1. Appendix B Risk Analysis Using Crystal Ball 2000 1 OPERATIONS MANAGEMENT for MBAs Third Edition Prepared by E. Sonny Butler Georgia Southern University Meredith and Shafer John Wiley and Sons, Inc.

2. Appendix B Risk Analysis Using Crystal Ball 2000

3. Appendix B Risk Analysis Using Crystal Ball 2000 3 Introduction The effective management of operations requires the ability to deal with a fair amount of uncertainty. Effective decision making requires an ability to manage the ambiguity that arises in situations with less than perfect information.

4. Appendix B Risk Analysis Using Crystal Ball 2000 4 Risk Analysis To better understand the implications associated with uncertain information. The essence of risk analysis is to make assumptions about the probability distributions associated with key parameters and variables and to use Monte Carlo simulation models based on these distributions to evaluate the desirability of certain managerial decisions. The objective is to illustrate to the manager the distribution or risk profile of the outcomes associated with the decision.

5. Appendix B Risk Analysis Using Crystal Ball 2000 5 Considering Uncertainty in Project Selection Decisions Company management has identified the following two options:  1) shift to a Windows-based platform from its current Unix based platform, or  2) stick with a Unix-based platform.

6. Appendix B Risk Analysis Using Crystal Ball 2000 6 Windows-based platform Windows, the new server hardware could cost as little as $100,000 or as much as $200,000. Cost to upgrade and convert its software to Windows is $300,000 with a range of $275,000 to $500,000. Employee training costs are estimated to range between $9,000 to $15,000, with the best guess being $10,000.

7. Appendix B Risk Analysis Using Crystal Ball 2000 7 Stay With Unix New server hardware will most likely cost $110,000, but could cost as little as $80,000 or as much as $210,000. Software conversion and upgrade costs are expected to be $300,000 but could be as low as $250,000 and as high as $525,000. Employee training costs should fall between $8,000 to $17,500 with a best guess of $10,000.

8. Appendix B Risk Analysis Using Crystal Ball 2000 8 Three Estimates for Each Variable 1. Optimistic cost 2. Most likely cost 3. Pessimistic cost

9. Appendix B Risk Analysis Using Crystal Ball 2000 9 Two Web-Server Options

10. Appendix B Risk Analysis Using Crystal Ball 2000 10 Crystal Ball’s Distribution Gallery

11. Appendix B Risk Analysis Using Crystal Ball 2000 11 Triangular Distribution Dialog Box

12. Appendix B Risk Analysis Using Crystal Ball 2000 12 Define Forecast Dialog Box

13. Appendix B Risk Analysis Using Crystal Ball 2000 13 Frequency Chart for Total Project Costs (Windows-based platform)

14. Appendix B Risk Analysis Using Crystal Ball 2000 14 Frequency Chart for Total Project Costs (Unix-based platform)

15. Appendix B Risk Analysis Using Crystal Ball 2000 15 Descriptive Statistics for Windows- Based Platform Project

16. Appendix B Risk Analysis Using Crystal Ball 2000 16 Descriptive Statistics for Unix- Based Platform Project

17. Appendix B Risk Analysis Using Crystal Ball 2000 17 Calculating the Probability that the Windows Project’s Total Cost Exceeds $575,000

18. Appendix B Risk Analysis Using Crystal Ball 2000 18 Calculating the Probability that the Unix Project’s Total Cost Exceeds $575,000

19. Appendix B Risk Analysis Using Crystal Ball 2000 19 Spreadsheet to Investigate Project Budget

20. Appendix B Risk Analysis Using Crystal Ball 2000 20 Normal Distribution Dialog Box

21. Appendix B Risk Analysis Using Crystal Ball 2000 21 Changing the Lower Bound of a Distribution

22. Appendix B Risk Analysis Using Crystal Ball 2000 22 Frequency Chart for Total Project Costs

23. Appendix B Risk Analysis Using Crystal Ball 2000 23 Summary Statistics for Total Project Cost

24. Appendix B Risk Analysis Using Crystal Ball 2000 24 Calculating the Probability that the Project’s Total Cost Exceeds $85,000

25. Appendix B Risk Analysis Using Crystal Ball 2000 25 Software Engineer Time Required PhaseAverage Time (hours) Standard Deviation Requirements Planning 8015 Design 16025 Prototype Development 32070 Final Development 640100 Test12020

26. Appendix B Risk Analysis Using Crystal Ball 2000 26 Copyright Copyright  John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that named in Section 117 of the United States Copyright Act without the express written consent of the copyright owner is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. Adopters of the textbook are granted permission to make back-up copies for their own use only, to make copies for distribution to students of the course the textbook is used in, and to modify this material to best suit their instructional needs. Under no circumstances can copies be made for resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.