An Introduction to Management Science 13th Edition by David Anderson,Dennis Sweeney ,Thomas Williams ,Jeffrey Camm, Kipp Martin

Exercise 12

The Porsche Shop, founded in 1985 by Dale Jensen, specializes in the restoration of vintage Porsche automobiles. One of Jensen's regular customers asked him to prepare an estimate for the restoration of a 1964 model 356 SC Porsche. To estimate the time and cost to perform such a restoration, Jensen broke the restoration process into four separate activities: disassembly and initial preparation work (A), body restoration (B), engine restoration (C), and final assembly (D). Once activity A has been completed, activities B and C can be performed independently of each other; however, activity D can be started only if both activities B and C have been completed. Based on his inspection of the car, Jensen believe that the following time estimates (in days) are applicable:
Jensen estimates that the parts needed to restore the body will cost $3000 and that the parts needed to restore the engine will cost $5000. His current labor costs are $400 a day.
a. Develop a project network.
b. What is the expected project completion time?
c. Jensen's business philosophy is based on making decisions using a best- and worst case scenario. Develop cost estimates for completing the restoration based on both a best- and worst-case analysis. Assume that the restoration cost is the sum of the labor cost plus the material cost.
d. If Jensen obtains the job with a bid that is based on the costs associated with an expected completion time, what is the probability that he will lose money on the job?
e. If Jensen obtains the job based on a bid of $16,800, what is the probability that he will lose money on the job?