CPM Problem 1: Strategic Crashing Of Activities To Minimize

CPM Problem 1: Strategic crashing of activities to minimize project costs and penalties

Specialty Contractors, Inc. (SCI) was contracted in early 1993 to construct a telecommunications relay station for the Nebraska Broadcasters’ Association (NBA), with a planned completion date of October 26, within 12 weeks. The initial schedule indicated the project could commence on August 6, with all activities scheduled based on network diagramming. However, unforeseen delays caused by a regional office fire pushed the start date four weeks later, effectively reducing the available timeline to eight weeks. Given the penalty clause of $9,000 per week of delay beyond the October 26 deadline, the company faced potential penalties totaling $36,000 if the project exceeded the new schedule.

Mr. Harris, the project coordinator, considered expediting the critical path activities to minimize or eliminate delay penalties. Using the principles of Critical Path Method (CPM) analysis, he aimed to identify which activities could be shortened through crashing (additional resource allocation at increased cost) to meet the new schedule or avoid penalties altogether. He analyzed each activity to determine the shortest possible durations (crash times), the associated crash costs per week, and the total crash costs needed to reduce the project to the shortest feasible duration.

Initial data indicated that the minimum achievable project duration via crashing was seven weeks, with a total crashing cost of $26,000. The goal was to cut down the project from the delayed eight-week schedule to this minimum, while evaluating the cost-effectiveness of crashing activities versus paying penalties for delays. The analysis showed that crashing the project activities by four weeks would cost $28,000, which is less than the penalty of $36,000, resulting in net savings of $8,000.

Therefore, Mr. Harris’s optimal strategy was to crash activities along the critical path to reduce the project duration by four weeks at a total cost of $28,000. This approach would enable completing the project in seven weeks, avoiding the penalty of $36,000, and effectively saving $8,000 compared to the cost of penalties and uncrashed schedule. Without crashing, the project would incur the full penalty, reducing net revenue below the original $90,000 contract sum.

This strategic crashing decision hinges on detailed CPM analysis: calculating the crash limits (minimum durations), costs per crash week, and critical path recalculations with each activity’s crashing potential. By applying these principles, Harris could make a calculated decision balancing crashing costs against penalty costs, with the goal of maximizing project profit margin.

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The use of Critical Path Method (CPM) for project crashing plays a pivotal role in minimizing costs and penalties in project management—especially when unforeseen delays threaten project delivery deadlines. This case study of Specialty Contractors, Inc., provides an illustrative example of how CPM’s analytical tools can be employed for optimal decision-making in rescheduling activities, balancing the costs of crashing activities against penalties incurred due to delays.

Initially, the project had a scheduled duration of 12 weeks, with an expected cost of $90,000. Due to a fire incident, the start date was delayed by four weeks, and the overall schedule was pushed to a 16-week timeline. Recognizing the financial implications of missing the October 26 deadline, SCI's project manager, Mr. Harris, utilized CPM to identify activities critical to the project’s completion time and evaluate possible crash strategies.

The CPM involves developing a network diagram that maps activities and their dependencies, calculating the earliest and latest start and finish times, and determining the critical path—the longest sequence of activities determining the minimum project duration. The analysis showed that the project could potentially be completed in seven weeks if activities are shortened sufficiently, with some activities having crash limits (minimum possible durations) and associated crash costs. For example, Activity A could be reduced from 3 to 2 weeks at an additional cost of $5,000, while Activity C could be shortened from 6 to 4 weeks at $14,000.

The critical insight came from comparing the cost of crashing the project versus paying penalties. The penalty cost was computed at $9,000 per week of delay past the October 26 deadline, totaling $36,000 for four weeks. The crashing costs to reduce the project by four weeks, estimated at around $28,000, were less than the penalty costs, indicating a cost-effective crashing strategy. By prioritizing activities with the lowest crash cost per week on the critical path, Mr. Harris could efficiently reduce the overall project duration.

The decision to crash activities, however, must consider the limits of each activity, the additional costs, and potential impacts on quality or resources. The analysis revealed that crashing the critical path activities by four weeks was feasible within the available crash limits and would result in completing the project in seven weeks. Implementing this plan would save SCI from paying the full penalty of $36,000, instead incurring a total cost of $28,000 for crashing, leading to an overall net saving of approximately $8,000.

Furthermore, the implementation of CPM-based crashing emphasizes strategic resource allocation, risk management, and cost control. It demonstrates how detailed network analysis and understanding of activity crash limits can optimize project outcomes amid unforeseen delays. In practice, this approach involves iterative updates to the project schedule, recalculations of critical paths after each crashing step, and vigilant monitoring to ensure project objectives are met efficiently.

This case underscores the importance of proactive planning and analytical decision-making in project management. Utilizing CPM for crashing optimizes resource use, minimizes costs, and manages stakeholder expectations effectively. The example of SCI exemplifies how a well-executed crashing strategy can result in significant financial savings and timely project delivery, enhancing a company’s competitive edge in contract management.

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