Project Management
Dayrine Julianna de la Cruz Aquino
Chapter 5
Exercise A5.1
Norwegian Satellite Development Company Cost Estimates for World Satellite Telephone
Exchange Project
NSDC has a contract to produce satellites to support a worldwide telephone system (for Alaska Telecom,
Inc.) that allows individuals to use a single, portable telephone in any location on earth to call in and out.
NSDC will develop and produce the eight units. NSDC has estimated that the R&D costs will be NOK
(Norwegians Krone) 12,000,000. Material costs are expected to be NOK 6,000,000. They have estimated
the design and production of the first satellite will require 100,000 labor hours and an 80porcent
improvement curve is expected. Skilled labor cost is NOK 300 per hour. Desired profit for all projects is
25 percent of total cost.
A: How many labor hours should the eighth satellite require?
Answer:
80% ratio for 8 units = 0.5120
The eight satellite = 100,000 labor hours x 0.5120 = 51,200 labor hours
B: How many labor hours for the whole project of eight? Why?
Answer:
The accumulative ratio for 8 units: 5.346
The whole project: 100,000 x 5.346 = 534,600 labor hours
C: What price would you ask for the project? Why?
Answer:
R&D costs: 12,000,000 NOK
Material cost: 6,000,000 NOK
Skilled labor cost: 300 NOK p/hour = 160,380,000 NOK
Total cost: 178,380,000 NOK
25% of total cost = 44,595,000
Price = 222,975,000 NOK
Project Management
Dayrine Julianna de la Cruz Aquino
D: Midway through the project your design and production people realize that a 75 percent
improvement curve is more appropriate. What impact does this have on the project?
Answer:
75% cumulative = 4.802 accumulative
The whole project: 100,000 x 4.802 = 480,200 labor hours
Skilled labor cost: 300 NOK p/hour = 480,200 x 300 = 144,060,000 NOK
(80%) 160,380,000 NOK - (75%) 144,060,000 NOK =
Labor hour cost difference= 16,320,000 NOK (The cost will be reduced in a 10.17% respect the 89%
learning curve cost)
E: Near the end of the project. Deutsch telephone AG has requested a cost estimate for four
satellites identical to those you have already produced. What price will you quote them? Justify
your price.
Answer:
12 unit 75% curve: 6.315
12 satellites: 100,000 x 6.315 = 631,500 labor hours
Labor hour for 4 units = 631,500 labor hours - 480,200 labor hours = 151,300 labor hours
Skilled labor cost: 300 NOK p/hour = 151,300 x 300 = 45,390,000 NOKS
Total cost = 45,390,000 NOKS + (0.5) 6,000,000 NOK = 48,390,000 NOK (using the 75% learning
curve since we know it’s more efficient)
Project Management
Dayrine Julianna de la Cruz Aquino
Chapter 6
Exercise 3
Draw a project network from the following information. What activity (ies) is a burst activity?
What activity (ies) is a merge activity?
ID
A
B
C
D
E
F
G
H
Description
Identify topic
Research topic
Draft paper
Edit paper
Create graphics
References
Proof paper
Submit paper
Predecessor
None
A
B
C
C
C
D, E, F
G
Answer:
D
A
B
C
E
G
H
F
1) Activity C is the burst activity because it has more that one activity immediately following it.
2) Activity G is the merge activity because it has more than one activity preceding it.