Most realistic projects that organizations like Microsoft, General Motors, or the U.S. Defense Department undertake are large and complex. A builder putting up an office building, for example, must complete thousands of activities costing millions of dollars. NASA must inspect countless components before it launches a rocket. The Bath Iron Works shipyard on the Kennebec River in Bath, Maine, must manage and coordinate thousands of complex activities simultaneously. Almost every industry worries about how to manage similar large-scale, complicated projects effectively. It is a difficult problem, and the stakes are high. Millions of dollars have been wasted through cost overruns due to poor project planning. Unnecessary delays have occurred due to poor scheduling. How can such problems be solved?

The first step in planning and scheduling a project is to develop the work breakdown structure (WBS). This involves identifying the activities that must be performed in the project. An activity is a job or task that is a part of a project. The beginning or end of an activity is called an event. There may be varying levels of detail, and each activity may be broken into its most basic components. The time, cost, resource requirements, predecessors, and person(s) responsible are identified for each activity. When this has been done, a schedule for the project can be developed.

The program evaluation and review technique (PERT) and the critical path method (CPM) are two popular quantitative analysis techniques that help managers plan, schedule, monitor, and control large and complex projects. They were developed because there was a critical need for a better way to manage (see the History box).

When they were first developed, PERT and CPM were similar in their basic approach, but they differed in the way activity times were estimated. For every PERT activity, three time estimates are combined to determine the expected activity completion time. Thus, PERT is a probabilistic technique. On the other hand, CPM is a deterministic method, since it is assumed that the times are known with certainty. While these differences are still noted, the two techniques are so similar that the term PERT/CPM is often used to describe the overall approach. This reference is used in this chapter, and differences are noted where appropriate.

There are six steps common to both PERT and CPM. The procedure follows: