Decision making CPA Flashcards
What is critical path analysis
It is a technique used to identify the order in which activities need to be completed.
What is the number on the left of a node?
The number node which is the order it is drawn in.
What is the number on the top right?
The earliest start time.
What is the number in the bottom right?
The latest finish time.
What number does node 1 always start on?
0
0
What does each line represent?
An activity
And how long it takes
How are earliest start time calculated?
It is done from left to right by adding the duration to the previous EST.
What happens when there are 2 activities going to one node when calculating EST?
You put the highest number you get
How are latest finish time calculated?
It is calculated by subtracting from right to left
What happens when there 2 activites going to one node when calculating LFT?
You subtract and see which is the lowest and you put that
What will the final node look like?
The numbers will be the same
How do you identify the critical path?
The nodes with the same numbers up and down.
What does it mean when there is a critical path?
These activities need to be done or the whole thing will be delayed
How do you show which path is the critical one?
You put a line through it.
Which are the non critical nodes?
The nodes which don’t have the same top and bottom number.
What does it mean when there are non critical nodes?
It means there is leeway (spare time) to complete these tasks.
Known as float time
How to calcualte float time?
LFT - duration - EST
What are the advantages of CPA?
Identifies the critical activities
Shortens the overall time of the project
Allows for Just In Time
Greater productive efficiency
What are the disadvantages of CPA?
Is only the starting point for a successful project
Can not stop unexpected delays
Does not take into account of external influences
What is Cost Benefit Analysis? (CBA)
It is a technique used by firms to see whether the benefits of a project over weigh the costs
How can the CBA be categorised?
Internal - The private costs and benefits to the firm itself
External - The costs and benefits to the society (others)
What are the principles of CBA?
All costs and benefits have a monetary value
Probability theory is used to asses the risk of a project
What is discounting?
It calculates the total return on the investment taking into account the time value of money.
What is shadow pricing?
It occurs when the cost of a project are estimated when the actual market price is unknown
What are the benefits of CBA?
Putting a monetary value on project is EASY TO UNDERSTAND
Allows the assessment of externalities that might be created by a project
Taking into account the needs of society that private costs of a firm
What are the limitations of CBA?
The cost of undertaking the analysis
The monetary values for external costs and benefits are estimates and will become less accurate in the future
