Risk Management

We are using: Identifying and Managing Project Risk: Essential Tools for Failure-Proofing Your Project [Hardcover] ,Tom Kendrick, AMACOM Books, 2009

 

 

1. The Cardinal Company is interested in the development and manufacturing of handheld VHF Radios. In order to obtain the engineering and production capacity to enter this market the company will either have to build a new facility or expand and upgrade its current facilities. The development team has narrowed the alternatives to two approaches to obtain the required capacity: (1) a new facility, at a cost of $15 Million, or (2) expansion/upgrade of current facilities, at a cost of $8 Million. Both approaches would require the same amount of time for implementation.

 

A rigorous study conducted by a team of economic and financial experts indicates that over the required payback period, demand for the product will either be high or moderate. Since high demand is considered to be somewhat less likely than moderate demand, the probability of high demand has been estimated at 0.35. If demand is high, a new facility would result in an additional $25 Million in revenue, but expansion/upgrade only an additional $15 Million, due to lower maximum production capability. On the other hand if demand is moderate, the comparable figures would be $15 Million for a new facility and $10.0 Million for expansion/upgrade. (All costs and profit values are figured on a present value, using an appropriate rate of return)

 

If Cardinal wishes to maximize its expected monetary value, should it obtain a new facility or expand? Provide a decision tree or some other means of representing your calculation.What other factors might play into Cardinal’s decision whether to modernize or expand?

 

 

2. You have been brought in to become the Project Manager for a housing construction effort. The project is to build 50 houses within a development with already existing infrastructure. The project was initially estimated to take 50 months with one house being finished (delivered) each month. Each house was estimated to cost $75,000. After 21 months the project team has completed the equivalent of 24 houses at a total cost of $1,950,000. Utilize Earned Value calculations to explain how the project is doing. Calculate schedule and cost variances and efficiencies (CPI and SPI). (HINT: Earned Value (BCWP)=24X$75,000) For extra credit: When will the project finish and how much will it cost?

 

3. Briefly Discuss 5 common Operational Risk factors? For extra credit, discuss 10 OR factors.