MGMT Summer-1 2018 Prof Moeen Operations MGMT S 1 2018 Prof Moeeni Review Test:
ID: 421628 • Letter: M
Question
MGMT Summer-1 2018 Prof Moeen Operations MGMT S 1 2018 Prof Moeeni Review Test: Chapter 5-B Close apter S Score: 0 of 1 pt 11 of 15 Test Score: 93.33%, 14 of 15 pts Problem 5.25 Sox Engineering designs and constructs air conditioning and heating (HVAC) systems for hospitals and clinics. Currently the company's staff is overloaded with design work. Sax has estimated that it will cost $11,000 per week (wages and overhead), including late weeks, to have company design is to conduct a joint design by havinga pter 6 work. There is a major design project due in 9 weeks. The penalty for completing the design late is $13,000 per week, since any delay will cause the facility to open later than and cost the client revenue. If the complete the design. Sax is also having an outside engineering firm do the design. A bid of $92,000 has been received for the design. Yet another option for the third company complete all then complete the rest of the design and control systems at an estimated cost of $32,000. Sox has estimated the following probabillities of completing the project within various time frames when using each of the three options. Those estimates are shown in the following table er Internal Engineers 0.4 External Engineers 0.2 0.1 0.5 0.3 0.1 0.4 0.5 0.1 0.1 The expected monetary value using inside engineers to complete the design is $ 115,800. (Enter your response as an inteçer) The expected monetary value using an outside engineering fim to complete the design is $ 110,200. (Enter your response as an integer) The expected monetary value of conducting a joint design is $ 110,800. (Enter your response as an integer) What is the best decision based on an expected monetary value criterion? O Joint design O Internal engineersExplanation / Answer
1. Using internal engineers
On time completion = 9x11000 =99000 probability 0.4
One week late completion -= (9x11000 + 13000) Probability = 0.5
Two weeks late completion = (9x11000 + 26000), probability = 0.1
NPV = 99000x0.4+ 112000x0.5+125000x0.1 = 108100
2, NPV of external design team
92000x 0.2+(92000+13000)x0.3+(92000+26000)x0.4 + ( 92000+39000)x0.1
= 18400+31500+47200+ 13100 =110200
3. EMV of a joint design
= 90000x0.1+103000x0.3+116000x0.5+129000x0.1
= 9000+30900+58000+12900 = 110800
Option 1 ( internal design team) is the most economical option with a NPV of 108100.
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