The project cost
is the sum of indirect and direct costs.
A physical variable which is required for completion of activities is called a resource.
It can be manpower, space, material, time or money resources.
The diagram which shows a variation in the requirement of resources with time is called resource usage profile or Histogram.
The following are the two methods that are used for resources allocation.
- Resource Smoothening
- Resource levelling
1. Resource Smoothening
The total project duration is not changed in this resource smoothening method, but the activities having floats are rescheduled to archive uniform demand of the resource allocation.
In this method, there is a constraint on project duration but no constraints on resources.
In the resource levelling method, the activities are so rescheduled that the maximum or peak resources requirement does not cross the limit of available resources.
In rescheduling, the available floats are used first.
By doing this, the resources demand will become more than the available resources and the duration of some of the activities is increased so that the resources required for these activities are decreased.
So, in this process initially planned project duration might be increased.
Note: Both this Resource smoothening and resource levelling are trial and error methods for resource allocation.
CPM updating in project management
The process of reviewing the process of project execution and redrafting the network according to the latest requirements is called CPM updating in project management and in resource allocation.
During redrafting scheduled dates are revised.
New critical path may appear, hence project priorities may change.
Crashing of new critical activities may be required to make a project on schedule.
Updating is necessary to compensate for deviations in the actual execution of works and original plans.
During the process of updating, neither the activities are deleted nor new activities are added.
When to Update CPM in project management?
- For projects with short duration, Updating should be done more frequently.
- For longer duration projects frequency should be increased as the project is nearing to completion.
- Whenever major changes occur in the duration of any activity then updating should be done.
- If a change occurs in an estimated duration then updating is essential.
Project Cost in Project management
In the CPM cost model
, it is assumed that project duration is reduced by resource allocation
on critical activities of the project management.
Total project cost is the sum of the following two costs.
- The direct cost for accomplishing the work.
- The indirect cost related to the control or direction of that work, lost production, financial overhead and the hike.
Components of the project cost in the project management
The following are the components project cost in project management :
- Direct cost
- Indirect cost
- Normal cost (Cn)
- Crash cost (Cc)
- Crash time (tc)
- Cost slope
- Normal time (TN)
- Total project cost and Optimum duration
1. Direct cost
The cost which includes materials, labours, equipment etc. is called direct cost.
2. Indirect cost
The expenditures which cannot be apportioned, overheads or allocated to the individual activities of a project but assessed as a whole is called Indirect cost.
With increased duration indirect cost increases.
3. Normal cost
The direct cost required to complete the activity in normal time duration is called the normal cost.
4. Crash cost
The direct cost corresponding to the completion of the activity within crash time is called crash cost.
The straight line or the segmented approximation of the direct cost curve helps carry out the project cost analysis.
In this analysis cost, the slope is used
5. Crash time
The minimum time in which an activity can be completed, by employing extra resources is called Crash time.
It is that time beyond which the activity can not be shortened by any amount of increase in resources.
6. Cost slope
The slope of the direct cost curve is called the cost slope.
7. Normal time
The standard time that an activity is allowed to complete is called Normal time.
8. Total project cost and Optimum duration
The total project cost is the sum of indirect and direct costs.
At some point in the project duration, the minimum total cost is obtained. This duration is called Optimum duration and the corresponding cost is called minimum project cost.
If the project duration is increased, the total cost will increase.
If project duration is decreased to the crash value, the project cost will be the highest.
How to calculate the crash time of the project?
Crash time of the project is the minimum time taken to complete the project.
The following are the steps involved :
- Finding the critical path.
- Estimation of project duration
- Find the cost slope of all activities.
- The critical activity having minimum cost slope is crashed in the 1st stage. The next stage crashing will involve activity having second lower cost slope in the critical path.
- The total cost of the project at this stage is calculated.
- Step 4 and 5 are repeated until all the activities of the project are crashed along the critical paths, corresponding time is called the Crash time of the project.
Note: Only critical activities should be crashed for calculating the crash time of the project.