By

Dr. Mahdi Damghani

Time-Cost Optimisation
Objective

 To determine a reduced or optimum length of

contract and still save money
Introduction

 The use of CPM is not limited to calculation of

project duration
 Reducing the duration of projects leads to
cost consideration
 Reducing the time of project may lead to
increase in cost due to use of more resources
 There must be a balanced point wherein the
project finishes at minimum cost and
optimum duration
Direct costs

 Asthe project is conceived, cost is incurred

on the purchase of
 Materials
 Plant
 Equipment
 Manpower
 Relationship
of direct costs with time is of
rime importance
Direct costs

 There is an optimum duration for a project for

which the direct cost is a minimum

 During this time the resources are optimally used

 This duration is called Normal Duration

 Crash point is a point beyond which the project

duration can not be decreased irrespective of the
increase in direct costs
 Direct costs

Cost

Crash Point
Crash cost

Normal Point
Normal cost

Time
Crash time Normal time
Indirect costs

 Includes
 Overheads
 Administrative expenses
 Depreciation
 Loss of profit
 Loss of revenue
 Penalty
 The loss in profit, penalty comes under a
category called outage loss
Indirect costs

Cost
Outage loss

Supervisory and
overheads

Time
Crash time Normal time
 Total cost

 Direct cost + Indirect cost

Cost

Total cost
Optimum
cost Direct cost
Indirect cost

Time
Crash time Normal time
Optimum time
Some terms
 Normal time (tn)
 Standard time that an estimator normally allow for an activity
 Crash time (tc)
 Minimum possible time in which an activity can be completed, by
employing extra resources
 Normal cost(Cn)
 Direct cost required to complete the activity in the normal time duration
 Crash cost(Cc)
 Direct cost corresponding to the completion of the activity within crash
time
 Cost slope (Cs)
 Slope of the line(s) used to approximate the direct cost curve
Cost slope

Increase in cost

Cc  Cn c
Cs  
t n  tc t
Decrease in time

Note:
If the cost curve is approximated by one single line it will have only one cost slope
whereas if it is approximated by more than one line it would adopt more cost slopes and
more calculations, respectively.
Using network analysis
 The project time is controlled by the
activities lying on the critical path
 To minimize the cost we crash the critical
activities.
 Particularly, critical activity with minimum
cost slope must be crashed first
 At each and every time check whether the
critical path is unique
 If not, crash the activity one by one
Example 1
Solution 1
 Critical path is 1-2-3-5-6
 Length of critical path =6+14+12+8=40
 Calculate the cost slop for each activity and
rank them in descending order
Activity Cost slope Ranking
1-2 20 3
2-3 14 2
3-5 12 1
1-4 20 4
4-5 120 6
5-6 100 5
 Solution 1
Activity Cost slope Ranking
1-2 20 3
2-3 14 2
3-5 12 1
1-4 20 4
4-5 120 6
5-6 100 5

Instruction Extra New project New direct New indirect New

direct cost duration cost cost project cost
Normal overall _ 40 1030 0 1030
duration
3-5 (5) 5x12=60 40-5=35 1090 0 1090

2-3 (5) 5x14=70 35-5=30 1160 0 1160

1-2 (2) 2x20=40 30-2=28
1-2 (1) 1x20=20 30-1=29 1180
By doing this the critical path0changes to 1-4-5-6 so I 1180
reduce 1-2 by 1 day
1-4 (1) 1x20=20 29-1=28 1200 0 1200
 Solution 1
Instruction Extra New project New direct New indirect New
direct cost duration cost cost project cost
Normal overall _ 40 1030 0 1030
duration
3-5 (5) 5x12=60 40-5=35 1090 0 1090

2-3 (5) 5x14=70 35-5=30 1160 0 1160

1-2 (2) 2x20=40 30-2=28
1-2 (1) 1x20=20 30-1=29 1180 0 1180
By doing this the critical path changes to 1-4-5-6 so I reduce 1-2 by 1 day
1-4 (1) 1x20=20 29-1=28 1200 0 1200

Now we have two parallel critical paths with duration 29 days. (i.e. 1-2-3-5-6 & 1-4-5-6)
The following are the activities yet to be crashed. They are 1 - 4, 4 - 5 and 5 - 6. Of the 3
activities 1 - 4 is with minimum cost slope.
Solution 1

 Therefore,
a 28-day project schedule costs
1200 pounds
Example 2
 The following data shows the duration and
costs of each activity of a project. The indirect
cost of the project is £3000 per week.
Determine the optimum duration of project
and the corresponding minimum cost.
Activity Normal Normal Crash Crash
Duration Cost (£) Duration Cost (£)
(week) (week)
1-2 6 7000 3 14500
1-3 8 4000 5 8500
2-3 4 6000 1 9000
2-4 5 8000 3 15000
3-4 5 5000 3 11000
Solution 2

N6 N5
C3 C3
1 N4 4
C1

N8
N5
C5
C3
3
Solution 2

 Critical path is 1-2-3-4 = 15 weeks

Notes:
1. The critical path must remain critical whilst crashing
2. When you have more than one critical path, crash the
common activities to the same amount to maintain the
first condition
Solution 2

Activity ΔC (£) Δt Cost slope Rank

(weeks) (£/week)
1-2 14500-7000=7500 6-3=3 2500 3

1-3 8500-4000=4500 8-5=3 1500 2

2-3 9000-6000=3000 4-1=3 1000 1

2-4 15000-8000=7000 5-3=2 3500 5

3-4 11000-5000=6000 5-3=2 3000 4

 Activity Cost slope Rank
(£/week)
1-2 2500 3

Solution 2 1-3
2-3
1500
1000
2
1
2-4 3500 5
3-4 3000 4

Instruction Extra direct New New direct New New project

cost project cost indirect cost
duration cost
Normal overall _ 15 30000 15x3000= 45000+30000
duration 45000 =75000
2-3 (2) 2x1000=2000 15-2=13 32000 13x3000 71000
2-3 (1) & 1-3 (1) 1x1000 13-1=12 34500 12x3000 70500
+1x1500=2500
3-4 (1) 1x3000=3000 12-1=11 37500 11x3000 70500
1-2 (2) & 1-3 (2) 2x1500 11-2=9 45500 9x3000 72500
+2x2500=8000
3-4 (1) & 2-4 (1) 3000+3500 9-1=8 52000 8x3000 76000
=6500
Solution 2

 From the table on the last slide the minimum

cost is 70500 for duration of 11 weeks
Example 3
 Determine minimum cost and optimum
duration
 Indirect cost is £80 per day
Activity Normal Normal Crash Crash
Duration Cost (£) Duration Cost (£)
(week) (week)
10-20 2 1000 2 1000
10-30 7 500 3 900
20-30 6 300 3 420
20-40 5 200 4 250
30-40 0 0 0 0
30-50 9 600 4 900
40-60 11 600 6 1000
50-60 6 700 3 910
Solution 3

 Optimum project duration is 18 days

 Corresponding cost=£4320