Project Management PMP

Chapter 17

Problems 17-1

 

You have $1,000,000 worth of equipment at the job site and wish to minimize your risk of direct property damage by taking out an insurance policy. The insurance company provides you with its statistical data as shown below:

 

Type of Damage	Probability (%)	Amount of Damage (Loss) (%)
Total	0,02	100
Medium	0.08	40
Low	0,10	20
No Damage	99.8	0

 

If the insurance company uses expected value to calculate premiums, then how much would you expect the premium to be, assuming the insurance company adds on $300 for handling and profit?

 

Answer:

 

Handling and profit = RM300.00i)

 

1.      The expected loss and its variance;

 

Property damage type	Probability (%)	Loss amount (RM)	Probability loss amount (RM)
Total	0.0002	1,000,000	200
Medium	0.0008	400,000	320
Low	0.0010	200,000	200
No damage	0.9980	0	0

 

Thus expected value loss = E(X) = ai Pr (X = ai)

 

= (200 + 320 + 200 + 0)/1 = RM 720.00

 

Mean

 

= (1,000,000 + 400,000 + 200,000 + 0)/4 = 400,000

 

Variance:

 

Var  (X) = E ( (X - µ)2) =

2=∑(ai- µ)2 Pr(X = ai)

 

=  (1,000,000-400,000)2  x 0.0002  +  (400,000-400,000) 2  x  0.0008  +  (200,000-400,000) 2

x 0.001 +  (0-400,000)2  x  0.998

 

=159,792,000,000

 

 

Problem 17-5

 

A telecommunications firm believes that the majority of its income over the next ten years willcome from organizations outside of the United States. More specifically, the income will come from third world nations that may have very little understanding or experience in project management. The company prepared Figure 17–21. What causes the increasing risks in Figure 17–21?

 

Answer:

 

As shown in figure 17-21 that the reason increasing risk in project is the organization has no or little experience in project management. Also the risk will reach the top level of risk if the project was complex. As more as project was simple as well as the organization was experienced that will be no risk at all, otherwise the risk increasing while organization’s experience was low and project was complex for this inexperience organizations.

 

Chapter 20

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