Winter 2007–2008
The Measurable News
Quantifying the Relationship between
Schedule and Cost
By Stephen A. Book, MCR
I
t is well known that a program’s cost is related to
its schedule, yet when a program’s schedule esti-
mate is updated, it is not often that the cost esti-
mate is updated in parallel to reflect consistency
with the new schedule estimate. One reason for this
deficiency in estimating is probably the unfortunate
wall of separation that seems to divide those analysts
who do cost estimating from those analysts who do
schedule estimating. Another appears to be a lack of
understanding of the extent of the impact of schedule
growth on cost growth.
While the first issue is a management problem that
we cannot solve here, the second one is mathemati-
cal, and we can offer a framework for dealing with
it. In technical papers [1,2] and a monograph [3],
P.R. Garvey suggested the application of joint and
conditional probability distribution theory to model
the relationship between schedule and cost. Proceed-
ing from Garvey’s work, I will describe a practical
method of understanding that relationship and ap-
plying it to estimating a project’s cost based on its
schedule and vice versa.
The Role of Risk Analysis
Because both schedule and cost estimating are ver-
sions of forecasting future events, there is consider-
able uncertainty in estimates of each. The solution
to the problem is to treat the schedule and cost es-
timating process statistically, a technique referred
to as schedule-risk analysis and cost-risk analysis,
respectively. As it is now done, probability distribu-
tions are separately established to model the duration
of each activity and the cost of each work-breakdown
structure item. Then correlations among the activ-
ity durations and among the costs are estimated, and
the schedule and cost distributions, separately, are
summed statistically, typically by Monte Carlo sam-
pling. The results are (1) a probability distribution
of project schedule and (2) a probability distribution
* A random variable is a statistical quantity whose characteristics are described by a probability distribution, a mean, a standard
deviation, and other statistical metrics.
11
of project cost, from which one can obtain estimates
of the median (50% confidence level), 70th percentile
(70% confidence level), and other relevant estimates
of interest. Commercial software is available to carry
out the required statistical processes, including the
correlation aspect: Risk+®, a third-party add-on to
Microsoft Project, for schedule-risk analysis, and
Crystal Ball®, a third-party add-on to Microsoft
Excel, for cost-risk analysis. Each of these software
products outputs, respectively, a probability distribu-
tion of project’s schedule duration and a probability
distribution of the project’s cost.
Unfortunately, there doesn’t seem to be any cur-
rent commercial software that links the distribution
of project schedule with the distribution of project
cost; therefore, we are on our own in proceeding
from the theory proposed by Mr. Garvey to the prac-
ticalities of assessing the impact of schedule on cost
and cost on schedule.
The Mathematics
In the 1990s, studies at both The Aerospace Corpo-
ration and the MITRE Corporation found that the
lognormal probability distribution almost always
serves as a good model for both the schedule dis-
tribution and the cost distribution. The lognormal
distribution is derived from the normal distribution
in the following way: if X is a normally distributed
random variable* having mean P and standard de-
viation Q, then Y = eX is said to have a lognormal
distribution. The mean and standard deviation of that
lognormal distribution can be calculated to be
P � 21 Q 2
��e
and
P � 21 Q2 2
� �e eQ � 1 ,
respectively. (Derivations of all the formulas present-
ed here can be found in Reference [3].) Because the
12
The Measurable News Winter 2007–2008

normal distribution is more familiar than the lognor- The algebraic equation of the graph of the log-
mal and is easier to work with in most situations, the normal distribution on the right side of Figure 1 is
lognormal distribution is often studied in terms of the called the “probability density function” and is, for
normal distribution parameters P and Q, rather than cost
the lognormal parameters µ and σ. The utility of this � log y � PC
� 12 ��
�2
1 �
f C � x� �
�
approach will become evident as we discuss the rela- e � QC �
for 0 � x � �
tionship between schedule and cost in more detail. xQC 2�
Suppose the distribution of project cost is rep-
� 0 for � � � x � 0
resented by the lognormal random variable C that
has mean µC and standard deviation σC, and the dis- and, for schedule,
�2
tribution of project schedule is represented by the 1
� log y � PS
� 12 �� �
f S �y � �
QS �
lognormal random variable S that has mean µS and e � �
for 0 � y � �
yQ S 2�
standard deviation σS. Suppose, also, that the cor-
relation between cost and schedule, namely between � 0 for � � � y � 0
C and S is λ. Let’s translate all of these items into Using this information and the fact that the correla-
metrics of the underlying normal distributions. The tion between the two lognormal distributions is λ,
algebraic expressions for the mean P and standard we can calculate their “joint bivariate density,” which
deviation Q of a normal distribution that is associ- is the key ingredient in being able to establish a rela-
ated with a lognormal distribution having mean µ tionship between a project’s cost and its schedule:
and standard deviation σ are, respectively,
1
1 �� �4 �� hJ ( x, y) � e � w( x , y ) ,
P � �n � 2 2 � 2�xyQC QS 1 � � 2
,
2 �� ( � � � ) �� where
and
1 ��� �n( x) � PC � � �n( x) � PC �� �n( y) � PS � � �n( y) � PS � ��
2 2

� �2� w( x, y) � �
2 �
� �
� � 2�
� ��
�� � �
� � � �
� �
.
Q � �n � 1 � 2 � 1 � � ��
�
QC � � QC �� QS � � QS � ��
� � ��
�
Furthermore, because the two lognormal distribu- The Practical Implementation
tions are correlated (with correlation value λ), so are I’m sure all the mathematical theory described in the
the underlying normal distributions, and the correla- previous section is interesting to you but, to make
tion between the normal distributions, denoted by practical use of it, we have to be able to actually
the Greek letter ρ is given by the expression make the computations that establish the relationship
1 between project schedule and project cost. To do this
�n �� 1 � � e QC � 1 e Q S � 1 ��
2 2
�� task, we apply a technique from calculus known as
QC Q S � �.
Simpson’s Rule. Simpson’s Rule converts the process
A picture of the relationship between a normal of calculating probabilities, which is a continuous
distribution with mean P and standard deviation Q process, into a discrete process whose steps can be
and its derived lognormal distribution is displayed in sequentially programmed in Excel or a computer
Figure 1. language such as C or C++.
The first computation we have to make is of the
“conditional” probability of project cost, “given”
project schedule. Using the notation of the previous
section, we compute the probability that project cost
is between a (million dollars) and b (million dollars)
and schedule duration is c (months). In mathematical

FIGURE 1. TRANSITION FROM NORMAL TO LOGNORMAL.

Winter 2007–2008
The Measurable News 13

notation, this probability is expressed and calculated The input cells in the upper left corner of the
(using Simpson’s Rule) as follows: spreadsheet allow the analyst to enter the descriptive
hJ (x, c)
parameters of the cost (X) and schedule (Y) distri-
P�a � C � b S � c� � �
b b
dx � � g(x, c)dx
a f S (c) a
butions. In the case shown (Fig. 2), the (lognormal)
� b � a �m�1 � � � b � a � ��
��
� 3m � j�0 � �
�b�a� �
���g�� a � 2 j�
� m � �
�
�
�b �a� � �
�, c�� � 4g�� a � (2 j �1)� �, c�� � g�� a � 2( j �1)�
� m � � � � m � ��
�, c��� cost distribution has mean $200M dollars and stan-
dard deviation $30M, while the (lognormal) sched-
Because we know the algebraic expressions for ule distribution has mean 36 months and standard
hJ(x,y) and fs(c), we can easily set up the required deviation 5 months. The correlation between cost
algebraic expression for g(x,c). We can perform the and schedule is entered as 0.50.
summation calculation in Excel by programming the Although the project schedule distribution has
successive terms into the appropriate cells or, even mean 36 months and standard deviation 5 months,
better, programming the entire summation process in the nature of probability distributions makes it
Visual Basic. The larger the number m is, the more possible for any number of months at all to be the
accurate the discrete representation of the continuous actual duration of the project, albeit with differing
conditional probability is. For a start, m = 100 is good, probabilities. Generally, those durations closer to the
m = 1,000 is better, and m = 10,000 is even better. The mean have higher probabilities than those at the ex-
difference between them in amount of time required for treme ends of the distribution. In the example (Fig. 3),
the computer to complete the calculation is negligible. for each suggested value of project schedule dura-
tion, here 5, 25, 50, 80, 100, and 120 months, the
The Results spreadsheet computes the probability distribution of
Figure 2 is a portion of our Excel spreadsheet that project cost and expressed that cost distribution as
implements the process of the calculating condition- an “S-curve,” or cumulative distribution curve. Of
al probabilities of cost, given schedule. course, depending on the particular project involved,

FIGURE 2. PORTION OF EXCEL SPREADSHEET FOR CALCULATING THE CONDITIONAL DISTRIBUTION OF PROJECT COST,
GIVEN VARIOUS VALUES OF PROJECT SCHEDULE.
14
The Measurable News Winter 2007–2008

some of these durations may not be feasible and of the spreadsheet’s computations is seen in
others may be of interest instead. The point is that, Figure 3.
for any feasible project schedule, the distribution of The graph in Figure 4, based on the output in-
project cost can be estimated. A portion of the output formation in Figure 3, illustrates the relationship
between project schedule and
project cost that is modeled by
the computations in the spread-
sheet. The graph displays the
S-curves of the cost probability
distributions, expressed as the
conditional probability distribu-
tion of program cost, given a
specific program schedule. As
the schedule lengthens, the cost
distribution moves to the right
(more dollars) and widens (more
uncertainty). This chart, as noted
earlier, assumes a correlation of
0.5 (representing a 25% joint im-
pact) between cost and schedule,
as recommended by P.R. Garvey
in one of this technical papers.
Several research studies are in
progress to determine the appro-
priate correlation between sched-
ule and cost.
What information about the
project can be drawn from the
S-curves of Figure 4? Well,
if there is schedule slip to 50
months (from the mean of 36
months), we can expect the me-
dian to be about $220M and the
80th percentile cost to be about
$250M. If the schedule slips fur-
ther to 80 months, we move to
the 80-month S-curve and find
that median cost has grown to
$300M and the 80th percentile to
about $340M.
The spreadsheet can be
“tweaked” to also provide
S-curves of schedule duration,
FIGURE 3. A PORTION OF THE OUTPUT OF THE SPREADSHEET’S given specific possible cost val-
COMPUTATIONS – COST PROBABILITY DISTRIBUTIONS CORRESPONDING TO VARI- ues. To do this, we simply have
OUS POSSIBLE VALUES OF THE SCHEDULE DURATION. to replace the cost numbers in the
 Winter 2007–2008
The Measurable News 15

upper left corner of the spread- Conditional Probability that Cost < x, Given that Schedule = y
sheet with the schedule numbers 1.00

and the schedule numbers with 0.90

the cost numbers in their respec- 0.80

Probability that Cost < x

0.70
tive cells.
0.60

References
Schedule = 5 Months
0.50
Schedule = 25 Months
0.40
1. Garvey, P.R., “Modeling Cost and Schedule = 50 Months
0.30
Schedule Uncertainties – A Schedule = 80 Months
0.20
Work Breakdown Structure Schedule = 100 Months
0.10
Perspective,” Military Operations Schedule = 120 Months

Research, Vol. 2, No. 1, Spring 0.00

0 100 200 300 400 500 600
1996, pp 37–43.
x (Cost in Millions of Dollars)
2. Garvey, P.R. and Taub, A.E., “A
Joint Probability Model for Cost FIGURE 4. COST S-CURVES CORRESPONDING TO DIFFERENT
and Schedule Uncertainties,” The PROJECT SCHEDULE DURATIONS.
Journal of Cost Analysis, Spring
1997, pp 29–38.
3. Garvey, P.R., Probability Methods for Cost Uncertainty About the Author
Analysis: A Systems Engineering Perspective, New
York: Marcel Dekker, ©2000, “Modeling Cost and Dr. Book is Chief Technical Officer of MCR. He can
Schedule Uncertainties”, pp 308–335. be reached at 310.640.0005 x244 or sbook@mcri.com.

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