2-42) A new integrated computer system is to be installed worldwide for a major

Question

2-42) A new integrated computer system is to be installed worldwide for a major corporation. Bids on this project are being solicited, and the contract will be awarded to one of the bidders. As a part of the pro- posal for this project, bidders must specify how long the project will take. There will be a significant penalty for finishing late. One potential contractor determines that the average time to complete a proj- ect of this type is 40 weeks with a standard devia- tion of 5 weeks. The time required to complete this project is assumed to be normally distributed. (a) If the due date of this project is set at 40 weeks, what is the probability that the contractor will have to pay a penalty (i.e., the project will not be finished on schedule)? (b) If the due date of this project is set at 43 weeks, what is the probability that the contractor will have to pay a penalty (i.e., the project will not be finished on schedule)? (c) If the bidder wishes to set the due date in the proposal so that there is only a 5% chance of being late (and consequently only a 5% chance of having to pay a penalty), what due date should be set?

Explanation / Answer

(a)For X=40,z=(x-)/=(40-40)/5=0

P(X<40)=P(z<0)=0.5

(b)For X=43, z=(43-40)/5=0.6

P(X<43)=P(z<0.6)=0.7257

(c)There is only a 5% chance of being late means the area to the left to the normal curve is 0.05.

The nearest probability to 0.05 is 0.0505 and the corresponding z score is: -1.64.

Thus the raw score is X=+z=40-1.64*5=31.8

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