Help on calculation question
Submitted by alfiegoh on Fri, 08/01/2014 - 07:12
As you evaluate a vendor bid of $350,000, you take into consideration the probability an impact of any delays. You determine that there is a 65% probability that the vendor will come in behind schedule at a cost of $125,000 and there is a 35% probability that the vendor will come in early for a saving of $50,000. What is the total value of the bid ?
A. $448,750
B. $63,750
C. $413,750
D. $286,250
Answer is C.
How to derive the answer?
Forums:
dipti1pmp
Fri, 08/01/2014 - 09:03
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please can you confirm if the option c is 43750 or 413750?
because I am getting 43750 in my calci
alfiegoh
Sat, 08/02/2014 - 02:17
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The answer confirmed is
The answer confirmed is 413750 for sure. Detail calculation can be seen from the replied.
inder_gwl
Fri, 08/01/2014 - 11:36
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EMV
Expected monetary value (EMV) =probability * impact.
Delay value = 125000*65/100 = 81250
Early value = 50000*35/100 = 17500
difference = 63750
Actual Vendor Bid = $350,000 + 63750 = $413,750
acurtpmp
Fri, 08/01/2014 - 23:43
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The "Skinny"
It is basically a decision tree analysis. Here is the computation.
Since you have a vendor bid of $350,000 this is your base.
Then you do your PxI...
You have a chance of a cost overun on the bid of $125,000. That means this risk will add to the bid. Next you will have a chance of the risk being an exploit by the bid coming under $50,000. So with your probablility the calculations will look like this
$350,000 + (.65 x $125,000) overun - ( .35 x $50,000)savings = $413,750.
The wording at the end of the question says...WHAT IS THE TOTAL BID is the logic why you do the math on everything.
Hope that helps.