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Financial Modeling with Crystal Ball and Excel, + Website, 2nd Edition by John Charnes

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CHAPTER 15

Construction Project Management

The program evaluation and review technique (PERT) and the critical path method (CPM) are both used widely for scheduling construction activities and project management. One drawback of CPM is its use of deterministic costs and activity times. Every project carries known and unknown risks that result in stochastic (probabilistic) activity times and costs. These risks are not explicitly considered in CPM, but can have a dramatic effect on the overall project cost and duration.

Also, every project involves weighing the available choices of construction methods for each activity, which has a direct impact on activity cost and duration. The best construction method for any single activity usually depends on its interaction with other activities included in the project. Neither PERT nor CPM were designed to weigh the time-cost tradeoffs associated with choosing construction alternatives while confining the project schedule to a specified duration, and minimizing cost.

This chapter describes how project managers can use Crystal Ball and OptQuest to make the tradeoff between time and cost for each activity’s construction methods, given the known risks associated with each activity and method. We assess these risks and build a stochastic scheduling model to account for them. Then we determine the best construction method for each activity. Given the choices of construction methods, the model provides probabilistic estimates of project duration ...

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