Engineering Management Principles and Economics
ENGR301
Tutorial 4
These questions are sourced from chapter 7 of the course text.
Question 1
What is the time estimate of the following activity in which the optimistic estimate is 4 days,
pessimistic is 12 days, and most likely is 5 days? Show your work.
Using the Beta distribution for probabilistic estimation, the formula is given as:
TE = (a + 4m + b)/6
Where:
TE = Estimated time for activity
a = most optimistic time to complete the activity
m = most likely time to complete the activity, the mode of the distribution
b = most pessimistic time to complete the activity
The solution to this problem is:
TE = (4 + 4(5) + 12)/6, or
=6
Question 2
Calculate the direct cost of labor for the project team using the following data. What are
the costs for the individual project team members? What is the overall direct cost of
labor?
Name Hours Overhead Personal Hourly Total Direct
Needed Charge Time Rate Rate Labor Cost*
Sandy 60 1.35 1.12 $18/hr. $1,633
Chuck 80 1.75 1.12 $31/hr. $4,861
Bob 80 1.35 -0- $9/hr. $972
Penny 40 1.75 1.12 $30/hr. $2,352
Total Direct Labor Cost = $9,818*
*these are the calculated values (the answers)
Question 3
It took MegaTech, Inc. 100,000 labor-hours to produce the first of several oil drilling rigs
for Antarctic exploration. Your company, Natural Resources, Inc. has agreed to purchase
the fifth oil drilling rig from their manufacturing yard. Assume that MegaTech
experiences a learning rate of 80%. At a labor rate of $35 per hour, what should you, as
the purchasing agent expect to pay for the fifth unit?
Using the formula, to produce the fifth unit takes:
TN = T1Xb
Where TN = Time needed to produce the Nth unit
T1 = Time needed to produce the first unit
X = Number of units
b = log(learning rate)/log(2)
T5 = (100,000) 5^(log(0.8)/log(2)) = 100,000 * 5^(-0.3219)
= 100,000 * 0.596 = 59,600 hours
To find the cost, multiply the hours by the hourly rate:
= (59,600) ($35 per hour)
= $2,086,000
Question 4
Question 3 identified how long it should take to complete the fifth oil drilling platform
that Natural Resources plans to purchase. How long should all five oil-drilling rigs take
to complete?
The total time necessary to complete the five rigs is calculated as:
T1-5 = (100,000) [1 + 2^(-0.3219) + 3^(-0.3219) + 4^(-0.3219) + 5^(-0.3219)]
= (100,000) [3.738] = 373,800 hours to complete all five oil-drilling rigs
Question 5
Suppose that you are the assigning costs to a major project to be undertaken by your firm,
DynoSoft Applications, this year. One particular coding process involves many labor
hours, but highly redundant work. You anticipate a total of 200,000 labor hours to
complete the first iteration of the coding and a learning curve rate of 70%. You are
attempting to estimate the cost of the twentieth iteration of this coding sequence. Based
on the above information and at a $60 per hour labor rate, what would you expect to
budget as the cost of the twentieth iteration? The fortieth iteration?
T20 = T1Xb
= (200,000) * 20^(log(0.7)/log(2))
= (200,000) * 20^(-0.5146)
= 42,800 hours
T40 = T1C
= (200,000) * 40^(log(0.7)/log(2))
= (200,000) * 40^(-0.5146)
= 30,000 hours
The costs for the 20th and 40th iterations are found as:
20th iteration: (42,800 hours) ($60 per hour) = $2,568,000
40th iteration: (30,000 hours) ($60 per hour) = $1,800,000
Tutorial 5 Earned Value Examples
1. A small roofing project of duration 7 weeks was supposed to be completed today. As of today
15% of project work remains to be completed. The total estimated cost of the project is
$200,500 and the actual cost of the work completed is $197,000.
–Calculate the EV, earned value, of the project.
–Calculate the SV, schedule variance, and CV, cost variance, of the project. Comment on the
project’s performance in terms of time and effort.
–Assuming that any inefficiencies or efficiencies encountered on the project will continue
into the future, determine the estimated cost to complete the project and the estimated cost at
completion.
–Forecast the project’s duration.
Budget At Completion:
BAC = $200,500
Budgeted Cost of Work Scheduled or Planned Value (PV):
BCWS = $200,500 [the BCWS is equal to the BAC because the project was scheduled to
be completed today]
Actual Cost of Work Performed (ACWP) or Actual Cost (AC):
ACPW = $197,000
Percentage of work complete = 100% - 15% = 85%
Budgeted Cost of Work Performed (BCWP) or Earned Value (EV):
BCWP = 0.85 x $200,500 = $170,425
Schedule Variance:
SV = BCWP – BCWS = $170,425 - $200,500 = -$30,075
Cost Variance:
CV = BCWP – ACWP = $170,425 - $197,000 = -$26,575
Cost Performance Index:
CPI = BCWP / ACWP = $170,425 / $197,000 = 0.86 < 1: we are running over
budget
Schedule Performance Index:
SPI = BCWP / BCWS = $170,425 / $200,500 = 0.85 < 1: we are running behind
Estimated (remaining cost) To Completion (ETC):
ETC = (BAC – EV) / CPI = ($200,500 - $170,425)/0.86= $34,970
Estimated (total cost) At Completion (EAC):
EAC = ETC + ACWP = $34,970 + $197,000 = $231,970
Forecasted duration = 7 weeks / 0.85 = 8.23 weeks
2. The total estimated cost of a HVAC replacement project is $70,000 and its planned duration
is 3 months. The cumulative BCWS of the project is $17,000 and 5% of the project work has
been completed. Forecast the project’s duration and determine that estimated cost at
completion assuming that any inefficiencies encountered to-date are atypical.
Budget At Completion:
BAC = $70,000
Budgeted Cost of Work Scheduled or Planned Value (PV):
BCWS = $17,000
Budgeted Cost of Work Performed (BCWP) or Earned Value (EV):
BCWP = 0.05 x $70,000 = $3,500
Schedule Performance Index:
SPI = BCWP / BCWS = $3,500 / $17,000 = 0.2
Forecasted duration = 3 months / 0.2 = 15 months
Estimated (remaining cost) To Completion (ETC):
ETC = BAC – EV = $70,000 - $3,500 = $66,500
Estimated (total cost) At Completion (EAC):
EAC = ETC + AC [the ACWP (AC) is not given]