COST

FIGURE 16-9. Performance versus cost.

FIGURE 16-11. Cost-time-performance family of curves.

though it were a linear programming or dynamic programming problem. This too is often difficult to perform and manage.

Trade-offs can also be necessary at any point during the life cycle of a project. Figure 16-12 identifies how the relative importance of the constraints of time, cost, and performance can change over the life cycle of the project. At project initiation, costs may not have accrued to a point where they are important. On the other hand, project performance may become even more important than the schedule. At this point, additional performance

FIGURE 16-12. Life-cycle trade-offs. (Schedule not necessarily typical.)

can be "bought." As the project nears termination, the relative importance of the cost constraint may increase drastically, especially if project profits are the company's major source of revenue. Likewise, it is probable that the impact of performance and schedule will be lower.

Once the alternative courses of action are determined, step 5 in the methodology is employed in order to analyze and select the feasible alternatives. Analyzing the alternatives should include the preparation of the revised project objectives for cost, performance, and time, along with an analysis of the required resources, general schedules, and revised project plans necessary to support each scenario. It is then the function of top management in conjunction with the project and functional managers to choose the solution that minimizes the overall impact to the company. This impact need not be measured just in short-term financial results, but should include long-term strategic and market considerations.

The following tasks can be included in this step:

• Prepare a formal project update report including alternative work scopes, schedules, and costs to achieve.

• Minimum cost overrun

• Conformance to project objectives

• Minimum schedule overrun

• Construct a decision tree including costs, work objectives, and schedules, and an estimate of the probability of success for each condition leading to the decision point.

• Present to internal and external project management the several alternatives along with an estimate of success probability.

• With management's agreement, select the appropriate completion strategy, and begin implementation. This assumes that management does not insist on an impossible task.

The last item requires further clarification. Many companies use a checklist to establish the criteria for alternative evaluation as well as for assessment of potential future problems. The following questions may be part of such a checklist:

• Will other projects be affected?

• Will rework be required in previous tasks?

• Are repair and/or maintenance made more difficult?

• Will additional tasks be required in the future?

• How will project personnel react?

• What is the effect on the project life cycle?

• Will project flexibility be reduced?

• What is the effect on key employees?

The probability of occurrence and severity should be assessed for all potential future problems. If there is a high probability that the problem will recur and be severe, a plan should be developed to reduce this probability. Internal restrictions, such as manpower, materials, machines, money, management, time, policies, quality, and changing requirements, can cause problems throughout the life cycle of a project. External restrictions of capital, completion dates, and liability also limit project flexibility.

One of the best methods for comparing the alternatives is to list them and then rank them in order of perceived importance relative to certain factors such as customer, potential follow-on business, cost deficit, and loss of goodwill. This is shown in Table 16-2. In the table each of the objectives is weighted according to some method established by management. The percentages represent the degree of satisfactory completion for each alternative. This type of analysis, often referred to as decision-making under risk, is commonly taught in operations research and management science coursework. Weighting factors are often used to assist in the decision-making process. Unfortunately, this can add mass confusion to the already confused process.

Table 16-3 shows that some companies perform trade-off analysis by equating all alternatives to a lowest common denominator—dollars. Although this conversion can be very difficult, it does ensure that we are comparing "apples to apples." All resources such as capital equipment can be expressed in terms of dollars. Difficulties arise in assigning dollar values to such items as environmental pollution, safety standards, or the possible loss of life.

There are often several types of corrective action that can be utilized, including:

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Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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