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smu mba solved assignments of mb0049 Q1. Describe the CPM model. Briefly explain.

CPM Model:
A. Assumptions
1. The costs associated with a project can be divided into two components: direct costs and indirect costs. Direct costs are incurred on direct material and direct labour. Indirect costs consist of overhead items like indirect supplies, rent, insurance, managerial services, etc.
2. Activities of the project can be expedited by crashing which involves employing more
3. Crashing reduces time but enhances direct costs because of factors like overtime payments, extra payments, and wastage.
4. Indirect costs associated with the project increase linearly with project duration.
B. Procedure
Given the above assumptions, CPM analysis seeks to examine the consequences of crashing on total cost (direct cost plus indirect cost). Since the behaviour of indirect project cost is well defined, the bulk of CPM analysis is concerned with the relationship between total direct cost and project duration. The procedure used in this respect is generally as follows:
Step 1: Obtain the critical path in the normal network. Determine the project duration and direct cost.
Step 2: Examine the cost time slope of activities on the critical path obtained and crash the activity which has the least slope.
Step 3: Construct the new critical path after crashing as per step 2. Determine project duration and cost.
Step 4: Repeat steps 2 and 3 till activities on the critical path (which may change every time) are crashed.
C. Objectives
1)    CPM is principally concerned with the matter involving cost and time.
2)    Its application is mainly to projects that use a fairly stable technology and are quite risk free.
Its orientation is 'deterministic'.


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