Project and Construction

Management

Submitted by Submitted to
M . Sufiyan Ar Sarala
2mb15at017
 Costs and Project Management
Direct costs
• Direct costs are costs which are directly accountable to a cost object (such as a particular
project, facility, function or product).
• Some overhead costs which can be directly attributed to a project (e.g. a designated
project manager) may also be classified as a direct cost.
• Direct costs are directly attributable to the object. In construction, the costs of materials,
labor, equipment, etc., and all directly involved efforts or expenses for the cost object are
direct costs.
• In manufacturing or other non-construction industries, the portion of operating costs
which is directly assignable to a specific product or process is a direct cost.
• Direct costs are those for activities or services that benefit specific projects, for example
salaries for project staff and materials required for a particular project.
• Because these activities are easily traced to projects, their costs are usually charged to
projects on an item-by-item basis.

Direct costs typically include:

•Direct materials used in manufacturing

•Direct labour
•Direct expenses, e.G. A royalty payment to a patent holder for a specific production process
Indirect costs
• Indirect costs are costs that are not directly accountable to a cost object (such as a particular project,
facility, function or product).
• Indirect costs may be either fixed or variable. Indirect costs include administration, personnel and
security costs.
• These are those costs which are not directly related to production. Some indirect costs may
be overhead.
• But some overhead costs can be directly attributed to a project and are direct costs.
• There are two types of indirect costs. One are the fixed indirect costs which contains activities or costs
that are fixed for a particular project or company like transportation of labor to the working site,
building temporary roads, etc. The other are recurring indirect costs which contains activities that
repeat for a particular company like maintenance of records or payment of salaries.
Costs usually charged directly Costs usually allocated indirectly
• Indirect costs related to transport
• Salary/wages
• Administration cost
• Consultants • Selling & distribution cost
• Materials • Office cost
• Security cost
• Tools
• Transport
• Labor
• Direct materials
• PPC
• Any kind of subcontract which is
attributable to direct works but the
specific company does not possess the
required skill
Indirect vs direct costs
• Most cost estimates are broken down into direct costs and indirect costs.
• Direct costs are directly attributable to the object and it is financially feasible to do so.
• In construction, the costs of materials, labor, equipment, etc., and all directly involved efforts or
expenses for the cost object are direct costs.
• In manufacturing or other non-construction industries the portion of operating costs that is directly
assignable to a specific product or process is a direct cost.
• Direct costs are those for activities or services that benefit specific projects, for example salaries for
project staff and materials required for a particular project. Because these activities are easily traced
to projects, their costs are usually charged to projects on an item-by-item basis.
• Indirect costs are, but not necessarily, not directly attributable to a cost object.
• It should be financially infeasible to do so. Indirect costs are typically allocated to a cost object on some
basis.
• In construction, all costs which are required for completion of the installation, but are not directly
attributable to the cost object are indirect, such as overhead. In manufacturing, costs not directly
assignable to the end product or process are indirect. These may be costs for management, insurance,
taxes, or maintenance, for example.
• Indirect costs are those for activities or services that benefit more than one project. Their precise
benefits to a specific project are often difficult or impossible to trace.
• For example, it may be difficult to determine precisely how the activities of the director of an
organization benefit a specific project.
• Indirect costs do not vary substantially within certain production volumes or other indicators of activity,
and so they may sometimes be considered to be fixed costs.
• It is possible to justify the handling of almost any kind of cost as either direct or indirect. Labor costs, for
example, can be indirect, as in the case of maintenance personnel and executive officers; or they can be
direct, as in the case of project staff members.
• Similarly, materials such as miscellaneous supplies purchased in bulk—pencils, pens, paper—are
typically handled as indirect costs, while materials required for specific projects are charged as direct
costs.
 Crashing
• Project crashing is the method for shortening the project duration by reducing
the time of one or more critical activities to less than their normal time.
• Crashing is achieved by devoting more resources. Thus the cost associated with
the project is increased.
• Objective:
i. To reduce project duration
ii. While minimizing cost of crashing
Time-Cost Trade off
• In Crashing if cost increases then time decreases.
• Time and cost are thus inversely related

Cost Slope
Nt: Normal time
Nc: Crashing time
Ct: Cost of activity in Nt.
Cc: Cost of activity in Nc.
Cost Slope= Cc − Nc ��−��
 Algorithm for Crashing
• Step1 Determine the normal Critical path and identify the critical activities.
• Step2 Calculate cost slope or increment cost per unit time for different activities.
• Step3 Rank activities in ascending order as per their cost slopes.
• Step4
i)Crash activities of critical path as per lowest cost slope first.
ii)Calculate the new direct cost by adding cost of crashing to the normal cost.
• Step5 Since Critical path duration is reduced so other path also become critical. Project
duration can be reduced by simultaneously crashing activities in the parallel critical
path.
• Step6 By crashing as per step4 and 5, a point is reached when either no crashing is
possible or crashing does not result in the reduction of project duration.
Important points
Least cost slope activity of the critical path must be dealt with first and so on.
• If more than one critical path is generated after crashing then duration of activities on all
these paths have to be curtailed.
• If time in critical path(say A) lowers below an alternative path (of time say X such that
X>A)after crashing then crashing is done here in such a way that time in critical path is kept
same as X, not below X.
• If crashing a low cost slope activity(say activity D) results in though lowering a single Critical
path time but project time is not lowered then o select common activities or activity
combinations o Find least cost slope among these.
• Sometimes before Critical path other path get crashed. Here the time of crashed path is the
minimum limit of crashing time. Critical paths are crashed down to this time limit.