Reduction in project time results in increasing the direct cost and decreasing the indirect cost.



Direct costs are those costs that can be directly attributed to the production of goods or services. In the context of a project, direct costs are the costs directly associated with the execution of the project, such as labor, materials, equipment, and subcontractors.

Indirect costs, on the other hand, are costs that cannot be directly attributed to a specific project but are necessary for the overall operation of the organization. Indirect costs can include administrative expenses, overhead costs, and general expenses.

When the project time is reduced, several factors come into play that affect the project costs. Here is a detailed explanation of how the reduction in project time impacts the direct and indirect costs:

1. Direct Costs:
- Increase in Labor Costs: When the project time is reduced, the labor force needs to work more intensively to meet the deadlines. This may require overtime work or additional labor resources, leading to an increase in labor costs.
- Increase in Material Costs: In order to complete the project within a shorter timeframe, there may be a need for expedited delivery of materials or the use of more expensive materials to speed up the construction process. This can result in an increase in material costs.
- Increase in Equipment Costs: Similar to labor and material costs, the use of equipment may need to be intensified to meet the project schedule. This can result in additional equipment rental or maintenance costs, leading to an increase in direct costs.

2. Indirect Costs:
- Decrease in Administrative Expenses: With a reduction in project time, there is less time required for administrative tasks such as project management, documentation, and coordination. This can lead to a decrease in administrative expenses.
- Decrease in Overhead Costs: Overhead costs are those costs that are not directly attributable to a specific project but are necessary for the overall operation of the organization. When the project time is reduced, there is a decrease in the duration of overhead costs, resulting in a decrease in indirect costs.

Therefore, the reduction in project time generally leads to an increase in direct costs due to increased labor, material, and equipment expenses. On the other hand, indirect costs tend to decrease as administrative expenses and overhead costs are reduced. Hence, the correct answer is option 'B' - increasing the direct cost and decreasing the indirect cost.