MGT253. Risk and Quality Management

| August 14, 2017

Assignments MGT253.
Risk and Quality Management
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Mgt 253. Risk and Quality Management

Assignment 1

Telewonder in Slovobia

Slovobia is a former Soviet Republic. It has a
population of 30 million people, 35% of whom are ethnic Russians and 65% of
whom are Turkic Muslims.

Slovobia has identified the establishment of modern
telecommunications capabilities as a high priority. Such capabilities are
expected to cost 20 billion Slovars over a 5-year period. The official exchange
rate is $1 = 10 Slovars. The black-market rate fluctuates wildly, but basically
converges at $1 = 25 Slovars.

Slovobian authorities are hopeful that a
low-interest International Development Association (IDA) loan can be obtained
to cover a third of the anticipated project costs. They want the
telecommunications contractor to supply credit for 10% of the project costs.
The remaining funds will come from a variety of sources, including the
Telecommunications Ministry and commercial banks.

Telewonder Telecommunications Corporation, an
Australian provider of telecommunications services, has been approached by
Muhammed Farsi — the Minister of Telecommunications — about its interest in
bidding on the project. He informs Telewonder that an RFP (request for
proposal) will be issued shortly after Slovobia holds its first democratic
election in history. Unfortunately, elections recently had to be rescheduled
owing to a fundamentalist Muslim insurgency in the southwest portion of the
country.

1.
Risk identification–
What are the risks Telewonder faces if it obtains a contract todevelop
telecommunications capabilities in Slovobia?

2.
Risk impact analysis–
What are the consequences to Telewonder if the anticipatedrisks
become real?

3. Risk response
planning–
What can Telewonder do to handle risks?
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Assignments MGT253. Risk and
Quality Management
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Assignment 2

Events Plus Inc.

Events Plus Inc. is a company that organizes
seminars. Each year, it holds some 120 seminars dealing with business
management and public sector management themes.

In order to encourage early enrollments to its
seminars, Events Plus offers 20 percent discounts to participants who register
for a class up to six weeks in advance of the date of the seminar offering.
Because this is an attractive discount, popular classes usually experience
heavy levels of sign-ups before the six-week pre-seminar cut-off point. Less
popular courses experience weaker levels of sign-ups.

Table 1 shows data collected on 110 seminar
offerings that were tracked by Events Plus over the past year and a half.
Looking at the data, Events Plus finds that in 22 cases, enrollments were so strong
at the six-week marker that they covered all anticipated seminar costs.
Typically, these classes resulted in decent profits, although in two cases the
class had to be cancelled owing to instructor illness. In 33 cases, enrollments
were reasonably good at the six-week marker and covered 70-95 percent of the
seminar costs. The seminars usually experience some profit, although on ten
occasions classes could not be held owing to insufficient enrollments. In 55
cases, enrollments were weak at the six-week marker, covering less than 70
percent of anticipated seminar costs. Often, these classes did not break even
and in a number of cases resulted in substantial losses. On 22 instances, they
were cancelled owing to poor enrollments.

Break even at six-week marker?

Hold
seminar?

Overall

Probability

Yes, 22
times (20%)

Yes, 20
times (91%)

0.18

Yes, 22
times (20%)

No, 2 times
(9%)

0.02

Almost, 33
times (30%)

Yes, 23
times (70%)

0.21

Almost, 33
times (30%)

No, 10 times
(30%)

0.09

No, 55 times (50%)

Yes, 33
times (60%)

0.30

No, 55 times (50%)

No, 22 times
(40%)

0.20

Table 1

Events Plus uses the information contained in this
table to track enrollment strength course-by-course. That is, decision-makers
use this historical data to determine the viability of current seminar
offerings. At the six-week pre-course marker, managers review enrollments and
classify a seminar according one of three categories: Break even as of today;
almost break even as of today; and not-near-to-breaking-even as of today.

Assignment

1. Create
a decision-tree that will help guide us in determining what action to take when
we review student enrollments at the six-week, pre-course marker.
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Risk and Quality Management
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2. Senior
management is reviewing past attendance at seminars. They want to have an
overall understanding of how their seminar marketing efforts are doing. So they
ask the following questions, which you should answer:

a.
What is the probability that Events Plus
will reach the break even point at the six week marker and ultimately hold the
seminar?

b.
What is the probability that Events Plus
will nearly reach the break even point at the six-week marker and
ultimately hold the seminar?

c.
What is the probability that Events Plus
will not reach the break even point at the six-week marker, but winds up
holding the seminar nonetheless?

3. Assume
the cost of preparing for a typical seminar (including advertising cost) is
$32,000 and revenue after preparation cost have been netted out is $20,000.
When seminars are cancelled, the preparation costs are lost entirely.

a. If
at the six-week marker we find that we have reached a break even point, what is
the expected monetary value associated with deciding to hold the seminar? Does
it make good business sense to go ahead and hold the seminar?

b. If
at the six week marker we find that we are near to reaching a break even
point, what is the expected monetary value associated with deciding to hold the
seminar? Does it make good business sense to go ahead and hold the seminar?

c. If
at the six week marker, we find that we clearly have not reached the
break even point, what is the expected monetary value associated with deciding
to hold the seminar? Does it make good business sense to go ahead and hold the
seminar?

4.
When Events Plus begins preparing to
offer a seminar, what is the probability that the seminar will actually be
held?
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Assignment 3

George’s Thanksgiving Trip

George is invited by his sister, Dorothy, to attend
a family reunion during the Thanksgiving weekend. Dorothy lives in Denver, NY,
about 90 miles northeast of New York City. George lives in Washington, DC,
about 215 miles south of New York City. George decides to visit Dorothy and to
travel to her place by car.

The only problem is that road traffic
during the Thanksgiving holidays is terrible along the East Coast of the United
States. George would normally travel to Dorothy’s house by taking Interstate
Highway 95. This is the major link connecting Washington and New York City.
However, during Thanksgiving, the traffic on I-95 is usually bad, leading to
major delays.

George decides to explore an alternate route to
traveling to Dorothy’s. This route would be a few miles longer. Also, he would
encounter a 60 mile segment of road in a rural area, and he would have to
travel slowly on this segment. The good feature about the alternate route is
that it is unlikely to suffer from Thanksgiving traffic.

A map showing the two routes to
Dorothy’s house is offered in Figure 1.

Based on his experience in traveling along I-95
during Thanksgiving holidays, George has developed a good sense of the
likelihood of delays that he can encounter on the journey. Table 1 shows the
probability distributions he has created for all the segments of his trip to
Dorothy for both the I-95 route and the alternate route.

Assignment

Using the information supplied in Figure 1 and Table
1, determine the expected amount of time it will take George to travel from
Washington, DC to his sister’s house, employing both the I-95 and alternate
route. SHOW YOUR WORK, DEMONSRATING HOW YOU ARRIVED AT THE ANSWERS YOU PROVIDE.
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Figure 1. Two Routes to

George’s Sister’s House
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Sister’s House

Upstate, New York

10 miles

East Branch

Kingston

60 miles

Binghamton

50 miles

80 miles

30 miles

New
York City

Scranton

130 miles

175 miles

Legend

Highway,
70 miles per hour

Rural
road, 40 miles per hour

Baltimore

40 miles

George’s house

Washington,
DC
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Probability Distributions for
Travel Times on Journey

Probability

Probability

Probability

Probability

10%

20%

30%

40%

Probability

longer

longer

longer

longer

Regular Route

achieving

than

than

than

than

(East Route)

schedule

schedule

schedule

schedule

schedule

Segment

Washington-

Baltimore

0.7

0.3

0.0

0.0

0.0

Baltimore-New
York

City

0.0

0.1

0.2

0.5

0.2

New York City-

Kingston

0.1

0.2

0.3

0.3

0.1

Kingston-Sister’s

Home

0.8

0.2

0.0

0.0

0.0

Probability

Probability

Probability

Probability

Probability

10%

20%

30%

40%

of

longer

longer

longer

longer

Alternate
Route

achieving

than

than

than

than

(West Route)

schedule

schedule

schedule

schedule

schedule

Segment

Washington-

Baltimore

0.7

0.3

0.0

0.0

0.0

Baltimore-

Binghamton

0.9

0.1

0.0

0.0

0.0

Binghamton-E

Branch

0.9

0.1

0.0

0.0

0.0

E
Branch-Sister’s

Home

0.8

0.2

0.0

0.0

0.0

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Assignment 4

Monte Carlo Simulation Exercise

EQUIPMENT INSTALLATION AT GLOBUS
ENTERPRISES

The equipment installation group at Globus
Enterprises is about to make a cost estimate to determine how much it will cost
to install a back-up generator at a government laboratory facility. Over the
years, this group has carried out more than 100 such installations and has
developed a database reflecting past experience. Data on the distribution of
cost for design work, building effort, and testing effort is provided in Table
1.
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Cheapest

Usual

Expensive

($/%)

($/%)

($/%)

Design

9,000/30

10,000/40

12,000/30

Build

60,000/20

70,000/60

80,000/20

Test

18,000/20

20,000/50

24,000/30

Table 1. Historical Data
on Cost Distributions

The
data in the table picture the cost of an effort and the percentage of times
this cost is achieved. For example, 30% of the time, “Design” cost $9,000; 40%
of the time it cost $10,000;
30% of the time it cost $12,000.
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00 16 45 84 18
83 28 82 36 91
95 14 80 68 34
54 55 13 20 70
57 68 61 37 30
09 81 24 55 21

Table 2. Two-digit Random Numbers

Assignment

1. Conduct
a Monte Carlo simulation to create a distribution portraying total estimated
project costs. Employ ten iterations in your computation. Display the
distribution graphically.

2.
On
the average, how much does it cost to carry out this project?
3.
What
is the standard deviation of the distribution that you generated (use the
formula:
SD
= ??(Xi – X-bar)2/N,
where SD = standard deviation, ? = square root symbol, ? = the summation sign,
Xi
= the ith value of X, X-bar = the
mean of the X values, and N = the number of values being considered)? What
information does the standard deviation offer us that helps us develop a better
understanding of risk in this case? (For more help on computing standard
deviation, see below.)

4.
Roughly
what is the probability that the project will cost more than $105,000?
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Computing standard deviation
for following numbers: 8, 4, 10, 7, 6

x
– X-

X

X-bar

bar

Squared

8.00

7.00

1.00

1.00

4.00

7.00

-3.00

9.00

10.00

7.00

3.00

9.00

7.00

7.00

0.00

0.00

6.00

7.00

-1.00

1.00

Total
=

35.00

20.00

Average
= X-Bar =

7.00

4.00

(Sum Squared)/N =
Variance

2.00

Sqrt(Variance) = Standard Deviation

Computing
standard deviation for following numbers: 6, 7, 5.5, 8, 8.5

x
– X-

X

X-bar

bar

Squared

6.00

7.00

-1.00

1.00

7.00

7.00

0.00

0.00

5.50

7.00

-1.50

2.25

8.00

7.00

1.00

1.00

8.50

7.00

1.50

2.25

Total
=

35.00

6.50

Average
= X-Bar =

7.00

1.30

(Sum Squared)/N =
Variance

1.14

Sqrt(Variance) = Standard Deviation

Note
that the spread of numbers in the first case above is greater than the second
case, so that standard deviation in the first case (SD = 2.00) is greater than
in the second (SD = 1.14)
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Assignment 5

Murphy’s Law at Travel-Rite

Mike Jones had worked at Travel-Rite as a bus driver
for five years. He enjoyed the job. In turn, Travel-Rite was pleased with Mike,
because he was courteous with clients and had a flawless safety record.

Mike was driving twenty-five tourists
from Washington, DC to New York City on Interstate 95. He noticed that his fuel
gauge showed that his twenty-nine passenger mini-bus was getting low on fuel,
so he pulled into a gas station along the highway. At the fuel pump, he told
the station attendant to fill up the fuel tank. Ten minutes later, the tank was
filled and Mike pulled out of the gas station. The bus traveled about
twenty-five meters, and then the engine died. Mike tried futilely to restart
the engine.

It turned out that the gas station
attendant had accidentally filled the fuel tank with gasoline instead of diesel
fuel. The only way to deal with this would be to drain the gasoline out of the
fuel tank and to remove all traces of gasoline in the engine. The gas station
lacked this capability, so the gas station manager arranged to have the
mini-bus towed to a nearby garage. Meanwhile, Mike telephoned Travel-Rite’s
headquarters to tell them of his predicament. The headquarters staff arranged
to have the tourists picked up by a bus service operating out of New York City.
Two hours after the bus breakdown, the tourists resumed their journey.

The mini-bus was towed to the garage, where
mechanics attempted to determine whether the engine had been damaged by the
gasoline. The chief mechanic telephoned Travel-Rite headquarters to deliver his
report and was put in touch with Jennifer Chen, Travel-Rite’s president.

“There’s no problem cleaning up the
engine,” he reported. “In fact, we’ve already got it working. However, you
appear to have a problem with your transmission, because the bus won’t go into
second gear. We looked at the transmission and saw that it’s damaged.”

Jennifer was shocked to
hear this and immediately telephoned the automobile dealer from whom she bought
her buses. When he heard the story, he understood the nature of the problem.

“The transmission was damaged when the bus was being
towed,” he said. “The drive trains of buses are a bit complicated. You can’t
just hook them up to a tow truck and start towing them. Several steps have to
be taken to prepare them for towing, and obviously the tow truck driver didn’t
do this.”

Jennifer felt sick. What began as an innocent
refueling had turned into a disaster. Clients had been inconvenienced. Her new
bus had been damaged. All this was happening far from headquarters, so
resolution of the dispute with the gas station, tow truck company, and garage
would have to be carried out remotely.

Questions

1. From
Travel-Rite’s perspective, to what extent is the incident described in this
case an “act of God” as opposed to a controllable event?
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2. What
general categories of risk are being encountered here (e.g., business risk)?
Explain your answer.

3. How
would you go about conducting an ex post facto risk assessment of this
incident? What conclusions might result from this assessment? What risk
mitigation steps should be taken to avoid a repetition of this kind of event in
the future?
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Assignment 6

Part A. Scattergram Exercise

The table on the right examines the number defects
associated with different levels for processing widgets. For example, when the
processing speed reaches 60 widgets per hour, an average of 65 defects are
encountered.

Draw
a scatter diagram showing the relationship between processing speed and
defects. What conclusions can you derive from the diagram?
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Units Processed

Average
Number

per Hour

of Defects

300

50

400

42

500

40

600

55

700

80

800

95

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Risk and Quality Management
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Part B. Office Move: Cause and Effect
(Fishbone) Diagram Exercise

You are in charge of managing a project to relocate
an office from one building to another. The new building is located three
kilometers from the old one. Your job is:

·
to
schedule the move

·
to make sure the old building is
prepared for the move (e.g., to reserve use of elevators)

·
to make sure the new building is
prepared for the move (e.g., to reserve use of elevators)

·
to make sure all employees are aware of
their responsibilities to help the move to go well

·
to
handle all the financial arrangements associated with the move
·
to handle all contractual arrangements
associated with the move

·
to arrange for the moving company to
pack, transport, and unpack the furnishings being moved.

Using the information supplied here, create a
cause-and-effect diagram that describes the move effort.
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