PROJECT COST ANALYSIS

Direct Cost

Direct costs are the costs that can be identified with activity. For example,
labour costs, material cost etc. Let us say an activity takes 7 days with 2 men. If 4
men works it can be done in 4 days. The cost of 2 workmen increases. As we go on
reducing the activity time, cost goes on increasing as shown in figure 15.26.

Figure 15.26 Direct Cost.

Indirect Cost

These are the costs, which cannot be identified with the activity. Say the salary
of a manager, who is in-charge of many projects. Exact amount of his salary that
should be charged to a particular project cannot be estimated correctly as it is very
difficult to say how much time he has spent on each project. As the duration of
project goes on reducing the indirect cost also goes on decreasing as in figure 15.27.

Figure 15.27 Indirect Cost.

Total cost

The total cost which is the sum of direct cost and indirect cost is shown in
figure 15.28. As the project duration goes on reducing the total cost reduces from B
to C and if duration is still crashed the total cost increases to A. Hence our problem
here is to find out the optimal duration of the project and optimal cost.

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 Figure15.28 Total cost curve.

Cost Slope

Consider a small portion of total cost curve and enlarge it. It appears like a
straight line as shown in figure 15.29.

Figure 15.29 Cost Slope.

Example: A project consists of the following activities. The normal and crash points
for each activity are given below. It is required to compute the different minimum-
cost schedules that can occur between normal and crash times.

Normal Crash
Activities
Time Cost Time Cost
1→2 8 100 6 200
1→3 4 150 2 350
2→4 2 50 1 90
2→5 10 100 5 400
3→4 5 100 1 200
4→5 3 80 1 100
Solution:

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 Normal Crash
Activities ∆C ∆T Slope(∆C/∆T)
Time(Day) Cost ($) Time(Day) Cost($)
1→2 8 100 6 200 100 2 50
1→3 4 150 2 350 200 2 100
2→4 2 50 1 90 40 1 40
2→5 10 100 5 400 300 5 60
3→4 5 100 1 200 100 4 25
4→5 3 80 1 100 20 2 10
∑ 580 ∑ 1340

Normal Network Crash Network

CP is 1-2-5. CP is 1-2-5
Time =18 Day Time =11 Day
Cost=580 $ Cost=1340 $

CP is 1-2-5. CP is 1-2-5.
Time =17 Day Time =17 Day
Cost=580 +1×50 =630$ Cost=630 +1×50 =680$

Compression Limit = Min (Crash Limit , FF)

Where FF = Ej – Ei - Dij

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Compression Limit = Min (5 , 4) =4 CP1 is 1-2-5.
CP2 is 1-3-4-5.
Time =12 Day
Cost=680 +4×60 =920$

In order to decrease the path (2-5), the path (1-3) or (3-4) or (4-5) must be decease
also.

The better path which it has the lowest cost.

(2-5), (1-3) the cost = 60+100=160$

(2-5), (3-4) the cost = 60+25=85$

(2-5), (4-5) the cost = 60+10=70$ is the lowest cost

We will decrease the path ( 2-5), (4-5) which has the lowest cost =70$

CP1 is 1-2-5.
CP2 is 1-3-4-5.
Time =11 Day
Cost=920 +70 =990$

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All the activities on the critical path (1-2-5) are at crash time. It is no longer possible
to reduce the time of the project.
Example (H.W): A project consists of the following activities. Their logical relationship and time
taken is given along with crash time and cost details. If the indirect cost is 2000Rs/ per week, find
the optimal duration and optimal cost to crash the project.

Example (H.W): A project consists of the following activities. The normal and crash points for
each activity are given below. It is required to compute the different minimum-cost schedules that
can occur between normal and crash times.

Example (H.W):The following details pertain to a job, which is to be scheduled to optimal cost.
Compute the different minimum-cost schedules that can occur between normal and crash times.

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