Case Sharon Construction 1

Sharon Construction Corporation

Source: Source Meredith & Mantel

SituationOverhead cost of $500 per week for any

delay after 48 weeksPenalty of $15,000 per week if project

takes more than 52 weeksPossible Labour Strike in DecemberPossible Cold December

Probability Duration0.50 0 weeks0.35 8 weeks0.15 12 weeks

Probability Cost of Heating0.333 $500 per week0.667 $0 per weekE(x) $167 per week

Alternatives1. Expedite seat gallery supports 2. Expedite seat gallery supports and filling of the

field 3. Expedite the roofing 4. Do nothing until December 1st. If the cold is

indeed extreme, postpone concrete pouring or heat when necessary; if a strike occurs, expedite all activities after resolution

5. Do nothing

Analysis of Baseline & Alternative No.5 Do nothing (Tcp = 48+x weeks)

Analysis of Alternative No.1

• Expedite pouring concrete for seat gallery supports ($20,000) (activity G from 12 to 6 weeks) (Time=42)

Analysis of Alternative No.2

• Expedite pouring concrete for seat gallery supports ($20,000) (G from 12 to 6 weeks) and filling of the field ($10,000) (C from 14 to 9 weeks) (Time=42)

Analysis of Alternative No.3

• Expedite the roofing ($9,000) (activity K from 8 to 2 weeks) (Time=48)

Analysis of Alternative No.4 with 8 Week Strike Do nothing until December 1st. If the cold is indeed extreme, postpone concrete pouring or heat when

necessary; if a strike occurs, expedite all activities after resolution ($3,000 per week cut) (Time= 52)

Analysis of Alternative No.4 with 12 Week Strike Do nothing until December 1st. If the cold is indeed extreme, postpone concrete pouring or heat when

necessary; if a strike occurs, expedite all activities after resolution ($3,000 per week cut) (Time=56)

Project DurationProbability

StrikeStrike

Duration (x: weeks)

Alternative 1

Alternative 2

Alternative 3

Alternative 4

Alternative 5

0.50 0 42 42 48 48 48

0.35 8 50 50 56 52 56

0.15 12 54 54 60 56 60

Time Analysis

Summary Mild DecemberProbability

StrikeAlternative

1Alternative

2Alternative

3Alternative

4Alternative

50.50 $20,000 $30,000 $9,000 $0 $0

0.35 $21,000 $31,000 $73,000 $14,000 $64,000

0.15 $53,000 $63,000 $135,000 $76,000 $126,000

Summary Cold DecemberProbability

StrikeAlternative

1Alternative

2Alternative

3Alternative

4Alternative

50.50 $20,000 $30,000 $9,668 $668 $668

0.35 $21,000 $31,000 $73,000 $14,000 $64,000

0.15 $53,000 $63,000 $135,000 $76,000 $126,000

Cost Analysis

Risk Analysis

Expected Losses and Uncertainty in mild December

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Alternative1

Alternative2

Alternative3

Alternative4

Alternative5

E(x)

SD(x)

Risk Analysis

Expected Losses and Uncertainty in cold December

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Alternative1

Alternative2

Alternative3

Alternative4

Alternative5

E(x)

SD(x)

Risk Profiles

0.50.350.15Alternative 1

Alternative 2Alternative 3

Alternative 4Alternative 5

$0$20,000$40,000$60,000

$80,000

$100,000

$120,000

$140,000

Probabilities

Risk Profile of losses with mild December

Alternative 1

Alternative 2

Alternative 3

Alternative 4

Alternative 5

Risk Profiles

0.50.350.15Alternative 1

Alternative 2Alternative 3

Alternative 4Alternative 5

$0$20,000$40,000$60,000

$80,000

$100,000

$120,000

$140,000

Probabilities

Risk Profile of losses with cold December

Alternative 1

Alternative 2

Alternative 3

Alternative 4

Alternative 5

Recommendation

1. A4: Do nothing until December 1st. If the cold is indeed extreme, postpone concrete pouring; if a strike occurs, expedite all activities after resolution (lowest E(x))

2. A1: Expedite seat gallery supports (second lowest E(x))

Conclusion A1 is better than A2 and A3 if the probability/risk of a strike is

considered.

A4 provides the option of speeding up the remaining tasks in case of a strike and doing nothing otherwise. This option is powerful.

A4 has a lower but a higher uncertainty (broad range of losses from $0 to $76,000) than A1. The analysis of the risk profiles will help management to select the alternative which fits the corporation’s risk strategy.

If the corporation is adverse to risk, it could select A1 (losses are spread out from $20,000 to $53,000). A1 has a lower uncertainty than A4.

The project duration could be a factor for the decision, if there are projects on hold due to lack of resources.