Once the user requirements are known you have a choice between buying an off-the
ID: 349134 • Letter: O
Question
Once the user requirements are known you have a choice between buying an off-the-shelf package (OTS) and building a new system. As the PM of the project, describe FOUR factors you would consider when deciding which option to take. Discuss some advantages and disadvantages of each option. (4 marks)
A cost reimbursable type, design and construct, contract has been let to company A to work as a subcontractor for a project, related to a Space Programme, which involves the construction of a section of a launching platform. A team of engineers has determined the activities, precedence constraints and time estimates as given in the table below.
Activity
Immediate Predecessor(s)
Normal
Duration (months)
1st Month Crash Cost
2nd Month
Crash
Cost
3rd Month
Crash Cost
$x1000
$x1000
$x1000
A
-
5
50
80
-
B
-
8
50
50
-
C
-
4
25
-
-
D
C
2
80
-
-
E
A
4
40
50
60
F
A
7
40
70
90
G
B, D, E
4
70
80
100
H
F, G
2
-
-
-
You are required to:
Draw either an activity-on-arrow or an activity-on-node network to
represent the above project. Using normal durations calculate the minimum project completion time and identify the critical path(s). (6 marks)
Currently, company A is offered a bonus of $200,000 for each month it reduces the project time. On a month-to-month basis, determine which activities should be expedited and by what amount they should be expedited so that the net bonus minus expediting costs will be maximised. How much net bonus will be earned
Activity
Immediate Predecessor(s)
Normal
Duration (months)
1st Month Crash Cost
2nd Month
Crash
Cost
3rd Month
Crash Cost
$x1000
$x1000
$x1000
A
-
5
50
80
-
B
-
8
50
50
-
C
-
4
25
-
-
D
C
2
80
-
-
E
A
4
40
50
60
F
A
7
40
70
90
G
B, D, E
4
70
80
100
H
F, G
2
-
-
-
Explanation / Answer
Factors affecting the decision are-
Advantages of Building New System-
Disadvantages of Building New System-
Advantages of Off the Shelf-
Disadvantages of Off the Shelf-
The possible paths of the processes with their corresponding time requirements are-
A-F-H (14 months)
A-E-G-H (15 months)
B-G-H (14 months)
C-D-G-H (12 months)
Thus the Critical Path is A-E-G-H
In this path, E has the lowest crashing cost. So crashing it by one month on the expense of 40,000.
As 200,000>40,000, this crashing is beneficial.
Now the new time schedule is-
A-F-H (14 months)
A-E-G-H (14 months)
B-G-H (14 months)
C-D-G-H (12 months)
We now have 3 critical paths, A-F-H, A-E-G-H & B-G-H. If we want to reduce the schedule by further 1 month, we have to crash all the three paths.
In path A-F-H, F has the lowest crash cost
In path A-E-G-H, A & E both have the lowest crash cost
In path B-G-H, B has the lowest crash cost.
But crashing only A & B will give us the desired result in lower expense.
Crashing A & B by one month on the expense of 50,000 each.
As 200,000>100,000, the crashing is beneficial.
Now the new time schedule is-
A-F-H (13 months)
A-E-G-H (13 months)
B-G-H (13 months)
C-D-G-H (12 months)
We now have 3 critical paths, A-F-H, A-E-G-H & B-G-H. If we want to reduce the schedule by further 1 month, we have to crash all the three paths.
In path A-F-H, F has the lowest crash cost
In path A-E-G-H, E both have the lowest crash cost
In path B-G-H, B has the lowest crash cost.
Crashing F, E & B will cost us 40+50+50 = 140,000
As 200,000 > 140,000, the crash is beneficial.
Now the new time schedule is-
A-F-H (12 months)
A-E-G-H (12 months)
B-G-H (12 months)
C-D-G-H (12 months)
We now have 4 critical paths, A-F-H, A-E-G-H, B-G-H & C-D-G-H. If we want to reduce the schedule by further 1 month, we have to crash all the four paths.
In path A-F-H, F has the lowest crash cost of 70
In path A-E-G-H, E has the lowest crash cost of 60
In path B-G-H, G has the lowest crash cost of 70
In path C-D-G-H, C has the lowest crash cost of 25
Crashing Just G & H will give us the desired result on the expense of 140,000
As 200,000>140,000, the crashing is beneficial.
Now the new time schedule is-
A-F-H (11 months)
A-E-G-H (11 months)
B-G-H (11 months)
C-D-G-H (11 months)
We now have 3 critical paths, A-F-H, A-E-G-H & B-G-H. If we want to reduce the schedule by further 1 month, we have to crash all the three paths.
In path A-F-H, F has the lowest crash cost
In path A-E-G-H, E both have the lowest crash cost
In path B-G-H, B has the lowest crash cost.
Crashing F, E & B will cost us 40+50+50 = 140,000
As 200,000 > 140,000, the crash is beneficial.
Now the new time schedule is-
A-F-H (10 months)
A-E-G-H (10 months)
B-G-H (10 months)
C-D-G-H (10 months)
We now have 4 critical paths, A-F-H, A-E-G-H, B-G-H & C-D-G-H. If we want to reduce the schedule by further 1 month, we have to crash all the four paths.
In path A-F-H, A has the lowest crash cost of 80
In path A-E-G-H, E has the lowest crash cost of 60
In path B-G-H, G has the lowest crash cost of 80
In path C-D-G-H, C has the lowest crash cost of 25
Crashing Just G & A will give us the desired result on the expense of 160,000
As 200,000>160,000, the crashing is beneficial.
Now the new time schedule is-
A-F-H (9 months)
A-E-G-H (9 months)
B-G-H (9 months)
C-D-G-H (9 months)
We now have 4 critical paths, A-F-H, A-E-G-H, B-G-H & C-D-G-H. If we want to reduce the schedule by further 1 month, we have to crash all the four paths.
In path A-F-H, F has the lowest crash cost of 90
In path A-E-G-H, E has the lowest crash cost of 60
In path B-G-H, G has the lowest crash cost of 100
In path C-D-G-H, C has the lowest crash cost of 25
At this point all the possibilities of crashing will have expense more than 200,000. Thus crashing is not feasible.
Therefore, by crashing A,B,E,F,G by two times each, we will be able to decrease the project duration from 15 months to 9 months profitably.
The Additional profit attained by crashing is - 160+100+60+60+60+40 = 480,000$
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