Question

Server Farm Inc. (SFI) needs to upgrade its server
computers. Company management has identifi ed 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?

Answer 1

c. More the standard deviation more it is risky. So UNIX is more risky.

d. Because the windows project is less risky so it will be taken.