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Time-Cost Trade-Off analysis
6.1. Introduction It is common for people to want to shorten project duration. It may be the project is behind schedule or the scheduled project deadline has been moved forward. By knowing the critical path, the project manager and his or her team can use several duration compression techniques to shorten the project schedule. Crashing is a technique for making cost and schedule time trade-offs to obtain the greatest amount of time compression for the least incremental cost. This technique is also known as time cost tradeoffs. Crashing is a process for reducing the duration of critical path activities by allocating more resources to those activities or by changing their scope. In this case some (or all) of the activities can be speeded up (crashed) by increasing the amount of money spent on them. If the minimum time for an activity is used, the activity is said to be totally crashed. If somewhere between the normal time and minimum time is used then the activity is said to be partially crashed. If the relationship between the time spent on an activity and its cost is linear then the problem as to which activities to partially crash, totally crash or not crash at all can be formulated as one in linear programming. The objective is to minimise the total cost of completing the project by the specified date. Of course, if the desired finish date is too short, the problem may be infeasible. CPM was initially set up to address the time cost trade-off dilemma often presented to project managers, where there is a complex relationship between project time-to-complete and cost-tocomplete.
Estimating Cost and Duration
Consider the following: • Rent increases with time. • Running costs – water, electricity and gas would increase with time. • If the project’s duration is reduced, employee labour rate will increase if the workers have to work overtime. • Contract labour on a fixed rate is not affected by time, but their productivity may reduce if they work long hours. • Fixed price contracts may not be affected by time. If you shorten the duration of a project, some costs will reduce (plant hire), while others will increase (overtime). On large complex projects you need a model like CPM to work out the overall effect of these types of changes. Accountants, for various reasons, classify costs in two general categories: direst cost also known as variable cost, and indirect cost, sometimes referred to as fixed cost. DIRECT COSTS • Some of the examples of Direct Costs are materials, equipment, labour wages, overtime premium, subcontractors, freight, sales tax.
Assume that things will go as planned. at one level or another). • They are fixed periodic costs. Normal Duration. • They generally decrease as the duration of a project is shortened. The other time is the crash time. That is the plan you would come up with if you were going to bid against competitors for the same project or resources (and indeed most projects are competing. Make an estimate of how long the most cost-efficient method will take to complete. overheads. interest charges. supervision. are notoriously optimistic when estimating time. there is a certain probability that. contractual penalties. Normal Cost Determine the most cost-effective plan for the project. • They generally increase as the duration of a project is shortened. The first is the normal time that we used in our scheduling so far. start-up. Engineers. (determine which method will allow you to complete any given activity while spending the least amount of money) 2. while your software developers are writing programs. We should always follow three simple steps. If pouring would take 10 days without interruption. the network will go down at some point. Usually we can shorten an activity’s duration by adding more resources hence the crash cost is higher than the normal cost. goodwill. 3. Associated with each time are the normal coast and the crash cost respectively. security.2 • They vary directly with your volume of output. Likewise. Determine the most cost-effective technical approach. especially those without a lot of experience. then adjust it to 12 days. which is the shortest time required to complete an activity. clerical costs. (this is meant to give you an advantage if you are “bidding” for the work. The Critical Path Method is a deterministic scheduling technique in which each activity has two sets of times. At this stage. You must be careful not to underestimate durations. such as bad weather or sick leave. you are anticipating common problems. Selectively adjust your estimate for any activity that is subject to common problems. but they .” Ignore any external special conditions at this point. (If you know that while pouring concrete you have a 20% chance of rain. you then adjust the duration of the pour accordingly. 1. and will often think “effort” rather than “duration. These are occurrences that do not necessarily require additional resources. INDIRECT COSTS • Some of the examples of indirect costs are insurance. marketing.
while maintaining quality requirements. bigger machines.. Table 1: Duration and Cost for “erecting the movable partitions and their attachments” Number of Personnel assigned 2 3 4 5 6 7 8 Duration (hours) 25 14 10 9 8 8 8 Direct Cost (person-hours) .. Be sure to adjust only those activities subject to common problems. Examples are • • • • • using overtime doubling up resources. Table 1 below shows the resulting durations and costs in man-hours. Now in terms of normal duration. air freight. Leave all the other estimates alone.3 will add to the duration of the activity. more men on the job! lot splitting subcontracting portions using faster resources. activity crashing is the compression of activity duration beyond the most efficient combination of resources (normal duration). EXAMPLE 1 Consider the following situation in a project of relocating an office complex. Costs of Crashing Activities: • • • • • • overtime premium subcontractor's profit coordination effort multiple setups more expensive resources other. It was found that the duration for erecting the movable partitions and their attachments varied as the number of workers assigned was increased from 2 to 8 workers.
The high school kid next door will do it in a five days for $50. which increases the chance of failure. or you can hire a ditch-witch for $160 and do it in an afternoon. further crashing of activities adds to their total cost (overtime. This technique can also be used for project acceleration where you need to know the trade-off between the cost of accelerating a project to meet certain milestones compared with the penalties of failing to achieve them. Crashing activities also adds to your team’s stress level. special shipping. The indirect costs associated with keeping the lawn torn up is $10 per day. (a) Find the normal cost and the normal duration. When having to crash activities to meet an external deadline. EXAMPLE 2 Suppose you wish to have a ditch dug in your backyard. which may defeat the reason you got the bid in the first place: cost. (d) Is the new total cost in part (c) an acceptable alternative? .4 OPTIMUM DURATION Figure 1: Total cost curve as a function of direct and indirect costs Cost ($) Duration of the project Unless planned at the Optimum Duration level. Simulating all the costs will give you the overall effect of time changes on project costs. (b) Find the fully crashed point (c) If the kid next door would take a $20 bonus to finish in 3 days determine the new total cost for hiring him. it is an opportunity to reach for the Optimum Duration and actually reduce total cost as you reduce duration. etc).
and fast tracking. Each activity has two pairs of duration and cost estimates: normal and crash. Schedule Compression Two main last resort techniques are known as crashing. What else can be done to shorten the critical path? • See if some activities might be further broken down to allow fast-tracking. Simulation is the process of calculating project and activity durations using different assumptions. Maybe some activities do not have to be completely finished before a successor activity can be started.3. and resource allocations. Fast tracking involves doing project tasks at the same time rather than in sequence. The normal time is the estimated length of time required to perform the activity under normal conditions. such as what if a major component for a system is delayed. which can also be beneficial. What-if-analysis take advantage of logic networks by simulating various scenarios. 6. which looks at cost-schedule trade-offs.4. Breaking down the critical activities to a more detailed breakdown might adjust the durations upward. Two commonly used types of simulation are Monte Carlo simulation and what-if analyses. The normal cost is the estimated . Monte Carlo simulations are probabilistic analyses used to calculate a distribution of likely results (in our case likely project or task durations). that the task dependencies allow such parallel work. If dependencies between activities originally did not allow fast-tracking. which helps to shorten the overall project schedule. it can save you from any surprises during the execution of the project. • Check the duration estimates of the critical activities – in Microsoft Project a simple double click on the task duration will open a Task Information dialog box. Although this does not help to shorten the critical path. An additional tool for project schedule development is simulation. Performing Time-Cost Trade-Off It is based on the following assumptions: 1. which looks at the possibility of performing activities in parallel that would normally be done in sequence. [(a + 4m +b)/6] and under the assumption of resource loadings that are normal. Fast tracking requires. Both these techniques allow additional insight into the duration of projects and project activities.5 6. by necessity. Thinking creatively about the different activities on the critical path can help to possibly take them off the critical path. constraints. duration estimates are based on rules of thumb or include fudge factors. breaking up these activities might open new possibilities to accomplish tasks in parallel. Often. according to the plan (In PERT it is the expected time estimated using the three time used.
$45. using more equipment.000 2 B: N = 9. reduce the project duration as much as possible. $) Crash estimate (weeks.000 C = 6.000 D: N=8. $40. Within the range between an activity’s normal and crash points. Increased costs will be associated with expediting the activity. EXAMPLE 3 Consider the simple project in Figure 2 and answer the following questions. The crash cost is the estimated cost to complete the activity in the crash time. (b) What is the total project cost? 3 (c) How long would the project take if all the activities were performed in their minimum possible time (crash time)? What would be the total cost? (d) Calculate the cost-per-week rate to accelerate for each activity. 3. 2. and so on. activity A cannot be completed in less than 5 weeks.000 4 (a) Find the critical path. no matter how many more resources are used or how much money is spent. $30. What is the new total cost? . if the relationship between time and cost is linear this acceleration cost per time period is calculated as shown in lecture handout 1: (Such a linearity assumption enables us to use linear programming to determine just which activities should be crashed and by how much. $62. $50. An activity’s duration can be incrementally accelerated from its normal time to its crash time by applying more resources – assigning more people. An activity cannot be completed in less than its crash time.000 C = 5. working overtime. The resource necessary to reduce an activity’s estimated duration from its normal time to its crash time will be available when needed. Each activity has its own cost per time period for accelerating the activity’s duration from its normal time to its crash time. $) A:N = 7. no matter how many additional resources are applied. Figure 2: Network with Normal and Crash Times and Their Costs Activity: Normal estimate (weeks.000 C = 9.000 1 C: N = 10. For example.6 cost to complete the activity in the normal time. 5.000 C = 6. $42. 4. $110. $80. (e) Using the time-cost trade-off method.
4. we were able to reduce the project duration from 18 weeks to 15 weeks at an additional cost of $23. When an activity requires high skills to complete. Crashing all the activities would have resulted in a waste of $36.000. When an activity is low skill labour intensive. If you fail in crashing the activity and it takes longer than planned.000 6.000 because no reduction in total project duration beyond 15 weeks could be achieved.000. 3. but it would still not be completed any earlier than 15 weeks.000 211. is it necessary to perform all the activities in their minimum possible time (crash time)? Why or why not? If all four activities were crashed.5. It indicates that reducing the total project duration by 1 week would increase the total project cost by $5. and they should be readily available. Labour-intensive.7 Table 2 displays the incremental acceleration in total project completion and the associated incremental increase in total project cost.000 (f) Compare this new total cost as a result of Time-Cost Trade-Off to the total crash cost determined in (c)? If the new project deadline is 15 weeks. 1. Crashing noncritical activities that already have slack only buys more slack and doesn’t shorten the project duration.000 by selectively crashing the critical activities with the lowest acceleration cost per time period. Lower cost per period gained. Early in the project (the Sunshine Rule). it is easy to add people to help complete the project early. 5. Once this activity is shortened. AB (16) CD. Activities that cost less to crash are preferred. 2.000 6.000 223. it may be hard to find qualified individuals who are capable of completing the task. These include those requiring lower paid. 6.000 $200. . Must be on the Critical Path. it allows the multiple activities to begin. Thus you still have recovery time.000 6. the total cost of the project would be $259. typically demand on resources early in the project is lower than other times. An activity that has a long duration offers more potential time gain from crashing it.000. 6. Long duration. Precedes multiple activities. To reduce it by 2 weeks would cost $11. Also.000. it is still early in the project. Table 2: Time-Cost Trade-Off Step 1 2 3 4 CD (18 weeks) CP (weeks) CD (18) CD (17) CD. Only critical path activities drive the project and crashing them will shorten the project duration. Criteria for Selecting Activities to Crash There are several characteristics that mark or highlight an activity that exists on the Critical Path as a better candidate for crashing. and to reduce it by 3 weeks would cost $23. it is a great candidate to shorten. Using the time-cost trade-off method. lower skilled workers or other resources that are otherwise sitting idle. When an activity bottlenecks numerous succeeding activities. AB (15) Activities to Crash (1 week) C (C now is at minimum time) D (only activity to crash) D (D now at minimum time) A C and D at its fully crashed time Extra Cost ($) 5.000 Total Cost($) 205.
Subject to common problems Try to pick activities that are subject to higher probability of common problems. 3 5. (c) Find the total extra cost required to accelerate all activities from all normal (part (a)) to all crash (part (b)).6. (d) Find the least cost plan for the all-crash time schedule. (e) Perform crashing of activities to reduce the project duration to its possible minimum. 2 4 6. 5 5. Crash time 2 10. The cost is $31.8 7. Start from the all crash problem in part (b). 1 6. (b) Find the all crash schedule and cost. Shortening the duration lowers the exposure time and lessens the chances of having a problem. 6. 2 6 11. 4 5 4.000. 1 7 The Critical path is 1-2-4-6-7 and the minimum duration for the project is 31 weeks. The Least Cost Plan for the all crash time schedule EXAMPLE 4 The following data were obtained from a study of the times required to thoroughly examine a chemical plant: Activity 1-2 1-3 2-4 3-4 2-6 4-6 4-5 6-7 5-7 Crash Schedule Time (weeks) Cost ($000) 3 6 1 5 5 7 2 6 2 5 5 9 4 6 1 4 1 5 Normal Schedule Time (weeks) Cost ($000) 5 4 5 3 10 4 7 4 6 3 11 6 6 3 5 2 4 2 (a) Find the all-normal schedule and cost. (f) Does the result from part (e) agree with your result in part (d)? . 1 3 7. 5 1 5. Code: Normal time.
65 60. 60 - . 50. but shortening the project duration can save money. 45. 3rd day) 30. 60 35. 70 40. Activity 1-2 2-3 1-3 2-4 3-4 Normal Time 7 9 12 11 3 Crash Time 4 6 10 9 3 Cost Increase ($) (1st.9 Path Normal duration (wks) Fully crashed duration (wks) Activity Acceleration cost per week ($) Max weeks to crash 12467 path (weeks) Crashing cost Expansion Saving ($) $53. 2nd.000 New total cost ($) EXAMPLE 5 (NON LINEAR ACCEERATION COST) The network for shooting a TV commercial as shown in the table has a fixed cost of $90 per day. Find the least cost schedule.
560 70 – 90 = -20 1.10 2 7.540 45+35+60-90=50 1. 3 Table 3: Time-Cost Trade-Off for Shooting a TV Commercial 1-2-3-4 (19 days) Step CP (days) 1 1-2-3-4 (19) 1-2-4 (18) 1-3-4 (15) 2 1-2-3-4 (18) 1-2-4 (17) 1-3-4 (15) 3 1-2-3-4 (17) 1-2-4 (17) 1-3-4 (15) 4 1-2-3-4 (16) 1-2-4 (16) 1-3-4 (15) 5 1-2-3-4 (15) 1-2-4 (15) 1-3-4 (15) 6 1-2-3-4 (14) 1-2-4 (14) 1-3-4 (14) 1-2-3-4 (13) 1-2-4 (13) 1-3-4 (13) Activities to crash by 1 day 1-2 (30) Cost Change($) 30 – 90 = -60 $1. 6 1 1 1.600 1-2 (50) 2-3 (45).710 Total Cost($) 1. 4 9.650 2-3 (40) 40 – 90 = -50 1. 10 1-2-4: 18 days 1-2-3-4: 19 days 1-3-4: 15 days Critical path is 1-2-3-4 and the duration is 19days.685 . 9 4 12. 2-4 (35) 1-2 (70) 2-3 (45). 2-4 (35) 2-3 (45) 2-4 (35) 1-3 (60) 2-3 (65) 2-4 (60) 1-3 (60) Fully crashed 50 – 90 = -40 1. 3 3.590 65+60+60-90=95 1.
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