The Cost-Time Tradeoffs in Reducing Project Duration - Essay Example

? EXERCISE MODULE 8 Q1. Explain the cost-time tradeoffs in reducing project duration Cost-Time Tradeoffs is a management tool usedto deal with limitations of not being able to complete a project as scheduled. Cost-time tradeoffs aim at reducing the original project duration to meet a specific deadline at a reduced cost (Kohli, 2007). Reducing project duration based on trade-offs is known as crashing (de la Garza & Hidrobo, 2006). There are several reasons why the management may decide to reduce the project duration. Project completion at a reduced duration for example, may earn the company a competitive advantage. The company may need to finish the project according to a predefined deadline, it may be done to improve project cash flow, it may be a way of avoiding liquidation damages, it may be a way of recovering early days, it may also be a way of avoiding oncoming danger, for example adverse weather conditions that might affect the project’s progress, and it may also be a way of releasing key resources for an oncoming project (Kohli, 2007). It is also important to recognize that as projects continue, there are several indirect costs incurred that can be eliminated by shortening the duration time. These costs include; cost of equipment, interest on investment, machinery, facilities, personnel, labour, and the cost of time lost when some employees do not come regularly to work (Roy, 2005). Project duration can be reduced depending on the type of work being carried out, and the availability of resources. Projects involving installation or development of new software for a company’s systems for example, may require a specific skill. This can only be obtained from specific persons. Reducing project duration considering this case will require additional labour time for the specialist. He or she will then be required to work overtime. This however, needs additional resources, for the specialist has to be paid for extra time worked. Project duration time can be reduced by: application of multiple-shifts work, offering incentive payments to increase the productivity, using additional resources when necessary, working extended hours, working on holidays and weekends, and using alternative methods and sequences among others (Roy, 2005). Reducing the time taken to complete a project involves reducing the activities’ duration, or adjusting overlaps between activities. This however, has an effect on the original plan in terms of the cost. Whenever activity duration is reduced, the cost increases. This is because, with reduced time for the activity, it means that additional resources were used to ensure a lot of work is done within a short period. Take an example of construction of a building. For a normal duration, there are seven workers employed to do specific duties. It is expected that their work will be completed in a month. Since the project duration has been reduced to two weeks, the company will have to employ additional workers with the same skills to speed up the work. The workers will have to be paid, therefore, additional resources. The tools and equipment used will also have to be added. A similar understanding can be obtained from overtime work. This requires additional wages, as well as costs used to correct quality problems (Kohli, 2007; Roy, 2005). This shows that there is a relationship between the direct cost, and time of completing an activity. The cheaper the resources, the longer the time they take to complete an activity. If the duration is shortened, there is an increase in direct costs. Direct costs are such as; the cost of equipment, labour, and materials. This should however, not lead to an assumption that there is an automatic inverse relationship between the project duration and the quantity of resources deployed. This is because, not all activities are similar. There are those that can be done in a short time by deployment of more resources, and there are those that deployment of more resources does not reduce the time needed. For example, it should not be automatically assumed that the work that can be done by one man in one month can be done by 30 men in one day (Kohli, 2007). Indirect costs and project crashing costs however, have an inverse relationship. When the project duration is reduced, crashing costs go up, while indirect costs go down (Roy, 2005). Q2. Discuss options for accelerating project completion There are several techniques that can be used to accelerate project completion. de la Garza and Hidrobo (2006) describe the following: Time-cost trade-offs Freezing of project scope Cycle time analysis Essential good management practices Overlapping sequential design activities based on CE Constructability review Value engineering Concurrent engineering Four-dimensional visualization of construction scheduling Lean design Fast-track Lean Construction Just-in-time delivery Overlapping sequential construction activities based on CE Optimization of construction operations through simulation and genetic algorithms (de la Garza & Hidrobo, 2006) In this case focus is on Time-cost trade-offs. Project completion can be accelerated through reduction of activity durations. This can be done through several ways. Various combinations of activity costs, and durations have to be analysed and considered to achieve a reduction for the minimum cost. The following ways can be used to crash a project, implement: Multiple-shift work The use of alternate construction methods or sequences Extended workdays or overtime The use of more productive or larger equipment The use of a higher number of craftsmen or over manning The use of materials with faster installation methods (de la Garza & Hidrobo, 2006) Extended workdays or scheduled overtime means increasing the number of working hours for the labourers involved in the project. If the project manager finds out that minimising the duration of the project to, for example, two months, can be done when labourers work more hours, the manager can decide to extend working hours for the current labourers. There has to be a scheduled overtime depending on the project’s activities. The manager can also implement a multiple shift system, employing more people to work different shifts to ensure the work is completed within a scheduled time. The number of craftsmen can also be increased (over manning). Logically, this would speed up the project’s activities. The use of larger or faster equipment, the use of alternate construction methods, and the use of materials with faster installation methods; speed up certain processes depending on the project’s activities. For example, using a construction method that requires so many labourers to handle specific works, which can all be done by one equipment that combines all the activities at a faster rate is time consuming. Using the faster equipment would be a better choice for a quick completion of the project. It only requires an analysis of the cost of acquiring and running such equipment compared to the company’s capabilities. The process of accelerating project completion requires an analysis of each activity’s duration, how the duration can be reduced, and the cost of such a reduction. This needs knowledge, scheduling, and experience on appropriate approaches (de la Garza & Hidrobo, 2006). When accelerating project completion time, options selected by a manager depend on whether there are resources or not. When resources are constrained, completion time can be accelerated through the following: Fast-tracking, critical chain project management, reducing he project scope, and reducing the quality of the project. When resources are available, the following options can be used: Deploying more resources, outsourcing if it is a quicker means, establishing a core team, and scheduling overtime (Gido & Clements, 2009). Q3. Describe the difference between types of project costs Project costs consist of the labor, money, equipment and other resources needed to complete the project. It is important to manage the costs to achieve efficiency. There are different types f project costs, but the most commonly used are direct and indirect costs. There is project total cost, indirect costs, direct costs, crash costs, and normal cost. Project total cost: This is the sum of direct and indirect project costs. Direct costs are expenditures that are directly chargeable to the project or a task; they can be directly identified with the project’s activities, for example, labor and material costs of a specific activity. In cases of outsourcing project activity, direct costs are the costs charged by the sub contractor, since the sub contractor will be carrying out the entire activity (Hajdu & Hajdu, 1996; Gahlot, 2007). Indirect costs are expenditures that cannot be evidently allocated to project activities. They are sometimes referred to as overhead costs or fixed cost. The cost factors are not easily attributed to the project activities, but they still belong to the whole project. Examples are such as; administration charges, insurance charges, management salaries, social facilities’ rents, interest charges, and establishment charges. These costs are usually linear so that the amount of time spent doing project activities increases the amount of indirect costs. If one day of a project activity is saved, indirect costs of the day are also saved. Reducing project duration therefore, reduces the indirect cost of the project (Hajdu & Hajdu, 1996; Gahlot, 2007). Normal cost: This is the minimum direct cost of an activity when scheduled for normal time duration. Crash Cost: It is the direct cost equivalent to the crash time (Gahlot, 2007). References de la Garza, J. M. and Hidrobo, D. E. (2006). Schedule Acceleration Techniques Using a CM. Report. Retrieved on 5th December 2013 from: http://cmaanet.org/files/shared/leration_techniques_using_a_CM_-_FinalReport.pdf. Gahlot, P. S. (2007). Construction Planning And Management. New Delhi: New Age International. Gido, J. and Clements, J. P. (2009). Successful Project Management. Mason, OH: Cengage Learning. Kohli, U. (2007). Project Management Handbook. New Delhi: Tata McGraw-Hill Education. Hajdu, M. and Hajdu, Miklos. (1996). Network Scheduling Techniques for Construction Project Management. New York: Springer. Roy, R. N. (2005). A Modern Approach to Operations Management. New Delhi: New Age International. Read More