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Time/Cost Trade-off Analysis

Time/Cost Trade-off Analysis. Kathy S. Schwaig. A Roadmap of the Project Planning Process. Develop project charter Establish work breakdown structure Analyze sequencing relationships Estimate “normal” activity durations Perform network calculations Validate/revise initial schedule

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Time/Cost Trade-off Analysis

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  1. Time/Cost Trade-off Analysis Kathy S. Schwaig

  2. A Roadmap of the Project Planning Process • Develop project charter • Establish work breakdown structure • Analyze sequencing relationships • Estimate “normal” activity durations • Perform network calculations • Validate/revise initial schedule • Perform time-cost tradeoff analysis • Load resources to activities • Resolve any resource/workload imbalances • Develop budget and cash flow plan based on analysis of direct and indirect costs

  3. Validating the Schedule • Once the project network has been drawn and analyzed, you should check to make sure the results make sense . . . this is called validation • Is the project duration reasonable? • Is the critical path where you would expect it to be? • Are you missing any activities? Or precedence relationships? • If you are using project management software, has the data been entered correctly?

  4. Revising the Schedule • The schedule may be revised for many reasons • To correct errors • To reflect changes in assumptions • To reflect reductions in project scope (i.e., elimination of activities) • To reflect changes in the project calendar • In response to changes in the approach taken to complete an activity • In response to changes in precedence relationships

  5. Time/Cost Trade-off Analysis • Time/cost trade-off analysis is the compression of the project schedule to achieve a more favorable outcome in terms of project duration, cost, and projected revenues • Objectives of time/cost trade-off analysis • Minimize total project costs • Compress project to an acceptable duration • Done by selectively crashing specific activities to shorten project duration

  6. Time/Cost Trade-off Analysis • You might think that total project costs will increase when we begin to crash activities • But, total project costs consist of both indirect (project-based) costs (PBC) and activity-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

  7. Which Activities are the Best Candidates for Crashing? • Any activity that is on the critical path • Activities with relatively long durations • Bottleneck activities (that appear on multiple critical paths) • Activities that relatively low cost to crash • Activities that are not likely to cause quality problems if crashed • Activities that occur relatively early in the schedule and are labor intensive

  8. Steps for Performing Time/Cost Trade-off Analysis • Estimate project-based (indirect) cost per unit time • Identify critical activities that are good candidates for crashing • Determine activity-based (direct) cost of crashing selected activities vs. indirect cost savings • Select activities to be crashed • Recalculate the forward pass and check for changes in critical path

  9. Potential Problems with Crashing • Reduced flexibility and less margin for errorincreased risk of failure to complete project on time • Raises potential for poor quality • Increases potential for staff burnout, stress, and turnover (from what Yourdon calls Death March projects) • Raises activity-based costs • May negatively affect other projects • Creates unrealistic expectations for future projects

  10. Crashing Example A N=7, $50,000 C=5, $62,000 B N=9, $80,000 C=6, $110,000 Start Finish C N=10, $40,000 C=9, $45,000 D N=8, $30,000 C=6, $42,000

  11. Crashing Example Cont’d • Costs to accelerate are: • Activity A, $6,000/wk • Activity B, $10,000/wk • Activity C, $5,000/wk • Activity D, $6,000/wk • Makes sense to crash only those activities on the critical path(s) with the lowest acceleration cost per time period

  12. Crashing Example Cont’d Step 1: Crash C by 1 week A N=7, $50,000 C=5, $62,000 B N=9, $80,000 C=6, $110,000 Start Finish C N=10, $40,000 C=9, $45,000 D N=8, $30,000 C=6, $42,000 Path C-D = 9 + 8 = 17

  13. Crashing Example Cont’d Step 1: Crash C by 1 week Step 2: Crash D by 1 week A N=7, $50,000 C=5, $62,000 B N=9, $80,000 C=6, $110,000 Start Finish C N=10, $40,000 C=9, $45,000 D N=8, $30,000 C=6, $42,000 Path C-D = 9 + 7 = 16

  14. Crashing Example Cont’d Step 1: Crash C by 1 week Step 2: Crash D by 1 week Step 3: Crash D by 1 week AND crash A by 1 week. Why? A N=7, $50,000 C=5, $62,000 B N=9, $80,000 C=6, $110,000 Start Finish C N=10, $40,000 C=9, $45,000 D N=8, $30,000 C=6, $42,000

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