Your project has a critical path of 85 days. You can crash Activity X (on critical path) from 12 days to 9 days for an additional cost of $15,000. The project has a delay penalty of $2,000 per day. Should you crash this activity?
Correct Answer
B) No, it costs an extra $9,000
Crashing saves 3 days (12-9), avoiding $6,000 in penalties (3 × $2,000). However, crashing costs $15,000. Net cost = $15,000 - $6,000 = $9,000 extra expense, so crashing is not economical.
Why This Is the Correct Answer
Option B is correct because the cost-benefit analysis shows crashing is not economical. While crashing Activity X saves 3 days and avoids $6,000 in delay penalties, it costs $15,000 to implement. The net result is a $9,000 additional expense ($15,000 cost - $6,000 savings), making crashing financially unfavorable. Therefore, the contractor should not crash this activity.
Why the Other Options Are Wrong
Option A: Yes, it saves $3,000
Option A incorrectly states that crashing saves $3,000. This fails to account for the full cost of crashing ($15,000) and only considers partial savings, leading to an incorrect financial conclusion.
Option C: The decision depends on other factors not provided
Option D is wrong because all necessary information is provided to make the decision. The crash cost ($15,000), time savings (3 days), and penalty rate ($2,000/day) give sufficient data for a complete cost-benefit analysis.
Option D: Yes, it saves $6,000
Option C incorrectly states that crashing saves $6,000. While $6,000 represents the penalty savings from reducing the schedule by 3 days, it ignores the $15,000 cost to crash the activity, resulting in a net loss rather than savings.
Memory Technique
Remember 'CRASH = Cost minus Reduction benefits' - if the crash cost is higher than penalty reduction benefits, don't crash the activity.
Reference Hint
Project Management chapter, specifically sections on Critical Path Method (CPM) and project crashing/time-cost trade-offs
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