CHAPTER

16
TRADE-OFF
ANALYSIS IN A
PROJECT
ENVIRONMENT
Project trade-offs
--are usually m ade to optim ize the balance
between time, cost and perform ance ( which
encom passes the quality of the deliverables,
the ability to cover the expected scope, and the
efficiency of execution) .
 The time–cost–performance
triangle is the “magic
combination” that is
continuously pursued by the
project manager throughout the
life cycle of the project. If the
project were to flow smoothly,
according to plan, there might
not be a need for trade-off
analysis.
 The following six steps may
help:
Recognizing and understanding
●
METHODOLOGY the basis for project conflicts
FOR TRADE-OFF
Reviewing the project objectives
ANALYSIS ●

Analyzing the project

●

Any process for managing time, environment and status

cost, and performance trade-offs Identifying the alternative
courses
should emphasize the systems ●
approach to mana gement by of action
recognizing that even the smallest Analyzing and selecting the best
●
change in a proj- ect or system could
alternative
easily affect all of the organization’s
systems. Revising the project plan
 Most causes can be categorized as human errors or failures,
uncertain problems, and totally unexpected problems, as
shown below:
·Human errors/ failures ·Unexpected problems
·Impossible schedule ·Overcommitted company resources
commitments ·Conflicting project priorities
·Poor control of design changes ·Cash flow problems
·Poor project cost accounting ·Labor contract disputes
·Machine failures ·Delay in material shipment
·Test failures ·“Fast-track” people having been
·Failure to receive a critical promoted off the project
input ·“Temporary” employees having to
·Failure to receive be returned to their home base
anticipated approvals Inaccurate original forecast
·Uncertain problems ·Inaccurate original forecast
·Too many concurrent ·Change in market conditions
projects ·New standards having been

The second step in the
decision-m aking process is a
com plete review of the
project objectives as seen by
the various participants in
the projects, ranging from
top m anagem ent to project
team m em bers.
This may require reviewing
project documentation,
including:
●
Project objectives
Project integration into
●
sponsor’s objectives and strategic
plan
Statement of work
●
●
Schedule, cost, and
performance specifications
Resources consumed and
projected

The third step is the
analysis of the project
environm ent and status,
including a de- tailed
m easurement of the actual
tim e, cost, and performance
results with
the original or
revised project plan.
The following topics may be
applicable under step 3:
Discuss the project with the project
●
management office to:
Determine relative priorities for time,
●
cost, and performance Determine
impact on firm’s
profitability and strategic plan
Get a management assessment
(even a
●
hunch as to what the problems
are)
If the project is a contract with
●
anata to
assess credibility of cost and schedule
information in the pre-
vious step
 Meet with the functional managers to determine their views on the
●
problem and to gain an insight regarding their commitment to a successful
project. Where does this project sit in their priority list?
Review in detail the status of each project work package. Obtain a
●
clear and de- tailed appraisal by the responsible project office personnel as to:

Time to complete
●
Cost to complete
●
Work to complete
●
Review past data to assess credibility of cost and schedule
●
information in the previous step.
 The project manager must remain objective in such prob- lem identification,
since he himself is a key member of the project team and may be per- sonally
responsible for problems that are occurring. Suspect areas typically include:

Inadequate
● Scope changes.
planning.
● Poor performance.
● Excess
● Environmenta
performance.t.
l restraints—particularly projects involvin “third-party
●
provals” or dependent
on on outside g ap-
resources.
 The fourth step in the project trade-off process is to list
alternative courses of action. This step usually means
brainstorm ing the possible m ethods of completing the project
by com prom ising som e combination of time, cost, or
perform ance.
 In order fully to identify the
alternatives, the project manager must
have specific answers to key questions
involving time, cost, and performance:
Tim e
Is a time delay acceptable to the customer?
●
Will the time delay change the completion date for other projects and other
●
customers?
What is the cause for the time delay?
●
● Can resources be recommitted to meet the new schedule? What
● will be the cost for the new schedule?
● Will the increased time give us added improvement?
Will an extension of this project cause delays on other projects
in the cus-
●
tomer’s house?
What will the customer’s response be?
●
Will the increased time change our learning curve?
●
Will this hurt our company’s ability to procure future contracts?
●
Cost
What is causing the cost overrun?
●
● What can be done to reduce the remaining costs?
● Will the customer accept an additional charge?
● Should we absorb the extra cost?
Can we renegotiate the tim e or perform ance
standards to stay
●
within cost?
Are the budgeted costs for the remainder of the project
●
accurate?
 Will there be any net value gains for the
increased funding?
Is this the only way to satisfy performance?
●
Will this hurt our com pany’s ability to procure future
●
contracts?
Is this the only way to maintain the schedule?
●
Performance
Can the original specifications be
met?
●
●
If not, at what cost can we guarantee compliance?
Are the specifications negotiable?
● What are the advantages to the company and
customer for specification
●
changes?
What are the disadvantages to the company and customer for performance
●
changes?
Are we increasing or decreasing performance?
●
● Will the customer accept a change?
● Will there be a product or employee liability incurred?
● Will the change in specifications cause a redistribution of project resources?
Will this change hurt our company’s ability to procure future contracts?
Once the answers to these questions are obtained, it is often best to plot the results
graphically.
 Step Parameters to
hold fixed:
4:
Identifying the 1 – Performance is
alternative courses fixed 2 – Cost is fixed
of action 3 – Time is fixed
4 – No constraints are
fixed
 4 Methods for constructing
PERFORMANCE and analyzing the time-cost
IS FIXED Additional
curves: resources may be required.
--cost can be expressed as The scope of work may be redefined and
a function of time som e work deleted without changing the
project perform ance requirem ents.
--trade-offs with fixed
Available resources may be shifted in order to
performance levels must take
balance project costs or to speed up activities
into account the dependence of
that are on the “critical” path work elem ent
the firm on the customer, that is railing.
priority of the project within the
firm , Given a schedule problem , a change in the
and potential for future logic diagram may be needed to move from
business. the current position to the desired position.
COST IS
FIXED will vary as
--performance
a function of tim e
--the decision of whether to
adhere to the target
schedule data is usually
determined by the level of
performance.
TIME IS
FIXED
--which tim e is fixed and
cost varies
--when timewith the the
is fixed,
perform
customerance.
m ay find that he has
som e flexibility in determining
how to arrive at the desired
perform ance level.
STEP 5:
Analyzing/selecting the
best alternative

STEP 6:
R
e
v
i
s
i
 CONTRACTS: THEIR INFLUENCE
ON PROJECTS

Firm -fixed-price ( FFP) contract

--tim e, cost, and perform ance are all specified within the contract.

Fixed-price-incentive-fee ( FPIF) contract

--cost is m easured to determ ine the incentive fee, and thus is the last constraint
to be considered for trade-off.

Cost-plus-incentive fee ( CPIF) contract

--costs are reimbursed and m easured for determ ination of the incentive fee.
Cost-plus-award-fee (CPAF) contract
--costs are reimbursed to the contractor, but the award fee id based
on performance by the contractor.

Cost-plus-fixed-fee (CPFF) contract

--costs are reimbursed to the and would be the
contractor constraints to be considered costs first
for trade-off.
 INDUSTRY TRADE-OFF PREFERENCES
01 02 03
NONPROFIT NON-DRIVEN
PROJECT-
ORGANIZATIO ORGANIZATIO
DRIVEN
N N
ORGANIZATION
i--performance is the --the first resource to be
--resources trade-offs it depends
first that will be sacrificed in non-
on the life-cycle phase of a given
compromised. driven organization is
project. During the conceptual,
time, followed by
definition, and production
performance and cost, phases and into the operational
respectively. phase of the project, the trade-
off priorities are cost first, then
time, and finally performance.
 CONCLUSION

It is clear the project manager has options to control a

project during its execution.
The availability of specific options will depend on the
particular project environment.
The greatest contribution a project manager can
make to a project team organization
is stability in adverse conditions Interpersonal
relationships are relevant to alternatives
since team performance will be required.
 Project managers can make trade-offs,
encourage team members, and reassure
the project sponsor in order to produce a
satisfactory project through a
combination of management skill and
sensitivity.