learning rate) would be 50 hours in session 1, 42.5 hours in session 2, 36.1 hours in session 4, and 30.7 in
session 8.
This enables the total cost per session to be calculated … and thus the total for the eight sessions.
Session
Hours
V.C.
Fixed Cost
Total Cost
Cum Cost
Cum Rev
1
50
$5,000
$600
$5,600
$5,600
$5,172
2
42.5
$4,250
$600
$4,850
$10,450
$10,344
3
38.6
$3,865
$600
$4,465
$14,915
$15,516
4
36.1
$3,613
$600
$4,213
$19,127
$20,688
5
34.3
$3,428
$600
$4,028
$23,155
$25,860
6
32.8
$3,285
$600
$3,885
$27,040
$31,032
7
31.7
$3,168
$600
$3,768
$30,809
$36,204
8
30.7
$3,071
$600
$3,671
$34,479
$41,376
Total
$34,479
37

4/Budgeting the Project
The total cost for the eight sessions is $34,479 to which your firm adds a 20 percent profit margin to give a bid
price of $41,375.
The per session price, therefore, is $5,172.
Comparing the cumulative revenue with the
cumulative cost, your firm will break even in the third session.
14. In Fig. 4.3 the mean bias is 11.35% (0.908/8) and the MAR is 0.160.
For the new estimates based on the multiplicative model, see the Table below.
Tracking
Period
Estimate
Actual
(A
t
/E
t
) - 1
|(A
t
/E
t
) - 1|
MAR
Signal
1
179
163
-8.9%
8.9%
2
217
240
10.6%
10.6%
0.098
0.170
3
91
67
-26.4%
26.4%
0.153
-1.615
4
51
78
52.9%
52.9%
0.247
1.142
5
76
71
-6.6%
6.6%
0.211
1.027
6
438
423
-3.4%
3.4%
0.181
1.005
7
64
49
-23.4%
23.4%
0.189
-0.276
8
170
157
-7.6%
7.6%
0.175
-0.735
Total
-12.9%
139.9%
The mean bias is -1.61% (-0.129/8) and the MAR is 0.175.
Thus, the new model is slightly less accurate, but
has significantly less bias.
15. As shown in the table below, alternative d has the lowest expected cost and is thus the best alternative.
Rainy
Cloudy
Sunny
Expected
Alternative
0.3
0.2
0.5
Cost
a
6
3
4
4.4
b
2
4
5
3.9
c
1
2
7
4.2
d
5
4
3
3.8
16. The worst possible outcomes for Alternatives a, b, c and d are 6, 5, 7 and 5 respectively.
Rainy
Cloudy
Sunny
Worst
Alternative
0.3
0.2
0.5
Case
a
6
3
4
6
b
2
4
5
5
c
1
2
7
7
d
5
4
3
5
Alternatives b and d have the best (lowest) worst outcome.
17. In the spreadsheet shown below the project cost, nonengineering labor hours, material cost, and downtime
hours were all modeled using a triangular distribution.
The engineering labor hours were modeled using a
uniform distribution over the range of 510 to 690 hours.
As shown in the spreadsheet below, the project has
a 92.37% chance of meeting the firm’s NPV hurdle.
38