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•• 5.22 Sox Engineering designs and constructs air conditic ing and heating systems for hospitals and clinics. Currently, t company's staff is overloaded with design work. There is a maj design project due in 8 weeks. The penalty for completing t design late is $14,000 per week because any delay will cause t facility to open later than anticipated and cost the client signi cant revenue. If the company uses its inside engineers to comple the design, it will have to pay them overtime for all work. S has estimated that it will cost $12,000 per week (wages and ov head), including late weeks, to have company engineers comple the design. Sox is also considering having an outside engineeri firm do the design. A bid of $90,000 has been received for t completed design. Yet another option for completing the design to conduct a joint design by having a third engineering compa- complete all electromechanical components of the design at a ce of $50,000. Sox would then complete the rest of the design a control systems at an estimated cost of $30,000. Sox has estimated the following probabilities of completi. the project within various time frames when using each of t three options. Those estimates are shown in the following table PROBABILITY OF COMPLETING THE DESIGN ON 1 WEEK LATE 2 WEEKS 3 WEEK LATE ΟΡTION TIME LATE Internal Engineers 4 .5 .1 External Engineers .2 .4 .3 .1 Joint Design .1 .3 4 2 What is the best decision based on an expected monetary val (EMV) criterion? (Note: You want the lowest EMV because are dealing with costs in this prohlem) Px

•• 5.22 Sox Engineering designs and constructs air conditic ing and heating systems for hospitals and clinics. Currently, t company's staff is overloaded with design work. There is a maj design project due in 8 weeks. The penalty for completing t design late is $14,000 per week because any delay will cause t facility to open later than anticipated and cost the client signi cant revenue. If the company uses its inside engineers to comple the design, it will have to pay them overtime for all work. S has estimated that it will cost $12,000 per week (wages and ov head), including late weeks, to have company engineers comple the design. Sox is also considering having an outside engineeri firm do the design. A bid of $90,000 has been received for t completed design. Yet another option for completing the design to conduct a joint design by having a third engineering compa- complete all electromechanical components of the design at a ce of $50,000. Sox would then complete the rest of the design a control systems at an estimated cost of $30,000. Sox has estimated the following probabilities of completi. the project within various time frames when using each of t three options. Those estimates are shown in the following table PROBABILITY OF COMPLETING THE DESIGN ON 1 WEEK LATE 2 WEEKS 3 WEEK LATE ΟΡTION TIME LATE Internal Engineers 4 .5 .1 External Engineers .2 .4 .3 .1 Joint Design .1 .3 4 2 What is the best decision based on an expected monetary val (EMV) criterion? (Note: You want the lowest EMV because are dealing with costs in this prohlem) Px

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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•• 5.22 ing and heating systems for hospitals and clinics. Currently, the company's staff is overloaded with design work. There is a major design project due in 8 weeks. The penalty for completing the design late is $14,000 per week because any delay will cause the facility to open later than anticipated and cost the client signifi- cant revenue. If the company uses its inside engineers to complete the design, it will have to pay them overtime for all work. Sox has estimated that it will cost $12,000 per week (wages and over- head), including late weeks, to have company engineers complete the design. Sox is also considering having an outside engineering firm do the design. A bid of $90,000 has been received for the completed design. Yet another option for completing the design is to conduct a joint design by having a third engineering company complete all electromechanical components of the design at a cost of $50,000. Sox would then complete the rest of the design and control systems at an estimated cost of $30,000. Sox has estimated the following probabilities of completing the project within various time frames when using each of the three options. Those estimates are shown in the following table: Sox Engineering designs and constructs air condition- PROBABILITY OF COMPLETING THE DESIGN ON TIME 2 WEEKS 3 WEEKS LATE 1 WEEK OPTION LATE LATE Internal Engineers 4 5 .1 External Engineers .2 .4 .3 .1 Joint Design .1 .3 4 .2 What is the best decision based on an expected monetary value (EMV) criterion? (Note: You want the lowest EMV because we are dealing with costs in this problem.) X
Transcribed Image Text:•• 5.22 ing and heating systems for hospitals and clinics. Currently, the company's staff is overloaded with design work. There is a major design project due in 8 weeks. The penalty for completing the design late is $14,000 per week because any delay will cause the facility to open later than anticipated and cost the client signifi- cant revenue. If the company uses its inside engineers to complete the design, it will have to pay them overtime for all work. Sox has estimated that it will cost $12,000 per week (wages and over- head), including late weeks, to have company engineers complete the design. Sox is also considering having an outside engineering firm do the design. A bid of $90,000 has been received for the completed design. Yet another option for completing the design is to conduct a joint design by having a third engineering company complete all electromechanical components of the design at a cost of $50,000. Sox would then complete the rest of the design and control systems at an estimated cost of $30,000. Sox has estimated the following probabilities of completing the project within various time frames when using each of the three options. Those estimates are shown in the following table: Sox Engineering designs and constructs air condition- PROBABILITY OF COMPLETING THE DESIGN ON TIME 2 WEEKS 3 WEEKS LATE 1 WEEK OPTION LATE LATE Internal Engineers 4 5 .1 External Engineers .2 .4 .3 .1 Joint Design .1 .3 4 .2 What is the best decision based on an expected monetary value (EMV) criterion? (Note: You want the lowest EMV because we are dealing with costs in this problem.) X
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