Reference no: EM13684278

Question 1:  Your firm designs training materials for computer training classes, and you have just received a request to bid on a contract to produce a complete set of training manuals for an 8-session class. From previous experience, you know that your firm follows an 85% learning rate. For this contract, it appears that the effort will be substantial, running 50 hours for the first session. Your firm bills at the rate of $100/hour and the overhead is expected to run a fixed $600 per session. The customer will pay you a flat fixed rate per session (Per Session Price.) If your profit markup is 20%, what will be the Total Price, the Per Session Price, and at what session will you break even?

Answer the following three questions:

1. What is the Total Price? This is what you would charge the customer so that you can have your profit markup of 20% over all of your costs. I have included a template you can use that includes the formulas for calculating learning curve values in cells B8:B15.  This is the same formula used in the Media One Consultants example from Mantel pp 125 and 126.  You will need to enter all other data.
2. What is the Per Session Price? This is the revenue that the customer pays you each time you complete a session. It is calculated by dividing the Total Price by the number of sessions.
3. What is the Break Even Point? At the beginning, your cost per session is more than your revenue per session. Gradually, your cumulative revenue matches the cumulative cost, and eventually exceeds it so that you can end up with the desired profit. The break-even point is the session at which, for the first time, your revenue exceeds your cost.

Question 2: You have just been assigned as Project Manager (PM) to the Kuraiz-Reconda Fiber Optic Cable (KRFOC) project.  You are preparing your cost estimate for the project and your Project Engineer (PE) tells you it will take 300 hours to complete the design effort.  Your Finance Manager (FM) tells you that engineering labor is $100 an hour.  Fortunately for you, unfortunately for them, you are a graduate of UMUC, specializing in project management in general and advanced project management techniques in particular.

Answer the following three questions:

1. Upon questioning, your PE admits that the 300 hours is just a guess, that under the best circumstances, meaning you quit bugging him with inane questions, it may take only 270 hours. However, it could take as long as 400 hours (if you do not leave him alone to do his job). He stands by his estimate that it will normally take 300 hours.  What is the expected cost for design? 
2. Thinking back you wonder if all engineers cost $100 per hour.  Upon questioning, your FM admits that this is an average cost, that some are higher, some are lower.  You direct him to give you the distribution of all engineer labor rates.  he replies that the labor rate is normally distributed with a mean of $100 and a standard deviation (he is still not sure what that is) of $3.  Using Crystal Ball (CB), what is the mean cost of your engineering effort?  Be sure to provide the results of your CB simulation.
3. You are about to present your cost estimate to your sponsor when you remember that he was once a Professor.  You recall, too, that he wore both a belt and suspenders and you suspect that this meant he might be a bit conservative.  You therefore decide to provide an engineering cost estimate such that you are confident that 90% of the time your actual costs would be less than that value and that no more than 10% of the time would you exceed that value.  What is your new estimate of engineering costs?   Be sure to provide the results of your CB simulation.