Reference no: EM131852872

In the very preliminary planning of some harbor island developments, there was discussion regarding the cost estimates of building four bridges. There had as yet not been a preliminary soil survey in the harbor area, and it was recognized that the bridge costs are highly dependent on soil conditions. Therefore there was great uncertainty in the preliminary cost estimates. A spokesman, however, made this statement; "I recognize the uncertainty in the cost estimate of any bridge. But I am much more confident of our estimate for the total cost of all four bridges because of the likelihood that a high estimate on one will be balanced by a low estimate on another" Discuss this statement. Use your knowledge, simply, of the means and variances of sums of random variables to support your comments. If your initial intuition lies with that of the spokesman, be sure you resolve in your own mind why it is inconsistent. Compare both the variance and the coefficients of variation of the total cost versus those of an individual cost. If the four bridge sites are relatively close to one another, soil conditions, although unknown, are probably similar. What implications does this observation have for your analysis?