Question

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 425 hours to complete the design effort. Your Finance Manager (FM) tells you that engineering labor is $125 an hour. Fortunately for you, unfortunately for them, you are a graduate of yur university, specializing in project management in general and advanced project management techniques in particular.

Upon questioning, your PE admits that the 425 hours is just a guess, that under the best circumstances, meaning you quit bugging him with inane questions, it may take only 375 hours. However, it could take as long as 700 hours (if you do not leave him alone to do his job). He stands by his estimate that it will normally take 425 hours. Hint: this is a triangular distribution.

Thinking back to your school days, you wonder if all engineers cost $125 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. With a lot of help, he replies that the labor rate is normally distributed with a mean of $125 and a standard deviation (he is still not sure what that is) of $25.

Please answer the following two questions:

1. Using this information and a wonderful tool you mastered Crystal Ball (CB), what is the mean cost of your engineering effort?

2. 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 95% of the time your actual costs would be less than that value and that no more than 5% of the time would you exceed that value. What is your new estimate of engineering costs?

Answer 1

Solution :

The two major factors for estimate of labour charges are working hours and wage rate.In addition to this Fringe benefits/Insurance & Taxes, wage premiums are also considered.

As per manhours ,it belongs to triangular distribution hence calculating (P + O + ML ) / 3, we get

Manhours = (375+425+700)/3 = 500hrs

The cost is given as mean value of 125$/hr.Hence,

The cost estimate considering 5% of additional value from actual as follows :

Cost = Manhours x wage rate x additional percentage

= (500x125)*1.05

= 65,625$

Note : The additional cost due to wage benefits/Tax/Levis etc can be considered in addition as per govt regulations.