PROJECT COMPLETION - Cost & Time Trade-off

A trade-off involves sacrificing one thing in return for another. It is a decision keeping in view both the upside and downside of a particular alternative. In project completion, there is tradeoff in cost and time. Naturally more cost would be incurred for completion of project in inflationary condition. Should the construction be postponed for a better time or it has to be completed ‘come what may’?

Decision making can be explained in many ways: (i) it is selecting the best alternatives, (ii) it is solving a problem or simply put (iii) it is the process of evaluating each alternative and choosing one best suited for achieving the ultimate aim and objective. Hence decisions would differ in difference situations.

As a teacher, my job is to help students develop their skill by confronting them with real-life situations, suggesting possible solutions and asking them to pick the right one. But I expect them first to go through the pros and cons of every alternative and come up with an appropriate answer.

Here is a question to test a student cognitive ability – quick-understanding and fast response for an unfamiliar problem. In other words, how a student understands a situation and decides what to do. This is a brain-based skill. If one is smart, bright, quick and intelligent, one has all the ingredients of cognitive ability. (This is more or less the same as IQ-test).

The question

Pak Electron Ltd (PEL) is the pioneer manufacturer of electrical goods in Pakistan. The company is trying to make its contribution for advancement of engineering sector. It has introduced a range of quality electrical equipments and home appliances. Besides, it is imparting free training to engineers and technicians through it apprenticeship scheme and training program which are opened for all and sundry.

The company has decided to setup separate facilities for 'R&D' under a five-year program. Initially, a modest structure was to be constructed for temporary storage of machinery and occasional demonstration of newly developed products. For this purpose, the company had set aside some funds, a time frame and appointed a manager for undertaking the job.

Planned and actual performance had been as follows:

Although, the manager was able to finish the job within the budget, there were 100% time-overrun. When asked to explain, the manger said, "I did it in the interest of the project considering market situation."

Would you retain the manager for any further assignment or ask him to pack Up?

It is a classic case of cost and time trade off. The manager controlled the costs but exceeded in time limits as shown below:

Whether he did well or badly depends up whether cost was important or time? Going through the case, one finds that the time was not significant. It does not matter if the project is completed in time or delayed for a few months as:

• it was a part of over-all program for five-year, and
• it was not so IMPORTANT as it was described as “a modest structure for temporary storage of machinery and occasional demonstration of newly developed products.”

In the same period, there were heavily fluctuations in construction materials (cement, iron etc) and wage rate as shown below:

In the first month, actual cost was Rs.500 per sq.ft which meant that the total cost at completion would be as high as Rs.3,000,000 (Rs.500 x 6000 sq.ft) resulting in 50% cost over-run for no obvious benefit. So the work was slowed down.

• In the second month, the actual cost increased to Rs.600 per sq.ft and a further slowdown was justified. (Perhaps, only some essential work was carried-out like boundary walls or electrification)
• In the third month, the cost came down to Rs.400 but was still above the Budgeted Cost of Rs.350 and so work was somewhat speeded up.
• It was only when the cost came down to Rs.300, the manager finished the entire project and saved the project from heavy over-runs.

So the manager concentrated on the cost-side and adopted a stop-go policy. This is same as he had explained that he did it in the interest of the project considering market situation.

So the manager had acted prudently and be retained for further assignments.

There are certain circumstances when it is good to increase time and cut costs mainly through (i) working in dull season when prices are low or (ii) watching market trend and stopping work when price go high or labor is short.

Some Industries start their season from a certain month. Examples are abundant like sugar mills, fruit processing plants, cotton ginning units and woolen fabrics weaving units. Universities and educational institutions had their own academic year starting from a particular date or month. If there is enough time, a project can be delayed so as to be completed just before the start of the season. It can result in lower costs. Sometime, market is unfavorable due to political upheaval or economic slump. In such situations, owners are happy if the project is delayed by other stakeholders like machinery suppliers or building contractors.

• When an early completion would allow the project to take benefit of the emerging market.
• When there is a an incentive or bonus for early completion of a project.
• When a project has already suffered due to unforeseen delays and not much time left for its completion in the normal way.
• When the resources such as construction machinery and personnel are required for some other important project.

TWO WAYS TO REDUCE TIME?

Crashing and Fast-tracking are two techniques for reducing. While crash involves just adding more resources to speed-up completion of an activity, in fast tracking two or more activities can be started together disregarding their original sequences. For example a project based on just two activities: (a) land development for 10 weeks and (b) building construction for 20 weeks. It would normally take 30 weeks (10 +20) but the job can be completed with say 18 weeks if more workers and more construction machines & equipment are engaged or work is done round the clock. This would be crashing. In fast-tracking, land development and building construction would start side by which is, of course, quite risky.

A project involved overlaying a runway with 2 inches of new asphalt. Since the runway was part of a busy airport, construction time was kept at minimum i.e. 7 hours and completed with the given time-frame and cost.

The building contractors have reduced construction time by using high-strength concrete. Subsequent tests revealed that quality was better than the traditional production which more time-consuming.