Project Costs and Crashing

Management of Operations Brad C. Meyer

Summer 2002 1

Crashing
When we say that an activity will take a certain number of days or weeks, what we really mean is: normally, this activity takes this many days or weeks. We could make it take less time but it would cost more money. To spend more money so as to get something done more quickly is called crashing the activity.
Summer 2002 2

Crash time and crash cost

NT = normal time to complete an activity NC = normal cost to complete an activity CT = crash time to complete an activity, that is, the shortest possible time it could be completed in. CC = crash cost - the cost to complete the activity if it is performed in its shortest possible time.
Summer 2002 3

Time, Rate, and Productivity

Parameters for crashing

maximum time reduction for an activity = NT CT cost to crash per period CC NC = ----------NT - CT
Summer 2002 4

By the way
the cost to crash per period assumes that the relationship between adding more money to the activity and reducing the time is linear. Spend half of the money, and get half the time reduction, spend _ of the money and get _ time reduction. This is not always true in practice, but works alright for a rough planning technique.
Summer 2002 5

Computing crash data

given:
activities normal time normal cost crash time crash cost

compute:
maximum time reduction cost to crash per period
Summer 2002 6

Time, Rate, and Productivity

Example
Act. NT A B C D E 7 3 4 8 9 NC 3000 4000 15000 10000 7000 CT 4 2 2 5 6 CC 6000 5500 20000 19000 9100

Summer 2002

Example
Act. NT A B C D E 7 3 4 8 9 NC 3000 4000 15000 10000 7000 CT 4 2 2 5 6 CC 6000 5500 20000 19000 9100
Max Red

7-4 = 3 3-2 = 1 4-2 = 2 8-5 = 3 9-6 = 3

Summer 2002

Example
Act. NT A B C D E 7 3 4 8 9 NC 3000 4000 15000 10000 7000 CT 4 2 2 5 6 CC 6000 5500 20000 19000 9100
Max Red Cost to crash per period

3 1 2 3 3

1000

For activity A: (6000-3000)/(7-4) = 1000

Summer 2002 9

Time, Rate, and Productivity

Example
Act. NT A B C D E 7 3 4 8 9 NC 3000 4000 15000 10000 7000 CT 4 2 2 5 6 CC 6000 5500 20000 19000 9100
Max Red Cost to crash per period

3 1 2 3 3

1000 1500 2500 3000 700

Summer 2002

10

Finding the minimum cost schedule

To shorten a project, crash only activities that are critical. Crash from least expensive to most expensive. Each activity can be crashed until
it reaches its maximum time reduction it causes another path to also become critical it is more expensive to crash than not to crash

Continue until no more activities should be crashed.

Summer 2002 11

Example continued
A 7 B 3 C 4 D 8 E 9

Same problem as earlier. Times shown are normal times. There are three paths in this network:

ABD 18 ACD 19 ACE 20

Summer 2002 12

Time, Rate, and Productivity

This project, under normal conditions takes 20 days. Suppose each day the project runs incurs an indirect project cost of $1400 (overhead). What activities should be crashed if any?

ABD 18 ACD 19 ACE 20 * Start by looking at activities on the critical path: A, C, and E. E is least expensive to crash.
Summer 2002 13

E has maximum time reduction of 3, but if it is crashed by 1, then ACD also becomes a critical path. Also, we save $1400 per day the project is shortened and would spend $700 per day to crash E, so it is profitable to crash E. crash E by 1

ABD 18 18 ACD 19 19 * ACE 20 * 19 *

Summer 2002 14

Now there are two critical paths. To finish the project earlier, we would need to shorten both paths. Crashing A or C does this, since those two activities are on both paths. Alternately, we could crash both D and E together. crash E by 1

ABD 18 18 ACD 19 19 * ACE 20 * 19 *

Summer 2002 15

Time, Rate, and Productivity

Cost to crash A = 1000 Cost to crash C = 2500 Cost to crash both D and E = 3700 Best is to crash A. How much should it be crashed? crash E crash A by 1 by ?

ABD 18 18 ACD 19 19 * ACE 20 * 19 *

Summer 2002 16

Maximum reduction for A is 3 When A is crashed, all paths are affected, so no new paths will become critical. Cost savings remain at $1400 vs $1000 cost to crash. crash E crash A by 1 by 3

ABD 18 18 ACD 19 19 * ACE 20 * 19 *

15 16 * 16 *
Summer 2002 17

Stopping condition
To continue, we could crash C or both D and E. But in each case, the cost would be greater than the $1400 savings per day. So, we stop at this point. We can compute the cost to perform the project in 16 days.
Summer 2002 18

Time, Rate, and Productivity

Figuring Total Project Cost

Sum of normal costs = 39,000 Indirect costs = 16 dys * 1400 = 22400 Crashing cost
E by 1 = 700 A by 3 = 3000

Total cost = $65100

Summer 2002

19

Minimum time schedule at minimum cost

Sometimes it is necessary to complete a project in as short a time as possible. To find the shortest time possible, crash all activities completely and then find the times for all paths. The longest path is, of course, critical and tells us how long the project must take.
Summer 2002 20

Minimum time schedule continued

Activities on non-critical paths may not need to be fully crashed in order for the project to be finished in the shortest possible time. These can be uncrashed one at a time, starting from the most expensive, until nothing is crashed that does not need to be.
Summer 2002 21

Time, Rate, and Productivity

Example
A 4 B 2 C 2 D 5 E 6

Same problem as earlier. Times shown are crash times. Same three paths, but now with shorter times.

ABD 11 ACD 11 ACE 12*

Summer 2002 22

Minimum time schedule continued

Critical activities are A,C, and E. B and D are not critical and could be relaxed. B costs $1500 to crash. D costs $3000 to crash. To save some money, but still complete in 12 days, uncrash D by 1. uncrash D by 1

ABD 11 12* ACD 11 12* ACE 12* 12*

Summer 2002 23

Minimum time schedule continued

Uncrashing anything else would not allow completion in the 12 days, so we are finished. uncrash D by 1

ABD 11 12* ACD 11 12* ACE 12* 12*

Summer 2002 24

Time, Rate, and Productivity

Look over the solved problems and examples in the text for more practice.

Summer 2002

25

Time, Rate, and Productivity