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OBJECTIVE

Time Cost Optimisation

To determine a
reduced or optimum
length of contract and
still save money
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TIME COST RELATION


The use of CPM is not limited to calculation

ofproject duration
Reducing the duration of projects leads to
cost consideration.
Reducing the time ofproject may lead to
increase in cost due to use ofmore resources
There must be a balanced point wherein the
project finishes at minimum cost and
optimum duration.
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OBJECTIVE
NETWORK TECHNIQUE
Bring improvement in the following :Planning
Scheduling
Control of project

Policy of every successful organization


To reduce the target time so that the time

saved may be utilized for additional production.


The overall project duration can be reduced by
reducing the duration of only the critical
activities in the project network

The durations of such activities may be


reduced in two ways:a)By deploying more resources for the
completion of such activities.
b)By relaxing the technical specifications
for such activities (depends on engineering
considerations)

RELATIONSHIP BETWEEN
TIME AND COST
In this time cost model we will assume that the

project duration is reduced by deploying more


resources on critical activities.
There is a certain range of time during which the
project may be completed depending on the
resources employed on various critical activities.
If the duration is made larger, cost will be reduce
b) Reducing the project duration would increase the
cost.
a)

NOW LETS KNOW HOW


TIME AND COST
INTERRELATE WITH
EACH OTHER WITH AN
EXAMPLE
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For any project, the relationship between

total cost and overall duration can be


explained with the figure as shown below.
If a project goes on indefinitely, the cost will
increase.
B. Similarly, cost will increase if project is
expedited.
C. Cost is minimum at some optimum project
duration.
A.

COST
Cost is considered to be a common parameter

of the resource expenditure on project.


Cost is of two types:Direct cost
b) Indirect Cost
a)

In CPM there are two time and two cost

estimates for each activity


Normal estimate it emphasis is on cost with
time being associated with minimum cost
b) Crash estimate involves the absolute
minimum time required for the job and the
cost necessary to achieve it.
a)

DIRECT COSTS
As the project is conceived, cost is incurred
on the purchase of
Materials
Plant
Equipment
Manpower
Relationship of direct costs with time is of
prime importance
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INDIRECT COSTS
Indirect Costs Includes :Overheads
Administrative expenses
Depreciation
Loss ofprofit
Loss ofrevenue
Penalty
The loss in profit, penalty comes under a
category called outage loss
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TOTAL COST
Total cost = direct cost + indirect cost

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Cost Analyses Using


The Critical Path Method (CPM)
The critical path method (CPM) is a

deterministic approach to project planning.

Completion time depends only on the

amount of money allocated to activities.

Reducing an activitys completion time is

called crashing.

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SOME TERMS
Normal time (tn) - Standard time that an

estimator normally allow for an activity.


Crash time (tc) - Minimum possible time in which
an activity can be completed, by employing extra
resources.
Normal cost(Cn) - Direct cost required to
complete the activity in the normal time duration.
Crash cost(Cc) - Direct cost corresponding to the
completion ofthe activity within crash time.
Cost slope (Cs) - Slope ofthe line(s)used to
approximate the direct cost curve .

CRASH TIME/CRASH COST


There are two crucial completion times

to consider for each activity.


Normal completion time (TN).
Crash completion time (TC), the

minimum possible completion time.

The cost spent on an activity varies between


Normal cost (CN). The activity is completed in TN.
Crash cost (CC). The activity is completed in TC.
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Crash timeCrash cost


The Linearity Assumption
The maximum crashing of activity

completion time is TC TN.


This can be achieved when spending C N
CC.
Any percentage of the maximum extra
cost
(CN CC) spent to crash an activity, yields
the same percentage reduction of the
maximum time savings (TC TN).
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Normal
CN = 2000
TN = 20 days

Time
20 and save on
completion
time on
18 and
save more
16
14

completion time

12
10

to save 25% of the


max. time reduction

Total Cost = 2600


A
Job time = 18 days

demonstration
of the Linearity
Add 25% of the extra
Assumption
cost...

Add to
Add more
tothe
the
normalnormal
cost...cost...

Crashing
CC = 4400
TC = 12 days

6
4
2
18

5 10 15 20 25 30 35 40 45

Cost (100)

Crash time/ Crash cost The Linearity Assumption

Additional Cost to get Max. Time Reduction

Marginal Cost =

Maximum Time reduction


(4400 - 2000)/(20 - 12) = 300 per day

MM== E
R
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Crashing activities
Meeting a Deadline at Minimum
Cost

If the deadline to complete a project cannot

be met using normal times, additional


resources must be spent on crashing
activities.
The objective is to meet the deadline at
minimal additional cost.

20

ABCD Restaurant
Meeting a Deadline at Minimum
Cost

ABCD Restaurant is a chain of Italian-style

fast food restaurants.


It is planning to open a new restaurant in 19
weeks.
Management wants to
Study the feasibility of this plan,
Study suggestions in case the plan cannot be

finished by the deadline.


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ABCD Restaurants

Without spending any extra


money, the restaurant will open
in 29 weeks at a normal cost of
Rs 200,000.

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When all the activities are crashed


to the maximum, the restaurant
will open in 17 weeks at crash cost
of Rs 300,000.

Determined by the PERT.xls template

ABCD Restaurants
Network presentation
E

O
I

B
A

K
J

C
H
D
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ABCD Restaurants
Marginal costs

R = T N TC = 5 3 = 2
E = CC CN = 36 25 = 11
M = E/R = 11/2 = 5.5

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ABCD Restaurants
Heuristic Solution
Small crashing problems can be solved

heuristically.
Three observations lead to the heuristic.
The project completion time is reduced only when
critical activity times are reduced.
The maximum time reduction for each activity is limited.
The amount of time a critical activity can be reduced
before another path becomes critical is limited.
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7.11 PERT/COST
PERT/Cost helps management gauge

progress against scheduled time and cost


estimates.
PERT/Cost is based on analyzing a

segmented project. Each segment is a


collection of work packages.
PROJECT
PROJECT

Work Package 1
Activity 1
Activity 2
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Work Package 3
Work Package 2
Activity 3
Activity 5

Activity 4
Activity 6

Work Package - Assumptions


Once started, a work package is performed

continuously until it is finished.


The costs associated with a work package are

spread
evenly throughout its duration.

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Monitoring Project progress


For each work package determine:
Work Package Forecasted Weekly cost =
Budgeted Total Cost for Work Package
Expected Completion Time for Work Package
(weeks)
Value of Work to date = p(Budget for the work

package)
where p is the estimated percentage of the work package completed.

Expected remaining completion time =

(1 p)(Original Expected Completion Time)


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Monitoring Project progress


Completion Time Analysis
Use the expected remaining completion time estimates,
to revise the project completion time.

Cost Overrun/Underrun Analysis

For each work package (completed or in progress) calculate

Cost overrun =
[Actual Expenditures to Date] - [Value of Work to Date].
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Monitoring Project Progress


Corrective Actions
A project may be found to be behind schedule,

and or experiencing cost overruns.


Management seeks out causes such as:
Mistaken project completion time and cost estimates.
Mistaken work package completion times estimates

and cost estimates.


Problematic departments or contractors that cause

delays.
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Monitoring Project Progress


Corrective Actions
Possible Corrective actions, to be taken

whenever needed.
Focus on uncompleted activities.
Determine whether crashing activities is desirable.
In the case of cost underrun, channel more resources

to problem activities.
Reduce resource allocation to non-critical activities.
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AB COMPANY
Perri is running for Mayor.
Twenty weeks before the election the campaign

remaining activities need to be assessed.


If the campaign is not on target or not within

budget, recommendations for corrective actions


are required.
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AB COMPANY
Status Report
AA
BB
CC
DD
EE
FF
GG
HH
II
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Work
WorkPackage
Package

Hire
Hirecampaign
campaignstaff
staff
Prepare
Prepareposition
positionpaper
paper
Recruit
Recruitvolunteers
volunteers
Raise
Raisefunds
funds
File
Filecandidacy
candidacypapers
papers
Prepare
Preparecampaign
campaignmaterial
material
Locate/staff
Locate/staffheadquarter
headquarter
Run
Runpersonal
personalcampaign
campaign
Run
Runmedia
mediacampaign
campaign

Expenditures
Expenditures($)
($)
2,600
2,600
5,000
5,000
3,000
3,000
5,000
5,000
700
700
5,600
5,600
700
700
2,000
2,000
00

Status
Status

Finish
Finish
Finish
Finish
Finish
Finish
Finish
Finish
Finish
Finish
40%
40% complete
complete
Finish
Finish
25%
25% complete
complete
0%
0% complete
complete

Work packages to focus on

AB CompanyCompletion Time Analysis


The remaining network at the end of week 20.
H
15

20+15=35

(1-p)(original expected completion time)=(1-0.25)(20)=15


F
7.8

I
9

Finish

27.8+9=36.8.8

20+7.8=27.8

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The remaining activities are expected to take


0.8 weeks longer than the deadline of 36 weeks.

AB Company
Es
t im

Project Cost Control


ate
d

wo

rk
Budgeted
Values
val
ue
Co
Total
Total Percent
Estimated
Actual Cost
Work
to
st
da
Time te=(1 Cost Completed overValue Value Ocerrun
Package

A
B
C
D
E
F
G
H
I
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Total

4
6
4
6
2
13
1
20
9

r
100% un =2,000
2,600
5
60
03,000 .40)=
100%
3,000
5,000
$5,
52
200 100%
4,500
4,500 00 3,000
=4
00
2,500
100%
2,500
5,000
500
100%
500
700
13,000
40%
5200
5,600
1,500
100%
1,500
700
6,000
25%
1,500
2,000
7,000
0%
0
0

600
2000
-1500
2,500
200
400
-800
-500
0

40,000

3,900

3 ,0
00)
2000
(0

20,700

24,600

AB COMPANY
Results Summary
The project is currently .8 weeks behind

schedule
There is a cost over-run of $3900.
The remaining completion time for
uncompleted work packages is:
Work package F: 7.8 weeks,
Work package H: 15 weeks,
Work package I:
9 weeks.

Cost over-run is observed in


Work package F: $400,
Work package H: $500.
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