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8. A More Constructive Test Approach Is Key to Better Weapon System Outcomes, Best Practice Series, GA0/NSIAD-00-199, Government Accounting Office, July 2000, pp. 23-25.

Assume that the probabilities for each state are 30 percent, 50 percent, and 20 percent, respectively.

a. Using the concept of expected value, what risk (i.e., strategy) should be taken?

b. If the project manager adopts a go-for-broke attitude, what strategy should be selected?

c. If the project manager is a pessimist and does not have the option of strategy S5, what risk would be taken?

d. Would your answer to part c change if strategy S5 were an option?

17-3 Your company has asked you to determine the financial risks of manufacturing 6,000 units of a product rather than purchasing them from a vendor at $66.50 per unit. The production line will handle exactly 6,000 units and requires a one-time setup cost of $50,000. The production cost is $60/unit.

Your manufacturing personnel inform you that some of the units may be defective, as shown below:

% defective 0 12 3 4

probability of 40 30 20 6 4

occurrence (%)

Defective items must be removed and replaced at a cost of $145/defective unit. However, 100 percent of units purchased from vendors are defect-free.

Construct a payoff table, and using the expected-value model, determine the financial risk and whether the make or buy option is best.

17-4 Below are four categories of risk and ways that a company is currently handling the risks. According to Section 17.11, which risk handling options are being used? More than one answer may apply.

a. A company is handling its high R&D financial risk by taking on partners and hiring subcontractors. The partners/subcontractors are expected to invest some of their own funds in the R&D effort in exchange for sole-source, long-term production contracts if the product undergoes successful commercialization.

b. A company has decided to handle its marketing risks by offering a family of products to its customer base. Different features exist for each product offered.

c. A company has product lines with a life expectancy of ten years or more. The company is handling its technical risks by performing extensive testing on new components and performing parallel technical development efforts for downstream enhancements.

d. A company has large manufacturing costs for its high-tech products. The company will not begin production until it has a firm commitment for a certain quantity. The company uses learning curves and project management to control its costs.

17-5 A telecommunications firm believes that the majority of its income over the next ten years will come from organizations outside of the United States. More specifically, the income will come from third world nations that may have very little understanding or experience in project management. The company prepared Figure 17-23. What causes the increasing risks in Figure 17-23?

17-6 In the 1970s and 1980s, military organizations took the lead in developing ways to assess total program risk. One approach was to develop a rigorous process for identifying specific

Inexperienced

Customer's Knowledge

Experienced

Inexperienced

Customer's Knowledge

Experienced

Simple

Complex

Simple

Complex

Contract Type

FIGURE 17-23. Future risks.

technical risk at the functional level and translating this detailed information through several steps. In this way, it was believed that risks could easily be monitored and corrected, as shown in Figure 17-24. Why is this method not being supported today?

17-7 As an example of the situation in Problem 17-6, Figure 17-25 shows risk categories at the program, subsystem, and functional levels. Starting at the bottom, data are developed for five engineering indicators and rated according to "high," "medium," or "low" risk. Results of this assessment are then summarized for each subsystem to provide a system overview. This is often considered a template risk analysis method. What are the advantages and disadvantages of this approach? Why is this method not used extensively today?

4 . . . WHICH IN TURN ARE COMBINED , INTO PROGRAM-LEVEL INDICATORS.

3 THE FUNCTIONAL ITEM INDICATORS/ ARE COMBINED TO PRODUCE SUBSYSTEM INDICATORS . . .

FOR ACTION BY:

4 . . . WHICH IN TURN ARE COMBINED , INTO PROGRAM-LEVEL INDICATORS.

3 THE FUNCTIONAL ITEM INDICATORS/ ARE COMBINED TO PRODUCE SUBSYSTEM INDICATORS . . .

SUS;

J^y 2 THESE DATA ARE USED TO PREPARE/ Jj ENGINEERING RISK INDICATORS

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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