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Amsterdam LLC is a management consulting firm with a reputation for expertise in the public
sector. The firm has recently been awarded a government contract to implement a comprehensive
reorganization of the public healthcare administration. The project involves three stages: in phase
one, the strengths and weaknesses of the current system and the requirements for the new system
are assessed and evaluated; in phase two, a detailed plan for a reorganization is devised based on
the findings in phase one; in phase three, the plan is implemented. The contract specifies that
Amsterdam LLC will be paid $4,000,000 upon completion of the first phase of the project,
$5,000,000 upon completion of the second phase, and a final $7,000,000 upon conclusion of the
third phase. Amsterdam LLC tracks its cost by the number of staff hours spent. The firm’s accounting group
has calculated the total cost per staff hour to be $400. Amsterdam LLC begins its work in 2014.
At the end of the year, the firm has spent 6,000 staff hours on the project and estimates that
additional 24,000 hours will be incurred until completion. In 2015, the firm delivers its phase-
one completion report and receives the first installment payment. The ntunber of staff hours
incurred in 2015 is 8,000 and the firm estimates at the end of the year that another 18,000 hours
will be required until completion. In 2016, the firm completes phase two and receives the agreed-
upon payment. During the year, 10,000 staff hours are spent, and the firm anticipates that 6,000
more hours will be needed to complete the project. In 2017, Amsterdam LLC completes the final phase and receives the last installment payment. Another 7,000 staff horns are incurred in 2017.

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