PSMC Lecture:8

Project Time
Cost Function

Manjusha Nabar
 PROJECT TIME-COST FUNCTION
The time and cost factors of a project are inter-related. The project cost function shows the
relationship of the cost versus the completion time. Its ordinate represents the cost and the abscissa
a time scale. In the formulation of the project cost function, the direct and indirect costs along with
the financial gains resulting from early completion are considered.
The project time corresponding to the minimum value of the cost function gives the most
economical duration of the project. The project cost function also gives the cost of reducing the
project duration from its economical (normal) completion time. Crash point at the interaction of
crash time and crash cost; corresponds to the maximum possible time crashing. In addition, project
cost function provides a ready reckoner for assessing the change in cost with varying project
duration and resulting critical activities.
 CONCEPT
The basic concept behind the formulation of a project time-cost function is that the normal time
duration of an activity is based on considerations of normal cost, using an efficient or desired
method of performance of the activity. Each activity is considered in isolation, while working out
its normal, time and cost. The reduction in duration below the normal time by a changed method
of execution implies an increase in the cost. There will also be a stage beyond which the activity
duration cannot be further reduced. The lower limit up to which an activity time can be reduced,
is called the crash time and the corresponding cost is referred to as the crash cost.
The difference between the normal time and the crash time of an activity indicates its potential to
undergo crashing. The slope of the activity cost function shows the rate of increase of cost, with
the reduction in time for the activity as shown

Crashing potential of an activity = Normal time – Crash

There are number of ways for reducing the activity duration from the normal time depending upon
the activity under consideration. The most common methods of time reduction are as follows:
• Increase the resources allotted and/or work overtime; and
• Change the mode of execution/performance of an activity, say from the manual method to the
mechanical method.
In some cases, use of several methods of performance of an activity may give a non-linear relation
between the activity time and cost, but with a view to simplify the calculations in the formulation of
the project cost function. It is assumed that the portion of the curve between the normal point and
the crash pointPROCEDURE
is linear. FOR PLOTTING THE PROJECT COST TIME
The procedureFUNCTION
for preparation of the least cost schedule is followed in the given example, the
indirect cost is $500 per week and the anticipated bonus for early completion is $800 per week.
The step-by-step procedure is as follows:
1. Time analyse the network and deter mine the critical path.
2. Tabulate the normal and crash duration and normal and crash cost for all the activities.
Estimate the activity-crashing potential for each activity.
3. Determine the rate of crashing of all the activities.
4. Crash critical activities beginning with the activity having the least rate of crashing. Each
activity is shortened until its crashing potential is exhausted or a new critical path is formed. If a
new critical path is formed, reduce the combination of the critical activities having thecombined
lowest rate of crashing and continue till there is no more scope for crashing.
Critical path: Act A + Act B + Act G = 10 weeks
First crashing. With the crashing by one week of Activity B, the cost of the project increases by
$1000 and the revised project duration works out to be 9 weeks
Second crashing. Scrutiny of the network after the first crashing reveals that is one critical path.
Further, reduction means that the sum of the durations of the critical activities along each critical
path be reduced by one week. The total increase in the cost for crashing the project duration from
10
weeks to 8 weeks is $2,500, i.e. cost of crashing Activities A and B each by one week
Third crashing. The number of critical paths increases after the second crashing. The various
ways of reducing the project time during the third crashing are utilised and the revised duration
of the activities for 7 weeks completion time is given in the network drawn as follows:
Fourth crashing. Proceeding similarly, it can be easily verified that although all the activities are
critical, there is still room for crashing. It may be noted that after the fourth crashing, although
activities E and H can be reduced, further crashing of all the critical paths is not possible. Therefore,
the fourth crashing becomes the final crashing

Incorporating the cost implication in a table after each crashing. The network, after its fourth
crashing, shows the duration of the crashed activities and depicts the network plan of the least
cost of the project. The cumulative effects of direct and indirect costs and the savings for early
completion must be aggregated
Least cost schedule.

The data, thus obtained, must be plotted by

selecting a suitable scale with time along
the abscissa, and cost along the ordinate
axis. The lowest point of the project cost
curve indicates the lowest cost and the
corresponding optimum completion time.
The project cost time function generally
takes the shape of a concave curve as
shown above. The ordinate of the lowest
point in the curve gives the most economical
cost of the project, and the time
corresponding to the least value ordinate
gives the optimum duration of the project.
The optimum duration for the project under
consideration comes out to be 9 weeks and
its optimum cost works out to be $267 000
 TIME CRASHING
The project cost curve, which shows the pattern of the cost variation with time, provides a ready
reckoner for assessing the increase in cost for a given project duration. All crash points correspond
to the maximum possible time crashing. The crashing cost can be determined from the project cost
curves. In addition, the tabulated data gives the information regarding the corresponding critical
activities and their revised duration. To quote an example, the implications of completing the
project in 7 weeks is seen in the network diagram
 A WORD OF
CAUTION
There are many benefits, which can be achieved by the early completion of the project. The early
project completion can yield added revenue, early release of capital and facilities, and, in some
cases, can save idle time expenses of machinery. The non-financial gains can be earning goodwill,
boosting of the reputation, and raising of morale. But the technique of minimising the cost by
crashing of activities, although mathematically feasible, as explained, has many inherent practical
difficulties. One of the main reasons, is that it is not possible to predict the activity cost-time data
accurately. In addition, the advantage gained by economising the project cost is nullified, by
the fact that optimisation of resources becomes extremely difficult, resulting in increased cost and
resource wastage
Note: Time crashing networks problems can also be solved using ‘Excel-Solver’ software
Thank you
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