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CEN4017-N Risk Management in Project - Teesside University

Risk Management Assignment

Question 1

The Pulsometer Pump Company makes concrete pumping equipment for the European market and is at present operating at near production capacity. The sales and marketing director of the company anticipates that the market for concrete pumps will increase by 15% during the next twelve months. The board must decide how to react to this change in demand. There are three strategies that are being considered
S1 Install new equipment to improve productivity with a new system of working
S2 Institute overtime and weekend working
S3 Continue to work at capacity and let rivals or new firms satisfy the increased demand

A decision matrix can be constructed to show information (all column show profits, in £000s).

	Market Factors
Strategy	15%	Stable	-10%
S1	240	130	0
S2	210	150	70
S3	170	150	70

Use the Pay-off Matrix to make the decision and inform what decisions should the board take? The company board is satisfied with the pay-off procedure however they are not confident with your decision. The sales and marketing director of the company now decided that "we need the probabilities associated with the change in market demands". The probabilities are

Market Outcomes	Probability (in %)
15% Rise	0.6
Stable	0.3
10% fall	0.1

Calculate the Expected Monetary Value Analysis (EMV) for each strategy and use the decision tree to show the best option. The board is impressed with the decision method which has informed their decision making. They have assigned you to further investigation on the decision due to variability of returns and further measure of the degree of risk. You need support to do further investigation so that you can examine the sensitivity of decisions. A firm of consultants offers to survey the market for concrete pumps. This survey will lead to a revision of prior probabilities estimate of the likely market outcome. The survey will cost the company £5,000. The consultancy predictions records are shown below

		Consultant's Prediction (in %)
Actual Market Outcome	Prior Probabilities	Rise	Stable	Fall
Rise	0.6	0.7	0.2	0.1
Stable	0.3	0.2	0.6	0.2
Fall	0.1	0.1	0.2	0.7

Hint:The sum of getting a `Rise report` is given by the sum of the probabilities of getting a `Rise report` under each outcome multiplied respectively by the probability of getting that outcome.
Use the Bayes Theorem to revise the consultant`s prediction. Should you choose to pay for this additional information? Produce a revised Decision tree for the board to make a decision. You should discuss your decision on to use or not to use the consultant firm and each strategy.your decision on to use or not to use the consultant firm and each strategy.

Part 1-Outcomes-1 mark	Marks	Page Number
Introduction to problem	2
Pay-off matrices, decision, and discussion	4
EMV, Decision Tree and Discussion	4
Bayes Theorem, step-by-step calculation, post probabilities table and discussion	4
Each strategy probability and Decision tree	4
Final Decision	2

Question 2:
Refer to the Gulf Golf Problem described in the Lecture sessions, suppose that management encounters each of the following situations:
a. The accounting department revises its estimate of the profit contribution for the deluxe bag to $18 per bag
b. A new low-cost material is available for the standard bag(S), and the profit contribution per standard bag can be increased to $20 per bag. (Assume the profit contribution of the deluxe bag(D) is the original $9 value)
c. New sewing equipment is available that would increase the sewing operation capacity to 750 hours (Assume 10S + 9D is the appropriate objective functions)
If each of these conditions is encountered separately, what are the optimal solution and the total profit contribution for each situation?

Part 2-Outcomes-1 mark	Marks	Page Number
Problem statement	1
Data Points, constraints type and objectives	4
Analytical equations with condition forms	4
Co-ordinates for graphs, Graphical representation, Feasible region hatching	4
Final number for standard and deluxe bag and discussion	2

Question 3:
As part of a quality improvement initiative, government employees complete a three-day training programme on teamwork and a two-day training programme on problem solving. The manager of quality improvement requested that at least eight training programmes on teamwork and at least ten training programmes on problem solving be offered during the next six months. In addition, senior-level management specified that at least 25 training programmes must be offered during this period. A consultant is used to teach the training programmes. During the next six months, the consultant has 84 days of training time available. Each training programme on teamwork costs £10,000 and each training programme on problem solving costs £8000.
1. Formulate a mathematical model that can be used to determine the number of training programmes on teaming and the number of training programmes on problem solving that should be offered.
2. Graph the feasible region.
3. Determine the coordinates of each extreme point.
4. Solve for the minimum-cost solution.

Part 3-Outcomes-1 mark	Marks	Page Number
Problem Statement, explain the problem	1
Data points, constraints type and objectives	4
Analytical equations with condition forms	4
Co-ordinated for graphs, graphical representation, Feasible region and Hatching	4
Final number with minimum-cost solution	2

Question 4:

Refer to the Table 1 and do the following:

1. Calculate the Expected time, mean time.
2. Develop the Network diagram using the expected time and use PERT Analysis to know the mean and Sd of the project.
3. Based on these estimates and the resultant expected project duration of 69 days. The executive committee wants to know what is the probability of completing the project before a scheduled time of 68 days?
4. How do you measure project risk exposure? Explain and propose ways to reduce the project risk exposure.

Table 1: All O,ML,P are in work days.

Activity No	Task Name		Optimistic Duration(O)	Most Likely Duration(ML)	Pessimistic Duration(P)	Immediate Predecessor
1	Team meeting		0.5	1	1.5
2	Hire Contractors		6	7	8	1
3	Network Design		12	14	16	1
4	Order Ventilation system		18	21	30	1
5	Install Ventilation system		5	7	9	4
6	Order new racks		13	14	21	1
7	Install racks		17	21	25	6
8	Order power supplies and cables		6	7	8	1
9	Install power supplies		5	5	11	8,12
10	Install cables		6	8	10	8,12
11	Renovation of data centre		19	20	27	2,3
12	City inspection		1	2	3	2,5,7
13	Facilities		7	8	9	10
14	Operations/System		5	7	9	10
15	Operations/Telecommunications		6	7	8	10
16	System & applications		7	7	13	10
17	Customer service		5	6	13	10
18	Power check		0.5	1	1.5	9,10,11
19	Install test servers		5	7	9	1,2,13,14,15,16
20	Management safety check		1	2	3	5,18,19
21	Primary systems check		1.5	2	2.5	20
22	Set date for move		1	1	1	21
23	Complete move		1	2	3	22

Question 5:

Read the attached papers and "results.pdf" carefully and discuss the following:

1. Project network diagram descriptions and their advantages.

2. Explain the procedure of developing the project model and discuss on the risk methodologies used in the paper.

3. Compare the resultsin the paper and"results. Pdf" documentprovide comments.

4. If distribution of the weather risk factor is modelled using uniform distribution, discuss and critically comment on the new results as compared to Point 3.

5. Comment on the sensitivity analysis to identify the influence of different risks on project durations and critical review the outcome.

Attachment:- Risk Management Assignment.rar