Question 1Â a) Quantitative Risk Analysis gives the project managers ability to understand how the p

Question 1 

a) Quantitative Risk Analysis gives the project managers ability to understand how the project schedule will be affected if certain risks occur and as a result, project managers manage their projects betterâ€. Using relevant examples of a project of your choice, discuss the statement.

b) A company has to decide which of the three advertising strategies (project) to adopt. Project A is advertising on NTV, project B is on WBS and project C is a radio advert in Luganda on CBS. The marketing Department has estimated that the sales and their probability under each alternative plan are given in the table below:

PROJECT A PROJECT B PROJECT C Sales ($ ) Probability Sales ($) Probability Sales ($) Probability 8,500 0.35 9,000 0.46 6,500 0.48 15,000 0.15 12,500 0.18 9,000 0.22 12,000 0.3 17,000 0.25 11,500 0.16 14,000 0.2 18,000 0.15 20,000 0.14

 

The Firm’s Profit is 38% of sales.

Required:

i) Calculate the expected profit under each project.

ii) Present the data in the table above on a bar chart

iii) Calculate the standard deviation of the distribution of profits for each project.         

iv) What is the coefficient of variation for each project?

v) Which of the three projects is more risky?

vi)     Taking into consideration the risk attitudes of managers, which project should the company choose?

vii)    Comment on the limitations of this model in the analysis of project risks.

C)  Why is maximization of the expected value not a valid criterion in decision making subject to risk? Under what conditions would that criterion be valid?