OPERATION RESEARCH

MEANING AND CONCEPT

• Operations research (O.R.) is defined as the scientific process of transforming data
into insights to making better decisions.

• OR is used by organizations of all sizes, including businesses across all industry sectors,
government and other public sector bodies, charities, communities and even
individuals.

• OR is a discipline that attempts to aid managerial decision making by applying a

scientific approach to managerial problems that involve quantitative factors.

• OR is a scientific field on better decision-making by applying an analytical approach to

a variety of problems, including quantitative factors.

• Overall, OR is a discipline on the process of making better decision through the development and
the application of a wide range of problem-solving methods and Techniques.

Feature/ Nature
1. Creating a Model: OR first makes a model. A model is a logical representation of a
problem. It shows the relationships between the different variables in the problem. It
is just like a mathematical formula.

For e.g. Assets – Liabilities = Capital + Accumulated Reserves.

2. Shows Important Variables: OR shows the variables which are important for solving
the problem. Many of the variables are uncontrollable.

3. Symbolizes the Model: The OR model, its variables and goals are converted into
mathematical symbols. These symbols can be easily identified, and they can be used
for calculation.
4. Achieving the Goal: The main goal of OR is to select the best solution for solving the
problem.

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 5. Quantifying the Model: All variables in the OR model are quantified. That is, they are
converted into numbers. This is because only quantified data can be put into the
model to get results.

6. Using Mathematical Devices: Data is supplemented with mathematical devices to

narrow down the margin of error.

7. Use of Computer: The main focus is on decision-making and problem solving. For this
purpose, computers are widely used
8. Interdisciplinary: OR is interdisciplinary, because it uses techniques from economics,
mathematics, chemistry, physics, etc.

9. Highest Efficiency: The main aim of OR is to make decisions and solve problems. This
results in the highest possible efficiency.

Importance of OR: -
1. Better Systems: Often, an O.R. approach is initiated to analyze a particular problem of
decision making such as best location for factories, whether to open a new
warehouse, etc. It also helps in selecting economical means of transportation, jobs
sequencing, production scheduling, replacement of old machinery, etc.

2. Better Control: The management of large organizations recognize that it is a difficult

and costly affair to provide continuous executive supervision to every routine work.
An O.R. approach may provide the executive with an analytical and quantitative basis
to identify the problem area. The most frequently adopted applications in this
category deal with production scheduling and inventory replenishment.

3. Better Decisions: O.R. models help in improved decision making and reduce the risk of
making erroneous decisions. O.R. approach gives the executive an improved insight
into how he makes his decisions

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 4. Better Co-ordination: An operations-research-oriented planning model helps in
coordinating different divisions of a company

5. Enhanced productivity: - Operations research helps in improving the productivity of the

organizations. Operations controls provide significant information to the managers before
making an important decision. It helps in making small decisions for important decisions for
an organization. Many organizations make the use of simulation operations research
methods to enhance their productivity by applying different combinations.

6. Lower risks of failure: - Operations research lowers the chances of failure as with the
help of operations, and research managers get to know about all the alternative
solutions for a single problem. All risks associated with a solution are analyzed before
implementing it. As a result of which the risk of failure reduces unless something
unexpected event takes place.

7. Provide a Better Strategies –

● The core idea of Operation Research is to provide a better means of economics
in Business Operations
● This is done by better decision making, choosing right strategies etc.
● All this can be studied under operation research for any field of business

Limitations of OR
Research (OR) is an interdisciplinary of mathematical science
• Need personnel to have skills of statistics, and mathematics
• Most of managers are not well proficient in such activities
• They depend of OR specialist

2. There are instances of Coordination issues between OR Specialist and Business

Operation Teams or Managers
3. OR makes extensive use of computers
4. The most popular OR techniques like simulation, linear programming, data mining, game
theory and decision tree analysis are suffering from inbuilt flaws.
5. Operations research itself is very costly

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 • An Organization needs to invest a lot of money and effort into OR in order to make it
effects costly
• It is suitable to large companies
• May not be a viable option for small or midsize companies, as it is a costly affair
6. Need of OR Specialist(professional) to manage OR related tasks
7. It is only based on Quantifiable factors and expressed in terms of numbers and expressions
Only. It does not consider Human behavioral issues.
8.Sometimes, the results of OR show disconnection to real world business conditions
9.Most important it is time consuming

SCOPE OF OR

In agriculture
With the sudden increase of population and resulting shortage of food, every country is facing the
problem of

• Optimum allocation of land to a variety of crops as per the climatic conditions

• Optimum distribution of water from numerous resources like canal for irrigation
purposes

Hence there is a requirement of determining best policies under the given restrictions. Therefore, a
good quantity of work can be done in this direction.

In finance
In these recent times of economic crisis, it has become very essential for every government to do a
careful planning for the economic progress of the country. OR techniques can be productively applied

• To determine the profit plan for the company

• To maximize the per capita income with least amount of resources

• To decide on the best replacement policies, etc.

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In industry
If the industry manager makes his policies simply on the basis of his past experience and a day
approaches when he gets retirement, then a serious loss is encounter ahead of the industry. This
heavy loss can be right away compensated through appointing a young specialist of OR techniques in
business management. Thus, OR is helpful for the industry director in deciding optimum distribution
of several limited resources like men, machines, material, etc. to reach at the optimum decision.

In marketing
With the assistance of OR techniques a marketing administrator can decide upon

• Where to allocate the products for sale so that the total cost of transportation is set to
be minimum

• The minimum per unit sale price

• The size of the stock to come across with the future demand

• How to choose the best advertising media with respect to cost, time etc?

• How, when and what to buy at the minimum likely cost?

In personnel management
A personnel manager can utilize OR techniques

• To appoint the highly suitable person on minimum salary

• To know the best age of retirement for the employees

• To find out the number of persons appointed in full time basis when the
workload is seasonal

In production management

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A production manager can utilize OR techniques

• To calculate the number and size of the items to be produced

• In scheduling and sequencing the production machines

• In computing the optimum product mix

• To choose, locate and design the sites for the production plans

In L.I.C
OR approach is also applicable to facilitate the L.I.C offices to decide

• What should be the premium rates for a range of policies?

• How well the profits could be allocated in the cases of with profit policies?

Role of Operations Research in Decision-Making

The Operation Research may be considered as a tool which is employed to raise the efficiency of
management decisions. OR is the objective complement to the subjective feeling of the administrator
(decision maker). Scientific method of OR is used to comprehend and explain the phenomena of
operating system.

The benefits of OR study approach in business and management decision making may be categorize as
follows

Better control
The management of large concerns finds it much expensive to give continuous executive supervisions
over routine decisions. An OR approach directs the executives to dedicate their concentration to more
pressing matters. For instance, OR approach handles production scheduling and inventory control.

Better coordination

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Sometimes OR has been very helpful in preserving the law and order situation out of disorder. For
instance, an OR based planning model turns out to be a vehicle for coordinating marketing decisions
with the restrictions forced on manufacturing capabilities.

Better system
OR study is also initiated to examine a particular problem of decision making like setting up a new
warehouse. Later OR approach can be more developed into a system to be employed frequently. As a
result, the cost of undertaking the first application may get better profits.

Better decisions
OR models regularly give actions that do enhance an intuitive decision making. Sometimes a situation
may be so complex that the human mind can never expect to assimilate all the significant factors
without the aid of OR and computer analysis.

PHASES OF OR
The scientific method in O.R. study generally involves the following three phases:
1. Judgment Phase. This consists of: (i) Determination of the operation (ii) establishment
of the objectives and values related to the operation (iii) Determination of the suitable
measures of effectiveness and (iv) formulation of the problems relative to the
objectives.

2. Research Phase. This phase utilizes; (i) Operations and data collection for a better
understanding of the problems, (ii) Formulation of hypothesis and model, (iii)
observation and experimentation to test the hypothesis on the basis of additional
data, (iv) Analysis of the available information and verification of the
hypothesis using pre-established measures of effectiveness, and (v) predictions of
various results from the hypothesis (vi) generalization of the various results and
consideration of alternative methods.

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 3. Action Phase. It consists of making recommendations for the decision process by those
who first posed the problems for consideration or by anyone in a position to decide,
influencing the operation in which the problem occurred.

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 Game Theory
Meaning
• Game Theory is a body of knowledge which is concerned with the study of decision
making in situation where two or more rational opponents are involved under
condition of competition and conflicting interests.
• Game theory can be used to better understand and analyze existing situations wherever
there are limited resources, different decision options, different outcomes from
different choices, and the possibility of collaboration or competition between players.

Essential Features of Game Theory:

➢ There are Finite number of competitors
➢ There are Finite number of actions.
➢ Each player has Knowledge of alternatives.
➢ Each player makes a Choice.
➢ The play is associated with an Outcome known as Gain.
➢ The possible gain or loss of each player depend upon the Choice of opponent.

Terms used: -
➢ Game:
A competitive situation in which persons have conflicting objectives is called game.

➢ Player:
Each participant in the game is called Player.

➢ Fair Game:
When the value of Game is ZERO then it is called a Fair Game.

➢ Two Person Zero-sum game:

It is the situation which involves two persons or players and gains made by one person is
equal to the loss incurred by the other.

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 ➢ n-persons game:
A game involving n persons is called a n-person game.

➢ Pay offs
Outcome of a game playing is known as pay offs.

➢ Pay off matrix:

In a game, the gains or losses, resulting from different moves and counter moves, when
represented in the form of a matrix are known as pay off matrix.

➢ Maximin Criteria:
The maximizing player lists his minimum gains from each strategy and selects the
strategy which gives the maximum out of these minimum gains.

➢ Minmax Criteria:
The minimizing player lists his maximum loss from strategy and selects the strategy
which gives him the minimum loss out of these maximum losses.

➢ Value of Game:
The maximum guaranteed gain to the maximizing player if both the players uses their
best strategy.

➢ Saddle Point:
Saddle point is the equilibrium point in the theory of games. It is the smallest value in its
row and largest value in its column.

Steps to find out Saddle Point: -

❖ Select the minimum value of each row & put a circle O around it.
❖ Select the maximum value of each column and put square □ around it.
❖ The value with both circle and square is the saddle point.
➢ Strategy
Strategy is the pre-determined rule by which each player decides his course of action from list
available to him. It is course of action taken by one of the participants in a game.
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Types of Strategy:
Pure Strategy: If Player uses same strategy throughout the play of Game.
In pure strategy, the maximizing player arrives at his optimal strategy on the basis of maximin
criterion. The game is solved when maximin value equals minimax value.

Mixed Strategy:
In mixed strategy the player uses combination of available strategies with some fixed
probability distribution. In mixed strategy the opponent cannot be sure of the course of action
to be taken on any particular occasion.

NOTE:- Games with Mixed Strategies

All game problems where saddle point does not exist are taken as mixed strategy problems.

Following are the methods of Mixed strategies: -

➢ ODDS Method (2*2 game without saddle point)
➢ Dominance Method
➢ Sub Games Method
➢ Equal Gains Method
➢ Linear Programming method – Graphic solution
➢ Algebraic Method
➢ Linear Programming – Simplex Method
➢ Iterative Method

1. ODDS Method (For 2*2 game)

Possible only in case of games with 2*2 matrix. It should be ensured that sum of column odds
and row odds should be equal.

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 ✓ Method of finding out odds: -
Let take following matrix
Y
Y1 Y2
X X1 A1 A2
X2 B1 B2

STEP 1: Find out the difference in the value of cell a1 and value of cell a2 of row X1 and Put it
into the front of 2nd row i.e. X2.

LIKE THAT

Y
Y1 Y2
X X1 A1 A2
X2 B1 B2 A1-A2

STEP 2: Find out the difference in the value of cell B1 and B2 and Put it into the front of 1st row.
LIKE THAT

Y
Y1 Y2
X X1 A1 A2 B1-B2
X2 B1 B2 A1-A2

STEP 3: Now Find the difference in the cell a1 and b1 of column Y1 and Put it into the below of
Column Y2.

LIKE THAT

Y
Y1 Y2
X X1 A1 A2 B1-B2
X2 B1 B2 A1-A2
A1-B1

STEP 4: Find out the difference in the value of cell A2 and B2 and Put into the below of Column
Y1.
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LIKE THAT

Y
Y1 Y2
X X1 A1 A2 B1-B2
X2 B1 B2 A1-A2
A2-B2 A1-B1

STEP 5: Find the value of game with the help of following equation:

EXAMPLE:
Two players A and B have match coins. If the coins match then A wins 10 units of value. If the
coins do not match then B wins Rs 10. Determine the optimum strategies for the players and
also find value of game.

Solution:
B
A H T
H 10 -10
T -10 10

Saddle point not exist, use odds

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 B
A H T
H 10 -10 20
T -10 10 20
20 20

VALUE OF GAME: -
(10∗10)+(−10∗10)
= =0
20
STRATEGIES FOR
PLAYER A = PLAYER B =

1ST = ½ 1st = ½

2ND = ½ 2nd = ½

2. Dominance Method
The Principle of Dominance states that if the strategy of a player dominates over the other
strategy in all condition then the later strategy is ignored

Rules to be followed
✓ If all the elements of a row (say ith row) of a payoff matrix are less than or equal to (≤)
the corresponding each element of the other row (say jth row) then the player A will
never choose the ith strategy OR ith row is dominated by jth row. Then delete ith row.

B1 B2 B3 B4
A1 20 15 22 20
A2 18 15 20 15

ROW A2 is inferior row because all elements in it are (≤) to correspondence row A1. Hence A2
Row will be deleted.

✓ If all the element s of a column (say jth column) are greater than or equal to the
corresponding elements of any other column (say jth column) then ith column is
dominated by jth column. Then delete ith column.
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 B1 B2
A1 60 60
A2 65 62
A3 22 20
A4 36 35

Column B1 is inferior column because all elements in it are greater than or equal to
correspondence column B2. Hence B1 column will be deleted.

✓ A pure strategy of a player may also be dominated if it is inferior to some convex

combination of two or more pure strategies.

✓ By eliminating some of the dominated rows and columns, if the game is reduced to 2*2
form, it can be easily solved by odds method.

Sub – game Method

✓ A game where one of the players has two alternatives while the other player has more
than two alternatives.

✓ This method is used when there is no saddle point or it cannot be reduced by

dominance method.

✓ This method is suitable when the number of alternatives is limited say 4 or 5. In case of
large number of alternatives, the solution will be lengthy.

Procedure of Sub-Games Method

✓ Divide the m*2 or 2*n game matrix into as many 2*2 sub games as possible.

✓ Taking each game one by one and finding out the saddle point of each game (if exists)
and then that sub game has pure strategies.

✓ In case there is no saddle point, then that sub game should be solved by odds method.

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 ✓ Select the best sub game from the point of view of the players who has more than two
alternatives.

✓ The strategies for this selected sub game will hold good for both the players for the
whole game and the value of the so selected sub game will be the value of complete
game.

✓ Let us take an example:

Suppose we have 4 columns and 2 rows with 2 players like

1 2 3 4
1 20 15 22 20
2 18 15 20 15

It includes following sub games: (2*2 matrix)

1 and 2 2 and 3
1 and 3 2 and 4
1 and 4 3 and 4

After all 2*2 matrix, solve it by odd method.

4. Equal Gains Method Solution of 2*2 matrix without saddle

point.

• As players are rational in their approach, the selection of their combination of strategies
will be done in such a way that the net gain is not influenced by the selection of any
combination of strategy by the opponent.
• In this, players select each of the available strategies for certain proportion of the time
i.e., each player selects a strategy with some probability.
• This method is applicable only in case of square matrices.
• This method is not suitable when the rule of game is negative.
Example:
B1 B2 Player A have 2 options. Further let the
A1 probability of Player A1 = p and A2 = 1-P
a1b1 a1b2 p (PROBABILITY = 1 SO If A1 has P then A2
A2
a2b1 a2b2 1-p = 1-p). Similarly take B1 and B2 as q and
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1-q respectively. We can find expected
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gain of A if B uses 1 and 2 strategies by
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putting both equal. Similarly, with B.
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 q 1-q

Value of game = Substituting the value of p

or q in any one of player value A and B.

5. LPP – Graphic Method

Graphic method is applicable only to those games in which one of the players has two
strategies only (2*m or n*2 games).

The following are the steps involved in this method: -

• The game matrices of 2*m or n*2 is divided into 2*2 sub matrices.
• Next taking the probabilities of the two alternatives of the first player say A as p1 and
(1- p1) the net gain of A from the different alternative strategies of B is expressed with
equation.
• The boundaries of the two alternative strategies of the first player are shown by two
parallel line shown on the graph.
• The gain equation of different sub games is then plotted on the graph.

In case of maximizing player A, the point is identified where minimum expected gain is
maximized. This will be the highest point – out the inter section of the gain lines in the ‘Lower
Envelop’.
In case of minimizing player B, the point where maximum loss is minimized is justified. This
will be the lowest point at the intersection of the equations in the ‘Upper Envelop’.

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6. Algebraic Method
• Algebraic Method is used in the game of 3*3 matrix and game does not have any saddle
point.
• Another condition is that game cannot be reduced to 2*2 matrix by the principle of
dominance.

7. Linear Programming – Simplex Method

• It is sometimes difficult to solve a game problem in the m*n pay off matrix having
neither a saddle point nor any dominant row or column and m and n are more than 2.

• Simplex method of LPP is a general method for all types of game problems particularly
when all the players have 3 or more strategies.

Limitations of Game Theory

• There are Infinite number of strategies.
• Sometimes lack of Knowledge about strategy
• Sometimes there will Zero outcomes.
• There is always Risk & uncertainty.
• There are Finite number of competitors
• Certainty of Pay offs
• Sometimes players feel difficulties in understanding the Rules of game.

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1. WHAT IS TRANSPORTATION PROBLEM?
 Transportation problem is the special kind of LPP in which goods are transported from
set of sources to a set of destination subject to supply and demand of sources and
destinations respectively. Such that total cost on transportation be minimized.

 In other words, the transportation problem is a special type of linear programming

problem where the objective is to minimize the cost of distributing a product from a
number of sources or origins to a number of destinations.

 Because of its special structure, the usual simplex method is not suitable for solving
transportation problems. These problems require a special method of solution.

2. AIM OF TRANSPORTATION PROBLEM:

 To find out the optimum transportation schedule keeping in mind cost of
Transportation to be minimized.

 The origin of a transportation problem is the location from which shipments are
dispatched.

 The destination of a transportation problem is the location to which shipments are

transported.

 The unit transportation cost is the cost of transporting one unit of the consignment
from an origin to a destination

 Determination of a transportation plan of a single commodity from a number of

sources to a number of destinations, such that total cost of transportation id
minimized.
3. APPLICATIONS OF TRANSPORTATION PROBLEM
 It is used to compute transportation routes in such a way as to minimize
transportation cost for finding out locations of warehouses.

 It is used to find out locations of transportation corporations depots where

insignificant total cost difference may not matter.

 Minimize shipping costs from factories to warehouses (or from warehouses to retail
outlets).

 Determine lowest cost location for new factory, warehouse, office, or another outlet
facility.

 Find minimum cost production schedule that satisfies firms demand and production
limitations.
 Network Analysis in Project Planning
Project analysis is a technique of planning, scheduling and controlling the projects by drawing a
network diagram of different activities to be performed for completing the job.

CPM – Critical PERT- Project

path method evaluation
review technique

CPM is that technique of project PERT is that technique of project

management which is used to manage management which is used to manage
only certain (i.e., time is known) uncertain (i.e., time is not known)
activities of any project activities of any project.

Basic Phases in the CPM/PERT

Techniques
Step-1: Planning-
It is started by splitting the total project into small projects. The smaller projects are further
divided into different activities and are analyzed by a department or section. The relationship of
each activity with respect to other activities are defined and established.

Step-2: Scheduling-
The objective of scheduling is to give the earliest and the latest allowable start a nd finish time
of each activity as well as its relationship with other activities in the project. The schedule must
pinpoint the critical path i.e. time activities which require special attention if the project is to be
completed in time.

Step-3: Allocation of resources-

Allocation of resources is performed to achieve the desired objective. Resource is a physical
variable such as labour, finance, space, equipment etc. which will impose a limitation for
completion of a project.
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Video Explanation: - https://youtu.be/zADj0k0waFY
PERT vs CPM: - https://youtu.be/XenvrvTouWs
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Step-4: Controlling-
The final phase in the project management is controlling. After making the network plan and
identification of the Critical path, the project is controlled by checking progress against the
schedule, assigning and scheduling manpower and equipment and analyzing the effects of
delays. This is done by progress report from time to time and updating the network
continuously. Arrow diagram and time charts are used for making periodic progress reports.

Basic terminologies
1. Activity: - It is defined as any portion of the project which requires any expenditure of time
and resources for their accomplishment. Any activity in the network analysis represented by an
arrow. It lies between two events: -

• Tail (Proceeding)
• Head (Succeeding)

Tail Head

Here A is the activity.

Activities are of 4 types.

• Predecessor Activity: - Activities that must be completed immediately prior to start of

another activity.
• Successor Activity: - Activities that follow another activity.
A B

A is the predecessor activity of B. and B is the successor activity of A.

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 • Concurrent Activity: - Activities that are accomplished simultaneously.
• Dummy Activity: - Activities that neither consume any time nor consume any resources
but simply creates a link between the events.

2. Event: - An event is a specific point in time indicate the beginning and end of one or more
activities.

In figure 1, Head and tail are the events of the activities.

• Merge event: - Represent joint completion of more than one activity.
• Burst event: - Represent the joint starting of more than one activity.
• Merge and Burst Event: - When more than one activity join and leave an event
simultaneously.

3. Looping: - It is the error in Network construction. Drawing an endless loop in a network

diagram is known as error of looping.

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4. Dangling: - It is also an error in network construction. Whenever an activity is disconnected
from network, it is called dangling error.

5. Redundancy: -It is also an error in network construction. When Dummy activity introduced
but not required.

Rules for network construction: -

Rules for constructing network

For the construction of a network, generally, the following rules are followed:

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(i) Each activity is represented by one and only one arrow. (i.e.) only one activity can connect
any two nodes.

(ii) No two activities can be identified by the same head and tail events.

(iii) The flow of diagram should be from left to right.

(iv) Arrows should not cross each other.

(v) Arrows should be kept straight and not curved or bent.

(vi) Each activity must start from and terminate in an event.

(vii) An event cannot occur twice, there must be no loops.

(viii) Angle between arrows should be as large as possible.

METHODS IN DEATIL: -
1. PERT: - Project evaluation and Review Techniques:
PERT is appropriate technique which is used for the projects where the time required or
needed to complete different activities are not known. PERT is majorly applied for scheduling,
organization and integration of different tasks within a project. It provides the blueprint of
project and is efficient technique for project evaluation.
2. CPM: - Critical Path Method: -
CPM is a technique which is used for the projects where the time needed for completion of
project is already known. It is majorly used for determining the approximate time within which
a project can be completed. Critical path is the largest path in project management which
always provide minimum time taken for completion of project.

Difference between PERT and CPM:

S.No. PERT CPM

PERT is that technique of project CPM is that technique of project

management which is used to manage management which is used to manage
uncertain (i.e., time is not known) only certain (i.e., time is known)
1. activities of any project. activities of any project.

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 S.No. PERT CPM

It is activity-oriented technique
which means that network is
It is event-oriented technique constructed on the basis of
which means that network is activities.
2. constructed on the basis of event.

It majorly focuses on time as

meeting time target or estimation It majorly focuses on Time-cost
of percent completion is more trade off as minimizing cost is
3 important. more important.

It is appropriate for high precision It is appropriate for reasonable

4 time estimation. time estimation.

5 It has Non-repetitive nature of job. It has repetitive nature of job.

There is no chance of crashing as There may be crashing because of

6 there is no certainty of time. certain time boundations.

It doesn’t use any dummy It uses dummy activities for

7. activities. representing sequence of activities

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Video Explanation: - https://youtu.be/zADj0k0waFY
PERT vs CPM: - https://youtu.be/XenvrvTouWs
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