MIDTERM EXAM

MM5004 Operations Management PT Berau Coal

Lecture: Ir. Gatot Yudoko MASC.,Ph.D.
Student: Saeful Aziz (29118389)
NUMBER 1: Questions

Solve the problem of Perot Corporation (hardcopy is

provided).
 NUMBER 1: Answers (a)

A: CASH FLOW - NPV

Project Schedule Year 1 Year 2 Year 3 Year 4
Patay2 Chip 1st half 2nd half 1st half 2nd half 1st half 2nd half 1st half 2nd half
Discounted per Year 10% - 1 2 3 4 5 6 7

Development $ (5,000,000.00) $ (5,000,000.00) $ (5,000,000.00) $ (5,000,000.00)

Pilot Testing $ (2,500,000.00) $ (2,500,000.00)
Debug $ (1,500,000.00) $ (1,500,000.00)
Ramp Up $ (3,000,000.00)
Advance Marketing $ (5,000,000.00)
Marketing and Support $ (500,000.00) $ (500,000.00) $ (500,000.00) $ (500,000.00)
Production and Sales 125,000.00 125,000.00 75,000.00 75,000.00
Unit Production Cost $ (655.00) $ (655.00) $ (545.00) $ (545.00)
Prouction Cost $ (81,875,000.00) $ (81,875,000.00) $ (40,875,000.00) $ (40,875,000.00)
Unit Price 820 820 650 650
Sales Revenue $ 102,500,000.00 $ 102,500,000.00 $ 48,750,000.00 $ 48,750,000.00
Discounted per semester 10% 10% 10% 10% 10% 10% 10% 10% 10%
Period Cash Flow $ (5,000,000.00) $ (5,000,000.00) $ (9,000,000.00) $ (17,000,000.00) $ 20,125,000.00 $ 20,125,000.00 $ 7,375,000.00 $ 7,375,000.00
Cummulative Cash Flow $ (5,000,000.00) $ (10,000,000.00) $ (19,000,000.00) $ (36,000,000.00) $ (15,875,000.00) $ 4,250,000.00 $ 11,625,000.00 $ 19,000,000.00
PV $ (5,000,000.00) $ (4,545,454.55) $ (7,438,016.53) $ (12,772,351.62) $ 13,745,645.79 $ 12,496,041.63 $ 4,162,995.23 $ 3,784,541.12
Cummulative Present Value $ (5,000,000.00) $ (9,545,454.55) $ (16,983,471.07) $ (29,755,822.69) $ (16,010,176.90) $ (3,514,135.27) $ 648,859.96 $ 4,433,401.08
NPV by math formula $ 4,433,401.08
NPV by Excel Formula $ 4,433,401.08
 NUMBER 1: Answers (b)

B: INVESTMENT $10 Mio - UNIT PRICE +$50

Project Schedule Year 1 Year 2 Year 3 Year 4
Patay2 Chip 1st half 2nd half 1st half 2nd half 1st half 2nd half 1st half 2nd half
Discounted per Year 10% - 1 2 3 4 5 6 7
INVESTMENT $ (2,500,000.00) $ (2,500,000.00) $ (2,500,000.00) $ (2,500,000.00)
Development $ (5,000,000.00) $ (5,000,000.00) $ (5,000,000.00) $ (5,000,000.00)
Pilot Testing $ (2,500,000.00) $ (2,500,000.00)
Debug $ (1,500,000.00) $ (1,500,000.00)
Ramp Up $ (3,000,000.00)
Advance Marketing $ (5,000,000.00)
Marketing and Support $ (500,000.00) $ (500,000.00) $ (500,000.00) $ (500,000.00)
Production and Sales 125,000.00 125,000.00 75,000.00 75,000.00
Unit Production Cost $ (655.00) $ (655.00) $ (545.00) $ (545.00)
Prouction Cost $ (81,875,000.00) $ (81,875,000.00) $ (40,875,000.00) $ (40,875,000.00)
Unit Price 870 870 700 700
Sales Revenue $ 108,750,000.00 $ 108,750,000.00 $ 52,500,000.00 $ 52,500,000.00
Discounted per semester 10% 10% 10% 10% 10% 10% 10% 10% 10%
Period Cash Flow $ (7,500,000.00) $ (7,500,000.00) $ (11,500,000.00) $ (19,500,000.00) $ 26,375,000.00 $ 26,375,000.00 $ 11,125,000.00 $ 11,125,000.00
Cummulative Cash Flow $ (7,500,000.00) $ (15,000,000.00) $ (26,500,000.00) $ (46,000,000.00) $ (19,625,000.00) $ 6,750,000.00 $ 17,875,000.00 $ 29,000,000.00
PV $ (7,500,000.00) $ (6,818,181.82) $ (9,504,132.23) $ (14,650,638.62) $ 18,014,479.89 $ 16,376,799.90 $ 6,279,772.47 $ 5,708,884.07
Cummulative Present Value $ (7,500,000.00) $ (14,318,181.82) $ (23,822,314.05) $ (38,472,952.67) $ (20,458,472.78) $ (4,081,672.89) $ 2,198,099.59 $ 7,906,983.65
NPV by math formula $ 7,906,983.65
NPV by Excel Formula $ 7,906,983.65

IT’S WORTH TO ADDITIONAL INVESTMENT

 NUMBER 1: Answers (c)

C: SALES $200 K (Y1) $100 K (Y2)

Project Schedule Year 1 Year 2 Year 3 Year 4
Patay2 Chip 1st half 2nd half 1st half 2nd half 1st half 2nd half 1st half 2nd half
Discounted per Year 10% - 1 2 3 4 5 6 7

Development $ (5,000,000.00) $ (5,000,000.00) $ (5,000,000.00) $ (5,000,000.00)

Pilot Testing $ (2,500,000.00) $ (2,500,000.00)
Debug $ (1,500,000.00) $ (1,500,000.00)
Ramp Up $ (3,000,000.00)
Advance Marketing $ (5,000,000.00)
Marketing and Support $ (500,000.00) $ (500,000.00) $ (500,000.00) $ (500,000.00)
Production and Sales 100,000.00 100,000.00 50,000.00 50,000.00
Unit Production Cost $ (655.00) $ (655.00) $ (545.00) $ (545.00)
Prouction Cost $ (65,500,000.00) $ (65,500,000.00) $ (27,250,000.00) $ (27,250,000.00)
Unit Price 820 820 650 650
Sales Revenue $ 82,000,000.00 $ 82,000,000.00 $ 32,500,000.00 $ 32,500,000.00
Discounted per semester 10% 10% 10% 10% 10% 10% 10% 10% 10%
Period Cash Flow $ (5,000,000.00) $ (5,000,000.00) $ (9,000,000.00) $ (17,000,000.00) $ 16,000,000.00 $ 16,000,000.00 $ 4,750,000.00 $ 4,750,000.00
Cummulative Cash Flow $ (5,000,000.00) $ (10,000,000.00) $ (19,000,000.00) $ (36,000,000.00) $ (20,000,000.00) $ (4,000,000.00) $ 750,000.00 $ 5,500,000.00
PV $ (5,000,000.00) $ (4,545,454.55) $ (7,438,016.53) $ (12,772,351.62) $ 10,928,215.29 $ 9,934,741.17 $ 2,681,251.17 $ 2,437,501.06
Cummulative Present Value $ (5,000,000.00) $ (9,545,454.55) $ (16,983,471.07) $ (29,755,822.69) $ (18,827,607.40) $ (8,892,866.23) $ (6,211,615.07) $ (3,774,114.01)
NPV by math formula $ (3,774,114.01)
NPV by Excel Formula $ (3,774,114.01)
PEROT WOULDN’T DO THE PROJECT
NUMBER 2: Questions

A maintenance service firm offers five packages of maintenance services to its

corporate customers. The unit price, unit cost, and annual forecasted sales for each
package are shown in the following table.
• Annual fixed cost is estimated 750 million rupiahs per year.
a. Evaluate whether the above business plan will generate profit or not.
b. What is the break-even rupiah for the maintenance center?
c. What is the monthly break-even volume for each package, if the firm opens for 12
months in a year?

Maintenance Price/package Cost/package Annual forecasted sale

Service (million rupiahs) (million rupiahs) (packages)
Facility 30 20 36
Electrical 35 25 12
• See the table Plumbing 20 13 24
Fire & AC 25 18 18
Mechanical 30 20 30
 NUMBER 2: Answers

Annual fixed cost is estimated 750 million rupiahs per year. C

Maintenance Price/package Cost/package Annual forecasted sale Ann. Forc. % of Monthly
P-V V/P 1-V/P Weighted
Service (million rupiahs) (million rupiahs) (packages) % unit sales Sales ($) Sales BEPx
Facility $ 30.00 $ 20.00 36 30% $ 10.00 0.67 0.33 $ 1,080.00 32% 11% 2.09
Electrical $ 35.00 $ 25.00 12 10% $ 10.00 0.71 0.29 $ 420.00 13% 4% 0.70
Plumbing $ 20.00 $ 13.00 24 20% $ 7.00 0.65 0.35 $ 480.00 14% 5% 1.40
Fire & AC $ 25.00 $ 18.00 18 15% $ 7.00 0.72 0.28 $ 450.00 14% 4% 1.05
Mechanical $ 30.00 $ 20.00 30 25% $ 10.00 0.67 0.33 $ 900.00 27% 9% 1.75
120.00 100% total $ 3,330.00 100% 32%
A Profit $ 324.00 /year
B BEP($) $ 2,325.42 /year
BEP (x) 83.80 /year
NUMBER 3: Questions

A government institution responsible for foreign investor administration is now considering to

purchase an OCR (Optical Character Reader) as part of its current digitalization program.
Currently there are three alternatives available with regard to the capacity of the OCR, namely
small scale (50,000 documents per year), medium scale (75,000 documents per year), and high
scale (100,000 documents per year). Capital expenditure occurs now (time 0), while fixed cost
and variable cost occurs every year for the next five
• On average, every year the institution plans to collect 25,000 rupiahs per document to be
processed from its customers. The management has agreed about the chances for future
demand as follows: small (50,000 documents per year) with a probability of 25%; medium
(75,000 documents per year) with a probablity of 40%; and high (100,000 documents per
year) with a probablity of 35%.
a. Draw the decision tree.
b. Calculate the net present value of each alternative using a discount rate of 15% per year.
c. Select the best decision

Capacity of OCR Capital cost (million Fixed cost per year Variable cost per
(documents/year) rupiahs) (million rupiahs) document
(rupiahs)
50,000 500 200 10,000
• See the table 75,000 700 250 10,000
100,000 1,000 300 10,000
NUMBER 3: Answers (a,c)

NPV
Weighted NPV Small
1,344
1,343.69 25%

Small Scale Medium

1,344
50000 40%

High
1,344
35%

NPV
Weighted NPV Small
976
1,919 25%

A OPTICAL CHARACTER READER Medium Scale Medium

2,233
75000 40%
C Medium Scale 1,919
High
2,233
35%

NPV
Weighted NPV Small
508
1,891 25%

High Scale Medium

1,766
100000 40%

High
3,023
35%
 NUMBER 3: Answers (b)

Desc Unit Year Desc Unit Year Desc Unit Year

0 1 2 3 4 5 0 1 2 3 4 5 0 1 2 3 4 5

Assumption Assumption Assumption

Discount Rate % 15% 15% 15% 15% 15% 15% Discount Rate % 15% 15% 15% 15% 15% 15% Discount Rate % 15% 15% 15% 15% 15% 15%
Discount Factor 1.00 0.87 0.76 0.66 0.57 0.50 Discount Factor 1.00 0.87 0.76 0.66 0.57 0.50 Discount Factor 1.00 0.87 0.76 0.66 0.57 0.50
B: CASH FLOW CALCULATION B: CASH FLOW CALCULATION B: CASH FLOW CALCULATION
Alt 1: SMALL-SMALL Alt 2: SMALL-MEDIUM Alt 3: SMALL-HIGH
Capacity doc/year Small 50,000 50,000 50,000 50,000 50,000 Capacity doc/year Small 50,000 50,000 50,000 50,000 50,000 Capacity doc/year Small 50,000 50,000 50,000 50,000 50,000
Chance Demand doc/year Small 50,000 50,000 50,000 50,000 50,000 Chance Demand doc/year Medium 75,000 75,000 75,000 75,000 75,000 Chance Demand doc/year High 100,000 100,000 100,000 100,000 100,000
Load Service doc/year 50,000 50,000 50,000 50,000 50,000 Load Service doc/year 50,000 50,000 50,000 50,000 50,000 Load Service doc/year 50,000 50,000 50,000 50,000 50,000
Rate IDR/doc 25,000 25,000 25,000 25,000 25,000 Rate IDR/doc 25,000 25,000 25,000 25,000 25,000 Rate IDR/doc 25,000 25,000 25,000 25,000 25,000
Cost Cost Cost
Fix Cost Rate mio IDR/year 200 200 200 200 200 Fix Cost Rate mio IDR/year 200 200 200 200 200 Fix Cost Rate mio IDR/year 200 200 200 200 200
Variable Cost IDR/doc 10,000 10,000 10,000 10,000 10,000 Variable Cost IDR/doc 10,000 10,000 10,000 10,000 10,000 Variable Cost IDR/doc 10,000 10,000 10,000 10,000 10,000

Capex mio IDR (500) Capex mio IDR (500) Capex mio IDR (500)

Revenue mio IDR 1,250 1,250 1,250 1,250 1,250 Revenue mio IDR 1,250 1,250 1,250 1,250 1,250 Revenue mio IDR 1,250 1,250 1,250 1,250 1,250
Total Cost mio IDR 700 700 700 700 700 Total Cost mio IDR 700 700 700 700 700 Total Cost mio IDR 700 700 700 700 700
Profit mio IDR - 550 550 550 550 550 Profit mio IDR - 550 550 550 550 550 Profit mio IDR - 550 550 550 550 550

Net Cash Flow mio IDR (500) 550 550 550 550 550 Net Cash Flow mio IDR (500) 550 550 550 550 550 Net Cash Flow mio IDR (500) 550 550 550 550 550
Cummulative CF mio IDR (500) 50 600 1,150 1,700 2,250 Cummulative CF mio IDR (500) 50 600 1,150 1,700 2,250 Cummulative CF mio IDR (500) 50 600 1,150 1,700 2,250

Present Value CF mio IDR (500) 478 416 362 314 273 Present Value CF mio IDR (500) 478 416 362 314 273 Present Value CF mio IDR (500) 478 416 362 314 273
Cummulative PV CF mio IDR (500) (22) 394 756 1,070 1,344 Cummulative PV CF mio IDR (500) (22) 394 756 1,070 1,344 Cummulative PV CF mio IDR (500) (22) 394 756 1,070 1,344

NPV mio IDR 1,344 - NPV mio IDR 1,344 - NPV mio IDR 1,344 -
 NUMBER 3: Answers (b)

Desc Unit Year Desc Unit Year Desc Unit Year

0 1 2 3 4 5 0 1 2 3 4 5 0 1 2 3 4 5

Assumption Assumption Assumption

Discount Rate % 15% 15% 15% 15% 15% 15% Discount Rate % 15% 15% 15% 15% 15% 15% Discount Rate % 15% 15% 15% 15% 15% 15%
Discount Factor 1.00 0.87 0.76 0.66 0.57 0.50 Discount Factor 1.00 0.87 0.76 0.66 0.57 0.50 Discount Factor 1.00 0.87 0.76 0.66 0.57 0.50
B: CASH FLOW CALCULATION B: CASH FLOW CALCULATION B: CASH FLOW CALCULATION
Alt 4: MEDIUM-SMALL Alt 5: MEDIUM-MEDIUM Alt 6: MEDIUM-HIGH
Capacity doc/year Medium 75,000 75,000 75,000 75,000 75,000 Capacity doc/year Medium 75,000 75,000 75,000 75,000 75,000 Capacity doc/year Medium 75,000 75,000 75,000 75,000 75,000
Chance Demand doc/year Small 50,000 50,000 50,000 50,000 50,000 Chance Demand doc/year Medium 75,000 75,000 75,000 75,000 75,000 Chance Demand doc/year High 100,000 100,000 100,000 100,000 100,000
Load Service doc/year 50,000 50,000 50,000 50,000 50,000 Load Service doc/year 75,000 75,000 75,000 75,000 75,000 Load Service doc/year 75,000 75,000 75,000 75,000 75,000
Rate IDR/doc 25,000 25,000 25,000 25,000 25,000 Rate IDR/doc 25,000 25,000 25,000 25,000 25,000 Rate IDR/doc 25,000 25,000 25,000 25,000 25,000
Cost Cost Cost
Fix Cost Rate mio IDR/year 250 250 250 250 250 Fix Cost Rate mio IDR/year 250 250 250 250 250 Fix Cost Rate mio IDR/year 250 250 250 250 250
Variable Cost IDR/doc 10,000 10,000 10,000 10,000 10,000 Variable Cost IDR/doc 10,000 10,000 10,000 10,000 10,000 Variable Cost IDR/doc 10,000 10,000 10,000 10,000 10,000

Capex mio IDR (700) Capex mio IDR (700) Capex mio IDR (700)

Revenue mio IDR 1,250 1,250 1,250 1,250 1,250 Revenue mio IDR 1,875 1,875 1,875 1,875 1,875 Revenue mio IDR 1,875 1,875 1,875 1,875 1,875
Total Cost mio IDR 750 750 750 750 750 Total Cost mio IDR 1,000 1,000 1,000 1,000 1,000 Total Cost mio IDR 1,000 1,000 1,000 1,000 1,000
Profit mio IDR - 500 500 500 500 500 Profit mio IDR - 875 875 875 875 875 Profit mio IDR - 875 875 875 875 875

Net Cash Flow mio IDR (700) 500 500 500 500 500 Net Cash Flow mio IDR (700) 875 875 875 875 875 Net Cash Flow mio IDR (700) 875 875 875 875 875
Cummulative CF mio IDR (700) (200) 300 800 1,300 1,800 Cummulative CF mio IDR (700) 175 1,050 1,925 2,800 3,675 Cummulative CF mio IDR (700) 175 1,050 1,925 2,800 3,675

Present Value CF mio IDR (700) 435 378 329 286 249 Present Value CF mio IDR (700) 761 662 575 500 435 Present Value CF mio IDR (700) 761 662 575 500 435
Cummulative PV CF mio IDR (700) (265) 113 442 727 976 Cummulative PV CF mio IDR (700) 61 722 1,298 1,798 2,233 Cummulative PV CF mio IDR (700) 61 722 1,298 1,798 2,233

NPV mio IDR 976 - NPV mio IDR 2,233 - NPV mio IDR 2,233 -
 NUMBER 3: Answers (b)

Desc Unit Year Desc Unit Year Desc Unit Year

0 1 2 3 4 5 0 1 2 3 4 5 0 1 2 3 4 5

Assumption Assumption Assumption

Discount Rate % 15% 15% 15% 15% 15% 15% Discount Rate % 15% 15% 15% 15% 15% 15% Discount Rate % 15% 15% 15% 15% 15% 15%
Discount Factor 1.00 0.87 0.76 0.66 0.57 0.50 Discount Factor 1.00 0.87 0.76 0.66 0.57 0.50 Discount Factor 1.00 0.87 0.76 0.66 0.57 0.50
B: CASH FLOW CALCULATION B: CASH FLOW CALCULATION B: CASH FLOW CALCULATION
Alt 7: HIGH-SMALL Alt 8: HIGH-MEDIUM Alt 9: HIGH-HIGH
Capacity doc/year High 100,000 100,000 100,000 100,000 100,000 Capacity doc/year High 100,000 100,000 100,000 100,000 100,000 Capacity doc/year High 100,000 100,000 100,000 100,000 100,000
Chance Demand doc/year Small 50,000 50,000 50,000 50,000 50,000 Chance Demand doc/year Medium 75,000 75,000 75,000 75,000 75,000 Chance Demand doc/year High 100,000 100,000 100,000 100,000 100,000
Load Service doc/year 50,000 50,000 50,000 50,000 50,000 Load Service doc/year 75,000 75,000 75,000 75,000 75,000 Load Service doc/year 100,000 100,000 100,000 100,000 100,000
Rate IDR/doc 25,000 25,000 25,000 25,000 25,000 Rate IDR/doc 25,000 25,000 25,000 25,000 25,000 Rate IDR/doc 25,000 25,000 25,000 25,000 25,000
Cost Cost Cost
Fix Cost Rate mio IDR/year 300 300 300 300 300 Fix Cost Rate mio IDR/year 300 300 300 300 300 Fix Cost Rate mio IDR/year 300 300 300 300 300
Variable Cost IDR/doc 10,000 10,000 10,000 10,000 10,000 Variable Cost IDR/doc 10,000 10,000 10,000 10,000 10,000 Variable Cost IDR/doc 10,000 10,000 10,000 10,000 10,000

Capex mio IDR (1,000) Capex mio IDR (1,000) Capex mio IDR (1,000)

Revenue mio IDR 1,250 1,250 1,250 1,250 1,250 Revenue mio IDR 1,875 1,875 1,875 1,875 1,875 Revenue mio IDR 2,500 2,500 2,500 2,500 2,500
Total Cost mio IDR 800 800 800 800 800 Total Cost mio IDR 1,050 1,050 1,050 1,050 1,050 Total Cost mio IDR 1,300 1,300 1,300 1,300 1,300
Profit mio IDR - 450 450 450 450 450 Profit mio IDR - 825 825 825 825 825 Profit mio IDR - 1,200 1,200 1,200 1,200 1,200

Net Cash Flow mio IDR (1,000) 450 450 450 450 450 Net Cash Flow mio IDR (1,000) 825 825 825 825 825 Net Cash Flow mio IDR (1,000) 1,200 1,200 1,200 1,200 1,200
Cummulative CF mio IDR (1,000) (550) (100) 350 800 1,250 Cummulative CF mio IDR (1,000) (175) 650 1,475 2,300 3,125 Cummulative CF mio IDR (1,000) 200 1,400 2,600 3,800 5,000

Present Value CF mio IDR (1,000) 391 340 296 257 224 Present Value CF mio IDR (1,000) 717 624 542 472 410 Present Value CF mio IDR (1,000) 1,043 907 789 686 597
Cummulative PV CF mio IDR (1,000) (609) (268) 27 285 508 Cummulative PV CF mio IDR (1,000) (283) 341 884 1,355 1,766 Cummulative PV CF mio IDR (1,000) 43 951 1,740 2,426 3,023

NPV mio IDR 508 - NPV mio IDR 1,766 - NPV mio IDR 3,023 -
NUMBER 4: Questions

A project has seven activities. Data about the project are shown in
the following table.
a. Construct the network diagram and determine the critical path when
normal activity times are used.
b. Compute the minimum total direct cost for each project completion
time of 23, 22, 21, and 20 weeks.
c. If the indirect costs for each project completion time are $400 (23
weeks), $350 (22weeks), $300 (21 weeks), and $250 (20 weeks),
please indicate the minimum total project cost duration.
Activity Immediate Normal time Crash time Normal cost Crash cost
predecessors (weeks) (weeks) ($) ($)
A --- 4 3 140 180
B A 5 3 70 100
C A 4 1 90 120
D A 3 2 90 150
• See the table E
F
B
D
5
8
3
5
40
100
50
190
G C, E, F 9 8 60 120
NUMBER 4: Answers (a)
a. Construct the network diagram and determine the critical path when normal activity times are used.

1 Float 1 1 Float 1
Normal Cost = NC ES 4 NC $70 EF 9 ES 9 NC $ 40 EF 14
Crash Cost per day = CC B 5 E 5
Crash Time Max = CM LS 5 CC $15 LF 10 LS 10 CC $ 5 LF 15
CM 3 CM 3

0 Float 0 7 Float 7 0 Float 0

ES 0 NC $140 EF 4 ES 4 NC $90 EF 8 ES 15 NC $60 EF 24
A 4 C 4 G 9
LS 0 CC $ 40 LF 4 LS 11 CC $10 LF 15 LS 15 CC $60 LF 24
CM 3 CM 1 CM 8

0 Float 0 0 Float 0
ES 4 NC $90 EF 7 ES 7 NC $100 EF 15
D 3 F 8
LS 4 CC $60 LF 7 LS 7 CC $ 30 LF 15
CM 2 CM 5

Critical Path A D F G Total

Weeks 4 3 8 9 24 Weeks
Total Cost Normal Project 590 $
 NUMBER 4: Answers (b)
b. Compute the minimum total direct cost for each project completion time of 23, 22, 21, and 20 weeks.
Crash Program Target Days = 24
1 Float 1 1 Float 1
ES 4 NC $70 EF 9 ES 9 NC $ 40 EF 14
B 5 E 5
LS 5 CC $15 LF 10 LS 10 CC $ 5 LF 15
CM 3 CM 3

0 Float 0 7 Float 7 0 Float 0

ES 0 NC $140 EF 4 ES 4 NC $90 EF 8 ES 15 NC $60 EF 24
A 4 C 4 G 9
LS 0 CC $ 40 LF 4 LS 11 CC $10 LF 15 LS 15 CC $60 LF 24
CM 3 CM 1 CM 8

0 Float 0 0 Float 0
ES 4 NC $90 EF 7 ES 7 NC $100 EF 15
D 3 F 8
LS 4 CC $60 LF 7 LS 7 CC $ 30 LF 15
CM 2 CM 5

Critical Path A D F G Total

Weeks 4 3 8 9 24 Weeks
Total Cost Normal Project 590 $
 NUMBER 4: Answers (b)
b. Compute the minimum total direct cost for each project completion time of 23, 22, 21, and 20 weeks.
Crash Program Target Days = 23
0 Float 0 0 Float 0
ES 4 NC $70 EF 9 ES 9 NC $ 40 EF 14
B 5 E 5
LS 4 CC $15 LF 9 LS 9 CC $ 5 LF 14
CM 3 CM 3

0 Float 0 6 Float 6 0 Float 0

ES 0 NC $140 EF 4 ES 4 NC $90 EF 8 ES 14 NC $60 EF 23
A 4 C 4 G 9
LS 0 CC $ 40 LF 4 LS 10 CC $10 LF 14 LS 14 CC $60 LF 23
CM 3 CM 1 CM 8

0 Float 0 0 Float 0
ES 4 NC $90 EF 7 ES 7 NC $130 EF 14
D 3 F 7
LS 4 CC $60 LF 7 LS 7 CC $ 30 LF 14
CM 2 CM 5

Critical Path A D F G Total

Weeks 4 3 7 9 23 weeks
Total Cost Normal Project 620 $
 NUMBER 4: Answers (b)
b. Compute the minimum total direct cost for each project completion time of 23, 22, 21, and 20 weeks.
Crash Program Target Days = 22
0 Float 0 0 Float 0
ES 4 NC $70 EF 9 ES 9 NC $ 45 EF 13
B 5 E 4
LS 4 CC $15 LF 9 LS 9 CC $ 5 LF 13
CM 3 CM 3

0 Float 0 5 Float 5 0 Float 0

ES 0 NC $140 EF 4 ES 4 NC $90 EF 8 ES 13 NC $60 EF 22
A 4 C 4 G 9
LS 0 CC $ 40 LF 4 LS 9 CC $10 LF 13 LS 13 CC $60 LF 22
CM 3 CM 1 CM 8

0 Float 0 0 Float 0
ES 4 NC $90 EF 7 ES 7 NC $160 EF 13
D 3 F 6
LS 4 CC $60 LF 7 LS 7 CC $ 30 LF 13
CM 2 CM 5

Critical Path A D F G Total

Weeks 4 3 6 9 22 weeks
Total Cost Normal Project 655 $
 NUMBER 4: Answers (b)
b. Compute the minimum total direct cost for each project completion time of 23, 22, 21, and 20 weeks.
Crash Program Target Days = 21
0 Float 0 0 Float 0
ES 4 NC $70 EF 9 ES 9 NC $ 50 EF 12
B 5 E 3
LS 4 CC $15 LF 9 LS 9 CC $ 5 LF 12
CM 3 CM 3

0 Float 0 4 Float 4 0 Float 0

ES 0 NC $140 EF 4 ES 4 NC $90 EF 8 ES 12 NC $60 EF 21
A 4 C 4 G 9
LS 0 CC $ 40 LF 4 LS 8 CC $10 LF 12 LS 12 CC $60 LF 21
CM 3 CM 1 CM 8

0 Float 0 0 Float 0
ES 4 NC $90 EF 7 ES 7 NC $190 EF 12
D 3 F 5
LS 4 CC $60 LF 7 LS 7 CC $ 30 LF 12
CM 2 CM 5

Critical Path A D F G Total

Weeks 4 3 5 9 21 weeks
Total Cost Normal Project 690 $
 NUMBER 4: Answers (b)
b. Compute the minimum total direct cost for each project completion time of 23, 22, 21, and 20 weeks.
Crash Program Target Days = 20
0 Float 0 0 Float 0
ES 3 NC $70 EF 8 ES 8 NC $ 50 EF 11
B 5 E 3
LS 3 CC $15 LF 8 LS 8 CC $ 5 LF 11
CM 3 CM 3

0 Float 0 4 Float 4 0 Float 0

ES 0 NC $180 EF 3 ES 3 NC $90 EF 7 ES 11 NC $60 EF 20
A 3 C 4 G 9
LS 0 CC $ 40 LF 3 LS 7 CC $10 LF 11 LS 11 CC $60 LF 20
CM 3 CM 1 CM 8

0 Float 0 0 Float 0
ES 3 NC $90 EF 6 ES 6 NC $190 EF 11
D 3 F 5
LS 3 CC $60 LF 6 LS 6 CC $ 30 LF 11
CM 2 CM 5

Critical Path A D F G Total

Weeks 3 3 5 9 20 weeks
Total Cost Normal Project 730 $
NUMBER 4: Answers (c)

c. If the indirect costs for each project completion time are $400 (23 weeks), $350 (22weeks), $300 (21 weeks), and $250 (20 weeks), please indicate the minimum total project cost duration.
Immediate Normal time Crash time Normal cost Selected Crash Times Weeks Selected Cost ($)
Activity Crash cost ($) Cost/weeks
predecessors (weeks) (weeks) ($) 24 23 22 21 20 24 23 22 21 20

A --- 4 3 140 180 40 4 4 4 4 3 140 140 140 140 180

B A 5 3 70 100 15 5 5 5 5 5 70 70 70 70 70
C A 4 1 90 120 10 4 4 4 4 4 90 90 90 90 90
D A 3 2 90 150 60 3 3 3 3 3 90 90 90 90 90
E B 5 3 40 50 5 5 5 4 3 3 40 40 45 50 50
F D 8 5 100 190 30 8 7 6 5 5 100 130 160 190 190
G C, E, F 9 8 60 120 60 9 9 9 9 9 60 60 60 60 60
24 23 22 21 20 590 620 655 690 730

Direct Cost 590 620 655 690 730

Indirect Cost (by Extrapolation) 450 400 350 300 250
Total Cost 1040 1020 1005 990 980
Minimum Cost Selain 24 weeks adalah 20 weeks dengan cost 980
NUMBER 5: Questions

A state-owned port enterprise is preparing an expansion project for its

hospital. List of activities, their precedence relationships and three-time
estimates (days), and are shown below.
a. Develop a network for that project and identify the critical path. How long is the
project expected to complete?
b. What is the probability of finishing the project in 260 days or less?
c. What is the probability of completing the project in 275 days or longer?
Time estimates (days)
Activity Description Immediate Optimistic Most Likely Pessimistic
Predecessor (a) (m) (b)
s
A Getting funding --- 20 30 40
B Foundation A 20 65 80
C Upgrading rooms A 50 60 100
D Upgrading elevators C 30 50 100
E Interior wiring B 25 30 35
F Inspection approvals E 1 1 1
G Plumbing D, F 25 30 35
H Painting G 10 20 30
I AC working H 20 25 60
J Tile and carpet H 8 10 12
• See the table K
L
Inspection
Final cleanup
J
I, K
1
20
1
25
1
60
 NUMBER 5: Answers (a)
a) Develop a network for that project and identify the critical path. How long is the project expected to complete?
29 Float 29 29 Float 29 29 Float 29 0 Float 0
ES 30 ET 60 EF 90 ES 90 ET 30 EF 120 ES 120 ET 1 EF 121 ES 200 ET 30 EF 230
B 60 E 30 F 1 I 30
LS 59 σ2 100 LF 119 LS 119 σ2 2.8 LF 149 LS 149 σ2 0 LF 150 LS 200 σ2 44 LF 230

0 Float 0 0 Float 0 0 Float 0 0 Float 0

ES 0 ET 30 EF 30 ES 150 ET 30 EF 180 ES 180 ET 20 EF 200 ES 230 ET 30 EF 260
A 30 G 30 H 20 L 30
LS 0 σ2 11 LF 30 LS 150 σ2 2.8 LF 180 LS 180 σ2 11 LF 200 LS 230 σ2 44 LF 260

0 Float 0 0 Float 0 19 Float 19 19 Float 19

ES 30 ET 65 EF 95 ES 95 ET 55 EF 150 ES 200 ET 10 EF 210 ES 210 ET 1 EF 211
C 65 D 55 J 10 K 1
LS 30 σ2 69 LF 95 LS 95 σ2 136 LF 150 LS 219 σ2 0.4 LF 229 LS 229 σ2 0 LF 230
NUMBER 5: Answers (b,c)
b) What is the probability of finishing the project in 260 days or less?
Project Length 260 days

Critical path A C D G H I L
Days 30 65 55 30 20 30 30 260
Variance 11 69 136 2.8 11 44 44 319
SD 18
b)
Project Less than 260 days or less

Z = D - ET = 260 - 260 = 0
SD 18

Prob < 260 days = 50.0%

c) What is the probability of completing the project in 275 days or longer?

Project 275 days or longer

Z = D - ET = 275 - 260 = 0.8

SD 18

Prob < 275 days = 79.9%

Prob >275 days = 1 - Prob<275 days = 1- 79.9% = 20.1%
NUMBER 6: Questions

Read the case “Universal Pulp and Paper: West Coast

Division”.
a. What are the business issues?
b. Identify the bottleneck.
c. Suppose the head office had agreed to allow West Coast Division
to produce newsprint only at 3,68 million next year, what is your
economic analysis?
d. Please discuss pros and cons between continuing the use of
labor for conducting the quality control monitoring and the use
of the proposed software (at $450,000). Which option do you
support or recommend to the plant manager?
NUMBER 6: Answers (a)

• Problem: Complaint from customers supplied by West Coast Division.

• The complaints are inferior product quality & increasing late deliveries
• Goal: Improve the overall operating efficiency & effectiveness of the
plant
• Sales order  Head Office of Universal through network to
appropriate plant
• West Coast Division (WCD)
• Processing of cut timber (wood)
• Production of various paper product
• Determining the appropriate plant for the order:
• Proximity to the customer  decline transportation costs
• Most plants were designed to produce only a small range of paper products 
type of product ordered.
NUMBER 6: Answers (b)
• Process:
• Wood  Wood processing pulp production  paper production  paper  shipping  customer plant 
process  finished paper product
• Supply:
• 95% newsprint  daily newspaper: Reasonable quality was expected; Price conscious; Very
concerned about delivery schedules; 98% WCD net profit after tax
• 5% special writing paper products: High quality; Very costumer specification; Premium price;
2% profit after tax
• Plant & Equipment investment: $ 2,340 million
• Capacity enhancement:
• Wood processing $ 830,000 to add 100,000 tons wood chips/year
• Pulp production $ 1,330,000 to add 100,000 tons wood fibre pulp/year
• Paper production $ 49,500,000 to add 225,000 tons paper/year
• Maximum existing capacity:
• Wood processing 730 ton/hour = 6,394,800 tons wood chips/year
• Pulp production = 3,197,400 tons from 4,000,000 tons pulp/year
• Paper production = 3,197,400 tons from 4,500,000 tons paper/year
• Newsprint paper $ 80/ton
• So, the bottle neck is Wood Processing. Why?, Wood Processing is the lowest station
to produce the output. The utilities of wood processing are 100%.
NUMBER 6: Answers (c)

• Current situation:
• Demand for newsprint expected to increase from 3,000,000 tons/paper
to 3,680,000 tons next year.
• Gap between demand and supply: -482.600
• 95% production is to fulfill the demand of newsprint paper, the
remaining 5% to fulfill special writing paper.
• About 50 of 75 technical measurement in the paper-making process
were made automatically by computerized process controls. The
remaining 25 measurements were made by a team of eight inspection
employees. There was a team for each of the three shifts. Theses
workers, all members of the Canadian Paperworkers Union, earned an
average of $ 22.65 per hour.
• Contribution per ton of newsprint = $ 80.
• Newsprint = 95% x 3,200,000 tons = 3,040,000 ton. Revenue = 3.040.000
x $ 80 = $ 243,200,000
• Revenue of special writing paper = $ 4,963,265
NUMBER 6: Answers (d)
• Root cause:
• Poor quality caused by manual measurement of 25 parameters during paper production.
• Late delivery caused by machine set up problem
No. Options Cost Revenue
1 Computerized all 75 measurements in paper-making process, enhance 450,000 +( 14 x 830,000 x 5) = 992,070 + (80 x 3,680,000) + (310 x
wood processing capacity and keep the special writing paper production 58,550,000 193,684) = 1,773,202,270
2 Eliminate the writing paper production (maintaining the existing 450,000 + (10 x 830,000) = 8,750,000 992,070 (80 x 3,680,000 x 5) =
capacity process) 1,472,992,070

• Special writing paper contribution:

• Wood processing = 730 ton/ hour = 6,394,800 tons wood chips/year ≈ 3,197,400 tons
pulp/year ≈ 3,197,400 tons pulp/ year
• Total existing production = 3,197,400 tons
• Newsprint production = 95% x 3,197,400 = 3,037,530 tons
• Net profit of newsprint = 3,037,530 x $ 80/tons = 243,002,400 (=98% from total net profit)
• 100% net profit = 247,961,632
• Net profit of special writing paper = 2% x 247,961,632 = 49,592,326
• Special writing paper = 5% x 3,197,400 tons = 159,870 tons
• Net profit/ ton = 49,592,326/ 159,870 = $ 310
• Conclusion: Option 1
NUMBER 7: Questions

Read the case “Alliant Health System: A Vision of Total

Quality”.
a. What do you think about Alliant’s strategy? Is it a sound
strategy? Why?
b. How well have they implemented the quality strategy?
c. Evaluate their information technology agenda.
d. Would you proceed with HELP?
e. What would you do to make sure the implementation is
successful?
NUMBER 7: Answers (a)

• No strategy is totally sound.

• On paper, Alliant’s strategy would seem sound but, even though over the past five years they have made progress, Alliant has hit
a few snags along the way that has prevented their strategy from becoming truly sound.
• They have only been able to lay down a foundation.
• CEO Wolford states the he cannot “point to any one area that demonstate[s] we are substantially better than our competition.
• Alliant is faced with “a culture and a climate that is inhospitable to the TQM philosophy”.
• Alliant had achieved breakthroughs in organizational learning at each step in their TQM journey.
• CARES+ – “basic outline for quality goal-setting and review”; bureaucratic.
• EQUIP – “employees used it as a substitute for talking to their managers about day-to-day issues”.
• Quality Improvement Teams – weren’t able to “bite off little pieces” and instead tried to solve “world hunger” problems; only
able to come up with programs but was not capable implementing them; some have been “going on for over a year with nothing
to show for it” .
• Critical Paths – Unable to monitor rate of compliance, statistics was anywhere from 2% to 70%.
• Have to do well to succeed.
• Alliant needs to get everybody on board with Total Quality Management (TQM) for their strategy to succeed.
• The quality process still needs a jumpstart
• Some physicians are reluctant to adopt the new way of thinking
• Implement an IT system that “support[s] TQM and provide[s] Alliant with the information it need[s] to manage its evolution into the health care
organization of the future”.
• Create a central quality organization that could come up with programs and implement them.
NUMBER 7: Answers (b)

• Alliant came up with guiding principles and a 10-point action plan to help introduce TQM to
the organization through quality management teams (QMT).
• Alliant was thorough in making sure their quality strategy was implemented systematically through
targeted programs and processes that would help their “organization achieve a competitive advantage
based on the management of quality“.
• They implemented the quality stategy well in the first year because after Petersdorf died in 1987, “quality
had already taken root” and “one of the board’s primary selectin criteria for Petersdorf’s replacement was
a commitment to total quality management”.
• In the second year of implementation, Alliant saw their most profitable year in the history of
the company.
• Four components of TQM strategy were implemented pretty well.
• CARES+ process “diffused rapidly across Alliant”; Were “making the transition from traditional planning to
quality improvement”; found quality planning process to be highly effective.
• EQUIP allowed employees to voice their ideas; helped communicate between employees, managers, and
executives.
• Quality Improvement Teams “prescribed specific analytical tools and walked a team from problem
statement through actions, results, and future plans”; drilled right to the core of performance issues;
applied statistical process control techniques to cash flow to bring the receivables range down.
• Critical Paths worked; was able to shorten length of hospital stay for coronary artery bypass graft surgeries
from 17 days to 13 days and reduced average costs from $41,863 to $35,843; saved Alliant almost $1
million in 1990; moves process along if everyone works with the same time frame in mind.
NUMBER 7: Answers (c)

• Believed information technology (I/T) is a key in the future strength of TQM.

• Need “expert systems – computers to help the mind”.
• “Was a shift in focus: to patient-oriented systems rather than functional, “stove
pipe” applications that met narrow departmental needs.
• Physicians, clinical support professionals, and administrators could share
information and drive continuous improvement in service.
• “HELP offered advice on possible diagnoses, cost-effective treatments, resource
scheduling, and drug contraindications”.
• New I/T strategy offered significant advantages over Alliant’s existing patchwork of
stand-alone systems:
• System worked concurrently – advice was available as patient was being treated.
• Had the potential to improve coordination dramatically by collecting data from all corners of
the hospital into a single patient-centered system.
• This would minimize patient costs and stay and the quality of care would be
improved by eliminating “inappropriate procedures, unnecessary waiting time, and
ineffective treatments”.
NUMBER 7: Answers (d)

• Yes,
• HELP would bring together Alliant’s hospitals and technically make
it one working unit by providing a single patient-oriented system
that had all data of a patient from every area of the hospital in one
computer making Alliant efficient, productive, and quality focused.
• This would allow information to be shared and eliminate all repeat
and unnecessary procedures and allow a shorter waiting time
because information would not have to be collected again. xvi. In
effect, HELP would improve quality.
NUMBER 7: Answers (e)

• Make sure that the process works for us rather than us work for
the process.
• Take everything one step at a time; analyze little by little instead
of taking in everything at once.
• Make sure everybody was on board with Total Quality
Management by restructuring the culture and climate in making
TQM more hospitable.
• Train managers with a familiar interface as that of HELP.
• This would help with a smooth short-term transition and involve fewer
hiccups.
• “Stabilize the existing infrastructure, lay the foundation for HELP, and
begin to make some progress on automating support for TQM”.
NUMBER 8: Questions

Read the case “Process Control at Polaroid”.

a. What are the business issues?
b. Based on the provided data of Pod weight and Finger height,
what can you conclude and recommend?
NUMBER 8: Answers (a)
• Some of the shortcomings before the introduction of “Project Green Line” (Endeavour to enhance quality in the
product) are:
• Quality Control (QC) department at Polaroid had final responsibility of release of films to the market. Process engineers at
Polaroid were responsible for materials while mechanical engineers were responsible for the equipments. Because no one
was responsible for the overall process of production, when defects were discovered much time was lost in blaming
materials or machines.
• The overall cost of defective products crossed more than $2M.
• Each machinery ran on different parameters hence each reacted uniquely to new parts, each ran at slightly different speed
and each put products with different level of variations. These situations gave rise to low quality products.
• QC used only perfect cameras for testing while most of the customers had imperfect cameras. Hence QC was easily missing
those issues where which were related to films and imperfect cameras.
• Some people thought that QC was not testing issues which customers do encounter.
• Sampling process was imprecise and often inaccurate.
• Act of testing was itself increasing the defect rate as whenever QC auditors found a defective sample in a lot, they tested
the larger sample from that lot and next lot.
• Project Green Light
• Green Light, came from Murray’s original idea of having a light over the machines that would be green when they were
running on target. As a part of green light it was needed to implement operator based statistical process control. The final
plan consisted of three key elements.
• First, Statistical process control principles would be adopted, as the processes in control and capable of producing within specification
would produce more with consistent quality.
• Second, production operators would be given the process control tools that the process engineering technicians has been using, and in
conjugation with sampling would be expected to make deposition decision themselves.
• Third quality control auditors would concentrate on training operators and operationalizing specification one new products.
• There were two important aspects of the project which the project promoters had to sell to the higher management
• Cost saving could be achieved through reduced sampling.
• Due to reduced sample quality would not suffer.
NUMBER 8: Answers (b)
• Pod Weight Control
• And As per the graph for shift A pod weight performance variability is under control
i.e. between UCL and LCL which means the process is under control. This indicated
that the quality is good as the process is under control although the number of
quality control sample is reduced. Please note that the X-bar chart, on top, shows
the mean or average of each subgroup. It is used to analyze central location. The
sigma chart, on the bottom, shows how the data is spread and used to study system

• See the graphic

NUMBER 8: Answers (b)

• Pod Weight Control

• And As per the graph for shift B pod weight performance variability is
under control i.e. between UCL and LCL which means the process is
under control. This indicated that the quality is good as the process is
under control although the number of quality control sample is
reduced.

• See the graphic

NUMBER 8: Answers (b)

• Pod Weight Control

• And As per the graph for shift C pod weight performance variability is
under control i.e. between UCL and LCL which means the process is
under control. This indicated that the quality is good as the process is
under control although the number of quality control sample is
reduced. However the last three dates show decreasing trend. So
Polaroid should investigate the cause before the process goes out of
control.

• See the graphic

NUMBER 8: Answers (b)

• Finger Height Control

• The control of Finger height in Shift A is out of control. Machine
should be inspected, parameters at which machine is running
should be reviewed and raw materials quality should be
inspected as to find out why is the process going out of control.
First two and last points are clearly our of control as they lie
outside the UCL-LCL limit.

• See the graphic

NUMBER 8: Answers (b)

• Finger Height Control

• The control of Finger height in Shift B seems totally out of control.
Machine should be inspected, parameters at which machine is running
should be reviewed and raw materials quality should be inspected as
to find out why is the process going out of control. Almost all the
points are out of control. This shift should be clearly inspected and
changes should be brought in to control the process and thereby
enhancing the quality.

• See the graphic

NUMBER 8: Answers (b)

• Finger Height Control

• Shift C seems to be in control as all the points are lying within
the LCL and UCL limits and also no part of the graph is showing
tendency to increase or decrease.

• See the graphic

NUMBER 8: Answers (b)

• As illustrated by the control charts in grahic, the data for the centerline from exhibit
3 shows much less variability for the data, as most of the observations fall within the
upper and lower control limits. On the other hand exhibit 6 data from the case
represents data collected after the implementation of Project Greenlight and shows
much more variability in the observations as they are significantly farther outside of
the control limits. Therefore, it can be concluded that the process mean before the
quality control change was more stable than after the change.
• Investigating the root cause of the problem is mandatory. Most of samples of Finger
Height measurement are out of control (as seen from above control charts). Polaroid
should investigate the cause of this problem so they can prevent the same problem
occurring in the future.
• Polaroid should ensure that the operators should adhere to the processes. They
should keep themselves off from tweaking in the machinery and follow the
standards. Standards will help in reducing variability thereby enhancing the quality.
• Some of the defects such as imperfect camera of user and films should also be
reciprocated. Films should mention tolerance of imperfection so that any issue
arising does not directly blame the quality of the films. Users should also maintain
their camera imperfections.