You are one of the responsible managers in ABC. You signed an initial contract with XYZ Company

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Question:

You are one of the responsible managers in ABC.

You signed an initial contract with XYZ Company Corporation to carry out a major overhaul of a company’s equipment. Ideally, ABC. would like to get the overhaul to be completed in 12 weeks. If XYZ completes the overhaul on time, ABC. is planning to sign contract with XYZ for five years. However, to increase the chances of meeting the target, XYZ would have to hire extra labor and operate some 24-hour working, which would increase their costs.

Thus the company has two conflicting objectives: (1) minimize the time that the project overruns the target date and (2) minimize the cost of the project. The criterion weight for time is 3 times bigger than the criterion weight for cost

For simplicity, we will assume that XYZ Company Cooperation has two options: (1) work normally or (2) hire extra labor and work 24-hour shifts.

If XYZ works normally without hiring overrun time would be 0 week (finish on time), 3 weeks and 6 weeks.

If XYZ plans to hire workforce, then the project may overrun only 1 week or project will be on time (0 week).

In normal work conditions, probability of being on time is 0.1, probability of overrunning 3 weeks form target date is two times bigger than probability of overrunning 6 weeks form target date. When XYZ hires extra work force, the probability of overrunning 1 week from the target is 0.2.

If the project is completed on time, the cost of project is 50.000 $. The cost of overrun for just one week is 5.000$. There is a linear relationship between cost of overrun and time (3 weeks cost 15.000 $). Hiring extra labor and 24-hour shifts will additionally cost you 15.000.

Define your alternatives, estimate outcomes for each alternative, estimate probabilities, develop your decision tree and decide for XYZ Company.