Time Cost Models-1
Time Cost Models-1
Time Cost Models-1
Management”
Time – Cost Model
➢ MODULE 4: Introduction to Project cost management
▪ Direct and Indirect Cost Estimate
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Time – Cost Model
➢ PROJECT COST
▪ Sum of two Separate Costs
oDirect and Indirect Cost
▪ Direct Cost for accomplishing the work
▪ Indirect Cost related to the Control or direction of that work,
financial overhead, lost production, hike, inflation, escalation etc.
Total Cost
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Time – Cost Model
➢ INDIRECT PROJECT COST
▪ Indirect cost on a project are those expenditures
which cannot be clearly allocated to the individual
activities of a project, but are assessed as a whole.
▪ The indirect cost includes the expenditure related to
administrative and establishment charges, overhead,
supervision, expenditure on a central store
organization, loss of revenue, lost profit, penalty etc.
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Time – Cost Model
➢ INDIRECT PROJECT COST
▪ Indirect cost rises with increased duration,
considering only overhead and supervision. It is
represented by a straight line, with a slope equal to
daily overhead
▪ But when there is a loss in profits, due to inability to
meet demand or due to some penalty due to delay, a
corresponding cost increase must be added to the cost
of overheads, producing the curve. Such a loss is
called outage loss
▪ The Total Indirect Cost curve is therefore curved.
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Time – Cost Model
➢ INDIRECT PROJECT COST
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Time – Cost Model
➢ DIRECT PROJECT COST
▪ It is the cost which is directly dependent on the amount of
resources involved for completion of activities
▪ It includes labour, materials, plants and machineries etc.
▪ To get the same work done in less time, we have to
increase the amount of labour, equipment and time saving
methodologies that too at extra charges which simply
means increase in direct cost
▪ The project has the highest cost corresponding to the crash
duration and has normal cost corresponding to the normal
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duration.
Time – Cost Model
➢ DIRECT PROJECT COST
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Time – Cost Model
➢ NORMAL TIME (tn) or Normal Duration
▪ is the standard time that an estimator would usually allow for an
activity. Normal time is time of completion of an activity when
standard resources are provided for performing the activity.
➢ CRASH TIME (tc)
▪ is the minimum possible time in which an activity can be completed,
by employing extra resources. Crash time is that activity time beyond
which activity cannot be shortened by any amount of increase in the
resources
➢ NORMAL COST (Cn)
▪ is the direct cost required to complete the activity within the Normal
Time duration
➢ CRASH COST (Cc)
▪ is the direct cost required for completing the activity within the
Crash Time duration
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Time – Cost Model
➢ DIRECT COST of an Activity
▪ These are the expenditures which are directly
chargeable to and can be identified specifically with
the activities of the project.
▪ These includes
oLabour Cost
oMaterial Cost
oEquipment Cost
▪ Direct Cost of an Activity increases with decrease in
its time of completion or Crashing
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Time – Cost Model
➢ DIRECT COST – TIME CURVE
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Time – Cost Model
➢ DIRECT COST – TIME CURVE APPROXIMATION
➢ The straight line or segmented approximation of the
direct cost curve simplifies the cost slope analysis
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Time – Cost Model
➢ The COST SLOPE considering this assumption is given
by: Cost Slope =
Crash Cost − Normal Cost
Normal Time − Crash Time
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Time – Cost Model
➢ The COST SLOPE is slope of the Direct Cost Curve
when approximated as a straight line.
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Time – Cost Model
➢ Crashing of Critical Activity is started in systematic manner
starting with that activity which has the least cost slope (lesser
than the indirect cost)
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Time – Cost Model
➢ TOTAL PROJECT COST AND OPTIMUM
DURATION
▪ The Total Project COST is the sum of the Direct
Costs and the Indirect Costs
▪ The Minimum Total Cost is obtained at duration
known as the Optimum Duration
▪ If the project duration is increased beyond optimum ,
total cost will increase
▪ while if the project duration is decreased to the crash
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value the project cost will be the highest
Time – Cost Model
➢ TOTAL PROJECT COST = Direct Cost + Indirect Cost
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Time – Cost Model
➢ MINIMUM TOTAL PROJECT COST – OPTIMUM DURATION
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Time – Cost Model
➢ STEPS IN CRASHING
▪ Estimate project duration and find the critical path
▪ Find Cost Slope all activities
▪ The critical activity having the minimum Cost Slope is crashed in first stage
▪ The Cost Slope of the activity should be less than the Indirect Cost
▪ Crashing of non-critical activities does not serve any purpose as they do not
control the project duration and completing them earlier does no benefit instead
increases the project cost unnecessarily
▪ The next stage crashing will involve the activity having second lower Cost Slope
in the critical path
▪ Steps 3 and 4 are repeated till all activities of project are crashed along critical
paths and the corresponding time is the crash time of the project
▪ It is to noted that only critical activities is to be crashed
▪ Certain non-critical activities may also become critical in the process of crashing
critical activities
▪ In case of formation of new critical path at any stage of crashing we have to do
parallel crushing of activities for which cost slope is minimum
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➢ DIRECT COST ➢ INDIRECT COST
▪ These are the expenditures ▪ Indirect cost on a project are
which are directly chargeable those expenditures which
to and can be identified cannot be apportioned or
specifically with the activities clearly allocated to the
of the project. individual activities of a
▪ It is the cost which is directly project, but are assessed as a
dependent on the amount of whole.
resources involved for ▪ The indirect cost includes the
completion of activities expenditure related to
▪ These includes administrative and
oLabour Cost establishment charges,
overhead, supervision,
oMaterial Cost expenditure on a central store
oEquipment Cost organization, loss of revenue,
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lost profit, penalty etc.
➢ DIRECT COST ➢ INDIRECT COST
▪ Direct Cost of an Activity ▪ Indirect cost rises with increased
increases with decrease in its duration, considering only
time of completion or Crashing overhead and supervision. It is
▪ To get the same work done in represented by a straight line,
less time, we have to increase with a slope equal to daily
the amount of labour,
equipment and time saving overhead
methodologies that too at extra ▪ But when there is a loss in
charges which simply means profits, due to inability to meet
increase in direct cost demand or due to some penalty
▪ The project has the highest cost due to delay, a corresponding
corresponding to the crash cost increase must be added to
duration and has normal cost the cost of overheads, producing
corresponding to the normal the curve. Such a loss is called
duration. outage loss
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➢ DIRECT COST ➢ INDIRECT COST
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Thank You.....