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Running Head: DIRECT COST 1

DIRECT COST 8

Direct Cost

Daniel Keith Bailey

MGT410 - 1 Project Management

Colorado State University Global Campus

Dr. Thomas Brantle

April 16, 2017

Direct Cost

In order to reduce the number of times a project can be completed, then an extra cost usually termed as the crash cost must be incurred. The total project cost is achieved by adding the indirect cost and the direct cost (Devaux, 2014).

Critical part is formed by the activities that take the longest path/time in a project (Kelley & Walker, 1959).

In this project, we shall come up with three paths which are:

Part 1: A, B, E, G and H

Part 2: A, C, F, G and H

Part 3: A, D and H

To find the solution to this, we have to identify the critical path that takes most time,

In this case the path A-B-E-G-H (17times)

The basic Direct Cost for the 17 times is $310

To reduce 17times to16 times

In order to reduce the project by one time, we will use crash cost (extra dollars ($) are spent in order to reduce time).

To begin with, we will focus on the trend whereby the crash cost is the least in the critical path and in this scenario; Activity A is least with a crash cost of $20 and the time taken to complete the task is 3times

The project therefore will be reduced to 16times.

To reduce 16 times to15 times

For the project to be reduced for one more time, we shall look for the least cost. This time we shall not use Activity A as a crash time since A allows a maximum of 1 time crash time.

We therefore low for a critical path with the low cost

In the critical path A (20), B (20), E (0), G (40), H (60)

We shall not use Activity A or E since the cost of 0.

We shall therefore crash on the activity with least cost and in this case, we shall crash Activity B and time to complete task B is 2 times (Business News Daily, 2017).

There will be an extra cost of $20 that will help in reducing the task by one.

To reduce 15 times to 14times

In reducing the number of times to 14 we shall focus on the three critical paths which are:

1Sst Path A (3), B (2), E (4), G (2), H (4)

2nd Path A (3), C (3), F (3), G (2), H (4)

3rd Path A (3), D (5), H (4)

To reduce the number of times that the project can take, we can reduce 1 time from each of the critical paths, i.e.

1st path: B has the least cost $20

2nd path: C has the least cost of $ 40

3rd path: D has the least cost of $30

In this situation, we can avoid the expenses and crash on H since it will adjust the other sections automatically (Project Cost Management, 2008).

We shall therefore crash H which will cost us an extra of $60 and therefore reduce task by 1 and task H will take 3 times

We have the calculation in the appendix where we will find out that the project if run 15 times will cost the cheapest.

References

Devaux, S. (2014). Managing Projects as Investments. Industrial Innovation

Each, Direct. "Direct Costs Vs. Indirect Costs: Understanding Each". Business News Daily. N.p., 2017. Web. 16 Apr. 2017.

Kelley, J. E., & Walker, M. R. (1959). Critical-path planning and scheduling Papers presented at the December 1-3, 1959, eastern joint IRE-AIEE-ACM computer conference on - IRE-AIEE-ACM '59 (Eastern)

Project Cost Management. (2008). Industrial Project Management, 121-137. 

Appendix

Initial project

Duration 17

Total Direct cost $310

B

3

E

4

G

2

F

C

3

H

4

3

A

4

D

5

Activity	Crash cost	Max Crash Time	Normal time	Normal cost
A	20	1	4	50
B	20	2	3	40
C	40	2	3	60
D	30	2	5	60
E	0	0	4	20
F	100	2	3	40
G	40	1	2	20
H	60	1	4	20

Formulating the total direct costs incurred:

17 times	Basic Direct Cost	310
	Total Direct Cost	310
16 times	Basic Direct cost	310
	Crash cost-1st Time Act. A	20
	Total direct cost	330
15 times	Basic Direct Cost	310
	Crash cost-1st time Act. A	20
	Crash cost-2nd time Act. B	20
	Total Direct cost	350
14 times	Basic Direct Cost	310
	Crash Cost-1st time Act. A	20
	Crash cost-2nd time Act. B	20
	Crash cost-3rd time Act. H	60
	Total direct cost	410

Formulating this into table is

Times	14	15	16	17
Indirect Cost	250	300	350	400
Total Direct Cost	410	350	330	310
Total Project Cost	660	650	680	710

GRAPH INDICATING PROJECT COSTS

No of Times

Cost in $

In this calculation we look for the overall cost reduction whereby in this case the cheapest cost of the project will be $650 that is if the project is reduces to 15times, this means that 14 times will have a cost of $660 which is still expensive to run the project.

So, the project will be done 15 times at $650.

indirect cost 14 15 16 17 250 300 350 400 Total direct cost 14 15 16 17 410 350 330 310 Total project cost 14 15 16 17 660 650 680 710