PROJECT COST ANALYSIS

& PROJECT CRASHING

BY: DEVYANI MEHTA

YASH KUMAR
 WHAT IS COST ANALYSIS?

 The act of breaking down a cost summary into its constituents and studying
and reporting on each factor.

 The comparison of costs (as of standard with actual or for a given period with
another) for the purpose of disclosing and reporting on conditions subject to
improvement

 Cost Concepts Used for Accounting Purposes: Generally, the accountants

use these cost concepts to study the financial position of the firm. They are
concerned with arranging the finances of the firm and therefore keep a track of
the assets and liabilities of the firm. The accounting costs are used for taxation
purposes and calculating the profit and loss of the firm. These are opportunity
cost, business cost, full cost etc.
 WHAT IS COST ANALYSIS?

 Analytical Cost Concepts Used for Economic Analysis of Business

Activities: These cost concepts are used by the economists to analyze the
likely cost of production in the future. They are concerned with how the cost
of production can be managed or how the input and output can be re-arranged
such that the overall profitability of the firm gets improved. These costs are
fixed cost, variable cost, total cost etc.

 Thus, the cost analysis is plays important part in business decision-

making as the cost incurred in the input and output is to be carefully
understood before planning the production capacity of the firm.
 COST ANALYSIS IN PROJECT

 A project cost analysis is a process that professionals can use to determine the
value of a project's costs and benefits, which highlights if a project is feasible.

 It begins with a company determining a set price of revenue they want to

generate from the project, then creating a list of all the project expenses,
combined with the benefits that a company receives from the project once it's
finished.
 COST ANALYSIS IN PROJECT

 After the list, the company adds together the total value of their costs and
benefits, then subtracts the total cost from the benefits, which shows if a
project is profitable and meets their set price. For example, if a project cost
analysis shows that a project's materials cost is higher than the profit that a
company makes off the project, then they may decide against pursuing the
project.

 Here is a list of professionals who may use project cost analysis:

1. Project managers
2. Finance managers
3. Accountants
4. Project developers
5. Project assistant
 BENEFITS OF PROJECT COST ANALYSIS

 Minimizes financial risk: Project cost analysis shows if there's a possibility

of the project exceeding the budget and having low profitability.

 Determines project feasibility: Using project cost analysis shows if a project

is feasible according to your budget and the project's profitability.

 Helps prioritize projects: If you do a project cost analysis for several

projects, you can determine which projects to pursue based on which projects
show the highest profitability and lowest financial risk.

 Get support from stakeholders: If a project cost analysis shows that a

project is feasible and profitable, it may help you to earn support from
stakeholders.
 HOW TO DO A PROJECT COST ANALYSIS
1. Determine a set price
Before starting your project cost analysis, have a set budget that helps you decide if you
want to pursue a project or not.

2. List all associated costs

To begin your project cost analysis, list all elements that have costs associated with the
project. Try including any unexpected costs, like extra materials you may need or extra
equipment that's prone to breakage. Depending on the type of project, here are several
common elements you might consider listing:

 Cost of project materials

 Project staff compensation
 Cost of equipment
 Cost of tools
 Cost of materials associated with equipment, like fuel
 HOW TO DO A PROJECT COST ANALYSIS

3. Convert cost to monetary value

Next, assign a monetary value to each element that you listed. To do this, you can
communicate with suppliers for your project to understand the cost of materials
and equipment, and communicate with management about overhead costs, like
labor, rent and taxes.

4. List estimated benefits

After listing your costs, make a list of the benefits that you estimate the project to
create. To do this, look at the goals of your project and who can benefit from
your project.
 HOW TO DO A PROJECT COST ANALYSIS

5. Convert benefits to monetary value

Try to assign a monetary value to each benefit, though keep in mind that your
estimations may be off slightly since there are several factors that predict the
outcome of a project.

6. Add costs together

Add the total value of your project costs together.
 HOW TO DO A PROJECT COST ANALYSIS

7. Perform subtraction
To complete your project cost analysis, perform the necessary subtraction that
shows your project's overall profitability. Subtract the project's total costs from
the estimated benefits.

8. Compare to your decided price

Once you have completed your project cost analysis, compare it to your set price
to determine if the project is worth pursuing or not.
 PROJECT CRASHING

 Project crashing is a schedule compression technique. It’s most often used

when a project manager wants to speed up the process to ensure the
completion of a project on time or ahead of its original schedule without
changing its scope. In other words, the result should remain the same, and
only the time needed to finish it should change.

 The resources allocated to a project are often increased, or unnecessary tasks

are eliminated to speed the process up. For that reason, it’s crucial to calculate
the return on investment of crashing a project and determine whether it’s a
sensible investment.
COMMON REASONS FOR CRASHING A
PROJECT
1. Project Schedule Delay
If the project is falling behind schedule, you don’t have many courses of action
to ensure its completion within time limits. That is especially important if one is
facing company penalties due to unforeseeable delays.

2. Resource Availability
If more resources become available, you might decide to allocate them to a
certain project and finish it ahead of schedule. Depending on the
situation, schedule crashing can require additional finances, assigning new
people to the project, or any other relevant extra assets.
COMMON REASONS FOR CRASHING A
PROJECT
3. Avoiding Future Delays
In many cases, if one of your projects is behind schedule, it can cause future
delays and impact the completion of another task. To avoid that, you can crash
one project to ensure the completion of multiple others within the set time limits
4. Time Bonuses
While some companies may impose penalties for a project delay, others may
reward completion before the set date.

5. Extra Manpower
Companies often onboard new members or train them for a specific position.
Sometimes, you may use new hires and assign them on a project until they
complete their training and crash the project with an additional workforce.
 PROJECT CRASHING EXAMPLE

 To give you an even better understanding of how project crashing works,

we’ve prepared an example.

 You’re a project manager working for a construction company, and your latest
task is to build a new facility. Despite all the planning, bad weather has caused
delays, and it’s taking significantly longer for the concrete to dry before you
can continue the construction.
 PROJECT CRASHING EXAMPLE

 Now your team has much less time to complete the work before a group of
roofers comes along to finish the construction. What’s more, the roofers are
only available for a short period before they have to move on to their next
project, so extending your timeframe isn’t an option.

 Therefore, you have two choices. You can wait until the next team of roofers
becomes available, but that can cause more delays down the line and the
client’s dissatisfaction. Alternatively, you can crash the project by adding more
resources to specific tasks and continue as you have planned initially.
 SUMMARY

The two important components of any activity are the

cost and time. Cost is directly proportional to
time and vice versa.

Crashing a project can be significantly beneficial. Even

though it increases the overall cost, it’s often crucial for
finishing the project in a given timeframe. Moreover,
delays due to unforeseeable circumstances can make it
the only option to avoid further problems.