	2
		Total	$61,000	$109,000

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