What is PERT/Cost?


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A further important features of network analysis is concerned with the cost of activities and of the project as a whole. This is sometimes known as PERT / COST.

The primary object of network cost analysis is to be able to calculate the cost of various project durations. The normal duration of a project incurs a given cost and by more labour, working overtime, more equipment etc., the duration could be reduced but at the expense of higher costs. Some ways of reducing the project duration will be cheaper than others and network cost analysis seeks to select the cheapest way of reducing the overall duration.

A common feature of many projects is a penalty clause for delayed completion and / or a bonus for earlier completion. In examination questions, network costs analysis often combined with a penalty and / or bonus situation with the general aim of calculating whether it is worthwhile paying extra to reduce the project time so as to save penalty.

(a)     Normal Cost :

The costs associated with a normal time estimate for an activity. Often the “normal” time estimate is set at the point where resources (men, machines etc.) are used in the most efficient manner.

(b)     Crash Cost :

The cost associated with the minimum possible time for an activity. Crash costs, because of extra wages, overtime premiums, extra facility are always higher than normal costs.

(c)     Crash time :

The minimum possible time that an activity is planned to take. The minimum time is invariably brought about by the application of extra resources, e.g. more labour or machinery.

(d)     Cost slope :

This is the average cost of shortening an activity by one time unit (day, week, month as appropriate). The cost slope is generally assumed to be linear and is calculated as follows :

Cost Slope = Crash Cost – Normal Cost / Normal Time – Crash Time

(e)     Activity direct costs :

The cost of materials, equipment and direct labour (payroll, overtime, hiring and firing costs) required in performing an activity is called its direct cost. If the activity in question is subcontracted and is being performed in its entirety by a contractor then the activity direct cost is equal to the price of the subcontract. The sum total of the direct costs of all the activities of a project is the project direct cost.

(f)      Project indirect costs :

The project indirect costs imply the overhead charges related to the project which include the supervision and other charges, late completion penalties and awards for early completion, and so on.

The project indirect costs are generally a function of the time the project takes to complete. Thus the shorter the period the lesser the overhead charges. However it may also be recognised that the direct cost of performing an activity would tend to increase if we desire to perform it in a time shorter than what it requires. Thus, if a project is set to be performed in a shorter time, then the direct costs would be larger and we can economise on the indirect costs. Similarly, a slower pace of work might, to some extent, mean lower direct costs, coupled with higher indirect costs.

 


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