Planning project costs

A Tulip

If the different types of money involved in the project

jetting realistic plans for the expendi~re on a project
need to be identified because of conflicts, then this last
can cause much guessing to be done in the initial stages.
item would need to be repeated for each category.
These guesses are more vague if only a little is known
At the initial stages of project formulation there is
about the projects being studied. The resource smooth-
not much more information available. Perhaps there
ing method as it can be applied to cost aspects of project
could be some idea of the sequence of work even
planning is described.
though the work items have not been specified in detail.
In the original specification of the method, a full
Keywords: project management, cost planning,
project network was required but experience has shown
resource-smoothing algorithm
that this, while useful, is not essential.
Consider, as an example, a draft project that is
When a manager is confronted with a project for the expected to last for three years. During the initial
first time, there are many questions to be answered. In specification, a number of high-level tasks (almost
the current economic situation, the rate at which certainly no more than 30) will be defined. These tasks
money is required often becomes a regulating factor. It will have a description such as ‘develop marketing
is, therefore, important to set the budget requests at strategy’ or ‘construct plant on site’. For the actual
realistic levels while there is the minimum of detailed planning and control, they will need to be divided into
information available. In setting these levels, a variety manageable units, but for this exercise a job lasting six
of possibly conflicting objectives should be achieved. to nine months is probably the best that current
information will allow.
They should be as low as possible without unduly
delaying the project milestones.
Wild fluctuations in the budget should be restricted METHOD OF WORKING
as much as possible.
Wages may need to be treated separately from costs Four steps in the smoothing process are cycled until all
incurred in materials and machines. the tasks have been scheduled.
It may be necessary to phase the progress to suit
other projects. Schedule critical jobs
If a task has time constraints so that no float is
REQUIREMENTS available, then it is scheduled beginning at its earliest
time and lasting for the estimate. All such jobs are
The algorithm of resource smoothing originally scheduled before proceeding.
described by Tulip’ has proved a reliable and adaptable
method of scheduling. For each ‘item’ to be scheduled,
Find the most important job
this system requires four pieces of data:
The second step is to scan all those tasks that remain to
l the earliest time the work can start, be scheduled in order to find the best one to study.
l the latest time it is needed, Arithmetically, this can be stated as the task with the
l the estimated duration, highest criticality factor where criticality factor = total
l the estimated rate of spend. cost/float available.
If two or more activities end up with the same
criticality factor then the manager needs to select one.
Honeywell Information Systems, Boundary House, Crickettield It may be the one with the earliest or latest start date,
Road, Uxbridge, Middlesex, UK or the shortest or longest duration.

194 0263-78631831040194-03 $03.00 0 1983 Butterworth & Co (Publishers) Ltd Project Management
 If the manager is looking at classes of money e.g. OBSERVATIONS ON THE METHOD
wages and materials, then there are two options for
adjusting this factor. Either all of one type of money A result of using this approach in the early days of the
can be studied to the exclusion of all the others, or study is that a cost profile is produced as an output
some sort of weighting factor can be used in determin- rather than as an input item. Naturally, the cost
ing the cost of the job. For example, wage costs may be requirements will vary from period to period. The
considered doubled when compared to materials, using overall shape of the final cost curve will help the
the excuse that wages must be paid but outside manager in setting his own level of cost flow. He may,
suppliers can wait. for example, ignore a peak in one period knowing that
The easier of these options is the former. While the he can use the valley nearby. Normally, computer
most important type of money is being scheduled to the allocation algorithms need the maximum level to be
exclusion of all others, it does have implications for the supplied as a data item and also the rules to be
others as will be seen. It is also a system of ranking that observed when it tries to schedule over this limit.
a manager can be expected to do more easily than Although the smoothing algorithm has been com-
estimate the qualitative weighting between types. puterized in at least two computer programs, it is not
necessary for it to be done in this way. Used manually,
it accelerates the manager’s understanding of his
project by highlighting the sensitive portions. It also
Schedule this task allows him to try alternatives quickly. In one exercise,
The scan of all the tasks will select the best activity to the time required for determining a provisional budget
schedule. The obvious next step is to schedule it in the was cut from two weeks to two days. The benefits of
most favourable time slot. Three sets of data should be this are numerous, but the prime one must be that more
taken into account in this determination. real discussion can take place before a commitment is
made.
l the profile of the cost requirement of the tasks If the manager considers the categories of cost in turn
scheduled so far, using this method, it is only necessary to produce an
l the range between the earliest and latest times of ordered list. The sequence of cost types on this list will
this task, almost certainly not be the same as the sequence of
l the cost requirement of this task. these costs when looked at from the company view-
point. The most important cost should be the one that
When trying this method for the first time, most is necessary to keep the project progressing. It can be
students can intuitively locate the best position within tempting to pick a cost that occurs on one or two tasks
the given time range. This can be stated as the slot that only. In scheduling these tasks, the manager will then
gives the lowest overall profile at this time. A mathe- throw away much of the flexibility that he needs later in
matical statement of this is, however, a little longer. the process.
The earliest and latest times that constrain the Some managers are perturbed by the idea of needing
scheduling of the activity give a finite set of possible a late time for the tasks. The scheduling process uses
start times. The activity is scheduled at each of these that as a boundary but will not necessarily delay tasks
start times in turn. For each of these possibilities, the up to that date. However, the more flexibility is given
requirement for each time period is squared and then to the project by extending the late times, the lower will
summed. The position that gives the lowest sum of be the overall cost profile.
squares is then chosen as the best schedule time for this
activity.
This method of squaring forces the scheduling of new MULTIPROJECT ENVIRONMENT
jobs to avoid peaks of the previously committed cost.
In other words, it is always looking for the valleys in It is sometimes necessary to consider the proposed
order to fill them. project in the light of the currently committed load. For
example, during the sales campaign for a new contract,
it is no good quoting unrealistic dates and costs. An
Adjust times early date would commit the company to a cost rate
greater than it could handle and a late date would upset
Although there may not be a network in the true sense, the client.
there will often be a set of imprecise linkages. The In practice, starting with the costs committed to
activity that has just been scheduled may have implica- other projects, it was found that a very competitive and
tions on the activities yet to be done. For example, if it realistic estimate was supplied to clients by using the
was scheduled at its earliest time, then anything that smoothing process to the new project. The sales team
had to precede it may need its late time adjusting. This can normally supply all the information needed. Even
is not a major task to do quickly with a pencil and the late times are usually obtained early in the
rubber for the set of activities in question. discussions.
Should there be any further activities to schedule, To use the procedure, committed cost is taken as the
these four steps are repeated. If some types of cost starting profile and then the four steps outlined
were ignored and all jobs involving the important cost previously can be done for the proposed project. The
type have been scheduled, then the process can be exercise can be repeated using a number of variations
continued with the next category. In this case, all the on the proposal so that management can evaluate the
tasks that have already been scheduled will be con- best strategy to take in the negotiations. The sales team
sidered as critical in the initial stage of the process. will also have an indication of the implications to the

Vol 1 No 4 November 1983 195

company and to other projects of the various requests Arthur Tulip graduated from Uni-
coming from the client. This gives them an advantage versity College, London, in 1959.
over competing organizations. He worked for a number of years
on simulation methods in naviga-
tion and atomic energy before join-
REFERENCES ing Honeywell, where his work
consists of advbing customers in
1 Tulip, A ‘Resource smoothing theory and practice’ the use of management techniques
Proc. Internet Conf Stockholm (1972) and developing, maintaining and
supporting the computer programs
associated with them. He was in-
volved in the formation of the UK
Association of Project Managers
and in the past has held the offices
of both secretary and treasurer for
the Association.

Internet 80s

*
- the supremely flexible
management system

easily adaptable to users’

dP Data Processing is the
international journal
for computer managers

specific requirements
DATA PROCESSING is specifically tailored to
meet the business and professional interests of
* machine independent - managers of computer installations and company
avoids conversion problems executives who procure computing equipment.
It contains news and features on industry
* integrated planning/financial developments, DP management issues, advances in
modeling capability technology, applications and new products and
services.
* interactive input - prompted
- menu driven
Further details and sample copy can be obtained from:
Christine Mullins
* advanced network plotting -
Butterworth Scientific Limited
interactive graphics - Journals Division,
PO Box 63, Westbury House,

CRD
Bury Street, Guildford, Surrey
GU2 SBH, UK.

Telephone 0483 3 126 1

Telex: 859556 SCITEC G
Computation Research and Development Ltd.,
12-15 Dartmouth Street, London SWlH 9BL
Telephone: (01) 222 9822

196 Project Management