Unit-3 Cost Optimization
Unit-3 Cost Optimization
Techniques
Unit-3 Cost & Resource Optimization
Techniques
2. Direct Cost
It consists of expenditures which are chargeable to and can be identified
specially with the activities of the project e.g. material cost, labor cost..
3. Indirect cost
It consists of expenditures which cannot be clearly allocated to individual
activities of the project e.g. establishment charges, insurance charges,
administration charges…..
Direct Cost
DIRECT COST
LABOUR EXPENSES
PF &OTHER ITEMS
WELFARE EXPENSES
CONVEYANCE EXPENSES
OPE
INDIRECT COST
HIRE & RENTAL CHARGES
Total cost
Direct cost
Indirect cost
cost
time
Project Acceleration
What are the reasons for project time acceleration?
• The contractor may wish to achieve job completion by a certain date to avoid adverse
weather, to beat the annual spring runoff, to free workers and equipment for other work
• Financial arrangements may be such that it is necessary to finish certain work within a
prescribed fiscal period
• The prime contractor may wish to consummate the project ahead of time to receive an
early completion bonus from the owner
• Project work schedules must be adjusted to accommodate adverse job circumstances
(local political/social issues)
• Revisions are often essential to meet contract time requirements
• On a job in progress, the owner may desire an earlier completion date than originally
called for by the contract and may request that the contractor quote a price for
expediting the work
Cost-time analysis in network planning
• Normal time (Tn)
• It is time for performing an activity with the normally available resources
• Normal Cost (Cn)
• It is the minimum direct cost when the activity is performed in normal time duration
• Crashing
• Reducing project time by expending additional resources
• Crash time (Tc)
• It is the minimum time in which an activity can be performed
• Crash cost (Cc)
• It is the direct cost corresponding to the crash time
Activity crashing
Rate of crashing or Cost slope: It is the ratio of difference between crash
and normal cost to the difference between normal and crash time
=(Cc - Cn) /(Tn –Tc )
Direct cost
Indirect cost
cost
Project Time-Reduction
variety of terms used to the process of shortening
project time durations
• ‘‘Least-cost expediting,’’
• ‘‘project compression,’’ and
• ‘‘time-cost trade-off’’
Which activity to be expedited to reduce total project time?
The time required to reach any future network event, terminal or otherwise, is
determined by the longest time path/critical path from the current stage of project
advancement to that event
When the date of project completion is to be advanced, it is the network critical path
that must be shortened
When a longest path is shortened, the floats of other activity paths leading to the
same event are reduced commensurately
continued shortening of the original critical path will lead, sooner or later, to the
formation of new critical paths and new critical activities
When multiple critical paths are involved, all such paths must be shortened
simultaneously if the desired time advancement of the event is to be achieved
1 2 4
4 5 4
4 13 13
0 0
1 4 2 7 4
Critical Path:1-2-3-4
Total Cost = Normal cost + Crash cost + Indirect Cost
=(400+300+360+500)+0+(250*13)
=(1560)+(3250)
=4810 P1(13, 4810)
Activity Normal Crash Time, Normal Cost, Crash Cost, Cost Slope,
Time, Tn Tc Cn Cc Rs/Day
1-2 4 3 400 600 200
2-3 5 2 300 750 150
2-4 7 5 360 540 90
3-4 4 2 500 1000 250
Indirect Cost = Rs.250/day
Step2: Crash least cost slope activity in Critical path by 1day
8 8
3
4 5-1 4 12 12
0 4
0
1 4 2 7 4
Critical Path:1-2-3-4
Total Cost = Normal cost+ Crash cost + Indirect Cost
=(1560)+(150*1)+250*12
=4710 P2(12, 4710)
Activity Normal Crash Time, Normal Cost, Crash Cost, Cost Slope,
Time, Tn Tc Cn Cc Rs/Day
1-2 4 3 400 600 200
2-3 5 2 300 750 150
2-4 7 5 360 540 90
3-4 4 2 500 1000 250
Indirect Cost = Rs.250/day
Step3: Crash least cost slope activity in Critical path by 2days
7 7
3
5-2 4 11 11
0 0 4 4
1 4 2 7 4
Critical Path:1-2-3-4
Total Cost = Normal cost+ Crash cost + Indirect Cost &1-2-4
=(1560)+(150*2)+250*11
=4610 P3(11, 4610)
Activity Normal Crash Time, Normal Cost, Crash Cost, Cost Slope,
Time, Tn Tc Cn Cc Rs/Day
1-2 4 3 400 600 200
2-3 5 2 300 750 150
2-4 7 5 360 540 90
3-4 4 2 500 1000 250
Indirect Cost = Rs.250/day
6 6
Step4: Crash activity 1-2 by 1day 3
5-2 4
0 3 10 10
3
0
1 2 4
4-1 7
Critical Path:1-2-3-4
Total Cost = Normal cost+ Crash cost + Indirect Cost &1-2-4
=(1560)+(200*1+150*2)+250*10
=4560 P4(10, 4560)
Activity Normal Crash Time, Normal Cost, Crash Cost, Cost Slope,
Time, Tn Tc Cn Cc Rs/Day
1-2 4 3 400 600 200
2-3 5 2 300 750 150
2-4 7 5 360 540 90
3-4 4 2 500 1000 250
Indirect Cost = Rs.250/day
5 5
Step5: Crash activities 2-3&2-4 by 1day further
3
5-3 4
0 3 9 9
0 3
1 4-1 2 7-1 4
Critical Path:1-2-3-4
Total Cost = Normal cost+ Crash cost + Indirect Cost &1-2-4
=(1560)+(200*1+150*3+90*1)+250*9
=4550 P5(9, 4550)
Activity Normal Crash Time, Normal Cost, Crash Cost, Cost Slope,
Time, Tn Tc Cn Cc Rs/Day
1-2 4 3 400 600 200
2-3 5 2 300 750 150
2-4 7 5 360 540 90
3-4 4 2 500 1000 250
Indirect Cost = Rs.250/day
5 5
Step6: determine project cost with max. crash time
3
2 4-1 8
3 8
0 3
0
1 3 2 5 4
Critical Path:1-2-3-4
Total Cost = Direct cost + Indirect Cost &1-2-4
=(Normal cost+ Crash Cost) + Indirect Cost
={(1560)+(200*1+150*3+90*2+250*1)}+250*8
=4640 P6(8, 4640)
Total Cost Time
Step7:
Tabulate the calculated total cost and time P1 4810 13
values P2 4710 12
P3 4610 11
Step8:
Plot the graph of Total cost and Time P4 4560 10
P5 4550 9
Step9:
Determine Optimum cost & Optimum Time P6 4640 8
4900
4800
4700
4600
4500
4400
4300
4200
4100
4000
5 6 7 8 9 10 11 12 13 14
Optimum cost is Rs.4550 and
Optimum time is 9days
2
1 4 5
Determine the optimum time duration and optimum cost. Also plot a curve of total cost vs.
time and indicate on it the optimum time and optimum cost
Activity Normal Time, Crash Time, Normal Cost, Crash Cost, Rs.
week week Rs.
1-2 3 2 12000 16000
1-3 6 3 18000 24000
2-4 2 1 20000 24000
3-4 4 2 16000 21000
4-5 5 4 30000 35000
Step1: determine project cost with normal durations Indirect Cost = Rs.3000/week
3 8 5
2
0 0 3 2 10 10 15 15
1 4 5
5
6 6
6 4
3
Critical Path:1-3-4-5
3 5 2
2
0 0 3 2 7 7 12 12
1 4 5
5
6-3 3 3
3 4
Critical Path:1-3-4-5
Total Cost = Normal cost+ Crash cost+ Indirect Cost
=(12000+18000+20000+16000+30000)+(3*2000)+(3000*12)
=96000+6000+36000
=138000 P2 (12, 138000) What next?...& Why?
Activity Normal Crash Time, Normal Cost, Crash Cost, Cost Slope,
Time, week week Rs. Rs. Rs/week
1-2 3 2 12000 16000 4000
1-3 6 3 18000 24000
2000
2-4 2 1 20000 24000
4000
3-4 4 2 16000 21000
2500
4-5 5 4 30000 35000
5000
Step3: determine project cost with critical activity 3-4 Indirect Cost = Rs.3000/week
crashing 2weeks
3 3
2
0 0 3 2 5 5 10 10
1 4 5
5
3 3
6-3 4-2
3
Critical Path:1-3-4-5
&1-2-4-5
Total Cost = Normal cost+ Crash cost+ Indirect Cost
=(12000+18000+20000+16000+30000)+(3*2000+2*2500)+(3000*10)
=96000+11000+30000
=137000 P3 (10, 137000) What next?...& Why?
Activity Normal Crash Time, Normal Cost, Crash Cost, Cost Slope,
Time, week week Rs. Rs. Rs/week
1-2 3 2 12000 16000 4000
1-3 6 3 18000 24000
2000
2-4 2 1 20000 24000
4000
3-4 4 2 16000 21000
2500
4-5 5 4 30000 35000
5000
Step4: determine project cost with critical activity 4-5 Indirect Cost = Rs.3000/week
crashing 1week
3 3
2
0 0 3 2 5 5 9 9
1 4 5
5-4
3 3
6-3 4-2
3
Critical Path:1-3-4-5
&1-2-4-5
Total Cost = Normal cost+ Crash cost+ Indirect Cost
=(12000+18000+20000+16000+30000)+(3*2000+2*2500+1*5000)+(3000*9)
=96000+16000+27000
=139000 P4 (9, 139000) What next?...& Why?
Total Cost Time
Step5:
Tabulate the calculated total cost and time P1 141000 15
values P2 138000 12
P3 137000 10
Step6:
Plot the graph of Total cost and Time P4 139000 09
Step7:
Determine Optimum cost & Optimum Time
144000
142000
140000
138000
136000
134000
132000
130000
6 7 8 9 10 11 12 13 14 15 16 17 18
Optimum cost is Rs.137000 and
Optimum time is 10weeks
Determine the optimum time duration and optimum cost.
4
A,10 F, 15
1 B, 2 2 D, 5 5 G, 6 6
C, 8
E, 7
3
Activity Normal Time, Crash Time, Normal Cost, Crash Cost,
month month Rs. Rs.
1-2(B) 2 1 30000 32000
1-3 (C) 8 6 40000 46000
1-4 (A) 10 5 50000 75000
2-5 (D) 5 3 10000 15000
3-5 (E) 7 6 25000 26000
4-6 (F) 15 10 70000 100000
5-6 (G) 6 4 15000 23000
500000
495000
490000
485000
480000
475000
470000
465000
460000
455000
450000
15 17 19 21 23 25 27 29
Optimum cost is Rs.464000 and
Optimum time is 16months
Rescheduling
• Resource smoothing is accomplished through rescheduling
• Equipment conflict can be removed by rescheduling one of the activities involved by
using its float or by adding a precedence restraint to the project network.
• Adding a precedence restraint means using a dummy to show that one of the activities involved
must follow the other rather than parallel it
• The conflict must be removed by rescheduling activities with the least possible
increase in project duration and cost
‘‘Manpower leveling’’ is the process of smoothing out daily labor demands. Perfection in
this regard can never be attained, but often the worst of the inequities can be removed
through a process of selective rescheduling of noncritical activities
Rescheduling
Original Time scaled Network
D 5 7 E 7 9 F
1 6
5 2 1
10 10
G
7 7 5 8
3
0 0 A 4 4
B
0 2 4
4 3 7 7
C H J
3 7
2 4 5 3 7 8 2
Rescheduling
Rescheduled Time scaled Network
D 5 7 E 7 9 F
1 6
5 2 1
10 10
G
7 7 5 8
3
0 0 A 4 4
B
0 2 4
4 3 7 7
C H J
3 7
2 4 5 3 7 8 2
What is Network update?
The method used for displaying progress of activities on the planning charts,
corresponding to a given time is called Network updating
D G
4 2 4 3
Partially Completed activity Still to start activity
Compute the EFT of the network to determine the minimum time required for the
completion of the remaining work
Set the LFT equal to project time objective in the network. Time analyze the updated
network
Network Updating method
Original Network
5 7 E 7 9
1 6 F
2
D 1
5 G
7 7 5 8
3
10 10
0 0 4 4
A B J
0 4 2 4 7 7
3 2
C
2 H
3 7
4 5 3 7 8
Network Updating method
Original Network
E
1 6 F
2
1
D
5 G
5 8
3
A B J
0 4 2 4
3 2
C
2
H
3 7
3
Network Updating method
Original Time scaled Network
D 5 7 E 7 9 F
1 6
5 2 1
10 10
G
7 7 5 8
3
0 0 A 4 4
B
0 2 4
4 3 7 7
C H J
3 7
2 4 5 3 7 8 2
Network Updating method
• Progress of work of a project at the end of 6th week
Activity Duration Work done value (in
1000$)
S.No.
Code Description original Balance of Total %
work
1 0-1 D 5 2 100 60
2 1-6 E 2 2 10 Nil
3 6-8 F 1 1 5 Nil
4 5-8 G 3 3 15 Nil
5 0-2 A 4 0 20 100
6 2-4 B 3 2 30 33
7 0-3 C 2 0 20 100
8 3-7 H 3 3 45 Nil
9 7-8 J 2 2 15 Nil
Total 260 42.3%
Network Updating method
End of 6th week, updated Time scaled Network
D 2 2 E 4 4 F
1 6
5 2 2 1
5 5
G
2 2 5 8
3
0 0 A 0 0
B
0 2 4
4 3 2 2 2
C H J
3 7
2 0 0 3 3 3 2
Network Updating….…
To make a network update, information as of the cutoff date is required concerning the work to be
done:
• New activities that must be added to the network
• Existing activities that are to be deleted
• Changes in job logic
• Changes in original material delivery or other resource availability dates
• Estimated times to complete all activities presently under way but not yet completed
• Changes in estimated activity durations
• Changes in the scope of the work
Resource Profiling
• A resource profile is a breakdown and depiction of a resource need
for a defined profile type, generated at a macro level represented by
using Histograms.
• The process of creating a resource profile can be done either
empirically (drawing on past experience with an appropriate data
source available) or experientially (drawing on past experience
without an appropriate source of data)
• Resources smoothing or Resources levelling may be adopted for
uniform utilization of resources
3 4 3
2 2 3
2 4 4 5 2 2
12 2 4
Resource levelling
• Activities are so rescheduled that the maximum or peak resources
requirement does not cross the limit of available resources
• In rescheduling the available resources are first used. If by doing so,
the resources demand is more than the available resources, the
duration of the some of the activities is increased so that the
resources requirement for these activities is decreased
Introduction to Project management
software
• Construction project management software is a form of collaborative
technology that allows the parties involved in a construction project
to find, share, and update information related to the project
• Early project management software packages were mostly scheduling
engines (MSP, Oracle Primavera P6)
construction project management software
some construction project management software does include functionality to help with managing project
budgets and finances. Below are some features to consider
• Budgeting: Some tools allow users to develop project budgets and monitor costs based on labor costs,
billing, change orders, and more. Budget to actuals reporting can help keep track of the project’s costs
relative to expectations.
• Resource management: Features that allow project managers to view team, equipment, and material
availability, and assign resources accordingly is important both for maintaining schedules and for managing
costs.
• Purchase orders: Project management software can allow contractors to send purchase orders for review
and approval to subcontractors or other vendors, which helps with tracking status and payments.
• Bids and contracts: More comprehensive construction management tools may include processes to
seamlessly solicit bids from subcontractors, generate contracts, and link them to milestones in the project.
• Invoices: With invoicing capability, change orders or customer selections can be quickly generated into an
invoice to create accurate financial records and ensure timely payments.
• Forecasting: Cost savings or overruns in one phase of a project can have implications for other phases
down the line. For this reason, some construction management solutions provide users forecasting
capabilities to see how current spending may impact total costs and profitability in the future
construction project management software
Communication Features
• Mobile compatibility: To make communications between job sites and the back
office more efficient, the ability for team members to receive and log information
via their mobile devices is an essential feature for modern construction software.
• Instant and remote syncing: Cloud-based technology allows for real-time updates,
so everyone can work off of the most recent updates and information.
• Emails and correspondence: Some construction software will include its own
messaging system or integration with email providers, which allows users to find
messages and information related to particular tasks or project components.
• Customer portal: Many construction management solutions also allow for clients
to access information about the status of their projects, which can be helpful in
maintaining good relationships with customers.
• Subcontractor portal: Other vendors on a project may also need access to
particular files, project plans, or other information, so some construction project
management software includes portals specifically for subcontractors.
Reporting & Analysis Features
• Top solutions will provide tools that make it easy to identify areas where projects
are running behind or costs are above budget. Automated reporting can make
sure that project teams receive this information on a regular basis.
Integrations
• Integrations are useful both for offering functionality that may not be built into a
particular tool and for improving the flow of information between different
functions within the business. Most leading construction project management
products offer extensive lists of integrations with other software products to
accomplish these goals. Common examples include integrations with
construction accounting software, legal and compliance, CRM(customer
relationships management), takeoff, and bidding software
construction project management software: GanttPRO, BIM 360, Acculynx, Jonas Premier, Procore,
CoConstruct, Buildertrend, Knowify, ProContractor, PlanGrid……..