CHAPTER 16

TRADE-OFF ANALYSIS
IN A PROJECT
ENVIRONMENT
Project trade-offs
--are usually made to optimize the balance

between time, cost and performance (which

encompasses the quality of the deliverables, the
ability to cover the expected scope, and the
efficiency of execution).
 The time–cost–performance
triangle is the “magic
combination” that is continuously
pursued by the project manager
throughout the life cycle of the
project. If the project were to flow
smoothly, according to plan, there
might not be a need for trade-off
analysis.
 The following six steps may help:

● Recognizing and understanding

METHODOLOGY FOR the basis for project conflicts

TRADE-OFF ANALYSIS ● Reviewing the project objectives

Any process for managing time, cost,
● Analyzing the project
environment and status
and performance trade-offs should
emphasize the systems approach to ● Identifying the alternative courses
management by recognizing that even of action
the smallest change in a proj- ect or
system could easily affect all of the ● Analyzing and selecting the best
organization’s systems. alternative

● Revising the project plan

 Most causes can be categorized as human errors or failures,
uncertain problems, and totally unexpected problems, as shown
below:
·Human errors/failures ·Unexpected problems
·Impossible schedule commitments ·Overcommitted company resources
·Poor control of design changes ·Conflicting project priorities
·Poor project cost accounting ·Cash flow problems
·Machine failures ·Labor contract disputes
·Test failures ·Delay in material shipment
·Failure to receive a critical input ·“Fast-track” people having been promoted off
·Failure to receive anticipated the project
approvals ·“Temporary” employees having to be
·Uncertain problems returned to their home base Inaccurate
·Too many concurrent projects original forecast
·Labor contract expiration ·Inaccurate original forecast
·Change in project leadership ·Change in market conditions
·New standards having been developed
 This may require reviewing
project documentation, including:
The second step in the
decision-making process is a
● Project objectives
complete review of the project ● Project integration into
objectives as seen by the sponsor’s objectives and strategic
various participants in the plan
● Statement of work
projects, ranging from top
management to project team
● Schedule, cost, and
performance specifications
members. ● Resources consumed and
projected
 The following topics may be applicable
under step 3:
The third step is the analysis

of the project environment ● Discuss the project with the project

and status, including a de- management office to:

tailed measurement of the

● Determine relative priorities for time,
cost, and performance
actual time, cost, and ● Determine impact on firm’s
performance results with profitability and strategic plan

the original or revised

● Get a management assessment (even a
hunch as to what the problems are)
project plan. ● If the project is a contract with anata to
assess credibility of cost and schedule
information in the pre-
vious step
● Meet with the functional managers to determine their views on the
problem and to gain an insight regarding their commitment to a
successful project. Where does this project sit in their priority list?
Methodology for Trade-off Analysis 631
● Review in detail the status of each project work package. Obtain a
clear and de- tailed appraisal by the responsible project office personnel
as to:
● Time to complete
● Cost to complete
● Work to complete
● Review past data to assess credibility of cost and schedule
information in the previous step.
The project manager must remain objective in such prob- lem identification, since
he himself is a key member of the project team and may be per- sonally
responsible for problems that are occurring. Suspect areas typically include:

● Inadequate planning.
● Scope changes.
● Poor performance.
● Excess performance.t.
● Environmental restraints—particularly on projects involving “third-party ap-
provals” or dependent on outside resources.
 The fourth step in the project trade-off process is to list
alternative courses of action. This step usually means
brainstorming the possible methods of completing the project by
compromising some combination of time, cost, or performance.

In order fully to identify the alternatives,

the project manager must have specific
answers to key questions involving time,
cost, and performance:
Time
● Is a time delay acceptable to the customer?
● Will the time delay change the completion date for other projects and other
customers?
● What is the cause for the time delay?
● Can resources be recommitted to meet the new schedule?
● What will be the cost for the new schedule?
● Will the increased time give us added improvement?
● Will an extension of this project cause delays on other projects in the cus-
tomer’s house?
● What will the customer’s response be?
● Will the increased time change our learning curve?
● Will this hurt our company’s ability to procure future contracts?
Cost
● What is causing the cost overrun?
● What can be done to reduce the remaining costs?
● Will the customer accept an additional charge?
● Should we absorb the extra cost?
● Can we renegotiate the time or performance standards to stay
within cost?
● Are the budgeted costs for the remainder of the project
accurate?
 Will there be any net value gains for the
increased funding?
● Is this the only way to satisfy performance?
● Will this hurt our company’s ability to procure future
contracts?
● Is this the only way to maintain the schedule?
Performance
● Can the original specifications be met?
● If not, at what cost can we guarantee compliance?
● Are the specifications negotiable?
● What are the advantages to the company and customer for specification
changes?
● What are the disadvantages to the company and customer for performance
changes?
● Are we increasing or decreasing performance?
● Will the customer accept a change?
● Will there be a product or employee liability incurred?
● Will the change in specifications cause a redistribution of project resources?
● Will this change hurt our company’s ability to procure future contracts?
Once the answers to these questions are obtained, it is often best to plot the results
graphically.
 Step 4: Parameters to hold
fixed:
Identifying the
1 – Performance is fixed
alternative courses of 2 – Cost is fixed
action 3 – Time is fixed

4 – No constraints are fixed

 4 Methods for constructing and

PERFORMANCE IS analyzing the time-cost curves:
FIXED Additional resources may be required.
--cost can be expressed as a
The scope of work may be redefined and some
function of time
work deleted without changing the project
performance requirements.
--trade-offs with fixed
performance levels must take Available resources may be shifted in order to
into account the dependence of balance project costs or to speed up activities
the firm on the customer, priority that are on the “critical” path work element that
of the project within the firm, is railing.
and potential for future business. Given a schedule problem, a change in the logic
diagram may be needed to move from the
current position to the desired position.
COST IS FIXED TIME IS FIXED
--performance will vary as a --which time is fixed and cost
function of time varies with the performance.

--the decision of whether to --when time is fixed, the customer

adhere to the target schedule may find that he has some
data is usually determined by flexibility in determining how to
the level of performance. arrive at the desired performance
level.
STEP 5:
Analyzing/selecting the
best alternative

STEP 6:
Revising the project plan
 CONTRACTS: THEIR INFLUENCE ON
PROJECTS
Firm-fixed-price (FFP) contract
--time, cost, and performance are all specified within the contract.

Fixed-price-incentive-fee (FPIF) contract

--cost is measured to determine the incentive fee, and thus is the last constraint to
be considered for trade-off.

Cost-plus-incentive fee (CPIF) contract

--costs are reimbursed and measured for determination of the incentive fee.
Cost-plus-award-fee (CPAF) contract
--costs are reimbursed to the contractor, but the award fee id based on
performance by the contractor.

Cost-plus-fixed-fee (CPFF) contract

--costs are reimbursed to the contractor and costs would be the first
constraints to be considered for trade-off.
 INDUSTRY TRADE-OFF PREFERENCES
01 02 03
NONPROFIT NON-DRIVEN PROJECT-DRIVEN
ORGANIZATION ORGANIZATION ORGANIZATION

--the first resource to --resources trade-offs it

i--performance is the
depends on the life-cycle
first that will be be sacrificed in non-
phase of a given project.
compromised. driven organization is
During the conceptual,
time, followed by
definition, and production
performance and cost, phases and into the
respectively. operational phase of the
project, the trade-off priorities
are cost first, then time, and
finally performance.
 CONCLUSION

It is clear the project manager has options to control a project

during its execution.
The availability of specific options will depend on the particular
project environment.
The greatest contribution a project manager can make to a
project team organization is stability in adverse conditions
Interpersonal relationships are relevant to alternatives since
team performance will be required.
 Project managers can make trade-offs,
encourage team members, and reassure the
project sponsor in order to produce a
satisfactory project through a combination
of management skill and sensitivity.