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Document: Individual Assignment 2 Author: Farshid Rahmani MA Save Date: 22/02/2019 RMIT University Page 1 of 10 BUSM 4303 Assignment 2 (30%) Individual Assignment Quantitative Risk Management Introduction date: Week 1 (8th March) Due date: 7th June 2019 Final Submission: Week 13, 7th June 2019 (Canvas) Assessment weighting: 30% Aim: The aim of this assignment is to apply several quantitative risk management and decision making (risk and uncertainty based) techniques to various scenarios. Learning Objectives fulfilled through this assignment: As a result of attending related lectures and completion and submission of this assignment, the following learning objective is achieved: • Select and apply risk management principles and processes to undertake a risk analysis • Justify the determination of project risk • Utilise risk analysis software to accurately determine risk Assignment report should contain these sections: 1. RMIT Cover page 2. Title page 3. Executive summary 4. Table of contents 5. Introduction 6. @Risk for Excel (analysis with clear argument and supporting graphs) 7. @Risk for Project (analysis with clear argument and supporting graphs) 8. Precision Tree for Excel (analysis with clear argument and supporting graphs) 9. Analytical Hierarchy Process (analysis with clear argument and supporting graphs) 10. Conclusion 11. References Document: Individual Assignment 2 Author: Farshid Rahmani MA Save Date: 22/02/2019 RMIT University Page 2 of 10 Cost modelling: Use @Risk for Excel Question 1(a): Nifty Builders is a residential building developer who has recently finished a residential complex consisting of 320 units in Malvern last year. They are considering to build almost similar building complex in Richmond. However, they are concerned about the profit/loss for this project due to a number of market changes. From the previous experience, the cost of each unit was $650K in average and the selling price was $720K per unit in average. Nifty Builders is confident to complete the new project in Richmond with the same cost, however, in the current situation of market, there is a possibility that there would be 10% increase in the cost of each unit. On the other hand, the successful network established with the constructor could lead 5% reduction in the cost of building of each unit. The increase rate of population could lead to a higher selling price by 8%. In turn, the increasing number of new buildings in Richmond can cause 5% decrease in the selling price of each unit. The market analyst of the company informed that there is 50% chance that 85% of the units get sold. In the best case scenario 90% of the units will be sold and in the worst case scenario 20% of the units will be remained unsold. By using @risk, develop a profit/loss model for the new residential building project in Richmond. The selling price follows PERT distribution, the number of units sold follows discrete distribution with equal chance of occurrence of the best and the worst case scenario (hint: P-table {0.25,0.5,0.25} ) and the building cost follows triangular distribution. Analyse the financial threat/opportunity of this project and advise Nifty builders the potential average profit/loss. Support your analysis with clear arguments. Question 1(b): Country Road is an established fashion organisation and is highly regarded as one of Australia’s most iconic heritage brand. Annually, Country Road holds two glamorous showcases for the fashion lovers of Melbourne City during the city’s highly anticipated Fashion Week Events every year. Management has a plan for the marketing team to organise the show for the fashion week events and decided to establish a permanent venue particularly for this purpose. There are two options: 1- Renovating, refurbishing and customising Country Road’s owned runway stages 2- Building a new venue including all facilities The management has decided to make a comparison between these options over 6 years’ time horizon. They have also decided to use Monte Carlo simulation technique in order to get more realistic comparisons. The following information is provided by the organisation’s financial analyst: Discount rate is fixed 12% for next 6 year Option 1: Construction/Set up cost (1.39m, 1.48m, 1.62 m) Annual Revenue (1.49m, 1.61m, 1.70m) Annual Expenses (0.92m, 1.02m, 1.25m) Document: Individual Assignment 2 Author: Farshid Rahmani MA Save Date: 22/02/2019 RMIT University Page 3 of 10 Option 2: Construction/Set up cost (2.30m, 2.50m, 2.90 m) Annual Revenue (1.75m, 1.88m, 1.97m) Annual Expenses (0.91m, 0.93m, 0.97m) You need to contribute to the decision making process by running the analysis using @Risk for Excel and determining the best option for school. Support your analysis with clear argument and supporting graphs. Probabilistic scheduling: Use of @Risk for Project Question 2: You have assigned a contractor to build a garage for the Simpsons’. Your technical advisor has prepared the project scheduling based on the previous similar completed job and included the optimistic, most likely and pessimistic durations. According to the information provided below: Lag3 Lag2 Lag3 Lag4 Lag5Lag2 1. What probabilistic duration and final finish date would you recommend for this project after running Monte Carlo simulation through the use of @Risk for Project? Also provide the supporting graphs and indicate area of threat/opportunity. 2. Using the probabilistic Gantt chart, find out the critical/sensitivity index for the above mentioned activities and explain their significance for various activities. Document: Individual Assignment 2 Author: Farshid Rahmani MA Save Date: 22/02/2019 RMIT University Page 4 of 10 Decision Tree and Use of Precision Tree add-on for Excel Question 3: SIMSOX is interested in a video game development project called Ospry for Devil Dust Entertainment Pty (DDE). The cost of software development is estimated $300,000. SIMSOX is considering 3 possible price propositions of $410,000; $450,000 and $470,000. There is 20% chance that SIMSOX can negotiate with DDE and come to an agreement about the price and sign the contract. If the agreement couldn’t be reached the project will be taken to the public tender. In this case, the tender documents should be purchased and completed for $25,000. According to the market research, 30% of competitors are likely to place bid less than $410,000. There is 15% chance that competitors place bid between $410,000 and $450,000 and 35% of competitors place bid between $450,000 and $470,000 a) Develop a decision tree for the above problem manually. b) Using the Expected Monetary Value (EMV) technique find out the best possible option. Show your workings. c) Solve the above question using precision tree and provide related screen shots. Multi-criteria Decision Making and use of AHP Question 4: Oilpec Co. has recently secured a pipeline contact in Brisbane. Oilpec is considering to purchase a motor vehicle for transportation of the project engineers. The senior manager has established the following criteria for the selection: A. Purchase Price B. Fuel Efficiency C. Running Cost The logistic department has shortlisted the car models to Ford Mondeo; Holden Commodore; and Toyota Camry. - Under Criterion A. Holedn is very strongly preferable to Toyota and strongly preferable to Ford. In turn, Toyota is moderately preferable to Ford - Under Criterion B. Toyota is extremely preferable to Ford and strongly preferable to Holden. Ford is equally preferable to Holden - Under Criterion C. Toyota is equally preferable to Holden. Both Toyota and Holden are very strongly preferable to Ford. Document: Individual Assignment 2 Author: Farshid Rahmani MA Save Date: 22/02/2019 RMIT University Page 5 of 10 Senior management has decided the relative importance of the three selection criteria as follows: - Criterion A is strongly preferable to Criterion C and very strongly preferable to Criterion B. Criterion B is extremely preferable to Criterion C Use the following table to develop the pairwise Matrix where required. Compared to the second alternative, the first alternative is: ... Numerical rating Extremely preferred 9 Very strongly preferred 7 Strongly preferred 5 Moderately preferred 3 Equally preferred 1 You are asked to use the Analytic Hierarchy Process (AHP) technique in order to: (i) Develop pairwise matrices (ii) Develop the priority vector for each criterion. (iii) Develop the overall priority vector Submission Instructions: Individual Assignment 2 Submission is to occur only via Canvas ment. No hardcopy or email submission will be accepted. Complete and attach to front of assignment: RMIT University Cover Sheet. Submit a PDF document by consolidating as much as you can in one file. The file name should contain your Student number. Submission Format: Paper size: A4 Main text of paper: Single spacing, justified Paragraphs: Single space between paragraphs Font: Times New Roman 12 Left margin: 30 mm All other margins: 25 mm Footer: Name of student and page number/total numbers Referencing style (if applicable): Harvard Style Document: Individual Assignment 2 Author: Farshid Rahmani MA Save Date: 22/02/2019 RMIT University Page 6 of 10 Marking Guide: Student Name: ------------------------------------------------------------------------------ Feedback/rubric Assessment Category Max marks Marks allocated Unsatisfactory Satisfactory Credit Distinction High Distinction Report format/ Discussion 2 Assignment layout, cover page, referencing, not followed Assignment specification s sometimes followed Assignment specification s frequently followed Assignment specification s closely followed Assignment specifications always followed Cost modelling 10 Incorrect cost modelling/ Incorrect interpretation