Assignment 4
MGT 251. Planning and Control
1) Benefit-cost Analysis
Park Crest Hospital is looking into the possibility of upgrading its patient tracking information
system. The current system is a management information system (MIS) that maintains records on
the active status of patients residing in the hospital at a given moment. It ties into patient medical
treatment files and financial history files. Thus it is possible to determine the current disposition of
patients residing in the hospital (e.g., room number, telephone number, attending physicians,
attending nurses, etc.); to access facts about the patient’s prior medical history; and to access
financial data on current and past charges made to the patient.
The current MIS is more than seven years old. In view of changes in information storage and
retrieval technology that have recently occurred, as well as the current system’s inability to deal with
changes that have been made to handle the patient medical treatment files, Park Crest management
has decided to upgrade its patient tracking information system. Dr. Ralph Kopecky is made head of a
task force to identify possible systems that can replace the existing one.
A one-month search unearths two products that are good candidates. Each is an off-theshelf product that will be modified by the vendor to fit into a client’s existing environment. After
lengthy discussions with the vendors, Dr. Kopecky developed the cost and benefit data that appear in
the accompanying exhibit. He will employ these data to educate members of the Executive
Management Committee about costs and benefits associated with the alternative solutions.
Item
System A
System B
Purchase price
2,300,000
1,600,000
5-year savings compared to using current
system
4,100,000
2,700,000
Cost of conversion from old to new system
325,000
300,000
Annual maintenance cost over 5 years
(includes salaries of full-time support
personnel)
275,000
200,000
Questions:
a) Using the data contained in the exhibit, compute the benefit-cost ratios associated with adopting
System A and System B.
b) Given the data contained in the exhibit, does it make sense from a financial perspective to
abandon the current MIS and to adopt a new one? Explain your reasoning.
c) Using the data contained in the exhibit, which solution – System A or System B – is more
attractive from a purely financial point of view? Write up your views in a one-page, single-spaced
report that will be submitted to the Executive Management Committee.
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Assignment 4
MGT 251. Planning and Control
d) What are the limitations of taking a purely financial approach to selecting a product that will
enable Park Crest Hospital to meet its business needs? What other factors should be taken into
account?
2) Schedule-Cost-Resource
The table below contains cost, resource, and schedule data for a hypothetical project.
Item
Immediate
predecessor
A
Duration
(weeks)
4
Number of
resources
Level of
effort*
Labor cost Material
cost
2 designers
@$1,600 per week
per person
2 programmers
@$1,200 per week
per person
1 programmer
@$1,200 per week
Total cost
$1,000
B
A
2
C
A
4
D
B
6
1 testers @ $1,000
per week per person
$5,000
E
B,C
3
2 tester @ $1,000
per week per person
$2,000
F
D, E
3
2 integrators @
$1,800 per week per
person
$1,000
Total
$2,000
$2,000
$13,000
* Level of effort = number of workers x duration of work; e.g., 5 people working 3 days is equal to 15 person-days of effort.
Questions:
a. Create a network diagram for the tasks listed in the table above.
b. Calculate earliest start, latest start, and float for each task.
Task
Earliest
start (ES)
Latest
start (LS)
Float
A
B
C
D
E
F
c. Given the information captured in the network diagram, create a Gantt chart for the project.
In the Gantt chart, picture weekends. (Assume the project begins on a Tuesday and that a
week of effort is five working days long.)
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Assignment 4
MGT 251. Planning and Control
d. Calculate level of effort, labor costs, and total costs per task and put the values in the
appropriate cells in the first table above.
e. Assume the company being examined here has only two testers. How will this show up on a
resource histogram? How should the work for Tasks D and E be leveled? What, if any, impact
will the resource leveling have on the project duration?
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