SKEDSOFT

Operations Research

Introduction: Each industries work with different projects work, which is the combinations of various activity, for this they require a particular schedule for planning, and also for quality management.So far we have dealt with how to find project completion time in PERT and CPM networks.

Types of costs in project management: There are three types of costs in project management i.e.

Direct Cost

  •       Direct costs are the costs that can be identified with activity. For example, labour costs, material cost etc. When an activity whose duration is to be reduced (crashed), we have to supply extra resources, especially manpower.
  •        Let us say an activity takes 7 days with 2 men. If 4 men work it can be done in 4 days. The cost of 2 workmen increases. As we go on reducing the activity time, cost goes on increasing.

Indirect Cost

  •         These are the costs, which cannot be identified with the activity. Say the salary of a manager, who is in-charge of many projects. Exact amount of his salary that should be charged to a particular project cannot be estimated correctly as it is very difficult to say how much time he has spent on each project.
  •         as the indirect costs are expressed as so much of amount per time period, as the duration of project goes on reducing the indirect cost also goes on decreasing .
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Total cost

  •         The total cost which is the sum of direct cost and indirect cost.
  •        As the project duration goes on reducing the total cost reduces from B to C and if duration is still crashed the total cost increases to A.
  •       Total cost=direct cost indirect cost

Cost Slope

Consider a small portion of total cost curve and enlarge it. It appears like a straight line

 

If θ is the inclination then tan θ = ΔC / Δt. This indicates how much increases for crashing a unit of time period cost.

In other words cost slope is the slope of the direct cost curve, approximated as a straight line. It is given by

Where ΔC = increase in cost, Δt = is decrease in time.