Steps in optimization of cost (Cost optimization through Network)
- First, draw the network diagram and find out all the possible paths. Critical path and non-critical paths. Critical path duration is the normal project duration for that project
- Calculate the direct cost by adding the normal cost of all activities. Calculate indirect cost by multiplying project duration with the indirect cost (overhead or indirect expense) per unit time
- Calculate the total cost by adding direct cost and indirect cost. This total cost is the baseline cost for the calculation. Similarly, the longest duration (critical path duration) is the project duration as a baseline duration for the calculation.
- Calculate the cost slopes of all activities and rank them in ascending order of cost slopes.
- Start crashing the project from a critical path (since this is the project duration) by selecting such critical activity having the least cost slope as per ranking to the maximum possible extent (observe other non-critical paths that are likely to be critical)
- Calculate the direct cost by adding the extra cost of crashing (cost slope X (Tn-Tc)) required for crashing that activity to the direct cost calculated in previous steps and the corresponding indirect cost of reduced project duration.
After step six, three possible cases may arise:
Case I: If the same path remains critical (longest) then crashing is considered for the critical activity serially in the ascending order to their cost slope as far as possible.
Case II: While crashing the critical path, there may emerge a new critical path/s then crashing is carried out for the common activity. If there is more than one common activity, the activity with the least cost slope is selected first and continues serially as per the ranking of cost slopes.
Case III: After crashing as per case II, if there is a possibility of crashing then, one activity from each path is selected at one time for crashing. This crashing is known as simultaneous crashing or parallel crashing. The process is continued until the project shortening is possible.