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In the context of software development projects, a programmanager was faced with the following choice last year: He had tooption of going with a vendor who proposed a bid which was partlybased on future integration costs that were beyond their control.Analysis suggested that total final cost for the program would comesomewhere between 100K and 250K, based on the program managers?past-experiences. He commissioned an internal study to determinewhether an in-house development effort (which would not be subjectto any uncertainty due to integration) would cost more than 165K,thinking that he would take his chances with the vendor if thein-house work would cost more than 165K. 1.Determine the manager?srisk tolerance based on the above information. Currently, the samemanager is facing a hardware purchase decision, which is againsubject to uncertainties because final hardware requirements aresubject to future outcomes of external influences beyond hiscontrol. As the company has no in-house capability to buildhardware, he solicited and received three bids, with the followingpossible cost outcomes: Bid Optimistic Cost (p=.05) Most likelycost (p=.5) Pessimistic cost (p=.95) A 95 125 175 B 100 110 190 C75 150 180 2.Based on the manager?s risk tolerance you calculatedin (1), determine which bid should he accept. Please explaincalculations in detail.
Dec 03 2019 Read more Less More
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