Time/Cost Trade-off Analysis

Kathy S. Schwaig

A Roadmap of the Project Planning Process

Develop project charterEstablish work breakdown structureAnalyze sequencing relationshipsEstimate “normal” activity durationsPerform network calculationsValidate/revise initial schedulePerform time-cost tradeoff analysisLoad resources to activitiesResolve any resource/workload imbalancesDevelop budget and cash flow plan based on analysis of direct and indirect costs

Validating the ScheduleOnce the project network has been drawn and analyzed, you should check to make sure the results make sense . . . this is called validationIs 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?

Revising the ScheduleThe schedule may be revised for many reasons

To correct errorsTo reflect changes in assumptionsTo reflect reductions in project scope (i.e., elimination of activities)To reflect changes in the project calendarIn response to changes in the approach taken to complete an activityIn response to changes in precedence relationships

Time/Cost Trade-off AnalysisTime/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 revenuesObjectives 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

Time/Cost Trade-off AnalysisYou might think that total project costs will increase when we begin to crash activitiesBut, 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 earlyBut, PBC (the indirect costs) goes down if we finish the project early

Which Activities are the Best Candidates for Crashing?

Any activity that is on the critical pathActivities with relatively long durationsBottleneck activities (that appear on multiple critical paths)Activities that relatively low cost to crashActivities that are not likely to cause quality problems if crashedActivities that occur relatively early in the schedule and are labor intensive

Steps for Performing Time/Cost Trade-off Analysis

1. Estimate project-based (indirect) cost per unit time

2. Identify critical activities that are good candidates for crashing

3. Determine activity-based (direct) cost of crashing selected activities vs. indirect cost savings

4. Select activities to be crashed5. Recalculate the forward pass and

check for changes in critical path

Potential Problems with Crashing

Reduced flexibility and less margin for errorincreased risk of failure to complete project on timeRaises potential for poor qualityIncreases potential for staff burnout, stress, and turnover (from what Yourdon calls Death March projects)Raises activity-based costsMay negatively affect other projectsCreates unrealistic expectations for future projects

Crashing Example

Start

BN=9, $80,000C=6, $110,000

AN=7, $50,000C=5, $62,000

Finish

DN=8, $30,000C=6, $42,000

CN=10, $40,000C=9, $45,000

Crashing Example Cont’d

Costs to accelerate are:Activity A, $6,000/wkActivity B, $10,000/wkActivity C, $5,000/wkActivity D, $6,000/wkMakes sense to crash only those activities on the critical path(s) with the lowest acceleration cost per time period

Crashing Example Cont’d

Start

BN=9, $80,000C=6, $110,000

AN=7, $50,000C=5, $62,000

Finish

DN=8, $30,000C=6, $42,000

CN=10, $40,000C=9, $45,000

Step 1: Crash C by 1 week

Path C-D = 9 + 8 = 17

Crashing Example Cont’d

Start

BN=9, $80,000C=6, $110,000

AN=7, $50,000C=5, $62,000

Finish

DN=8, $30,000C=6, $42,000

CN=10, $40,000C=9, $45,000

Step 1: Crash C by 1 week

Step 2: Crash D by 1 week

Path C-D = 9 + 7 = 16

Crashing Example Cont’d

Start

BN=9, $80,000C=6, $110,000

AN=7, $50,000C=5, $62,000

Finish

DN=8, $30,000C=6, $42,000

CN=10, $40,000C=9, $45,000

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?