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Effective Project Cost &
Scheduling
7 – 9 October 2008
Etisalat - Dubai, U.A.E.
Dr. Jamal AlBahar, AVS, PMP
PROMIS - Dubai, U.A.E.
Project Cash Flow Analysis
& Budget
Time
Budgeting through
Time-Cost Integration
Consider The following project schedule network and the
activities direct costs table below.
Direct cost of each activity is assumed to be uniformly
distributed over activity duration.
Indirect cost is estimated at $ 2,000 per week.
4 12
10 12
Name T Direct cost Direct cost
19
B
8
(Wk.) ($) $/Week
25
4 12 E
TF = 0 7 A 4 36,000 9,000
FF = 0
0 4 12 19 19 20
4 7 TF = 0 B 8 48,000 6,000
5 15 FF = 0 35
A C G C 3 30,000 10,000
4 3 1
0 4
9 12
10 16
19 20 D 2 24,000 12,000
TF = 5
TF = 0 FF = 3 TF = 0
FF = 0 30 FF = 0 E 7 56,000 8,000
7 10 F
6 F 6 60,000 10,000
20 13 19
D
3
TF = 3
FF = 3
G 1 6,000 6,000
9 TF = 2 12
Total 20 260,000
FF = 0
Early Schedule Cash Flow Diagram
Activity 1 2 3
A 9
300
Σ Direct $
9 9
250
Σ Indirect $
200 Σ Total $
Cost ($ 1,000)
B
150
100
50
0
0 5 10 15 20
Time (weeks)
Late Schedule Cash Flow Diagram
Activity 1 2 3
A 9
300
250
Σ Direct $
9 9
Σ Indirect $
Cost ($ 1,000)
200 Σ Total $
B
150
100
50
0
0 5 10 15 20
Time (weeks)
Baseline Schedule Cash Flow Diagram
Activity 1 2 3
A 300
250
9 Σ Direct $
9 9
Σ Indirect $
200 Σ Total $
Cost ($ 1,000)
B
150
100
50
0
0 5 10 15 20
Time (weeks)
Cash Flow Diagrams
300
Baseline
Cumulative total cost ($ 1,000)
150
100
50
0
0 5 10 15 20
Time (weeks)
Normal Point –The cost & time when the activity is performed in the
normal way without extra resources such as overtime, improved
equipment or other materials that could expedite the activity.
Crash Point - The cost & time when the activity is expedited by the
use of extra resources, manpower, etc. No cost is spared to reduce
the duration of the activity as much as possible
Example
A manual painting operation requiring 4 days at $400 per day.
CT NT Time
Cost Slope = CC – NC / NT - CT
What is Crashing and How?
The process of reducing the project duration
either to comply with contractual requirements,
external constraints, and/or to reduce the
project cost.
Accomplished by reducing the duration of one
or more critical activities by assigning more
resources to the activities or by adopting more
productive technique/method for accomplishing
the work.
What is Crashing and How?/Cont.
Crashing a critical activity means moving from the
activity normal point towards the crash point. I.e.,
additional direct cost.
Among all the activities that can be crashed, the activity
or combination of activities having minimum crashing
cost are selected for crashing.
As critical activities are crashed, the critical path may
change. None critical activities may become critical. If
this takes place, then activities on the new critical path
have also to be crashed.
Effect of Crashing a Project on the
Project Cost
Project cost consists of Direct & Indirect costs.
Indirect costs are usually periodic costs which
is directly related to project duration. Delay in
project completion time will increase the
indirect costs.
When project is delayed, liquidated damages
may be applied.
Some contracts call for incentives for early
completion time.
Effect of Crashing a Project on the
Project Cost/Cont.
Crashing or reducing the project duration
increases the direct costs as we move from the
normal time towards the crash time of the
crashed activities.
The total project cost is thus sensitive to the
project completion time.
There exists a project completion time at which
the total project cost is minimum.
Project Time-Cost Relation
Indirect Costs
Direct Costs
Time
b
Point b is the project time at which the total project cost is minimum
Crashing a Project
Case Study (20)
ES Num
G 12 10 1300 1500 2 100 Legend
H 13 11 1400 1500 2 50
Cc − Cn
I 14 10 1500 2000 4 125 Crashing cost per week =
tn − tc
0
which, for activity F means that
1,300 − 1,000
Crashing cost per day = = $100 / week
10 − 7
Crashing a Project
Crashing by 1 Wk
Critical Path = B-F-I
Project time = 32 weeks.
Direct Cost = $ 9,400
Crashing options =
B @ $75/wk
F @ $100/wk
I @ $125/wk
ES Num
E 8 3 116.67
Legend
F 10 3 100
G 12 2 100
H 13 2 50 Decision: Crash B by 1 week @ $75/wk
0
I 14 4 125
Crashing a Project
Crashing by Another 1 Wk.
7 30 16 16 70 28
Critical Path(s) = B-F-I, A-D-H 0
3 C 0 3 G 3
3
10 9 19 0 19 12 31
Project time = 31 weeks.
Direct Cost = $ 9,475 0 10 7 0 7 40 18
0 0
Crashing should be of activities on 0 A 0 0 D 0
both critical paths. 0 0 0
0 7 7 7 11 18
18 80 31 31 100 31
On each critical path, select the 0 St. 0 1 H 1
0
0 Fin 0
0 0 0 18 13 31 31 0 31
activity of minimum crashing cost. 0 20 7 7 50 15
0 B 0 3 E 3
0 3
0 0 7 7 10 8 18
7 60 17 17 90 31
0 F 0 0 I 0
Activity t Allowable Cc/week 0 0 0
6 10 18 18 14 32
Crash
A 7 1 150
B 8 1 75
C 9 2 100
D 11 3 100
ES Num
E 8 3 116.67
Legend
F 10 3 100
G 12 2 100
H 13 2 50 Decision: Crash B & H by 1 week @ $125/wk
I 14 4 125
Crashing a Project
Crashing B & H by 1 Wk.
7 30 16 16 70 28
Critical Path(s) = B-F-I, A-D-H 0
2 C 0 2 G 2
2
9 9 18 0 18 12 30
Project time = 30 weeks.
Direct Cost = $ 9,600 0 0 10 7 0 7 40 18 0
0 A 0 0 D 0
Crashing should be of activities0 0 0
0 7 7 7 11 18
18 80 30 30 100 30
on both critical paths. 0 St. 0 0 H 0 0 Fin 0
0
B cannot be further crashed. 0 0 0
0 20 6 6 50 14
18 12 30 30 0 30
0 B 0 4 E 4
0 4
0 0 6 6 10 8 18
6 60 16 16 90 30
0 F 0 0 I 0
Activity t Allowable Cc/week 0 0 0
6 10 16 16 14 30
Crash
A 7 1 150
B 8 0 75
C 9 2 100
D 11 3 100
ES Num
E 8 3 116.67
Legend
F 10 3 100
G 12 2 100
H 13 1 50 Decision: Crash F & H by 1 week @ $150/wk
I 14 4 125
Crashing a Project
Crashing F & H by 1 Wk.
7 30 16 16 70 28
Critical Path(s) = B-F-I, A-D-H 0
1
8
C
9
0
17 0
1
17
G 1
12 29
1
Project time = 29 weeks.
Direct Cost = $ 9,750 0 0 10 7 0 7 40 18 0
0 A 0 0 D 0
Crashing should be of activities0 0 0
0 7 7 7 11 18
18 80 29 29 100 29
on both critical paths. 0 St. 0 0 H 0
0
0 Fin 0
0 0 0 18 11 29 29 0 29
H & B cannot be further crashed 0 20 6 6 50 14
0 B 0 4 E 4
0 4
0 0 6 6 10 8 18
6 60 15 15 90 29
0 F 0 0 I 0
Activity t Allowable Cc/week 0 6 9 15 0 15 14 29 0
Crash
A 7 1 150
B 8 0 75
C 9 2 100
D 11 3 100
ES Num
E 8 3 116.67
Legend
F 10 2 100
G 12 2 100
H 13 0 50 Decision: Crash D & F by 1 week @ $200/wk
I 14 4 125
Crashing a Project
Crashing D & F by 1 Wk.
Critical Path(s) = B-F-I, A-D-H, 7 30 16 16 70 28
and A-C-G 0
0
7
C
9
0
16 0
0
16
G 0
12 28
0
6 60 14 14 90 28
Activity t Allowable Cc/week 0 F 0 0 I 0
Crash 0 6 8 14 0 14 14 28 0
A 7 1 150
B 8 0 75
C 9 2 100
D 11 2 100
E 8 3 116.67
ES Num
F 10 1 100 Legend
G 12 2 100
H 13 0 50 Decision: Crash A & F by 1 week @ $250/wk
I 14 4 125
Crashing a Project
Crashing A & F by 1 Wk.
Critical Path(s) = B-F-I, A-D-H, 6
0
30
C
15
0
15
0
70 27
G 0
and A-C-G 0
6 9 15 0 15 12 27
0
6 60 13 13 90 27
Activity t Allowable Cc/week 0 F 0 0 I 0
0 0 0
Crash 6 7 13 13 14 27
A 7 0 150
B 8 0 75
C 9 2 100
D 11 2 100
E 8 3 116.67
ES Num
F 10 0 100 Legend
G 12 2 100
H 13 0 50 Decision: Crash I, D, & (C or G)
I 14 4 125 by 1 week @ $325/wk
Example
Project Time-Cost Trade-offs
Consider: 18000
16000
Indirect Cost of $200
14000
per week, 12000
and 2000
Indirect Cost ($)
Liquidated Damages ($)
Total Cost ($)
No incentive plan 0
25 26 27 28 29 30 31 32
Project Duration (w eeks)
Direct Cost ($) 10,525 10,200 9,950 9,750 9,600 9,475 9,400
Indirect Cost ($) 5,200 5,400 5,600 5,800 6,000 6,200 6,400
Liquidated Damages ($) 0 0 0 0 0 500 1,000
Incentives ($) 0 0 0 0 0 0 0
Total Cost ($) 15,725 15,600 15,550 15,550 15,600 16,175 16,800
Earned Value Management (EVM)
progress variances.
Forecast future outcomes
(expectations).
Used for ETC and EAC.
Output is performance measurements values.
Earned Value Management Terms
The planned value (PV), formerly called the budgeted cost
of work scheduled (BCWS), also called the budget, is that
portion of the approved total cost estimate planned to be
spent on an activity during a given period.
Actual cost (AC), formerly called actual cost of work
performed (ACWP), is the total of direct and indirect costs
incurred in accomplishing work on an activity during a given
period.
The earned value (EV), formerly called the budgeted cost
of work performed (BCWP), is an estimate of the value of
the physical work actually completed.
EV is based on the original planned costs for the project or
activity and the rate at which the team is completing work on
the project or activity to date.
Rate of Performance
Rate of performance (RP) is the ratio of actual work
completed to the percentage of work planned to have been
completed at any given time during the life of the project or
activity.
Brenda Taylor, Senior Project Manager in South Africa,
suggests using this approach for estimating earned value.
For example, suppose the server installation was halfway
completed by the end of week 1. The rate of performance
would be 50 percent (50/100) because by the end of week
1, the planned schedule reflects that the task should be 100
percent complete and only 50 percent of that work has been
completed.
TRADITIONAL COST ANALYSIS
Back to our S-curve
Budget At Completion
(BAC)
Cumulative value ($)
Time
Earned Value
Performance Measurement
EV
Cost Performance Index (CPI) =
AC
Where:
AC is the actual cost of work performed; and
EAC = AC + BAC - EV
CPI
Where:
EAC is the estimated cost at completion
OD = Original Duration
planned for work to date
4 9 11 13
D F
5 2
TF=4, FF=2 TF=FF= 6
Efficiency Variance
Activity BT BC % BCWP BTWP ATWP ACWP ST BCWS Time Cost Schedule TV CV SV
A 2 1,000 100 1,000 2 2 900 2 1,000 100% 111% 100% 0 -100 0
B 17 3,400 60 2,040 10 8 2,000 8 1,600 128% 102% 128% -2.2 -40 -440
C 3 9,000 0 0 0 0 0 2 6,000 0% 6000
D 5 5,000 50 2,500 3 4 3,200 5 5,000 63% 78% 50% 1.5 700 2500
E 6 12,000 0 0 0 0 0 0 0
F 2 1,000 0 0 0 0 0 0 0
G 1 1,000 0 0 0 0 0 0 0
Totals: 32,400 5,540 6,100 13,600 91% 41% 560 8060
B
5
TF=FF=8
0 0 13 14
3* 8 8 13
C E G
DD
5 5 1
0
TF=FF=0 TF=FF=0 TF=FF=0
0 4 4 6
D F
4 2
TF=4, FF=0 TF=FF=7
Performance Analysis Plot
F
P = (1 + r)n
where
F =future value of the investment at the
end of n periods
P =amount invested at the beginning,
called the principal
r =periodic interest rate (discount rate)
n =number of time periods for which the
interest compounds
Selection Methods Cont….
Internal Rate of Return
Maths is complex.
i at which
PV of inflows = PV of outflows.
Always chose the one with highest IRR
20 975.57
Selection Methods Cont….
Payback Period (PBP)
Simple method.
When do I get my money back?
Includes:
Supporting paperwork
Tracking systems (such as the change control
log)
Dispute resolution procedures (such as when
to escalate)
Approval levels required (based on cost of the
change, impact, etc.)
Buyer-Conducted Performance
Review (tools & Techniques)
This is a meeting where all the available data is brought
together to see if the seller is performing.
Often the seller is present to review the data and most
importantly talk about what the buyer can do differently
to help the work along.
The purpose of this review is to determine &
recommend needed corrective & preventive actions and
to request formal changes.
Claims Administration
(tools & Techniques)
Project Archives