Page 83 - The Six Sigma Project Planner

Calculating the Cost of a Schedule
The cost of following a particular schedule should be evaluated carefully. It often
happens that a cost savings can be achieved by using a schedule other than the schedule
based on the most likely or weighted average duration estimates. As activity durations
are compressed, the time it takes to complete the project will decline, while the direct
costs of completing the project will increase. Conversely, indirect costs such as overhead
generally decrease when projects take less time to complete. When the indirect costs are
added to the direct costs, total costs will tend to decline to a minimum for a particular
schedule, which we will call a cost-optimized schedule.
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Identifying a cost-optimized schedule involves these steps:
1. Ask those assigned to each activity to estimate the direct and indirect costs of
completing their activity in the duration of the optimistic, most likely, and
pessimistic estimates.
2. Create a spreadsheet of the above cost and time estimates.
3. Compute the total cost of the schedule, including direct and indirect costs.

4. Create a column showing the cost per unit of time saved for each activity. E.g., if
an activity can be completed in four weeks at a cost of $2000 or in two weeks at a
cost of $4000, then the cost per week saved is $1000.
5. Rank-order the activities in ascending order by cost per unit of time saved, i.e.,
put the lowest cost per unit of time saved at the top of the list and the highest
cost per unit of time saved at the bottom of the list.
6. Assuming that critical path activities with the lowest cost per unit of time saved
were completed in the optimistic duration,
a. Recalculate the schedule duration.
b. Recalculate the cost of the schedule.
7. If the cost of the new schedule is lower than that of the previous schedule,

a. Recalculate the critical path for the new schedule.
b. Return to step 5.

Else the cost of the new schedule is higher than or equal to that of the previous
schedule and so the previous schedule is the cost-optimized schedule.

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See Worksheets 27 and 28, pp. 68 and 69, for analysis details.

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