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Folder Title: Lord, Melvin S. - Articles and Speeches (1958 - 1965)

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Lord, Melvin S. -Articles and Speeches (1958- 1965)

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,r· . ECONONIC DEVELOPMENT INSTITUTE

Critical Path Method -- An Example of Application

by

Mel viri S. Lord

CRITICAL PATH METHOD ------------------

Planning, Scheduling and Analyzing the CPM Network of the Formation of a Company

Let us assume that preliminary studies, estimates and decisions have already been made. Typical of some of the major steps to be car­ried out to form a company and provide financing for beginning of oper­ations are:

Step (or Event)

1 Prepare and formalize the collaboration agreement between promoters

2. Prepare article of incorporation for the new company

3· Prepare preliminary information for under­writers and loan agencies

4• Obtain government Development Ministry approval

5· Select and name directors

6. Finish presentation to loan agencies

1· Finish presentation to underwriters

8. Obtain government approval for stock issue

Estimated Time to Achieve (Activity) (Days)

15

60

40

30

60

15

15

10

9· Obtain government approval of foreign capital use 15

10. Obtain state approval to register company 15

11. Obtain government tax .ruling 40

12. Obtain proforma contracts from power and raw materials suppliers 40

13· Review of information by loan agencies 100

14. Review of information by underwriters 150

15· Form company 15

16. Negotiate and sign agreements with loan agency 20

17· Negotiate and sign agreements with underwriters 30

18. Promoters invest in company 15

-2-

Illustration A shows the manner in which the CPM network can be set up according to the sequence and interrelationship or events lead­ing to the completion of the formation of the company. The sequence of events requiring the greatest length of time determines (a) the total estimate or time required to complete all activities and (b) the criti­cal path (the sequence of activities requiring the greatest total time for completion) wh.ich identifies the activities which cannot be allowed to take more time than estimated without increasing the total time required to complete the project.

The following are definitions and symbols in current use in the Crit­ical Path Method, and are used in analysis of the examples

Event a job to be done

Activity = tine to complete an event

F = earliest finish time for a project or a part of a project being analyzed

T • target finish time for total of all jobs in a project or a part of a project being analyzed; must be~ F

S = starting time ("0", date or point in tine)

ES = earliest start time for a given activity

t

ES + t

LS

LF

FS

TS

time to complete a given job

a EF = earliest finish time

= latest start time = LF - t

= latest finish time for each job

= free slack (or free float) = time any given activity can expand without affecting subsequent activities

• ES (of earliest successor event) - EF of the event being analyzed.

= total slack = IS - ES or LF - EF

Represents maximum amount or time any given activity can be delayed beyond its ES without delaying project completion.

Illustration B shows a detailed analysis of the CR4 network shown in Illustration A.

-3-

Using the corresponding numbers of the list of events and activities on page 1 and collecting the informat.:ion t.teY"O~Op6d through analysis of Illustration B, it is posRih1c to set up a table that can be a very use-ful managemAnt t~nL £or administration and control of the implementation of the project:

Event

1

2

3

4

5

6

7

8

9

10

11

12

1.3

14

15

16

17

18

MSLord EDI

Time to Complete Activity

15

60

40

30

60

15

15

10

15

15

40

40

100

150

15

20

30

15

February 1966

Start time E L -0 45

0 0

0 20

60 140

60 150

60 120

60 60

90 200

90 195

90 195

90 170

60 185

75 135

75 75

130 210

175 235

225 225

145 240

Finish till's Slack E L TS FS -

15 60 45 45

60 60 0 0

40 60 20 20

90 170 80 0

120 210 90 10

75 135 60 0

75 75 0 0

100 210 110 30

105 210 105 25

105 210 105 25

130 210 80 0

100 225 125 45

175 235 6o 0

225 225 0 0

145 225 80 0

195 255 60 60

255 255 0 0

160 255 95 95

~

.:

PREPARE PRELIMINARY INFORMATION FOR UNDERWRITERS AND LOAN AGENCIES

PREPARE AND FORMALIZE COLLABORATION AGREEMENT BETWEEN PROMOTERS

CRITICAL PATH METHOD COMPANY FORMATION SCHEDULE

FINISH PRESENTATION

TO LOANING AGENCY ·~·---------1\EGOTIATE

AND SIGN AGREEMENTS

FINISH PRESENTATION

-·-~~----------~ REVEW

OBTAIN GOVERNMENT

APPROVAL FOR STOCK ISSUE

OBTAIN GOVERNMENT

OBTAIN GOVERNMENT

TAX RULING

SELECT AND NAME DIRECTORS

OBTAIN PROFORMA CONTRACTS FOR

POWER AND RAW MATERIALS

r= r c (/) -i ::0

~ 0

IBRD-2945 z ~----------------------------------------------------------------------------------------------------------------~~~~~~

PREPARE PREL-.NARY INFORMATION FOR UNDERWRITERS AND LOAN AGENCIES

PREPARE AND FORMALIZE COLLABORATION AGREEMENT BE TWEEN PROMOTERS

CRITICAL PATH METHOD COMPANY FORMATION SCHEDULE ANALYSIS

ES = 60; EF = 75 LS = 120; LF = 135

FINISH PRESENTATION TO LOANING AGENCY

ES: 60;EF= 75 LS = 60; LF= 75

ES = 75·EF= 175 LS = 135:LF= 235 . '

LOANING AGENCY REVIEW

NEGOTIATE ·--------, AND SIGN AGREEMENTS

NEGOTIATE ~ -~~

UNDERWRITERS'

OBTAIN GOVERNMENT APPROVAL FOR STOCK ISSUE

OBTAIN GOVERNMENT TAX RULING

SELECT AND NAME DIRECTORS

OBTAIN PROFORMA CONTRACTS FOR

REVIEW

POWER AND RAW MATERIALS

ES= 175;EF= 195 LS = 235;LF= 255

............. 2946

ECONOOC DEVELOPMENT INSTITUTE

July, 1966

the Critical Path Method of Programming

Ae.Plied to an Integrated Cane Sugar Project

Adapted by M. s. Lord fran a study prepared in 196S by Mr. E. P. c. Fernando in the Alfred P. Sloan School of Management of the Massachusetts Institute of Technolqgy.

. ._

The Project

A raw cane sugar mill is to be built with a capacity to produce 100,000 tons of raw sugar annually. The mill is to be built in a vir­tually undeveloped, unp~ulated area called Nanum, a location sane dis­tance fran the hypothetical town of Akara. To support the mill, about 45,000 acres of land are needed, 35,000 for cane growing and 10,000 for plant and service facilities, living areas for labor and staff, roads and other purposes. A primary main road has to be built fran Akara to r6num. The land for cane production must be cleared and prepared tor ·cultivation, but this must be preceded by construction of the primaey-and secondary road systems servicing the location. A dam must be built on a nearby river and irrigation canals and facilities must be built and put into service before cane cultivatiop can begin. The entire labor force and supervisor,y staff must be recruited, trained as necessary, and brought to the site and cared for as needed for implementing the project and subsequent production operations. Building of the sugar mill and service and other industrial and socia~ installations for the plant have to be planned and coordinated with- develqpment and putting into cultiva­tion of the cane plantations so that the mill is reaey to operate when the first cane crop is harvested. Fertilizers, pesticides, planting and harvesting implements, etc., have to be available as needed for cane pro­duction. Manufacturing supplies such as chemicals, packaging materials, maintenance materials, etc., have also to be available at the time ot mill startup.

With this summary description of the project it is possible imme­diately to identify general areas of expertise needed for carrying out the physical aspects of the project:

( 1) Experienced management for project implementation,

(2) Project engineering covering civil, mechanical, chemical and electrical aspects of cane sugar mill design, installation and operation,

(3) Land reclamatioo, dam construction, irrigation systems,

(4} Sugar cane agronany,

(.5) Planning and developing suitable housing centers and social services such as health, education and recreation,

(6) Equipment and materials purchasing and expediting,

(7) Financial control and administration of project implementation,

( 8) Transportation and

(9) Marketing of sugar and mill by-products •

-2-

Effective management of a complex project such as this cannot be done even by the most experienced project managers and supervising engineers without detailed physical and financial planning and programming or each of the tasks to be performed. Nor can the technical and administrative skills, expertise and manpower be mobilized with proper effectiveness with­out such programming.

Preliminary steps far Programming

Programming of a project requires that the individual tasks to be performed be identified, properly defined and described in terms of the task itself as well as its interrelationship with other tasks. or special importance are:

(a) The determination of what othe~ tasks ~precede and be can­pleted or in the process of being carried out before a given task can be started, and

(b) What tasks depend for their initiation on the canpletion ar at least the initiation or another given task.

The first step taiard achieving these two determinations is a relatively simple one, and consists of listing the main aggregate tasks, not neces­sarily in the order of their implementation, then grouping these as near­ly as possible according to their direct interrelationship ar interdepen­dence and chronology.

To illustrate the preceding paints in our cane sugar project exam­ple, let us assume that the corporation or entity to own or to be respon­sible for the project has been formed, financing has been assured, all pre­liminary or prepe.ratory engineering and other studies and estimates have been canpleted and th~t the project is ready for implementation. Fran the description of the project, the following general list of aggregate tasks can be set up:

Aggregate Task

A

B

STEP I Estimated Time

Description of Aggregate Task to Camplete(Manths)

Formal approval of budget i terns 3 prepared fran consultants' reports, feasibility studies, estimates, etc.

Finalize plans for road fran Akara to Nanum, negotiate and cootract for construction 4

Finalize plans for ~ugar fact~, buildings, community facilities, trans­portation and place contracts for civil work and construction. 6

~gregate Task

D

E

F

G

H

I

J

K

L

M

N

0

p

Q

-3-

Estimated Time ~scription of Aggregate Task to Complete (Month~

Finalize plans for sugar-cane plan­tation, survey, land-acquisition, land-preparation, dam construction, irrigation system and place contracts. 6

Recruit key personnel such as Admin­istrators, project engineers, cduca­t cr c. , meCi.cr~ l -personnel, mill super-visory staff, foremen, etc. 12

Select, relocate and train agricul-tural workers. 12

Order factory supplies such as fuel oil, lubricants, chemicals, packag-ing materials. 4

Order factory and plantation machin­ery and processing equipment abroad and arrange for delivery to Akara

Order plantation auxiliaries such as fertilizer, agricultural lime, pes­ticides.

Construct secondary plantation roads.

Construct main road fran Akara to Nanum, the factory site.

Construct factory buildings and facil­ities at Nanum.

Complete installation of ·machinery and equipment in factory, provide power, water supply; make test runs.

Provide housing facilities, etc. far key personnel 1 s community develqpment.

Deliver and stare factory supplies at site.

Deliver all factory machinery and equip-

12

L

6

6

12

9

12

3

ment to site. 3

Deliver all harvesting machinery and other agricultural equipment to plan-tation centers. 3

Aggregate Task

R

s

T

u

v

w

-4-

Description of Aggregate Task

Clear land, build dam and irri­gation systems, and prepare land far cultivation.

Deliver plantation auxiliaries to appropriate centers and store.

Provide self-help facilities to encourage construction of housing and community center for workers' families at suitable centers.

Plant cane fields, irrigate and fertilize land and cultivate cane.

Harvest first sugar-cane crop and deliver to factory for processing.

Startup mill and produce first sugar.

STEP II

Estimated Time to ~lete (Months)

12

3

12

6

3

6

The aggregate tasks listed in Step I can be expanded into a more extensive list, or, conversely, might be shortened, depending on the judgment or the objectives of the planner. Also, quite important is the fact that each aggregate task listed includes a considerable number of tasks which must be identified, described and estimated, all in full detail when the full scale program for the project is developed.

Although all are related in the overall project, the 23 (A through W) tasks listed in Step I can be broken down into quite closely related or interdependent tasks to be performed. Far example, our cane sugar project can be divided into the following general groupings of activities:

Group I Install physical essentials of the sugar mill complex.

Group II Staff and man the sugar mill ccmplex in preparation for indus­trial operations.

Group III Provide industrial operating supplies for the sugar mill.

Group IV Establish the physical aspects of the sugar cane plantation canplex.

Group V Man and staff the plantation s.ystem for permanent agricultural operation.

Group VI Provide supplies for the agricultural operation.

-5-

After approval of budgets to initiate action, the aggregate tasks for accanplishment of each general group or activities can be set forth as follows:

Or oop I : In stall sugar mill.

Task B: Finalize plans and ccmtract far conastruction of Akara-Nanum roe.d.

Task Kt Construct Akara-Nanum road~

Task C: Finalize engineering far mill 1 s industrial canponents and contract for civil construction.

Task H: Order mill machinery and equipment for deli very to Akara.

Task L: Construct mill buildings and all other industrial civil construction at mill site.

Task P: Deliver industrial machinery and equipment to mill site.

!!!!J!: Install all industrial machinery, equipment and service facilities and make tests.

Task 1i: Startup mill and produce sugar far first time.

Group II: Staff and man the sugar mill ccmplex.

Task E: Recruit key q>erating and management personnel and mill labor and train where necessary.

Task N: Provide housing and canmunity living facilities for staff' and labor.

Graue III: Provide industrial operating supplies for the sugar mill canplex.

Task G: Order factory supplies such as tuel ail, lubricants, · chemicals, packaging materials, etc.

Task 0: Deliver and store factory supplies at mill site.

Group IV: Establish the sugar cane plantation canplex and produce cane.

Ta~s Finalize plans for plantations, surveying and acquiring land, constructing dam and irrigation systems and em­tract for all civil and land reclamatiorJ work.

~.1_: Construct plantation roads.

Task R: Clear land, build dam and irrigation systems and prepare land for cultivation.

Task U: Harvest first cane crop and deliver to mill.

-6-

Group V: Man and staff the plantation system for permanent operation.

Task F: ---Task T:

Group VI:

Task I:

Task S:

Select, relocate at the plantation and train agricul­tural workers and supervisors.

Provide self-help facilities to encourage construction of plantation housing and canmunity centers far workers and supervisors.

Provide agricultural supplies far plantation operation.

Order plantation auxiliaries such as fertilizers, lime, pesticides, etc.

Transport auxiliaries to appropriate plantation centers and store.

The identification and division of the various tasks to be .done, even in the general way illustrated here, is a major step toward giving manage­ment the tools for implementing a project. Possibly most important, it facilitates the specific identification of expertise needed for the various aggregate groups of activities and tasks. It is also a first step tONard the proper identification and correlation of individual tasks and their interrelationship with others in the aggregate activity groupings. ~

Developing the Network for Identification of the Critical Path.

With practice, the techniq~e of developing a network of a project's tasks is relatively simple if one adheres to the concept of designing the network so the.t the chronol~y of performing either specific or aggregate tasks is properly shown in relationship to tasks which must precede them or be carried out simultaneously.

vJhile it is not absolutely necessary, experience has shown that it is often simpler to lay out a network by doing it backwards fran the end or final objective of the project. In our cane ·sugar project, the final objective is aggregate Task W, "Startup mill and produce sugar". Several activities must immediately precede or be in process before this final task can be undertaken:

(a) Task M, installation of the factory providing power, water, etc., and making test runs;

(b) Task V, harvest first cane crop and transport to factory;

(c) Task O, deliver and store plant supplies at mill site;

(d) Task N, provide housing and facilities for key operating per­sonnel and labor.

-7-

This can be shown graphically thus:

Task 0

Transport and store factory supplies at mill site

Task N

Provide housing for key personnel and labor

Install & complete

Task M ~ factory & test equipment

Task V

Harvest first cane crop and deliver to mill

Fran this it is seen that Tasks N and l-1 have to be canpleted before the mill ca.n start u_p, but it is considered that Tasks 0 and V can proceed simultaneously with the startup of the mill so long as surr~cient supplies and cane are on hand to support the startup of operations.

Proceeding backwards fran this start, and locating in the network the tasks in each general group, I through VI, will result in the develop­ment of the network excerpted fran Mr. Fernando's paper and shown as Fig. 2.

Shown in Fig. 2 are dotted lines from 5 to 7, 5 to 8 and 5 to 9. These dotted lines demonstrate that while for purposes of developing the CPM net, Task K, the construction of the road fran Akara to Nanum, is part of the general task Group I, the construction of that road is also neces­sary for Tasks 0, N and P. Therefore, canpletion of Task K is said to be a "constraint11 upon initiation of 0, N and P.

Also, Fig. 2 shows that it is considered that Ta.sks E and D can pro­ceed simultaneously with A. This kind of netting or programming will de­pend on the specific circ~~stances of a project.

Determining the Critic~ Path of the Project

An essential part of programming a project is the estimation of time required to accanplish each task and aggreeate of tasks. "ulith the listing of aggregate tasks given in Step I (Preliminary Steps far Programming), the estimated time for completion of each task is given. These estimates of tim~ are sh~in on the CPM programming net with their corresponding tasks as in Figure ), which is identical to Figure 2 in the CPM net layout, anit­ting only the description of the tasks. For example, time required to carry out aggregate activity A (Finalize plans for roa.d fran Akara to Nanum) are shown to be three ( 3) months, directly below the letter A. Adding the times

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-8-

for each group of activities gives the total time far each series ar group:

Group I:

Group II:

Install physical essentials of sugar mill and supply all equipment for total canplex. Total time: LO months.

staff and man the sugar mill complex. Total time: 25 months.

Group III: Provide industrial supplies far sugar mill. Total time: 16 months.

Group IV: Establish physical aspects of cane plantation canplex. Total time: 30 months.

Group V: Man and staff the plantation complex for permanent operation. Total time: 24 months.

Group VI: Provide supplies for agricultural operation. Total time: 7 months.

Fran addition of estimated times for each group of activities, it is clear that Group I, requiring 40 months fran date 11 0'', is the series of tasks that determines the canpletion date of tm project. Therefore, by definition, this series of activities or tasks is the critical path, since any deviatim fran the total time estimated for the various tasks can change the canpletion date of the pr eject. Thus, also, each task in this series is also critical and requires special vigilance.

The second lcmgest series of estimated time requirements is Group IV, 30 months, for establishing the cane plantation canplex. It is possible in prQjects where there is little difference between the critical series of tasks and one or more other series of tasks that in implementation of the project changes in times required for given activities or tasks can change the critical path from one series of task~ to another. In our exam­ple, this appears improbable because of the 10 months difference in time required for Groups I and IV. However, it is entirely possible that through difficulties such as establishing the irrigation facilities a.r the produc­tion of cane in sufficient quantities to support industrial operation of the mill, that Group IV could became the critical series of tasks.

Obviously, too, other non-critical paths could became critical.if the tasks included in their respective series are not completed in sufficient time to avoid overrunning the target completion date of the critical path series of activities. This concept and its analysis leads to the develop­ment of analytical tables that are most useful project management tools.

-9-

Ana1ysis of Earliest and Latest Initiation and Canpletion Dates for Tasks

Symbols and their definitions canmonly used for CPM analysis are:

Symbol

Task or Event

Activ~_ ty

F

T

s

ES

t

ES + t

EF

LS

LF

FS

TS

•

=

=

Definition

Job to be done

time estimated to canplete a task

earliest finish time for a project or a part of a project being analysed.

target finish time for !!! tasks in a project ar a part of a project being analysed; T must be .?!.. F

starting time • 11 011 point in time or a specific date.

earliest start time for a given activity on a a speci­fic task.

estimated time to canplete a specific task

EF, earliest fin~ time for a specific task.

earliest finish time for a task.

= latest allaiable start time for a task = LF - t.

= latest allowable finiSh time.

= free slack (or free float) = time any given activity can expand without affecting adversely the activities that follow it; FS of a gi.ven task = ES of earliest successor event - EF of task being analysed.

= total slack = LS - ES or LF - EF; represents the maxi­mum time the start of an activity can be delayed be­yond its ES without changing the target canpletioo date, T, of the project.

Using the letters designating the various aggregate tasks or events for our sugar project and the estimated times in months estimated for com­pleting each of them, the following analysis can be made:

-10-

Starting Times Finish Times Aggregate Task "t" I!ftonths fran start) (Months fran Start) Slack

or Event (months) ~ LS EF !;! ~ FS

A

B

c

D

E

F

G

H

I

J

K

L

M

N

0

p

Q

R

s

T

u

v

3

4

6

6

12

12

4

12

4

6

6

12

9

12

3

3

3

12

3

12

6

3

6

0

3

3

0

0

0

3

3

3

6

7

13

25

13

13

15

13

12

12

12

24

30

.34

0

3

3

7

10

7

33

19

24

13

7

13

25

22

37

22

31

19

28

19

31

37

34

3

7

9

6

12

12

7

15

1

12

1.3

25

.34

25

15

18

16

24

15

24

30

33

40

.3

7

10

1.3

22

19

.37

22

28

19

13

25

.34

.34

40

25

31

31

31

31

31

40

40

0 0

0 0

0 3

1 0

10 1

1 0

30 6

16 0

21 5

1 0

0 0

1.3 0

25 0

9 9

24 25

7 9

18 14

1 0

16 9

7 0

7 0

1 7

0 0

-11-

Fran an analysis such as this a project manager not only can identi.f'y clearly all of the aggregate tasks, but he can also determine ha-1 much he can manipulate the non-critical tasks \vithout affecting subsequent tasks. There are a number of i.mportant reasons for having a clear idea of hat-1 this can be done among which are:

1. No task involving outlays of capital need be carried out or com­pleted until necessary: thus capital outlays need not be made and the expenses of capital incurred until justified.

2. Consultants, contractors, .canpany management and supervisory per­sonnel and labor can be mobilized and allocated to specific tasks as needed for meeting CPf~ schedules, thus avoiding costly idle manpower and lay of'fs.

J. Tasks along the critical ar ne8~ critical paths can be controlled and expedited so that avoidable delays are taken care of.

4. Procurement and allocation of funds for the project can be sche­duled so that they are car:ried out most efficiently for minimum cost.

A necessary analysis far most projects is determining the manner in l-lhich it can be executed most advantageously at the least cost or far the best financial advantage to the owners. For example, spending mare money to expedi. te tasks not on the critical path would be senseless. On the other hand, spending more money on tasks along the critical path might allow the sugar mill to be cQnpleted in 35 or 37 months rather than 1JJ months as sche­duled, and might give the enterprise very attractive revenues which would more than offset added capital costs -- if sugar cane is to be available at an earlier da. te than shown in the schedules.