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

Comments

  1. 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.

    It 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

    ReplyDelete

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