W13_SSG_Identify Critical Month during the Project Life Cycle by Applying Pareto’s Law (20% of Project Duration)


PROBLEM DEFINITION

We are now in starting point of EPC execution phase where the contract of EPC work will be delivered. One of the critical month in the execution phase is when the resource loaded & cost incurred so “expensive”.

DEVELOPMENT OF FEASIBLE ALTERNATIVES

To identify the month when the resource and cost are mostly loaded, we need a method to demarcate when the “expensive” month will occurred.

Figure 1. Pareto’s Law Distribution Figure

DEVELOPMENT OF OUTCOMES FOR EACH ALTERNATIVE

Referring to Pareto’s Law that 80% cost will be incurred by 20% of activities. This law implies that even we have to control all the activities but our major attention should be to expensive month that produce cost 80% of total project cost.

Figure 2. Cost Distribution Over Time During Project Life cycle.

SELECTION OF CRITERIA

To identify expensive month that produce total cost ± 80% of total project cost we need to Sort out the month from the most expensive.

Figure 3. Identified most Expensive Month Using Pareto’s Law (20% duration).

Figure 4. Cost Breakdown Structure and Cost Distribution Model

ANALYSIS FOR THE ALTERNATIVES

Based on above cost sorted in figure 3, we can identify that the most critical and expensive month is in October 2014. Figure 2 inform us the most critical range of time are from June 2014 to November 2014 where majority activities would be Procurement, and Fabrication / Construction.

SELECTION ON THE PREFERRED ALTERNATIVES

Using the Pareto’s Law on 20% duration give us a picture of “by when we need money Mostly” and by when we need resource loaded mostly. This Pareto’s Law is helpful to manage the project cash flow.

 PERFORMANCE MONITORING AND POST EVALUATION RESULT

Comparing 20% duration vs. 80 % resource / cost loaded has given us that using this two different approach will give us significant variance. In this case, it seemed using 20% duration is more optimistic where it covers 5 months where by using 80% resource loaded it covers 15 months as “expensive” month.

Pareto’s Law is applicable for cashflow management and cost phasing. The existing cost distribution is based on current situation. On the real project, it’s imperative to re-forecasted the cost and the distribution over time.

REFERENCES

Memory Jogger 2nd Edition (2010).Tools for Continious Improvement and Effective Planning. GOAL/QPC

Alfred Ultsch (2002).Proof of Pareto’s 80/20 Law  and Precise Limits for ABC-Analysis.Retrived on November 9, 2013 from  http://www.informatik.unimarburg.de/~databionics/papers/ultsch02proof.pdf

Better Explained. Understanding the Pareto Principle (The 80/20 Rule).retived on November 9, 2013 from  http://betterexplained.com/articles/understanding-the-pareto-principle-the-8020-rule/

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1 Comment

Filed under Sutoyo S, Week 13

One response to “W13_SSG_Identify Critical Month during the Project Life Cycle by Applying Pareto’s Law (20% of Project Duration)

  1. Again a very interesting and different application of Pareto both in terms of timing and costs!!! Well done!!! I love it!!!

    Keep on coming up with these interesting case studies and analysis!! Very impressive!!

    BR,
    Dr. PDG, Jakarta

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