Calculate the breakeven number of hours of employee time

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Reference no: EM131845949

A large government agency is considering outsourcing maintenance and repairs of certain equipment (copy machines, printers, scanners, etc.) to a private firm for the upcoming year.

The expected cost is $208,450, but it will actually be either $202,000 (with 85% probability) or $245,000 (with 15% probability) depending on whether or not the firm that wins the contract meets certain requirements (note that this is a binary variable; it is not uniformly distributed).

The agency expects to save $82,500 in maintenance expenses (e.g., cost of replacement parts), but the actual savings is believed to be uniformly distributed between $75,000 and $90,000 (i.e., any value in this range is considered to be equally likely).

This will also free up a great deal of time for the agency's IT department (which would otherwise be tasked with these functions) and employees who would otherwise have their time wasted waiting for an IT member to become available and make repairs when the machinery breaks (the private firm will be able to provide a much faster response time and also reduce the frequency of breakdowns).

The agency expects to save 4,000 hours of employee time, but this amount is also uncertain, and believed to be uniformly distributed between 3,600 and 4,400 hours.

Given the typical salaries of IT workers and other employees whose time will be saved, the agency values each hour saved at $34.

Calculate the breakeven number of hours of employee time saved.

Reference no: EM131845949

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