Question

# EBC is a construction company. They are in the process of constructing a building whose plumbing...

EBC is a construction company. They are in the process of constructing a building whose plumbing would be installed in 12 days at a cost of \$ 64 or in 10 days at a cost of \$ 80 by working overtime. Plumbing is on the critical path and each day’s saving in completion time of the whole project is worth \$ 10.

a) You have been asked to advise the project team on whether to take the 10 day or the 12-day option. Using relevant computation, present your piece of advice.

b) Highlight the elements of ‘trade-off’ expressed in the above case.

c) Assume each day’s saving in completion time is worth \$ 5. What advice would you give? Give reasons for your answer

a. If we take the 12th-day option then it would cost us = \$64

If we take the 10th-day option then it would cost us = \$80

But there is an opportunity cost associated with the options i.e. for each day saving is \$10

That means the cost of 10th-day option will be = \$80 - \$10*2 = \$60

Hence, it is advised to take the 10th-day option

b. The trade-off is, for each day reduced in completion of plumbing there is a saving of \$10 in the project. Hence this has to be reduced from the cost to find out the effective cost.

c. If the oppurtunity cost = \$5 per day

Then, 10th-day effective cost = \$80 - \$5*2 = \$70

As 10th-day effective cost is more than the 12th-day cost, so it would be advisable to take the 12th-day option.

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