MARSHALL SCHOOL OF BUSINESS

PROJECT MANAGEMENT
Spring 2011

Prof. Murat Bayiz

PROBLEM SET 4

DUE: March 30, 2011

NOTE: You may work on this assignment in teams of 2. You MUST work on the assignment
independently first in order to learn from it; only discuss it with your teammate after having tried the full
problem set yourself. Please submit 1 assignment per team, and clearly list the names of everybody who
contributed to the submission. Good luck!

1. Resource Management: The managers of the Frigid Midget Widget (FMW) Company, makers of
small frozen widgets, have listed the tasks that must be completed to assemble one midget frigid
widget (see the following table). The managers must decide how large a crew to assign to each task;
the size of the crew will determine the duration of the task (generally, there is an inverse relationship
between crew size and job duration). Each job can be assigned a crew of minimum size, normal size,
or maximum size; no other choices are possible for technological reasons. In addition, union
regulations require that an assigned crew cannot be changed for the duration of the task (e.g. they
cannot assign a normal size crew for the first two days of a task and then increase the crew size for
the remaining duration of the task). Task durations are merely equal to the total number of worker-
days divided by the crew size assigned to the task. For example, if a normal crew is assigned to task
A, then that task will require eight days to complete.

Immediate Total Worker

Task Predecessor Days Minimum Normal Maximimum
A - 32 2 4 8
B - 48 4 6 8
C A 40 4 5 8
D A 12 2 3 4
E D 30 3 5 6
F B, C 54 3 6 9
G E, F 24 3 4 6
a. The FMW Company has a contract to produce one frigid widget within twenty four days.
Assuming that workers can be assigned to only one task (i.e. if you assign a worker to task
A, he/she is not available in task C or in any succeeding taks), determine how the production
tasks should be scheduled in order to minimize the workforce needed.
b. The FMW Company has only 30 workers, what is the minimum duration for this project?
Again assume that workers can be assigned to only one task.

2. Time-cost Trade-offs: Dr. Denton Fender, a noted geologist has discovered a site that she believes
may hold a large deposit of natural gas. To test for the possible presence of natural gas, she
proposes to drill a test hole, set of small explosive charge, and use the resulting seismic pattern to
indicate the likely presence or absence of natural gas. The process of testing a likely site has been
divided into 8 tasks. Dr. Fender has estimated the times and costs of each task assuming normal
conditions as well as the times and costs of each task assuming a crashed or reduced condition. This
information is indicated in the table that follows:

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PROJECT MANAGEMENT SPRING 2011

Immediate Normal Expedited Expedited

Task Predecessor Time Time Normal Cost Cost
A - 6 5 200 400
B A 10 4 600 1200
C A 12 9 625 1000
D B 6 5 700 800
E B 9 7 200 500
F C,D 9 5 400 840
G E 14 10 1000 1440
H F,G 10 8 1000 1460
a. Develop a network for this project
b. Determine project duration under normal conditions.
c. Given the importance of new sources of natural gas, she wants to consider possible shorter
scenarios; thus she should like you to reduce the project one day at a time and calculate the
minimum direct cost associated with each day. Summarize your findings in a table. What is the
shortest possible time needed for this project?
d. If the indirect charges are $200 per day, what would be the project duration that minimizes the
sum of direct and indirect charges?

3. Risk Management: Teloxy Engineering has received a one-time contract to design and build 10,000
units of a new product. During the proposal process, management felt that the new product could be
designed and manufactured at a low cost. One of the ingredients necessary to build the product was
a small component that would be purchased for $60 in the marketplace, including quantity discounts.
Accordingly, management budgeted $650,000 for the purchasing and handling of 10,000 components
plus possible scrap.

During the design state, your engineering team informs you that the final design will require a
somewhat higher grade component that sells for $72 with quantity discounts. The new price is
substantially higher than you had budgeted for. This will create a cost overrun.

You meet with your manufacturing team to see if they can manufacture the component at a cheaper
price than buying it from the outside. Your manufacturing team informs you that they can produce a
maximum of 10,000 units, just enough to fulfill your contract. The setup cost will be $100,000 and
the raw material cost is $40 per component. Since Teloxy has never manufactured this product
before, manufacturing expects that each product can be defective with a probability that is equally
likely between 15% and 25%. All defective parts must be removed and repaired at a cost which is
estimated to be normally distributed with a mean of $120 per part and a standard deviation of $20.
a. Using expected value, is it economically better to make or buy the component?
b. Determine the probability that buying leads to lower cost than making
c. You believe that the probability of defects reported by the manufacturing team is a good
estimate for the first 5000 units. You think that for the second half this probability would be
equally likely between 5% and 15%. How would your answers in a) and b) change with this
information?

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