Cost and

Schedule
Integration
Augustin Purnus, PhD, PMP, CSPM
Vladimir Liberzon, PMP, GPSF, GCMF
Spider Project Team
 Introduction
• Project management decisions are based on cost, schedule, and scope
considerations and constraints.
• The usual practice is to set the Triple Constraint that determines the cost,
schedule, and scope targets the project must meet. However, setting
separate targets makes project management complex and unreliable. Simple
questions such as whether it’s profitable to spend more money on project
acceleration don't have definite answers and the decisions are subjective
and often lead to project losses.
• Project managers usually lack the authority to change project scope. They
manage project resources that have a direct impact on both project cost and
schedule.
Introduction
• Determining the cost of time management makes the decisions
logical. When project cost and schedule baselines and cost of time are
set, project management decisions become easy to substantiate
depending on the benefits they provide.
• This approach, however, requires correct modeling of project
expenses
• For most projects, true cost and schedule integration is only possible
when the volumes (quantities) of work to be done that are usually
measured in physical units (i.e. meters, tons, pieces, etc.) are planned
and controlled.
Introduction

• Most norms and estimates refer to the units of volume of certain

activity types while resource productivity is measured as activity
volume per work hour.
• Therefore cost and schedule integration can be only achieved by using
activity volumes for calculating both project schedule and project
budget.
• Project model used for integrated project planning and analysis must
take into account all existing constraints including financial
constraints, and include all expenses assigned to project activities,
resources and time.
Cost Data
• It is not enough to manage Cost only. The project cost consists of cost
components that must be entered and analyzed separately. A simple
example: Internal expenses consist of the cost of labor, cost of
materials, cost of machines, indirect costs, etc., that can be analyzed
separately. Therefore it is necessary to define cost components to be
used for project budgeting and cost performance analysis.
• Besides, activities can have contract costs and in many cases it is
necessary to create and to manage several budgets of the same
project.
• Cost components can be expressed in different currencies and thus
have different unit costs.
 Cost Assignment
• Project cost can be assigned as follows:
• Activity costs can be defined as fixed, cost per volume unit, and cost per work
hour.
• Renewable resource cost can be defined as cost per hour.
• Consumable resource cost can be defined as cost per unit.
• Resource assignment cost can also be fixed or defined as cost per work volume
unit and hour.
• Indirect costs usually depend on project duration and are assigned on the Level
of Effort or Hammock activities though it is usual practice to calculate them as
the percent of some cost components.
• The cost of time must also become part of a project model, so that the project
cost rises when the finish is delayed and drops with the schedule acceleration.
Cost and Schedule Integration

• Project management tool must be able to calculate project schedule,

taking into account the volumes of work to be done, resource
productivity and availability, material supply and funding constraints.
Only then cost/schedule integration can be full and reliable.
• We will describe our approach to cost/schedule integration, using
simple example created with Spider Project software.
• The application of proposed methodology can significantly improve
project management culture and increase the number of successful
project implementations.
 Cost and Schedule Integration

• Cost/schedule integration begins with creating the right project model

that includes all the data that people use in project planning and
decision making.
• The project schedule must be calculated taking into account all existing
constraints including available renewable resource quantities, the
schedule of consumable resources supply, and funding restrictions.
• The investors can include the time-phased forecast of future profits in
the project model, which enables them to calculate the payback period,
NPV, IRR, and other parameters useful for investment analysis.
Cost and Schedule Integration

• As a result of project scheduling, the following information becomes

available:
• Starts and finishes for all project activities
• Quantities and workloads of project resources at any time
• Material flows
• Project budget (expenses)
• Contract budget and payments schedule
Project Success Criteria

• The usual practice of setting several success criteria for a project team
(such as achieving all goals on time and on budget) makes
management decisions complicated and unreliable. It is not easy to
decide whether it makes sense to spend a certain amount of money
to finish the project one week earlier.
• However, it is possible to calculate the cost of project delay and
acceleration for project Owners and Contractors.
• For the Owners, a project finish delay means that the project product
will start generating profits later. The losses per each day of project
delay can be estimated based on the lost profits.
Project Success Criteria
• For the Contractors, each day of the project execution means
expenses associated with project resources, safety, management, and
other indirect costs.
• Therefore both parties can estimate their costs of each day of delay
and acceleration and not only for the project as whole but also for
major project milestones which delays lead to specific losses.
• This information can be used for setting penalties to pay if the
contract dates are missed and for selecting the best version of the
project plan for approval.
Project Success Criteria
• After project cost and schedule baselines are approved, it is
reasonable to set an integrated project success criterion that
comprises the project cost plus the costs of each day of acceleration
(negative) and each day of finish delay (positive).
• This criterion motivates the project team to execute the project faster
and with lower cost, and allows to justify additional expenses
intended to accelerate project execution: if the total cost that
includes acceleration and delay costs drops, then it makes sense to
spend money.
• Our experience has demonstrated much better performance of
project teams who have used this success criterion in their projects.
Project Risk Simulation
• The planning that takes into account risks and uncertainty makes
project plans much more reliable.
• For project risk simulation, uncertainty should be simulated by setting
their optimistic, most likely and pessimistic values).
• Risk events are simulated using special zero duration activities called
triggers that have certain probabilities of occurring. If a trigger occurs,
it might generate several branches of activities in the project
schedule, each branch with its own probability (the probabilistic
branches).
 Project Risk Simulation
• All risk simulation methods (Three Scenarios, Monte Carlo, etc.) produce
probability curves of project parameters that are used for setting reliable
target dates and costs. One of the simulated parameters is an integrated
project success criterion. To ensure proper motivation of project teams,
the goal set for the project must be achievable.
• Risk simulation must be performed using the same model that will be
used for project management. It must include all project constraints and
use the same resource allocation algorithms and potential risk responses
that will be used in day-by-day management.
• If these conditions are not met, risk simulation will produce the wrong
results because what has been simulated is not the same as what will
happen in real life. Risk simulation using external tools should only be
used for the projects with unlimited resources.
Project Risk Simulation
• Project target dates selected using risk simulation do not belong to
any particular schedule. The schedule used for resource management
finishes earlier and the difference between the target and scheduled
finish dates is called project time buffer.
• The time buffer is a time contingency reserve created to absorb time
delays caused by expected risk events and uncertainty.
• The same is true for project budget. The target cost and the total cost
of the management schedule are not the same. The target cost
includes the cost contingency reserve called the project cost buffer.
Project Risk Simulation
• Buffers can be created for all project planned parameters including
project success criterion.
• It is reasonable to use the optimistic project scenario as the
management schedule to avoid unnecessary loss of time and money
caused by Parkinson’s Law.
Project Execution
• With the targets and management schedule set, the project is
managed as usual: the resources are allocated based on the
management schedule, the actual data are collected and entered in
the model, and the remaining works are regularly rescheduled.
• With each project update, risk simulation is repeated and the
probability of meeting project targets is recalculated.
Project Performance Analysis
• If the probability of meeting project targets is increasing, it means that
the project buffers are consumed slower than expected and overall
project performance is successful.
• A negative trend in the probability of meeting project targets indicates
potential problem and requires considering corrective actions.
• Project management team makes management decisions, looking into
the current status and trend for project success criterion. The decisions
to accelerate project execution by spending more money or to delay
achieving some milestones but save money using cheaper or less
resources are justified if they increase the probability of meeting the
project success criterion target.
 Example
• Let’s have a look at
the application of the
above methods, using
a small sample
construction project
“1km Road
Construction”
• Project activities have
volumes of work
measured in physical
units (m, m2, m3,
pieces), each activity
has its internal cost
(expenses) and
contract cost.
Example: Cost Planning
• In this sample project, cost components Include Material Cost,
Machine Cost, Labor Cost, Indirect Cost, External Services, Contract
Cost, Penalties if the target date is missed, and the Cost of Delay (i.e.
the cost of time from the earliest possible project finish till the actual
finish).
• The indirect cost in this project is calculated automatically as 118% of
the cost of materials, machines and labor.
• The Penalties are set as 3000 units per each work hour of project delay.
• The cost of each hour of delay for the project team is set as 2000 units
per hour.
Example: Cost Planning
• The Cost Centers of this project include:
• Expenses comprising material costs, machine costs, labor costs, indirect
costs and the cost of external services;
• Contract Cost comprising contract costs and penalties,
• Profit (the difference between Contract Cost and Expenses) and
• Criterion comprising Expenses and cost of delays and penalties.
• Project targets may be set for all of these Cost Centers but only
Criterion target is used for decision making.
• Project management team shall achieve project goals minimizing
Criterion value.
Example – Cost Planning
• In the optimistic project version shown above, both the penalties and
the cost of delay are zero because the project finishes on the earliest
possible date. In the pessimistic scenario, however, both costs will
become positive.
• Both costs are assigned to the hammock
activities that finish with the project
finish.
• Cost of delay hammock starts from the
Early Finish of our project, Penalties
hammock starts from the contractual
finish date. The Early Finish and the
Target Finish are the milestones added to
the project schedule.
Resource Data
• The Project uses the following machines: 2 graders, 2 different
bulldozers, 2 different excavators, 2 scrapers, 9 trucks, 2 vibro rollers,
1 bitumen distributor, 1 asphalt paver, 2 road rollers, and a road-
marking vehicle.
• The amount of fuel consumed per hour was set for each machine.
Thus the software calculates the expected fuel consumption based on
the planned and the actual machine work hours.
• Human resources include 9 drivers, 9 machinists and 8 workers. The
cost of management resources was included in the indirect cost.
• The external services are used on the Sand and Crushed Stone
Transportation activity assigned to an external supplier.
 Resource Data
• For each renewable resource, there is the cost of work hour
(set as labor or machine cost component) except the
External Supplier who is paid for the amount of work done.
• The Sample Project uses the following materials: Fuel,
Bitumen, Crushed Stone, Sand, Asphalt, Paint, Steel, Road
Signs. For each material, its unit cost was set in Material
Cost component.
• Each activity is executed by a certain resource crew that
includes the resources working together.
• You may also notice that the crew needs an Excavator but
there are two of these and thus we assigned the Excavator
skill and the software will choose which one to use on this
work.
Project Schedule
• Activity dependencies and project schedule were shown earlier.
• The schedule is resource-leveled. With unlimited resources, it could be
two days shorter.
• During scheduling, the software selected the excavator and the
bulldozer to use on each activity the Excavator and Bulldozer skills
were assigned to.
• Project Expenses and Contract Costs were calculated.
• Since the schedule is optimistic, the cost of acceleration was not
defined and the cost of delay used in the project team success criterion
will begin from the day following the day of optimistic schedule finish.
 Risk Simulation

• Planning is not complete until the uncertainty and the risks are taken into
account and simulated, which is necessary for setting reliable targets.
• We have entered the ranges for our estimates, simulated the risks, and
obtained the probability distributions for project duration, expenses,
profit, cost of delay, and penalties.
• We can set a lot of targets for our project and track whether these targets
would be met, but one of these targets is the most important and will be
used as the single criterion of the project success. This target must be set
for the project success criterion.
Setting Targets
Duration Expenses Profit

Target 34 days Target 2,930,000 Target 370,000

Target 3,000,000
Criterion Probability 70.72%
Scatter Diagram
• We can set several targets but the probability to meet all of these will
be less and managing will become more complicated.
• In particular, the probability to meet both the schedule and the
criterion targets is 67.03% although the probabilities of separate
targets are 79.72% and 70.72%, respectively.
 Criticality Index
• The Monte Carlo simulation
also determines the Activity
Criticality Index that shows how
often an activity appears on
the critical path in the Monte
Carlo iterations. It shows which
activities require maximum
attention.
• In the optimistic schedule of
our Sample Project, the Road
Layout activity is not critical but
its criticality index of 0.57
shows that in most MC
iterations (57%) it became
critical and thus requires close
attention.
Project Plan
• The project plan that we have created included the following:
• The optimistic plan to be used for setting the tasks for project
workforce,
• The targets for project duration, expenses, and profit that may be used
as supporting objectives,
• The cost of delay after the optimistic finish date that may be used for
substantiating management decisions,
• Project success criterion that includes project expenses plus costs of
delays and its target value with high enough sufficient probability of
being met.
• Such targets can be created both for the whole project and for the
selected project phases.
Success Driven Project Management
• The difference between project targets and the corresponding values
in the optimistic schedules we call project buffers or contingency
reserves.
• Project buffers will be consumed during project execution. Project
management is about managing these buffers. If they remain positive
till the moment of project finish, then project management was
successful and the targets were met.
• There is a need in the tools for measuring project buffer consumption
and project performance analysis. The best indicator of buffer
penetration and project performance status is the current probability
of meeting the project target.
Success Driven Project Management
• If the probability of meeting the project target is increasing, it means
that the project buffer was being consumed slower than expected;
when the opposite is the case it means that the project buffer has
been consumed too fast and the project’s success is endangered.
• Success probability trends are the best integrated performance
indicators: they take into consideration the project risks, they depend
not only on performance results but also on the project environment.
• SDPM shares some common features with Critical Chain project
management but there are also many differences that include the
way the project buffers are set and the way their penetration is
measured and estimated.
Success Driven Project Management
• Target dates do not belong to any schedule. Usually they lie
somewhere in between the most probable and the pessimistic dates.
• The true project baseline is a set of target dates and costs for project
phases ( similar to a milestone schedule) .
• But the baseline schedule does not exist!
• It means that the application of conventional project performance
measurement approaches (like Earned Value Analysis) is complicated.
Project Performance Analysis
• We recommend to manage projects and portfolios based on the
analysis of performance trends.
• Trend analysis shows the short-term performance results and helps to
make timely management decisions.
• We regard success probability trends as truly integrated project
performance indicators.
• Success probabilities may change because of performance results,
scope changes, cost changes, risk changes, resource changes, etc.
• Thus success probability trends reflect not only the past project
performance results but also what’s happening around the project
and what is expected in the future.
Project Performance Analysis
• Example of success probability trends for our project:
Conclusions
• The Cost and Schedule integration is based on how the volumes of
work are managed and how the corporate norms are used.
• Most norms are applied to volume units of typical activities measured
in physical units and the software that integrates cost and schedule
management must be able to use them.
• A project model must reflect the real-life constraints. Project
constraints may include not only renewable resource constraints but
also material supply and funding restrictions.
• To create feasible project schedules, the scheduling software must be
able to take into account all project constraints.
Conclusions
• Cost and schedule integration requires setting the right project success
criterion for a project management team. The easiest way is to define
the cost and schedule baselines and add the cost of delay or
acceleration to the approved project cost. Cost of delay may be set not
only to project finish but also to intermediate milestones. The delay
and acceleration costs can be different for different project
stakeholders.
• The integrated project success criterion helps to make and substantiate
project management decisions.
• Reliable management requires using risk management, including
creating contingency reserves for project cost and duration. Risk
simulation allows to calculate the necessary contingency reserves and
to set reliable project targets.
Conclusions
• Project performance analysis includes the calculation and analysis of
probabilities of meeting the set targets (success probabilities).
• Success probability trends identify the problems early-on. Even when
a project’s status is satisfactory but the trends are negative, the
corrective actions must be considered. The main objective for success
probability trend analysis is the integrated project success criterion.
• The methods and approaches described in this paper have been
successfully used in Russia and Eastern Europe for many years but are
not widely known abroad. It’s time to move forward from the
outdated last-century techniques developed when computers were
rare and had very limited capabilities.
 Thank You!
Let us know if you will have any questions in the future
• Augustin Purnus, augustin.purnus@gmail.com
• Vladimir Liberzon, v.Liberzon@gmail.com