Budgeting and Cost Estimation (2)

8/10/2019 Budgeting and Cost Estimation (2)

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(project Crashing)


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Time/cost trade-off analysis is thecompression of the project schedule toachieve a more favorable outcome in terms

of project duration, cost, and projectedrevenues

Objectives of time/cost trade-off analysis Minimize total project costs

Compress project to an acceptable duration

Done by selectively crashing specificactivities to shorten project duration


3/23

You might think that total project costswill increase when we begin to crashactivities

But, total project costs consist of bothindirect (project-based) costs (PBC) andactivity-based costs (ABC) ABC goes up when we crash activities in an

effort to finish the project early But, PBC (the indirect costs) goes down if we

finish the project early


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Any activity that is on the critical path Activities with relatively long durations Bottleneckactivities (that appear on

multiple critical paths) Activities that relatively low cost to crash Activities that are not likely to cause quality

problemsif crashed Activities that occur relatively earlyin the

schedule and are labor intensive


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1. Estimate project-based (indirect) cost per unittime

2. Identify critical activities that are goodcandidates for crashing

3. Determine activity-based (direct) cost ofcrashing selected activities vs. indirect costsavings

4. Calculate crash cost per period = (crash cost normal cost)(Normal time crash time)

5. Select activities with minimum crash cost perperiod to be crashed

6. Recalculate the forward pass and check forchanges in critical path


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Reduced flexibility and less margin for errorincreased risk of failure to completeproject on time

Raises potential for poor quality Increases potential for staff burnout, stress,

and turnover Raises activity-based costs May negatively affect other projects


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Crashing

reducing project time by expending additionalresources

Crash time

an amount of time an activity is reduced

Crash cost cost of reducing activity time

Goal

reduce project duration at minimum cost


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Activity time

Crashing activity

Crashtime

Crashcost

Normal Activity

Normaltime

Normal

cost

Slope = crash cost per unit time


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Crashing costs increase as project duration decreases

Indirect costs increase as project duration increases

Reduce project length as long as crashing costs are less than indirect

costs

Time-Cost Tradeoff

time

Direct cost

Indirect cost

Total project costMin total cost =

optimal projecttime


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The network and durations given below shows the normalschedule for a project.

You can decrease (crash) the durations at an additionalexpense.

The Table given below summarizes the time-costinformation for the activities.

The owner wants you to you to finish the project in 110days.

Find the minimum possible cost for the project if you wantto finish it on 110 days. (Assume that for each activity thereis a single linear, continuous function between the crashduration and normal duration points).


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darla/smbs/vit 21

1

12

2

8

412

3

4 5

4

6

4

7

4


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22

Activity Normaltime

Normalcost Rs

Crashtime

Crashcost Rs

Allowablecrash time

slope

1

2

3

4

5

6

7

12

8

4

12

4

4

4

3000

2000

4000

50000

500

500

1500

7

5

3

9

1

1

3

5000

3500

7000

71000

1100

1100

22000

5

3

1

3

3

3

1

400

500

3000

7000

200

200

7000

75000 110700


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23

1

12

2

8

3

4 5

4

6

4

7

4

R400

R500

R3000

R7000

R200

R200

R70012

4

Project duration = 36

From..

To..1

7

2

8

3

4 5

4

6

4

7

4

R400

R500

R3000

R7000

R200

R200

R70012

4

Project

duration = 31

Additional cost =R2000

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Budgeting and Cost Estimation (2)