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
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 = = 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 = = 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