Ihab Saad – Schedule Compression Project Acceleration
AI: Summary ©
The speakers discuss the impact of liquidated damages on construction projects, including negative returns and delays. Network compression involves reducing critical activities and reducing costs, while most costs are directly proportional to quantity. The importance of identifying critical activities and creating new critical paths is emphasized, along with the need to compress a project with a low cost slope and maximum cost slope. The speakers emphasize the importance of starting two activities in a start-to-success relationship, and the need to ensure the success of a project with a low cost slope.
AI: Summary ©
Steve, hello and welcome to a new class in construction scheduling.
And today we're going to talk about network compression. Last
time we're talking about Project updating, and based on the project
updates, we might find out that the project was behind schedule or
a little bit behind schedule, and we know that there's a concept
called liquidated damages. However, liquidated damages do not
always
seem to be a remedy for the project delays, because some
projects cannot lend themselves to liquidated damages. Anyway,
assume, for example, the Olympic Games, the opening ceremony of the
Olympic Games. This is an event that's going to be watched by
billions of people worldwide. Can a general contractor, for example,
responsible for painting the main stadium say that I'm not ready
yet? Can you please delay the opening by one day, or maybe by
one hour or five minutes? That concept does not even exist.
Therefore,
in some cases, we have to compress the duration of the project to
take care of the delays in order to finish the project on time. And
that's the main topic of what we're going to be discussing today
on the network compression. So time and money are two major
aspects of two major functions in any construction project that the
project manager has to master.
Construction projects are all always have planned and expected
finished deadlines assigned by the owner and stipulated in the
contract. So the contract is going to tell you, for example, that
this project needs to be completed in 200
either calendar days or work days, depending on the clauses in the
contract,
and what if the contractor does not meet that deadline. So if the
contractor cannot meet the deadline, the contractor may need
to pay the owner liquidated damages, which are basically
assessed on each time unit of delay. In some cases it can be a
an hour. In some cases, it can be a day. In some cases, it can even
be in minutes. And it's not uncommon for some construction
projects that are quite critical to have liquidated damages
assessed in the 1000s of dollars per minutes of delay, not even
hours or days, depending
on the conditions of the contract, the contractor may receive a
bonus. On the other hand, if he or she can finish the project ahead
of schedule, and the owner can start making use of that project
on an earlier basis.
Some contracts may also include a penalty clause in addition to
liquidated damages, or as a substitute for the liquidated
damages, it can include a penalty clause for late completion of the
project.
So the liquidated damage, as we mentioned, is a stipulation in the
contract of a monetary amount that must be paid by the contractor if
he or she fails to satisfactorily complete the project by the
contract finish date. We discussed in the previous discussion the
different types of delays. And we mentioned there's a an excusable
delay where the owner can grant the contractor an extension of
time, a compensable delay, which is caused by the owner, and in
this case, the contractor might be
receiving some compensation from the owner for any extra losses
that the contractor may have incurred. In addition to time
extension, there's the non excusable, non compensable delay,
where the fault, or the reason for delay is the contractor's fault.
And the fourth type, which is the most complex type, which is the
concurrent delays, which is more than one reason occurring at the
same time. So a
substantial completion is usually accepted to stop the calculations
of liquidated damages. A substantial completion, basically
is the date by which the owner can practically start making use of
the project and is different from the actual completion date. So the
contractual final completion date is different from substantial
completion, but usually, in most of the cases, liquidated damages
would stop if the project is complete by the substantial
completion date or if substantial completion has occurred.
So why does a contractor have to accelerate the project? In case of
a non excusable, non compensable delay, which is basically the
contractor fault, if the contractor wants to avoid paying
liquid liquidated damages, they will have to
accelerate the project. So this would be called a contractor
driven acceleration to get rid of the delay caused by the contract.
In some cases, even if the owner has delayed the project, but they
still want the project to be completed on time, they would pay
the contractor an extra amount to finish the project on time.
Therefore, this would be a an owner in.
Project. This duration for the activities, and this duration of
the project is what we call the normal duration, which is the
duration with no external pressure. So it's the original
duration for each activity,
which is the duration it would normally take to complete the
activity without any pressure. The cost associated with completing
the activity within this normal duration is called the normal
cost. So now we have normal duration, and related to that is
normal cost. Now, what if we want to reduce that duration, compress
that duration? Basically, we're going to use more equipment, more
labor, more materials. We're going to change the method of
construction. We're going to work over time. Any of these things are
going to reduce the duration of time, but at the same time,
they're going to increase the cost. So in this case, the
shortest possible duration to complete the activity is called
the crash duration, beyond which you cannot reduce the duration of
the activity, which is achieved through the highest possible
productivity and maximum, not necessarily optimum use of
resources. We might use resources more than the the normal rate.
There's going to be probably a lot of waste in some cases, but again,
we might, at the end, be able to finish little bit faster. The cost
associated with completing the activity within the crash duration
is called the crash cost, which is higher than the normal cost. So
normal duration is longer than crash duration, but crash cost is
higher than normal cost.
So if shortening or compressing the original duration or normal
duration is necessary, it should be expected that direct cost of
the activity is going to increase.
The formalized method to handle this problem, which is called
Network compression, or project acceleration, is also called the
time cost trade off, or relationship between time and
cost.
So the basic, basic objective of network compression is to reduce
the estimated project duration by reducing those critical activities
in the network, which will result in the lowest added cost to the
project. Again, remember, only the critical activities should be
considered for compression, because the non critical
activities until they become critical, have no effect on the
total duration of the project. So some of the assumptions that we're
going to make is, one of the assumptions is that the original
activity durations represent a method for performing the
associated work at the low cost to the contractor, not necessarily
the lowest cost, but the low cost of the contract. Reduction of an
activity's duration will require the expenditure of different or
additional resources, and will normally result in higher cost.
That's the premise that we're going to be working under.
So now we need to learn about what are different types of costs and
different classifications of these costs. So project costs can be
classified according to different criteria. One of them is whether
they are direct or indirect costs. And these this is something that
you should have learned in an estimating class, for example, but
we're going to talk about it again just to make sure that you do
understand this point. The second way of classifying costs is there
be based on their behavior and relationship with time. So
according to the first classification, the cost can be
either direct or indirect. A direct cost or direct costs are
the costs directly related to the items of the project, which means
they are represented by a pay item in the bid.
Another definition is that these are the costs the contractor
leaves behind on his or her way out in an intentional way. So if
the contractor leaves a piece of equipment, it becomes part
intentionally that becomes part of the direct cost, the cost of labor
that built the project is a direct cost, the cost of material that
were included in the construction of the project is direct cost
equipment. Production of the equipment is direct cost, so we
have labor, material and equipment costs. These are, in general,
direct costs.
The second type is indirect costs, which are costs necessary for the
completion of the project. You cannot finish the project without
spending this cost, but at the same time, not necessarily direct
to any particular activity thereof within the project.
Example. Examples include in general supervision cost,
temporary fences and access roads, which are not part of the
permanent project. Site and office overheads, supervision, including
the salary of the project manager, who does nothing but supervising
the project. But you cannot allocate in most of the cases, at
least, you cannot allocate that whole salary to one particular
activity or set of activities in the project. Therefore, it's going
to be distributed.
Among all the activities in what we call overhead, and that's part
of the indirect costs.
The other way of looking at cost is their behavior with time. How
is that cost spent over time? So here we have the first type, which
is called once only cost which is spent only once in the lifetime of
the project, either at the beginning or at the end.
And examples for this cost include mobilization and demobilization.
Mobilization at the very beginning, surveying, temporary
fence, temporary access roads, installation of permanent
equipment,
trailer for the general contractor, and so on and so
forth, and demobilization, dismantling of equipment, removal
of the trailer, moving out of the site, all of this is going to be
done at the end. And that's another one's only cost.
It should be noted that most of these costs are which are the ones
only are indirect costs. However, some of them could be direct, like
the erection and dismantling of production equipment, a tower
crane, for example. But in general, most of these costs are
going to be indirect costs.
The second type
is what we call the time related costs.
And time related costs, as you can see in the graph here, they behave
mostly in a linear way with time. So the more time, the more that
cost, and it goes in a linear way. So we have a cost per unit of time
that's constant that keeps accruing as time passes.
It means that costs are directly proportional to time, usually
linearly increasing with time. And examples of this time include cost
of rented equipment, some types of labor costs like indirect labor
cleaning, for example, a security guard, something like that, a
secretary on site, and including site and head office overheads, in
general, most of the time related costs are indirect costs. So so
far we talked about once only, which is mostly indirect, and time
related, which is also mostly indirect.
Then the remaining type, or the third type, is what we call the
quantity proportional costs. Quantity proportional costs are
costs that are directly proportional to quantity. The more
quantity you do, the more cost you're going to incur. So as the
quantity increases, the cost also increases. And in general, most of
the cases going to be linear, just like this.
So we have a constant cost per unit which is the slope of this
curve. However, in some cases, you can also have the shape, which is
related to something called the economy of scale, or you can get a
discount on larger quantities. If you buy in bulk, the unit price is
going to decrease as the quantities increase, and that's
reflected by this parabola. So examples of the of this type of
costs include material costs subcontractors, because, again,
depending on the amount of work that the subcontractors are going
to do, and equipment operation costs, like fuel, for example, or
any consumables for that equipment power for powering that equipment,
is going to be quantity proportional. Most of the quantity
proportional costs are direct costs. So if the other two types
were indirect, this type is predominantly direct cost,
another representation of the direct cost. Now, since we cannot
notice now for a second here that in the once only cost. The axes
were time and cost.
In the time related cost, it was time and cost. So these can be
added together. But in the third type, which is quantity
proportional, we have quantity and cost. Therefore it cannot be added
to the other two. So what if we want to get the graphical
representation of the total cost of the project? How can we do
that? We need to convert this quantity proportional cost, from
quantity and cost to something related to time and cost. And this
can be done through this example.
We're going to look at the normal duration under normal conditions.
It's going to take us that amount of time and that cost, the normal
cost to finish the activity. However, if I want to reduce the
duration, I'm going to need more resources for the same quantity of
work achieved. So the is going to be a higher cost for shorter time.
Therefore here we have on one extreme, the normal duration. On
the other extreme, the crash duration, and the cost associated
with it, which is the crash cost. Therefore that's going to give us
something like an approximate straight line of slope, which we
call the activity cost slope, which is delta cost, the
difference in cost, which is crash cost.
Minus normal cost divided by delta time, the difference in time,
which is normal duration minus crash duration, that would give us
the activity cost slope.
So now that we have managed to combine all three different types
of costs, time related, once only and quantity proportional, we
convert it into a time cost relationship. Now we can add all
of these three costs together to get what's called the activity
utility curve, which is something that looks like this. Now this
activity utility curve shows us that at a certain point in time
we're going to have the lowest cost. That cost might increase
if time exceeds a certain amount, and if we try to shorten the
project too much, that cost is going to go much higher as well.
We're going to revisit that curve a little bit later again. So with
the activity utility curve, direct costs for each method of
accomplishing an activity is plotted against the duration
required to do it in that way. In practice, there are normally only
a limited number of ways investigated, and thus only a
finite number of points are defined.
So here it shows the discrete points, point 1.2, point 3.4, and
the cost associated with each one of these.
Here's another activity with another example.
So cost in the activity utility curve refers to the direct cost
only, including labor, material, equipment, subcontractor and other
incidental direct costs.
It can take considerable effort to develop multiple point curves for
all activities. Therefore, only important activities may be
evaluated the ones that have a large impact on the cost. And you
can reach some such activities through what's called the Pareto
analysis, which is based on the statistical assumption that 20% of
the activities in the project are going to cost 80% of the total
cost of the project. There's another discussion where we can
find out which activities are these 20% that form the 80% of the
cost. It's assumed that an activity's duration can be
shortened one day at a time from point to point on this curve,
these are the incremental changes. This may not be true, however, but
usually does not pose serious problems in the final solution, we
can accept this assumption for the time b.
So by compiling the different utility curves for different
activities, critical activities, primarily, and even non activity,
non critical activities, at this point, a utility curve can be
developed for the whole project. The direct cost curve is developed
by starting with the normal project duration and its associate
associated sum of direct activity costs for their normal times. And
then we can add the indirect costs, and the total cost is the
sum of direct and indirect costs. The
indirect cost is going to include, as we discussed before, the
project overhead, including project staff, office, trailer
cars and trucks assigned to the project team, office equipment,
temporary, temporary utilities and other indirect project related
expenses.
And it's also going to include the general overheads, or the head
office overheads, rent, leads, etc, main office personnel, main
office equipment services and other main office expenses and a
contingency fee, just for risk management.
So now, when we add the indirect cost here, which is usually time
related, to the direct cost,
we're going to get this curve,
which is the total cost, and this is called a catenary curve.
Catenary curve which shows at one extreme, it's high at the other
extreme is also high, and somewhere in between is going to
hit its lowest point.
So for example, if we have an earth booking project with the
productivity of 160 cubic yards per hour, the total work is 16,000
QB KRS estimate, equipment, operating cost, except for
operating, is $54 an hour. Operator, wages and benefits, $32
an hour, normal over time, wage and benefits, 40 $48 an hour, and
indirect cost, $100 a day. We can now, based on this information,
look at different production rates and draw the different discrete
points that are going to be connected together to give us that
utility curve.
It. So now getting to network compression. How can we apply all
of these principles to actually compress a project? Let's start
talking about, what are the conditions for an activity to be
even considered as a candidate for compression? And we're going to
find out that we have basically four conditions. Remember these
conditions. That's extremely important. So the objective is to
shorten the total project duration by compressing the duration of
activities on the critical path. So first of all, it has to be a
critical activity. So remember the four conditions before you start
compressing. And for any activity to be considered for compression,
it has to be first critical, as compressing a non critical
activity only adds to the project cost without affecting its time or
duration.
Second is it has to be compressible. Remember when we
talked about delta time, which is the difference between the normal
duration and the crash duration. What if an activity cannot be
compressed, does not have any delta time, in this case, it's
called incompressible activity, therefore is going to be excluded
from our calculations. So we will focus only on the activities that
have a positive delta time, which is a positive difference between
the normal duration and the crash duration.
Third it has to be an effective activity. And this is very
interesting, not every activity, even if it were critical and
compressible, not every critical compressible activity is going to
be effective. Thinking about that, if I have two activities, two
critical activities connected with a start to start. Relationship
critical connected through start to start. If I compress the
predecessor,
is it going to affect the start of the success?
The answer is no, because when you compress, you compress from the
end of the activity, but since the second activity, the successor is
connected to the start of the predecessor. Compressing from the
end of the first activity does not achieve any purpose, therefore it
would make it ineffective. So if two activities are connected by a
start to start relationship, the predecessor or the first one of
these two is ineffective in compressing the project duration.
Similarly, if we have two activities connected by a finish
to finish relationship, again, two critical activities connected by
finish to finish relationship, that would render the successor or
the latter one ineffective, because, again, as we mentioned,
you compress it from the end, if you compress it but from the end,
still, what's driving the completion of that activity, or
the duration or the date for that activity is its predecessor,
because of the finish to finish relationship. Therefore, if two
critical activities are connected by finish to finish relationship,
the latter one or the successor becomes ineffective. Remember
these two simple rules?
Okay, now for all the critical, compressible and effective
activities, which one are we going to start with? We are going to
start with the one with the lowest cost slope. Remember again, the
cost slope is delta c over delta t, difference in cost divided by
difference in time for that particular activity. Therefore
we're going to look at which activity is going to cost us the
least amount of money to compress by one day.
So the basic procedure is we're going to start with the critical
activity, having the flattest cost slope, cheapest unit cost, and
then considering successful successively those having steeper
cost loops. So once we compress the critical compressible
effective with the lowest cost slope, and we're done with it, we
move along that continuum to the ones who have higher cost slopes,
until we reach the most expensive if we still need to keep
compressing,
if non critical activities lose their float time and become
critical, because once we start compressing, the non critical
activities are going to lose some of their float so what if an
activity had only one day of float Before compression, after
compression, it became critical. Now we have created a new critical
path, or new critical activities that have to become candidates,
and the four same rules have to apply to these activities in
selecting them for compression,
the safest method compress the network one day at a time to make
sure that you do not create any new critical paths without
noticing it, unless the minimum total float on the non critical
activities is greater than one day. So if, for example, minimum
total float in the network is six days.
If I compress this network by five days in one step, it will not
create a new critical path.
Because the minimum total float is six days.
At each stage of network compression calculations follow
these steps. First, identify all the activities on the critical
path, or paths, because we might have more than one critical path,
delete from consideration those zero potential for compression. So
if it has delta t equals zero, would make it incompressible,
therefore it cannot be compressed.
Number three, among the critical activities, exclude the non
effective ones, as we have discussed, predecessors in start
to start and successors in finish to finish. And number four, select
the activity or group of activities, if parallel paths
exists with the lowest combined cost slope, cheapest to compress.
And finally, with each cycle of compression or each step of
compression, watch for the creation of a new critical path.
Therefore compress by one day at a time, except if the total float
for non critical activities is greater than one
at each stage of network compression calculations. Follow
these steps, compress the activity, update the network time
calculations and the corresponding Project Direct Cost, repeat the
steps that we talked about, one through seven, until further
reduction in the total project duration is no longer possible. We
have exhausted all the compressibility in the critical
activities. Or until the desired project duration is reached. If I
want only to compress the project by a certain number of days, I
don't need to keep going beyond that. Or until the cost of
compression is no longer economically feasible or
meaningful. For example, when I compress the duration of an
activity, its direct cost is going to increase, but at the same time
its indirect cost is going to decrease. So I'm going to look at
this balance.
Am I saving money while compressing, or am I spending more
money while compressing we're going to see an example on that.
So here's the example. It shows us a network with the IPAS immediate
preceding activities, and with each activity having a two
durations, a normal duration and a crash duration and a normal cost
and a crash cost. Notice, for example, that activity A has a
normal duration of five, crash duration of four. Therefore its
compressibility, or delta t, is equal to one. It has a normal cost
of 500 the crash cost of 600 therefore its delta c is 600 minus
500 so by looking at these four numbers, the cost slope for
activity A becomes 600 minus 500 which is 100 divided by five minus
four, which is one. So its cost slope is $100
per day. Now the indirect costs are 120 per day. So if I were to
compress activity A by one day, I'm gonna spend an extra $100 but
at the same time, I'm gonna save $120
in a reduction of the indirect cost. Now we're gonna pause here,
and we're gonna have another session talking about the example,
solving the whole example from beginning to end. Remember, the
compression problem is not a hard problem at all. It's just a long
problem because we have to repeat the calculations of forward pass
and backward pass several times. Therefore, if you're going to do
it manually, I highly recommend that you use a color, a set of
colored pencils, and do each cycle in a different colors so that you
do not get confused with the numbers. Thank you, and I'll see
you in the next session talking about this example in network
compression. You.