Question: Sox Engineering designs and constructs air condi tioning and heating systems

Sox Engineering designs and constructs air condi-tioning and heating systems for hospitals and clinics. Currently, the company’s staff is overloaded with design work. There is a major design project due in 8 weeks. The penalty for completing the design late is $ 14,000 per week, since any delay will cause the facility to open later than anticipated and cost the client significant revenue. If the company uses its inside engineers to complete the design, it will have to pay them overtime for all work. Sox has estimated that it will cost $ 12,000 per week ( wages and overhead), including late weeks, to have company engineers complete the design. Sox is also considering having an outside engineering firm do the design. A bid of $ 92,000 has been received for the completed design. Yet another option for completing the design is to conduct a joint design by having a third engineering company complete all electromechanical com-ponents of the design at a cost of $ 56,000. Sox would then com-plete the rest of the design and control systems at an estimated cost of $ 30,000. Sox has estimated the following probabilities of complet-ing the project within various time frames when using each of the three options. Those estimates are shown in the following table:

What is the best decision based on an expected monetary value criterion? (Note: You want the lowest EMV because we are dealing with costs in thisproblem.)

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  • CreatedMarch 20, 2014
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