W5_Afra_Cost and Time Trade-Off part 2
1. Problem
Recognition
There is a
relationship between project’s completion time and its cost. By understanding
the time-cost relationship, one is better able to predict the impact of a
schedule change on project cost.
This blog is
the second blog in a series of three blogs about time and cost trade-off, the first
blog (w4) was the development of the Contractors curve or Total Contractor’s
Costs, this blog will be about Cumulative Owners Project Overhead and Lost
Opportunity Costs, the last blog will be about Total Cumulative Project Costs.
The purpose of
this blog is to validate the cost & time trade-offs by using Module 08-7 in
The GUILD which provides a great illustration that is based on the US
Department of Transportation. This validation will be used on my paper to
demonstrate that what was done can work in electricity and water sector.
Figure 1 – Relationship between project cost and duration
2. Feasible alternatives
In the previous blog (contractors’
curve) there were many alternatives and I focused on three of them. However,
the owners’ curve has no alternative, the same
list of items would appear each time, costs may be different but the list
remains static, these are:
• Owner’s Project Management Team
(PMT) monthly costs
• Owner’s Project Office monthly
costs
• Auxiliary Costs, ex: land, gas,
water, … etc.
• Owner’s opportunity costs.
Will estimate the cost for each item
and determine the period and cumulative monthly costs from month 1 to the last
month.
3. Development of the
outcome of Alternative
The table below includes the cost of
the Owner’s PMT and Office costs from month 1 (as an example) along with the
costs for “Lost Opportunities” from month 37.
Table 1 –
Owner’s Overheads Cost and Opportunity Cost
The overheads cost is estimated cost,
while
the opportunity costs are derived from the total output of MW per day from
power plants, production month 1 averaging 50,000MW/day, month 2 100,000MW/day
and month 3 200,000MW/day and so on.
4.
Selection Criteria
OPWP
is the purchaser of power and water in the Sultanate and is responsible for
securing the demand for electricity and water for every single day for the
public. and to do so, the company shall contract with Engineering, Procurement,
and Construction (EPC) to build required power and water projects.
The
overall cost estimation for power generation includes the auxiliary costs which could be the land cost, gas purchase,
and the portion of EPC for design, procure and construct and all the
associated owner’s costs for the Project Management Team (PMT) and office.
The
selection criteria are based on Table 1 above, assuming that there are 50
months of project completion but only the key months are presented which are the
start of the project, the point where the opportunity costs kick in, and the
costs after the project completion month pass to show that the costs keep
increasing.
Table 2 – Cumulative Owner’s cost at key
months
5.
Analysis and
comparison of the Alternative
Based
on the criteria, the following curve is generated.
Figure 2 –
Owners Cumulative Overheads and Opportunity Curve
The
curve starts with a steady slope until month 37 when the first opportunity cost
appears.
6.
Selection of the
preferred Alternative
No
alternative for this curve, and as it’s part of a three-blog posting which ends
with the development of the Total Cumulative Project Costs along with analysis
and proposed incentive/disincentives.
7.
Performance Monitoring
and the Post Evaluation of result
As this blog is part of a series number of blogs,
until last blog (3rd) is complete, the post-evaluation performance
cannot be performed until the full model is completed.
References:
1. Mallela, J., & Sadasivam, S. (2011). Figure 15 –Work zone
road user costs: Concepts and applications : final report. U.S. Department of
Transportation, Federal Highway Administration Office of Operations (HOP).
2.
Guild of Project
Controls. (n.d.). 08.7.3 – Cost vs Time Trade Offs (Optimization) – Guild of
project controls compendium and reference (CaR) | Project controls – planning,
scheduling, cost management and forensic analysis (Planning Planet). Retrieved
September 5, 2017 from
http://www.planningplanet.com/guild/gpccar/validate-the-time-and-cost-trade-offs
3.
W19_SJP_Cost
& Time Trade-off Part 2 - Achieving Guild of Project Controls / AACE
Certification BLOG. (2017). Achieving Guild of Project Controls / AACE
Certification BLOG. Retrieved 5 December 2017, from https://js-pag-cert-2017.com/w19_sjp_cost-time-trade-off-part-2/
4.
Staff, I.
(2017). Opportunity Cost. Investopedia. Retrieved 5 December 2017, from
https://www.investopedia.com/terms/o/opportunitycost.asp
AWESOME Afra!!!!..... More owners need to go through this exercise and I am thrilled to see you taking on this challenge. It will be very interesting to see how your management perceives this analysis and will take it seriously and follow your advice.
ReplyDeleteIt will also be very interesting to see if the same curve applies to both power and water plants.
Keep up the great work and I will be keen to see what your research produces and whether or not you management will at least give it a try to see if it does or does not improve the "on time" and "within budget" performance.
BR,
Dr. PDG, Jakarta