Crashing+and+Pert+Lecture+note

Crashing+and+Pert+Lecture+note - 1CrashingtheProjectwithCPM...

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1 Crashing the Project with CPM Up until now, we have considered the time for each activity to be fixed. In reality it is often possible for us to reduce the length of an activity by throwing more resources at it (e.g. the use of overtime). However, this sort of reduction in the time to complete an activity always increases the cost of that activity. The basic assumption is that these cost increases occur in a linear fashion, and can thus be calculated on a per time unit basis. For example, we might be able to reduce the length of time for an activity at a cost of $5,000 for each week of reduction. Why, then, would we consider reducing the length of the project? There are two possible reasons. The first is simple: we must complete the project in a specified time frame. For example, the project will require 22 weeks, but for some reason we must complete it in 20 weeks. The second reason is economic: it may be cheaper to complete the project in a reduced time. The idea is that by spending money in one area (crashing costs for an activity), we can avoid certain other costs and thus come out ahead. We are trying to find the most economical duration for the project. With this in mind, let me introduce three basic types of costs that we will be dealing with. 1) Crash costs (or activity direct costs) - these are the costs to reduce the length of an activity by 1 time period (week, month, whatever the basis of your analysis). Alternatively, they can be the total cost of performing a task at its minimum duration. Both definitions are common. 2) Administrative costs (or project indirect costs) - these are the costs to manage the project. For every time period that the project continues, a certain amount of money is required just to administer the project, over and above the cost of performing the various activities that make up the project. 3) Penalty costs - this is the concept of a performance clause. The idea is that if the project is completed by a certain time, these costs are avoided. However, for every time unit beyond the deadline, a penalty cost is imposed.
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In crashing the project, we are trying to incur crash costs in the hope of avoiding administrative and/or penalty costs. Clearly, if the cost to crash is greater than the costs avoided, the process is not economical and should not be pursued. However, if we can spend $5,000 to save $8,000, that would make good economic sense. Always try to crash the project one week at a time (or month, or whatever). Trust me when I say that there is great danger in attempting to crash the project by more than 1 week at a time. To that end, the procedure outlined below works on a week-by-week basis. 1)
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This note was uploaded on 11/05/2010 for the course BUS F370 taught by Professor Tom during the Spring '10 term at Indiana Institute of Technology.

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Crashing+and+Pert+Lecture+note - 1CrashingtheProjectwithCPM...

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