Cost Management

[Madhu]

During the conceptual phase of a pipeline project, the project engineer estimates the following. The cost of the materials is most likely US$100,000, optimistically US$90,000, and pessimistically US$120,000. The cost for labor is most likely US$60,000, optimistically US$50,000, and pessimistically US$70,000. The cost for the construction management fees is most likely US$ US$30,000, optimistically US$20,000, and pessimistically US$40,000.What is the probability of the project coming in under US$270,000.

A) Over 50%
B) Zero
C) Exactly 50%
D) Less than 50%

[admin]

The correct answer is D.

You use the PERT calculation (P + 4M + O)/6 to compute a weighted average of the totals, which in this case equals $273,333. This number represents the mean (or 50 percent point). Therefore the probability of the project coming in at $273,333 is 50 percent. The probability of $270,000 (since it is less than the mean) is less than 50 percent.

[Author]

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