PERT and CPM

PERT and CPM
Project management can be understood as a systematic way of planning,

scheduling, executing, monitoring, controlling the different aspects of the
project, so as to attain the goal made at the time of project formulation. PERT
and CPM are the two network based project management techniques, which
exhibit the flow and sequence of the activities and events. Program (Project)
Management and Review Technique (PERT) is appropriate for the projects where
time needed to complete different activities are not known.
On the other hand, Critical Path Method or CPM, is apt for the projects which
are recurring in nature.
The two scheduling methods, uses common approach for designing the
network and for ascertaing its critical path. They are used in the successful
completion of a project and hence used in conjunction with each other.
Nevertheless, the truth is that CPM is different from PERT in a way that the
former concentrates on time while the latter stresses on time-cost trade-off.
Definition of PERT
PERT is an acronym for Program (Project) Evaluation and Review Technique,

in which planning, scheduling, organising, coordinating and controlling of
uncertain activities take place. The technique studies and represents the tasks
undertaken to complete a project, to identify the least time for completing a
task and the minimum time required to complete the whole project. It was
developed in the late 1950s. It is aimed to reduce the time and cost of the
project.
PERT uses time as a variable which represents the planned resource

application along with performance specification. In this technique, first of all,
the project is divided into activities and events. After that proper sequence is
ascertained, and a network is constructed. After that time needed in each
activity is calculated and the critical path (longest path connecting all the
events) is determined.
Definition of CPM
Developed in the late 1950’s, Critical Path Method or CPM is an algorithm

used for planning, scheduling, coordination and control of activities in
a project. Here, it is assumed that the activity duration are fixed and certain.
CPM is used to compute the earliest and latest possible start time for
each activity.
The process differentiates the critical and non-critical activities to reduce the
time and avoid the queue generation in the process. The reason behind the
identification of critical activities is that, if any activity is delayed, it will cause
the whole process to suffer. That is why it is named as Critical Path Method.
In this method, first of all, a list is prepared consisting of all the activities
needed to complete a project, followed by the computation of time required to
complete each activity. After that, the dependency between the activities is
determined. Here, ‘path’ is defined as a sequence of activities in a network.
The critical path is the path with the highest length.
Key Differences Between PERT and CPM
The most important differences between PERT and CPM are provided below:
1. PERT is a project management technique, whereby planning, scheduling,

organising, coordinating and controlling of uncertain activities is done. CPM is
a statistical technique of project management in which planning, scheduling,
organising, coordination and control of well-defined activities takes place.
2. PERT is a technique of planning and control of time. Unlike CPM, which is a
method to control costs and time.
3. While PERT is evolved as research and development project, CPM evolved as
construction project.
4. PERT is set according to events while CPM is aligned towards activities.
5. A deterministic model is used in CPM. Conversely, PERT uses probabilistic
model.
6. There are three times estimates in PERT i.e. optimistic time (to), most likely
time ™, pessimistic time (tp). On the other hand, there is only one estimate in
CPM.
7. PERT technique is best suited for a high precision time estimate, whereas
CPM is appropriate for a reasonable time estimate.
8. PERT deals with unpredictable activities, but CPM deals with predictable
activities.
9. PERT is used where the nature of the job is non-repetitive. In contrast to, CPM
involves the job of repetitive nature.
10.There is a demarcation between critical and non-critical activities in CPM,
which is not in the case of PERT.
11. PERT is best for research and development projects, but CPM is for non-
research projects like construction projects.
12. Crashing is a compression technique applied to CPM, to shorten the project
duration, along with least additional cost. The crashing concept is not
applicable to PERT.
What Is Capital Expenditure?
When businesses purchase physical items that enhance or maintain their

performance, but are not regular everyday expenses, this expense falls under the
category of a capital expenditure. It is also known as capital expense, or CAPEX.
Capital expenditures do one of two things: they either help to upgrade the existing
business, or they promote growth, such as the purchase of a new business.
Balance Sheet and Fixed Assets
You can find information about a business' capital expenditure on its balance sheet.
Typically, it will be shown in the section labeled fixed assets, or sometimes long-term
assets, or non-current assets. A fixed asset is an accounting term that refers to a
physical asset that cannot readily be converted to cash. This would include things
like office furniture, property, or equipment.
Let's say you bought a house that cost $250,000. Most people would not pay for it all
at once. The cost of it would be spread out over a specific period of time. Businesses
do the same thing with capital expenditures. In accounting, this is
called capitalization. What this means is that the cost of the physical asset is
spread out over its useful life. The balance sheet also shows the
asset's depreciation. This may be defined as a decrease in the asset's value over
time.
How do you calculate capital expenditures?
The steps are:

1. Obtain the financial statements of the target company as of the end of the year for
the past two years. ...
2. Subtract the net amount of fixed assets listed on the financial statements for the
preceding year from the net amount of fixed assets listed for the year just ended.
To calculate capital expenditures, follow these steps:
1. Locate Depreciation and amortization on the income statement

2. Locate the current period Property, Plant & Equipment (PP&E) on
the balance sheet
3. Locate the prior period PP&E on the same balance sheet
4. Use the formula below to arrive at CapEx
CapEx Formula
The CapEx formula from the income statement and balance sheet is:
CapEx = PP&E (current) – PP&E (prior) + Depreciation

This formula is derived from the logic that current period PP&E on the
balance sheet is equal to prior period PP&E plus capital expenditures less
depreciation.

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PERT and CPM

Project management can be understood as a systematic way of planning,

PERT is an acronym for Program (Project) Evaluation and Review Technique,

PERT uses time as a variable which represents the planned resource

Developed in the late 1950’s, Critical Path Method or CPM is an algorithm

Key Differences Between PERT and CPM

1. PERT is a project management technique, whereby planning, scheduling,

What Is Capital Expenditure?

When businesses purchase physical items that enhance or maintain their

How do you calculate capital expenditures?

The steps are:

To calculate capital expenditures, follow these steps:

1. Locate Depreciation and amortization on the income statement

CapEx = PP&E (current) – PP&E (prior) + Depreciation

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