Server Farm Inc. (SFI) needs to upgrade its server computers. Company management has identified the following two options:
(1) Shift to a Windows – based platform from its current Unix-based platform, or
(2) Stick with a Unix-based platform. It is standard practice at SFI to use a triangular distribution to model uncertain costs. Along these lines, the company estimates that if it migrates to Windows, the new server hardware could cost as little as $100,000 or as much as $200,000. The technical group’s best estimate is that the hardware costs will be $125,000 if the Window’s option is pursued. Likewise, the company’s best guess regarding the cost to upgrade and convert its software to Windows is $300,000 with a range of $275,000 to $500,000. Finally, if the company converts to Windows, employee training costs are estimated to range between $9,000 and $15,000, with the best guess being $10,000. If the company sticks with Unix, the new server hardware will most likely cost $100,000, but could cost as little as $80,000 or as much as $210,000. Software conversion and upgrade costs are expected to be $300,000 but could be as low as $250,000 and as high as $525,000. Employee training costs should fall between $8,000 and $17,500, with a best guess of $10,000. Develop a model to simulate this situation using CB and answer the following questions.
(a) What is the expected cost of each project?
(b) What is the probability that each project’s cost will exceed $575,000?
(c) Which project would you consider to be the most risky?
(d) Which project would you recommend SFI undertake? Why?