Question

EBC is a construction company. They are in the process of constructing a building whose plumbing would be installed in 12 days at a cost of $ 64 or in 10 days at a cost of $ 80 by working overtime. Plumbing is on the critical path and each day’s saving in completion time of the whole project is worth $ 10.

a) You have been asked to advise the project team on whether to take the 10 day or the 12-day option. Using relevant computation, present your piece of advice.

b) Highlight the elements of ‘trade-off’ expressed in the above case.

c) Assume each day’s saving in completion time is worth $ 5. What advice would you give? Give reasons for your answer

Answer 1

Answer a) If team opts for option of 12 days then cost will be $64

If team opts for option of 10 days then cost will be $80

Saving in cost due to opting of option of 12 days is = $16

Since it take 2 days more (i.e. 12days instead of 10days ) to complete the work so there is oppurtinity cost for this . Each day saving in completion time is $10 . But we have taken 2 days more if opt for 12 day option so we have lost $20($10*2) for extra days we have taken if we opt for 12 days option .

Hence for option of 12days total cost will be = $64+$20 = $84

And for option of 10 days cost is= $80

So it is advisable to opt for option of days as in that case there is saving of $4

Answer b) The elements of trade off shown in above question are Time,Cost and quality . Since time ,qualitty and cost are interdependent parameters in a poject. If construction time is shortened , then project cost should be added. Also he might loose profit if he fails to implement project in right quality,time and cost .

Answer c) if each day saving in completion time is worth $5 then oppurtunity cost if opt for option of 12days is $10 ($5*2)

So

Total Cost for option of 12 days is = $64+$10= $74

Total Cost for option of 10 days is= $80

So it is advisable to opt for option of 12 days if saving per day in completion time is $5